The forecast of a summer rebound in global growth remains on track, according to the short- and longer-term leading indicators followed here.

The indicators are derived from OECD data and have led growth turning points by 2-3 months and 4-5 months respectively in recent cycles. They weakened during the second half of 2013, correctly predicting that the global economy would slow in early 2014. Six-month industrial output growth* peaked in November / December 2013 and fell to a 10-month low in April – see first chart.

The longer-term leading indicator, however, started to recover in January, with the short measure following in February. Industrial output growth is probably now reviving from a trough reached in May.

The short-term leading indicator rose again in April while the longer measure was little changed. This suggests that growth will pick up through the summer before stabilising at a higher level at the end of the third quarter.

The stalling of the longer-term indicator in April reflected a decline in the G7 component – second chart. The G7 measure may have been temporarily distorted by Japanese data volatility due to the recent sales tax hike; the April set-back, in other words, may be reversed in May-June. The E7 component, meanwhile, continues to strengthen, supporting optimism about emerging market equities.

The forecasting approach here uses the leading indicators in conjunction with an analysis of real narrow money trends. Global real narrow money expansion slipped back in April, but this mainly reflected the impact of the Japanese sales tax; trends elsewhere remained solid – see previous post. Global economic acceleration may be over by end-summer but the monetary / leading indicator evidence has yet to suggest a subsequent slowdown.

*G7 developed economies and E7 emerging economies.