Narrow money trends last autumn predicted that the Eurozone and Japanese economies would regain momentum while the US and China would slow, a shift confirmed by recent coincident data.
Current monetary trends suggest that the US and Eurozone will grow solidly in the second half of 2015 with Japan expanding moderately but China remaining sluggish, Mindful Money reported.
The six-month changes in industrial output in the US and China fell to their lowest levels since 2009 in March, although recent weakness has probably been exaggerated by special factors – bad weather and a ports strike in the US and a late New Year holiday in China.
Eurozone growth in February, by contrast, was the highest since 2011, while Japanese output has also rebounded after weakness in mid-2014. This pattern had been suggested by monetary trends last autumn.
The changes in real narrow money, with the lastest data points refers to October 2014. Eurozone real money growth was rising strongly following the ECB’s easing actions in June and September, while a recovery was under way in Japan, mainly reflecting a reversal of the inflation spike caused by April’s sales tax rise.
Economic Slowdown
US and Chinese trends, however, had weakened sharply, warning of an economic slowdown in early 2015, allowing for the usual half-year lead.
The real narrow money growth is higher than last autumn in the US, Eurozone and Japan but little changed in China.
The most notable development has been a rebound in the US, probably partly attributable to a significant fall in Treasury yields in late 2014 / early 2015.
US real money growth in February almost matched its peak in December 2012, which preceded GDP growth of 4.0% annualized in the second half of 2013.
Positive Signal
Eurozone real money is also giving a strongly positive economic signal, with growth remaining notably higher than in Japan. This suggests that the ECB policy of imposing a negative interest rate on excess bank reserves has been more effective in delivering monetary stimulus than the Bank of Japan’s record-breaking QE.
Chinese real growth appeared to be recovering in January/February but March data delivered a set-back. The broader measure and bank lending are giving a more reassuring message but Chinese economic expansion may remain sub-par through the autumn, at least.
