The slowing eurozone economy is expected to dampen bank lending to companies in 2019 amid indications of a slowdown in the first quarter, according to an analyst.

Net demand for corporate loans to eurozone banks stabilized in the first quarter of 2019 compared to the previous three months, having increased continuously since the second quarter of 2015, the ECB said April 9 in its quarterly bank lending survey.

Demand from large corporates was down, while demand from small and medium-sized companies grew, but at a slower rate than in previous quarters, the ECB said.

Furthermore, positive drivers to demand – including the low interest rates and fixed investment, inventories and working capital, mergers and acquisitions activity and debt refinancing – supported growth to a lesser extent over the first quarter. At the same time there was a bigger drag on demand from alternative financing methods used by companies such as internal funding, capital market financing and lending from nonbanks, the ECB data showed.

The results of the ECB lending survey are consistent with the gradual downward trend in loan growth observed since the middle of 2018, Aline Schuiling senior economist at the macro research team of Dutch bank ABN Amro, said in an April 9 note.

Bank lending is expected to slacken further in the next few quarters as it tends to follow changes in the economy with about a year delay, and there has been a significant cooling in the eurozone economy since the beginning of 2018, Schuiling said.

'Outlook tilted to the downside'

The ECB expects the slower growth momentum in the eurozone to continue in 2019 as the adverse factors affecting growth will last longer than previously expected, ECB President Mario Draghi said April 10 following the central bank's regular monetary policy meeting.

"The risks surrounding the euro area growth outlook remain tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets," he said.

On the other hand, growing employment and wage inflation support economic growth and the ECB will continue to maintain monetary accommodation as long as it is necessary to ensure favorable financing conditions, Draghi said.

The ECB will continue reinvesting the principal payments from maturing securities acquired in the course of the central banks' asset purchase program, Draghi said.

Eurozone banks expect the program to have a smaller contribution to the improvement in their liquidity position and market financing conditions in the next six months, according to the ECB bank lending survey. Their assessment for the previous six months was that the program improved liquidity and market financing conditions but had an adverse effect on their profitability.