Eurozone monetary trends continue to suggest a big economic slowdown over the balance of 2011, with weakness recently extending from the periphery to the core. This has mixed implications for the Eurozone debt crisis: lower growth is likely to undermine fiscal plans but a core slowdown may head off further ECB tightening and allow the euro to depreciate, relieving pressure on the periphery.

M3 was flat in April while M1 fell by 0.3%. Real M1 is the best leading indicator of the economy and has contracted by 1.7% (not annualised) over the last six months, similar to the decline preceding the 2008-09 recession – see first chart.

Recent significant outperformance of core economies reflects stronger monetary trends last summer and autumn. Real M1 deposits, however, have fallen in the core as well as the periphery over the last six months – second chart. Negative economic surprises, therefore, may be evenly distributed between the two groups over coming months.

While Spain remains the focus of market concern about contagion, monetary trends suggest a bleaker economic outlook in Italy. Spanish real M1 deposits, surprisingly, rose over the last six months compared with modest contractions in France and Germany and a large fall in Italy – third chart. Elsewhere, there were big declines in Greece (unsurprisingly), Belgium and Austria while Ireland's contraction slowed, matching the Eurozone average.