Credit-to-GDP gap

What this series measures

The credit-to-GDP gap compares the ratio of credit to GDP with its long-run trend. A positive gap means credit is high relative to its historical relationship with the economy. A negative gap means credit is low.

The BIS publishes credit-to-GDP gaps for a range of economies. The series is used as an early-warning indicator for financial stress and as an input to macroprudential policy.^[1]

Why it matters

Credit booms can build leverage, raise asset prices, and make the financial system more vulnerable to a shock. Long-run research finds that credit growth is associated with financial crises and that the composition of credit matters.^[2]

The gap is not a precise forecast. It is a signal that the financial cycle may be in an expansionary phase, and that buffers may need to be built.^[3]

How to read it

• A positive gap is not proof that a crisis is coming. It is a warning indicator.
• The trend is estimated, so the gap is sensitive to the method and the sample.
• Credit can grow for productive reasons. The gap does not distinguish good credit from bad credit by itself.
• Use the gap alongside other indicators: leverage, asset valuations, lending standards, and debt-service burdens.^[4]

Caveats

• The measure is revised as new data arrive.
• Different credit definitions can produce different gaps.
• The relationship between credit and GDP varies across countries and over time.
• A high gap can persist for a long time before a crisis, and a crisis can occur without a high gap.

The BIS data page provides the underlying series and methodology notes.^[1]