Economy in Brief: April 2024

Money growth still contracting; credit growth is flat EMU Money Growth- Money and credit growth in the European Monetary System has ground to a halt with M2 money supply still decelerating in nominal terms. Three-year growth is at 2.6% at an annual rate, two-year growth at a 0.5% annual rate, and growth over three months is flat. When viewed in real terms, there's a little more progress that appears but the growth rates for real money supply are negative. Over three years European Monetary Union money grows at a rate of -2.7%; over two years it is weaker at a -3.8% annual rate; over 12 months real money supply declines at a 2.5% annual rate. Over three months, real money supply has declined at a 1.3% annual rate, reversing the step-down in contraction. There's a gradual and somewhat uneven movement toward money growth contraction to be less restrictive; however, negative real money growth rates persist and when it comes to nominal money growth the performance is simply flat.

EMU Credit Growth- Credit growth in the monetary union faces similar trends. Private credit grows at 2.7% at an annual rate over three years, at a 1.9% annual rate over two years, but private credit growth over three months has only a 0.2% annual rate of growth. Nominal private credit growth has slowed its pace so much that over three months its pace has been close to zero. Looking at private credit growth in real terms, we see it shrinks at a 2.7% annual rate over three years; it shrinks at a 2.5% annual rate over two years, that's further reduced to a -2% annual rate over 12 months. Over three months, the annual rate for credit growth is further reduced to -1.1%. The degree of contraction for credit in the European Monetary Union has been reduced; however, the EMU continues to demonstrate weak nominal credit growth and declining inflation adjusted credit growth.

German consumer confidence/climate on the forward-looking GfK measure has reached its highest reading in the past two years. On the surface, this sounds impressive, but in fact over the past two years confidence has varied in range from -24.4 to -42.8 with a median value of -28. The reading today of -24.2 for May is only marginally better than what it has been over the last two years and over the last two years there have been 16 readings above -30. The six-month moving average of the climate index increases to -27.2 in May from -27.8 in April. The six-month MAV was last at this level in February 2024 and was higher in August 2023-January 2024. What we have with the May reading is a marginal nudge to the higher part of the range that we have been seeing for the past two years. If we go back to April 2022 that's when we start to see a real shift in the level for confidence on the GfK measure, we see a dramatic shift in the level of climate. In April 2022, the headline measure was -15.7 and in March 2022 it was -8.5. While the May reading takes us back to the cusp of those very low readings, it only does that chronologically; it doesn't do that in terms of the intensity of the reading.

Context! - The rank standing of the reading provides some information on this. The May 2024 climate reading stands in the lower 9.1 percentile of its historic queue of data. Viewed as a position and its high-low range, the consumer climate reading from GfK has a 34.6 percentile standing. That higher standing comes about because the low point for the reading is so very much lower than where it is right now below point comes at a reading of -42.8. The economic expectations and income ratings as well as propensity to buy ratings are also weak but not as weak as the GfK climate headline. The component readings for the GfK report lagged by one month so the most up-to-date reading for these components are through April. As of April, the economic expectation rating rose from -31 in March to 0.7 in April; the income rating rose from -1.5 in March to 10.7 in April; the propensity to buy reading rose from -15.3 in March to -12.6 in April. These readings give us count percentile or cube percentile standings: the 36.5 percentile for economic expectations, the 45.6 percentile for income expectations, and the 25.9 percentile for the propensity to buy. Income expectations has made the largest leap forward with its jump to 10.7 in April from -1.5 in March; it's a leap that is clearly unmatched by the improvement that we've seen in the headline for climate that is barely inching ahead, having posted -28.8 in March, risen to -27.3 in April and moved further up to -24.2 in May.

Improvement, yes, but still not good- All the components have queue or count percentile standings below the 50-percentile mark which means they are below their historic median levels. The propensity to buy is the relative-weakest component just above the lower quartile of its historic queue. Income expectations are closest to their median, with their 45.6 percentile standing. While ‘expected’ German incomes are getting close to their median value, the propensity to buy is lagging behind badly. And economic conditions are also considered to be inferior to expectations for income. It's clear that the German economy is still in this very weak period that it's been in since COVID and the Russia invasion of Ukraine. Germany hasn't really made the transformation to a moderate recovering economy. The IFO report, released just earlier this week, revealed widespread improvements but still extremely low percentile standings for the various sectors on that gauge. There is considerable evidence suggesting that the German economy is improving; however, the metrics that assess performance of industry or the level of consumer confidence or comfort continue to lag badly behind historic norms.

Elsewhere in Europe- The table also provides information for other countries the rankings for Italy, France, and the United Kingdom. They generally show better consumer confidence than in Germany’s GfK metric. The confidence metrics for these countries tend to lag one or two months behind the German measure which is not surprising because the GfK metric is for May; it's looking one month ahead. Italy has an updated value as of April; from February to March to April, the Italian data showed slippage in confidence although the percentile standing for the April Italian confidence measures is its 70th percentile of its historic queue of data, quite a bit better than the numbers from Germany. France's most up-to-date number is for March; for France, conditions have been holding steady. The percentile standing for its March metric is at its 37.4 percentile like the components for the German GfK metric that are up to date through April. The U.K. confidence measure has been stable over the last three months with just some minor slippage. It has a 32nd percentile standing in its historic queue of data. All these cases evaluate the consumer metrics back to June 2002. Queue (or rank) standings for all these countries, therefore, are executed over the exact same timeline so that they are directly comparable.