Stronger Business Increases Credit

Stronger business investment is pushing a pick-up in credit, providing further proof of an improvement in business confidence.

While retailers have been doing it tough, with customers using less credit, early signs are for better Christmas trading.

Reserve Bank figures issued yesterday showed credit grew by 0.7 per cent in October, seasonally adjusted, up 11.3 per cent for the year.

Business lending, the largest credit category, grew 1.1 per cent in the month to $237 billion, the second consecutive month of growth helping to turn around a declining trend in growth.

The chief economist with the Commonwealth Bank, Mr Bruce Freeland, said the profit squeeze had forced businesses to resort to greater lending rather than use profit growth to finance investment expansion.

Consumer lending in personal loans and credit cards remained flat in October, according to the Reserve Bank figures, growing by just 0.1 per cent in October, confirming that retailers were doing it tough.

But most retailers have seen early signs that this Christmas will be a jolly one.

General manager of public affairs at Coles Myer Ms Debra Stirling said shoppers were not buying the cheapest products, but were "grading up".

The big retailer was "cautiously optimistic" with toys, alcohol and Christmas trim and wrap selling well, meaning shoppers were planning to "celebrate".

Chief economist with Citibank Mr Stephen Koukoulas said the credit figures confirmed that the economy was plodding along, rather than in free-fall as some had feared.

Growth was moderate but patchy, he said. While some industries, such as retail and manufacturing, were performing poorly, some sectors were going well, with greater investment in the pipeline.

"Business investment is likely to step up a notch or two from the 14 per cent (1996-97) budget forecast".

Housing finance has been falling steadily since early 1995, following a collapse in the home building market. Outstanding debt stood at $176 billion.

Home loans grew by just 0.4 per cent in October, for an annual rate of 9.2 per cent, compared with a growth peak of 23 per cent in mid-1994.

Total outstanding credit at the end of October was $463 billion - an average of $25,668 for every Australian.