Global Economic Prospects 2014

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Prospects Daily: Treasury yield curve becomes flattest since November 2012, U.S. Q3 GDP growth beats expectations, Brazil unexpectedly increases interest rates

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Financial Markets

The difference between short-and long-term U.S. Treasury yields, known as the yield curve, fell to the lowest level since 2012 on speculation the Federal Reserve will hike interest rates sooner than expected while inflation remains muted. The 2-year Treasury yield rose 1 basis point to 0.49%, while the 30-year Treasury yield slid 3 basis points (bps) to 3.02%. Accordingly, the gap between them shrank to 2.53% (or 253 bps), the least level since November 2012.

Prospects Daily: Money outflows from euro area bonds at record pace, U.S. consumer confidence at seven-year high, Industrial profits increase in China

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Financial Markets

Domestic and foreign investors pulled out €187.7 billion ($239 billion) from euro area fixed-income assets in the six months through August, the most in European Central Bank data going back to the currency’s introduction in 1999. Record pace of bond outflows helped to push the euro down 2.6% versus a basket of 9 mature-market counterparts this year, the steepest depreciation since 2010, when the region’s sovereign debt crisis was taking hold.

Prospects Daily: ​Chinese stocks post steepest weekly drop in 4 months, Eurozone’s PMI marginally improves in October, Turkey central bank leaves rates unchanged

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Financial Markets

China’s benchmark stock gauge posted its biggest weekly slid in four month amid concerns over the negative impacts of IPO sales on existing shares and slowing corporate earnings. Growing worries over a planned trading link between Shanghai and Hong Kong stock markets will be delayed also weighed on Chinese shares. The Shanghai Composite Index fell 1.7% this week, the most since the week ending June 20. Nine IPO transactions are marketed for this week which may attract more than 700 billion yuan of investor bids.

Prospects Daily: Euro weakens on prospects of ECBs’ corporate-debt purchase, U.S. existing home sales stronger-than-expected, China’s Q3 GDP growth slowest since the financial crisis

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Financial Markets

The prospects of European Central Bank corporate-bond purchase weighed negatively on the euro and boosted European shares.  The shared currency weakened against most of its 16 major counterparts as the ECB started to buy covered bonds and the private-sector report suggested that the ECB is considering expanding stimulus by purchasing corporate debt to bolster the euro-zone economy. Meanwhile, the Stoxx Europe 600 stock index advanced 2.1% in afternoon trading after falling to its lowest level of 2014 last Thursday.

Prospects Daily: Moody’s cuts Russia’s credit rating, ECB starts buying Eurozone covered bonds, Russian investment falls again, confirming weak economic outlook

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Financial Markets

Portugal led a sell-off in euro area’s high-yielding government bonds on Monday amid increased recession fears.  The Portuguese 10-year bond yield soared 15 basis points (bps) to 3.46%, while the comparable Italian bond yield jumped 10 bps to 2.6%, extending last week’s rise of 17 bps.  Greek bonds declined as well, extending losses that triggered a sell-off in the periphery last week.  In contrast, safe-haven German bunds advanced, with the 10-year yield sliding 2 bps to 0.84%.

Prospects Weekly: Remittances to developing countries are on course for 5.0 percent growth this year, faster than the 3.4 percent growth recorded in 2013

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Remittances to developing countries are on course for 5.0 percent growth this year, faster than the 3.4 percent growth recorded in 2013. The acceleration is driven largely by expanding flows to Asia and Latin America. Remittances to developing countries are expected to continue climbing over the medium-term, reaching $454 billion in 2015. The cost of sending remittances is falling, but remains high along key corridors, especially to countries in Sub-Saharan Africa.

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