If you argue the credit crisis was simply a case of pumping too much money into the system through cheap loans and loose fiscal policy, you might want to look away now.
Credit levels "need to double over the next 10 years," a rise of $103 trillion, to support consensus-projected economic growth, according to the World Economic Forum.
“This doubling of credit could be achieved without increasing the risk of major crisis,” WEF said in a paper titled "Credit with Fewer Crises: Responsibly Meeting the World’s Growing Demand for Credit."
The WEF report, in partnership with McKinsey & Company and Standard & Poor’s aims to answer the following questions: will credit growth be sufficient to meet demand, is there a risk of future credit crises and, if so, where?
“Meeting credit demand will be challenging," the report said. "Globally, financial protectionism may constrain cross-border financing, a key to the provision of sufficient credit in the next decade, as global imbalances persist.”
Asia will need $40 trillion, the European Union will need $13 trillion in bank lending and the US will need to draw on global savings by up to $3.8 trillion in 2020 without a big increase in its savings rate, according to the report.
“Leaders in the private and public sectors must take decisive actions to avoid contributing to credit hotspots and cold spots, while still meeting the $100 trillion of credit demanded to sustain economic growth over the next 10 years.” GianCarlo Bruno, the director of financial services industries at the World Economic Forum, said.
“Despite widespread deleveraging, a number of 'hotspots' – i.e. segments where credit levels grow in excess of sustainable levels – will persist, while new ones emerge. By 2020, these will include retail credit segments in countries representing almost half of the global GDP," Bruno said.
The expansion of credit “is a crucial issue for policy-makers and the financial industry to tackle globally,” Standard and Poor’s President Deven Sharma said.