Germany – the only major eurozone economy to shrink this year
The German economy is the only one of the major eurozone economies forecast to shrink this year, largely due to higher interest rates, headwinds facing its export markets and the effect of prolonged high energy prices on the industrial base. Overall, German GDP is forecast to shrink 0.2% in 2023, and grow by 0.1% in 2023 and 1.8% in 2025.
The prospects for bank lending growth in Germany this year are expected to be weak, although forecast to outperform a number of other eurozone markets. Growth in overall bank lending is forecast to slow from 6.9% in 2022 to 3.8% in 2023. Mortgage lending is predicted to grow 1.6% in 2023 – the weakest since 2009 – following 5.3% growth in 2022.
Consumer credit is forecast to see a 0.4% increase in 2023 before growth accelerates to 1.8% in 2024. On the corporate lending side, the stock of business loans is expected to slow to 5.8% growth – from 8.9% in 2022 – before decelerating further to 2.4% in 2024, as the effect of weak overseas demand for manufactured goods, tight monetary policy, and elevated uncertainty is felt on business investment.
France – demonstrating greater resilience than eurozone peers
The French economy has recently displayed more resilience than the wider eurozone. French GDP growth slowed to 0.1% in Q3 from 0.6% in Q2 2023, although this disguised a robust performance from domestic demand. Overall, the EY European Bank Lending Forecast forecasts annual GDP growth at 0.9% this year, followed by 0.6% in 2024 and 2% in 2025.
Total bank lending is forecast to rise 3.7% in 2023, down from 6.1% in 2022, and then slow slightly to 3.5% in 2024. Consumer credit is forecast to rise 2.4% in 2023, down from 3.5% in 2022, and growth in business lending is expected to slow over 2023 to 5% from 7.3% in 2022, then to 3.3% in 2024.
Spain – mortgage lending has fallen sharply in 2023
Following a relatively strong start to 2023, Spanish GDP is forecast to grow 2.4% in 2023. This is principally because of Spain’s services-focused economy, lower dependency on energy-intensive industries than some of its peers and an ongoing recovery in the tourism sector.
However, in terms of total bank lending, the EY European Bank Lending Economic Forecast predicts a contraction of 2.1% in 2023, reflecting weakness in late 2022 and early 2023. Among the categories of lending, only consumer credit is forecast to report a rise. The EY European Bank Lending Forecast predicts consumer credit growth of 0.4% in 2023.
Business lending is expected to contract -3.4% this year before broadly flatlining in 2024. On the mortgage side, EY European Bank Lending Forecast predicts a -1.5% contraction this year in large part due to the structure of Spanish mortgages. The majority of Spanish home loans are variable rate contracts, which means the housing market is exposed sooner to rising interest rates than many other eurozone countries.
Apart from business lending, a return to growth is expected across all forms of lending from next year, and total bank lending is forecast to rise 0.6% in 2024, and 1.6% in 2025.
Italy – slow growth in 2023
Italy only narrowly avoided a technical recession in Q3 2023, as GDP flatlined following a 0.4% contraction in Q2 2023. GDP growth is forecast at 0.7% this year and 0.6% in 2024. However, as momentum improves, improved growth is forecast (1.2% in 2025).
In terms of overall bank lending, the forecast predicts a contraction of -1.9% in 2023. Mortgage lending is forecast to rise 1.1% this year, down from 4.2% in 2022. Consumer credit is forecast to rise 4.5% this year, while business lending is expected to contract -5.1%, before returning to growth of 1.4% in 2024. Similar to other major eurozone economies, all forms of lending are forecast to see a rise in 2024 (of 1.1%), with growth picking up to 2.5% in 2025.