Credit Slump to Have `Profound Impact' on Economy, Whitney Says

A slump in credit markets and a reluctance by banks to lend will have a ``profound impact'' on the U.S. economy, Oppenheimer & Co. analyst Meredith Whitney said.

Global debt underwriting volumes tumbled 50 percent from July through March, a more than $2 trillion drop from the same period a year earlier, according to data from Oppenheimer. U.S. debt issuance fell by more than $1.3 trillion, or 55 percent.

``There is little room in the system to `pick up the slack' vis-à-vis corporate lending,'' Whitney wrote in a report to clients dated yesterday.

More than 80 percent of corporate funding came from capital markets in 2007, according to Whitney. She said such a ``massive extraction of liquidity'' in the past nine months, is bound to slow the economy. The U.S. economy grew at an annual pace of 0.6 percent in the fourth quarter, and probably slowed to a 0.2 percent rate in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News.

The debt underwriting declines of the past nine months are the biggest consecutive slump since 1990, according to Whitney, who is based in New York.

``Not only is the length of contraction of nine months and counting remarkable but so too is the severity,'' Whitney said in the report. In the last ``prolonged period'' of declines, global debt issuance slumped by 17 percent, or $209 billion, from November 1999 through May 2000, she said. Global debt volumes also fell by 25 percent, or $160 billion, in the 10 months ended in March 1995, according to Oppenheimer.