Deutsche Bank expect European growth only a little above stagnation over next few quarters

<p>On Tuesday the European Central Bank released its latest Bank Lending Survey. Deutsche Bank says its been keeping a close eye on lending standards for evidence of monetary policy lags. On the latest report:</p><ul><li>On the downside, the BLS showed the sharpest decline in demand in loans by enterprises in the survey’s history since 2003. The share of rejected corporate loans also rose. </li><li>But on the upside, the pace of tightening in credit standards moderated (bear in mind the previous survey was conducted just after the March banking stress). And most encouragingly, banks expect credit conditions to improve closer to neutral settings in Q3.</li></ul><p>DB conclude:</p><ul><li>Overall, while the pace of the tightening in credit conditions may be passing its peak, the tightening that’s already been delivered will weigh over the next few quarters. Our economists expect European growth to remain only a little above stagnation over the next few quarters, not least as they see limited room for excess savings to buffer the impact from credit tightening. They also see the survey as consistent with corporates being more exposed than households to the transmission of higher rates.</li></ul><p>–</p><p>The European Central Bank meet on Thursday, a 25bp rate hike basically set in concrete. Traders will be looking for clues for what's ahead, most immediately for the September meeting. </p><p>—-</p><p>I posted background on the lending survey yesterday. ICYMI:</p><ul><li>The main aim of the survey is to contribute to the ECB’s assessment of monetary and economic developments, which is essential for the execution of monetary policy.</li><li>The Bank Lending Survey covers three main areas:<ul><li>Credit market conditions: This assesses the lending policies of Euro area banks. The survey investigates changes in credit standards (criteria set by banks when deciding to grant a loan), terms and conditions, and banks' perceptions of the risk outlook in loan approval.</li><li>Loan demand: The survey also assesses the demand side, examining the needs for loans from households for house purchases, consumer credit, and other lending and from firms for investment and working capital.</li><li>Funding conditions: The survey explores the impact of various factors on banks' funding conditions and their ability to supply loans, such as access to wholesale funding and banks' ability to transfer funds to potential borrowers.</li></ul></li><li>The Survey represents a qualitative rather than quantitative analysis. The survey does not provide direct information on the actual amount of loans issued, but rather on the changing trends in credit standards and loan demand. Hence, its used as a tool to assess credit market conditions and the transmission of monetary policy in the Euro area.</li></ul>

This article was written by Eamonn Sheridan at www.forexlive.com.