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The External Environment for
Developing Countries
February 2008
The World Bank
Development Economics
Prospects Group
Equities tumbled in January
S&P/Citi-Group BMI Global Index, ch%
25
20
Emerging Markets
Mature Markets
15
10
5
3 months:
from October 2007
0
-5
-10
1 year:
from January 2007
-15
January 2008
-20
Source: Standard & Poor’s.
Spreads widen, but yields stable
EMBIG spread and U.S. 10-year T-note, basis points
740
EMBIG yields
640
EMBIG spreads
540
440
340
U.S. 10-year Treasury note
240
140
Jan07
Feb07
Mar07
Apr07
May- Jun07
07
Jul07
Aug- Sep07
07
Oct07
Nov07
Dec07
Jan08
Feb08
Source: JPMorgan-Chase and Thomson/Datastream
Industrial countries
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
6.0
4.8
4.9
4.0
2.0
Net exports
Government
Consumption
Fixed Investment
Change in stocks
0.6
0.0
-2.0
Growth 2007 2.2%
-4.0
Q3-2007 P
Q3-2007 F
Q4-2007
Source: Department of Commerce and DECPG calculations.
U.S. new home sales drop 33%
over 2007– worst in 45 years
existing and new home sales, ch% 3mma y/y
Existing home sales
Ju
l-0
7
O
ct
-0
7
pr
-0
7
A
Ja
n07
Ju
l-0
6
O
ct
-0
6
pr
-0
6
A
Ja
n06
Ju
l-0
5
O
ct
-0
5
pr
-0
5
New home sales
A
Ja
n05
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
Source: National Assn of Realtors and Department of Commerce.
Employment decline in January
points to weaker retail spending ahead
retail sales, ch% 3mma y/y [L], change in employment 3mma [R]
9.0
280
240
7.5
200
6.0
160
Employment [R]
120
4.5
80
Retail sales [L]
3.0
40
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07
Oct-07 Jan-08
Source: Departments of Labor and Commerce.
Japanese GDP jumps to 3.7% growth in
fourth quarter on exports
growth of real GDP, and contributions to growth in percentage points
5.0
3.7
2.5
1.5
1.3
0.0
Growth 2007 2.1%
Net exports
Stocks
Fixed Investment
Government
Consumption
Q3-2007 F
Q4-2007 P
-2.5
Q3-2007 P
Source: Cabinet Office and DECPG calculations.
Japan’s public-sector and residential
investment show sharp declines
9
public- and residential investment, share of real GDP, percent
Residential investment
6
3
Public investment
0
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Source: Cabinet Office through Thomson/Datastream.
Japan’s orders momentum up in December
supporting exports and production
export volume and IP, ch% saar [L] machinery orders ch% saar [R]
25
45
Exports [L]
20
35
15
25
Industrial production [L]
10
15
5
5
0
-5
-5
-15
-10
New machinery orders [R]
-15
-25
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Source: Cabinet Office through Thomson/Datastream.
Euro Area growth eases in fourth
quarter on consumer and exports
percent change
4
2007-Q2
2007-Q3
2007-Q4
3
2
1
0
Euro Area
Germany
France
Source: EuroStat.
Spain
German exports and production
dampened by euro strength
16
export volumes and IP ch% 3mma, y/y
14
12
Exports
10
8
6
Production
4
2
0
Jan-06 Apr-06
Jul-06
Oct-06 Jan-07 Apr-07
Jul-07
Oct-07
Source: Eurostat through Thomson/Datastream.
ECB hints at cut in policy rates
as Euro Area growth slows
3.5
HICP inflation (ch% y/y) [L]; Germany IP ch% saar [R]
12
Germany IP [R]
3.0
9
2.5
6
2.0
3
1.5
HICP inflation (y/y) [L]
1.0
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
0
Jul-07
Oct-07
Source: Eurostat and Bundesbank.
Jan-08
Industrial production
Possible contraction of industrial
production in the Euro-zone in 2008-Q1
Euro Area industrial production, 3mma ch%, saar
8
Forecast
6
4
2
0
-2
-4
-6
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Source: DECPG
Jan-07
Jan-08
Has the slowdown in U.S.- and
Mexican IP bottomed out?
