European recovery bolstered by private sector lending growth

Hopes of a revival in the eurozone's economic fortunes received another lift on Wednesday after encouraging figures on money creation and credit conditions hinted that the currency area could soon see a growth spurt.

European Central Bank statistics showed lending to the region's credit-starved businesses was finally beginning to pick up, while a measure of money that economists watch closely for clues on what will happen to the wider economy surged.

The data are another important sign that lending conditions in the eurozone are finally beginning to loosen, removing one of the biggest barriers to a more convincing economic recovery.

The ECB said lending to businesses had ticked up by 0.1 per cent between March 2015 and March 2014, up from a contraction of 0.1 per cent in the year to February and the first positive reading since the year to March 2012.

M3, a measure of broad money, rose by 4.6 per cent in the year to March, up from 4 per cent in the year from February 2014 to February 2015. The M3 measure, which includes short-term debt and savings deposits as well as cash, is seen as an important, if imperfect, bellwether for inflation and growth.

"It's pretty positive and encouraging," said Frederik Ducrozet, an economist at Credit Agricole. "The ECB had in the past attached a lot of psychological importance to M3 growing at above 4.5 per cent. Now is the first time it's been above that level for six years."

A combination of cheap oil, a weaker euro and more aggressive monetary easing from the ECB has spurred hopes that the eurozone's lacklustre recovery will broaden and strengthen over 2015.

Mr Ducrozet added: "It shows that, not just QE, but other measures by the ECB are beginning to work too."

Timo del Carpio, a European economist at RBC Capital Markets, said: "In the pre-crisis world, the ECB would have considered a reading above 4.5 per cent level as posing upside risks to price stability. In the current environment, steady growth in broad money is nothing but a source of encouragement: it adds to the evidence that disinflationary pressures in the euro area are receding."

The latest statistics come after the ECB reported in its most recent quarterly bank lending survey that the eurozone's biggest banks would lend more to the region's households and businesses in the months ahead.

Top officials at the central bank are confident that credit conditions will continue to ease following the completion of its health check on the eurozone's biggest banks.

But problems in stimulating a broader recovery remain. Inflation is well below the ECB's 2 per cent target, unemployment is expected to stay close to double figures until at least 2017, and the risk of an escalation in tensions between Athens and its eurozone creditors continues to threaten growth prospects.

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