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The External Environment for
Developing Countries
March 2009
The World Bank
Development Economics
Prospects Group
Federal Reserve’s “quantitative easing”
spurs quick fall in long rates
U.S. ten-year T-note, 30-year fixed- and ARM mortgage rates, percent
3.3
6.5
Variable ARM rate [right]
3.0
6.0
2.8
Ten-year note [left]
5.5
2.5
30-year fixed mortgage [right]
5.0
2.3
2.0
Jan-09
4.5
Jan-09
Jan-09
Feb-09
Mar-09
Source: Thomson/Datastream.
Mar-09
... sustaining longest
equity rally since end-2008
Indexes: 100 on September 15, 2008 [Lehman Brothers]
105
100
95
90
85
MSCI-Emerging
Markets
DJIA USA
80
75
70
65
60
55
Sep-08
Topix Japan
CAC- France
Oct-08
Nov-08
Dec-08
Jan-09
Source: Thomson/Datastream.
Feb-09
Mar-09
Industrial countries
U.S. GDP revised to substantial 6.2%
decline in fourth quarter 2008
growth of real GDP, and contributions to growth in percentage points
6
4
Stocks
Government
Consumption
Investment
Net Exports
2.8
2
-0.5
0
-2
-3.8
-4
-6.2
-6
-8
Q2-2008
Q3-2008
Q4-2008 F
Q4-2008 R
Source: Department of Commerce and DECPG calculations.
Continued employment losses affecting
incomes and retail spending
15
retail sales growth (saar) [L]; change in employment (3mma) [R] 400
10
200
Retail sales [L]
5
0
0
-5
Change in
employment [R]
-10
-200
-15
-400
-20
-600
-25
-30
Jan-06
-800
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Source: U.S. Departments of Commerce and Labor.
Virtual collapse in manufacturing and
exports pressures growth further
durable goods orders, export volumes and mfgr output, ch% saar
10
40
Exports [right]
30
5
Production [left]
20
0
10
-5
0
-10
-10
-20
-15
-30
-20
-40
Orders [right]
-25
-50
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
Source: Federal Reserve, Department of Commerce.
Japan’s trade and production falling
from a veritable “cliff” through February
10
export volumes and manufacturing output, ch% saar
0
60
40
-10
20
IP [Left]
-20
0
-30
-20
-40
-40
Export volume [R]
-50
-60
-60
-80
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
Source: Bank of Japan and Japan Cabinet Office.
United States and Asia account for the
bulk of the decline in Japan’s exports
contributions to growth in percentage points
15
12
9
6
3
0
-3
-6
-9
-12
-15
USA
MENA
Q1-2008
EU
Other
Q2-2008
Asia
Total
Q3-2008
Q4-2008
Source: National Sources through Thomson/Datastream.
Japan’s liquidity inches higher
growth of M-0, M1 and ‘L’, ch%, y/y
7
‘L’ (Broad money)
6
5
4
M-1
3
2
1
M-0
0
-1
-2
01/31/2007
07/31/2007
01/31/2008
Source: Bank of Japan.
07/31/2008
01/30/2009
GDP in Euro Area falls sharply on
investment and exports
growth of real GDP, and contributions to growth in percentage points
4
2.8
2
-1.0
0
-1.0
-2
-4
Stocks
Consumption
Government
Investment
Net Exports
-6
-5.7
-8
Q1-2008
Q2-2008
Q3-2008
Q4-2008
Source: EUROSTAT and DECPG calculations.
Trade is sapping the German economy
of any forward momentum
export orders and factory output, ch% saar
30
20
10
0
-10
-20
-30
-40
-50
IP Manufacturing
-60
-70
Export orders
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Source: EUROSTAT through Thomson/Datastream.
Jan-09
European labor markets begin to
weaken, sentiment falls quickly
growth in the number of EA unemployed [left] EC consumer sentiment [right]
15
0
10
-5
-10
5
-15
0
growth in the number
of unemployed (y/y), % [left]
-20
-5
-25
-10
-30
Euro Area consumer sentiment [right]
-15
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08
-35
Feb-09
Source: EUROSTAT and European Commission.
Industrial production
Manufacturing output collapses across
high-income OECD countries
manufactures output, ch% (3m/3m saar)
15
10
5
0
-5
Eurozone
-10
-15
Japan
-20
-25
Jan-07
USA
-56.5%
May-07
Sep-07
Jan-08
May-08
Sep-08
Source: Thomson/Datastream, DECPG.
Jan-09
10
Industrial output decline
intensifies in Europe
industrial production ch% (3m/3m saar)
0
Germany
-10
Italy
France
-20
-30
Spain
-40
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Source: Thomson/Datastream, DECPG.
Jan-09
Industrial output collapses in ECA as
trade partners fall deeper into recession
industrial production, ch% (3m/3m saar)
25.0
12.5
0.0
Europe and Central Asia
-12.5
-25.0
Turkey
Czech Republic
-37.5
-50.0
Jan-07
Hungary
May-07
Sep-07
Jan-08
May-08
Sep-08
Source: Thomson/Datastream, DECPG.
