Monday, January 2, 2012

Eurozone credit crunch fears on M3 money contraction

Europe is at mounting risk of a fresh credit crunch after the eurozone money supply contracted for a second month in November and the volume of private loans began to shrink.

Data released by the European Central Bank shows that M3 money figures tracked by experts as a leading indicator for the economy have turned negative since August, signalling almost certain recession over coming months for the region as a whole.

"The message of these numbers is that the eurozone faces a bleak 2012, with inflation falling rapidly," said Tim Congdon from International Monetary Research. "There is a desperate need to restore growth to the banking system and boost the quantity of money."

Credit to households and business is still growing at 1pc on an annual basis, but on a month-to-month basis it has been flat for months and is now shrinking. It is broadly the same picture for the "broad" M3 money supply, which includes cash and a wide range of accounts and forms a key pillar of the ECB’s monetary policy. Read More