Bank lending to households maintained its downward trend, and May brought the first Month-on-Month decline in household borrowing since the first lockdown in 2020. That was exceptional, of course, and before then, we only witnessed monthly declines in household borrowing in the depth of the euro crisis. The impact can be seen in housing markets where prices and transaction volumes are trending down and will feed through to the rest of the economy.
Deposits by households increased by 1 billion in May, after declines in March and April. This suggests that the effects of the banking turmoil in the eurozone have remained very limited. Broad money growth was down again in May, bringing the annual growth rate down from 1.9% in April to 1.4%. Narrow money growth (M1) saw the annual downturn deepen from -5.2 to -6.4%, the sharpest drop in history. While there are circumstances that make the impact of this smaller or more dragged out than in previous episodes of monetary contraction, it remains a signal that tightening is well under way.
Overall, the eurozone economy is currently in a roughly stagnant growth environment. The fast-paced rate hikes are set to still have a further dampening effect on economic activity as monetary transmission continues to work its way through the system. This leads us to believe that growth is set to remain sluggish at best for the foreseeable future. Still, today’s numbers do not show a cliff-edge drop that would change the ECBs thinking on further rate hikes.
