Eurozone bank lending accelerates slightly as rates keep falling - ING

Teunis Brosens, Senior Economist at ING, notes that the bank lending to Eurozone businesses and households continues to edge up, but forward-looking monetary indicators keep decelerating

Key Quotes

“In the first post-Brexit referendum month of July, bank lending to Eurozone businesses and households picked up slightly to 1.9%YoY (from 1.8% in June). Bank lending growth remains above average in Belgium (+6.5%YoY), France (+4.9%) and Germany (+3.1%). Deleveraging continues in Spain (-1.3%), Portugal (-2.0%) and Ireland (-4.1%).

While this shows that Eurozone countries are still at very different points in the credit cycle, the good news is that all countries are moving forward. Credit growth is accelerating in the north of the Eurozone, while it is becoming less negative in the south. The only problem is that you have to get out your magnifying glass to see the movement of the needle over time.

The ECB’s unconventional monetary policies no doubt have contributed to the, albeit glacial, improvement in the Eurozone’s credit cycle, pushing down rates throughout the Eurozone. The average Eurozone rate on a new mortgage dropped below 2% in June for the first time ever. The average Eurozone rate for SMEs (defined as the average rate on loans running over a year for an amount below €250k) has dropped to 2.5%. For both households and businesses, the slow slide in rates does not seem to be over yet.

In the meantime, M1, one of the best leading indicators for the Eurozone business cycle, decelerated further in July and has lost considerable momentum compared to a year ago. Yet at 8.4%YoY, M1 money growth is still decent, pointing to continuing moderate growth.

In sum, today’s monetary figures confirm that on the financial end of the economy, things continue to move in the right direction, but at a very slow and increasingly fragile pace.”