Loan data piles pressure on ECB

Thu, Jan 3, 2013, 00:00

Loans to companies in the euro zone extended their fall in November, underlining the area's economic weakness and increasing pressure on the European Central Bank to cut interest rates further.

On the year, loans to the private sector fell by 0.8 per cent in November - the same drop seen a month earlier. A breakdown of figures released by the ECB today showed a drop in consumer credit and loans to businesses.

"In part, the weakness in lending undoubtedly stems from low demand from the non-financial private sector," said Howard Archer, economist at Global Insight.

"Nevertheless, the concern is that a number of companies who do want to borrow ... and are in decent shape are finding it hard to, so tight credit conditions are handicapping euro zone growth prospects," he added.

The release of the money supply data reinforced a bleak economic picture in the 17-country euro zone, where a slowdown in factory activity deepened in December. German unemployment also rose for the ninth month running in December.

The ECB's own forecasts suggest the euro zone economy will shrink 0.3 per cent this year, and the bank's policymakers discussed cutting interest rates last month before opting to hold them at a record low of 0.75 per cent.

The money supply data showed that consumer credit dropped by 3.1 per cent on the year in November, down from a 2.9 per cent fall a month earlier. Loans to non-financial corporations fell 1.4 per cent, after a drop of 1.5 per cent in October.