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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.

Figure 4
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.

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