Growth in eurozone loans slows in December, ECB says

28th January 2011, Comments 0 comments

The rate of growth in eurozone bank loans to the private sector declined slightly in December, the European Central bank said Friday, signalling possibly slower growth across the 17-nation region.

Lending expanded by 1.9 percent from the same month a year earlier, down from 2.0 percent in November, an ECB spokesman said, interrupting a trend upwards since April.

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

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

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

Loans to non-financial corporations showed a contraction of 0.2 percent last month meanwhile, worse than the 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 said.

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 raise interest rates.

The ECB has kept its key interest rate at a historic low of one percent since May 2009 and economists do not expect a change in the near future.

"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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