Growth in private sector credit is a measure of confidence. The granting of credit, or new loans to businesses and individuals, is a measure of confidence on the part of business and individuals to borrow and confidence on the part of banks and investors to lend. Typically growth rates for new loans are low, or negative in a recession and high in a boom.
Borrowing can be split into three types. There is borrowing for investment purposes, which increases an economy’s capacity to produce goods and services. There is also borrowing for consumption, which brings forward spending from the future to spending in the present. Then there is borrowing to buy a dwelling, either to live in or to rent.
The latest figures from the RBA show total loan growth was 0.3% in February, lower than the 0.5% which was expected but higher than January’s 0.2%. Compared to February 2016, the value of loans was 5.0% higher.
