Chart of the Week: China credit impulse vs Australian GDP

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  Based on our model credit impulse, we should see lower GDP growth in the coming quarters before a rebound in Q1 2020. It would be fueled by the slight improvement of China credit impulse and the combination of rate cuts by the RBA and likely fiscal push from the Australian government.


In this edition, we have plotted in the same chart China credit impulse and Australia’s GDP in current prices. After sending our latest Monthly Macro Outlook where we mentioned China credit impulse, we received questions regarding calculation. Our leading indicator is based on the flow of new core credit, based on quarterly data from the BIS, calculated as % of GDP. It tends to lead the real economy by 9 to 12 months.

Without much surprise, there is an obvious link between Australia’s economic activity and the evolution of China credit impulse due to the intense trade relationship. China is Australia top trade partner with total two-way trade with China representing about 11.7% of Australia’s GDP.

China’s slowdown has negatively impacted Australia’s economy and put an end to the economic miracle. We see very well in the below chart that Australia avoided recession during the GFC due to the strong credit pulse from China coupled with a rapid accumulation of public and household debt at the domestic level.

This period is over. The external shock linked to China’s deleveraging that has pushed into contraction credit pulse since 2017 along with trade war friction put Australia’s economy in a very vulnerable position. If our model is correct, we should see lower GDP growth in the coming quarters before a rebound in Q1 2020. It would be fueled by the slight improvement of China credit impulse and the combination of rate cuts by the RBA and likely fiscal push from the Australian government.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.