60648 Daily Brief Economics and Financial Market Commentary April 11, 2007 Mick Riordan (x31289), Cristina Savescu (x80812), Eung Ju Kim (x85804), Shane Streifel (x33867) Annette DeKleine (x34710) You’ll find recent issues of this Daily and lots of other current analysis and high-frequency data at our intranet website: http://GEM or for external users: www.worldbank.org/gem IMF sees world economy weathering a U.S. slump in 2007. The IMF held its world economic forecast unchanged at 4.9% growth for 2007 (GDP in PPP terms) saying growth will remain robust despite a worse-than-expected slowdown in the United States. [The World Economic Outlook (WEO) released today as part of the run-up to the Bank-Fund spring meetings has garnered much press attention.] U.S. GDP is projected to slow to 2.2% from the 3.3% gain registered in 2006; while Europe, Japan and China will replace the United States as the main drivers of growth. The Fund warns that a steeper downturn in the United States, centered in the current housing slump, represents a key risk to global growth, while higher oil prices, revival of inflation and an increase in protectionism represent the main downside risks. Overall, risks have subsided somewhat from six months ago, the last time the WEO was published, according to the Fund. U.S. mortgage apps for purchase increase in latest week. The Mortgage Bankers Association’s weekly tab on new applications for mortgage financing— for purchase or re-financing—can serve as a useful gauge for assessing current status of housing demand. Total applications slipped by 0.4% in the latest reporting week (to April 6) but were dampened by a 4% drop in refinancing apps (possibly in response to a 10 basis point up-tick in rates over the last two weeks to 6.16%); applications for purchase however, picked up a hefty 2.7% in the week, standing 7.2% below levels of a year earlier, a large improvement from recent declines on this measure. “There’s demand in some markets as interest rates are still low, incomes are still rising and people want to own homes”, notes Joseph Brusuelas of IDEAglobal in New York. Japan’s total factory orders up in February; but “core” orders decline. Total machinery orders received by Japanese manufacturers advanced 5.5% in February (m/m) in the wake of a large 10% gain in January, to maintain demand momentum in double-digit territory for a second month running [see Daily Chart at http://GEM or www.worldbank.org/gem ]. But “core orders”, excluding those from the public sector, shipbuilding and utilities, dropped 5.2% in the month, highlighting concerns that export growth—as well as domestic capital spending—may soften over the course of 2007. Orders for electronic machinery faltered in February, dropping 29.7%, the largest decline in 9 years. “Growth, and with it employment and investment are rotating away from manufacturing toward the non- manufacturing sector,” notes Ken Maguire of Societe General in Hong Kong. “The recent Tankan survey underscores this”. Among emerging markets...in East Asia, Thailand’s central bank cut its key interest rate for the third time in 2007, lowering it 4% from 4.5% previously. And the bank signaled it may continue to reduce rates further to support growth. Korea’s unemployment rate remained unchanged at 3.2% in March, the lowest in more than four years, as companies in finance and construction hired more workers. In Latin America, Mexico’s trade deficit narrowed to $514 million in February, down from $1,710 million the previous month, as exports excluding petroleum increase by $365 million, while imports declined $674 million. The largest declines were recorded in intermediate and capital goods imports, signaling weakness in the domestic economy. Brazil’s retail sales advanced 4.9% in February (y/y) from 6% the previous month, while seasonally adjusted capacity utilization inched lower to 81.7% from 82%. In Central and Eastern Europe, Romania’s consumer price inflation eased to 3.7% in March (y/y) linked to a strengthening currency, dampening the prices of imported goods. But economic growth running above-potential and higher wage gains are expected to fuel inflationary pressures which should become clearer during the second part of the year. Meanwhile the first-two-month trade deficit widened to €2.57 billion ($3.45 billion) up from €1.4 billion during the like period of 2006. In the Czech Republic industrial production advanced 1.9% in February (m/m) while constant-price industrial sales picked-up 16.8% (y/y). In Sub-Saharan Africa, South Africa’s manufacturing growth advanced 7.1% in February (y/y), helped by a weaker rand, which boosted exports, and by strong consumer demand and government spending. The rand depreciated 9.7% against the U.S. dollar during 2006, and fell an additional 1.6% in the first two months of 2007. Among developing regions, growth projections for Sub-Saharan Africa were revised up in the new WEO report to 6.8% for 2007, as GDP gains in Angola and Nigeria are anticipated to be robust; while growth in African oil importing countries is expected to ease to 4.8% from 5.3% in 2006 due to weaker consumer demand in South Africa. ***************************************************** The Daily Brief is a summary of economic news items for Bank staff whose responsibilities require that they stay abreast of changes in global markets. 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