The External Environment for Developing Countries

September 2009The World Bank

Development EconomicsProspects Group

0

100

200

300

Liquidity in global inter-bank markets have virtually returned to normal conditions

G-7 meeting

Pre-crisisUSD average

Source: Thomson/Datastream.

Dollar

Euro

The acute phase of the financial crisis has passedLIBOR-OIS spreads, basis points

Jan-08 May-08 Sep-08 Jan-09 May-09-40

-30

-20

-10

0

10

20

The decline in industrial production has turned around

industrial production, ch% (saar)

OECD

Developing

World

Source: National Agencies through Thomson /Datastream.

Industrial countries

U.S. consumer spending will cometo support GDP outturns for third quarter

real PCE and retail sales growth (saar) [L]; change in employment (‘000, 3mma) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09-18-16-14-12-10-8-6-4-2024

-800

-700

-600

-500

-400

-300

-200

-100

0

100

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

Real PCE [L]

Change in employment [R]

Retail volumes [L]

Sectoral developments have been upbeat

ISM headline Mfgr and Svcs indices [L]; capital goods orders, ch% (saar) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-0930

33

35

38

40

43

45

48

50

53

55

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

Source: Institute for Supply Management, Department of Commerce.

Capital goods orders [R]

ISM Manufacturing

ISM Services

U.S. trade developments should offer modest boost to GDP as well

goods export and import volumes, ch% saar

Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-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 orders, exports and production take a huge leg up over June and July

core machinery orders, export volumes and mfgr output, ch% saar

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

-60

-40

-20

0

20

40

60

Source: Bank of Japan and Japan Cabinet Office.

Production

Core machinery orders

Goods export volumes

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

-30

-20

-10

0

10

20

Other Asia

EU USA

Source: Bank of Japan and DECPG calculations.

Japan’s exports receive a boost from improved demand in Asia and United States contributions to growth of Japanese export

volumes (yr/yr)

Japanese consumer spending retrenchesas labor markets deteriorate quickly

unemployment rate (%) [L]; household spending and retail sales, ch% (y/y) [R]

Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-093.5

4.0

4.5

5.0

5.5

6.0

-5

-4

-3

-2

-1

0

1

2

3

Source: Japan Cabinet Office.

Retail sales [R]

Unemployment rate % [L]

Household expenditure [R]

Euro Area GDP outturns improved broadly in second quarter

GDP growth Q1-2009 and Q2-2009, ch% (q/q saar)

Germany

Netherlands

Italy

Austria

EURO AREA

Belgium

Spain

Portugal

Ireland

France

Greece

Denmark

-16 -12 -8 -4 0 4

Q2-2009 Q1-2009

Source: European Commission and Eurostat.

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

-40

-20

0

20

40

German and French exports breach into positive territory, underpinning production

goods export volumes ch% (saar)

Germany

Source: Eurostat.

France

Household spending remains weakas spillovers from trade await

consumer spending volumes, ch% (yr–on-yr)

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09-5.0

-2.5

0.0

2.5

Source: EUROSTAT.

Italy France

Germany

Industrial production

Jan-08 May-08 Sep-08 Jan-09 May-09-40

-30

-20

-10

0

10

20

The pace of decline in industrial production has turned aroundindustrial production, ch% (saar)

OECD

Developing

World

Source: National Agencies through Thomson /Datastream.

Jan-08 May-08 Sep-08 Jan-09 May-09-50

-40

-30

-20

-10

0

10

20

30

East Asia in the fore, with a general uptrend across all regions

Developing

Industrial production, percentage change (saar)

Latin America

Europe & Central Asia

South Asia

Middle-East & North AfricaEast Asia & Pacific

Source: National Agencies through Thomson /Datastream.

industrial production, ch% (saar)

Growth recovery fastest among countries that had steepest declines– levels depressed

Source: World Bank, DEC Prospects Group

2008 Peak 2008/09 Trough Latest data point70

75

80

85

90

95

100Oil producing countries

Other MIC's and HIC's (incl LAC Resource exporters, US, UK)

Countries with large imbalances and/or affected via trade channels

Capital goods exporters

industrial production

International trade

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09-80

-60

-40

-20

0

20

40

60

80

100

100

150

200

250

300

350

400

450

China's trade surplus down on surg-ing imports

Trade balance $bn annualized [R]; exports and imports, ch% saar [L]

Source: National Agencies through Haver Analytics.

