Eurozone bank lending contracts further

Eurozone bank lending to the private sector contracted again in November, the European Central Bank said yesterday, a further sign that critical credit is tight as the economy begins to expand.

Lending shrank by 0.7 per cent, the third month running it has been in negative territory. It contracted by 0.8 per cent in October and by 0.3 per cent in September.

The 16-nation economy crawled out of recession in the third quarter, and economists have warned that businesses trying to rebound might be hobbled by banks placing stricter conditions on extending credit.

Others have pointed to weaker demand for credit owing to the recession, but IHS Global Insight chief European economist Howard Archer highlighted the possible obstacle to growth.

While the latest figure "is undoubtedly influenced markedly by businesses' muted demand for bank financing, it nevertheless maintains concerns that eurozone recovery could be held back over the coming months by a significant number of companies being unable to get the credit that they need," he said.

Growth of the ECB's M3 money supply indicator, which measures cash, deposits and various other financial items, fell meanwhile by 0.2 per cent, the first time on record it has posted a negative figure.

M3 had expanded by 0.3 per cent in October and analysts polled by Dow Jones Newswires had forecast an increase of 0.4 per cent last month.

Lending and money supply data illustrate consumer demand and overall activity in an economy.

Falling figures point to lower demand, which normally means inflation will ease and allow the ECB to cut interest rates. However, the rates are already at a record low of one per cent and are not expected to be cut further.