Despite “easy money” policies, credit growth in Europe came in well below expectations. From Reuters via Zero Hedge:
Loans to private sector firms in the euro zone fell in November while growth in lending to households slowed, European Central Bank data showed on Thursday, adding to the case for an interest rate cut. The drop in funding to companies increased fears that the region faces a looming credit crunch, an issue of growing concern for the ECB as the worsening sovereign crisis makes firms and households increasingly wary about taking on debt, weighing on the economic outlook.
In an attempt to kick-start loan activity, the 17-country bloc’s central bank conducted last week its first-ever three-year funding operation, which saw banks take up almost half a trillion euros.
In November, loans to the private sector grew at a rate of 1.7 percent year on year, Thursday’s data showed, coming in well below analysts’ expectations of 2.6 percent and the 2.7 percent growth seen in October.
“They are a very soft set of numbers, Societe Generale economist James Nixon said. “If banks were to start to seriously shrink their balance sheets, that would be quite a significant negative for economic activity. The good news is we don’t see that - yet.”
The flow of loans to firms dropped by 7 billion euros after growing by a similar amount in October. The flow of mortgage loans rose by 8 billion euros after an 18 billion drop in October. The annual growth rate of mortgage loans remained at 3.0 percent.
Euro zone M3 money supply — a more general measure of cash in the economy — grew at an annual 2.0 percent in November, down from 2.6 in October and below expectations of 2.5 percent. Decreasing to 2.5 percent, the three-month moving average of M3 growth remains well below the ECB’s reference rate of 4.5 percent, above which the bank sees dangers to medium-term price stability. Economists said the figures made it more likely the ECB would look to offer the struggling economy more support by cutting interest rates further from their current record low of 1.0 percent.
“The sharp slowdown in euro zone money supply growth in November reinforces belief that underlying euro zone inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012,” IHS Global Insight economist Howard Archer said in a note to investors.
The Independent reported:
AN unprecedented €40bn of deposits was withdrawn from Irish banks in December, dwarfing the flight in deposits earlier in 2010. December’s massive deposit exodus means a total of almost €110bn has been taken out of Ireland’s 15 retail banks since the start of 2010.