To support economic development, global credit levels must grow substantially over the next decade. At the same time, public and private decision-makers must avoid a repeat of the credit excesses that recently brought the world financial system to its knees. Can the world’s growing demand for credit be met responsibly, sustainably – and with fewer crises? The answer, this report shows, is “yes”. But to achieve this goal, financial institutions, regulators, and policy-makers need more robust indicators of unsustainable lending, contagion risk, and credit shortages – and better mechanisms to ensure credit drives development.
Global credit stock doubled from US$ 57 trillion to US$ 109 trillion between 2000 and 2009, at a 7.5% compound annual growth rate. This expansion was spread fairly evenly between the government, wholesale and retail segments until 2009, when government lending rose sharply to fund the banking bailout and to support economic stimulus programmes
Between 2000 and 2009, the world economy grew at a healthy rate, and the world’s stock of credit outpaced GDP growth by less than 2 percentage points a year – not an unsustainable rate of leverage increase. Beneath this aggregate picture, though, there were pockets of overheating.
Rapid credit growth is forecast in developing markets, which will add almost US$ 50 trillion to their credit stock by 2020. China’s credit demand will lead global credit growth: it will require US$ 20 trillion more credit in 2020 than in 2009, with 80% of that growth going to the wholesale segment. In developed markets, including the large Western economies, most of the growth will come from the government segment. In North America alone, the value of government bonds is expected to grow by US$ 12 trillion to 2020. Deleveraging in overheated retail and wholesale segments of the developed world will be significant.
The study defined four criteria for sustainable credit:
• Limited “hotspots”, or areas of excess credit where repayment and servicing prospects are at risk
• Transparent and manageable contagion risk in order to reduce system volatility
• Limited “coldspots”, or segments where growth is inhibited by a lack of access to credit
• Alignment with social goals, to ensure that both economic and welfare needs are met
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