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Prospects Weekly: Quarterly GDP growth picked up in high income countries in the first quarter of 2013, Growth in developing countries decelerated, Monetary policy in several developing countries has eased in 2013

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Quarterly GDP growth picked up in high income countries in the first quarter of 2013, as relative stability in financial markets and accommodative monetary policies translated into improvement in real side activity. However, growth in developing countries decelerated, mainly reflecting local capacity constraints. Monetary policy in several developing countries has eased in 2013 due to growth concerns and moderating inflation. Inflows into developing-country bond and equity mutual funds picked up strongly in the second half of 2012 and early 2013, but have eased in recent months despite Japanese quantitative easing.
Quarterly GDP growth picked up in high income countries in the first quarter of 2013, but decelerated in several developing countries. Better financial market conditions, robust developing-country import demand, and sustained monetary stimulus have contributed to stronger growth in high income countries. GDP rose an annualized 2.4 percent during 2013 Q1 in the United States, and by 3.5 percent in Japan. In the Euro Area the pace of decline slowed to -0.6 percent (versus -2.5% in Q4). In contrast, growth in many developing countries decelerated, mainly due to local capacity constraints. China’s growth slowed to an annualized 6.6 percent in Q1 (from 8.2% in Q4). Growth also slowed in Brazil (from 2.6% to 2.2%), Indonesia (6.9% to 5.3%), Mexico (2.7% to 1.8%), Russia (2.2% to 0.2%), and South Africa (2.1% to 0.9%)—and more sharply in Chile (7.9% to 2.1%) and in Malaysia (8.3% to -2.5%). But growth in the Philippines picked up to a robust 8.9 percent pace (8.0% in Q4). GDP data for India is scheduled for release on May 31st.
Monetary policies in developing countries eased, with some exceptions, on concerns over slowing growth and on moderating inflation. Policy interest rates have been cut by 100 basis points (bps) so far this year in Colombia and Turkey; by 50 bps in Mexico; and by 25 bps in Thailand. India has also reduced its policy rates by 75 bps despite consumer price inflation of more than 9 percent (y/y). Rates have also eased in several countries in Europe and Central Asia and in Sub-Saharan Africa. In contrast, Tunisia and Egypt raised rates to curtail inflationary pressures fueled by domestic factors. With inflation close to the upper end of its target range, Brazil has also bucked the trend, raising rates twice since April by a total of 75 bps. Despite slowing growth, policy rates remained stable in Indonesia, Russia, and South Africa, as inflation was close to or above the upper end of target ranges.
Inflows into developing-country mutual funds have slowed during the first 5 months of 2013. The slowdown came about despite concerns that quantitative easing in Japan would boost capital inflows to unsustainable levels. This was mostly due a decline in inflows into Chinese (and to a lesser extent other developing Asian) equity mutual funds. Inflows into funds focused on other regions have also slowed. Inflows into bond funds eased less markedly, despite a modest uptick in yields. The relative weakness of developing-country investment vehicles partly reflects concerns about overheating and bubbles in some East Asian markets, and slower growth in China. It may also reflect a portfolio shift, which has seen investors shift assets into now less risky high-income country assets. Overall, stock markets in high-income countries are up 15.6% so far this year, versus 0.3% for developing-country stocks.