Tuesday, January 31, 2012

Economic Expansion and Access To Credit

There's always a suggestion that banks' reluctance to lend has been a factor in lackluster GDP growth.  Domestically, leading middle market lenders like Wells Fargo have said that their better tier clients are flush with cash and don't need access to credit.  The issues for bank customers are risk aversion and a lack of confidence.  Wells Fargo said that middle market commercial lenders would generally like to grow their asset bases.

Now comes an interesting study of export behavior in Peru, based on an analysis of real-world customs data from that country.  Professors Paravasini, Rappoport, and Wolfenzon of the Columbia Business School write:
"Out of the total decline in exports from Peru, only 15 percent was driven by credit shortages. The other 85 percent was due to a drop in consumer demand. “Our 15 percent figure is a lower bound as it refers only to the decline in exports due to lack of finance to exporters. Finance can have a bigger impact as it surely also affects importers at the other end,” Wolfenzon says.

While trade is clearly based on supply and demand, it’s important to understand the relative importance of these both forces. To this end, Wolfenzon suggests a general takeaway. “The Peruvian government could not have done much to improve the country’s export performance,” he says. “The problem was a lack of demand from importing countries.”

Weak demand from developed countries in the United States and Europe is and will continue to be the issue for the resuscitation of the global economy.  On the domestic side, whether for the production of goods for domestic consumption or for exportables, the issue continues to be weak demand and a lack of business confidence.  Lack of access to credit doesn't seem to be the big issue.

No comments: