In the third quarter of 2024, new lending from banks to the corporate sector increased for the first time in two years, according to KfW Research. The growth rate was calculated at 1.6% year on year. This rise was partly attributed to a base effect since new lending had significantly decreased in the same period of 2023 when interest rates were at their peak.
These findings are part of the Credit Market Outlook, which is published quarterly by KfW Research. The volume of new lending has grown for three consecutive quarters, maintaining a level above that seen before the pandemic in 2019. However, when adjusted for inflation, the real value of credit volume remains lower than in 2019.
Dr Jenny Körner, a credit market expert at KfW Research, stated: “The recovery of new lending business will level off because of the persistently difficult economic environment.” She added that they expect new lending to businesses and self-employed individuals to grow by just under 2.6% in the fourth quarter compared with the same quarter last year. After this period, growth is expected to stabilize around 2%.
The announcements from the incoming US administration regarding trade policy may have created pull-forward effects in the fourth quarter as businesses borrowed more and expedited transactions to avoid potential tariffs imposed by Donald Trump's administration. However, it is anticipated that this effect will diminish.
Further contributing factors include a base effect from low lending volumes in 2023 and continued interest rate cuts, which are likely to be significant drivers of new lending this year as well. Unlike in 2024, favorable financing costs should prevent a decline in business investment compared with previous years. KfW Research predicts nominal investment expenditure will increase by just under 2%, slightly boosting growth in new lending business.
Dr Jenny Körner noted: “The uncertainty around the direction of US trade policy poses a downside risk for our forecast for this year. In contrast, swift measures by the new German Federal Government to address structural problems in Germany could lift business sentiment and generate more interest in loans.”
KfW Research calculates its quarterly Credit Market Outlook exclusively for Handelsblatt, a German business newspaper.