The External Environment for Developing Countries

January 2010The World Bank

Development EconomicsProspects Group

Momentum of production is moderating toward more sustainable rates

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

-30

-20

-10

0

10

20

Developing excl China

High Income

World

industrial production (percent change, saar)

Source: World Bank, Development Prospects Group.

World trade picks up steam as stimulus measures boost imports

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

-60

-40

-20

0

20

40

60

OECD imports

Developing imports

Source: World Bank, Development Prospects Group.

goods import volumes, OECD and developing countries (ch%, saar)

Industrial countries

Improvements in labor markets now setting the tone for increased spending

change in employment (‘000, 3mma) [L]; income and retail sales x autos, ch% (saar) [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

-25

-20

-15

-10

-5

0

5

10

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

retail x autos [R]

change in employment [L]

Durable goods orders and factory output momentum fade in late 2009

durable goods orders, mfgr output, ch% (saar) [L]; ISM mfgr headline index (3mma) [R]

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

-40

-30

-20

-10

0

10

20

35

40

45

50

55

Durable goods orders [L]

Manufacturing production [L]

ISM Mfgr index [R]

Source: U.S. Department of Commerce, Institute for Supply Management (ISM).

Pick-up in energy and commodity prices lifts CPI to positive territory (y/y)

consumer and producer price indices, ch% (saar and 3mma yr/yr)

1/1/2007 5/1/2007 9/1/2007 1/1/2008 5/1/2008 9/1/2008 1/1/2009 5/1/2009 9/1/2009-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Source: U.S. Department of Labor.

CPI saar

CPI yr/yr

PPI saar

Japan spending under pressure from rising unemployment, falling wages

unemployment rate (%) [L]; real HH expenditures, cash wages, ch% (y/y) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-093.0

3.5

4.0

4.5

5.0

5.5

6.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Source: Japan Cabinet Office (EPA).

Cash wages [R]

Unemployment rate [L]

Q3-2008 Q4-2008 Q1-2009 Q2-2009 Q3-2009-40

-30

-20

-10

0

10

20Corp GDI RES GDI

fixed investment, business and residential (homebuilding), ch% saar

Japan’s corporate and residential investment (homebuilding) in the doldrums

Source: Japan Cabinet Office (EPA).

Japan exports up sharply at year endas OECD imports revive

Japan machinery orders, export volumes and industrial production, ch% 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

Machinery or-ders

Japan export volumes

Manufacturing production

Source: Japan EPA through Thomson/Datastream.

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-1075

88

100

113

-35

-30

-25

-20

-15

-10

Euro Area sentiment up in the new yearIFO 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]

Euro Area unemployment worsens quickly placing damper on spending

number of unemployed (millions) [L]; retail sales volume, ch% (3mma, y/y) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-0910

11

12

13

14

15

16

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Source: Eurostat through Thomson/Datastream.

Euro Arearetail volumes [R]

Number of unemployed [L]

German exports pick-up at end-year on strong orders for capital equipment

German export orders, export volumes and industrial production, ch% saar

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-80

-60

-40

-20

0

20

40

60

Export orders

German export volumes

Manufacturing production

Source: Bundesbank through Thomson/Datastream.

Industrial production

Momentum of industrial production is moderating

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

-30

-20

-10

0

10

20

Developing excl China

High Income

World

Source: World Bank calculations based on Thomson Datastream data

Industrial production (percent change, saar)

Chinese output momentum supported by domestic demand and a pick-up in exports

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

-30

-20

-10

0

10

20

30

40

0

5

10

15

20

253m/3m saar (right axis)

Industrial production (percent change, saar)

Source: World Bank calculations based on Thomson Datastream data

Euro zone production rises on stronger demand for intermediate and capital goods

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

-30

-20

-10

0

10

3m/3m saar

Year-on-year

Industrial production (percent change, saar)

