The forecasting indicators employed here continue to suggest that the current pick-up in global economic growth will peak out in the spring. They are not yet warning of significant subsequent weakness, however.
The first chart below shows the six-month percentage change in G7 plus emerging E7 industrial output together with a leading indicator derived from the OECD’s country leading indicators, a December update for which was released today. This indicator continued to climb in December and has led turning points in industrial growth by an average of three months in recent years, suggesting that the current pick-up will extend at least through March.
The second chart superimposes a “leading indicator of the leading indicator” designed to give earlier warning of growth turning points – its average lead time has been five months. This double-lead measure edged lower for a second month in December. The October peak is consistent with global industrial growth topping out in March*.
A similar outcome is suggested by global real narrow money expansion, which has led economic cycle turning points by an average of six months and also peaked in October**, consistent with an April growth top – third chart.
Market prospects depend importantly on whether a spring growth peak is followed by a plateau or another slowdown – cycle downturns, even modest, have been associated with “risk-off” episodes in recent years. The indicators have yet to distinguish between these scenarios – both real money expansion and the double-lead measure remain at levels historically consistent with respectable economic growth. Some caution, however, may be warranted pending clarification.
*Data revisions have shifted the previously-reported September peak in the double-lead indicator.
**An early estimate of January real money growth will be available later this week and will be reported here.
