Lending is a sign of a buoyant economy, but credit conditions have been tight in the euro zone since the financial crisis of 2007-2008 took hold. In May, loans to the private sector fell more than expected, sliding by 2 percent on an annualized basis, according to ECB data.
Annual growth in M3—a broad measure of cash in the economy—hit 1 percent in May, higher than expected, but still well below the ECB's old reference rate of 4.5 percent. During the boom times of 2007, M3 annual growth was closer to 12 percent.
The central bank attempted to address liquidity issues by launching a new package of LTROs (long-term refinancing operations) at its last meeting. These ultra-cheap, long-term loans will be offered from September to the region's banks, and will be targeted at boosting lending to smaller businesses.
"The ECB will be hoping that their package of fresh LTRO funds can boost this (lending) number; however this data reinforces the uphill battle the bank has to encourage demand for loans," Kathleen Brooks, research director at Forex.com, said in a note.
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ING's Brzeski questioned whether the LTROs will really make a difference.
"One crucial question is whether the ECB can really prevent banks from using the cheap money to invest in two-year government bonds," he wrote, adding that the penalty for not doing so—earlier reimbursement—is not very strong.
Brzeski added that it could take until the end of the year for the measures to have any significant impact on lending—one reason Howard Archer, chief European economist at IHS Global Insight, expects the ECB to hold fire on Thursday.
However, Archer stressed that the combination of low inflation, falling bank lending to business and muted money supply growth meant that expectations the ECB will ultimately have to take further action "remain pretty high".
"The ECB will likely want the market to keep thinking that further policy action is a very real possibility so as to keep downward pressure on the euro and market interest rates," he said in a note. "However, we still suspect that the bar for large scale, full-blown quantitative easing by the ECB is high."