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The demand for credit collapses in the Eurozone. We are going back to the years of the debt crisis

Euro banknotes (© Depositphotos)

The ECB's restrictive policy is winning, and in Frankfurt they will be uncorking bottles of champagne, or German Riesling: by dint of increasing interest rates, European households are no longer asking for loans. Of course, companies won't be celebrating as much.

Bank loans to households in the Eurozone increased by 1.3% year on year to reach €6.86 trillion in July 2023, the lowest growth rate since November 2015, as the deceleration in credit demand persists due to the unprecedented tightening of monetary policy imposed by the European Central Bank. bank in recent months. Furthermore, loans to businesses grew by 2.2%, the lowest since September 2021. Overall credit growth to the private sector, which includes both households and non-financial corporations, fell to 1.6% in July , the weakest pace since June 2016. and we are heading towards the lows of 2014,

Note how the fall in credit demand was sudden, almost vertical, paralleling, but opposite to, the ECB interest rate move

As we said in Frankfurt they will celebrate: lower demand for credit from households means lower consumption and investments, therefore lower demand for goods and services which will therefore be followed by a drop in their prices, due to excess supply and therefore a drop in inflation.

Hurray, everyone happy? No, because goods and services companies that are seeing lower sales at this point will start to have lower profits if not losses. So they're going to start cutting production, if not shut down directly, they're going to lay off staff, they're going to drive up unemployment. A painful expansion-recession cycle, linked to monetary policies that have now replaced the non-existent fiscal policies.

This is the modern world. What do you think ?


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The article The demand for credit collapses in the Eurozone. We are going back to the years of the debt crisis comes from Scenari Economici .


This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/crolla-la-domanda-del-credito-nelleurozona-stiamo-tornando-agli-anni-della-crisi-del-debito/ on Tue, 29 Aug 2023 08:37:30 +0000.