Bad economic sign: lending slightly higher | EUROtoday

DThe circulation of credit score to corporations within the euro zone is clearly shedding momentum in view of the weak financial system and rising rates of interest. In August, banks solely prolonged 0.6 % extra loans to corporations than a yr earlier, the European Central Bank (ECB) introduced on Wednesday. This is the smallest improve for the reason that finish of 2015. In July it was 2.2 %.

Because of the weak financial system, many corporations are at the moment holding again on investments, particularly since credit score prices have risen considerably. Banks are additionally taking a better look when lending cash, as the danger of firm bankruptcies and mortgage defaults will increase on this atmosphere. Banks granted 1.0 % extra loans to non-public households in August than a yr in the past, after 1.3 % in July.

“This is not good news for the euro zone economy, which is already stagnating and showing increasing signs of weakness,” stated ING economist Bert Colijn. “We expect the general slowdown to continue due to the impact of restrictive monetary policy on the economy.”

Economist Daniel Kral from Oxford Economics assesses the event in a really comparable approach: “We now assume that gross domestic product will probably shrink in the third quarter and stagnate in the last quarter of the year.”

Slowed financial system in trade for low inflation

The ECB has raised rates of interest ten occasions in a row for the reason that summer season of 2022 within the combat towards inflation – most not too long ago in mid-September. The related deposit price on the monetary market, which monetary establishments obtain from the central financial institution for parking extra funds, rose from 3.75 to 4.00 %. This is the very best degree for the reason that begin of the financial union in 1999.

With the rate of interest hike, the ECB needs, amongst different issues, to decelerate the circulation of credit score and thus additionally the financial system, in order that value inflation within the euro space decreases. Lending information is all the time an essential indicator for the financial authorities.

The M3 cash provide shrank by 1.3 % in August. Experts polled by Reuters had solely anticipated a decline of 1.0 %. In July, M3 fell by 0.4 %. M3 consists of, amongst different issues, money, deposits in checking accounts in addition to cash market papers and bonds.

According to specialists, the event of the cash provide offers clues as to how inflation may develop additional. However, the interplay between the cash provide and inflation is taken into account to be very advanced. “Monetary price pressure is easing,” stated Helaba professional Ulrich Wortberg, commenting on the event.