The External Environment for Developing Countries

March 2008The World Bank

Development EconomicsProspects Group

75

80

85

90

95

100

Jan-08 Jan-08 Jan-08 Feb-08 Feb-08 Mar-08

Source: Thomson/Datastream.

Large-scale losses across global bourses in the last weeks index January 1, 2008 = 100

DAX

TOPIX

Dow Jones

MSCI

1.290

1.330

1.370

1.410

1.450

1.490

1.530

1.570

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

96

100

104

108

112

116

120

124

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Dollar plummets to all-time lows against the majors

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

Industrial countries

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

4-Jun-07

5-Jul-07

5-Aug-07

5-Sep-07

6-Oct-07

6-Nov-07

7-Dec-07

7-Jan-08

7-Feb-08

9-Mar-08

11,750

12,000

12,250

12,500

12,750

13,000

13,250

13,500

13,750

14,000

14,250

Fed funds target rate [L]

Source: Thomson/Datastream.

A dramatic 75bp cut in Fed Funds on Mar-18 carries the rate to 2.25%

DJIA [R]

Fed funds rate [left] DJIA [right]

Employment declines feed into softening retail sales in February

sales volume, ch% 3mmay/y [left]; delta employment, 3mma [right]

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

01/15/06 05/15/06 09/15/06 01/15/07 05/15/07 09/15/07 01/15/08

-25

0

25

50

75

100

125

150

175

200

225

250

275Retail sales volume [L]

Change in Employment [R]

Source: Departments of Commerce and Labor.

U.S. inflation picks up on higher energyand food- a possible restraint on the Fed

headline CPI ad PPI, ch% 3mma y/y

0

1

2

3

4

5

6

7

8

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08

Headline CPI

Headline PPI

Source: U.S. Department of Labor.

1.3

3.7 3.5

-2.5

0.0

2.5

5.0

Q3-2007 F Q4-2007 P Q4-2007 F

Source: Cabinet Office and DECPG calculations.

Revised Japan GDP bumps Q4-growthto 3.5% from 3.7% on investment

growth of real GDP, and contributions to growth in percentage points

Net exportsStocks

Fixed InvestmentGovernmentConsumption

Growth 2007 2.0%

70

80

90

100

110

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

95

100

105

110

115

120

125

Source: Thomson/Datastream.

Yen strength and plummeting equitieshit consumer confidence hard

Yen per dollar [right] and TOPIX index January 1, 2007 = 100

TOPIX [L]

Yen [R]

Japan’s GDP boost from net exports may fade over 2008

goods export and import volumes, ch% saar

-25

-20

-15

-10

-5

0

5

10

15

20

25

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

Source: Cabinet Office-- Thomson/Datastream.

Export volumes

Import volumes

1.0

3.0

1.5

-2.5

0.0

2.5

5.0

Q2-2007 Q3-2007 Q4-2007

Source: Eurostat and DECPG calculations.

Euro-Zone GDP slows to 1.5% growthin fourth quarter on sluggish demand

growth of real GDP, and contributions to growth in percentage pointsNet exports

Fixed investmentConsumptionGovernment

Change in stocks

Growth 2007 2.6%

German factory orders drop in January foreign orders halve in momentum

factory orders, total, domestic, overseas, ch% saar

-10

-5

0

5

10

15

20

25

30

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

Source: Bundesbank-- Thomson/Datastream.

Total orders

Foreign orders

Domestic orders

ECB: policy rates will not becut as growth slows and HICP rises HICP inflation (ch% y/y) [L]; EA IP ch%

saar [R]

1.0

1.5

2.0

2.5

3.0

3.5

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08

0.0

2.5

5.0

7.5

10.0

Source: Eurostat and Bundesbank.

Euro Area IP (mfg) [R]

HICP inflation (y/y) [L]

Industrial production

-5

-3

0

3

5

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Sharp downtrend expected for Euro Area industrial output growth

6mn/6mn ardata forecast

Source: DECPG

-20

-15

-10

-5

0

5

10

15

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Robust external demand cushionedU.S. IP from weak domestic demand

6mn/6mn ar

Industrial production

Export volumes

Source: DECPG

data forecast

-15

-10

-5

0

5

10

15

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

IP trend growth in Japan is also projected to deteriorate

6mn/6mn ar

Source: DECPG

data forecast

High-tech Markets

-15

-10

-5

0

5

10

15

20

25

30

35

40

45

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07

-20

-10

0

10

20

30

40

50

60

70

Source: National Agencies and DECPG calculations.

High-tech orders slumping in the U.S. and Europe

G-3 orders for high-tech manufactures, US dollar terms, ch% saar

G-3 High-tech orders [L]

United States [R]

Europe [R]

Semiconductor sales and tech output wane over late 2007 and early 2008

semi-chip sales ch% y/y [L]; output of high-tech goods ch% saar [R]

-2

0

2

4

6

8

10

12

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

5

10

15

20

25

30

Source: SIA, Thomson/Datastream, Haver.

Production [R]

Semiconductor sales

Exports mixed across the globe

global exports of high-tech goods in USD terms, ch% 3mma y/y

-8

-5

-3

0

3

5

8

10

13

15

18

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07

World

East Asia x Japan

Source: National Agencies and DECPG calculations.

USA

International trade

U.S. export growth easing into the first months of 2008

goods exports: values and volumes, percent change 3mma/y/y and saar

-10

-5

0

5

10

15

20

25

30

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

Source: Department of Commerce-- Thomson/Datastream.

