Private lending in the Euro Zone drops to 20-year low

By Rizza Sta. Ana

Jan 03, 2014 12:50 PM EST

European Central Bank data showed on Friday that private sector lending in Europe recorded its sharpest yearly rate not seen since records were started to be kept over 20 years go. The data suggested that the region will be struggling to accelerate the recovery of its economy fully.

ECB said, referring to its data, that lending to the private sector had dropped 2.3% on the year, after experiencing a 2.2% decrease in October 2013. The drop, said a Wall Street Journal report, depicted the wariness of financial institutions to extend credit to businesses and households in the middle of doubts over the economic outlook of Europe.

Countries in the Euro Zone recently emerged from a periodic recession during the second quarter of 2013, but the WSJ report said their recoveries were fragile. The gross domestic product expanded only 0.4% at a yearly rate during the third quarter of last year. Recent economic reports also insinuated that the economy in Europe had not gain enough steam in the last quarter of the previous year. Unemployment, on the other hand, remained in record highs, said the news outlet.

The ECB report added that on the month, household lending saw a €3 billion ($4.1 billion) decrease, which reversed the €3 billion increase seen in October. Lending to businesses also dropped by €13 billion, following a bigger €15 billion drop in the previous month, and also posted a 3.9% decline on the year.

Berenberg Bank chief economist Holger Schmieding said, "For the ECB, this is clear reason to maintain an aggressive policy, and leave the hope for further easing in the market, "Schmieding expected that the ECB will be standing by with its interest rates and other economic measures when it will meet on January 9. In November, the central bank of Europe had sheared off its main lending rate to a record low of 0.25%, the report noted.

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