Spring has arrived. Despite a late start, this winter lasted longer than usual in many countries, especially in various parts of Europe. And this year again, the melting snows reveal a trend that has been observed over the past several years: households are increasingly using wood to heat their homes. No, this time we are not talking about World Bank client countries where wood is known to account for large shares of energy consumption.
Financial Markets…Spanish and Italian government bonds bounced back from their earlier losses, with their benchmark 10-year yields dropping 6 basis points to 5.17% and 4 bps to 4.36%, as a report showed German investor confidence surged to the highest level in nearly three years this month, boosting risk-appetite for the region’s high-yielding debt. Notably, Spain sold €4 billion ($5.35 billion) of 3- and 9-month bills with an average yield of 0.421%, down from 0.441% in January auction.
Asian equities advanced on Tuesday, with the benchmark MSCI Asia Pacific Index heading for an 18-month high closing, amid robust corporate-earnings reports. But gains were somewhat limited on worries that Chinese government will try to cool the property market, pushing China’s Shanghai Composite Index lower by 1.6%.
The Standard &Poor’s cut its sovereign credit rating on Tunisia by one level ‘BB-‘ (three notches below investment grade) from 'BB', citing increased political risk in the wake of the February 6 assassination of a prominent leftist opposition politician, Chokri Belaid. The downgrade was the third one by the rating agency since January 2011.
High-income Economies…Investor confidence in Germany rose to a three year high in February, with the ZEW Indicator of Economic Sentiment, jumping to 48.2 in February from 31.5 in January. This was the third consecutive increase for the index which aims to predict economic developments six months in advance, and the highest reading since April 2010. Economic expectations for the euro area climbed 11.2 to 42.4 in February.
Greece’s current account deficit narrowed sharply to €0.54 billion in December from € 0.85 billion in November helped by falling imports and lower interest payments after a sovereign debt cut. For the year as whole, the deficit shrank to 2.9% of GDP in 2012 from 9.9% the previous year - its lowest level since 1999 when it joined the euro.
Construction output in the Euro Area continued to fall in December, declining by 4.8% (y/y) compared to 4.7% in November, led by weakness in Portugal, Poland, Bulgaria and the UK. On a monthly basis, output decreased 1.7% (m/m) in December, after dropping 0.4% in the previous month.
Developing Economies…East Asia and Pacific: Thailand’s GDP grew briskly by 3.6% (q/q) in Q4 of 2012, up from 1.5% (q/q) in the previous quarter. Growth for the full year came in at 6.4% up from 0.1% in 2011, reflecting strong domestic demand following the government’s stimulus post 2011 floods.
Europe and Central Asia: Russia’s retail sales slowed in January, growing by 3.5% (y/y) compared to 5.5% (y/y) in December. This is the slowest pace in 35 months as private consumption is weakening.
Latin America and the Caribbean: Mexico’s GDP growth accelerated in the Q4 growing by 3.1% (q/q, saar) up from 1.4 (q/q, saar) in Q3. Growth for the entire year was flat at 3.9% in 2012 as strong domestic demand offset weaker exports.
Middle East and North Africa: Tunisia’s industrial production accelerated in November 4.2% (y/y) compared to 0.3% (y/y) in October 2012. Higher growth partly reflects base year effects, with the expansion led by growth in energy production and manufacturing.
Sub-Saharan Africa: Nigeria’s inflation dropped to 9% (y/y) in January from 12% in (y/y) in December 2012 bringing inflation in line with the central bank’s target (<10%).
Financial Markets…The Standard & Poor’s 500 Index added 0.1% in Friday morning trade and the dollar weakened 0.2% versus the euro after a U.S. Labor Department report showed a slightly slower than expected employment growth in December. The S&P500 has advanced 4.1% this week, gearing for its largest weekly gain in 13 months.
10-year U.S. Treasury yields rose 4 basis points to 1.95%, paring some losses after climbing to a nine-month high of 1.97% before a government report on U.S. employment. Treasuries extended losses yesterday as investors feared the possibility of U.S. Federal Reserve ending its $85 billion monthly bond purchase program sometime this year.