Jan-09
International trade
Growth of world trade in dollars
Q4-2008 / Q-4 2007 (%)
export values: ch% yr/yr
0
-2
-4
-6
-8
-10
-12
-14
-16
World
USA
Japan
Euro Area
Developing
countries
Source: National Agencies through Thomson/Datastream.
U.S. current balance improves
in fourth quarter on falloff in goods
imports (notably oil)
100
50
Income
Services
0
Non-oil
BOT
-50
-100
Oil balance
-150
Transfers
-200
-250
Q4-2007
Current account
Q1-2008
Q2-2008
Q3-2008
Q4-2008
Source: Department of Commerce.
World trade has averaged 10% growth
per annum over the last 2 decades
export values (USD), ch%
25
20
15
10
5
0
-5
1991
1993
1995
1997
1999
2001
2003
2005
Source: National Agencies through Haver Analytics.
2007
Oil prices
OECD oil stocks remain high
million bbl
$/bbl
140
2,800
OECD stocks [R]
120
2,700
100
80
2,600
60
2,500
Oil price
40
[L]
2,400
20
0
Jan-00
2,300
Jan-02
Jan-04
Jan-06
Jan-08
Source: IEA and DECPG Commodities Group.
OPEC oil production drops sharply
mb/d
32
Including Iraq
30
28
OPEC-11
26
24
22
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Source: IEA and DECPG Commodities Group.
WTI Futures Prices - NYMEX
Monthly contract prices to Dec 2014* on
select dates in 2009
$/bbl
80
70
Mar 16
Jan 15
60
50
Feb 18
40
30
Jan-09
Jan-10
Jan-11
Jan-12
Source: NYMEX.
Jan-13
Jan-14
Non-oil commodity prices
Food prices slip in February on
weak demand
(2000=100)
350
Grains
300
Fats & Oils
250
Beverages
200
150
Other Food
100
Jan-06
Jan-07
Jan-08
Source: DECPG Commodities Group.
Jan-09
Copper prices rise on Chinese
restocking
$/ton
‘000 tons
9,000
550
500
8,000
450
7,000
400
350
6,000
Copper price
5,000
300
250
LME stocks
200
4,000
150
3,000
100
2,000
Jan-06
50
Jan-07
Jan-08
Jan-09
Source: LME and DECPG Commodities Group.
Freight rates revive on stronger
trans-PAC
bulk
shipments
$/ton
12,000
10,000
8,000
Baltic dry freight index
6,000
4,000
2,000
0
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Source: Datastream and DECPG Commodities Group.
International Finance
Lending falters in early 2009 as
banks deleverage and build capital
Gross capital flows to emerging markets
$ billion
2007
2008
Q1 Total
Total
Jan
Feb
2009
Q1
Total
Jan
Feb
164
652
30
33
103
370
18
15
Bonds
58
146
7
2
12
65
9
6
Banks
79
312
17
28
71
257
10
9
Equity
26
194
6
3
20
48
0
0
38
156
9
4
19
80
9
10
20
45
4
0
5
20
5
3
82
247
5
16
36
155
6
1
28
64
1
2
4
35
2
0
27
188
14
9
38
92
3
3
8
23
3
0
3
7
2
3
16
61
2
3
11
43
0
0
Lat. America
Bonds
E. Europe
Bonds
Asia
Bonds
Others
Source: DECPG Finance Team.
EM equities outperform
mature markets over 2009 to date
12
9
6
3
0
-3
-6
-9
-12
-15
-18
return by period
Emerging markets
Mature markets
* through March 13
January
February
March *
Year to date *
Source: Morgan-Stanley through Thomson/Datastream
Sovereign credit risk has increased
sharply across emerging markets
Sovereign CDS spreads in basis points
Mexico
Malaysia
Thailand
Brazil
Colombia
South Africa
Bulgaria
Russia
Philippines
Turkey
Indonesia
Kazakstan
Argentina
// 3,680
Ukraine
// 4,600
0
250
500
750
1,000
1,250
Source: Bloomberg and DECPG Finance Team.
1,500
Currencies
Dollar continues gains against euro
and yen until FOMC of March 18
Jan-08
1.230
USD per Euro (inverse) [Left] and Yen per USD [right]
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
110
1.270
1.310
106
1.350
102
1.390
1.430
1.470
1.510
98
USD/Euro (inverse)
94
1.550
1.590
1.630
yen/USD
Source: Thomson/Datastream.
90
86
Net foreign purchases of U.S. assets
turn to outflow as of the fourth quarter
net foreign purchases USD billions
280
240
200
160
120
80
40
0
-40
-80
-120
Q1-2008
Q2-2008
Treasuries
Q3-2008
Corp Bonds
GSEs
Q4-2008
Equity
Jan-09 (qr)
Total
Source: U.S. Treasury ‘TICS’ database.
Emerging market currencies down vs
the dollar over 2009 to date
percentage change (USD per LCU) (%)
US NEER
Indo rph
Mys rgt
Ind rpe
Brz rei
Tur lra
Cze crn
Mex pso
Hun frt
Pol zty
Rus Rbl
-30
-25
-20
-15
-10
-5
Source: Thomson/Datastream.
0
5
The External Environment for
Developing Countries
March 2009
The World Bank
Development Economics
Prospects Group