Creditless Recoveries

A big question for Ireland is the extent to which tight credit conditions will restrict economic recovery.  This new IMF paper looks at the cross-country evidence.

Summary: Recoveries that occur in the absence of credit growth are often dubbed miracles and named after mythical creatures. Yet these are not rare animals, and are not always miracles. About one out of five recoveries is “creditless”, and average growth during these episodes is about a third lower than during “normal” recoveries. Aggregate and sectoral data suggest that impaired financial intermediation is the culprit. Creditless recoveries are more common after banking crises and credit booms. Furthermore, sectors more dependent on external finance grow relatively less and more financially dependent activities (such as investment) are curtailed more during creditless recoveries.

7 thoughts on “Creditless Recoveries”

  1. A question after reading this:

    1. Creditless recoveries are characterised by slower than average output growth. We’re being told that the Irish recovery will be export-led. So is there a contradiction here? Will a creditless recovery blunt the advantages of increased exports?

  2. Its more a question of what sector of the economy most benefits from any bailouts that are given.

    If one sector is favoured over another, then arguably the fuel can get siphoned away, I try to examine this here http://wp.me/pBbF3-dP

    It appears to me the former financial class and the banks are siphoning away bailout so we’ll inevitably be faced with a creditless recovery.

    But rather than creditless recovery, this is leading to default.

  3. Whatever about ‘future tense’ – certainly the case in ‘present tense’ where self-employed and small entrepreneur are being squeezed into no-man’s land – oft for a dozen years – where even the dole is off the agenda in first year – wonder might the sane wing of the troika make representations to the neu regime to reverse some of the actions of the ancien regime … or are we all mere ‘winstons’ now?

  4. @DOD

    “…or are we all mere ‘winstons’ now?”

    Definitely and we wont see the end coming either.

  5. The domestic supply of credit should not be a problem for FDI. The potential barrier to export led growth lies with indigenous exporters. But the numbers involved are pretty low. An initiative that targetted about 4,000 of them could solve most of the problem

  6. @Robert Glynn

    .. certainly feels like it most of the time …. but the war in Oceania is going swimmingly, or so we are told (-;

  7. Joan Burton has responded on the welfare aspects of self-employed and small biz mendicants …. ‘mitigants’, as The Gov’nor puts it, are in process for such mendicants. S’pose we might call it The Winston Act. WTF were PD/FF doin for all these years?

    I wish Minister Burton well.

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