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Prospects Daily: World Bank sees Global recovery facing headwinds

 

Important develoments today:

1. World Bank releases ‘Global Economic Prospects’ report, highlighting risks to world recovery

2. China’s net purchase of Japanese long-term government debt reaches record high

3. U.S. Fed Chairman Bernanke: ‘Uneven’ recovery…watch excessive budget cuts

4. OPEC: no consensus on output quotas

 

World Bank releases ‘Global Economic Prospects’ report, highlighting risks to world recovery. The Bank’s Development Prospects Group yesterday launched its June update on the global economy and key developments across Emerging Markets. Among the main points of the report: growth in developing countries registered a vibrant 7.3% in 2010; but a combination of moderate tightening of monetary and fiscal policies should serve to slow GDP gains to 6.3% for 2011 and 2012. Headwinds from the international environment—higher fuel and food prices, continuing volatile and uncertain developments in the MENA region, and sovereign fiscal and debt difficulties among high-income economies--present fairly substantial downside risks for developing country- and global growth in the short to medium terms. Particularly affecting the poor is the likelihood that food prices could continue to escalate into 2011 and 2012.

The World Bank yesterday released its June update on the global economy and key developments cross emerging markets. The report's lead author, Andrew Burns , will host a one-hour, live Q&A on the global economic outlook, at 10:00 a.m. EDT on June 9, 2011.

Among the main points of the report: growth in developing countries registered a vibrant 7.3% in 2010; but a combination of moderate tightening of monetary and fiscal policies should serve to slow GDP gains to 6.3% for 2011 and 2012. Headwinds from the international environment—higher fuel and food prices, continuing volatile and uncertain developments in the MENA region, and sovereign fiscal and debt difficulties among high-income economies--present fairly substantial downside risks for developing country- and global growth in the short to medium terms. Particularly affecting the poor is the likelihood that food prices could continue to escalate into 2011 and 2012.

See:http://go.worldbank.org/EYS7LNWJJO

China’s net purchase of Japanese long-term government debt reaches record high. China bought a net ¥1.33 trillion ($16.6 billion) of Japanese government bonds with maturities of over a year in April, the largest amount on record, as the country seeks to diversify the world’s biggest foreign-currency reserves ($3.04 trillion at the end of March--China currently holds nearly one-third of global FX reserves). That compares with the previous record of ¥234.5 billion set in March. However, China decreased holdings of Japan’s short-term debt for a sixth month running, with net sales of ¥1.47 trillion in April. Meanwhile, foreign investors were net buyers of Japan’s longer-term bonds for a sixth week, the longest streak since August, according to monthly Japan Finance Ministry data released on June 2.

U.S. Fed Chairman Bernanke: ‘Uneven’ recovery…watch excessive budget cuts. In a prepared speech to the International Monetary Conference in Atlanta Georgia yesterday, Fed Chairman Bernanke took pains to underscore that the U.S. economy was in a slowdown, which he believed to be temporary. He also reserved stern comments for U.S. lawmakers who are considering aggressive budget cuts, saying these have the potential to derail the economy if spending cuts occur too soon. At the same time he offered no hints about the fate of monetary stimulus through the Quantitative Easing program.

OPEC: no consensus on output quotas. At the organization’s twice-yearly meeting held in Vienna yesterday, OPEC Ministers were not able to reach consensus on production quotas moving forward. Rather, a spokesman said at the conclusion of the gathering: “We are going to assess the market situation over the next three months.” Oil prices increased as much as 2% to $101.2/bbl on the NYMEX on the news.

Among emerging markets

In Latin America and the Caribbean, Brazils’ consumer price inflation eased to 0.47% month-on-month in May, the slowest pace since September, as a stronger currency cut import costs, fuel prices declined, and tighter monetary policy is having its intended slowing effect on growth. Annual inflation stood at 6.6% in May, still well above the central bank’s target range, and the fastest pace (on this measure) since April 2005. Ecuador’s consumer price inflation was 4.2% year-on-year in May with prices up 0.35% month-on-month. Meanwhile producer prices increased 5.9% year-on-year, but were down 0.04% on the month.