The External Environment for Developing Countries

July 2009The World Bank

Development EconomicsProspects Group

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09-10

-5

0

5

10

China

China at the forefront of the global economic recovery

industrial production, percent (month-on-month)

Source: Thomson/Datastream, Haver, DECPG.

World

USA

Germany

0

10

20

30

40

50

Source: Loanware and Bondware.

Bonds

Syndicated lending

Cross border bank flows to developing countries continue meagre

billions USD, 3-month moving average

Industrial countries

Employment losses ease… with potential positive effects on spending

retail volume growth (y/y) [L]; change in

employment (3mma) [R]

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09-10

-8

-6

-4

-2

0

2

-750

-550

-350

-150

50

250

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

Retail sales [L]

Change in employment [R]

U.S. economic activity is stabilzing…but bank loan charge-offs surging

ISM composite economic activity index [left]; Bank charge-offs (% total C&I loans) [right]

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-090.3

0.5

0.8

1.0

1.3

1.5

1.8

2.0

37.5

40.0

42.5

45.0

47.5

50.0

52.5

55.0

Source: Institute for Supply Management; Federal Reserve Board.

C&I charge-offs [right]

ISM composite index [left]

U.S. trade developments may offer boost for 2nd quarter GDP

export and import volumes, ch% saar

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09-50.0

-37.5

-25.0

-12.5

0.0

12.5

25.0

Source: U.S. Department of Commerce.

Export volumes

Import volumes

Japan’s trade and production take a sharp leg up over May/June

export volumes and manufacturing output, ch% saar

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09-80

-60

-40

-20

0

20

40

60

Source: Bank of Japan and Japan Cabinet Office.

Production

Export volume

Labor markets deteriorate quicklywhile spending continues to falter

unemployment rate (%) [left]; retail sales, ch% yr-on-yr [right]

Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-093.5

4.0

4.5

5.0

5.5

-5

-4

-3

-2

-1

0

1

2

Source: Japan Cabinet Office.

Retail sales [right]

Unemployment rate % [left]

Japan’s inflation drops well into negative territory

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

-6

-5

-4

-3

-2

-1

0

1

2

Source: Bank of Japan.

Toyko CPI and corporate goods prices, ch%, y/yHeadline CPI

Corporate goods prices (PPI)

European labor markets continue to weaken, but sentiment up on lower CPI unemployment rate (%) [left]; EC consumer

sentiment [right]

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-097.0

7.5

8.0

8.5

9.0

9.5

-35

-30

-25

-20

-15

-10

-5

0

Source: EUROSTAT and European Commission.

Euro Area consumer sentiment [right]

Unemployment rate % [left]

Euro Area CPI in negative ground

Jan-05Apr-05

Jul-05Oct-05

Jan-06Apr-06

Jul-06Oct-06

Jan-07Apr-07

Jul-07Oct-07

Jan-08Apr-08

Jul-08Oct-08

Jan-09Apr-09

-1

0

1

2

3

4

5

6

Source: Eurostat.

HICP headline and core, ch% y/y and EURIBOR (%)

EURIBOR

Headline HICP

HICP-core

Industrial production

Taiwan (China)Hungary

JapanSlovak Republic

SpainSlovenia

ItalyTurkey

GermanyKorea, Rep.

SingaporeThailand

South AfricaBulgariaPakistan

BrazilColombiaMalaysia

ArgentinaUnited States

United KingdomMexico

-60 -40 -20 0 20 40 60 80 100

Peak-to-trough de-clinepercent change

Percent of contraction reversed

Deep peak-to-trough declines in industrial production are now being reversed

Source: Thomson/Datastream, DECPG.

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09-10

-5

0

5

10

China

China at the forefront of the global economic recovery

industrial production, percent (month-on-month)

Source: Thomson/Datastream, Haver, DECPG.

World

USA

Germany

Global manufacturing looking up

Source: JPMorgan-Chase

JPMorgan global PMI summary - Manufacturing

Manufacturing Feb Mar Apr May JunOutput 33.4 35.3 41.3 46.9 50.4

New orders 31.4 35.9 43.8 48.5 49

Employment 35 35.9 38.2 39.5 42.2

Source: JPMorgan.

International trade

World export growth appears to be bottomingexports, ch% seasonally adjusted annual rates

(saar)

-65

-45

-25

-5

15

35

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

Source: World Bank data.

Global imbalances ease moderately as U.S. deficit and China surplus narrow

goods trade balance, U.S. $-bn, seasonally adjusted, annualized

-1,200

-1,000

-800

-600

-400

-200

0

200

400

600

Jan-02 Dec-02 Nov-03 Oct-04 Sep-05 Aug-06 Jul-07 Jun-08 May-09

China

United States

Source: National Agencies through Thomson/Datastream.

