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  Daily Economic News – Jan. 30, 2015


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



Global bond market starts 2015 on strong note…US growth cools in Q4…Bank
of Russia cuts key rates


Financial Markets

The global bond market started the year on a strong note with Bank of America Merrill Lynch’s global
bond index posting a record gain of 1.7% in January. Gains were particularly strong in low-risk
government debt as stalling global growth and new quantitative easing by the European Central Bank
created such demand for safe-haven assets. U.S. and U.K. government securities have gained 2.6% and
3.7%, respectively, this month, making them among the best performers worldwide. Global appetite for
low-risk corporate debt was also strong, with companies across the world selling $311 billion in January
and average borrowing costs sliding 2.4%, the lowest level since May 2012.

Russian banks are rushing to extend credits to large domestic firms to rescue them from the prospect of
default on $100 billion of foreign-currency debt due this year. Most Russian corporates are currently cut
off from the international capital markets because of U.S. and European sanctions and the escalating
economic crisis. The movement comes after the Russian monetary authorities injected trillions of rubles of
liquidity into the country’s banking system to fill a funding gap left by sanctions.



High Income Economies

U.S. GDP growth slowed sharply in Q4 2014, expanding 2.6% (y/y) following a 5% jump in Q3 and well-
below economists’ expectation of 3.2%. The sharp slowdown owed to weak business spending and a
wider trade deficit that offset the fastest pace of consumer spending since 2006. Most economists,
however, believe the slowdown is likely to be short-lived given the enormous tailwind from lower gasoline
prices. For all of 2014, the economy grew 2.4% compared to 2.2% in 2013.

The Euro Area unemployment rate came in at a double-digit 11.4% in December, slightly lower than the
11.5% in November and below economists’ expectation of 11.5%. It was the lowest rate since August
2012. The youth unemployment rate was at 23%, down from 23.9% a year ago. In the EU28, the jobless

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rate declined to 9.9% in December from 10% in November. This was the first time the rate has fallen
below 10% since October 2011. Resumption in the downward trend in unemployment raises hopes that
businesses are beginning to take on more workers amid very low oil prices, weaker euro, and
accommodative monetary policy foster a more favorable growth environment.



Developing Economies

Europe and Central Asia

Russia’s central bank unexpectedly cut its key interest rate by 200 basis points (bps) to 15%, after raising
it by 650 bps to 17% from 10.5% in December 16 to shore up the ruble. In a statement, the central bank
said its earlier emergency rate hike had worked as expected, and attributed the latest decision to “the
shift in the balance of risks of accelerated consumer price growth and cooling economy.” The bank also
estimated 2014 economic growth at 0.6% and predicted “substantial decrease of output” in 2015 because
of falling oil prices and foreign economic sanctions.

Turkey’s trade deficit in December narrowed from a year ago by 14.6% (y/y) to $8.5bn in December from
$9.96bn in the same month last year. The decline was in line with economists’ expectations. Exports grew
1.2% in December, while imports dropped 5.6% led by a 15.2% fall in energy imports. For the January to
December period, total trade deficit narrowed 15.4% (y/y) to $84.5bn from $99.8bn in the same period
last year. Exports advanced 3.9% while imports declined 3.7%.



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