BUSINESS ECB lending pace picks up as EU economic clouds gather

BUSINESS

ECB lending pace picks up as EU economic clouds gather

AFP

19:51, August 28, 2019

Growth in lending to eurozone businesses and households accelerated in July, the ECB said Wednesday, ahead of a key central bank meeting expected to unleash new economic support measures.

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The stars of the European Union (EU) sit on banners flying outside the European Central Bank (ECB) headquarters. (Photo: VCG)

Loans to non-financial companies and European households rose by 3.6 percent in July compared with a year ago, after having already picked up by 3.5 percent in June.

A breakdown of the data showed that lending to households grew by 3.4 percent, while lending to financial companies excluding insurance companies and pension funds was up by 2.4 percent.

Growth in loans accorded to industrial and commercial companies meanwhile held steady at 3.9 percent on a 12-month basis -- the same rate as in June.

The strong lending is a sign that companies are struggling, said Stephanie Schoenwald of KfW Research.

"As far as the economy is concerned, robust lending growth is more of a warning signal than a bright spot," she said. 

"To cushion the weak order situation and high inventories, companies are currently in need of additional financial resources, above all to bridge liquidity gaps."

The ECB's key interest rates are already at historic lows.

But the bank's chief Mario Draghi signalled after a meeting in July that it could unleash a new round of easing measures and cut rates further to fight sluggish growth and shore up stubbornly low inflation.

Since that meeting, economic clouds have continued to darken, with the bloc's biggest economy Germany now projected to slide into recession in the third quarter.

Official data this month showed economic growth in the 19-country eurozone slowing to 0.2 percent in the second quarter of 2019, after expanding by 0.4 percent in the first.

The threat of a no-deal Brexit has also risen drastically since Boris Johnson took over as British prime minister.

In a move enraging anti-Brexit MPs, Johnson on Wednesday suspended parliament until two weeks before the UK is due to leave the EU, meaning that his opponents will have less time than expected to thwart his plans to quit the bloc at the end of October.

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