Euro zone lending slows further as rate hikes bite

FRANKFURT (Reuters) - The loans provided to companies in the euro zone saw a further decrease last month, intensifying the growing body of evidence that the considerable rise in interest rates is impeding the creation of credit and overall economic expansion.

Loans provided to companies within the group of 20 countries that share a common currency increased by 3.0% compared to the previous year, following a growth of 4.0% the previous month. However, the rate of growth in credit for households decreased to 1.7% from 2.1%.

The European Central Bank has increased interest rates by 4 percentage points in the previous year, and another raise on Thursday is almost certain since inflation is still significantly above the desired level. It might potentially take until 2025 for inflation to decrease and align with the targeted 2% mark.

However, the latest economic statistics, including PMI figures and indicators of sentiment, as well as a significant lending survey, have shown surprising negative trends. This indicates that the region is still managing to avoid a recession, which in turn should naturally dampen inflationary pressures.

The concerning information is increasing the discussion on the extent of additional actions required by the ECB. Some economists believe that the upcoming rate increase on Thursday will be the final one, while others are placing their bets on one more adjustment in September.

The increase in the M3 gauge of money supply, previously regarded as a reliable indicator of upcoming economic growth, decelerated to 0.6% from 1.0%. This result fell short of the projected 1.0% increase.

Written by Balazs Koranyi; Revised by Francesco Canepa