According to the latest survey by the ECB, the net demand for loans among euro area firms saw a strong decline in Q2 – falling to an all-time low since the start of the survey in 2003. Adding to that, banks are expecting a further drop in loan demand in Q3 but at a “much smaller” scale at least. The full report can be found here.
It is evident that tighter financial conditions are weighing here and further rate hikes by the ECB are not going to help with the issue. The credit crunch is starting to bite in Europe and that could see heightened risks of a strong downturn later in the year.