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The External Environment for Developing Countries
February 2008The World Bank
Development EconomicsProspects Group
Equities tumbled in January S&P/Citi-Group BMI Global
Index, ch%
-20
-15
-10
-5
0
5
10
15
20
25
Emerging MarketsMature Markets
Source: Standard &
Poor’s.
January 2008
3 months:from October 2007
1 year:from January 2007
140
240
340
440
540
640
740
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
Source: JPMorgan-Chase and Thomson/Datastream
Spreads widen, but yields stable EMBIG spread and U.S. 10-year T-note,
basis points
EMBIG spreads
U.S. 10-year Treasury note
EMBIG yields
Industrial countries
4.8 4.9
0.6
-4.0
-2.0
0.0
2.0
4.0
6.0
Q3-2007 P Q3-2007 F Q4-2007
Source: Department of Commerce and DECPG calculations.
U.S. GDP growth falls to 0.6% in fourth quarter as housing takes a toll
growth of real GDP, and contributions to growth in percentage points
Net exportsGovernmentConsumption
Fixed InvestmentChange in stocks
Growth 2007 2.2%
-35-30-25-20-15-10
-505
1015
Source: National Assn of Realtors and Department of Commerce.
Existing home sales
U.S. new home sales drop 33% over 2007– worst in 45 years
existing and new home sales, ch% 3mma y/y
New home sales
3.0
4.5
6.0
7.5
9.0
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
40
80
120
160
200
240
280
Source: Departments of Labor and Commerce.
Employment [R]
Retail sales [L]
Employment decline in Januarypoints to weaker retail spending ahead retail sales, ch% 3mma y/y [L], change in
employment 3mma [R]
1.5 1.3
3.7
-2.5
0.0
2.5
5.0
Q3-2007 P Q3-2007 F Q4-2007 P
Source: Cabinet Office and DECPG calculations.
Japanese GDP jumps to 3.7% growth in fourth quarter on exports
growth of real GDP, and contributions to growth in percentage points
Net exportsStocks
Fixed InvestmentGovernmentConsumption
Growth 2007 2.1%
Japan’s public-sector and residential investment show sharp declines
public- and residential investment, share of real GDP, percent
0
3
6
9
Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007
Source: Cabinet Office through Thomson/Datastream.
Public investment
Residential investment
Japan’s orders momentum up in December supporting exports and production export volume and IP, ch% saar [L]
machinery orders ch% saar [R]
-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
-25
-15
-5
5
15
25
35
45Exports [L]
Industrial production [L]
New machinery orders [R]
Source: Cabinet Office through Thomson/Datastream.
0
1
2
3
4
Euro Area Germany France Spain
2007-Q2 2007-Q3 2007-Q4
Euro Area growth eases in fourth quarter on consumer and exports
percent change
Source: EuroStat.
German exports and production dampened by euro strength
export volumes and IP ch% 3mma, y/y
0
2
4
6
8
10
12
14
16
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
Source: Eurostat through Thomson/Datastream.
Production
Exports
ECB hints at cut in policy rates as Euro Area growth slows
HICP inflation (ch% y/y) [L]; Germany IP ch% saar [R]
1.0
1.5
2.0
2.5
3.0
3.5
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
0
3
6
9
12
Source: Eurostat and Bundesbank.
Germany IP [R]
HICP inflation (y/y) [L]
Industrial production
-6
-4
-2
0
2
4
6
8
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Possible contraction of industrial production in the Euro-zone in 2008-Q1
Euro Area industrial production, 3mma ch%, saar
Source: DECPG
Forecast
-10
-5
0
5
10
15
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Has the slowdown in U.S.- and Mexican IP bottomed out?
Industrial production, 3mma, ch% saar
United States
Mexico
data forecast
Source: DECPG
-15
-5
5
15
25
35
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
IP growth appears to be moving “sideways” in East Asia
Other EAP countries
China
forecastdata
Source: DECPG
Industrial production, 3mma, ch% saar
High-tech Markets
The tech-cycle has been truncatedby global growth uncertainties and delayed
investment spending global semi-chip sales and high-tech
exports, ch% saar
-20
-10
0
10
20
30
40
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
Source: SIA, Thomson/Datastream, Haver.
Exports
Semiconductor sales
Production trends still at lofty rates but signs of downturn emerging
unit value index in USD terms, ch% year-on-year
0
5
10
15
20
25
30
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
Global
East Asia x Japan
Source: National Agencies and DECPG calculations.
-20
-10
0
10
20
30
40
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
Source: National Agencies and DECPG calculations.
G-3 high-tech orders back in negative territory
G-3 orders for high-tech manufactures, US dollar terms, ch% saar
G-3 High-tech orders
International trade
Developing countries are now key drivers of global imports and trade
contribution to global import growth, ch% year-on-year
-6
-4
-2
0
2
4
6
8
10
Source: National Agencies through Thomson/Datastream.
