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Prospects Weekly: Advanced indicators for industrial production are mixed

Global Macroeconomics Team's picture

Following a period of weak growth mid-year, advanced indicators for industrial production are mixed. Purchasing manager’s indexes point to increased strength, but export order-books remain weak. The dollar value of global remittances is estimated to have increased 6 percent in 2010, regaining the $325 billion level recorded in 2008. Remittances are expected to expand a further 6.2 percent next year and 8.1 percent in 2012.  Low interest rates in high-income countries are placing upward pressure on exchange rates in some developing countries. Some affected countries have reacted by accumulating reserves and taking steps to limit inflows and liberalize capital outflows.
Advanced indicators for fourth quarter industrial production are mixed. Some indicators suggest that the near stalling of global industrial production mid-year may be coming to an end. The pace of growth in industrial production in China, which came close to zero during the two months ending June 2010, is now back to more than 12 percent. While momentum growth rates in the U.S. and Europe remain weak and some smaller economies continue to suffer from post-crisis restructuring, forward-looking purchasing manager’s indexes for the globe’s largest economies point to an expansion of output. This result is consistent with indicators of strengthening retail sales, but is countered by data pointing to continued weakness in export order books. 
The dollar value of remittances rose 6 percent in 2010, reaching $325 billion — the same level as in 20081. After falling 5.5 percent between 2008 and 2009, remittances to developing countries are estimated to have rebounded by 6%. The rebound has brought remittances to countries in the East Asia & Pacific and South Asia regions above their 2008 levels, but has left them broadly unchanged in the Middle-East and North Africa and Sub-Saharan Africa regions. Remittances to Europe and Central Asia and Latin America remain relatively depressed, partly reflecting persistent economic weakness in high-income Europe and the United States — major sources for these two regions. The real local currency values of remittances generally rose by less because of dollar depreciation. Corrected for inflation and exchange rate movements the population-weighted real value of remittances is still down 4.6 percent  since 2008. 

Some countries facing upward exchange rate pressure are taking steps to limit disruptive and potentially destabilizing capital inflows and currency movements.  China, Brazil, South Africa and Turkey are among countries enduring the strongest pressure on their currencies (proxied by real-effective exchange-rate appreciation, changes in reserve to GDP ratios, and interest rate differentials). Countries have responded by accelerating the accumulation of foreign currency reserves (China, Colombia, Turkey, South Africa ), taxing or quarantining short-term flows (Brazil, Indonesia, Thailand), reducing limits on outflows (Chile, China, South Africa) and other administrative measures (Russia).

1Migration and Development Brief #13, November 2010

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