Industrial production, 3mma, ch% saar
data
15
forecast
Mexico
10
5
0
United States
-5
-10
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Source: DECPG
Jan-07
Jan-08
IP growth appears to be moving
“sideways” in East Asia
Industrial production, 3mma, ch% saar
data
forecast
35
China
25
15
5
Other EAP countries
-5
-15
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Source: DECPG
Jan-07
Jan-08
High-tech Markets
The tech-cycle has been truncated
by global growth uncertainties and delayed
investment spending
global
semi-chip
sales
and
high-tech
exports,
ch%
saar
40
30
20
Exports
10
0
-10
Semiconductor sales
-20
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Source: SIA, Thomson/Datastream, Haver.
Production trends still at lofty rates
but signs of downturn emerging
unit value index in USD terms, ch% year-on-year
30
25
Global
20
15
10
5
East Asia
x Japan
0
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
40
G-3 orders for high-tech manufactures, US dollar terms, ch% saar
30
G-3 High-tech orders
20
10
0
-10
-20
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Source: National Agencies and DECPG calculations.
International trade
Developing countries are now key
drivers of global imports and trade
contribution to global import growth, ch% year-on-year
10
8
Developing country imports
6
4
2
0
-2
U.S. imports
-4
19
91
M
19 1
92
M
19 1
93
M
19 1
94
M
19 1
95
M
19 1
96
M
19 1
97
M
19 1
98
M
19 1
99
M
20 1
00
M
20 1
01
M
20 1
02
M
20 1
03
M
20 1
04
M
20 1
05
M
20 1
06
M
20 1
07
M
1
-6
Source: National Agencies through Thomson/Datastream.
Gap between developing export- and
high-income import- growth widens
growth (USD, y/y percent) developing country exports and high-income imports
30
Developing country export volumes
20
10
0
High-income import volumes
-10
94
95
96
97
98
99
00
01
02
03
04
05
06
07
n
n
n
n
n
n
n
n
n
n
n
n
n
n
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Source: National Agencies through Thomson/Datastream.
Large emerging economies’ import
growth and contributions strengthen
contribution to global import growth, ch% year-on-year
China
Brazil
India
Russia
19
91
M
19 3
92
M
19 3
93
M
19 3
94
M
19 3
95
M
19 3
96
M
19 3
97
M
19 3
98
M
19 3
99
M
20 3
00
M
20 3
01
M
20 3
02
M
20 3
03
M
20 3
04
M
20 3
05
M
20 3
06
M
20 3
07
M
3
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Source: National Agencies through Thomson/Datastream.
Oil prices
Crude oil prices remain elevated
$/bbl
WTI
100
90
Brent
80
Dubai
70
60
50
-07
n
Ja
r-0
p
A
7
7
l-0
u
J
t-0
c
O
7
Source: DECPG Commodities Group.
n-0
a
J
8
OPEC maintaining production levels
mb/d
31
30
Including Iraq
OPEC-10
29
28
27
26
25
24
OPEC-10 Quota
23
22
21
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Source: OPEC and DECPG Commodities Group.
Thermal coal prices surge on weather supply
problems in Australia, China and South
Africa
100
80
Australia Thermal Coal
$/ton (fob)
60
40
WB Oil Price $/bbl
20
0
Jan-96
Jan-98
Jan-00
Jan-03
Jan-04
Source: DECPG Commodities Group.
Jan-06
Jan-08
Non-oil commodity prices
Grains prices surge on strong
competition for feed, food and fuel
$/bushel
14
$/bushel
5
Corn
12
4
10
3
Soybeans
8
Wheat
6
4
n-0
a
J
2
1
6
06
l
Ju
n-0
a
J
7
07
l
Ju
Source: DECPG Commodities Group.
n-0
a
J
8
$/ton
Aluminum prices rise on electric
power disruptions
‘000 tons
3200
Aluminum price
3000
1600
1400
2800
1200
2600
2400
1000
2200
800
LME stocks
2000
600
1800
1600
n-0
a
J
5
400
n-0
a
J
6
n-0
a
J
7
n-0
a
J
8
Source: LME and DECPG Commodities Group.
