The first green shoots of global manufacturing recovery are emerging as Europe, the US and Japan shake off the recession scare, and China comes back to life after a deep industrial slump.

The JP Morgan/Markit index of global factory orders rose to a seven-month high of 51.9 in October and output rose to 51.4, fuelled by a wave of monetary stimulus across the world and an end to fiscal austerity in the West.

Fears that the world’s fragile economy is being sucked into deflationary vortex appear overblown as a fresh mini-cycle gathers strength. “Global growth is holding up much better than many seem to fear,” said Andrew Kenningham from Capital Economics.

“We think this is just the beginning of a long recovery for the whole Western world after five years of post-crisis blues. We’ve turned relatively bullish,” said Charles Dumas from Lombard Street Research.

Japanese industry has shaken off its mid-year malaise with the strongest data in a year, suggesting that East Asia may at last be through the worst.

Britain’s PMI index rocketed to a 16-month high of 55.5 and is now the strongest in the world, despite the overvalued pound. India, Russia and Vietnam all eked out expansion, and central European states led by Poland and the Czech Republic once again brushed off the emerging market slowdown.

China remains a battleground between bulls and bears, each delving into the country’s opaque data for evidence to prove their case. Yet it is clear that the Chinese economy is no longer deteriorating after hitting a brick wall at the start of the year, chiefly due to botched fiscal reform.

“Chinese PMI manufacturing for October showed clear signs of bottoming,” said Allan von Mehren from Danske Bank.

“This underpins our view that China has hit the cyclical trough. We expect further improvement in the coming months, which should give support to emerging market assets and risk assets in general,” he said.

David Fuller's view

Here is a PDF of AE-P's column.

Veteran subscribers may recall me saying after 2008 that historic evidence indicated that it took at least five years for an economy to recover from a significant credit crisis recession.  Additionally, since this was a global event for developed economies and the worst credit crisis since the 1930s, it would most likely take six to eight years before an international recovery was clearly underway.  I have often repeated these points in Comment of the Day and particularly in Friday’s Big Picture Audios. 

Therefore I am very pleased to see Ambrose Evans-Pritchard’s column above, in which he also quotes a number of international commentators with similar views.  This is quite a change from the often extremely bearish views that we were hearing earlier in the year, citing global deflation and recession, capable of persisting for at least several more years.  In other words, ‘the new normal’, as we have heard on numerous occasions.   

Theoretically, this is still possible since forecasts about the future inevitably involve conjecture and uncertainty.  Nevertheless, I maintain that we should see at least tentative evidence of some economic improvement during yearend 2015 and as 2016 progresses. 

For the all-important US economy, Wall Street bottomed in 1Q 2009.  Therefore it is just over six-and-a-half years since that date so I am looking for the green shoots of economic recovery. If so, we will see this first in the USA and other developed economies such as the UK and Japan, and hopefully within the EU.  This is logical since all received QE, which continues in Japan and the EU. 

Crucially, we should also see some economic improvement in China next year, as it has also benefitted from its own version of QE.  That would help the entire Asia Pacific region.  This would also boost resources exporting counties which have experienced severe recessions. 

Newer technologies, where introduced by multinational resources companies, can now produce industrial commodities far more cheaply than ever before.  However, this means that production cutbacks are even more necessary to lift prices from currently depressed levels.  I maintain that this process has recently begun.  A further recovery in commodity prices would boost corporate earnings within the sector and also rekindle some economic growth in many countries which are primarily exporters of resources.  As they improved, most of the global economy will be synchronised in a period of initially modest recovery. 

Stock markets will like it; bond markets will not.