Prospects for Prospects for Developing CountriesDeveloping Countries
Global Economic Prospects 2008Global Economic Prospects 2008The World BankThe World Bank
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.
Growth in developing economies is expected to slow only modestly over the coming 2 years.
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.
Growth in developing economies is expected to slow only modestly over the coming 2 years.
Serious risks remain for developing countries– to the downside as well as to the upside.
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.
Growth in developing economies is expected to slow only modestly over the coming 2 years.
Serious risks remain for developing countries– to the downside as well as to the upside.
Still- longer term growth appears favorable.
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Perceived riskiness of high-yield corporate Perceived riskiness of high-yield corporate bonds increased more than EM bondsbonds increased more than EM bonds
100
200
300
400
500
600
Source: Bloomberg, JPMorgan-Chase.
High-yield spread
EM-BIG spread
spreads, basis points
Following onset of crisis– Following onset of crisis– emerging-market spreads increasedemerging-market spreads increased and have become more volatile... and have become more volatile...
100
140
180
220
260
300
340
1-Jan-07 14-Feb-07 30-Mar-07 13-May-07 26-Jun-07 9-Aug-07 22-Sep-07 5-Nov-07 19-Dec-07
Source: JPMorgan.
EMBIG-Total
Europe and Central Asia
Latin America
East Asia
spreads over U.S. Treasuries, basis points
...but in historical perspective ...but in historical perspective the present widening of spreads is the present widening of spreads is
modestmodest
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
1994M1 1995M9 1997M5 1999M1 2000M9 2002M5 2004M1 2005M9 2007M5
Bond spreads (basis points)
Emerging market bond spread (EMBIG)
Source: JPMorgan.
Bond yields have flattened-Bond yields have flattened- with falling U.S. Treasury rates with falling U.S. Treasury rates the prime factor raising spreadsthe prime factor raising spreads
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
1994M1 1995M9 1997M5 1999M1 2000M9 2002M5 2004M1 2005M9 2007M5
Bond spreads and yields (basis points)
Source: JPMorgan.
Emerging market bond spread (EMBIG)
Emerging market bond yields
Emerging equity markets fell sharplyEmerging equity markets fell sharply but more-than recouped earlier losses... but more-than recouped earlier losses...
90
100
110
120
130
140
150
1-Jan-07 15-Feb-07 1-Apr-07 16-May-07 30-Jun-07 14-Aug-07 28-Sep-07 12-Nov-07 27-Dec-07
Source: Morgan-Stanley, Thomson/Datastream.
MSCI-Emerging Markets
DJIA (USA)
TOPIX (Japan)
equity market indices (USD): Jan-07 =100
...keeping bullish longer-term trends intact...keeping bullish longer-term trends intact
100
125
150
175
200
225
250
1-Sep-05
1-Dec-05
1-Mar-06
1-Jun-06
1-Sep-06
1-Dec-06
1-Mar-07
1-Jun-07
1-Sep-07
1-Dec-07
Source: Morgan-Stanley, Thomson/Datastream.
All Emerging Markets
Latin America
Asia
Europe and Central Asia
equity market indices (USD): Sep-05 =100
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries.
Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.
Weakening of U.S. domestic demandWeakening of U.S. domestic demandstarted well before financial turmoilstarted well before financial turmoil
growth of investment and imports, 4-quarter moving average
-15
-10
-5
0
5
10
15
1999-I 2000-I 2001-I 2002-I 2003-I 2004-I 2005-I 2006-I 2007-I
Source: World Bank.
U.S. Investment
U.S. Imports
Developing country growth retained Developing country growth retained robust momentum through the robust momentum through the
first-half of 2007...first-half of 2007...
0
2
4
6
8
10
East Asia South Asia Latin America United States
2005 2006 2007-H1
Source: World Bank and National Agencies.
real GDP, percent changereal GDP, percent change
...with import demand from the ...with import demand from the developing world a support U.S. exportsdeveloping world a support U.S. exports
nominal growth in US$, 12m/12m ch%
-15
-5
5
15
25
35
1994M7 1996M7 1998M7 2000M7 2002M7 2004M7 2006M7
U.S. exports
Developing country imports
Source: World Bank.
The dollar’s decline to near all-time lows is The dollar’s decline to near all-time lows is a key factor for trade & capital flowsa key factor for trade & capital flows
real effective exchange rate
70
80
90
100
110
120
Source: IMF.
Gradual reductions in U.S.Gradual reductions in U.S. current account deficit likely to continue current account deficit likely to continue
U.S. current account balance, % of GDP
-7.0
-6.0
-5.0
-4.0
-3.0
Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007
Source: U.S. Department of Commerce.
% of GDP
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.
Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.
Growth in developing economies is expected to slow only modestly over the coming 2 years.
-2
0
2
4
6
8
1981 82 83 84 85 86 87 88 89
1990 91 92 93 94 95 96 97 98 99
2000 1 2 3 4
2005 6 7 8 9
Modest slowing of growth expected for Modest slowing of growth expected for developing economiesdeveloping economies
Real GDP, percent changeReal GDP, percent change
Early 1980s debt crisis
1990s recession Transition countries
East Asia financial crisis
2001 global downturn
ForecastForecast
Source: World Bank.
