d Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized The External Environment for Developing Countries January 2009 The World Bank Development Economics Prospects Group
15 10 5 Global industrial production plummets into 4 th quarter of 2008... manufacturing production, ch% (saar) Developing 0-5 World -10-15 OECD -20 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: DEC Prospects Group.
...while worries about recession and banks push markets lower in January equity market indices (LCU)* Sep-15-2008 = 100. 110 100 90 80 70 DJIA (USA) DAX (Germany) 60 50 TOPIX (Japan) MSCI (Emerging Markets) Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Source: Thomson/Datastream, Morgan Stanley (*USD index).
Industrial countries
U.S. employment losses in 2008 sum to 2.6 million...worst since 1945 change in non-farm employment, 000 200 100 0-100 -200-300 3mma change -400-500 monthly change -600 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: U.S. Department of Labor.
10 5 0 Falling exports, orders and production pressure U.S. GDP export volumes, durable goods orders and IPmfg, ch% saar Production [L] Export volumes [R] 40 30 20 10-5 -10-15 Durable goods orders [R] 0-10 -20-30 -20 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: Department of Commerce, Federal Reserve. -40
6 5 4 Interbank market rates- and yield on ten-year note easing Fed Funds target- and effective rates; Libor and T-note 10 yr T-note 10-year LIBOR 6 months 3 2 1 0 Fed Funds Effective Fed Funds Target Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Source: Thomson/Datastream.
Japan s exports and production point to severe 4 th quarter downturn 10 5 0-5 -10-15 -20 export volumes and manufacturing output, ch% saar Industrial production [L] Export volumes [R] 30 20 10 0-10 -20-25 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: Bank of Japan and Japan Cabinet Office. -30
3 Household spending turns to the doldrums in the last months of 2008 household expend, retail sales [L]; Tokyo consumer confidence [R] HH spending [L] 50 2 1 Retail sales [L] 45 40 0 35-1 -2 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: Japan Cabinet Office. Consumer confidence [R] 30 25
2.0 Yen strength on unwinding carry trades supports BOJ ease Yen/USD rate (inverse) [right]; TIBOR and JGB 10-year [left] 85 1.8 1.5 1.3 1.0 JGB- ten year [L] Yen/dollar (inverse) [R] 90 95 100 105 0.8 TIBOR 6 months [L] 110 0.5 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Source: Thomson/Datastream. 115
European confidence plummets while ECB asesses economic damage 0-5 Euro Area consumer confidence [L]; IFO overall [R] IFO overall [R] 115 110-10 -15-20 -25 EC Consumer confidence [L] 105 100 95 90-30 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: Eurostat-- Thomson/Datastream. 85
10 5 0 Production now in sharp decline across the Euro Area manufacturing production, ch% (saar) Germany Euro Area -5-10 -15-20 Italy France Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: Eurostat.
6.0 Euro interbank rates fall quickly adding pressure on the currency Euribor and Bund- 10 yr [L]; USD per Euro [R] 1.62 5.5 5.0 EURIBOR 6 months [L] 1.54 4.5 4.0 3.5 3.0 2.5 Bund, ten-year [L] USD per Euro [R] 1.46 1.38 1.30 2.0 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Source: Thomson/Datastream. 1.22
Industrial production
16 12 8 4 0 Developing countries IP plunges, mirroring high-income countries real IP (3m/3m saar) Developing countries -4-8 High-income -12-16 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Source: Thomson/Datastream, DECPG.
30 East Asia and Central and Eastern Europe hit hardest real IP (3m/3m saar) 20 10 ECA 0-10 East Asia, excl China -20-30 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: Thomson/Datastream, DECPG.
30 20 Dramatic IP contraction in export intensive economies real IP (6m/6m saar) Czech Republic Taiwan 10 0-10 -20-30 -40 Turkey Hungary Korea -50 Jan-99 May-00 Sep-01 Jan-03 May-04 Sep-05 Jan-07 May-08 Source: Thomson/Datastream, DECPG.
International trade
15.0 12.5 10.0 7.5 5.0 2.5 0.0-2.5-5.0-7.5 Major OECD imports contract in step with domestic demand import volumes: U.S, Japan, Germany and U.K. ch% 3mma y/y Germany U.K. Japan United States Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: National Agencies through Thomson/Datastream.
