The External Environment for Developing Countries

Transcription

1 The Overview December 29 High-income countries are making larger contributions to world output and trade growth, as effects of stimulus measures bear fruit in fostering domestic demand and imports; a turn in the inventory cycle underpins production gains and improved labor market conditions become more widespread. Data for the developing countries suggests that production and imports are easing toward more sustainable rates, following a surge over the last quarters. This will set the stage for GDP gains into the New Year G-3 exports now growing at double digits a good omen for world trade U.S. - Japan and Germany export volumes, ch% 3m/3m saar United States Germany Gross capital flows increase rapidly in the final months of 29 bond issuance, IPOs and syndicated bank lending, 3mma, billions US dollars Latin America Europe and Central Asia SubSaharan Africa East Asia South Asia MENA Japan -6 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Source: World Bank, DEC Prospects Group. Mar Apr May June July Aug Sep Oct Nov Source: World Bank, Development Prospects Group. But a large mark-down to Japan s growth, continuation of deflationary trends there; mixed and uneven GDP outturns across the Euro Area, and a far-from complete recovery in the U.S. housing market could offer substantial risks to this growth profile. Moreover, the Dubai World event, and ripple effects to credit downgrades for Greece and Mexico, have placed the issue of sovereign debt sustainability on the radar screen, with potentially greater risk to high-income countries than to developing economies in the short-to-medium term. Capital flows continued gains in November, though at a $35 billion pace, down from the 29-high $53 billion recorded in October. EM borrowers have placed $18 billion in new bond issues over 29 to date; in contrast, bank loans reached only 35% of the volume in the like period of 28. Gross flows jumped during the final months of the year, with 5% of the $29 billion in flows to date accumulated since August. And EM equity funds have taken in a record $75 billion thus far in 29, raising the potential risk of new asset bubbles emerging market equities and bonds have generated gains of 7%- and 4% over the year to date, respectively. Oil price eases on weak demand, with price moving toward $7/bbl during December from $8/bbl in November. OECD stocks remain high and U.S. demand is down 4.3% over the year to date. Agricultural prices increased 3.2% in October (m/m) led by a 6.6% jump in grains; rice was the largest gainer (up 1%) due to production shortfalls in Southeast Asia and higher import demand from the Philippines. This brief was prepared by a team of the Development Economics Prospects Group (DECPG), led by Elliot (Mick) Riordan, comprising Riordan (G-3, forex, edits), Nadia Spivak (trade), Betty Dow and Shane Streifel (commodities), Eung Ju Kim (finance), Cristina Savescu (IP) and Sabah Mirza (Annex). The note reflects the views of the team, but is not formally cleared by the World Bank Group.

2 page 2 Global Indicators Global Indicators (Percentage change per annum, unless otherwise specified) e 21f GDP volume: World Memo item: World GDP at PPP weights High-income countries Developing countries Industrial production: World High-income countries Developing countries Export volume (GNFS): World High-income countries Developing countries Trade Prices ($): Manufacturing (MUV) Oil ($/bbl) Non-oil commodities Nominal interest rates: $LIBOR (6m percent p.a.) LIBOR (6m percent p.a.) Financial flows FDI ($billion) Gross Capital flows a ($billion) Equity placement ($bn) Bond financing ($bn) Lending ($bn) Source: DECPG, December 29. Estimates for 29 based on current economic readings; and projections based on GDF-29 forecast, released June Note: a. Gross inflows 29 based on year-to-date figures. Figures in bold represent changes this month.

