Eurozone monetary developments remain mixed, with broad money soft but narrow money strengthening. (Real) narrow money has historically been a much better leading indicator of the economy so this mix is judged here to be positive, cautioning against consensus gloom*. Sluggish broad money, moreover, increases the probability of further ECB easing.

Broad money M3 fell by 0.1% in March, causing six-month growth to slip from 1.5% to 1.4%, or 2.8% annualised. Narrow money M1, by contrast, rose by 0.5%, pushing six-month expansion up from 3.1% to 3.6% – 7.3% annualised.

A geographical split is available for M1 (i.e. overnight) deposits, which comprise 83% of the aggregate. Eurozone-wide real M1 deposits (i.e. deflated by consumer prices) climbed 3.3% in the six months to March, or 6.7% annualised. This is the largest six-month increase since February 2010, when the Eurozone economy was expanding solidly – see chart. (M3, incidentally, was contracting in early 2010.)

Crucially, real M1 deposits are now growing respectably in the periphery (i.e. Italy, Spain, Greece, Ireland and Portugal) – 2.7% in the latest six months versus 3.6% in the core. Periphery / core divergence warned of the “crises” of recent years but the gap is now the smallest since 2009. The six-month change was positive in all five peripheral economies in March.

The core / periphery distinction, indeed, is no longer helpful: the six-month change was stronger in March in Italy and Spain than in the Netherlands, Belgium and France – the latter still negative. German growth remains much the strongest of the major economies – 5.6%, or 11.5% annualised.

*Narrow money is held mainly for transactions purposes whereas broad money is dominated by savings deposits. Households / firms are likely to increase their transaction balances ahead of a rise in spending. Broad money can be unchanged or even fall, for example if there is a simultaneous shift of savings out of banks into markets, to the extent that this transfer is reflected in a contraction of banks’ balance sheets.