Real credit growth still negative

Although I disagree with his comments most of the time, when it comes to how media can manipulate the “masses” I have to agree with president Basescu.

NBR has released today the data for July Monetary Indicators ( I am in the process of doing a longer analysis of monetary policy and will treat the whole info later). I will stop today at the data about the credit developments.

Romania had one of its best economic performances after 1989 at the peak of private credit growth, in 2008. That year in January total real credit growth reached 55.5% with FX credit growing at 74.1% and the economy grew in real terms by 7.35%. Thus, private credit growth it is a variable carefully watched and believed to be imperative for future economic growth in Romania. Not necessarily sustainable but growth nonetheless.

Getting back to the data released today, the ZF has the following title” : Credit advances at slow but certain pace in July to reach 51 billion euro, fourth month in a row. Wow. If you just read this title you would go back to your company and start making investment plans. You would not want to be the one missing all the action while others get credit and invest.

Is this what is really happening? Let’s look at the data (graph here Real credit growth). As the graph and the press release show, total credit growth is still negative in real terms. In fact, with one exception in June 2010, real credit growth has been in negative territory since September 2009.  Ironic enough, in a country where FX credit led to the current crisis it is the same credit component that shows positive real growth since January 2010 and it is picking up pace. This is the problem with moral hazard, unless you get burned by FX risk you will never learn.

So, while there is some private nominal credit creation (not real), it is really far away from where it would have to be to help economic growth. And there are some more bad news. The government is still competing with the private sector for money (i.e. credit). In real terms, government credit has increased by 11.3% relative to the same period last year.  Too bad most of those money went to pay for current expenditures and consumption.

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