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Global manufacturing surged last December, rising 7.4% SAAR (+4.9%y-o-y) to close the year up 4.0%. The gap between actual and potential output widened by some 20 basis points to 1.5%, the largest cyclical deviation since mid-2008. As expected, PPI inflation weakened somewhat in December (+0.3%) held back by sluggish growth in raw material prices. Global producer prices rose 4.1% in 2017, fully recovering the losses from the two previous years. Given the delayed pass-through from producer to consumer prices, tight operating conditions should drive up CPI inflation in 2018 even if the cyclical momentum dissipates.

Global manufacturing expanded 4.4% year-over-year in November, and at 3.9% after 11 months is on track to record its strongest year of growth since 2011. As was the case in previous months, steady growth in productive capacity (+3.2%) was amplified by increasingly favourable cyclical conditions. Production volumes have now outpaced potential output for 13 months, the longest period of above-trend growth in the post-recession period.  At 1.3% in November, the manufacturing output gap was at its highest level since March 2012. Tight operating conditions continued to exert upward pressure on producer prices, which rose 0.5% for the fourth consecutive month.