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Prospects Daily: Estonia and Latvia recorded slower growth in Q4, Azerbaijan cuts policy rates, Mexico’s industrial production drops, Venezuela devalues its currency

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Financial Markets…Yields on Spanish 10-year government bonds increased by 6 basis points to 5.42%, after dropping 9 bps in the past two days and Italian 10-year bond yields also climbed by 7 bps reaching an eight week high 4.63%, in expectation of the European Union (EU) ministers’ meeting on Cyprus and Greece aid.

India’s benchmark stock index, Sensex, slid for the eighth day (2% drop from its end-January 2013 pick level), posting the longest losing streak since November 2011, amid growing concerns over the country’s economic growth and corporate earnings. This followed a 26% surge during 2012 supported by $24.5 billion foreign investment inflows into India’s stock markets. 

Five-year credit-default swaps (or CDS) on Polish government debt increased 11basis points this year to 94 bps amid concerns that the slowing economic growth will undermine budget deficit targets. An EU ban on speculative trading of sovereign CDS (so-called naked swaps) has also arguably contributed to a hike of CDS prices, limiting investors’ ability to hedge against the risk related to a possible growth slowdown.

High-income Economies
Estonia’s economic growth rate slowed to a 3.6% annualized pace in the fourth quarter from 3.6% in the third quarter affected by weak agricultural output and declining exports. On an annual basis, Estonia’s GDP expanded by 3.7% (y/y) in the fourth quarter, following a 3.5% growth in the third quarter. For the entire 2012, Estonia’s GDP expanded 3.2% (y/y) compared to 2011.

exports dropped 5% (y/y) in December, for the first time in seven months and following a 9% rise in November. In 2012 as a whole, exports of goods increased 4% (y/y) and imports grew 9%, considerably slower than in 2o11 when both exports and imports grew by 37% (y/y). Estonia's trade deficit widened to EUR 1.2 billion in 2012 from EUR 0.66 billion recorded in 2011.

France’s industrial production decreased 2.1% (y/y) in December – at a slower rate than a 3.8% drop recorded in November. On a monthly basis however, industrial production edged down a seasonally adjusted 0.1% (m/m) in December, reversing a 0.5% increase recorded in November. Manufacturing production fell 2.9% (y/y) in December, also at a slower pace compared to a 4.9% decline in November. On a monthly basis, manufacturing production growth remained unchanged at 0.1% (m/m) in December similar to its monthly change recorded in November.

economic growth rate slowed to 5.3% annualized pace in the fourth quarter from a 7% in the third quarter. On an annual basis, Latvia’s GDP grew 5.1% (y/y) in the fourth quarter, slightly slower than 5.2% growth recorded in the third quarter.

Annual inflation eased in Denmark, Czech Republic and Norway in January. Denmark’s CPI increased by 1.3 (y/y) in January, compared to a 2% gain in December. Czech Republic’s CPI eased to 1.9% in January from 2.4% in December and Norway’s CPI slowed to 1.3% (y/y) in January from 1.4% in December.

Developing EconomiesAzerbaijan's central bank cut its benchmark refinancing rate by 25 basis points to 4.75%. Inflation in Azerbaijan eased in 2012, dropping to 1.10% (y/y) in December remaining well below the central bank’s 5-6% annual inflation target range.

Egypt’s inflation accelerated in January to 6.3% (y/y) from 4.7% in December with higher tobacco, alcohol and food prices contributing to the rise. On a monthly basis, prices recorded the largest increase in two years, rising by 1.7% (m/m) in January compared with 0.2% (m/m) in December.

Indian car sales--regarded as key barometer for domestic demand--fell by 12.5% (y/y) in January reflecting a slowing growth, rising fuel prices and high interest rates.

industrial production fell by -1.1 (y/y) in December, compared to 2.9% growth in November with construction and manufacturing leading the decline with concerns about the US “fiscal cliff” weighing heavily. On a monthly basis, output dropped -2.1% (m/m) in December, which is the largest monthly decline in last three and a half years.

devalued its currency by 32%, with the official exchange rate changing from 4.3 bolívars to the dollar to 6.3 bolívars. This is the fifth time that Venezuela has devalued its currency since implementing strict currency controls in 2003 with the most recent devaluation implemented in January 2010.