ECB Says Private Lending Contracted for 10th Month in February

Lending to households and companies in the euro area contracted for a 10th month in February as the region struggles to emerge from recession.

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

While Germany, the region’s largest economy, is showing signs that it is returning to growth, France is stagnating and Italy remains mired in recession, damping demand for credit in the 17-member currency area. Potential turmoil caused by the imposition of capital controls in Cyprus following a bailout this month may endanger ECB President Mario Draghi’s prediction that the region’s economy will gradually recover in the second half of the year.

“The banks would like to give more loans but it’s a problem of demand,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “The euro area is still in recession in many places; in the course of the year loan growth should gradually revive.”

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, fell to 3.1 percent in February from 3.5 percent in January, the ECB said today.

M3 grew 3.3 percent in the three months through February 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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