Pace of eurozone private sector loans eases in July: ECB

August 26, 2011 | 16:34

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The rate of growth in private sector bank lending slowed slightly in July, the European Central Bank said Friday, which analysts took to point to risks to eurozone economic growth.

Overall bank lending increased by 2.4 per cent compared with the same month last year but that was a small decline from 2.5 per cent in June, the ECB data showed.

A breakdown of the data showed a contraction of 2.1 per cent in household credit for consumption, while loans for home purchases grew 3.9 per cent.

"Our empirical studies suggest that low loan growth hints at further downside risks for economic growth," Commerzbank analyst Michael Schubert said.

The 17-nation eurozone economy grew by a meagre 0.2 per cent in the second quarter of 2011, heightening fears of a slide back into recession as the bloc tries to contain a debt crisis.

Meanwhile, growth in eurozone money supply, a key indicator of demand in the economy, edged higher in July but only following a revision of the June figure lower, the ECB data showed.

The M3 indicator rose 2.0 per cent following a gain of 1.9 per cent in June.

The ECB had initially estimated the increase in June at 2.1 per cent and analysts polled by Dow Jones Newswires had pencilled in a rise of 2.2 per cent in July.

"One might expect these trends to worsen into August, given the intensificiation of the financial tensions" in Europe, Barclays Capital economist Julian Callow said.

The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.

The central bank seeks to keep eurozone inflation below but close to 2.0 per cent but it stood at 2.5 per cent in July.

The central bank raised its benchmark interest rate to 1.50 per cent last month to contain inflation but is now expected to sit tight for the next few months, at least, owing to the sharp slowdown in eurozone activity.

AFP

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