88311 Daily Economic News – May 15, 2014 AUTHORS Derek Chen (x-81602) Eung Ju Kim (x-85804) Gerard Kambou (x-32386) Euro weakens and Euro Area bonds advance on uneven growth in the region…Eurozone Q1 growth misses expectations…Brazil’s retail sales contract in March Financial Markets The euro weakened to the lowest level in 11 weeks against the dollar and yen, while Euro Area government bonds advanced as the region ’s weaker-than-expected GDP growth in the first quarter boosted the case for further monetary stimulus by the European Central Bank. The 18-nation currency fell to as low as $1.3648, the weakest level since February 27, while the shared currency dropped to 139.10 yen, also the lowest since February 27. Benchmark 10-year yields on German bunds fell to the lowest level in 12 months, while comparable bond yields for Italy and Ireland reached the lowest on record. Russia’s holdings of U.S. Treasury securities declined by 20% in March to the lowest level since September 2008 as Russian banks tried to avoid U.S. sanctions and the country’s central bank sought to support the currency. Russia’s holdings fell to $100.4 billion in March from $126.2 billion in February, posting a fifth straight month of decline. The U.S. government has frozen the assets of 45 Russian individuals and 19 entities (mostly Russian banks), in reaction to Russia ’s annexation of Ukraine’s Crimea. High Income Economies U.S. industrial production fell 0.6% (m/m) in April, following the upwardly revised 0.9% increase in March. The unexpected decline was partly due to the steep drop in utilities output, which tumbled by 5.3% in April after rising by 0.6% in March. In addition, manufacturing output also unexpectedly dipped 0.4% in April following an upwardly revised 0.7%. On a three-monthly annualized basis, industrial production increased by 5.7% (3m/3m saar), following a 4.5% rise in March. th At the same time, U.S. first-time jobless claims in the week ended May 10 claims dropped to 297,000, a decrease of 24,000 from the previous week's revised level of 321,000. With the unexpected decrease, 1 jobless claims fell to a seven year low. The less volatile four-week moving average edged down to 323,250, a decrease of 2,000 from the previous week's revised average of 325,250. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also fell to 2.667 million in the week ended May 3rd from the previous week's revised level of 2.676 million. As acceleration in German growth was partially offset by contractions in six other economies, Eurozone GDP grew 0.2% (q/q) in Q1 2014, unchanged from Q4 2013, according to flash estimates. Germany expanded at the fastest pace since early 2011, with GDP growth doubling to 0.8% from 0.4% Q4, while France’s GDP growth was unexpectedly flat after expanding 0.2% in Q4. Meanwhile, the Italian economy shrank 0.1% percent after recovering from recession in Q4. On an annualized basis, Eurozone GDP increased by 0.8% (q/q saar) following Q4 ’s 0.9% increase. Developing Economies Europe and Central Asia Turkey’s unemployment rate edged up in February, rising for the fourth consecutive month to 10.2% (m/m) from 10.1% (m/m) in January. The number of unemployed persons was recorded at 2.825 million; with the non-agricultural unemployment rate at 12.1% and youth unemployment rate at 17.0%. The number of employed persons totaled 24.99 million, with 51.3% in services, 21.4% in industry, and 20.2% in agriculture. Hungary’s economy grew at a faster-than-expected pace in the first quarter of 2014, with GDP growth coming in at a non-seasonally adjusted 3.5% (y/y), which was the highest GDP growth rate since the first quarter of 2006 when the economy grew 3.7%., beating economists ’ forecast of 2.7% expansion. On a calendar-adjusted basis GDP grew 3.4% (y/y) in the first quarter, also faster than the 2.7% (y/y) growth recorded in the previous quarter. On a seasonally and calendar-adjusted basis GDP growth was recorded at 3.2% (y/y), higher than the 2.9% increase in the previous quarter. Quarter-on-quarter, GDP grew 1.1% in 2014Q1, compared with 0.7% in the previous quarter. Latin America and the Caribbean Brazil’s retail sales growth contracted notably in March. Year-on-year, retail sales fell 1.1% (y/y), down from the upwardly revised 8.7% (y/y) increase in February. The broader retail sales index, which includes cars and construction, saw a 5.7% (y/y) decline following an 8.2% (y/y) increase in February. On a monthly basis, retail sales fell 0.5% in March, the biggest monthly decline since May 2012, after rising 0.2% in February. South Asia India’s wholesale price inflation eased to a two-month low of 5.2% (y/y) in April, down from a 5.7% (y/y) increase in March as food and fuel prices moderated. On an annual basis, food prices slowed to 8.6% in April from 9.9% in March, helped by a 9.76% fall in onion prices; while prices of non-food articles decelerated to 3.1% from 4.6%. Among non-food articles, prices of manufactured goods slowed slightly to 3.2% in April while prices of fuel and power eased to 8.9%, down from 11.2% in March. You’ll find recent issues of this Daily and lots of other current analysis and high-frequency data on our GEM intranet website: http://go.worldbank.org/0TC32BNV30 See also our Prospects blog: http://blogs.worldbank.org/prospects The Daily Economic News is an informal briefing for Bank staff whose responsibilities require that they stay abreast of changes in global markets. The views expressed here do not reflect those of the World Bank Group. Feedback, and requests to be added to or dropped from the distribution list, may be sent to: dchen2@worldbank.org or gkambou@worldbank.org. 2 3