JPM Euro Area - FJElite

The annual growth in bank lending to the real economy held steady at 3.5%oya. after accelerating by 0.3%-pt in May. The annual growth rates of bank lending to non-financial corporations and households were also unchanged, at 4.0%oya and 3.0%oya. respectively. Broad money (M3) growth increased by 0.3%-pts to 3.3%oya. up from a downwardly revised 3.0%oya increase in May. These developments are notable, given that the ECB’s bank lending survey has been signaling some tightening in credit conditions and lending standards via the bank lending channel.

The recent pick-up in lending to firms is likely underpinned by firms’ greater demand for funds, as reported in the latest BLS. driven partly by liquidity needs and stock building, but also by investment. Overall, while the historical relationship is loose, the credit impulse linked to non-financial corporations (the annual change in the annual growth rate of bank lending to firms) remains soft, but is still consistent with positive investment growth despite elevated uncertainty (see chart below).

The credit impulse linked to households has also continued to weaken, as the growth rate of bank lending to households stabilised at 3.0%oya. That said, we take comfort from the fact that the slowdown has been gradual and that lending flows continue to expand at a steady pace, despite the BLS remaining consistent with a significant moderation in mortgage demand and borrowing costs likely rising as the ECB raises rates.