World liquidity expansion accelerates in March 2011

GECODIA Team

In March 2011, world liquidity remained ample and will remain so in the very short term.

World liquidity expansion accelerates in March 2011
The world liquidity growth was up in March 2011. G20 base money (sum of central bank money in USD) rose by 15.8% per annum. China remained the most important contributor (+8.5 pp, 53% of the total growth) but the US liquidity is also growing rapidly (+5.6 pp, thanks to the quantitative easing of the Fed) and also Brazil (+1.7 pp) and Japan (+1.3 pp). On the other side, the liquidity in the euro area is decreasing (-1.4 pp, the ECB has begun its exit strategy in the end of last year).

Economic Impacts
A rapid expansion of the world liquidity, thanks to the Fed and the emerging world, is a strong support to risky assets (mainly equities and commodities).

However, the QE2 will end in June and it is now very likely beginning that the Fed will begin its exit strategy in the second half of 2011, dragging down the US liquidity on a sequential basis. In the Emerging world, monetary tightening is also expected to lead to a gradual slowdown in liquidity growth.

In conclusion, on the very short run, world liquidity will remain ample and positive for markets. But, this will fade away after the summer.


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