Eurozone on Corporate Credit Watch – North-South-Gap Grows
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We have taken a deep dive into Corporate Loan Growth Trends in the Eurozone, making extensive use of ECB data and building our proprietary EU Credit Benchmark Mod ®.
Main model outputs include:
– Draghi‘s Dilemma: North-South-Gap Grows
– Corporate Credit Cycle Likely to Turn
– 53% of Corp. Credit Shrinks, 47% Grows
The corporate lending growth gap between North+ and South+ countries has almost continuously increased since the beginning of 2011, when it close to zero. On a yoy basis North+’ corporate loan growth is currently 7.3% higher than South+’. This is only marginally below the high point of loan growth divergence in 11/2013 at 7.6%. More recently the growth difference has increased again on all analyzed growth rates.
This North/South credit growth gap will, in our view, a key ratio to measure the effectiveness of recently announced ECB initiatives.
Loan growth momentum of North+ countries (47% of Eurozone corporate credit stock) seems intact. It is likely to improve further, as shorter term growth rates are very encouraging. Loan growth momentum of South+ countries (53% of Eurozone) seems to be stalling after a period of slight improvement. Short term growth rates are roughly in line with 12m growth rates. Furthermore, especially the 3m growth rate has come substantially down in April and May.
Extrapolating the current 3m growth rate trend, Eurozone corporate credit stock would start to grow again at the end of 2014. This would not even consider ECB support with first contributions from the TLTRO starting in September and December. ECB measures could therefore coincide with a possible trough in the corporate credit cycle.
The path to positive corporate credit growth in the Eurozone is, however, still paved with numerous uncertainties like the fragile fledgling economic recovery or comparatively high volatility of the 3m growth rate.
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