Bert Colijn
ING Economic and Financial Analysis
The January snapshot of monetary policy at work continues to show that tightening efforts are having a clear effect on money supply and private-sector borrowing, which will have a dampening impact on economic growth and inflation in 2023. We consider the impact of the hike cycle an underappreciated downside to economic activity for this year.
Looking at the January numbers in more detail, we see continued rapid declines in the growth of the money supply. Broad money (M3) grew by 3.5% year-on-year, down from 4.1% in January. The more narrow money aggregate M1, which is considered to be a good leading indicator of economic activity, contracted for the first time in the history of the series, by -0.7%.
Business (non-financial corporate) borrowing saw a sharp contraction in December and stagnated at that level in January (month-on-month growth of 0%). Business borrowing continued to remain strong in the second half of 2022 as working capital needs caused lending to surge, but we now see a correction that is more in line with recession worries and higher rates as supply chain problems are fading.
Household borrowing slightly ticked up in January but remains on a strong downward trend. Year-on-year growth rates fell from 3.8 to 3.6% as borrowing demand for house purchases continues to weaken. The monthly growth rate is just 0.2% at the moment.
Overall, this shows that the impact of monetary tightening is steady so far and is set to continue from here on. The ECB's own bank lending survey indicated a further tightening of credit standards and weaker demand for borrowing going forward. Also, the bank will start quantitative tightening in March, which will have a further dampening effect on the money supply. With more interest rate hikes to come, expect the impact of tightening efforts on economic activity to be felt more as 2023 progresses.
Read the original analysis: Eurozone monetary tightening progresses at the start of the year
Content disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more here: https://think.ing.com/content-disclaimer/
Recommended Content
Editors’ Picks
AUD/USD: Bulls need to clear the 200-day SMA Premium
AUD/USD treaded water around 0.6360 after once again faltering near recent tops in the 0.6440 zone, always on the back of the intense recovery in the US Dollar. In the meantime, positive headlines on the US-China trade front could help the Aussie stay in the upper end of the range for the time being.
EUR/USD: Minor support lies around 1.1300 Premium
EUR/USD remained on the back footing as the Greenback intensified its recovery in response to alleviated concerns over the Fed’s independence and encouraging news surrounding the US-China trade conflict.
Gold corrected extreme conditions, struggles around $3,300
Gold extended its decline on Wednesday, slipping below the $3,300 mark per troy ounce in response to reports from the media suggesting the Trump administration is weighing tariff reductions on Chinese goods, a news that revived hopes of easing trade tensions and reduced demand for the yellow metal as a safe-haven asset.
Crypto Today: SUI, Solana and Cardano among best performers as BTC tops $94K
Bitcoin market updates:
Five fundamentals for the week: Traders confront the trade war, important surveys, key Fed speech Premium
Will the US strike a trade deal with Japan? That would be positive progress. However, recent developments are not that positive, and there's only one certainty: headlines will dominate markets. Fresh US economic data is also of interest.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.