77813


                      DECPG Daily
        Economics and Financial Market Commentary
                      March 5, 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 high -frequency data at our
                                    website: http://www.worldbank.org/gem

Financial Markets… Perceived credit risk of U.S. corporate bonds has eased
significantly since last September, with the benchmark Markit CDX North America
Investment Grade index sliding 83 basis points on Tuesday (intraday, lowest level in
more than five months) as investor confidence improved amid positive growth outlook.
Italy’s 10-year government bond yields tightened by 10 bps to 4.78% on Tuesday as
some investors picked up the country’s cheaper debt following yesterday’ s sell-off.
Portuguese and Irish bonds advanced as well, with the benchmark long-term yields
sliding 23 bps to 6.16% and 7 bps to 3.76%.
Asian stocks advanced on Tuesday after two days of losses, with the MSCI Asia Pacific
Index rising 0.5%, as Chinese shares bounced back from yesterday’s plunge, driven by
the government’s pledge to increase fiscal spending to sustain economic growth. In
China, the CSI 300 Index surged 3% after posting its biggest one-day drop in two years,
while the Shanghai Composite Index jumped 2.3% from a two-month low closing.
High-income Economies… UK services, which comprise more than three-quarters of
total economic output, expanded at the fastest pace in 5 months in February, with the
services PMI rising to 51.8 (sa) from 51.5 in January driven mainly by an expansion in
new business. The reading follows weak PMI data in February for manufacturing and
construction. Separately, the British Retail Consortium said the total value of retail sales
grew by 4.4% (y/y) in February, up from 3.0% in January.
Eurozone February services PMI data remained mixed, with expansion in Germany
offset by sharp contractions in France, Spain and Italy. PMI readings for Germany
indicated a solid expansion in private sector business activity, although the index eased
slightly to 54.7, from 55.7 in January. In contrast, output declines accelerated in Italy
and Spain, with PMIs dropping to 43.6 (from 43.9) and 44.7 (from 47.0) respectively.
France’s PMI readings were barely changed at 43.7 in February from th e near 4 year-
low of 43.6 in January
Australia’s central bank held its policy rate unchanged at a half-century low at 3% for
the third consecutive month. It had previously cut rates by a total of 125 basis points in
2012 as the economy, which is heavily dominated by commodities exports to China,
softened.
Developing Economies…East Asia and the Pacific: Philippines’ inflation accelerated
in February to 3.4 (y/y) following a 3% rise in January, but still within the central bank’s
inflation target of 4% +/- 1%. Core inflation, excluding selected food and energy items,

                                                      1
came in at 3.9% (y/y), up from 3.6% (y/y) with alcoholic beverages and tobacco prices
contributing to the rise in prices.
China’s service sector PMI (HSBC/Markit) slowed to 52.1 in February from 54 in
January. The index stayed above the no-change 50 mark - which separates growth from
contraction. The composite index, that measures performance of both manufacturing
and services, posted 51.4 in February, down from January's 2-year high of 53.5.
Europe and Central Asia: Russia’s inflation accelerated in February to 7.3% (y/y) up
from 7.1% in previous month and is at the highest level in 18 months and well above the
central bank’s inflation target range of 5-6%. A rise in food expenses, higher excise
taxes and transport costs are contributing to the rise in headline inflation.
Latin America and the Caribbean: Brazil’s service sector PMI dropped to 52.1 in
February from 54.5 in January. The index stayed above the no-change 50 mark for the
sixth successive month. The composite PMI, came in at 52.9 in February, hitting the
lowest level in 4 months.
South Asia: India’s service sector PMI dropped to 54.2 in February from 57.5 in
January. The index stayed above the 50 mark for the sixteenth successive month. The
composite PMI declined to 54.8 in February from 56.3 in January, marking the weakest
improvement in business conditions in three months.
Sub-Saharan Africa: Zambia's inflation rate eased to 6.9% (y/y) in February from 7.0%
(y/y) in the previous month. Lower food prices for some essential commodities were
primarily responsible for the softer inflation during the month.

             Recent issues and other current analysis is also available on the Prospects blog




*****************************************************
DECPG Daily is an informal briefing 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. The Prospects
Group of the World Bank is pleased to share this content under the agreed terms and conditions of use.
Feedback and requests to be added to or dropped from the distribution list may be sent to
adennis@worldbank.org.




                                                    2