OREANDA-NEWS. The German credit market continues to contract. In its latest Credit Market Outlook, KfW expects that banks and savings banks will see a year-on-year reduction of 6.8% in new lending business with enterprises and self-employed individuals in Q3 2013 (compared to 4.7% in Q2). However, loans for the repair of damage caused by flood water, which cannot be included in the estimation, might help to cushion the decline.

The KfW Credit Market Outlook shows: The recovery of Germany's economic growth in the second quarter and the cautious pickup in investments have not yet been reflected in an increase in demand for loans. The main reason for this persistent negative trend is the ongoing weak demand from enterprises for financing. The modest increase in corporate investments is mainly due to investments in equipment and not in commercial construction. Enterprises tend to finance investments in equipment themselves and not through loans. The credit market will only experience growth again once there is a marked increase in investments in commercial construction. This is likely to be the case at the end of the year at the earliest.

“Demand for credit remains low in the third quarter. The economic upturn has not yet been reflected in the credit market. The slight increase in investment activity is being financed predominantly by enterprises' own funds”, comments Dr Jorg Zeuner, Chief Economist of the KfW Group. According to Dr Zeuner, this is common in the early stages of an economic upswing. “We expect a turnaround at the end of the year at the earliest, followed by an increase in loan commitments.” However, the credit market is still faced with risks. Here, Dr Zeuner points to the example of the US monetary policy and its impact on interest rate movements.