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Prospects daily: China revises GDP up substantially ... EM corporate bonds soar in H1-2010

Global Macroeconomics Team's picture

Important developments today:

1.  EM corporate bond sales soared in first half 2010

2.  U.S. jobs and orders data affected by special factors in May/June

3.  China revised its GDP growth for 2009



EM corporate bond sales soared in first half 2010. Developing-country firms are increasingly tapping the international bond markets, while the opposite is true for high-income country corporations- as global investors re-weight portfolios into debt from faster-growing economies. Emerging market companies, from America Movil SAB (Mexico’s telecommunication company) to Citic Bank International Ltd. (a unit of China’s biggest investment firm) sold $80 billion of international bonds during the first half of 2010- a 146% increase from the first half of 2009, according to data from Bloomberg. In contrast, U.S. corporate issuance dropped 29% in the first half from a year earlier; and European bond sales retreated 33%, pushing global bond sales to lowest volumes since 2004.

Emerging market firms are taking advantage of favorable investor sentiment toward emerging market economies, which as a group are anticipated to grow almost four-times faster than the developed world this year and in 2011.

Rising demand for EM corporate bonds, and a reluctance to lend to governments amid the current European sovereign debt crisis, drove EM corporate bond yields below EM sovereign yields for the first time in three years, according to the benchmark JPMorgan EM bond index. And EM corporate bond issuance is likely to continue to be robust, as lack of syndicated bank lending is likely to encourage more companies to tap the bond markets.


Source: Department of Labor




U.S. jobs and orders data affected by special factors in May/June. Payrolls at U.S. firms and government agencies dropped by a large 125,000 during June, contrasted with a pickup of some 433,000 positions in the previous month. But beyond the headlines, of the 125K total decline in jobs, 225K temporary workers hired by the government to cover the 2010 Census came to the end of their contracts. Employment in the private sector increased by a net 83,000—a weak number in perspective. Still, due to compression of the labor force, the national unemployment rate eased to 9.5% from 9.7% in May.

How to interpret these figures? A potentially valid conclusion is that:”Labor market weakness (including a downshift in hours worked and in average hourly earnings) may lead to second-half 2010 consumption growth well below the first half”, notes John Hermann of State Street Markets in Boston.

Factory orders data for May also can lead to mixed conclusions. Overall durable goods orders slipped 0.6% in the month, on the back of a strong 2.9% advance in the previous period; but importantly, core capital goods orders (which strips out the volatile transport component of the durable goods classification), performed well—up 3.9%, more-than offsetting a 2.8% falloff in the previous month. The strong performance of capital goods orders (up 30% in annualized terms in the 3 months to May) paints a strong impression that investment spending (both in the United States and abroad) may be gaining momentum—a positive development.


Among emerging markets:

In East Asia and the Pacific, China revised its GDP growth for 2009 up 0.4 percentage points to 9.1%, on stronger gains in industry and services. The industry sector advanced a revised 9.9%, while services increased 9.3%. The government also revised GDP growth rates up substantially from 2005 through 2007: to 11.3% (from 10.4%), 12.7% (11.6%) and 14.2% (13%). Malaysia’s exports gained 21.9% in May (y/y) to 52.3 billion ringgit ($16.2 billion) easing from the 26.6% pace recorded in April, on slower exports to China and Europe. Meanwhile imports surged 34.2%; still the deficit on goods trade narrowed to 8.1 billion ringgits in May, down from 9.3 billion the previous month, on the back of softer import prices.

In South Asia, the Reserve Bank of India increased its reverse repurchase rate by 25 basis points to 4%, and the
repurchase rate by a similar amount to 5.5%, the third increase this year. Faster economic growth has spurred inflation while the recent increase in fuel prices will add further to inflation.

In Latin America and the Caribbean, Peru’s consumer prices advanced 0.25% in June (m/m), the fastest pace since March, as economic growth is picking up.

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