ECB Loans Data Suggests QE is Working -- Update

By Todd Buell 

FRANKFURT--Lending data from the European Central Bank released Thursday point to continued improvement in the eurozone economy, experts say, suggesting that the ECB's stimulus measures are starting to bear fruit.

Data showed lending to firms and households rose on the month in February, with loans to corporates rising by EUR8 billion ($8.78 billion) and loans to households by EUR1 billion. Moreover, the broad monetary aggregate M3 was up 4% in February in annual terms, above January's growth of 3.7%.

"The ECB's stimulative efforts are succeeding in lifting money supply growth," said IHS economist Howard Archer.

A further look into the details is also encouraging, say economists. They point to the M1 component of M3, which includes money that can be accessed quickly. This has increased in recent months, having risen by 9.1% on the year in February, after 8.9% in January.

M1 is the "most liquid money in the real economy, if that grows, then there's more money on accounts that can be spent," said Berenberg economist Christian Schulz, adding that it gives a good indication of where gross domestic product will be nine months down the road. "The real M1 indicator points to a sharp acceleration of GDP growth by the end of the year," he said.

Other economists are also upbeat about M1. "M1 is one of the best leading indicators of the eurozone business cycle, and buoyant M1 growth points to an acceleration of GDP growth in the quarters ahead," said ING's Teunis Brosens.

The data come as the ECB is in the first month of its quantitative easing program, designed to pump over EUR1 trillion into the eurozone economy. The central bank's main objective is higher inflation, bringing it to a rate of just below 2%. Eurozone consumer prices fell 0.3% in February from a year earlier.

The central bank also launched a program last year of conditional four-year loans to banks, designed to encourage commercial banks to pass funds on to eurozone businesses.

Write to Todd Buell at [e-mail]

Access Investor Kit for ING Groep NV

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=NL0000303600

Access Investor Kit for ING Groep NV

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US4568371037