PRODUCT PROFILE

Latest Dublin Prices

Eurozone lending down for eighth month

Monday, January 28 11:15:55

Loans to companies and households in the euro zone contracted for the eighth month running in December, showing low official borrowing costs are having little success in reviving investment and spending.

Loans to the private sector fell 0.7 percent from the same month a year ago, European Central Bank data showed, in line with the mid-range forecast in a Reuters poll of economists.

The monthly flow of loans to non-financial firms fell 22 billion euros in December after falling by 7 billion euros in November. The monthly flow of loans to households showed a drop of 3 billion euros after a rise of 6 billion euros in the previous month.

The cheap funds the ECB is pumping through the monetary system are still not reaching households and businesses evenly across the euro zone as some countries struggle to get their stricken economies back on track, though progress has been made.

On a country-by-country basis, the data showed a 22 billion euro drop in private-sector lending in Spain, the largest monthly fall since July.

In Portugal, private-sector lending fell by 2.6 billion, the biggest drop in a year.

"Although euro zone banks' liquidity positions improved during 2012, it is clear that this has had little effect in boosting private-sector lending," said Howard Archer, economist at IHS Global Insight.

Italy, however, posted a healthy rise of 12.6 billion euros to 1.757 trillion in private-sector loans.

The central bank has taken some of the heat out of the euro zone crisis by announcing a new, as yet unused, bond-purchase programme, but the bloc's economy remains weak and is expected to have shrunk in the final months of 2012.

ECB President Mario Draghi noted in early January some economic indicators had stabilised at low levels and financial markets' confidence had improved, which along with the ECB's accommodative policy should lead to a recovery later this year.

Draghi even spoke of "positive contagion" in financial markets, with Monday's data already pointing in that direction with consumers and firms' deposits in banks in troubled euro zone member states rising in December.

But it might still take some time before this filters through in better loan availability, analysts said. (C ) Reuters