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Prospects Daily: Indian rupee at a seven-month high, U.K. inflation at a four-year low, China’s leading economic index rises in February

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Financial Markets…India’s rupee climbed to a seven-month high against the dollar as foreign investors stepped up purchases of the nation’s stocks and bonds by $3.5 billion this month amid election optimism. Investors have speculated the election of a new government will accelerate the country’s economic recovery. The currency gained 0.5% to 60.478 per dollar after appreciating to 60.475, the strongest level since August 12.

Venezuela’s bolivar plummeted 88% to 51.86 per dollar on a new free-floating foreign exchange system (called Sicad 2) that the government set up on Monday as part of an effort to increase dollar supplies needed to alleviate a record shortage of imports and tame the black market. The government’s official exchange rate is set at 6.3 bolivars per dollar for preferential goods including medicine and food and around 11 bolivars for other items. On the black market, the price of dollar is currently at 57-58 bolivars, down from 88 bolivars in late Friday.

High Income Economies…German business confidence weakened for the first time in five months in March, as firms were worried about the impact of the European Union economic sanctions against Russia in the wake of the Crimean crisis. The Ifo Institute business climate index for industry and trade fell more-than-expected to 110.7 from February's 111.3. Meanwhile, the current conditions index rose for third successive month from 114.4 to 115.2, the highest since April 2012. The expectations index eased for a second straight month, from 108.3 down to 106.4, the lowest since October 2013.

Driven by lower transport prices, U.K. inflation fell from 1.9% (y/y) in January to 1.7% in February, the least since October 2009. This was the fifth monthly slowing in inflation and came in line with economists' expectations. The decline in January took the rate below the 2% target for the first time since November 2009. On a three-monthly annualized basis, consumer prices increased 0.9% in February, down from the 1.1% increase in January.

With exports shrinking 29.8% (m/m) and imports declining 17.6%, the visible trade deficit for Hong Kong SAR, China widened to HK$53.6 billion in February from January’s HK$20.0 billion. In the first two months of 2014, the trade deficit was HK$73.5 billion, which was larger than the HK$61.2 billion shortfall registered over the same period in 2013. Exports fell 0.8 % (y/y), while imports rose 1.4% (y/y).

Developing Economies…East Asia and Pacific: Philippines’ merchandise imports rose for the third consecutive month in January, jumping 21.8% (y/y), notably faster than the 2.1% growth recorded in December. The strong January increase was driven by an 11.1% rise in imports of electronic products. Month-on-month, imports rose 6.4% (m/m) in January compared with 3.4% in December. As a result of the strong pick up in imports, the trade deficit widened to US$1.38bn in January, up from the US$716 million in December.

China’s leading economic indicator rose 0.9% (m/m) to a score of 282.4 in February, following a 0.3% increase in January and a 0.4% rise in December. However the six-month growth rate of the index moderated from the second half of last year, with less widespread strength among its components. Overall, four of the six components contributed positively to the leading economic index. Meanwhile, the coincident economic index, a gauge of the current economic situation, fell 0.2% to a score of 252.8 in February, following a 1.2% contraction in January, reflecting in part negative contributions from industrial production.

Europe and Central Asia: Hungary’s central bank cut the base rate by 10 basis points to a low of 2.60%, continuing its easing cycle amid political tensions between Russia and the West over the Crimea crisis. The central bank has cut interest rates every month since August 2012. With the March decision, the base rate has been cut by 445 basis points thus far in the easing cycle.