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Prospects Daily: Cyprus’ IMF program finalized, US corn prices plunge, China’s services sector expands

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Financial Markets… Corn futures in Chicago plunged 13% since the US Department of Agriculture said March 28 that inventories were bigger than analysts forecast and that farmers will plant the most acres this year since 1936. Corn, soybeans and wheat, the biggest U.S. crops have tumbled into bear markets with drops of more than 20% from 2012 highs.

Asian stocks advanced for the first time in three days on Wednesday, with the benchmark MSCI Asia Pacific Index climbing 0.5%, as the Japanese shares rallied. Japan’s Nikkei 225 Stock Average jumped 3%, the biggest rally in two months, as the Bank of Japan began a two-day policy meeting and strong demand for motor vehicles boosted total U.S. factory orders. Elsewhere in the region, Thailand’s SET Index tumbled 1.9% amid concern over new restrictions on property lending, while Vietnam’s VN Index slid 0.7%, snapping a three-day rally of 3.8%.

The ruble declined against the dollar for a third day, sliding 0.7% to 31.5395, on concerns that lingering Europe’s woes would prompt a sharp capital outflow from the country this year. Net capital outflows from Russia amounted to $25.8 billion in the first quarter and the currency has depreciated 3.3% versus the dollar this year, compared with considerable gains in other BRIC countries’ currencies.

High-income Economies…The IMF program for Cyprus was finalized on Tuesday. In addition to fiscal consolidation of about 5% of GDP already underway, a further 2% of GDP of measures were expected to be implemented over the next three years including an increase in corporate tax from 10% to 12.5% and a freeze in public-sector pensions for 2 years. An additional 4% of GDP measures were envisaged over the medium term including a privatization program (telecoms, ports and electricity), so as to return to primary fiscal surplus in 2016.

US core factory orders (excluding volatile transport orders) grew by just 0.3% (m/m sa) in February after a 2.0% gain in January. The strong start in January means that core orders are on course to grow by around 8% (q/q saar) in Q1 compared to 7.5% in Q4 even if there are no gains in March. Bookings for capital goods excluding aircraft and defense equipment, a measure of future business investment, fell 3.2% (m/m sa) after rising 6.7% the prior month, the biggest monthly gain since March 2010.

Separately, a US payrolls report for March showed that companies added workers at the slowest pace in six months held back by limited hiring in construction. Employment rose by 158,000 in March following an upwardly revised 237,000 gain in February.

Inflation in the Euro Area decelerated for the 3rd consecutive month in March on slowing energy inflation, with the harmonized index of consumer prices (HICP) rising by 1.7% (y/y) after a 1.8% increase in February.

Developing Economies
East Asia and Pacific: China’s Markit/HSBC services PMI rose to 54.3 in March from 52.1 in February. At the same time, the composite PMI increased to 53.5 in March from February's 4-month low of 51.4.

Europe and Central Asia: Turkey’s inflation accelerated in March to 7.3% (y/y), up from 7.03% (y/y) the previous month. Prices of food and beverages, as well as alcohol and tobacco contributed to the increase. Inflation has been above the central bank’s target of 5% for some time.

Romania’a economy expanded faster than previously estimated. Growth accelerated by 1.6% (q/q saar) in 2012Q4, up from -0.8% (q/q, saar) in the quarter before. For the entire 2012, growth came in at 0.7%, down from 2.2% in 2011.

Latin America and the Caribbean: Brazil’s service sector PMI declined to 51 in March, the lowest in seven months, down from 52.1. The composite PMI also fell to 51.0 from 52.9 in February.

Middle East and North Africa: Morocco’s growth slowed to 2.4% in 2012, down from 5.0% in 2011. The economy expanded just 2.0% (y/y) during the fourth quarter – the weakest figure on the year – as lower agricultural output continued to weigh heavily on headline growth.

South Asia: India’s service sector PMI declined to 51.4 in March from 54.2 in February, while the composite PM also fell to 51.4 in March from 54.8 in February, marking the slowest growth in seventeen months.

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