World industrial production is slowing. Again, the same pattern keeps on showing up: recovery beginning in 2024, but fizzling out in 2025.
This chart shows the six-month rate of change, at annual rates, for my index of world industrial production. It's up to October. Again, a simple pattern. Recovery as the impact of rising interest rates diminishes, and is succeeded by the stimulus from falling interest rates. And then growth peaks and slides sharply.
Trump is driving not just the US, but the global economy into a slowdown at best and a recession at worst.
China has just released its official year-on-year industrial production growth rate for November (4.8%, down from a peak of 7.7 % in March). November's data for US and EA (Euro Area*) industrial production are only available through October 2025. I have a function which estimates additional month(s) of data for a time series. It calculates the next month via three different techniques and uses the average of these three values as the forecast. I have thus been able to estimate an average for industrial production for China, the US and the Euro Area through November.
The chart plots the 6-month rate of change at annual rates in the unweighted average. These are the three largest economies/economic zones in the world, and allowing for Chinese overestimation of GDP, are roughly equal in size. The 6-month rate of change is slowing for all three zones: China peaked in March 2025, and has been decelerating since; the US peaked in June this year; and the EA in April this year.
Growth for the average of the 3 is still positive, just, but the trend is down. Note again the pattern: an accelerating recovery in the world economy from Q4 2024, fizzling out as Trump's tariffs disrupt economies and increase uncertainty.
How low can it go? Well, there is the powerful (lagged) influence of falling interest rates, which should be holding the world economy up, offset by the more immediate impact of the increased uncertainty and trade reductions of the tariff war. So we may see stagnation rather than recession.
The chart below shows my calculation of the year-on-year change in world industrial production, compared with my calculation of the aggregate PMI for the big 8 economies (USA, China, Euro zone, UK, India, Russia, Brazil, Japan). Both time series are extreme adjusted, to reduce/eliminate up or down 'spikes'. Since these are derived from very different surveys, the fact that they correlate so well indicates that they are a true picture of what's happening to the manufacturing side of the economy. I'll be updating my estimates for big 8 PMI in a day or two (S&P Global released the remaining data I need today)
The world economy remains sluggish, though when I was updating the 60-plus underlying time series used to calculate world industrial production, I did notice a few green shoots.
I'll be doing a piece on Trump's tariff plans and their impact on growth and inflation shortly. My preliminary take on them is that they will increase inflation while also reducing world growth overall. So any recovery predicated on falling interest rates (the global interest rate cycle has clearly peaked) will likely be reduced.
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We now have the services PMIs for the Big 8, so I've updated the chart. As usual, each country's services and manufacturing PMIs were extreme-adjusted before they were combined (weighted by their proportion of world GDP) to give the Big 8 averages. The green line shows the average of services and manufacturing, and will be the closest to actual GDP. Note how, last year, services jumped as post-Covid "revenge spending" took off, while manufacturing didn't, but this year, both are picking up. The Big 8 are: the USA, the Euro Area/Zone (countries with the Euro currency), China, Japan, the UK, Russia, India and Brazil, which together make up roughly 70% of world GDP.
World growth continues to pick up, though I suspect its "slope", that is, the rate at which it will accelerate, will be moderate, as the effects of the US fiscal stimulus fade.
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China picking up (though I expect it to slow again), US flat, Europe recession close to end, world flat. Data through March/April. My calculations using my seasonal/extreme adjustment and GDP PPP weights for world IP.
I'm not sure that this chart justifies the markets' fears that interest rates have stopped falling. Yes, the world economy is recovering, but interest rates only start rising a year or two into the recovery, if then. I'll do an analysis of inflation later today.
Big 5 PMI rising, so the market is looking quite a long way ahead, as the PMI leads the economy by 3-6 months.
Preliminary estimates for November, December and January, my calculations. Latest data partially estimated from PMIs.
The chart shows the 6-month rate of change, annualised.
World economic output is still falling, overall, but prolly troughing about now, but I don't expect a jet take-off, more a Sopwith Camel barely clearing the trees at the end of the runway.
I'll calculate my estimate of world GDP tomorrow, but that will prolly confirm these calculations.
I finally got around to updating my China data and indices. And, according to my China diffusion index, which leads my coinciding index by 7 months, China's economy should be stronger than it appears to be. It is however true that my China coinciding index is growing reasonably, on a month-on-month basis. Yet there are so many signs of weakness.
According to my index of world industrial production, world IP continues to slow. Most countries which release monthly IP estimates have produced data up to May. I have estimated June IP for the majors using their June PMIs. However, this technique may not prove reliable---we shall see. (See the charts below for comparisons between the provisional and actual data)
The Euro area's IP estimate for May using its PMI seems to be almost exactly in line with the actual IP data release for May. We shall see whether the June estimate is as accurate. At any rate, it seems clear that Europe is in recession.
Some criticise me for following world industrial production. "Most economies are mostly non-manufacturing these days", they say. True, but the business cycle is normally driven by manufacturing and construction. Covid was the exception, but the crash wasn't caused by monetary or fiscal policy, but by actual lockdowns. "What matters is GDP, not sub-sectors of GDP", they say. Also true, but GDP is quarterly and only published with a lag, whereas IP is available monthly. And the business cycle components of IP and GDP are very similar, as the chart below shows. The recent divergence between the two is because of the lagged demand for services because of lockdowns. I don't know how much longer that'll continue. As the manufacturing recession deepens, it seems probably that services will follow.
World IP has started to fall, and it seems more than likely that GDP will also fall.
The chart below shows the 6-month rate of change in world IP, whereas the chart above shows the deviation from trend of world IP (and GDP). It is now firmly negative. However, the latest month is partially based on a new technique I'm using: estimating industrial production from manufacturing PMI surveys, though actual IP data for the US and China are used. The estimates are for some of the other countries that make up world output data. We'll see how effective that is over the next couple of months.
