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-106,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

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 4/9/201050

100

150

200

250

300

350

400

450CDS 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

0

10

20

-800

-600

-400

-200

0

200

400

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

0

10

20

30Total 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

-5

0

5

10

-40

-30

-20

-10

0

10

20

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 4/9/201050

100

150

200

250

300

350

400

450CDS 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

-10

10

30

50

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

-5

0

5

10

15

20

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 demand

Net 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 20110

2

4

6

8

10

12

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

0

10

20

30

40

Latin America

Europe and Central Asia

East Asia and Pacific

South 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

M01

200

300

400

500

600

700

800

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 calculations

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

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 data

Logistics friendly

Logistics unfriendly

Partial 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 barrels

5-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

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

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-1010

20

30

40

50

60

70

80

90

-8

-4

0

4

8

12

16

20

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

0

2

4

6

8

10

12 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

0

200

400

600

800

1,000

1,200

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 dollars

Series1

-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 69.5

Source: 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 2010f0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

The External Environment for Developing Countries

April 2010The World Bank

Development EconomicsProspects Group