Lending to companies in the eurozone shrank for the first time since summer 2015
The weak economy and the ECB's rapid interest rate hikes are slowing down bank lending to companies in the eurozone. Banks in the currency area extended 0.3 percent fewer loans to companies in October than in the same month last year, according to the European Central Bank (ECB). This is the first time since July 2015 that lending has shrunk. In September, there had still been a slight growth of 0.2 percent.
Borrowing costs have risen sharply in the wake of the ECB's interest rate hikes. In addition, many companies are holding back on investments due to the weak economy. Financial institutions extended 0.6% more loans to private households in October than a year ago. In September, growth was still at 0.8 percent.
The decline in lending is also a sign that the euro central bank's policy of raising interest rates in the fight against inflation is having an effect. The ECB has now raised key rates ten times in a row. In October, it took a break at its interest rate meeting because inflation had already fallen sharply.
The M3 money supply shrank by 1.0 percent in October. Experts surveyed by Reuters had expected a slightly smaller decline of 0.9 percent. In September, the measure had fallen by 1.2 percent. M3 includes cash, deposits in current accounts, money market instruments and debt securities.
Experts believe that the development of the money supply provides an indication of how inflation could develop. However, the relationship between money supply and inflation is now considered to be very complex.
- The weak economic situation in the Eurozone is causing companies to find it more challenging to secure lending, leading to a shrinkage in bank loans for the first time since summer 2015.
- As a result of the weak economic conditions and the ECB's rapid interest rate increases, many companies are reluctant to invest, exacerbating the decline in lending.
- The shrinkage in lending, coupled with the ECB's ten consecutive interest rate hikes to combat inflation, indicates the potential impact of monetary policy on the Eurozone's economic landscape during the summer.
Source: www.ntv.de
