d Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized The External Environment for Developing Countries March 2008 The World Bank Development Economics Prospects Group
100 95 Large-scale losses across global bourses in the last weeks index January 1, 2008 = 100 Dow Jones 90 85 80 DAX TOPIX MSCI 75 Jan-08 Jan-08 Jan-08 Feb-08 Feb-08 Mar-08 Source: Thomson/Datastream.
1.290 Dollar plummets to all-time lows against the majors USD per Euro (inverse) [Left] and Yen per USD [right] Jan- Mar- May- Jul- Sep- Nov- Jan-08 Mar-08 124 1.330 1.370 yen/usd 120 116 1.410 112 1.450 108 1.490 1.530 USD/Euro (inverse) 104 100 1.570 Source: Thomson/Datastream. 96
Industrial countries
A dramatic 75bp cut in Fed Funds on Mar-18 carries the rate to 2.25% 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 4-Jun- 5-Jul- 5-Aug- Fed funds rate [left] DJIA [right] Fed funds target rate [L] 5-Sep- 6-Oct- 6-Nov- 7-Dec- 7-Jan- 08 Source: Thomson/Datastream. DJIA [R] 7-Feb- 08 9-Mar- 08 14,250 14,000 13,750 13,500 13,250 13,000 12,750 12,500 12,250 12,000 11,750
Employment declines feed into softening retail sales in February sales volume, ch% 3mmay/y [left]; delta employment, 3mma [right] 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Retail sales volume [L] Change in Employment [R] 01/15/06 05/15/06 09/15/06 01/15/ 05/15/ 09/15/ 01/15/08 Source: Departments of Commerce and Labor. 275 250 225 200 175 150 125 100 75 50 25 0-25
U.S. inflation picks up on higher energy and food- a possible restraint on the Fed headline CPI ad PPI, ch% 3mma y/y 8 7 6 Headline PPI 5 4 3 2 1 Headline CPI 0 Jan-06 May-06 Sep-06 Jan- May- Sep- Jan-08 Source: U.S. Department of Labor.
Revised Japan GDP bumps Q4-growth to 3.5% from 3.7% on investment 5.0 growth of real GDP, and contributions to growth in percentage points 3.7 3.5 2.5 1.3 0.0-2.5 Growth 20 2.0% Net exports Stocks Fixed Investment Government Consumption Q3-20 F Q4-20 P Q4-20 F Source: Cabinet Office and DECPG calculations.
Yen strength and plummeting equities hit consumer confidence hard 110 Yen per dollar [right] and TOPIX index January 1, 20 = 100 125 100 Yen [R] 120 115 90 TOPIX [L] 110 80 105 100 70 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Source: Thomson/Datastream. Dec- Jan- 08 Feb- 08 Mar- 08 95
Japan s GDP boost from net exports may fade over 2008 25 20 15 10 5 0-5 -10-15 -20-25 goods export and import volumes, ch% saar Export volumes Import volumes Jan-06 Apr-06 Jul-06 Oct-06 Jan- Apr- Jul- Oct- Jan-08 Source: Cabinet Office-- Thomson/Datastream.
Euro-Zone GDP slows to 1.5% growth in fourth quarter on sluggish demand 5.0 2.5 growth of real GDP, and contributions to growth in percentage points Growth 20 2.6% 1.0 3.0 Net exports Fixed investment Consumption Government Change in stocks 1.5 0.0-2.5 Q2-20 Q3-20 Q4-20 Source: Eurostat and DECPG calculations.
German factory orders drop in January foreign orders halve in momentum 30 25 20 15 10 5 0-5 -10 factory orders, total, domestic, overseas, ch% saar Domestic orders Foreign orders Total orders Jan-06 Apr-06 Jul-06 Oct-06 Jan- Apr- Jul- Oct- Jan-08 Source: Bundesbank-- Thomson/Datastream.
