For more information, visit http://www.worldbank.org/prospects September 28, 2018 Taking Stock U.S. Federal Reserve raised interest rates; GDP growth accelerated in 18Q2; core PCE inflation was steady in August. The U.S. Federal Reserve raised its benchmark federal funds rate by 25 basis points to a range of 2 – 2.25 percent. The interest rate hike—the eighth quarter-point increase since December 2015—came amid strong employment figures and firming inflation. The final reading of U.S. GDP growth in 18Q2 was left unrevised at 4.2 percent (q/q, saar), the fastest pace of expansion since 14Q3 (Figure 1). A downward adjustment to private inventory investment was offset by small upward revisions to business fixed investment, residential construction, and exports. The core personal consumption expenditure (PCE) index rose 2 percent (y/y) in August, the same pace as in July. Euro Area economic sentiment fell further; headline inflation increased in September, though core inflation fell. The Euro Area’s economic confidence index fell for the ninth consecutive month in September, to 110.9 from 111.6 in August (Figure 2). The drop in sentiment mainly reflected lower confidence in France and Spain. Separately, the preliminary estimate of Euro Area headline inflation in September came in at 2.1 percent (y/y), up slightly from 2 percent in August. Core inflation— excluding energy, food, alcohol, and tobacco—edged down from 1 percent (y/y) in August to 0.9 percent in September. Japan core CPI inflation picked up in September; unemployment rate fell in August. Japan’s core consumer price index, which excludes fresh food prices, rose 0.9 percent (y/y) in September, up from 0.8 percent in August, mainly reflecting an increase in the cost of energy. Separately, the unemployment rate fell from 2.5 percent (m/m, sa) in August to 2.4 percent in September, its lowest level since 1993, with the job-to-applicants ratio standing at 1.63, unchanged from July, its highest level since 1974. China cut import tariffs. China announced on September 26th a cut of import tariffs on 1,585 types of goods, including machinery, paper, textiles, and construction materials, starting November 1st. It is the second tariff cut following reductions last November for food and consumer goods. China’s government said its overall tariff rate will be lowered to 7.5 percent from last year’s 9.8 percent, despite having imposed retaliatory tariffs on many imports from the United States. Three Asian central banks raised interest rates. Following the Federal Reserve’s latest rate hike, central banks in Indonesia and the Philippines both raised their benchmark interest rates on Thursday by 25 basis points (bps) and 50 bps to 5.75 percent and 4.5 percent, respectively. Hong Kong’s central bank also raised its interest rate by 25 bps to 2.5 percent. Meanwhile, China, Taiwan, and New Zealand left their policy rates unchanged. Figure 