Improved financial conditions are yielding stronger economic activity
Global economic activity has strengthened over the past several months (figure 4). The turn around, which began in the East Asia & Pacific region, has spread more widely. Developing-country industrial production grew at a 5.1 percent annualized pace during the first quarter of 2013 (0.6 percent if China is excluded), and high-income-country industrial production expanded at a 2.9 percent annualized pace.
Aggregate industrial activity has picked up
Source: World Bank, Datastream
Despite Euro Area weakness, high-income-country GDP growth strengthened in the first quarter of 2013.
In the United States, GDP rose 2.4 percent in the first quarter of 2013, despite sharp payroll tax increases that have cut into consumer incomes. The strength was supported by a recovering housing market (house prices are at a two-year high) and an increase in payroll jobs (more than ½ a million jobs were added in the first quarter). Investment demand, which was unusually weak in the second half of 2012, has also contributed (durable goods orders increased at a 20 percent annualized pace through March, although order growth has since eased).
In Japan, the move toward a much more relaxed monetary and fiscal policy (first announced in November 2012 but made more concrete during the first quarter of 2013) prompted a sharp acceleration in GDP, which grew at a 4.1 percent annualized pace in the first quarter of 2013.
In the Euro Area, GDP contracted once again in the first quarter, declining at a 0.8 percent (saar, -0.2% q/q sa), with growth in Germany turning marginally positive. For the region as a whole, industrial production expanded at a 0.7 percent annualized rate in the first quarter, and the annualized pace of decline among high-spread economies eased to only 0.3 percent.