The European Central Bank’s (ECB) bank lending survey reveals that elevated global uncertainty has had no material impact on loan demand or credit standards in the second quarter of the year, according to ING Group.
This suggests that the outlook for investment is not currently deteriorating, although it continues to reflect a “muddling through” scenario, as noted by Bert Colijn, Chief Economist at ING Group.
Despite a significant increase in global uncertainty in recent months, the ECB’s lending survey indicates no substantial drop in borrowing appetite among businesses or consumers.
Furthermore, banks are not significantly tightening credit standards in response to the current climate.
In fact, the survey highlights a small improvement in loan demand from corporates, with expectations for the current quarter modestly better than those for the second quarter.
Trends
A breakdown across the four major economies shows improvements in loan demand in Germany and Italy, while France experienced a notable decline.
However, loan demand for fixed investments is not contributing positively to total loan demand, primarily due to the drop observed in France.
For households, the trend continues to show a sharp increase in loan demand, driven by the sustained strength of the housing market.
Households perceive the current level of interest rates as favourable and maintain positive prospects for the housing market.
This positive sentiment is expected to further bolster housing market strength in the coming months.
“Global uncertainty hasn’t affected loan demand or credit standards too much in the second quarter, which means that the outlook for investment is not currently deteriorating,” Bert Colijn, chief economist at ING Group, said in the ING report.
He further added:
Then again, this still gives us a view of investments muddling through.
No urgency for rate cut
From the perspective of the ECB, these findings suggest there is no immediate urgency for a July rate cut, according to ING.
The central bank appears to be comfortable taking a wait-and-see approach through the summer, allowing time to observe how the economy, inflation, and geopolitical drivers evolve.
Colijn said:
The central bank can take the summer off and see how the economy, inflation and geopolitical drivers of both develop.
This measured stance is likely to be a relief for the Governing Council, given the prevailing uncertainties in the global economy, he added.
The survey’s results provide a degree of reassurance that economic activity, particularly in terms of lending and investment, is holding steady despite the turbulent global landscape.
While the overall picture for investment remains modest, the absence of a material negative impact from uncertainty offers the ECB flexibility in its monetary policy decisions.
The central bank will continue to monitor key economic indicators and geopolitical developments before making any significant policy adjustments.
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