Sharp contraction in global production

The External Environment for Developing Countries

February 2009The World Bank

Development EconomicsProspects Group

-24

-20

-16

-12

-8

-4

0

4

8

1990M1 1992M1 1994M1 1996M1 1998M1 2000M1 2002M1 2004M1 2006M1 2008M1

Sharp contraction in global production

Source: Thomson/Datastream, DECPG.

global industrial production, ch% (3m/3m saar)

Deteriorating credit quality for Emerging Market SovereignsUpgrades minus Downgrades

-20

-10

0

10

20

30

40

2001 2002 2003 2004 2005 2006 2007 2008 2009*

Source: Bloomberg, EMTA and DECPG Finance Team.

* as of Feb-13, 2009

Industrial countries

0.9

2.8

-0.5

-3.8

-6

-4

-2

0

2

4

6

Q1-2008 Q2-2008 Q3-2008 Q4-2008

Source: Department of Commerce and DECPG calculations.

U.S. GDP falls 3.8% in fourth quarteron consumption and investment

growth of real GDP, and contributions to growth in percentage points

StocksGovernmentConsumption

InvestmentNet Exports

4 million persons have joined the jobless queue since start of 2009

initial claims for unemployment insurance, weekly, 4week-ma

300

350

400

450

500

550

600

650

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

Source: U.S. Department of Labor.

weekly

4-wk moving-avg

Retail sales and industrial productionoff to tough start in 2009

retail sales and IPmfg, ch% saar

-30

-25

-20

-15

-10

-5

0

5

10


Source: Department of Commerce, Federal Reserve.

Retail sales

Production

0.6

-3.6-2.3

-12.7

-15

-10

-5

0

5

Q1-2008 Q2-2008 Q3-2008 Q4-2008

Source: Japan Cabinet Office and DECPG calculations.

Japan GDP plummets 12.7% as exports, capital spending drop sharply in Q4-08

growth of real GDP, and contributions to growth in percentage points

GovernmentConsumption

InvestmentStocks

Net Exports

Japan’s trade and production suggest more bad news to come

export volumes and manufacturing output, ch% saar

-40

-30

-20

-10

0

10

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08-45

-35

-25

-15

-5

5

15

25

35

45

Source: Bank of Japan and Japan Cabinet Office.

IP [Left]

Export volume [R]

Labor market, consumer sentiment point to further slide in spending

unemployment rate, cash wage (ch% y/y) [L]; Consumer confidence [R]

-3

-2

-1

0

1

2

3

4

5


25

30

35

40

45

50

Source: Japan Cabinet Office.

Unemployment rate [L]

Consumer confidence [R]Cash wage (ch%) [L]

European recession intensifies to worst in twenty years in Q4-08

GDP growth at seasonally adjusted annual rates

-9

-7

-5

-3

-1

1

3

5

7

Germany Italy EUROAREA

U.K. France

Q1-2008 Q2-2008 Q3-2008 Q4-2008

Source: EUROSTAT and DECPG calculations.

European exports drop at year-end 2008 export volumes: Germany and France, ch%

saar

-30

-20

-10

0

10

20

30

40

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08

Source: EUROSTAT through Thomson/Datastream.

Germany

France

Concerns about European banks and weaker member states mounting

DAX and CACI Index Jan07=100 [left]; IFO overall [R]

50

60

70

80

90

100

110

120

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

85

90

95

100

105

110

115

Source: Thomson/Datastream and IFO.

IFO overall [R]

CACI [L]

DAX [L]

Industrial production

-24

-20

-16

-12

-8

-4

0

4

8

12

16

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

Sharp contraction in global production with further shrinkage envisaged


Industrial production, ch% (3m/3m saar) Forecast

Global production

Developing countries

-10

-5

0

5

10

15

20

Q1-99 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08

GDP contracted in the fourth quarterin emerging economies as well

Source: DECPG.

GDP in Russia, ch% (3m/3m saar)

A rebound in China’s output growth?

-12

-8

-4

0

4

8

12

16

20

24

28

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

20

30

40

50

60

70

CLSA/MARKIT PMI:Mnf - Output

NBS PMI Mnf New Exp Orders

Forecast

Industrial production, ch% (3m/3m saar)


IP

International trade

OECD imports almost “off a cliff” at year-end 2008

import volumes: U.S., Japan and France, ch% saar

-30

-20

-10

0

10

20

30

40

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08

Source: National Agencies through Thomson/Datastream.

