Development Prospects Group

The External Environment for Developing Countries

June 2010The World Bank

Development EconomicsProspects Group

Development Prospects Group

Overview

Development Prospects GroupCDS spreads have risen by 60 bp

or more in 7 European countries

Greece

Spain

Irelan

d

Belgium

Ita

ly

Portu

gal

Greece

Spain

Irelan

d

Belgium

Ita

ly

Portu

gal

0200400600800

02505007501000

Increase in CDS spreadssince April 1, basis points

CDS spreads as of June 23

Source: Bloomberg, World Bank.

Development Prospects Group

Jan-08 Aug-08 Mar-09 Oct-09 May-100

100

200

300

400

500

600Brazil RussiaTurkey South Africa

Spreads have risen, but remain close to earlier levels

EMBI spreads, index January 1, 2010=100

Source: World Bank, JP Morgan.

Development Prospects Group

Euro Area Crisis

Development Prospects GroupCDS spreads for selected EMs

Spreads on credit default swaps

Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-100

100200300400500600700800900

1000 Greece Portugal Ireland Spain Italy Average of Brazil, Russia, China, Turkey, and Indonesia

Source: JP Morgan and World Bank data

Development Prospects GroupSpreads on highly-indebted

European bonds increasing again

Sources: Bloomberg and DECPG staff calculationJan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10

0100200300400500600700800900

1000GreeceIrelandPor-tugalSpain

10-year government bond spread over comparable German debt (basis points)

Development Prospects GroupSubstantial uncertainty

characterizes equity market developments

1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/2010 6/1/201080859095

100105110

10

20

30

40

50VSTOXX (Eur) [R] VIX (USA) [R] DJIA DAX

Source: Thomson/Datastream.

Dow Jones, DAX and CACI [Left], VIX and VSTOXX indices [Right]

Development Prospects Group

OECD developments

Development Prospects Group

Consumer confidence and retail turnover

fall in affected countries** retail sales, ch% (3mma , y/y) [left]; consumer sentiment index,

dispersion [right]

Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10-15

-10

-5

0

5

-50

-40

-30

-20GDP weighted RS [left]

Source: National Agencies. ** Greece, Portugal and Spain.

Development Prospects GroupAlthough exports are

recovering, EU growth remains weak

2005Q1

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

-30

-20

-10

0

10

Real GDP growthReal Export growth

Real GDP and exports, q-o-q, saar % chg

Development Prospects Group

German export orders, export volumes

and production reviving in spring 2010

factory orders from abroad, export volumes, industrial production, ch% saar

Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10-75

-50

-25

0

25

50

German export orders

Source: Eurostat

Development Prospects Group

U.S. indicators point to favorable

growth outturns for the second quarter

capital goods orders, retail sales and export volumes, ch% (3m/3m, saar)

Jan-08 May-08Sep-08 Jan-09 May-09Sep-09 Jan-10 May-10-50-40-30-20-10

010203040

Capital goods orders

Source: U.S. Department of Commerce

Development Prospects GroupJapanese industrial

production catching up

Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-1065707580859095

100105110

JapanUSA

Industrial production volume, index August 2008 = 100

Source: U.S. Department of Commerce

Development Prospects GroupDeveloping country first

quarter growth strong, save for ECA region

Source: Haver Analytics and World Bank data.IDN PHL MYS CH

NTHA VEN CHL ME

XPRY PER BRA LVA BG

RROM

LTU POL RUS-6

-3

0

3

6

9

12real GDP growth first quarter 2010, ch% (year on year)

Development Prospects Group

Country Focus: Hungary

Development Prospects GroupFiscal and External Balances –

2010percent of GDP

-12

-10

-8

-6

-4

-2

0

Source: European Commission, BofA/ML

Development Prospects GroupComposition of debt flows – Hungary

(billions of U.S. dollars)

2005-07 2008 2009 2010 20110

10

20

30

40

50

60 Commercial Bank LoansOfficially guaranteed LoansInternational Bond IssuesIMF Credit

Source: Economist Intelligence Unit

Development Prospects GroupExternal debt in Hungary

percent of GDP

2 240

60

80

100

120

140

160

Source: Moody’s

Development Prospects Group

Industrial Production

Development Prospects GroupEuro Area output remains

robust in April on demand for intermediate goods

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10-50-40-30-20-10

01020 percent, 3m/3m

saar

Source: DECPG

Development Prospects GroupZEW economic sentiment deteriorated for all markets

in June in the aftermath of the sovereign debt crisis

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10-80-60-40-20

020406080 difference in share of positive versus negative re-

sponses

Source: ZEW Survey.

Development Prospects GroupMomentum in China is easing

gradually, but remains robust ,while growth in the U.S.

stepped up in May

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10-30-20-10

010203040 percent, 3m/3m

saar

Source: DECPG

Development Prospects Group

International Trade

Development Prospects GroupExports from some

developing regions have returned to pre-crisis levels

35455565758595

105115125

East Asia & PacificEurope & Central AsiaLatin America & Caribbean

Level of exports (volume terms) Jan 2008 = 100

Development Prospects GroupChinese capital goods

exports to developing countries

0%10%20%30%40%50%60%

0 20 40 60 80 100 120 140 160 180

Total (in millions US$)EAP EuropeLAC

Percent of total exports, and total in mil-lion US$

Development Prospects GroupNumber of Trade Measures

Implemented Worldwide and by the G20

G20

Worldwide

0 100 200 300 400 500 600 700 800

Total No. of Mea-sures that are Discriminatory

Source: Global Trade Alert

Development Prospects Group

Commodity Prices

Development Prospects GroupCrude oil prices rebound

Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-10Jun-1065

70

75

80

85

90$/bbl

Brent

Dubai

Source: Datastream and DECPG.

