ECB: February Monetary Developments Show Unchanged Annual Private Sector Credit Growth

25 March 2021

By David Barwick – FRANKFURT (Econostream) – The annual growth of bank lending in the euro area accelerated slightly in February compared to January, while the growth rate of household loans remained the same, according to data released by the European Central Bank on Thursday.

In its report on last month’s monetary developments, the ECB said that the annual growth rate of total credit to euro area residents increased to 9.8% from 9.6% in January. The acceleration was entirely due to an increase in the growth rate of credit extended to general government, which rose one percentage point to 23.9% in February.

Credit to the private sector - euro area non-MFIs excluding general government – grew at an annual 5.1%, as in January.

Adjusted loans to the private sector grew an annual 4.5%, the same as in January, with adjusted loans to households steady at a growth rate of 3.0%, and adjusted loans to non-financial corporations up 0.2 point to 7.1%.

Credit for consumption contracted 2.8% on the year (versus -2.6% in January), while the growth of lending for house purchase remained at 4.5%.

The timid further increase in adjusted loans to non-financial corporations could suggest hesitancy to invest on the part of companies, whose balance sheets have been weakened by the pandemic, but the annual rate of growth still remains high after what European Central Bank President Christine Lagarde earlier this month noted was ‘the very strong increase in lending in the first half of’ 2020.

In the ECB’s view, household lending has held up well, though the persistence of the pandemic could change that. In any case, this lending has not been for the purpose of consumption, but rather homebuying. Consumers probably have less need to finance consumption spending via loans, given the partly involuntary build-up of savings during the pandemic.

ECB Chief Economist Philip Lane said earlier this week that ‘it remains a debate for consumers about when will they be fully confident’. Confident consumers are a necessary component of the economic recovery, he said, but memories of the protracted stagnation that followed the Global Financial Crisis mean that it ‘may take time for that to happen’.

The ECB is keen on avoiding any developments that would be inconsistent with favourable financing conditions, as these would stand in the way of a recovery, and has thus stepped up its asset buying to counter the impact of rising market rates.