FRANKFURT (The NYT) -- Borrowing by companies in the euro zone fell at an annual rate of 1.3 percent in July, the European Central Bank said Thursday, in a reminder that economic activity has not returned to normal despite record growth in Germany.

The continued decline in lending to corporations, excluding banks, was offset by a 2.8 percent increase in lending to households, so that overall credit to the private sector rose 0.9 percent, accelerating from May and June. The data, which also shows a modest increase in the money supply, reinforce expectations that inflation is not a risk and that the central bank is likely to keep official interest rates at record lows well into next year.
In another sign that household spending was rebounding faster than the corporate sector, German consumer confidence continued to rise, GfK, a market research firm, said Thursday. GfK, whose index of consumer sentiment rose to 4.1 from 4.0, said that Germans were encouraged by falling unemployment rates and a return to full-time work at companies that had reduced employees’ hours.
“Consumers clearly do not believe the recovery of the German economy to be a flash in the pan, but rather expect it to continue,” GfK said.
The central bank has said on several occasions that it was normal in an economic recovery for consumer borrowing to rebound more quickly than corporate credit. But it is taking longer than expected for borrowing by business to catch up.
“So far no turning point is in sight,” Michael Schubert, an analyst at Commerzbank, wrote in a note Thursday.
The German economy grew at an annual rate of about 9 percent in the second quarter of 2010, outpacing even China. Analysts do not expect growth to continue at that pace, but have become more confident that output in Germany, Europe’s largest economy, will continue to rise at a healthy pace.
Morgan Stanley economists on Thursday improved their forecast for German growth for the second time this month, to 3.4 percent for the year from 2.5 percent. Domestic demand, which tends to be weak in Germany’s export-oriented economy, has been stronger than expected, the bank said in a report.
The Morgan Stanley analysts said they were still cautious about whether Germany’s good prospects would spread beyond its borders, but “we see scope for some positive spillover effects into the rest of the euro area.”
Mr. Schubert at Commerzbank said that one reason business lending was still weak might be that companies were financing growth with their own profits, or raising money by issuing bonds, rather than borrowing from banks.
The central bank said Thursdaythat M3, a crucial measure of the money supply, rose at an annual rate of 0.2 percent in July, the same as in June. The tepid growth of M3, which includes cash in circulation, bank deposits and short-term debt, remains too weak to raise fears of inflation.