In the EA, the ECB’s boost to banks’ balance sheets comes in the wake of non-financial sector borrowing decreasing for 25 months in a row since May 2012. Some 67% of lenders participating in the ECB’s bank lending survey expect credit demand to remain unchanged during the third quarter of 2014. Such caution is clearly visible in financial market expectations towards the EA which, according to the Sentix economic indicator, dropped by 12.4 points in September. Besides the financial and non-financial business sectors, attention should also be paid to households in the EA, where labour’s contribution, measured by compensation of employees, and consumption constitute a large portion of GDP growth. Although unemployment and gross income have been improving in the EA, private consumption growth remains under 1% on an annual basis with high unemployment and disinflation keeping the desire to consume low. Falling global commodity prices should lift real incomes further, but with inflation so low, falling commodity prices might push the EA into deflation and drive investment and borrowing even further away from the desired levels. The depreciating euro, sending the real effective (trade-weighted) exchange rate down in September by 2.7% on an annual and 1.5% on a monthly basis, offsets these effects and promotes extra-EA exports, which might turn out to be fortuitous for the ECB. The EA shows a compatible business environment, too, as measured by the ease of doing business index (a ranking in the top 40), compared to the world’s average (above 90).

In China, the authorities have been implementing stimulus measures of their own, injecting liquidity into lending institutions. However, decreasing deposits may force the banks to lend less, which could cause a real estate sector slowdown. Indeed, the pace of domestic credit growth decreased by 1.25 pp in July after domestic credit dropped 0.86% from June, and fixed asset investments by -1.36pp and -0.07pp in August and July, respectively, which shifts more demand onto consumption as the driver of economic growth. However, a drop in exports of 2.1% in August might also result in a jump in unemployment, which in turn may exacerbate disinflation, thus affecting borrowing and consumption behaviour. Looking at raw materials demand, decreasing metal prices can be a leading indicator foretelling falling Chinese industrial demand and inflation dipping below 2%, as both indicators seem to follow the same trend.

The US is experiencing its own challenges. Inflation remains low, while unemployment and wages demonstrate positive trends. Given labour’s contribution to GDP levels of 52.72% (Q1 2014), measured as compensation of employees as a percentage of GDP, the possibility of US surpassing the 2.15% GDP growth rate forecasted by the IMF for 2014 seems likely. However, the strong dollar, and the slow recovery and weak currency in some of the US’ main trading partners in the euro zone are helping to keep inflation low. The stable economic recovery might turn falling commodity prices into higher real income, especially with the decoupling of correlation between commodity prices and inflation being observed recently.