Eurozone’s sluggish loan growth recovery adds pressure on Q3 GDP

Tuesday's most notable data from the euro area was the August bank lending figures. Data released by the European Central Bank earlier today showed that the annual growth rate of the broad monetary aggregate M3 increased to 5.1 percent in August 2016, from 4.9 percent in July (revised from 4.8 percent).

The components of M3 showed the following developments. The annual growth rate of the narrower M1 aggregate, including currency in circulation and overnight deposits, increased to 8.9 percent in August, from 8.4 percent in July. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) stood at -1.5 percent in August, compared with -1.4 percent in July. The annual growth rate of marketable instruments (M3-M2) decreased to 4.5 percent in August, from 5.0 percent in July.

The annual growth rate of adjusted loans to households stood at 1.8 percent in August, unchanged from the previous month. The annual growth rate of adjusted loans to non-financial corporations stood at 1.9 percent in August, unchanged from the previous month.

"Eurozone’s pace of lending to households and non-financial businesses has stagnated in August, indicating that the recovery of loan growth is continuing at a snail’s pace," said Bert Colijn, Senior Economist at ING

Data showed that uncertainty has caused businesses and consumers to be a little more risk averse in August, putting a dent in the recovery of loan growth. The growth in Eurozone borrowing remains rather weak, showing only limited impact of ECB's stimulus program so far.

Draghi also repeated to the European Parliament on Monday his dovish comments made after the Governing Council’s most recent policy-setting meeting, emphasising that the ECB will ‘preserve the very substantial monetary support’ embedded in its forecast to return inflation to target, implying that we should fully expect the asset purchase programme to be extended beyond next Spring.