Eurozone real non-financial M1* – the best monetary leading indicator of the economy, with a flawless track record in recent years – continues to signal improving prospects. Real money expansion is now stronger in peripheral economies than the core.

Six-month growth of real non-financial M1 rose to 3.7% (not annualised) in January, equalling November’s result, which was the strongest since February 2010. The six-month change turned negative before the 2008 and 2011 recessions and positive before the 2009 and 2013 recoveries – see first chart. The recent pick-up suggests that industrial output and GDP growth will firm through the late summer (at least).

The ECB publishes country data on overnight deposits, which dominate swings in M1. Six-month growth of real deposits in the peripheral grouping** rose to 3.8% in January versus 2.2% for the core – second chart. Peripheral expansion was lower than in the core in every month between September 2008 and October 2013.

The groupings conceal significant country variation, with Spain now the strongest of the big five, followed by Germany / Italy. French growth is modest but still consistent with an ongoing economic recovery; negative risks are greater in the Netherlands – third chart.

*Notes and coin in circulation plus overnight deposits of households and non-financial corporations divided by consumer prices, seasonally adjusted.
**Greece, Ireland, Italy, Portugal and Spain.