Eurozone banks sharply tightened access to credit for businesses in the final quarter of 2024, the European Central Bank said, strengthening the case for further interest rate cuts.
The period from October to December saw "the most pronounced net tightening since the third quarter of 2023," the ECB said in its quarterly survey of bank lending.
It was driven by "higher perceived risks" to the economic outlook, with banks in eurozone heavyweights Germany and France particularly cautious due to political turmoil.
In Germany, snap elections will be held next month after its coalition government collapsed, and in France a new government took office in December after the ouster of its predecessor.
Firms' access to credit is expected to be further restricted in the first three months of 2025, the ECB said.
Eurozone consumers' access to credit also tightened in the quarter, the central bank of the 20 countries using the euro said.
The results of the survey will be closely watched by the ECB's governing council and could strengthen the case for lower borrowing costs to encourage banks to lend and consumers and businesses to seek loans.
After raising interest rates aggressively to tackle inflation, the ECB is cutting borrowing costs and was already expected to make its fourth consecutive cut at its meeting on Thursday.
The focus is shifting from the need to tame inflation to stimulating the struggling eurozone economy.
At its last meeting in December, the ECB cut its eurozone growth forecast for 2024 to just 0.7%.
In addition to higher interest rates, banks tightened their lending requirements last year because of new regulations that the ECB says require them to hold more capital.
The ECB conducted a survey of 155 banks and almost all responded. | BGNES