Global steel production growth
slowing
mil tons
45
40
35
China
Other Asia
Europe
FSU
Other
N America
30
25
20
15
10
5
0
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Source: LME and DECPG Commodities Group.
Jan-08
International Finance
Sharp decline in bank lending and
equity placement in January
Gross capital flows to emerging markets
$ billion
2005
2006
Total
H1
361
209
285
Bonds
126
63
Banks
175
Equity
Total
Lat. America
Bonds
E. Europe
Bonds
Asia
Bonds
Others
2007
H2 Total
2008
H1
H2
Total
494
357
326
683
21
74
137
107
39
146
7
103
142
246
164
180
343
8
59
43
67
111
86
107
194
6
87
51
65
116
69
88
157
6
43
17
24
41
31
14
45
4
129
76
103
179
156
96
252
4
55
28
36
64
50
14
64
1
107
56
97
153
100
113
213
10
21
8
11
19
18
6
23
3
38
26
20
45
32
28
60
1
Source: DECPG Finance Team.
Jan
Equities tumbled in January
S&P/Citi-Group BMI Global Index, ch%
25
20
Emerging Markets
Mature Markets
15
10
5
3 months:
from October 2007
0
-5
-10
1 year:
from January 2007
-15
January 2008
-20
Source: Standard & Poor’s.
All sectors lost ground in January
Total return by sector (based on MSCI world stock indices)
Utilities
Telecomm
Info-tech
Financials
2008 to date
Healthcare
2007
Consumer Staple
Consumer Disr
Industrials
Materials
Energy
-20
-10
0
10
20
30
Source: Bloomberg and DECPG calculations.
40
Spreads widen, but yields stable
EMBIG spread and U.S. 10-year T-note, basis points
740
EMBIG yields
640
EMBIG spreads
540
440
340
U.S. 10-year Treasury note
240
140
Jan07
Feb07
Mar07
Apr07
May- Jun07
07
Jul07
Aug- Sep07
07
Oct07
Nov07
Dec07
Jan08
Feb08
Source: JPMorgan-Chase and Thomson/Datastream
Large credit write-downs
reported by major banks
Total write-downs, billions U.S. dollars
Citigroup
Merrill Lynch
UBS
Morgan Stanley
Bank of America
HSBC
JP Morgan
Deutsche Bank
Wachovia
Barclay's
0
5
10
15
Source: Bloomberg.
20
25
Corporate default risk at record highs
Credit default swaps, basis points
600
CDSs on benchmark European exchange
500
400
300
200
CDSs on the North American index
100
Jan07
Feb07
Mar07
Apr07
May- Jun07
07
Jul07
Aug- Sep07
07
Oct07
Nov- Dec07
07
Source: JPMorgan-Chase.
Jan08
Feb08
Currencies
Dollar in holding pattern against the
majors since mid-January
index, LCU per USD, January 1, 2007 = 100
105
103
100
98
yen
95
euro
93
90
88
Jan07
Feb07
Mar07
Apr07
May07
Jun07
Jul07
Aug07
Sep07
Oct07
Nov- Dec07
07
Source: Thomson/Datastream.
Jan08
Feb08
U.S. capital inflows up since August
2007– demand for Treasuries falling
billions U.S. dollars
180
Net foreign purchases of U.S. securities
150
120
90
60
30
0
-30
o/w Treasuries/Agencies
o/w Private securities
-60
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07
Oct-07
Source: TICS data system: U.S. Treasury.
Commodity currencies trading
slightly stronger against the dollar
index, LCU per USD, July 1, 2007 = 100
110
108
105
103
100
98
A$
ruble
Brazil Rl
95
93
90
C$
88
Jul-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Source: Thomson/Datastream.
Jan-08
Feb-08
The External Environment for
Developing Countries
February 2008
The World Bank
Development Economics
Prospects Group