WTI

Development Prospects GroupU.S. oil demand surges (y/y)

(3 month moving average)

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

-2000

-1500

-1000

-500

0

500

1000

OtherGasolineDistillateResid

kb/d

Source: U.S. EIA and DECPG.

Development Prospects GroupNon-OPEC oil production rising

Jan-00Feb-00Mar-00Apr-00May-00Jun-00Jul-00Aug-00Sep-00Oct-00Nov-00Dec-00Jan-01Feb-01Mar-01Apr-01May-01Jun-01Jul-01Aug-01Sep-01Oct-01Nov-01Dec-01Jan-02Feb-02Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03Apr-03May-03Jun-03Jul-03Aug-03Sep-03Oct-03Nov-03Dec-03Jan-04Feb-04Mar-04Apr-04May-04Jun-04Jul-04Aug-04Sep-04Oct-04Nov-04Dec-04Jan-05Feb-05Mar-05Apr-05May-05Jun-05Jul-05Aug-05Sep-05Oct-05Nov-05Dec-05Jan-06Feb-06Mar-06Apr-06May-06Jun-06Jul-06Aug-06Sep-06Oct-06Nov-06Dec-06Jan-07Feb-07Mar-07Apr-07May-07Jun-07Jul-07Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08Feb-08Mar-08Apr-08May-08Jun-08Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-10Apr-10May-10Jun-10Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-1125

35

45

55 mb/d

Non-OPEC

OPEC

Source: IEA and DECPG.

Non-OPEC x FSU

Development Prospects Group

100

150

200

250

300

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Food Beverages

Raw Materials

Raw materials and beverage prices

remain strong in June (2000=100)

Source: DECPG.

Development Prospects GroupMetals prices stabilize

Jan-05Jan-05Jan-05Jan-05Jan-05Jan-05Jan-05Feb-05Feb-05Feb-05Feb-05Feb-05Feb-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Apr-05Apr-05Apr-05Apr-05Apr-05Apr-05Apr-05May-05May-05May-05May-05May-05May-05May-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jul-05Jul-05Jul-05Jul-05Jul-05Jul-05Jul-05Aug-05Aug-05Aug-05Aug-05Aug-05Aug-05Aug-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Oct-05Oct-05Oct-05Oct-05Oct-05Oct-05Oct-05Nov-05Nov-05Nov-05Nov-05Nov-05Nov-05Nov-05Dec-05Dec-05Dec-05Dec-05Dec-05Dec-05Dec-05Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Feb-06Feb-06Feb-06Feb-06Feb-06Feb-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Apr-06Apr-06Apr-06Apr-06Apr-06Apr-06Apr-06May-06May-06May-06May-06May-06May-06May-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jul-06Jul-06Jul-06Jul-06Jul-06Jul-06Jul-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Sep-06Sep-06Sep-06Sep-06Sep-06Sep-06Sep-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Dec-06Dec-06Dec-06Dec-06Dec-06Dec-06Dec-06Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10May-10May-10May-10May-10May-10May-10May-10Jun-10Jun-10Jun-10Jun-10Jun-101,000

1,500

2,000

2,500

3,000

3,500

0

1,000

2,000

3,000

4,000

5,000$/ton ‘000 tonsAluminum

price

LME stocks

Source: Datastream and DECPG.

Development Prospects Group

0

10000

20000

30000

40000

50000

60000

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

Other

Other Asia Pacific

China

Global steel production (000 tons)

Source: IISI.

Development Prospects Group

International Finance

Development Prospects GroupCapital flows were sluggish in

May

Source: DECPG.

Capital flows to emerging markets

$ billionQ1 Total Q1 Total Q1 Mar Apr May

Total 103 390 48 353 104 47 45 15 Bonds 12 65 18 115 48 21 26 3 Banks 71 257 22 129 30 13 8 6 Equity 20 68 8 109 26 12 11 6

Lat. America 19 90 21 137 31 17 15 3 Bonds 5 20 10 62 19 10 9 0E. Europe 36 157 6 72 26 10 14 2 Bonds 2 35 4 33 17 8 11 1

Asia 38 98 18 122 38 15 11 10

Bonds 3 7 5 16 9 0.3 3 2

Others 11 45 3 22 10 5 4 1

2008 2009 2010

Development Prospects GroupEuropean banks have big

exposure to Europe’s troubled economies

Sources: The Bank for International Settlements

Total claims by euro-zone banks at the end of 2009 ($ billion)

Spain Ireland Portugal Greece0

150

300

450

600

750

Development Prospects GroupEM assets rebounded from

May sell-off

Sources: Bloomberg, JPMorgan, and DECPG staff calculation

MSCI EM index in USD [L]; EMBIG bond index [R]

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10850

900

950

1000

1050

465470475480485490495

EM bond index [R]

EM equity index [L]

Development Prospects Group

Currencies and inflation

Development Prospects Group

Dollar gains vs euro and yen continues

but China RMB led to short-rally in other units

USD per Euro (inverse) [Left] and Yen per USD [right] Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-101.1901.2301.2701.3101.3501.3901.430

88.50

90.00

91.50

93.00

94.50

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Development Prospects GroupChina RMB rose on an effective

basis recently

2001

M01

2001

M07

2002

M01

2002

M07

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010

M0180859095

100105110115120125

Source: World Bank data.

Currency indexes: USD per RMB; Dollar and RMB effective.

U.S. effective

China effective

USD per RMB index

Development Prospects GroupInflation among developing

countries (save SAR)converging toward 5% pace

headline consumer price index, ch% (yr-on-yr)

Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10-5

0

5

10

15

20 Developing EAP ECA LAC MNA SARSSA

Source: National Agencies.

Development Prospects Group

The External Environment for Developing Countries

June 2010The World Bank

Development EconomicsProspects Group