Despite interest rates hovering near record lows, demand for loans by eurozone businesses was flat at the start of the year, increasing the likelihood the European Central Bank will have to make moves to boost the economy.
According to a report in the Financial Times, citing data from the European Central Bank, the loan growth the eurozone has seen since the middle of 2015 appears to be over, with zero banks reporting an increase in demand for loans in the first quarter compared to the fourth quarter of 2018. At the end of 2018, by contrast, 9 percent of banks reported an increase. For the past three years double-digit percentages of banks saw loan demand increase.
The lack of interest in loans on the part of businesses is another data point showing the economic growth in the eurozone is slowing. Demand for loans by businesses in Germany and the Netherlands did increase while demand in Italy and Spain declined, the report said.
Jack Allen, an economist at Capital Economics, told the news outlet that the latest survey by the European Central Bank suggests growth will stay weak, which could prompt action by the central bank. “The upshot is that we still think that the ECB will be forced to loosen monetary policy further before long,” Allen said in the report. Despite the lack of interest by businesses to borrow money, home loan demand did increase as did consumer credit demand, but at the slowest pace in six years.
In March the European Central Bank announced its latest effort aimed at boosting lending in the eurozone, saying it will introduce a new series of longer-term refinancing operations. Dubbed TLTRO-III, the subsidized loan program will be launched in September and end in March of 2021 with a loan maturity of two years each. They are loans the central banks offer to banks at a low rate to spur lending to businesses and consumers. If the bank takes out a TLTO from the ECB and puts that money to work in the economy via loans, it doesn’t have to pay interest on the cash. This is the third time the loans have been introduced into the eurozone economy.