ECB set to keep policy as loans to private firms in eurozone fall
Print Edition
Lending to the eurozone’s private sector contracted further in July, dragging on the region’s nascent economic recovery and keeping up pressure on the European Central Bank to maintain its expansive monetary policy.
Private sector loans shrank by 1.9 percent from the same month a year ago, ECB data released yesterday showed.
A breakdown of the region-wide figure, which matched the lowest reading in a Reuters poll of economists, showed declines were generally steeper on the eurozone’s struggling periphery, adding to evidence that the recovery is uneven.
The ECB has tied its “forward guidance” on interest rates to the inflation outlook and monetary dynamics remaining subdued — a scenario that yesterday’s data showed to be clearly intact.
“This reinforces the view that underlying inflation pressures in the eurozone remain very subdued, enabling the ECB to keep interest rates at current low levels for an extended period,” said ING economist Martin van Vliet.
Eurozone M3 money supply — a more general measure of cash in the economy — grew 2.2 percent annually in July, the ECB said, slowing from 2.4 percent in June but above the consensus forecast of 2.1 percent in a Reuters poll of analysts.
The weak money supply and lending figures contrasted with other more positive data, though the bloc’s recovery has been led by Germany, where business mood hit its highest level in 16 months in August.
With much of the eurozone periphery still in recession, investment and spending are subdued, while banks are restraining lending to repair their balance sheets — a combination that risks condemning the bloc to an anemic and uneven recovery.
Adjusted for sales and securitization, the drop in loans to the private sector was 1.4 percent on an annual basis, the biggest on the record.
An ECB survey released in July showed that eurozone banks, facing tougher capital conditions, tightened lending standards for both companies and home loans in the second quarter even though their access to funding eased.
“It’s a creditless rebound,” said Berenberg bank economist Christian Schulz. “The real economy is turning around but it’s not fueled by credit ... This is something that will kick in at a later stage. It will follow the cycle rather than lead it.”
Banks granted non-financial firms 21 billion euros (US$28 billion) less in loans in July than in June, data adjusted for sales and securitization showed, after a fall of 12 billion euros in June.
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