Eurozone bank lending growth forecast to fall this year
Growth in bank lending across the Eurozone is expected to slow down, as rising interest rates dampen demand for loans.
Growth is forecast to slow to 2.1 per cent in 2023 and 1.7 per cent in 2024, according to the latest EY European Bank Lending Economic Forecast.
“Although the Eurozone entered a technical recession earlier this year and interest rates continue to rise, a fall in energy prices means Europe’s economic outlook is better than many expected it would be a few months back, and bank lending is set to remain in positive territory,” said Omar Ali, EY EMEIA financial services managing partner.
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“However, as households and businesses across Europe continue to contend with high inflation, and with uncertainty prevailing as the war in Ukraine continues, it is understandable that the demand to borrow – for businesses to invest or consumers to buy a house, go on holiday, or buy big ticket items – is slowing from its recent peak.”
In the first quarter of 2023, the Eurozone officially entered a recession. As a result, lending volumes are expected to be challenged by a fall in loan demand, at least for the next two years.
Germany – the largest eurozone economy – is forecast to record the sharpest slowdown in net lending growth this year, from 6.9 per cent in 2022 to 2.8 per cent in 2023. This is due to weak GDP growth and the impact of rising interest rates on a rapidly weakening housing market.
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Spain is expected to see a 1.2 per cent contraction in lending in 2023, before returning to 1.2 per cent growth in 2024.
“Achieving lending growth in turbulent times requires a strong capital foundation and high levels of confidence from borrowers,” said Nigel Moden, EY EMEIA banking and capital markets leader. “These are pillars of the eurozone’s major banks, which continue to see growth in lending to households and businesses despite a slowing economic backdrop.
“While bank lending growth is set to slow in the short-term, with particularly low growth next year and loan losses expected to rise, impairment levels remain far below that seen post-financial crisis and overall demand for loans is expected to recover by 2025.”
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