Eurozone credit recovery stuck in first gear - ING

Teunis Brosens, Senior Economist at ING, notes that the bank lending to Eurozone businesses and households fails to accelerate beyond 1.5% in the first months of 2016

Key Quotes

“Bank lending to the Eurozone non-financial private sector appears to be stalling. While bank lending to businesses (adjusted for sales and securitisation) climbed 0.1%-point to 1.2%YoY in April, bank lending to households fell 0.1%-point to 1.5%YoY. In total, credit growth to the non-financial private sector is at an unchanged 1.4% for three months in a row now.

While 2015 saw the long-awaited return to growth of Eurozone bank lending,  2016 has so far not brought a further acceleration beyond some 1.5%. While economic growth has spread throughout most of the Eurozone, credit still bears the scars of the Eurozone crisis. Bank lending growth remains strong in countries like Belgium (6.6%YoY), France (4.3%) and Germany (3.0%). But credit is still contracting (not even counting writeoffs) in Ireland (-4.5%), Portugal (-2.2%), Greece (-1.7%) and Spain (-1.8%). Deleveraging also continues in the Netherlands (-3.1%).

In the meantime, M1, one of the best leading indicators for the Eurozone business cycle, fell to its first single-digit reading since February last year. But at 9.7%, money growth is still strong, and bodes well for consumption in the months ahead.

All in all, today’s monetary data are rather uneventful, just as Thursday’s ECB meeting is probably going to be. Draghi can use these data as he sees fit: he can point to last year’s recovery of bank lending as illustration of the success of ECB policies. At the same time, he can argue that the continuing weakness of bank lending growth this year proves that more monetary stimulus is needed, and justifies the corporate bond purchases and the revamped TLTRO-ii program due to start in June.”