Download - Source: DECPG Commodities Group.

The External Environment for Developing Countries

September 2008The World Bank

Development EconomicsProspects Group

Commodities retrace a part of gainson falling demand and rising supply...

commodity price indices, January 2006=100

80

100

120

140

160

180

200

220

240

260

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

Source: DECPG Commodities Group.

Energy

Non-Energy

Grains

Metals / Minerals

70

75

80

85

90

95

100

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08

Source: Thomson/Datastream.

... while equity markets see a steeper economic downturn ahead

DJI, DAX, TOPIX, and MSCI-Dev, indexes Jan 1-08 =100

Dow Jones

DAX

MSCI-EM

Topix

Industrial countries

-0.2

0.9

3.3

-3

-2

-1

0

1

2

3

4

5

Q4-2007 Q1-2008 Q2-2008P

Source: Department of Commerce and DECPG calculations.

U.S. Q2-GDP grows 3.3% poweredby external trade and the consumer

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

Net X

Invest

PCE

Gvt

dStok

U.S. loses jobs for an eighthconsecutive month in August change in non-farm payroll

employment, ‘000

-100

-50

0

50

100

150

200

250

300


Source: U.S. Department of Labor.

monthly change

3mma change

U.S. inflation will increase for a timeafter commodity prices retreat

Headline and Core, CPI and PPI indexes, ch% saar

-5

0

5

10

15


Source: Thomson/Datastream, DECPG.

PPI Headline

PPI Core

CPI Headline

CPI Core

2.4

3.2

-2.4

-3

-2

-1

0

1

2

3

4

Q4-2007 Q1-2008 Q2-2008 P

Source: Cabinet Office and DECPG calculations.

Japan Q2-GDP falls sharply on consumer and dissapointing exports

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

Net X

Invest

PCE

dStok

Japan’s housholds and businesssee darker times ahead

Tokyo consumer confidence [L], Tankan business conditions* [R]

32.5

35.0

37.5

40.0

42.5

45.0

47.5

50.0

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

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

Source: Cabinet Office and Bank of Japan.

Consumer confidence [L]

Tankan [R]

Japan’s export markets turn sluggish contribution to growth of Japan’s export

volumes (%)

-5

0

5

10

15

20

25

30

35

2006-Q1 2006-Q3 2007-Q1 2007-Q3 2008-Q1

Other

Other Asia

China

Europe

USA

Source: Bank of Japan, DECPG calculations

1.4

2.7

-0.8

-2

-1

0

1

2

3

4

Q4-2007 Q1-2008 Q2-2008 P

Source: EuroStat and DECPG calculations.

Euro Area Q2 GDP falls 0.8% on drop in investment, weak exports growth of real GDP, and contributions to

growth in percentage points

Change in StocksGovernment Net Exports

ConsumptionInvestment

European purchasing power hit hard by energy prices

Retail sales volume, ch% y/y [R], HICP-energy, ch% y/y [L]

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5


-5.0

-2.5

0.0

2.5

5.0

Source: Eurostat through Thomson/Datastream.

HICP-Energy [L]

France [R]

Germany [R]

Italy [R]

German exports continue decline in July-- in step with export orders export volumes and overseas factory

orders, ch% 3mma

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5


Source: Bundesbank-- Thomson/Datastream.

Export volume

Export orders

Industrial production

Eurozone IP plummets on weaker internal and external demand

real IP, ch% (6m/6m, saar)

-2

0

2

4

6

8

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

France

Germany

Eurozone


Industrial production weakening in developing countries outside China

real IP, ch% (3m/3m saar)

-4

-2

0

2

4

6

8


10

15

20

25

30

Developing countriesexcluding China [left scale] China [right scale]


Export growth and fiscal stimuluscushion U.S. output from deeper decline

real IP ch% (saar)

-4

-2

0

2

4

6

8


IP 3m/3mIP 6m/6m


International trade

OECD import volumes contract in the second quarter

import volumes, ch% (y/y) [left], ch% saar [right]

-5

0

5

10

15

-10

-5

0

5

10

15

20

25

Source: NL CPB and Thomson/Datastream.

3m/3m saar [R]

12m/12m annual [L]

China’s exports ease gradually into 2008

export volumes, ch% (y/y) [left], ch% saar [right]

0

10

20

30

40

-40

-20

0

20

40

60

80


3m/3m saar [R]

12m/12m annual [L]

LAC exports follow U.S. imports annual volume growth ch% (12m/12m)

-8

-5

-3

0

3

5

8

10

13

15

U.S. imports

LAC exports


Oil prices

Crude oil prices plunge on increasing concerns about demand

50

75

100

125

150

Jan-07Jul-0

7Jan-08

Jul-08

$/bbl

WTI

Brent

Dubai

Source: Datastream and DECPG Commodities Group.

