Infrastructure & Real Estate

ECB bank lending survey to highlight increasing squeeze on finance

The coming week will provide a timely update of how both businesses and households are responding to the on-going uncertainty over the future of the euro area and, most notably, the negotiations surrounding a restructuring of Greek debt. A raft of European Commission (EC) confidence surveys are released on Monday 30th, December labour market statistics are out on Tuesday 31st and the ECB bank lending survey is published on Wednesday 1st. The already released flash PMI for January provides some reason for encouragement with the composite measure coming in at 50.4, its best outcome in four months. This reading is consistent with a stabilising in the economic climate after a sharp deterioration in the latter part of last year. Financial markets have taken a broadly similar view in the first month of 2012 with risk assets generally firmer and bond markets away from Greece and Portugal rallying despite the S&P downgrade.

The EC surveys will if nothing else put a little more flesh on the bones of the mood within the corporate sector. Particularly interesting from a real estate perspective could be the results from the construction industry. The December report not only suggested that building activity at a headline level is continuing to soften but also indicated that order books are languishing and that the employment picture in the sector remains grim; the reading for this series is at its most negative since the early part of 2010.

Although a relatively small number of construction businesses highlight finance as a key constraint on activity (far more point to insufficient demand), it is hard to see access to development capital improving anytime soon. The last ECB bank lending survey noted that margins on riskier loans, which would include those for speculative building projects, have predictably enough increased sharply. Apart from a further extension of this trend, the ECB report will almost inevitably show a further tightening in credit standards for those households seeking finance to purchase a property. Key drivers of this will be the rising cost of funds for banks as well increasing concerns amongst loan officers over both the outlook for the economy and, more specifically, the housing market.

( Please click here to read full article )