Recent credit dynamics across advanced economies: Drivers and effects

Lucia Quaglietti

No 1826, OECD Economics Department Working Papers from OECD Publishing

Abstract: Financing conditions have tightened sharply since 2022 across OECD countries, reflecting the rapid increase of central banks’ policy rates. Credit conditions have worsened alongside, especially in the euro area, where credit provided by banks has been expanding at the slowest pace since the euro area sovereign debt crisis. Empirical estimates obtained for Germany, France, Italy, the United Kingdom and the United States suggest that the credit deceleration reflects a combination of tighter credit supply and falling credit demand, with the latter playing a predominant role in shaping credit conditions in the euro area. Credit supply has progressively dried up in all countries, and although there have been few signs of a severe and widespread credit shortage of the type seen in the global financial crisis, the negative effect on economic activity is being felt in several countries. Bank lending rates have started to edge down, pointing to a completed pass-through of past monetary policy tightening. However, tight credit conditions could weigh on activity through 2024, due to the long lags in the transmission of credit shocks. Credit demand could also weaken further, including in the event of a sharp tightening of labour markets or a swift repricing in asset prices.

Keywords: credit drivers; credit effects; labour markets; monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2024-11-29
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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