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Press Release from 2014-07-03 / Group

KfW Credit Market Outlook

Economy on the mend, lending market awaits upturn

  • Corporate investments pick up
  • Continued low credit demand due to financial independence of many companies
  • Revival of new lending to businesses expected in H2

Despite the continuing increase in corporate investments in Germany the new lending business by banks and savings banks with companies and self-employed professionals is also unlikely to post any growth in 2H14. Instead, new lending is likely to remain 1.0% below the previous year's level. This is the key finding of the current KfW Credit Market Outlook. No upturn will be in sight before H2.

"Even though credit supply is still excellent and interest rates remain at a low level, there is little demand for lending among companies", said Dr Jörg Zeuner, Chief Economist at KfW. It is still the case that the financial independence of many companies enables them to fund not only ongoing operations, but also their capital expenditure without resorting to outside financing: "In recent years, the corporate sector as a whole has become a net saver, with bank deposits of German companies totalling about EUR 500bn. This means that they can utilise their own funds for smaller investment projects", Mr Zeuner continued. In addition to this, the lending market is also being dampened by expectations that interest rates could decrease further from this autumn as a result of monetary policy measures announced by the ECB.

Thanks to the good state of the economy, corporate investment will grow further over the rest of the year, achieving a five percent increase in 2014 as a whole. At the same time, the companies' already slightly above-average capacity utilisation will continue to improve. "Expansion investments will play a greater role in the second half of the year, as these can less often be financed from own funds.

This will then also boost demand for credit", commented Dr Jörg Zeuner. The downside risks for the credit market are weaker-than-expected economic prospects for Germany and Europe, increased uncertainty due to persistent geopolitical risks in Ukraine and Iraq, and a significant deterioration in sentiment among companies in Germany.

KfW calculates its Credit Market Outlook exclusively for the Handelsblatt newspaper. You can find the latest issue of the indicator at www.kfw.de/kreditmarktausblick.