Developing-stock markets fell for the first time in 10 days, with the benchmark MSCI index sliding 0.6% from a 17-month high closing yesterday, after Fed policy makers said they may end their stimulus monetary policy. Emerging-market stocks jumped 108% during the first round of so-called quantitative easing, and they have advanced 9.5% since the U.S. Federal Reserve announced a third round on September 13.
High-income Economies…U.S. nonfarm payroll employment rose 155,000 in December, below the 161,000 increase in November, with a slower pace of increase in private sector employment and a drop in public sector employment. The unemployment rate held steady at 7.8% in December.
U.S. factory orders were flat in November, following a 0.8% (m/m) rise the previous month. However, nondefense capital goods order excluding aircrafts – a proxy for future business investment – rose a robust 2.6% (m/m) following a 3% rise the previous month. The ISM non-manufacturing index for the U.S. index rose to 56.1 in December (the highest reading since February) from 54.7 in November.
Euro Area consumer price inflation remained steady at 2.2% (y/y) in December according to preliminary estimates, the same rate as November, as a weakening pace of year-on-year increases in energy prices was offset by a slight pickup in food and services inflation. The overall inflation rate remains above the European Central Bank’s 2% target.
Markit’s services Purchasing Managers’ Index (PMI) for the Euro Area rose to 47.8 in December from 46.7 in November, suggesting a slower pace of contraction in services sectors (An index level below 50 indicates contraction). Despite an earlier reported modest decline in the manufacturing PMI (to 46.1 from 46.2), a composite index that includes both manufacturing and services rose to 47.2 from 46.5 in November.
Services PMI for Germany rose above the 50-mark to 52.0 in December from 49.7 in November. PMIs rose in Italy (to 45.6 from 44.6) and Spain (to 44.3 from 42.4), but fell in France (to 45.2 from 45.8). Services PMI for Ireland fell to 55.8 from 56.1, but indicating a still robust pace of expansion.
German retail sales rose 1.2% (m/m) in November, almost reversing a 1.3% drop the previous month. Retail sales were 0.9% lower than a year earlier in November.
Developing Economies…China’s HSBC business activity index for service sector declined to 51.7 in December from 52.1 in November suggesting a continued, but somewhat weaker expansion of service sector activity in December compared to November. An earlier survey by China Federation of Logistics and Purchasing (CFLP) and the National Bureau of Statistics suggested that that China's service sector growth accelerated to a four-month high in December.
Residential property prices in China increased for the first time in nine months in December, though at a marginal rate, indicating that the property market is on a recovery path. The house price index, which measures the average cost of a new home in 100 major cities, moved up 0.03% on an annual basis in December, ending eight months of declines.
Inflation in the Philippines edged up to 2.9% in December from 2.8% in November, mainly on the account of higher inflation for food, beverages and tobacco. The annual average inflation rate in 2012 at 3.1% was the lowest registered over the past five years. Inflation in 2012 was also significantly lower than 4.7% attained in 2011.
Brazil's industrial production decreased 1% (y/y) in November following a 2.5% growth in October, pulled down by decrease in production of capital goods. On a monthly basis, industrial production also fell by 0.6% in November.
Meanwhile, Brazil’s Markit Economics activity index for services sector, which increased to 53.5 in December from 52.5 in November, suggests that service sector expanded at the fastest rate in nine months in December.
Financial Markets…U.S. Treasuries slid for the first time in four days, with the benchmark note yields 3 basis points to 1.62%, as a government report showed U.S. employers added more than forecasted jobs in November. U.S government bonds have advanced 2.8% this year as of yesterday, after gaining 9.8% in 2011 and 5.9% in 2010.
The Eonia swap rate (an estimate of compounded overnight borrowing costs in euros over the next three months) fell to 4.5 basis points on Friday, the lowest level since July, as investors speculated the European Central Bank is open to cut interest rates further. And the 3-month euro interbank offered rate (or Euribor), bank-to-bank lending rate, fell at a record low of 0.187%.
The dollar strengthened against the yen and euro following encouraging U.S. jobs data, climbing 0.3% to 82.66 yen and 0.4% to $1.2913, respectively. Meanwhile, Canadian dollar rallied versus its U.S. counterpart, climbing 0.3% to 98.82 cents per U.S. dollar, as the country’s unemployment rate fell to 7.2% from 7.4% last month.
