ECB Survey Signals Rising Borrowing Costs in Europe

ECB Survey Reveals Rising Borrowing Costs and Cooling Inflation Pressures in the Eurozone

The European Central Bank’s latest SAFE (Survey on the Access to Finance of Enterprises) report offers a revealing snapshot of the eurozone economy at a crucial moment. Released just days before the ECB’s July rate decision, the findings highlight a sharp increase in borrowing costs for businesses, alongside a notable easing in wage and price expectations.

For policymakers, investors, and businesses alike, this combination signals a delicate balancing act: financial conditions are tightening, yet inflationary pressures may be starting to cool. So what does this mean for the eurozone economy—and what should we expect next?

Rising Borrowing Costs Put Pressure on Businesses

A Sharp Increase in Loan Costs

One of the most striking takeaways from the ECB SAFE survey is the rapid rise in borrowing costs. A net 42% of eurozone firms reported higher interest rates on bank loans during the second quarter of 2026, a significant jump from 26% in the previous quarter.

This surge reflects the ECB’s recent monetary tightening. In June, the central bank raised its deposit facility rate by 25 basis points to 2.25%, marking a renewed effort to keep inflation under control after a period of relative stability.

The impact is being felt across the board:

Small and medium-sized enterprises (SMEs), often more sensitive to credit conditions, reported similar increases to large firms
Additional financing costs, such as fees and commissions, also rose, though at a slower pace
Businesses are increasingly factoring higher financing costs into investment decisions

Credit Conditions and Financing Gaps

Interestingly, while borrowing costs have surged, access to credit has not significantly deteriorated. The survey indicates that overall credit availability remained broadly stable.

However, there are early warning signs:

Loan demand increased modestly, suggesting businesses still need financing despite higher costs
The financing gap—defined as the difference between demand for and availability of bank loans—rose slightly from 2% to 3%
This indicates a gradual tightening in financial conditions, even if not yet severe

For SMEs in particular, this environment can create a squeeze: higher costs of capital combined with ongoing operational pressures.

Easing Wage Growth and Price Pressures

Signs of Cooling Inflation

While borrowing costs are climbing, the survey also delivered encouraging news on the inflation front. Firms across the eurozone are now expecting slower increases in both wages and prices over the next 12 months.

Key findings include:

Expected selling price growth declined from 3.5% to 3.2%
Wage growth expectations eased from 2.8% to 2.5%
Non-labour input cost growth dropped from 5.8% to 5.2%

These shifts suggest that inflationary pressures—particularly those driven by energy shocks and supply chain disruptions—may be stabilising.

Why Wage Trends Matter

Wage growth is a critical metric for central banks. Persistent wage increases can lead to “second-round effects,” where higher labour costs drive further price increases, creating a self-sustaining inflation cycle.

The latest data indicates that such risks may be easing:

Firms are becoming more cautious in their hiring and compensation strategies
Slower wage growth reduces the likelihood of sustained inflation
This could give the ECB more room to pause or slow future rate hikes

However, the situation is far from resolved. Many businesses still see upside risks to inflation, especially over the longer term.

Inflation Expectations Remain Anchored—For Now

The survey shows that inflation expectations remain relatively stable:

One-year expectations: 3.0%
Three-year expectations: 3.0%
Five-year expectations: slightly higher at 3.1%

This stability is crucial. Anchored expectations help prevent inflation from spiralling out of control, even when short-term pressures fluctuate.

That said, the slight uptick in long-term expectations suggests lingering concerns among businesses. Factors such as energy prices, geopolitical tensions, and supply chain vulnerabilities continue to pose risks.

What This Means Ahead of the ECB Rate Decision

Markets Expect a Pause

With the ECB’s Governing Council set to meet on the 23rd July, financial markets are overwhelmingly pricing in a pause in rate hikes. Current market data suggests a 93% probability that rates will remain unchanged.

This expectation is based on several factors:

Easing wage and price pressures reduce the urgency for further tightening
Economic growth in parts of the eurozone remains fragile
Previous rate hikes are still working their way through the economy

The Case for Caution

Despite expectations of a pause, ECB policymakers remain cautious. Some officials, including Governing Council member Pierre Wunsch, have indicated that further rate hikes could still be on the table if inflation broadens beyond energy into services and wages.

Key considerations for the ECB include:

Whether inflation continues to moderate in the coming months
The extent to which higher borrowing costs impact economic activity
Signals from labour markets and wage negotiations

In other words, while the immediate pressure to raise rates may be easing, the ECB is unlikely to declare victory over inflation just yet.

Broader Economic Implications

Impact on Businesses and SMEs

For businesses operating in the eurozone—especially SMEs—the current environment presents both challenges and opportunities.

Challenges:

Higher borrowing costs reduce profitability and investment capacity
Financing expansion or innovation becomes more expensive
Uncertainty around future interest rates complicates planning

Opportunities:

Stabilising inflation may improve cost predictability
Lower wage pressures could ease operational expenses
Businesses that adapt quickly may gain a competitive edge

What This Means for Expats and Consumers

For individuals living in the eurozone, including expats in countries like France, these trends have real-world implications:

Mortgage and loan rates are likely to remain elevated in the near term
Slower wage growth could impact income expectations
However, easing inflation may help stabilise the cost of living

For anyone managing finances, investments, or a business in Europe, staying informed about ECB policy shifts is essential.

Key Takeaways from the ECB SAFE Survey

The latest ECB SAFE survey paints a nuanced picture of the eurozone economy:

Borrowing costs are rising quickly, reflecting tighter monetary policy
Wage and price pressures are easing, suggesting inflation may be cooling
Credit availability remains stable, but financing conditions are tightening
Markets expect the ECB to hold rates steady—for now

This combination of factors highlights the complexity of the current economic environment. The ECB must balance the need to control inflation with the risk of slowing economic growth too much.

Final Thoughts: A Turning Point for the Eurozone?

The eurozone may be approaching a turning point. After years of inflation concerns and aggressive monetary tightening, early signs of stabilisation are emerging. Yet the path forward remains uncertain.

For businesses, investors, and policymakers, the coming months will be critical. Will inflation continue to ease, allowing the ECB to pivot toward a more supportive stance? Or will persistent risks force further tightening?

One thing is clear: the interplay between borrowing costs, wage growth, and inflation will shape the eurozone’s economic trajectory well into 2026 and beyond.