Eurozone monetary trends continue to suggest that the economy will perform significantly better in 2013 than 2012. The six-month growth rate of Eurozone-wide real M1 deposits rose to 2.9% (not annualised) in February – the fastest since May 2010 and historically inconsistent with recession.
Importantly, real M1 deposits are now growing in the periphery, suggesting economic stabilisation or better in the second half of 2013 – see first chart. The pick-up has been led by Italy but weakness elsewhere has abated – second chart.
The key monetary concern now is ongoing real M1 deposit contraction in France, although this eased in February (and recent weakness may partly reflect transfers out of such deposits due to a raising of the investment limit on tax-free Livret A savings accounts). Elsewhere in the core, Dutch growth has slowed sharply – third chart.
These indications are, of course, subject to the substantial qualification that the unexpectedly large losses imposed on uninsured depositors in the two largest Cypriot banks could trigger renewed deposit outflows from the periphery, although some funds may be transferred from weaker to stronger institutions within the same country.
