Is the ECB running out of bazookas? The latest data showing weak private sector credit flows in the euro area suggest that might well be the case.
The growth of the broad monetary aggregate, M3, slowed to an annual rate of 4.7 percent in December from a recent peak of 5.3 percent in October. That deceleration was mainly a result of a sharp drop in bank credit to the private sector, which contributed only 0.9 percent to the M3 growth, compared with 1.5 percentage points in November.
A closer look at the euro area's private sector loan demand indicates that lending to non-financial corporations in December virtually ground to a halt, after hovering around an average 0.4 percent annual increase since last summer.
That is a bad sign for business investments because the European firms chiefly rely on bank loans for their plant and equipment outlays. More generally, it also shows that businesses don't see the need to expand their production capacities because their sales outlook is not good.
The leveling out of the consumer loan demand is fully in tune with that subdued mood in the corporate sector. The banks' consumer lending was stagnant in December, and it only grew at an average annual growth rate of 1 percent in the second half of last year.