Eurozone monetary trends continue to suggest a positive economic outlook. Narrow money M1 rose by a strong 0.9% in June, with the broader M3 measure up by 0.3%. Loans to the private sector, adjusted for sales and securitisation, were unchanged on the month but this reflected repayments by financial companies – loans to households and non-financial corporations increased by 0.2%.
Six-month M1 growth rose to 6.6%, or 13.6% annualised, the highest since February 2009 – see first chart. The 2008-09 pick-up preceded solid economic expansion, with GDP rising by 2.2% between the second quarters of 2009 and 2010. Growth of real M1 (i.e. deflated by consumer prices) has moved sideways since January as inflation has recovered but is significantly faster than in most other economies – second chart.
While money trends remain expansionary, there is little in the data to suggest a positive impact from QE. The monthly rise in M3 averaged 0.4% over March-June, down from 0.5% over November-February, before QE started. This accords with experience in the US, UK and Japan, discussed in previous posts. QE effects on broad money are small because of offsetting changes in the other “credit counterparts”: for example, banks have switched from buying to selling government securities since QE started, with sales of €36 billion over March-June.
Country detail shows solid growth of real M1 deposits across the big four economies, with France leading and Italy lagging – third chart. Also notable are continued strength in Ireland and a sharp rebound in Portugal, consistent with a lack of contagion from Greece’s self-imposed crisis – fourth chart.
