Mercedes Ruehl Reporter

Mercedes writes for The Australian Financial Review and BRW from the Sydney newsroom. She has an interest in technology, politics and travel writing.

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Strong credit demand from non-mining states proves a vaccine for Dutch disease

Published 30 July 2013 10:45, Updated 31 July 2013 07:38

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Strong credit demand from non-mining states proves a vaccine for Dutch disease

Action taken by financial institutions to stimulate activity in the small-business sector appears to be picking up some slack left from the slowdown in mining. Photo: Michael Clayton-Jones

A new report shows growth in business credit applications in Australia’s non-mining states grew faster than the three main mining states, a promising sign given the non-resources sector must pick up the slack from the slowdown in mining.

On Tuesday, Veda, a provider of consumer and commercial data in Asia Pacific and Australia’s largest credit bureau, released its Business Credit Demand Index, which measures the change in credit demand. The figures for the three months to June, show business credit growth increased 5.5 per cent year on year, up from 2.2 per cent in the March quarter and 3.7 per cent in the December quarter.

Australia needs non-mining industries to pick up the economic slack left by the decline in the mining investment boom that helped the country sail through the global financial crisis relatively unscathed. Many analysts feared Australia was suffering what is known as Dutch disease or the two-speed economy. This is where traditional sectors such as retail and manufacturing seriously underperform the resources sector to the detriment of the overall economy.

The biggest news out of Veda’s most recent index is non-mining states are showing stronger growth in business credit enquiries than the mining states for the first time in more than two years. Business credit applications in Victoria, New South Wales, Tasmania, the Australian Capital Territory and South Australia shot up from 1.8 per cent in the first quarter of the year to 6 per cent for the June quarter.

“In the last 12 months the steam has started coming off the mining boom and as commodity prices have come down we saw that wash through from a confidence perspective,” says Moses Samaha, general manager of commercial credit risk at Veda. “This is the first quarter just shy of a year where we are seeing stronger growth.”

Improved confidence

Veda’s statistics are important because they serve two-thirds of the market in terms of businesses and individuals applying for credit. The Australian Bureau of Statistics and the Reserve Bank of Australia can show loans approved but Veda can obtain intent to purchase, size of business and type of credit.

Samaha says lower interest rates, the falling dollar and banks making a bigger effort in lending to small and medium-sized enterprises (SMEs) during the June quarter contributed to the stronger figures because they helped confidence.

“You’d be surprised how strong a role confidence plays, it’s been a very slow burn this last 12 months getting that confidence back,” he says.

Growth in mining states – Western Australia, Queensland and the Northern Territory – came in at 4.6 per cent. This was up on 3.1 per cent from the March quarter but still lagging the non-mining sector.

A large part of this is down to activity in the small-business sector. Samaha says financial institutions are being far more aggressive in stimulating startups and small businesses, which drives competition in the market.

“The other interesting observation . . . is that businesses less than four years old were the most credit hungry,” he says.

An August rate cut could keep up the growth in the non-mining economy through to the September quarter, Somaha predicts.

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