20150929-NATIXIS-Relative_levels_of_growth_and_interest_rates_and_credit_recovery_What_can_we_see_in_the_large_OECD_countries__12页_1mb

Summary of "FLASH ECONOMICS: Relative levels of growth and interest rates and credit recovery"

Core Content

This document analyzes the relationship between interest rates, nominal growth, and credit recovery in six major OECD countries: the United States, the United Kingdom, Germany, France, Spain, and Italy. It focuses on the effectiveness of monetary policy in driving credit recovery by examining whether the normal transmission channel—where falling interest rates stimulate borrowing—is functioning.

Main Points

1. Normal Transmission Channel of Monetary Policy

• The typical mechanism is that falling interest rates encourage household and business loans, leading to economic growth.
• Countries where this channel is working well have a more positive growth outlook.
• Since 2008, expansionary monetary policies have caused interest rates to fall below nominal growth in most of these countries, except Italy.

2. Credit Recovery Trends by Country

• United States: Credit recovery has been marked since 2010, with a strong rebound in business loans and corporate debt ratios.
• United Kingdom: Credit recovery is weak, with only a slight rise in household loans and limited business credit growth.
• Germany: Credit recovery has been observed since 2012, particularly in mortgage loans.
• France: Credit recovery has started in recent years (2015 onwards), with increases in both business and household loans.
• Spain: Similar to France, credit recovery began in 2015, but it remains modest.
• Italy: Interest rates have remained higher than growth since 2007, and credit recovery is weak, affecting only households.

3. Factors Affecting Credit Recovery

• High debt ratios: Observed in the UK and Spain, which hinder credit recovery despite low interest rates.
• Weak housing investment: Affects Spain and Italy, but not the UK.
• Strong self-financing capacity of companies: Seen in the UK, Spain, and Italy, which limits the need for external loans.

4. Interest Rates and Growth Relationship

• In the U.S., UK, and Germany, long-term interest rates have been below nominal growth since 2010.
• In France and Spain, this relationship has been established since 2015.
• In Italy, interest rates have consistently remained above nominal growth since 2007.

5. Credit Supply Conditions

• In all six countries, credit supply conditions are generally easing, which supports the potential for credit recovery.
• However, the effectiveness of this easing varies by country and sector.

Key Information

• The inversion of the normal interest rate and growth relationship is a positive sign for deleveraging and credit recovery.
• The U.S., Germany, and France have shown more significant credit recovery, while the UK, Spain, and Italy have lagged.
• The UK and Spain are still experiencing limited credit recovery due to high debt levels and weak housing investment.
• Italy’s lack of credit recovery is attributed to its consistently high interest rates relative to growth and strong self-financing capacity among businesses.
• The document emphasizes the importance of the "normal" transmission channel of monetary policy in driving economic activity through credit recovery.

Conclusion

The "normal" monetary policy transmission channel—where lower interest rates lead to credit recovery—is currently active in the U.S., Germany, and France. In the UK, Spain, and Italy, despite low interest rates, credit recovery is either weak or absent due to structural issues such as high debt ratios, weak housing investment, and strong self-financing by companies. The analysis highlights the importance of understanding these dynamics to assess the effectiveness of monetary policy in different economies.

Disclaimer

• Reference prices are based on closing prices.
• This document is intended for professionals and qualified investors only.
• It is strictly confidential and cannot be shared with third parties without prior written consent from Natisx.
• The information is not a recommendation or offer to invest, and no liability is accepted for any actions taken based on this document.
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• It has not been prepared in accordance with legal requirements for investment research.
• Readers are advised to consult with their financial advisors before making any investment decisions.