Janus Henderson: Global money data still weakening

The US, China, Japan and India have released monetary data for all or part of February. Based on this information and available inflation data, six-month growth of real narrow money in the G7 plus E7 economies is estimated to have fallen to about 0.75% (not annualised) – a significant further drop from 1.3% in January*. It last moved below 1% from above in November 2007, in the early stages of the financial crisis and ahead of the 2008-09 recession – see first chart.

That recession, and all previous global economic downturns since the 1960s (at least), were preceded by a contraction of real narrow money. The expectation here is that the six-month growth rate will stabilise or recover slightly over coming months, reflecting a moderation in six-month consumer price inflation and a partial reversal of recent US weakness. Even if this proves correct, the monetary slowdown since mid-2017 promises a significant downshift in economic growth over the remainder of 2018.

The further fall in global real narrow money growth in February was driven by the US, where the six-month change appears to have turned negative. Chinese growth is estimated to have been little changed in February after a large fall in January**, while Japanese growth weakened slightly further – second chart.

 *The four countries mentioned account for 62% of the G7 plus E7 aggregate. The estimate assumes unchanged money growth and / or inflation in countries for which February data are not yet available.

**China has released data for M1 / M2 but not household demand deposits, which are included in the narrow money measure tracked here. The estimate assumes a 7% month-on-month rise in such deposits, based on experience in previous years with a late New Year holiday.