China and the US released March money data overnight. The Chinese numbers were positive, though not strong, while US data confirmed a sharp slowdown in narrow money indicated by earlier weekly data. Also factoring in a rise in headline inflation, the net result is that global six-month real narrow money growth is likely to have reversed lower last month, following a small recovery over October-February. This suggests that global economic prospects are deteriorating again, with US weakness likely to offset and delay a tentative Chinese recovery.
The first chart shows six-month growth rates of Chinese narrow / broad money measures and the total social financing (TSF) credit aggregate. Previous commentary expressed disappointment at the lack of response of narrow money growth to policy easing but there was a clear pick-up in March. This confirms an earlier rise in broad money growth, which levelled off in February / March. TSF expansion, meanwhile, ticked higher last month but six-month growth continues to be depressed by soft flow numbers in late 2018.
Growth of narrow money and TSF remains weak by historical standards, with the rises from the recent lows much smaller than before significant economic accelerations in 2009 and 2016. The increases are also less impressive than in 2012, when nominal GDP growth subsequently stabilised but did not strengthen.
The second chart compares six-month growth rates of real narrow money across major economies and includes March data for Japan as well as the US and China. The rise in Chinese real money growth in March was smaller in magnitude than a US move from expansion back into contraction. Of the 2.6 percentage point (pp) US fall, 2.2 pp reflected nominal money weakness and 0.4 pp an energy-driven rebound in inflation. The level of US real narrow money is lower now than in late 2017.
The global real money measure in the third chart also incorporates March data for India (strong, partly reflecting an election effect) and Brazil (weak). Six-month growth is estimated to have fallen back from 2.0% to 1.6% – below the level in all but one month over 2009-17.
As previously discussed, the inflation drag on global real money growth is likely to increase into mid-year, reflecting recent commodity price gains – fourth chart.