The External Environment for Developing Countries
April 2010The World Bank
Development EconomicsProspects Group
Source: Thomson-Datastream
Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-106,0007,0008,0009,000
10,00011,00012,00013,00014,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Equity and commodity markets echo the pickup in global
economic activity Dow-Jones Industrial average [left]; Copper price ($/ton) [right]
Copper price [right]
Dow Jones [left]
Greek CDS spread drops sharply in the wake of Euro-Group/IMF
financial package
Source: Bloomberg.
1/9/2009 4/9/2009 7/9/2009 10/9/2009 1/9/2010 4/9/201050100150200250300350400450 CDS Spread (basis
points)
OECD developments
30
35
40
45
50
55
60
Mfgr Services
50 marks growth/contraction threshold
ISM surveys show step-up in U.S. services
Source: Institute for Supply Management (ISM).
headline activity indexes, mfgr and services
U.S. business investment and employment
turn the corner to growthbus. investment, ch% (q/q) saar [left]; change in employment
‘000 [right]
Q1 2000
Q2 2000
Q3 2000
Q4 2000
Q1 2001
Q2 2001
Q3 2001
Q4 2001
Q1 2002
Q2 2002
Q3 2002
Q4 2002
Q1 2003
Q2 2003
Q3 2003
Q4 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Q2 2006
Q3 2006
Q4 2006
Q1 2007
Q2 2007
Q3 2007
Q4 2007
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
-40-30-20-10
01020
-800-600-400-2000200400
Investment [left]
Source: U.S. Departments of Commerce and Labor.
1/1/2007 7/1/2007 1/1/2008 7/1/2008 1/1/2009 7/1/2009 1/1/2010-50-40-30-20-10
0102030 Total sales New home sales
Source: U.S. Department of Commerce and National Association of Realtors.
U.S. housing hit by a wave of foreclosuresHome sales, ch% 3mma y/y
Japanese prices still falling despite pickup in economic
activityconsumer and producer prices, GDP deflator
and Industrial Production ch% (y/y)
-20-15-10-505
10
-40-30-20-1001020
Industrial productionCPIPPI
Source: Japan Cabinet Office, METI.
Greek CDS spread drops sharply in the wake of Euro-Group/IMF
financial package
Source: Bloomberg.
1/9/2009 4/9/2009 7/9/2009 10/9/2009 1/9/2010 4/9/201050100150200250300350400450 CDS Spread (basis
points)
European sentiment steps up…with little
evidence for growth
Source: IFO, Bank du France and Bundesbank.
IFO (overall), Bank du France (business climate) [left]; German export volumes ,ch% saar [right]
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-1060
70
80
90
100
110
-70-50-30-10103050
IFO Bank du France
Country Focus:China
China’s growth remains robust in 2010
Source: World Bank
Real growth (percent)
36951
37043
37135
37226
37316
37408
37500
37591
37681
37773
37865
37956
38047
38139
38231
38322
38412
38504
38596
38687
38777
38869
38961
39052
39142
39234
39326
39417
39508
39600
39692
39783
39873
39965
40057
40148
40238
0
5
10
15
20
25
GDP (yoy)Industrial value added (yoy)
Jan-Feb aver-age
Net external trade subtracted heavily from growth in 2009
Source: World Bank
Contribution to growth (real, percent y-o-y)
2006
2007
2008
2009
-10-505
101520
GDPDomestic demandcontribution of net exports
China’s exports have recovered impressively
Source: World Bank
Index, constant prices (October 2008 = 100)
38353
38384
38412
38443
38473
38504
38534
38565
38596
38626
38657
38687
38718
38749
38777
38808
38838
38869
38899
38930
38961
38991
39022
39052
39083
39114
39142
39173
39203
39234
39264
39295
39326
39356
39387
39417
39448
39479
39508
39539
39569
39600
39630
39661
39692
39722
39753
39783
39814
39845
39873
39904
39934
39965
39995
40026
40057
40087
40118
40148
40
60
80
100
120
China's exports of goods (sa)World imports, excluding China (sa)
The composition of growth is likely to change substantially this
