Combined industrial output in the Group of Seven (G7) major economies and seven large emerging economies (the "E7", defined here to include Brazil, China, India, Russia, Korea, Taiwan and Mexico) rose by a further 0.8% in January to stand 10.9% above its trough reached in February 2009. Following a 13.6% drop during the recession, output is now only 4.2% below the peak reached in February 2008.

The recovery has been led by the E7 – output has risen by 19.1% from a low in January last year and is 8.8% above its pre-recession peak. G7 production, by contrast, has recovered by 8.3% from a March 2009 trough and is still 12.9% below peak. Relative performance improved in January, however, with a 1.4% gain versus flat E7 output, reflecting a sharp fall in Russia.

The recession and recovery in G7 plus E7 output continues to track closely G7 performance during and after the mid 1970s first oil shock downturn. This template suggests a sustained economic upswing but with momentum slowing during the second half of 2010 and into 2011 – see first chart.

The interpretation here is that recent monetary developments are consistent with this template. G7 real broad money is contracting on an annual basis but this is unlikely to signal insufficient liquidity to support an ongoing economic recovery because of a fall in household and institutional money demand due to negative real interest rates. Corporate liquidity – a key driver of the business cycle – continues to improve while narrow money M1 is rising solidly. Real M1 expansion, however, has moderated, suggesting slower economic growth later in 2010 – second chart.