The European economy continues to grow at a solid pace, with the euro area having grown at its fastest rate in ten years in 2017. The recovery in growth has been accompanied by improved credit conditions and a rise in lending.
The provision of credit is an important driver of economic growth as credit is used to fund consumption and investment, while it is also a key transmission channel for monetary policy. In the euro area, lending growth turned positive in 2015 after contracting during the crisis, and has strengthened consistently since then. Loans to the euro area private sector rose by 3 percent on an annual basis in March 2018, reflecting continued increases in lending to both households and non-financial corporations (NFCs). In March, the growth rate of loans to households rose from 2.9 percent to 3.0 percent, while NFC loan growth rose from 3.2 percent to 3.3 percent.
In Ireland, credit has been slower to pick up following the crisis, however loans to the private sector have seen positive growth since November 2017. While this was initially driven by positive growth in lending to households, lending to NFCs also began to grow in 2018.
There has been a moderation in European growth in the first quarter of 2017. Flash estimates showed quarterly GDP growth in the euro area slowed to 0.4 percent, from 0.7 percent in Q4 2017. While a moderation has yet to bear out in lending data, this highlights the need for continued monitoring of developments in the European economy and the factors driving growth, including lending conditions, consumption and investment. An appropriate balance of fiscal, monetary and structural reform policies is necessary to ensure sustainable growth is maintained.