High rates slam the brakes on credit growth: Fitch

Tighter monetary policy is weighing heavily on credit growth across the advanced economies, Fitch Ratings says.

The rating agency reported that credit conditions have tightened significantly as central banks’ policy actions work their way through local economies.

“Lending growth to households and corporates is declining swiftly in Europe, the U.S., Australia and Canada,” Fitch said in its latest review of credit conditions.

In the U.S., loans to commercial and industrial businesses are now “barely growing,” it reported. A year ago, they were rising at a 15% annual rate.

“Higher policy rates have also had a strong impact on mortgage borrowing in Canada and Australia,” it said.

In Europe, central bank surveys are pointing to a sharp drop in demand for credit from businesses, it said, “despite only a modest tightening in lenders’ credit standards.”

“Bank lending in Spain and Italy is contracting in annual terms, while in France and Germany it is decelerating rapidly,” the report said.

Fitch noted that corporate savings have increased in the U.S. and Europe for the past three years, and investments have also risen, “resulting in fairly stable net lending positions.”

At the same time, aggregate household savings ratios have dropped from the highs that they saw in the midst of the pandemic, it noted.

“Households’ debt ratios (as a share of GDP) also have declined sharply since the global financial crisis,” the report added.