Monetary data released this week confirm that global six-month real narrow money growth – the key forecasting indicator employed here – stabilised in July, after picking up over March-June*. Real broad money growth has also strengthened since early 2017 – see first chart. Monetary trends, therefore, are signalling a solid global economy in early 2018.

Six-month industrial output growth appears to have peaked in April, with available data suggesting a decline in July. The modest cooling since the spring is consistent with a decline in real narrow money growth in late 2016 / early 2017. The slowdown is expected here to extend slightly further before reversing in late 2017.

Such a scenario is supported by a shorter-term leading indicator derived from the OECD’s country leading indicators. Six-month growth of this indicator eased slightly further in July but one-month growth firmed for a third month, i.e. the indicator is close to confirming the monetary signal of a stronger economy from late 2017 – second chart.

The stability of global real narrow money growth in July conceals a pull-back in the G7 offset by a further recovery in the E7 – third chart. The G7 / E7 gap, however, remains positive, suggesting slightly more favourable prospects for developed than emerging markets.

The July decline in G7 real narrow money growth may be reversed in August: US growth appears to have risen further last month, based on available weekly data – fourth chart**. The US pick-up increases confidence in the view here that the US economy will be strong in late 2017 / early 2018, with a modest near-term drag from Hurricane Harvey swiftly reversed.

*”Global” = G7 major economies and seven large emerging economies. Narrow money has been adjusted to reduce a distortion due to India’s demonetisation programme.
**Final real money growth data point = August estimate.