Eurozone monetary trends continue to suggest a significant slowdown in growth in core economies and a recession in the periphery.

Narrow money M1 is a better economic leading indicator than the broader M3 measure; it weakened before the last recession and surged before the recovery. M1 comprises currency in circulation and overnight deposits – forms of money more likely to be related to economic transactions. Six-month M1 growth slowed from 3.3% (not annualised) in June to 1.1% in December. With CPI inflation picking up, real M1 is now contracting. (All figures are seasonally adjusted.)

The aggregate figures conceal an unprecedented divergence between core and peripheral economies. The ECB publishes a country breakdown of overnight deposits but not currency. Deposits in a core grouping of Austria, Benelux, France and Germany rose by a real 1.8% in the six months to December, down from 5.0% in June but still respectable. In Greece, Ireland, Italy, Portugal and Spain, however, they fell by 4.1% – larger than the decline preceding the 2008 recession.

The first chart shows the core / peripheral split while the second gives a country breakdown of the latter grouping. Real deposits are falling in all five cases, with Greece registering the largest decline but Portugal recently catching up. Among the core grouping (not shown), contraction in Belgium is counterbalanced by buoyancy in the Netherlands, with moderate growth in Germany and France.