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Prospects Daily: US oil prices at par with global crude prices, European government debt at historic high, Brazil industrial confidence weakens further

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Financial and Commodity Markets…US oil prices have reached parity with the global crude benchmark Brent for the first time in almost three years. WTI, the US benchmark, whose September contract reached the same level as September Brent, was last at parity with the North Sea contract in October 2010. WTI has traded at a discount to Brent over the past few years as a surge in US oil production – due to the shale boom – led to a glut at Cushing, Oklahoma, the delivery point for the US benchmark. The recent rise in oil flows out of Cushing, resulting from pipeline capacity increases and other transportation as well as an increase in refining capacity, has pushed WTI closer to Brent this year.

The yen snapped a three-day losing run versus the dollar on Monday after Japanese Prime Minister Shinzo Abe’s coalition solidified control of house of parliament yesterday. Japan’s currency gained 0.7% against the dollar to 99.92 after gaining as much as 1% earlier, and it strengthened 0.5% versus the euro to 131.56. Even after Monday’s gains, the yen is down 15% versus the greenback for this year, the worst performing currency among 10 developed-market currencies traded against the dollar.

China’s stocks moved higher Monday for the first time in four days in volatile trading amid speculation the government’s interest rate reform will provide a more favorable credit environment for smaller companies.

High Income Economies...The aggregate Euro Area general government budget deficit eased to a seasonally adjusted 3.5% of GDP in Q1 from 3.7% in Q4 2012.  This is down from a peak of 7.2% in Q3 2010. Greece’s deficit to GDP ratio (non-seasonally adjusted) was the highest at 17.6%, an increase of 9 percentage points (pp) from Q1 2012, followed by Ireland (13.6%, up by 1.1pp from Q1 last year) and Portugal (10.6%, up 2.7pp).
Meanwhile, Euro-zone government debt rose to a historic high in the first quarter of 2013, led by Italy and the five countries receiving international aid in the wake of the region’s debt crisis, despite of years of austerity measures in an effort to rebalance public finances. The government debt of the 17 Euro Area countries as a share of the total gross domestic product climbed to a record 92.2%, up sharply from 88.2% in the like period last year. Greece has the highest first-quarter debt level at 160.5% of GDP, followed by Italy with 130.3% of GDP.

US existing home sales fell more than expected in June, by 1.2% (m/m sa) to an annual rate of 5.08 million from a downwardly revised 5.14 million in May, according to National Association of Realtors.  Despite this, the June rate was second-highest since November 2009, as buyers scrambled to lock in low interest rates that have been on the rise this summer.

Taiwan’s export orders declined unexpectedly in June, falling by 3.5% (y/y) in June. On a monthly basis, overseas orders fell 3.4% (m/m). In January-June, export orders fell 1.7 percent compared with the same period last year.

Developing EconomiesEast Asia and Pacific: Malaysia’s unemployment rate rose to 3.4% (sa) in May, up from 3.1% (sa) in April. Labor force participation rate registered a decline of 0.4 percentage points to 66%.
Latin America and the Caribbean: Mexico’s retail sales slowed in May to 0.1% (y/y), down from 2.5% (y/y) in April underscoring how a slowdown in industrial production this year has fed into weaker domestic demand. On monthly basis, retail sales expanded just 0.7% from a contraction of 0.7% in April.

Brazil’s confidence in the industrial sector continued to decline in July the confidence index dropped to 100.1, its lowest point since June 2009, down from 103.8 in June. 100 is the neutral point and values above and below imply growth and contraction, respectively. The surveys showed a 2.9% (y/y) drop in estimation of current conditions and future conditions while capacity utilization registered a rise to 84.3%.