Global monetary backdrop still expansionary
Simon Ward
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Global narrow money trends are giving a positive signal for economic prospects in early 2018.
Six-month growth of real narrow money growth in the G7 economies and seven large emerging economies (the “E7”), adjusted to exclude a contraction and subsequent rebound in Indian M1 due to “demonetisation”, is estimated to have stabilised in July after rising between February and June, based on data covering two-thirds of the aggregate – see first chart.
An earlier fall in real money growth between August 2016 and February is expected here to be reflected in a near-term loss of economic momentum, following a strong first half. The rebound in real money growth since February, however, suggests that the economy will reaccelerate from late 2017.
Growth of the G7 plus E7 aggregate was supported in July by a rebound in Chinese expansion. US and Japanese growth eased back but continue to give a positive message – second chart.
The final July reading will be influenced importantly by Euroland / UK data to be released next week.
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