Eurozone stuck in doldrums as demand for credit slumps

Tim Wallace
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DEMAND for many types of credit fell again in the second quarter, European Central Bank (ECB) figures showed yesterday, hitting lending and spending in the Eurozone.

And banks also found it increasingly hard to fund themselves, hitting the supply of credit further and raising fears that the economy will remain weak into 2013.

A net balance of 25 per cent of banks reported falling demand for loans to businesses, slowing slightly from the 30 per cent reported in the previous three quarters, as fixed capital investment plummeted.

A balance of 27 per cent saw demand for consumer credit falling, up from 26 per cent in the first quarter, while a net balance of 21 per cent reported falling mortgage demand, a slower drop than the 43 per cent recorded in the previous three-month period.
Looking ahead, banks expect further deteriorations through the third quarter.

But tighter funding conditions also represent a constraint on supply, despite the ECB’s efforts to pump the system full of cash with its long-term refinancing operations at the start of the year.

A net balance of 18 per cent of Eurozone banks attributed a deterioration of funding conditions to the sovereign debt crisis, up from 14 per cent in the previous quarter, while a balance of 24 per cent said the falling value of sovereign collateral has worsened conditions.

“While the ECB interventions have helped avoid another credit crunch, we expect bank lending to the private sector in the Eurozone to remain subdued into 2013,” Moody’s Analytics warned.

Meanwhile German business confidence fell for the third consecutive month, according to influential survey data from the Ifo institute, further undermining any hopes of an economic recovery.

“On past form, the indicator points to broadly stagnant GDP,” said Capital Economics.