28 Jan 2015
China's debt build up a major concern - GS
FXStreet (Guatemala) - Analysts at Goldman Sachs International explained that China’s debt buildup remains a major global macro worry.
Key Quotes:
"China’s debt buildup since the global financial crisis ranks as one of the largest in recent history (in the 97th percentile of debt-to-GDP changes in a sample of 55 countries over the past 50 years) and is a major global macro concern for investors. Deteriorating external conditions and declining investment efficiency have contributed to the debt buildup."
"Excess credit is being reined in, but there is no ‘quick fix’ Policymakers have had some early success addressing the credit ‘flow’ problem (excessive and misdirected credit), as seen by the narrowing gap between Total Social Financing and nominal GDP growth."
"We expect a greater focus on the credit ‘stock’ problem of bad debt. But there is no ‘quick fix’ when the stock and flow of debt are as high as they currently are in China. We do not expect the debt-to-GDP ratio to stabilise before the end of the decade."
"Growth slowdown likely in train, but full-blown crisis unlikely Although the risk is significant, our analysis exploring the aftermath of large debt buildups over the past half-century suggests that credit booms do not always end in deep recessions or banking crises."
"GDP growth typically decelerates by at least 3-4pp after credit booms, although in China’s case some slowing has already occurred. Smoothing the adjustment process is likely to require increased central government fiscal outlays and policy interest rates should remain fairly low."
Key Quotes:
"China’s debt buildup since the global financial crisis ranks as one of the largest in recent history (in the 97th percentile of debt-to-GDP changes in a sample of 55 countries over the past 50 years) and is a major global macro concern for investors. Deteriorating external conditions and declining investment efficiency have contributed to the debt buildup."
"Excess credit is being reined in, but there is no ‘quick fix’ Policymakers have had some early success addressing the credit ‘flow’ problem (excessive and misdirected credit), as seen by the narrowing gap between Total Social Financing and nominal GDP growth."
"We expect a greater focus on the credit ‘stock’ problem of bad debt. But there is no ‘quick fix’ when the stock and flow of debt are as high as they currently are in China. We do not expect the debt-to-GDP ratio to stabilise before the end of the decade."
"Growth slowdown likely in train, but full-blown crisis unlikely Although the risk is significant, our analysis exploring the aftermath of large debt buildups over the past half-century suggests that credit booms do not always end in deep recessions or banking crises."
"GDP growth typically decelerates by at least 3-4pp after credit booms, although in China’s case some slowing has already occurred. Smoothing the adjustment process is likely to require increased central government fiscal outlays and policy interest rates should remain fairly low."