The External Environment for Developing Countries

December 2009The World Bank

Development EconomicsProspects Group

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

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-60

-40

-20

0

20

40

60

United States

Japan

Germany

Source: World Bank, DEC Prospects Group.

Gross capital flows increase rapidly in the final months of 2009 bond issuance, IPOs and syndicated bank lending, 3mma, billions US dollars

0

10

20

30

40

50

Mar Apr May June July Aug Sep Oct Nov

Latin America East Asia

Europe and Central Asia South Asia

SubSaharan Africa MENA

Source: World Bank, Development Prospects Group.

Industrial countries

-0.7

3.52.8

-6

-4

-2

0

2

4

6

Q2-2009 Q3-2009 Prelim Q3-2009 2nd

Source: Department of Commerce.

U.S. GDP marked down for third quarter to 2.8% on consumer and exports

growth of real GDP, and contributions to growth in percentage points

Stocks GovernmentConsumption

InvestmentNet exports

Narrowing of job losses in Novemberwith new claims down substantially

change in employment (‘000, 3mma) [L]; claims for UNR insurance (‘000, 4wma) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-800

-700

-600

-500

-400

-300

-200

-100

0

100

300

350

400

450

500

550

600

650

700

Source: U.S. Department of Labor.

claims for unemployment insurance [R]

change in employment [L]

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]

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-45

-30

-15

0

15

100

120

140

160

180

Source: Department of Commerce and National Association of Realtors.

Existing home sales [L]

New home sales [L]

Affordability index [R]

2.7

4.8

1.3

-8

-4

0

4

8

Q2-2009 Q3-2009 Prelim Q3-2009 Revised

Source: Japan Cabinet Office.

Japan’s GDP growth marked down sharply to 1.3% in Q3-09 on invenstment

growth of real GDP, and contributions to growth in percentage points

Net ExportsStocks

ConsumptionGovernmentInvestment

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

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-80

-60

-40

-20

0

20

40

60

80

U.S. imports

Japan exports Japan IP mfgr

Source: World Bank, DEC Prospects Group.

Japan’s deflation has yet to abate prompting BOJ liquidity provisions

Tokyo consumer prices [left]; corporate goods prices (PPI) [right], ch% y/y

Jan-97 Sep-98 May-00 Jan-02 Sep-03 May-05 Jan-07 Sep-08-3

-2

-1

0

1

2

3

-10

-8

-6

-4

-2

0

2

4

6

8

Source: Japan Cabinet Office.

consumer prices [L]

corporate goods prices [R]

-9.2

-0.6

1.5

-10

-8

-6

-4

-2

0

2

4

Q1-2009 Q2-2009 Q3-2009 prelim

Source: Eurostat.

Euro Area GDP up 1.5% in Q3-09 (saar) on investment and stocks

growth of real GDP, and contributions to growth in percentage points

Net Exports Stocks

GovernmentConsumption

Investment

Drivers for European growth continue mixed & uneven

GDP growth, third Quarter 2009 (ch%, saar)

Euro Area Germany France U.K.-8

-6

-4

-2

0

2

4

6

GDP PCE GDI Net-X *

Source: Eurostat. * contribution to growth.

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-0975

88

100

113

-35

-30

-25

-20

-15

-10

Euro Area sentiment buoyed by emergence from recession

IFO survey (overall and expectations) [left]; Euro Area consumer confidence [right]

IFO- expectations [L]

Source: IFO and European Commission.

Euro Area Consumer Confidence [R]

IFO- overall [L]

Industrial production

Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09-30

-25

-20

-15

-10

-5

0

5

10

15

World output recovering at a brisk pacegrowth of industrial production, ch% y/y and saar

Momentum (3m/3m saar)

Year-on-year growth

Source: World Bank, DEC Prospects Group.

Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09-10

-5

0

5

10

15

20

25

30

35

China’s output growth is slowingindustrial production growth, ch% y/y and

saar

Source: World Bank, DEC Prospects Group.

Momentum (3m/3m saar)

Year-on-year growth

Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09-50

-40

-30

-20

-10

0

10

20

30

Brazil’s IP grounded in domestic demandindustrial production growth, ch% y/y and

saar

Source: World Bank, DEC Prospects Group.

Momentum (3m/3m saar)

Year-on-year growth

International trade

Imports strengthened in high income countries over the third quarter

import volumes, 3 mma seasonally adjusted percent change

-60

-40

-20

0

20

40

60

Developing imports

HIY imports

Source: World Bank, DEC Prospects Group.

-1200

-1000

-800

-600

-400

-200

0

Annualized deficitDeficit minus oil

U.S. trade deficit narrows on stronger exports and lower oil imports

balance of trade (annualized), and deficit minus oil, $ billion

Source: U.S. Department of Commerce.

Developing countries’ exports return to year-over-year growth in October

Export volumes, year-over-year percent change

-30

-20

-10

0

10

20

Source: World Bank, DEC Prospects Group.

