Global industrial output is reported with a lag of several months, and global industrial production
capacity is modeled because of a lack of accurate and timely data. Global production recovered
rapidly from the early 2009 recession trough, paced by China and the other leading emerging /
developing economies. It hit a cyclical and all-time peak in Feb. 2011, then it dipped briefly
reflecting the effects of the Japan quake / tsunami, but is probably pushing into new high ground,
albeit more slowly. Production is running below the long term trend, but the gap in output -- seen
mostly in Japan, Euroland and the US -- has been closing and could be back on trend within the
next 12 months.
The dramatic recovery in output from near free fall was assisted by historically large, coordinated
monetary easing and fiscal stimulus orchestrated by G/20 and G/8. With the wind up of QE 2 in the
US in a month, much of the flow of monetary / fiscal accomodation will have been completed, and
progressive tightening -- underway already in the BRIC countries -- is scheduled to take hold.
From a practical point of view, more fiscal / monetary discipline comes at a time when the global
economy still has a reasonable amount of slack. Thus, some degree of production growth cur-
tailment leaves open the possibility that global inflation pressure, which has grown more acute
over the past six months, will subside some as more slack develops. Wishful thinking? No. Risky
business? Yes.
The clearest risk concerns swings of inventory around a trend of final demand. This is a murky
business on a global basis and involves a fair amount of guesswork in the short run, especially
since countries as well as industries have varied techniques of inventory management.
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