Global monetary update: still weak



​Six-month growth of real narrow money in the G7 economies and seven large emerging economies appears to have fallen back in July while remaining above its February low. As previously discussed, the stabilisation / small recovery in narrow money trends since February suggests that global economic momentum will bottom out in the fourth quarter of 2018 and revive slightly into early 2019. The July monetary set-back dampens expectations for such a revival.

The US, Japan, China, Brazil and India have released July monetary data, together accounting for two-thirds of the G7 plus E7 aggregate. With July consumer price data available for most countries, six-month growth of real narrow money is estimated to have fallen below its level over March-June, while holding above the February low – see first chart.

The monetary slowdown into February is now being reflected in hard economic data, with six-month industrial output growth at its lowest since 2016 in June.

Even at its June recovery high, six-month real narrow money growth was below the range between September 2008 and November 2017, suggesting weak economic expansion. Year-on-year growth, moreover, continues to slide  – second chart.

A further fall in the six-month growth rate to below the February low would shift the central expectation here away from slowdown / late 2018 stabilisation in favour of sustained weakness and a possible 2019 recession.

The fall in global real narrow money growth between June and July was driven by the US, where the six-month change moved back into negative territory, matching the February low – third chart. As previously discussed, there has been some disagreement recently between the messages from the monthly M1 / M1A numbers and quarterly non-financial M1 but the assessment here for now is that US monetary trends are signalling a surprisingly sharp economic slowdown into early 2019. This assessment will be reviewed following release of sectoral monetary details for the second quarter in early September.

Chinese six-month real narrow money growth appears to have edged up in July, although the last data point in the chart could be revised slightly when full monetary details are released, probably later this week. With policy now being eased aggressively, monetary trends have probably bottomed but any revival is unlikely to be reflected in economic data until early 2019.

The final July reading of G7 plus E7 real narrow money growth will depend importantly on Eurozone data scheduled for release on 28 August.

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