KfW Credit Market Outlook: New lending growth has reached its peak

• New lending to businesses and self-employed persons rose sharply by +5.6% in the first quarter
• Outlook has dimmed as the economy loses momentum
• KfW Research expects further growth for the rest of the year but at a more moderate pace

Estimates by KfW Research indicate that new lending from banks to businesses and self-employed persons (excluding residential construction and finance institutions) grew in the first quarter of 2018 at a pace not seen for nearly 10 years. It jumped by +5.6% on the previous period (moving growth rate across two quarters). Lending growth thus accelerated once again on the previous three months of 2017, when the rate was +4.4%. The last time new lending to businesses and self-employed persons grew at a higher rate than this first quarter was in autumn 2008. The outlook for the rest of the year has dimmed slightly. The economy has lost momentum and risks to the business cycle and, hence, to the credit market are increasing as well.

“Lending growth has reached its peak”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “Sooner or later the slowdown in economic momentum of the past months in Germany and the entire euro area, along with heightened political uncertainties such as concerns over transatlantic trade relations and the future direction of the new Italian government, will probably dampen businesses’ appetite for investment. And that is likely to reduce credit demand. But despite the loss of momentum and the new risk situation, the economic environment remains good. Germany’s economy will probably continue to grow even above its potential as capacity utilisation rises to increasingly higher levels. So along with replacement and rationalisation investments, even expansion investments still appear to be expedient. As the financing environment remains outstanding, in the months ahead we will therefore continue to see growth in new lending to businesses and self-employed persons, although at more moderate rates than before”, said Zeuner.

The current KfW Credit Market Outlook is available at:
www.kfw.de/kreditmarktausblick