ECB Says Private Lending Contracted for a Sixth Month in October

Lending to households and companies in the euro area contracted for a sixth month in October as the economy entered recession.

Loans to the private sector fell 0.7 percent from a year earlier after dropping an annual 0.9 percent in September, the Frankfurt-based European Central Bank said today. Loans were unchanged in the month.

The 17-nation euro area succumbed to its second recession in four years in the third quarter as the sovereign debt crisis prompted governments to cut spending. At the same time, investor confidence in Germany unexpectedly rose this month after growth in Europe’s largest economy slowed less than expected and the ECB pledged unlimited bond-market support for debt-strapped countries.

“Although there is no credit crunch, there is still a credit squeeze throughout the region,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “Despite the ECB’s efforts to improve monetary-policy transmission, there are still wide differences in lending rates and many banks are still reluctant to extend credit given the recessionary environment.”

The Paris-based Organization for Economic Cooperation and Development said in a report yesterday that the ECB should cut interest rates further and commit to keeping them low as the euro-area economy weakens and the risk of deflation emerges. The ECB cut its benchmark interest rate to a record low of 0.75 percent in July and took the unprecedented step of reducing the rate it pays banks on overnight deposits to zero.

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, rose to 3.9 percent in October from 2.6 percent in September, the ECB said today.

M3 grew 3.1 percent in the three months through October 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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