Although global real lending growth picked up slightly to 4.6% in 2013, it may slow in 2014 as a slowdown in emerging markets (EMs) outside Europe outweighs a weak recovery in the developed world, according to Fitch Ratings.
In its latest
‘Macro-Prudential Risk Monitor’
, the credit ratings agency (CRA) says that On the basis of recent and prospective credit growth, macro-prudential risk indicators (MPI) continue to trend lower in developed countries with the highest risks largely confined to EMs.
A meagre 1.3% real credit growth is forecast in the developed world this year after a third year of slight contraction in 2013. A similar pattern of slow expansion following modest contraction is evident in emerging Europe, where real credit growth is forecast to pick up to 3.7% this year after having turned positive last year (2.4%). Elsewhere, credit growth remains much more robust, but continues to slow in Asia and Latin America and is forecast to moderate in Middle East and Africa in 2014, after a strong increase in 2013.
Fitch adds that in the fastest-growing region – Asia – real credit growth is forecast to slow to about 9% in 2014 from 9.7% in 2013. Credit growth has also been on a declining trend in Latin America, though at 8% last year and a forecast 7.5% this year, remains fairly robust. Last year saw a more than doubling in real credit growth in Middle East and Africa to 8.3% – but growth is forecast to fall back this year to 5.8%. The pick-up was marked in some of the larger economies – Ghana, Kenya and Nigeria in sub-Saharan Africa and Morocco, UAE and Qatar in the Middle East/North Africa. Some of these countries are forecast to see material slowdowns this year.
Real private credit growth was above the 15% threshold for MPI 2 or above in 30 countries (27% of those in the report) in the 2011-2013 period. All except Hong Kong are EMs. Half are MPI 3, including four new countries – Angola, Bolivia, Venezuela, and Ethiopia – the latter newly added to Fitch’s coverage.
Since 2010 there have been credit-to-gross domestic product (GDP) increases of 30-40 percentage points in three countries: China, Hong Kong and Mongolia, with strong house price inflation continuing in Hong Kong, and to a lesser extent China. There was a similar rise in Singapore, but not coupled with any sign of asset bubbles. Credit-to-GDP has risen by over 20 percentage points in Thailand and Turkey.
Real credit growth remains subdued in most developed countries outside Asia, even though there are signs of a pick-up. Credit-to-GDP is down from its peak and stable at just below 150%, but with no sign of any further overall fall. Deleveraging, to varying degrees, continues in most European countries while the credit-to-GDP ratio continues to rise in some other countries (such as Sweden, Switzerland and Hong Kong). Credit-to-GDP is rising again in the US, but in Germany continues a decade-long decline.
In most developed countries, where the historical trend of credit-to-GDP is rising, the ratio is now below trend, with three-quarters of countries now MPI 1. Hong Kong is the only developed country at MPI 3. The level of credit-to-GDP varies widely around the average, from over 300% in Cyprus to less than 100% in Germany.
Rising house prices help explain the MPI 3 scores only in China and Hong Kong. The pace of increase in Hong Kong – 14% in real terms in 2013 – is one of the fastest in the world. In other cases of rapid overall house price growth, prices are either still below trend (such as Australia and Estonia) or the price rises are not associated with rapid overall credit growth (such as Dubai, Israel, New Zealand and Taiwan).
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