Credit quality and availability will weaken over the next six months after three straight quarters of strong conditions, according to the American Bankers Association’s second quarter Credit Conditions Index.
Three-fourths of the ABA’s Economic Advisory Committee, composed of chief economists from major North American banking institutions, expect the availability of consumer credit to either stay the same or weaken over the next two quarters. Only one-fourth expect the market to strengthen. No economist predicted consumer credit quality will improve over the next six months.
“Bank economists expect the credit environment to normalize following a period of unusually strong credit availability and quality, which were underpinned by robust consumer savings amid federal stimulus payments and low interest rates,” the ABA stated.
High inflation, Russia’s invasion of Ukraine and subsequent sanctions on the Russian economy, and shutdowns in China to slow the spread of Covid-19 will cause real economic growth to drop this year from 3.3 percent to 2.5 percent, according to the Economic Advisory Committee. “At the same time, the labor market remains strong and financial stress among both consumers and businesses is historically low,” noted Sayee Srinivasan, ABA chief economist and head of research.