NVDA Q3 Earnings Alert: Why our AI stock picker is still holding Nvidia stockRead More

Eurozone Bank Lending Continues to Weaken as Money Growth Turns Negative

Published 29/08/2023, 10:31

Higher interest rates and a stagnant economy keep bank lending on a weakening trend. Annual growth in broad money growth is now negative. This adds to expectations of a weak eurozone economy in the quarters ahead, but as the effects remain gradual this should not be a game-changer for the ECB ahead of its September meeting

Annual growth in bank lending continues to trend down rapidly. Bank lending to the private sector grew by 7.1% year-on-year in September last year but fell back to just 1.6% in July. This has been driven by strong declines in business sector borrowing and a steady downward trend in household borrowing – which is mainly for mortgages. Non-financial corporate borrowing growth was 2.2% year-on-year in July, while household borrowing growth was just 1.3%.

Money growth has been plummeting in recent months as demand for borrowing weakens and the ECB starts quantitative tightening. This has resulted in the first negative reading of broad money growth (M3) in July, falling from growth of 0.6% to -0.4% year-on-year. Narrow money growth (M1) fell by -9.2% in July.

Overall, monetary developments show that there is continued weakening of lending happening at the moment and that the money supply is shrinking. The trend remains rather gradual, though. This means that the impact of higher rates on the economy continues to happen gradually and without any shocks. Still, there are no guarantees how this will develop further, and weaker lending will result in lower investment down the line. With economic activity already in stagnation mode at the moment, monetary policy is set to contribute to a weak economic environment for the quarters ahead.

The next ECB rate decision is in two-and-a-half weeks’ time, and there are not too many key data points out in the interim that can sway the governing council’s decision. Today’s data show the continued significant impact of monetary policy, but the impact remains gradual. This means that they are unlikely to be game-changers for the no doubt heated debate among the governing council about whether another hike is necessary next month.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2024 - Fusion Media Limited. All Rights Reserved.