High-income Economies…U.S. nonfarm payroll employment rose by 146,000 in November, suggesting that the impact of Hurricane Sandy on overall U.S. employment had been limited. But the rate remains well below the 200,000-250,000 monthly gains needed for a sustained improvement in the labor market as employers remain reluctant to hire amid U.S. “fiscal cliff” risks. The unemployment rate, however, edged down by 0.2 percentage points to a four-year low of 7.7%, mostly because of people dropping out of the labor force.
Reflecting uncertainties relating to impending tax increases and spending cuts, the outlook of U.S. consumers deteriorated sharply in December, with the Thomson Reuters/University of Michigan consumer sentiment index falling to 74.5 in December, the lowest since August, from 82.7 in November.
German industrial production fell 2.6% (m/m) in October, a faster pace of decline compared with a 1.3% drop in September, suggesting that the Euro Area debt crisis is taking a toll on Europe’s largest economy. Earlier data had shown that industrial orders were supported by strengthening foreign demand (partly from developing countries), but domestic demand has continued to weaken.
U.K. industrial production fell 0.8% (m/m) in October, a slower pace of decline than the 2.1% monthly fall in September. On a year-on-year basis, industrial output was 3% (y/y) lower in October, compared with -3.2% (y/y) in September.
Revised data showed that Greek GDP shrank a slightly smaller 6.9% (y/y) in the third quarter, compared with a 7.2% decline reported earlier.
The pace of economic contraction in Czech Republic accelerated in the third quarter to an annualized pace of about 1.2% (q/q) from 0.8% recorded in the second quarter. On a year-on-year basis, Czech Republic’s GDP contracted by 1.3% (y/y) in the third quarter of 2012, compared with 1% (y/y) decline in the second quarter.
Hungary’s GDP continued to contract in the third quarter at an annualized pace of about 0.8% (q/q). On a year-on-year basis, Hungary’s GDP contracted by 1.5% (y/y) in the third quarter of 2012, compared with 1.2% (y/y) declined in the second quarter.
Developing Economies…The Central Bank of Egypt held its benchmark overnight deposit rate steady at 9.25%. Headline inflation rose to 6.7% in October from 6.22% in September on a sharp rise in the prices of butane gas cylinders, partly due to bottlenecks in distribution channels, despite moderating food prices.
Brazil’s inflation accelerated insignificantly in November to 5.53% (y/y) from 5.45% in October with the prices of all key components in consumer basket showing insignificant rise.
Chile’s inflation moderated to 2.1% (y/y) in November from 2.9% in October.
Mexico’s inflation moderated to 4.18% in November from 4.6% in October on easing of food prices following a temporary spike related to adverse weather and the outbreak of avian flu in western Mexico.
Peru's central bank held its policy rate unchanged at 4.25%. Peru's inflation rate slowed to 2.66% in November under the central bank’s 3% inflation target from 3.25% in October on moderating food prices.
Malaysia's exports fell 3.2% (y/y) in October from 2.6% increase in September on continued weak demand from major trade partners and moderating prices for Malaysia's commodity exports (palm oil and crude rubber).
Financial Markets…Global stock markets fluctuated between gains and losses, following three consecutive days of losses last week, as strong Chinese exports data in October offset worries over a prospect of the so-called U.S. fiscal cliff and Greek woes. The benchmark MSCI global equity index just slipped 0.04% in afternoon trading.
Spanish government bonds declined on Monday, pushing the benchmark 10-year yield to 1-month high of 5.88%, as European finance ministers prepared to discuss Greek aid amid growing concerns that the region’s debt crisis remains unsolved. The country’s 2-year borrowing costs also rose, climbing 9 basis points to 3.21%.
The Greek government announced on Monday that the nation’s banks will recapitalize by issuing stocks and convertible bonds and must meet a core Tier-1 capital adequacy ratio of minimum 6%. According to the recapitalization terms, the shares will be sold at a discount and the bond will carry a 7% annual coupon rate with a 0.5% increase per year.
