Eurozone business loans slump further, ECB says

28th January 2011, Comments 0 comments

Eurozone business loans slumped further in December, the European Central bank said on Friday, signalling possibly slower growth across the 17-nation region.

Lending to non-financial corporations contracted by an annualised 0.2 percent, a statement said, worse than a decline of 0.1 percent in November.

"This is a blow for hopes that eurozone banks may be becoming more willing to lend to what they perceive to be less risky businesses," IHS Global Insight chief European economist Howard Archer commented.

Companies might also be less willing to borrow from banks and the end result could be weaker economic activity ahead.

Overall growth in eurozone private sector lending declined slightly as well last month to 1.9 percent from 2.0 percent in November, an ECB spokesman said, interrupting a trend upwards since April.

The central bank said that the eurozone money supply as measured by its M3 indicator grew by 1.7 percent in December, a rate that was also lower than the increase of 2.1 percent the previous month.

The ECB regards this figure as a key guide to pressures likely to affect inflation in the medium term.

The bank provides a sliding three-month average for the M3 indicator as well, and it rose to 1.6 percent for the period from October through December from 1.4 percent in September-November.

A breakdown of the lending data showed that growth of loans to households eased to 2.8 percent from 3.0 percent, with an increase in mortgage lending dipping to 3.4 percent from 3.7 percent.

Lending and money supply data are widely-followed indicators of consumer demand and overall economic activity.

Rising figures point to increased demand, which normally means inflation could also pick up and incite the ECB to raise its benchmark interest rate from the current record low of 1.0 percent.

The latest figures for eurozone inflation are due out on Monday.

"Reduced corporate lending in December and ongoing muted money supply growth supports the case for the ECB to hold off from raising interest rates not only at its February meeting next Thursday but also for some time to come, even though eurozone consumer price inflation has now risen modestly above target and could well climb further in the near term," Archer said.

© 2011 AFP

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