European Loans Post First Annual Decline on Record
Loans to households and companies in Europe posted their first annual decline on record in September as the economic slump curtailed demand for credit and made banks more reluctant to lend.
Loans to the private sector fell 0.3 percent from a year earlier after increasing an annual 0.1 percent in August, the European Central Bank said today. On the month, loans rose 0.2 percent. M3 money-supply growth, which the ECB uses as a gauge of future inflation, slowed to 1.8 percent in September, the lowest rate ever recorded, from 2.6 percent in August.
The global recession has eroded demand for new debt and made banks reluctant to lend. While the economy of the 16 nations sharing the euro may have resumed expansion in the third quarter, growth is likely to remain muted unless credit flows improve and companies and households increase spending. The ECB has cut its benchmark interest rate to a record low of 1 percent and is flooding banks with cash in an effort to revive lending.
There is “little sign that conditions in the banking sector are becoming more normal, suggesting that it remains too early for the ECB to think about removing its generous liquidity provisions, let alone raising interest rates,” said Ben May, European economist at Capital Economics Ltd in London.
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