year
Source: World Bank
Contribution to growth (real, percent y-o-y)
2003 2004 2005 2006 2007 2008 2009 2010 2011-5
0
5
10
15
GDP Domestic demandNet exports
The external surplus is likely past its peak
Source: World Bank
Share of GDP (percent)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201102468
1012
Current accountTrade balance
China’s cyclical condition differs sharply from that in the United
States
Source: World Bank
Percent
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-6-5-4-3-2-101234 US output gap
China's output gap
Industrial production
Global industrial production continues to expand at a rate
near 10%
Source: World Bank calculations based on Thomson Datastream data
Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10-30-25-20-15-10
-505
1015
global industrial production, ch% (3m/3m, saar)
Pace of recovey in production mixed
across developing regionsindustrial production, ch% (3m/3m saar)
Source: World Bank data
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10-40-30-20-10
010203040
Latin America Europe and Central AsiaEast Asia and PacificSouth Asia
Growth in retail sales picking up but volumes yet to breach pre-
crisis levels
Source: DEC Prospects Group calculations
global retail sales proxy, (excl United States), ch% (y/y)
Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10-3-2-10123456
International trade
Developing country trade increased
above pre-crisis peaks as of early 2010
Source: World Bank, DEC Prospects Group
2007
M01
2007
M03
2007
M05
2007
M07
2007
M09
2007
M11
2008
M01
2008
M03
2008
M05
2008
M07
2008
M09
2008
M11
2009
M01
2009
M03
2009
M05
2009
M07
2009
M09
2009
M11
2010
M01200300400500600700800
Developing imports
High income countries
Developing countries
export and import volumes, billions USD
China’s share in U.S. trade deficit in part a reflection of East Asia’s
production chain
Source: U.S. ITC data and World Bank calculations19
8919
9119
9319
9519
9719
9920
0120
0320
0520
0720
09-0.100.000.100.200.300.400.500.600.70
Japan
ChinaOther
Asia
Mex-ico
share of selected countries in U.S. trade deficit
LPI 2010 – performance varies around the world
Source: Connecting to Compete, World Bank, 2010
No dataLogistics friendly
Logistics unfriendlyPartial performersConsistent performers
Oil prices
Oil prices and OPEC production
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
20
40
60
80
100
120
140
28
29
30
31
32$/bbl million b/d
Oil price [L scale]
OPEC production [R scale]
Source: IEA, Bloomberg and DECPG.
U.S. petroleum inventories remain relatively high
Jan-03
Feb-03
Mar-03
Apr-03
May-03
Jun-03
Jul-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
850
900
950
1,000
1,050
1,100
1,150 million barrels5-year range
U.S. petroleum inventories
Source: U.S. EIA.
U.S. natural gas prices remain low on unconventional production
gains
Jan-00Feb-00Mar-00Apr-00May-00Jun-00Jul-00Aug-00Sep-00Oct-00Nov-00Dec-00Jan-01Feb-01Mar-01Apr-01May-01Jun-01Jul-01Aug-01Sep-01Oct-01Nov-01Dec-01Jan-02Feb-02Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03Apr-03May-03Jun-03Jul-03Aug-03Sep-03Oct-03Nov-03Dec-03Jan-04Feb-04Mar-04Apr-04May-04Jun-04Jul-04Aug-04Sep-04Oct-04Nov-04Dec-04Jan-05Feb-05Mar-05Apr-05May-05Jun-05Jul-05Aug-05Sep-05Oct-05Nov-05Dec-05Jan-06Feb-06Mar-06Apr-06May-06Jun-06Jul-06Aug-06Sep-06Oct-06Nov-06Dec-06Jan-07Feb-07Mar-07Apr-07May-07Jun-07Jul-07Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08Feb-08Mar-08Apr-08May-08Jun-08Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09Oct-09Nov-09Dec-09Jan-10Feb-10Mar-100
5
10
15
20
25 $/mmbtu
Oil price
U.S. gas price
Source: IEA, Bloomberg and DECPG.
