The External Environment for Developing Countries

May 2010The World Bank

Development EconomicsProspects Group

CDS spreads – EU-5 vs. selected EMs

Brazil, Russia, China, Turkey, Indonesia (BRCTI)

Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-1050

100

150

200

250

300

350

400

450

Average BRCTI (Brazil, Russia, China, Turkey, Indonesia)

Source: JPMorgan and World Bank data.

Claims of EU Periphery banks on EMs as percent of lender’s GDP

Portugal

Italy

Greece

Spain

Ireland

0% 5% 10% 15% 20% 25% 30%EE LAC Africa / ME Asia

Source: IFC calculations based on BIS data.

OECD developments

Greek contagion fears were calmed by a momentous policy

package

Source: Bloomberg and DECPG staff calculations.

0100200300400500600700800900

1000

Greece Portugal Ireland Spain

5-year sovereign CDS spreads (bps) The €750 million EU package

Ratings downgrades of Greece, Portugal, and Spain

Source: Thomson-Datastream

Feb-10 Mar-10 Mar-10 Apr-10 Apr-10 May-10 May-101.2151.2351.2551.2751.2951.3151.3351.3551.375

80.0

90.0

100.0

110.0

120.0

Euro falls sharply vis-à-vis greenback

USD per euro [left]; CACI and DAX indexes, February-15, 2010=100

USD per euro [L]

DAX [R]CACI [R]

Euro Zone growth dissapoints in first quarter

quarterly growth of real GDP, percentage change , q/q saar

Q3-2009 Q4-2009 Q1-2010-1

0

1

2

3Euro AreaGer-many

Source: Eurostat

German export orders revive in March

factory orders received from abroad and industrial production, ch% saar

Jan-08 May-08Sep-08 Jan-09 May-09Sep-09 Jan-10-75

-50

-25

0

25

50 German export ordersindustrial production

Source: Eurostat

U.S. GDP growth eases to 3.2% in Q1-2010

on stocks, investment and exports

Q3-2009 Q4-2009 Q1-2010-202468

2.2

5.6

3.2

Prv Consumption Gvt ConsumptionFixed Investment change in Stocks

quarterly growth of real GDP (saar), and contributions to growth in percentage points

Source: World Bank, DEC Prospects Group.

U.S. employment gains now firmly in

positive territory… supporting demand

retail sales x autos ch% saar [left]; change in employment ‘000 (3mma) [right]

1/1/2008 6/1/2008 11/1/2008 4/1/2009 9/1/2009 2/1/2010-25.0

-17.5

-10.0

-2.5

5.0

12.5

-800-600-400-2000200400

RS left

Source: U.S. Departments of Commerce and Labor.

-50.0-37.5-25.0-12.5

0.012.525.037.550.0

97.5

100.0

102.5

105.0

107.5

110.0U.S. New Orders [L]DJIA [L]Lead Indicator [L]

Forward-looking indicators also favorable

Source: Thomsom/Datastream.

new orders (ch% saar), DJIA (ch%, y/y) [L]; LEI [R]

Japan orders, exports, and IP show moderate

sign of slack– waiting return of demand

private machinery orders, export volumes and production, ch% (3m/3m, saar)

Jan-08 May-08Sep-08 Jan-09 May-09Sep-09 Jan-10-75-50-25

0255075

Japan ordersindustrial production

Source: Japan Cabinet Office, METI.

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10-4.0

-2.0

0.0

2.0

4.0

25.0

30.0

35.0

40.0

45.0

Retail sales volume [L]

Japanese consumer now adding

meaningfully to growth

Source: Japan Cabinet Office, METI.

retail sales volume, ch% year-on-year [L]; and Tokyo Consumer Confidence Index [R]

Country Focus:Brazil

1/1/2007 10/1/2007 7/1/2008 4/1/2009 1/1/2010-10

-5

0

5

10

15

20

-50-40-30-20-100102030

Retail sales volume [L]Industrial proud-ction [R]

retail sales and industrial production

Domestic demand continues to drive industrial production

inBrazil

Source: Thompson/Datastream.

