Recent Credit Surge in Historical Context

Abstract

Benign financing conditions since the global financial crisis and, more recently, rising financing needs have fueled a rapid increase in credit to the nonfinancial private sector, especially to the corporate sector in emerging markets and developing economies (EMDEs). In this paper, we first compare post-crisis credit booms with pre-crisis episodes of credit booms and document some distinctive features of post-crisis credit booms. We find that, credit booms in commodity-importing EMDEs in the immediate wake of the global financial crisis have subsided since 2012 but have left a legacy of credit to the nonfinancial private sector that has been considerably higher than in previous credit booms. In contrast, since 2014, credit growth in several commodity-exporting EMDEs has been near the pace observed in past credit booms. We then benchmark current credit-to-gross domestic product (GDP) ratios against thresholds identified in the literature as early warning indicators. Most EMDEs are still some distance away from those thresholds. However, since recent credit booms have not been accompanied by investment surges/booms, GDP growth may contract more when credit booms unwind.