eurozone crisis contines to choke lending
Last Updated : GMT 05:32:36
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Eurozone crisis contines to choke lending

Arab Today, arab today

Arab Today, arab today Eurozone crisis contines to choke lending

Brussels - AFP

Bank lending to the private sector in the eurozone contracted again in April as the region's long-running debt crisis continues to choke demand for credit, data showed on Wednesday. Eurozone bank loans to the private sector declined by 0.9 percent in April compared with the same month in 2012 after already shrinking by 0.7 percent the previous month, the European Central Bank said in a statement. The ECB has long argued that falling loans to the private sector reflects weak demand for credit rather than tight lending conditions and is currently mulling ways of kick-starting lending activity to small and medium-sized enterprises (SMEs). According to the ECB's calculations, lending to businesses declined by 18 billion euros ($23 billion) in April "clearly reflecting an ongoing combination of limited supply and muted demand," said IHS Global Insight economist Howard Archer. Berenberg Bank economist Christian Schulz said the decline in loans "reflects the current economic weakness and some credit crunch at the euro periphery." The data showed that lending to the private sector increased in France and was stable in Germany in April, but continued to fall in Italy, Spain and the smaller crisis countries. Archer at IHS Global Insight said the marked fall "ramps up pressure on the ECB to come up with concrete measures aimed at improving credit availability to companies, especially small and medium-sized ones. "This is clearly a major focus for the ECB at the moment, as it looks to expand its policy toolbox to try and help overcome different financing conditions across the eurozone," he said. The ECB also published eurozone money supply data, which suggest that growth in the money supply -- a key guide to future inflation -- picked up last month. Growth in the M3 indicator, which measures the amount of money in circulation, grew by 3.2 percent in April, compared with 2.6 percent in March. The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly. Archer said that at 3.2 percent, money supply growth remains muted, "adding to the evidence that eurozone inflationary pressures are very low." Consequently, there was ample justification and scope for the ECB to take further stimulative action to try and support eurozone economic growth, "and we expect this to include an interest rate cut from 0.50 percent to 0.25 percent," the expert said. "This could even happen as soon as the ECB's June 6 policy meeting." The OECD on Wednesday urged the ECB for easier monetary conditions, even after the European Central Bank cut its key interest rate by a quarter point this month to an all-time low of 0.50 percent. "Expansion of asset purchases is desirable and different options for such interventions exist..." the Organisation for Economic Cooperation and Development said.

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