Animal Spirits Stir as Aussie Corporate Loans at 7-Year High

  • Corporate credit climbed 7.4% in April from year earlier
  • Business lending now growing at faster pace than mortgages

Australian lending to businesses is growing at the quickest pace since the global financial crisis in a sign that the “animal spirits” long sought by the country’s central bank are finally stirring.

Loans to companies climbed 7.4 percent in April from a year earlier, the most since January 2009, according to the Reserve Bank of Australia. Record low interest rates are encouraging investment and the jump in corporate borrowing outpaced growth in mortgage lending for the first time in more than seven years as banks tightened home-loan standards amid regulatory pressure.

“This is what we’ve been looking for -- more signs that growth is shifting from mining to the non-mining sectors,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney. “This is another piece of evidence that tells you that the outlook for non-mining business investment is probably a bit better than the official data tells us.”

The central bank is trying to facilitate an economic transition away from mining investment to other industries, using low borrowing costs and a weaker currency as a tailwind. While the RBA’s easing cycle was largely felt in the housing sector with record dwelling prices and a construction boom, demand for corporate loans has also steadily gathered pace since mid-2015, reflecting improved business conditions. Economists also raised their expectations for first-quarter gross domestic product growth on Tuesday.

The RBA this month cut its cash rate by a quarter point to 1.75 percent as it predicted that core inflation is likely to remain below the bottom of its target range this year. Despite that, its growth forecast for 2016 remained unchanged at 2.5 percent to 3.5 percent and the bank said it expects unemployment to remain around the current 5.7 percent.

Better-than-expected export data released on Tuesday provided a boost to the growth outlook and spurred an increase in the local currency. Gross domestic product data due Wednesday is predicted to show that the economic expansion accelerated to 0.8 percent in the first three months of 2016 from 0.6 percent the previous quarter, according to a Bloomberg survey of economists published Tuesday.

The Aussie dollar rose 0.9 percent to 72.45 U.S. cents as of 3:21 p.m. in Sydney, on track for its biggest gain in more than a month.

“Australia’s growth story is pretty strong,” said Bloxham, who previously worked at the RBA. “The challenge is it’s not as yet generating enough inflation and that’s why the RBA cut. With inflation well below the target band at the moment, the likelihood is that the RBA will still have to cut further.”

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