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A new report from the professional services giant warns that tighter credit could create problems for NSW and neighbouring states.
The latest Deloitte Access Economics’ Business Outlook reveals that rising global interest rates are combining with a bout of bank caution on lending (via extreme vetting of loan applications in the wake of royal commission revelations) to generate a mini credit crunch.
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“That’s putting further pressure on house prices, whose falls are gathering pace (though those falls remain contained enough that they don’t pose larger problems for the overall outlook),” Deloitte Access Economics partner and leading forecaster Chris Richardson said.
“More challenging, that mini credit crunch is occurring at the same time energy costs jump.”
However, the economist noted that business confidence is generating a capex (capital expenditure) recovery, and consumers, despite falling wealth, will be getting support from a nascent recovery in wages and from personal tax cuts.
“On balance, that leaves the outlook for Oz where it’s been for some time: good without being great,” the economist said.
Mr Richardson said that NSW remains “a truly top-notch performer”, but partly as the surge in house prices to “silly levels” saw it borrow some growth from the future.
“Infrastructure is still the key to current strength, but keep an eye on Australia’s mini credit crunch: it could prove more problematic in NSW than elsewhere,” Mr Richardson said.
Mr Richardson’s comments come after APRA chairman Wayne Byres recently rejected calls that Australia was facing a regulatory-driven credit crunch.
The prudential regulator claims that its actions are “only one factor” impacting the supply of home loans and that credit growth has actually increased since the introduction of macro-prudential measures.
Speaking at the Australian Business Economists lunch in Sydney on Wednesday, 11 July, Mr Byres addressed the impact of regulatory activity on the flow of home lending.
He said that changes in lending practices to date “don’t seem to have had an obvious impact on housing credit flows in aggregate”.
He cited APRA data that shows total housing lending in the year to March grew around 6 per cent, which is only marginally below the long-run average housing credit growth for the last decade and roughly in line with the average run rate since 2011 — the last time Australia went through a period of softening house prices.
“Cumulative credit growth in the three and half years since we stepped up the intensity of our actions was actually greater than cumulative credit growth in the preceding three and a half years,” Mr Byres said.
The APRA chairman noted that credit growth “appears to be slowing somewhat at the moment”, which he said is not surprising in an environment of “softening house prices and slowly rising interest rates”.
[Related: Credit environment is creating a ‘new normal’: AFG]
