Credit growth slowing even before banking strains

Even before SVB’s collapse prompted a reassessment of the health of the global banking system, bank credit conditions were already tightening in response to higher interest rates. We have written many notes to help navigate the uncertainties about how banking sector stress will evolve from here, available on our dedicated banking crisis webpage. But one thing we can be relatively confident about is that banks are now likely to restrict the availability of credit to households and firms more aggressively than would otherwise have done. Combined with reports of weakening demand for loans, the credit impulse to the real economy is likely to fall even further into recessionary territory in the months ahead. So, even if the worst fears of a full-blown financial crisis do not come to pass, economic activity in the US and Europe will be weaker due to the turmoil of the past two weeks. In this environment of tight monetary policy and banking strains, money and credit indicators have taken on renewed importance. Consequently, we have introduced a Money & credit page to our monthly Chart Book for clients to keep abreast of the latest developments.