Value year/year

Volume year/year

Value saar

Volume saar

World and high-income exports to slowbut revive somewhat at mid-2008 goods export volumes, ch% saar

0

5

10

15

20

2003M1 2003M10 2004M7 2005M4 2006M1 2006M10 2007M7 2008M4

Source: National Agencies through Thomson/Datastream.

High-income exports

World exports

Exports from China and other developing economies up in Januarygoods export volumes, ch% saar

-10

0

10

20

30

40

50

2003M1 2003M10 2004M7 2005M4 2006M1 2006M10 2007M7

Source: National Agencies through Thomson/Datastream.

Developing ex China

China exports

Oil prices

Gold and Oil at all-time highs

600

700

800

900

1000

50

60

70

80

90

100

110

Gold $/toz Oil $/bbl

Oil

Gold

Source: LME and DECPG Commodities Group.

Crude oil inventories rise seasonally exacerbated by weak demand

270

280

290

300

310

320

330

340

350

360

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

M bbl

Source: U.S. Department of Energy and DECPG Commodities Group.

5-year high-low ranges

WTI Futures Prices - NYMEX

50

60

70

80

90

100

110

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Mar 13 2008

$/bbl Monthly contract prices to Dec 2013* on select dates in 2007-08

* No monthly futures prices for 2013 for contracts trading before Nov 07

Jan 16 2007

Aug 15 2007

Feb 6 2008

Non-oil commodity prices

75

100

125

150

175

200

225

250

275

300

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08

Grains

Fats & Oils

Other Food

Beverages

Food and beverage prices surge(1990=100)

Source: DECPG Commodities Group.

Copper prices rebound on falling stocks and tight supplies

4500

5000

5500

6000

6500

7000

7500

8000

8500

9000

Jan-06Jan-07

Jan-08

75

100

125

150

175

200

225

$/ton ‘000 tons

Copper price

LME stocks

Source: LME and DECPG Commodities Group.

World Refined Metal Consumption*

0

5000

10000

15000

20000

25000

1994 1996 1998 2000 2002 2004 2006

China

Europe

N America

Other Asia

OECD Pac

Latin A

FSU/EE

ME

Africa

‘000 tons

* Aluminum, Copper, Lead, Nickel, Tin, Zinc

International Finance

Continued stagnation in flows to emerging markets in February

Source: DECPG Finance Team.

Gross capital flows to emerging markets

$ billion

Q1 Total Jan Feb Q1 Total Jan Feb

Total 96 494 36 55 166 683 29 22

Bonds 42 137 20 19 58 146 7 4

Banks 39 246 10 20 81 343 16 16

Equity 15 111 5 16 26 194 6 3

Lat. America 23 116 10 10 38 157 8 3

Bonds 14 41 4 4 20 45 4 0

E. Europe 36 179 13 25 81 252 4 11

Bonds 17 64 10 11 28 64 1 3

Asia 25 153 10 11 30 213 16 4

Bonds 8 19 5 3 8 23 3 0

Others 12 45 3 8 16 60 1 4

20082006 2007

70

80

90

100

110

120

130

140

150

Jun-07 Aug-07 Oct-07 Dec-07 Feb-08

Source: Thomson/Datastream.

Continued turmoil in world stock markets

Equity price indexes, January 1, 2007 = 100

Eurofirst-300

Nikkei-225

S&P-500

MSCI

0

100

200

300

400

500

600

700

May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Source: JPMorgan-Chase.

Credit risk soars to record levels Credit default swap spreads (CDSs), basis

points

CDSs on the Europe index

CDSs on the North American index CDSs on Emerging Market Index

Currencies

1.290

1.330

1.370

1.410

1.450

1.490

1.530

1.570

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

96

100

104

108

112

116

120

124

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Dollar plummets to all-time lows against the majors

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

Interest differentials now at 230 bp favoring euro-based assets

US-LIBOR, EURIBOR in percent

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

4-Jun-07

5-Jul-07

5-Aug-07

5-Sep-07

6-Oct-07

6-Nov-07

7-Dec-07

7-Jan-08

7-Feb-08

9-Mar-08

USLIBOR

Source: Thomson/Datastream.

EURIBOR

75

80

85

90

95

100

105

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08

Source: Thomson/Datastream.

Dollar falling equally sharply against emerging market units

index, LCU per USD, January 1, 2007 = 100

Russian ruble

Turkish lira

euro

Brazilian rei

Focus March 2008

Food prices and domestic inflation

International food prices increased 25% in real terms since Jan-2006

Index, 2006=100

80

90

100

110

120

130

140

150

160

2006M1 2006M7 2007M1 2007M7 2008M1

Source: DECPG

Nominal LCU

Nominal US$

Real

Similar increases in domestic food prices across countries

percentage change since Jan-2006

0102030405060708090

100imported food price

Domestic food price

Source: DECPG

Food prices exert upward pressures on inflation

percentage points

-8 -6 -4 -2 0 2 4 6

IndonesiaNigeriaSlovak

EcuadorTurkeyBrazil

CroatiaOECD HIC

CzechBulgaria

ColombiaEgypt

South AfricaLatvia

Venezuela

Food

Non-Food

Source: DECPG

The External Environment for Developing Countries

March 2008The World Bank

Development EconomicsProspects Group