RBA's Debelle Sees Economy Expanding With Slower Growth in Business Credit

Australia’s economic growth in the years ahead may rely less on business credit than in past expansions as mining companies use cash or foreign investment, Reserve Bank of Australia Assistant Governor Guy Debelle said.

“If one thinks about the composition of growth in Australia in the period ahead, it is likely to be investment- intensive,” Debelle said in the text of a speech in Sydney today. “But much of that investment is likely to be funded by companies which are cash-rich or tap global capital markets directly.”

Australia is undergoing its biggest mining investment boom since the 19th century to meet rising demand for the nation’s iron ore and coal from China and India. The RBA boosted its benchmark interest rate seven times from October 2009 to November last year, to 4.75 percent, to contain inflation. The central bank kept borrowing costs unchanged at the past three meetings, citing weaker consumer spending and higher savings.

In his prepared remarks, which didn’t address monetary policy, Debelle said demand for credit from households and businesses has “slowed in tandem.”

“For businesses, the reduced appetite for debt was initially due to a desire to strengthen balance sheets,” he said. “More recently, strong profitability, most obviously in the mining sector, is ensuring many segments of the business sector have sufficient internal funding to meet their investment needs.”

Australian business credit declined 0.1 percent in January, the seventh consecutive drop, according to central bank data released last month.

Export Sales

The government this month forecast A$220.6 billion ($222.6 billion) in export sales of commodities in the 12 months ending June 30 as faster economic growth in China boosts demand for raw materials. China’s economy expanded 10.3 percent in 2010, the quickest pace in three years.

The boost from commodities has cut Australia’s jobless rate to 5 percent, compared with 8.9 percent in the U.S.

“The economy in the period ahead may be associated with less growth in business credit than has been the case in the past,” Debelle said.

“For households, the slowing in demand for credit appears to be driven by a more cautious approach to debt,” he said. “Slower growth in household wealth, and particularly the large negative shock to equity wealth at the height of the crisis, has also contributed to the cautiousness, even though equity wealth has recovered and household income growth has remained robust.”

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.