Near-complete April monetary statistics confirm an earlier indication that six-month growth of real narrow money in the G7 economies and seven large emerging economies was little changed from March and above the nine-year low reached in February. The earlier monetary slowdown signals a likely loss of global economic momentum through late 2018 but prospects are no longer deteriorating. Real broad money growth has also recovered slightly since February – see first chart.

Will monetary trends revive more significantly into mid-year, implying a brighter economic outlook for end-2018 and early 2019? Such a scenario is possible but does not currently seem likely.

The recovery in G7 plus E7 six-month real money growth since February has been driven by a slower rate of increase of consumer prices (seasonally adjusted) – nominal money growth was unchanged between February and April. Recent firmer commodity prices suggest that six-month inflation will stabilise or partially retrace the recent decline.

The sideways move in G7 plus E7 real narrow money growth between March and April conceals a decline in G7 expansion offset by a pick-up in the E7 – second chart. Real money growth rose in China, Brazil, India, Russia and Taiwan. Recent capital outflows from emerging markets and an associated tightening of domestic financial conditions, however, could be reflected in weaker monetary trends in some countries.

Previous posts discussed the possibility that US money trends would rebound in lagged response to tax cuts, mirroring experience after previous large reductions. No pick-up is yet evident: six-month narrow money growth fell back in April and is unlikely to have increased in May – the third chart includes a May estimate based on weekly data through 21 May.

US and G7 money growth is probably being dragged down by slowing QE, with the 12-month running total of purchases of government and agency securities by the Fed, Bank of Japan, ECB and Bank of England already down by almost a half from its March 2017 peak and projected to continue to decline rapidly – fourth chart.

The six-month rate of change of real narrow money is lower than a year ago in almost all developed economies (exception: New Zealand) and has been negative for several months in Australia, where the housing market is slowing sharply in response to a belated regulatory clampdown on loose lending standards – fifth and sixth charts.

A recovery in money growth is likely in China, reflecting a recent policy shift towards modest easing and an associated fall in market rates. The timing and extent of any rebound, however, are uncertain: the two-year government yield is only 30 basis points lower than a year ago while previous significant reversals higher in narrow money growth have been preceded by a decline of at least one percentage point – seventh chart.

Euroland monetary trends are signalling a further loss of economic momentum but – based on April data – do not suggest outright weakness. Italian political turmoil, of course, threatens to trigger capital flight and a general rise in risk aversion, developments that would probably be associated with additional monetary deterioration.

Softer economic expansion since the start of the year was predicted by a significant fall in six-month growth of real narrow and broad money during the second half of 2017. Last week’s flash purchasing managers’ surveys for May were again weaker than the consensus expected, providing further evidence that slower economic growth represents a change of trend rather than a temporary blip due one-off factors such as disruptive weather.

Six-month growth of real narrow money, as measured by non-financial M1 deflated by consumer prices, eased further in April, reaching its lowest level since 2013. Growth of the broader non-financial M3 measure was unchanged from its March level, which was the lowest since 2014 – see first chart.

Optimists point out that the purchasing managers’ indices remain at a level historically consistent with solid economic growth. The lagged relationship with real money growth, however, suggests that the surveys will weaken further – second chart.

Current monetary trends are still consistent with economic expansion. Six-month real non-financial M1 growth of 2.2% in April, or 4.4% annualised, is only modestly below its average over 2005-17, of 2.7% or 5.4% annualised. Real narrow money contracted before the 2008-09 and 2011-12 recessions – first chart.

Those recessions were also preceded by a divergence of monetary trends across countries. Six-month growth of real non-financial M1 deposits is currently similar in the “big four” economies – third chart. Growth in France and Spain, however, has fallen significantly since mid-2017 – the risk of negative data surprises may be greater in those two economies.

Italian real narrow money trends through April suggest that the economy was on course for continued moderate economic growth before the current political crisis. Recent developments may be contrasted with 2010-11, when monetary / economic weakness drove the rise in Italian government yield spreads, which contributed to a further deterioration in monetary trends – fourth chart. The source of the pressure is now political rather than monetary / economic, although negative feedback is again likely.