ECB continues to tighten monetary policy

Lending to households and businesses in the eurozone rose slightly in November amid persistently high interest rates and sluggish economic activity, the European Central Bank said.

Credit, adjusted for some strictly financial transactions, rose 0.4% year-on-year, the same as in October, as higher borrowing costs initiated by the ECB in an attempt to curb eurozone inflation continued to weigh on the economy.

As a result, growth in the eurozone amounted to a measly 0.1% for the first three quarters of 2023. In November, loans to households rose 0.5% year-on-year, 0.1 points less than in October.

In particular, home loans fell by a significant 3.3%, continuing the worst streak of negative readings since 2011.

As for business activity, lending was unchanged (0.0%) after contracting 0.3% in October for the first time since 2015.

This data comes after the ECB left rates unchanged at its December meeting, with the main deposit rate now at a record high of 4%.

The ECB has not yet reached the stage of discussing further monetary easing in the face of falling inflation, but according to its president Christine Lagarde, it should "remain vigilant."

Instead, the ECB sees a prolonged "plateau" phase that will only change if inflation continues to fall.

A pause in interest rate hikes should at least lead to a loosening of credit conditions for businesses and households, even if November data give no indication of this.

The M3 money supply, used by the ECB as a leading indicator of inflation, contracted 0.9% in November, slightly less than in October and September.

This aggregate includes cash in circulation, loans maturing in more than two years, and household and business deposits.

The decline in this indicator, which began in July 2023, is further evidence that the Bank's restrictive policy is paying off.

However, if the ECB continues to tighten policy in the face of a slowing economy, it could lead to a recession in the eurozone.