The External Environment for Developing Countries

Transcription

1 The Overview November 29 Global production and GDP now increasing at a stronger pace, led at first by developing countries, especially in East Asia, now joined by the major OECD blocs. Industrial production at the global level shifted from annualized growth of 6% in the second quarter to 12% during the third (saar), with inventories now being replenished and export orders firming. Capacity utilization, outside of Europe, is trending back toward pre-crisis levels. And GDP reports for the third quarter have been upbeat, with the United States (3.5% growth, saar) and the Euro Area (1.5%) emerging from recession, and Japan growing by a strong 4.8%. These developments mark favorable news for global recovery, notably as a revival in trade appears to be underway Global IP gaining momentum in the third quarter of 29 growth %, 3 month saar High-income Developing excluding China Global Gross capital inflows to developing countries surge in second half of 29 % share of GDP, 29*=annualized Corporate bonds Sovereign bonds Banking Equities Q3 28 Q4 29 Q1 29 Q2 29 Q3 Source: World Bank, DEC Prospects Group. Capital flows to emerging markets up sharply over the months through October, jumping to $5 billion in the month from a strong $4 billion in September. A surge in bond issuance to $25 billion in October (highest monthly level on record) underpinned flows, while new equity placements held steady at a strong $2 billion. Syndicated bank lending remained depressed, as commercial banks continue to mend balance sheets. Investors in search for yield have shifted funds out of U.S. assets into emerging markets, putting downward pressure on the dollar. The U.S. currency has dropped 12% in effective terms since March, while EM currencies have appreciated within a range of 1-3% over the period. Commodity prices took a leg up over October-November, with oil prices breaking out of their trading range of the last months and approaching $8/bbl due to continued depreciation of the dollar (which has also affected other dollar-denominated commodity prices) and some improvement in the fundamentals, including declining crude oil stocks and robust demand in China. Agriculture prices pickedup 3.2% in October, with the largest increases in grains, due to late harvests in the United States aggravated by wet fall weather. And gold prices surged above $1,1/toz in early November, following the Reserve Bank of India s unexpected purchase of 2 tonnes from the IMF H-9* Jul-Oct-9* Sources: Dealogic and World Bank 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) f 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, November 29. Estimates 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. economy pulls out of recession with 3.5% growth in Q3-29 (saar) growth of real GDP, and contributions to growth in percentage points Stocks Investment Government Consumption Net exports Q1-29 Q2-29 Q3-29 flash Source: Department of Commerce. A favorable employment turn in October with retail sales maintaining momentum retail sales growth (saar) [L]; change in employment (, 3mma) [R] Retail sales [L] Change in employment [R] Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Source: U.S. Departments of Commerce and Labor. Manufacturing has led recovery but services emerging to growth Headline PMI indices for manufacturing and services sector [5=+growth] PMI manufacturing PMI Services Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: Institute for Supply Management GDP up 3.5% in third quarter. The U.S. economy returned to positive growth with a 3.5% GDP gain in the third quarter (saar), following declines of.7% and 6.4% in the preceding two periods. The effects of fiscal stimulus and loose monetary policies are clear: consumer spending increased a strong 3.4%, almost entirely due to the cash for clunkers auto program. Tax incentives for first-time homebuyers contributed to a remarkable swing from 23% decline to growth of the same magnitude in residential investment, abetted by Federal Reserve efforts to keep a lid on mortgage rates. Inventories dropped at a slower pace in the quarter, marking a positive contribution to growth. While both exports and imports shifted from decline to growth (14.7% and 16.3% respectively) a positive development from a global perspective. Easing pace of job loss. October s payroll report showed a 19, decline in employment, easing from an average 225, for the three months to September. Due to contraction in the active labor force, the unemployment rate soared to 1.2% from 9.8% in the month preceding. Further improvements in labor conditions were apparent in a drop of new unemployment claims to a 1-week low in early November. October retail sales climbed 1.4% (m/m) on revived demand for autos, following a sharp 2.6% decline in September with a 12% falloff in auto sales marking the end of the cash-for-clunkers program. This could point to a degree of underlying strength in spending, but must be weighed against falling consumer confidence U. Michigan s October survey dropped to 7.6 from Recovery broadening. Factory production has risen for four months, with momentum up to 11.5% in October (saar). Inventories continue to be liquidated at a record pace and the need to replenish stocks will provide impetus for demand, as will the jump of U.S. export growth to 28% in the third quarter (saar). The latest ISM headline index for manufacturing breached highest levels in more-than three years. Services activity which had been lagging the pace of manufacturing, crossed the 5 mark in ISM s September survey, the dividing line between growth and contraction, and remained above the line in October. With a pickup in retail sales and stronger factory output, services activity should soon begin to accelerate.