3 page 3 United States U.S. GDP for third quarter marked down to 2.8% on consumer and exports growth of real GDP, and contributions to growth in percentage points Stocks Government Consumption Investment Net exports 2.8 Q2-29 Q3-29 Prelim Q3-29 2nd Source: Department of Commerce. Housing makes some progress in pulling out of recession but risks remain new and existing home sales, (ch% 3mma y/y) [L]; Affordability index [R] Narrowing of job losses in November with new claims down substantially change in employment (, 3mma) [L]; claims for UNR insurance (, 4wma) [R] change in employment [L] claims for unemployment insurance [R] Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Source: U.S. Department of Labor. New home sales [L] Existing home sales [L] Affordability index [R] Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: Department of Commerce and National Association of Realtors U.S. GDP marked down. GDP for the third quarter was revised from 3.5% growth (saar) reported in October, to 2.8% in a second release in late November. Household spending was cut to 2.9% growth (3.2% earlier) and contributions to growth dropped from 2.4 points in first estimates to 2.1 points. A downgrade to business fixed investment (back to decline) and to stock changes reduced GDP gains by.4 points. Though U.S. trade emerged to positive growth for the first since 28, an encouraging development, import gains (2.8%, saar) exceeded that of exports (17%) such that net trade exerted an extra.3 points of drag. Much of the increase in spending was due to the autoincentive program, which lifted vehicle sales to about 7, in the quarter. Yet, even with the GDP mark down, recent data point to a continuing and accelerating pace of recovery into the New Year. Good labor-market news. Payrolls fell by an exceptionally small 11, in November, leading to a dip in the unemployment rate from 1.2% in October to 1%. Improved corporate profitability, firming of domestic and overseas demand: retail sales jumped 1.4% in November (m/m), twice consensus expectations, while U.S. export volumes surged to 2% annualized gains in October are also setting conditions more conducive to hiring. Industrial production moved from sharp decline to momentum gains of 1% percent as of November (saar). These factors are reflected in a notable falloff in unemployment claims in recent weeks. Improved labor markets will help support spending and set the stage for a step-up in the pace of U.S. growth. Housing: some progress. Sales of existing homes jumped 9.7% in October (m/m) to highest levels since 27, as an extension of the $8, tax credit for first-time buyers helped to boost turnover. Growth in sales now stands at +1.2% (y/y), reflecting a combination of low mortgage rates, tax incentives and an increasing number of distressed properties coming to market, lowering average home prices. (These factors are captured by high levels of affordability measured by the National Association of Realtors like-named index). New home sales are breaching to positive growth. But the potential for a second flood of distressed properties to hit the market remains.

4 Japan s GDP growth marked down sharply to 1.3% in Q3-9 on invenstment growth of real GDP, and contributions to growth in percentage points Net Exports Stocks Consumption Government Investment Q2-29 Q3-29 Prelim Q3-29 Revised Source: Japan Cabinet Office. Japanese exports increase as demand from the U.S. and Europe comes into play U.S. imports, Japan exports, (nominal USD) Japan IP-mfgr, ch% 3m/3m saar Japan s deflation has yet to abate prompting BOJ liquidity provisions Tokyo consumer prices [left]; corporate goods prices (PPI) [right], ch% y/y Japan exports U.S. imports Japan IP mfgr -8 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Source: World Bank, DEC Prospects Group. corporate goods prices [R] consumer prices [L] Jan-97 Sep-98 May- Jan-2 Sep-3 May-5 Jan-7 Sep-8 Source: Japan Cabinet Office page 4 Japan GDP marked down. Japan s revised third-quarter GDP triggered a sell-off in financial markets, as following earlier reports of robust 4.8% growth (saar), the Cabinet Office cut the gain by 3.5 points to 1.3%. The key factor was an overestimate of the health of business capital spending, initially placed at modest decline- later (following the BOJ s Tankan survey) revised to a fall of 1.6%, with total investment cutting 2.4 points from GDP. But net exports showed improvement, with exports increasing 29% and imports emerging to growth of 14% (saar), favorable from a global perspective. And household spending continued to gain traction. Since the revision, concerns about the health of the economy, notably worsening deflationary trends, have mounted. Exports and output. Japan s exports are showing life again, with goods volumes up 16% in October (saar) almost double the 8.8% of the third quarter. China s demand has slowed and U.S. and European imports appear to be taking up slack, with the United States accounting for 2.2 points of Japan s export growth in the third quarter, Europe 4 points (y/y), improved from previous periods. This development needs to be followed carefully in the next months, given the strength of the yen, at a 14-year high 84.8 per dollar, and potential competitiveness effects. Factory output has eased over the months through October, in part given the slowdown in China s imports. Production is down from 6% gains in July to 24% in October (saar). Deflation. Nin early December, new Prime Minister Hatoyama unveiled a 7.2 trillion ($8 billion) stimulus package in response to emerging weakness in the economy. The measure includes 3.5 trillion to help regions, 6 billion for job creation and 8 billion in environmental initiatives. The package comes a week after the Bank of Japan released a 1 trillion credit program in response to government calls to counter deflationary conditions and to help mitigate the strength of the yen. Deflation has let up only modestly in recent months, with headline Tokyo CPI registering decline of 2.4% and 2.2% in October and November respectively (y/y), while corporate goods prices (PPI) have retraced from decline of 8.5% in September to 4.9% by November (y/y).

