Economy in Brief: April 2025

EMU pace steps up- Growth in the European Monetary Union has stepped up in the first quarter of 2025 to a 1.4% annualized pace after slipping into a 1% growth rate in the fourth quarter of 2024. Year-over-year European Monetary Union growth at 1.2% is the same as it was in the fourth quarter of 2024.

Across the Euro Area- EMU growth as well as across the returns of the early reporters of GDP; there are seven countries that have reported GDP for early release. We see deceleration in growth in Ireland, the Netherlands, and Spain. However, some these are impressive decelerations! In the case of Ireland growth decelerates to a 13.5% annualized rate in Q1 from 15.3% in Q4; even in Spain the deceleration is from a 2.9% pace in the fourth quarter to a 2.3% pace in the first quarter. The final deceleration is from the Netherlands from a 1.1% growth rate in the fourth quarter to a 0.4% annual rate in the first quarter.

Sometimes, small is good Further parsing the growth rates, the four largest European Monetary Union economies (Germany, France, Italy, and Spain) continue to struggle. The weighted average growth rate for the four-largest economies is 1% in the first quarter; that is an improvement from 0.2% in the fourth quarter of 2024, and compares to 1% in the third quarter of last year as well. The first quarter year-over-year growth rate for Big-Four is 0.7%, the same as it was in the fourth quarter of 2024 (0.8% in Q3 and Q2 of 2024). There is not much change in Big-Four economy growth over the past year. For the rest of the European monetary union growth, quarterly growth decelerated in the first quarter to 2.6% from a very firm 3.2% in the fourth quarter, but even that had been a deceleration from the 3.5% annual rate in the third quarter of 2024. The rest of the monetary union posted a growth rate measured year-over-year of 2.6% in the first quarter compared to 2.3% in the fourth quarter and 1.4% in the third quarter of last year. The smaller economies are making growth progress. It is the large economies in the monetary union that are struggling the most and that are dragging down the growth rate for the monetary union.

Growth rate rankings- If we rank the growth rates of the European monetary union and the early individual reporters on year-over-year growth and on data back to 1977, we see that the monetary union itself has a growth ranking in the first quarter in its 37th percentile; a 50% ranking would put it at its median for that period- it is short of that. Above-median growth is registered in Ireland with an 89% standing, and in the Netherlands with the 62-percentile standing. Spain also has an above-median result with a 56.5 percentile standing; the rest of the countries are below 50% with Italy the closest to its median at a 47.8 percentile standing. Germany has a 20.7 percentile standing, France had a 26.1 percentile standing, Belgium is at a 29.3 percentile standing. The four largest monetary union economies grouped together have a growth rate with a 26.1 percentile standing while the rest of the monetary union logs of growth rate with a 59.8 percentile standing, significantly above the median of 50%.

A steep step-back for the U.S. This step-up in growth comes as the U.S. is running out of steam. The U.S. growth rate for the first quarter sank to -0.3% (q/q s.a.a.r.) largely on strong imports, substantially because of pending U.S. tariff policy and goods trying to get in under the wire before the bell tolls for tariff-time (imports subtract from GDP). This was a sharp deterioration from a 2.4% growth rate in Q4 2024 and 3.1% in Q3 2024. The U.S. has a 2.1% growth rate year-over-year, still relatively enviable by the standards of the monetary union members. Still, that quarter-to-quarter drop in the pace of growth from Q4 2024 to Q1 2025 has been weaker since Q1 2022.

Money growth trends and the major money center economies are not showing any clear indication toward economic weakness despite widespread pessimism on the part of economists and market prognosticators.

Money growth is accelerating as its growth speeds up over one year compared to its growth over either two or three years in the EMU, the United States, and the United Kingdom. Credit growth in the EMU also speeds up on this sequence- not usually a slowdown signal. The lone exception here is Japan where its fight against deflation is finally won and morphed into an inflation problem that the Bank of Japan is fighting with its usual gradualism. Japan’s money supply growth slows over two years compared to three years and over one year compared to two years. However, back in Europe, credit growth in the EMU is showing acceleration on this timeline. Japan is the only ‘slowdown signal.’

We can also peruse the growth rates for real money balances. The EMU, the U.S., and the U.K. show that ‘real money balance’ growth picks up for two-years compared to three-years and accelerates again over one year compared to two-years. Acceleration is in train as real money balance growth transitions from a shrinking profile to positive growth rates in these three countries. Japan is an exception here as it still logs all negative growth rates and these do get progressively weaker (-1.2% over three years to -1.5% over two years to -2.8% over one year).

Shorter terms trends (for the skeptical) Within the one-year horizons (12-month to 6-month to 3-month), the annualized nominal growth rate in the EMU weaken from 3.4% over 12 months to 2.0% over three months, but real balance growth is nearly unchanged at 1.1% over 12 months compared to 0.9% over three months annualized. Real credit on these time sequences accelerates in the EMU. U.S. real M2 growth generally accelerates from 12-months to 3-months. The same is true for the U.K. but not as steadily. Japan’s progress shows growth rate declines but not getting progressively weaker.

Through all of this, nominal oil prices are steadily falling. While the pace of decline lets up over two years, the 3-year and 12-month growth rates are nearly identical.