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Prospects Daily: Pound weakens on UK rating cut, Greece’s trade deficit widens in December, China’s flash PMI edges downwards

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Financial Markets…The pound fell to a two-and-a half year low versus the dollar on Monday after a sovereign ratings cut by Moody’s on Friday, sliding as low as $1.5073.

The yen depreciated to its lowest level since May 2010 against the dollar, reaching 94.77 in early Monday trading, amid growing prospects of aggressive monetary easing in Japan following reports on the possible nominee for the next central bank governor. The Japanese currency has already dropped some 20% versus the dollar over the past three months amid market expectations of unprecedented monetary easing.

Developing-country stocks gained slightly on Monday as rising oil prices sent energy stocks higher in the benchmark MSCI Emerging Market Index. This comes after the last week’s sell-off which dragged equity valuations to a two-month low. The MSCI index rose 0.4% after posting a weekly loss of 1.2% last week and trading at 10.2 times estimated 12-month profit, its weakest level since December 21.

High-income Economies
…The UK's sovereign debt rating was downgraded one notch by Moody’s from AAA to Aa1 with a stable outlook, on concerns of sluggish growth, rising debt levels and policy uncertainties. S&P and Fitch currently rate the UK as AAA but both have a negative outlook and have indicated that their ratings are under review.

Retail sales volumes in Hungary fell at a slower pace of -2.1% (y/y) in December, compared to a decline of 4.1% (y/y) in November, helped by rising textile, clothing and footwear sales. Sales edged up a seasonally and calendar-adjusted 0.2% (m/m) in December, helping offset the previous month's 0.4% decrease.

Greece's merchandise trade deficit widened to 1.09 billion euros in December from 0.89 billion euros in November reflecting weak external demand. Exports fell 15% (y/y) in December, led by an 11% drop in shipments to the EU, while imports rose by 1.1%. For the entire year, exports increased by 5.1% while imports fell 6%, resulting in a deficit of 13.2 billion euros, about 6.5% of GDP and 17.2% lower than in 2011.

Developing Economies
East Asia and Pacific: China’s HSBC/Markit 'flash' estimate of the     purchasing managers' index (PMI) came in at 50.4 for February, a drop from January's full-month reading of 52.3. A reading over 50 indicates expansion. Despite the fall, this is the fourth consecutive month of expansion.

Europe and Central Asia:
Ukraine's industrial production contracted at a slower pace at 3.2% (y/y) in January compared to a contraction of 7.8% (y/y) in December 2012. For the entire 2012, Ukraine's industrial production had contracted by 1.8%.

Latin America and the Caribbean:
Mexico’s current account deficit was unchanged in 2012 0.8% of GDP. Imports surged in the final quarter rising by 23% (q/q) while exports were stagnant at -0.25% (q/q).