A Closer Look At The Region's Credit Cycles


BMI View: It is often useful to take a step back from the barrage of high-frequency data and instead inspect the magnitude and trajectory of a country's broader credit cycle. In this article, we take a closer look at commercial loans as a share of GDP across a number of Asian economies. Our findings show that there is not one singular trend that defines the region, with a number of countries (such as China, Indonesia and Singapore) exhibiting overextended credit cycles, while others (Vietnam and India) are in the midst of cyclical downturns.

While the unrelenting flow of high-frequency economic data are useful in their own right, they often serve to provide a myopic view of where an economy in heading. With this in mind, it is often useful to take a step back and inspect the magnitude and trajectory of a country's broader credit cycle. In this article, we take a closer look at commercial loans as a share of GDP across a number of Asian economies, as this is a broad measure calculated across the region with decent historical data. Specifically, by using a simple time-series regression, we observe how far the credit cycle has deviated from its long-term trend.

Clearly, there are some shortcomings in such an approach, given that the trend used will be time-sensitive (and thereby somewhat subjective in nature). Additionally, it does not inform us of whether the underlying trend is sustainable or not. Still, our findings are useful in providing a more structural backdrop to our specific country views given that there is not one singular trend that defines the region. Below, we flesh out some of the key themes.

Flying Too Close To The Sun
China - Credit-To-GDP Ratio Versus Underlying Trend

or Register now for free to read the full article

This article is tagged to:
Sector: Country Risk