Near-complete monetary data confirm that global six-month real narrow money growth fell back in March, retracing half of a modest recovery from an October 2018 low. That low was the basis for the forecast here that global industrial momentum would bottom out around July 2019, since money trends typically lead the economy by around nine months. The absence of a convincing pick-up in money growth, however, suggests that any recovery in economic momentum during the second half will be minor and temporary. Further monetary weakness would raise the possibility of a “double dip” in activity around end-2019.

G7 plus E7 six-month real narrow money growth fell from a 15-month high of 2.0% in February to 1.4% in March, which compares with an October low of 0.9% – see first chart.

Six-month industrial output growth is estimated to have rebounded strongly in March but this reflects a surge in China, probably due to a Lunar New Year timing effect and forward purchasing ahead of a VAT cut; a reversal is expected in April. US industrial output rose by only 0.5% in the six months to March, the slowest growth since 2016, with the manufacturing component contracting.

The suggestion from monetary trends of a low in economic momentum around July is now receiving confirmation from a global leading indicator derived from the OECD’s country leading indicators. The six-month change in this indicator appears to have bottomed in January-February and its average lead time at turning points historically was five months – first chart*.

The rally in equity markets so far this year suggests that investors are already discounting a bottoming of economic momentum and a subsequent recovery. From the perspective here, the danger is that the low occurs later than expected and momentum remains weak through the second half, with a relapse at year-end.

A renewed rise in global six-month real narrow money growth – especially a move back above 3%, as experienced before the seven previous economic accelerations since the 2008-09 recession – would assuage such concerns. Such a pick-up seems unlikely near term.

As previously discussed, the rise in real money growth from the October low did not reflect any improvement in nominal money trends but rather was driven by a fall in six-month inflation that is now starting to reverse – second and third charts.

The global number has also been supported by Indian narrow money strength – fourth chart**. This may be partly election-related and temporary – real money growth also spiked around the 2014 election. Monetary trends remain soft in most emerging economies, with real money contracting in Brazil and Russia.

*Chart includes March indicator estimate based on own calculation of OECD leading indicators for G7 (official March data released on 13 May).
**India has a 7% weight in the G7 plus E7 aggregate.