Seeking Alpha
Macro, portfolio strategy, fixed income
Profile| Send Message|
( followers)  

What's good for the world is good for everyone. The more overseas economies produce, the more money they have to purchase goods and services from us. It's a win-win situation. Although the data in these charts is only through last November, it shows that world trade and industrial production is at the very least stable and in some areas gradually picking up, with most of the recent improvements concentrated in the advanced economies.

(click to enlarge)
The volume of world trade grew 2.5% in 2011 and only 2% or so in 2012, but in the six months ended November 2013, world trade surged at a 6.7% annualized pace.
(click to enlarge)
(click to enlarge)
(click to enlarge)


As the first two of the three charts above show, world industrial production has been picking up over the past year. In the six months ended November 2013, world industrial production rose at a 4.9% annualized pace. That's reminiscent of the growth rates that prevailed in the generally healthy mid-2000s. As the third chart shows, a good deal of this improvement is coming from a decent recovery in manufacturing activity in the U.S. and eurozone economies

(click to enlarge)


Industrial production in advanced economies was stagnant in 2011 and 2012 (think eurozone debt default problems), but things have improved this past year. Industrial production in advanced economies rose at a 4.2% annualized pace in the six months ended November 2013. Manufacturing activity in the U.S. rose at a 6.8% pace in the fourth quarter of last year.

(click to enlarge)
(click to enlarge)


Markets recently have been skittish over fears that Fed tapering is going to be very bad for emerging market economies. In my view, those fears are misplaced. As I noted last week, the problems in Argentina are almost entirely homegrown, and the same can be said in spades for Venezuela. In any event, as the chart above suggests, it's hard to find evidence that the QE era has led to a "bubble" in emerging market economies that threatens to burst. Industrial production in emerging economies has been growing at a relatively constant and unremarkable 4-5% pace for the past several years. They were doing much better in the mid-2000s, when industrial production was rising at 7-10% rates.

As the second of the above charts shows, the Brazilian stock market has been struggling ever since early 2011. If there was an emerging market bubble, it has been deflating for the past 2-3 years.

(click to enlarge)


Markets have also been obsessed with worries of an impending slowdown in China. But as the chart above shows, industrial production in the Asian economies has been growing at a relatively steady 6-7% pace for the past several years. Talk of a China "slowdown" is very relative, since it refers to real GDP growth being "only" 7% instead of 9 or 10%. That kind of "slowdown" was inevitable—China can't grow by 10% a year forever.

Source: World Trade And Industrial Production Look Good