4 Japan s GDP growth beats expectations for the third quarter at 4.8% (saar) 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: Japan Cabinet Office. Japan s export- and production growth waning into the third quarter export volumes and manufacturing production, ch% saar Goods export volumes Production Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: Japan Cabinet Office. New Japanese government inherits debt equivalent to 19% of GDP general government balance as a share of GDP in percent 2 page 4 Japan Strong GDP showing. Japan s third-quarter GDP surprised to the upside, with growth of 4.8% (saar), while a turnaround in domestic demand accounting for 2.8 points of the gain. Private investment moved to a 6.6% advance from a drop of 16% during the previous quarter (saar); though household spending eased from 3.9% growth in the second quarter to 2.8% during the third, contributions to GDP remained strong at 1.6 points. Net exports remained a positive factor in Japan s growth, with exports up 28%, imports 14% (saar) the latter a substantial shift from decline of 16% in the previous quarter. And inventories moved from liquidation to a moderate build, with the swing adding almost a point to growth. These developments in Japan complement those in the United States and Europe, and together should impart a firmer tone to global recovery. Exports faltering. Japan s export momentum is fading quickly, as import demand in China cools from its heady pace of the summer. Export volumes dropped by 3% in September (m/m), bringing growth for the third quarter down to 3.6% (saar) from the strong 22% pace of the second quarter an element of concern for recovery. A slowing in China s import demand, at the same time as major OECD partners register only modest import growth, is putting a dent in Japan s export market. Production figures now reflect this development, with momentum almost halving from 6% to 33% from July to September (saar) though still a robust pace of growth. In contrast, signs of a rekindling of Japan s domestic demand are evident in an upturn in import volumes during September, increasing 2.4% (m/m) and carrying import growth for the third quarter to 5.1%, versus decline of 2% in the second (saar) Source: Japan Cabinet Office. New government, old debt. Mr. Yukio Hatoyama, new Prime Minister from the Democratic Party of Japan, appears to be off to a difficult start with his coalition partners. Discussion of budgets, stimulus programs and plans for eventual backing out of these measures has been scarce, and concern is mounting among market participants. Gross debt currently stands near 19% of GDP, and with this year s deficit likely to reach 1% of GDP, much more JGB issuance seems likely for the coming years.

5 page 5 Euro Area Euro Area production up in September on exports and stock rebuilding manufacturing output, German and French export volumes, ch% (saar) Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: Eurostat. France exports Euro Area IP Germany exports Houshold spending still a damper on growth retail volume growth, Euro Area, Germany and France, (ch%, 3mma, y/y) Euro Area emerges from recession on growth in the Big-3 economies GDP growth, q/q percentage change saar Germany retail volumes 29-Q1 29-Q2 29-Q3 Euro Area France Germany Italy U.K. Source: Eurostat. France retail volumes Euro Area retail volumes Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: EUROSTAT. Europe emerges from recession. Following the deepest decline in economic activity since WWII, Euro Area GDP grew by a modest 1.5% during the third quarter (saar) following an.8% falloff in the second. Though no detail for national accounts were available, Eurostat s press release underlined that recovery was the product of improved export performance in Germany and France, with domestic demand, notably consumer spending, subdued across the Area. GDP grew 2.9% in Germany up from 1.8% in the second quarter (saar). French output gained 1.1% and that in Italy 2.4%. These outturns are good news for the global economy, now showing recovery across the major industrial centers, as well as in East Asia and Latin America. Manufacturing robust. Output for the Euro Area picked-up.3% in September (m/m), a fifth consecutive gain, in the wake of a strong 1.2% advance in August. Strong export orders and the start of domestic inventory replenishment have been the key driving factors. Factory output in Germany increased 3.2% in September (m/m) to meet export demand, boosting growth for the third quarter to 15% (saar) from nil in the second. And production in France increased a lesser 2.9% in the three months to September (saar), as fiscal incentive programs similar to cash-forclunkers lifted car sales, while global demand provided support for French exports. The expansion of exports has moved into double digits, with German shipment volumes up 2% in the third quarter, those for France up at a 25% pace. Households retrenching. Euro Area retail sales dropped.7% in September (m/m), as only 4 of 16 member countries reported gains in the month. Recent softness follows popular cash for clunker programs enacted in a number of the larger countries. But the decline in sales also highlights the dampening effects of the run-up in unemployment. Euro Area joblessness climbed to 9.7% of the labor force in September, the highest rate since Retail sales volume contracted 2.8% for the third quarter (saar), a falloff from the 1.5% drop of the second, on the back of faltering German spending; at the same time, French outlays appear to be on a stronger track.

