Feeble lending still haunts euro area economies

LENDING to the private sector is still declining in the euro area, with the European Central Bank (ECB) confirming an even deeper collapse yesterday.

In the year to October, lending fell 2.1 per cent, the steepest drop this year. Loans to household were practically stagnant, up by 0.1 per cent in the same period. The currency union’s money supply also barely grew, with M3 up 1.4 per cent, short of the ECB’s 4.5 per cent target.

Despite such gloomy figures, the European Commission’s major measure of economic confidence, which was also announced yesterday, registered a more positive outlook on the region.

In the euro area, the economic sentiment indicator reached 98.5 this month, rising from 97.7 last month. Any score under 100 suggests economic confidence is below the long-term average level for the Eurozone.

“As a result of the credit crunch in parts of the periphery and held back by the problems in France, the Eurozone upswing will firm only gradually. But the confidence data support our call that the recovery will pick up some momentum over time,” said Holger Schmieding of Berenberg.

Capital Economics’ Ben May added: “We remain doubtful that the recovery will gain much momentum in the near term, suggesting that pressure on the ECB to take further action to support the economy will grow.”