Frankfurt: Eurozone lending expanded at its fastest pace in nearly four years in October, a welcome sign for the bloc’s tepid recovery but unlikely to stop the European Central Bank from easing policy further next week.
Despite being a sign the ECB’s quantitative easing scheme is finally having an impact, however, the figures are barely back in positive territory, and the lending is doing little to boost anaemic inflation, the central bank’s chief concern.
Growth in lending to non-financial corporations picked up to an annualised 0.6 per cent from 0.1 per cent in September while lending growth to households rose by 1.2 per cent from 1.1 per cent, both likely to support fourth-quarter growth.
“It’s too early to say we’re at the start of a releveraging of the banking sector,” Michel Martinez, euro area economist at Societe Generale, said.
“For a stronger recovery, you need a rebound in corporate investment and, therefore, corporate lending and what we see today it’s not yet satisfactory.” Sparse lending to companies has dogged the struggling Eurozone economy but the picture improved slightly in recent months.
The ECB is expected to ease policy further next week, trying to give lending another boost, although the bank sector’s high stock of non-performing loans has been one of the big obstacles.
The M3 measure of money circulating in the Eurozone, which is often an early indicator of future economic activity, grew by 5.3 per cent in October from 4.9 per cent in September, the best figure since July and better than analysts had expected.
Yet banks continue to park around 160 billion euros in overnight deposits with the ECB, indicating that even negative rates and extraordinary monetary stimulus has not unblocked the lending channel.
“I don’t think this (data) will have a significant implication for their decision next week,” Dankse Bank analyst Pernille Bomholdt Henneberg said.
“They will still ease and deliver and aggressive menu of monetary easing. But the data confirm that they’re doing the right things.”
