the external environment for developing countries march 2008 the world bank development economics...
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The External Environment for Developing Countries
March 2008The World Bank
Development EconomicsProspects Group
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75
80
85
90
95
100
Jan-08 Jan-08 Jan-08 Feb-08 Feb-08 Mar-08
Source: Thomson/Datastream.
Large-scale losses across global bourses in the last weeks index January 1, 2008 = 100
DAX
TOPIX
Dow Jones
MSCI
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1.290
1.330
1.370
1.410
1.450
1.490
1.530
1.570
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
96
100
104
108
112
116
120
124
Source: Thomson/Datastream.
yen/USD
USD/Euro (inverse)
Dollar plummets to all-time lows against the majors
USD per Euro (inverse) [Left] and Yen per USD [right]
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Industrial countries
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2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
4-Jun-07
5-Jul-07
5-Aug-07
5-Sep-07
6-Oct-07
6-Nov-07
7-Dec-07
7-Jan-08
7-Feb-08
9-Mar-08
11,750
12,000
12,250
12,500
12,750
13,000
13,250
13,500
13,750
14,000
14,250
Fed funds target rate [L]
Source: Thomson/Datastream.
A dramatic 75bp cut in Fed Funds on Mar-18 carries the rate to 2.25%
DJIA [R]
Fed funds rate [left] DJIA [right]
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Employment declines feed into softening retail sales in February
sales volume, ch% 3mmay/y [left]; delta employment, 3mma [right]
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
01/15/06 05/15/06 09/15/06 01/15/07 05/15/07 09/15/07 01/15/08
-25
0
25
50
75
100
125
150
175
200
225
250
275Retail sales volume [L]
Change in Employment [R]
Source: Departments of Commerce and Labor.
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U.S. inflation picks up on higher energyand food- a possible restraint on the Fed
headline CPI ad PPI, ch% 3mma y/y
0
1
2
3
4
5
6
7
8
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08
Headline CPI
Headline PPI
Source: U.S. Department of Labor.
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1.3
3.7 3.5
-2.5
0.0
2.5
5.0
Q3-2007 F Q4-2007 P Q4-2007 F
Source: Cabinet Office and DECPG calculations.
Revised Japan GDP bumps Q4-growthto 3.5% from 3.7% on investment
growth of real GDP, and contributions to growth in percentage points
Net exportsStocks
Fixed InvestmentGovernmentConsumption
Growth 2007 2.0%
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70
80
90
100
110
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
95
100
105
110
115
120
125
Source: Thomson/Datastream.
Yen strength and plummeting equitieshit consumer confidence hard
Yen per dollar [right] and TOPIX index January 1, 2007 = 100
TOPIX [L]
Yen [R]
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Japan’s GDP boost from net exports may fade over 2008
goods export and import volumes, ch% saar
-25
-20
-15
-10
-5
0
5
10
15
20
25
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Source: Cabinet Office-- Thomson/Datastream.
Export volumes
Import volumes
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1.0
3.0
1.5
-2.5
0.0
2.5
5.0
Q2-2007 Q3-2007 Q4-2007
Source: Eurostat and DECPG calculations.
Euro-Zone GDP slows to 1.5% growthin fourth quarter on sluggish demand
growth of real GDP, and contributions to growth in percentage pointsNet exports
Fixed investmentConsumptionGovernment
Change in stocks
Growth 2007 2.6%
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German factory orders drop in January foreign orders halve in momentum
factory orders, total, domestic, overseas, ch% saar
-10
-5
0
5
10
15
20
25
30
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Source: Bundesbank-- Thomson/Datastream.
Total orders
Foreign orders
Domestic orders
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ECB: policy rates will not becut as growth slows and HICP rises HICP inflation (ch% y/y) [L]; EA IP ch%
saar [R]
1.0
1.5
2.0
2.5
3.0
3.5
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08
0.0
2.5
5.0
7.5
10.0
Source: Eurostat and Bundesbank.
Euro Area IP (mfg) [R]
HICP inflation (y/y) [L]
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Industrial production
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-5
-3
0
3
5
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Sharp downtrend expected for Euro Area industrial output growth
6mn/6mn ardata forecast
Source: DECPG
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-20
-15
-10
-5
0
5
10
15
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Robust external demand cushionedU.S. IP from weak domestic demand
6mn/6mn ar
Industrial production
Export volumes
Source: DECPG
data forecast
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-15
-10
-5
0
5
10
15
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
IP trend growth in Japan is also projected to deteriorate
6mn/6mn ar
Source: DECPG
data forecast
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High-tech Markets
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-15
-10
-5
0
5
10
15
20
25
30
35
40
45
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
-20
-10
0
10
20
30
40
50
60
70
Source: National Agencies and DECPG calculations.
High-tech orders slumping in the U.S. and Europe
G-3 orders for high-tech manufactures, US dollar terms, ch% saar
G-3 High-tech orders [L]
United States [R]
Europe [R]
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Semiconductor sales and tech output wane over late 2007 and early 2008
semi-chip sales ch% y/y [L]; output of high-tech goods ch% saar [R]
-2
0
2
4
6
8
10
12
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
5
10
15
20
25
30
Source: SIA, Thomson/Datastream, Haver.
Production [R]
Semiconductor sales
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Exports mixed across the globe
global exports of high-tech goods in USD terms, ch% 3mma y/y
-8
-5
-3
0
3
5
8
10
13
15
18
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
World
East Asia x Japan
Source: National Agencies and DECPG calculations.
