The World Bank - Working for a world free of poverty

Views menu

Syndicate content

Section 1

Global Economic Prospects January 2012

World Bank says global growth is now projected at 2.5 and 3.1%. Read more ...

Section 2

Development Prospects Website

Providing information, analysis, and advice on global trends in the world economy.  Find out more ...

Section3

Global Economic Monitor

Now free. Daily and monthly updates on global economic developments and relevant topical issues. Find out more ...

Prospects Weekly: The up-tick in market tensions have caused CDS rates to rise sharply

Submitted by Global Macroeconomics Team on Fri, 2012-05-25 14:50
The up-tick in market  tensions following recent bank downgrades, partial nationalizations and elections have caused CDS rates to rise sharply, although in most countries they remain below their fall 2011 highs. Stock markets have also tumbled, exchange rates depreciated and the turmoil has contributed to falling commodity prices. The real side effects of the recent bout of market nervousness remains uncertain, however based on the relative size of the financial turmoil, its impact could be half as severe as the GDP growth deceleration (relative to earlier forecasts) observed in the fall of 2011.
 
Contagion from renewed tensions in the Euro Area appears less extensive than in the fall of 2011. Recent bank downgrades, partial nationalizations and elections have caused developing and high-income country stock markets to lose about 12 percent of their value since May 1st, giving up almost all of the gains generated over the preceding 4½ months. Yields on high-spread economies have risen, while those of safe-haven assets have declined. Virtually all developing economy currencies have lost between 3 and 7 percent against the U.S. dollar. Credit default swaps (CDS) rates have also increased significantly. Nevertheless, CDS rates in non-European high-income and developing economies remain well below their July 2011 levels. Emerging market bond spreads, although up are still 149 basis points lower than in October. 
Real side effects of the recent increase in market nervousness remain uncertain. It is too soon to observe the impact of the renewed financial-market turmoil on the real-side of the economy, but it is likely to be negative — particularly in high-income Europe. How negative is of course unknown. To-date, Euro Area financial market indicators have deteriorated about half as much as they did in the fall of 2011 (relative to July 2011), which suggests that the hit on activity could be about half as severe as in the fall of 2011 — when Euro Area quarterly growth rates declined by about 0.5 percentage points relative to expectations in June 2011 and whole year growth was off about 0.2 percent. 

The recent increase in market nervousness has driven commodity prices downward. Since the beginning of May, crude oil prices have fallen 15.8%, influenced primarily by concern that financial turmoil will cut into global growth and oil demand (improving supply conditions and easing tensions with Iran helped as well). Recent events also contributed to falls in copper and aluminum prices of 11.2% and 5.4% respectively. Many agricultural commodity prices have declined as well (corn, cotton and rubber), which should help relieve inflationary trends in developing countries. Developing countries are not expected to suffer large impacts if financial tensions do not worsen, and lower commodity prices will buffer those impacts for importers. However, for commodity exporters, lower commodity prices will reduce government revenues, weaken current account positions, and if long-lasting, will cut into growth.

 

Download the Prospects Weekly as PDF here.

Prospects Daily: Euro weakens to near 22-month low after EU summit, while Euro Area business activity slumps for fourth consecutive month

Submitted by Global Macroeconomics Team on Thu, 2012-05-24 14:20

Important developments today:

1. Euro weakens to near 22-month low after EU summit

2. Euro Area business activity slumps for fourth consecutive month

 

Prospects Daily: Safe-haven government bonds advance on Europe concern, while slight rebound in Euro Area new industrial orders

Submitted by Global Macroeconomics Team on Wed, 2012-05-23 12:55

Important developments today:

1. Safe-haven government bonds advance on Europe concern

2. Slight rebound in Euro Area new industrial orders

 

Prospects Daily: Fitch cuts Japan's sovereign-credit rating, while US housing market pick up continues

Submitted by Global Macroeconomics Team on Tue, 2012-05-22 11:27

Important developments today:

