Global* real narrow money trends continue to suggest that industrial output growth will pick up from a trough to be reached in the late spring. Confidence in this forecast would be strengthened by an upturn in the longer leading indicator followed here – a February reading will be available next week.

Posts last autumn argued that six-month growth in global industrial output would peak at end-2013 and moderate in early 2014, while remaining respectable – see, for example, here. This forecast rested on a slowdown in real money expansion from spring 2013 and a confirming decline in the longer leading indicator last summer. Output growth peaked in November / December and is estimated to have fallen again in February, based on data covering two-thirds of the global aggregate – see first chart. Incoming March manufacturing business surveys are consistent with further modest softening.

Global six-month real narrow money expansion, however, bottomed over September-November and has picked up strongly in early 2014, reaching a 16-month high in February** – first chart. Allowing for the typical half-year lead, the message is that industrial output growth will trough around May and rebound through late summer. Note also that a large gap is opening up again between real money and output expansion, implying “excess” liquidity support for markets.

This forecast would be confirmed by an upturn in the longer leading indicator, which is derived from OECD country leading indicator data but provides earlier warning of turning points. The indicator leads by an average 4-5 months and stabilised in January, although this reading is subject to revision – second chart. A February update will be available on 8 April.

As previously discussed, the global real narrow money pick-up has been led by the US, although E7 growth has also firmed slightly – third chart.
    
*”Global” = G7 developed economies and E7 emerging economies.
**February data available for all G7 and E7 countries except Korea.