Jan-07 Jun-07Nov-07Apr-08Sep-08Feb-09 Jul-09 Dec-093

4

5

6

7

8

9

10

11

12

13

14

Inflation [L]SELIC Rate [R]

Inflationary pressures are building

Source: Thompson/Datastream.

Inflation, ch% yr-on-yr [L], SELIC rate, % [R]

1/1/2010 1/31/2010 3/2/2010 4/1/2010 5/1/2010150

170

190

210

230

250

300320340360380400420440

EMBI spread [L]BOVESPA [R]

Limited spillovers from European Crisis to Brzilian

financial markets

Source: Thompson/Datastream.

EMBI Spreads, basis points [L], BOVESPA [R]

Industrial production

The shift to the right in the distribution of monthly growth in

IP points to recovery

-15 -10 -5 0 5 10 150

5

10

15

20

25

30

35Monthly growth in March 2010Monthly growth December 2009

Source: Development Prospects Group.

Industrial production exceeds pre-crisis peaks in selected countries

Source: Development Prospects Group.Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-1050

60

70

80

90

100

110

120

130Brazil China IndiaKorea Thailand Taiwan

pre – crisis peak = 100

Strong IP carryover will ensure robust performance in the second

quarterpercent, 3m/3m saar

LativaEstoniaSpain

TurkeyBrazil

Slovakia

Czech RepublicRomania

KoreaSlovenia

ChinaTaiwan

GermanyThailand

Singapore0

5

10

15

20

25

Source: Development Prospects Group.

International trade

Share of Southern Euro Zone in total exports

percent share of total exports in 2008

Source: World Bank, UN-COMTRADE.

EAP LAC Asia SSA ECA MENA0

5

10

15

20

3.7 4.55.7

8.810.0

19.3

1996 1998 2000 2002 2004 2006 20080%

20%

40%

60%

80%

100%

BRICs Other LMICs USA Other HICs EU 25

Share of world trade for developing countries

share of world imports in percent

Source: World Bank, UN-COMTRADE.

G20 use of selected temporary trade barriers

0

500

1000

1500

2000

2500

3000

3500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

China as exporterDeveloping economy as exporter (non-China)Developed economy as exporter

By import source, 1997-2009, unique product-exporter combinations

Source: Bown (2010), Global Anti-dumping Database.

Oil prices

OECD oil stocks (days of forward consumption)

1Q91

2Q91

3Q91

4Q91

1Q92

2Q92

3Q92

4Q92

1Q93

2Q93

3Q93

4Q93

1Q94

2Q94

3Q94

4Q94

1Q95

2Q95

3Q95

4Q95

1Q96

2Q96

3Q96

4Q96

1Q97

2Q97

3Q97

4Q97

1Q98

2Q98

3Q98

4Q98

1Q99

2Q99

3Q99

4Q99

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

48

50

52

54

56

58

60

62

Source: IEA, Bloomberg and DECPG.

Crude oil prices drop and differentials skew

Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-1065

70

75

80

85

90$/bbl

Brent

Dubai

Source: Datastream and DECPG.

WTI

WTI Futures Prices – NYMEXmonthly contract prices to Dec 2015* for select dates in

2010

60

70

80

90

100

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

May 18

$/bbl

Jan 29Mar 31

Source: NYMEX.

Apr 30

* Futures prices extend semi-annually to Dec 2018

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

Ag- gains led by raw materials and beverages

(2000=100)

Source: DECPG.

