Recent news is consistent with the forecast here that global economic momentum will reach a short-term low in May and rebound over the summer.

Six-month growth in global* industrial output is estimated to have stabilised in March after falls in January and February, based on data covering two-thirds of the aggregate – see chart. A further decline is likely in April / May, partly reflecting lower production in Japan following the recent sales tax rise. Japanese manufacturers expect to cut output by 1.3% between March and May, with a larger reduction suggested by a plunge in purchasing managers’ new orders.

The forecast of global economic reacceleration from May rests on a pick-up in real narrow money expansion since late 2013 and a more recent confirming rise in the longer leading indicator monitored here. A definitive March reading of the leading indicator will be available on 13 May but preliminary data suggest another monthly gain – an estimate is included in the chart. The recent low in the indicator, meanwhile, may be revised from January to December. This would be consistent with a May trough in industrial output growth, allowing for the typical 4-5 month lead.

Global real money expansion stabilised at a solid level in March, implying favourable economic prospects through September, at least. The recent pick-up has been driven by the US; Japanese real money, by contrast, will be squeezed temporarily by the inflation boost from the sales tax rise – second chart**. The Japan effect could lower the global aggregate from April.

The prospect of a summer economic rebound may warrant a more cyclical bias in equity portfolios: stocks in cyclical industries tend to outperform non-cyclicals when the leading indicator rises significantly – third chart.

*G7 developed and E7 emerging economies.
**Includes April forecasts for US and Japan.