Nowhere to Grow

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The lack of expan­sion in the Aus­tralian pri­vate cred­it mar­kets is cer­tain­ly hav­ing an adverse effect on com­merce in the post 2008 finan­cial cri­sis peri­od. Annu­al pri­vate cred­it growth has aver­aged 3.5%, since it dropped down to sin­gle dig­it fig­ures in Octo­ber 2008.

Per­son­al cred­it and busi­ness cred­it have been the deadweight’s, aver­ag­ing an annu­al growth of ‑1% and ‑0.5% respec­tive­ly. Hous­ing cred­it has off­set this with an aver­age annu­al growth rate of 6.9% since Octo­ber 2008. How­ev­er, this has since slowed to an aver­age annu­al rate of 5.3% for the first 3 months of this year and is con­tin­u­ing on this slow­ing trend. With sig­nif­i­cant­ly less cred­it com­ing into the mar­ket, the Gov­ern­ment have had no choice but to com­pen­sate deficit spend­ing.

Though, as point­ed out in last week’s blog post Infla­tion or Nofla­tion, the ALP has recent­ly embarked on a mis­sion of aus­ter­i­ty to please the big rat­ing agen­cies.

*As at the 27^th April 2012

This leaves increas­ing­ly few­er options to main­tain a path of eco­nom­ic growth here in Aus­tralia. The dete­ri­o­ra­tion in cred­it growth has forced the RBA to revise their already revised eco­nom­ic out­looks. The fol­low­ing graphs review the RBA’s pred­i­ca­tions ver­sus the actu­al out­comes for both growth and infla­tion.

While the accu­ra­cy of these out­looks is debat­able, the pre­ci­sion of their recent 2012 pre­dic­tion for infla­tion has posi­tioned the Bank well in jus­ti­fy­ing a 50 basis point reduc­tion of the tar­get cash rate on Tues­day 1 May. How­ev­er, giv­en the two 25 basis point reduc­tions for Novem­ber and Decem­ber last year had no notice­able effect on cred­it growth, par­tic­u­lar­ly hous­ing cred­it growth, I would sug­gest this mea­sure will too pro­vide lit­tle effec­tive­ness. And then, of course, there is always the ques­tion of how much the big banks will actu­al­ly pass on with their increas­ing fund­ing costs. NAB have so far been the first, pass­ing on 32bps.

With min­ing con­di­tions dete­ri­o­rat­ing, house prices falling, Gov­ern­ment aus­ter­i­ty mea­sures, a strug­gling retail sec­tor and lack of effec­tive­ness through mon­e­tary stim­u­lus, unfor­tu­nate­ly the Aus­tralian econ­o­my has nowhere to grow.