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Prospects Daily: U.S. consumer sentiment rises for the fourth successive month

Global Macroeconomics Team's picture

Important developments today:

1. U.S. consumer sentiment rises

For the fourth successive month US consumer sentiment rises. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.7 in December (a six-month high) from 64.1 the previous month. This is the fourth successive monthly increase in US consumer sentiment. In contrast to falling sentiments in Europe, US consumers have been buoyed by a drop in unemployment, falling gasoline prices, and the rebound in stocks from their August lows. In Q3 consumer spending contributed a robust 1.72 percentage points to U.S. GDP growth. The continued rise in U.S. consumer sentiment, if reflected in consumer spending, bodes well for Q4 GDP growth. However the escalating debt situation in the Euro Area, and wrangling in Congress on deficit-cutting measures could hold back additional gains in sentiment.

Among Emerging Markets

In East Asia and the Pacific, annual inflation in China has slowed sharply, dropping from 5.5% recorded in October to 4.2% in November, coming close to the government’s target 4% rate for 2011. The Producer Price Index registered an even sharper drop, from a 5% change in annual prices in October to 2.7% in November, the slowest pace since 1.7% growth was seen in December 2009. Inflation appears to have peaked at a three-year high of 6.5% in July.

In Central and Eastern Europe, Serbia’s central bank cut the key interest rate by 25 basis points to 9.75% at the last policy meeting. The central bank has cut the benchmark interest rate 6 times since June, taking it down from a high of 12.5% earlier this year. Annual inflation has eased in recent months from a peak of 14.7% in April to 8.7% in October, allowing the central bank to support the local economy from the negative shocks of the Euro Area crisis.

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