World Industrial production

Well, after an absence of over 2 years, here are the latest data for my world industrial production index.  In my last post, back in 2020, I turned out to be quite wrong about how rapidly the world economy would recover from the COVID crash.  It turned out that world governments and Central Banks responded with the massive stimulus and interest rate cuts, which stimulated a rapid rebound from the crash lows.

I also calculate a diffusion index of all the world industrial production indices.  A diffusion index measures how many of the observed time series are rising.  At the depth of a recession, few are.  At the peak of the cycle, most are.  At 50%, half the components are rising, and half are falling.  

If the diffusion index is rising, this suggests that the overall universe measured by the diffusion index is accelerating.   

The chart below shows the level, not the rate of change, of the index of world industrial production, compared with the diffusion index of all the component production indices.  Note the deep slump caused by Covid.  In the recovery from Covid, 97% of the measured industrial production indices were rising.  This fell to 60% as the rebound faded.  But recently, the number of industrial production indices rising has gone back to 80% of the total, suggesting growth is picking up.  This impression is confirmed by shorter rates of change.  If you look at the 6-month change in world IP, at annual rates, for example, it's moved from ± 0% in September 2021 to ±8% in March.   This is interesting because other data (PMIs, for example) suggested that though growth was still strong, it was slowing.  

It takes around a year for interest rates increases to cause economic indicators to start growing more slowly.  The average Central Bank discount rate has been rising since December 2020, though from exceptional lows.  So we would have expected the world economy to start slowing by now.  On the other hand, the Fed only started raising the Fed Funds rate in March.  The US is the world's largest economy.  So we may have to wait for the US to start slowing before we see declines in world aggregates.  

We'll see.