1. U.S. GDP growth accelerated in 18Q2. Figure 2. Euro Area economic sentiment fell for the ninth consecutive month in September. U.S. GDP, annualized quarterly change. Euro Area economic confidence index. Source: U.S. Commerce Department. Source: European Commission. Produced by DECPG. Number 403 | September 28, 2018 Major Data Releases (Percent change y-o-y) (Percent change y-o-y) Recent releases: Friday, 21 September - Thursday, 27 September 2018 Upcoming releases: Friday, 28 September - Thursday, 4 October 2018 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous Canada 9/21/18 CPI Aug 2.8% 2.8% 3.0% Euro Area 9/21/18 CPI Sep 2.0% France 9/21/18 GDP Q2 1.7% 2.2% Japan 9/21/18 IP Aug 2.2% Japan 9/21/18 CPI Aug 1.3% 1.1% 0.9% U.K. 9/21/18 GDP Q2 1.1% Germany 9/27/18 CPI Sep 2.3% 2.0% 2.0% South Korea 10/2/18 IP Sep 0.9% U.S. 9/27/18 GDP Q2 4.2% 4.2% 2.2% Turkey 10/3/18 CPI Sep 17.9% Activity and Inflation (Percent change y-o-y, except quarterly data on industrial production, which are percent change q-o-q, annualized) 2017 2018 2017 2018 2016 2017 Q3 Q4 Q1 Q2 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 1 Industrial Production, sa World 2.1 4.0 3.8 5.5 3.9 2.9 4.4 4.3 4.1 4.4 4.6 4.6 4.7 4.3 4.4 4.0 3.7 3.8 Advanced Economies 0.0 2.8 2.4 5.2 -0.2 2.8 3.2 3.0 3.1 3.5 3.6 2.7 3.0 3.2 2.5 2.6 2.5 2.0 Emerging Market and Developing Economies 4.2 5.2 5.3 5.7 8.2 3.1 5.6 5.7 5.1 5.4 5.5 6.6 6.4 5.3 6.3 5.3 5.0 5.6 Commodity-exporting EMDE 0.6 2.6 4.7 0.9 5.9 0.4 3.7 3.7 2.9 2.5 2.2 3.9 3.3 3.3 5.0 1.7 2.2 4.3 Other EMDE 5.3 6.0 5.5 7.0 8.8 3.7 6.1 6.2 5.7 6.2 6.5 7.3 7.3 5.9 6.7 6.3 5.8 5.9 East Asia and Pacific 5.9 6.1 5.1 5.4 10.3 4.8 5.8 6.4 5.8 5.7 5.8 7.2 7.1 5.7 7.1 6.7 5.4 6.3 East Asia excl. China 4.6 3.7 7.9 -0.1 15.5 -1.7 4.4 5.2 2.7 3.0 2.9 7.5 6.0 3.8 7.6 5.9 2.1 7.6 Europe and Central Asia 3.4 5.9 5.8 6.0 7.1 1.8 7.8 7.9 5.9 5.8 6.4 7.8 7.5 5.9 5.8 5.4 4.4 5.7 Latin America and Caribbean -2.2 0.7 3.7 2.4 3.5 -1.5 1.4 0.8 1.7 1.5 2.0 1.5 1.9 3.0 4.4 -1.4 3.0 2.2 Middle East and North Africa -1.1 5.4 21.0 1.9 -8.7 4.7 7.7 2.2 6.1 7.1 8.6 2.2 2.6 5.0 2.5 3.1 7.0 3.9 South Asia 5.3 4.7 7.2 12.5 4.9 -2.4 6.5 4.7 3.7 8.9 7.6 8.2 7.3 5.6 5.6 4.6 6.1 5.7 Sub-Saharan Africa 1.2 0.1 2.9 8.1 -7.4 0.2 1.3 -1.0 2.0 2.3 3.2 1.7 1.0 1.2 -1.2 1.7 2.0 2.6 Inflation, sa 2 World 1.4 2.2 2.2 2.2 2.3 2.3 2.3 2.2 2.3 2.3 2.3 2.4 2.3 2.4 2.3 2.1 2.4 2.4 Advanced Economies 0.3 1.4 1.4 1.4 1.3 1.8 1.4 1.5 1.4 1.5 1.5 1.5 1.4 1.4 1.6 1.9 2.1 2.1 Emerging Market and Developing Economies 2.6 3.2 3.0 2.8 3.0 2.7 3.1 3.2 3.0 2.9 2.9 3.0 3.0 2.7 2.6 2.8 3.0 2.9 Commodity-exporting EMDE 3.5 3.4 3.3 2.8 2.9 2.5 3.5 3.2 3.0 2.9 2.9 2.9 2.9 2.7 2.5 2.4 2.5 2.5 Other EMDE 1.3 2.9 2.7 2.8 3.7 3.2 2.6 3.0 2.8 2.9 3.0 3.7 3.5 3.1 3.2 3.0 3.2 3.5 East Asia and Pacific 2.0 2.3 1.7 2.4 2.2 3.0 2.5 2.3 2.6 2.4 2.4 2.3 2.5 2.3 2.4 2.9 2.6 2.5 Europe and Central Asia 0.4 2.4 2.7 2.8 