Previous posts highlighted a widening monetary divergence within the Eurozone, with real narrow money M1 still growing solidly in "core" economies (i.e. Germany, France, Benelux and Austria) while contracting the "periphery" (Italy, Spain, Greece, Portugal and Ireland). The latter trend suggested renewed economic weakness that would undermine fiscal consolidation plans.
Industrial output numbers for September are consistent with the theme, showing modest pay-back for August strength in the core but more pronounced weakness in the periphery. With several countries still to publish, core output probably fell by 0.5% on the month versus a 2% decline in the periphery. This would imply that peripheral output is now below its level six months ago – see first chart.
With real M1 contraction accelerating, economic news in the periphery is likely to continue to worsen into early 2011.
