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I Know What You Did Last Summer

Rapid growth in narrower measures of China’s money supply (M1) has generated significant attention from the markets as a potential sign that liquidity conditions are improving, particularly for corporates, and that monetary easing is gaining traction. The reality is that most of the increase is the byproduct of a base effect resulting from shifts in deposits during the equity market bubble and subsequent bailout in the summer of 2015. As a result, M1 growth should decelerate sharply starting in August. Credit demand remains under pressure, and the efficiency of new credit in powering activity within the real economy is still declining.

Posted August 1, 2017
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