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Prospects Daily: Philippines’ sovereign debt rating is raised to investment grade, Eurozone business sentiment at 27-month high, China’s purchasing managers’ index for non-manufacturing rises to six-month high

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Financial Markets…German government bonds fell for a fourth day, with the benchmark 10-year yield rising as much as 4 basis points to 1.85%, as higher-than-expected August retail sales in the Euro-zone added to signs that the region’s economy is recovering. Improved political stability after Italy’s Prime Minister Enrico Letta won a confidence vote on the support of leftwing allies and centrist members also helped market sentiment. German bonds declined 1.6% this year through yesterday, while Spanish and Italian securities gained 9.5% and 4.8%, respectively.

Developing-country stock markets gained the most in two weeks on Wednesday, with the MSCI Emerging Market Index climbing 1%, as a jump in the Chinese service sector in September underpinned a sign of rebound after a two-quarter slowdown. Emerging market equities rose for a third day on speculation that lingering U.S. government shutdown may lead to the Federal Reserve to delay tapering its stimulus program, bolstering investor appetite for risker assets.

Moody’s Investors Service raised its sovereign debt rating for the Philippines to investment grade, citing the robust growth, ongoing fiscal reform, political stability and improved governance. The one-notch upgrade to ‘Baa3’, from ‘Ba1’ means the country now has investment-grade ratings from all three of the world’s leading rating agencies—Fitch Ratings and Standard & Poor’s upgraded the country’s rating in March and May, respectively. The Philippine’s currency, stocks, and bonds all rallied following the rating upgrade.

High Income Economies… U.S. first-time jobless claims rose by 1,000 for the week ending September 28th from the previous week's figure of 307,000. The less volatile four-week moving average fell from the previous week's revised average of 308,750 to 305,000, further extending its recent downward trend, hitting its lowest level since May 2007. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, rose to 2.925 million in the week ended September 21st from the preceding week's revised level of 2.821 million.

Driven by an increase in the degree of uncertainty regarding the future business climate and the direction of the economy, growth of the U.S. service sector activity slowed down in September according to the Institute for Supply Management (ISM) non-manufacturing index which dropped to 54.4 from 58.6 in August. The decrease was led by a sharp decline in the business activity sub-index (to 55.1 from 62.2 in August) and new orders sub-index (to 59.6 from 60.5 in August).

Business sentiment, as measured by the Markit Eurozone PMI Composite Output Index, rose to a 27-month high of 52.2 in September, up from 51.5 in August and above the earlier flash estimate of 52.1. The September reading rounded off the strongest business sentiment increase for the Eurozone since the second quarter of 2011. Driving the improvement was a second straight month of more new business, plus the rate of growth in new orders was the sharpest since June 2011. Leading the individual country readings was Ireland (55.7) and Germany (53.2), while Spain (49.6) was the main weak spot in September.

The HSBC United Arab Emirates (UAE) PMI, which measures activity in the non-oil private sector – posted a 29-month high of 56.6 in September, up from August’s 54.5 signaling the strongest improvement in operating conditions in nearly two-and-a-half years. Contributing to the increase were accelerations in the growth of order intakes and new export business, and increasing employment levels.

Similarly, business sentiment in Saudi Arabia, as measured by the Saudi British Bank (SABB) HSBC Saudi Arabia PMI registered a six-month high of 58.7 for September, up from August’s 57.5. The index signaled a further rise in output levels among the non-oil producing private sector firms, with the rate of expansion accelerating to a five-month high.

Developing Economies…East Asia and Pacific: China’s headline purchasing managers’ index for non-manufacturing, which includes services and construction industries, rose to a six-month high of 55.4 in September from 53.9 in August. Contributing to this improvement were the new orders index, which rose to 53.4 in September from 50.9 in August and the new export orders which rose to 50.5 from 49.6 in August. Mitigating these gains, the business expectations index fell to 60.1 from 62.9 in August, and the employment index declined to 51.3 from 52.5 in August.

Europe and Central Asia: Turkey’s annual headline inflation, measured by the consumer price index, fell to 7.8% (y/y) in September from 8.2% in August, its lowest level in four months, as a slowdown in housing and food prices helped offset annual increases in prices of alcoholic beverage and tobacco, cost of education, cost of transportation, and hotels and restaurants. Despite the decline in the consumer price index, inflation remains well above the government’s target of 5.3% for 2013.

Sub-Saharan Africa: South Africa’s headline business confidence index edged up 0.9 index points to reach 91.4 in September, reversing the 0.2 points decline recorded in August. On a year-to-year basis the index score was slightly lower than the score of 91.7 achieved in September 2012. Contributing to this improvement were gains in the municipal service index, merchandise export volumes, manufacturing output and approved building plans approved. The sub-indexes for inflation, private borrowing, the rand exchange rate and previous metal prices made negative contributions.