Eurozone private sector lending falters: ECB

29th April 2011, Comments 0 comments

The growth of bank lending to consumers and businesses in the eurozone faltered in March, the European Central bank said on Friday, signalling a possible easing of drive behind the economy.

But lending to the private sector still increased by 2.5 percent from the level in the same month last year, although that was slightly slower than the rate of 2.6 percent in February, an ECB spokesman said.

The central bank also said that eurozone money supply as measured by its M3 indicator grew by 2.3 percent in March however, a rate that was higher 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, and therefore interest rates, in the medium term.

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 begin to pick up and incite the ECB to hike interest rates.

The central bank raised its key interest rate to 1.25 percent in April, and economist believe it could reach 1.75 to 2.0 percent by the end of the year as inflation continues to exceed the ECB's target.

The latest reading for eurozone inflation was expected later on Friday, but at 2.7 percent in March it is already well above the target of just below 2.0 percent.

The 17-nation eurozone economy is forecast to grow by 1.5 percent this year, meanwhile.

A breakdown of the bank's loan data showed that lending to non-financial corporations gained 0.8 percent in March, just a slight improvement on the February figure of 0.6 percent.

That measure had been contracting at the end of 2010.

"Only gradually increasing bank lending to corporates maintains concern over the general ability and willingness of banks to provide the necessary credit to support economic activity, especially in the struggling peripheral eurozone economies," IHS Global Insight chief European economist Howard Archer said.

In its latest bank lending survey, the ECB found that demand for loans had picked up but "also revealed that there had been a slight tightening in lending standards," he noted.

Loans to households were 3.4 percent stronger on a 12-month basis however, better than growth in February of 3.0 percent.

But consumer credits showed a decline of 0.9 percent in March, a slight worsening of the previous month's decline of 0.7 percent.

© 2011 AFP

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