Global industrial finished 2013 on a steady note, rising around 3.5%YoY in December and 2.3% for the year as a whole.
It seem likely that 2014 will be better than 2013, with the current run rate of 3.5% achievable for the year as a whole.
As the chart on the left shows, emerging markets largely been responsible for maintaining growth in global industrial activity. Advanced economies lifted steadily from the lows seen in 2012, but are are only ~1.6% than the previous peak in July 2012.
We should see better growth out of advanced economies, with most leading indicators suggest momentum has improved, particular in the Euro Area. That has been the biggest drag and the recovery in IP so far has been slow.
Emerging market growth remains largely about China and Asia, although Eastern Europe is starting to lift with the EU.
I think that Chinese activity is likely to slow, which will sap some of the global momentum. At this stage its unlikely to be disastrous as some headlines are claiming. But the risk of something worse-than-expected occurring rises as activity is falling. And it is this risk that is critical to market participants.
These industrial production are also released with global trade data, which also show an improvement in growth. This rate of improvement, however, is slow relative to the rise in leading indicators for advanced economies.
Trade growth in Asia in particular is slower, although these data don't include the surprisingly strong rise in Chinese exports in January.
One factor distorting the picture somewhat are fabricated Chinese exports to gain access to RMB. One chart that might give some idea of how large this is comes from a recent publication from the
BIS on trade finance that can be found here.
As shown on the left, the intensity of the use of trade finance as a proportion of total trade has exploded in Hong Kong and China.
The increase in Chinese trade finance is also likely to be driven by the use of letters of credit and commodity imports to access lower international interest rates. But for HK, its likely to be to gain access to RMB.
So real trade growth was perhaps weaker at the start of 2013, but stronger into the end of the year following crack downs from Chinese officials.
