Euro zone corporate lending contracts as economy shrinks

FRANKFURT: Bank lending to businesses across the euro zone fell for the first time since 2015 last month, data from the European Central Bank (ECB) showed on Tuesday, as growth faltered with little prospect for a meaningful recovery.

The 20-nation currency bloc’s economy has struggled all year and is likely in a recession now, as the so-far resilient job market and services sectors start to soften and manufacturing remains in recession, not least because of ECB rate hikes.

Bank lending to businesses contracted by 0.3% in October from a year earlier, after a 0.2% expansion a month earlier, with the stock of outstanding loans on a steady decline since February.

Lending growth to households, meanwhile, slowed to 0.6% from 0.8%, the lowest pace since early 2015, when the bloc was just beginning to recover from its debt crisis.

The weak lending figures are, in part, by design as the ECB lifted interest rates the most in its quarter-century existence to try to restrict demand enough to arrest strong inflation.

But some fear the ECB has raised rates too far in the past year and a half, and lending is becoming so restrictive that it could deepen the recession or slow its recovery.