Two Signs of Underappreciated Global Economic Health

Reading financial media lately, you might get the impression the global economy is grinding to a halt, hamstrung by a lack of bank liquidity that is starving businesses of funding. The coverage implies a global credit freeze is underway. Yet the data don’t agree.

Exhibits 1 and 2 show loan and money supply growth for all nations in the MSCI All-Country World Index on a GDP-weighted basis. Despite its name, this gauge doesn’t include every nation on earth—just those classified as developed or emerging by MSCI. However, the 47 nations it presently covers amount to the vast majority of global GDP. Each country’s lending and money supply are weighted according to the country’s share of collective GDP, making the result a reasonable proxy of global lending and money growth. As you will see, while both measures have slowed in recent years, they remain at quite healthy rates. Global lending has risen 6.0% y/y or higher every month since October 2014. M2, which is the broadest measure of money available from all these countries, has slowed, but it remains robust—5.9% y/y in November. These figures are consistent with a growing, thriving global economy—not frozen credit markets. With few folks fathoming capital flowing to businesses and households, the stage seems set for positive surprise.

Exhibit 1: Global GDP-Weighted Loan Growth

Source: FactSet, as of 1/7/2019. MSCI ACWI nations’ loan growth and GDP, January 2011 – November 2018.

Exhibit 2: Global GDP-Weighted M2 Money Supply Growth

Source: FactSet, as of 1/7/2019. MSCI ACWI nations’ M2 money supply growth and GDP, January 2011 – November 2018.