Banks still aren't lending in Europe. So don't look for a quick recovery in those economies

10/28/2009 12:12 pm EST


Jim Jubak

Founder and Editor,

Bank lending fell in the euro economies in September.

The year-to-year decline was just an annual rate of 0.3%. But that's the first year-to-year decline since the European Union stated to compile these figures in 1992. (The euro itself dates back to 1999.)

The drop in lending came even as euro zone economies showed signs of pulling out of their slump. Economists expect that the 16-nation euro zone will show positive GDP growth in the third quarter of 2009.

Banks, however, are still focused on shrinking their balance sheets to reduce their need to raise more capital in the face of continuing losses on past bad loans.

The drop in lending even as economies recover is bad news for the pace of the recovery--if it continues for the next few months.

If companies want to expand production because the economy is looking up but can't find the capital to do so, it will keep euro zone economies from rebounding strongly and quickly from their slump.

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