Global Economic Prospects 2014

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Prospects Daily: Factory orders up in Germany, Poland cuts policy rates, China boosts minimum wages to narrow disparities, Colombia’s inflation eases

Financial Markets…European equities (the Stoxx 600) fell 0.5% from their biggest gains in nearly four weeks and the euro weakened against the dollar and yen, slipping 0.5% to $1.35 and 0.6% to 126.4 yen, as fresh signs of political and banking turmoil in the Euro Zone dented investors' sentiment and a string of disappointing earnings’ reports weighted negatively on the region’s shares.

Japanese shares soared, with the benchmark Nikkei 225 Stock Average surging 3.8% approaching its highest level since September 2008, amid robust profit forecasts of the major companies and weakening yen. The Nikkei index posted its largest one-day gain as the Japanese yen reached a fresh low of 94.08 versus the dollar in earlier trading.

Egypt’s foreign-exchange reserves tumbled to a 15-year low of $13.6 billion in January, recording a 10% decline from $15 billion a month ago, reflecting large foreign debt repayments and weak investment inflows amid growing political instability. The government introduced the new system of foreign currency auctions in late December in an effort to shore up faltering reserves from falling below the critical levels.

High-income EconomiesGermany's factory orders increased a seasonally adjusted 0.8% (m/m) in December, after falling 1.8% in November, reflected a 7% rise in orders from the Euro Zone that followed a 0.3% decline in November. Non-Euro Zone orders continued to declined, but at a slower pace of 0.4% (m/m) in December compared to 6.3% fall in November.

In the UK, the Society of Motor Manufacturers and Traders (SMMT) reported sales expanding 11.5% (y/y) to 143,643 units in January and raised market forecast for both 2013 and 2014 by 0.6% to 2.057 million units in 2013 and by 2.6% to 2.11 million units in 2014.

In the U.S. Institute for Supply Management’s (ISM) non-manufacturing index edged down to 55.2 in January from a revised 55.7 in December indicating a continued expansion, but signaling a slight slow-down in its pace, partly as a result of the payroll tax hike. The drop by the headline index reflected a decline in the business activity and new order indexes (56.4 to 60.8 and 54.4 to 58.3 respectively). The employment index climbed to 57.5 in January from 55.3 in December indicating a modest improvement in the pace of job growth in the service sector, and the price index also rose to 58.0 from 56.1. 

Australia’s
retail sales declined 0.2% (m/m) in December following a 0.2% contraction in November. Austria's wholesale price inflation decelerated to the lowest level in six months in January with the wholesale price index raising 1.6% (y/y) from 2.7 in December. 

Czech Republic’s industrial production contracted 12.5% (y/y) in December (5.8% on a working-day adjusted basis), following a 3.9% decline in November reflecting lower production of automobiles and equipment. On a monthly basis, production also declined by 0.1% in December. Construction output has expanded by 2.2% (m/m) in December but contracted 17.3% (y/y) on an annual basis, following a 2.7% decline in November.

Poland's central bank cut its key reference rate by 25 basis points to 3.75% for the third time in a row. Inflation eased to 2.4% (y/y) in December from 2.8% in November reaching the lowest rate recorded throughout 2012 and falling slightly below the midpoint inflation target set at 2.5%, +/- one percentage point. 

Developing Economies
China unveiled reforms to the income distribution mechanism that included boosting minimum wages to 40% of average salaries and lifting the percentage of profit contribution by state-owned companies' to the treasury by 5 percentage points by 2015 in order to bridge the wealth gap. China’s Gini coefficient was reported at 0.474 in 2012.

Colombia’s inflation eased to 2% (y/y) in January from 2.4% in December reaching the lower end of the central bank’s 2-4% inflation target range.

Indonesia’s non-seasonally adjusted GDP growth slowed in the fourth quarter as reported yesterday. However, on a seasonally adjusted basis, growth in the fourth quarter accelerated to 7% (1.7% q/q) annualized pace from 5.5% (1.3% q/q) in the third quarter.

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