January 29, 2020 / 10:16 AM / a month ago

ECB data point to widening split in euro zone economy

FILE PHOTO: The European Central Bank (ECB) logo is pictured before a news conference on the outcome of the meeting of the Governing Council in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) - Bank lending to euro zone companies dropped to a two-year low last month while household lending expanded to a post-financial-crisis high, suggesting a widening rift in the bloc’s economy, European Central Bank data showed on Wednesday.

Many companies in the euro zone are struggling with plunging trade and a manufacturing recession, but consumers remain relatively optimistic. Wages and employment are still rising and the service sector continues to expand.

Lending growth to non-financial corporations slipped to 3.2% from 3.4% a month earlier, the lowest figure in 24 months. At the same time, lending to households accelerated to 3.7% from 3.5%, the best reading in 11 years.

Hoping to prop up growth, the ECB introduced a controversial stimulus package in September, aimed at cutting credit costs to keep money flowing to businesses while growth was slowing. Recent surveys indicate stabilization, but Wednesday’s lending figures add nuance to that picture.

The monthly flow of loans to businesses was just 0.7 billion euros, less then a tenth of the average monthly flow last year and the second-worst monthly reading all year.

The drop came as companies shied away from long-term credit, the segment the ECB is hoping to boost with ultra cheap funding.

The 23.8 billion-euro monthly flow of household loans, meanwhile, was the best figure since early 2008 as consumers were picking up cheap mortgages.

The mortgage lending figure comes just days after an ECB board member warned that ultra-easy policy may be fuelling bubbles, particularly in the housing market, and the ECB could be sowing the seeds of the next crisis.

The annual growth rate of the M3 measure of money supply, which often serves as an indicator of future activity, dropped to 5.0%, undershooting expectations for 5.5%.

Reporting by Balazs Koranyi; editing by Larry King

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