5 page 5 Euro Area Euro Area GDP up 1.5% in Q3-9 (saar) on investment and stocks growth of real GDP, and contributions to growth in percentage points Net Exports Stocks Government Consumption Investment Q1-29 Q2-29 Q3-29 prelim Source: Eurostat. Drivers for European growth continue mixed & uneven GDP growth, third Quarter 29 (ch%, saar) Euro Area sentiment buoyed by emergence from recession IFO survey (overall and expectations) [left]; Euro Area consumer confidence [right] IFO- expectations [L] GDP PCE GDI Net-X * Euro Area Germany France U.K. Source: Eurostat. * contribution to growth. Euro Area Consumer Confidence [R] 75 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Source: IFO and European Commission. IFO- overall [L] GDP on narrow support. First details of third quarter GDP for the Euro Area show growth moving to positive ground (1.5% q/q, saar) following five quarters of decline. Developments have been quite uneven across components of GDP however, as well as across economies. One sign of improved support for recovery is the move of capital spending to a 1.5% falloff from declines of 6.3%- and 18% in the two preceding quarters (saar). Stocks continued to be liquidated, though at a slower pace, adding 1.2 points to GDP; and government spending grew 2.1%, contributing.5 points. Households disappointed as spending retreated.9%, reflecting the removal of government auto purchase incentives, as well as the effects of rising unemployment. Trade ramped-up to double digit gains, though contributions narrowed to.6 points from 2.4 points in the second quarter. Uneven recovery. Reflecting in part differences across countries in fundamentals such as depth of government support for fiscal stimulus, export intensity-, and initial conditions on the fiscal, inflation and unemployment fronts, outturns for the third quarter varied considerably across countries and components of GDP. German growth at 2.9% (saar), was powered by 5.3% gains in fixed investment, offset by decline in household spending and net exports. In contrast, French GDP grew 1.1% on the back of a 2.1 point contribution from trade, a modest gain in consumer outlays, dampened by a 5% contraction in investment. Diversity in GDP is now showing signs of some convergence, but a risk is that this does not occur quickly, leading to mixed patterns of recovery. Sentiment improves. Latest readings for key surveys are largely upbeat, despite the modest gains in activity to date and persistence of unemployment across the Area. The Commission s survey of consumer sentiment breached -18 during October and November, best levels since June 28. And the IFO survey of German business showed assessments of current conditions and expectations at highest levels since early-and late- 28 respectively. Improvements in factory and services output, increasing exports and public support for demand growth are positive factors in these survey results.

