(ORDO NEWS) — Data on bank lending marked a bleak outlook for the eurozone economy, writes UnHerd. It is quite clear that the European economies are in deep recession, and unlike the financial crisis of 2008, the current one can develop at a rapid pace.
The European statistical agency Eurostat recently published a survey of bank lending, and its data look disappointing. The document tracks observed credit conditions in the European banking system and the amount of demand for loans, and because it is based on a survey of lenders, it is considered a “forecast” indicator. That is, it captures trends before they appear in official data.
The publication leads to gloomy reflections. The supply of loan capital is limited in all directions, and in the face of rising interest rates, banks are reluctant to issue loans. Demand is also low – Europeans are not eager for loans. But it is the commercial sector that causes concern, where the demand for loans has reached a historic low.
Eurozone firms’ net demand for loans declined sharply in the second quarter of 2023, dropping to a record low since monitoring began in 2003. That is, the demand for loans among retailers has fallen below the level of the 2008-09 credit crunch. is a particularly worrisome factor against the backdrop of pressure exerted on European firms by high energy prices. These data only support the idea that Europe has entered a stage of serious deindustrialization.
These data may be selective, but they clearly correlate with objective data from official sources, which are usually published later than statistical agencies, which makes it possible to predict future events. The chart below shows both unverified lending data and unbiased information on European fixed investment. The correlation between the two scales is easy to see.
An analysis of the forecast for European fixed investment shows that investment has declined by about the same amount as it declined during the 2008-09 recession. Since the business cycle is driven by fixed investment, this data can also be used to forecast GDP growth in Europe. The diagram below shows it since 2003.
Bank lending data suggests that European economies are in deep recession, more violent than last time. The difference is that the financial crisis of 2008-09 began gradually, while the current one can develop rapidly.
However, there are also signs that Europe is not in recession. The unemployment rate, for example, is very low. And here there are two alternatives. First, lending data is shrinking so fast that it is becoming more important than usual, pointing to a massive recession looming over Europe, but only bank lending statistics show this.
Another possibility is that this time around it will be different and GDP growth will no longer be predicted based on this data. This will indicate serious problems in the commercial lending sector. Based on the survey data, companies are reducing lending as if the economy was in a serious recession, although it is still growing. The most obvious explanation is high energy prices.
It is not clear which of the alternatives is worse. One thing is certain: according to the bank lending survey, the European economy is in an unenviable position.
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