Lending to euro zone households and companies contracted further in November, adding to concerns that the European Central Bank’s latest round of stimulus may not be enough to revive the currency bloc’s economy.
ECB data on Tuesday showed that loans to the private sector contracted by 0.9 per cent compared with November 2013, after a contraction of 1.1 per cent in October.
The ECB has forced banks to clean up their balance sheets, offered them extremely cheap four-year loans and started purchasing secured private debt. However, the measures have had little impact on the flow of credit in crisis-hit countries.
Corporate lending fell 11.4 per cent in Ireland, 8.5 per cent in Spain, 6.5 per cent in Portugal and 3.2 per cent in Greece.
Risk aversion may pick up again after Greece called an early election for January 25th which leftist anti-bailout party Syriza is being tipped to win.
The development was a reminder that the debt crisis that started in Greece about five years ago is not over.
Euro zone inflation, meanwhile, stands at 0.3 per cent, far below the ECB’s target of just under 2 per cent, and calls for more ECB action have grown as policymakers warn that plunging oil prices could push inflation below zero.
Growth prospects
Concerns are that weaker price expectations could affect wages and investments, and dampen growth prospects.
In Spain, where inflation is already negative, consumer prices fell in December at their fastest rate since July 2009, although lower prices did help push up retail sales.
With interest rates at record lows, large-scale purchases of government debt with new money remain an option for the ECB to bring inflation back on target, but some members of its governing council say the costs of such a step may outweigh the benefits.
The ECB has asked its staff to prepare for further measures should they become necessary, including possible quantitative easing. In a Reuters poll of economists earlier this month, 25 out of 27 participants said the ECB would begin buying sovereign bonds within a few months. ECB policymakers next meet on January 22nd.
"While the money supply and bank lending data are at least moving in the right direction, they are still weak so the ECB can only take very limited comfort," said Howard Archer of IHS Global Insight.
He said Greek political uncertainty could hasten a decision on quantitative easing if it drags on euro zone markets, although “the Greek situation could [also] harden German opposition to buying sovereign bonds”, he added.
