Euro-Zone Lending Picks Up

LONDON—Bank lending to euro-zone businesses increased in August following a decline in July, boosting overall lending to the private sector, the European Central Bank said Monday.

The euro zone's recovery from the deep recession that followed the global financial crisis has been hindered by weak bank lending, particularly to businesses.

However, the ECB said lending to businesses was €17 billion ($22.93 billion) in August, more than reversing a €11 billion decline in July and trimming the annual rate of decline to 1.1% from 1.4%.

"The fact that broad money and overall credit growth have moved back into clear positive territory is encouraging," said Martin van Vliet, an economist at ING Bank NV. "But the still-sluggish growth rates highlight the underlying fragility of the economic recovery. We are hopeful... that... growth in bank lending to non-financial firms eventually... turns positive. This would bring the prospect of a self-sustaining recovery a step closer."

Lending to households picked up, rising to €14 billion during August from €5 billion in July, with the annual rate of growth rising to 2.9% from 2.7%. As a result, the annual rate of growth in loans to the private sector picked up to 1.2% from 0.8% in August.

The ECB said the M3 measure of broad money supply grew at a more rapid annual rate in August, up to 1.1% from 0.2% in July. The three-month average for the annual increase in M3 over the period from June to August was 0.5%, up from 0.1% in the period from May to July.

The increase in the money supply was much more rapid than expected. Economists surveyed by Dow Jones Newswires last week had estimated that M3 increased by 0.4% on a year-to-year basis, while the three-month average was estimated to have risen to 0.2%.

"Despite the significant rise in August, the euro-zone money-supply data still point to muted underlying inflationary pressures," said Howard Archer, an economist at Global Insight. "Consequently, the ECB still looks likely to keep interest rates down at the current level of 1.00% not only throughout 2010 but deep into 2011, given that the euro zone's economic recovery continues to face serious including tighter fiscal policy increasingly kicking in across the region and slower global growth."