EU Banks Dial Back Lending

Europe’s banks will likely reduce lending next year as the region dips into a recession.

That’s according to a Sunday (Dec. 4) Financial Times report, citing data from the consultancy EY. The report says that the reduction in lending — the first in nine years — will come as interest rates climb, making it tougher for businesses to borrow.

EY predicts that lending will decline by 1.8% in 2023 after rising 4.6% this year. Meanwhile, higher energy prices, interest rates, and inflation — and a drop in household income — will mean fewer loan requests from consumers.

“The region’s economies are facing recession, and a contraction in borrowing driven by reduced demand and supply is forecast as consumers, businesses, and banks become more cautious,” said Omar Ali, partner at EY.

“The short-term economic impact will be felt universally, but small businesses are likely to struggle most if access to finance is constrained.”

Meanwhile, PYMNTS research shows that consumers in America believe a recession is either on its way or already here, depending on which income bracket you’re in.

The wealthiest consumers PYMNTS surveyed said they believed a recession was imminent but had yet to arrive, while just under half of those with an income less than $50,000 told PYMNTS they thought that an economic recession had already hit, and we are in the midst of it.

What’s worse, consumers across the income spectrum said they expect this economic instability to persist for a long time — on average, at least until the spring of 2024.

“That means another year and a half of unsustainable gas and food prices, and a longer economic shadow cast by hurt consumer confidence,” we wrote recently.

Consumer behavior driving big-ticket item purchases will likely be put on hold, as generationally high inflation forces lower-income consumers to lean more on credit cards and flexible financing options while draining their savings.

American consumers are resilient, but borrowing costs are rising, which has fueled a shift in focus from items like big-ticket appliances and cars to everyday necessities.