The global economy has strengthened in early 2013 – the six-month change in G7 plus emerging E7 industrial output rose from -0.2% in September 2012 to an estimated 2.4% in March (not annualised). This pick-up was predicted by faster global real narrow money expansion between spring and autumn 2012 – monetary trends lead activity by about six months, according to the “monetarist” rule.

The forecast here has been that global growth would moderate but remain respectable from spring 2013, reflecting a minor slowdown in real money expansion in late 2012 / early 2013. The six-month change in G7 plus E7 real money, however, edged higher again in March and is solid by historical standards – see first chart. The global economy, therefore, is unlikely to slow much over the summer. Incoming news, indeed, may beat current conservative expectations.

Global real money expansion is lower than last autumn only because of a slowdown in the US – trends elsewhere have improved. As previously discussed, the US narrow money numbers may have been affected by the removal of unlimited insurance on demand deposits at the end of 2012, prompting a shift into interest-bearing deposits or repos. Lower US real money growth, in other words, may not signal a material deterioration in economic prospects.

The suggestion that US economic expansion will remain respectable is supported by the latest Fed survey of senior bank loan officers. The net percentage of banks tightening standards on business loans usually surges ahead of significant economic weakness but fell further in April, to the bottom of the historical range – second chart. (Note that the net percentage is plotted inverted. The Fed survey was suspended between 1984 and 1990, explaining the data break.)