Recent data confirm the monetarist forecast here of a recovery during 2013 in Eurozone economic activity, with improvement extending to peripheral countries in the second half.
Note, first, that Eurozone industrial output rose by 1.5% (not annualised) in the six months to May – the strongest six-month change since March 2011. The return to growth was predicted by a pick-up in real narrow money M1 during 2012.
Purchasing managers’ surveys have been improving gradually and the manufacturing / services composite output index finally broke above 50 in July, according to “flash” results released today. Historically, Eurozone GDP has grown with the index slightly below 50, so forthcoming figures could show expansion even in the second quarter. Manufacturing-only survey data confirm the pick-up in industrial activity, with orders at a 26-month high.
The positive message from monetary trends was reinforced by an easing of credit conditions in the first-quarter ECB bank lending survey, released in April, showing net percentages of banks tightening credit standards on loans to firms falling to levels historically consistent with economic expansion. Today’s second-quarter survey reports further improvement, particularly in expectations (the credit tightening balances are plotted inverted below).
“Good” news in the periphery includes a further recovery in July in PMI composite output and employment indices for the Eurozone ex. Germany / France, as well as the Bank of Spain’s estimate this week that GDP contracted by only 0.1% in the second quarter.
June monetary data released tomorrow will be important for assessing whether current promising trends will extend into 2014.