Euro area firms reported tighter borrowing conditions in the second quarter, even as inflation expectations remained broadly stable and cost pressures continued to ease, according to the ECB’s latest Survey on the Access to Finance of Enterprises (SAFE). A net 42% of firms reported higher bank loan interest rates, up sharply from 26% in the previous quarter, while increases in fees, commissions and collateral requirements also persisted, although non-interest financing costs and collateral demands moderated somewhat.
Despite the tighter pricing environment, financing conditions showed little sign of deteriorating materially. Firms reported only a modest increase in demand for bank loans, while overall loan availability remained broadly unchanged. However, the aggregate figures masked a divergence between large companies, which reported improved access to credit, and SMEs, which experienced a further deterioration. At the same time, firms continued to lower their expectations for selling prices, non-labour input costs and wage growth over the next 12 months, while inflation expectations remained well anchored at 3.0% over one and three years, with the five-year expectation edging only slightly higher to 3.1%.
The survey reinforces the ECB’s view that restrictive monetary policy continues to restrain financing conditions without triggering a broad credit squeeze. Although geopolitical tensions in the Middle East have prompted many firms to diversify suppliers, improve energy efficiency and build inventories, relatively few have reduced business activity. Meanwhile, investment in artificial intelligence is expected to be financed primarily through internal funds rather than external borrowing, suggesting that higher financing costs are encouraging firms to preserve balance-sheet flexibility. Overall, the findings point to gradually easing inflation pressures alongside resilient corporate activity, supporting the ECB’s data-dependent approach to policy while leaving room to maintain a cautious stance.
Data Summary
| Item | Current | Previous |
|---|---|---|
| Bank loan interest rates (net reporting increase) | 42% | 26% |
| Other financing costs (net) | 31% | 37% |
| Collateral requirements (net) | 10% | 14% |
| Financing needs for bank loans (net) | 2% | 0% |
| Bank loan availability (net) | -1% | -3% |
| Bank loan financing gap | 3% | 2% |
| Selling price expectations | 3.2% | 3.5% |
| Non-labour input cost expectations | 5.2% | 5.8% |
| Wage expectations | 2.5% | 2.8% |
| Inflation expectations (1-year) | 3.0% | 3.0% |
| Inflation expectations (3-year) | 3.0% | 3.0% |
| Inflation expectations (5-year) | 3.1% | 3.0% |
Market Takeaways
- Firms reported a sharp increase in bank loan interest rates, highlighting that ECB’s restrictive policy is still feeding through to borrowing costs.
- Credit availability remained broadly stable overall, although SMEs continued to face tighter financing conditions than large firms.
- Selling price, wage and input cost expectations all moderated further, reinforcing the broader disinflation trend.
- Inflation expectations remained well anchored across all horizons, with only a marginal uptick in five-year expectations.
- The surve suggests financing conditions remain restrictive while inflation pressures continue to ease.
