Eurozone monetary trends are stable, suggesting that GDP will continue to expand at a 1.5-2% annualised pace. While unimpressive, such growth would be above estimates of “potential” expansion, implying a further reduction in unemployment.

Six-month growth of real narrow money, as measured by non-financial M1, was unchanged at 4.6% (9.3% annualised) in June, close to its average since the start of 2015. Household and corporate M1 deposits are expanding at similar solid rates – see first chart.


Any negative impact of the UK’s Brexit vote on Eurozone confidence and spending intentions would be expected to be reflected in a slowdown in narrow money. The latest data refer to end-June, i.e. only one week after the Brexit vote; any slowdown would be more likely to show up in July / August, but is not expected here.

Six-month growth of real broad money, M3, is similarly close to its average since the start of 2015. Growth of real bank lending is higher than its corresponding average – second chart.


GDP rose by 1.7% in the year to first quarter of 2016, with domestic demand up by 2.1%. Stable monetary trends suggest that demand will continue to expand at about a 2% pace, while a stronger global economy may reduce or reverse the recent drag from net exports. GDP growth, therefore, may remain comfortably above its potential rate, estimated at between 0.9% and 1.1% in 2016 by international forecasting bodies.

Real M1 deposit growth is still solid across the big four economies, though has cooled recently in France and Spain – third chart. Real bank deposits are expanding again in Greece, a hopeful signal – fourth chart.