Eurozone money trends remain too weak to support an economic recovery. A relapse in the latest business surveys could mark the start of a “double dip”.
Three-month rates of change of narrow and broad money – as measured by non-financial M1 and M3 – were zero and 3.3% annualised respectively in May. Current readings are well up on a year ago but significantly short of pre-pandemic averages – see chart 1.
Chart 1
May month-on-month changes were soft, with narrow money contracting by 0.1% and growth of the broad measure slowing to 0.1%.
Six-month real narrow money momentum – the “best” monetary leading indicator of economic direction – moved sideways in May, remaining significantly negative and lower than in other major economies. (The latest UK reading is for April.)
Chart 2
June declines in Eurozone PMIs and German Ifo expectations may represent a realignment with negative monetary trends following a temporary overshoot – chart 3. A recent correction in cyclical equity market sectors could extend if Ifo expectations stall at the current level – chart 4.
Chart 3
Chart 4
Growth of bank deposits is similar in France, Germany and Spain but lagging in Italy – chart 5. The country numbers warrant heightened scrutiny, given a risk that French political turmoil triggers deposit flight to Germany.
Chart 5
—–
COMMENT:
AUTHOR: David Cotton
EMAIL:
IP: 73.16.192.213
URL:
DATE: 06/28/2024 01:47:30 PM
We should probably consider what the economic outlook would be from such historically weak money growth without the overhang of prior covid stimulus.
Central banks have been lulled in to a false sense of the security by the prior stimulus. Neutral interest rates are probably much, much lower than they think.
Meanwhile the lagged effects of monetary tightening have also been vastly underestimated.
Possibly any renewed downturn will take a long period of time for monetary policy to counteract.
Leave a Reply