Euro area money supply growth to remain buoyant

Euro area M3 money supply growth recovered from a lacklustre 1.1% yoy in May 2014 to a buoyant 5.3% in July 2015. The pattern of stabilisation in August is expected with a 5.2% yoy print, a slight drop from July but still above the ECB reference target of 4.5%. The three-month moving average is expected to remain constant at 5.1%. 

Meanwhile, the flow of credit to corporates should continue improving although at a modest pace (close to 0.8% yoy as in July). Actual loan demand from the private sector continues to be weak (1.5% yoy in July) compared to past recoveries. Moreover, money supply growth will support higher asset prices (all other things being equal) rather than higher real GDP growth in the short term. This is particularly true for the housing sector where prices have started to rebound whereas housing starts are struggling to take-off. In the medium term, however, there is a good chance that the improvement in the outlook will give companies sufficient confidence to start investing and hiring again.