ECB policies take effect as loans to private sector start to grow

Frankfurt

LOANS to the private sector in the euro area, a gauge of economic health, have started growing again, suggesting that the European Central Bank's (ECB) monetary policy is beginning to work, ECB data showed on Wednesday.

After long months of contraction, the volume of loans to private businesses and households increased by 0.1 per cent in March compared with the same month in 2014, the ECB said in a statement.

The long and deep financial crisis in the 19 countries that share the euro has squeezed lending, thus dampening economic activity.

But the ECB has launched a raft of different policy measures to get credit flowing again, most recently a massive programme to buy more than one trillion euros (S$1.5 trillion) worth of public sector bonds to pump liquidity

into the system.

And those measures are now beginning to make themselves felt, the ECB data showed.

The overall eurozone money supply grew 4.6 per cent in March from a year earlier, faster than the 4 per cent recorded in February.

The ECB regards M3 money supply as a barometer for future inflation.

"Monetary policy is working," said Berenberg Bank economist Holger Schmieding.

"With its more aggressive stance, the ECB is finally bringing the eurozone back to at least trend growth," he added.

The acceleration in money supply growth "and the upturn of the credit cycle point to significant gains in real gross domestic product to come", Mr Schmieding said.

Tom Rogers, senior economic adviser to the EY Eurozone Forecast, agreed.

"A third consecutive monthly rise in credit . . . offers further evidence that the improvement in business confidence is feeding through into investment spending," he said.

"Problems in Greece will continue to pose a risk, but today's data offer further evidence the eurozone recovery is becoming more durable," he said.

Natixis economist Johannes Gareis said that the "party in the eurozone is going on" and "looking ahead, we expect eurozone money and credit growth to improve further".

Alongside the ECB's recent easing measures, "low oil prices, the weak euro and improving confidence support the economic recovery". he said. AFP