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Eurozone credit cycle resumes upward trend - ING

FXStreet (Delhi) – Teunis Brosens, Research Analyst at ING, notes that the bank credit to Eurozone businesses recovered to 0.6%YoY in October (adjusted for sales and securitisation), proving the disappointing 0.1%YoY in September a one-off. Bank lending to households continues to grow steadily, reaching 1.2%YoY in October (up from 1.1% previously).

Key Quotes

“Taken together, bank lending to households and businesses reached 1.0%YoY, a growth rate last seen in January 2012. At that time, the Eurozone was entering the deleveraging phase, while currently, bank lending is moving up again.”

“Despite the positive trend, the credit environment still differs markedly between countries. Credit growth is both solid and accelerating in France (+3.8%YoY) and Belgium (+5.8%YoY). Developments in Germany are more moderate (+1.9%YoY), although bank lending to households is slowly gathering steam (+2.6%YoY in October).”

“The Netherlands continues to be an outlier among the core countries, with bank lending still negative (-1.4%YoY), despite a revival of domestic demand as housing optimism has returned. In most of Southern Europe, deleveraging is ongoing – although interestingly, deleveraging in the Spanish business sector has softened, with bank lending to businesses improving to -0.7%YoY from -2.1%YoY previously.”

“Meanwhile, Eurozone M3-growth accelerated to 5.3%YoY (up from 4.9%). M3-growth has been stable around 5% since April this year. More important for the real economy is the fact that M1-growth is holding well at 11.8%YoY. M1 is one of the best leading indicators of the Eurozone business cycle, and its ongoing strength suggests that current consumption growth could well extend for at least another two quarters.”

“Overall, today’s M3-report shows that the credit environment in the Eurozone continues to improve, albeit at a glacial pace. Moreover, strong M1-growth points to continuing healthy consumer demand in the quarters ahead. But it is unlikely that this will convince the ECB to refrain from additional monetary easing next week.”

“The ECB is more worried about the absence of inflationary pressures. PMIs earlier this week showed weak producer input prices, as the weaker euro balances out against lower commodity prices. Producer output prices are also barely moving, showing that producers are unable or unwilling to raise their prices, despite increasing hiring and modestly higher wages.”

“The fact that core inflation has been creeping up from 0.7% at the end of last year to above 1.0% right now does not ease the ECB’s concerns: it’s all too little, too slow to their liking. We therefore expect the ECB to press ahead with the launch of QE2 next week.”

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