A China indicator that greases risk-taking in stocks and bitcoin is flashing red
A key economic indicator known as the 'credit impulse' in China is currently flashing red, signaling a potential global economic slowdown. Analysts warn that this decline in credit creation could negatively impact risk assets like stocks and bitcoin.
Why it matters
Investors use this indicator to gauge global liquidity and predict market volatility for high-risk assets.
The same indicator is now telling a different story.
Credit impulse, invented by economist Michael Biggs in 2008, measures the change in the flow of new credit relative to gross domestic product. The latter is the record of all final goods and services produced in a country during a specific period.
In simple terms, the indicator measures whether the pace of new borrowing in an economy is speeding up or slowing down, relative to the size of that economy, rather than just tracking the total stock of debt outstanding. A rising credit impulse means fresh credit is flowing in faster than before, which tends to boost spending and growth. A falling one.
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