Slowing business credit could hit growth

Business demand for credit has slowed since the start of the year, suggesting a sharp downturn in the pace of economic growth in the first half of 2012.

Consumer and commercial data provider Veda's business credit demand index was 4.5 per cent over the year to June, down from 8.8 per cent in the year ended March.

Veda's general manager for commercial credit and supplier risk, Moses Samaha, said the quarterly index had historically proved to be a good indicator of how the overall economy was travelling.

Index movements correlated with growth in gross domestic product (GDP), investment in machinery and equipment, and building and construction.

"The latest data suggests a softening in the pace of real GDP growth after a very strong March quarter," Mr Samaha said on Tuesday.

"This could mean that we will see a slowdown in GDP growth in coming quarters."

Official Australian Bureau of Statistics (ABS) figures show the economy grew at a robust 1.3 per cent in the March quarter, leading to annual growth of 4.3 per cent, the fastest pace in more than four years.

The June quarter national accounts won't be released until September 5.

Mr Samaha said that in the lead-up to the interest rate cuts by the Reserve Bank of Australia (RBA) in May and June, and the May federal budget, business credit activity stalled.

This appeared to be due to uncertainty about the resolution of Europe's sovereign debt crisis and concerns about slowing growth in China, he said.

However, Mr Samaha said credit applications had been on an upward trend since mid-2010.

"It's likely that the full impact of the RBA's recent rate cuts on business credit are yet to be seen," he said.

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