Euro area’s M3 money supply growth likely to have accelerated in May

Euro area’s M3 money supply growth is likely to have accelerated in last month. Lately, private sector credit has been slow; however, a gradual acceleration and a rebound is anticipated between now and the end of 2016. In May, M3 money supply growth is expected to have accelerated to 5.2 percent year-on-year last month, said Societe Generale in a research statement.

Housing loans, particularly in France and Germany remain the key driver. Moreover, credit to governments from MFIs is expected to continue stimulating the figure. This added 3.9 percentage points to the 4.6 percent growth seen last month, as monthly purchases in private sector and public sector securities rose in April to EUR 80 billion from EUR 60 billion. In April, M3 growth was below expectations at 4.6 percent. However, there was a base effect and the main factor was likely for a brief period of time.

“We continue to believe that money supply will hover around 5.0-5.5 percent yoy”, added Societe Generale.

Credit growth in private sector will be more appealing to observe. It continues to be sluggish. Private sector credit growth had accelerated 1.2 percent year-on-year in April. The print is likely to accelerate slowly and reach the threshold of 2 percent at the turn of the year, bolstered by the increase in company profit margins and lower real interest rates, according to Societe Generale. But, increasing corporate bond issuance is expected to have weakened corporate loans’ demand.