Credit growth slowdown

The rate of growth of credit to enterprises and households declined somewhat in May, according to provisional data made available yesterday by the Bank of Greece. The credit expansion rate was 14.1 percent, from 15.6 percent at the end of April, and outstanding loans were 124.2 million euros. Loans to businesses grew at a 4.6 percent rate, reaching 67.2 billion euros, while loans to households increased 27.9 percent to 56.97 billion euros. Consumer loans grew at a rate of 33.4 percent, from 34.4 percent at the end of April, and their outstanding balance stood at 18.89 billion euros, from 14.16 billion in May 2004. This data clearly show that a significant part of consumption is based on credit. The issue was touched upon recently by the Organization for Economic Cooperation and Development (OECD), which, in a report, referred to what everyone in Greece is aware of – that we live well beyond our means. Housing loans and, especially, consumer loans are not just a burden for the Greek economy. Their still rapid expansion fuels inflation, which harms the economy and its medium-term competitiveness. On the other hand, it keeps internal demand going and, in that sense, takes the place of investment in keeping growth at its present high levels. What is certain is that this cannot be sustained over the long term. The central bank’s data also show that housing credit expanded 25.9 percent and that the outstanding balance was 36.6 billion euros, up from 29.08 billion in May 2004.

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