Bank lending to euro zone firms accelerated in March, according to European Central Bank (ECB) data released on Wednesday, even as the ‘Iran war’ reportedly depressed economic sentiment. This unexpected uptick offers a hopeful sign that the real economy might maintain some resilience during turbulent times. However, these hard figures come with a significant lag, contrasting with recent survey indicators that point to a rapid deterioration in the economic outlook.
Credit growth to businesses picked up to 3.2 per cent last month, increasing from 3.0 per cent in February. The monthly flow of loans also rose significantly, reaching 27 billion euros from 19 billion euros a month earlier. Meanwhile, lending growth to households held steady at 3.0 per cent, with the monthly flow of loans remaining unchanged at 19 billion euros. The M3 measure of money circulating in the euro zone, often an indicator of future activity, accelerated to 3.2 per cent from 3.0 per cent, surpassing Reuters analyst expectations of 3.1 per cent growth.
Despite the March figures, surveys suggest corporations are holding back investment amid prevailing uncertainty, expected to reduce cash needs and potentially depress lending in coming months. Banks have already signalled expectations for sharply declining lending volumes and tighter credit standards, citing increased funding costs and general uncertainty. Furthermore, accelerating inflation, driven by higher energy costs, is anticipated to quickly hit corporate margins and households’ disposable incomes, potentially curbing lending activity. Separate data showed price growth in Spain picked up to 3.5 per cent in April from 3.4 per cent, whilst for the entire euro zone, a pickup to 2.9 per cent from 2.6 per cent is expected.
