Eurozone April money numbers were solid, suggesting that the current economic upswing will extend into late 2015.
Narrow money M1, the broader M3 measure and bank loans to the private sector (adjusted for securitisations) rose by 0.7%, 0.7% and 0.2% respectively last month. Six-month growth of M1 was marginally lower than in March but that of M3 and loans rose again, in the former case to a new post-crisis high – see first chart.
In real terms, six-month expansion of the three measures has moved sideways since January, reflecting a recovery in consumer price momentum. Real M1 is a better leading indicator of economic activity than M3 while bank lending is coincident / lagging. Strong real M1 growth suggests that six-month industrial output expansion will rise further over the summer before levelling off later in 2015 – second chart.
Narrow money trends are also informative about country economic prospects. Growth of real M1 deposits remains higher in France than in Germany and Italy, suggesting greater potential for French economic news to surprise positively. Spain, meanwhile, is showing renewed strength, reducing the risk for the incumbent PP of an economic slowdown before the election later this year – third chart.
The narrow money signal is positive in all countries bar Portugal, where it is neutral, and Greece, where it is increasingly negative, signalling a deepening recession – fourth chart. The turnaround in Greek monetary conditions since late 2014 reflects the confidence-destroying actions of the Syriza-led government and associated capital flight; it cannot be blamed on lack of ECB support or externally-imposed “austerity”.
