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Weekly Economic Commentary


Credit Continues to Shrink in Euroland

May 30, 2012

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Total monetary financial institutional (MFI) lending has dropped in five out of the last six months. In April, MFI lending fell 0.2% from a year ago after stalling in February and March (see Chart 1).

DEC 5/30/2012 Chart 1

The main implication of this story is that the weakness in credit is not supportive of economic growth. Given the austerity programs preventing fiscal policy from providing support to economic activity, the latest decline in credit bodes poorly for growth in the region. However, policy focus on promoting credit growth remains an important missing element in policy formulation. It is also noteworthy that there is a divergence in MFI lending within the eurozone. The periphery is experiencing a decline in MFI lending to non-financial corporations (NFC), while lending has grown in Germany (see Chart 2). Policies to promote lending in the periphery should lift economic growth and alleviate pressures in these economies.

DEC 5/30/2012 Chart 2

Source: http://www.ecb.int/press/key/date/2012/html/sp120525.en.html

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.