Eurozone six-month real M1 expansion – the best monetary leading indicator of the economy – fell back in September but remains solid at 2.0% (4.1% annualised). It continues, in other words, to suggest a recovery in region-wide economic activity in late 2012 / early 2013.
Peripheral real M1 deposits fell in the six months to September but the pace of contraction has slowed.
Peripheral real M1 deposits, indeed, rose in August and September – the following chart shows monthly movements. The six-month change may well turn positive in October as a large April decline drops out of the comparison.
Among the large economies, the key trends are German strength, Italian improvement and Spanish weakness. The six-month changes in real M1 deposits in Italy and France are now similar. With the ECB’s OMT backstop in place, a 270 basis point spread between 10-year Italian and French government yields may not be warranted by Italy’s higher debt level. (General government debt amounted to 126.1% of GDP in Italy and 91.0% in France at the end of the second quarter, according to Eurostat. The IMF projects a general government deficit of 2.7% of GDP in Italy in 2012 versus 4.7% in France.)