Eurozone private sector credit slowed sharply in December, ECB says

The Eurozone´s money supply and lending to businesses slowed significantly in December, which was unwelcome news for the European Central Bank, according to some - but not all - economists.

In year-on-year terms, the amount of money which was changing hands within the single currency block slowed from 5.0% in November to 4.7% in December (consensus: 5.2%), according to figures from the European Central Bank.

That came alongside a large slowdown in the amount of credit extended to the private sector - a closely watched magnitude - from 1.2% in November to 0.8% in December.

Friday´s data lifted the chances that the ECB governing council would trim its deposit rate by another 10 basis points when it next met in 10 March "significantly", Dr.Howard Archer, chief UK+European economist at IHS Global Insight said in a research note sent to clients.

"There is appreciable German-led opposition within the Governing Council to more Quantitative Easing in particular so much could yet depend on how oil prices and inflation expectations develop over the coming weeks and also how much Eurozone growth seems to be developing amid current heightened global economic uncertainties and financial market turmoil," he said.

Also on the asset side of the euro area financial system´s balance sheet, the rate of growth in loans to non-financial corporations eased from 0.7% in November to 0.3% in December, after rising by just 0.1% in September.

"December’s relapse in bank lending to businesses will be of particular disquiet to the ECB as it has been highlighting the recent improvement as evidence that its stimulative measures are having," Dr.Archer added.

Barclays´s Fabio Fois was more upbeat, telling clients that: "The reported decline in the annual growth rate of NFC loans should not be taken as an indication that the already modest euro area investment recovery is at risk. In fact, the breakdown by duration shows that the drop was driven primarily by short-term loans, while the medium- to longer-term credit to NFCs continues to improve at a healthy pace."

The rate of growth in so-called 'M1', the narrowest measure of money supply, slowed from a 11.1% clip to 10.7%.

Loans to households continued growing at a 1.4% pace.

The three-month moving average for the rate of growth in M3 was unchanged at 5.0%.

Credit to euro area residents slowed down sharply, from 2.6% in November to 2.3% in December.

Despite all of the above, the latest money supply data were "somewhat" at odds with the general improvement seen in the ECB´s euro area bank lending survey for January, Dr.Archer said.