3.5 3.0 ECB: policy rates will not be cut as growth slows and HICP rises HICP inflation (ch% y/y) [L]; EA IP ch% saar [R] Euro Area IP (mfg) [R] 10.0 7.5 2.5 2.0 1.5 1.0 HICP inflation (y/y) [L] Jan-06 May-06 Sep-06 Jan- May- Sep- Jan-08 Source: Eurostat and Bundesbank. 5.0 2.5 0.0
Industrial production
Sharp downtrend expected for Euro Area industrial output growth 6mn/6mn ar 5 data forecast 3 0-3 -5 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan- Jan-08 Source: DECPG
Robust external demand cushioned U.S. IP from weak domestic demand 6mn/6mn ar 15 10 5 Export volumes data forecast 0-5 Industrial production -10-15 -20 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan- Jan-08 Source: DECPG
IP trend growth in Japan is also 6mn/6mn ar 15 projected to deteriorate data forecast 10 5 0-5 -10-15 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan- Jan-08 Source: DECPG
High-tech Markets
45 40 35 30 25 20 15 10 5 0-5 -10-15 High-tech orders slumping in the U.S. and Europe G-3 orders for high-tech manufactures, US dollar terms, ch% saar United States [R] Europe [R] G-3 High-tech orders [L] Jan-06 Apr-06 Jul-06 Oct-06 Jan- Apr- Jul- Oct- 70 60 50 40 30 20 10 0-10 -20 Source: National Agencies and DECPG calculations.
Semiconductor sales and tech output wane over late 20 and early 2008 semi-chip sales ch% y/y [L]; output of high-tech goods ch% saar [R] 12 10 8 Production [R] 30 25 6 4 20 15 2 10 0 Semiconductor sales -2 5 Jan-06 Apr-06 Jul-06 Oct-06 Jan- Apr- Jul- Oct- Jan-08 Source: SIA, Thomson/Datastream, Haver.
18 15 13 10 8 5 3 0-3 -5-8 Exports mixed across the globe global exports of high-tech goods in USD terms, ch% 3mma y/y World USA East Asia x Japan Jan-06 Apr-06 Jul-06 Oct-06 Jan- Apr- Jul- Oct- Source: National Agencies and DECPG calculations.
International trade
U.S. export growth easing into the first months of 2008 goods exports: values and volumes, percent change 3mma/y/y and saar 30 25 Value saar 20 15 Value year/year 10 5 Volume year/year 0-5 Volume saar -10 Jan-06 Apr-06 Jul-06 Oct-06 Jan- Apr- Jul- Oct- Jan-08 Source: Department of Commerce-- Thomson/Datastream.
World and high-income exports to slow but revive somewhat at mid-2008 goods export volumes, ch% saar 20 15 World exports 10 5 0 High-income exports 2003M1 2003M10 2004M7 2005M4 2006M1 2006M10 20M7 2008M4 Source: National Agencies through Thomson/Datastream.
Exports from China and other developing economies up in January goods export volumes, ch% saar 50 40 30 20 10 0-10 Developing ex China China exports 2003M1 2003M10 2004M7 2005M4 2006M1 2006M10 20M7 Source: National Agencies through Thomson/Datastream.
Oil prices
Gold $/toz Gold and Oil at all-time highs Oil $/bbl 1000 110 900 Oil 100 90 800 80 700 Gold 70 60 600 Jan- Jul- Jan-08 Source: LME and DECPG Commodities Group. 50
Crude oil inventories rise seasonally M bbl 360 350 340 330 320 310 300 290 280 270 exacerbated by weak demand 5-year high-low ranges Jan-04 Jan-05 Jan-06 Jan- Jan-08 Jan-09 Source: U.S. Department of Energy and DECPG Commodities Group.
110 100 WTI Futures Prices - NYMEX $/bbl Monthly contract prices to Dec 2013* on select dates in 20-08 Mar 13 2008 90 80 Feb 6 2008 70 60 Aug 15 20 Jan 16 20 50 Dec-06 Dec- Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 * No monthly futures prices for 2013 for contracts trading before Nov
Non-oil commodity prices
(1990=100) 300 275 250 225 200 175 150 125 100 75 Food and beverage prices surge Fats & Oils Grains Beverages Other Food Jan-06 Jul-06 Jan- Jul- Jan-08 Source: DECPG Commodities Group.