6 page 6 Industrial Production World output recovering at a brisk pace growth of industrial production, ch% y/y and saar Jan- Jul-1 Jan-3 Jul-4 Jan-6 Jul-7 Jan Year-on-year growth Momentum (3m/3m saar) Source: World Bank, DEC Prospects Group. China s output growth is slowing industrial production growth, ch% y/y and saar Year-on-year growth Momentum (3m/3m saar) -1 Jan- Jul-1 Jan-3 Jul-4 Jan-6 Jul-7 Jan-9 Source: World Bank, DEC Prospects Group. Brazil s IP grounded in domestic demand industrial production growth, ch% y/y and saar Momentum (3m/3m saar) Year-on-year growth -5 Jan- Jul-1 Jan-3 Jul-4 Jan-6 Jul-7 Jan-9 Source: World Bank, DEC Prospects Group. World output growth continues at doubledigit pace. IP momentum at the global level eased marginally in the three months to September to 13% (3m/3m, annualized, or saar), as growth in developing countries leveled off, while that in high-income economies gathered pace to 12.2% for the third quarter. A subdued global PMI survey inventory index below the 5 expansion mark in November as reported by J.P. Morgan-Chase suggests that the process of de-stocking is drawing to a close, but that inventories worldwide are only beginning to stabilize without yet posting visible increases. Still, this bodes well for IP growth in coming months as re-stocking will boost production sharply. China IP momentum easing. Robust momentum in China s industrial production during the first half of 29 underpinned by $575 billion in fiscal stimulus fell off during the third quarter. The slower pace of growth reflects the unsustainably strong rate of earlier gains, and could signal the waning of the inventory cycle in China. Year-on year output growth registered 16.3% in October, a pace comparable to the average recorded in the pre-crisis period. Despite the slackening, China remains the strongest growing economy in the world. And this continues to bode well for its trade partners, as demand for intermediate manufactured goods and raw materials should remain firm. Domestic demand drives IP growth in Brazil. A swift recovery in Brazil s domestic demand, stimulated by expansionary monetary policy, and countercyclical fiscal-and incomes policies, has translated into a strong rebound in industrial production. Output is also benefitting from a shift in the inventory cycle and stimulus for the auto sector. Industrial production advanced at a brisk 2.2% monthly pace in October, following a revised 1.8% gain in September. Momentum accelerated to 22.2% in the three months to October (saar) from 2.8% during the third quarter. Brazil s production now stands only 5.6% below pre-crisis levels.

7 Imports strengthened in high income countries over the third quarter import volumes, 3 mma seasonally adjusted percent change -6 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 U.S. current account deficit narrows on stronger exports and lower oil imports balance of trade (annualized), and deficit minus oil, $ billion Annualized deficit Deficit minus oil -12 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep Developing imports HIY imports Source: World Bank, DEC Prospects Group. Source: U.S. Department of Commerce. Developing countries exports return to year-over-year growth in October Export volumes, year-over-year percent change Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Source: World Bank, DEC Prospects Group. page 7 International Trade Import demand strengthens in high income countries. The initial recovery in global imports was led by developing countries, particularly those in East Asia, where imports started to recover as early as February 29. The momentum in imports for developing countries as a whole turned positive in April and grew to 51% by August (saar). During the third quarter, however, import demand has been strengthening across the high income countries, increasing rapidly from 1% in July to 32% by September (saar). After a period of some weakness, reflecting faltering domestic demand, U.S. import volumes growth jumped to 28% in October (saar), that in Germany to 27%, in Japan to 8.8%. U.S exports up on weak dollar; crude oil imports decline. The U.S. deficit on visible trade narrowed to an annualized $56 billion in October, well below pre-crisis deficit levels that were close to $94 billion. In part the weak dollar at the start of the third quarter boosted the competitiveness of U.S. goods, and subsequently the momentum in exports swung to 3% for September and October (saar). The year-on-year decline in exports subsided to 9.4% in October, while imports remained depressed at 21% below levels of a year ago. An important factor playing in the improvement in the trade deficit is reduced imports of crude oil. In October, the U.S. imported an average 8.4mb/d, substantially less than the average 12.5mb/d imported in the pre-crisis period, as U.S. stocks of crude remain quite high. Developing country exports return to growth. Export shipments from developing countries returned to positive year-on-year growth in October, posting a 1.8% advance in the month, after 12 months of decline. The contraction in volumes appears to have troughed as early as January, when exports were 26% below year-ago levels, while export momentum was a staggering 53% decline (saar). Performance across developing countries varied considerably, with Brazil and India showing 3% and 9% year-over-year growth rates, while others such as Argentina or the Philippines, were still facing year-on-year declines of 2% and 8% in October. Still these developments are favorable, completing the picture of the recent turn-up in OECD demand.

