FRANKFURT, Jan 21 — Corporate demand for bank loans in the eurozone fell in the final quarter of 2019 for the first time in six years, the ECB said today, suggesting that a darkening economic outlook was weighing on investment.
The drop was led by plummeting loan demand from firms in Spain, as well as a dip in France, the European Central Bank said in its quarterly lending report.
“Demand for loans to enterprises declined for the first time since the fourth quarter of 2013, reflecting the slowdown in economic activity that has been observed since 2018,” it said.
The appetite for loans in Germany, Europe’s largest economy, rose slightly in the fourth quarter, and remained unchanged in Italy.
The disappointing reading is a setback for the ECB, which in recent years unleashed unprecedented stimulus to encourage spending and investment in a bid to drive up eurozone growth and inflation.
The declining loan demand “indicates that investment growth is set to remain sluggish even though loose financial conditions are still in place in the eurozone,” ING bank economist Carsten Brzeski said.
After already spending over €2.6 trillion (RM11.8 trillion) buying up government and corporate bonds, the Frankfurt institution in November restarted the programme to bolster the euro area, to the tune of 20 billion a month.
The ECB has also offered ultra-cheap loans to banks and set interest rates at historic lows.
In September, it even cut its deposit rate from -0.4 per cent to -0.5, to give banks more incentive to grant loans.
The ECB said the low level of interest rates had made “a positive contribution” to corporate loan demands.
In better news for the central bank, the same survey found that demand for mortgages and consumer credit picked up in the final months of 2019, underscoring the importance of consumer confidence as a key growth driver.
Looking ahead, the ECB said it expected eurozone lenders to take advantage of fresh rounds of cheap loans to banks in coming months, which offer more favourable conditions to those who lend cash on to the real economy.
Uncertainty about the economic outlook “has somewhat ebbed” in the wake of last week’s US-China trade truce, Brzeski noted.
“While it is early days and there’s still plenty of uncertainty, this could have a somewhat favourable impact on demand, not least because banks also expect credit conditions to remain unchanged in the first quarter.” — AFP
