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

55 Pages Posted: 18 Jan 2018

See all articles by Sergei Antoshin

Sergei Antoshin

George Washington University, School of Business; International Monetary Fund

Marco Arena

International Monetary Fund (IMF)

Nikolay Gueorguiev

International Monetary Fund (IMF)

Tonny Lybek

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

John Ralyea

International Monetary Fund (IMF)

Etienne B. Yehoue

International Monetary Fund (IMF)

Date Written: November 2017

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 2-21/2 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: Financial crises, Europe, Economic recovery, credit growth, creditless recoveries, bank profitability, global financial crisis, Models with Panel Data, Single Equation Models, Single Variables, Instrumental Variables IV Estimation

JEL Classification: C23, C26, E51, G01, G21, O47, O52

Suggested Citation

Antoshin, Sergei and Arena, Marco and Gueorguiev, Nikolay and Lybek, Tonny and Ralyea, John and Yehoue, Etienne Baba, Credit Growth and Economic Recovery in Europe after the Global Financial Crisis (November 2017). IMF Working Paper No. 17/256, Available at SSRN: https://ssrn.com/abstract=3104509

Sergei Antoshin (Contact Author)

George Washington University, School of Business ( email )

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Washington, DC 20052
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202-362-7008 (Phone)

HOME PAGE: http://savickas.net/cgi-bin/GWfinance/viewfaculty.cgi?fn=36

International Monetary Fund ( email )

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Washington, DC 20431
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202-623-7630 (Phone)

Marco Arena

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nikolay Gueorguiev

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Tonny Lybek

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Washington, DC 20431
United States

John Ralyea

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Etienne Baba Yehoue

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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