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Prospects Daily: European Finance Ministers and IMF reach agreement on Greek deal, South Africa’s GDP slows in the third quarter

Financial Markets…European finance ministers and the International Monetary Fund reached an agreement to ease the terms on bailout loans for Greece, clearing the way for the second installment of aid in December. With the deal, international lenders agreed to lower the rates on aid loans, suspend interest payments for a decade, and give Greece more time to pay back.

The Greek deal sent global equities higher on Tuesday, with the benchmark MSCI world stock index climbing 0.3% in early trading. Europe shares gained 0.3%, and Asian stocks rose 0.4% though Chinese shares fell to a four-year low. But stock gains eased as European optimism faded in later trading. U.S equities opened lower as concerns over the looming fiscal crisis overpowered Greek optimism.

China’s benchmark Shanghai Composite Index fell 1.3% to its lowest level since January 2009 as domestic investors continued to move away from equities citing lack of confidence in longer-term growth prospects and the government ability to curb the situation. The gauge has lost 9.5% thus far this year, gearing for a third consecutive annual loss.

High-income Economies
…The UK’s GDP expanded by 1.0% (q/q) in the third quarter of 2012, the same rate as in the second quarter and the fastest pace since 2007, driven mainly by a 0.6% increase in household spending, the most in two years. On a year-on-year basis, GDP contracted slightly by 0.1% (y/y) in the third quarter.

US durable goods orders stayed flat in October, but “core orders” excluding the volatile transportation component rose 1.5% (m/m), following a 1.7% increase in September.  Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 1.7% (m/m), the strongest in five months, suggesting that US firms are starting to overcome concerns about fiscal cliff risks. 

US home prices rose for the eighth straight month in September, with the S&P/Case Shiller composite index of prices in 20 metropolitan areas gaining 0.4% (m/m), rising at faster 3% (y/y) pace compared with a 2% (y/y) increase in August.

French consumer confidence remained stable in November, with the INSEE’s index of consumer morale unchanged at 84, marking the first stabilization after declining steadily since June as unemployment claims accelerated to their current 13-year high.  

Hungary’s central bank cut its benchmark interest rate for the fourth time in the last four months, reducing the two-week deposit rate by 25 basis points to 6% (a cumulative 1% reduction since July), as a deepening recession outweighed concerns about inflation being well over the central bank’s target. 

Developing Economies…The central bank of Angola kept its base rate unchanged at 10.25%, noting the inflation rate had picked up slightly in October to 9.76% up from September's rate of 9.65%.

Net profits of Chinese industrial firms grew 20.5% (y/y) to CNY 500.1 billion in October following a 7.8% rise in September, the first gain in six months. In the first ten months of 2012 industrial firms' profits grew 0.5% compared to the same period last year following a 1.8% fall in the year-to-September.

South Africa's economic growth slowed in the third quarter to 1.2% (q/q) after an upwardly revised 3.4% growth in the second quarter. On an annual basis, GDP growth also slowed down to 2.3% in the third quarter from 3.1% increase in the second quarter. 

Philippine imports grew 3.6% (y/y) in September following a 0.4% fall in August. On a monthly basis imports also grew by 4.1%. Exports grew 22.8% (y/y) in September as reported earlier.

Thailand’s factory output rose by 36.1% (y/y) in October, following a 15.9% contraction in September partly due to a low, flood-hit base of last year. On a monthly basis output also rose for the first time since May by a modest 0.3% in October led by car manufacturing and electronics.

Thailand's exports also grew by 15.6% (y/y) in October, after showing a modest 0.2% growth in August. Imports grew by 21.6% (y/y) reversing a 7.7% drop in August.