The global credit crunch will result in a halving of global real credit growth this year as the global financial system continues to de-leverage, risk aversion increases and the global economy slows, says Fitch Ratings.

In a report issued Tuesday, Fitch forecasts real credit growth will halve to 7% by the end of this year and slow further to closer to 5% next year, after having peaked at almost 16% in 2007. The slowdown will continue to be most pronounced in emerging Europe but will spread to all regions, it said.

Fitch forecasts Latin American credit growth to slow sharply. In contrast, the slowdown in the Middle East and Africa and Asia is forecast to be less pronounced.

A number of factors are now coming together to slow credit growth, it says. First and foremost, the global financial system is de-leveraging. Risk aversion has increased, especially risk aversion between banks. Last but not least, the global economy is slowing.

Some EU countries are entering recession and there is one looming in the US, Fitch says. It notes that it has always been skeptical of the de-coupling argument and expects most emerging market economies to slow in the year ahead. This will exacerbate banking system problems as asset quality deteriorates in a more traditional cyclical fashion.

The rating agency sees increased risk aversion is the main reason for the domino effect of successive developed-country bank failures and takeovers in the past month, it also partly explains the liquidity problems of some emerging-market banking systems. “Stresses will persist as external funding – whether from banks or capital markets – becomes more difficult and expensive to access,” it says.

IE