Global Economic Prospects 2014

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Prospects Daily: Inflation slows in Mexico and accelerates modestly in Russia, Egypt’s PMI plunges to record low

Financial Markets…Moody’s Investors Service upgraded the sovereign credit rating of Paraguay by one notch to ‘Ba3’ from ‘B1’, citing the country’s steady financial strength. The rating agency said in a statement Paraguay’s public finances are likely to remain robust despite volatile growth, and noted the country’s steady accumulation of foreign-exchange reserves. Moody’s upgrade puts the country’s rating at par with that of El Salvador and Nigeria.

Poland kicked off the year with a global Eurobonds issuance, selling €1 billion ($1.3 billion) worth of debt maturing in January 2019 at a yield of 1.705% on Wednesday, as the country took advantage of record low borrowing costs. Notably, Poland’s new issue comes a day after the Turkish government’s $1.5 billion 10-year international bond sale, which was priced at an all-time low yield of 3.473% amid overwhelming demand.

Vietnam shares climbed to a eight-month high on Wednesday, with the benchmark VN Index extending its gains by 0.4%, after the government said it may boost the foreign-ownership limit on companies in some sectors. The State Securities Commission said it is planning to launch a pilot program allowing international investors to own more than 49% of some companies.

High-income EconomiesGerman industrial production rose a modest 0.2% (m/m) in November, following a 2% fall in October, suggesting that industrial activity still remains weak despite a recent increase in business sentiment. From a year earlier, industrial output fell 2.9% (y/y), a slightly slower pace of decline than the 3% fall recorded in October.

The UK trade deficit narrowed slightly 3.5 billion pounds in November from 3.7 billion pounds the previous month, as exports rose 2.9%, while imports rose a more modest 1.1%. The merchandise trade balance fell to 9.2bn pounds from 9.5bn pounds.

Greece's industrial production dropped 2.9% (y/y) in November, after a rise of 3.5% in October, in part due to a steep decline in electricity production. In the 11 months through November 2012, industrial production was 3.5% lower from the same period a year earlier.

Consumer price inflation in the Czech Republic slowed to 2.4% (y/y) in December from 2.7% in November, but prices edged up 0.1% (m/m). The unemployment rate rose to 9.4% in December from 8.7% the previous month.

Developing EconomiesBulgaria’s industrial output declined 2.1% (y/y) in November in a third monthly consecutive decline, although at a slower pace than 4.4% observed in October. The largest decline was recorded in mining and quarrying industry (-11.6%) followed by a 4.8% output decline in utilities sector. On a monthly basis, industrial production rose by 0.9% in November recovering from a 0.4% fall in October.

The HSBC/Markit purchasing managers index (PMI) for Egypt plunged to a record low 37.1 in December, from 49.8 in November following three consecutive months of contraction indicating that business conditions in Egypt's private sector worsened substantially in December as output and new orders fell sharply while inflationary pressures intensified.

Malaysia's merchandise exports increased 3.3% (y/y) in November led by accelerating exports to the ASEANs (7.8%) and to the United States (11%). Shipments to Japan and to the EU dropped by 16.2% and 11.3% respectively. Malaysia’s imports grew 4.3% (y/y) in November led by imports from ASEAN countries, which accounted for 27.7% of total imports. During January-November period, Malaysia's total exports increased 1.3% (y/y), while imports grew 7.1%.

Mexico’s inflation slowed to 3.76% (y/y) in December from 4.18% in November falling within the Bank of Mexico’s annual inflation target of 3, +/- 1%.

Russia's inflation accelerated modestly to 6.6% (y/y) in December from 6.5% in November led by increase in food prices.

Vehicle sales in South Africa increased 1.8% (y/y) in December with new passenger car sales growing 7.6%.

Thailand's central bank kept its policy rate steady at 2.75%, stating that the Bank will closely monitor financial stability risks related to the rapid credit expansion, rising household debt and volatile capital flows. Thailand's headline inflation rate accelerated to 3.6% (y/y) in December from 2.7% in November, but core inflation, eased to 1.78% from 1.85%.