By Administrator_India,

Capital Sands

Credit applications by euro zone companies unexpectedly fell last quarter for the first time in six years, despite a further reduction in the European Central Bank’s main interest rate, an ECB survey showed on Tuesday.

The euro zone has been struggling with sluggish growth for two years as a global trade war and a slowdown in China hurt its exports, offsetting stronger domestic demand in some countries.

This is now starting to show in companies’ decisions to cut down on investment and credit – a trend that banks now expect to continue, the ECB said in its quarterly Bank Lending Survey.

“Net demand for loans to enterprises declined in the fourth quarter of 2019 … the first time this had been seen since the fourth quarter of 2013, whereas banks had expected it to remain stable overall,” the ECB said.

“That decline in net demand was broadly based across a number of larger and smaller euro area countries,” it added.

Demand for mortgages continued to rise, however, particularly in France, Italy and Germany – likely strengthening concerns that the ECB’s ultra-easy policy is fuelling housing bubbles in some countries.

Spain stood out as the only large country where demand for all credit categories – company loans, mortgages and consumer debt – fell and banks tightened access to loans across the board.

The ECB cut its deposit rate farther into negative territory in September, offered multi-year loans to banks at even easier terms and restarted adding to its 2.6 trillion euro ($2.9 trillion) bond portfolio in a bid to shore up price growth.

It is expected to stand by these decisions at a policy meeting on Thursday, when new President Christine Lagarde will also launch a review of the ECB’s strategy that may see it change its inflation target and how it pursues it.

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