Euro area money supply growth slowed sharply in July, economists downbeat

Money supply growth in the single currency bloc slowed sharply last month, hinting at a looming slowdown in the economy, according to economists.

The year-on-year rate of growth in the so-called M1 monetary aggregate, which includes currency in circulation and overnight deposits, fell from 7.5% in June to 6.9% for July.

"This headline is bad news for EZ growth on a six-to-nine month basis. We are fairly confident that growth will remain decent in Q3 and Q4, at about 0.4% quarter-on-quarter respectively, but the trend in M1 points to a slowdown at the start of next year," Claus Vistesen at Pantheon Macroeconomics said in reaction to the figures.

Growth in the broader M3 monetary aggregate, which also includes other short-term deposits and marketable instruments, fell back from a clip of 4.5% in June to 4.0% last month.

Economists had anticipated a smaller decline in the rate of growth of M3 to a pace of 4.3%.

On the other side of the euro area financial system's balance sheet, the rate of growth in credit to the private sector picked-up from 2.8% to 3.0%.

"These are great numbers, but unfortunately, they also lag the business cycle, so we struggle to get excited about them amid slowing growth in M1."