The consensus has become more bullish about Eurozone economic prospects but real money trends are stable, suggesting that GDP will continue to expand at its recent pace of 1.75-2.0% per annum. Country detail shows that French overnight deposits are growing strongly, which may herald post-election economic acceleration. US real narrow money expansion, meanwhile, is catching up with and may soon exceed the Eurozone pace, cautioning against extrapolating recent Eurozone GDP growth outperformance.

The preferred narrow and broad monetary aggregates here are non-financial M1 / M3, which cover holdings of households and non-financial corporations, omitting volatile financial sector deposits. Six-month growth of real (i.e. inflation-adjusted) non-financial M1 edged down in April but remains slightly above its average over 2014-16 – see first chart. Real non-financial M3 growth is slightly below its corresponding average. GDP expanded at an average annualised rate of 1.9% over the 10 quarters from the third quarter of 2014 to the first quarter of 2017. A similar pace of growth, therefore, seems likely over the remainder of 2017.


Hopes of faster growth have been raised by recent strong purchasing managers’ survey results – the survey’s compiler, for example, claims that the flash May composite activity reading is consistent with a quarterly GDP increase of 0.6-0.7%, i.e. 2.4-2.8% annualised. This buoyancy, however, may partly reflect a temporary sentiment boost from the French presidential election result. The new orders component of the survey was less bullish than the headline activity series, falling to a four-month low.

M1 comprises currency and overnight deposits. A country breakdown is available for the latter and shows a further pick-up in French real deposit growth in April – second chart. A positive interpretation is that households and firms increased their holdings of narrow money in anticipation of boosting spending after the election. An alternative possibility, however, is that money was shifted into overnight accounts as a precaution to enable an immediate transfer out of the country in the event of a negative result.


US six-month real narrow money growth fell well beneath the Eurozone level in late 2016, casting doubt on the consensus forecast at the time of US relative economic strength. As previously discussed, US money and credit trends are now recovering and the real narrow money growth gap may have almost closed in May, based on weekly US data and assuming stable Eurozone expansion – third chart. With the consensus now bullish about Eurozone prospects, US economic news is more likely to surprise positively later in 2017.