Chart of the month: Credit tightening implies weaker US GDP growth

The US Federal Reserve’s latest survey of senior loan officers in the US found a majority reporting that their banks were set to tighten credit conditions. And this was before the recent bout of banking stress – chances are that credit conditions will have tightened more since then.

Given over the last thirty years the chart suggests a potential link with GDP growth, this adds to our confidence over a recession in the US this year. We don’t think equity market valuations reflect this, and we therefore see further downside risk from here.