Highlights

    • Last year’s large-scale fiscal and monetary stimulus has accelerated worldwide industrial production to its steepest 12-month growth in more than 35 years.

    • With U.S. employment growing again and robust inventory rebuilding under way, the recovery of the world’s largest economy has become self-sustaining. The indicators of the last month brighten the outlook even more and prompt us to raise our forecast of 2010 GDP growth by 0.2 points to 3.6%.
       
    • With the Canadian service sector now beyond its pre-recession peak and manufacturing buoyed by inventory rebuilding, the country’s economy has wind in its sails. Private-sector employment growth in the first quarter was the strongest since early 2008 – a gain of almost 90,000 jobs. We are raising our outlook for Canadian growth this year to 3.5% from 3.2%.

    World: Fastest IP growth in 35 years

    Last year’s large-scale fiscal and monetary stimulus has accelerated worldwide industrial production to its steepest 12-month growth in more than 35 years. Global industrial production is moving from strength to strength. The 12-month increase is now the largest
    since records have been kept. Even more important, industrial output is now within a few percentage points of its pre-recession peak and likely to exceed it in the second quarter. The global leading economic indicator rose again in February for a 13th straight
    month, bringing the 12-month rise to a spectacular 13% – the strongest signal from the global economy in almost 35 years.

    China reported a $7.2-billion trade deficit in March, its first since April 2004, but this report is unlikely to relieve pressure on Beijing to revalue its currency. Since China’s import prices are rising and its export prices are falling, the volume trade balance tells a
    different story. Also, seasonal adjustment turns the deficit into a $1-billion surplus. The most relevant indicator is probably economic growth, which at 11.9% annualized in the first quarter is essentially back to the pre-recession pace.

    Other Asian economies show similar momentum. Singapore’s real GDP has expanded 13.1% over 12 months, rebounding in a steep V like China’s. The Singapore dollar, which trades freely, is at a 20- month high against the greenback, showing the strength of upward pressure on Asian currencies. There is no doubt that the yuan, whose value against the greenback Beijing has kept flat since 2008, will have to appreciate this year, probably between 5% and 10%, to ease domestic inflation pressures. Chinese producer prices are up more than 5%. A revaluation in nominal terms is especially likely in that
    the yuan depreciated 6% in real effective terms during the recession. Of course China could also raise the real exchange value of its currency by letting inflation accelerate, but that would crimp household purchasing power. An appreciation in nominal terms is by far
    Beijing’s best strategy.