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Prospects daily: U.S. GDP growth slips to 2.4% in second quarter

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Important developments today:

1.  Chile returns to international bond market after six-year absence

2.  S&P upgrades Ukraine’s credit ratings

3.  Unemployment in the Euro Area holds steady at 10%; inflation rises



Chile returns to international bond market after six-year absence. The Chilean government sold $1.5 billion worth of 10-year dollar and peso bonds yesterday in the country’s first international offering in six years. Chile raised $1 billion through 10-year dollar-denominated bonds, which carry a yield of 3.89%. The country also sold $520 million of peso-denominated bonds at a yield of 5.5%. Demand for the notes reached over $9 billion, with the dollar bond 5.7 times oversubscribed. The new bonds were priced at record-low yield (for the country and also for the region) as investors demanded less than half the risk premium on comparable debt from higher-rated Italy. The country issued the bonds to help cover the $8.4 billion cost of ongoing rebuilding efforts after February’s deadly earthquake. The deal is also part of a general effort by the government to become a more active player on the international debt markets.


S&P upgrades Ukraine’s credit ratings. Standard & Poor’s Ratings Services on Thursday raised Ukraine’s long-term foreign currency sovereign credit ratings by one notch to ‘B+’ from ‘B,’ after the approval of the $15.2 billion Stand-By Loan Agreement with the International Monetary Fund. S&P also raised the country’s long-term local currency rating to ‘BB-‘from ‘B+,’one step The rating agency said the new IMF loan program provides a policy anchor and also reduces the country’s external vulnerability by providing immediate financing of about $2 billion. In 2008 the IMF agreed a two-year loan of $16.4 billion to help Ukraine recover from a severe global recession. But payments were frozen after receiving $10.6 billion, as the government passed a law raising minimum wages and pensions despite IMF opposition.


Source:  U.S. Department of Commerce


U.S. GDP eases to 2.4% gain in second quarter (saar). The long-awaited report from the Commerce Department covering second quarter GDP was released today. Though headline GDP growth slipped from a much-revised first quarter 3.7% pace (earlier 2.7%, saar) to 2.6% in the second quarter, underlying data offer some encouragement for coming quarters. Of course developments in other indicators offer some concerns. With today’s GDP report, Commerce also released its annual benchmark of GDP, which places the entire period of recession in a new context. GDP losses were deeper than originally thought (total output decline of 4.1% vis-à-vis 3.7% earlier reported)—reflecting bigger slumps in consumer spending and housing. This goes part of the way to better explain why unemployment remains so tenacious in the recovery period.

The second quarter’s 2.6% growth was grounded in a much more balanced set of national account components, with inventories contributing just 1 point to growth down from an upwardly revised 2.5 points in the previous period. Personal spending eased to 1.6% from 1.9% earlier, and government spending was able to make positive contributions to growth for the first time in several quarters.

The more dramatic developments in the quarter were (i) a large deterioration in the real trade balance, with net-exports erasing a full 3 points of growth (-0.3 in the first quarter, as imports soared 29%, saar); and (ii) an increase in business fixed investment to growth of 17% from 8% in the preceding quarter—the fastest pace since 1997. Purchases of capital goods advanced 22%.

In sum, slower growth was anticipated for the quarter, but the emergence of stronger business spending; a return to less volatile inventory movement; positive government contributions to growth and exports maintaining a 10% pace, are better than expected outturns, and positives for the second half of the year.


Unemployment in the Euro Area holds steady at 10%; inflation rises. Figures released by EuroStat today show Euro Area’s unemployment rate remained stubbornly at 10% in June. A total of 15.77 million are out of work. Among member states, Spain had the highest unemployment rate at 20% and Austria the lowest at 3.9%. Europe’s largest economy, Germany’s unemployment rate fell in July for the 13th consecutive month to 7.6%.

In related news, Eurostat’s flash inflation estimate rose by 1.7% in July (y/y), up from the 1.4% gain in June. No
breakdown for core inflation was provided, however it has remained flat over the past few months, implying that most of the gains were due to the volatile elements of food and energy prices. With wage growth limited by high unemployment levels, labor market developments will put downward pressure on underlying core inflation levels in the near term.


Among emerging markets:

In East Asia and the Pacific, South Korea’s industrial production achieved double digit growth in June of 16.9% (y/y) and 1.4% relative to May, in a communication by the Korean Statistics Office. Thailand’s manufacturing production index surged 21.3% (y/y) driven by external demand. Export values reached all time highs of $17.9 billion and attained 47.1% growth (y/y) in a release by Bank of Thailand.

In Central and Eastern Europe, Poland’s industrial capacity utilization rate increased to 79% from 77.6%, announced the Central Bank on its website today.

In Sub-Saharan Africa, Uganda’s annual inflation decreased to 3.2% in July from 4.2% in June according to the Uganda Bureau of Statistics.

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