USA
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International trade
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U.S. export growth easing into the first months of 2008
goods exports: values and volumes, percent change 3mma/y/y and saar
-10
-5
0
5
10
15
20
25
30
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Source: Department of Commerce-- Thomson/Datastream.
Value year/year
Volume year/year
Value saar
Volume saar
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World and high-income exports to slowbut revive somewhat at mid-2008 goods export volumes, ch% saar
0
5
10
15
20
2003M1 2003M10 2004M7 2005M4 2006M1 2006M10 2007M7 2008M4
Source: National Agencies through Thomson/Datastream.
High-income exports
World exports
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Exports from China and other developing economies up in Januarygoods export volumes, ch% saar
-10
0
10
20
30
40
50
2003M1 2003M10 2004M7 2005M4 2006M1 2006M10 2007M7
Source: National Agencies through Thomson/Datastream.
Developing ex China
China exports
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Oil prices
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Gold and Oil at all-time highs
600
700
800
900
1000
50
60
70
80
90
100
110
Gold $/toz Oil $/bbl
Oil
Gold
Source: LME and DECPG Commodities Group.
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Crude oil inventories rise seasonally exacerbated by weak demand
270
280
290
300
310
320
330
340
350
360
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
M bbl
Source: U.S. Department of Energy and DECPG Commodities Group.
5-year high-low ranges
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WTI Futures Prices - NYMEX
50
60
70
80
90
100
110
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Mar 13 2008
$/bbl Monthly contract prices to Dec 2013* on select dates in 2007-08
* No monthly futures prices for 2013 for contracts trading before Nov 07
Jan 16 2007
Aug 15 2007
Feb 6 2008
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Non-oil commodity prices
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75
100
125
150
175
200
225
250
275
300
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Grains
Fats & Oils
Other Food
Beverages
Food and beverage prices surge(1990=100)
Source: DECPG Commodities Group.
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Copper prices rebound on falling stocks and tight supplies
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
Jan-06Jan-07
Jan-08
75
100
125
150
175
200
225
$/ton ‘000 tons
Copper price
LME stocks
Source: LME and DECPG Commodities Group.
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World Refined Metal Consumption*
0
5000
10000
15000
20000
25000
1994 1996 1998 2000 2002 2004 2006
China
Europe
N America
Other Asia
OECD Pac
Latin A
FSU/EE
ME
Africa
‘000 tons
* Aluminum, Copper, Lead, Nickel, Tin, Zinc
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International Finance
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Continued stagnation in flows to emerging markets in February
Source: DECPG Finance Team.
Gross capital flows to emerging markets
$ billion
Q1 Total Jan Feb Q1 Total Jan Feb
Total 96 494 36 55 166 683 29 22
Bonds 42 137 20 19 58 146 7 4
Banks 39 246 10 20 81 343 16 16
Equity 15 111 5 16 26 194 6 3
Lat. America 23 116 10 10 38 157 8 3
Bonds 14 41 4 4 20 45 4 0
E. Europe 36 179 13 25 81 252 4 11
Bonds 17 64 10 11 28 64 1 3
Asia 25 153 10 11 30 213 16 4
Bonds 8 19 5 3 8 23 3 0
Others 12 45 3 8 16 60 1 4
20082006 2007
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70
80
90
100
110
120
130
140
150
Jun-07 Aug-07 Oct-07 Dec-07 Feb-08
Source: Thomson/Datastream.
Continued turmoil in world stock markets
Equity price indexes, January 1, 2007 = 100
Eurofirst-300
Nikkei-225
S&P-500
MSCI
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0
100
200
300
400
500
600
700
May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
Source: JPMorgan-Chase.
Credit risk soars to record levels Credit default swap spreads (CDSs), basis
points
CDSs on the Europe index
CDSs on the North American index CDSs on Emerging Market Index
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Currencies
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1.290
1.330
1.370
1.410
1.450
1.490
1.530
1.570
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
96
100
104
108
112
116
120
124
Source: Thomson/Datastream.
yen/USD
USD/Euro (inverse)
Dollar plummets to all-time lows against the majors
USD per Euro (inverse) [Left] and Yen per USD [right]
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Interest differentials now at 230 bp favoring euro-based assets
US-LIBOR, EURIBOR in percent
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
4-Jun-07
5-Jul-07
5-Aug-07
5-Sep-07
6-Oct-07
6-Nov-07
7-Dec-07
7-Jan-08
7-Feb-08
9-Mar-08
USLIBOR
Source: Thomson/Datastream.
EURIBOR
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75
80
85
90
95
100
105
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08
Source: Thomson/Datastream.
Dollar falling equally sharply against emerging market units
index, LCU per USD, January 1, 2007 = 100
Russian ruble
Turkish lira
euro
Brazilian rei
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Focus March 2008
Food prices and domestic inflation
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International food prices increased 25% in real terms since Jan-2006
Index, 2006=100
80
90
100
110
120
130
140
150
160
2006M1 2006M7 2007M1 2007M7 2008M1
Source: DECPG
Nominal LCU
Nominal US$
Real
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Similar increases in domestic food prices across countries
percentage change since Jan-2006
0102030405060708090
100imported food price
Domestic food price
Source: DECPG
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Food prices exert upward pressures on inflation
percentage points
-8 -6 -4 -2 0 2 4 6
IndonesiaNigeriaSlovak
EcuadorTurkeyBrazil
CroatiaOECD HIC
CzechBulgaria
ColombiaEgypt
South AfricaLatvia
Venezuela
Food
Non-Food
Source: DECPG
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The External Environment for Developing Countries
March 2008The World Bank
Development EconomicsProspects Group