Near-complete September monetary data indicate that six-month growth of real narrow money in the G7 economies and seven large emerging economies rose to 2.7% (not annualised), the highest since October 2017. Real broad money growth also firmed – see first chart. These are hopeful developments but the global economy is expected here to remain weak through Q1 2020, for several reasons.

First, six-month real narrow money growth had languished below 2% through August, representing an unimpressive recovery from a low of 1.1% reached in October-November 2018. Allowing for a typical nine-month lead, this suggests no significant revival in economic momentum before Q2 2020.

Secondly, real narrow money growth reached much higher levels before previous post-GFC economic reaccelerations. The judgement here remains that six-month growth needs to rise sustainably above 3% to signal a full economic recovery.

The global measure has been held back by continued weakness in Chinese real narrow money growth and a sharp fall in India – second chart*. Secondary banking crises in both countries have tightened credit conditions, offsetting monetary policy stimulus. The drop in Indian six-month narrow money growth also reflects a negative base effect from a surge in late Q1, probably related to the April-May election.

The disruption of credit supply to Chinese private sector firms following a regional bank failure in May was picked up by the corporate financing index in the Cheung Kong Graduate School of Business monthly survey – third chart. The index moved sideways in October but has yet to recover.

October manufacturing PMI results support the view that global industrial momentum bottomed in Q3 and the turnaround has been reflected in modest pro-cyclical movements in markets. A Chinese-led further pick-up in global money growth, however, is needed to confirm a 2020 recovery scenario and increase confidence in a change in market trends.

*China and India have a combined weight of 30% in the global aggregate.