Eurozone bank lending to business was squeezed further in July despite signs of an economic recovery across the region and European Central Bank efforts to boost credit markets.
Rather than borrowing, businesses overall repaid €26bn in July – only slightly less than the amount they paid back in June – according to ECB statistics that are likely to strengthen the central bank’s view that the rebound remains fragile. Loans to households showed no growth over the past year.
Official UK figures showed businesses slashed investment spending by the most since the 1960s in the year to the end of the second quarter, raising fears over the British economy.
Investments ranging from new building work to vehicles and software purchases slumped by 18.4 per cent, the sharpest year-on-year decline since data began 43 years ago. A slew of company results on Thursday pointed to further cuts ahead.
Economists believe rapidly shrinking investment spending amid a shortage of credit could undermine the recovery this year and next and endanger the UK’s growth prospects.
ECONOMIC FORECAST
Interactive feature on the outlook across Europe
“The further sharp decline in business investment signals serious threats to Britain’s long-term recovery,” said David Kern, chief economist at the British Chamber of Commerce. “Unless this trend can be reversed, the . . . productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery.”
The eurozone economy has shown signs of growth recently, with France and Germany out of recession.
Germany’s GfK research institute said it expected its “consumer climate” indicator for the eurozone’s largest economy to reach its highest for 15 months in September.
German shoppers’ mood has been helped by relatively stable jobs levels and falling prices – although German inflation data revealed that the country’s brush with negative inflation had ended earlier than expected.
But the risk of a weakened banking sector acting as a constraint on growth remains a serious concern .
Since the economic crisis intensified late last year, the ECB has pumped extra liquidity into the banking system – including €442bn in one-year loans in late June. Jean-Claude Trichet, ECB president, has publicly appealed to banks to provide the credit needed to oil the wheels of recovery and is likely to have lobbied even harder behind the scenes. The difficulty the ECB has faced is deciding whether the slowdown in lending to the private sector has been the result of falling demand or of supply constraints imposed by banks.
Bank lending to eurozone businesses has been negative since February, but the amounts being repaid have picked up recently. German industry groups have warned of a looming credit crunch.
Julian Callow, European economist at Barclays Capital, said: “It tends to be improving profits that will drive the first upswing in investment, and then only after a lag will companies feel confident enough to go out and borrow to fund further expansion in investment.”
Rather than borrowing, businesses overall repaid €26bn in July – only slightly less than the amount they paid back in June – according to ECB statistics that are likely to strengthen the central bank’s view that the rebound remains fragile. Loans to households showed no growth over the past year.
Official UK figures showed businesses slashed investment spending by the most since the 1960s in the year to the end of the second quarter, raising fears over the British economy.
Investments ranging from new building work to vehicles and software purchases slumped by 18.4 per cent, the sharpest year-on-year decline since data began 43 years ago. A slew of company results on Thursday pointed to further cuts ahead.
Economists believe rapidly shrinking investment spending amid a shortage of credit could undermine the recovery this year and next and endanger the UK’s growth prospects.
ECONOMIC FORECAST
Interactive feature on the outlook across Europe
“The further sharp decline in business investment signals serious threats to Britain’s long-term recovery,” said David Kern, chief economist at the British Chamber of Commerce. “Unless this trend can be reversed, the . . . productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery.”
The eurozone economy has shown signs of growth recently, with France and Germany out of recession.
Germany’s GfK research institute said it expected its “consumer climate” indicator for the eurozone’s largest economy to reach its highest for 15 months in September.
German shoppers’ mood has been helped by relatively stable jobs levels and falling prices – although German inflation data revealed that the country’s brush with negative inflation had ended earlier than expected.
But the risk of a weakened banking sector acting as a constraint on growth remains a serious concern .
Since the economic crisis intensified late last year, the ECB has pumped extra liquidity into the banking system – including €442bn in one-year loans in late June. Jean-Claude Trichet, ECB president, has publicly appealed to banks to provide the credit needed to oil the wheels of recovery and is likely to have lobbied even harder behind the scenes. The difficulty the ECB has faced is deciding whether the slowdown in lending to the private sector has been the result of falling demand or of supply constraints imposed by banks.
Bank lending to eurozone businesses has been negative since February, but the amounts being repaid have picked up recently. German industry groups have warned of a looming credit crunch.
Julian Callow, European economist at Barclays Capital, said: “It tends to be improving profits that will drive the first upswing in investment, and then only after a lag will companies feel confident enough to go out and borrow to fund further expansion in investment.”
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