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Prospects Daily: Growing geopolitical tension prompts risk aversion, Eurozone economic confidence at a 31-month high, Turkey’s consumer confidence weakens to four-year low, Brazil’s GDP growth recovers in Q4 2013

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Financial Markets… Growing tension in Ukraine and Russia dampened investors’ risk appetite on Thursday, weighing on global stocks and sending the Japanese yen and the Swiss franc higher amid increased demand for safe-haven assets. Worries over geopolitical uncertainty hit Europeans shares especially hard, which were already under pressure due to a downward revision to Spain’s fourth-quarter GDP along with European Central Bank’s data showing little improvement in the volume of credit reaching euro-zone companies. The euro was down as well, as slowing inflation in Germany fueled speculation the ECB will cut interest rates further.

Brazils’ central bank slowed the pace of interest rate hikes yesterday, possibly signaling the end of an aggressive monetary tightening cycle that started last year to battle a spike in inflation. The central bank raised the benchmark Selic rate by 25 basis points (bps) to 10.75%, breaking a streak of six straight 50 bps hikes that sent the key rate to its highest level in over two years. A shaky economy, slowing inflation, and President Dilma Rousseff’s efforts to tighten fiscal policy seemed to give the central bank some breathing room to opt for a smaller rate increase. Brazil’s central bank has hiked the key rate by 350 bps from a record low 7.25% in the eighth consecutive increase since April.

High Income Economies… U.S. first-time jobless claims rose unexpectedly to 348,000 in the week ended February 22nd, an increase of 14,000 from the previous week's revised figure of 334,000. The less volatile four-week moving average came in at 338,250, unchanged from the previous week's revised average. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, edged up to 2.964 million in the week ended February 15th from the preceding week's revised level of 2.956 million.

Driven by upbeat services and industrial sentiment, Eurozone economic confidence unexpectedly improved for the tenth consecutive month, edging up from 101.0 in January to 101.2 in February, a 31-month high. The marginal increase in economic confidence was due to enhanced confidence in construction and, to a lesser extent, services, retail trade and industry. At the same time, confidence among consumers worsened in February.

The leading economic index for Taiwan, China continued its upward movement in January, but at a weaker rate than in December. The index rose 0.1% (m/m) to 103.8 in January, after growing 0.1% in December and 0.2% in November. Meanwhile, the coincident economic index, which measures the current situation, advanced 0.6% to 103.9 in January, following December's 0.6% gain. The lagging index, which gauges the past performance of the economy, fell 0.3% to 100.5 in January, following a 0.3% decline.

Developing Economies…Europe and Central Asia: Turkey’s consumer confidence weakened for the third consecutive month in February, with the index dropping to 69.2 from 72.4 in January, the lowest score since February 2010 when it was 68.6. All four sub-indices declined. The index assessing households’ sentiment about the possibility of saving this month declined the most, dropping 15.8% to 22; followed by the index gauging consumers’ view on the general economic situation, which fell 3.9% to 90.4.

Latin America and the Caribbean: Brazil’s GDP growth recovered in the fourth quarter of 2013, rising 0.7% (q/q) after contracting 0.5% (q/q) in the third quarter, exceeding the consensus forecast of 0.3% growth. On an annualized basis, GDP grew 1.9% in Q4, higher than the consensus forecast of 1.6% (y/y), but slower than the 2.2% (y/y) expansion in the previous quarter. For 2013 as a whole, GDP grew 2.3% rising from 1% in 2012, supported by a 6.3% growth in fixed capital formation, 2% increase in services and 1.3% growth in industrial production.

Sub-Saharan Africa: South Africa’s producer price inflation increased for the second consecutive month in January, coming in at 7.0% (y/y), higher than the consensus forecast of 6.8%, following a 6.5% (y/y) increase in December 2013. Among the components of the index, producer prices in the food, beverages and tobacco industry rose 5.9%, contributing 2.2 percentage points to the headline inflation. Month-on-month, producers prices increased 1% in January, up from 0.5% in December.