Posts since last summer (e.g. here) argued that the Eurozone economy would bottom out in autumn 2012 and revive into 2013, based on a recovery in real narrow money from spring 2012. Economic improvement has been held back by an unwarranted appreciation of the euro – driven by US / Japanese devaluationist policies – but is now evident in industrial output data.

Output for the first quarter as a whole was up by 0.2% from the fourth quarter, while March’s reading was 1.4% above a trough reached in November. The six-month change has recovered to zero and should turn positive in April / May, rising further during the second half in lagged response to faster real money expansion – see chart.

Consistent with country-level monetary developments, the recovery to date has been led by Germany and the Netherlands, with output falling further in France, Italy and Spain in the first quarter.

As previously discussed, recent much-improved monetary trends across the periphery suggest a stabilisation in output in the second quarter followed by a second-half recovery. Germany should continue to lead the upswing but France should underperform and Dutch prospects have deteriorated.