Businesses and households in euro zone

Lending to businesses and households in the euro zone fell again in October to a new record low, the European Central Bank said Thursday. Credit to the private sector was down 0.8% in seasonally adjusted terms from a year earlier, the ECB said, after a 0.3% decline in the year through September. Chiefly responsible for the development was the weakness of corporate lending, which dropped 1.2% year-on-year, compared with a 0.2% decline in September. The global financial crisis and subsequent recession have led to the sharpest drop in credit growth in recent history. Corporate demand for investment finance has shrunk, while banks that are struggling to repair their balance sheets have become reluctant to lend. The ECB's most recent Bank Lending Survey had suggested that credit conditions had more or less stopped tightening in the third quarter. However, a high base level of lending volumes a year ago has ensured that the year-on-year rate continues to drop. However, the decline in credit to households eased marginally during the same timeframe to 0.1% from 0.3%. The decline in loans for purchases, in particular, slowed to 0.2% year-on-year, after a drop of 0.6% in the year through September. The credit data were part of the ECB's broader M3 data for October, which likewise registered a new record low since the single currency's introduction in 1999. M3 money supply grew only 0.3% in October, a slowdown from 1.8% in September and well below the reference 4.5% growth rate that the ECB believes is consistent with stable prices. It again undershot analysts' expectations, which had been a growth rate of 0.7%. M3 consists of cash in circulation, most sight and savings deposits and money market fund assets. The three-month average annualized growth rate, which evens out some of the more short-term fluctuations in the aggregate, also slowed to 1.6%, just below consensus forecasts of 1.7%. Growth in the narrower M1 monetary aggregate, which consists of only cash in circulation and overnight deposits, also slowed slightly in October, to a seasonally-adjusted 11.8% from 12.8% in September. Many analysts believe M1 to be a more accurate forward-looking indicator of economic activity in the euro zone and have cited its consistently strong growth throughout the summer as proof that the ECB's exceptional stimulus measures is succeeding in supporting the economy. Web site: www.ecb.int -By Geoffrey T. Smith, Dow Jones Newswire (+49 69) 29725-520; geoffrey.smith@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=no%2F1TU6xfjkV4lOyprHpaQ%3D%3D. You can use this link on the day this article is published and the following day.