6 page 6 Industrial Production IP momentum picked-up sharply in high-income countries in 29-Q3 growth, 3 month saar High-income Developing excluding China Global 28 Q3 28 Q4 29 Q1 29 Q2 29 Q3 Source: World Bank, DEC Prospects Group. High-income countries emerged to growth in output during 29-Q3 growth %, 3 month saar United States Euro Area Japan 28 Q3 28 Q4 29 Q1 29 Q2 29 Q3 Source: World Bank, DEC Prospects Group. Capacity utilization- outside of Europe trending back toward pre-crisis levels Euro Area Thailand Turkey Brazil United States Mexico Philippines Argentina Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Output recovery on stronger footing. The underlying momentum of IP growth is gaining pace for both high-income and developing countries. The apparent end to the sharp drawdown of inventories is occurring at the same time as final demand is showing clearer signs of revival. Global IP expanded by a hefty 12% in the third quarter (saar), as production from developing countries jumped 14% and that from high income countries moved-up 12% (saar). Even when China is excluded, developing countries posted an encouraging 12% percent advance for the third quarter. World output growth is likely to remain above 6% over the coming five quarters as global demand finds firmer footing. G-3 production surges in third quarter. IP among the high-income countries is bouncing back from the lows reached during the first quarter of 29. In the United States, production recouped 5.2% (saar) in the quarter, after contracting 1.3% during the second. Japan s IP continued to recover at a brisk pace, but expanding at slower rate than in the second quarter (3% saar); and in the Euro Area, IP recorded a strong turn around, growing close to 12% (saar) the strongest sine Still output in Japan remains 22% below pre-crisis levels, while U.S. and Euro Area production stand 12.4% and 16.7% lower, respectively. Stronger IP now serving to increase capacity utilization toward pre-crisis levels. Stronger growth in IP has translated broadly into increased capacity utilization rates in many countries, (note however the countertrend for the Euro Area) but the degree of improvement varies widely across countries. With global IP expected to continue growth near 6% over the next quarters, capacity utilization should begin to approach pre-crisis levels; at that point, investing in productive capacity will once more become a necessity. This in turn could give a needed boost to IP in capital-exporting economies such as the United States, Germany, Japan, South Korea, and the NIEs of East Asia Source: Thomson Datastream and World Bank.

7 page 7 International Trade East Asian imports step up as Chinese import momentum begins to slow imports, 3mma saar % change Chinese imports Other East Asian imports -8 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep Source: Haver Analytics. Import recovery in China grounded in capital-and consumer goods imports, year-over-year % change Consumer goods Machinery and other equipment -5 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Source: Haver Analytics. German and Japanese export volumes surge on rising external demand developing import volumes, German and Japanese export volumes, Developing country imports German exports 3mma saar % change Japanese exports -8 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Source: World Bank, DEC Prospects Group. A surge in East Asian import demand. Exports to China supported trade growth through the first half of 29 for economies in the remainder of the East Asia region. China s imports turned to positive momentum in April, and surged to 75% growth by June (saar). This demand and strong regional trade links within East Asia lifted exports and production in trade partners, especially high income neighbors like Korea and the NIEs. This in turn has provided impetus for an expansion in domestic demand in the these economies, as evidenced by a recent surge in imports for East Asia. As momentum in Chinese imports began to slow during the third quarter, import demand from other East Asian countries increased, surging from 31% growth in June to 7% by August (saar). Chinese import recovery balanced. The rebound in China s imports was in large part tied to the $565 billion stimulus program, which yielded increased imports of capital goods to satisfy domestic investment requirements. Imports of machinery and transport equipment which account for 3% of total imports, dropped 26% in the first quarter (y/y) before increasing quickly at 6% per month over the second and third quarters. While demand for investment goods has driven import recovery, consumer durables and manufactures have also been reviving at rapid rates, from a falloff of 4% in January (y/y) to 3% gains by September. Exports fuel recovery in German and Japanese production. Increased overseas import demand is fueling a manufacturing sector revival in export-oriented economies like Germany and Japan. Export orders to German firms increased an average 3% over the second and third quarters (m/m), while factory output returned to positive growth averaging 2% since May. Meanwhile, export volumes from Japan have been rising quickly at 5% on average since the second quarter (m/m), while industrial output has increased 3% on average over the same period. Most recently however, the momentum of Japan s exports has diminished, suggestive of a potential emerging slowdown within East Asia trade.

