Eurozone Bank Lending Growth Weakens In February

Eurozone bank lending to the private sector registered a slower growth in February reflecting weak credit demand amid higher interest rates and subdued economic activity, data from the European Central Bank revealed Monday.

The annual growth rate of credit to the private sector slowed to 3.3 percent in February, the slowest since August 2021, from 3.8 percent in January.

At the same time, adjusted loans to the private sector posted an annual growth of 4.3 percent, which was also weaker than prior month’s 4.9 percent rise. Adjusted loans marked its weakest rise since December 2021.

Among the borrowing sectors, adjusted loans to households climbed 3.2 percent annually after a 3.6 percent rise in January. Likewise, growth in adjusted loans to non-financial corporations eased to 5.7 percent from 6.1 percent.

Further, data showed that the monetary aggregate M3 grew at the weakest pace since October 2014. M3 expanded 2.9 percent on a yearly basis, slower than the 3.5 percent increase in January. The rate was forecast to slow moderately to 3.2 percent.

At the same time, M1 that comprises currency in circulation and overnight deposits declined 2.7 percent annually, which was bigger than January’s 0.8 percent drop.

The February money and credit data show that even before the recent pressure on European banks, net bank lending was extremely weak and consistent with the economy contracting sharply, Capital Economics economist Jack Allen-Reynolds said.

It is becoming more apparent that the hike cycle will have a significant dampening effect on the economy over the course of this year, ING economist Bert Colijn said.

With the full effect of recent hikes on the economy still has to come through and uncertainty surrounding the recent turmoil, there is significant risks of economic contraction, the economist noted.

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