The forecasting measures employed here continue to suggest that global growth is reaching a peak in late 2013 but will remain respectable in early 2014.

The primary forecasting indicator is global* real narrow money supply expansion, which has led turning points in economic growth by an average of six months since 2008. The six-month rise in real money peaked in May 2013, consistent with the current pick-up in global industrial output growth topping out in November – see first chart**. Real money expansion remains respectable by historical standards and comfortably above a low reached in April 2012 before a temporary but significant economic slowdown.

Confirmation for monetary signals is sought from a global longer leading indicator derived from the OECD’s country leading indices. This indicator has led growth turning points by an average of five months since 2008 and reached a 2013 maximum in July, suggesting an economic cycle peak in December – second chart. The fall since July has been minor – further evidence that any economic slowdown in early 2014 will be modest.

A November / December industrial growth peak ought to be signalled by some reversal of recent strength in global manufacturing purchasing managers’ surveys. Equity analysts’ earnings revisions have softened so far in November and correlate loosely with the G7 PMI new orders index – third chart.

G7 labour markets may continue to improve in early 2014 despite a topping-out of growth. This is because 1) employment / unemployment are lagging indicators, 2) growth, while slowing, may match business expectations and 3) productivity performance may remain weak.

Growth peaks – even minor ones – are often associated with set-backs for equities and other risk assets. Market hopes that the Federal Reserve would rush to the rescue by further delaying “tapering” could be disappointed if the US unemployment rate continues to trend lower.

*G7 plus emerging E7.
**The last data points are October estimates.