Global Economic Supply & Demand

The global economy remains in expansion mode. That's the good news. The bad news is that
the deceleration in the rate of growth in evidence since mid-2010 remains intact on a trend
basis. Wait, it gets worse. The global economy has downshifted to a sub-normal and modest
rate of growth. Instead of 4-5% yr/yr production growth which characterized previous ongoing
expansions, we have production growth that has slipped to 2.5 - 3.0%. The global operating
rate has eased and commodities pricing has followed suit as resources are hardly strained
at the low rate of growth. There was some pick-up in the pace of production growth near
the end of 2012, but it has not been enough to reverse the continuing downtrend in momentum.
Major sectors -- the US, Eurozone, China and Japan have all contributed to the slowdown
from the heady early recovery phase of 2010. Moreover, there has been additional pressure
on the commodities markets from financial players discouraged by the slow pace of growth.

The US has finally turned stronger recently, but Euroland continues to struggle while China
is getting a subpar bang for its buck as property price speculation has revived. Japan continues
to clear the decks for an attempt to end its lengthy and debilitating deflation.

After a powerful 23% surge in the first 18 odd months, world trade measured yr/yr has settled
down into a desultory 2-3% range. This has naturally set off fears of  "currency wars" as
countries adopt accomodative monetary policies to make exports more attractive. Such could
eventually happen if these policies of greater ease fail to stimulate local economies and, in
turn, trade demand. Right now, the data show that slow growth is holding on a global basis.

As I read it, the globe is far from overheating and running the risk of ushering in a cyclical
acceleration of inflation. But, matters can change here if we begin to see some pick-up in
the growth of major economies.

For more info, check out CPB Netherlands global trade and production monitor and the global
PMI summary from JP Morgan  / Markit.