The key chart
The key message
This morning’s message from the euro area (EA) money sector provided little cheer for those hoping for a refuelling boost to the region’s recovery/reflation narrative.
Broad money (M3) grew 7.9% YoY in August 2021, from 7.6% YoY in July 2021. However, with narrow money (M1) growing 11.1% YoY and contributing 7.8ppt to the total M3 growth, this marked the impact of deflationary forces rather than inflationary ones.
The monthly HH deposit flow (key signal #1) jumped to EUR51bn in August, from EUR23bn in July, and was 1.5x larger than pre-pandemic flows. Monthly consumer credit (key signal #2) fell to EUR0.1bn, in August from EUR2.0bn and EUR2.4bn in June and July respectively, leaving the YoY growth rate flat in nominal terms. Private sector credit growth slowed to 2.9% YoY in August from 3.1% YoY in July meaning that the gap between private sector credit and money growth (key signal #3) widened again to 5.0ppt in August from 4.6ppt in July – the money and credit cycles remain out-of-synch with each other.
Household credit grew 4.2% YoY in August and contributed 2.2ppt to the total 2.9% growth. Strip out HH lending, however, and private sector credit grew only 0.8% in nominal terms and fell -2.2% in real terms, the slowest rate of real growth since April 2014.
In short, it is not just the motorists queueing outside petrol stations today who are facing refuelling challenges –EA investors are too.
“Refuelling challenges” in six charts
Broad money (M3) grew 7.9% YoY in August 2021, from 7.6% YoY in July 2021. However, with narrow money (M1) growing 11.1% YoY and contributing 7.8ppt to the total M3 growth, this marked a return of deflationary forces rather than inflationary ones (see chart above).
The monthly HH deposit flow (key signal #1) jumped to EUR51bn in August, from EUR23bn in July, and was 1.5 larger than pre-pandemic flows (see chart above). The key point here is that money sitting idly in overnight deposits contributes to neither growth nor inflation.
Monthly consumer credit (key signal #2) fell to EUR0.1bn, in August from EUR2.0bn and EUR2.4bn in June and July respectively, leaving the YoY growth rate flat in nominal terms (see chart above).
Private sector credit growth slowed to 2.9% YoY in August from 3.1% YoY in July (see chart above), meaning that the gap between private sector credit and money growth (key signal #3) widened again to 5.0ppt in August from 4.6ppt in July – the money and credit cycles remain out-of-synch with each other (see chart below) creating challenges for policy makers and investors alike.
Household credit grew 4.2% YoY in August and contributed 2.2ppt to the total 2.9% growth (see chart below). Strip out HH lending, however, and private sector credit grew only 0.8% in nominal terms and fell -2.2% in real terms, the slowest rate of real growth since April 2014 (see key chart above).
In short, it’s not just the motorists queueing outside petrol stations today who are facing refuelling challenges – EA investors are too.
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.