Global leading indicators are signalling a downshift in economic growth in the first half of 2014, confirming the message from slower real narrow money expansion between spring and autumn 2013. Monetary trends improved at end-2013, tempering concern here about a serious loss of economic momentum; January money supply data will be important for refining the assessment.

The first chart shows six-month growth in global (i.e. G7 plus emerging E7) industrial output together with short and longer leading indicators, calculated by combining and transforming OECD country leading indicator data. The indicators lead growth turning points by an average 2-3 months and 4-5 months respectively. As expected, both moved lower again in December, following peaks in October and September 2013. This suggests that output growth will register a peak in January 2014.

The declines in the indicators follow a slowdown in real narrow money expansion between May and November 2013 – second chart. Real money growth, however, rebounded in December, possibly indicating that economies will regain momentum from mid-2014. The view here will remain cautious pending 1) January money supply data* and 2) a bottoming out of the longer leading indicator**.

The recent decline in the longer indicator, surprisingly, reflects weakness in the G7 rather than emerging E7 component – third chart. E7 economic growth may remain respectable during the first half despite tighter financial conditions in several countries.

*The US, Japan, China and Brazil will release January numbers during the course of this week.
*A mid-year economic reacceleration would be signalled by a rise in the longer indicator probably in February or March.