ECB: January Bank Lending Survey goes to the right direction, no trigger for Draghi

9 years ago - Published in Finance, Fundamental Analysis

Credit conditions continue to improve in the euro area and support recovery in loans and GDP growth. It's what has emerged from the ECB's January Bank Lending Survey. Q4 credit supply eased again and banks are also expecting to ease credit standards further in Q1 this year. But the good news is that credit supply is being met by a further – considerable – increase in corporate demand for loans. It now stands at the highest in almost ten years and should support a more dynamic pace of euro area gross fixed capital formation in coming quarters – the missing puzzle of the recovery so far. 

The ECB will feel comforted by the fact that banks report that the additional liquidity resulting from QE is being used to provide loans, mainly to corporates but also for house purchases and consumer credit. At the same time, this report doesn’t give Draghi much ammunition for further easing on Thursday. The ECB will ponder developments in 1) inflation, 2) domestic and global growth, 3) the currency and 4) credit conditions. Today's report suggests that credit conditions are still not affected by global jitters – or at least were not affected until a few weeks ago, when the survey was conducted (8-30 December) – and are on an improving trend, especially for corporate investment, which has so far remained the missing piece of the recovery.

"We think the ECB will at least wait until March before deciding on a potential further easing move", Credit Suisse writes after the ECB's January Bank Lending Survey. In its opinion, there is clearly a bias from the ECB to do more, and the minutes of the December meeting showed that there is a significant minority of ECB members ready to go (but there needs to be more evidence to get a majority on board for further easing measures). "As we wrote earlier this year, we need to see a stronger re-appreciation of the euro, or broader signs of economic slowdown – on top of the weaker CPI profile already in the cards for this year –, in order to change our view that the ECB might be done for now", Credit Suisse says. On Thursday, while keeping the door open for more action, Draghi will also probably stress the positives coming from lower oil and also the results of the Bank Lending Survey released today.