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Prospects Daily: U.S. equities reach new highs, Yellen signals continued stimulus program, Malaysia’s GDP growth strengthens in Q3

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Financial Markets…U.S. stocks extended their gains on Friday, with the Dow and the S&P 500 indexes hitting new record highs, following reassuring comments by Federal Reserve chair nominee Janet Yellen that the central bank will maintain stimulus. The Dow gained 0.3% in morning trade, while the S&P 500 added 0.2%, heading for a six-consecutive week of gains. Still, gains were somewhat limited after data showed manufacturing in the New York unexpectedly shrank in November while U.S. industrial production decline in October.

Italian government bonds fell for the first time in three days after the European Commission warned the nation’s budget plan for 2014 is at risk of breaking European Union (EU) rules, bring the attention back on the country’s debt problems. Given Italy’s high debt burden (at €2 trillion), it is critical to keep its budget deficit under control. The benchmark Italian 10-year yields widened 4 basis points to 4.1%. Spanish bonds also declined with the 10-year yields rising to 4.09% as the Commission said the country too might miss its 2014 budget target.

High Income Economies…Janet L. Yellen, President Obama's choice to lead the U.S. Federal Reserve when Chairman Ben Bernanke steps down in January, faced a Senate confirmation hearing Thursday morning. She signaled that she was in favor of continued asset purchases as the 7.3% unemployment rate remains above the Fed's 6.0% target for winding down stimulus. "A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases," Yellen said. "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."

Eurozone annual inflation was 0.7% (y/y) in October, down from 1.1% in September, while monthly inflation was -0.1% (m/m). European Union annual inflation was 0.9%, down from 1.3% in September, while monthly inflation was also -0.1% (m/m). The largest upward impacts to euro area annual inflation came from electricity (+0.11 percentage points), accommodation services (+0.09) and tobacco (+0.08), while fuels for transport (-0.31), telecommunications (-0.16) and heating oil (-0.08) had the biggest downward impacts. The lowest annual rates were observed in Greece (-1.9%), Bulgaria (-1.1%) and Cyprus (-0.5%), and the highest in Estonia and the United Kingdom (both 2.2%), and Finland (1.7%). Compared with September 2013, annual inflation fell in twenty-three Member States, remained stable in one and rose in four.

The economy of Hong Kong SAR, China advanced 2.9% (y/y) in Q3, down from Q2’s 3.2%. Private consumption expenditure increased by 2.8% (y/y) down from Q2’s 4.2% increase. Similarly, government expenditure eased to 2.7% compared to Q2’s growth of 3.2%. Gross domestic fixed capital formation rose 2.2%, slowing from Q2’s 6.9%. Building and construction expenditure rebounded to a 2.0% increase, as against Q2’s decline of 2.2%.

Singapore new home sales in October fell 19% (m/m) from September. In addition, residential property prices rose only 0.4% (q/q) in Q3, after climbing 1.0% in Q2. The government and central bank introduced several rules and conditions early this year to cool the property prices. High home price is a major policy concern in Singapore.

Developing Economies…East Asia and Pacific: Malaysia’s GDP grew at the annualized rate of 5% in the third quarter of 2013, faster than the 4.4% growth recorded in the second quarter, supported by a recovery in exports and strong domestic demand. Exports grew 1.7% (y/y) following five successive quarters of contraction, and private consumption accelerated 8.2% (y/y) from 7.2% (y/y) in the second quarter owing to improved employment conditions and rising wages. Investments grew 8.6% (y/y) from 6% in the second quarter, and government consumption increased by 7.8% (y/y). On the production side, higher production in services, manufacturing, and construction supported the GDP growth. The services sector remained the largest contributor to the economy, with growth strengthening to 5.9% (y/y) in the third quarter, driven by wholesale and retail trade. The manufacturing sector grew at 4.2% (y/y) from 3.5% (y/y) in the second quarter; and the construction sector grew by 10.1% (y/y), supported by gains in residential (+21.2%, y/y) as well as non-residential (+8.1%, y/y) construction. Quarter-on-quarter, GDP growth strengthened to 1.7% in the third quarter, up from 1.4% in the second quarter.

Europe and Central Asia: Turkey’s unemployment rate rose to 9.8% in August from 9.3% in July. Year-on-year the unemployment rate rose 1 percentage point in August; while the employment rate rose to 46.6% from 46.3% in July. The non-agricultural unemployment rate rose 1 percentage point to 12.3% (m/m) in August and youth unemployment rate increased 1.5 percentage points to 18.7% (m/m).

Sub-Saharan Africa: South Africa revised its trade balance calculations to include trade data with Botswana, Lesotho, Namibia and Swaziland, its neighboring countries, also known as the BLNS countries. Together with South Africa, these countries constitute the Southern African Custom Union (SACU). Taking into account trade with SACU member countries, South Africa’s trade deficit for September was revised to 11.95bn rand, down from the deficit of 18.94bn rand reported earlier. For the nine months of 2013 (January to September), the trade deficit was lowered to 64.5bn rand (US$6.3bn) from 124bn rand under the old accounting method, reflecting a trade surplus of 61.9bn rand with the BLNS countries.

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