European Household Loans Plunge By Most On Record

hello,

 

According the most recent data out of Europe is that lending to non-financial corporations declined once again in January, this time by €11.7billion, adjusted for securitizations and sales. On an annual basis, the decline in January was -2.0%, the same as December, and worse than the -1.8% in November as reported by the ECB.

 

The biggest problem Europe faces is not inflation (or rather deflation) but loan creation: nearly 6 years after the Lehman collapse, the monetary transmission mechanism i.e., loan-funded growth in Europe continues to be abysmal, mostly due to lack of credit demand, which in turn means that any attempt by Draghi to unclog Europe's monetary pipeline via NIRP, QE, or what have you, is set to fail. It also explains why the latest TLTRO expansion by the ECB (if it ever actually takes place of course: recall Europe's OMT program still does not officially exist) has and will achieve nothing for the real economy but certainly has boosted carry trades into overdrive leading to record lows for all peripheral bond yields. Creating a speculative bubble in shares and bonds.

chart 1. Euro Area Private Sector Loan Creation and M3

Alas, dated 30th of June ECB update on Monetary Developments in the Euro Area was as grim as always, with the all important series of Loans to the private sector sliding once again by 2.0% Y/Y, worse even than April's -1.8% contraction, driven by a €43 billion collapse in loans to households. This happened even as the now largely meaningless M3 rose by 1.0%, an increase to April's 0.7% Y/Y change.

 

As Goldman explains, "Euro area bank lending to non-financial corporations (NFCs) fell by €7.6bn in May, after a €6.3bn contraction in April. Lending rose in France and declined in Spain and Italy, while it was roughly unchanged in Germany. There was a significant decline in lending to households for house purchase related to sales and securitisation. Broad money growth rose from +0.7%yoy to +1.0%yoy, stronger than expected (Cons; +0.8%yoy)."

chart 2. The flow of new loans to corporates

 

Lending to non-financial corporations, on a seasonally adjusted basis, declined by €7.6bn in May, after a €6.3bn fall in April. The decline was smaller (at €4.5bn) when adjusted for securitisations and sales and broadly similar to the April figure.

Loans to households fell by €42.8bn (its largest decline on record), having risen by €5.1bn in April. This was mainly related to lending for house purchases (which do not count towards banks' allotment in the TLTRO) and reflects sales and securitisation (when adjusted for this, lending to households rose €3bn, similar to the April figure).

chart 3. Loans in selected conutries in EU

 

Complete collapse in household loan formation in Europe's second "best" economy clearly spells out some nasty four letter words - but the ECB disaster is just waiting to unfold. It also means that as the ECB scrambles to figure out next steps, it will stop at nothing to prove that the BIS concerns about central banker idiocy were full deserved, and we expect Frankfurt to launch QE in the coming months even though European private sector clearly has no excess collateral which the ECB can monetize, considering the vast majority of debt parked at various European banks is already collateralized at the ECB as is.

regards,
oscarjp