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Prospects Daily: Capital controls imposed in Cyprus…Japanese consumer spending improves…India’s current account widens to a reco

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Financial MarketsCyprus’s bank reopened on Thursday after a nearly two-week hiatus with strict controls on transactions, a Euro Area first. Measures include limits on cash withdrawals to €300 per day per person, and on uses of credit cards abroad to €5000 per month in an effort to curb capital outflows. The new capital controls will be evaluated daily basis and are in place until next Wednesday.

The cost of insuring against defaults on European bank debt rose for a 10th day, with the benchmark Markit iTraxx Financial Index of credit-default swaps heading for the its worst month since November 2001, as investors remained concerned about the Cyprus situation and political turmoil in Italy.

Developing-country stocks continued to decline today, with the MSCI Emerging Market Index gearing for the worst Q1 slump since 2008, as new Chinese restrictions on banking risk controls pushed the country’s shares sharply lower. The China’s Shanghai Composite Index tumbled 2.8%, the most since March 4, while the country’s broader CSI 300 Index sank 3.3%, with financial shares dropping the most.

High-income Economies…Consumer spending in Japan picked up further momentum, with retail sales adding 1.6% (m/m sa) and rising 2.8% (3m/3m saar) in the three months to February. Sales growth turned positive in January at 0.6% (3m/3m saar), for the first time in 6 months. 

In the US, the 4-week moving average of initial jobless claims edged up by 2,250 to 343,000. Claims in the previous weak had fallen to 340,750, the lowest level since February of 2008.  Separately, Q4 US GDP growth was revised up from an initially estimated 0.1% (q/q saar) to 0.4%.

German retail sales rose at a slower pace in February, up 0.4% (m/m sa) after a 3.0% gain in January. However, on a 3m/3m basis, retail sales were up 2.4% in February vs 0.5% in January. Unemployment meanwhile edged up slightly to 6.9% in March slightly above a two-decade low of 6.8%. 

Developing EconomiesEast Asia and Pacific: Thailand’s manufacturing contracted in February by 1.2% (y/y) in a sharp slowdown from January when it grew by 10.2% (y/y). The sector suffered from weak external demand as well as an appreciation of local currency as 60% of manufacturing sector’s outputs are exported.

Latin America and the Caribbean: Chile’s manufacturing slowed in February to 0.9% (y/y), down from 4.5% (y/y) in the previous month. On monthly basis, the production of copper slid 11.2% from January. Retail sales also slowed in the same period as well to 7.4% (y/y) from 9.5% (y/y) in the previous month.

South Asia: India’s current account deficit (CAD) reached $32.6bn in the 2012Q4, or 6.7% of GDP – a record. That’s up significantly from 5.4% of GDP in the previous quarter and 4.4% in the same quarter of 2011. Stagnating exports and rising imports, of gold and oil in particular, were main contributors to the widening current account deficit. The CAD was financed in part by surging portfolio investment (377% y/y) while net FDI declined by 50% (y/y).