Growth in the credit markets continues, but loses steam

Not just in Germany, but throughout Euroland, the economic cycle has been slowing. In Germany, demand for loans nevertheless continued to be positive last year: At the end of September corporate non-housing-construction loans hit a growth rate of 6.7% on September 2017, the highest rate in a decade. Housing-construction loans to companies and private households each rose strongly in 2018, by about 5% on the year, with only consumer loans making little progress.

However, in the final quarter of 2018 there were first signs that growth was possibly slowing. Corporate non-housing-construction loans did not succeed in maintaining their record growth pace of the previous quarter and this was evidenced above all in export-focused manufacturing. In Euroland, growth in corporate loans also slowed. While the pace of growth almost halved for Italian corporate loans, in Spain it actually slid well into negative territory.

The majority of both German and European banks expect that credit demand for private housing-construction loans and corporate loans will rise in the coming months. However, the optimists nowhere nearly as strongly outweigh the pessimists as they did in October 2018, and this difference has in part shrunken drastically. Moreover, now only a slender majority of banks plan to tighten their loan guidelines for both client groups.

We can expect to see somewhat slower growth in the credit markets in 2019 given weaker economic growth in Germany and Europe. In Germany, the lesser momentum is more likely to impact corporate loans business than that for private housing construction. The high capacity utilisation in the construction industry spells a shortfall in skilled labour, so that the construction industry is hardly able to cope with its existing order book.

In Euroland, developments in the respective national markets look set to continue drifting apart. Among the heavyweight countries, France and Germany remain the driving forces despite seeing somewhat weaker credit growth. A significant rise in interest rates on loans is not to be expected. Financing conditions for companies and private households remain favourable for the foreseeable future.


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