“Disappearing private sector financing flows – Part I”

Highlight the rising risks of unprecedented ECB policy tightening

The key chart

The collapse in financing flows to the EA private sector (Source: ECB; CMMP)

The key message

Cumulative 12-month financing flows to the euro area (EA) private sector were NEGATIVE in October 2023 for the SECOND CONSECUTIVE MONTH.

  • Cumulative flows to the private sector fell to NEGATIVE €5bn in October 2023, down from €764bn a year earlier
  • Cumulative flows to EA corporates (NFCs) fell to NEGATIVE €41bn in October 2023, down from €388bn a year earlier (and despite a positive monthly flow of €2bn)
  • Cumulative flows to the household (HH) sector slowed to €13bn from €264bn a year earlier (despite positive monthly flows in four of the past six months)
  • Mortgage market dynamics are the primary driver of HH flows. Cumulative mortgage flows fell to only €16bn, down from €241bn a year earlier. In contrast, consumer credit flows have remained relatively stable at over €20bn throughout 2023

The core “choke point” message from the EA money sector remains the same.

Disappearing private sector financing flows reflect the unprecedented pace of the transmission of ECB policy to the cost of NFC and HH borrowing. They also highlight the rising risk of policy errors clearly….(see next post).

Disappearing private sector financing flows

Trends in cumulative 12-month flows (EUR bn) of loans to the EA private sector (Source: ECB; CMMP)

Cumulative 12-month financing flows to the private sector fell to NEGATIVE €5bn in October 2023, down from €764bn a year earlier (see chart above). This represents the second consecutive month of negative financing lows, after the negative €33bn in September 2023.

Trends in financing flows to the NFC sector (Source: ECB; CMMP)

Cumulative 12-month financing flows to EA corporates (NFCs) fell to NEGATIVE €41bn in October 2023, down from €388bn a year earlier and despite a positive monthly flow of €2bn (see chart above).

Trends in financing flows to the HH sector (Source: ECB; CMMP)

Cumulative 12-month financing flows to the household (HH) sector slowed to €13bn from €264bn a year earlier. This is despite positive monthly flows in four of the past six months (see chart above).

This slowdown is driven primarily by mortgage market dynamics. Cumulative mortgage flows fell to only €16bn, down from €241bn a year earlier (see chart below). Consumer credit flows have remained relatively stable at over €20bn throughout 2023, but remain below their pre-pandemic trends.

Slowdown in financing flows to the HH sector reflect mortgage market dynamics primarily (Source: ECB; CMMP)

Conclusion

The core “choke point” message from the EA money sector remains the same.

Disappearing private sector financing flows reflect the unprecedented pace of the transmission of ECB policy to the cost of NFC and HH borrowing. They also highlight the rising risk of policy errors clearly.

Please note that the summary comments and charts above are abstracts from more detailed analysis that is available separately.