3 months ago • 1:20 min
Credit growth just fell off a cliff. Company earnings and inflation could follow in 2023.
See, credit growth is a huge driver of economic growth. When new credit is created at a rapid pace, consumers and companies can more easily finance purchases or expansion plans – all of which expands the economy. When credit growth stalls or even shrinks, however, consumption tends to halt, economic growth slows, and inflation eventually weakens.
The chart shows that credit growth in the G5 largest advanced economies (US, Japan, Germany, UK, and France) has dropped sharply this year (black line) as central banks in most of those countries have raised interest rates and as the outlook for the global economy has darkened. Since the economy tends to respond to changes in credit after a lag of 12 to 15
But you might want to wait for a pullback before jumping in.
And a few good reasons to still be cautious.
Historically, this has been bad news for stocks.