$/ton 9000 8500 8000 Copper prices rebound on falling stocks and tight supplies Copper price 000 tons 225 200 7500 7000 6500 6000 5500 5000 4500 Jan-06 Jan- LME stocks Jan-08 Source: LME and DECPG Commodities Group. 175 150 125 100 75
World Refined Metal Consumption* 000 tons 25000 20000 15000 10000 5000 China Europe N America Other Asia OECD Pac Latin A FSU/EE ME Africa 0 1994 1996 1998 2000 2002 2004 2006 * Aluminum, Copper, Lead, Nickel, Tin, Zinc
International Finance
Continued stagnation in flows to emerging markets in February Gross capital flows to emerging markets $ billion 2006 20 2008 Q1 Total Jan Feb Q1 Total Jan Feb Total 96 494 36 55 166 683 29 22 Bonds 42 137 20 19 58 146 7 4 Banks 39 246 10 20 81 343 16 16 Equity 15 111 5 16 26 194 6 3 Lat. America 23 116 10 10 38 157 8 3 Bonds 14 41 4 4 20 45 4 0 E. Europe 36 179 13 25 81 252 4 11 Bonds 17 64 10 11 28 64 1 3 Asia 25 153 10 11 30 213 16 4 Bonds 8 19 5 3 8 23 3 0 Others 12 45 3 8 16 60 1 4 Source: DECPG Finance Team.
150 140 130 120 110 Continued turmoil in world stock markets Equity price indexes, January 1, 20 = 100 S&P-500 MSCI 100 90 80 70 Eurofirst-300 Nikkei-225 Jun- Aug- Oct- Dec- Feb-08 Source: Thomson/Datastream.
700 600 500 Credit risk soars to record levels Credit default swap spreads (CDSs), basis points CDSs on the Europe index 400 300 200 100 0 CDSs on the North American index CDSs on Emerging Market Index May- Jul- Sep- Nov- Jan-08 Mar-08 Source: JPMorgan-Chase.
Currencies
1.290 Dollar plummets to all-time lows against the majors USD per Euro (inverse) [Left] and Yen per USD [right] Jan- Mar- May- Jul- Sep- Nov- Jan-08 Mar-08 124 1.330 1.370 yen/usd 120 116 1.410 112 1.450 108 1.490 1.530 USD/Euro (inverse) 104 100 1.570 Source: Thomson/Datastream. 96
6.00 5.50 5.00 Interest differentials now at 230 bp favoring euro-based assets US-LIBOR, EURIBOR in percent 4.50 4.00 EURIBOR 3.50 3.00 USLIBOR 2.50 2.00 4-Jun- 5-Jul- 5-Aug- 5-Sep- 6-Oct- 6-Nov- 7-Dec- Source: Thomson/Datastream. 7-Jan- 08 7-Feb- 08 9-Mar- 08
105 Dollar falling equally sharply against emerging market units index, LCU per USD, January 1, 20 = 100 100 95 Russian ruble 90 85 euro 80 75 Turkish lira Brazilian rei Jan- Mar- May- Jul- Sep- Nov- Jan-08 Mar-08 Source: Thomson/Datastream.
Focus March 2008 Food prices and domestic inflation
International food prices increased 25% in real terms since Jan-2006 Index, 2006=100 160 150 Nominal US$ 140 130 120 Nominal LCU Real 110 100 90 80 2006M1 2006M7 20M1 20M7 2008M1 Source: DECPG
100 90 80 70 60 50 40 30 20 10 0 Similar increases in domestic food prices across countries percentage change since Jan-2006 China EAP ex CHN Domestic food price Russia Turkey CEE LAC Egypt Jordan India Source: DECPG Pakistan imported food price Nigeria South Africa DEV average OECD HIC
Venezuela Latvia South Africa Egypt Colombia Bulgaria Czech OECD HIC Croatia Brazil Turkey Ecuador Slovak Nigeria Indonesia Food prices exert upward pressures on inflation percentage points Non-Food Food -8-6 -4-2 0 2 4 6 Source: DECPG
The External Environment for Developing Countries March 2008 The World Bank Development Economics Prospects Group