China will further expand its quota for Renminbi Qualified Foreign Institutional Investors (RQFII) to US$80 billion from US$30 billion. This will allow the qualified foreign investors to use offshore yuan funds for investing in the country's capital market.
High-income Economies…Japan’s GDP contracted 0.9% (q/q) and fell at an annualized 3.5% (q/q) pace in the third quarter of 2012, the first such decline in three quarters. Slowing global growth and a territorial dispute with China (Japan’s largest trade partner) resulted in a 5.0% (q/q) drop in Japan’s exports in Q3, accounting for 0.7 percentage points of the 0.9% output drop.
The OECD’s composite leading indicators suggest signs of stabilization in the US, Canada, and China in September, with the index for the US rising to 100.9 from 100.8 in August, and Canada’s and China’s unchanged at 99.7 and 99.4 respectively. However, the Euro Area faces weaker growth prospects as leading indicators for the two largest Eurozone economies, Germany and France, fell, while prospects for Italy improved.
Germany’s wholesale price inflation rose to 4.6% (y/y) in October from 4.2% in September, mostly due to base effects. On a monthly basis, however, the index fell 0.6% (m/m), as a fall in fuel and mineral oil prices (driven by a drop in crude oil prices) offset a monthly increase in food prices.
Estonia’s GDP rose by 1.7% (q/q) in the third quarter of 2012, with year-on-year growth accelerating to 3.4% (y/y) from 2.2% in the second quarter. Construction, information and communication activities contributed the most to the GDP expansion.
Developing Economies…China’s October export growth accelerated to 11.6% (y/y) from 9.9% in September. October imports were up by 2.4% y/y – unchanged from September. China's October trade surplus increased to US$31.99 billion from September’s $27.67 billion. China's October bank lending eased to 505.2 billion yuan from September’s 623 billion yuan and M2 growth also slowed down to 14.1% (y/y) from September’s 14.8%.
India's industrial output contracted by 0.4% (y/y) in September compared to a 2.7% (y/y) growth in August, largely on account of a 12.2% decline in the capital good production. Meanwhile, the country's trade deficit hit a record high $20.96 billion in October with exports falling by 1.63% (y/y), while imports rose by 7.4%.
Mexico's industrial output revived in September growing at 0.9% (m/m) compared with a 0.8% contraction in August following a pick-up in US industrial activity and on the back of strong performance in manufacturing. Mexico’s industrial growth on an annual basis at 2.4% (y/y) in September is still below a 3.6% increase recorded in August.
Peru recorded a trade surplus of US$403 million in September after falling into a US$52 million deficit in August.
Romania's annual inflation slowed to 5% (y/y) in October from 5.3% in September on lower pace of increase in food prices. Inflation rate is still above the 2-4% annual target.
Russia’s GDP growth slowed to 2.9% (y/y) in the third quarter compared with a 4% growth in the second quarter, on weak external demand and a poor harvest related to a severe drought.
Financial Markets…Year-to-date global corporate bond sales rose to $3.43 trillion, already surpassing 2011’s full year total of $3.29 trillion, as further stimulus from global central banks pushed yields to record lows. Funding costs for the riskiest to the most creditworthy corporates are plunging as the persistent low-yield environment spurred unprecedented investor demand.
Perceived default risk of US corporate debt climbed for a third consecutive day, with the benchmark Markit CDX North America Investment Grade Index rising 3.6 basis points to 108 bps, amid growing concerns that the so-called US fiscal cliff could push the world largest economy into deep recession.
Ghana’s 3-month borrowing costs, which fell to a five month low last week, are gearing for further decline today after the central bank issued record volume of domestic bonds, lowering its financing needs in near-terms. The 3-month yield on Ghana’s Treasury bills dropped 69 bps to 22.33% last week, but they are still the highest among African countries.
In its November update released earlier today, the US Department of Agriculture reported marginal increases in global grain supplies (compared to the October update) for the 2012/13 crop year ending in May 2013. Yet, stock-to-use ratio for corn—and less so for wheat—remain at historical low levels. The rice market is well-supplied with trade expected to surpass 38 million tons in 2012—a record high.
