Bank lending growth to the private sector was stable at 5.1% year-on-year in February while household borrowing growth held at 3% YoY and has been falling slightly since October. A small impact of the second wave of the pandemic after the first wave caused net borrowing from households to decline.
Household worries about the economy are clearly still present, but they are significantly lower than they were in the spring of last year, which is good news for the housing market. Indeed, borrowing for home purchases has remained high, although borrowing for consumption has shrunk as a result of accumulated savings during the lockdowns.
Non-financial corporate borrowing rose by 7.1% year over year. Corporate borrowing continues to grow at a slow pace, reflecting the volatile market climate. The underlying demand to invest in some sectors appears to be increasing, but overall capacity utilization remains poor for the time being, which explains the weak investment climate at this stage of the cycle.
The ECB’s worries about higher interest rates seem to be in line with the current sluggish lending environment. The slow growth in non-financial corporate borrowing at ultra-low rates indicates that the demand for increased investment is currently small. With higher prices, there’s a chance that the investment recovery will be much slower than previously expected.