Global Credit Impulse is giving signs of life

Global Credit Impulse is giving signs of life

Macro
Christopher Dembik

Head of Macroeconomic Research

Summary:  Based on preliminary data, our leading indicator, global credit impulse, is giving signs of life on the back of slightly better China credit impulse and strong credit push in the United States.


Based on preliminary data, global credit impulse _ the second derivative of global credit growth and a major driver of economic activity _ is giving signs of life. It is still in contraction, at minus 3.8% of GDP, but slowly moving upwards. Currently, more than half of the countries in our sample, representing 69.4% of global GDP, have experienced an acceleration in credit impulse over the past quarter. The improvement in global credit impulse is mostly due to slightly better China credit impulse and strong credit push in the United States.

  • China is trying to reverse measures taken over previous years that reduced liquidity and credit flow, especially from small banks. China credit impulse, which is the main contributor to global credit impulse (1/3 of the total pulse), is still in contraction at minus 3.8% of GDP but moving upwards. We expect the trend will continue in coming quarters to offset economic deceleration due to weak demand and impact of trade war.

  • The new easing cycle starts to have an impact in DM countries. The United States has opened the credit tap again with credit impulse standing at 1.2% of GDP, the highest level since early 2018. The positive trend is also visible in demand for C&I loans which has been solid over the past quarters, reaching a peak at 9.3% YoY in Q1 2019.

  • Global credit impulse leads the real economy by 9 to 12 months. If our model is correct, we should see a rebound in global growth in Q1-Q2 2020 after reaching a low point in H2 2019. Countries that should benefit the most from improved credit pulse are those with strong trade links with China, especially South Korea, Japan and Australia. We also expect that the effect of credit pulse will be amplified by fiscal pulse in many countries. Upcoming debates over 2020 budget should path the way for demand-oriented stimulus and infrastructure investments.

  • Currently, there are nine major economies in recession or on the verge of it: Argentina, Brazil, Germany, Italy, Mexico, Russia, Singapore, South Korea and the United Kingdom. Interestingly, out of the nine, five went through a sharp and often prolonged contraction in credit impulse. Along with China’s importing less, trade war friction and, in some cases, bad domestic policies, negative credit impulse appears as one of the key drivers behind poor economic performance in these countries.

  • This is particularly the case for the United Kingdom that has experienced seven consecutive quarters of contraction, with credit impulse running at minus 4.4% of GDP. The lack of new credit growth fueling the economy substantially increases the risk of recession in highly indebted countries like the United Kingdom. Despite Q2 GDP contraction, we think the likelihood of a technical recession is remote in Q3 2019 due to the combination of stockpiling and positive consumer sentiment ahead of Brexit deadline. However, everything is already in place for recession. It is only a matter of time before it happens, more probably in early 2020 if no-deal Brexit prevails.

  • The case for recession in Q3 is stronger for Germany. Germany’s credit impulse has been decelerating since Q1 2018, only running at 0.4% of GDP according to the latest estimate. On the top of that, the manufacturing sector is in disarray and we start to see a contagion of weakness from manufacturing to services. The latest German PMI Services was out a solid 54.4 in August but lower from its highest annual point of 55.8. The gap observed between the manufacturing sector and the service sector is doomed to be reduced in coming months, with the service sector going down. Technical recession is our central scenario for Q2-Q3 2019.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.