Download Figure 1: Japan GDP growth

The External Environment for
Developing Countries
December 2008
The World Bank
Development Economics
Prospects Group
A deep synchronous downturn for
OECD countries in fourth quarter...
growth GDP growth **, percentage change, q/q saar
4
United States
2
Euro Area
0
-2
Japan
-4
-6
2008-Q1
2008-Q2
2008-Q3
Source: World Bank and National Agencies
2008-Q4E
** Q4 JPMorgan.
...with developing-country production
now in decline, led by China
industrial production percentage change, saar
30
25
China
20
15
Developing
10
5
0
Developing excl China
-5
-10
Jan-07
May-07
Sep-07
Jan-08
May-08
Source: World Bank data.
Sep-08
Industrial countries
U.S. Q3-GDP drops 0.5% on massive
retrenchment by the consumer
growth of real GDP, and contributions to growth in percentage points
5
4
2.8
3
2
0.9
1
-0.5
0
-1
-2
-3
-4
Q1-2008
Q2-2008
Q3-2008
Source: Department of Commerce and DECPG calculations.
Key indicators point to deep
U.S. recession in fourth quarter
10
retail sales, mfgr IP % saar [L], change in employment [R]
Retail sales [L]
5
200
100
0
0
Industrial production [L]
-100
-5
-200
-10
Change in non-farm employment
(3mma, ‘000) [R]
-300
-15
-400
-20
-500
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: Departments of Commerce and Labor; Federal Reserve.
Fed cuts Funds target to 0.0-to 0.25%
with heavy “flight to quality” underway
Fed Funds target- and effective rates; T-note- 2yr, T-note 10 yr
6
LIBOR 3 months
5
T-note 10-year
4
3
T-note 2-yr
2
Fed Funds Target
1
0
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Source: Thomson/Datastream.
Nov-08
Japan GDP drops 1.8% in Q3 on
continuing negative trade outcomes
growth of real GDP, and contributions to growth in percentage points
4
3
2.4
2
1
Consumption
Government
Investment
Stocks
Net Exports
0
-1.8
-1
-2
-3.7
-3
-4
-5
Q1-2008
Q2-2008
Q3-2008
Source: Japan Cabinet Office and DECPG calculations.
Japan’s export strength
gives way to large-scale declines
25
export volumes and manufacturing output, ch% saar
20
Export volumes
15
10
5
0
-5
Industrial production
-10
-15
-20
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Source: Bank of Japan and Japan Cabinet Office.
Japan’s bank lending starting to grow
broad money and total bank lending ch% y/y
4.0
3.5
Bank lending
3.0
2.5
2.0
Broad money
1.5
1.0
0.5
0.0
-0.5
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08
Source: Bank of Japan.
Net exports pull Euro Area GDP
further into recession in 3rd quarter
growth of real GDP, and contributions to growth in percentage points
4
3
2.7
2
Change in stocks
Government
Consumption
Investment
Net Exports
1
0
-0.7
-0.8
Q2-2008
Q3-2008
-1
-2
-3
Q1-2008
Source: Eurostat and DECPG calculations.
German exports now in decline
following sharp falloff in foreign orders
export volume ch% 3mma y/y [L] and export orders, ch% saar [R]
12.5
35
28
21
14
7
0
-7
-14
-21
-28
-35
Export orders [R]
10.0
7.5
Export volume [L]
5.0
2.5
0.0
-2.5
Jan-07 Apr-07
Jul-07
Oct-07
Jan-08 Apr-08
Jul-08
Oct-08
Source: Bundesbank-- Thomson/Datastream.
Inflation– an eventual “silver lining”
for Europe?
4
HICP total ch% y/y [L], HICP-energy, ch% y/y [R]
20
HICP-Energy [R]
15
3
10
2
5
1
0
HICP-Total [L]
0
-5
Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08
Source: Eurostat through Thomson/Datastream.
Industrial production
Downturn in IP across OECD to date
as pronounced as in 2001 recession
16
12
8
industrial production, ch% (3m/3m saar)
Eurozone
4
0
-4
-8
Japan
-12
USA
-16
-20
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Source: Thomson/Datastream, DECPG.
Weak global demand pressures
industrial production in East Asia
industrial production, ch% (3m/3m saar)
30
Indonesia
25
20
China
15
10
5
0
-5
Malaysia
-10
East Asia
-15
Jan-07
May-07
Sep-07
Jan-08
May-08
Source: Thomson/Datastream, DECPG.
Sep-08
IP now in decline across all regions
industrial production, ch% (3m/3m saar)
25
20
East Asia
15
10
5
0
All Developing
Latin America
-5
Europe and Central Asia
-10
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Source: Thomson/Datastream, DECPG.
Oct-08
International trade
Key OECD imports compress
as domestic demand falters
import volume: U.S, Japan, Germany and U.K. ch% 3mma y/y
10.0
Germany
7.5
U.K.
5.0
Japan
2.5
0.0
-2.5
United States
-5.0
Jan-07 Apr-07
Jul-07
Oct-07 Jan-08 Apr-08
Jul-08
Oct-08
Source: National Agencies through Thomson/Datastream.
Developing country export growth fades
export values (USD): China, India, Mexico and Poland ch% 3mma y/y
40
Poland
India
30
China
20
10
Mexico
0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Source: National Agencies through Thomson/Datastream.
U.S. current balance improves slightly
in third quarter on better balance on
non-oil trade
100
50
Income
Services
0
Non-oil
BOT
-50
-100
-150
Oil balance
-200
Transfers
-250
Q1-2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 Q2-2008 Q3-2008
Current account
Source: Department of Commerce.
