Record eurozone loan fall

Lending to companies and households in the euro area fell the most on record in August, signalling that the economy is still struggling to recover from its longest-ever recession.

Loans to the private sector dropped 2% from a year earlier, the European Central Bank said. That’s the 16th monthly decline and the biggest since the start of the single currency in 1999. Adjusted for loan sales and securitisation, lending contracted 1.5% in August.

The ECB has pledged to keep interest rates at or below current levels to support the eurozone economy, which expanded 0.3% in the three months through June after six quarterly contractions. ECB president Mario Draghi said this month that while there has been “substantial progress” in bank funding, non-financial corporations are still suffering from “weak loan dynamics”.

The data shows a “depressing picture for the credit market,” said Annalisa Piazza, an analyst at Newedge Group in London. “Although the ECB made clear that the ECB cannot do much to boost credit to the corporate sector, we expect the current picture for loans to remain one of the key reasons behind expectations of a prolonged period of accommodation.”

The ECB predicts the eurozone economy will shrink 0.4% this year but up 1% in 2014.