1. Fitch lowers Japan’s sovereign rating by two notches

2. U.S. housing market pick up continues

 

Prospects Daily: Emerging market equities gear for worst weekly loss in 8 months

Submitted by Global Macroeconomics Team on Fri, 2012-05-18 15:26

Important developments today:

1. Emerging market equities gear for worst weekly loss in 8 months

Prospects Daily: Spanish and Italian borrowing costs rise on Greek political turmoil, while U.S economy continues to strengthen

Submitted by Global Macroeconomics Team on Wed, 2012-05-16 15:50

Important developments today:

1. Borrowing costs for Spanish and Italian government bonds are rising fast on Greek political turmoi

2. Notwithstanding the ongoing economic crisis in Europe, the US economy continues to strengthen

 

Prospects Daily: Moody's downgrades 26 Italian banks, while Eurozone escapes a technical recession

Submitted by Global Macroeconomics Team on Tue, 2012-05-15 12:37

Important developments today:

1. Moody's cuts its ratings on 26 Italian banks

2. Eurozone escapes a technical recession

 

Prospects Daily: U.S. treasury yields hit record low on Greek concern

Submitted by Global Macroeconomics Team on Mon, 2012-05-14 14:38

Important developments today:


1. U.S. treasury yields hit record low on Greek concern


2. Euro zone industrial production contracts in the first quarter

Prospects Weekly: Market confidence has been rattled once again

Submitted by Global Macroeconomics Team on Mon, 2012-05-14 09:52

Market confidence has been rattled once again following recent election results in France and Greece. However, credit default swaps rates, while up, remain well below their fall 2011 highs. Through March, retails sales have continued strengthening among both developing and high-income economies, although weakness still persists in the Euro Area. Notwithstanding the post-crisis appreciation in the currencies of several developing countries, in general, their currencies still remain below pre-crisis peaks.

 
Euro Area sovereign debt concerns have resurfaced once again. Following elections in France and Greece, the political landscape in the Euro Area has changed. The new French President-elect has indicated his intention to add a growth component to the EU fiscal treaty, while the Greek elections were inconclusive, and the influence of anti-austerity parties has increased markedly. These events, plus the announced bail out of one of Spain’s largest banks have rattled investors’ confidence once again. Credit default swap rates (CDS) have risen by 95.3, 37.3, 25.8 and 19.4 basis points in Portugal, Spain, Italy and France, respectively between 4th and 9th May. Among other Euro Area countries, CDS rates are up an average 5.2 basis points, but remain 116.5 basis points below their fall 2011 peaks.

Retail sales continue to strengthen across most regions. Easing inflationary pressures, rising employment strong credit growth, and in some cases lower policy rates have contributed to an up-tick in developing country retail sales volumes during the three months ending February (10.7%, 3m/m saar). The strength of developing-country domestic demand is also reflected in their import demand, which increased at a 19 percent annualized pace over the same period. In the U.S., improving labor market and consumer confidence conditions have boosted retail sales growth. Even in Europe, where consumer confidence remains low, retail sales expanded in March - the first increase in 5 months. Nevertheless, demand remains shackled by high unemployment and ongoing fiscal austerity. Looking forward, recent easing in oil prices could support real-incomes and further boost retail sales.

 
Despite substantial appreciations since the trough of the crisis, the real-effective exchange rates of many developing countries remain below pre-crisis peaks. Measured from post-crisis troughs the currencies of many developing countries have appreciated strongly (by more than 30 percent in many cases). However, measured on a longer-term perspective, the real-effective exchange rates of currencies of Indonesia, Brazil, Russia, India and Turkey remain below pre-crisis peaks. Among major middle-income countries, China’s Renminbi has appreciated the most. While capital flows have contributed to short-term volatility, the appreciation since 2005 among commodity exporters like Brazil, Indonesia, and Russia appears to mainly reflect higher commodity prices.

Download the Prospects Weekly as PDF here.