2.7 2.2 2.7 2.8 2.6 2.8 2.8 2.5 2.7 2.5 2.2 2.1 2.3 2.4 Latin America and Caribbean 2.4 2.6 2.5 2.5 2.9 3.1 2.4 2.6 2.3 2.5 2.6 2.9 2.9 3.1 3.0 3.0 3.2 2.9 Middle East and North Africa 2.1 1.6 1.1 2.2 2.8 2.7 1.1 1.6 2.1 1.7 1.9 2.9 2.9 2.6 2.6 2.8 3.0 3.2 South Asia 4.4 3.8 3.5 3.7 4.2 4.6 3.5 3.5 3.6 3.8 4.3 4.4 4.1 3.7 4.1 4.9 5.2 5.6 Sub-Saharan Africa 5.3 5.7 5.5 4.7 3.5 3.3 5.4 5.4 5.2 4.6 4.6 4.3 3.4 3.3 3.3 3.3 3.1 3.0 Sources: World Bank, Haver Analytics, and IMF International Financial Statistics. 1 Industrial production is total production (may exclude construction). When data are unavailable, "industrial production, manufacturing" is used as a proxy. 2 Median inflation rate for each grouping. Trade and Finance (Percent change y-o-y, except quarterly trade data, which are percent change q-o-q, annualized, and international reserves data, which are percent change over the previous period) 2017 2018 2017 2018 2016 2017 Q3 Q4 Q1 Q2 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Exports, Nominal, US$, sa World -3.0 10.3 14.5 14.6 24.3 -2.4 11.0 11.1 12.4 13.2 11.7 17.0 16.8 9.2 16.3 10.6 10.2 12.0 Advanced Economies -0.8 9.5 18.2 11.3 22.0 -3.5 10.8 10.9 12.0 12.9 11.3 17.5 12.0 10.8 16.5 9.2 9.3 10.2 Emerging Market and Developing Economies -6.4 11.7 8.0 20.9 28.6 -0.2 11.3 11.4 13.3 13.8 12.3 16.1 25.8 6.4 16.1 13.4 11.8 15.4 Commodity-exporting EMDE -8.8 17.7 19.5 26.7 31.3 -1.4 16.7 17.0 20.9 15.9 14.5 20.9 15.3 13.3 23.6 15.3 16.2 23.4 Other EMDE -4.5 9.5 3.6 18.5 27.5 -0.2 9.2 9.2 10.3 12.9 11.4 14.1 30.3 3.7 13.1 12.5 9.9 12.4 East Asia and Pacific -6.1 9.9 2.7 16.1 28.8 1.3 8.1 9.9 10.0 12.9 10.9 14.0 33.1 0.9 12.4 11.9 10.8 12.9 Europe and Central Asia -6.1 16.5 17.1 30.3 40.3 -1.9 20.2 16.5 22.3 19.5 16.2 26.6 21.0 15.1 27.8 19.8 14.0 23.8 Latin America and Caribbean -2.4 12.0 7.8 15.5 21.2 -6.0 11.7 10.5 15.8 9.3 8.7 12.0 11.8 10.4 13.9 7.0 6.6 12.6 Middle East and North Africa - - - - - - - - - - - - - - - - - - South Asia 0.6 5.6 12.3 22.9 6.8 11.4 9.9 4.7 4.1 12.2 11.6 7.3 10.1 5.5 9.0 20.3 10.7 11.7 Sub-Saharan Africa -13.1 15.4 12.3 31.4 24.4 - 16.6 8.4 17.5 17.8 17.1 14.5 15.2 12.3 - - - - Imports, Nominal, US$, sa World -5.3 12.2 1.7 31.2 16.1 3.1 16.3 5.8 18.2 13.3 19.6 16.3 21.4 9.1 24.9 4.3 10.0 12.3 Advanced Economies -3.4 9.1 14.2 18.0 23.1 -3.5 9.0 9.1 14.7 14.1 13.9 18.6 15.3 12.1 18.5 10.0 9.2 11.6 Emerging Market and Developing Economies -6.4 13.9 -4.4 38.8 12.6 6.8 20.5 4.0 20.2 12.8 22.7 15.1 24.7 7.5 28.5 1.6 10.4 12.6 Commodity-exporting EMDE -7.3 13.2 -8.8 46.0 3.2 12.5 22.5 -0.2 21.2 11.3 25.9 10.1 29.3 6.1 31.9 -2.3 9.9 - Other EMDE -3.0 16.3 12.3 17.1 50.3 -9.7 14.3 17.7 16.8 18.1 12.6 32.5 11.1 12.1 17.7 17.2 11.8 18.2 East Asia and Pacific -3.7 17.4 15.1 15.1 68.3 -12.6 13.7 19.2 18.0 18.8 9.7 37.8 9.3 12.0 21.8 20.9 11.9 21.5 Europe and Central Asia -1.2 18.6 20.3 17.3 38.8 -21.4 17.4 20.2 21.4 23.7 23.4 29.6 21.8 17.7 