ECB survey shows demand for loans remains weak

FRANKFURT, Germany (AP) ? Demand for loans from business and consumers remains weak in Europe in the face of the continent's debt crisis, a closely watched European Central Bank survey showed Wednesday.

The anemic demand for credit indicates how the economy is still lagging in the 17 countries that use the euro, even though the ECB has cut interest rates to record lows and carried out a massive infusion of credit into the banking system.

Despite the moves, many countries in the eurozone are in recession as they grapple with their debts, and even Germany, Europe's biggest economy, is showing increasing signs of slowing down.

The ECB's quarterly lending survey of senior loan officers at 130 banks found that banks continue to report "a significant fall in demand for loans to enterprises. "

Banks saw also saw a "strong decline" in demand for loans for consumers for durable goods ? big-ticket items that last for several years, such as cars and home appliances.

The bank's statistical measure showed that a net 25 percent of banks reported less demand for loans from businesses. That was a slight improvement from the first quarter, when a net 30 percent reported slackening demand for loans.

The figures represent the difference between the percentage of banks reporting more demand and the percentage reporting less, adjusted for whether they said they saw "considerably" or "somewhat" more or less demand.

Ominously, the slack loan demand comes in two key categories for the economy. Business investment often leads economic recoveries as firms gear up for anticipated increases in orders. Durable goods purchases by consumers represent large outlays but are often postponed during times of doubt about the future.

The European Union's executive commission predicts the eurozone economy will shrink by 0.3 percent this year. But declining economic indicators lead many analysts to think the downturn could be significantly worse.

The ECB has flooded the banking system with just over ?1 trillion ($1.22 trillion) in cheap, three year loans and cut its benchmark interest rate to a record low of 0.75 percent in an attempt to ward off a worse downturn. Yet that cheap money for banks has been slow in reaching the wider economy ? while banks are wary of lending as they seek to shore up their financial defenses, businesses and consumers see no reason to borrow and take risks.

A shrinking economy will make it harder for Europe's indebted countries to borrow affordably so they can keep paying off their bonds as they come due. Less growth means less tax revenue for governments and makes debts bigger compared to the size of the smaller economy.

Greece, Ireland and Portugal have needed bailout loans from other eurozone countries to pay their debts. Spain and Italy are struggling to convince bond markets that they can continue to borrow affordably and avoid a much more expensive rescue that could overwhelm the resources of the eurozone.

The survey showed that tightening of loans to businesses remained roughly stable from the first quarter. A net 10 percent of banks reported they had tightened their standards for credit, compared to a net 9 percent in the first quarter.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2012-07-25-European%20Central%20Bank/id-984b63dd79194f68b5f0288895247822

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