Eurozone money supply registered its biggest fall on record and bank lending grew at a much slower pace in August amid tightening monetary policy and weak economic activity, data published by the European Central Bank showed on Wednesday. The M3 money supply posted an annual decline of 1.3 percent, following July's 0.4 percent fall. This was the biggest fall on record and also marked the second consecutive decline.
The narrow measure M1, which comprises currency in circulation and overnight deposits, plunged 10.4 percent after falling 9.2 percent a month ago.
Adjusted loans to the private sector grew only 0.6 percent annually after a 1.6 percent rise in July. Within this, annual increase in loans to households slowed to 1.0 percent from 1.3 percent. Similarly, growth in loans to businesses weakened to 0.6 percent from 2.2 percent in the previous month.
The weakness in money and lending growth supports the assessment that the 20-nation currency bloc will struggle in the coming quarters, Capital Economics' economist Jack Allen-Reynolds said.
The economist said the weakness in money and lending growth is no guarantee of a recession or a collapse in inflation. However, the latest report is consistent with the view that the economy will underperform the ECB and consensus forecasts in the coming quarters, and that a mild recession is more likely than not.
ING economist Bert Colijn said higher interest rates together with weak economic activity will dampen investment in the quarters ahead, keeping economic activity sluggish at best.