Metals prices fall on Eurozone woes

Jan-05Jan-05Jan-05Jan-05Jan-05Jan-05Jan-05Feb-05Feb-05Feb-05Feb-05Feb-05Feb-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Apr-05Apr-05Apr-05Apr-05Apr-05Apr-05Apr-05May-05May-05May-05May-05May-05May-05May-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jul-05Jul-05Jul-05Jul-05Jul-05Jul-05Jul-05Aug-05Aug-05Aug-05Aug-05Aug-05Aug-05Aug-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Oct-05Oct-05Oct-05Oct-05Oct-05Oct-05Oct-05Nov-05Nov-05Nov-05Nov-05Nov-05Nov-05Nov-05Dec-05Dec-05Dec-05Dec-05Dec-05Dec-05Dec-05Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Feb-06Feb-06Feb-06Feb-06Feb-06Feb-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Apr-06Apr-06Apr-06Apr-06Apr-06Apr-06Apr-06May-06May-06May-06May-06May-06May-06May-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jul-06Jul-06Jul-06Jul-06Jul-06Jul-06Jul-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Sep-06Sep-06Sep-06Sep-06Sep-06Sep-06Sep-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Dec-06Dec-06Dec-06Dec-06Dec-06Dec-06Dec-06Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10May-10May-10May-10May-100

10,000

20,000

30,000

40,000

50,000

60,000

020

40

6080

100

120140

160

180$/ton ‘000 tons

Nickel price

LME stocks

Source: Datastream and DECPG.

Gold prices (per troy ounce)

Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Nov-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Dec-09Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Jan-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Feb-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Mar-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10Apr-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10May-10600

700

800

900

1,000

1,100

1,200

1,300 currency/toz

Gold in dollars

Gold in euros

Source: Datastream and DECPG.

International Finance

Capital flows steady in April

Source: DECPG.

$ billion   2008   2009 2010    Q1 Total   Q1 Total   Q1 Jan Feb Mar Apr                         Total   103 390  48 353  94 33 17 47 45 Bonds   12 65  18 115  48 21 5 21 26 Banks   71 257  22 129  19 4 5 13 8 Equity   20 68  8 109  27 7 7 12 11                         Lat. America   19 90  21 137  29 9 4 17 15 Bonds   5 20  10 62  19 8 2 10 9E. Europe   36 157  6 72  24 12 2 10 14 Bonds   2 35  4 33  17 7 1 8 11

Asia   38 98  18 122  33 12 7 15 11

Bonds   3 7  5 16  9 7 2 0.3 3

Others   11 45  3 22  8 0.2 3 5 4

Relative to Lehman collapse, the magnitude of recent corrections

has been modest

Source: JP Morgan and Bloomberg.

Apr-08 Oct-08 Apr-09 Oct-09 Apr-1020,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

200

300

400

500

600

700

800

900

MSCI EM equity index [Left] EMBIG spread [Right]

Index Basis points Lehman collapse

Corrections in Jan/Feb and late-Apr/early-May

Signs of monetary tightening in some

emerging market countries

Sources: JP Morgan and DECPG staff calculations

Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-104.0

4.5

5.0

5.5

6.0

6.5

7.0

3.95

4.00

4.05

4.10

4.15

4.20

4.25Emerging EuropeLatin AmericaEmerging Asia (right)

Official interest rate (GDP-weighted regional averages, percent)

Currencies and inflation

Jan-10 Feb-10 Mar-10 Apr-10 May-101.213

1.253

1.293

1.333

1.373

1.413

1.453 88.50

90.00

91.50

93.00

94.50

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Euro takes large loss vis-à-vis dollar on

“market failure” of EU/IMF Greek package

USD per Euro (inverse) [Left] and Yen per USD [right]

1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/201080

85

90

95

100

105

U.S. dollar Jpn yen Czech korHun flrnt Trk lira Rus ruble

Euro- cross exchange rates show

obverse movements for C. European units

Source: Thomson/Datastream.

LCU per euro, index January 2008=100

1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/20100.25

0.50

0.75

1.00

1.25LIBOR EURIBOR Euro-SterlingEuro-yen

Volatility in USD LIBOR not echoed in interbank rates for

other key currencies

Source: Thomson/Datastream.

LIBOR-6month rates.. US dollar, euro, sterling and yen

The External Environment for Developing Countries

May 2010The World Bank

Development EconomicsProspects Group