ABA report: Credit market expected to weaken on high inflation

Top economists from the largest U.S. banks expect credit market conditions to weaken amid high inflation, according to the American Bankers Association’s Credit Conditions Outlook released today. The report highlights the results of the ABA Credit Conditions Index and summarizes a suite of indexes derived from the quarterly outlook for credit markets produced by ABA’s Economic Advisory Committee. According to the second quarter 2022 report, near-term expectations for credit quality and availability fell sharply for consumers and businesses in March, after a modest decline in the first quarter.

EAC economists also downgraded their forecasts for real economic growth in 2022 from 3.3% to 2.5% due to high inflation and new headwinds related to the Russo-Ukrainian War. In the second quarter, the headline credit index fell 22.6 points to 40.9; the consumer credit index declined 26 points to 38.6; and the business credit index declined 19.3 points to 43.2.

“Russia’s invasion of Ukraine, sanctions imposed on Russia’s economy and new COVID-related shutdowns in China have prolonged supply chain disruptions and added to inflationary pressures,” said ABA Chief Economist Sayee Srinivasan. “At the same time, the labor market remains strong and financial stress among both consumers and businesses is historically low. Credit conditions for households and businesses have been remarkably strong in recent quarters, but they are likely to normalize to more typical levels amid an expected tapering of economic growth as the Fed raises rates to combat high inflation.”