USA

Japan

France

Imploding East Asia trade export values (USD), ch% saar

-80

-60

-40

-20

0

20

40

60


Source: National Agencies through Haver Analytics.

Japan China

Korea

Taiwan (PC)

Trade balances shift as terms of trade and crisis effects accrue

balance of goods trade in local currency: U.S. and Japan

-80

-75

-70

-65

-60

-55

-50

Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08

-400

-200

0

200

400

600

800

1,000

1,200

Source: National Agencies through Thomson/Datastream.

USA [Left]

Japan [Right]

Oil prices

Crude oil prices stabilize on OPEC production cuts $/bbl

World Bank Average Price

Source: Thomson/Datastream and DECPG Commodities Group.

25

50

75

100

125

150

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

Crude oil inventories still rising on weak demand

270

280

290

300

310

320

330

340

350

360

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

M bbl

5-year high-low ranges

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

Crude price differentials diverge on rising U.S. stocks and OPEC cuts

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

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

$/bbl

WTI

Brent

Dubai

Source: Thomson/Datastream and DECPG Commodities Group.

Non-oil commodity prices

100

150

200

250

300

350


GrainsFats & Oils

Beverages

Other Food

Food prices rebound in January on supply concerns(2000=100)

Source: Datastream and DECPG Commodities Group.

Metals prices stabilize on production cuts

1000

2000

3000

4000

5000

6000

7000

8000

9000


5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

55000

Cu $/ton Zn $/ton

Zinc

Copper

Nickel

Source: LME and DECPG Commodities Group.

Gold prices rise on safe-haven buying

400

500

600

700

800

900

1000

1100


1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60$/toz $/euro

Gold price

$/euro

Source: Datastream and DECPG Commodities Group.

International Finance

January capital flows feature a modest revival in bond issuance

Source: DECPG Finance Team.

$ billion 2009

Jan H1 H2 Total Jan H1 H2 Dec Total Jan

Total 35 349 302 652 30 251 119 17 370 19

Bonds 21 107 39 146 7 53 12 3 65 9

Banks 9 156 156 312 17 151 106 14 257 10

Equity 5 86 107 194 6 47 2 0 48 0

Lat. America 10 69 87 156 9 56 24 6 80 9

Bonds 4 31 14 45 4 17 3 2 20 5

E. Europe 13 156 91 247 5 98 56 5 155 6

Bonds 10 50 14 64 1 27 8 0.4 35 2

Asia 9 93 94 188 14 69 23 4 92 4

Bonds 5 18 6 23 3 7 0.4 0 7 2

Others 3 31 30 61 2 27 15 3 43 0

2007 2008

Several BRICs have postedstrong equity gains over 2009 to date

Total return in LCU, 2009 to date (%)

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

PolandVietnamMexico

Nikkei-225Euro Stoxx-50

S&P-500Turkey

DevelopedIndia

IndonesiaEM (MSCI)

ArgentinaRussia

BrazilChile

China

Source: Bloomberg and DECPG Finance Team.

Deteriorating credit quality for Emerging Market SovereignsUpgrades minus Downgrades

-20

-10

0

10

20

30

40

2001 2002 2003 2004 2005 2006 2007 2008 2009*

Source: Bloomberg, EMTA and DECPG Finance Team.

* as of Feb-13, 2009

Currencies

1.230

1.270

1.310

1.350

1.390

1.430

1.470

1.510

1.550

1.590

1.630

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

86

90

94

98

102

106

110

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Dollar continues gains against euromodest upturn vis-à-vis yen

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

1

2

3

4

5

6

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

Pro-euro interest differentials narrowas more bullish ECB reponse expected

USD Libor and EURIBOR (6 months),

percent

EURIBOR 6 months

USD LIBOR 6 months


Emerging market currencies largely down vs the dollar over 2009 to date

percentage change (USD per LCU) (%)

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

Rus RblPol ztyHun frt

Czk krnMex pso

Tur lraNT$

US NEERChn Rmb

Brz rei

Phl psoInd rpe

Zaf RKor won


The External Environment for Developing Countries

February 2009The World Bank

Development EconomicsProspects Group

Sharp contraction in global production

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