Does IP keep up momentum?

►Unadjusted December industrial production posted a 12.1% increase whereas calendar-adjusted IP growth stands at 9%. Calendar-adjusted Q4 IP is at 10.1%. This implies 2-2.5% 2020 GDP growth.

►Past IP is strong, yes. But industrial production is a bit too weak to be the most important momentum indicator, first, and second, new IP may not display persistence.

►Why? Because credit momentum has been lost only slowly. January loan data point to a marked deceleration. By November 27 commercial loan growth, 13-weeks F-adjusted stood at 3.83; now it is 0.66.

►Consumer lending also fell drastically from 11.74% to 3.95% by the same metric. Furthermore, private savings banks’ commercial lending growth is at minus 3.60%.

►Now we will feel the heat. Mortgage sales are so down that the rate of decline is about 75%. The impact of both high interest rates and high household debt leaves its dent in addition to job losses and low earnings.

►Now a seemingly unrelated but in fact very relevant issue concerns energy, food and other import prices such as metals etc. They are high and this could jeopardize the main scenario of slow reserve accumulation.

►Hence loss and the rapid current account decline I have anticipated so far may not happen so easily. Given earnings impossibility of yet another credit boom, just how long can industrial production – and growth - be sustained?

►True, manufacturing is more resilient than ordinarily anticipated. However, I tend to think risks accumulate as we eat into 2021.