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Prospects Weekly: Retail sales growth picked up in Q3 in high income countries, syndicated bank lending to developing countries fell in 2012

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After a mid-year slump, retail sales growth picked up in Q3 in high income countries (with the exception of Japan) and retail sales in developing countries sustained their robust growth. Syndicated bank lending to developing countries fell sharply in 2012 due to deleveraging in high-income country banks, tighter regulations and a subdued global economy. In contrast to the decline in syndicated bank lending to developing countries, remittance flows are estimated to have increased by 6.5% in 2012, boosted by strong outflows from the Gulf Cooperation Council, the United States and Russia.

Retail sales growth in high-income countries picked up in Q3 and remains strong in developing countriesRetail sales growth in high-income countries picked up in Q3 and remains strong in developing countries. After contracting in Q2 at an annualized pace of -2.1% (3m/3m saar), high-income countries retail sales volume growth rebounded to 1.9% in Q3. Excluding Japan, where an end to government auto subsidies and weaker demand from Chinese tourists led to a steeper contraction in sales, retail sales in the rest of the high income world grew at a robust 5.9% annualized pace. Even in the Euro Area, where GDP overall declined and unemployment is rising, retail sales strengthened (1.6%). Unlike business spending which declined in the third quarter (due to fiscal policy uncertainty), in the US, retail sales rebounded at a 9 percent annualized pace in the three months to October (9%), reflecting improvements to the labor market. Developing country retail sales have been resilient, growing at a 12-15% annualized pace in recent months, supported in some cases by policy easing (e.g. China) and fiscal incentives (e.g. Brazil).

Syndicated bank lending to developing countries fell an estimated 31% in 2012. This was mostly due to the mid-year slump in lending when financial markets were rattled by the Euro Area crisis. Since then lending activity has picked up again. Syndicated bank lending for general corporate use declined the most (-49.4%) driven by a 90 percent decline in Latin America as firms increasingly accessed finance through bond markets. General purpose lending and refinancing fell by around by 52.3 percent and 66.1 percent in Europe and Central Asia, mainly because of Euro-Area deleveraging and weak growth. Overall lending to the Middle East and North Africa fell by 45.4 percent due to political unrest, with declines in refinancing accounting for 60 percent of the total decline. Declines in project financing, trade financing and working capital were relatively modest and mainly reflected weak GDP and trade growth.

Remittances to developing countries increased an estimated 5.5% in 2012 to $406 billion – more than three times the size of official development assistance. Driven by robust economic activity in the Gulf Cooperation Council (GCC), remittances to South Asia and the Middle East and North Africa regions grew most quickly. Supported by the slowly improving US labor market remittances to Latin America rose marginally. Improved labor conditions in Russia benefitted remittances to countries in the neighboring countries of the Commonwealth of Independent States. In contrast, weak labor markets in the Euro Area cut into remittance flows to Eastern Europe and Central Asia. Remittance flows are expected to rise by 8% and 10% in 2013 and 2014 respectively, with remittance flows from the US, GCC and Russia increasing the most.

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