Eurozone crisis weighing on credit to households

Bank lending to private households in the eurozone contracted again in November as the region's debt crisis continues to dampen demand for credit, data showed on Thursday. Eurozone bank loans to the private sector shrank by 0.8 percent in November from the level in the same month in 2011 after already shrinking by 0.8 percent in October, the European Central Bank said in a statement. President Mario Draghi has said that weak lending to the private sector reflects a pessimistic view of eurozone growth prospects and heightened risk aversion amid the crisis. The ECB also published eurozone money supply data, which suggest the money supply -- a key guide to future inflation -- is growing. Growth in the M3 indicator, which measures the amount of money in circulation, grew by 3.8 percent in November, after already rising by 3.9 percent in October. The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly. Analysts predicted that lending was set to remain weak over the coming months. "We expect loan demand from non-financial corporations... to remain weak in the first part of 2013," said UniCredit analyst Loredana Federico. Capital Economics economist Jonathan Loynes agreed. "Overall, credit constraints inside the eurozone look likely to continue to act as a severe brake on economic activity in the region for some time to come yet," he said. IHS Global Insight analyst Howard Archer said that although eurozone banks' liquidity positions improved during 2012, "it is clear that this has had little effect in boosting private-sector lending." Last year, in a bid to boost lending in the embattled 17-member bloc, the ECB offered banks more than 1.0 trillion euros ($1.3 trillion) in ultra-cheap long-term loans but the operation appears to have been less effective than the central bank hoped. "It is also evident that the ECB's decision to cut its deposit rate to zero percent ... has done little to encourage banks to lend more to the private sector," Archer continued. He argued that the weakness was partially due to low demand from the non-financial private sector. Recent survey evidence suggest that households and firms are reluctant to take on new debt amid weak economic activity levels and still appreciable uncertainty regarding the economic outlook, Archer added. "Nevertheless, the concern is that a number of companies who do want to borrow... and are in decent shape are finding it hard to, so tight credit conditions are handicapping eurozone growth prospects," he concluded.