Sound bites: weak Eurozone money supply trends stunt recovery prospects

The latest Eurozone money supply trends look really negative for the economy. Weak money supply trends continue to cast severe doubts on any chances of near term Eurozone recovery. The continuing contraction in Eurozone credit is now a major headache for Eurozone policymakers. A much better supply of private sector credit is absolutely vital if the Eurozone has any chance of getting back to sustainable recovery. An easy supply of credit is a vital life-blood of recovery and without it, the Eurozone recovery will be dead on arrival. The Eurozone banks should share a large part of the blame. The EU and the ECB  have re-capitalised the banks, but the banks are not fulfilling their part of the bargain. They are not passing through an adequate flow of new credit to consumers and industry. Without access to easier credit, the Eurozone recovery will wither on the vine.

Bank capital provisions may be part of the blame. But there is also a basic lack of confidence in the Eurozone economy. There is a lack of confidence in banks lending to borrowers. There is a lack of confidence on the part of borrowers to take up new credit given the deteriorating economic picture across the Eurozone. Consumer and business sentiment both remain in very bad shape and in need of a much greater lift.

This can be remedied. The EU and ECB can apply pressure to the banks to make more new credit available. The EU governments should also be able to boost economic confidence by rolling back the process of deep austerity causing the Eurozone downturn. With the tide already starting to turn from austerity towards easier budget policies in some Eurozone countries, there could be a way out of the malaise, if it can be backed up with easier money policies, including a more abundant supply of credit.

The ECB gave the following percentage changes in growth, seasonally adjusted:
                                         MAR    FEB       Prior
 M3 annual growth rate                   2.6    3.1       (3.1)
 M3 3-month moving avg 12-mo growth      3.0    3.4       (3.3)
 Annual total credit growth              0.0   -0.2      (-0.2)
 Annual credit growth private sector    -0.9   -1.1      (-1.2)
  -- of which loans                     -0.8   -0.8      (-0.9)
 Breakdown of Loans, pct annual growth rate:    
 Loans to households                     0.4    0.5       (0.5)
  -- consumer credit                    -3.4   -3.3      (-3.3)
  -- for home purchases                  1.3    1.4       (1.4)
 Loans to non-financial corporations    -1.3   -1.4      (-1.4)
 Monthly loan flow to firms (bln eur)      0      4         (2)