Developing economies
-2
0
2
4
6
8
1981 82 83 84 85 86 87 88 89
1990 91 92 93 94 95 96 97 98 99
2000 1 2 3 4
2005 6 7 8 9
Growth has far-exceeded that of high-Growth has far-exceeded that of high-income countries for an extended periodincome countries for an extended period
Real GDP, percent changeReal GDP, percent change
High-income
Source: World Bank.
Developing economies
ForecastForecast
50
100
150
200
250
300
350
400
1-Jan-00 1-Jan-01 1-Jan-02 1-Jan-03 1-Jan-04 1-Jan-05 1-Jan-06 1-Jan-07
Source: DECPG Commodities Team.
Grains
Other foods
Fats and oils
Extreme headwinds of higher food and Extreme headwinds of higher food and energy prices for net importersenergy prices for net importers
Commodity price indices, 1990=100
Crude oil
-2
0
2
4
6
8
1981 82 83 84 85 86 87 88 89
1990 91 92 93 94 95 96 97 98 99
2000 1 2 3 4
2005 6 7 8 9
Positive developments in Sub-Saharan Positive developments in Sub-Saharan Africa are of particular noteAfrica are of particular note
Real GDP, percent changeReal GDP, percent change
Sub-Saharan Africa
Source: World Bank.
Developing economies
ForecastForecast
High-income
Prospects for developing countriesProspects for developing countriesRisksRisks
Serious risks remain for developing countries– to the downside as well as to the upside.
Prospects for developing countriesProspects for developing countriesRisksRisks
Serious risks remain for developing countries– to the downside as well as to the upside. A low case scenario triggered by sharp decline in
U.S. home prices, worsening of the credit crunch and U.S. recession in 2008 would affect developing countries quite adversely.
Export and investment falloff hits Export and investment falloff hits middle income countries hardmiddle income countries hard
-2
0
2
4
6
8
World High-incomeOECD
USA Low andMiddleIncome
MiddleIncome
Low Income
Base
Low Case
Difference
Source: World Bank.
GDP 2008 percent change
Prospects for developing countriesProspects for developing countriesRisksRisks
Serious risks remain for developing countries– to the downside as well as to the upside. A low case scenario triggered by sharp decline in U.S.
home prices, worsening of the credit crunch and U.S. recession in 2008 would affect developing countries quite adversely.
Retrenchment in business investment an important element as emerging-market corporations now dominate capital flows.
0
20
40
60
80
100
120
140
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007P
Corporate - private
Corporate - public
Sovereign
$ billions
Bond issuance by developing countries, 1998-2007
Corporate debt now accounts for two-Corporate debt now accounts for two-thirds of emerging market bond issuancethirds of emerging market bond issuance
Source: World Bank.
Prospects for developing countriesProspects for developing countriesRisksRisks
Serious risks remain for developing countries– to the downside as well as to the upside. A low case scenario triggered by sharp decline in U.S.
home prices, worsening of the credit crunch and U.S. recession in 2008, would affect developing countries quite adversely.
Retrenchment in business investment an important element as emerging-market corporations now dominate capital flows.
An upside risk... against the background of lower global interest rates and burgeoning liquidity in emerging markets... is potential formation of new asset-market “bubbles”, overheating and escalation in inflation pressures.
Fed funds lowered 100 basis pointsFed funds lowered 100 basis pointswith massive reserve injections to calm with massive reserve injections to calm
inter-bank marketsinter-bank markets
4.0
4.5
5.0
5.5
6.0
4-Jun-07 2-Jul-07 30-Jul-07 27-Aug-07 24-Sep-07 22-Oct-07 19-Nov-07 17-Dec-07
Fed funds effective rate
Source: Federal Reserve and Datastream.
Fed funds target rate
LIBOR 6-months
Prospects for developing countriesProspects for developing countriesKey MessagesKey Messages
Still- longer-term growth appears favorable. MDG poverty targets are likely to be achieved by
developing countries as a group, with Sub-Saharan Africa improving, but still short of goals.
-2
0
2
4
6
8
10
East Asia SouthAsia
Europeand
CentralAsia
MiddleEast and
NorthAfrica
Sub-Saharan
Africa
LatinAmerica
1980/90 1990/00 2000/10 2010/20
Per-capita GDP growth shows marked Per-capita GDP growth shows marked gains in the current decadegains in the current decade
annual per-capita GDP growth, percent
Source: World Bank data and simulations with the Linkage model.
Poverty goals are likely to be reached in Poverty goals are likely to be reached in most regions, but Africa lags…most regions, but Africa lags…
0
10
20
30
40
50
Developing countries Sub-Saharan Africa
Percent of pop. living below $1/day
Millennium Development Goals
Source: World Bank.
1990
Poverty goals are likely to be reached in Poverty goals are likely to be reached in most regions, but Africa lags…most regions, but Africa lags…
0
10
20
30
40
50
Developing countries Sub-Saharan Africa
Percent of pop. living below $1/day
1990
Source: World Bank.
2004
Millennium Development Goals
Poverty goals are likely to be reached in Poverty goals are likely to be reached in most regions, but Africa lags…most regions, but Africa lags…
0
10
20
30
40
50
Developing countries Sub-Saharan Africa
Percent of pop. living below $1/day
Source: World Bank.
Forecast 2015
1990
2004
Millennium Development Goals