Latest / The European Economy Podcast with Fexingo: ECB, Eurozone, and Continental Markets / Why Eurozone Bank Lending Is Rebounding
Transcript
- Lucas: So there's a number that's been quietly turning positive in the eurozone, and it might be the most encouraging thing we've seen from the bloc in months. Bank lending to businesses and households finally started growing again in the second quarter. Luna: That is interesting, especially after all those episodes we did about banks hoarding cash and deposits fleeing to money market funds. What flipped? Lucas: Well, part of it is that financial conditions have eased. The euro has been stable around one sixteen against the dollar, which takes some pressure off. And the ECB has been patient, holding rates steady while inflation settles. But the real driver seems to be that businesses are starting to feel more confident about the outlook, so they're finally willing to borrow for expansion. Luna: So it's not just a blip, you think? Lucas: I don't think so. Credit growth has been negative for over a year, and now it's turned positive. That's a real signal, especially when you consider that GDP growth has cooled to one point five percent annualized. Lending is often a leading indicator, so this could be the first sign of a more durable recovery. Luna: Makes you wonder if the ECB's patience is paying off. If lending is picking up without aggressive rate cuts, that's a win. Lucas: Exactly. And it's worth saying, if this episode is helping you make sense of what's happening with the European economy, the way we keep it ad-free is through listener support. If you're getting value, you can buy us a coffee at buy me a coffee dot com slash fexingo. It genuinely helps us keep going. Luna: Yeah, every little bit supports the research and the time we put into these shows. So thanks for that. Lucas: Now, the borrowing we're seeing isn't across the board. It's mostly business loans that are driving the rebound. Mortgage lending is still pretty flat, which makes sense given the rate environment we've been in. But commercial and industrial loans are up. Luna: So companies are borrowing to invest, but households are still cautious. That's a pretty typical pattern when we're coming out of a slowdown. Lucas: Right, and the interesting thing is that it's not just Germany. The strength is broad-based. Spain and Italy are showing decent demand, too. That's different from previous cycles where the core would lead and the periphery would lag. Luna: That's a good sign for the eurozone as a whole. If the periphery is joining in, the recovery has more legs. Lucas: But there are risks. The US slowdown is a big one. We saw the trade-weighted dollar index ease a bit, but if the US economy really slows, that hits European exports, and then business confidence could take a hit. And there's always the question of whether banks are actually willing to lend profitably at these rates. Luna: Yeah, bank profitability has been a concern. With the yield curve still pretty flat, banks are caught between low loan rates and sticky deposit costs. Lucas: Exactly. But for now, the data is pointing in the right direction. If credit growth keeps climbing through the third quarter, that would be a strong signal that the eurozone economy is getting back on track. I'd say the next few months are critical. Luna: Well, we'll be watching. Thanks for breaking that down, Lucas. Lucas: Anytime, Luna.