Some bearish commentators claim that the world economy has not yet recovered from the 2008-09 recession. This is patently untrue. A proxy for global industrial production, comprising output in the G7 economies and seven large emerging economies (the “E7”), stood 4% above its pre-recession peak in July – see first chart.

True, G7 output is still 8% below the prior peak, though has recovered 15% from its early 2009 trough. This sub-par performance, however, reflects the rapidly-rising weight of emerging economies in production and demand rather than global weakness. E7 industrial output has surged 36% since early 2009 to stand 23% above its pre-recession high – second chart.

Numerous posts over the last two years have drawn a comparison between the recent cycle and the 1974-75 recession and subsequent recovery. G7 industrial output fell by 12% in the mid 1970s, similar to the 14% decline in G7 plus E7 production during the recent downturn. (The G7 dominated the capitalistic world in the 1970s – the E7 economies were small and isolated.) G7 production rose by 16% in the first two years after the trough (i.e. between May 1975 and May 1977) versus a 21% G7 plus E7 increase between February 2009 and February 2011.

The recent loss of global economic momentum also echoes the 1970s, as shown by the third chart, which compares annual industrial output growth across the two periods. The cyclical resemblance suggests that another global recession will be avoided and that output weakness will abate in late 2011 ahead of a pick-up in 2012. Interestingly, such a scenario is also implied by stronger G7 real narrow money expansion since the spring, documented in several recent posts.

The MPC-ometer’s suggestion that a majority would vote in favour of more QE this month proved incorrect but the minutes are likely to reveal a further dovish shift, with Adam Posen no longer isolated. Perhaps some members were deterred from voting for immediate action by the apparent assault on the Committee’s independence by Chancellor Osborne in a speech earlier this week, in which he stated that "we will do everything we can to keep monetary conditions throughout the economy as growth-friendly as possible” (noted by David Smith).

US job openings (i.e. vacancies) are released a month after the widely-followed employment report but are still useful because they tend to lead payrolls. Private-sector openings rose to a new recovery high in July, suggesting that the stall in private payrolls in August – partly due to the Verizon strike – will prove temporary.

Markets are fearful that a recent sharp fall in global consumer confidence will feed through to lower spending. It is still early but there is no evidence of any impact on August vehicle sales: the G7 total rose solidly from July to its highest level since March – see chart. This reflected increases in Japan and Europe, with the US little changed. Caveat: the gain is partly due to Japanese supply coming back on line, allowing earlier orders to be filled.

US narrow money continued to surge in August, strongly suggesting a further pick-up in G7 six-month real narrow money expansion – viewed here as a key leading indicator of global economic momentum.

US six-month real narrow money growth is the fastest since March 2009, arguing, on the face of it, against sustained US economic weakness – see chart.

10 of the 11 postwar US recessions identified by the National Bureau of Economic Research were preceded by a fall in real narrow money. The exception – the 1953-54 recession – appears to have been triggered by severe fiscal tightening as defence spending was slashed following the end of the Korean war.

Extending the analysis further back, the five interwar US recessions were preceded by, at the least, a stagnation in narrow money.

Such considerations do not preclude renewed GDP contraction but suggest that it would be short-lived. Short recessions have sometimes been associated with a rise in US equities – the S&P 500 index was 5% higher at the end of the July 1990-March 1991 recession than at the start, for example.

Bears argue that the current narrow money surge is being driven by extreme liquidity preference caused by fears of Eurozone-led financial instability and has no positive economic implication. The velocity of circulation, in other words, is collapsing. They made a similar case in early 2009 when claiming that there was no end in sight to the recession or equity market slide.

Part of the build-up is, indeed, due to “hoarding” but the cash will be released into the economy and markets when risk aversion abates. The issue is what policy steps are needed to begin to rebuild shattered investor confidence. Earlier posts have suggested that the ECB needs to reverse its misguided tightening. This would represent an embarrassing U-turn but policy thinking in Europe is shifting rapidly, as evidenced by today's surprise commitment by the Swiss National Bank to cap the Swiss franc at 1.20 against the euro.

With all 12 inputs now available, the “MPC-ometer” continues to predict a narrow majority in favour of expanding QE at this week’s meeting. This is the first easing signal given by the model since November 2009, when the MPC announced a further £25 billion of gilt purchases.

The final input was today’s PMI services activity index for August, which continued the recent run of weaker-than-expected data by falling from 55.4 in July to 51.1 – the consensus forecast was 54.0.

The MPC-ometer’s output is in the form of a prediction for the average interest rate vote of Committee members. The September forecast is -18 basis points, consistent with six members voting for a quarter-point cut and three no changes.

Since the MPC appears to have set 0.5% as a floor for official rates, the suggested six doves will, presumably, vote instead for an expansion of QE. (At the August Inflation Report press conference, the Governor stated that “We can raise Bank Rate or we can increase our asset purchases according to the direction in which we want to go.”)

The consensus expects the current high headline CPI increase to prevent the MPC from moving this month but the Committee, historically, has accorded more weight to forward-looking survey and market inflation measures. CBI industrial firms’ pricing plans have softened notably since the early summer, as have five-year inflation expectations implied by the gap between conventional and index-linked gilt yields – see chart. The MPC cut rates in October 2008 despite CPI inflation of 4.7% as the global economic outlook darkened following Lehman’s collapse.

The suggestion that the MPC will ease this week does not imply approval of such action. Previous posts have argued that – in contrast to early 2009 – the UK economy is not suffering from a shortage of liquidity. “Excess” money created by more QE could put further downward pressure on the exchange rate, thereby boosting tradeable goods prices and inflation rather than activity.