Scrape beneath the surface of the Eurozone money supply data and there is a very sorry tale of economic flat-lining and recession. M3 money supply growth might be expanding at a 3.5% pace, but it is still below the ECB’s 4.5% growth reference target. Eurozone credit growth is contracting at an ever quickening pace. Overall loans to the Eurozone private sector contracted at a 0.9% annual rate in January, down from December’s -0.7%. The underlying credit components reveal a much more worrying picture. Bank loans to the Eurozone consumer sector contracted at a 3% annual pace in January, with credit to the company sector falling at a 2.5% rate year-on-year.
Consumers are really feeling the pain of the slowdown, burdened down by rising unemployment worries and the pinch of all the austerity measures through the Eurozone. The vital life blood of recovery is not coming through from the corporate sector. Banks are simply not lending to businesses in the magnitude that the ECB are hoping for, while weakening economic confidence means companies are not taking up new loans for business expansion. It will send alarming signals to the ECB that despite all its monetary stimulus efforts, the relief is still not getting through to the parts of the recovery that need it most. Eurozone rates need to go lower and stay low for a long while. Monetary expansion needs to feed through to the economic sectors that need it most.
With bank balance sheets still undergoing major repair work, it will be a tough task for the Eurozone authorities putting the monetary stimulus into effect via expansive bank credit policies. The task will be made doubly difficult while ECB monetary policy needs to over-compensate for the effect of Eurozone fiscal austerity. Recession forces look set to extend through 2013.
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