One of the aims of loose monetary policy is to boost lending. The theory is lower rates and greater availability of liquidity will encourage lending and borrowing, which in turn will boost economic activity. Unfortunately, an increased supply of loans does not necessarily mean increased demand for them. You can take a horse to water but you can’t make it drink, no matter how big the trough. In the eurozone we have seen tepid loan growth to non-financials in core countries in recent years (first chart), but still no traction in periphery countries (second chart).
What does tend to lead to higher loan growth, however, is a greater demand for loans. The chart below shows there is about a 12 month lead between loan demand and loan growth, and this relationship expects loan growth in the eurozone as a whole will rise over the next year. However, for a truly complete recovery in the eurozone, we would need to see loan growth in the periphery as well as the core. We will watch this to see if the latest ECB easing measures really will kickstart a sustainable eurozone recovery.