Euro area firms report tighter credit, stable inflation expectations

Euro area firms experienced a notable tightening in bank loan interest rates during the fourth quarter of 2025, with a net 12 percent of firms reporting increases, up from 2 percent in the previous quarter.

This trend affected both small and medium-sized enterprises (SMEs) and large firms equally.

Beyond interest rates, a net 28 percent of firms observed higher other financing costs, such as charges and fees, while collateral requirements also increased for a net 14 percent of firms.

Simultaneously, firms reported a modest rise in their demand for bank loans, with a net 3 percent indicating increased needs.

This was accompanied by a slight perceived decline in the availability of bank loans (net -2 percent), pushing the bank loan financing gap to a net 3 percent.

The general economic outlook remained the primary factor constraining external financing, though banks' willingness to lend showed a slight improvement.

Firms' inflation expectations remained broadly unchanged across all horizons in the fourth quarter of 2025. Median expectations for annual inflation one year ahead were 2.6 percent, while both the three and five-year horizons registered 3.0 percent.

For the five-year outlook, a net 56 percent of firms continued to indicate upside risks to inflation.

In terms of economic activity, firms reported increasing turnover over the last three months, with a net 7 percent observing growth.

However, optimism for the next quarter declined to a net 18 percent, and a net 10 percent of firms reported lower profits.

Investments saw a modest increase of a net 6 percent, aligning with earlier expectations.