Four Graphs on the World Economic Momentum

Data on the world production index and on world trade (in volume) have just been released by the CPB Netherlands Bureau of Economic Policy Analysis. It’s an independent research institute in the Netherlands

Industrial Production Profile
The first graph shows the industrial production index since 2002. There are 4 distinct phases:
One from 2002 to summer 2008 during which the trend growth rate was 4.5% (annualized growth rate). The second phase is the break of 2008/2009 clearly seen on the graph. The third phase is the recovery from 2009 to January 2011. The trend growth rate was 8.3%. During this period every government had an accommodative fiscal policy to support the economic activity. Since the beginning of 2011 the trend is lower. It’s average growth rate is just 2.8%, well below the figure seen before the 2008 crisis.
Figures in spring 2014 are not far from the trend (green) seen on the graph. Survey data on the manufacturing sector (Markit) for the world economy in July and August do not suggest a change in trend.
world-2014-june-prodThe second graph shows regional contributions to quarterly growth of the index.
World-2014-june-prod-contribSince the end of 2013, the momentum is lower. During the fourth quarter, industrial production was up by more than 4% (annual rate). During spring 2014 the index is up by only 1.8%.
The major driver for this lower momentum is Japan (yellow bar). In the second quarter the drop in production is consistent with what was seen on the GDP (dramatic impact of the VAT rate hike see here). Without Japan (with the specificity of the Abenomics during the whole period), the production growth rate is almost stable at 2% since the beginning of 2013. In that case Asia and the US are the main drivers and other regions, including the Euro Area, have to find their place.
US contribution is robust and solid, the Euro Area is almost invisible on the chart in the second quarter of 2014. For the third quarter in a row, Latin America has a small but negative contribution to the world industrial production quarterly growth. Asia is still strong even if it seems to be a little less than in the past.

World Trade in Volume
The third chart shows the annual change for the world trade in volume. The blue band is the average growth rate from 1992 to 2007 +/- a standard error.
Since the second part of 2011, world trade growth is below this blue band. World trade is growing slowly. In other words, the spillover from production to trade and conversely was strong before the crisis but this is no longer the case. This is clearly consistent with the low profile seen above for industrial production. This shows that the current momentum of the world economy remains low.
World-2014-june-comexThe last graph presents regional contributions to world trade quarterly growth.
World-2014-june-comex-contribDuring the first quarter of 2014 world trade dropped following the US cold climate episode and the Chinese low momentum. This weakness was temporary and growth was 4% during spring. During the second quarter, Japan has a negative contribution which is consistent to what was said previously. Regional contributions are usually positive but not too strong.
The world economy is not going fast currently. Recent surveys, except may be in the US, do not show a strong departure from this trend in a foreseeable future

One thought on “Four Graphs on the World Economic Momentum

  1. Pingback: Two Worrisome Graphs for the World Economy | Philippe Waechter's blog

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