ECB Says Private Lending Shrank for Seventh Month in November

Lending to households and companies in the euro area contracted for a seventh month in November as the recession damped demand for credit.

Loans to the private sector fell 0.8 percent from a year earlier after dropping a revised annual 0.8 percent in October, the Frankfurt-based European Central Bank said today. Loans fell 0.1 percent in the month.

The 17-nation euro area entered its second recession in four years in the third quarter as the sovereign debt crisis prompted governments to cut spending. Still, business confidence in Germany, Europe’s largest economy, rose for a second month in December and financial-market sentiment jumped to a seven-month high, suggesting entrepreneurs and investors believe that the worst of the crisis may be over.

“Loans to the private sector reflect the real economy and that will remain fairly weak for most of the year,” said Tobias Blattner, an economist at Daiwa International in London. “Still, there should be some light at the end of the tunnel at the end of the year and demand for credit should pick up.”

The ECB lowered its economic forecasts last month, predicting a contraction of 0.3 percent this year. The revision and concerns about the negative signal of a rate cut prevented policy makers from easing borrowing costs in December, three officials with knowledge of the council’s deliberations said.

The ECB cut its benchmark interest rate to a record low of 0.75 percent in July and reduced the rate it pays banks for overnight deposits to zero. Policy makers will hold their next meeting on Jan. 10 in Frankfurt. Economists predict rates to remain unchanged, according to a separate survey.

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, dropped to 3.8 percent in November from 3.9 percent in October, the ECB said today.

M3 grew 3.4 percent in the three months through November 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.

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