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Falling Real Money Growth Could Weigh on Economic Activity

EUROPE
  • In the past two months, we have seen that economic data and business surveys have started to deteriorate amid rising uncertainty due to a range of risk factors (Delta variant, falling Chinese liquidity...).
  • In addition, real M1 growth, which has historically acted as a strong leading economic indicator for the Euro area, has been falling due to both a decrease in money supply and a surge in inflation.
  • Even though some economies have already embarked on a tightening monetary policy cycle, the uncertainty over the economic recovery still remains elevated, particularly in the EM markets.
  • Hence, the potential weakening in the economic activity in the Euro area could weigh on both euro equities and on the single currency in the medium term.

Source: Bloomberg/MNI

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