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Prospects Daily: Australia and Uganda cut policy rate, Brazil’s industrial production accelerates

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Financial Markets… The euro rose to a six-week high against the dollar, appreciating to $1.3077, and Europe’s benchmark stock index (Stoxx Europe 600) gained for a second day, as growing optimism over a successful Greek buyback program boosted investor sentiment. Greece started the €10 billion ($13 billion) repurchase of government bonds maturing between 2023 and 2042 on Monday.

Italian and Spanish bonds advanced on Tuesday, with their 10-year yield dropping 4 basis points to 4.41% and 2 bps to 5.22%, respectively, as Greek optimism boosted demand for high-yielding region’s government debt into year-end. Meanwhile, Greek bonds turned slightly lower after Monday’s surge with results of the debt buyback due on December 7.

Gold for February settlement fell 0.9% to $1,705 an ounce on Tuesday, after falling a four-week low of $1,698.50 earlier, as concern over U.S. economy amid stalled budget talks weighed negatively on commodity prices. Copper for delivery in three months also dropped as much as 0.5% to $7,963.50 a metric ton, after reaching a six-week high of $8,045 yesterday.

High-income Economies…The Reserve Bank of Australia cut its benchmark interest rate by a quarter percentage point to 3%, the lowest in three years. The sixth rate cut in the past 14 months reflects Australia’s contained wage pressure, lower projected mining spending, and an unemployment rate at a 2½-year high—as well as concerns that the Australian dollar remains “higher than might have been expected” given lower export prices and a weaker global outlook, according to the central bank.

Producer prices in the Euro Area rose 0.1% (m/m) in October from the previous month, but producer price inflation edged down to 2.6% (y/y) in October from 2.7% in September due to base effects. A deceleration in energy-cost growth to 5.9% (y/y) in October from 6.9% in September was offset by acceleration in price increases for intermediate and non-durable consumer goods, partly reflecting strengthening demand.

Canada’s central bank kept its benchmark overnight rate at 1%. In explaining its decision, the central bank said that although economic activity in the third quarter was weak, global economic conditions remain stimulative (though vulnerable to major shocks from the U.S. or Europe) and the pace of Canada’s economic growth is expected to pick up through 2013, while inflation is expected to increase and reach the targeted 2 percent rate over the course of the next 12 months.

The number of people registering for unemployment benefits in Spain rose for the fourth month in November, rising by 74,296 from October to reach 4.91 million, as some firms used newly introduced labor rules to reduce the size of their workforce.

Developing EconomiesBrazil’s industrial production increased by 2.3% (y/y) in October compared to a one percent decline in September. On a monthly basis, industrial production rose by 0.9% in October reversing a one percent decline in September.

China and South Korea agreed to use proceeds of existing currency swap deals to settle bilateral trade between two countries.

Malawi continues to be an outlier from the global policy easing cycle, as it continues to tighten monetary policy to achieve macroeconomic stability, raising the policy rate by 400 basis points to 25.0%. Foreign exchange reserves have been falling since July, to an alarming level equivalent to 0.8 months of import cover as of end-October. Inflation rate rose to 30.6% (y/y) in October, up from 28.3% in September, with food price increases accounting for the bulk of the increase in inflation.

Uganda's central bank cut its Central Bank Rate (CBR) by 50 basis points to 12.0% as subdued inflationary pressure allows the bank to stimulate economic growth. November headline inflation rose to 4.9% from 4.5% in October, but remains within the central bank’s 5% medium-term inflation target.

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