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Prospects Weekly: Developing-country financial markets have improved in recent months, On aggregate, developing-country industrial performance has improved in recent months, Supported by a strengthening global economy, tourist arrivals picked up

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Developing-country financial markets have improved in recent months, but remain subject to risks stemming from US fiscal policy uncertainties and the eventual tapering of quantitative easing. On aggregate, developing-country industrial performance has improved in recent months led by robust growth in China. Supported by a strengthening global economy, tourist arrivals picked up in the first eight months of 2013.
Developing-country financial markets have improved in recent months, but remain subject to downside risks. Concerns of an imminent tapering of US quantitative easing (QE) during the summer caused long-term US Treasury yields to rise by more than 100 basis points, thereby precipitating a portfolio rebalancing. Consequently currencies, bond, and equity prices of several large developing countries experienced sharp declines. Market sentiment started improving in late August, and was further supported by the surprise delay of the Fed’s tapering in September as well as the recent temporary resolution of the US budget impasse. Nonetheless, developing countries remain vulnerable to uncertainties related to US fiscal policy and the pace and timing of eventual QE tapering. These include several middle-income countries with either large or rising current account deficits, in particular Brazil, India, Indonesia, Turkey and South Africa.
On aggregate, developing-country industrial performance has improved. Industrial activity in developing countries improved to an annualized 7.1 percent pace in the three months ending in August from 4.9 percent in July. China is leading the way with a robust 10.0 and 13.7 percent expansion in August and September. Indeed, Q3 GDP growth picked up to an annualized 9.3 percent pace from 7.2 percent in Q2, fueled by investment and exports. India’s industrial production stabilized led by a rebound in exports. Activity in Mexico strengthened together with US demand, and in Bulgaria and Romania with a strengthening Euro Area economy. But industrial activity decelerated in several large economies, including Brazil, Indonesia, South Africa, and Turkey. Business sentiment surveys suggest optimism going forward, with the average index for countries outside China rising to 50.3 (above the 50-mark indicating expansion) in September from 49.9 in August.
Consistent with an improving global economy, tourism activity in the first 8 months of 2013 strengthened. Worldwide tourist arrivals rose 5.3 percent (y/y) in the first 8 months of 2013, compared to a 4 percent increase in 2012. Tourist arrivals in Europe, which accounts for half of global tourism, picked up by a stronger 5.4 percent in 2013 (3.5% in 2012). Tourism to Asia & the Pacific, the second largest destination region, rose 6.3 percent (6.9% in 2012), while arrivals in North America rose 4.3 percent (4.5% in 2012). However, tourism growth in Central and South America slowed sharply, as intraregional tourism was affected by relatively weaker economic performance. Tourism arrivals to the Middle East rebounded strongly in the first quarter of 2013, but slowed since due to security uncertainties and Syria-related tensions.

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