News Analysis
The flow of credit in the Canadian economy is slowing. This is the effect of much higher interest rates—as engineered by the Bank of Canada—but the other component that could amplify the slowdown is more restrictive bank lending due to their lower risk appetites, concerns about clients’ creditworthiness, and regulatory supervision.
Oxford Economics (OE) says that tightening lending standards often provide warning signs for a recession. With respect to the United States, OE predicts the net percent of banks tightening standards for lending to small firms should hit 60 percent.
“Business investment is sensitive to changes in lending standards and real interest rates. It’s also often the first economic indicator to drop ahead of recession, followed by consumer spending,” said Ryan Sweet, OE’s chief U.S. economist, in an April 14 note….