Euro lending curbs keep lid on growth as markets rally [Times of Oman]
(Times of Oman Via Acquire Media NewsEdge) Brussels: Don't ask Victor Duran Naranjo about the European recovery that investors are betting on. His eight-employee software company, based in Spain's Canary Islands, still can't get a bank loan even after its revenue rose 10 per cent last year.
"In theory banks are more open but in practice it's not easier to get funding now than in 2009," he said in a January 21 telephone interview.
While sovereign borrowing costs in Greece, Ireland, Italy, Portugal and Spain fell this month to a euro-area record, according to Bank of America Merrill Lynch bond indexes, and the Stoxx Europe 600 Index reached its highest in six years, declining bank lending and record unemployment tell a different story as the region struggles out of its longest recession.
"The mood in financial markets may have improved but the economic situation in most European countries will not improve this year," UBS Chairman and former Bundesbank President Axel Weber told a panel discussion on January 22 at the World Economic Forum in Davos, Switzerland. "After several years of crisis it's quite normal to look on the bright side and get excited about improvements.
However, it may be a too one-sided view."Fragile recoveryPolicy makers in the euro area's 18 nations are looking to move beyond the debt crisis that started in Greece in 2009 and tore through the currency bloc, focusing on shoring up the banking system.
Still, the recovery remains fragile. The region's unemployment rate has held at a record 12.1 per cent since April. Inflation is less than half of the European Central Bank's price-stability target. Euro-area government debt will average about 96 per cent of gross domestic product this year, according to the European Commission.
Overall, the euro-area economy contracted 0.4 per cent last year, according to estimates by the ECB, which forecasts an expansion of 1.1 per cent in 2014.
Unemployment in Europe is "still too high," Nobel laureate Christopher Pissarides, a professor at the London School of Economics, told CNBC in an interview today. "One risk for 2014 is that there is deflation in Europe, especially in the south of Europe."
All that has kept a lid on bank lending to companies and households, vital for generating growth. It shrank for the 19th straight month in November, according to the ECB. Meantime, Stoxx 600's price-earnings ratio has climbed to its highest since 2009.'Big challenges'Total bank lending in Spain, the euro area's fourth-largest economy, has dropped 21 per cent since 2008, according to the Bank of Spain. While November saw the first month-on-month increase since March, up 0.2 per cent on October, it nevertheless represents an annual fall of 13 per cent.
Spain, which on January 23 exited its 41 billion euro ($56 billion) European bailout program that helped recapitalise it banks, is battling the second-highest unemployment rate in the euro region.
Spain's National Statistics Institute said on Jan. 23 that the country's unemployment rate was 26.03 per cent in the final three months of the year, the sixth straight quarter it has been above 25 per cent.
The Spanish economy still faced "big challenges," European Union Economic and Monetary Affairs Commissioner Olli Rehn told El Pais on January 23, and needs more than a decade to recover. Lending remains weak elsewhere. Loans from banks in Portugal, which was forced into a 78 billion-euro bailout in 2011, fell 6.9 per cent in November from the year before, its central bank reported on January 22.
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