Lending to companies and households in the euro area fell the most on record in August, signaling that the economy is still struggling to recover from its longest-ever recession.
Loans to the private sector dropped 2 percent from a year earlier, the Frankfurt-based European Central Bank said today. That’s 16th monthly decline and the biggest since the start of the single currency in 1999. Adjusted for loan sales and securitization, lending contracted 1.5 percent in August.
The ECB has pledged to keep interest rates at or below current levels to support the 17-nation euro economy, which expanded 0.3 percent in the three months through June after six quarterly contractions. ECB President Mario Draghi said this month that while there has been “substantial progress” in bank funding, non-financial corporations are still suffering from “weak loan dynamics.”
The data shows a “depressing picture for the credit market,” said Annalisa Piazza, an analyst at Newedge Group in London. “Although the ECB made clear that the ECB cannot do much to boost credit to the corporate sector, we expect the current picture for loans to remain one of the key reasons behind expectations of a prolonged period of accommodation.”
The ECB predicts the euro-area economy will shrink 0.4 percent this year before growing 1 percent in 2014. Draghi said this week that he’s ready to use any instrument, including another long-term refinancing operation for banks, to keep money-market rates from rising.
The rate of growth in M3 money supply, which the ECB uses as an indicator for future inflation, rose to 2.3 percent in August from 2.2 percent in July, according to today’s data. That’s in line with economists forecasts, according to the median of 28 estimates in a Bloomberg News survey.
M3 grew 2.3 percent in past three months from the same period a year earlier. That’s down from 2.5 percent in the three months through July. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.
“We are still seeing a credit crunch in the euro area,” said Jens Kramer, an economist at NordLB in Hanover. “Even though the ECB provides sufficient liquidity to banks, smaller companies in countries like Spain are struggling to receive funding and I currently don’t see many signs that this is going to change anytime soon.”