The forecast here that the global economy would regain momentum in late 2011 has received further support from data released over the holiday period.
A weighted average of new orders indices in G7 manufacturing purchasing managers’ surveys moved above the breakeven 50 level in December, as had been suggested by improving earnings revisions – see previous post.
While the US remains in the lead, most other countries reported improvement, albeit from weak levels.
Strong Korean exports in December are a further sign that the global and Chinese economies are holding up.
Global manufacturing activity is benefiting from strength in consumer demand – G7 retail sales volume consolidated recent gains in November. A widening sales / output gap has aided inventory adjustment and should lead to increased production in early 2012, assuming no demand relapse.
Firmer demand, in turn, was predicted by a pick-up in global real narrow money expansion from spring 2011. The six-month growth rate of G7 plus emerging E7 real money ticked down in November but remains healthy, suggesting that the improvement in economic momentum will be sustained through spring 2012 at least.
The global real money pick-up, however, has been heavily dependent on US strength, which is now fading. An optimistic economic scenario for later in 2012 depends on a recovery in real money expansion elsewhere – particularly Euroland and the E7. E7 numbers have started to improve and Euroland could follow, based on slowing inflation and recent policy easing.