The Eurozone longer leading indicator calculated here rose further in December, suggesting that economic growth will rise into mid-2015, at least – see first chart.

The indicator uses the same components as the OECD’s Eurozone leading indicator but is calculated independently and is designed to predict turning points in the six-month rate of change of industrial output*. The December reading is based on partial data but the direction of change is unlikely to be revised. The further increase last month partly reflects recent stronger business survey results in Germany and France**.

The leading indicator turned negative in early 2014 but has been recovering since mid-year, regaining positive territory in September. It usually leads economic momentum by about half a year so the recent improvement in Eurozone coincident data, reflected in a positive reading of the Citigroup surprise index, is occurring on schedule.



The indicator’s revival confirms the hopeful message from monetary trends. Real (i.e. inflation-adjusted) narrow money M1 also leads industrial output by about half a year and its six-month growth reached a five-year high in November – second chart. (December money numbers are released tomorrow.)



The combination of strong real money growth, perhaps to be boosted further by sovereign QE, with weak but rising industrial output expansion suggests a favourable backdrop for Eurozone risk assets.

*The OECD leading indicator predicts the level of output relative to trend rather than growth.
**The December reading of the indicator incorporates January data where available in the calculation of trends in the components.