Eurozone credit growth still subdued, analysts comment

27th October 2010, Comments 0 comments

Lending to the eurozone private sector grew at a steady pace of 1.2 percent in September from the equivalent amount last year, the European Central Bank said on Wednesday.

This meant that lending, a vital measure of the vigour of credit activity, grew at the same rate as in August, a bank spokesman said.

"In sum, the still subdued expansion (or even stagnation month/month) of credit aggregates - so far the major source for money production - suggests that the recovery of bank lending remains gradual for now," Barclays Capital economist Thorsten Polleit said.

Commerzbank economist Michael Schubert added that "things have to improve much further, before ECB president Trichet - to use his own words - can declare victory.

"We stick to our forecast that the ECB will leave rates unchanged (at 1.0 percent) over a long time span," Schubert concluded.

The ECB said that the eurozone money supply, as measured by the so-called M3 indicator, grew by 1.0 percent in September, slightly less than the rate of 1.1 percent seen in August.

The ECB regards the M3 figure as the key guide to pressures likely to affect inflation in about 18 months' time.

It has set a medium-term target for inflation of just under 2.0 percent.

But owing to the depressive effects of the global economic crisis, the ECB has also been wary of growth of the money supply becoming too weak, which would raise concerns of deflation.

In Germany, the biggest eurozone economy, credit hurdles diminished further in October, a survey by the Ifo economic research institute found.

Ifo said the number of German companies which reported restrictive access to credit declined to 27.6 percent of the roughly 4,000 firms polled, from 29 percent in September.

"Banks' lending policies are supporting the economic upswing," Ifo president Hans-Werner Sinn said, while a realignment of global capital flows meant that "German savings are now being deployed in Germany to a greater extent."

ECB data for the 16-nation eurozone showed that loans to households grew by an average of 2.8 percent in September, with a sub-index of mortgage lending rising by 3.4 percent.

Loans to non-financial corporations were off by 0.6 percent meanwhile, an improvement on the August figure of minus 1.1 percent.

© 2010 AFP

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