the external environment for developing countries january 2009 the world bank development economics...
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The External Environment for Developing Countries
January 2009The World Bank
Development EconomicsProspects Group
Global industrial production plummets into 4th quarter of 2008...
manufacturing production, ch% (saar)
-20
-15
-10
-5
0
5
10
15
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: DEC Prospects Group.
OECD
Developing
World
50
60
70
80
90
100
110
Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
Source: Thomson/Datastream, Morgan Stanley (*USD index).
...while worries about recession and banks push markets lower in January
equity market indices (LCU)* Sep-15-
2008 = 100.
MSCI (Emerging Markets)TOPIX (Japan)
DJIA (USA)
DAX (Germany)
U.S. employment losses in 2008 sum to 2.6 million...worst since 1945 change in non-farm employment,
‘000
-600
-500
-400
-300
-200
-100
0
100
200
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: U.S. Department of Labor.
monthly change
3mma change
Falling exports, orders and production pressure U.S. GDP
export volumes, durable goods orders and IPmfg, ch% saar
-20
-15
-10
-5
0
5
10
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
-40
-30
-20
-10
0
10
20
30
40
Source: Department of Commerce, Federal Reserve.
Export volumes [R]
Durable goods orders [R]
Production [L]
0
1
2
3
4
5
6
Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08
Source: Thomson/Datastream.
Interbank market rates- and yield on ten-year note easing
Fed Funds target- and effective rates; Libor and T-note 10 yr
Fed Funds Target
LIBOR 6 months
T-note 10-year
Fed Funds Effective
Japan’s exports and production point to severe 4th quarter downturn
export volumes and manufacturing output, ch% saar
-25
-20
-15
-10
-5
0
5
10
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
-30
-20
-10
0
10
20
30
Source: Bank of Japan and Japan Cabinet Office.
Industrial production [L]
Export volumes [R]
Household spending turns to the doldrums in the last months of 2008
household expend, retail sales [L]; Tokyo consumer confidence [R]
-2
-1
0
1
2
3
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
25
30
35
40
45
50
Source: Japan Cabinet Office.
HH spending [L]
Consumer confidence [R]
Retail sales [L]
0.5
0.8
1.0
1.3
1.5
1.8
2.0
Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
85
90
95
100
105
110
115
Source: Thomson/Datastream.
Yen strength on unwinding “carry trades” supports BOJ ease Yen/USD rate (inverse) [right]; TIBOR
and JGB 10-year [left]
Yen/dollar (inverse) [R]
TIBOR 6 months [L]
JGB- ten year [L]
European confidence plummets while ECB asesses economic damage
Euro Area consumer confidence [L]; IFO overall [R]
-30
-25
-20
-15
-10
-5
0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-0885
90
95
100
105
110
115
Source: Eurostat-- Thomson/Datastream.
IFO overall [R]
EC Consumer confidence [L]
Production now in sharp decline across the Euro Area
manufacturing production, ch% (saar)
-20
-15
-10
-5
0
5
10
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: Eurostat.
Germany
France
Italy
Euro Area
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-081.22
1.30
1.38
1.46
1.54
1.62
Source: Thomson/Datastream.
Euro interbank rates fall quickly adding pressure on the currency Euribor and Bund- 10 yr [L]; USD per
Euro [R]
USD per Euro [R]
EURIBOR 6 months [L]
Bund, ten-year [L]
Developing countries’ IP plunges, mirroring high-income countries
real IP (3m/3m saar)
-16
-12
-8
-4
0
4
8
12
16
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Source: Thomson/Datastream, DECPG.
High-income
Developing countries
East Asia and Central and Eastern Europe hit hardest
real IP (3m/3m saar)
-30
-20
-10
0
10
20
30
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
ECA
East Asia, excl China
Source: Thomson/Datastream, DECPG.
Dramatic IP contraction in export intensive economies
real IP (6m/6m saar)
-50
-40
-30
-20
-10
0
10
20
30
Jan-99 May-00 Sep-01 Jan-03 May-04 Sep-05 Jan-07 May-08
HungaryTurkey
Czech Republic
Korea
Taiwan
Source: Thomson/Datastream, DECPG.
