Private-sector lending in the eurozone falls for first time
Wednesday October 28 2009
THE fragile nature of the recovery in the eurozone was highlighted yesterday in figures showing the first decline in private-sector credit since data was first collected in 1991.
Despite record-low interest rates and efforts to flood the eurozone with funds, the region's banks have cut the volume of loans to customers.
Loans to eurozone households and firms fell 0.3pc in September from a year earlier, the European Central Bank (ECB) said. On a monthly basis, lending rose slightly.
The Irish economy has been among the worst hit. Figures from the Central Bank show that private-sector credit in Ireland fell by €1.5bn, or 3pc, in August. This followed a drop of €1.5bn in June and a decline of €3.4bn in July.
Loans to households and business fell, despite the ECB flooding banks with cash in an effort to revive lending -- billions in extra funds have been forwarded to banks. The ECB also cut its benchmark interest rate to a record low of 1pc in a further bid to boost credit.
Economists said while the economy of the 16 nations sharing the euro resumed expansion in the third quarter, growth was likely to remain muted unless credit flows improve.
There was "little sign that conditions in the banking sector are becoming more normal, suggesting it remains too early for the ECB to think about removing its generous liquidity provisions, let alone raising interest rates", according to Ben May at Capital Economics.
Disappointing
The news is disappointing in light of recent surveys pointing to an economic recovery across Europe.
In October, manufacturing expanded for the first time in 17 months, while services industries grew at a faster pace.
The annual private-sector lending rate "is a lagging indicator", said Nick Kounis, chief European economist at Fortis in Amsterdam. He is forecasting the eurozone economy expanded 0.6pc in the third quarter from the second. "The monthly flow data suggests that much of the contraction in lending actually took place in the final months of last year and the first half of this year, while more recently there have been signs of stabilisation."
- Pat Boyle
Irish Independent
