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Prospects Daily: Ukrainian currency extends rally, U.K. unemployment falls below 7% threshold and at 5-year low, China’s GDP growth slows in 2014Q1

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Financial Markets
 
The hryvnia, Ukraine’s currency, surged for a second day after the country’s central bank raised interest rates and took a form of regulatory measure on the interbank foreign exchange markets to curb inflation and reduce devaluation pressure.  The National Bank of Ukraine raised its policy rate by 300 basis points to 9.5% two days ago and nearly doubled the overnight lending rate to 14.5% from 7.5%.  After hiking interest rates, the central bank also temporarily disconnected 14 banks from foreign-exchange trading. The currency strengthened 5.3% versus the dollar in afternoon trading, extending its two-day gains to 12% and trimming this year’s drop to 27%.  In contrast, Ukraine stocks and bonds remained weak as escalating tension in the nation’s Crimea region pushed investors out of Ukrainian financial assets.
 
Zimbabwe stocks declined for the sixth consecutive day to the lowest level since January 2013 amid weakening corporate earnings because of slumping consumer spending and lingering uncertainty over government policy.  The country is also struggling with a credit crunch due to a foreign-exchange shortage and the threat of deflation.  The Zimbabwe Industrial Index, the country’s benchmark stock gauge, slid 1.5% to a 15-month low level at closing, extending this year’s losses to 18%, the most among 13 sub-Saharan Africa stock markets.
 
High Income Economies
 
U.S. industrial production increased by 0.7% (m/m sa) in March after surging up by an upwardly revised 1.2% in February.  The larger-than-expected increased was partly driven by 1.5% jump in mining output, which followed a 0.9% increase in February.  Utilities output also surged up by 1.0% in March after falling by 0.3%, while manufacturing output rose by 0.5% after soaring by 1.4%.
 
The U.K. unemployment rate fell below the 7% threshold from 7.1% for the three months to November to 6.9% in the three months to February, which is a five-year low.  The number of people out of work declined by 77,000 from November to 2.2 million in February.  Meanwhile, employment surged 239,000 to a record 30.4 million.  At the same time, average earnings growth accelerated to 1.9% (y/y) in February from 1.7% in January, exceeding the consumer price inflation and reducing the squeeze on household finances.
 
Japan's industrial production declined 2.3% (m/m) in February, in line with preliminary estimates.  On a yearly basis, output plunged 7%.  The decline in shipments was confirmed at 1.0%, inventories dipped 0.9% instead of the initial estimate of 0.8%.
 
Developing Economies
 
East Asia and Pacific  
China’s GDP growth slowed to an 18-month low in 2014Q1 from the previous year, coming in at 7.4% (y/y), beating expectations, but lower than the 7.7% (y/y) recorded in 2013Q4. Quarter-on-quarter, the economy grew 1.4% in 2014Q1 compared with a revised 1.8% in 2013Q4.
 
At the same time, Chinese industrial production grew 8.8% (y/y) in March, less than expected, but up from 8.6% (y/y) in February; and retail sales edged up to 12.2% (y/y) from 11.8% (y/y), beating expectations.  Growth in fixed investment asset slowed, with a year-to-date expansion of 17.6% in March, compared with 20.9% (y/y) in 2013Q1 and 17.9% in the first two months of the year.  Export and imports contracted by 1.0% (y/y) in Q1; however, the value of exports by large firms rose 4.2% (y/y).
 
Sub-Saharan Africa  
South Africa’s retail sales expanded at a slower than expected 2.2% (y/y) pace in February after rising 6.4% in January.  Month-on-month, retail sales contracted, decreasing by a seasonally adjusted 0.2% in February reversing January’s revised 0.5% increase.