Business borrowing up, interest rate rises loom

by Amy Rosenfeld08 Jan 2014
Growing business confidence means the number of businesses looking to access finance are at their highest levels in two years - but interest rate rises loom on the horizon.

Dun & Bradstreet’s latest Business Expectations Survey revealed 18% of businesses are planning to access new finance during Q1 to grow their operations, the survey’s highest response since Q4 2011.

This comes with the news that two thirds of all Australian businesses are more optimistic about growth this year compared to 2013, with the positive mood lifting first quarter expectations for sales, profits, selling prices, investment and employment to their highest levels in 12 months.

The pick-up in borrowing plans is reflected in stronger capital investment and employment intentions, which have recovered from negative territory during the previous quarter and moved above their respective 10-year averages.

Dun & Bradstreet director of corporate affairs Danielle Woods says the findings show an economy that has “found its feet” following a year of week and irregular business conditions in 2013.

"With companies looking ahead with optimism, forecasting strong sales and profits, and most recently showing a willingness and capacity to borrow money to grow their operations, the signs are positive for the New Year," says Woods.

Dun & Bradstreet economic adviser Stephen Koukoulas says that, while the new year has started with expectations at very optimistic levels, the one “cloud on the horizon” is the possibility of interest rate rises throughout the year.

“A stronger economy is no doubt allowing firms to move their prices higher, but we are also seeing the impact on inflation from the recent weakness of the Australian dollar,” says Koukoulas.

"This is likely to cause the Reserve Bank some concern, and is a fundamental factor why we are likely to see a series of interest rate rises during 2014.”

Reserve Bank figures, however, show actual business borrowing still remains low, falling 0.1% in November 2013 and up just 1.9% over the past 12 months.

Investment housing continues to be one of the few areas of significant credit growth, rising 6.7% in the past year - the highest level of growth in almost three years.

In total, the value of outstanding home loans rose 5.1% over 2013.

In contrast to the Dun & Bradstreet report, CommSec economist Savanth Sebastian predicts interest rates will remain low should business lending not pick up.

"Credit or lending growth continues to lift at a very modest pace with the only strength in investment housing," he wrote in a note on the data.

"Consumers and businesses remain more reluctant to borrow than they did in the past and, if this trend continues, then the Reserve Bank is more likely to leave rates lower for longer."

COMMENTS

  • by Richard 8/01/2014 9:24:34 AM

    What a surprise to see Stephen predicting counter intuitive, counter cyclical rate movements. Take a look at commentary from Stephen over the last few years, more changes in the direction of predicted rates than a rollercoaster.