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   Daily Economic News – Feb. 3, 2015


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



Germany bond yields fall below Japan’s for first time… Irish growth at nine-
year high …Turkey central bank foregoes snap rate cut after inflation data


Financial Markets

Germany’s benchmark long-term borrowing rate fell below equivalent Japanese rate for the first time in
history on Tuesday, an ominous sign for the Eurozone economy grappling with low growth and deflation.
German 10-year government bond yields slid to as low as 0.305%, while comparable Japanese yields
climbed 7 basis points (bps) to a 6-week high of 0.355%. The yields on longer-dated 20 and 30-year
German bonds have already traded below their Japanese equivalents. The fall in Eurozone bond yields,
which has accelerated in recent months, is inviting comparisons with Japan, a nation suffered by
persistently low growth and inflation over the past couple of decades (the so-called “Japan’s lost
decades”).
.
Oil prices extended gains on Tuesday, climbing for a fourth day, amid further signs that a global supply
glut will ease. Three major oil companies announced they will reduce investment on new and existing
projects, prompting speculation the spending cuts will curb oil production down the line. Brent for March
delivery rose $1.35 (or 2.5%) to $56.10 a barrel on the London exchange, while West Texas Intermediate
(WTI) for March settlement climbed $1.59 (or 3.2%) to $51.16 a barrel on the New York exchange.



High Income Economies

U.S. factory orders tumbled 3.4% (m/m) in December, surpassing economists’ expectations for a 2.2%
drop. At the same time, orders in November were also downwardly revised to a 1.7% slump from a
previously reported 0.7% decrease. While the continued decrease was partly due to a steep drop in
orders for transportation equipment, factory orders still fell 2.3% when excluding transportation. Orders
for durable goods plummeted 3.3% in December after falling 2.2% in November, while orders for non-
durable goods dove 3.4% following a 1.2% drop.

Declining at the fastest pace in five year, Eurozone producer prices fell 2.7% (y/y) in December, faster

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than economists’ forecast of a 2.5% annual fall. The latest decline in producer prices was the biggest
since December 2009, when they fell 3.0%. The latest decline was largely due to the 8.3% drop in
energy prices. Excluding energy, producer prices dropped 0.5% in December.

Largely due to “exceptionally strong” exports growth, the Irish economy grew 5.1% in 2014, the highest
since 2005, according to the central bank’s estimate. Meanwhile the growth forecast for 2015 was also
upgraded to 3.7% from 3.4%.



Developing Economies

Europe and Central Asia

Turkey’s consumer price inflation eased to 7.24% (y/y) in January from December’s 8.17%, data from the
Turkstat showed. It was the slowest since May 2013, but less than economists’ expectation that inflation
would ease to 6.8%. Prices of food and non-alcoholic beverages climbed 10.97%, while those of clothing
and footwear climbed 9.14%. Meanwhile, transportation costs fell 0.99%. The central bank indicated in a
statement that there would be no emergency meeting and it would review monetary policy at its next
scheduled meeting in three weeks. Last week, the central bank governor signaled that he might call an
early monetary policy meeting to review interest rates if January inflation dropped by more than a
percentage point to about 7%. The bank has been under government pressure to lower interest rates to
counter slowing economic growth. “The quick statement by the central bank that there will be no
extraordinary meeting is a sign that it is trying to regain credibility,” a local analyst said.

South Asia

India’s central bank kept its key benchmark rates unchanged as it waits for the government to announce
its federal budget later this month. The Reserve Bank of India kept its repo rate at 7.75% and its reverse
repo rate at 6.75%. The repo rate is the rate at which the central bank lends to commercial banks and the
reverse repo rate is the rate at which the central bank accepts deposits from banks. While holding
benchmark interest rates, the central bank lowered its statutory liquidity ratio –the amount of gold, cash or
government-approved securities that commercial banks must set aside before providing credit to the
customers—by 50 basis points to 21.5% of deposits to create space for banks to expand credit.


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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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