Eurozone Bank Lending Picks Up Pace

Lending by eurozone banks to households and companies grew faster in August than the previous month, figures from the European Central Bank showed Wednesday.

Overall credit to the private sector grew 2.7% year-on-year last month, adjusting for some purely financial transactions—an increase of 0.1 percentage point over July’s pace, AFP reported.

July had already seen a 0.1 percentage point increase in growth from the previous month’s figure.

Policymakers watch lending growth closely for signs the ECB’s massive interventions in the single currency area’s economy are working as intended.

ECB hopes more credit should power the economy and boost inflation towards its target of just below 2%, believed to be most favorable rate for growth.

Looking in more detail, lending to households grew at the same 2.7% year-on-year rate last month as in July, still in adjusted terms. Expansion in credit for general consumption held steady at 6.7%, while mortgage lending growth sped up from 3.1 to 3.4%.

Meanwhile, loans to non-financial corporations continued accelerating last month, adding 0.1 percentage point to reach 2.5% growth, continuing July’s recovery from a June slump.

With cheap loans to banks, record low interest rates and monthly bond purchases of €60 billion ($70.5 billion), ECB policymakers have sought to pump cash through the financial system and into the real economy.

The ECB has strongly hinted that it will begin winding down bond-buying in October, although inflation in the 19-nation eurozone remains well short of its target. Inflation in the eurozone reached 1.5% in August.

Meanwhile, eurozone private businesses ended the third quarter with much stronger growth than predicted, bolstered by manufacturers, who had their best month since early 2011, a survey showed on Friday.

That growth, alongside rising inflationary pressures, is likely to increase expectations the European Central Bank will announce plans next month to reduce its monthly spending on quantitative easing.

HIS Markit’s eurozone Flash Composite Purchasing Managers’ Index for September, seen as a good guide to economic growth, bounced to 56.7 from August’s 55.7, comfortably above the 50 level that separates growth from contraction.

September’s reading was above all expectations in a Reuters poll, which had forecast a dip to 55.5.

“It was a super manufacturing performance. We are well-placed for a strong fourth quarter as well ... in this broad-based upswing,” said Chris Williamson, chief business economist at IHS Markit.