74784

                      DECPG Daily
        Economics and Financial Market Commentary
                    January 11, 2013
           Allen Dennis (84812), Eung Ju Kim (85804), Sanket Mohapatra (37721),
                            Ekaterine T. Vashakmadze (36773)
  You’ll find recent issues of this Daily and lots of other current analysis and h igh-frequency data at our
                                    website: http://www.worldbank.org/gem

Financial Markets…Italian government bonds advanced for a fourth day, pushing the
yield difference over comparable German bunds down to less than 250 basis points (at
248 bps) for the first time since July 2011, amid growing optimism that the region’s debt
crisis is easing. The country’s 10-year bond yields fell as much as 7 bps to 4.09%, the
lowest level since November 2010.
Developing-country equity funds received the biggest weekly inflows on record in the
week ended January 9, posting net inflows of $7.4 billion, as the U.S. budget deal and
growing signs of China’ economic rebound boosted demand for riskier assets.
Meanwhile, emerging-market bond funds attracted their second-largest inflows of $2
billion for the like period.
Chinese shares fell the most in the Asian region, with the benchmark Shanghai
Composite Index slumping 1.8%, after the country’s consumer prices rose more than
expected in December. Chinese equities have gained 17% from a nearly 4-year low on
December through yesterday, hinting at a bull market.
High-income Economies…The US trade deficit widened sharply to $48.7 billion in
November from $42.1 billion the previous month, mainly due to a 3.8% (m/m) surge in
imports, the largest percent gain in 8 months. This was driven by demand for consumer
goods imports (including automobiles), which rose $4.6 billion. Imports of petroleum
products however fell $870 million. Import prices fell 1.5% in the 12 months through
December, with prices for fuel down 6.4% over that period and non-fuel prices up just
0.1%.
Industrial production in the UK rose 0.3% (m/m) in November following a 0.9% (m/m)
fall in October, mainly due to a strong rebound in oil and gas extraction after
maintenance of the Buzzard North Sea field was completed. Manufacturing output,
however, fell 0.3% from October, when it dropped 1.3%, indicating continued weakness
in the economy toward the end of 2012.
France’s current account deficit was broadly unchanged at 2.9bn euro in November
from the previous month. The goods trade account showed a deficit of 5bn euros, lower
than the 5.1bn euros deficit in October.
The pace of contraction in Spanish industrial production worsened in November, with
output dropping 7.2% (y/y), following a 3.1% drop recorded in October.



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South Korea’s central bank held its key policy rate at 2.75%, citing easing demand side
pressures that are expected to keep inflation low in the near term. Inflation fell to 1.4%
(y/y) in December from 1.6% in November.
Developing Economies…Inflation in China accelerated to 2.5% (y/y) in December
from 2% in November, to the highest level in seven months, as recent cold weather
pushed food prices up. Food prices jumped 4.2% in December (y/y) with vegetable
prices leading the increase. Inflation rate for 2012 was 2.6%, well below the
government's 4% target. Meanwhile, producer prices in China continue to decline, but
the pace of decline in slowing. The industrial producer price index fell 1.9% (y/y) in
December following a 2.2% decline in November.
India's industrial production contracted 0.1% (y/y) in November compared with a 8.3%
expansion in October. India's exports continue to decline slowing 1.9% (y/y) in
December. The pace of decline is however slowing compared to 4.2% recorded in
November. Imports increased by 6.3% to US$42.54 billion contributing to a monthly
trade deficit of US$17.67 billion in December, which was nevertheless lower than
US$19.3 recorded in November.
Mexico's industrial production rose 2.8% (y/y) in November, somewhat slower than the
3.6% annual increase in October. Expansion was led by manufacturing and mining and
utility sectors, while growth in construction declined 1.1%. On a monthly basis, industrial
activity was up 0.92% in November from October and showed reversal for a m/m 0.9
contraction recorded in October.

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