8 Oil prices break out of recent range but market still well supplied $/bbl Jan- Jan-2 Jan-4 Jan-6 Jan-8 Jan $/bbl OPEC Production [R] Oil price [L scale] Source: IEA and DECPG Commodities Group. OECD total oil stocks days of forward consumption 1Q91 1Q93 1Q95 1Q97 1Q99 1Q1 1Q3 1Q5 1Q7 1Q9 Source: IEA and DECPG Commodities Group. WTI Futures Prices - NYMEX Monthly contract prices to Dec 217* for select dates in 29 Nov 11 Feb 18 Jul 13 3 Jan-9 Jan-11 Jan-13 Jan-15 Jan-17 mb/d page 8 Commodity Prices Oil prices rise on slowly improving fundamentals. Oil prices broke out of their trading range of the last months and approached $8/bbl in November due to continued depreciation of the dollar (which has also affected other dollar-denominated commodity prices) and some improvement in the fundamentals, including declining crude oil stocks and robust demand in China. Oil demand elsewhere remains weak and the market is well supplied. OPEC production continues to edge higher due in part to stronger shipments to Asia, and as compliance with its 4.2mb/d target for output cuts has slipped to 61%. There are hints that OPEC could raise output targets at its next meeting on December 22 nd in Angola, should oil prices increase too steeply. Crude stocks fall but total inventories remain high. Total OECD oil stocks have climbed to their highest seasonal levels since 1998 in the wake of the Asian financial crisis. In days-of-forward consumption, the stock overhang has eased to 6 days, but remains substantially above typical industry levels earlier in the decade. The overhang is by far largest in North America, particularly for petroleum products and especially for middle distillates, due to a slump in commercial transport. U.S. crude oil stocks have been falling since April, but remain above the upper end of its 5-year range. The falloff is the result of lower imports, as oil demand is very weak down 4.5% in October (y/y) and 4.7% (year-to-date). Long-dated futures approach $1/bbl. Futures oil prices have increased with spot prices this year; however an extremely steep contango (future price above current price) has narrowed following the rapid increase in spot prices. Oil futures prices (WTI, NYMEX) for December 217 jumped to near $99/bbl on November 11 th. However, in inflation adjusted terms (3% p.a.) the $99/bbl oil price equates to $78/ bbl in today s dollars, more-than $1 below the November 11 th spot for WTI. The noted contango remains large, as the market is well supplied, and still provides a financial incentive to store oil at present there are over 14 million barrels being stored at sea, of which 6 million are crude oil. *Monthly prices interpolated for

