FRANKFURT, Sept 25 - Credit provided to the private sector stabilised in August, backing the European Central Bank's and economists' view of a gradual recovery in the euro zone. Credit extended to the private sector grew at an annual rate of 5.5 percent, the same rate as in July, ECB data showed on Thursday. However, growth rates for securities other than equities as well as loans expanded in August. Loans rose slightly to 5.0 percent from 4.9 percent. Economists say any pick-up in borrowing by the private sector signals that confidence is returning, encouraging businesses to invest and individuals to spend. While credit growth has improved this year, progress has been slow.
Rainer Guntermann, an economist at DKW in Frankfurt, said the credit figures were a good indicator of the economic cycle. "The data confirm a stabilisation. Credit granted is not on its way down any further. It is neither extremely weak nor extremely strong, but does not point to a quick recovery. "If companies had high hopes for the business cycle and planned to invest more, credit granted should be a leading indicator and we do not yet see that," he said. Total loans and securities extended by financial institutions to euro area residents and governments in August grew to a 5.4 percent annual rate before seasonal adjustment, after 5.3 percent in July. Overall money supply growth slowed by more than expected from its recent historic highs.
M3, which measures money in circulation, in bank accounts and in short-term savings, grew at an 8.2 percent seasonally adjusted annual rate in August compared with an upwardly revised 8.6 percent in July. The three-month average annual growth rate also slipped back somewhat to 8.4 percent, from 8.5 percent during May-July. Economists polled by had expected M3 money supply to slow to an 8.3 percent annual rate in August. The ECB has said that liquidity in the euro area is more than ample to finance an economic upswing but it does not expect the extra cash to become an inflation threat, as it will probably be absorbed by gradually improving economic activity. However, some ECB policymakers, such as Bundesbank President Ernst Welteke and Belgian central bank governor Guy Quaden, have recently cited excess liquidity as a risk and said the money supply must be monitored closely as the recovery takes hold.//