Credit data does not yet point to a global downturn, Capital Economics says

The US Federal Reserve’s Senior Loan Officer Survey, published last week, made for grim reading, but so far the money and credit data from the four major advanced economies did not support the view that the world was on the brink of a broad-based downturn, a leading think-tank said.

Broad money growth had slowed in those economies at the end of last year, including the ones in which central banks were still carrying-out quantitative easing, but bank lending to non-financial corporations had held up better, Capital Economics said in a research note sent to clients.

Indeed, corporate credit in the US was still expanding at a double-digit pace Stateside and was no longer contracting in the UK and the Eurozone.

Likewise, loan demand in the Eurozone and Japan had strengthened.

As well, the so-called ‘credit impulse’, a timelier (yet imperfect) guide for the credit cycle had weakened over the last two years, which was compatible with slower investment in advanced economies, but had not collapsed.

“Of course, these surveys pre-date the latest sell-off in bank shares, which could yet trigger a sharper tightening in financial conditions, particularly in the euro-zone. Accordingly, while the latest evidence suggests there is little reason to panic, we will be monitoring the incoming credit data closely.”