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In spite of a number of positive economic indicators out of the Eurozone (see example), credit growth remains the area’s Achilles’ heel. The latest private sector loan growth aggregate from the ECB shows an annual decline of 1.8% (adjusted for sales and securitization – see press release). Here is what it looks like for the area’s households and corporations.
As a result the broad money supply growth has weakened as well, now well below long-term historical averages.
|Euro area M3 aggregate (source: ECB)|
Related to this weakness in credit growth, the area’s disinflationary pressures do not seem to be abating, with the latest CPI aggregate below 1%. In Spain for example consumer prices have been basically flat for the past two years.
|Euro area CPI (source: ECB)|
With credit contraction remaining one of the key risks to the fragile economic expansion and inflation running below 1%, many economists are calling for the ECB to take further action (discussed here).
ISI Research: – Eurozone growth is still very slow, and inflation is MIA, so nominal GDP growth is minuscule. ECB could and should do more.
But given the historical lack of urgency at the ECB (particularly with the usual resistance from the Bundesbank), it may take some time for the central bank to “adjust” its policy.