Based on available information, six-month expansion in global real narrow money – the best longer-term leading indicator of economic growth – probably rose further in September, reaching its highest level since January. Allowing for the typical half-year lead, this suggests that an incipient upswing in global economic momentum will be sustained at least through March 2013 – see first chart.
September monetary data have been issued for the US, Japan, Brazil, China and India, together accounting for 60% of the G7 plus emerging E7 aggregate used here to proxy the global money supply. Faster US and Chinese real money expansion drove the suggested increase in the global measure last month – second chart. Eurozone numbers due on Thursday will be important for the final outcome but are very unlikely to show sufficient weakness to offset the US / Chinese increases.
The positive signal from real narrow money has received confirmation from a recent upturn in a shorter-term global leading indicator employed here – see previous post. A further recovery in new orders components of October manufacturing purchasing managers’ surveys would provide additional support for the suggested economic scenario; “flash” readings for China, Euroland and the US are released on Wednesday. Based on equity analysts’ earnings revisions, a rise in the G7 new orders measure above the breakeven 50 level looks possible – third chart.
