Global industrial production continues to be powered by the emerging world, particularly China, into July 2013. Leading indicators suggest, however, that the developed world is set to make a much more meaningful contribution to activity in the next 6 months.
This will create a sweet spot where most of the world is rising pretty strongly, with 2014 likely to be quite a bit better than this year.
The improvement in Advanced Economies has been slow, with activity over the last 6 months pretty poor even with better PMIs. We should start to see manufacturing pick up to a pretty decent clip in the next couple of months given the surge in PMI data in the last few months.
As the chart on the left shows, Emerging Asia (read China) has driven pretty solid gains, although this months gain seems to be more about seasonality which isn't dealt with very well in the data.
Nevertheless, Chinese industrial activity has proven to be much better than expected, with the end of 2013 shaping up as a period in which all big economies will see strong industrial activity.
With manufacturing looking solid in most parts of the world, the beginning of 2014 should see growth rates closer to 3.5-4% rather than the sub 2% rates seen at present.
It is also likely that global trade volumes should lift too.
This paper from the Bank of England suggests trade data from the CPB is one of the better indicators for "nowcasting" global GDP, although we preferably want to be ahead of the curve.
The OECD leading indicator suggests trade growth should start to lift from the very slow rates of growth at present in the not too distant future.
In particular, this should be a sizeable boost for Emerging Asia, where the leading properties of the OECD indicator is much more clear.
This is good news for China in particular, as export growth doesn't come with the caveats of over-investment and stronger credit growth. Indeed, a better external sector should help soften the blown of rebalancing domestic activity.
