Money data say, replace cautious optimism with guarded pessimism

  • Over winter, broad money growth in the largest developed markets has slowed down
  • At the same time, the growth of US large time deposits has slumped
  • If maintained, current money trends point to below-trend growth and weaker asset prices

In early January we wrote that broad money growth in the major economies, while slowing, remained supportive of above-trend growth in 2018 as well as – although to a lesser extent than in 2017 – of asset prices. One has to be wary of giving too much weight to short-term money movements. Nevertheless, in the two months since then, two developments have given us cause to become rather more pessimistic, both about output growth and about the monetary support for financial asset.

The first is a slowdown in broad money growth. To be fair, this is not the case everywhere. Among major developed markets, broad money growth has slowed in the United States, the Euro Area and Japan. By contrast, in the UK and Canada, broad money growth has accelerated (although for Canada, we only have data until December and have extrapolated for January). Among smaller DMs, Australia and Sweden have also seen a marked slowdown in broad money growth over the winter, while Swiss broad money growth has held up better.

On a three-month annualised basis (admittedly volatile but a guide to recent trends), the change is even starker.