Euro zone companies have been increasing borrowing to finance additional spending on investment and acquisitions, the European Central Bank (ECB) said.
Growth in loans to companies rose to 13.1 per cent year-on-year in November from 12.9 per cent in October, continuing the upward trend seen since early 2004.
"Firms' demand for loans has been fuelled by the need to finance real fixed capital formation, inventories and financial investment, in particular M&A transactions," the ECB said in its January monthly bulletin.
Loan demand has increased in parallel with a recovery in fixed investment, and there has also been a rebound in spending on inventories, it said.
But firms have also been using loans to finance acquisitions.
The value of cash and debt-financed mergers and acquisitions by euro zone companies reached €270 billion on an annual basis in the second quarter of 2006, its highest level since early 2001.
Loans now appear to have replaced debt securities as the main source of debt financing, it said.
The low level of interest rates and an easing of bank credit conditions may have contributed to the sharp increase in corporate borrowing in recent years, it said.
The ECB said indicators on capacity constraints in manufacturing suggest that companies regard a lack of equipment as a much greater constraint on output than tightness in the labour market, which points to further strong growth in investment in the period ahead.