Growth in U.S. oil demand million barells per day, 3mma (y/y)

-1200

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Gasoline Distillate Resid Other

mb/d

Source: IEA and DECPG Commodities Group.

WTI Futures Prices - NYMEX

50

60

70

80

90

100

110

120

130

140

150

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

SEP 9 2008

$/bbl

Monthly contract prices to Dec 2013* on select dates in 2007-08

Jan 16

Aug 15

Dec 31

Jul 3 2008

Jul 31 2008

Source: NYMEX and DECPG Commodities Group.

Non-oil commodity prices

Corn, soybean, wheat prices decline on improving supply prospects

200

400

600

800

1000

1200

1400

1600

Jan-07Jul-0

7Jan-08

Jul-08

c/bushel

Soybeans

Corn

Wheat

Source: Datastream and DECPG Commodities Group.

Metals prices fall on increasing concerns about demand

1000

2000

3000

4000

5000

6000

7000

8000

9000

Jan-05Jan-06

Jan-07Jan-08

10000

15000

20000

25000

30000

35000

40000

45000

50000

55000

Cu Zn $/ton Ni $/ton

Zinc

Copper

Nickel

Source: LME and DECPG Commodities Group.

Gold prices drop on dollar appreciation

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

Jan-05Jan-06

Jan-07Jan-08

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: LME and DECPG Commodities Group.

International Finance

Captial flows depressesd over July / August

Source: DECPG Finance Team.

Gross capital flows to emerging markets

$ billion 2006

Total H1 Total Jan-Aug H1 Jun Jul Aug YTD

Total 494 357 683 472 267 58 29 15 312

Bonds 137 107 146 118 58 19 8 2 68

Banks 246 164 343 240 165 36 20 13 198

Equity 111 86 194 114 44 3 1 0 46

Lat. America 116 69 157 110 54 9 5 2 62

Bonds 41 31 45 37 17 1 1 0.4 18

E. Europe 179 156 252 191 104 35 17 6 127

Bonds 64 50 64 55 33 15 6 0.1 39

Asia 153 110 213 130 90 11 4 6 101

Bonds 19 18 23 22 7 3 1 1 9

Others 45 32 60 41 20 2 2 1 22

2007 2008

Global equities continue decline Mature- and Emerging Market indices, ch

%

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

Jan Feb Mar Apr May Jun Jul Aug Sep*


Emerging Markets

Mature Markets

120

160

200

240

280

320

360

May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08

10

15

20

25

30

35


EM credit spreads widen in step with increasing risk aversion

EMBIG spreads, basis points [L], Equity volatility index [R]

EMBIG spreads [L]

Vix index [R]

Currencies

1.390

1.410

1.430

1.450

1.470

1.490

1.510

1.530

1.550

1.570

1.590

1.610


96

98

100

102

104

106

108

110

112


yen/USD

USD/Euro (inverse)

Dollar rebounds sharply vis-à-vis the euro

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

European prospects dim... a key factor in the dollar’s rebound Consensus forecasts for 2008 GDP

growth, by month prepared.

1.0

1.5

2.0

2.5

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08

Source: Consensus Economics Ltd.

Germany

USA

Euro Area

85

90

95

100

105

110

115

120

125



Dollar broadly higher against emerging market currencies

LCU per USD indexes, Jan1 2008=100 [*increase = weaker LCU]

Turkish lira

Brazilian reis

Indonesian rupiah

Korean won

Philippine peso

FOCUSSeptember 2008

U.S. takeover of Fannie and Freddie...market implications

Takeover of Fannie & Freddie followed by drop in mortgage rates...

mortgage spreads in basis points

0

50

100

150

200

250

300

350

400

450

500

08/01/07 11/01/07 02/01/08 05/01/08 08/01/08

Source: Federal Reserve Governors.

30-year fixed mortgage rate – Fed funds rate

30-year fixed mortgage rate – 30-year T-Note rate

30

40

50

60

70

80

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

Source: Bloomberg Data Service.

... and lower yields on U.S. Agency debt

yield on 30-year Fannie Mae bonds less Treasury bond (basis points)

...as fiscal outlook deteriorates U.S. federal debt held by the public, % of

GDP

25.0

27.5

30.0

32.5

35.0

37.5

40.0

42.5

2007 2008 2009 2010 2011 2012

09-Sep-08

Aug -07 Projection

Source: Congressional Budget Office.

The External Environment for Developing Countries

September 2008The World Bank

Development EconomicsProspects Group