Eurozone Data Suggest ECB Stimulus Measures Are Bearing Fruit

By Paul Hannon 

        FRANKFURT--The European Central Bank's ample stimulus measures are boosting lending to companies and aiding industrial production by weakening the euro, suggesting the bank's recently launched EUR1 trillion ($1.06 trillion) asset-purchase program is already bearing fruit.
        The ECB's quarterly bank lending survey showed that commercial banks are using the funds to make new loans, and that they will continue to do so. Furthermore, credit standards to private enterprises are expected to continue to ease in the current quarter and many more banks expect corporate demand for credit to rise.
        The data add to evidence that the eurozone economy is starting to turn the corner after years of recession and weak growth, and come ahead of the ECB's monthly policy meeting Wednesday.
        The report showed that there was a sharp increase in the number of banks that now expect demand for corporate loans to rise in the second quarter. The net percentage--meaning the difference in the share of banks expecting demand to rise versus fall--hit 39 in the second quarter, compared with only 17 in the first.
        Tuesday's data show "evidence of better transmission" of monetary policy, said Crédit Agricole economist Frederik Ducrozet, meaning that the ECB's low interest rates and ample provision of liquidity are being passed down to firms, potentially helping them boost investments or add jobs.
        The quarterly survey showed that eurozone banks expect to be slightly more generous in lending to firms in the current quarter. "For the second quarter of 2015, banks expect a small net easing of credit standards on loans to enterprises," while for home loans "a further net tightening of credit standards" was expected.
        The survey said that banks had been using additional liquidity from ECB asset purchases over the last six months "in particular for granting loans and intend to do so also in the coming months."
        "No doubt ECB President (Mario) Draghi will refer to these results tomorrow as evidence that QE is already having a beneficial effect on the eurozone's credit conditions," wrote ING analyst Teunis Brosens in a note.
        In addition to cutting interest rates to a record low level of 0.05%, the ECB is in the process of pumping EUR60 billion a month into the eurozone economy through large-scale bond purchases. The program, known as quantitative easing, is expected to run until at least September 2016. The ECB has also offered conditional four-year loans to banks in an effort to push them to increase lending.
        Separately released figures showed that by weakening the euro, the new program may also be boosting industrial production and the currency area's modest economic recovery.
        The European Union's statistics agency said that production by factories, mines and utilities was 1.1% higher than in January, and 1.6% higher than in the same month a year earlier.
        That performance indicates the euro's depreciation since May 2014 is finally proving a game changer for exporters, among whom manufacturers predominate. That is consistent with a March survey of manufacturers, which recorded the strongest rise in new export orders since April 2014.
        "Today's data suggest that the eurozone's industrial sector helped the wider economic recovery to gather pace," said Jessica Hinds, an economist at Capital Economics.
        Economists at Credit Suisse said the pickup in industrial output suggested economic growth in the first quarter might be as high as 0.7% quarter-on-quarter, which would mark a substantial acceleration from the 0.3% recorded in the final three months of last year.
        Write to Todd Buell at todd.buell@wsj.com and Paul Hannon at paul.hannon@wsj.com
        (END) Dow Jones Newswires

        April 14, 2015 09:50 ET (13:50 GMT)

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