Credit Growth and Economic Recovery in Europe After the Global Financial Crisis

Sergei Antoshin, Marco Arena, Nikolay Gueorguiev, Tonny Lybek, John Ralyea and Etienne Yehoue

No 2017/256, IMF Working Papers from International Monetary Fund

Abstract: This paper reviews the empirical relationships between credit growth, economic recovery, and bank profitability in Europe after the global financial crisis (GFC). We find that the post-GFC recoveries in Europe have been weaker than previous recoveries, with the “double-dip” recessions in 2011–12 in many countries and the worldwide reach of the GFC explaining the underperformance. Bank lending has been subdued as well, but this appears to have only held back the recovery relatively moderately. A 10 percent increase in bank credit to the private sector is associated with a rise of 0.6–1 percent in real GDP and 2–2½ percent in real private investment. These relationships have not changed significantly during and after the GFC. Loan quality, customer deposits, bank equity price index, and bank capital appear to be closely linked to bank lending. As expected, bank profitability is positively and significantly influenced by credit growth, but this relationship has weakened after the GFC.

Keywords: WP; credit growth; economic activity; private sector; price index; economic recovery; creditless recoveries; bank profitability; global financial crisis; Europe; dummy recession; recovery dummy; CESEE recession-recovery pattern; GFC-induced recession; recovery period; GFC recovery; credit dynamics; creditless recovery; GFC recession; credit extension; Credit; Bank credit; Global financial crisis of 2008-2009; Credit booms; Global (search for similar items in EconPapers)
Pages: 54
Date: 2017-11-17
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Citations: View citations in EconPapers (15)

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