Developing country imports
U.S. imports
Gap between developing export- and high-income import- growth widens
growth (USD, y/y percent) developing country exports and high-income imports
-10
0
10
20
30
Source: National Agencies through Thomson/Datastream.
Developing country export volumes
High-income import volumes
Large emerging economies’ import growth and contributions strengthen contribution to global import growth,
ch% year-on-year
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Source: National Agencies through Thomson/Datastream.
China
Russia
India
Brazil
Oil prices
Crude oil prices remain elevated
50
60
70
80
90
100
Jan-07Apr-0
7Jul-0
7Oct-0
7Jan-08
$/bblWTI
BrentDubai
Source: DECPG Commodities Group.
OPEC maintaining production levels
21
22
23
24
25
26
27
28
29
30
31
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
OPEC-10 Quota
OPEC-10
Including Iraqmb/d
Source: OPEC and DECPG Commodities Group.
Thermal coal prices surge on weather supply problems in Australia, China and South
Africa
0
20
40
60
80
100
Jan-96 Jan-98 Jan-00 Jan-03 Jan-04 Jan-06 Jan-08
Australia Thermal Coal $/ton (fob)
WB Oil Price $/bbl
Source: DECPG Commodities Group.
Non-oil commodity prices
Grains prices surge on strong competition for feed, food and fuel
4
6
8
10
12
14
Jan-06Jul-0
6Jan-07
Jul-07
Jan-08
1
2
3
4
5
$/bushel
Soybeans
Corn
Wheat
$/bushel
Source: DECPG Commodities Group.
Aluminum prices rise on electric power disruptions
1600
1800
2000
2200
2400
2600
2800
3000
3200
Jan-05Jan-06
Jan-07Jan-08
400
600
800
1000
1200
1400
1600
$/ton ‘000 tons
Aluminum price
LME stocks
Source: LME and DECPG Commodities Group.
Global steel production growth slowing
0
5
10
15
20
25
30
35
40
45
Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
China Other Asia Europe
FSU Other N America
mil tons
Source: LME and DECPG Commodities Group.
International Finance
Sharp decline in bank lending and equity placement in January
Source: DECPG Finance Team.
Gross capital flows to emerging markets
$ billion 2005 2008
Total H1 H2 Total H1 H2 Total Jan
Total 361 209 285 494 357 326 683 21
Bonds 126 63 74 137 107 39 146 7
Banks 175 103 142 246 164 180 343 8
Equity 59 43 67 111 86 107 194 6
Lat. America 87 51 65 116 69 88 157 6
Bonds 43 17 24 41 31 14 45 4
E. Europe 129 76 103 179 156 96 252 4
Bonds 55 28 36 64 50 14 64 1
Asia 107 56 97 153 100 113 213 10
Bonds 21 8 11 19 18 6 23 3
Others 38 26 20 45 32 28 60 1
2006 2007
Equities tumbled in January S&P/Citi-Group BMI Global
Index, ch%
-20
-15
-10
-5
0
5
10
15
20
25
Emerging MarketsMature Markets
Source: Standard &
Poor’s.
January 2008
3 months:from October 2007
1 year:from January 2007
All sectors lost ground in January Total return by sector (based on
MSCI world stock indices)
-20 -10 0 10 20 30 40
Utilities
Telecomm
Info-tech
Financials
Healthcare
Consumer Staple
Consumer Disr
Industrials
Materials
Energy
2008 to date
2007
Source: Bloomberg and DECPG calculations.
140
240
340
440
540
640
740
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
Source: JPMorgan-Chase and Thomson/Datastream
Spreads widen, but yields stable EMBIG spread and U.S. 10-year T-note,
basis points
EMBIG spreads
U.S. 10-year Treasury note
EMBIG yields
Large credit write-downs reported by major banks
0 5 10 15 20 25
Barclay's
Wachovia
Deutsche Bank
JP Morgan
HSBC
Bank of America
Morgan Stanley
UBS
Merrill Lynch
Citigroup
Total write-downs, billions U.S. dollars
Source: Bloomberg.
100
200
300
400
500
600
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
Source: JPMorgan-Chase.
Corporate default risk at record highs Credit default swaps, basis points
CDSs on benchmark European exchange
CDSs on the North American index
Currencies
88
90
93
95
98
100
103
105
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
Source: Thomson/Datastream.
Dollar in holding pattern against the majors since mid-January
index, LCU per USD, January 1, 2007 = 100
euro
yen
U.S. capital inflows up since August 2007– demand for Treasuries falling
billions U.S. dollars
-60
-30
0
30
60
90
120
150
180
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
Source: TICS data system: U.S. Treasury.
o/w Treasuries/Agencies
Net foreign purchases of U.S. securities
o/w Private securities
88
90
93
95
98
100
103
105
108
110
Jul-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08
Source: Thomson/Datastream.
Commodity currencies tradingslightly stronger against the dollar
index, LCU per USD, July 1, 2007 = 100
A$rubleBrazil Rl
C$
The External Environment for Developing Countries
February 2008The World Bank
Development EconomicsProspects Group