77815 DECPG Daily Economics and Financial Market Commentary March 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 high -frequency data at our website: http://www.worldbank.org/gem Financial Markets…The dollar continued to strengthen versus the yen, hitting a 3½- year high of 96.55 in early Monday trading, as recent strong economic data added to signs that the U.S. economy is gaining momentum. The greenback has appreciated 10.9% against the Japanese currency thus far this year. Italian government bonds declined for a second day on Monday, with the 10-year yields inching up 7 basis points to 4.67% in morning trade, after Fitch Ratings lowered the country’s sovereign credit rating by one notch to ‘BBB+’ from ‘A -‘ on Friday. The rating agency cited Italy’s high debt level, fragile economy, and political uncertainty following last month’s election for the downgrade. Developing-country stocks fell slightly on Monday, with the benchmark MSCI Emerging Market Index falling from a 2-week high level reached last week, amid soft China economic data and growing tensions between North Korea and South Korea. China’s Shanghai Composite Index fell 0.4% for its third day of losses, while Pakistan’ benchmark stock index slid 1.2%. In contrast, Thailand’s S ET index gained 0.7%, heading for the highest closing since January 2009, in the wake of the rating upgrade by Fitch Ratings last week. High-income Economies…French manufacturing output shrank 1.4% (m/m sa) in January led by declining car sales, after gaining 1.3% in December. For the three months to January, output dropped by 8.3% (3m/3m saar) after a 9.8% decline in December. German exports rose 1.4% (m/m sa) in January compared to a 0.2% gain in December mainly reflecting anemic demand from within the Euro Area. Import growth however outpaced export growth with inbound shipment rising 3.3% after a 1.5% drop in December. The trade balance remained in a surplus of EUR 13.7 billion in January up from EUR 12.1 billion in the previous month. Japanese core-machinery orders, which exclude those for ships and utilities, rose by 6.1% (3m/3m saar) after an 8.4% gain in December. On a monthly basis though, orders fell by 13.1% (m/m) in January, the first decline in 4 months mainly reflecting weak overseas demand. Manufacturing orders declined by 1.3% (3m/3m saar) in January, a considerable improvement from the average 20% declines seen throughout the second half of last year. Italian and Portuguese final GDP estimates confirmed that the recessions in both countries deepened in Q4 2012. GDP fell by 0.9% (q/q) in Italy and 1.8% in Portugal in Q4 following outturns of -0.2% and -0.9% respectively in Q3. 1 Developing Economies…East Asia and Pacific: Malaysia’s industrial production accelerated to 4.6% (y/y) in January, up from revised 3.5% (y/y) in December, boosted by increases in manufacturing and electricity. Latin America and the Caribbean: Mexico’s central bank cut its benchmark overnight lending rate by 50 basis points to a record low 4%. This was the first cut in three years for the central bank while signaling no further reductions are on the horizon. Middle East and North Africa: Tunisia's inflation eased to 5.8% (y/y) in February, from 6.0% in January as food prices eased to 7.8% (y/y) from 8.7% (y/y) a month earlier. South Asia: India’s exports grew for the second straight month in February by 4% (y/y) to $26.26 billion, after contracting for eight months in a row. Imports increased by 3% (y/y) to $41.18 billion resulting in a marginally improving trade deficit. 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