Eurozone bank lending falls again in June as ECB hikes take effect

In June, there was a decline in bank lending due to increased interest rates and a lack of economic strength. This decrease affected the desire for businesses and households to borrow money. The annual growth rate in bank lending to non-financial companies and households has been rapidly declining. Specifically, for companies, it went down from 2.1% in May to 1.7% in June, and for households, it went down from 4% to 3%. Additionally, on a monthly basis, households are now borrowing less from banks, while corporate borrowing remained stable in June.

Looking into the future, the outlook appears grim. The survey conducted by the European Central Bank on lending practices of banks suggests that there will be more strict credit regulations in the near future. Additionally, the demand for loans is declining, which will result in a persistently slow lending environment. As a consequence, investments are expected to weaken in the latter half of this year and the beginning of next year. This adds to the already stagnant state of the eurozone economy and raises the possibility of a recession.

In the meantime, the amount of money in circulation is continuing to decrease. The yearly increase in the overall amount of money (M3) went from 1% to 0.6%, and the narrower measure of money (M1) showed a further reduction from -7% to -8%.

The ECB is focused on how quickly money is being passed through the banking system this week. So far, there is no evidence that the pace is slowing down or that there is a sudden decrease in available credit. However, the decline in bank lending is happening slowly over time. This will eventually have a significant impact on the economy and inflation in the future. As a result, the ECB may raise interest rates sooner than expected, and any future rate hikes will be heavily discussed.