OREANDA-NEWS. June 19, 2012. Between January and March 2012, new lending to companies and self-employed professionals in Germany fell by 0.4% against the same period last year. This is the main finding of the current KfW Credit Market Outlook which KfW calculates exclusively for the German newspaper Handelsblatt for each quarter. It has established that the lending market is cooling off primarily as a result of weaker demand for credit by businesses amid declining economic conditions. However, enterprises that need credit continue to find very good financing conditions in Germany.

The credit market will continue to slow gradually this year. Overall, KfW expects new lending to businesses and self-employed professionals to more or less stagnate in the current second quarter, and a more pronounced downturn may even set in from the third quarter. The main driver will probably continue to be a further slowdown in credit demand by businesses. The German economy is cooling off in 2012, and KfW expects calendar-adjusted GDP growth of 1.2% for this year - less than half the growth rate of last year (3.0%). This will slightly reduce companies' propensity to invest and affect their demand for long-term loans. On the other hand, the low interest level should continue to support investment and credit demand for some time, especially in industries that are geared to the German market.

Downward pressure on new lending business is also expected to come from the supply side. According to the Deutsche Bundesbank's Bank Lending Survey, at the start of the year a thin majority of banks slightly tightened their lending guidelines for the first time in two years. The increasing reluctance of banks to extend long-term loans and lend money to big export-oriented enterprises also shows that the banks are currently paying more attention to how strongly their clients would be affected by an economic downturn. In particular, loans associated with business in the Eurozone periphery countries have again become harder to obtain in recent weeks.

"The expectation of slowing economic performance is now perceivable in the German credit market as well. Demand for loans has dropped, which led to a slight decline in new lending business in the first quarter. We expect this trend to continue for 2012 as a whole", said Dr Norbert Irsch, Chief Economist of KfW, commenting on the results of the survey. He added that at the moment the German credit market was still a clear winner of the crisis, and the enterprises themselves also regarded their current financing conditions as favourable. "The banks have benefited from improved short and medium-term refinancing because of the ECB's liquidity measures and are increasingly competing for clients in the domestic market – not least for lack of alternative investments abroad due to the crisis." But as the year progresses, Germany will not be able to escape from the recessive impact of the Euro crisis. "GDP growth, corporate investment and credit demand will slacken as the year goes on. Should the Euro crisis escalate further the supply of credit in Germany, too, might be hampered by the banks' funding problems which would then drastically worsen."