Previous posts have suggested that global economic momentum would revive from late 2011, based on monetary trends and the similarity of the current cycle to the late 1970s – see here and here. The risk, however, was that this pick-up would be snuffed out by a deepening Eurozone crisis.

The latter possibility remains but manufacturing PMI data for October are mildly encouraging. The US, Japanese and Chinese new orders indices ticked up last month, with the former reaching its highest level since April. A slump in European activity, in other words, does not appear to be dragging down the rest of the world.


Other positive aspects of the US survey include a fall in inventories and sharp rise in order backlogs, suggesting that firms have been surprised by the strength of final demand.


The US / Japanese improvement dominated European weakness to produce a small rise in G7 weighted-average new orders. This had been foreshadowed by a recovery in Korean manufacturing expectations, which improved further last month – Korea’s export orientation and industrial structure make it a bellwether of the global cycle.


As previously discussed, the scenario of global momentum lift requires confirmation from the OECD’s leading indicator indices, suitably transformed. The next update is due in mid November.