8 page 8 Commodity Prices $/bbl Oil prices and OECD oil stocks Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Jan-8 mb/d OECD stocks [R] Oil price [L scale] Source: IEA and DECPG Commodities Group. World oil consumption growth million barrels per day million bbl 2,8 2,7 2,6 2,5 2,4 2,3 Other -1. Oth Asia China -2. OECD Total Source: IEA -3. 1Q 1Q1 1Q2 1Q3 1Q4 1Q5 1Q6 1Q7 1Q8 4Q9 4Q1 $/bbl WTI Futures Prices - NYMEX Nov 9 Monthly contract prices to Dec 214* for select dates in 29 Jul 13 Nov 3 DEC 1 6 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 * Futures now extend to December 218 Oil prices slide on weak fundamentals. Oil prices neared $8/bbl in November but have since retrenched toward $7/bbl during December. Though fundamentals are improving slowly, OECD stocks remain at lofty levels, particularly in the United States, and especially in gasoil/diesel due to a slump in commercial road transport. Despite OPEC s stating that they are comfortable with a price near $75/ bbl, the group s oil production continues to edge higher. Compliance with the 4.2mb/d in production cuts has slipped to 6%, with Iran and Angola as largest overproducers, while Nigerian output continues to climb following the recent ceasefire agreement. OPEC is not expected to alter its production quotas when it meets in Angola on December 22 nd. Demand up in developing countries. Oil demand in emerging markets has recovered steadily since its slump of Q1-29. Much of the pickup has been from Asia, and mainly in China, where Q3-29 apparent consumption increased by 9%, while October figures show a 14% gain (y/y). The more robust demand has been for naphtha as petrochemical feed. Elsewhere in Asia, notably India, demand is strong; but it is growing only moderately in other developing regions, save the CIS, which shows continuing declines (albeit at a diminishing pace). U.S. demand fell by more than 3% in November (y/y) and is down 4.3% over the first eleven months of the year. The IEA expects world oil demand to grow slightly in 4Q-29 and by 1.5mb/d next year, all from growth in the developing countries. Futures prices in steep contango. Oil futures prices declined in step with spot prices this month, but with contango (future prices above current prices) widening. When spot (front-month) prices increased toward $8/bbl, the forward curve flattened, but subsequent declines in spot prices appeared to have shifted purchases into longer-dated contracts. Contango continues to provide a large financial incentive to store oil, including in more costly vessels at sea. More than 15 million barrels of oil are now in floating storage, including nearly 1 million barrels of gasoil/diesel. NYMEX crude oil futures now extend to December 218, and prices have topped $1/bbl this month.

9 page 9 (2=1) Agriculture prices strengthen on grains and beverages non-oil prices, index 2=1. Fats & Oils Grains Beverages Other Food 1 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 $/ton 9, 8, 7, 6, 5, 4, 3, 2, 1, mil tons Source: Datastream and DECPG Commodities Group. Copper prices and LME stocks Copper price LME stocks Source: LME and DECPG Commodities Group. Global steel production rebounds Other China Other Asia Pacific tons Jan-98 Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Source: DECPG Commodities Group. 1, Ag prices up a second month. Agricultural prices increased 3.2% in October (m/m) led by a 6.6% jump in grains, due in part to late U.S. harvests following delayed spring plantings. Recent snow in the Midwest left portions of crops on the field, especially corn. The largest increase was in rice (up 1%) due to weather-related production shortfalls in Southeast Asia and higher import demand from the Philippines. Rubber prices jumped 8% on higher import demand by key U.S. and Asian tire manufacturers; and cotton prices gained 7% on lower production prospects in the Northern Hemisphere. Fats and oils prices increased 4% due to strong demand from China and India. Metals prices increase despite rising stocks. Metals prices continued to add to their strong gains this year, with copper, lead and zinc more-than-doubling since the end of 28. Large Chinese imports in the first half of 29, along with big production cuts, tight scrap markets, the falling dollar, and labor/supply issues, placed upward pressure on prices. Price gains have moderated since summer however, as China s imports have slowed sharply, and anticipated restocking in the industrial countries has yet not materialized. Aluminum, tin and nickel prices increased less than 5% over the period, though aluminum has recently jumped to a 14- month high as a large portion of LME inventories is tied up in financing agreements. Nickel prices have eased due to a sharp slowdown in stainless steel production. Global steel output tips into surplus. World steel production in October jumped 13% (y/y), the first annual increase since August 28. Output was 37% higher than the trough of December 28, and only 7% below the peak of May 28. China s production has increased 5% from its lows, and now represents 5% of world output. World production outside of China is up 37% from its lows but still 19% below peaks. Separate data show China s steel production falling 5% in November (m/m), typically a month for maintenance. However the rise in global output has caused prices to slide in recent weeks, and China has become a net exporter of steel in the past 4 months.

