What is Saxo Credit Impulse ?
The notion of Credit Impulse has been introduced for the first time by Michael Biggs in November 2008. It represents the flow of new credit issued from the private sector as a percentage of GDP. It is considered as the second derivative of credit growth and arguably the biggest driver behind economic growth.
The idea 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 GFC, the USA, Japan and Europe were the main drivers of the global credit cycle but, since 2009, a major shift has happened 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.