Equities tumbled in January S&P/Citi-Group BMI Global Index, ch%

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


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


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


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


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


Global

East Asia x Japan

Source: National Agencies and DECPG calculations.

-20

-10

0

10

20

30

40


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


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


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


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


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


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

Equities tumbled in January S&P/Citi-Group BMI Global Index, ch%

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