Economic news

Euro zone lending slows further as rate hikes bite

2023.07.26 04:38


© Reuters. FILE PHOTO-Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. REUTERS/Wolfgang Rattay/File Photo

FRANKFURT (Reuters) – Lending to euro zone companies slowed again last month, adding to already mounting evidence that sharply higher interest rates are putting a brake on credit creation and economic growth.

Lending to firms in the 20-nation currency bloc expanded by 3.0% year-on-year after a 4.0% reading a month earlier while household credit growth slowed to 1.7% from 2.1%

The European Central Bank has raised interest rates by 4 percentage points in the past year and another hike on Thursday is essentially a done deal as inflation remains far too hike and could take until 2025 to fall back to the 2% target.

But recent economic data from PMI figures and sentiment indicators to a key lending survey have surprised on the downside, suggesting that the bloc continues to skirt recession, which should naturally cool price pressures.

The weak data is intensifying debate over just how much more the ECB needs to do and some economists argue that Thursday’s rate hike will be the last, while some are betting one last move in September.

Growth in the M3 measure of money supply, seen in the past as a good indicator of future economic expansion, slowed to 0.6% from 1.0%, trailing expectations for a 1.0% rise.

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