Under High-Intensity Tightening... Eurozone Corporate Loans Decrease for the First Time in 8 Years

October Non-Financial Corporate Loans Down 0.3% YoY
Tech Startups' Fundraising Halved This Year
Private Sector Credit Squeeze Leads to -0.1% Q3 Growth Rate

Eurozone corporate loans decreased last month for the first time in eight years. The number of companies struggling with business operations and loan repayments also increased. Due to the central bank's year-long high-intensity interest rate hikes, the financial lifeline of Eurozone private companies is drying up.

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According to the European Central Bank (ECB) on the 28th (local time), loans to non-financial corporations in the Eurozone in October this year decreased by an annualized 0.3% compared to the same period last year. This is the first time since July 2015 (-0.1%) that loans to non-financial corporations in the Eurozone have declined.

Since the ECB raised interest rates 10 times from July last year, pushing the rate from 0% to 4.5%, and commercial banks tightened lending conditions, loans to private companies have decreased. The growth rate of loans to non-financial corporations in the Eurozone peaked at 8.9% in September last year, two months after the rate hikes, then slowed down from October, falling to 0.2% in September this year. A month later, in October, it even recorded a negative growth rate. The Eurozone's total money supply (M3), which indicates market liquidity, also decreased by 0.1% year-on-year, continuing a four-month consecutive decline since July.

Access to loans for Eurozone companies is deteriorating rapidly. According to a survey conducted by the ECB of 11,500 companies, 5% of respondents said they needed additional loans from banks between April and September this year, up 1 percentage point from the previous survey (4%). The proportion of companies reporting difficulties in business operations and debt repayment increased from 6% to 9% during the same period, approaching the level seen in 2020 (10%) when the COVID-19 pandemic occurred.

This wave of credit tightening has also hit the technology startup sector. According to Atomico, a UK venture capital (VC) firm, funding for European technology startups is expected to decrease to $45 billion this year, about half of last year's $82 billion. This is attributed to the sharp decline in credit supply in the Eurozone and the reduced overseas investment capacity of U.S. investors, who are major players in Eurozone tech startups, due to the Federal Reserve's interest rate hikes. The proportion of U.S. investors in the funds raised by European startups dropped from 39% in 2021 to 25% this year.

As private sector credit contracts due to the central bank's high-intensity tightening, the Eurozone's GDP in the third quarter of this year fell by 0.1% compared to the previous quarter, below the expert forecast of 0%. Piet Christiansen of Danske Bank in Denmark said, "The slowdown in credit to the private sector is concerning," adding, "We are likely to face vulnerable lending dynamics similar to those before the implementation of the Targeted Longer-Term Refinancing Operations (TLTRO)." Previously, when Eurozone corporate loans sharply declined, the ECB implemented TLTRO from 2015, providing ultra-low interest loans to commercial banks to expand private lending.

The economic slowdown in the Eurozone due to interest rate hikes is expected to continue for the time being. ECB President Christine Lagarde, appearing at a European Parliament hearing on the 27th, said, "The slight contraction of Eurozone real GDP in the third quarter this year was due to a combination of interest rate hikes, weakening external demand, and a slowdown in momentum for economic activity resumption after COVID-19," adding, "Eurozone economic activity is expected to remain subdued for the rest of this year."

This content was produced with the assistance of AI translation services.