Financial Markets…The euro slumped on Wednesday against the dollar, sliding to a fresh four-month low of $1.2793 in early trading, as concerns over the Italy’s political situation and the ramifications of the Cypriot bailout prompted renewed worries over the prospects of the wider euro-zone. The 17-nation currency also fell versus the yen, falling 1.1% to 120.14.
Fitch raised its sovereign credit rating for the Philippines to ‘BBB-‘ from ‘BB+’ today, giving the country’s first-ever investment-grade rating citing the nation’s strong external balance and robust economic growth. The upgrade is likely to spur further foreign capital inflows, which are already pouring in and presenting challenges for the central bank as it tries to control the currency appreciation and asset bubbles.
High-income Economies…Euro area confidence slipped in March after recent gains, with the headline index falling 1.1 points from February to 90 points reflecting a downturn in manufacturing and services. However, consumer sentiment was steady overall. France was the worst performer, with the its index reading falling 1.7 points. Germany was down 1.6 points and Spain off 0.9 points. Italy showed an increase of 1.4 points in March.
Italy’s economy continued to show signs of weakness in January. Consumer spending weakened, with retail sales declining for the 7th month in a row, by 0.5% (m/m sa) after a 0.1% drop in December. Meanwhile, industrial sales and new orders fell 1.3% (m/m sa) and 1.4% (m/m sa) respectively, after contracting by 2.1% (q/q sa) and 3.7% (q/q sa) in Q4 last year. The economy shrank for the 6th consecutive quarter in Q4 last year – the longest recession it has seen in two decades.
In the UK, the Bank of England has ordered banks to raise a total of 25bn pounds in extra capital by year end to guard against exposure to high-risk UK commercial property loans and the Eurozone sovereign debt crisis. Significantly lenders would not be allowed cut lending to meet capital shortfalls but instead were told to consider cutting bonuses, dividends or disposals.
Developing Economies…East Asia and Pacific: Vietnam’s GDP growth slowed in 2013Q1 to 4.89% (y/y), down from 5.44% in Q4 last year. A credit slump dampened corporate and consumer spending while a weak property market hurt construction. In 2012, the economy expanded by 5.0%, the slowest growth rate in fourteen years.
Europe and Central Asia: Serbia’s current-account deficit deteriorated for the 4th straight year in 2012, reaching 10.7% of estimated GDP as the economy shrank by 1.7%. The widening was driven almost entirely by a shrinking surplus on the current transfers account, which was hit by a steep decline in inflows of remittances. In contrast, the goods, services, and income balances remained stable or improved. Net FDI inflows fell sharply to lowest levels since 2001 covering only a fraction of current account deficit.
Latin America and the Caribbean: Paraguay’s growth contracted 0.4% (y/y) in the 2012Q4, reflecting a drought that slashed soy production. Agricultural production sank 29% (y/y) in Q4 with soy exports, the country's top export, plunging 77% (y/y). For the entire year, growth came in at -0.9%, down from 4.3% in 2011.