The External Environment for Developing Countries

February 2010The World Bank

Development EconomicsProspects Group

European growth outturns disappoint in fourth quarter

United States Japan Euro Area-1

0

1

2

3

4

5

6

Q2-2009Q3-2009Q4-2009

Source: National Agencies.

growth of real GDP, ch% saar

Industrial countries

U.S. GDP growth jumps 5.7% in Q4-09 on stocks, investment and exports

Q2-2009 Q3-2009 Q4-2009-4

-2

0

2

4

6

-0.7

2.2

5.7

Prv Consumption Gvt Consumption Fixed Investmentchange in Stocks Net Exports GDP

Source: U.S. Department of Commerce.

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

Improvements in labor markets continue to underpin increases in household outlays change in employment (‘000, 3mma) [L]; retail sales x

autos, ch% (saar) [R]

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10-800

-700

-600

-500

-400

-300

-200

-100

0

100

-25

-20

-15

-10

-5

0

5

10

Source: U.S. Departments of Labor and Commerce.

retail x autos [R]

change in employment [L]

U.S. exports up on increased overseas demand- net-X likely to add to growth

export and import volumes, ch% saar

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-50

-40

-30

-20

-10

0

10

20

30

40

Exports Imports

Source: U.S. Department of Commerce.

Japan’s GDP regains dynamic in Q4-09 on turn in capex to positive growth

Q2-2009 Q3-2009 Q4-2009-6

-4

-2

0

2

4

6

8

10

5.2

0.0

4.6

Prv Consumption Gvt Consumption Fixed Investmentchange in Stocks Net Exports GDP

Source: Japan Cabinet Office, EPA.

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

Q1 2007

Q2 2007

Q3 2007

Q4 2007

Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009

Q4 2009

-60

-50

-40

-30

-20

-10

0

10

20

30

Large Mfg Small MfgLarge non-Mfg Small non-Mfg

Source: Bank of Japan.

Tankan for fourth quarter underlined a likely pick-up in investment

business conditions dispersion indices

Japan’s orders and exports revive in the last months of 2009

machinery orders, production and export volumes ch% (saar)

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-70

-50

-30

-10

10

30

50

70

Production Orders

Exports

Source: Japan- METI.

Euro-Area growth held to 0.3% in Q4-09 on flat outturns for Germany

Euro Area Germany France-1

0

1

2

3Q2-2009Q3-2009Q4-2009

Source: EuroStat.

growth of real GDP, ch% saar

European unemployment escalates continuing to dampen household spending

Euro Area unemployment rate (%) [L]; retail sales

volume, ch% (3mma, y/y) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-097.0

7.5

8.0

8.5

9.0

9.5

10.0

-3

-2

-1

0

1

Source: Eurostat.

retail sales [R]

unemployment rate [L]

German factory orders hit hard leading to weaker output growth

export orders, manufacturing production, ch% (saar)

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-70

-50

-30

-10

10

30

50Production

Export orders

Domestic orders

Source: Bundesbank.

Industrial production

Eurozone lost growth momentum in the fourth quarter on weak domestic demand

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-40

-30

-20

-10

0

10

20

Eurozone

ECA

industrial production (percent change, saar)

Source: World Bank calculations based on Thomson Datastream data.

BICS production momentum supported by strong domestic and external demand

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

-40

-20

0

20

40

BrazilIndiaChinaSouth Africa

Source: World Bank calculations based on Thomson Datastream data.

industrial production (percent change, saar)

European and African emerging markets factory PMI above 50 “growth mark” in January

Czech Rep. Russia Hungary Turkey Poland South Africa

35

40

45

50

55Index sa, 50+ = Expansion

Source: JPMorgan-Chase.

International trade

Imports by the United States and China revive on fiscal stimulus measures

value of imports, year-over-year percent change

-40

-20

0

20

40

60

China year-over-year growth

USA year-over-year growth

Source: U.S. Department of Commerce; Haver Analytics.

Increasing demand for capital- and consumer durable goods underpins exports of manufactures

Manufacturing exports in value terms, year-over-year % change

-40

-30

-20

-10

0

10

20

30

40

50

Israel Mexico

Philippines Turkey

Source: Haver Analytics.

