Eurozone lending stagnates as banks get tough

Growth in loans to eurozone households and companies stagnated in November as the economy slumped and lenders tightened credit standards.

Although there were few signs of a credit crunch in Tuesday’s data, lending expanded at the slowest rate for 17 years, leading some economists to predict the European Central Bank would celebrate the 10th anniversary of the single currency by cutting its main rate by 50 basis points to 2 per cent when its governors next meet on January 15.

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Video report: The euro comes of age - Dec-16ECB looks at radical lending plans - Dec-15Trichet presses banks to resume lending - Dec-09In depth: central banks - Jul-30The ECB’s room to manoeuvre was also widened by news that German inflation slowed to 1.1 per cent in December, the lowest rate for two years, making it likely that eurozone inflation for the month would fall into the ECB’s comfort zone of just under 2 per cent.

Howard Archer, at Global Insight, said loan trends and “evidence that inflationary trends are now receding sharply” led him to expect the ECB would cut its main rate by 50 basis points in January and by a further full point during 2009.

Other economists said the ECB would use its next meeting to lay the ground for a cut in February. The ECB cut its main rate by 75 basis points in early December, with its president, Jean-Claude Trichet, suggesting it was time to take a breath.

The ECB said the annual growth of lending to the private sector slowed to 7.1 per cent in November, from a rate of 7.8 per cent in October. Last month’s level of loans outstanding remained unchanged.

“The issue of new loans is being curtailed,” said Holger Schmieding at Bank of America. “But this isn’t because of the [supply-side] credit crunch that companies have been talking about. The trend is also about falling demand for loans.”

After poor forecasts for eurozone and global growth in the coming year, individuals, in particular, appeared to be cutting back on big purchases such as houses or cars, as much to build savings as in reaction to tightening credit standards, he said.

Christoph Balz, at Commerzbank, said loan trends “do not reveal major signs of credit-supply constraints so far”, and that the recent slump in economic forecasts had put businesses off investing and households off consuming.

The annual growth rate of loans to households in the eurozone fell to a low of 2.5 per cent in November, from 3.3 per cent in October, according to the ECB. Lending to industry grew at 11.1 per cent.