Loans to eurozone businesses drop sharply

Mario Draghi, President of the European Central Bank, ECB in Frankfurt, Germany, July 4, 2013 Lending to businesses in the debt-mired eurozone contracted sharply in July, data published by the European Central Bank showed on Wednesday, souring recent positive sentiment about a nascent economic recovery. Private sector loans dropped by 1.9 percent in July in a year-on-year comparison, the ECB said, after already contracting by 1.6 percent in June.
That was "a new negative record" for the single-currency area, said Berenberg Bank economist Christian Schulz.
Loans to non-financial corporations continued to decline, contracting by 3.7 percent in July after a drop of 3.2 percent in June.
At the same time, loans to households edged up by 0.1 percent following a stagnation the prevoius month.
"While other recent indicators show that the economic recovery in the euro area is becoming more certain, persistent weakness in loans to the private sector is expected in the coming months, largely due to still weak demand and tightened loan conditions," said Loredana Federico at UniCredit.
The Frankfurt-based ECB also published its latest money supply figures, a preliminary indicator of inflation, showing a 2.2-percent increase in July after a rise of 2.4 percent in June.
Schulz at Berenberg Bank was confident, however, that "despite the negative headline developments, fading financial tensions are shining through the data."
For the ECB, the data "provide ample reasons to keep interest rates low for an extended period of time, but not necessarily to take more action," Schulz said.
"For now, the current economic rebound is not fuelled by credit but driven by exports and increasing optimism. But as the economy improves, credit demand will rise, helped by low interest rates," he argued.
Source: AFP