FRANKFURT (Reuters) – Euro zone banks tightened firms’ access to credit last quarter and expect further tightening in the first three months of 2025, a European Central Bank survey showed on Tuesday, reinforcing the case for more interest rate cuts as the economy slows.
Lending growth has been broadly stagnant for most of 2024 as the long-awaited economic recovery failed to materialise given weak consumption, a two-year industrial recession, paltry export demand and lacklustre spending from governments.
Banks had expected to tighten credit standards or loan approval criteria for firms but did so much more than predicted, despite overall weak demand, the ECB said based on its quarterly Lending Survey, a key input into Thursday’s interest rate decision.
“It was driven by higher perceived risks related to the economic outlook, the industry-and-firm specific situation and banks’ lower risk tolerance,” the ECB said.
Credit standards tightened in all sectors but especially in commercial real estate, wholesale and retail trade, construction and energy intensive manufacturing, the bank added.
For mortgages, credit standards were broadly unchanged, but that too is a disappointment since banks predicted “strong” easing when the ECB asked them three months ago.
In the current quarter, banks expect to tighten credit standards for both households and firms, suggesting that lending growth will remain weak.
The ECB cut interest rates four times last year and another four moves are priced in for 2025, with the first of those coming on Thursday as excessive inflation is largely defeated and attention has shifted to poor growth.
In the current quarter, banks expect loan demand to remain broadly unchanged for firms and to increase further for households, especially for housing loans with banks expecting their own access to funding to remain broadly unchanged.
(Reporting by Balazs Koranyi, Editing by Louise Heavens)
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