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Prospects Daily: Euro Zone’s industrial production registers growth, Current account deficit widens in Indonesia, narrows in Turkey, Moody’s downgrades Egypt’s sovereign rating

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Financial Markets…U.S. Treasuries fell for a third day on Wednesday, with the benchmark 10-year yield climbing 3 basis points to 2.01% (nearing a 10-month high of 2.06% reached on Feb.4) reacting to the positive news on U.S. retail sales. The Treasury is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year bond tomorrow.

Standard and Poor’s Ratings Services cut Slovenia’s sovereign credit rating by one notch to ‘A-‘ from ‘A’, on country’s worsening debt outlook related to government’s support to state-owned banks and uncertain growth prospects. The downgrade put Slovenia’s rating on par with Poland and Malaysia.

Hungary raised $3.25 billion (€2.41 billion) in its first return to the international bond market in 21 months after failing to secure a flexible credit line from the International Monetary Fund. Hungary’s debt agency sold $1.25 billion of 5-year notes and $2 billion of 10-year bonds. The auction was almost four times oversubscribed.

High-income Economies
U.S. retail sales grew 0.1% (m/m) in January following a 0.5% gain in December. Excluding the drop in sales by motor vehicle and parts dealers, retail sales rose by 0.2% (m/m) in January after a 0.3% gain recorded in December. On an annual basis, retail sales grew 4.4% (y/y) in January following a 4.8% surge in December.

. import prices rose by 0.6% (m/m) in January following a revised 0.5% decline in December, largely due to a 2.4% jump in fuel import prices, which rebounded after falling 2.0% in December and 2.2% in November. Excluding the increase in fuel import prices, import prices rose by a more modest 0.2% in January after edging down by 0.1% in December. Export prices rose by 0.3% (m/m) in January following a 0.1% dip in December. On an annual basis, import prices declined 1.3% (y/y) in January following a 1.5% decline in December. Export prices were up by 1.1% (y/y) in January due to a 10.7% jump in agricultural export prices.

Euro Zone’s industrial production grew 0.7% (m/m) in December, reversing November’s 0.7% contraction. On an annual basis, Euro Zone’s industrial production 2.4% (y/y) decline in December was considerably slower than the 4% contraction recorded in November. Similarly, the European Union’s overall industrial production dropped at a slower rate of 2.3% in December after the 3.6% contraction seen in November. On a monthly basis, European Union’s industrial production edged up 0.5% (m/m) in December.

Portugal's unemployment rate increased to 16.9% in the fourth quarter from 15.8% in the third quarter and well above a 14% unemployment rate recorded in the fourth quarter of 2011. The average unemployment rate in 2012 was 15.7%, higher than 12.7% in 2011.

Developing EconomiesEast Asia and Pacific: Indonesia's current account deficit widened in the fourth quarter to US$7.76 billion, the second largest on record, from US$5.34 billion in the third quarter due to rising fuel imports that outpaced oil and gas exports. The full year current account deficit was US$24.18 billion (or 2.7% of GDP), compared with a surplus of US$1.7 billion (0.2% of GDP) in 2011.

Europe and Central Asia: Turkey’s current account deficit improved to US$48.9billion in 2012, about 6% of GDP, from US$77.2billion in 2011 (9.9% of GDP) helped by record export levels and easing imports. 

Armenia’s central bank held its benchmark rate steady at 8.0%. Rising food prices pushed up headline inflation to 3.6% (y/y) in January from 3.2% in December, but still well below the central bank’s 5.5% inflation target.  

Middle East and North Africa: Egypt’s sovereign debt was downgraded by Moody’s Investor Services by one notch from B2 to B3, six notches below investment grade, on growing concerns about declining foreign exchange buffers, which are currently below the critical three months import cover threshold, continuing civil unrest and delays in the extension of an IMF loan. Egypt was previously downgraded by Fitch to five notches below investment grade in late January.

Yemen's crude oil production declined 22.2% (y/y) in 2012 due to frequent disruptions in oil production. But crude oil export revenues declined only 1.4% (y/y) partly due to elevated international crude oil prices, reaped $3.5 billion in export revenues.

South Asia:
India’s exports grew by a modest 0.8% (y/y) in January, the first time they have risen in year-on-year terms since April 2012, helped by growing shipments of engineering goods and textiles. However, with imports rising by 6.1% in January, the trade deficit climbed to a three-month high of US$20billion from US$17.7 billion in December. India’s import bills have been pushed higher in recent months by rising fuel imports.    

Latin America and the Caribbean: Remittance inflows to Guatemala climbed by 14% (y/y) to US$357million in January. Remittances from expatriates located mostly in the US soared to US$4.8billion in 2012, their highest level ever, despite economic weakness in the US. 

Sub-Saharan Africa: South Africa’s retail sales grew by 2.3% (y/y) in December compared to 3.4% in November. Retail sales have slowed considerably during 2012 as high levels of household indebtedness, high unemployment and inflation at the higher end of the central banks’ target range have curbed consumer spending.


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