94224 Daily Economic News – Jan. 21, 2015 AUTHORS Derek Chen (x-81602) Eung Ju Kim (x-85804) Mizuho Kida (x-31943) ECB proposes quantitative easing program… U.K. jobless rate at 6-year low… South African inflation slows more than expected Financial Markets The European Central Bank recommended bond purchases of roughly €50 billion ($58 billion) per month that would last until December 2016 in an effort to prevent the euro area sliding into a deflationary spiral. That is broadly in line with market expectations for a total package of asset purchases of between €500 billion and €1 trillion. It hasn’t yet decided if the proposal would include the existing bond -buying programs, or how much of it would be sovereign debt. European shares rose for a fifth day following the ECB proposal with the Stoxx Europe 600 index climbing to the highest level in 7 years. Ukrainian bonds tumbled to record lows today amid escalating geopolitical conflicts with Russia. The country’s benchmark bonds maturing in July fell 1.1 cents to 55.76 cents on the dollar, pushing th e yield to 38.2%. Fighting with the pro-Russian insurgency has intensified since a series of peace talks last week failed. Moody’s Investors Service said in December Ukraine needs an additional $15 billion to $20 billion to meet its financing needs and the risk of sovereign default is quite high. High Income Economies The Bank of Canada unexpectedly cut its benchmark interest rates by 25bps to 0.75% as policy makers look to offset the negative impact that falling crude prices is having on the economy. Economists had expected predicted no change in interest rates. Canada has kept its key lending rate unchanged at 1 per cent since September 2010. Canada is a net exporter of oil and the near 60% plunge in crude prices since June is threatening the viability of and future investment in the country's oil sands industry. Falling to a six-year low, the U.K. jobless rate fell from 6% in the June to August period to 5.8% during the September to November period, the lowest rate since August 2008 and beating ec onomists’ forecast of 5.9%. At the same time, during three months to November average weekly earnings including bonuses rose 1.7% from last year, in line with forecast. Excluding bonuses, pay climbed 1.8%. 1 The Japanese leading index, which measures expected future economic activity, fell from 104.5 in October to 103.9 in November, slightly higher than the preliminary estimate of 103.8. The latest reading is the lowest since January 2013, when the reading was 102.8. The coincident index that measures current economic activity also dropped to 109.2 in November, higher than the flash estimate of 108.9, but lower than October’s 109.9. Meanwhile, the lagging index, which reflects past economic activity, improved to 120.6 in November from 118.7, marking the second successive month of increase. Developing Economies East Asia and Pacific China’s housing sales dropped 7.8% (y/y) in 2014 to 6.24 trillion yuan ($100.4bn), data from the National Bureau of Statistics showed. In the first 11 months, sales were down 9.7% from the same period a year earlier. In December, however, housing sales climbed 4.2% (y/y), compared with the 12% decline in November. The latest jump in the property sales market was influenced by the central banks’ 40 basis points interest rate cut in November, which was the first reduction in more than two years. Housing prices continued to decline in almost all major Chinese cities in December. Compared to November, prices fell in 66 cities, remained stable in 3, and increase in just one of the 70 cities surveyed by the agency. Sub-Saharan Africa South Africa’s consumer prices inflation slowed more than expected in December to 5.3% (y/y), compared to November’s 5.8% and economists’ expectation of 5.5%. On a monthly basis, consumer prices fell 0.2% in December, after November’s 0%. The steeper slowdown in inflation will further delay the South African Reserve Bank’s recent pledge to raise interest rates gradually over time. In fact, some analysts and traders have begun to speculate that the bank may cut its key interest rate to spur the moribund economy. 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