Lending is growing. Why worry about the economy?

The European Central Bank's account of its September monetary policy meeting, released on October 8, said the energy shock was lasting longer than expected and the inflation outlook had deteriorated. All participants supported the proposal to raise policy rates by one step.

The account said long-term euro area interest rates had risen since the July meeting. These rates help gauge the cost of borrowing over longer periods. Their movement also reflected global financial markets, debt issuance and the fiscal outlook.

A rate decision alone therefore cannot tell us how businesses and households are doing. We need to examine how energy costs feed into prices, who faces higher financing costs first and what borrowed money is used for.

More business borrowing does not necessarily mean stronger investment in equipment. The account said firms might also have borrowed to cover higher input costs. Working capital means the money needed to keep a business operating, including spending on materials.

Business lending rates were 3.6% in May 2026, 3.8% in June 2026 and 3.8% in July 2026.

Year-on-year growth in bank lending to businesses was 4.0% in May 2026, 4.0% in June 2026 and 4.4% in July 2026. These figures alone cannot establish the purpose of borrowing or a causal relationship between interest rates and lending growth.

Think of borrowing to enlarge a factory, then of borrowing to pay higher material costs while keeping output unchanged. Loans rise in both cases, but they tell different stories about the business.

Access to funding also differs. The account noted that small and medium-sized enterprises have difficulty accessing private credit and rely much more on bank loans. Private credit is lending from private providers outside the banking system. The discussion was that smaller firms may face credit constraints because switching funding sources is harder than it is for large companies.

Household lending needs a similar distinction. The account highlighted more loan applications from financially stretched households facing higher living costs. Credit growth in this case may reflect an effort to cope with pressure rather than an improvement in household finances.

The July meeting account, released on August 27, said developments in energy markets and artificial intelligence were affecting financial markets. It also discussed the time needed for an energy shock to spread to other prices and wages, and how subsequent responses would depend on profits and wages.

The September account, released on October 8, cited a longer-than-expected energy shock and a worse inflation outlook as grounds for raising rates.

Putting the two meetings side by side shows how the context for assessing the shock's persistence changed within the same policy cycle. But energy, inflation and financial conditions changed between meetings, so July's explanation cannot simply be applied to September's outcome. July serves as historical background, not additional evidence of current facts. If subsequent credit data point elsewhere, this comparison should carry less explanatory weight.

The account also recorded a view that robust lending growth signaled financial conditions were not yet restrictive. It contained counterevidence too: inflation had not yet spread widely across consumer items after the energy shock, and wage growth was slowing. Evidence of cost pressure must be distinguished from evidence that broad pass-through has already occurred.

If energy costs fall quickly and their effects on wages and services inflation stay limited, the case for prolonged inflation pressure and monetary tightening could weaken. Stable lending conditions and approvals for smaller firms, or improving real incomes and stable household stress indicators, would also warrant lowering the assessed strength of those transmission channels.

What this article establishes is the ECB meeting's assessment and discussion. It does not verify individual companies' cash flow, actual borrowing purposes or outcomes for particular households. Total lending alone therefore cannot establish that investment or consumption is strong or weak.

How much have energy costs fed into intermediate-goods and consumer prices? Check the breadth and persistence of the effects in price data covering the same period.

Is business loan demand more closely linked to investment or working capital? Examine lending terms and purposes by company size together.

Does household borrowing reflect room for housing and consumption, or pressure from living costs? Check whether income, spending and arrears data point in the same direction.