High-income Economies…France's industrial production posted the biggest monthly drop since December 2009, falling 2.7% (m/m) in September (-2.1% y/y), with both manufacturing production and construction contracting. The Bank of France said the economy may shrink in the fourth quarter.
Italy’s industrial production fell by 1.5% (m/m) in September (-4.8% y/y), the most in five months, suggesting the country remained in recession in the third quarter.
Greece’s industrial production fell 7.3% (y/y) in September, resuming its downward trend after rising temporarily by 2.5% in August.
Sweden’s industrial production fell 5% (y/y) in September, following a 2.7% increase the previous month.
Germany’s annual consumer price inflation on a EU-harmonized basis remained at 2.1% (y/y) in October, the same rate as September (+0.1% m/m). A 5.5% (y/y) increase in domestic gas and diesel prices and increases in some food items prevented inflation from falling.
UK’s goods trade deficit fell to 8.4bn pounds in September from 10bn pounds in August, as exports rose 1.1% (m/m), while imports fell a larger 3.9% (m/m) because of lower imports of fuel and manufactured goods.
US consumer confidence continued to improve for the fourth month in November, with the Thomson Reuters/University of Michigan consumer sentiment index climbing to 84.9 (a five-year high) from 82.6 in October as the labor market showed signs of improvement.
Hungary’s industrial output rose 0.6% (m/m) in September, following 1.8% increase in August. Despite the monthly increases, industrial output in September was 3.8% lower than the same month the previous year.
Developing Economies…China’s retail sales rose 14.5% (y/y) in October slightly faster than 14.2% in September, while consumer price inflation dropped to its weakest level in nearly three years to 1.7% (y/y) in October from 1.9% in September on declining food inflation.
Growth in China's industrial production accelerated to 9.6% (y/y) in October from 9.2% in September China’s producer prices fell at a slower pace of 2.8% (y/y) in October compared to a 3.6% fall in September. China's total fixed asset investments were 20.7% higher during the January-October period compared to the same period last year.
Malaysia's exports grew 2.6% (y/y) in September, recovering from a 4.5% contraction in August on strong demand from ASEAN, the US, India and Taiwan, while exports to the European Union decreased 12.5%. Import growth accelerated to 9.6% (y/y) in September from 2.8% in August.
The central bank of Peru held its benchmark interest steady at 4.25%. Peru's inflation rate fell to 3.25% (y/y) in October from 3.74% in September, but remains above the central bank's targets inflation of 2.0% (+/- 1). An acceleration of inflation in September was related to a weather conditions-related temporary supply side factor.
Russia's central bank held its benchmark refinancing rate steady in October. Inflation declined in October slightly to 6.5% (y/y) from 6.6% in September, but remains above the Bank of Russia's target of 5-6 percent inflation range. The bank noted that inflation is stabilizing due to a moderation in food prices which had experienced a temporary upswing related to a supply shock associated with a bad harvest.
Financial Markets…US treasuries gained and the benchmark 10-year bond yield edged down 1 basis point to 1.66%, after rising as high as 1.7% earlier, while the 30-year bond yield slid by 2 bps to 2.83% in early Friday session after a government report on wholesale price in September showed domestic inflation remained muted.
The euro advanced 0.3% to $1.297 after dropping to a 10-day low of $1.283 yesterday, and it gained 0.4% to 101.7 yen amid speculation that a downgrade of Spain’s sovereign rating would put pressure on the government to finally request a sovereign bailout.
Spanish government bonds rose and 10-year Spanish bond yields fell 9 basis points to 5.67%, gearing for the lowest level in nearly a month, on the prospect of European Central Bank intervention to support its debt.
High-income Economies…Euro Area industrial production rose 0.6% (m/m) in August, the same pace as that recorded in July, with increases in France (+1.5% m/m), Italy (+1.7%), Spain (+1.3%), and Greece (+2.5%) offsetting a 0.4% fall in Germany, Eurozone’s largest economy. Despite the monthly increase, Euro Area industrial output was 2.9% lower in August compared to the same month in 2011.
The US Thomson Reuters-University of Michigan consumer sentiment index rose to 83.1 in October, the highest in five years, from 78.3 in September as consumers’ optimism about the overall economy improved.
