Laurent Quignon - Head of Banking economics - BNP Paribas

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Laurent QUIGNON Team : Banking economics +33(0)1 42 98 56 54

laurent.quignon@bnpparibas.com

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Head : Banking Economies

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Global : Support measures and recovery plans in emerging and developed countries

To address the economic crisis, governments and monetary authorities have implemented a broad range measures, sometimes moving beyond what had been expected. The central banks of certain developing economies have cautiously started a quantitative easing programme, whereas the main central banks of the developed countries have again turned massively to QE.

Global : Money supply and the risk of inflation

The central banks’ massive liquidity injections raise fears – at least theoretically – of an upsurge in inflation. How likely is this? Given the size of the quantitative easing measures which have been announced and the subdued outlook for inflation, central bank balance sheets are unlikely to be scaled back any time soon.

Global : Prospects of a recovery in the months ahead

Activity and confidence indicators show a rebound has started but this could create an illusion that the economy is stronger than expected. Faced with pervasive uncertainty, the recovery is bound to be gradual.

Eurozone : Fastest broad money growth since 2009

M3 monetary aggregate growth continued to accelerate in the Eurozone in April, to 8.4% year-on-year from 7.5% in March, the strongest annual growth rate since early 2009. Yet the monthly growth rate of the money supply aggregate eased in April to a seasonally-adjusted 1.2% m/m, well below March’s peak of 2.5% m/m, but still three times higher than the long-term trend of 0.4% m/m. Although credit to the private sector remains by far the largest counterpart of M3 money supply, credit to general government made the biggest contribution to the acceleration of money supply growth since early 2020, bolstered by the intensification of the Eurosystem’s government securities purchasing programme (a cumulative total of EUR 67 billion in March and April 2020). Despite strong money supply growth, the Eurostat’s preliminary estimates suggest that eurozone inflation declined again, to 0.1% in May 2020, the lowest level since June 2016, reflecting the impact of lockdown measures and the collapse of energy prices.

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Eurozone : Lending trends in the euro zone: The coronavirus pandemic has led to an unprecedented rise in demand for credit from companies, but has hit demand from households

Lending momentum in the euro zone recovered strongly in March 2020, with an increase of 1.6% from a 0.4% fall in February. Against a background of negative GDP growth in the first quarter (-3.3% Q/Q-4 from +1.0% Q/Q-4 the fourth quarter of 2019), conditions in March were severely affected by the lockdown measures introduced by national governments over the month [...]

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France : The new government-guaranteed loan in France

French banks may grant up to EUR 300 billion of government-guaranted loans (‘Prêts garantis par l’Etat’, or PGE) until December 31, 2020. This instrument, which is of an unprecedented scale, is dedicated to helping companies overcome cash-flow difficulties resulting from the coronavirus crisis.

Global : The cryptocurrency economy

Depending on the source, estimates of the number of ‘cryptocurrencies’ vary between 1,600 and 3,000. These crypto-assets struggle to fulfil the three economic functions of money, and so cannot be considered as such. Although their fairly modest uptake currently limits their economic impact, increased use could create risks in the transmission of monetary policy, money creation and financial stability. Several central banks are looking at the introduction of a ‘central bank digital currency’ (CBDC) in response to these challenges. However, far from being simply a substitute for private cryptocurrencies, these CBDCs would carry specific risks in terms of financial stability, most notably that of a ‘digital bank run’. We believe that their possible introduction, and the associated details, will require meticulous analysis.

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Eurozone : Euro zone credit trends: lending to non-financial companies (NFCs) weaker than consumer lending in November and December 2019

Credit impulse in the euro zone stabilised in December 2019 (up 0.3%, as in November) against a background of a slight slowing of real GDP growth in the fourth quarter (1.0% from 1.2% in the third quarter). Outstanding bank lending to the private sector maintained its pace of growth in December (up 3.7% year-on-year). For the second month in a row, growth in lending to NFCs was less than that in lending to consumers. The slowdown in growth in lending to NFCs (where the year-on-year figure fell from 3.8% in October to 3.2% in December) was due mainly to lower investment spending (in France, Germany and most particularly Spain). This was in part offset by strong growth in consumer loans (from 3.5% to 3.7%). For the first time since 2013, more banks are expecting demand for credit from NFCs to slow (first quarter 2020). In contrast, expected demand for consumer mortgages remains strong, driven by low interest rates, particularly in France.

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Eurozone : Credit pulse in the eurozone: positive for households, negative for companies

After picking up in October, the credit pulse of non-financial corporates (NFC) in the eurozone dipped again in November. Yet the decline in the private sector’s credit pulse was still very mild, bolstered by the remarkable stability of the credit pulse for households. Recent trends should extend into first-quarter 2020: the banks surveyed expect loan demand from NFC to continue to ease. Inversely, exceptionally low interest rates should continue to boost loan demand from households, mainly for home loans.

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France : Home affordability trends in France: dichotomy between Paris and the provinces for the past decade

Our home affordability index measures the ratio of the borrowing capacity of households (based on average household income, average fixed mortgage rates and average mortgage duration1) to the average existing home price per square meter (m2). Over the past ten years2, home affordability has increased by 30.4% in the provinces, but declined by 12.2% in Paris. Changes in average credit conditions (the average duration was extended to 18.8 years from 17.8 years, and mortgage rates declined to 1.30% from 4.30%) and disposable household income (+7.1%, notwithstanding differences in level) were relatively homogeneous at the national level, which means the differential can be attributed almost exclusively to the spread in existing home prices changes since 2009: home prices have increased by 64.2% in Paris compared to only 10.2% in the provinces. Moreover, this average figure masks significant price differentials from one region to the next. 1 In so far as home affordability is rebased, it reflects cases in which down payments account for a stable proportion of the transaction amount (homeowners who sell a home before buying another one), as well as those in which the down payment is negligible (i.e. for certain first-time homeowners and rental investors). 2 Between Q3 2009 and Q3 2019

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