Euro zone lending to firms improves

LONDON (Reuters) - The long-running year-on-year decline in lending to euro zone firms nearly ground to a halt in November, bolstering hopes that a rise in credit will aid the region’s economic recovery.

A woman walks past a shop in Dublin's North side November 16, 2010. REUTERS/Cathal McNaughton

European Central Bank figures published on Wednesday showed company loans rose 11 billion euros (9.3 billion pounds) in the month, following a 10 billion euro drop in October, leaving them just 0.1 percent weaker than the same time a year ago.

“This is a welcome, limited step in the right direction. This raises hopes that euro zone banks may be becoming more willing to lend to what they perceive to be less risky businesses,” said IHS Global Insight economist Howard Archer.

“It also hints that there has been a limited increase in companies looking to borrow to finance investment and business plans in reaction to recent improved activity.”

Loans to the private sector overall were up 2.0 percent over the year, more than economists’ expectations of a 1.5 percent improvement and up on the 1.5 percent gain recorded in October.

Data for lending to home buyers, seen by economists as a potential leading indicator of lending trends, was less promising however, with mortgage lending slowing and lending to households overall also slowing.

The annual decline in the pace of mortgage lending was the first since September 2009.

The data also pointed to the absence of significant price pressures in the 16-nation region, bolstering economists’ expectations that the ECB will not raise official interest rates until late next year at the earliest.

At 1.3 percent, the three-month moving average of M3 growth remains well below the ECB’s reference rate of 4.5 percent, above which the bank sees dangers to medium-term price stability.

However, there were signs that modest pressure may be building. M3 money supply, a measure of cash readily available to spend that the ECB sees as a leading indicator for inflation, rose 1.9 percent on an annual basis, ahead of expectations for a rise of 1.5 percent.

Inflation in Germany, the euro zone’s industrial engine, also showed signs of growing strength on Wednesday. Early data from four of the country’s states pointed to national inflation numbers coming in higher than expected.

Comparing the figures with falling prices in troublespots such as Ireland underscores the euro zone’s two-speed economy and the difficulty the ECB faces as it tries to select the right monetary policy to suit the needs of the polarised region.

“It’s a bit of a Goldilocks situation for the ECB,” said ING economist Martin Van Vliet. “Monetary policy is going to either be too hot or too cold. The problem is it may not be able to be just right at the moment.”

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Reporting by Marc Jones; Editing by John Stonestreet