10 Flows to emerging markets ease to a still-strong $35 billion in November Gross capital flows to developing countries $ billion H1 Q3 Total H1 Q3 Oct Nov YTD Total Bonds Banks Equity Lat. America Bonds E. Europe Bonds Asia Bonds Others Source: DECPG Finance Team. Terms of borrowing for EM bond issuance have improved average maturity in years [L]; average launch spreads (bps) [R] Robust returns to EM equities in 29 MSCI EM Developed high-yield CEMBI1 EM bond (EMBIG) MSCI Developed Commodities U.S. Govt Bond Year-to date cost of borrowing [right] 2 27 Q1 27 Q3 28 Q1 28 Q3 29 Q1 29 Q3 Source: Bloomberg and DECPG staff calculations. December Source: JPMorgan-Chase and Reuters page 1 International Finance Flows eased in November. Capital flows to emerging markets dropped sharply to $35 billion in November from the 29-record $53 billion in the previous month, with both bonds and equity faltering. Though still substantial, bond flows dropped from $27 billion to $12 billion in the month, with corporate borrowers dominating activity. Panama tapped the market with $1 billion in 1-year bonds, taking advantage of its recent ratings upgrade by S&P. Through November EM borrowers have placed $18 billion, with five countries (Brazil, Indonesia, Mexico, Poland, and Russia) accounting for more than 6% of total issuance. New equity placement fell 31% to $14 billion in the month, but the year-to-date total almost 5% above the same period of 28. Meanwhile, bank lending was steady at $9 billion, with emerging Europe accounting for nearly 5%. But loan volumes for the first 11 months of 29 reached only 35% of volume for the like period of 28. Improved borrowing terms. A promising trend in recent months has been a rise in longer-maturity bond issuance, accompanied by a decline in average borrowing costs. The average maturity of EM bond issues has risen to 1.3 years in the past two months, compared with 4.9 years during the fourth quarter of 28. Average spreads over benchmark dropped to 4 basis points (bps) in the last months from a peak of 714 bps in March 29. Because longer-term bonds are usually considered more risky than shorter-term securities, the shift toward longerdated bonds suggests improving investor sentiment toward EM debt. For example, Brazil s Vale (iron ore producer) and Mexico s Groupo Televisa SAB (media conglomerate) both issued their first 3-year bonds in November. Strong gains for EM assets. EM assets were strong for most of 29, outstripping returns in most developed markets. Equities and corporate bonds performed particularly well, with returns of 7%-and 41% over the year to date, respectively. The uptrend is evident in flows to emerging market stock funds, which have received record inflows of $75 billion thus far in 29. Though EM asset returns fell to negative ground briefly in December in the wake of Dubai s debt crisis and Fitch s rating cut for Greece, they are likely to close the year on a strong note.

