German credit market in hibernation

- Demand for credit still low due to weak investment activity

- KfW anticipates turnaround in spring

The slow economic recovery observed since summer will arrive on the German credit market with some delay. For the time being, new lending business recorded by banks and savings banks with companies and the self-employed is still very much in hibernation. After a three-year low of - 7.5% compared to the previous year's third quarter, KfW expects a further contraction of 4.8% in the fourth quarter. Over the full-year, new lending is likely to contract by around 5% in 2013, as KfW forecasts in its current Credit Market Outlook. Demand for credit is not likely to begin to rise until the end of the winter.

The main reasons for the weak performance in new lending remains cautious investment by German companies. Capacity utilisation is too low and companies continue to perceive too much uncertainty for broad investment to be made. Overall, corporate investment currently stands around 2% below the prior-year level and is focused on replacement purchases and modernisation. By contrast, commercial construction remains weak. Where companies contrary to the trend are increasing their investment, they are still mainly using equity.

"We view the weak figures from the third and final quarter of 2013 as a bottom for the credit market," said Dr Jörg Zeuner, Chief Economist at KfW. "We expect positive growth rates for the German credit market in the first half-year of 2014." Weaker economic performance than expected would delay the recovery of the credit market.