Frankfurt: A sharp contraction in lending to businesses in the Eurozone coupled with slowing money supply growth suggests the region’s fight against deflation may not be over, analysts said on Thursday.
Regular monthly data compiled by the European Central Bank showed private sector loans in the single currency area dropped by 2.1 per cent in October in a year-on-year comparison, after already contracting by 2.0 per cent in September.
Earlier this month, the ECB cut its interest rates to new all-time lows after area-wide inflation slowed unexpectedly to just 0.7 per cent.
“These developments highlight the risk of deflation, which we now think is becoming one of the main issues facing the Eurozone,” said Marie Diron at EY Eurozone Forecast.
“Very weak money growth and ongoing falls in the stock of loans to businesses confirm that the Eurozone recovery is weak and so we expect credit conditions will remain tight,” the expert said.