ECB Says Lending Contracts at Fastest Pace in Two Years

Lending to households and companies in the euro area contracted at the fastest pace in 2 1/2 years in August amid an economic slump.

Loans to the private sector fell 0.6 percent from a year earlier after declining an annual 0.4 percent in July, the Frankfurt-based European Central Bank said today. That’s the steepest decline since January 2010. Lending was flat on the month.

The 17-nation euro economy is on the brink of recession after shrinking 0.2 percent in the second quarter. The sovereign debt crisis, now in its third year, is making banks reluctant to lend as well as curbing demand for credit. In addition to flooding the banking system with more than 1 trillion euros ($1.29 trillion) of cheap cash to fend off a credit crunch, the ECB has announced a new bond-purchase program to reduce borrowing costs in countries like Spain and Italy.

“Loans are still a very important indicator for the ECB, because they show the impact of the long-term refinancing operations, rate cuts and other measures,” said Tobias Blattner, an economist at Daiwa International in London. “However, it’s always a reflection of the real economy, and that has been quite gloomy, which depresses demand.”

Euro-area consumer confidence unexpectedly declined in September, as services and manufacturing output slumped to a 39- month low.

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, fell to 2.9 percent in August from 3.6 percent in July, the ECB said today.

M3 grew 3.2 percent in the three months through August from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings.

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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