Lending to Greek economy held up through worst of lockdown

Aggregate household savings also remained intact

There was some encouraging news this afternoon as Bank of Greece data showed that banks continued to increase lending to the private sector through May.

That was down to the considerable monetary support provided by the European Central Bank, and also because much of the government’s fiscal response to the crisis is channelled through the banks, in the forms of guarantees against lending to struggling businesses.

We’ve seen in past crises how often policy makers get this wrong. With the wave of bankruptcies that follow a credit crunch, it’s a relief that liquidity is still flowing to the economy. What remains to be seen is whether credit expanded enough to forestall the worst economic effects of the lockdown.

Lending to the private sector grew an annual 0.7 percent in May, up from 0.3 percent in April, driven by a 4.7 percent increase in lending to businesses. To put these numbers in context, after lending to the private sector turned negative in 2011 it took until March of this year for it to start growing again.

Bank of Greece data also showed that at the aggregate level households managed to get through May without reducing the overall level of their bank deposits. For the time being, the impact on household savings of reduced consumption under the lockdown seems to be outweighing that of income losses.

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