The pick-up in six-month G7 real narrow money growth since February suggests a revival in global industrial momentum from the late summer, barring “shocks”. This should be led by Japan and the US with the Eurozone and some emerging economies lagging.
Today’s Japanese industrial output and PMI reports fit the story. Output rose by 3.9% in June and manufacturers plan further increases of 2.2% and 2.0% respectively in July and August despite power constraints. The implied August level of manufacturing production is only 1.3% below the February peak before the 15 March earthquake / tsunami. The key PMI new orders index, meanwhile, moved convincingly into expansionary territory (i.e. above 50) in July.
Global PMI results for July will be mixed – the flash Eurozone survey weakened significantly – but this is consistent with the monetary forecast that momentum should be stabilising at a low level, with clear evidence of a pick-up scheduled to emerge only at the end of the summer, reflecting the lag of six months or so between real money and activity.
