While bank lending plateaued in the U.S., off-shore dollar bank lending has actually contracted outright at a rate not seen since the 2008 financial crisis. Data as of 2023Q1 indicates a year over year decline of $325b in loans with the bulk of the decline concentrated in lending to emerging markets. This is likely due to both supply and demand factors, where borrowers pull back due to higher rates and banks reduce lending due to lower profitability. A similar trend is observed on-shore, where bank lending has been growing at a very sluggish rate. Note that foreign banks may not have access to dollar liquidity backstops like FHLB lending and the discount window, so they may be more cautious than U.S. banks. The reduction in dollar credit is likely contributing to the global manufacturing slump and will remain a significant headwind to global growth.
- Date Posted:
- September 5, 2023
Growth theory reveals that in the long run, growth in living standards is determined by growth in the worldwide number of people searching for ideas. A growth accounting exercise for the US since the 1950s suggests that many other factors have temporarily contributed to growth, including rising educational attainment and a rising investment rate in ideas. But these forces are inherently temporary, implying that growth rates could slow in the future. In contrast, other forces could potentially sustain or even increase growth rates. The emergence of countries such as China and India provides large numbers of people who could search for ideas. Improvements in the allocation of talent — for example, the rise of women inventors — and increased automation through artificial intelligence are other potential tailwinds.