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UBS Report Warns of 2008-Like Credit Dynamic

June 15, 2017 (EIRNS)—A report issued by Union Bank of Switzerland (UBS) on "credit impulse" is scaring everyone, comparing the current situation to that of 2008. "Credit impulse" is measured as the change in new credit issued as a percentage of Gross Domestic Product.

The UBS report says that credit impulse has tumbled 6% of GDP globally since last year. The measure turned negative for the U.S. with –0.53% in March. The impulse is still higher than it was after the Lehman Brothers collapse, but the report says the dynamic is worrying, especially in view of an end of Quantifive Easing (QE).

"From peak to trough, the deceleration in global credit growth is now approaching that during the global financial crisis (–6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in December ’09 when the median decline was –1.4 standard deviation."

This dynamic is going to be worsened by the ongoing tapering of QE. Yesterday the Federal Reserve raised interest rates by 25 basis points, to 1.25%, the second increase in a few months.