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Credit 3/10/2008 3:26:32 PM EST Overseas Credit Markets Not Experiencing Crunch Like US Two recent articles from the Financial Times of London indicate that foreign credit markets remain stable despite the chaos in the US markets.
According to this article, European businesses are not having trouble borrowing money. Eurozone borrowing by business grew at a record rate in January. FT calls this "the clearest indication yet that the 15-country region has avoided a credit crunch." Lucas Papademos, vice-president of the European Central bank, downplays the economic impact in Europe of the chaos in the financial markets and asserts that there is “no sign of a credit crunch.” Apparently tighter credit standards "had not significantly constrained the availability of credit.” Businesses are looking to traditional bank lending instead of capital markets to raise money and banks are responding.
We find a similar situation in Brazil. Though the capital markets have been affected by global instability the credit markets seem immune from the chaos in the US. Brazilian businesses have had no trouble borrowing money from banks. The prime example of that is the Brazilian mining giant, Vale, which was able to secure a $50bn loan in its bid to take over its rival, Xstrata. Brazil has seen a steady expansion of available credit. Brazil’s total stock of credit is only about 35 per cent of gross domestic product and Brazilian companies have much less debt than many foreign competitors.
Interestingly, the article on Brazil cites the stability of the Brazilian credit market as support for the theory of decoupling. That theory states that there is sufficient growth in Europe and emerging markets to protect the world from fluctuations in the US market. Decoupling took a serious hit when capital markets around the world plummeted at the end of January on fears of a deep US recession. Whether decoupling is valid or not, these two articles seem to indicate that European and Brazilian businesses are upbeat about the coming year regardless of the pessimism over the US economy.
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