Danske Research Team
Danske Bank A/S
Euro area M3 money supply surprised on the upside by increasing 4.6% y/y in March up from 4.0% y/y in February (consensus 4.3%, Danske 4.7%). M3 money supply is thus back at the ECB’s old reference value of 4.5% for the first time since April 2009.
Growth in M1 money supply was also higher at 10.0% y/y in March after rising 9.1% y/y in February. In real terms, M1 is a good leading indicator for GDP growth and it points to GDP growth above 0.7% q/q in mid-2015.
In March, the ECB initiated its QE purchases and the improvement in money supply is supported by the boost to liquidity. In line with the ECB’s balance sheet, the money base has increased, while the M1 money multiplier remains high. This reflects liquidity feeding through to the private sector after the transmission mechanism has been improved.
The ECB’s easing also supports lending to the private sector, which continues to improve in March. The demand for credit and loans is supported by a lower cost of borrowing following the ECB introducing the negative deposit rate.
Adjusted for sales and securitisation loans to the private sector increased 0.8% y/y in March, up from 0.6% y/y in February. The improvement was driven by loans to households, which increased by 1.1% y/y in March, up from 1.0% y/y in February, while loans to non-financial corporations declined by 0.3% y/y in March and February.
The monthly loan flow to households was EUR11bn in March, up from EUR6bn in February. The flow to non-financial corporations declined slightly (EUR1bn) after increasing EUR12bn in February.
Looking ahead, we expect bank lending to continue improving as the demand for credit and loans from both households and enterprises is increasing, while banks’ supply conditions have improved.
Improved bank lending supports the recovery and we continue to look for GDP growth of 1.6% in 2015 (consensus 1.4%).
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