Life in the Slow Lane: U.S. Bank Lending Falls Behind a Laggard

By Mike Bird Features Dow Jones Newswires

U.S. bank lending growth has slipped behind that of the eurozone, as the economic recovery in Europe continues to pick up pace.

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After six years of meager growth, eurozone bank lending to nonfinancial corporations increased by an annual 2.4% in May, its fastest pace since mid-2009.

The deceleration in U.S. commercial and industrial loan growth has been steep. Annual growth has fallen from over 10% a year ago to just 2% in June, according to the latest figures published by the Federal Reserve.

Europe's has accelerated from 1.8% in the same period.

The last time corporate credit growth was faster in the eurozone than the U.S. was in early 2011, when the full debilitating effect of the sovereign-debt crisis was yet to feed through to local data.

The eurozone's economy grew faster than the U.S. last year for the first time since 2008. The European Central Bank expects growth of 1.9% this year, up from 1.7% in 2016. The Federal Reserve expects U.S. growth of 2.2% this year.

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Despite this, though, analysts don't see any boom coming for bank lending in the eurozone.

"The recovery of the eurozone banking sector is on track, but the pickup in credit is likely to continue at a moderate pace," said Reinhard Cluse, an economist at UBS.

Several countries are still catching up. Bank lending in Germany and France, the currency bloc's biggest economies, has already outstripped the U.S., with growth rates of 3.4% and 5.5%, respectively. But Spain and Italy are still lagging behind, with growth rates of just 0.8% and 0.1%, respectively.

Meanwhile, the performance of U.S. banks has prompted worries among economists, even as other economic signals aren't pointing toward a meaningful slowdown.

The drop in U.S. bank lending is "a signal worth heeding," Standard Chartered said in a research note.

In the past three months, the bank said, "commercial and industrial loans have contracted by 5.4% on an annual basis, a pace of decline not seen since December 2008."

Some analysts have flagged turmoil in Washington as a potential explanation for the U.S. slowdown, suggesting that large businesses are waiting to see how tax-and-spending plans develop before making major decisions.

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

June 15, 2017 08:59 ET (12:59 GMT)