Chinese monetary trends continue to suggest a dull economic outlook. Japanese trends suggest modest economic improvement.
Six-month growth in Chinese real narrow money M1 has been broadly stable since mid-2012 at slightly below the long-run average – see first chart. Weakness in 2011 and the first half of 2012 correctly foreshadowed a significant economic slowdown. Current growth is consistent with stable but slightly below-par economic expansion – in line with the official goal.
Chinese real broad money M2 is rising faster but, as in other countries, the narrow measure appears to be more closely correlated with future spending. The consensus focuses on M2 and credit measures, partly explaining recent overoptimism about economic prospects.
Six-month growth rates of Japanese real M1 and M3 have firmed over the past year but remain within recent historical ranges and are unexceptional by international standards – second chart. A significant further pick-up may be needed to support expectations of faster economic expansion implied by current stock prices.
