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One of the most significant indicators of a healthy economy is economic growth. It illustrates the growth in the economic output/national expenditure, which is measured by GDP or GVA, in spite of the fact that alternative metrics are used. To put it simply, economic growth provides an overall idea of the economic health of an individual geography. In the United States, the economy seems to be maintaining a robust growth and it is not thanks to the banking sector. The great performance of the banking sector has positively affected economic growth, building a bridge between those who have excess money and are looking forward to investing it for their corporations and industry. Therefore, ensuring a sustainable and consistent economic growth is necessary to support investment processes that generate income and growth.

Lending Activity

The U.S. economy in 2018

Undoubtedly, 2018 was a good year for the American economy. The levels of job satisfaction were significantly higher, not to mention that the number of job vacancies reached its lowest level in 50 years. The point is that there was a non-negligible acceleration of growth. The U.S. economy performed as strong as it used to do around 2005. The midterm elections did not succeed in impacting the state of the country in terms of production and consumption of goods and services and the supply of cash. Not many are aware of the fact that the U.S. gross domestic product rose at 4.2 percent in the second quarter or that consumers and enterprises spent more.

The availability of credit ultimately leads to financial development. The bank lending activity increases the money supply. The more loans are made by financial institutions, the better it will be for the economy.

What lies ahead of the road? News isn’t good, unfortunately. It is commonly believed that the economy will enter a recession in 2019 and that there will not be any hope for the markets. Even if the economy will not continue to grow, in other words, there will be a slowdown, there is no reason whatsoever to worry about a financial crisis. The only thing that Americans will be dealing with are itsy-bitsy episodes of economic weakness. Consumers are becoming prosperous and they will keep on spending their money for the following years. Producers, for their part, enjoy strong employment security. There are more and more opportunities for individuals with loans or entrepreneurial ambition. It is essential to understand nothing is stopping the economic growth, at least not for the time being.

The role of credit in the economy

When a person receives something of value and promises to pay for it later, it is called a credit. Credit is practically a contractual agreement between two parties – that is, the borrower and the lender. Frequently, the credit takes the form of money, which can be used to acquire goods and services. Many are of the opinion that credit is one of the most important parts of the economy. But why? Owing to the fact that they promote spending and enhance the levels in the economy. Loans offered by the banking sector have a decisive impact on social change. There is a close connection between credits, inflation, and interest rates. The independent variables play a significant role in economic development. The lesson that needs to be learned is that credits are drivers of economic growth and a possible malfunction can result in drastic consequences.

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As one can imagine, growth does not take place in isolation. What happens in one country can possibly affect growth prospects in another nation. A recession in the United States, for instance, could act on Canada’s economy. It is worth mentioning that the role of financial institutions has not decreased in recent years in Canada. As maintained by smarter.loans, banks have the advantage of being able to provide liquidity a lot faster and cheaper, as compared to other intermediaries. Getting back on topic, the availability of credit ultimately leads to financial development. The bank lending activity increases the money supply. The more loans are made by financial institutions, the better it will be for the economy.

Steps to increase credit growth

For a very long time, investors have been keeping their eye on the loan growth of banks. Financial institution executives are doing their best to grow the lending business. Do they have any secrets? Yes, actually. In order to increase loan growth, they re-evaluate customers, rethink their offerings, and restructure their incentive programs. Credit worthiness is one of the first things that come to mind when it comes down to evaluating borrowers. Lenders make use of a great number of tools to evaluate their customers and not destroy profitability. As far as the product offerings are concerned, financial institutions can and should make modifications to loans and even expand their portfolio. Finally yet importantly, it is a good idea to offer different incentives to motivate individuals and, thus, achieve objectives.

Banks are the ones that feel the effects of loan growth in the economy. The explanation lies in the fact that they offer loans in exchange for interest payments. Sometimes, it is not necessary to do anything. When the economic climate is positive, consumers are more eager to spend and loan applications increase by the day. It is not hard to understand why banks prefer loans as primary business. Investment is fairly unattractive at this point, so people are not looking into securities. When there is an increase in the level of economic activity, financial institutions thrive. Not only do they perform extraordinarily, but also banks are able to enhance their earning power. The bottom line is that loan growth is important and it needs to be encouraged.

Final considerations

The economic development in the United States is considerably impacted by the lending activity. In the past years, the financial crisis has drawn attention to the fact that it is important to comprehend and monitor financial linkages. Future action needs to be taken in order to encourage the provision of short-term and long-term loans. Bank lending should not be hindered. On the contrary, it needs to be encouraged. It would not be wise to dismiss the most significant factor of economic growth. As a matter of fact, it would be a huge mistake.

Bogdan Butoi

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