The latest NAB survey showed that firms are facing the largest difficulties getting finance since 2012, which suggests that credit growth may slow sharply. (See Chart 1.) That may be a reflection of higher funding costs for banks as well as the threat of additional lending restrictions from the Royal Commission. We have been arguing that tighter credit conditions could transform the current housing downturn into a recession or even a financial crisis. To be sure, other surveys suggest that lending standards haven’t tightened significantly and we still think that the most likely consequence of the surge in household debt in recent years is a period of soft growth. But the risk of a more severe outturn has risen.
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