Major OECD imports contract in step with domestic demand
import volumes: U.S, Japan, Germany and U.K. ch% 3mma y/y
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
15.0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: National Agencies through Thomson/Datastream.
United States
Japan
Germany
U.K.
Developing exports in decline export volumes: China, India, Mexico and
Jordan ch% 3mma y/y
-15
-5
5
15
25
35
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: National Agencies through Thomson/Datastream.
China
India
Jordan
Mexico
-80
-60
-40
-20
0
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: Department of Commerce.
U.S. trade balance improves sharply in November on plummeting oil price
Goods balance
Oil balance
Non-oil balance
goods balance, and oil- and non-oil balances ($bn)
Oil prices appear to stabilize amid OPEC production cuts
25
35
45
55
65
75
85
95
105
115
125
135
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
25
26
27
28
29
30
31
$/bbl mb/d
Oil price [L scale]
OPEC-11 Production (x Angola) [R]
Source: IEA and DECPG Commodities Group.
Growth in U.S. Oil Demand (yr/yr)
-2000
-1500
-1000
-500
0
500
1000
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Other
Resid
Distillate
Gasoline
kb/d
Source: IEA and DECPG Commodities Group.
WTI Futures Prices - NYMEX
30
40
50
60
70
80
90
100
110
120
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Jan 15 09
$/bbl
Monthly contract prices to Dec 2013 on select dates in 2008-09
Oct 31
Sep 30
Aug 29
Dec 24
Source: NYMEX and DECPG Commodities Group.
100
150
200
250
300
350
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Grains
Fats & Oils
Other Food
Agriculture price declines begin to moderate
2000=100
Source: Datastream and DECPG Commodities Group.
Metal prices rebound slightly on index rebalancing
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jan-05Jan-06
Jan-07Jan-08
Jan-09
0
50
100
150
200
250
300
350
400
450
$/ton ‘000 tons
Copper price
LME stocks
Source: LME and DECPG Commodities Group.
Global steel production plunging
0
5
10
15
20
25
30
35
40
45
50
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
China
Other AsiaEurope
FSUOther
N America
mn tons
Source: Datastream and DECPG Commodities Group.
A difficult year for emerging market capital flows
Source: DECPG Finance Team.
Gross capital flows to emerging markets
$ billion
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
2007 2008
Equities post modest gains in December
percentage change (in local currency)
-55
-45
-35
-25
-15
-5
5
15
MSCIEmergingMarkets
MSCIMature
Markets
MSCI BRIC S&P 500 FTSE-100 Nikkei
Source: Bloomberg and DECPG Finance Team.
2008
Oct
Nov Dec
-20
-10
0
10
20
30
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
0
100
200
300
400
500
600
700
800
900
1000
Source: JPMorgan-Chase and DECPG Finance Team.
Sharp widening in EM bond spreads at year-end 2008
Yen/USD rate (inverse) [right]; TIBOR and JGB 10-year [left]
EMBIG annual retruns [Left]
EMBIG spread [Right]
1.230
1.270
1.310
1.350
1.390
1.430
1.470
1.510
1.550
1.590
1.630
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
86
90
94
98
102
106
110
Source: Thomson/Datastream.
yen/USD
USD/Euro (inverse)
Dollar falls on Fed rate cutuntil ECB reduction seen as sure
USD per Euro (inverse) [Left] and Yen per USD [right]
1
2
3
4
5
6
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
Interest differentials well in favorof stronger euro since November USD Libor and EURIBOR (6 months),
percent EURIBOR 6 months
USD LIBOR 6 months
Source: Thomson/Datastream.
95
100
105
110
115
120
125
130
135
Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
Source: Thomson/Datastream.
Dollar mixed against EM currencies LCU per USD indexes, Sept-15 2008=100
[*increase = weaker LCU] Turkish lira
Brazilian real
Korean won
Russian rouble