The key chart

The key messages

Analysing trends in monetary aggregates in unlikely to top the list of most people’s “things to do” during the Covid-19 lockdown period. Nonetheless, these trends provide investors with important messages from the money sector regarding developments in the wider economy.

The annual growth rate in broad money (M3) jumped to 8.3% in April, the fastest rate of YoY growth since October 2008. Narrow money (M1), comprising overnight deposits and currency in circulation, rose 11.9% (the fastest rate of annual growth since December 2009) and contributed 8.0ppt of the total growth in M3.

Reflecting heightened uncertainty, households (HHs) and corporates (NFCs) are demonstrating strong preferences for liquidity – €9.5trillion is currently sitting in (cash and) overnight deposits. This is despite negative real rates on overnight deposits.

From a counterparts perspective, credit to the private sector grew 4.9% in April and contributed 4.8ppt to the growth in M3, albeit it with increasingly divergent HH and NFC dynamics. The demand for NFC credit is growing at the fastest rate since March 2009, although last month’s “dash for cash” did not continue. In contrast, the demand for HH credit is slowing, driven by a sharp slowdown in consumer credit.

Heightened uncertainty, strong liquidity preference and sharply slowing consumption all represent on-going risks to the “v-shaped” recovery narrative.

Please note that summary comments above and graphs below are extracts from more detailed analysis that is available separately