Economy

ECB confronts more signs of weak growth

FRANKFURT, Germany (AP) — The European Central Bank is facing more signs of weakness in the economy of the 18 countries that use the euro as it weighs whether to add more stimulus.

Official data on Wednesday showed that bank lending to companies fell again in December, by 3 percent. That was an improvement over the previous month's 3.8 percent fall but indicates economic activity remains subdued.

The figures suggest the ECB's stimulus measures, such as low interest rates and generous credit to banks, are still not fully reaching the wider economy. Another key indicator, the growth of the supply of money in the economy, slowed to 1 percent, far below the 4.5 percent guideline.

The ECB says it stands ready to take more action if it sees signs that the recovery could stall. That could mean another rate cut or more loans to banks. Wednesday's data add to worries about low inflation. Inflation was only 0.8 percent in December, well below the bank's goal of just under 2 percent. That has raised concerns about deflation, a crippling downward spiral of prices and wages that chokes off growth. Despite warnings from some economists, Draghi has said the eurozone is not falling into deflation.

The ECB is also keeping an eye on short-term interest rates in money markets after a brief rise in the rate at which banks lend to each other overnight. That could be a problem if it persists because the ECB wants to keep interest rates as low as possible so that higher borrowing costs are not passed along to the economy.

Analysts say the reasons for the rise Jan. 16-21 were not entirely clear but have noted that the amount of cash in the banking system has fallen as they repay loans they had received from the ECB. The rates have since dropped back, but the ECB has said that a clear rise in short-term rates would be one thing that could push it to take more action.

The bank holds its next interest rate meeting February 6. Economists at Commerzbank say that low inflation means the ECB could cut its benchmark rate to 0.1 percent at its monthly meeting in March.

Related Headlines

  • Falling inflation another headache for ECB

    On top of high unemployment and sluggish growth, the European Central Bank has a new headache: an unexpected drop in inflation. Most people think lower inflation is good news ... 

  • Mario Draghi

    ECB rate cut helps, won't transform economy

    The European Central Bank sent a message Thursday with a surprise cut in its benchmark interest rate: It's prepared to do more to fortify the euro alliance's economy. 

  • Mario Draghi

    Slack economy raises stimulus question for ECB

    Alarmingly low inflation and weak growth have led officials at the European Central Bank to consider what had once seemed unthinkable: A Federal Reserve-like program of ... 

  • Mario Draghi

    European Central Bank keeps rates unchanged

    The European Central Bank kept its interest rates on hold Thursday even though the recovery has weakened in the 17-country euro currency union and inflation is forecast to ...