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.

UK money measures are showing signs of recovery but earlier weakness suggests a stagnant or contracting economy through Q1 2020.

Six-month growth rates of non-financial M1 and M4 rose further in September, reaching the highest levels since October 2018 and November 2017 respectively. The increase in real terms was magnified by a fall in six-month consumer price inflation – see first chart.

As elsewhere, monetary acceleration probably reflects declines in market interest rates through August. The recent back-up in yields threatens to stall the recovery.

Real narrow money growth remains weak by global standards, suggesting GDP underperformance – second chart.

The focus of concern here has been a contraction in corporate real money holdings earlier in 2019, suggesting that firms would cut jobs and investment. This scenario appears to be playing out: employment fell in the latest three months while last week’s CBI industrial survey reported a further collapse in investment intentions – third chart.

Corporate real M1 has resumed modest growth but is far from giving a positive signal – fourth chart. Recession avoidance depends on consumer resilience. Household real M1 growth has ticked up recently but labour market weakness and election-related policy uncertainty may drag on near-term spending.

Euroland money growth pulled back in September but not sufficiently to call into question the positive view of economic prospects here.

Non-financial M1 and M3 rose by 0.4% and 0.2% in September, the smallest monthly increases since June. Six-month growth rates of the two measures eased to the lowest since April and June respectively – see first chart.

The slowdown in real terms was tempered by a fall in six-month consumer price inflation (seasonally adjusted) – first chart. Six-month growth of real narrow and broad money remains within its year-to-date range and well up from 12 months ago – second chart.

Real narrow money is growing at a respectable pace across the big four economies, suggesting similar GDP growth prospects and no “weak links” – third chart.

The stockbuilding cycle has been a major drag on Euroland activity but is probably bottoming. The ECB’s Q3 bank lending survey, released last week, showed another large year-on-year fall in the net percentage of banks reporting stronger demand for inventory finance. The scale of the decline, and a small uptick from Q2, are consistent with a cycle low – fourth chart.

The survey reported broadly stable credit conditions, although more banks expect to tighten standards on loans to SMEs – fifth chart.

A turn in the stockbuilding cycle could trigger a sharp reversal of German industrial weakness. The October Ifo survey was hopeful, with the orders inflow balance positive for the first time since November 2018 and the finished goods stocks balance suggesting a slower pace of destocking – sixth chart.