Euro area monetary and credit dynamics to improve further in May

Continued improvements have been seen in monetary and credit dynamics since the ECB adopted an accommodating stance back in June (rate cuts, TLTRO, QE). Indeed, M3 money supply growth recovered from a lacklustre 1.1% yoy in May 2014 to a buoyant 5.3% yoy in April 2015, above its reference value of 4.5%. According to Scoiete Generale, this improvement is likely to have continued in May, with money supply having probably risen by 5.5% yoy, bringing the 3-month average to 5.1%). Looking ahead, the fourth TLTRO which saw a take-up of €73.8bn last week should continue to boost credit dynamics over the next quarters.

The flow of credit to the private sector should continue to depict a strong credit impulse. Short term, this is seen as supporting higher asset prices rather than higher real GDP growth, says SocGen. The rebound in housing starts and capex remains indeed modest. Medium term, there is a good chance that the improvement in the outlook will give companies sufficient confidence to start investing and hiring again (the same should hold true for household consumption), although at a modest pace.