Non-oil commodity prices
100
150
200
250
300
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Food Beverages
Raw Materials
Food-beverage prices fall but cotton & rubber prices up on
supply constraints(2000=100)
Source: DECPG.
Metals prices rise on demand expectations
Jan-03Jan-03Jan-03Jan-03Jan-03Jan-03Feb-03Feb-03Feb-03Feb-03Feb-03Mar-03Mar-03Mar-03Mar-03Mar-03Apr-03Apr-03Apr-03Apr-03Apr-03Apr-03May-03May-03May-03May-03May-03Jun-03Jun-03Jun-03Jun-03Jun-03Jul-03Jul-03Jul-03Jul-03Jul-03Jul-03Aug-03Aug-03Aug-03Aug-03Aug-03Sep-03Sep-03Sep-03Sep-03Sep-03Sep-03Oct-03Oct-03Oct-03Oct-03Oct-03Oct-03Nov-03Nov-03Nov-03Nov-03Nov-03Dec-03Dec-03Dec-03Dec-03Dec-03Jan-04Jan-04Jan-04Jan-04Jan-04Jan-04Feb-04Feb-04Feb-04Feb-04Feb-04Mar-04Mar-04Mar-04Mar-04Mar-04Mar-04Apr-04Apr-04Apr-04Apr-04Apr-04May-04May-04May-04May-04May-04Jun-04Jun-04Jun-04Jun-04Jun-04Jun-04Jul-04Jul-04Jul-04Jul-04Jul-04Aug-04Aug-04Aug-04Aug-04Aug-04Aug-04Sep-04Sep-04Sep-04Sep-04Sep-04Oct-04Oct-04Oct-04Oct-04Oct-04Oct-04Nov-04Nov-04Nov-04Nov-04Nov-04Dec-04Dec-04Dec-04Dec-04Dec-04Dec-04Jan-05Jan-05Jan-05Jan-05Jan-05Feb-05Feb-05Feb-05Feb-05Feb-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Apr-05Apr-05Apr-05Apr-05Apr-05May-05May-05May-05May-05May-05May-05Jun-05Jun-05Jun-05Jun-05Jun-05Jul-05Jul-05Jul-05Jul-05Jul-05Aug-05Aug-05Aug-05Aug-05Aug-05Aug-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Oct-05Oct-05Oct-05Oct-05Oct-05Nov-05Nov-05Nov-05Nov-05Nov-05Dec-05Dec-05Dec-05Dec-05Dec-05Dec-05Jan-06Jan-06Jan-06Jan-06Jan-06Feb-06Feb-06Feb-06Feb-06Feb-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Apr-06Apr-06Apr-06Apr-06Apr-06May-06May-06May-06May-06May-06May-06Jun-06Jun-06Jun-06Jun-06Jun-06Jul-06Jul-06Jul-06Jul-06Jul-06Jul-06Aug-06Aug-06Aug-06Aug-06Aug-06Sep-06Sep-06Sep-06Sep-06Sep-06Sep-06Oct-06Oct-06Oct-06Oct-06Oct-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Dec-06Dec-06Dec-06Dec-06Dec-06Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09Nov-09Nov-09Nov-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-100
1,0002,0003,0004,0005,0006,0007,0008,0009,000
0
10,000
20,000
30,000
40,000
50,000
60,000$/ton $/ton
Copper [L scale]
Nickel [R scale]
Source: IEA, Bloomberg and DECPG.
Aluminum [L scale]
0
10000
20000
30000
40000
50000
60000
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
Other
Other Asia Pacific
China
Global steel production (000 tons)
Source: IISI.
International Finance
Capital flows to EM surged in March
Source: DECPG.
