KfW credit market outlook: Companies are experiencing declining borrowing despite increasing investment spending

KfW credit market outlook: Companies are experiencing declining borrowing despite increasing investment spending

According to a report from www.boerse.de, the current KfW credit market outlook shows that lending to companies and the self-employed in Germany reached a low point in the third quarter of 2023 and a significant contraction is also expected in the fourth quarter. The contraction in new business is expected to be around 15% compared to the previous year.

However, rising capital spending has helped to somewhat mitigate the deep slump in borrowing. At the same time, banks are continuing to tighten financing conditions, which has resulted in companies significantly reducing their borrowing. Average loan interest rates rose to 5.3% in September, more than three times higher than at the beginning of 2022. This has led companies to optimize their financial and liquidity planning and reduce their borrowing.

The weaker economic assessment has made banks more cautious when granting loans. The severe deterioration in the economic climate in the third quarter means that the general conditions for the corporate credit market are contrary to a rapid revival of new business.

Given the available facts, it is to be expected that corporate investment activity will lose momentum. New corporate loan commitments are expected to be flat to slightly downward, which could lead to a recovery in loan growth from the trough in the summer quarter, but only during 2024. The rise in interest rates and the difficult macroeconomic situation are expected to continue to influence loan demand.