ECB WATCH: Monthly Lending Data Offer Faint Glimmer Of Hope
JONES NEWSWIRES FRANKFURT (Dow Jones)--Monthly private-sector lending data in the euro zone at the start of the year offered a faint glimmer of hope as the euro zone slips further into recession amid an overall tighter credit market. Loans to the private sector increased by 0.1% in January from the previous month, after declining 0.5% in December, data from the European Central Bank showed Thursday. Loans to non-financial corporations grew by EUR30 billion in January, after contracting by EUR13 billion in December, the ECB data showed. Loans to households in the 16-country euro zone in January slipped by EUR3 billion during the month, compared to a steep decline of EUR27 billion in lending to households in December. Although marking the improvement, economists cautioned against reading too much into one month's result. Over a longer term, the annual growth rate in private-sector lending slowed to 5.0% in January from 5.8% annual growth in December. "Overall dynamics still point to a significant tightening in banks' lending standards," said Juergen Michels, an economist at Citigroup. Annual loans growth to non-financial firms declined, to 8.8% in January, from 9.5% in December; loans growth to households fell to 1.2%, from 1.6% in December, the ECB data showed. "Corporate loan growth could easily slow to around 2%, which was the trough after the last boom-bust cycle in 2003. In the early 90s, corporate loan growth virtually came to a standstill," said Astrid Schilo, an economist at HSBC. But the weak lending data also reflect lower private-sector demand for credit in light of weak economic prospects, economists said. "The credit crunch is clearly tightening its grip on the wider economy," said Jennifer McKeown, European Economist at Capital Economics. The credit crunch is affecting larger firms in particular which will have negative repercussions for investment, Hans-Werner Sinn, President of the Ifo economic research institute, said Thursday. The Ifo Credit Constraint Indicator showed that more than 40% of German firms consider banks' credit policies as restrictive. In another sign of cooling activity, ECB's measure of broad money growth slowed sharply as debt securities issued with a maturity up to two years declined almost 25% in January from a year earlier. M3 broad money fell 0.8% in January from December, which marks the steepest monthly fall since records began in 1980. The annual growth rate of M3 declined to 5.9% in January from 7.5% in December - below economists' forecasts of 6.9% growth. "Money and lending growth is slowing very sharply. This is bad news for activity and highlights that the risks to inflation are not balanced - they are to the downside," Dominic Bryant, an economist at BNP Paribas. M3 comprises currency in circulation, overnight, short-term deposits and debt securities of up to two years, repurchase agreements and money market fund shares. (Nina Koeppen writes about the European Central Bank and European economy for Dow Jones Newswires in Frankfurt. She has worked as a financial journalist for nine years, covering central bank policy, economics, foreign exchange, debt and equity markets. She can be reached at +49 69 29725 509 or by email: nina.koeppen@dowjones.com) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. Click here to go to Dow Jones NewsPlus
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