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Prospects Daily: Spanish and Italian borrowing costs reach multi-years lows, U.S and U.K service sectors continue to expand, China sets 2014 growth target at 7.5%

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Financial Markets… Spanish and Italian 10-year borrowing costs touched multi-years lows on Wednesday as the latest surveys showed the euro-area services and manufacturing grew more-than-expected in February, boosting demand for the region’s high-yielding bonds. Spain’s 10-year bond yield fell as much as 9 basis points to 3.35%, the lowest level since October 2005. Improving creditworthiness of the two countries drove their 10-year government bond yields to below 4% this year for the first time since 2010.

India’s current account deficit narrowed to a four-year low of $4.2 billion (0.9% of GDP) in October through December, down from $5.2 billion for the previous quarter, helped by rising merchandise exports and moderation in gold imports. The Indian currency has appreciated 11% versus the dollar after reaching a historic low on August 28th, and the country posted net accumulation of $19.1 billion in foreign-exchange reserves in the three months ending December 31, compared with a withdrawal of $10.4 billion in the preceding quarter.

High Income Economies…Activity in the U.S. service sector grew at a slower rate in the month of February, as the ISM non-manufacturing index plunged more-than-expected to 51.6 in February from 54.0 in January, with some attributing the slowdown to the rough winter weather. The decline was led by a contraction in employment, partially offset by an uptick in the growth of new orders.

The U.K. service sector continued to expand for a 14th month in February, supported by another marked increase in new business, with the Chartered Institute of Purchasing & Supply/Markit Business Activity Index falling marginally from 58.3 in January to 58.2 in February, the lowest reading since last June. New orders, backlogs of work and employment all increased supporting the expansion of the sector.

Developing Economies… East Asia and Pacific: China’s government has set its economic growth target for 2014 at 7.5% the same as last year, and plans to focus on consumption rather than investment to create a balanced economy. In this context, the government intends to achieve 7.5% in trade growth and aim for 17.5% in fixed asset investment growth down from 18% in 2013. The annual headline inflation target for 2014 is set at 3.5% along with a 13% growth target for M2, the broad measure of money supply. The fiscal deficit is projected at 2.1% of GDP with military spending increasing 12.2%.

Europe and Central Asia: Bulgaria’s GDP growth slowed in the fourth quarter of 2013, rising 0.3% (q/q) compared with 0.5% (q/q) in the third quarter. On an annualized basis, Bulgaria’s GDP grew 1.2% (y/y), faster than the 0.7% (y/y) growth recorded in the previous quarter. For the year 2013 as a whole, the economy grew 0.9% rising from 0.6% in 2012.

Latin America and the Caribbean: Brazil’s HSBC purchasing managers’ index for the services sector rose to 50.8 in February, up from 49.6 in January, moving above the no-change 50 mark, which signals expansion. This rebound was driven by new orders which grew for the 18th consecutive month and at the strongest pace since January 2013, resulting in increased hiring and job creation in the sector. Input and output price inflation in the sector also rose sharply in February. Brazil’s HSBC composite output index, which measures the combined performance of the manufacturing and services sectors, also rose above the no-change 50 mark to 50.8 from 49.9 in January.

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