Oil prices
$/bbl
Crude oil prices plunge back to
2004 levels on falling demand
160
140
World Bank Average
120
100
80
60
40
20
n-0
a
J
4
n-0
a
J
5
n-0
a
J
6
n-0
a
J
7
n-0
a
J
8
Source: Datastream and DECPG Commodities Group.
Crude stocks rise on slumping demand
and recovery from hurricane disruption
M bbl
360
5-year high-low ranges
350
340
330
320
310
300
290
280
270
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Source: U.S. DOE and DECPG Commodities Group.
Jan-09
WTI Futures Prices - NYMEX
Monthly contract prices to Dec 2013* on
select dates in 2008
$/bbl
120
Aug 29
110
100
Sep 30
90
Oct 31
80
70
Dec 15
60
Dec 5
50
40
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Source: NYMEX and DECPG Commodities Group.
Dec-13
Non-oil commodity prices
350
Agriculture prices plummet on weak
demand, falling oil costs and better
supply prospects
Index 2000=100
Fats & Oils
300
Grains
250
200
150
Other Food
100
Jan-05
Jan-06
Jan-07
Jan-08
Source: Datastream and DECPG Commodities Group.
Jan-09
Cu $/ton
Metals prices plunge on
sharp decline in demand
9,000
Ni $/ton
55,000
50,000
8,000
45,000
7,000
40,000
35,000
6,000
Copper
30,000
5,000
25,000
20,000
4,000
Nickel
3,000
10,000
2,000
05
Jan-
15,000
5,000
06
Jan-
07
Jan-
08
Jan-
Source: LME and DECPG Commodities Group.
Ocean freight rates sink on lack
of demand and credit concerns
12,000
10,000
8,000
6,000
4,000
2,000
Baltic dry freight index
0
Jan-05
Jan-06
Jan-07
Jan-08
Source: Datastream and DECPG Commodities Group.
International Finance
Capital flows come to an effective
halt over October and November
Gross capital flows to emerging markets
$ billion
2007
2008
H1
Q3
Total
H1
349
163
652
249
Bonds
107
20
146
Banks
156
101
Equity
86
Total
Lat. America
Bonds
E. Europe
Bonds
Asia
Bonds
Others
Q3
Oct
Nov
YTD
70
18
9
346
58
9
0
0
67
312
146
60
18
9
232
42
194
45
2
0
0
47
69
54
156
57
13
3
1
73
31
6
45
17
1
0
0
18
156
45
247
101
34
12
4
153
50
5
64
32
8
0
0
40
93
47
188
64
14
2
2
81
18
5
23
7
0.4
0
0
7
31
16
61
27
9
1
2
39
Source: DECPG Finance Team.
Credit quality of EM sovereigns
deteriorated in recent months
Credit rating downgrades since September 2008
Venezuela
Ecuador
Sri Lanka
Russia
Jamaica
Hungary
Bulgaria
Kazakhstan
Romania
Lativia
Argentina
Pakistan
One notch from B+ to B by S&P
One notch from B- to CCC-, and to selective
default rating (SD) by S&P
From CCC to defalut rating (RD) by Fitch
One notch from B3 to Caa1 by Moody's
One notch from B+ to B by S&P
One notch from BBB+ to BBB by S&P
One notch from B+ to B by Fitch
One notch from BBB+ to BBB by S&P and Fitch
One notch from A2 to A3 by Moody's
One notch from BBB to BBB- by Fitch
One notch from BBB+ to BBB by S&P
One notch from BBB to BBB- by Fitch
Two notches from BBB to BB+ by Fitch
One notch from BBB- to BB+ by Fitch
One notch from A2 to A3 by Moody's
One notch from B to B- by S&P
One notch from B2 to B3 by Moody's
EMBIG spreads (bp)
Aug-08
Dec-08
648
1,880
724
4,325
774
223
427
166
1,948
889
1,127
495
226
710
485
N/A
1,292
N/A
N/A
671
1,040
N/A
1,960
2,191
* As of Decemebr 15th, 2008.
Source: DECPG Finance Team.
Much greater refinancing risk
for debt maturing in 2009
70
bonds & loans maturing in 2009 by region, billions dollars
60
50
40
Loans
Bonds
30
20
10
0
Eastern Europe
Latin America
Asia
Source: Bondware/Loanware.
Others
Currencies
Dollar plummets since early
December to reverse earlier gains
Jan-08
1.230
USD per Euro (inverse) [Left] and Yen per USD [right]
Mar-08
May-08
Jul-08
Sep-08
Nov-08
110
1.270
1.310
106
1.350
102
1.390
1.430
98
1.470
1.510
94
USD/Euro (inverse)
1.550
90
yen/USD
1.590
1.630
Source: Thomson/Datastream.
86
Net foreign purchases of U.S. assets
halved** over Jan-October 2008
net foreign purchases USD billions, 3mma
140
120
100
80
Equity
Corporate bonds
60
40
GSEs
20
Treasuries
0
-20
Jan-06
May-06 Sep-06
Jan-07
May-07 Sep-07
Jan-08
May-08 Sep-08
Source: U.S. Treasury ‘TICS’ database. ** Jan-Oct08 vs Jan-Oct07
Dollar surges... then retreats
against EM currencies
LCU per USD indexes, Jan1 2008=100 [*increase = weaker LCU]
160
Korean won
150
140
Turkish lira
130
120
110
100
Indonesian rupiah
90
Russian rouble
Brazilian real
80
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Source: Thomson/Datastream.
Nov-08
The External Environment for
Developing Countries
December 2008
The World Bank
Development Economics
Prospects Group