Global Daily – Euro M1 points to turn in momentum

by: Aline Schuiling , Maritza Cabezas

• Eurozone real M1 money growth slows down ….
• … while bank lending to non-financial companies recovers from December blip
• US business spending unexpectedly strong…
• …suggesting that the sharp fall in manufacturing is now behind us…
• …however, we don’t expect a rebound given the ongoing weakness in energy related activities



Global-Daily-Insight-26-February-2016.pdf (68 KB)


Eurozone real M1 money growth slows down ….

The eurozone broad monetary aggregate M3 grew by 5.0% (annual rate) in January, up from 4.7% in December. Meanwhile, the narrow M1 growth rate edged lower from 10.8% in December to 10.5% in January. Real M1 money growth (corrected for HICP inflation) tends to be a relatively good leading indicator for economic growth in the eurozone. It has slowed down since the middle of 2015, from an annual growth rate of close to 12%, to around 10.2% in January. This seems to be in line with the fact that the eurozone economy lost some momentum in the course of last year and also adds to the evidence that GDP growth probably slowed down somewhat further in the first months of this year.


26 feb


… while bank lending to companies recovers from its December blip

The counterparts of M3 money growth show that bank lending to non-financial companies picked up somewhat in January. Annual growth, corrected for sales and securitization, rose from 0.1% in December to 0.6% in January, roughly undoing the blip in December 2015 and returning to the level of November. The monthly flow in loans to companies improved from EUR -19bn in December to EUR 23bn in January. All in all, lending to companies, which tends to follow changes in fixed investment with a delay, remains sluggish. Meanwhile, annual growth in loans to households stabilized at 1.4% in January, with the monthly flow rising from EUR 2bn to EUR6bn.


US business spending strong…

January’s US durable goods orders increased by 4.9%, after declining 4.6% in December. Part of the large gains are related to civilian aircraft and dense goods, which are particularly volatile. The more closely watched business spending rose solidly in January. Core capital goods, excluding defence and aircrafts rose by 3.9% after falling 3.7% the previous month. This was the strongest increase since June 2014. Meanwhile core capital good shipments used by the BEA to estimate investment in durable equipment in the National Accounts fell slightly by 0.4% in January down from 0.9% the previous month.


…suggesting that the sharp fall in manufacturing in manufacturing is now behind us

This data suggest that business investment could be improving in the first quarter. However, Markit’s US manufacturing PMI corresponding to February was still weak, leaving it at its lowest level since October 2012. The forward looking details of the report were generally weak, with the new orders index falling more than the headline. This suggests that a rebound of manufacturing activity is unlikely. Indeed uncertainty about global growth and energy are still weighing on the US manufacturing outlook.