The virtuous loop between activity in the manufacturing sector and world trade


The world trade rebound will continue in the forthcoming months. That’s what the graph between world trade growth and the Markit index suggests. The robust level of the manufacturing index is consistent with a stronger momentum on world trade.
Every region of the world shows an improvement in the manufacturing activity according to Markit. This will support a balanced growth scheme at the world level.A higher Markit index will boost trade and therefore world growth.


The momentum at the world level is strong and robust. The Euro Area is in a catchup period with a high momentum on new orders and on employment. The business cycle is virtuous. There are reasons to be optimistic on the Eurozone environment.
The situation is more specific in the US after hurricanes. The most important contributor to the ISM increase is the item on delivery. There were strong needs and it was difficult to deliver due to disruption and delays.
The situation is robust in Japan and the Brits are still optimistic on their activity.
Indices for emerging countries are robust. The situation is good for emerging countries: growth in developed countries + higher commodity prices + growth in China is steady + good financial conditions (the impact of Fed’s hikes on interest rates have been very limited)
The marginal slowdown is associated with a marginally lower index in China.


How to clearly perceive the global outlook improvement ?

The graph below summarizes the perception that one can have of the manufacturing sector after the publication of surveys from Markit and ISM for the month of November. Numbers are better oriented, tending to move permanently above the 50 threshold separating improvement and deterioration of the outlook in the manufacturing sector. However, the multiplicity of indices do not allow  an easy reading.
I took the main indices and observed that they were all trending upward even if the pace is not the same everywhere. To visualize this shift I drew heuristically a yellow band that reflects this new dynamic. It has no scientific virtue but helps guide your eye on the change that is taking place.
The activity was higher in 2009/2010, slowed in 2011 until the spring of 2013 with this yellow band close to the threshold of 50. Subsequently economic activity has improved, driven by the United Kingdom, the United States and even Japan. The Euro Area and BRIC are a little late. The yellow band is now following an upward trend.
The whole reflects a more robust common momentum where risks of rupture are reduced. At this stage it is important to note that global dynamics may become stronger rapidly. Everyone must then contribute to it to its improvement .