Passa ai contenuti principali

Brace For 2022 As Global Credit Impulse Goes Negative


The economist consensus is optimistic about economic growth in 2022. 

Financial conditions will remain broadly accommodative despite monetary policy tightening. With a faster vaccine rollout and new Covid antibody cocktails, the pandemic will be under control, at least in the developed world. The direct inflationary effect of bottlenecks will progressively vanish. On the production side, supply will increase and will reduce the risk of shortage. 

But what if the consensus is wrong? 

Our proprietary leading indicator for growth, the global credit impulse, flashes a warning to major economies. It tracks the flow of new credit issued by the private sector as a percentage of GDP. In our sample, we have the eighteenth largest economies which represent 69.4 % of global GDP share. The global credit impulse is now in contraction territory, running at minus 1.3 % of global growth, according to our preliminary estimates. 

What is Saxo Credit Impulse ?

The notion of Credit Impulse was introduced for the first time by Michael Biggs in November 2008. The Credit Impulse represents the flow of new credit issued from the private sector as a percentage of GDP. It is the second derivative of credit growth and arguably the largest driver behind economic growth. The thinking behind Credit Impulse is based on basic Keynesian economics. Since spending is a flow, it should be compared with net new lending, also a flow, rather than credit outstanding, a stock. The main advantage of Credit Impulse is that it helps to solve a number of conundrums that cannot be explained by an analysis focusing on the stock of credit. In addition, it has been demonstrated that, for many time periods and countries, a strong correlation exists between Credit Impulse and other economic data, especially private sector demand, and financial assets. Before the Global Financial Crisis, the United States, Japan and Europe were the main drivers of the global credit cycle. But a major shift has happened since 2009 resulting in China becoming the dominant actor. As a result, China Credit Impulse is key to monitor in order to assess the evolution of the global economy.

When the credit impulse is negative, expect that growth will cool down significantly in the next six to nine months afterwards. Said differently, we could see growth slowdown from Q2-Q3 onwards in 2022. This has not been priced in by any investors at that stage. Both short- and medium-term factors explain the contraction in the global credit impulse : the contraction in the flow of new credit in most developed countries (the United Kingdom, the euro area and Japan, for instance) and the tight monetary and fiscal policies implemented by China since early 2021. This has been recently reversed. But it will take time before it has a net positive global effect on growth. Our leading indicator has a very good track record.

If it proves to be right once more, the year 2022 could be less quiet than most currently anticipate on the macroeconomic front. 

Commenti

Posta un commento

Post popolari in questo blog

Charting the World Economy: The U.S. Jobs Market Is On Fire - Bloomberg

Charting the World Economy: The U.S. Jobs Market Is On Fire - Bloomberg https://www.bloomberg.com/news/articles/2019-12-06/charting-the-world-economy-the-u-s-jobs-market-is-on-fire Charting the World Economy: The U.S. Jobs Market Is On Fire Zoe Schneeweiss Explore what's moving the global economy in the new season of the Stephanomics podcast. Subscribe via  Apple Podcast , Spotify or  Pocket Cast . The last U.S. payrolls report of the decade was a doozy, beating expectations and doing its bit to keep the consumer in good health heading into 2020. That's good news given the various pressures still weighing on global growth. Here's some of the charts that appeared on Bloomberg this week, offering a pictorial insight into the latest developments in the global economy. U.S. Advertisement Scroll to continue with content ...
Posta un commento
Continua a leggere

Fwd: The Looming Bank Collapse The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

After months  of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there's another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse. John Lawrence: Inside the 2008 financial crash The financial...
Posta un commento
Continua a leggere

The repo market is ‘broken’ and Fed injections are not a lasting solution, market pros warn

By Joy Wiltermuth Published: Dec 7, 2019 9:35 a.m. ET Banks prefer to keep money at Fed instead of lending to other banks Getty Images Examining $100 bills. Getty Images By Joy Wiltermuth Markets reporter The Federal Reserve's ongoing efforts to shore up the short-term "repo" lending markets have begun to rattle some market experts. The New York Federal Reserve has spent hundreds of billions of dollars to keep credit flowing through short term money markets since mid-September when a shortage of liquidity caused a spike in overnight borrowing rates. But as the Fed's interventions have entered a third month, concerns about the market's dependence on its daily doses of liquidity have grown. "The big picture answer is that the repo market is broken," said James Bianco, founder of Bianco R...
Posta un commento
Continua a leggere