The monetarist / leading indicators forecasting approach used here suggested that the global economy would lose momentum during the first half of 2014 but revive during the second half. This proved broadly correct, although the activity trough occurred slightly later than expected: six-month growth of global* industrial output peaked in November 2013, falling to a low in August 2014 before recovering strongly through December 2014 – see first chart.



The forecasting approach now suggests that growth will remain solid or rise further during the first half of 2015. The global longer leading indicator continued to edge higher in December, while six-month real narrow money expansion has been boosted by falling energy prices – first chart.

A striking feature of the 2014 slowdown was its limited impact on labour markets. The G7 unemployment rate trended lower through the year, reaching its lowest since 2008. Stronger recent and prospective growth implies a significant further decline, a scenario consistent with consumer surveys showing less concern about labour market conditions – second chart.



Unemployment rates are now below 25-year averages in the four largest G7 economies. The US, Japanese and UK jobless rates are at their lowest levels since 2008, 1997 and 2008 respectively, with the German rate at a record low in data extending back to 1990 – third chart.



Job openings rates – unfilled vacancies expressed as a percentage of employment plus vacancies – are an alternative gauge of labour market tightness, with above-average readings signalling that employers are finding difficulty recruiting suitable workers. Openings rates in the US, Japan and the UK are the highest since 2001, 2006 and 2008 respectively, with the German rate at a post-1990 record – fourth chart.



The final four charts show, for each economy, a measure of wages / salaries growth along with the job openings rate. Current growth is higher than in 2013 in all four cases, with the current level of the openings rate suggesting a further, possibly sizeable, increase.

Central banks, in aggregate, are in the process of easing policy significantly, partly in response to a favourable oil supply shock, despite an upswing in the economic cycle and limited labour market slack. This is likely to prove a mistake, with a reassessment necessary later in 2015.

*G7 plus seven large emerging economies.