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Prospects Daily: Safe-haven government bonds rally on Portugal bank worries, U.S. weekly jobless claims unexpectedly fall, Malaysia’s central bank raises policy rate for first time in 3 years

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Financial Markets

U.S. Treasuries and German bunds advanced on Thursday, pushing their yields lower, as renewed concerns over European financial markets amid Portuguese banking woes boosted demand for safe-haven government securities. The benchmark 10-year yield declined as much as 6 basis points (bps) to a one-month low of 2.49%, while German 10-year yield slid 6 bps to a 14-month low of 1.17%. In contrast, Italian, Portuguese, and Spanish government bond extended their losses.

Indonesian stocks surged to a one-year high and the country’s currency climbed to a 7-week high against the dollar on positive election expectation. The Jakarta Composite stock index gained 1.6%, gearing for its highest closing since May 2013, and the Indonesian rupiah appreciated 0.4% to 11,588 per dollar after reaching the strongest level since May 22. Foreign investors have poured more than $4 billion into Indonesian shares since December, exceeding the full year record.

High Income Economies

Providing yet another upbeat note on the labor market, U.S. initial jobless claims fell to 304,000 in the week ended July 5th, a decrease of 11,000 from the previous week's unrevised level of 315,000. The modest decrease was unexpected as economists had expected claims to come in unchanged compared to the previous week. The less volatile four-week moving average also dipped to 311,500, a decrease of 3,500 from the previous week's unrevised average of 315,000. On the other hand, continuing claims rose to 2.58 million in the week ended June 28th from the preceding week's revised level of 2.57 million.

The Bank of England kept its monetary policy unchanged on Thursday, leaving the key bank rate unchanged at a record low 0.50% which was set in March 2009, and maintaining the asset purchase programs at GBP 375 billion.

The Japanese consumer confidence index rose to 41.1 in June from 39.3 in May, with all the sub-indices contributing positively to the overall index. This marked the highest level of confidence since December 2013. The overall livelihood index rose to 38.4 from 36.8, while the employment index rose 2 points to 48.4 in June and the income growth index climbed 0.6 points to 37.9 in June.

Developing Economies

East Asia and Pacific

At its meeting of July 10th 2014, Malaysia’s central bank decided to raise its benchmark rate for the first time in more than three years. Noting that inflation remained above its long-run average amid firming domestic economic growth prospects the central bank raised the overnight policy rate by 25 basis points to 3.25 percent. Accordingly, the floor and ceiling rates of the corridor for the overnight policy rate were raised to 3.0% and 3.5%, respectively.

China’s exports grew 7.2% (y/y) in June, faster than the 7.0% growth recorded in May, but slower than economists’ forecast for a 10.4% (y/y) increase in June. Imports also rose at a slower-than-expected pace in June, expanding 5.5% (y/y) after falling 1.6% in May. Economists’ forecast was for imports to rise by 6.0%. As a result of these trends, the trade surplus narrowed to US$31.6bn in June, down from US$35.9bn in May, rather than rising to US$36.9bn as forecast.

Middle East and North Africa

Egypt’s annual consumer price inflation was steady in June, coming in at 8.20%, slowing marginally from 8.24% in May. Core CPI, which excludes volatile food and energy prices, eased to 8.76% (y/y) from 8.86% in May. Month-on-month, consumer prices increased by 0.84% in June following a 0.73% decline in May; and core CPI went up by 0.68%, rising from May’s 0.23% decline.

Sub-Saharan Africa

South Africa’s manufacturing output fell 3.7% (y/y) in May, well above economists' forecast for a 1.6% decrease, after declining 1.9% in April. Contributing to this decline, automobile manufacturing fell 15.9% (y/y) in May, metal and machinery manufacturing decreased 6.8% (y/y), and production of food and beverages fell 4.3% (y/y). Month-on-month, manufacturing production decreased 3.3% in May, reversing April’s 3.5% increase.

Meanwhile South Africa’s mining production fell 6.5% (y/y) in May after rising 2.0% (y/y) in April, as platinum output shrank 48.5% (y/y), hurt by labor strikes. In the first five months of the year mining output contracted 1.9% compared to the previous year. On a monthly basis mining production decreased 3.1% in May, following a 6.3% increase in April