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Bank lending to the euro zone's private sector fell for the first time in five months, indicating the region's economy remains weak as record high interest rates continue to suppress demand.
Eurozone private sector lending fell by 12.2 billion euros for the month in January, the European Central Bank said on Tuesday, the first decline since August.
Annual growth in private sector lending in the region, excluding securitization, slowed to just 0.4% last month from more than 7% in mid-2022. The eurozone economy flattened out in the last three months of last year, based on gross domestic product (GDP), after being stagnant for much of 2023.
Economists said this showed that high interest rates continued to weigh on household and business demand for bank loans, likely pushing the euro zone economy into stagnation early this year.
Europe is more dependent on bank lending than the United States and many other countries, making growth and inflation in the 20-nation single currency area particularly sensitive to changes in the supply of credit.
Neville Hill, co-director of consultancy Hybrid Economics, said: “High interest rates are crushing demand for credit from businesses and households,” and the latest figures show that inflation and domestic demand are likely to continue to decline. This suggests that the ECB is “excessively tightening” monetary policy, he added. policy.
Bank lending has dried up since the ECB raised the policy deposit rate from a record low of -0.5% to a record high of 4% in a bid to stem the biggest inflation spike in a generation. .
Eurozone household loan growth slowed to 0.3% in the year to January, the slowest annual pace since 2015, according to a breakdown of statistics released by the ECB on Tuesday. Mortgage lending decreased by 0.1%, the first decline in nine years. Corporate lending also slowed to 0.2%.
Although loan growth rebounded slightly in the fourth quarter, some ECB policymakers had expressed concerns that a pick-up in bank lending could prompt a resurgence in inflation this year.
ECB board member Isabel Schnabel told the Financial Times this month that lower borrowing costs and increased lending could “rekindle” inflation.
Nomura economist Andrzej Szczepaniak said the latest figures should have “dispelled” those concerns, adding: “The green shoots of the financial economy have been decisively crushed by the weak lending data.”
“We expect growth to continue to slow in the first half of 2024 as we have been slow to respond to last year's interest rate rises and lending standards remain tight,” said Melanie de Bono, an economist at research group Pantheon Macroeconomics. said. ”
An initial survey of banks released by the ECB last month showed banks continued to tighten lending standards in the final three months of 2023 and expected credit supply to be further tightened early this year. Ta. It also reported that borrowing demand from households and businesses has declined, but expects a slight recovery in early 2024.
Bank deposits fell by €72 billion from December to January, the largest monthly decline in euro area history, reflecting a decline in low-yield overnight deposits and a decline in high-yield term deposits. partially offset by increases in
