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English to Japanese: Lending conditions set to remain under strain General field: Bus/Financial Detailed field: Finance (general)
Source text - English Lending conditions set to remain under strain
Consumers and companies will find that the squeeze on their budgets from the credit crunch will remain acute next year in spite of governments’ efforts to improve liquidity and access to finance.
The Global Financial Stability Report, published last week by the International Monetary Fund, said banks’ lending capacity in the US, UK and eurozone would shrink further in 2010 after falling sharply this year. The gist of this warning is likely to be echoed by data releases in the week ahead.
The funding problem appears most severe in the UK, where bank lending capacity is forecast to fall 4.5 per cent in 2010 after dropping 8.6 per cent this year, compared with average yearly growth of 10.4 percent between 2002 and 2007.
Across the US, UK and eurozone, demand for credit from both households and companies next year is forecast to remain well below the average growth rates seen before the financial crisis struck.
In the UK, demand for credit from households is forecast to rise just 0.1 per cent in 2010 following a fall of 0.8 per cent this year. Demand for credit from UK companies is seen dropping sharply this year, down 5.3 per cent, followed by a partial recovery in 2010 with an increase of 1.9 per cent.
In the US, demand for consumer loans is seen falling a further 2 per cent in 2010, on a fall of 4.6 per cent this year, keeping household budgets under pressure. After a fall of 1.1 per cent in 2009, demand for corporate credit is set to rise 1.5 per cent next year.
As banks face further writedowns and more stringent capital requirements that will limit their ability to leverage, the IMF warns that credit constraints are likely to restrain economic activity.
The issue of how to repair credit flows remains key for both the Bank of England and European Central Bank, which will hold interest rates unchanged at their monthly meetings on Thursday. While both central banks have become more confident about the economic outlook, serious concerns remain about the strength and sustainability of any recovery.
Survey evidence shows mixed signs of improvement in credit conditions but money supply data suggests policymakers could still have to consider further measures to secure a sustainable recovery, particularly in the UK. The monetary policy committee has given serious consideration to the possibility of cutting the deposit rate paid on reserves at the Bank of England to encourage banks to led more freely into the broader economy. However, no new policy announcements seem likely at this month’s meeting.
The MPC is not expected to sanction any further increase in its quantitative easing scheme at this month’s meeting as the current £175bn asset purchase programme will not be complete until November. The MPC will have new growth and inflation forecasts to digest in November and the option of extending QE remains open.
The renewed sense of uncertainty about recovery prospects, sparked by recent economic data, could be fuelled by this week’s data releases figures, starting with the service sector purchasing managers’ surveys for September, due on Monday.
Activity in the UK service sector has been expanding since May but only a modest improvement is expected in the September PMI survey, with an increase from 54.1 in August to 54.5. (Above 50 indicates expansion compared with the previous month.)
The US report, the Institute of Supply Management non-manufacturing survey, also due out on Monday, is seen rising from 48.4 to 50, on the brink of a return to positive territory.
The initial estimate for the eurozone service sector PMI, released last week, showed activity rising in September for the first time since May last year. No change is expected on Monday from the initial estimate of 50.6, up from 49.9 in August but an improvement in the expectations measure suggests activity will strengthen in the months ahead.
Also on Monday, eurozone retail sales are seen remaining weak with a fall of 0.2 per cent in July expected to be followed by a drop of 0.4 per cent in August, taking the year-on-year decline from 1.9 per cent to -2 per cent.
UK manufacturing output data, due on Tuesday, is expected to show July’s increase of 0.9 per cent followed by a rise of 0.3 per cent, as activity continues its gradual improvement. That would slow the year-on-year decline from -10.1 per cent in July to -9.3 per cent.
An increase in mining output in August should bolster the broader industrial production measure. The consensus forecast is for a small rise of 0.1 per cent in August following an increase of 0.5 per cent in July. However, HSBC thinks the increase in industrial production could be as large as 1.2 per cent, due to the rebound in mining activity last month. HSBC’s forecast would slow the year-on-year decline from -9.3 per cent in July to -8.8 per cent.
Germany releases industrial orders data for August on Wednesday following a sharp recovery in recent months. Survey evidence points to further gains. The consensus forecast is for an increase of 1.1 per cent in August after July's rise of 3.5 per cent. That would leave the year-on-year decline little changed from July’s -19.8 per cent.
German industrial production surprised in July with a fall of 0.9 per cent but the data appears to have been negatively distorted by an early start to school holidays in most states. The consensus forecast is for a rebound of 0.5 per cent in August, which would slow the year-on-year decline from -17 per cent to -16.7 per cent.
France is also due to release manufacturing production data, due out on Friday. Extended closures of some plants for longer than usual over August should contribute to weakness in manufacturing output with a fall of -0.5 per cent expected after July’s increase of 0.6 per cent. That would deepen the year-on-year decline from -13.8 per cent to -15 per cent.
The UK’s total trade deficit is expected to narrow slightly from -£2.4bn in July to -£2.3bn in August’s data.
However, there are clearer signs of improvement in some of the short-term trends, helped by sterling’s weakness.
In July, underlying export volumes (excluding oil and erratics) jumped by 5 per cent. In the three months to July compared with the previous three months, underlying export volumes were down just 0.8 per cent, a sharp improvement on the -10.3 per cent rate of decline recorded in January in the midst of the collapse in global trade flows.
Germany’s trade balance has shown a significant recovery in recent months. The consensus forecast for August is for the trade surplus to narrow slightly from €12.6bn in July to €12.4bn, still a substantial improvement on the cyclical low of €6.7bn seen in January.
The US trade deficit widened to $32bn in July, due in part to higher imports of crude oil and an increase in foreign car sales under the government’s “cash-for-clunkers” scheme. The consensus forecast is for the deficit to remain little changed at $33bn in August.
However, survey evidence is pointing to export orders rising and the short-term trend for export volumes has also shown clear signs of improvement. Export volumes rose 1.7 per cent in the three months to July compared with the previous three months, a clear improvement on the decline of -17.5 per cent seen in the three months to February.
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