Loans to euro zone households and businesses fell in July to record their slowest annual growth ever despite the European Central Bank's efforts to revive lending with massive injections of cash.
ECB figures today showed annual growth in loans to the private sector slumped to just 0.6 per cent last month, undercutting the previous record low of 1.5 per cent in June and economists' expectations of a 1.3 per cent annual expansion.
Banks in the 16-nation region received close to half a trillion euros in cheap one-year funds from the ECB at the end of June but the data confirm they did not lend it on to their customers immediately, despite pleas from policymakers and business associations.
Private sector loans contracted on a month-by-month basis in July as lending to companies fell for the sixth consecutive month. Annual corporate loan growth was a record-low 1.6 percent while loans to households were flat over the year.
Economists said the further slowing in credit reflected fragile economic conditions, but a jump in ready cash available was a hopeful sign for economic recovery.
Germany and France, the region's two biggest economies, emerged from recession in the second quarter and survey data have encouraged bets on continued growth in Q3.
"The economy shows first signs of a turnaround, but credit does not follow yet," said Rainer Guntermann, economist at Dresdner Kleinwort.
"We are not seeing only tight supply by banks, but above all very low demand from firms. Companies are voluntarily refraining from borrowing. There are no signs of a credit crunch, only low demand normal in a recession."
In past periods of recession and stagnation, loans have picked up about two quarters after economic output began to rise.
Cash in circulation and overnight bank deposits (M1), which many economists see as a leading indicator for growth, grew at a 12.2 per cent annually in July.
This was up from 9.4 per cent in June and the fastest annual growth rate since October 1999, adding to hopes that the worst of the recession is past.
Reuters