Lending to governments surges but private firms left in the cold
GOVERNMENTS could be crowding out the private sector in the competition for credit, the latest official Eurozone statistics suggest.
Data released by the European Central Bank (ECB) show that while lending to governments is surging on the continent, lending to private entities is either shrinking or stagnant.
The numbers seem to confirm that the ECB’s massive €1 trillion liquidity injection served mainly as a way of bringing down government borrowing costs, rather than stimulating economic growth more broadly.
They show that credit extended to “general government” grew 7.3 per cent in March, an acceleration compared to January and February, when it grew 4.3 per cent and 5.6 per cent respectively.
By contrast, credit extended to every other Eurozone inhabitant has been sluggish: it grew 0.5 per cent in March, following 0.7 per cent and 0.4 per cent growth in January and February. For loans specifically, the picture is bleaker: loans to non-financial corporations shrank by 0.4 per cent in March.
Howard Archer, an economist at IHS Global Insight, said that the dataset “fuels concern that the €1 trillion loaned to European banks by the ECB… is not feeding through to boost lending to the private sector – at least for now”.
By contrast, some of the money supply data accompanying the lending figures was cause for “glimmers of hope”, according to Henderson’s Simon Ward.
It showed “broad money” – currency and overnight deposits – increasing by 1.3 per cent in March. Ward said money supply is “improving at the margin”, suggesting that the new recession across the continent might be over by the end of the year.