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Eurozone aggregate money supply falls in December

Date: Friday 27 Jan 2012

Eurozone aggregate money supply falls in December

The M3 aggregate money supply growth slowed to 1.6% year-on-year in December from 2.0% the month before. A reading of 2.1% had been expected. The three-month moving average slowed to 2.1% last month from 2.5%.

Breaking down M3 supply, M1 growth slowed down to 1.6% from 2.1% in the previous month. Short-term deposits other than overnight deposits (M2-M1) increased by 2.1% in December, unchanged from the previous month. The annual growth of marketable instruments (M3-M2) fell to -0.2% in December, from 1.1% in November.

Looking at credit and loans, the main counterparts of M3, total credit granted to euro area residents increased by 1.0% year-on-year in December 2011, from 0.8% in the previous month. Credit extended to general government increased to 3.6% in December, from 0.3% in November. Finally, annual growth of credit extended to the private sector decreased to 0.4% in December, from 1.0% in the previous month.

Looking deeper into credit to the private sector, annual growth rate of loans decreased to 1.0% in December from 1.7% in the previous month. Lending for house purchases, the most important component of household loans, rose by 2.1% over the year from 3.0% growth the month before.

According to analysts at Digital Look, "this data is alarming because there is less credit flowing into the private sector, mostly due to more credit flowing to the public sector.

"The so-called crowding-out effect should be taken into consideration," they said.

"With the private sector having less access to credit, the economy could see less investment and in turn less employment and consumption.

"On the other hand, the data shows that the money supply is under control, which is good news for the European Central Bank. Inflation continues to stem mostly from the cost side, and energy in particular."

F.M.

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