Eurozone private lending to companies and households shrank further in November 2013, placing more pressure on the European Central Bank to stimulate economic growth.
The European Central Bank (ECB) has already reduced interest rates to record-low levels, pumped money into the banking system and announced a new government bond-purchasing program.
Despite using virtually every tool at its disposal, the ECB has not managed to kick start the Eurozone economy in a compelling way.
Corporate lending record fall
Eurozone corporate borrowing in November 2013 fell 3.9% compared to November 2012. This is the steepest fall since records began two decades ago. In Spain corporate borrowing fell by 13.5%, and 4.9% in Ireland.
Overall private sector lending, including both corporate and household loans, fell 2.3% in November compared to the same month a year earlier.
Of the large euro area economies, France was the only one to see a rise in corporate borrowing.
Economists say that if the ECB does not act, the Eurozone’s fragile economy recovery risks running out of steam and slipping downhill again.
Howard Archer of IHS Inc, said:
“Banks likely believe the economic situation and outlook in many eurozone countries still provides an uncertain and risky backdrop in which to lend, despite the eurozone eking out modest growth since the second quarter.”
The ECB’s monitoring of banks’ balance sheets is encouraging them to reduce risk and lending – just what the Eurozone does not need at the moment.
However, lack of credit supply is not the main factor driving a reduction in private loans, Vitor Constancio, Vice-President of the ECB said in December. The main drivers are lack of demand from individuals and companies.
Maria Draghi, ECB President said a earlier this week that there is no immediate need for action. Perhaps he will have changed his mind by the time Europe’s central bank meets next week.
The Wall Street Journal quoted Holger Schmieding, chief economist at Berenberg Bank, who said “For the ECB, this is clear reason to maintain an aggressive policy, and leave the hope for further easing in the market.”
Most economists believe the ECB will keep interests where they are as well as other policy measures when they meet on January 9th.