Global Economic Prospects 2014

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Prospects Daily: Spanish retail sales slump, Growth in Peru and Philippines accelerates

Financial Markets…European government securities rallied, with the German 10-year yield falling 7 basis points to 1.37% as signs of slowing inflation lifted demand for fixed-income asset. Italy’s 10-year yield dropped 5 bps to 4.67%, the lowest level since June 2011, while Spain’s 10-year yield fell as much as 10 bps to 5.42%, the least since October 22.

U.S. treasuries rose for a third day, with the benchmark 10-year yield edging down 3 basis points to 1.61%, amid lingering concerns over the U.S. fiscal crisis. Notably, the so-called yield curve, the spread between the yields on 2-and 10-year bonds, narrowed to near two-week low of 1.35%, suggesting investors are expecting a slower recovery.

Russia’s OAO MegaFon, the country’s second largest mobile-phone operator, raised $1.7 billion in dual initial public offerings in Moscow and London, the largest stock offering by a Russian company in three years. MegaFon sold 15% of its stocks at $20 a share, at the bottom end of its estimated price target.

High-income EconomiesGermany’s consumer price inflation on a EU-adjusted HICP basis edged down to 2% (y/y) in November from 2.1% in October (-0.1% m/m), as the Euro Area debt crisis curbed growth and domestic demand in Europe’s largest economy. Germany’s HICP inflation is now at the ECB’s 2% target for the Euro Area region.
 
Spanish retail sales slumped 9.7% (y/y) in October, a slightly slower pace of decline compared with a 11% fall in September, as consumer spending continued to remain weak amid a year-long economic downturn and from an increase in value-added taxes in September.   

US new home sales fell modestly by 0.3% (m/m) in October to a 368,000 annual pace following a downwardly revised 369,000 rate in September, suggesting that the sustained recovery in the housing market seen in earlier months could be slowing in the face of fiscal cliff risks and weak job growth. The median price for a new home, however, climbed 5.7% (y/y) in October to $237,700, with the supply of homes remaining relatively tight at 4.8 months at the current sales rate. 

South Korea’s current account surplus narrowed slightly to $5.82 billion in October from $5.91 billion in September, as exports grew modestly by 1% (y/y) after three consecutive months of declines, while imports of machinery and equipment increased. Korea’s current account has remained in surplus for the ninth consecutive month despite external headwinds.

Developing EconomiesAlbania's central bank kept its benchmark refinancing rate unchanged at 4.0% stating that monetary conditions were appropriate. Albania's inflation rate eased to 2.4% (y/y) in October from 2.6% in September due to lower food prices and remains within the central bank’s targeted inflation of 3.0% (+/- 1 percentage point).

Thailand's central bank held its policy rate unchanged at 2.75% stating that downside risks to economic growth were starting to subside and inflationary pressures were in check. Thailand’s headline inflation in October eased to 3.3% slightly down from 3.4% in September, while core inflation was 1.83%, well within the central bank’s target of 0.5% to 3.0%.

Peru's
economy grew 6.5% (y/y) in the third quarter, on track to register the strongest growth in South America in 2012, supported by strong domestic demand (10% growth) in the context of weak external demand with exports falling by 1.2%.

The Philippines’ growth accelerated in the third quarter to 7.1% (y/y) from the second quarter’s 6% increase, on the back of strong domestic demand supported by increased government spending and investment. On a quarterly basis GDP grew 1.3% in the third quarter compared to 1.2% growth in the second quarter. The economy expanded 6.5% during the first nine months of the year, surpassing the upper end target of 6% growth for the whole year.