MSN:Eurozone crisis weighs on lending to households: ECB
The European Central Bank, in its regular monthly money supply data, calculated that growth in eurozone bank loans to the private sector barely grew at all last month, rising a fractional 0.1 percent in July after contracting by 0.2 percent in June.
And with no end to the crisis in sight, credit to the private sector is likely to remain very weak for the foreseeable future, analysts said.
"We expect to see further weakness in credit to the private sector in the coming months, mainly explained by very weak demand conditions and economic prospects," said UniCredit economist Loredana Federico.
Commerzbank economist Michael Schubert believed the ECB could use low loan momentum as an argument for restarting its contested bond-buying programme.
"It is likely that the central bank will use meagre loan momentum as another reason for its its new bond purchase programme, since interventions in short-term markets may help to tackle the problem of increasing dispersion of rates," Schubert said.
On Monday, ECB executive board member Joerg Asmussen had said the recent cut in interest rates is not feeding through to the real economy.
Indeed, since the end of 2010, interest rates for corporate loans in countries such as Greece, Portugal and Ireland are rising, even though the ECB's main interest rates have remained low, Asmussen said.
The ECB also published eurozone money supply data, which suggest the money supply -- a key guide to future inflation -- is growing more strongly than expected.
The broad M3 indicator rose 3.8 percent last month, following a gain of 3.2 percent in June, the ECB calculated.
Analysts polled by Dow Jones Newswires had been pencilling in only a slight pick-up in growth to a rate of 3.3 percent for July.
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 percent but it stood at 2.4 percent in July.
Newedge Strategy analyst Annalisa Piazza said the 3.8-percent growth in the money supply "marks the strongest pace of growth since the first half of 2009."
She pointed out that M3 had shown a great deal of volatility in the past few months, mainly due to the effects of the ECB's liquidity injections.
"However, rising M3 is far from being the mirror of a healthy recovery in activity. Indeed, the eurozone economy contracted in the second quarter and survey indicators continue to point in the direction of further weakness," she said.
