Firms will borrow more as economy picks up – ESRI

Research from the Economic and Social Research Institute to be published today says that following recent deleveraging which has occurred in the economy, credit demand over the coming years will grow in line with GDP growth and that the share of credit accounted for by the property sector will decline relative to other business sectors.

Overall projections suggest that credit stocks for non-financial corporations and SMEs will stabilise at a pre-boom level of approximately 40pc of GDP, with the subsequent growth in credit stocks evolving broadly in line with GDP. At the peak in 2008, credit was 106pc of GDP and this has reduced to 60pc in 2013.

The total volume of firm credit is not likely to grow significantly over the remainder of the decade and the analysis suggests changes to sector shares of credit. In particular, the current share of property lending is above the long-run fundamental level and the ESRI expects total credit in this sector to fall before 2020.

“The forecasts related to property credit should not be taken to indicate that there will be no new lending in the property sector,” said Dr Martina Lawless, one of the researchers.

“Credit is still required and it is extremely important that deleveraging pressure in this sector does not result in credit constraints for viable projects. However, we do expect that the disproportionate share of credit allocated to property during the boom will continue to unwind over time.”

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