Global Daily – Eurozone bank lending recovery stalls

by: Aline Schuiling , Nick Kounis , Maritza Cabezas

Euro Macro – Bank lending to companies softens – ECB data on money growth and bank lending in the eurozone revealed that the flow in bank loans (adjusted for sales and securitization) to non-financial corporations was EUR -0.4bn in September, following EUR -1.4bn in August. Although the monthly data can be very volatile, the data suggests that the upward trend in lending has stalled. Indeed, the 3-month moving average flow declined from EUR 5.6bn to EUR 3.0bn, while the annual growth rate in loans to companies has been stable at 1.9% for three months in a row now. The stabilisation in lending to companies was also signalled by the ECB’s Bank Lending Survey for Q3 that was published a week ago. This showed that banks had stopped easing lending standards on loans to companies in Q3 and that the pace of growth in loan demand had slowed down. Growth in bank lending tends to follow growth in fixed investment with a delay of around one year, so the slowdown in lending seems to reflect the weakening of fixed investment after the first quarter of last year. As investment has regained some momentum in the course of this year, we expect bank lending to also strengthen again. (Aline Schuiling)

Global-Daily-Insight-28-October-2016.pdf (217 KB)

UK Macro: GDP resilient to Brexit in Q3 – UK GDP growth was up by 0.5% qoq in Q3. This was down from 0.7% qoq in Q2, but was a more moderate slowdown than had been generally expected (consensus: 0.3%). Although business and consumer surveys weakened sharply in July, they staged a sharp rebound in August and September, suggesting that the confidence shock following the referendum was short-lived. Of course the adverse effects could come at a later point depending on the negotiations and whether the UK and EU will still maintain free trade. If the UK loses access to the single market, that will have real economic consequences. Indeed, the UK has government has made it clear that Article 50- triggering the exit negotiations – will be triggered by March of next year, so it will become a live issue before long. Our base case is that the UK and EU will eventually reach an agreement that gives the UK (significant) access to the single market, though the stark disagreement about the free movement of people means that there is a lot of uncertainty about the outcome. In any case, in the near term, the resilience of the economy and the sharp fall in sterling mean that the BoE is not likely to ease monetary policy further. (Nick Kounis)

US Macro: Some weakness in business investment in Q3, but less than previous quarter – Weak business investment has been one of the factors that has been holding back the US economy in the past quarters. New orders of capital goods ex-defence and ex-aircraft fell by 1.2% in September. This indicator is a proxy for business investment. This partly shows some payback after core orders increased by 1.2% in August. Capital goods shipments which the Bureau of Economic Analysis uses to estimate investment in durable equipment in the National Accounts, increased by 0.3%, after showing no change the previous month. We are anticipating a modest pickup in business investment in the coming quarters. Somewhat higher energy prices are likely to support energy related manufacturing activity, given that demand for mining equipment was suppressed in the past quarters. Overall, it seems that business investment will remain soft in Q3. Today US Q3 GDP growth will be released and we expect the economy to show firmer but still moderate growth of around 2.2% qoq, with consumption being the main driver. (Maritza Cabezas )