$ billion 2008 2009 2010 Q1 Total Q1 Total Jan Feb Mar Q1 Total 103 390 48 353 33 17 44 94 Bonds 12 65 18 115 21 5 21 48 Banks 71 257 22 129 4 5 10 19 Equity 20 68 8 109 7 7 13 27 Lat. America 19 90 21 137 9 4 16 29 Bonds 5 20 10 62 8 2 10 19E. Europe 36 157 6 72 12 2 9 24 Bonds 2 35 4 33 7 1 8 17Asia 38 98 18 122 12 7 14 33 Bonds 3 7 5 16 7 2 0 9Others 11 45 3 22 0 3 5 8
Source: JPMorgan, Bloomberg, World Bank.
Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10102030405060708090
-8-4048121620
Volatility of risky assets continues to ease in 2010
VIX index [left], daily change in weighted EMBIG spreads (30-day movavg)[right]
EM bond volatility,EMBIG [R]
Equity volatility,VIX index [L]
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-102.0
3.0
4.0
5.0
6.0
6.5
7.0
7.5
8.0
8.5U.S.Euro zoneBRIC [right]
Source: Bloomberg and World Bank.
U.S. Treasury yields increasing…European and EM bonds remain
subdued10-year government bonds yields (%)
Currencies and inflation
Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-101.325
1.365
1.405
1.445
1.485
1.525 85.00
87.50
90.00
92.50
95.00
Source: Thomson/Datastream.
yen/USDUSD/Euro (inverse)
Euro regains some ground vs dollar on partial relaxation of
Greek debt tensions USD per Euro (inverse) [Left] and Yen per USD [right]
Source: Thomson-Datastream
Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-100.0
1.0
2.0
3.0
4.0
5.0
6.0
Volatility in USD-Libor increases sharply
with UST yields moving well above Bund
USD-Libor, EURIBOR, US Treasuty 10-year yield and 10-yr Bund yield, percent
EURIBOR
USD-LIBOR
UST-10-yr
Bund10-yr
1/1/2007 7/1/2007 1/1/2008 7/1/2008 1/1/2009 7/1/2009 1/1/2010-4-202468
101214
USA Euro Area Japan
Inflation picking up as the period of high
commodity prices passes from calculation
Source: World Bank, DEC Prospects Group
headline CPI indexes, ch% yr/yr
Focus Financing gaps in 2010
2009 e 2010 p 2011 p0.0
500.0
1,000.0
1,500.0
2,000.0
024681012 percent
External financing needs decline in 2010-11
$ trillion
Source: DataStream and World Bank, DEC Prospects Group
Maturing foreign debt [left]Current account deficit [left]
% of GDP of those countries with financing needs [right]
Modest recovery in private capital
expected in 2010 and 2011Net private capital flows to developing countries, $ billion
2008 2009 e 2010 p 2011 p-200
0200400600800
1,0001,200
0
1
2
3
4
5Portfolio equityPrivate debtFDIShare of GDP [right axis]
Source: DataStream and World Bank, DEC Prospects Group
External financing gaps are projected to fall
Low Lower-Middle Upper-Middle0123456789
2009e 2010p 2011p
Source: World Bank DEC Prospects Group staff estimates
200920102011 Total gap ($bn): 352 210 180
Financing gaps were closed through current account adjustment and
higher-than expected capital flows
Source: World Bank, DEC Prospects Group
billions dollarsSeries1
-250-200-150-100
-500
50100150200
Predicted Actual Difference
Net Capital flows
Current Account Balance
2005 2006 2007 2008 2009World Bank 2.7 -0.5 4.8 7.1 21.1IMF -40.2 -26.7 -5.1 10.8 27.5Other official -34.0 -45.1 -0.6 10.2 20.9Total -71.5 -72.3 -0.9 28.1 69.5Source: World Bank Debtor Reporting System, IMF
Net official flows increased sharply in response to the crisis
billions dollars
Sovereign debt issuance by high-income countries, 2006-2010
Source: IMF and World Bank
trillions dollars
2006 2007 2008 2009e 2010f0.0500.0
1,000.01,500.02,000.02,500.03,000.0
The External Environment for Developing Countries
April 2010The World Bank
Development EconomicsProspects Group