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Press Release from 2019-04-24 / Group, KfW Research

KfW Credit Market Outlook: Lending business had a quiet start to the year 2019

  • The growth of new lending to enterprises and self-employed persons slowed as expected in the fourth quarter but remained strong at +6.6% year-on-year
  • Long-term lending is gaining momentum as businesses invest more and apply for more finance
  • New lending in the short-term segment has slowed

As expected, new lending to businesses and self-employed persons (excluding residential construction and finance institutions) dipped slightly towards the end of 2018. The growth rate in the fourth quarter dropped to 6.6% year-on-year and is now increasingly aligned with the trend of nominal business investment. Nevertheless, credit expansion can still be regarded as clearly above the average of the recent past.

Overall, the credit market in Germany grew by 7.5% last year, an exceptional development. Driven by short-term lending as an accompanying effect of the slowing business cycle, lending reached a new ten-year high in summer, with growth rates of almost 10%. Two main determinants influenced this development: the expected downturn in the business cycle with the resulting sales slump in spring and summer, and the disruptions in the automotive industry caused by the conversion to the new WLTP emissions testing protocol. These two factors forced enterprises to expand their inventories and their short-term financing. The trend has now reversed, as inventories were depleted towards the end of the year and the momentum of shorter-term lending is slowing.

By contrast, lending in the maturities segment of more than five years has accelerated thanks to the robust investment activity of businesses, which are not letting the cyclical slowdown deter them from realising their investment plans. This is unusual for an economic downturn and indicates that businesses believe the state of the German economy is fundamentally sound. Furthermore, low financing costs and attractive conditions provide good arguments for the decision to expand or modernise tight capacities during this very phase.

Dr Jörg Zeuner, Chief Economist of KfW Group, said: “There is nothing to indicate a fundamental trend reversal in the credit market, but growth is likely to be slower in the first half of the year. The Bank Lending Survey shows that banks expect credit demand to grow at a slower pace during the present quarter. We share this view. After all, continuing uncertainties – particularly with a view to Brexit and simmering trade conflicts – have made businesses more pessimistic. So we must expect greater investment restraint. And the growth slowdown is making banks slightly more cautious as well. The easing of lending conditions has come to a virtual standstill as banks are becoming less tolerant of risks and assessing them more negatively.”

www.kfw.de/KfW-Group/Service/Download-Center/Research-(EN)/KfW-Credit-Market-Outlook-(EN)