European lending takes a hit

LOANS to Eurozone households and businesses fell for the first time ever in September, amplifying concerns that weak bank lending could hinder the Eurozone&rsquo;s still fragile recovery.<br /><br />Official data from Eurostat showed that loans to the private sector fell 0.3 per cent on September 2008 &ndash; the first time this measure has dropped into negative territory since records started in 1991. <br /><br />The number of loans to non-financial companies decreased by 0.1 per cent in September from 0.7 per cent rise in August, while loans to households fell by 0.3 per cent last month. <br /><br />Equally concerning was the continued slowdown in the annual rate of growth of broad money (M3) to 1.8 per cent in September from 2.6 per cent in August. This took the three-month moving average growth rate to 2.5 per cent, well below the ECB&rsquo;s target rate of 4.5 per cent. <br /><br />Howard Archer at IHS Global Insight said: &ldquo;Ongoing muted loans to the private sector in September maintains concern that tight credit conditions remain a serious handicap to recovery prospects in the Eurozone. Meanwhile, the further slowdown in M3 money supply growth reinforces belief that inflationary pressures in the Eurozone remain extremely weak.&rdquo;<br /><br />This is likely to encourage the European Central Bank (ECB) to maintain a loose monetary policy stance when it meets next week, said ING economist Martin van Vliet. <br /><br />He added: With the money and credit figures continuing to point to a subdued inflation outlook, the ECB looks unlikely to start unwinding its monetary stimulus anytime soon. The ECB will probably not start raising interest rates until it is convinced that the recovery is sustainable.&rdquo;