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Prospects Daily: Euro Area slips into recession in third quarter, Turkey's current account deficit widens

Financial Markets…Global equities fell for a seventh day, with the benchmark MSCI world stock index sliding 2%, hurt by mounting concerns over the U.S. fiscal crisis and reports that the Euro-area economy entered its second recession since 2009. World stocks have lost more than 3% this month.

The Japanese yen weakened 1.4% to 81.39 per dollar, after reaching a nearly 6-month low of 81.46, amid prospects of further aggressive monetary easing following a contraction in third quarter GDP. The yen also fell 1.7% to 103.92 per euro, the lowest in almost two weeks.

Oil prices rose on Thursday, with crude for December delivery rising as much as 51 cents to $86.83 a barrel in New York trading, as Israel’s attack on the Gaza Strip intensified concern that escalating Middle East unrest would disrupt oil supplies. Brent for December settlement also jumped to $111 a barrel in London trading.

Namibia issued a 850 million rand ($95 million) 10-year bond at an average yield of 105 basis points higher than comparable benchmark South African bonds. It was Namibia’s first bond issue denominated in the South African currency. The country announced plans to sell an additional 2.15 billion in rand bonds in the future.

High-income EconomiesEuro Area GDP contracted 0.1% (q/q) in the third quarter of 2012, following a 0.2% decline in the second quarter, as the currency union’s economic performance continues to suffer from the ongoing debt crisis and fiscal austerity. The two consecutive quarterly GDP declines imply a technical recession (the second one since 2009). On a year-on-year basis, Euro Area output fell at a slower pace of 0.4% (y/y) in Q3 compared to a 0.6% (y/y) drop in Q2.

Positive quarterly GDP increases in the third quarter in the two largest Eurozone economies, Germany (+0.2% q/q in Q3 vs. +0.3% in Q2) and France (+0.2% in Q3 vs. -0.1% in Q2), were partially offset by GDP declines in Spain (-0.3% in Q3 vs. -0.4% in Q2), Italy (-0.2% in Q3 vs. -0.7% in Q2), the Netherlands (-1.1% in Q3 vs. +0.1% in Q2), and Portugal (-0.8% vs. -1.1%); earlier data showed Greece’s output contracted at a faster pace of 7.2% (y/y) in Q3 compared to a 6.3% (y/y) decline in Q2. 

Euro Area
consumer price inflation eased slightly at 2.5% (y/y) in October from 2.6% in September, as a monthly fall in energy prices offset the impact of earlier tax increases in periphery countries. Inflation remains above the European Central Bank’s 2% target.

Outside the Euro Area, third quarter GDP also fell in the Czech Republic (-0.3% q/q in Q3 vs. -0.2% in Q2) and Hungary (-0.2% in Q3 vs. -0.4% in Q2), as these countries faced a steep decline in demand for their exports from the Eurozone.

US consumer prices rose 0.1% (m/m) in October, following a 0.6% increase in September (2.2% y/y vs. 2.1% in September), mainly due to a monthly fall in gasoline prices. Core prices however picked up slightly to 0.2% (m/m) in October, as domestic demand strengthened after gains in housing and labor markets.

US initial unemployment claims, however, surged by 78,000 to 439,000 in the week ending Nov. 10, the highest in more than a year, mainly from delayed filing of claims due to Hurricane Sandy and a (temporary) increase in people unable to work.

Singapore’s retail sales growth slowed to 2.5% (y/y) in September from 3.2% in August, mainly from a drop in vehicle sales and luxury goods like watches and jewelry. 

Developing EconomiesBulgaria's economic growth slowed to 0.1% (q/q) in the third quarter from 0.3% in the second quarter. On an annual basis GDP continued to increase at 0.5% in the third quarter, the same rate as in the previous two quarters.

The Romanian economy contracted in the third quarter falling 0.5% (q/q) after expanding at 0.5% in the second quarter.

Turkey's current account deficit increased sharply in September to US$2.7 billion from US$1.18 billion, on a widening of the trade deficit to $5.25 billion in September from $4.43 billion in August.

The Philippines’ overseas remittances remained robust at US$1.8 billion in September (US$15.6 billion year-to-date), although growth of remittance inflows slowed to 5.9% (y/y) in September from 7.6% in August.

Industrial production growth in the Philippines accelerated to 8% (y/y) in September from 4.5% in August, in line with the other economic data indicating an economic rebound.

The central bank of Ghana held its policy rate unchanged at 15.0% pointing to balanced risks between inflation and growth, and diminishing inflation expectations in line with the projected band of 8.5 (+/-2 percent). Ghana's headline inflation eased slightly to 9.4% (y/y) in September from 9.5% in August, with food inflation stable at 4.4%.

The central bank of Jamaica held its policy rate steady at 6.25% pointing to demand pressure in the foreign exchange market. Inflation at 2.1% in October was in line with the central bank’s forecast of 3-4%.