Last year was a bruising year for the world economy, but no sector was hit harder hit than industrial output. The world Industrial Production (IP) Index, which peaked at 152 in January 2008, slumped 26% to 117 in March 2009, taking output to the lowest level of the decade.

Getting Better All the Time

But 2010 has brought a flurry of growth forecasts. For example the World Bank is predicting that GDP will grow by 2.3% in 2010 and 2.5% in 2011. Their world trade forecast is even more bullish with projected volumes (financially weighted) up by 4.3% in 2010 and 6.2% in 2011. Meanwhile the IEA predicts world oil demand will grow by 1.4m bpd in 2010 and the World Steel Association that steel demand will rise 9.2%, reaching 1.2 billion tons. This may sound like good news, but in private many decision makers seem to have doubts about the pace of recovery. 2008/9 was so bad, and the measures adopted by governments were so severe, that getting back to normal so quickly sounds implausible. So “realists” seem to be thinking in terms of three or four years of hard times rather than three or four months.

Long Hard Climb

So who is right? As usual it is a matter of balance. Growth has certainly resumed in recent months (see graph) and between March and November 2009 output jumped 13.4%. But this only took the IP index to 133, back where it was in 2003. To reach the previous peak of 152, 14.2% more growth is needed. So there's still a hard climb to recover the ground lost in 2009.

Regional Dimension

Meanwhile the new and old economies are on different courses. The output of new Asia (excluding Japan) fell by 16% in the slump, but by November 2009 output was above the previous April 2008 peak. But the older OECD economies are struggling and need 20% growth just to get back to their February 2008 peak. So analysts have a tricky job figuring out how all this will translate into shipping volumes, especially for the container business,

Collateral Damage

A worrying side issue is the damage which may have been done by the fall in output. In the first half of 2009 global production was 15% down on the previous year, which must have left any businesses with fixed costs with a fair amount of financial scar tissue. So whilst sales teams celebrate rising trade volumes, their accountants are struggling to fund the cost of the growth gap (as indeed are governments with the cost of unemployment and the bail-out operation).

What Sort of Bounce?

So there you have it. If you visit a friend in hospital the week he was run over by an eight wheel truck, the right thing to say is "don’t worry, you'll be up and around in no time". It may not be true, but it’s better than "Nice to see you. I expect it’ll take years to get over this". Well, maybe there’s a little of that in the world economic forecasting community at the moment. Have a nice day.