Sunday, May 8, 2011

Business Credit Expanision and Economic Recovery in Canada

Since the recession ended the role of household credit in the recovery has been examined. One narrative that has formed is that this is largely artificial due to an unsustainable rate of household credit expansion.

However, not much attention has been given to role of business credit shown in the chart below.


Consider three different time periods in recent history.

(A) Pre-recession household and business credit were expanding at a rate of 11.8% and 8.6% respectively.

(B) In the aftermath of the financial crisis household credit growth slowed to a rate of 7.4% while business credit expansions stopped entirely with an yearly growth rate of -0.1%.

(C) Recently, household credit growth has eased to 6.5% while business credit recovered to 4.8%.

The financial crisis had a bigger impact on business credit than household credit and since then the gap between the two has narrowed considerably. This could explain some of the continued strength of the Canadian economy after two years of recovery.

Source: Bank of Canada
household credit
business credit

2 comments:

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Carioca Canuck said...

Banks have really cut back hard on lending to individual consumers......credit qualifications are tight and they watch debt service rations as well as available credit lines very closely.

A full 1/3 of our automotive credit applications get turned down each month by the subprime lenders. And these are folks that would have been bought a year ago.