11 Oct-8 Jan-9 Apr-9 Jul-9 Oct Recent pickup in net capital flows to U.S. shows distinct flight to quality net flows: U.S. Treasuries, private securities (bn$ 3mma) Dollar jumps in response to favorable jobs numbers and BOJ s QE USD per Euro (inverse) [Left] and Yen per USD [right] Treasuries Total net inflow Private sector securities Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: U.S. Treasury TICs Database and JP Morgan-Chase. EM nominal effective exchange rates move toward appreciation NEERs, index Jan-27 = USD/Euro (inverse) Source: Thomson/Datastream. Turkey India South Africa Source: World Bank, DECPG. yen/usd Brazil Mexico page 11 Currencies Dollar gains on jobs news and BOJ action. Favorable market response to the moderation in U.S. job loss in November to 11, from 111, in the preceding month strengthened the view that U.S. recovery was moving to firmer ground. The dollar gained versus the euro to stand at $ on December 8, up 2.5% from recent troughs. Meanwhile, the yen breached 14-year highs against the greenback on November 27 ( 86.36). But the Bank of Japan, in response to intensification of deflation pressures (as well as yen strength?) announced a fresh 1 trillion ($115 billion, or 2% of GDP) short term lending facility to pump-up liquidity. The yen promptly gave up 4.7% of its value to stand at 9.44 on December 4 th. Do these developments represent a potential easing of dollar s sharp decline? Flight to quality. Likely not. Latest data on detailed net capital flows into long-term U.S. securities (Treasury-TICs) highlights three operative trends: (i) a pickup in total net inflows to U.S. markets from $1 billion in June to $26 billion by September; (ii) a distinct flight to quality, with Treasuries attracting heavy inflows, increasing to $5 billion in August and (iii) a substantial net outflow from U.S. private sector securities (equities and corporate bonds), accumulating to $56 billion over the second and third quarters of the year. This development traces foreign liquidation of U.S. assets followed by either reinvestment in the United States, repatriation- or investment in non U.S. securities, including emerging markets assets. Over the year to date, net flows into U.S. long term securities more-than halved to $216 billion from $49 billion in the same period of 28 EM effective rates appreciate. The dollar s fall against global currency units carried the greenback down by some 1% in trade-weighted terms by September 29 (y/y). This is echoed in fresh trend appreciation of emerging market currencies in effective terms, notably for Brazil and South Africa, but also in evidence for Mexico, Turkey, and India among other important or emerging players on the world trade scene. Whether export performance for these economies comes to be dampened by these trends remains to be seen.

12 Table A.1 Global industrial production growth (constant prices; percent; seasonally adjusted annual rates except monthly figures which are in percent change over previous month a/) page 12 Weights Average Q4 Q1 Q2 Q3 Jul Aug Sep Oct World High-income countries Industrial countries United States Japan Euro Area United Kindgom Other high income Hong Kong (China ) Singapore Taiwan (China) Developing countries East Asia and Pacific China Indonesia Thaila nd Ma laysia Europe and Central Asia Russian Federation Turkey Poland Czech Republic Latin America and Caribbean Brazil Me xico Argentina Colombia Middle East and North Africa Saudi Arabia Iran Egypt Algeria South Asia India Pakistan Bangla desh Sri Lanka Sub-Saharan Africa South Africa Nige ria Memo: OECD Developing excl. China Developing oil exporters Dev. non-oil exporters Asian high tech exporters a In general, se ries refer to industrial production exc luding construction (e.g. ma nufac turing, mining and utilitites). Where this is not ava ilable the closest proxy is used, often manufacturing output or oil output, if the country is a major oil producer.

13 Table A.2 Demand conditions in high-income countries (US dollar values unless otherwise indicated; percent change; seasonally adjusted annual rates except monthly figures, which are m/m change) page 13 Weights Average Q4 Q1 Q2 Q3 Jul Aug Sep Oct Nov Real GDP a High-income countries Industrial countries United States Japan Euro Area United Kindgom Other high income Hong Kong (China ) Singapore Taiwan (China) Real merchandise impor ts b High-income countries Industrial countries United States Japan Euro Area United Kindgom Other high income Hong Kong (China ) Singapore Taiwan (China) Import Prices c High-income countries Industrial countries United States Japan Euro Area United Kindgom Other high income Hong Kong (China ) Singapore Taiwan (China) Real effective exchange rates d Euro Area United States Japan United Kindgom Canada Hong Kong (China ) Korea, Rep Singapore Taiwan (China) Switzerland a/ Real GDP aggregated using 1995 weights. b/ On a customs or BoP basis, as available. Weights are 1995 merchandise import: aggregate calculated as sum of components. c/ Aggregate prices are implicit prices of aggregate US dollar value divided by aggregate constant 1995 dollar volume. d/ JP Morgan Trade Weighted Indices (Real, Broad basis). Data are averages of monthly data for the period in question.

