Eurozone monetary statistics for July were better than feared, with M1, M2 and M3 all rising by 0.2% on the month.

This increase undermines the argument that the recent surge in US money measures has been due to massive capital flight from the Eurozone. This argument, in any case, is inconsistent with the stability of the euro / dollar exchange rate.

Despite a rise in July, Eurozone real M1 – the best monetary leading indicator of the economy – is still down by 0.2% over the last six months. The rate of contraction, however, is the smallest since November 2010 – see first chart. This suggests that a recession would still be avoidable if the ECB eased policy aggressively, reversing the rise in its repo rate and committing to large-scale bond purchases.

M1 comprises currency in circulation and overnight deposits. A country breakdown is available for deposits but not currency. Interestingly, this breakdown reveals a return to real growth in the core while contraction continues in the periphery – second chart. This may reflect a flight of deposits out of peripheral banks rather than signalling an improving outlook for core economies.

The combination of strong US and Japanese numbers with a slower decline in Euroland resulted in six-month growth in G7 real narrow money rising to 4.8% in July, the fastest since May 2009 – third chart. Its pick-up started in March, suggesting that global economic momentum will start to improve from September, allowing for the normal six-month lag. For the economy to enter a recession, narrow money velocity would have to plunge. A decline on the necessary scale would probably require a Lehman-style shock, such as a chaotic unravelling of the Eurozone.