Global economic news is expected here to remain weak during the third quarter, reflecting the lagged impact of a sharp slowdown in real narrow money into the spring – see previous post. Six-month real money expansion in the G7 plus emerging E7 economies, however, stabilised in April / May and appears to have recovered modestly in June, based on early data – see first chart. If confirmed, this recovery holds out hope of a revival in economic momentum in late 2012, allowing for the typical six-month lead.
Caution is still warranted. The final June reading will depend importantly on Eurozone monetary data released next week. The suggested recovery in real money expansion, moreover, mainly reflects a fall in inflation in response to commodity price weakness, which is now reversing – second chart. A sustained pick-up, in other words, will require faster nominal monetary growth – plausible in light of recent policy easing but not guaranteed.
The third chart shows six-month real narrow money expansion for the countries in the global aggregate that have reported for June. The US slowdown paused last month while Brazil’s recovery continued. Policy easing there has been much more aggressive than in China, where narrow money remains weak, suggesting that hoped-for economic reacceleration is unlikely before late 2012 at the earliest.