In a report to be discussed in Davos next week, the World Economic Forum (WEF) and consulting firm McKinsey has said that an extra $103 trillion dollar of credit will be required over the next decade if growth is to meet consensus forecasts.
The study – to be discussed among world policymakers, businessmen and bankers in the Swiss ski-resort, suggests that meeting the credit target will be difficult.
In a statement issued by WEF on Tuesday, it 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”.
With less developed capital markets and financial systems, Asia might struggle to meet its requirement of $40 trillion while European credit requirement has been pegged at $13 trillion.
“To supply this, banks will require additional capital that, after retained earnings, could lead to a capital shortfall of $2 trillion”, it commented.
The US will continue to borrow from the world and may additionally borrow another $3.3 trillion by 2020 to meet its own credit needs, unless its domestic savings rate improves.
“The report finds that the large projection in credit demand can be safely met, but financial institutions, regulators and policymakers need more robust indicators of unsustainable lending, contagion risk and credit shortages”, it concluded.