Monetary trends and leading indicators continue to suggest a slowdown in global economic growth from a peak to be reached in the second quarter.
After a small rise in January, global six-month real narrow money expansion is estimated to have fallen again in February, based on monetary data covering 60% of the G7 plus emerging E7 aggregate – see first chart. Real money growth remains respectable by historical standards but has declined significantly from an October 2012 peak, suggesting a slowdown in economic momentum from spring 2013, allowing for the usual half-year lead.
The February decline in the global money measure owed much to China, where real M1 expansion more than reversed a sharp rise in January – second chart. A previous post argued for caution in interpreting strong January money and credit data because of a probable upward distortion from the late timing of the Chinese New Year. The February results suggest moderate Chinese economic growth.
Meanwhile, a global leading indicator derived from OECD data rose at a slower pace in January, consistent with it reaching a peak in February or March – third chart. A longer-range “double-lead” measure remains below a high reached in October 2012, though has yet to fall significantly. These signals are consistent with the message from monetary trends, i.e. further near-term strength in coincident economic data but some cooling into the summer.
Global growth peaks in recent years have coincided with a transition from "risk-on" to "risk-off" market behaviour. Note, however, that global real money continues to outpace industrial output by a wide margin – sustained bear markets rarely occur against a backdrop of “excess” liquidity, as documented in previous posts, e.g. here.
