Eurozone lending to businesses fell in December, official figures showed on Thursday, as a rise in German unemployment deepened gloom across the continent.
Businesses in the 16-country eurozone repaid debt in December, according to the European Central Bank, as a result of the combined effect of tougher conditions applied by banks and the rapidly deteriorating global economic outlook.
Adjusted for seasonal variations, December’s month-on-month fall in borrowing was the first since November 2002, says Barclays Capital.
Eurozone policymakers have resisted dubbing the crisis a “credit crunch”, arguing that a slowdown in lending was largely driven by falling demand. But banks’ caution clearly “had an impact”, argued Julian Callow, European economist at Barclays. “The two forces are at work, hand-in-hand.” Loans of more than one-year duration had fallen off particularly sharply.
The turnround was also highlighted, although less dramatically, in the annual growth rate in loans to businesses, which the ECB reported fell from 11.1 per cent in November to 9.4 per cent in December – the lowest for almost three years.
Households also repaid debt in December as they had in November, with the annual growth rate in mortgage lending falling to just 1.7 per cent in December.
Economic conditions continued to deteriorate at the start of this year, with the European Commission on Thursday reporting its eurozone “economic sentiment” indicator dropped again in January – although less sharply than in the final quarter of 2008. At 68.9, the index hit another record low The readings marked a setback after the glimmer of hope offered by a surprise rise this week in the German Ifo business confidence index. The Commission said confidence fell across the main eurozone economies – although Spain saw optimism recovering a little. The German government’s emergency measures to preserve jobs failed to prevent a steep rise in unemployment this month. The Federal Labour Agency said jobseekers’ numbers rose 56,000 in January, on a seasonally-adjusted basis, nearly twice as much as economists had anticipated, pushing the jobless rate up from 7.6 to 7.8 per cent.
Although the labour market is a lagging indicator of the health of the German economy, its health has so far determined Berlin’s response to the crisis.
Poland said Thursday its economy slowed more sharply than expected in the final months of 2008, as corporate investment slumped.
Official figures showed gross domestic product rose 4.8 per cent in 2008, down from 6.7 per cent in 2007. While separate fourth quarter data have yet to be published, the numbers suggest an accelerating decline, which is likely to continue in the first months of 2009. Economists forecast 2 per cent GDP growth for this year, below the government’s official figure of 3.7 per cent.