WEEK IN REVIEW
In Europe, Greece’s first €3bn 5-year bond issue was very successful, as demand outstripped supply by over €17bn. The interest on the bonds came in at below 5%, better than expected. In addition to the real progress in public accounts since the beginning of the crisis, Greece, like Portugal, is benefiting from investors fleeing several emerging markets that are currently perceived to be too risky. Meanwhile, German retail sales and imports picked up in early 2014, suggesting that German domestic demand is gaining traction, which should support the recovery in the euro area.
In the Portuguese-speaking world, Fitch has changed the Portuguese rating outlook to positive, thanks to the better-than-expected deficit in 2013 and signs of a moderate recovery. Fitch recommends that Portugal exits the current programme with the support of a precautionary progamme. Inflation continued to decline in Portugal, hitting -0.4%yoy in March while core inflation fell to -0.2%yoy. Very low and negative inflation could affect the prospects of recovery by making real investment costs higher.
Elsewhere in the world, the IMF has upgraded its world growth forecasts, particularly in the US and in the UK. The IMF expects world GDP to 3.6% this year and 3.9% in 2015. The Fund has reduced the recession risk to almost zero though it warned the world could linger in sub-par growth for the next few years in absence of supply-side boosting measures.
During the week: heavy data week in the US, industrial production housing starts and retail sales to be published. The data should reveal whether the bout of weakness at the turn of 2014 was temporary, due to weather conditions.
14 April: February Euro area industrial production – analysts expect a 0.2%mom rise (1.6%yoy) after a very mild 0.1% decline in January. IP should continue to point to a moderate recovery.