Eurozone nears Japan-style trap as money and credit contract again

Friday, October 26, 2012
By Paul Martin

All key measures of the eurozone money supply contracted in September and private credit fell at an accelerating pace, dashing hopes of a quick recovery from recession.

By Ambrose Evans-Pritchard
TelegraphUK
25 Oct 2012

Data from the European Central Bank show that the tentative rebound in the money supply over the summer may have stalled again in September.

The broad M3 gauge — watched by experts as an early warning signal for the economy a year or so ahead — shrank by €30bn and is now down by €143bn since April. This is highly unusual.
The narrow M1 gauge watched for signals of activity six months head has held up better but also contracted in September, falling by €16bn.

“The message is clear,” said Lars Christensen from Danske Bank. “The ECB needs to stop obsessing about fiscal issues and do real quantitative easing (QE) if it wants to stop the eurozone going the way of Japan.”

Loans to firms and households fell 1.3pc as banks continue to shrink their balance sheet to meet tougher rules. Private bank lending has been falling almost continuously since April.

The Rest…HERE

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