In the second quarter of this year, rising consumer spending by private households and the state was not sufficient to compensate for the weaker foreign trade contribution. As a result, the German economy shrank slightly by 0.1% compared with the winter quarter. The export-dependent German industry, in particular, is feeling the effects of declining demand from abroad. However, incoming orders even from Germany have been declining recently.
So far, the economic slowdown in Germany has not affected the credit markets. Corporate loan portfolios continued to grow dynamically in the second quarter. One of the main reasons for this development is the high significance that bank loans continue to have, at least among small and medium-sized enterprises in Germany. In addition, replacement investments and above all investments in measures to maintain capacity continue to ensure solid demand for loans, even though expansion is less in demand at present in view of the fact that capacity in the manufacturing sector is only being used to an average extent.
While the corporate customer credit markets in Germany and France are booming, the decline in the volume of corporate loans at banks in Spain and Italy accelerated in the middle of the year. It is pleasing to note that in almost all euro area countries further progress has been made in reducing „bad loans“, but without the all-clear being sounded: on the one hand, the proportion of such loans in countries such as Greece, Cyprus, Latvia, Portugal and Italy is still alarmingly high. On the other hand, in view of the economic slowdown, a higher number of corporate insolvencies must be expected again in the future. In addition, credit growth in Germany and Europe is likely to slow gradually.