Bank economists: Credit conditions to weaken over next six months

Bank economists expect credit conditions to weaken over the next six months due to mounting economic headwinds, according to the Credit Conditions Index released today by the American Bankers Association’s Economic Advisory Committee.

The fourth-quarter 2022 report found that near-term expectations for credit quality and availability for businesses and consumers alike fell for the third consecutive quarter. Following steady credit market recovery in 2021 and early 2022, the latest readings reflect persistent economic headwinds, most notably inflation and rising interest rates. In response, EAC members downgraded their forecasts for real economic growth in 2022 from 1.6% to -0.1%.

The Headline Credit Index fell again in Q4, dropping 10.8 points to 10, the weakest reading since the onset of the COVID-19 pandemic. The Consumer Credit Index fell 12.9 points to 10 in Q4. No EAC members expect consumer credit availability to improve over the next six months, while more than two in three expect it to worsen.

The Business Credit Index fell 8.8 points to 10 in Q4. All but two EAC members expect both business credit availability and business credit quality to worsen over the next two quarters, and no members expect either to strengthen.