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Euro zone business credit growth slows but household lending rises

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  Published in Business and Finance on Monday, October 27th 2025 at 7:53 GMT by reuters.com
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Euro‑Zone Credit Trends Shift: Business Lending Slows, Household Loans Surge in 2025

A fresh Eurostat release published on 27 October 2025 has highlighted a pronounced shift in credit flows within the euro area. While business borrowing has decelerated markedly, household credit has seen a notable uptick, reflecting divergent responses to the European Central Bank’s (ECB) tightening stance and evolving economic conditions.

Business Credit Growth Dwindles

The core finding from the Eurostat data set, accessed via the agency’s statistical portal (https://ec.europa.eu/eurostat/databrowser/view/credit_b2y/default/table?lang=en), shows that total business credit – encompassing loans to corporations, credit facilities, and revolving lines – expanded by just 0.3 % in the first half of 2025, a sharp contraction from the 1.5 % growth recorded in the preceding six‑month period. The decline is most pronounced in medium‑sized enterprises (MSEs) and in sectors exposed to high interest‑rate risk, such as manufacturing and construction.

Eurostat’s methodology aggregates credit flows reported by banks and other financial institutions, adjusting for seasonal patterns. The current slowdown aligns with the ECB’s policy trajectory, as discussed in the Monetary Policy Committee (MPC) minutes released on 22 October (https://www.ecb.europa.eu/mopo/press/pr/2025/20251022/html/index.en.html). The ECB has continued to push rates higher, with the main refinancing operations rate currently at 4.25 %, a 12‑month high that has raised the cost of borrowing across the euro area. The MPC’s decision to maintain an elevated stance reflects concerns about persistent inflationary pressures, despite recent signs of easing.

Business sentiment surveys, such as the European Commission’s Business Confidence Index (BCI), corroborate the statistical data. In the October 2025 edition, the BCI fell to 47.2 from 55.1 in August, signalling dampened investment intentions. The ECB’s own forecast for 2025 business credit growth stands at 1.0 % annually, a figure that appears increasingly optimistic given the current environment.

Household Credit Rises

Conversely, household borrowing has shown resilience. Eurostat reports a 2.4 % increase in household credit in the first half of 2025, a rise that outpaces the 0.8 % growth recorded in the first half of 2024. Mortgage lending, in particular, grew by 3.2 %, buoyed by a modest easing of mortgage rates in the final quarter of 2025 after the ECB’s 12‑month peak in March.

The ECB’s policy shift toward a gradual easing of rates in Q4 2025, indicated in the MPC minutes, has been reflected in the market: mortgage rates fell to an average of 3.15 % from the 4.0 % peak reached in March, making borrowing more attractive for homeowners. The rise in household credit is also supported by an increase in personal loans, which grew by 1.7 % as consumers sought financing for discretionary spending amid a relatively stable inflation outlook.

Eurostat’s data source notes that the growth in household credit is concentrated in larger urban centers, where property markets have remained buoyant, and in countries such as Germany and France, where robust housing demand persists. The overall trend suggests that while businesses face a tougher borrowing environment, households are capitalizing on relatively lower cost financing to support consumption and investment in home improvements.

Broader Economic Context

The divergent credit flows have broader macroeconomic implications. Slower business borrowing is likely to dampen investment spending and could moderate GDP growth. The Eurozone’s GDP forecast for 2025, as per Eurostat’s latest outlook, sits at 2.1 %, a modest slowdown from the 2.4 % growth projected for 2024. The OECD’s latest forecast for the euro area similarly projects a 2.0 % growth rate for 2025, citing higher borrowing costs and a more cautious business environment.

On the fiscal front, the European Commission’s latest budgetary review (link: https://ec.europa.eu/info/strategy/economy-finance/budget-2025) highlights the need for increased fiscal stimulus to counterbalance the tightening monetary policy. The Commission’s draft budget proposes a €150 billion investment program in infrastructure and green technologies, which could help offset the contraction in private business borrowing.

Inflation, a key driver of ECB policy, remains under tight control. The ECB’s inflation gauge, the Harmonised Index of Consumer Prices (HICP), measured an annual inflation rate of 1.8 % in September 2025, comfortably below the 2 % target. The ECB’s recent statement emphasised the importance of maintaining policy vigilance to keep inflation expectations anchored while avoiding a hard landing for growth.

Implications for Investors and Policymakers

The data point to a clear divergence in credit dynamics. Investors in the corporate bond market may need to adjust expectations for yield curves, as tighter credit conditions could widen spreads, particularly for mid‑cap and high‑yield issuers. Conversely, mortgage‑backed securities could see enhanced demand as households secure favorable financing terms.

Policymakers, especially in the ECB’s supervisory roles, will likely monitor the health of the banking sector closely. The European Banking Authority (EBA) recently issued a report (link: https://www.eba.europa.eu/research/financial-stability-report) underscoring the resilience of bank balance sheets despite the credit slowdown, citing robust capital buffers and prudent risk‑management practices.

In sum, the euro area’s credit landscape in 2025 is characterized by a slowdown in business borrowing driven by higher rates and caution, juxtaposed against a rebound in household credit fueled by lower mortgage rates and stable inflation. The resulting split could shape economic trajectories for the remainder of the decade, influencing investment patterns, consumer spending, and ultimately the pace of euro‑zone growth.