to Frankfurt
In August, banks in the euro area extended more loans again. The ECB announced that 0.8% more loans were granted to companies outside the financial sector than in the previous year. In July the increase was 0.6%. Among private households, lending rose by 0.6% year-on-year after 0.5% in the previous month.
Money supply growth in August was also more dynamic than expected. The broad money supply M3, which provides an indication of inflation developments, rose by 2.9% compared to the previous month. Economists had expected 2.5% after M3 rose 2.3% in July. The narrower M1 money supply contracted at 2.1%, much more slowly than last month at 3.1%. M1 is considered by economists to be an indicator of the economy.
Because of the progress in inflation and the indications of a clearer economic weakness, experts believe it is possible that the ECB will increase the key interest rate change again in October after the key interest rate change initiated in June. In September, the ECB Governing Council cut the key interest rate by 25 basis points to 3.5%.
Lower growth rates
The ECB’s latest economic report states that although growth will continue in the short term, growth rates are likely to be lower than expected in the June projections. Rising real income, coupled with gradually improving confidence, should support a consumption-led recovery. However, sentiment barometers are currently still signaling subdued consumer confidence and increased savings intentions among private households and there are also signs of slower growth momentum in corporate investments. “Nevertheless, domestic demand will benefit from the diminishing effect of the recent monetary policy tightening and an expected continued easing of financing conditions,” expects the ECB.
