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   Daily Economic News – Feb. 5, 2015


AUTHORS                Derek Chen (x-81602)                      Eung Ju Kim (x-85804)
                       Mizuho Kida (x-31943)



Greek markets tumbled on ECB move… U.S. trade deficit largest since
November 2012 … Ukraine raises key interest rate to fight surging inflation

Financial Markets

Greece’s bond and stock markets tumbled after the European Central Bank restricted access to funding
lines for Greek lenders, a move will raise borrowing costs and limit the availability of the country’s
financial institutions. By cutting off Greek bank’s ability to borrow against the government’s junk -rated
bonds, the ECB increased the likelihood of withdrawals from bank deposits accelerating. The nation’s
benchmark stock gauge, ASE Index, declined 3.4% as banking shares slumped 10%. Greek 3-year
government bond yields surged 45 basis points (bps) to 16.78%, more than 1,300 bps higher than last
year’s low of 3.07% reached in August.



High Income Economies

Reflecting seasonal issues around the Martin Luther King, Jr. Day holiday, U.S. first time jobless claims
rose less-than-expected to 278,000 in the week ended January 31 st from the previous week's revised
level of 267,000. Economists had expected jobless claims to climb to 290,000 from the 265,000 originally
reported for the previous week. The less volatile four-week moving average dipped to 292,750 from the
previous week's revised average of 299,250. Continuing claims, a reading on the number of people
receiving ongoing unemployment assistance, rose to 2.40 million in the week ended January 24 th from the
preceding week's revised level of 2.39 million.

With imports jumping and exports falling due to the strengthening dollar, the U.S. trade deficit
unexpectedly widened from a revised $39.8 billion in November to $46.6 billion in December, wider than
economists’ forecast of $37.9 billion and the largest since November 2012. December ex ports were at
$195 billion, down 0.8% (m/m) from November. Meanwhile imports swelled to $241 billion, up 2.2% from
November with imports of non-petroleum products surging to a record high.

Amid low oil prices, the weakening euro and an aggressive easing of monetary conditions, the European
Commission upgraded its growth forecasts for the Eurozone and is expecting the union to grow 1.3%

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(y/y) this year and 1.9% in 2016, as compared to the earlier projected growth of 1.1% this year and 1.7%
in 2016. Despite the still unfolding political upheaval and assuming a full completion of the current bailout
program, the Commission downgraded its projections for Greece only marginally, projecting that the
Greek economy would grow by 2.5% this year, down from the earlier projected 2.9%.

Developing Economies

Europe and Central Asia

Russia’s consumer price inflation accelerated to 15% (y/y) in January, up from 11.4% in December and
exceeding economists’ expectation of 13.5%. Accelerating consumer prices was led by a 20.7% surge in
food prices as well as 12.3% increase in service prices. The headline annual inflation matched the Bank
of Russia’s key interest rate after it was unexpectedly cut last week from 17%. The International
Momentary Fund has recommended the Bank of Russia to keep rates in positive territory, meaning above
the annual rate of inflation.

Ukraine's central bank raised its main interest rate by 550 basis points to 19.5% to take effect on Friday,
as it seeks to curb annual inflation which hit almost 25% (y/y) in December. The bank also scrapped its
daily foreign currency auctions, loosening its control over the hryvnia's exchange rate against the dollar
although the bank denied this meant freely floating the currency. With the hryvnia declining rapidly and
foreign exchange reserves covering less than two months of imports, the country needs additional funds
from donors to fill an estimated $15 billion funding gap to avert the sovereign default.


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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.
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