The key chart

**Leading (real M1), coincident (real HH) and lagging (real NFC) indicators moved further away from the levels associated with recession risks in the euro area during 2019 (% YoY, real terms)**
Source: ECB; Haver; CMMP analysis

The message from 2019

Monetary indicators moved away from the levels associated with recession risks in the euro area (EA) during 2019.

A very brief summary

Nominal growth rates in narrow money (M1), broad money (M3) and private sector credit (PSC) ended the year at, or close to, 12-month highs and well above the levels recorded in 2018. In real terms, M1 grew 6.6% in 2019 versus 5.0% in 2018 (with a 2019 high of 7.6% in October). Given the leading indicator qualities of trends in real M1, this data supports the narrative that recession fears in the EA have been overdone. Household credit (a coincident indicator) grew at 3.7% in nominal terms, the fastest rate in the current cycle and 2.4% in real terms. The main inconsistency in this data was the slowdown in NFC lending over 2019 particularly in the final months (trends in real NFC credit are typically considered lagging indicators).

These positive trends were offset by three counterbalancing trends: (1) while PSC growth ended 2019 close to its high, current growth remains subdued in relation to LT trends; (2) the demand for credit continues to lag the supply of money which indicates that the EA has still to recover fully from the debt overhang; and (3) ECB policies are fuelling growth in less-productive FIRE-based lending (see “The ECB’s missing chart“) with potentially negative implications for leverage, growth, financial stability, and income inequality.

The charts that matter

**Growth rates in narrow money (M1), broad money (M3) and private sector credit (PSC) ended the year at, or close to, 12-months highs** **(% YoY, nominal terms)**
Source: ECB; Haver; CMMP analysis

**Leading indicator – real M1 grew 6.6% YoY in 2019 versus 5.0% YoY in 2018** **(% YoY in real terms)**
Source: ECB; Haver; CMMP analysis

**Co-incident indicator – real HH credit growth of 2.4% , driven by sustained mortgage demand (% YoY in real terms)**
Source: ECB; Haver, CMMP analysis

**Lagging indicator – the slowdown in real NFC credit in 4Q19 was inconsistent with other trends (% YoY in real terms)**
Source: ECB; Haver; CMMP analysis

**PSC credit growth ended the year on a high, but remains subdued in relation to LT trends (% YoY 3m MVA in nominal terms)**
Source: ECB; Haver; CMMP analysis

**Deficient demand – private sector credit demand lags the supply of money. The EA has still to recover fully from the debt overhang** **(% YoY 3m MVA in nominal terms)**
Source: ECB; Haver; CMMP analysis

**Fueling the FIRE – ECB policies are supporting growth in less-productive FIRE-based lending with potentially negative implications for leverage, growth, financial stability, and income inequality** **(% total EA loans)**
Source: ECB; Haver; CMMP analysis

Please note that the summary comments above are extracts from more detailed analysis that is available separately