Euro area M3 money supply growth accelerates sharply in September

Money supply growth in the single currency bloc accelerated unexpectedly sharply in September, a possible positive signal for short-term growth prospects although it likely came too late to save fourth quarter gross domestic product.

According to the European Central Bank, the annual rate of increase in so-called M3 money supply picked up from 9.5% in August to 10.4% for September.

Economists had been expecting a much milder pick up to 9.6%.

The rate of growth in narrow money supply or M1 jumped from 13.2% to 13.8% while that of market instruments (M3-M2) soared from 8.2% to 12.5%.

Contributing to the sharp rise in M3 was an increase in the annual rate of growth in deposits placed by non-monetary financial institutions from 4.5% to 8.4%.

On the asset side of the consolidated euro area balance sheet meanwhile, credit extended to general government contributed 6.8 percentage points in September, up from 6.0 points in August, while credit to the private sector contributed 5.2 points, which was down from 5.4 points in the month before.

"Factoring-in the usual six-to-nine month lag between M1 and GDP growth, the near-term outlook is solid, but we have to take this signal with a pinch of salt, at least as far as the Q4 data go," said Claus Vistesen, chief euro area economist at Pantheon Macroeconomics.

"It’s far from certain that households and firms will spend and invest their excess liquidity now that the virus is making a comeback. In addition, the trend in households’ overnight deposits, at around 7.5% year-over-year, also paints a slightly less upbeat picture for consumers’ spending than the overall M1 headline, which is boosted by soaring deposits held by non-financial firms, rising by 21%."