Global six-month real narrow money expansion – the main forecasting indicator employed here – was stable in May at a solid level by historical standards. Monetary trends, in other words, continue to support optimism about global economic prospects through late 2013 – see first chart.

Leading indicator evidence is slightly less upbeat but also reassuring. A global longer leading indicator derived from the OECD’s country leading indices fell modestly in May, reversing a rise in April. The indicator, however, remains above a minor low reached in March and is at a level historically consistent with respectable economic expansion – first chart.

The fall in the leading indicator in May was due to the emerging E7 component. The G7 component, by contrast, rose solidly for a second month – second chart.

The above evidence is relevant for economic performance over the next six months. Prospects for 2014 will depend mainly on monetary developments during the second half of 2013. A negative possibility is that a rise in inflation will put downward pressure on real money growth. The six-month change in global consumer prices reached an unusually low level in early 2013 but has started to recover, with a further increase suggested unless commodity prices weaken – third chart.

Such a scenario is only a possibility – the judgement here on the global economic cycle will remain positive pending a significant decline in both real money growth and the longer leading indicator.