PHASES OF THE CREDIT CYCLE AND PROSPECTS FOR A NEW COVID-19 RECESSION

Abstract

The study analyzes the phases of the credit cycle and likely disruptions associated with the impact of the COVID-19 pandemic. The features of the period 2010-2019, which were not marked by serious crisis situations, are also considered. Particular attention is paid to the phases of credit contraction, which is a time period of the weakening of credit activity due to lower interest rates caused by the global crisis. At the moment, such consequences are associated with monetary policy, as well as the search for alternatives in financial support from non-financial organizations. A significant role in shaping this situation was played by operations that transfer risks to the financial sector outside of banking activity or to its shadow part. It is likely that the recession that emerged from the pandemic will continue to affect credit cycles over the coming years. The prospects for funding will be reduced at a low percentage - the only exception will be cases of state support. Central banks in this situation will assume the function of the main risk accumulator. There will be a connection between the level of interest rates and the system of providing for increasing debt. In other words, extremely low interest rates will set in motion a credit crunch, which will lead to a decrease in activity in the credit market, and most clients, except for large companies, will face these consequences. Risks are expected to accumulate in the shadow banking sector. Based on the research carried out, a platform can be developed for subsequent scientific research in the field of the credit cycle following the recession phase in the economy.