Bank lending to non-financial corporations declined in April compared to March, marking the first decrease since January. Overall, corporate lending has remained broadly stable, with growth rates well below the historical average. To households, bank lending growth remained slightly positive in April but also showed a very weak trend, comparable to growth rates seen around the time of the euro crisis.
ECB chief economist Philip Lane argued in the Financial Times this week that the euro zone central bank is looking to ease monetary tightening and today's data certainly seems to suggest that monetary policy remains fairly tough on the economy. Next week, unless something outrageous happens in the meantime, the ECB is widely expected to cut interest rates by 0.25%. Even last week's rise in wage growth didn't stop markets from preparing for the first rate cut since 2019.
The question is how quickly the ECB will cut rates going forward. With interest rates now somewhat lower, it will be interesting to see how quickly bank lending and associated investment recover. That said, with the labor market strong, inflation above target, and the economy already cautiously recovering, the ECB seems to have good reason not to cut rates aggressively. We expect a further cut at its next meeting in September.
