Wednesday, January 29, 2014

These Charts Show Why Deflation Risks Remain In The Eurozone #ECB

High unemployment rates, low money supply growth, and negative private sector loan growth (YoY) show why deflation is still a serious risk in the euro zone. The euro zone could experience lost decades of Japanese-style deflation if this trend persists, which is why the ECB was thinking about making its deposit rate negative a few months ago.

According to the ECB's release today:

The annual growth rate of the broad monetary aggregate M3 decreased to 1.0% in December 2013, from 1.5% in November 2013.1 The three-month average of the annual growth rates of M3 in the period from October 2013 to December 2013 decreased to 1.3%, from 1.6% in the period from September 2013 to November 2013.


Counterparts to M3: credit and loans
Turning to the main counterparts of M3 on the asset side of the consolidated balance sheet of Monetary Financial Institutions (MFIs), the annual growth rate of total credit granted to euro area residents was more negative at -2.0% in December 2013, from -1.4% in the previous month. The annual growth rate of credit extended to general government stood at -0.7% in December, compared with -0.6% in November, while the annual growth rate of credit extended to the private sector was more negative at -2.4% in December, from -1.6% in the previous month. Among the components of credit to the private sector, the annual growth rate of loans stood at -2.3% in December, unchanged from the previous month (adjusted for loan sales and securitisation2, the rate was more negative at -2.1%, from -1.8% in the previous month). The annual growth rate of loans to households stood at -0.1% in December, compared with 0.0% in November (adjusted for loan sales and securitisation, the rate stood at 0.3%, unchanged from the previous month). The annual growth rate of lending for house purchase, the most important component of household loans, decreased to 0.7% in December, from 0.9% in the previous month. The annual growth rate of loans to non-financial corporations was less negative at -3.0% in December, from -3.8% in the previous month (adjusted for loan sales and securitisation, the rate was less negative at -2.9% in December, from -3.1% in the previous month). Finally, the annual growth rate of loans to non-monetary financial intermediaries (excluding insurance corporations and pension funds) was more negative at -12.2% in December, from -9.2% in the previous month.

Here are charts that show you what's happening courtesy of Thomson Reuters and Bloomberg.

Source: Thomson Reuters Datastream

Source: Bloomberg's Joseph Brusuelas (@joebrusuelas)

Related:


I will repost AFP's updates on the ECB at NewsMovingMarkets.blogspot.com.

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