14 Table A.3 Gl obal credit conditions (percent unless otherwise indicated a/) Polic y Rates page 14 Weights Average La te st Q4 Q1 Q2 Q3 Se p Oct Nov 15-Dec United Sta te s Japan Euro Are a United Kindgom Ten year bond United Sta te s Japan Euro Are a United Kindgom Spreads (Basis points) b,c Developing countries East Asia and Pacific China Indonesia Thaila nd Ma laysia Europe and Central Asia Russian Federa tion Turkey Poland Czech Republic Latin America and Caribbea n Brazil Me xico Argentina Colombia Middle Ea st and North Africa Saudi Arabia Iran Egypt Algeria South Asia d India Pakistan Bangla desh Sri Lanka Sub-Saharan Africa South Africa Nige ria Gross inflows e Developing countries East Asia and Pacific Europe and Central Asia Latin America and Carribean Middle Ea st and North Africa South Asia Sub-Saharan Africa a/monthly figures are simple averages of the daily figures, except the last month, which are the values reported on the mentioned date. Quarterly and Annual figures are simple ave rages of the monthly figures. b/average values for Spreads are for the period c/aggregates as define d by JP Morgan. d/ea st Asia a nd Pacific including South Asian c ountries. e/in billions of US dollars.

15 page 15 Table A.4 Commodity price indices (current US dollar index,index unless otherwise indicated; a/) Weights b Average Q4 Q1 Q2 Q3 Jul Aug Sep Oct Ener gy Coal, Austra lia Crude oil, average Natural gas, Europe Non-energy Agriculture Beve rages Cocoa Coffee, arabica Coffee, robusta Food Fats and oils Palm oil Soybean meal Soybeans Grains Maize Rice, Thailand, 5% Wheat, US, HRW Other food Bananas, U S Sugar, world Raw materials Cotton ("A" Index) Rubber, Singapore Sawnwood, Ma laysia Fertilizers Triple superphosphate Metals and minerals Aluminum Copper Gold Nickel Memo: Crude Oil (US$) a/ The World Bank primary commodity price indices are computed from export values in US dollars for low- and middle-income economies, rebased to 199. b/ Energy and gold prices a re not included in the index.

16 Table A.5 Developing countries' merchandise export growth page 16 Weights Average Q4 Q1 Q2 Q3 Jul Aug Sep Oct Export values Developing countries East Asia and Pacific China Indonesia Thaila nd Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Me xico Argentina Middle East and North Africa Saudi Arabia Iran Egypt South Asia India Pakistan Bangla desh Sub-Saharan Africa South Africa Nige ria Export prices b, c Developing countries East Asia and Pacific China Indonesia Thaila nd Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Me xico Argentina Middle East and North Africa Saudi Arabia Iran Egypt South Asia India Pakistan Bangla desh Sub-Saharan Africa South Africa Nige ria

17 Table A.6 Developing countries' merchandise import growth (US dollar values unless otherwise indicated; percent change; seasonally adjusted annual rates except monthly figures, which are m/m change /a) page 17 Weights Average Q4 Q1 Q2 Q3 Jul Aug Sep Oct Import values Developing countries East Asia and Pacific China Indonesia Thaila nd Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Me xico Argentina Middle East and North Africa Saudi Arabia Iran Egypt South Asia India Pakistan Bangla desh Sub-Saharan Africa South Africa Nige ria Import prices b,c Developing countries East Asia and Pacific China Indonesia Thaila nd Europe and Central Asia Russian Federation Turkey Poland Latin America and Caribbean Brazil Me xico Argentina Middle East and North Africa Saudi Arabia Iran Egypt South Asia India Pakistan Bangla desh Sub-Saharan Africa South Africa Nige ria /a Merchandise import (C.I.F.), customs basis. /b Implicit import unit values, U.S. Dollar basis. /c In many cases countries a re very la te in reporting trade prices. To estimate more timely figures individual trade prices were updated using the median (mean) regional trade price for developing (developed) countries whenever 6% or more of reporters by trade weight reported.