US producer prices rose 1.1% (m/m) in September following a 1.7% rise in August, mainly due to an increase in gasoline prices. On a year-on-year basis, however, overall PPI inflation edged up to 2.1% from 2.0% in August. Core PPI which excludes food and energy remained flat compared to the previous month.
France’s current account deficit widened to 4bn euros in August from 2.6bn euros in July, as the trade deficit rose with an increase in energy-led imports offsetting an improved exports performance.
The Netherlands’ trade surplus narrowed to 2.2bn euros in August from 2.95bn euros in July, as imports rose +2.2% (m/m) from robust domestic demand, while exports fell 0.5%.
Singapore's GDP growth slowed to 1.3% (y/y) in the third quarter from 2.3% recorded in the second quarter, pulled down by a 1.5% (q/q) contraction driven by a decline in the manufacturing sector’s electronics cluster due to weak external demand.
Slovakia’s consumer price inflation eased to 3.6% (y/y) in September from 3.7% in August led by a slower pace of increase in utility prices.
Developing Economies…Bulgaria's consumer price inflation accelerated to 4.9% (y/y) in September from 3.9% in August, partly due to a sharp increase in food and fuel prices. Prices continue to advance rapidly in the second half of 2012 following an earlier period of decline.
India’s industrial production increased 2.7% (y/y) in August following a 0.2% contraction in July, led by a 5% growth of consumer goods production. India’s consumer price inflation eased to 9.7% (y/y) in September from 10.0% in August driven by a small decline in food inflation.
Malaysia's industrial production declined 0.7% (y/y) in August following a 2.9% increase in July, as manufacturing sector continued to struggle in the face of weak external demand.
Mexico’s industrial output growth slowed to 3.6% in August from 4.9% (y/y) in July, pulled down by a 0.8% (m/m) contraction in August, mirroring industrial developments in the United States.
The central banks of Indonesia, Peru and Singapore held their respective policy rates unchanged this week.
Financial Markets…European stocks slipped on Friday with the benchmark index falling to a three-week low as early optimism on Spain’s new austerity measures was short-lived.
Spanish 10-year bond yield rose back above 6% amid uncertainty over its troubled banks before stress test results, fading optimism on the country’s debt cutting plan, and a looming Moody’s rating review which may cost the country its investment grade rating.
South Africa's rand weakened against the dollar after Moody's cut the government's bond rating by one notch to Baa1 from A3, but bonds were supported by their imminent accession to Citi's World Government Bond Index (WGBI) on October 1.
High-income Economies…France’s government announced its 2013 budget that includes a package of tax hikes, including a 75% tax rate for people earning more than 1 mn euros, aimed at narrowing the deficit to 3.0% of GDP in 2013 from 4.5% this year.
Euro Area consumer price inflation accelerated to 2.7% (y/y) in September from 2.6% in August according to a Eurostat flash estimate, driven mainly by an increase in Spain’s inflation to 3.5% (y/y) from 2.7% in August after the government increased its value added tax (VAT) from 18% to 21%.
German retail sales edged up by 0.3% (m/m) in real terms in August (-0.8% y/y) after a 1% drop in July (-1.6% y/y), giving rise to hopes that private consumption will prop up the economy.
Canada's GDP rose 0.2%(m/m) in July (+1.9% y/y) compared to 0.1% (m/m) rise in June, as strength in manufacturing and utilities sectors offset weakness in crude oil extraction.
Japan’s industrial production fell 1.3% (m/m) in August as a slowdown in China and Europe weighed on exports, raising risks of a GDPcontraction this quarter.
South Korea’s industrial production fell 0.7% (m/m) percent, from weakness in trade partners and also due to a strike at Hyundai Motor Co.
Developing Economies…The Central Bank of Brazil increased its 2012 inflation forecast to 5.2% from 4.7%, while cutting only marginally its 2013 forecast to 4.9% from 5.0%.
Chile’s manufacturing output rose 6.8% (m/m) in August (3.6% y/y) as copper production rose by 11.3% from July. Retail sales growth accelerated to 11.3% (y/y) in August from 7.9% in July.
