Eurozone Credit Demand Holds Up Better Than Expected Under Middle East Uncertainty

By Bert Colijn of ING Think

Economic and Financial Analysis • Jul 21, 2026 at 7:30 AM EDT

Eurozone business loan demand rose in Q2, signaling the strongest appetite for fixed investment since 2022.

depositphotos_98319538-stock-photo-euro-flag-euro-money-euro.jpg — Source: DepositPhotos

The European Central Bank's latest bank lending survey indicates more business loan demand for investment plans, while uncertainty is having more of an impact on households and banks. The survey doesn’t indicate a clear change in financial conditions, though.

Banks had expected demand for loans to drop amid the Middle East war in last quarter’s survey, but they actually noted a modest increase this quarter. This is in part because of increased liquidity and working capital needs, which were to be expected during a supply shock. The number of banks reporting that loan demand for fixed investment needs is also up. In fact, this is the strongest reading for fixed investment since 2Q 2022.

So while uncertainty is clearly having an effect, investment appetite is not necessarily suffering. With more defence and infrastructure investment being undertaken in Germany, it is no surprise that it has seen a positive reading, together with Italy. France and Spain remain sluggish among the larger economies.

For households, the increased uncertainty is having a more profound effect. Mortgage demand decreased notably, according to the survey, as consumer confidence took a hit and interest rates have increased.

The ECB survey also indicated that banks have tightened credit standards modestly in the second quarter. Banks had expected more aggressive tightening last quarter, though. They note increased risk to the outlook and lower risk tolerance as the main drivers.

For the ECB – which meets on Thursday to decide on rates again – this means uncertainty is already having a modest tightening effect on financial conditions, with both households and banks being more careful. At the same time, conditions are clearly not yet deterring business investment in the economy. This is all in line with the ECB's own perception of a neutral monetary stance for the moment.

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