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Prospects Weekly: Industrial production in developing countries grew in November 2013, Youth unemployment rates in 2013 remained uncomfortably high in most developing regions, Oil prices reached record highs during 2011-13

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Industrial production in developing countries gained further momentum in November 2013, confirming an ongoing recovery in global manufacturing and trade, as highlighted in the January 2014 Global Economic Prospects report released last week. However, high and still rising youth unemployment in most developing regions is a cause for concern, pointing towards unresolved policy challenges and structural impediments to higher and more inclusive growth. Over the last two years, international oil markets have seen a unique combination of record high prices and historically low volatility.

Industrial production in developing countries grew in November 2013 at its fastest pace in a year, with the recovery becoming more broadly-based across regions. The pick-up was driven mainly by a resurgence of global trade supported by improved economic conditions in high-income countries. In a number of developing economies, weakening currencies also helped boost export competitiveness. On average, industrial activity in the developing world increased at an annualized pace of 7.5 percent in the three months to November, up from 7.1 percent in October, and about twice the rate registered during the summer of 2013. This development bodes well for upcoming GDP growth estimates for the final quarter of 2013, and provides a firm basis for economic prospects in 2014. The positive momentum was particularly visible in East Asia, thanks to robust growth in China, Indonesia, Malaysia and the Philippines, despite a contraction in Thai production as political unrest deepened. The upturn in emerging Europe was broadly-based as well, with a strong performance in Turkey playing a significant role. On the other hand, activity was relatively subdued in Mexico, Brazil, South Africa and India.

Youth unemployment rates in 2013 remained uncomfortably high in most developing regions, averaging 13.9 percent of the 15 to 24 age range - roughly three times higher than the equivalent rate for the adult population. Developing countries have fully recovered from the global financial crisis, with GDP volumes at the end of last year nearly 30 percent above mid-2008 levels. However, youth unemployment rates in 2013 were still a full percentage point above pre-crisis levels and continued to increase marginally from 2012 (from 13.7 to 13.9 percent). The situation remains particularly acute in the Middle East and North Africa, where record high youth unemployment (28 percent on average in 2013) reflects a combination of structural factors (demographics and skills mismatches) and weak economic activity (large negative output gaps). In other developing regions, the lasting deterioration in labor market conditions for young people after the 2008 crisis seems to coexist with relatively low levels of spare capacity. This trend represents a major policy challenge for developing countries, with important ramifications for growth prospects, development and social cohesion.

Oil prices reached record highs during 2011-13 while price volatility dropped to historical lows. The price of Brent (the international market of oil) averaged US$ 111/bbl over the last three years-the highest of any 3-year period since 1860 (in both nominal and real terms). At the same time, oil price volatility plunged to its lowest level since the mid-1990s. Such reduced volatility indicates that markets have integrated and “accepted” a new (higher) oil price equilibrium, but also reflects improved global economic and financial prospects. Uncertainty regarding the health of the global economy around 2008-09 had induced a significant spike in oil price volatility, to levels last observed around the first Gulf war in the early 1990s. The ongoing broad-based recovery in the global economy implies that the current period of high prices and low volatility might persist for some time.

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