Source: World Bank calculations based on Thomson Datastream data

International trade

Jan-00 Aug-01 Mar-03 Oct-04 May-06 Dec-07 Jul-09-1150

-950

-750

-550

-350

-150

50

250

450

USA total balance

China total balance

Global imbalances have begun to stabilize at lower levels

USA excluding oil

Total goods trade balance, minus all crude oil imports, US$ bn, sa. annualized

China excluding oil

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

Foreign demand for high-income exports weakens in fourth quarter

Jan-06

Apr-06

Jul-06

Oct-0

6

Jan-07

Apr-07

Jul-07

Oct-0

7

Jan-08

Apr-08

Jul-08

Oct-0

8

Jan-09

Apr-09

Jul-09

Oct-0

9

Jan-10

70

80

90

100

110

120

130

140

30

35

40

45

50

55

60

65

United States [R]

Germany [L]

Export orders, Germany and the United States (ISM)

Source: Bundesbank and Institute for Supply Management.

Export growth accelerating in developing countries

volume of exports, 3m/3m moving average, saar % chg

-70

-50

-30

-10

10

30

50

70

90 Developing East Asia & PacificLatin America South AsiaEurope & Central Asia

Source: DECPG.

Oil prices

Oil prices rise above $80/bbl

23

24

25

26

27

28

29

30

31

32

0

20

40

60

80

100

120

140

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

$/bbl mb/d

Oil price [L scale]

OPEC Production [R]

Source: IEA and DECPG.

U.S. crude oil inventories

260

280

300

320

340

360

380

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

M bbl

5-year high-low ranges

Source: U.S. Department of Energy and DECPG.

Natural gas and coal prices

0

4

8

12

16

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

US Gas

Europe Gas

LNG Japan

Coal Australia

$/mmbtu

Source: World Gas Intelligence, International Coal Report, 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 continue to increase on supply constraints

(2000=100)

Source: DECPG.

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-100

1000

2000

3000

4000

5000

6000

7000

8000

9000

CopperZincAluminumLead

Metals prices rise on expectations of stonger demand $/ton

Source: LME and DECPG.

Gold prices come off their highs

Jan-03

May-03Oct-0

3Mar-0

4Jul-0

4Dec-04

Apr-05Sep-05

Jan-06Jun-06

Nov-06Mar-0

7Aug-07

Jan-08

May-08Oct-0

8Feb-09

Jul-09Dec-09

300

400

500

600

700

800

900

1000

1100

1200

1300

$/toz

Gold in dollars

Gold in euros

Source: LME and DECPG.

International Finance

A surge in bank lending at year end

Source: DECPG.

Gross capital flows to emerging markets

$ billion

H1 Q3 Q4 Total H1 Q3 Q4 Dec Total

Total 258 82 50 390 110 99 139 45 348

Bonds 53 9 3 65 36 33 46 7 115

Banks 151 63 43 257 42 34 47 28 123

Equity 54 10 4 68 32 32 45 10 109

Lat. America 61 18 10 90 37 37 57 16 130

Bonds 17 1 2 20 15 18 29 5 61

E. Europe 99 35 23 157 22 21 28 8 71

Bonds 27 7 0.4 35 13 11 9 1 33

Asia 69 18 10 98 45 33 48 19 126

Bonds 7 0 0 7 6 3 7 0 16

Others 28 11 6 45 7 8 6 2 21

2008 2009

EM bond issuance activity off to a strong start in 2010

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

2

4

6

8

10

12Avg. 1998-08 2009 2010

sovereign bond issuance, monthly, bn USD

Source: Dealogic and DECPG staff calculations.

EM assets appear fairly strong at the start of 2010

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10400

500

600

700

800

900

1,000

1,100

1,200

300

350

400

450

500

MSCI-EM$ index [L]

Source: JPMorgan-Chase and Bloomberg.

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

EMBIG bond index [R]

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)

Dollar recoups 2.5% over 2010 to date on more upbeat growth expectations

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

Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-100.0

0.5

1.0

1.5

2.0

2.5

3.0

Expectations for growth move in U.S. favor Consensus mean GDP growth: forecast for

2010 sampled during 2009/10

Source: Consensus Economics LLC.

Forecast Date in 2009/10:

Japan

Euro Area

United States

The External Environment for Developing Countries

January 2010The World Bank

Development EconomicsProspects Group