According to results from the survey, banks reported a net tightening of corporate credit in the first quarter of 2008 compared to Q4 2007, as well a tightening of credit standards for household loans and consumer credit.

Banks also emphasized that demand for loans to enterprises decreased in Q1, "a decline by comparison with the slightly positive net demand observed in the previous quarter", the survey said.

Demand for loans to households for house purchases also declined in the first quarter. However, net loan demands to consumers and households for other purposes remained essentially unchanged.

"The further tightening is not a big surprise as it mirrors similar developments in the US and the UK, but it contributes to an overall picture of tightening of credit availability globally," a Danske Bank research note suggested.

"The survey highlights the downside risks to growth and underpins our expectations of weaker investment spending in coming quarters."

Euro zone economist Lorenzo Cella of IDEAglobal noted that the survey indicated a less negative situation in the second quarter of 2008 with credit standards expected to ease slightly, and with the demand for loans to decline more slowly than in the previous quarter.

However, "market participants should be aware that the materialisation of such a projection would not represent any major improvement for the euro zone credit market, but just slightly less unfavourable conditions, which still strongly hint at a marked slowdown in Q2 08 EMU-15 manufacturing activity," Cella warned.

In his commentary, the IDEAglobal economist also highlighted the tightening credit standards on household loans for house purchases and consumer credit observed in Q1.

"Reasons behind such a phenomenon are once again very straightforward, as banks become more prudent in a time of marked housing market slowdowns and economic uncertainty," Cella said.

Cella stated that, while banks expect the household credit situation to improve in the next quarter, it would not come as a great surprise to see the next ECB Bank Lending Survey indicate a worsening of the credit environment instead of the expected improvement.

"All in all though, the slightly less gloomy credit market outlook may provide some room for the hawks of the ECB governing council, especially in light of a robust Q1 08 EMU-15 GDP growth rate (we look for a 0.5% q/q increase)," Cella said.

"Nevertheless, this may be the last propitious growth report for a rather long while."

By Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, This email address is being protected from spam bots, you need Javascript enabled to view it