Eurozone exports begin to support more moderate declines in production

IP and exports, ch% seasonally adjusted annual rates (saar)

-55

-35

-15

5

25

Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09

Source: Eurostat.

Exports

Industrial Production

Oil prices

Oil prices and OECD oil stocks

2300

2400

2500

2600

2700

2800

0

20

40

60

80

100

120

140

Jan-96 Jan-98 Jan-00 Jan-09 Jan-09 Jan-09 Jan-09

$/bbl million bbl

Source: IEA and DECPG Commodities Group.

World Oil Production (mb/d)

30

35

40

45

50

55

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

Source: IEA and DECPG Commodities Group.

Non-OPEC

Non-OPEC x FSU

OPEC

WTI Futures Prices - NYMEX

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

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Jun-14

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

30

40

50

60

70

80

90

Jul 13

$/bblMonthly contract prices to Dec 2014* for

select dates in 2009

Feb 18

Jun 11

Source: NYMEX.

Non-oil commodity prices

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10100

150

200

250

300

350

GrainsFats & Oils

Other Food

Beverages

Food prices edged higher in June(2000=100)

Source: DECPG Commodities Group.

Metals prices ease following large gains in first-half 2009

Jan-05 Jun-05Dec-05 Jun-06

Dec-06 Jun-07Nov-07

May-08Nov-08

May-091000

2000

3000

4000

5000

6000

7000

8000

9000

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

55000

Source: LME and DECPG Commodities Group.

Copper

Nickel

Aluminium

Freight rates fall on slowdown in bulk trade

Jan-06Mar-06

Jun-06Aug-06

Oct-06Jan-07

Mar-07Jun-07

Aug-07Nov-07

Jan-08Apr-08

Jun-08Sep-08

Nov-08Feb-09

Apr-09Jul-09

0

2000

4000

6000

8000

10000

12000

Source: Datastream and DECPG Commodities Group.

International Finance

Flows slowed in June; first-half volumes halved from a year earlier

Source: DECPG Finance Team.

Gross capital flows to emerging markets

$ billion 2007

Total H1 H2 Total H1 Apr May Jun

Total 652 258 132 389 106 14 24 21

Bonds 146 53 12 65 36 6 8 3 Banks 312 151 106 257 37 2 9 6 Equity 194 54 14 68 33 5 7 12

Lat. America 156 61 29 90 34 2 5 7

Bonds 45 17 3 20 15 2 1 2E. Europe 247 99 57 157 22 4 7 5 Bonds 64 27 8 35 13 3 5 1

Asia 188 69 29 98 42 7 10 9 Bonds 23 7 0 7 6 1 1 0Others 61 28 17 44 7 0 3 1

20092008

0

10

20

30

40

50

Source: Loanware and Bondware.

Bonds

Syndicated lending

Cross border bank flows remain well below the levels seen in previous years

billions USD, 3-month moving average

EM assets rebound from recent corrections MSCI equity index, USD [left]; EM bonds spreads,

bps [right]

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09450

500

550

600

650

700

750

800

850

400

450

500

550

600

650

700

750

Source: Morgan-Stanley and JPMorgan-Chase.

EMBIG spreads [right]

MSCI equity index [left]

Currencies

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

1.270

1.310

1.350

1.390

1.430

1.470

1.510

1.550

1.590

1.630 86

90

94

98

102

106

110

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Dollar weakens vs yen… trading range around $1.40 against euro USD per Euro (inverse) [Left] and Yen per USD

[right]

Dollar slips vs EM currencies in seconed quarter

percentage change (USD per LCU) (%)

Rus Rbl

Hun frt

Mex pso

Cze crn

Tur lra

Brz rei

Ind rpe

Indo rph

US NEER

-30 -25 -20 -15 -10 -5 0 5 10 15

Source: Thomson/Datastream.

First quarter 2009Second quarter 2009

Stronger Local Currency

FOCUSDevelopments in real effective exchange

rates

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-0990

100

110

120

130

Real effective exchange rates depreciate in most of the world’s largest economies

January 2008 = 100

Source: Thomson/Datastream, Haver, DECPG.

China

Japan

USA Euro Area

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-0960

70

80

90

100

110

120

Real effective appreciation for commodity exporters’ as commodity prices stage a comeback

January 2008 = 100

Australia

Canada

Brazil

South Africa

Source: Thomson/Datastream, Haver, DECPG.

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-0960

70

80

90

100

110

120

REERs bounce off lows of early 2009 in countries exporting capital goods and autos

BIS effective exchange rate, broad Indices ,January 2008 = 100

Source: Bank for International Settlements.

Czech Republic

Hungary

South Korea

The External Environment for Developing Countries

July 2009The World Bank

Development EconomicsProspects Group