Asia's credit dependency is troubling: analysis

This has been going on a while.

Asia's credit dependency has been noted as troubling, and it's also been noted that it's been on this train for a while.

According to a research note from HSBC Global Research, as background, since the Global Financial Crisis, growth across emerging Asia has in large part been driven by an increase in debt.

There are three problems with this, says the report. First, debt-to-GDP ratios cannot rise forever. Second, if (or when) interest rates increase, growth and financial stability could take a knock.

Third, the credit intensity of GDP growth continues to rise
in Asia: for a given increase in leverage, economic activity slows over time.

Here's more from HSBC Global Research:

This means that in order to maintain even the disappointing growth rates of the past couple of years, credit would have to expand even faster than before.

Alas, the opposite is happening: debt growth is slowing. Sounds ‘great’, you might think, as this might help to restrain the build-up of financial imbalances.

Well, yes. But given rising credit intensity, GDP growth is coming under even greater pressure as lending decelerates. Can we ever get out of this ‘trap’?

Yes, through faster productivity growth. But that will take time, and can occur only after structural reforms have been implemented.

For now, therefore, it’s important that interest rates don’t rise, which fortunately they are unlikely to. Still, it’s hard to see an impending acceleration in growth.