KfW Reports Modest Growth in Corporate Lending in Q3 2024, but Recovery Faces Challenges

KfW Reports Modest Growth in Corporate Lending in Q3 2024, but Recovery Faces Challenges

(IN BRIEF) Corporate loans in Germany grew by 1.6% in the third quarter of 2024, marking the first increase in two years, driven primarily by falling interest rates. However, the recovery is expected to slow down due to the challenging economic environment. The base effect from a sharp decline in lending in 2023 also contributed to the growth. The fourth-quarter lending increase is expected to moderate, with a predicted stabilization at around 2% in 2025. While investment expenditure is forecasted to rise slightly, uncertainties regarding US trade policy and the new German government’s actions to address structural issues could influence future lending and business sentiment.

(PRESS RELEASE) FRANKFURT, 27-Jan-2025 — /EuropaWire/ — New corporate loans rose by 1.6% in the third quarter of 2024, marking the first increase in two years. However, the recovery is expected to moderate in the coming months. The primary factor driving credit demand has been the decline in interest rates, according to the latest Credit Market Outlook report from KfW Research.

The growth observed in Q3 2024 reflects an improvement over the previous year, although part of this increase can be attributed to a base effect, as new lending in the same period in 2023 had significantly dropped when interest rates had peaked. Despite the growth in new lending volumes for three consecutive quarters, the level of lending remains above the pre-pandemic volume of 2019, but on an inflation-adjusted basis, the real value is still lower than it was in 2019.

Dr. Jenny Körner, credit market expert at KfW Research, noted, “While we have seen a recovery in lending, this trend is likely to slow due to the continuing challenges within the economic landscape. We anticipate that lending to businesses and the self-employed will grow by around 2.6% in the fourth quarter of 2024 compared to the same period last year. After that, we expect the growth rate to stabilize at around 2%.”

The fourth-quarter spike in lending is also likely influenced by businesses preemptively borrowing in anticipation of potential changes in US trade policy, particularly in relation to tariffs under the Trump administration. However, this effect is expected to fade moving forward.

Additionally, the base effect from low lending volumes in 2023, combined with further interest rate reductions, likely played a role in stabilizing growth rates. KfW Research predicts that lower financing costs will support business investment in the coming year, with nominal investment spending expected to rise by just under 2%, providing a moderate boost to new lending.

Dr. Körner also pointed out that uncertainties surrounding US trade policy could pose risks to the forecast for the year. On the other hand, swift policy action by the new German Federal Government to address Germany’s structural issues could help improve business sentiment and increase demand for loans.

The KfW Credit Market Outlook is published quarterly by KfW Research for the German business newspaper Handelsblatt. The current edition is available at www.kfw.de/kreditmarktausblick.

Media Contact:

Ms. Nina Luttmer
+49 69 7431 41336
nina.luttmer@kfw.de

SOURCE: KfW Entwicklungsbank GmbH