Globally Money Supplies Shrink in Real and in Nominal Terms

EMU money and credit growth contract Money supply growth in the European Monetary Union (EMU) continues to contract over three months as well as over six months and 12 months. In real terms, money supply declines as well on all horizons although the 12-months contraction is at a more severe pace than it is over 3-months and six-months.

Credit in the EMU is weak; it registers weak, but positive, growth over three months in nominal terms. Credit to residents, as well as private credit, both contract over 3-months and 6-months in nominal terms. In real terms, both credit measures decline on all horizons; the pace of the credit decline has slowed slightly over three months and six months compared to 12 months – perhaps a sign that economic excess have been or are being boiled out more than a sign that economic deterioration is getting out hand.

Global money growth Beyond the EMU trends, nominal money growth declines and contracts in the U.S. and in the U.K. over three months, six months, and 12 months. In Japan, nominal money growth is weak and has been slowing; its year-on-year growth is 2.4% compared to an annualized three-month pace of 1.6%.

Beyond nominal money growth, real money balances decline over three months, six months, 12 months, and two years for all the countries in the table. Peak weakness in real money growth came about 12-months ago in the U.S. and in the EMU. For the U.K., peak weakness is over six months. In Japan, real money growth is still deteriorating at an ever-faster pace, falling at a 1.8% annual rate over three-months. While Japan’s money growth is decelerating, its weakness as measured by its growth rate of real money balances is still not as strongly negative as real growth rates in the EMU, the U.S., or in the U.K. where the deterioration in growth is losing some steam. Japan may simply be in an earlier phase of monetary weakness than the other money center countries.

Still, monetary contraction is a good reason for caution on the growth front. Nominal growth is slowing everywhere even with the much flatter profile for growth in Japan. Globally real balances show more severe decelerations. Some are more worried about the monetary deceleration than others.

The U.S. decline in the nominal money stock is an unusual event and the U.S. is not alone in that. All the countries and monetary areas in the table (below) show substantial weakness. Japan exhibits the least impressive slowdown. The current EMU money growth rate is its slowest on record on data back to 1971. The U.S. is close to that having posted its slowest rate in April of this year on data comparisons back to 1961. The U.K. slowing is severe, but it has had more severe monetary slowing in 2012. Still, the slowdowns in money growth are clearly unusual and the coincidence of seeing monetary slowing globally in sync is somewhat unsettling from a growth standpoint. However, with the slowing coming after a surge in money growth that peaked in 2020 and 2021 globally, the impact of the slowing and declines in the money stock are harder to pin down. But synchronized global monetary weakness is one reason that many economists expect economic growth to slow.

The interpretation of this boom-bust money growth is complicated since fiscal policy also flared at the same time as money growth. Inflation has since jumped and is now in the process of unwinding- and how far the inflation unwind will go is still a matter of debate. With global tensions rising, oil prices rising, inflation lingering, and all the complications unwinding that had stemmed from the global reaction to the Covid pandemic, the degree of uncertainty over global economic trends and the impact of current economic policy is unprecedented.