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Prospects Daily: Crude oil prices fall from 9-week high

Global Macroeconomics Team's picture

Important developments today:

1. Crude oil prices fall from 9-week high

2. German producer price inflation falls to lowest in two years

Crude oil prices fall from 9-week high. Crude oil prices fell on Friday, with futures slipping as much as 2.2 percent, amid signs that demand may be weakening and possible profit taking after a straight week of gains. Oil prices had risen the seventh day on Thursday, hitting a nine-week high, as rising Middle East tension reinforced concerns about potential supply disruptions from a region responsible for about one-third of global production. A shrinking of U.S. oil stockpiles had also weighted negatively on oil prices during the last week. A series of events in recent days, including intensifying fights between Syrian government forces and rebels and the bombing of Israeli tourists in Bulgaria intensified geopolitical risk in the region and raised fears that oil production and shipments could be disrupted. Crude oil for August delivery lost as much as 97 cents to $91.69 a barrel in New York morning trading on Friday, after climbing 3.1% yesterday to a high of $92.66 for the first time since May 16.

German producer price inflation falls to lowest in two years, while Finance Ministry warns of growth risks. Germany’s producer price index (PPI) inflation fell to 1.6 percent on a year-on-year (y/y) basis in June, the lowest since May 2010, driven mainly by weaker energy inflation and slowing economic activity that has reduced the pricing power of producers. On a month on month basis, German producer prices fell 0.4 percent (m/m) overall, while energy prices declined by 1.4 percent. In its monthly report released today, Germany’s Finance Ministry said that economic growth in Eurozone’s largest economy likely slowed in the second quarter, pointing to weaker industrial production figures and slipping business confidence amid uncertainty from the Euro Area debt crisis. It added that the economy should grow at a moderate pace during the remainder of the year, but industrial activity is likely to slow, exports could soften, and there are higher risks for the labor market.

Among Emerging Markets

In Middle-East and North Africa, tourism revenues in Morocco fell 1.9% (y/y) to 25 billion dirham ($2.8bn) in the first half of 2012, as regional political unrest and Eurozone debt crisis impacted Morocco's tourism arrivals and night stays. The tourism sector is the second largest employer after agriculture and is an important foreign exchange earner. The fall in revenues could further strain the country’s balance of payments position.

In Sub-Saharan Africa, South Africa’s central bank cut its key policy rate for the first time in more than two years by 50 basis points to 5 percent, as the Euro Area debt crisis, lackluster growth in the United States, China, and other markets, and domestic weakness raised concerns about growth in Africa’s largest economy. The first reduction in interest rates after November 2010 follows cuts in Brazil, China, and India this year as developing countries ease monetary policy in an attempt to support growth amid slowing external demand. The South African central bank said that the interest rate cut was a proactive move aimed at shielding the economy from the global slowdown and limit intensifying negative spillover effects.

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