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Prospects Daily: Indian rupee recovers as rates are raised…US homebuilders confidence at 7-year high…Turkish current account deficit widens

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Financial Markets…The net outflow of U.S. long-term securities rose to $27.2 billion in May, up from $21.8 billion in April, as foreign private investors sold a record amount of U.S. Treasuries. China remained the biggest foreign owner of U.S. government securities in the month as their holdings increased by $25 billion to a record $1.316 trillion. Japan stayed the second-largest holder, even after reducing its holding to $1.11 trillion.

Oil prices rose for a third day on Tuesday, with West Texas Intermediate for August settlement climbing 0.6% to $106.90 a barrel in morning New York trading, amid speculation that U.S. crude inventories dropped for the third time in a row last week. Brent for August delivery rose 0.3% to $109.45 in London trading.

India’s rupee appreciated the most this month against the dollar after the country’s central bank raised its two policy rates to tighten liquidity and support the currency, which fell to a record low earlier this month. The main repo rate has not been changed since the last monetary policy meeting in June. The rupee advanced 1% to 59.32 per dollar, the largest gain since June 28, after sinking to a record 61.2125 on July 8. Meanwhile, the country’s bonds and stocks tumbled following policy rate changes.

High Income EconomiesU.S. industrial production rose 0.3% (m/m sa) in June, after coming in flat in May. Overall momentum slowed to just 0.2% (3m/3m saar) from 1.6% in May. However, homebuilder confidence improved strongly in July reaching its highest level in well over seven years. The NAHB/Wells Fargo Housing Market Index jumped to 57 from a downwardly revised 51 in June. Separately the CPI index gained 0.5% (m/m sa) following a 0.1% uptick in May, led by rising fuel costs. In annual terms inflation rose to 1.8% (y/y), close to the Federal Reserve’s inflation target of 2%, from 1.4% in May.

Confidence among German investors unexpectedly deteriorated in July with the ZEW investor confidence index dropping for the first time in three months, to 36.3 points from 38.5 points in June.

Separately, passenger car sales in Europe continued to fall in June, hitting the lowest level for the month in seventeen years reflecting weak underlying economic conditions. Registrations fell 5.6% (y/y) to about 1.13 million units, which was the lowest June level recorded since 1996.

Developing Economies…Europe and Central Asia: Turkey’s current-account deficit (CAD) widened in May to $7.5bn, more than $2bn larger than it had been a year earlier. Cumulative CAD for the first five months of the year was $2bn, nearly one-quarter larger than it had been in the same period of 2012. Export growth remained tepid, 3.9% (y/y) for the first five months of the year, and together with strong import demand–8.0% (y/y) in January to May 2013–resulted in a sharp worsening of the trade deficit. In addition, the sudden shift of global investor sentiment was apparent in May 2013 portfolio investment flow data as the country received a net inflow of only $681mn in May compared to the monthly average of $4.9bn in January-April 2013.

Latin America and the Caribbean: Peru's proxy GDP growth slowed to 5% (y/y) in May, down from April's 7.7% (y/y) surge and the weakest first-quarter expansion since 2009. Moderating domestic demand and continued slump of mineral exports contributed to the slowdown. Peru posted a trade deficit of $465mn in May, as exports fell 9% (y/y) on lower metal prices, while imports rose 6% (y/y). Peru is a major global producer of copper, gold, silver and other minerals.

Brazil’s economic activity index, declined 1.4% (m/m sa) in May, down from 1% (m/m sa) growth in April. The result in May was the weakest since the end of 2008, when the country was hit by the Lehman Brothers crisis. In spite of this sharp correction in May, the momentum picked up to 5.6% (3m/3m saar) basis.
 

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