9 page 9 Grains prices rise on late U.S harvest c/bushel 1,6 Soybeans [left scale] 1,4 1,2 1, Corn [right scale] Wheat [left scale] 2 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Source: Datastream and DECPG Commodities Group. Metals prices remain rangebound $/ton $/ton 9, 6, 8, 5, 7, 6, 4, 5, Copper 3, 4, 3, 2, 2, Nickel 1, 1, Zinc Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Source: LME and DECPG Commodities Group. Gold prices surge above $1,1/toz per toz 1,2 1,1 1, 9 Gold in US$ Gold in euros 3 2 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Source: LME and DECPG Commodities Group Agriculture prices increase on supply concerns. Agriculture prices picked-up 3.2% in October, with the largest increases in grains due to late harvests in the United States following late spring plantings, aggravated by wet fall weather. Maize prices were up 12%, as only 37% of the U.S. corn crop was harvested as of November 8th, contrasted with 69% a year ago. Milder weather has accelerated harvesting in November, but rain and snow also loom in parts of the Mid-west. Rubber prices climbed 8% in October on supply constraints in Thailand (heavy rains) and Indonesia (earthquake). And cocoa prices jumped 7% on poor production prospects in Côte d Ivoire, while cotton prices increased 4% on weather -related problems, especially in the United States. Metals markets await restocking in the industrial countries. Metals prices have been range-bound since summer, as China s restocking has wound down, removing the driving factor behind demand this year. Meanwhile, anticipated restocking in the OECD economies has yet to materialize, and LME inventories of most metals continue to edge higher. Demand has benefitted from cash-forclunkers and other auto scrappage schemes (notably for zinc to galvanize steel), but these are drawing to an end. Nickel demand has increased on higher stainless steel production, but overcapacity is already causing cutbacks. Most metals prices remain well below their peaks, the exception being copper, tied to underlying supply tightness caused by technical issues, ore grades, and labor disputes. Gold prices climb as hedge against inflation and the dollar. Gold prices surged above $1,1/toz in early November following the Reserve Bank of India s unexpected purchase of 2 tonnes from the IMF on November 2. The purchase was an offmarket transaction and is nearly half of the IMF s 43.3 tonnes earmarked for sale. It suggests to traders a growing appetite by central banks for the precious metal unlike the 199s when banks were sellers of gold and pushed prices lower. Over the past year, the dollar price of gold has surged 53% while the euro price is up just 3%. While investment demand is strong, high prices are continuing to affect jewelry sales adversely, notably in India, the largest end-use market.

10 Flows to emerging markets surge to $5 billion in October a new record Gross capital flows to developing countries $ billion Total H1 Q3 Total H1 Q3 Sep Oct Total Bonds Banks Equity Lat. America Bonds E. Europe Bonds Asia Bonds Others Source: DECPG Finance Team. Low interest rates in high-income countries contribute to inflows to emerging markets Three-month interbank interest rates (%) Indian Rupee Turkey US Dollar-LIBOR EURO-LIBOR 1-Jan-7 1-Jun-7 1-Nov-7 1-Apr-8 1-Sep-8 1-Feb-9 1-Jul-9 Sources: Thomson Datastream and World Bank. Deteriorating credit quality for EM sovereigns net rating: number of upgrades minus downgrades* *Includes rating actions from Moody s, S&P, and Fitch Source: Bloomberg and DECPG staff calculations. page 1 International Finance Flows surge in October. Capital flows to emerging markets jumped to a massive $51 billion in October, up 24% on September outturns. A surge in bond issuance to $25.6 billion (highest monthly level on record) underpinned flows, while new equity placements held steady at a strong $2 billion. Syndicated bank lending remained depressed, dropping to $6 billion from $14 billion in September. Among EM borrowers, sovereigns placed $1 billion in the month; corporates $15 billion, largely from Latin America. Of note, Croatia, Poland, and Venezuela issued sovereign bonds with values in excess of $1 billion each. EM sovereign issuers have placed a total $43 billion over 29 to date, suggesting that placements for the year (even with no issues though year-end) will mark the second highest sovereign borrowing on record behind $52 billion in 25. Search for yield drives flows to EM. Emerging-market equities have been on a remarkable run since March 29, at the same time as the U.S. dollar has undergone a steep decline. The MSCI EM index is up 68% since March in local currency terms, but in dollar terms the gains are amplified to 1%, as the U.S. unit has depreciated as much as 4% against several EM currencies (notably the Brazilian real and South African rand). Lower interest rates and declining yields on fixed-income securities in the high-income countries contrasted with emerging markets in broader terms, has contributed to the recent surge in flows. And as a consequence, the U.S. currency has declined as funds are switched from dollarbased assets to those in EM currencies (see Foreign Exchange section). Slide in EM credit quality stabilizing. Credit quality turned negative for developing-country sovereigns thus far in 29, with 26 downgrades and just 12 upgrades. But the pace of credit deterioration appears to be slowing contrasted with developments during 28, when EM sovereigns registered 35 downgrades and 14 upgrades. Sovereign ratings trends improved into the third quarter, with an upgrade to downgrade ratio of 1-to-.9. Emerging Europe and Latin America accounted for the majority of negative rating actions, with recent cuts for Estonia, Latvia, Jamaica, and Honduras.

