Global industrial production (IP) – the output from mining, utilities and manufacturing firms – finished 2015 with a whimper, recording the slowest increase seen since the global financial crisis.
According to Macquarie research, production across 69 leading industrial nations fell by 0.28% in December, the second monthly contraction in a row, leaving the annual pace of growth at just 0.4%.
The 69 nations Macquarie track represent around 93% of total global industrial production, presenting a worrying snapshot for the global economy as at the end of last year.
Adding to concerns, the 0.4% annual increase was almost entirely driven by continued growth in China, creating doubts over the tepid global growth figure given persistent concerns over the reliability of Chinese government data.
“Essentially the only reason global IP was still higher YoY in December, albeit weakly, was because Chinese industrial production growth remains a punchy 5.9% YoY,” say Macquarie. “The reason we emphasise this point is because if, as many believe, the Chinese data overstate that country’s industrial production growth, then global IP might actually now being falling YoY. It would only take China’s 5.9% YoY expansion to actually be 4.0% – something many commentators have suggested – and we would be in a global industrial recession.”
The charts below, again from Macquarie, reveal why there are valid grounds for concern surrounding the apparent strength in Chinese industrial production.
Here’s the contribution to global industrial production growth in 2015 by individual nation.
And here’s the recent trend in IP growth comparing China to the likes of Russia, South Korea and Brazil.
Remarkable strength, even from the likes of China. Perhaps, as many suggest given concerns about the validity of Chinese data, global industrial production shrank in 2015.
Whether it did or not, Macquarie believe that the recent deceleration in industrial production may reverse in the period ahead, although they do not expect growth to return to levels seen before and in the immediate aftermath of the global financial crisis.
“Looking ahead we believe industrial output growth should accelerate on a sequential basis,” say Macquarie. “The drag from lower oil prices continues but its impact on the global data should lessen, if only because it is already a smaller component. The more positive impact of lower oil prices should become more visible. Some of the decline was probably due to weather conditions that have already changed.”
“Nevertheless we don’t see a strong reason to think that industrial production will return to levels seen before or immediately after the GFC, and due to the weak starting point forecast on a full year basis IP growth to be lower than even 2015’s 1.8%. This will remain a weak backdrop for metals demand, though not a disastrous one.”
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