Economy in Brief

It still seems unusual to look at a plot of the EU Commission indexes for Italy, France, Germany, and the European Monetary Union to see Italy consistently showing the best top-line reading and Germany consistently showing the worst bottom-line reading. If you want to make it more confusing, we could put Spain on the chart and Spain would emerge as even stronger than Italy. Clearly the post COVID and post Russian-Ukraine war environment has turned what used to be the global economic order on its head.

If we evaluate the big four Monetary Union economies by their queue standings on data back to 1990m Spain has the strongest standing and is healthy country with the standing above its median on the period with the 64.9 percentile standing. France is next at a 48.6 percentile standing, followed by Italy at 41.7% and Germany at a very weak 18.8%. The Monetary Union has a 36.8 percentile standing. Among the 18 early reporting countries, only 5 have percentile standings above the 50% mark which puts them above their historic medians for this timeline.

The Monetary Union in August saw an improvement in its overall index to 96.6 in August from 96.0 in July; however, this is still a weak, 36.8 percentile standing. In August, there is an improvement in retailing as the index rose to -8 from -9 in July and an improvement in services where the services diffusion reading rose to +6 from +5. However, construction deteriorated to -7 in August from -6 in July and consumer confidence backtracked to -13.5 from -13, while the industrial sector remained at -10.0 for a number of months running. As far as sector rankings are concerned, construction has a 67.4 percentile standing, retailing has a 50.1 percentile standing - barely above its historic median which occurs at a ranking of 50. Services, consumer confidence, and the industrial gauge all have rankings below 50; in fact, all of them except services are below the one-third standing mark and their ordered queue of rankings of data back to 1990. Services aren't far from that, however, with the 36.3 percentile standing.

EMU Nominal money and credit growth have picked up and stabilized in the EMU. Over three months, EMU M2 growth is up to 2.4% over annualized compared to 1.2% over 12 months. Credit growth in the EMU is up to 2.3% annualized over three months compared to 1.1% over 12 months. It may be slow, but it is progress.

Money and credit growth have also improved over the past year in real terms. But both money and credit growth rates remain negative over all horizons in the table going back three years. There is progress, but this is not really normalcy.

The United States and the United Kingdom The U.S. and the U.K. both show accelerating nominal money growth. U.S. money growth is 3.8% over three months compared to 1.3% over 21 months. U.K. money growth is at 2% over three months compared to 0.8% over 12 months; it has also slowed over three months compared to six months.

Both U.S. and U.K. real balance growth rates have emerged to post not only stronger growth rates over three months compared to 12 months but also to post positive rates of growth over both three-month and six-month horizons.

Japan Japan is the ‘odd man out’ in this process as it is in a different portion of its business cycle. Both the EMU and the U.K. have begun easing and the U.S. has just announced that it will be heading down that path. But in Japan, the BOJ has had two rate hikes. Its nominal money growth has turned negative over three months and has decelerated from 12-months to 6-months to 3-months. Real money balances in Japan show deepening weakening and negative growth rates on all horizons in the table. Japan still has a heavy dose of braking in train while the central bank has been trying to unwind its easing posture from the pandemic and from its previously longer fight against deflation. Japan’s money slowdown looks like more substantial braking than what you would judge from overnight interest rate adjustments that the BOJ has made.