11 Oct-8 Jan-9 Apr-9 Jul-9 Oct Dollar s fall from Spring peaks now 2% vs Euro 1% against yen USD per Euro (inverse) [Left] and Yen per USD [right] USD/Euro (inverse) yen/usd Source: Thomson/Datastream. Dollar fall is half that of 22-7 but decline compressed into 6 months Indices, Jan 199=1. Nominal effective rate [NEER] Real effective rate [REER] 25% decline 199M1 1993M1 1996M1 1999M1 22M1 25M1 28M1 Source: JPMorgan-Chase. EM curencies surge on strong capital flows to domestic markets U.S. dollar per local currency, percent change South Africa Brazil Columbia Hungary Czech Indonesia Poland July to mid-november 29 Chile Russia Second quarter 29 Turkey Mexico Singapore Thailand Malaysia Taiwan India Source: DEC Prospects Group. China page 11 Currencies Dollar falloff eases moderately. The downturn of the dollar continued through October and mid- November, though the pace of decline moderated from 3.5% vis-à-vis the euro in October to 1.7% for the first half of November. The dollar s fall now amounts to 2% against euro and 1% versus yen since the currency s peak in March. Developments in Euro-market interest rates spell a part of the decline the Libor-Euribor differential moved from parity in March to 6 basis points favoring euro by November. This has been driven by a view that the Fed will keep policy rates near zero for an extended period, while the ECB hints at imminent tightening. But Mr. Bernanke, in a talk to the New York Economists Club on November 17 th, noted simply that the decline is due to investors, who poured money into the safety of the U.S. currency in the depths of the crisis, are now more comfortable investing elsewhere. Dollar decline in perspective. From recent peaks in March the dollar has dropped 12% on a trade-weighted basis, taking the effective value of the currency back to September 28 levels just at the start of the financial crisis. These large shifts have occurred often in the past: the near-5% drop from the 1986 peak to 199, and the more recent 25% effective decline from 22 to 27. The recent falloff amounts to one-half of the 22-7 decline, but instead of a 6-year period for unwinding, the current fall has transpired over 6 months. Under these circumstances, he potential for overshooting must be taken into consideration. EM currencies mixed. The U.S. unit s 12% effective decline is reflected clearly in emerging market currencies, beneficiaries in a number of cases of substantial inflows of international capital to domestic equity-and other asset markets. Appreciation over the second and third quarters of 29 ranged from 29% in South Africa, 25% in Brazil; to 1-12% for Russia, Turkey and Mexico; to 4% for Malaysia and India, to nil for the Chinese RMB. At this juncture, many of the key EM currencies have returned to levels prevailing before the onset of financial crisis. Whether such appreciation serves to dampen nascent recovery in exports remains a concern.

12 page 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/) Weights Average Q4 Q1 Q2 Q3 Jun Jul Aug Sep 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 use d, 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 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 c ountries Industrial c ountries United States Japan Euro Are a 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 Global credit conditions (percent unless otherwise indicated a/) Policy Rates page 14 Weights Average Latest Q4 Q1 Q2 Q3 Aug Sep Oct 16-Nov United States Japan Euro Area United Kindgom Ten year bond United States Japan Euro Area United Kindgom Spreads (Basis points) b,c 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 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 East 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 averages of the monthly figures. b/average values for Spreads are for the period c/aggregates as defined by JP Morgan. d/east Asia and Pacific including South Asian countries. 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.6 Developing countries' merchandise export growth (US dollar values unless otherwise indicated; percent change; seasonally adjusted annual rates except monthly figures, which are m/m change /a) page 16 Weights Average Q4 Q1 Q2 Q3 Jun Jul Aug Sep 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 /a Merchandise export (F.O.B), customs basis. /b Implicit export 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.

17 Table A.7 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 Jun Jul Aug Sep 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.