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M3 money supply growth in euro area holds up, but decline in 'narrow money' accelerates

By Alexander Bueso

Date: Tuesday 27 Sep 2022

M3 money supply growth in euro area holds up, but decline in 'narrow money' accelerates

(Sharecast News) - Money supply growth within the single currency block held up better than expected last month, although some economists said the data continued to point to slower economic growth.
According to the European Central Bank, in seasonally adjusted terms, the annual rate of growth in M3 money supply accelerated unexpectedly, from 5.7% for July to 6.1% in August (consensus: 5.4%).

However, so-called narrow money growth, known as M1, was unchanged at 6.8% year-on-year.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said higher inflation meant that the drop in M1 in fact picked up during the past month.

"This, in turn, points to a continued slowdown in GDP growth and falling PMIs through the end of the year, at least, consistent with our forecasts," the economist said in a research note sent to clients.

Vistesen said he suspected the ECB was more inclined to focus on still strong measures of lending instead of narrow money figures, despite the former being a lagging indicator.

While the rate of growth in total credit extended to euro area residents slowed from 5.8% in July to 5.5% for August, that was entirely due to a one and a half percentage point decline in credit growth to general government to 5.5%.

Credit growth to the private sector on the other hand picked up from 5.2% to 5.5%.

"In other words, today's number is unlikely to deter the ECB from raising rates by 75bp next month. If anything, the increase in the headline supports the case for another big hike."

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