Deceleration of Debt in Q3 Affects GDP

0

There has been a strong connection recently, between the growth in nominal debt for the private sector and the gradual acceleration in growth of the U.S. real GDP. Research has already shown that close to 90% of the time when there was a decline in private debt growth, it was followed by a reduction in the growth rate of real GDP.

Clear Correlation

The numbers point to a very strong correlation between the two, which is explained by the fact that as opposed to when a government borrows money, individuals or businesses only take out credit in the private sector in situations where they can be reasonably certain that it will result in enough profit to be able to repay the debt.

When they do not believe they will be able to repay the loan, people and businesses will avoid taking on any debt that might be an additional burden. The opposite is also true, and the conviction that repayments will be possible will increase the rate of their borrowing.

Hard Numbers

According to the latest data, the third quarter this year also confirms this connection, as private debt acceleration declined slightly when compared to the previous quarter, with the real GDP growth rate also exhibiting a similar decline. This information might not be set in stone however, as the data was been proven to be imprecise when it was initially released.

For example, the growth rate of the real GDP in the U.S. for the third quarter of 2012 was released in October the same year and was presented as being at 2.0%, which was an increase from the previous quarter’s growth of 1.3%. However, the latest data released in November shows that the growth for that quarter was only 0.5%, actually showing a decrease when compared to the previous quarter’s rise of 1.9%, leaving data analysts still struggling to figure out what the true position actually is.

Share.

Leave A Reply