Eurozone money update: insufficient recovery

Eurozone money trends are improving but remain too weak to support economic optimism, while country details highlight French stress.

post in June noted that six-month real narrow money momentum was still significantly negative, suggesting that a minor economic recovery in H1 2024 would give way to a H2 “double dip”. The PMI composite output index fell from 50.9 in June to a flash reading of 48.1 in November.

Six-month real money momentum has risen further since June but was still barely positive in October. It has, however, crossed above Japan and narrowed a shortfall with the US, implying improving relative prospects – chart 1.

Chart 1

Chart 1 showing Real Narrow Money (% 6m)

Consensus gloom about Germany may be overdone. Six-month nominal narrow money momentum has swung into positive territory since mid-year, catching up with Spain / Italy – chart 2.

Chart 2

Chart 2 showing Narrow Money* (% 6m) *Non-Financial M1 Deposits

French momentum, by contrast, remains negative, with a recovery stalling in September / October.

French narrow money weakness appears to reflect low confidence and spending intentions rather than deposit flight (so far). Annual growth of all bank deposits slowed sharply in September / October but is still on a par with in Germany – chart 3.

Chart 3

Chart 3 showing Bank Deposits of Eurozone Residents* (% yoy) *Excluding Central Government

France’s deficit in the TARGET system rose by €34 billion in September to a record €175 billion, which could signal a capital outflow related to the political / fiscal crisis. There has, however, been no corresponding increase in Germany’s surplus, for which an October number is available – chart 4.

Chart 4

Chart 4 showing TARGET Balances (£ bn)

This entry was posted on 28 November 2024.

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