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Eurozone money supply records biggest drop in history

Data published by the European Central Bank (ECB) on Wednesday showed that money supply in the eurozone logged its biggest fall on record, and bank lending grew at a much slower pace in August, as rising interest rates and weak economic activity take their toll on the currency bloc’s economy.

A measure of money supply that comprises cash in circulation and balances in current accounts contracted by an unprecedented 11.9 per cent in August as bank customers switched to deposits with longer maturities that now offer much better interest rates as a result of the ECB’s rate hikes. Studies by the ECB show that a decline in this measure of money supply, when adjusted for inflation, is usually associated with an impending recession. However, ECB board member Isabel Schnabel noted that the current drop is more likely the result of a normalisation in savers’ investment strategies.

Meanwhile, as consumers in the US take out more loans and credit card debt, credit card losses for US card issuers have soared at an unprecedented rate that could continue for at least another year, according to analysts at Goldman Sachs, a US investment bank.

Losses currently stand at 3.63 per cent, up by 1.5 percentage points from the bottom registered in September 2021, and Goldman Sachs predicts they could rise a further 1.3 percentage points to 4.93 per cent. This comes at a time when Americans owe more than one trillion dollars on their credit cards, a record high, according to the Federal Reserve Bank of New York. Analysts note that consumers’ finances are stretched thin due to persistent inflation, high housing costs and other expenditures that have forced millions of people to collectively owe more debt than ever before.

Finally, according to survey data by market research firm GfK, sentiment among consumers in Germany weakened for the second month in a row in October, as Germans prefer to save their earnings rather than spend money on consumption, as the economic picture darkens.

The institute’s forward-looking consumer sentiment index fell to -26.5 heading into October from a slightly revised reading of -25.6 in September. The latest figure was below expectations of -26.0.

“The chances of a recovery in consumer sentiment this year have probably fallen to zero,” said Rolf Bürkl, a Gfk analyst. “The reasons for this are a persistently high inflation rate due to sharply rising food and energy prices. Consequently, private consumption will not be able to positively contribute to overall economic development this year.”

This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).