60738 Daily Brief Economics and Financial Market Commentary September 7, 2007 11:27 am Mick Riordan (x31289), Cristina Savescu (x80812), Eung Ju Kim (x85804), Shane Streifel (x33867), Annette De Kleine (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 Market for investment-grade corporate securities remains buoyant. The second-largest pharmaceutical company in the UK, Astra-Zeneca, issued a $6.9 billion bond yesterday, the largest corporate issue since January. The market for investment-grade securities remained active throughout the financial turmoil in August unlike that for high-yield (non-investment grade) securities, with only three dollar-denominated issues in the United States and none in Europe. U.S. employment report shows 4,000-job loss for August. The long-awaited Department of Labor report covering the employment situation in August showed a job loss in the month, for the first time in more-than four years. Employment declined by 4,000, in contrast with market expectations for a gain of some 100,000. Figures for June and July were also marked down, now showing little growth of 69-and 68K jobs respectively [see Daily chart at http://GEM]. While the unemployment rate was unchanged in the month at 4.6% (due to prospective employees leaving the labor force), employment losses were concentrated in construction (22,000) and manufacturing (a large 46,000), suggesting that effects of the recession in housing are being felt with more intensity in the labor market. “There is no doubt now that the financial turbulence is having real effects”, notes Peter Kretzmer of Bank of America in New York. “The Fed will cut the Funds rate in two weeks, and this will make it easier for them to do so.” German industrial production picks up in July. Following two consecutive months of decline, manufacturing output in Germany increased a modest 0.2% in July (m/m), largely on the back of stronger domestic demand—consumer spending in particular—as export orders retrenched in the month. The gain carries IP growth back to a 3.5% annualized pace (saar), from 1% in the preceding month. And production over 2007 to date stands a still-strong 7.2% above the like period of 2006. Still, the German economy has not displayed convincing signs of breaking out of the slow-growth “patch” of the second quarter, when GDP advanced just 1% (saar), down from a 4% advance in the final quarter of 2006. Household spending and investment will need take-up the slack from slowing exports, tied in part to substantial appreciation of the euro. Japan leading indicators point to a rebound. In similar respects to Germany, Japan suffered a growth relapse during the second quarter, with GDP up just 0.5% (saar) following strong first-quarter performance of 3.4%. And recent developments in retail sales, orders and production have been less than encouraging for third quarter prospects. But today’s report on the leading economic index (LEI) suggested that the economy may be poised for a recovery during the second half of 2007. The LEI registered 70 in August contrasted with a reading of “50”, representing no-growth. “Japan’s economy is likely to recover on industrial production”, notes Tatsuya Ishii of the Cabinet Office. “We need to see how the cloud over financial markets will affect the economy.” Among emerging markets...in Central and Eastern Europe, Hungary’s economic growth slowed to 1.2% in the second quarter (y/y), down from 2.7% in the previous quarter, the slowest growth in more than a decade, following cuts in government spending and public jobs, and increases in taxes that undermined consumer spending and investment. Household consumption declined 3.3% in the second quarter, coming on the heels of a 0.8% contraction during the previous quarter, while government consumption declined 2.8%. Meanwhile, growth in the Czech economy registered an impressive 6% in the second quarter (y/y), fueled by robust household spending and investment. GDP gains have exceeded 6% for more than nine quarters now, standing at 6.4% in the first quarter of 2007. Household consumption expanded 6.5% in the second quarter, marginally down from 7.2% in the first quarter, while gross fixed investment advanced by 4.2%. Imports grew 13.9%, testimony to the strength of domestic demand, and exceeding the 13.8% expansion in exports. The economy is well on track to achieve the 5.8% growth projected by the Finance Ministry. In Latin America, Mexico’s consumer price inflation eased to 4% in August from 4.1% the previous month due to a drop in food prices. In Middle East and North Africa, Egypt’s Prime Minister Ahmed Nazif is confident that the Egyptian economy could expand by 8% this year, buoyed by strong investment in the construction industry, increased tourist arrivals and larger proceeds from the Suez Canal. This compares with growth of 7% in the fiscal year ended June 30th, and 6.8% GDP gains the previous fiscal year. ***************************************************** 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. The views expressed here are those of the various authors and do not necessarily reflect those of the World Bank Group's Executive Directors or the countries they represent. The content is subject to copyright and is not for quotation outside of the World Bank. 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