Global industrial activity accelerates but trade soft

Global industrial production has continued its 2H13 revival and is mostly in line with the improvement in leading indicators.  With these indicators better in the OECD, we should continue to see better growth in developed economies.

The US and Europe saw particularly large gain in industrial production in November, which which maybe somewhat reverse in December.  But the bigger picture is that activity now has some momentum after hitting a low in late 2012.

While global IP growth should continue to improve, its composition looks set to shift, with growth in China slowing.  Some of this structural as the base line for activity is now so big.  But is also appears to be cyclical as tightening by government appears to be slowing activity in the last few months.

While global IP has been better, the pick up in global trade has been slower than in previous cycles.

In particular trade growth in Emerging Asia continues to be very slow, which is mostly a function of China trade weakness.

At this point its hard to know if this is a function of lags or whether this is because China's exchange rate is now too strong.  As I posted here, RMB strength is an increasingly large risk to the growth outlook for China and should not be overlooked.

This is perhaps not a bad outcome for the global economy, as China is probably in a better position to handle a stronger exchange rate than anywhere else.  But exchange rate strength, coupled with monetary tightening, could topple domestic growth faster than many are currently forecasting.