The Euro-Area Economy Is Finding Its Missing Link

ECB data on bank lending point to an upturn in investment

The general wisdom in euro-area policy circles is that investment to help boost productivity is the need of the hour. (Apart from, you know, keeping all the members in the currency club.)

The bloc needs investment because spending money now to increase productive capacity later might help turn a cyclical recovery into a more lasting one, if other conditions like structural reforms are in place. By providing liquidity at an unprecedentedly low rate of interest, the ECB says it's doing its part. 

Yet even with interest rates at record lows, firms have been wary of financing their future goals with bank loans. It was, after all, a debt crisis we've just had. But that may be changing. 

Data just in from the ECB's quarterly bank-lending survey show a tentative recovery in demand for loans for fixed investment. Borrowing to pay for things like new factories and equipment has lagged behind the general recovery in credit so far. The chart shows the net percentage of banks reporting investment loans as a contributing factor to overall demand in each period.

In the second quarter of 2015, Italy, Spain and France contributed the most to boosting loan demand for investment in the euro area. In Germany, where the Mittelstand firms often prefer to finance expansion out of their own pockets, demand is lower. In the euro area, investment by companies has slid as a percentage of gross domestic product from 13 percent before the financial crisis ago to less than 12 percent now.

''We now see encouraging signs that also private investment is picking up,'' ECB President Mario Draghi said in June, always with the central banker's advantage of early data. This "underlies our expectation that the economic recovery should broaden.''

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