European exports boost region’s trade surplus to 5 year peak

Euro Area exports & imports, ch% saar, and trade balance in billion euros

-50

-40

-30

-20

-10

0

10

20

30

40

-9

-7

-5

-3

-1

1

3

5

7BOT €bn [R] Exports ch% [L] Imports ch% [L]

Source: EuroStat.

Oil prices

Crude oil prices relatively flat in recent months

Jan-08Feb-08

Apr-08

May-08Jun-08

Aug-08

Sep-08

Nov-08Dec-08

Feb-09Mar-0

9

May-09Jun-09

Aug-09

Sep-09

Nov-09Dec-09

Feb-1025

50

75

100

125

150$/bbl

WTI

Dubai

Brent

Source: Thomson/Datastream and DEC Prospects Group.

OECD total oil stocksdays of forward consumption

4Q99

1Q00

2Q00

3Q00

4Q00

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

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

48

50

52

54

56

58

60

62

Source: IEA and DECPG.

OPEC spare capacity (mb/d)

Jan-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

1

2

3

4

5

6

7

Source: IEA and DECPG.

Non-oil commodity prices

100

150

200

250

300

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Beverages

Raw Materials

Food

Agriculture prices buoyed by strong gains in rubber and sugar

(Index 2000=100)

Source: DECPG.

Metals prices fall sharply in early 2010

Jan-05Jul-05

Feb-06Sep-06

Mar-07Oct-07

Apr-08Nov-08

Jun-09Dec-09

0

1,000

2,000

3,000

4,000

5,000

$/ton

Lead

Zinc

Aluminum

Source: LME and DECPG.

Metals stocks continue to increaseas markets remain in surplus

Jan-05

May-05Sep-05

Jan-06

May-06Sep-06

Jan-07

May-07Sep-07

Jan-08

May-08Sep-08

Jan-09

May-09Sep-09

Jan-101,000

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.

International Finance

Bonds underpin January flows

Source: DECPG.

$ billion 2010

H1 H2 Total Jan H1 H2 Dec Total Jan

Total 258 132 390 24 110 243 47 353 33

Bonds 53 12 65 9 36 80 7 115 21

Banks 151 106 257 9 43 86 29 128 5

Equity 54 14 68 6 32 77 11 109 70

Lat. America 61 29 90 10 37 100 21 137 8

Bonds 17 3 20 5 15 47 5 62 7

E. Europe 99 57 157 4 22 50 8 72 13

Bonds 27 7.7 35 2 13 20 1 33 7

Asia 69 29 98 9 44 78 15 122 11

Bonds 7 0 7 2 6 10 0.1 16 7

Others 28 17 45 1 7 14 2 21 0.2

2008 2009

Sovereign debt default risk has soarednotably for several EU countries

Source: Bloomberg and DECPG staff calculations.

5-year sovereign CDS spreads (basis points)

Current level (as of Feb. 15)

Before Greece debt crisis (end Oct-09)

Pre-Lehman (Sep. 12 2008)

Developed countries:

Germany 45 21 9 U.S. 52 19 10 France 61 23 12 Japan 81 60 17 U.K. 92 50 22 Italy 130 74 44 Spain 139 72 40 Irealnd 158 138 31 Portugal 193 58 41 Greece 354 140 53

Emerging markets: China 85 80 72 Brazil 140 137 155 Mexico 140 168 134 Poland 146 116 72 South Africa 170 150 191 Russia 198 192 168 Turkey 202 190 276 Philippiness 203 178 240

Source: Bloomberg and World Bank staff calculations

January February* Year to date*

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

Mature markets Emerging markets EU U.S.

Source: Bloomberg and DECPG staff calculations.

*through February 15

EM equities underperform mature markets over 2010 to date

Local currency returns by period

Currencies

Jan-09 Apr-09 Jul-09 Oct-09 Jan-101.230

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)

Euro down 6.5% vs dollar in the month on Greek sovereign debt plight

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

Euro cross rates vary by trade partner broadly based on economic conditions

Polish zloty

Russian rouble

Turkish lira

Hungarian florint

Czech krona

U.S. dollar

Japanese yen

-25 -20 -15 -10 -5 0 5 10

Ch% 2010 to date ch% 2009

Source: Thomson/Datastream and World Bank.

Negative sign implies decline in local currency vs euro

The External Environment for Developing Countries

February 2010The World Bank

Development EconomicsProspects Group