World Economy

Eurozone Recovery Remains Weak

Eurozone Recovery Remains WeakEurozone Recovery Remains Weak

Factory output across the eurozone fell in May and last rose in February, an indication that its economic recovery remained weak as Greece and its creditors struggled to find ways to keep the heavily indebted country inside the currency area.

However, there are signs that the European Central Bank’s new stimulus program is beginning to reach the wider economy, with the results of a survey also published Tuesday showing eurozone banks eased standards for loans to companies during the second quarter while demand for business credit rose “substantially,” Dow Jones reported.

The European Union’s statistics agency said that production by factories, mines and utilities during May was down 0.4% from April, but up 1.6% from the same month in 2014. Output was unchanged in April and declined in March, so output last rose on the month in February, and remains well below the levels recorded before the 2008 financial crisis, underlining the glacial pace of the eurozone’s recovery from that trauma.

ECB policymakers had hoped that a weakening of the euro in response to a series of new stimulus measures would boost exports and economic growth. Manufacturers are more geared to exports than services providers, but while industrial output did increase slightly in the second half of last year, it has stalled in 2015.

If the boost to exports has not proved as strong as it was hoped, the ECB’s new quantitative easing program can aid the economy in a variety of other ways, for example by restarting bank lending that will help fund long postponed investment by businesses and households.

 Competition Among Banks

According to the ECB’s quarterly survey, banks loosened the terms on loans to businesses and for home purchases during the second quarter. In both cases, competition among banks was the main driver of this trend, the ECB noted.

Meanwhile, “net demand for loans to enterprises increased substantially, owing mainly to the general level of interest rates,” the ECB said. “Fixed investment also contributed to an increase in demand. Net demand for housing loans continued to increase substantially owing to the low level of interest rates and to housing market prospects,” it said.

The financial crisis exposed fiscal problems peculiar to the eurozone that persist seven years later, with governments from the currency area Monday agreeing the basis of a third bailout for Greece.

The report provided some early evidence that Greece’s debt crisis has not upended the bloc’s modest economic upturn. The figures were calculated from a survey of 142 banks in the eurozone that was conducted between June 9 and June 24, a period when tensions between Greece and its creditors was escalating but before they reached a boiling point after Athens called for a referendum on the bailout that was held on July 5. Greek voters strongly rejected the bailout conditions, but the deal struck on Monday contained many of the austerity measures that voters had rebuffed.