Loan growth has continued to rise steadily, buoyed by the easing of monetary policy, but a recent bank lending survey for the fourth quarter of 2024 revealed a concerning trend: banks began tightening credit standards for businesses due to heightened perceived risks. This cautious approach persisted into the first quarter of 2025, with loan demand from firms slipping into negative territory. The decline was largely attributed to reduced demand for credit lines and working capital, although fixed investment plans did not significantly contribute to the weak loan demand.
The survey, conducted in mid-March, was completed before the onset of the current market instability and “liberation day,” leaving uncertainty about any potential impact these events might have on loan demand and banks’ willingness to lend in the near future. However, the survey paints a bleak picture, with private investment expectations remaining subdued, reinforcing the view of a slow economic recovery despite efforts by the European Central Bank (ECB) to ease monetary conditions.
In contrast, the mortgage market remains a notable exception. Net demand for mortgages surged in the first quarter, as credit standards relaxed, providing additional momentum to the ongoing housing market recovery. This trend suggests that housing investment could serve as a bright spot amid an otherwise sluggish investment landscape in the eurozone in the coming months. According to the survey, lower interest rates are the primary factor driving the increased demand for mortgages.
The overall findings of the bank lending survey point to a weakened economic outlook, likely prompting the ECB to consider further rate cuts. With the ongoing trade and market volatility, a stronger euro, and lingering growth concerns, analysts predict the ECB will lower rates by 0.25% at its upcoming meeting on Thursday.
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