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Prospects Daily: The US dollar extends depreciation against the euro, Eurozone Retail PMI at five-month low, Brazil’s producer price inflation eases

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Financial Markets… The dollar fell 0.2% versus the euro to $1.3788 on Wednesday, extending its monthly depreciation to 1.7% amid growing expectations of extended Fed’s stimulus program. Meanwhile, the greenback held steady against the yen at 98.21 and has appreciated 13% year-to-date. The recent survey indicated the Federal Reserve would maintain its $85 billion bond purchasing program until March next year.

China’s money-market rates surged to four-month highs as credit crunch sent the one-year government bond yield to a historic high amid weakening demand. The one-year money market rate rose to as high as 4.27%, the highest level since June 24, as liquidity squeeze prompted concerns some banks would struggle to meet their debt obligations. The yield on the one-year government bonds jumped 30 basis points to 4.10%, the highest level since at least 2007.

High Income Economies…Partly reflecting the economic impact of the government shutdown, U.S. private sector employment increased less than expected when it added 130,000 jobs in October, compared to September’s revised increase of 145,000 jobs.  Contributing to the slowdown was the service-providing sector, which added 107,000 jobs in October following an increase of 130,000 jobs in September.  On the other hand, the good-producing sector saw an increase of 24,000 jobs in October compared to the addition of 16,000 jobs in September.

The Eurozone Retail PMI declined to a five-month low of 47.7 in October from 48.6 in September, indicating the fastest monthly rate of decline since May. In contrast, the average reading over the third quarter was the highest since Q2 2011.  The faster decline mainly reflected a sales contraction in Italy and France, while the rate of growth in Germany was the weakest since May.

Driven mainly by a marked rise in business confidence, South Korea's economic sentiment index, a composite of the business survey index and the consumer survey index, moved up to 94 in October from 93 in September and 92 in August.  The business survey index, which measures sentiment in the manufacturing and non-manufacturing sectors, climbed 6 points month-on-month to 81 in October. In addition, Korean manufacturers expect their business conditions to improve further in November, with the seasonally adjusted outlook index rising by 4 points to 86, while sentiment in the non-manufacturing sector decreased to 69 in October from 70.

Developing Economies…Europe and Central Asia: Bulgaria’s industrial producer prices slowed in September, declining 4.2% (y/y). This improvement was supported by price decreases in manufacturing (3.5%), mining and quarrying (10.4%) and utilities (3.4%). Month-on-month, industrial producer prices were unchanged in September.
 
Turkey’s consumer confidence index increased in October following a two-month decline, advancing to 75.5 from 72.1 in September. In August the index stood at 77.2, down from 78.5 in July.  Among the factors behind this rebound, the sub-index measuring consumers’ view on their ability to save in the next 12 months increased by 20.9% (m/m) to 24.3 in October and the sub-index measuring the number of people expecting an increase in employment rose 2.2% (m/m). In addition, households’ perception of the general economic situation turned more positive and households were also more optimistic about their personal finances
 
Latin America and the Caribbean: Brazil’s producer price inflation slowed to 5.86% (y/y) in September from 5.92% in August.  Prices of food products rose 5.63% (y/y); prices of textile grew 6.86% (y/y); costs of wood products climbed 4.38% (y/y) and prices of machinery, equipment and materials increased 3.59% (y/y).  Month-on-month, the producer price index rose 0.62%, a slower pace than the 1.43% increase recorded in August. In the 9-months to September, producer prices grew 4.91% from the corresponding period the previous year.