Imports [L]

Exports [L]

Balance of trade [R]

-50

-40

-30

-20

-10

0

10

20

Global trade volumes stabilize at low levels

World export and import vol-umes, ch%, saar

Exports Imports

Source: Netherlands Central Plan Bureau (CPB).

Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009-300

-250

-200

-150

-100

-50

0

50

100

Source: Department of Commerce.

U.S. current balance improves further in second quarter to 2.8% of GDP

billions U.S. dollars

Income

Services

Non-oilBOT

Oil balance

Transfers

Current account

Oil prices

Oil prices supported by improving fundamentals

Jan-03

Feb-03

Mar-03

Apr-03

May-03

Jun-03

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

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

20

40

60

80

100

120

140

25

26

27

28

29

30

31

32

$/bbl mb/d

Oil price [L scale]

OPEC-11 Production [R]

Source: IEA and DECPG Commodities Group.

U.S. crude oil inventories decline but remain high

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

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

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

270

280

290

300

310

320

330

340

350

360

370M bbl

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

5-year high-low ranges

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

Sep 11

$/bblMonthly contract prices to Dec 2014*

for select dates in 2009

Feb 18

Jul 13

Jun 11

Source: NYMEX.

Non-oil commodity prices

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10125

150

175

200

225

250

275

300

Beverages

Raw Materials

Food

Agriculture prices higher on sharp gains in sugar, rubber and fats & oils

(2000=100)

Source: DECPG Commodities Group.

Metals prices increase on supply constraints

Jan-05 Jul-05 Jan-06 Jun-06Dec-06 Jun-07

Dec-07 Jun-08Dec-08 Jun-09

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000$/ton $/ton

Lead

Copper

Nickel

Source: LME and DECPG Commodities Group.

Gold prices rise on concerns about the dollar, inflation and the economy

Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07May-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08May-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09400

500

600

700

800

900

1000

1100 per toz

Gold in USD

Gold in euros

Source: LME and DECPG Commodities Group.

International Finance

Flows slowed in August in the wake of a surge in July bond issuance

Source: DECPG Finance Team.

Gross capital flows to emerging markets$ billion                        

    2007   2008 2009

    Total   H1 Total Jan-Aug   H1 Jun July Aug YTD

Total   652   258 389 315   112 23 38 11 159

Bonds   146   53 65 60   38 3 18 3 57

Banks   312   151 257 192   40 8 7 4 52

Equity   194   54 68 62   33 12 13 4 51

                         

Lat. America 156   61 90 75   36 8 12 1 49

Bonds   45   17 20 18   15 2 6 1 22

E. Europe   247   99 157 124   22 5 13 3 39

Bonds   64   27 35 33   13 1 10 1 24

Asia   188   69 98 81   46 10 11 6 61

Bonds   23   7 7 7   8 0 1 1 8

Others   61   28 44 35   7 1 1 1 10

Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09200

400

600

800

1000

1200

Source: JPMorgan-Chase.

Sovereign spreadEMBI

Corporate spreadCEMBI

Emerging Market bond spreads continue to narrow

basis points

Jan-09 Mar-09 May-09 Jul-09 Sep-0970

80

90

100

110

120

130

140

150

Source: Bloomberg.

Developed markets

Emerging markets

Global equities continue uptrendMSCI indexes, Jan-2008 = 100.

Currencies

Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-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 depreciation accelerates over August and September

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

Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09-0.60

-0.50

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

Source: Thomson/Datastream.

US LIBOR - EURIBOR

Euromarket interest differentials move against the greenback

difference: USD 6-month LIBOR and EURIBOR 6-months (basis points)

Emerging market currencies continue gains against U.S. dollar

percentage change (USD per LCU) (%)

ZAF RandBrz rei

Kor wonIndo rphMex pso

Rus rblPol ztyTur lra

Ind RpeThai bhtPhl pso

Chn RMB

0 5 10 15

Source: Thomson/Datastream.

Second quarter 2009Third quarter 2009

Stronger Local Currency

The External Environment for Developing Countries

September 2009The World Bank

Development EconomicsProspects Group