(Bloomberg) -- Borrowing by companies in the euro zone grew at the slowest pace in almost eight years in August as evidence mounts that the European Central Bank’s historic bout of interest-rate hikes is restraining economic activity.

Credit to the corporate sector rose by only 0.6% from a year ago — down from 2.2% in July — the ECB said Wednesday in a statement. Lending to households slowed to 1% from 1.3%.

Officials are closely watching such data to gauge the impact of the 450 basis points of rate increases enacted since July 2022. The ECB expects output in the 20-nation euro area to stagnate this quarter, though business surveys point to a private-sector contraction. New inflation readings for the region’s top economies are due this week.

If the corporate-borrowing trend continues, “then monetary transmission has picked up considerably again,” said Bert Colijn, an economist at ING. “Overall, it looks like the weak economic outlook and higher rates will put a lid on business investment in the coming quarters.” 

What Bloomberg Economics Says...

“Monthly data on credit published by the ECB showed the drag on spending from credit provision is significantly larger than it was in the depth of the euro crisis. The risk of the economy contracting in the second half of the year is rising”

—David Powell, senior euro-area economist. Read the full note here

Some policymakers are keeping open the option to raise rates further. Austrian central bank chief Robert Holzmann said Tuesday that there are “shocks out there which may force us to go higher,” while ECB Executive Board member Frank Elderson said the peak in borrowing costs hasn’t necessarily been reached. 

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