Combined industrial output in the G7 and seven large emerging economies (the "E7") moved above its pre-recession peak in July – see first chart. US and Chinese data suggest a further gain in August. Output fell by 14% between February 2008 and February 2009 and it has taken 17 months to recapture the loss – not quite a V-shaped recovery but close.
The heavy lifting, of course, has been performed by emerging economies, with the E7 contributing 9 percentage points of the 16% recovery in combined output from the February 2009 low – second chart. E7 output is 15% above its pre-recession peak and 1% higher than its log-linear trend since 2000 – a positive "output gap" is reflected in rising domestic inflationary pressures.
G7 plus E7 industrial output continues to track the path of G7 production during the mid 1970s recession and subsequent recovery – see previous post and third chart. (G7 output was a good proxy for global activity in the 1970s, when the E7 were much smaller and / or locked out of world trade.) This comparison suggests a significant near-term slowdown in growth but no "double dip" – a scenario consistent with recent monetary trends.