35 Developing exports in decline export volumes: China, India, Mexico and Jordan ch% 3mma y/y 25 China 15 5 Mexico India -5-15 Jordan Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: National Agencies through Thomson/Datastream.
U.S. trade balance improves sharply in November on plummeting oil price 0 goods balance, and oil- and non-oil balances ($bn) -20 Oil balance -40 Non-oil balance -60-80 Goods balance Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Source: Department of Commerce.
Oil prices
$/bbl Oil prices appear to stabilize amid OPEC production cuts mb/d 135 125 115 105 95 85 75 65 55 45 35 25 OPEC-11 Production (x Angola) [R] Oil price [L scale] Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: IEA and DECPG Commodities Group. 31 30 29 28 27 26 25
Growth in U.S. Oil Demand (yr/yr) kb/d 1000 500 Other Resid Distillate Gasoline 0-500 -1000-1500 -2000 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: IEA and DECPG Commodities Group.
$/bbl 120 110 100 90 WTI Futures Prices - NYMEX Monthly contract prices to Dec 2013 on select dates in 2008-09 Aug 29 Sep 30 80 70 60 50 40 Jan 15 09 Oct 31 Dec 24 30 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: NYMEX and DECPG Commodities Group.
Non-oil commodity prices
350 300 250 Agriculture price declines begin to 2000=100 moderate Fats & Oils Grains 200 150 Other Food 100 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: Datastream and DECPG Commodities Group.
$/ton 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Metal prices rebound slightly on index rebalancing Copper price LME stocks 000 tons 450 400 350 300 250 200 150 100 50 2,000 Jan-05 Jan-06 Jan-07 Jan-08 Source: LME and DECPG Commodities Group. Jan-09 0
mn tons 50 45 Global steel production plunging 40 35 30 25 20 China Other Asia Europe FSU Other N America 15 10 5 0 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Source: Datastream and DECPG Commodities Group.
International Finance
A difficult year for emerging market capital flows Gross capital flows to emerging markets $ billion 2007 2008 H1 Q3 Q4 Total H1 Q3 Q4 Dec Total Total 349 163 139 652 253 73 44 16 371 Bonds 107 20 19 146 58 9 2 2 69 Banks 156 101 55 312 150 62 42 14 254 Equity 86 42 66 194 45 2 0 0 47 Lat. America 69 54 32 156 56 13 10 5 79 Bonds 31 6 8 45 17 1 2 2 20 E. Europe 156 45 46 247 101 35 21 4 158 Bonds 50 5 9 64 32 8 0.1 0.1 40 Asia 93 47 47 188 69 15 8 4 91 Bonds 18 5 1 23 7 0.4 0 0 7 Others 31 16 14 61 27 10 5 3 43 Source: DECPG Finance Team.
15 5-5 -15-25 -35-45 Equities post modest gains in December percentage change (in local currency) 2008 Nov Dec Oct -55 MSCI Emerging Markets MSCI Mature Markets MSCI BRIC S&P 500 FTSE-100 Nikkei Source: Bloomberg and DECPG Finance Team.
Sharp widening in EM bond spreads at year-end 2008 30 Yen/USD rate (inverse) [right]; TIBOR and JGB 10-year [left] 1000 20 10 0-10 EMBIG annual retruns [Left] 900 800 700 600 500 400 300 200 EMBIG spread [Right] 100-20 0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Source: JPMorgan-Chase and DECPG Finance Team.
Currencies
1.230 1.270 1.310 1.350 1.390 Dollar falls on Fed rate cut until ECB reduction seen as sure USD per Euro (inverse) [Left] and Yen per USD [right] Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 110 106 102 1.430 1.470 1.510 USD/Euro (inverse) 98 94 1.550 1.590 1.630 Source: Thomson/Datastream. yen/usd 90 86
6 Interest differentials well in favor of stronger euro since November USD Libor and EURIBOR (6 months), percent EURIBOR 6 months 5 4 3 2 1 USD LIBOR 6 months Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Source: Thomson/Datastream.
Dollar mixed against EM currencies LCU per USD indexes, Sept-15 2008=100 [*increase = weaker LCU] 135 130 125 120 Turkish lira Brazilian real 115 110 105 100 Russian rouble Korean won 95 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Source: Thomson/Datastream.
The External Environment for Developing Countries January 2009 The World Bank Development Economics Prospects Group