Oil prices

Oil prices and OECD oil stocks

Jan-96Feb-96Mar-96Apr-96May-96Jun-96Jul-96Aug-96Sep-96Oct-96Nov-96Dec-96Jan-97Feb-97Mar-97Apr-97May-97Jun-97Jul-97Aug-97Sep-97Oct-97Nov-97Dec-97Jan-98Feb-98Mar-98Apr-98May-98Jun-98Jul-98Aug-98Sep-98Oct-98Nov-98Dec-98Jan-99Feb-99Mar-99Apr-99May-99Jun-99Jul-99Aug-99Sep-99Oct-99Nov-99Dec-99Jan-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-090

20

40

60

80

100

120

140

2,300

2,400

2,500

2,600

2,700

2,800$/bbl million bbl

Oil price [L scale]

OECD stocks [R]

Source: IEA and DECPG Commodities Group.

World oil consumption growthmillion barrels per day

1Q00

2Q00

3Q03

4Q04

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Other

Oth Asia

China

OECD

TotalSource: IEA

mb/d

WTI Futures Prices - NYMEX

60

70

80

90

100

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

DEC 10

$/bbl

Monthly contract prices to Dec 2014* for select dates in 2009

Jul 13

Nov 9

* Futures now extend to December 2018

Nov 30

Non-oil commodity prices

100

150

200

250

300

350

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

Grains

Fats & Oils

Other Food

Beverages

Agriculture prices strengthen on grains and beverages

non-oil prices, index 2000=100.(2000=100)

Source: Datastream and DECPG Commodities Group.

Copper prices and LME stocks

Jan-02Jul-0

2Jan-03

Jul-03Jan-04

Aug-04Feb-05

Aug-05Feb-06

Aug-06Mar-0

7Sep-07

Mar-08Sep-08

Apr-09Oct-0

91,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

100

200

300

400

500

600

700

800

900

1,000

$/ton ‘000 tons

Copper price

LME stocks

Source: LME and DECPG Commodities Group.

Global steel production rebounds

Jan-98Feb-98Mar-98Apr-98May-98Jun-98Jul-98Aug-98Sep-98Oct-98Nov-98Dec-98Jan-99Feb-99Mar-99Apr-99May-99Jun-99Jul-99Aug-99Sep-99Oct-99Nov-99Dec-99Jan-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-100

10000

20000

30000

40000

50000

60000 OtherChinaOther Asia Pacific

mil tons

Source: DECPG Commodities Group.

International Finance

Flows to emerging markets ease to a still-strong $35 billion in November

Source: DECPG Finance Team.

Gross capital flows to developing countries

$ billion

H1 Q3 Total H1 Q3 Oct Nov YTD

Total 258 82 390 109 94 53 35 291

Bonds 53 9 65 35 33 27 12 107

Banks 151 63 257 42 29 6 9 85

Equity 54 10 68 32 32 20 14 98

Lat. America 61 18 90 37 34 30 8 109

Bonds 17 1 20 15 18 17 6 55

E. Europe 99 35 157 22 19 9 8 58

Bonds 27 7 35 13 11 5 4 32

Asia 69 18 98 44 32 12 16 105

Bonds 7 0 7 6 3 5 2 16

Others 28 11 45 7 8 2 2 19

2008 2009

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 Q1

2008 Q2

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

2009 Q4*

2

4

6

8

10

12

14

200

300

400

500

600

Terms of borrowing for EM bond issuance have improved

average maturity in years [L]; average launch spreads (bps) [R]

Source: Bloomberg and DECPG staff calculations.

cost of borrowing [right]

Robust returns to EM equities in 2009

U.S. Govt Bond

Commodities

MSCI Developed

EM bond (EMBIG)

CEMBI1

Developed high-yield

MSCI EM

-15 0 15 30 45 60

Year-to date December

Source: JPMorgan-Chase and Reuters.

Currencies

Oct-08 Jan-09 Apr-09 Jul-09 Oct-091.230

1.270

1.310

1.350

1.390

1.430

1.470

1.510

1.550 85.00

87.50

90.00

92.50

95.00

97.50

100.00

102.50

105.00

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Dollar jumps in response to favorable jobs numbers and BOJ’s QE

USD per Euro (inverse) [Left] and Yen per USD [right]

Recent pickup in net capital flows to U.S. shows distinct flight to quality

net flows: U.S. Treasuries, private securities (bn$ 3mma)

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-20

0

20

40

60

80

100

Source: U.S. Treasury TICs Database and JP Morgan-Chase.

Treasuries

Private sector securities

Total net inflow

70

80

90

100

110

120

130

EM nominal effective exchange rates move toward appreciation NEERs, index Jan-2007 = 100.

Source: World Bank, DECPG.

Brazil

Turkey

South Africa Mexico

India

The External Environment for Developing Countries

December 2009The World Bank

Development EconomicsProspects Group