According to a quarterly survey released by the European Central Bank on Monday, eurozone companies are coming under mounting financial pressure as fuel prices remain elevated and operating costs climb, while access to bank credit is becoming increasingly difficult.
More Financing Obstacles, Banks More Cautious in Lending
The ECB has been gradually raising interest rates to curb energy-driven inflation. The market widely expects the ECB to hold rates steady this week to gather more evidence on how borrowing costs, including those in the bond market, are affecting the economy. The ECB's latest quarterly survey shows some signs of strain in eurozone companies' financing channels. Firms widely reported higher loan interest rates and reduced availability of bank loans. When companies urgently need more credit lines, they are finding it increasingly hard to obtain them.
The ECB analyzed: "Firms' simultaneous increase in demand for both trade credit and credit lines suggests they are facing broader working capital pressures, which may be driven by rising input costs."
"However, the decline in the availability of credit lines also indicates that banks are becoming more cautious in providing such financing, which could further limit firms' ability to meet short-term funding needs," the ECB added.
Data shows that in the three months ending in September this year, the proportion of firms reporting obstacles in obtaining bank loans rose to 7% from 5% in the previous quarter.
Rising Cost Expectations, Inflationary Pressure Yet to Subside
The survey also shows that firms' expectations for future prices, wages, and other costs have risen significantly, but the ECB noted that this result is biased because a large number of respondents were participating in the survey for the first time. Companies that took part in the two most recent survey rounds expect prices to rise by an average of 3.6% over the next 12 months, up from 2.5% in the second-quarter survey. Meanwhile, across the full sample of 12,822 respondent firms, companies expect sales prices to rise by 7.1%, a sharp jump from 3.2% in the previous survey.
This set of data indicates that despite the ECB's continued rate hikes, corporate inflation expectations remain high, and cost pressures have yet to see any substantial easing.
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