Democratic Republic of Congo’s central bank lowered its benchmark interest rate by 1.5 percentage points to 6%, citing macro-economic stability and inflation of close to 6% in August, lower than the targeted 9.9% for 2012.
The Central Bank of the Dominican Republic kept its monetary policy rate unchanged at 5.0% following interest rate cuts in June and August with a total reduction of 125 basis points this year.
Turkey's merchandise trade deficit declined significantly to US$5.86 bn in August from US$8.43 bn in August 2011 as goods export grew 14.5% (y/y) while imports declined 4.8% (y/y).
Thailand's industrial production index fell 11.3% (y/y) in August, declining for three consecutive months.
South African producer price inflation hit two year low level of 5.1% (y/y) in August, down from 5.4% in July.
| The ratification of the European Stability Mechanism (ESM)/Fiscal Pact laws by the German Constitutional Court removes significant hurdles from deeper European integration and was positively received by markets, with borrowing costs declining sharply for Spain and Italy. And today the Federal Reserve announced a third round of quantitative easing to boost growth and reduce unemployment, including open-ended purchases of $40 billion of mortgage debt a month and continuation of other assets purchases till labor market conditions improve. Industrial production (IP) shows signs of stabilization in July but performance in Q3 is expected to remain lackluster as business sentiment indicators remain depressed. Meanwhile, maize and wheat stocks are expected to decline in 2012/13 due to adverse weather conditions, with the maize market likely to be very tight. | |
| While key developments in Euro-area since last week suggest the risk of an acute crisis has subsided, uncertainties remain. On September 12th, Germany's Constitutional Court ratified the €700 billion ESM that is crucial to resolve the region’s ongoing debt crisis and is a key requirement for the European Central Bank’s (ECB) new bond-buying program announced last week. However the court has ruled that increases in potential German liabilities above €190 billion will be subject to parliamentary approval. In September borrowing costs have declined sharply for Italy and Spain, with 10-year sovereign bond yields at 5.02% and 5.62%, respectively. This is particularly important for Spain, which has to repay more than €20 billion in debt by the end of October. The ECB, EC and the IMF decision on the aid program for Greece is expected in early October.
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| Industrial activity appears to have bottomed out in July, but August business sentiment surveys and inventory dynamics point to a weak performance in Q3. Newly released data suggest that IP growth may have bottomed out in July. Notably Euro Area IP surprised on the upside in July, up 0.6% m/m, with a positive outturn in Germany as both domestic and export orders rose. China’s IP growth also improved, expanding at a 5% annualized pace in the three months to July up from a dismal 2.8% pace in Q2. High global inventory levels and weak final demand suggest that inventory adjustments could be a drag on growth in Q3, especially in the Euro Area and China. Inventory dynamics are more favorable for growth in the G3 and the East Asian tech exporters. In China high inventory levels will weigh on growth in coming months, but front-loading of spending on infrastructure should support growth going forward.
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| The US Department of Agriculture kept its 2012/13 global grain outlook largely unchanged in its September 12 update; yet, there are upside price risks, especially for maize. The assessment was widely expected with marginal effects on futures. For maize, the 2012/13 stocks are expected to be 12.2% lower than the last season (and 18.6% below the May 12 assessment). This brings the stock-to-use ratio down to 14.4%, the lowest level since 1972/73 and 2.6 percentage points lower than in 2007/08. With stocks that low, even a small supply shock could trigger a large price spike while high oil prices could make maize-based ethanol an attractive alternative. Although wheat stocks are expected to decline by 11% from the last season, the wheat market is better supplied with stock-to-use ratio of 21.9%, 5 percentage points higher than in 2007/08. Despite weather problems earlier in the year and the on-going Thai rice purchase program, the rice market seems to be well-supplied, with prices relatively stable.
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Download the Prospects Weekly as PDF here.
