Credit Squeeze Takes Hold: Tighter Lending Dims Growth Outlook
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Credit conditions are tightening, with banks tightening lending standards and small businesses feeling squeezed. However, the impact has been limited so far due to strong household balance sheets and corporations terming out debt.
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Cracks are beginning to show in consumer credit, with rising delinquencies in credit cards and other debt. But mortgage debt remains healthy.
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Corporations have deferred their refinancing needs to 2024-2025 when a significant amount of debt comes due. This wave will pressure credit spreads.
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As lending growth slows and refinancing accelerates, expect loan delinquencies to rise, hitting small business job creation and translating into market volatility.
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Credit spreads are too low based on leading indicators, suggesting spreads will widen, pressuring earnings and equity returns. The credit cycle remains a key risk for markets.