Business lending growth outpaces housing growth, ANZ reports

Business credit growth is still expected to outpace housing and personal credit in 2023 and the first half of 2024, with housing credit forecast to decelerate more rapidly.

ANZ’s senior economist Adelaide Timbrell said the recent increase in housing prices, up 0.6 per cent in March following 10 consecutive falls, has signalled both household sector resilience and the impact of constraints in housing supply on pricing.

“We still expect housing credit growth to run slower in 2023 versus 2022 but have increased our expectations a touch," Ms Timbrell said. 

ANZ’s housing credit growth forecast shows a slowdown from 6.4 per cent in December 2022, to just 2.8 per cent in December 2023 YOY.

“Downward pressure on borrowing capacity due to higher interest rates has reduced credit availability” for private home lending, Ms Timbrell said.

However, she expects an acceleration in housing credit growth in 2024 to 5.0 per cent YOY.

Business lending, which has been trending above average, is forecast to grow 5.5 per cent YOY in 2023 and 5.1 per cent in 2024.

While business lending growth continues to outpace housing growth, Ms Timbrell noted business credit growth forecasts had softened “a touch” since February.

“Instability in the construction sector and other supply constraints seem to have delayed, not discouraged, capex appetite.

“We expect significant labour constraints and pent-up demand for capital expenditure will outweigh the negative impacts of higher rates on appetite for credit.”

The Reserve Bank of Australia’s (RBA) Financial Stability Review – April 2023 revealed non-banks had seen business credit growth increase sharply, reaching 25 per cent (on a six-month-ended annualised basis) in early 2023, while housing credit had slowed.

Labour market in ‘tight position’

The Australian Bureau of Statistics (ABS) labour force data for March 2023 showed the unemployment rate held at 3.5 per cent and remains around its lowest levels since 1974.

Commenting on the ABS’s labour data, AMP’s economist Diana Mousina said the labour market has “held up well despite the slowing in GDP growth in late 2022” and the increase to interest rates over the past year.

“Clearly the labour market is still in tight position,” Ms Mousina said.

“The leading indicators of employment (job vacancies, advertisements and hiring intentions) indicate some downside (but not a sharp slowing) to employment growth (see the chart below) which should see the unemployment rate rise slowly towards 4 per cent over 2023.

“We have been expecting the labour market to slow quicker than the official data has been indicating. This does increase the risk that wages growth rises more than expected and remains at a high level which would add to inflation and risk further RBA rate hikes.”

[Related: Business confidence increases as price pressures ease]