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Prospects Daily: IMF cuts global growth forecast…Turkey’s industrial production declines

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Financial Markets…U.S. Treasuries advanced the most in three weeks as renewed worries over Greece and Spain and a gloomy global outlook by the IMF boosted demand for safe-haven bonds. Benchmark 10-year bond yields 4 basis points to 1.71%, while 30-year yields also slid 4 bps to 2.93%.

Spanish government bonds dropped for a second day as the country was not seen seeking a bailout program. Benchmark 10-year note yields climbed 5 basis points to 5.77%, while 2-year yields rose 9 bps to 3.23%. Benchmark borrowing costs have dropped about 2% after reaching a record high of 7.75% on July 25.

The euro weakened versus the dollar and yen on Tuesday, reversing earlier gains, amid the IMF’s dim economic outlook and European woes. The euro fell 0.3% to 101.33 yen, and it dropped 0.2% to $1.2940, after reaching a two-week high of $1.3072 last Friday.

High-income Economies
…The IMF sharply cut its forecasts for Euro Area GDP growth in 2013 to 0.2% from its July prediction of 0.7% and said the Eurozone will contract 0.4% this year. It lowered its forecasts for global GDP growth to 3.3% in 2012 (from 3.5% earlier) and to 3.6% in 2013 (from 3.9% earlier), but said growth prospects could be far worse if there was failure to act on either of two crucial policy issues—that European policymakers get the euro area crisis under control and that policymakers in the United States take action to tackle the “fiscal cliff”.

UK industrial production fell at a faster pace of 1.2% (y/y) in August compared to a 0.8% decline in July, with manufacturing output falling 1.1% (m/m) as longer summer closures damped production of transport equipment. The goods trade deficit widened to 9.84bn pounds in August from 7.34 bn pounds in July as exports plunged 4% and imports rose 4.5%.

France's budget deficit improved to 97.7bn euros for the January-August period from 102.8bn euros in the same period in 2011, driven by an increase in tax receipts and a one-off sale of mobile phone frequencies. France’s trade deficit widened to 5.3bn euros in August from 4.1bn in July as an improvement in the country's export performance, helped by Airbus aircraft sales, was offset by an energy-driven jump in imports.

The Netherlands' manufacturing output fell 0.6% (y/y) in August (-0.1% m/m) following a 0.3% (y/y) decline in July, driven mainly by a fall in production of metal products.

Taiwan’s exports rose 10% (y/y) in September, reversing six consecutive months of declines.
Developing Economies
Mexico's consumer price inflation accelerated to 4.77% (y/y) in September, from 4.57% in August reflecting increase in food prices. Meanwhile, producer price inflation in Mexico eased to 4.13% (y/y) in September from 4.38% in August on weak demand.

The central bank of Pakistan cut its policy rate by another 50 basis points to 10.0% on October 5th, following a 150 basis points policy rate cut in August, due to improved inflation outcomes. The CPI inflation declined to 8.8% (y/y) in September from 9.1% in August.

industrial production declined by 1.5% (y/y) in August, compared with a 3.4% increase in July.

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