Independent Strategy

Tags: Credit

Stronger than expected rise in credit during June with the culprit appearing to be an increase in local government bond issuance, reflecting official efforts to support the domestic economy.  Loan growth continues to run well ahead of nominal GDP.  And with no underlying pick up in money supply growth the velocity measures also remain weak.

Money supply continues to tick up again, but overall there is not much to suggest we’re in any marked re-acceleration phase, which is equally evident in the persistently weak money multipliers.  Credit data surprised on the downside thanks to some moderation in consumer demand for money.  Non-financial side looks stronger.

China

POST » 12th June, 2019 » China May Money & Credit

Money supply growth remains steady.  Credit growth has quickened a touch from April but overall there isn’t much evidence that the governments stimulus efforts have opened the credit spigots, particularly the private sector.  Debt is growing a little faster than GDP again, but not markedly.

Eurozone putting together some better credit figures in April (once adjusting for sales and securitisations) amid strong growth in non-financial corporate borrowing in Germany and consistently strong credit demand (at both a corporate and consumer level) in France.  This growth has more than offset ongoing weakness in Italy, where NFC lending continues to contract rapidly.

Underlying money supply growth remains weak, reflected in M2’s shrinking share relative to GDP.  But the credit multipliers do look better, with some upward momentum suggesting that efforts to spur lending have been working, and the right type of lending as seen by the ongoing contraction of borrowing from the shadow banking sectors.

A solid set of credit numbers, suggesting the government is succeeding in reopening this transmission channel, which should begin to show up more notably in the activity and growth data from hereon in.

China

REPORT » 4th April, 2019 » The Iceman Cometh?

People are always keen to write off China. Its authoritarian regime has built up malinvestments and debt beyond that of any other emerging economy, both in nominal terms and as a share of GDP. Even its GDP is often deemed to be over-inflated. But we are not on the cusp of a collapse. For a start, China’s financial system still has relatively closed circuitry, with the money being owed mostly by state-owned enterprises (SOEs) to state-owned banks, meaning relatively modest connectivity to the wider world.

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