The European Central Bank's latest data reveals that credit growth in the eurozone continued to firm in May, with corporate lending posting its strongest annual expansion in three years. The figures underscore a gradual but steady improvement in financing conditions across the bloc, supported by accelerating money supply growth.
Money Supply Growth Picks Up
The broad monetary aggregate M3 rose at an annual rate of 3.2% in May, up from 2.7% in April. Over the three months through May, the average annual growth rate stood at 3.0%, reflecting a consistent upward trend. The narrower M1 measure, which includes currency in circulation and overnight deposits, grew 4.0% year-on-year, compared with 3.8% in the prior month.
Short-term deposits other than overnight deposits (M2-M1) increased to 1.4% from 0.9%, while marketable instruments (M3-M2) surged to 3.2% from 0.9%. M1 remained the largest contributor to M3 growth, adding 2.6 percentage points.
Household and Corporate Deposit Trends
Household deposit growth held steady at 2.9% annually in May. In contrast, deposits from non-financial corporations strengthened further, rising to 4.2% from 3.8% in April. Deposits by investment funds other than money market funds improved significantly, though remained negative at -0.4%, recovering from -5.8%.
Private Sector Credit Improves
Claims on the private sector remained the primary driver of M3 growth, contributing 3.1 percentage points in May, up from 2.8 points in April. Net external assets added 1.9 points, while claims on general government turned neutral after a negative contribution the prior month. Total claims on euro area residents grew 2.4% year-on-year, accelerating from 2.0%.
Claims on the private sector rose to 3.3% from 2.9%, while claims on general government returned to positive territory at 0.1%.
Corporate Lending Accelerates
Adjusted loans to the private sector increased 3.9% annually in May, up from 3.5% in April. Lending to households edged up to 3.1% from 3.0%. The standout was business lending: adjusted loans to non-financial corporations jumped to 4.0% from 3.4%, marking the fastest pace in three years.
The data suggests that credit conditions across the eurozone continued to improve in May, with business borrowing accelerating and household lending remaining resilient. This aligns with broader trends in the region's economy, as highlighted by the Eurozone Manufacturing PMI holding at 51.4 in June and services contraction easing.
The ECB has also been proactive in addressing emerging risks, such as requiring banks to submit AI cyber defense plans by October 31, underscoring the importance of financial stability amid technological change.
This article is for informational purposes only and does not constitute financial advice.
