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Slowest business credit growth in 30 months

Record tourists from Indonesia
Private sector credit; Credit card debt; International aviation; China data

Lending: Private sector credit (effectively outstanding loans) rose by 0.1 per cent in June (consensus: +0.3 per cent). Lending growth for housing is the slowest since records began in 1976. Business credit fell by 0.1 per cent in June – the first contraction since January 2017.

Credit cards: According to APRA, bank lending to households by credit card fell by a record 5.0 per cent in the year to June. Credit card lending totalled $39.2 billion in June – near 8½-year lows.

International air traffic lifts: International scheduled passenger traffic through Australian airports increased to 3.208 million in May 2019 from 3.027 million in May 2018 – an increase of 6.0 per cent. Passenger traffic for the year ended May 2019 was 42.071 million, up by 4.0 per cent. The number of travellers from Indonesian airports grew by 10.9 per cent to 3,224,688 people over the year to May.

China purchasing managers’ indexes: China’s official manufacturing purchasing managers’ index rose from 49.4 points to 49.7 points in July (consensus: 49.6 points). And the services gauge fell from 54.2 points to 53.7 points in July (consensus: 54.0 points). A level above 50 denotes in expansion in activity.

Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. Credit card data is important for the retail and financial sectors. Aviation activity data is important for airlines and hotels. Chinese data have implications for the currency markets and therefore exporters and importers.

What does it all mean?

• The weaker value of the Aussie dollar against the greenback is luring ever more tourists ‘Down Under’. Australia is a highly sought-after tourist magnet and international carriers are benefiting. In fact, over 42 million passengers travelled through Australia’s international airport terminals over the year to May.

• Tourism Australia’s $10 million “UnDiscover Australia” campaign in South-East Asia, launched last year, has received a major boost. A record-high 211,100 Indonesian tourists ventured to Australia over the 12 months to May, according to the Bureau of Statistics. And the annual growth rate of international airline passengers heading south to Australia from Indonesian airports rose by 10.9 per cent to 3.2 million in May – the strongest pace across all ‘discharge’ countries.

• Despite an interest rate cut on June 4, political uncertainty ahead of the Federal Election and a slowing global economic backdrop both continue to weigh on business confidence and credit.

• The loss of domestic economic momentum is still evident in June with business credit growth turning negative for the first time in 30 months, reflecting a weakening in commercial finance. Non-mining business investment has been sluggish in recent months, but a pick up is expected due to policy stimulus later this year.

 

 

 

 

 

 

What do the figures show?

Private sector credit & APRA data (June)

• Private sector credit (effectively outstanding loans) rose by 0.1 per cent in June (consensus: +0.3 per cent) – the third successive month of just 0.1 per cent growth and the weakest monthly growth in 6½ years.

• Annual credit growth fell from 3.6 per cent in May to a fresh 5½-year low of 3.3 per cent in June.

• Housing credit grew by 0.2 per cent in June. And the annual growth fell from 3.7 per cent to 3.5 per cent – the slowest growth rate on record.

• Owner occupier housing credit rose by 0.2 per cent in June to stand 4.9 per cent higher over the year – the weakest annual growth rate in five years.

• Investor housing finance was flat for a sixth successive month in June with annual growth the slowest on record at 0.5 per cent.

• Personal credit fell by 0.2 per cent in June after declining by 0.6 per cent in May. Lending fell 3.5 per cent over the year – the biggest annual decline in 9½ years.

• Business credit fell by 0.1 per cent in June after flat results in April and May – the first contraction in business credit growth in 30 months. The annual growth rate fell from 4.5 per cent in May to 4.0 per cent – the slowest annual growth rate in 10 months.

• The M3 money aggregate was flat and Broad Money lifted by just 0.1 per cent in June. Annual growth of the M3 money aggregate fell from 4.1 per cent to 3.9 per cent in June. And the Broad Money annual growth rate fell from 4.1 per cent to 4.0 per cent in June.

• Term deposits with banks fell by $8.7 billion to $609.4 billion in June – the lowest level in 7 months. And the annual growth rate eased from 6.4 per cent in May to 4.9 per cent in June – the slowest pace in 11 months.

• Loans and advances by banks grew by 3.4 per cent in the year to June, the slowest growth rate in 27 years.

• Loans and advances by non-bank financial intermediaries rose by 9.6 per cent in the year to June, below the 11.6 per cent annual pace in September 2018 – the fastest pace in 11 years.

• Deposits at banks rose by 0.3 per cent in June after falling by 0.2 per cent in May. Annual growth eased from 4.0 per cent to 3.9 per cent.

• According to APRA, loans by banks to households via credit cards rose slightly from an 8½-year low of $39.20 billion in May to $39.23 billion in June. Credit card lending is still down by a record 5.0 per cent over the year (biggest fall in 14 years).

International air traffic

• According to the Bureau of Infrastructure, Transport and Regional Economics (BITRE) international scheduled passenger traffic in May 2019 was 3.208 million compared to 3.027 million in May 2018 – an increase of 6.0 per cent.

• Passenger traffic for the year ended May 2019 was 42.071 million, up by 4.0 per cent over the year.

• Total seats made available on international scheduled operations to/from Australia in May 2019 were 4.190 million – a decrease of 1.7 per cent over the year. Overall seat utilisation increased from 73.5 per cent in May 2018 to 78.6 per cent in May 2019.

• The Qantas group – Qantas Airways, Jetstar and Jetstar Asia accounted for 27.3 per cent of total passenger carriage in May 2019. The group’s share in May 2018 was 27.6 per cent.

• The share of passenger traffic accounted for by Australian designated airlines has increased from 33.6 per cent in May 2018 to 33.8 per cent in May 2019.

• Low cost carriers, AirAsia X, Cebu Pacific Air, Indonesia AirAsia, Jetstar, Jetstar Asia and Scoot Tigerair accounted for 14.3 per cent of total international passenger traffic in May 2019. The low cost carriers’ share in May 2018 was 15.7 per cent.

What is the importance of the economic data?

• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases data on domestic and international aviation each month. The data is useful in tracking consumer spending and airline performance.

• The National Bureau of Statistics releases the Chinese purchasing manager indexes at the beginning of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• Loans extended to buy Aussie homes are growing at the slowest pace for more than 40 years. But property market conditions have improved since the Federal Election. Policymakers have acted to stabilise the market after two years of falling home prices. While housing credit growth remains weak, we expect a modest, but gradual recovery in the property market to eventually support loan demand.

• Upcoming property-related data releases and the all-important Spring selling period will be closely scrutinised to ascertain whether a ‘soft landing’ has been engineered by policymakers.

• Annual personal and credit card growth are both decelerating. Aussie consumers are finding other ways to obtain credit, such as ‘buy now, pay later’ methods (i.e. Afterpay Touch) and mortgage offset accounts. And Millennials generally prefer to use debit and ‘tap and go’ card payment options, rather than building up debt using credit cards.

• The Reserve Bank is expected to sit back for a few months before deciding the next move on rates. Inflation remains below the policymaker’s 2-3 per cent target, providing headroom for additional policy stimulus to bolster economic activity, if required.

Published by Ryan Felsman, Senior Economist, CommSec