Global Economic Prospects 2015

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Prospects Daily: Portugal’s deficit targets eased…EU inflation slows further…Turkey’s unemployment edges up.

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Financial Markets… The dollar fell for a 2nd straight day on Friday versus the euro, sliding 0.7% to $1.3094, after recent data showed U.S. inflation is contained, curbing talk of an early retreat from monetary easing by the Federal Reserve. The prospect of continuing QE3 is further pushing investors to take profits from the dollar’s recent rally.

Italian government bonds gained for a second day, with the yields on 5-year and 10-year notes sliding 6 basis points to 3.31% and 5 bps to 4.6%, after European policy makers signaled that they would give the region’s highly-indebted countries more leeway to bring down their budget deficits.
Developing-country stocks are gearing for the biggest weekly loss in four months, with the benchmark MSCI Emerging Market Index sliding 0.3% to post the weekly drop of 2%, led by declined in technology stocks. South Korea’s Kospi index fell 0.8% to a three-week low, and India’s Sensex index slid 0.7%, retreating for the fourth day. In contrast, Russia’s Micex index rose 0.6% to a 3-week high and Indonesia’s benchmark index climbed 0.7%, a snapping a 3-day loss of 1.8%.

High-income Economies… Euro Area inflation slowed further to 1.84% (y/y) in February from 1.98% in January. This is the 2nd consecutive month that the headline rate has remained below the ECB’s target of just below 2% inflation. Core inflation, remained unchanged at 1.3%.  Within the Euro Area, Greece reported the lowest annual inflation at 0.1% and Estonia the highest at 4.0%. 

industrial production expanded by a solid 0.7% (m/m sa) in February after being flat the previous month. On a 3m/3m basis output was up by 6% (3m/3m saar) following a 6.7% increase in January. Separately consumer prices rose by 0.7% (m/m sa) after being flat the previous two months, led by a temporary rise in gas prices in February. In annual terms, prices rose 2.0% (y/y) after a 1.6% gain in January. Core prices rose modestly however, by 0.2% (m/m), or 2.0% (y/y), up  from 1.9% (y/y)  in January.

Portugal’s bailout lenders - the IMF, the ECB and the European Commission - agreed to grant the country an extra year, until 2015, to make permanent spending cuts worth 2.5% of GDP, or roughly 4 billion euros. The troika also agreed to ease the 2013 budget deficit goal to 5.5% of GDP from 4.5% previously. Next year's deficit target will now be 4.0% compared to 2.5% previously - which becomes the 2015 goal.

Developing Economies…Europe and Central Asia: Turkey’s unemployment rate rose to 9.6% (sa), up from 9.5% in November as the labor force participation rate dropped to 50.9% (sa), 0.1% points decrease from the previous month.
Russia’s central bank left its benchmark refinancing rate unchanged at 8.25% amid concerns about weakening growth and accelerating inflation which is above the central bank’s target of 5-6%.

Sub-Saharan Africa: Namibia’s inflation edged down to 6.2% (y/y) in February, from 6.6% (y/y) during the previous month as prices of food and non-alcoholic beverages eased to 7.5% (y/y) in February, from 7.8% y/y in the previous month.