According to the ECB's latest Survey on the Access to Finance of Enterprises (SAFE), Eurozone companies faced significantly tighter bank lending conditions and a sharp rise in short-term inflation expectations during the first quarter of 2026.
Data revealed that a net 26% of firms reported higher interest rates on bank loans, more than doubling the 12% recorded in the previous quarter. Additional financing costs, such as fees and commissions, also surged for 37% of businesses.
While the demand for bank loans remained relatively flat, the actual availability of credit deteriorated slightly, leading to expectations that external financing will continue to decline in the coming months. The general economic outlook remains the primary obstacle to securing finance, a concern now cited by over a quarter of the surveyed firms.
The report highlights a concerning disconnect between rising costs and corporate profitability. While wage expectations moderated slightly to 2.8%, non-labor input costs — driven largely by energy — are expected to jump to 5.8%. Consequently, firms have raised their selling price expectations to 3.5% for the year ahead.
Much of this inflationary pressure is attributed to the ongoing US-Iran war, which has notably increased input cost concerns for firms interviewed later in the survey period. While short-term inflation expectations rose to a median of 3.0%, long-term views remained anchored at the same level, though a growing majority of firms now perceive upside risks to those long-term figures.
Despite the tightening financial environment, business sentiment regarding future activity remains cautiously optimistic. Current turnover was broadly unchanged, and profitability continued to slide for a net 16% of companies. However, a net 29% of firms expect turnover to improve in the next quarter, and there is a modest anticipated uptick in investment despite current levels falling below previous forecasts.
The ECB has already closed the door on a rate hike in April, but the June meeting remains live. Markets are currently pricing in a 60% probability of a rate hike in June, with a total of 56 basis points of tightening expected by year-end.
If the US-Iran war is resolved before the June meeting, markets could pare back rate hike expectations, as the ECB would likely wait to collect more data over the summer before considering a policy adjustment in September.
Why it matters
The doubling of net firms reporting higher loan interest rates — from 12% to 26% in a single quarter — signals a rapid tightening in credit conditions that goes beyond gradual monetary policy transmission, suggesting firms are absorbing compounding cost pressures simultaneously.
The gap between non-labor input cost expectations (5.8%) and wage expectations (2.8%) indicates that margin compression is being driven by external supply-side shocks rather than domestic wage dynamics, which complicates the ECB's standard inflation-targeting framework.
Long-term inflation expectations remaining anchored at the same median level as short-term ones, while a growing share of firms see upside risks, is a key signal the ECB monitors closely — if that anchoring breaks, it changes the policy calculus significantly.
