Data Snapshot: Private Sector Credit - Weak Economy, Weak Credit

Good afternoon,

 

The key points in this report are:

 

  • Credit to the private sector fell 0.2% in June, falling for the second consecutive month. June’s decline was also the weakest result in 27½ years.  The sharpest drop in economic output since the 1930s has translated into weaker demand for credit.
  • In the early stages of the pandemic, businesses drew on credit facilities to boost cash positions, which resulted in a surge in credit in March. Some of the weakness in the past couple of months likely reflect a reversal of these flows, as businesses repaid some of these funds. However, businesses are unlikely to spend and invest while there remains concern about COVID-19 and the economic outlook.
  • Credit to other sectors was also weak. Housing credit grew 0.2% in June, a similar pace to growth over April and May. Investors have been the predominant driver of the weakness, which was flat in June, and has not witnessed any growth for 18 consecutive months. Credit to owner-occupiers has been relatively more resilient, although the growth of 0.3% in June was the softest result in a year. It adds to a range of signs suggesting that housing conditions are softening. 
  • RBA policies to keep interest rates low is providing some support to lending and the economy, however ongoing uncertainty with regards to the impact of COVID-19 will also dent appetite for taking on new credit.

 

Please see the attached report for more information.



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