Based on data covering 60% of the aggregate, G7 plus emerging E7 six-month real narrow money expansion slowed slightly further in January, having peaked in October 2012. Growth, however, is still respectable by historical standards, at an estimated 3.4% or 6.9% annualised – see first chart. Allowing for the typical half-year lead, this suggests that global economic momentum will peak in spring 2013 but remain solid into the summer.

Global activity is picking up on schedule in response to the revival in real money expansion between April and October last year. G7 plus E7 six-month industrial output growth rose to an estimated 1.2% (2.4% annualised) in December – the fastest since May. With real money now slowing, the gap between its rate of change and that of output is narrowing, indicating that “excess” liquidity available to flow into markets and lift asset prices is diminishing. According to research presented in a previous post, however, equity bear markets normally begin only after real money expansion crosses beneath industrial output growth.

The second chart shows six-month real money growth for countries that have released January monetary data. US real money expansion has slowed but remains relatively strong, consistent with the recent outperformance of US equities. Japanese growth is solid but the Bank of Japan’s stepped-up easing efforts have yet to give a further boost. A pick-up in Chinese real money expansion supported the global measure in January but may reflect a New Year timing effect, implying an unwind in February – see previous post. The final global reading for January will depend importantly on Eurozone monetary data to be reported on 27 February.