Eurozone: Mixed signals from monetary data – ING

FXStreet (Delhi) – Peter Vanden Houte, Research Analyst at ING, notes that the gradual turnaround in the European credit cycle continues according to the latest statistics on monetary developments in the Eurozone, though not all figures are unequivocally positive.

Key Quotes

“The annual growth of credit to euro area residents increased to 2.2% in August, from 1.8% in July. Growth in loans to the Eurozone private sector adjusted for sales and securitization increased 0.8% YoY in August, up from 0.7% the month before. Annual growth to non-financial corporations stood at 0.4%, compared to 0.3% in July.”

“The ECB’s TLTROs and the Asset Purchase Programme have clearly contributed to a more positive credit environment, while the recovering domestic demand in the Eurozone is gradually leading to more business investment.”

“However, not all data were as positive as the credit figures. Eurozone M3 growth unexpectedly slowed down to 4.8% YoY in August, from 5.3% in July. The economic recovery still has legs, but it is certainly not accelerating at this moment.”

“Today’s monetary figures give a mixed message. Looking at the credit figures a modest investment upturn seems to be underway. That said, the pace of the recovery remains abnormally slow and the potential negative impact of the emerging world slowdown on exports will prevent the recovery from shifting into a higher gear. On top of that, the Volkswagen scandal could affect the mood in Europe’s powerhouse, Germany.”

“In that regard, the ECB will remain very attentive, especially if a strengthening euro exchange rate would exacerbate deflationary pressures. Should economic data suggest that the Eurozone recovery threatens to falter again, we believe that the Asset Purchase Programme will be geared up to €65 to €70 Bn per month. But we’re definitely not there yet.”