Eurozone crisis still choking credit demand: ECB

27th February 2013, Comments 0 comments

Bank lending to private households in the euro area remains weak as the long-running debt crisis continues to choke demand for credit, European Central Bank data showed on Wednesday.

Even though sentiment indicators across the 17-country eurozone are on the rise, companies and households appear reluctant to take out new loans, the statistics showed.

The ECB calculated that eurozone bank loans to the private sector declined by 0.9 percent on a monthly basis in January, after already shrinking by 0.7 percent the previous month.

The central bank believes that falling loans to the private sector reflect weak demand for credit rather than tight lending conditions, given pessimism regarding eurozone growth prospects and heightened risk aversion amid the crisis.

"Although banks' liquidity positions have improved overall since early 2012, it is clear that this has had little effect in boosting private-sector lending," said IHS Global Insight economist Howard Archer.

Neither had the ECB's rate cuts done much to encourage banks to lend more to the private sector, the expert said.

"The weakness in lending ... (reflects) survey evidence showing that households and firms are reluctant to take on new debt amid weak economic activity levels and still appreciable uncertainty regarding the economic outlook," Archer said.

"Nevertheless, the concern is that a number of companies who do want to borrow -- whether it be to support their operations, boost investment, explore new markets -- and are in decent shape are finding it hard to, so tight credit conditions are handicapping eurozone growth prospects," he said.

Annalisa Piazza at Newedge Strategy also said the lending data were "a clear sign that the eurozone recession is still weighing on demand for credit."

Loredana Federico at UniCredit noted that the ECB's recent bank lending survey "confirmed that risk perceptions and low demand were among factors weighing on lending growth."

She predicted that "all in all, if in the next months the improvement in growth indicators and banks' funding conditions will not be reversed, the lending cycle is likely to embark on a moderate recovery sometime in the second half of the year."

The ECB also published eurozone money supply data, which suggest that growth in the money supply -- a key guide to future inflation -- picked up last month.

Growth in the M3 indicator, which measures the amount of money in circulation, grew by 3.5 percent in January, compared with 3.4 percent in December.

The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.

© 2013 AFP

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