UBS Has Some Very Bad News For The Global Economy

At the end of February we first highlighted something extremely troubling for the global “recovery” narrative: according to UBS the global credit impulse – the second derivative of credit growth and arguably the biggest driver behind economic growth and world GDP – had abruptly stalled, as a result of a sudden and unexpected collapse in said impulse.

As UBS’ analyst Arend Kapteyn wrote then, the “global credit impulse (covering 77% of global GDP) has suddenly collapsed” and added that “as the chart below shows the ‘global’ credit impulse over the last 18 months is essentially mainly China (the green shaded bit), which even now is still creating new credit at an annualized rate of around 30pp of (Chinese) GDP. But the credit impulse is the ‘change in the change’ in credit and even the Chinese banks could not sustain the recent extraordinary pace of credit acceleration. As a result: whereas back in Jan ’16 the global credit impulse was positive to the tune of 3.8% of global GDP (of which China comprised 3.5% of global GDP) it has now fallen back to -0.1% of global GDP (China’s contribution is -0.3% of global GDP).”

As we concluded then, “absent a new, and even more gargantuan credit expansion by Beijing – which is not likely to happen at a time when every single day China warns about cutting back on shadow banking and loan growth – the so-called recovery is now assured of fading. It is just a matter of time.”

Four months later, the so-called “global coordinated recovery” is on its last, shaky legs, because not only has soft data in the form of PMIs, ISMs and various other sentiment surveys peaked and is now declining, as has consumer confidence, but those all important CPI readings from around the world have posted several consecutive months of disappointing prints, and according to some are jeopardizing the Fed’s rate hike intentions (especially if Wednesday’s inflation print is a big dud). US GDP is likewise in “stall” territory.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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