If you had to judge the health of the Australian economy by the amount of lending going on, you’d be entitled to call for an ambulance to revive a fading patient after looking at today’s report from the Reserve Bank on private credit for September.

On the surface it tells a story that it’s an economy in deep recession. But as we know that’s a long way from reality. The economy is growing, perhaps a bit slower than we think, interest rates are rising, inflation is starting to nag at the RBA and the the stockmarket is buoyant.

But an economy is more than just credit creation and lending. While that is an important component, the economy has had help from other areas, such as the government’s cash splash and car and first-home buyer grants and tax breaks, plus the $US115 billion-plus (A$126.7 billion) in recapitalisations over the past 15 months as companies large and small, willingly and unwillingly raised new capital from the stockmarket and cut their demand for bank loans.

That has depressed business lending, but it has saved many companies from deep cuts in jobs, other spending perhaps even saved them from going to the wall and troubling the banks. More importantly it has been a source of stimulus above and beyond that provided by the federal government. Helping in the recaps has been the RBA’s huge rate cuts, which have taken pressure off cash flows and the finances of corporate and consumer Australia.

Results this week from the NAB and the ANZ confirm the banks are in fine fettle and are recovering from their mostly self-inflicted delusory lending to the likes of ABC Learning, Allco, Opes Prime, et al. The banks are seeing solid demand for home loans, but not for any other area of finance, which is supported by the Reserve Bank’s private credit figures today.

Judging by the RBA’s latest figures for September and the year to September, there’s no life in lending, except for housing, which is running at a steady 8%-9% annual rate. While that could ease as impact of the the first-home buyers’ grants falls away, there seems to be rising demand for housing finance from increasingly confident buyers of existing homes.

From anecdotal reports and surveys such as this week’s RP Data survey on home prices, that appears to be happening, especially in Sydney and Melbourne.

And that in turn is confirmed from the rising level of home lending to owner-occupiers.

The RBA figures show that housing credit rose a solid 0.7% in September after August’s 0.8% rise. Over the year to September, housing credit rose by 7.7% (7.5%).

But finance for owner-occupied housing stood out and is now running at an annual rate of 9.7%, up a touch from the 12 months to August and back where it was a year ago. It rose 0.8% in September after August’s 0.9% rise.

In contrast, finance to investors for housing is running slow, up just 0.4% in September, after a rise of 0.5% in August, with an annual rate of just 3.1% (3.2% in August)

Despite this, total credit fell in September for the second time in 10 months. This time it was a fall of 0.2%, compared with the fall of 0.3% last December. September’s fall reversed August’s rise of 0.2%.

December’s in-total credit fall is more easily understood, given it was in the depths of the crunch and credit freeze when the only lender of note was the Reserve Bank, which was funding the entire economy by buying self-securitised mortgages from the banks and other financial groups and printing billions of dollars of notes to meet the demand for withdrawals from customers and the first cash splash.

Over the year to September, total credit grew by just 1.7%, down from the 2.6% rate in the year to August (and the high 6.8% in the 12 months to December).

Other personal credit fell by 0.2% in September, following a rise of 0.4% over August. Over the year to September, other personal credit fell by 5.6% as demand for margin lending remained sluggish.

Business credit declined by 1.3% in September 2009, following a fall of 0.7% over August. Over the year to September, business credit dropped 4.6%.

And that’s mostly due to the way corporate Australia has recapitalised itself by way of stockmarket raisings, financed in most cases via the superannuation system.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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