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ECB data indicates growing split in euro zone economy

By Lawrence Gash

Companies struggle to obtain loans

The latest data published by the European Central Bank (ECB) has pointed towards a widening split in the economy of the euro zone, with companies struggling and consumers enjoying wage growth.

The ECB revealed a disparity in lending tendencies within countries using the Euro, with bank lending to companies falling to its lowest point in two years in the last month of 2019 while household lending grew to its highest level since the 2008 financial crisis.

Lending growth to non-financial corporations dropped from 3.4 per cent in November to 3.2 per cent, while household lending grew from 3.5 per cent to 3.7 per cent.

Although consumer sentiment remains optimistic and the euro zone’s service sector continues to expand, many companies are struggling with the emerging global economic slowdown and a recession in manufacturing.

In September last year, to combat such a slowdown, outgoing ECB Chair Mario Draghi introduced a new stimulus package hoping to reduce credit costs and keep business liquid.

Such measures were claimed by some figures within the bank to have succeeded in stimulating, however the latest lending data has challenged such arguments.

Consumers have taken advantage of cheap mortgages with €23.8bn (£20.1bn, $26.2bn) of household loans being approved in December. This comes days after comments from an ECB board member who voiced his concern that the current level of spending could be fuelling a bubble in the euro zone’s housing market. Such figures are not uncommon across the wider continent of Europe. Mortgage approvals in the UK are currently at their highest level in since 2009.

Companies have been less able to obtain such credit. The loans to businesses within the euro zone in December was less than a tenth of the average monthly flow in the 12 months previous, at €0.7bn.

Companies within the euro zone having less access to cheap credit could not be entirely disastrous for the health of the area’s economy. Numerous studies have already shown that the economic powerhouse of the region, Germany, is ridden with zombie companies, who would not exist but for low interest rates, cheap credit and repeated government stimulus. It is currently estimated that between 15-17 per cent of German firms are zombified.

With Draghi’s successor Christine Lagarde launching a strategic strategy review, it remains to be seen how the ECB will act to solidify the euro zone.

FURTHER READING: UK mortgage approvals at their highest since 2009

FURTHER READING: ECB holds policy as it launches strategic review

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