Important developments today:
1. European shares and euro continue to slump as Moody’s cuts the rating outlook for Germany, the Netherland, and Luxembourg
2. Output in the Euro Area contracts for the sixth month in July
Important developments today:
1. Crude oil prices fall from 9-week high
2. German producer price inflation falls to lowest in two years
| Investors have jumped back into emerging-market equity and bond mutual funds, bringing quarterly inflows up to about $40 billion—well above the 7-year average. Unemployment rates are retreating in most countries, but continue to rise from an already elevated level in high-spread Euro Area countries. Increased grain planting area announced in the U.S. suggest that, if normal weather conditions prevail, grain markets are likely to be wellsupplied. However, increased plantings were achieved at the expense of soybeans—which could bring price pressures to edible oil markets. | |
| Investors have returned to emerging markets (EM) equity and fixed-income mutual funds in the first quarter of 2012, although the pace of inflows has decelerated recently. Emerging market bond funds received total inflows of $14.4 billion in inflows during the first quarter, while equity funds posted inflows of $25.6 billion. This follows a very weak second half of 2011 when investors redeemed positions equal to some $9.6 and $17.6 billion in the third and fourth quarters respectively. Despite recent declines, monthly inflows during March exceeded 7-year averages by 10.8 percent for equities and are almost 4 times higher for bonds. |  |
| Unemployment rates continue to rise in high-spread high-income European countries, while in developing and other high-income countries they are declining. So far this year the aggregate unemployment rate in high-spread high-income European countries has risen by 1.1 percentage points and now exceeds 15 percent. This contrasts with Germany where the unemployment rate continues to fall and is now well below pre-crisis levels. Elsewhere in Europe unemployment rates are also declining, but only gradually and unemployment remains well above pre-crisis levels. Unemployment is also declining among high-income countries outside Europe, notably in the United States, although there too the unemployment rate is still almost 3.5 percentage points above its pre-crisis average. Among the 27 developing countries reporting data, unemployment inched down to 7.2 percent of the labor force as of February 2012—regaining its pre-2008-crisis level, and significantly below its 20-year average of 8.8 percent. |  |
| Global wheat and maize prices remain relatively low, despite lower than expected stocks. Maize and wheat prices are at broadly the same level as two weeks ago, despite sharp fluctuations in the run-up to and following recent U.S. Department of Agriculture (USDA) reports on planting intentions and grain stocks. The reports indicated that U.S. maize and wheat stocks on March 1st were 8 and 16 percent lower than a year ago, well below expectations and earlier estimates. As a result, futures prices jumped 6.6 and 7.9 percent on March 30th regaining the losses incurred earlier in the week in anticipation of a more upbeat outlook. The USDA also reported that US maize and wheat plantings are expected to rise 4 and 3 percent in 2012. As a result, if normal weather conditions prevail, grain markets will likely be well-supplied in 2012/13. However, most of the increased planting area will be at the expense of soybeans—which could put edible oil markets under upward price pressure, given weather-related late plantings in South America, cyclical declines in East Asian palm oil output, and increased demand for biodiesel production. |  |
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Foreign aid has always been a contentious issue – especially when donor countries are in recession or trying to struggle out of one, while (some) formerly developing countries emerge with a stable and growing economy. From the viewpoint of policy makers in donor countries, the issue certainly has two sides: allocating support to the poorest countries in the world or those plagued by hunger and conflict, or stocking up much needed domestic programs for the poor and disadvantaged at home. Pressure from national interest groups is likely to push policy-makers toward domestic programs.
These are some of the views and reports relevant to our readers that caught our attention this week.
One
The Promising Game-Changers in Global Development: Social Innovators
“Turning on a light, warming a house, and using an appliance are activities that most of us take for granted. But in many parts of the developing world, access to electricity is scarce. Enter “sOccket,” a soccer ball that harnesses the kinetic energy of play to generate electricity. When kicked, it creates energy that can be stored and then used later to charge a battery, sterilize water or light a room.
SOccket has received a lot of attention recently – from the likes of Aneesh Chopra, the first White House chief technology officer, to former President Bill Clinton, who called sOccket “quite extraordinary.” The attention isn’t surprising – the invention is clever, it’s creative, it’s relatively cheap, and it takes on one of the biggest challenges in the developing world.” READ MORE
Important developments today:
1. Financial market volatility is at its lowest since 2007
2. US manufacturing activity remains resilient amid contraction in Eurozone
