-Holger Schmieding, chief economist at Berenberg Bank
Over the last years markets were ignoring releases of the money supply indicator in the 18-nation bloc. However, central bankers once kept this macroeconomic indicator atop the list of other reports they monitored when trying to asses economic performance. Since 1980s analysts and policymakers were not paying attention, or simply, not emphasising, releases of the aggregates such as M1 or M3. Nonetheless, for some economists, M1 measure still carries power and can be useful in predicting future economic developments.
For example, Holger Schmieding from Berenberg Bank has used this indicator since 2000 and it has served as the best gauge of the Eurozone economy's long-term health. He claimed that major shifts in real M1 growth are signalling economic turning points, mostly three quarters in advance. The measure includes cash and overnight bank deposits, or cash that can be easily accessed and spend by companies and households. Since mid-2012 the M1 indicator has been growing by as much as 6% at the turn of the year, pointing at economic revival in early 2013. However, since then, the pace has slowed to 4%, signalling a potential downside risk the economy can miss its growth forecasts this year. However, Smieding also warned that since the collapse of Leham Brothers the economy has changed, as companies and consumers build up unusual liquidity balances based on fear of another crisis.
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