According to a survey conducted by the European Central Bank on Tuesday, Euro zone banks have tightened access to credit for firms in the last quarter and anticipate further restrictions in the first three months of 2025. This aligns with the need for additional interest rate cuts amidst a slowing economy.
Throughout 2024, lending growth remained stagnant due to factors such as weak consumption, a two-year industrial recession, low export demand, and subdued government spending. The ECB highlighted that banks tightened credit standards beyond expectations, primarily influenced by increased perceived risks linked to economic uncertainties and specific industry situations.
The tightening of credit standards was observed across all sectors, notably impacting commercial real estate, wholesale and retail trade, construction, and energy-intensive manufacturing. Although credit standards for mortgages remained mostly unchanged, the lack of anticipated easing is concerning.
Looking ahead, banks foresee tighter credit standards for both households and firms in the current quarter, indicating persistently weak lending growth. This anticipated trend aligns with past interest rate cuts and future projections, underscoring the shift towards addressing poor growth amid subdued inflation.
In the upcoming period, banks anticipate stable loan demand from firms and heightened demand from households, particularly in housing loans, while their own access to funding is expected to remain steady.