Year-on-year growth rates for bank loans in the eurozone looked bleak in September, falling from 0.7% to 0.2% for non-financial companies and from 1.0% to 0.8% for households. However, much of this is due to base effects, as borrowing was still quite strong in September 2022. Month-on-month figures have shown a more or less stagnant picture since the fourth quarter of last year, and September 2023 was no exception.
There are no signs of a rapid slowdown in debt like we saw in 2008, for example, but the current debt environment has already reduced housing investments and is also slowing other investments at this time. This is a clear sign that monetary policy is having the desired effect.
The European Central Bank’s (ECB) bank lending survey for the third quarter published yesterday showed that demand for loans was weaker than expected and lending standards were tighter than expected. Expectations for the current quarter show that loan demand continues to weaken, meaning we can expect the current downward trend in lending to continue over the coming months.
For the ECB, this all but confirms that it is an excellent time to pause. The biggest impact of higher interest rates – by the ECB itself – is expected to occur only early next year and the economy has already slowed markedly. A recession is a clear risk right now and inflation is moving in the right direction. There is no certainty about where inflation will land, but after more than a year of continuous rate hikes, it seems time for the ECB to take a breather and see how the recent hikes will affect an economy that is already weakening significantly. .