Euro bank credit still strong in spite of February weakness
But today's credit report means ECB will have to tread carefully when it comes to reducing the degree of monetary accommodation.
The euro area M3 and credit report for February was slightly disappointing overall. Broad money growth (M3) eased from 4.8% to 4.7% y-o-y. Bank loans to non-financial corporations fell back to 2.0% y-o-y in February, from 2.3% in January, as a result of weaker lending flows across the region.
Notwithstanding this modest setback, the euro area credit cycle remains broadly on track and further improvements in credit flows are likely in the next few months. Aggregate demand is rising, interest rates remain low, and the ECB’s TLTROs should help at the margin. Finally, we note that euro area banks have continued to increase long-term loans with a maturity over 5 years, which bodes well for business investment spending this year.
Against this backdrop, we continue to expect the ECB to tread carefully when it comes to reducing the degree of monetary accommodation.