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Credit growth slows in eurozone
Credit growth slows in eurozone as ECB bank loans take time to have effect
By The Associated Press

FRANKFURT, Germany (AP) ' The European Central Bank says the flow of credit available to businesses slowed down in February ' a sign that the bank's massive series of cheap loans to the financial system has yet to kickstart a lagging eurozone economy.

Figures Wednesday showed loans to nonfinancial corporations ' a key credit indicator ' grew by only 0.4 percent on an annual basis, down from 0.7 percent in January.

The ECB made two massive rounds of cheap loans to banks Dec. 21 and Feb. 29, adding about '500 billion ($666 billion) in net new credit to the financial system. The loans were introduced in the hope that the money would eventually find its way to businesses and consumers as loans and, in turn, promote growth.

The loans are credited with easing the eurozone debt crisis by removing fears that one or more of Europe's shaky banks might fail, and by making it easier for heavily indebted governments such as Italy to borrow on bond markets.

But the 17-country currency bloc is still going through what is expected to be a mild recession that will complicate efforts to reduce the debt loads plaguing governments. ECB president Mario Draghi says the aim of the loans was to avoid a credit crunch that would choke off the finance businesses ' especially the smaller concerns which employ most people in the eurozone ' need to expand and hire people.

Commerzbank economist Michael Schubert said the ECB's action would take time to feed through from banks to the wider economy but the central bank might not be too disappointed "as it probably expected the sluggish loan momentum to continue for some time."

Draghi has also downplayed fears expressed by some economists that the loans will stoke inflation by increasing the supply of money in the economy. The loans only increase the money supply however when banks loan the money out and businesses decide to borrow ' activity that remains subdued. The eurozone economy shrank 0.2 percent in the last three months of 2011 and the European Union's executive commission thinks growth will shrink by 0.3 percent this year.

The bank's statistics showed the rate of increase in the money supply increased in February, to 2.8 from 2.5 percent. That remains well below historical averages.

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