19.2 9.0 6.5 6.6 Latin America and Caribbean -7.3 8.3 9.9 17.8 23.8 6.7 9.1 5.0 16.3 9.2 6.8 13.9 14.3 4.1 21.4 12.8 9.6 23.8 Middle East and North Africa - - - - - - - - - - - - - - - - - - South Asia -5.4 22.8 -8.2 32.0 23.5 10.7 21.3 18.6 11.0 20.8 19.1 24.3 11.9 7.8 4.3 16.0 20.7 22.2 Sub-Saharan Africa -13.7 - - - - - - - - - - - - - - - - - International Reserves, US$ 1 World -2.0 7.2 1.7 1.2 1.4 -1.2 0.6 0.3 0.0 0.5 0.7 1.4 -0.5 0.5 -0.5 -0.5 -0.2 0.0 Advanced Economies 3.2 10.0 1.7 1.1 1.3 -0.8 0.5 0.3 -0.3 0.7 0.8 1.3 -0.5 0.5 -1.0 -0.2 0.4 -0.1 Emerging Market and Developing Economies -5.2 5.3 1.7 1.3 1.4 -1.5 0.6 0.4 0.2 0.4 0.6 1.4 -0.5 0.5 -0.2 -0.7 -0.6 0.0 Commodity-exporting EMDE -4.4 3.5 0.7 1.2 2.1 - 0.2 0.1 0.6 0.4 0.2 1.4 -0.3 1.0 - - - - Other EMDE -5.7 6.1 2.2 1.3 1.1 -1.9 0.8 0.5 0.1 0.4 0.8 1.5 -0.6 0.3 -0.6 -0.8 -0.6 0.2 East Asia and Pacific -7.3 5.6 2.1 1.3 0.6 -1.4 0.6 0.6 0.0 0.4 0.9 1.1 -0.8 0.4 -0.5 -0.5 -0.3 0.1 Europe and Central Asia 3.4 10.2 3.1 0.9 4.3 -3.3 1.6 0.3 0.2 1.0 -0.3 3.5 0.2 0.6 -0.5 -1.2 -1.6 0.9 Latin America and Caribbean 1.4 2.1 0.9 -0.9 1.8 -1.7 0.3 -0.1 0.5 -0.4 -0.9 1.5 0.0 0.3 -0.3 -0.4 -1.2 0.4 Middle East and North Africa -10.7 - - - - - -0.2 - - - - - - - - - - - South Asia 3.6 11.8 2.5 2.3 2.5 -3.5 1.3 0.1 -0.1 0.2 2.1 2.4 -0.2 0.3 -0.2 -2.5 -1.2 -0.8 Sub-Saharan Africa -2.9 10.2 1.1 6.1 8.7 - -2.2 0.9 1.3 3.3 1.4 1.8 0.9 5.8 1.2 - - - Sources: World Bank, Haver Analytics, and IMF International Financial Statistics. 1 Total reserves excluding gold are used as proxies when total reserves data are unavailable. Produced by DECPG. Number 403 | September 28, 2018 Financial Markets 2017 2018 2017 2018 MRV 1 2016 2017 Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Interest rates and LIBOR (percent) U.S. Fed Funds Effective 0.39 0.97 1.13 1.17 1.40 1.67 1.13 1.13 1.13 1.27 1.38 1.38 1.45 1.63 1.63 1.77 1.88 1.88 2.13 ECB repo 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 US$ LIBOR 3-months 0.74 1.26 1.32 1.47 1.93 2.34 1.32 1.36 1.43 1.61 1.73 1.87 2.18 2.35 2.34 2.33 2.34 2.32 2.40 EURIBOR 3-months -0.26 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.32 -0.32 -0.32 -0.32 US 10-yr Treasury yield 1.84 2.33 2.24 2.37 2.76 2.92 2.20 2.36 2.35 2.41 2.58 2.86 2.84 2.87 2.97 2.91 2.89 2.89 3.06 German Bund, 10 yr 0.11 0.37 0.46 0.38 0.57 0.42 0.41 0.43 0.37 0.36 0.50 0.67 0.54 0.48 0.46 0.33 0.25 0.26 0.35 Spreads (basis points) JP Morgan Emerging Markets 410 325 322 313 309 351 314 306 320 312 299 309 319 322 353 377 366 383 362 Asia 221 164 161 151 157 185 157 148 153 151 146 156 168 171 186 197 193 185 181 Europe 302 243 234 233 221 275 224 226 244 229 212 217 234 246 277 301 291 329 290 Latin America & Caribbean 537 429 428 416 418 455 416 407 422 419 410 420 423 422 459 486 471 493 470 Middle East 517 385 383 400 367 429 384 381 421 398 359 366 374 385 432 472 451 464 448 Africa 518 376 380 350 320 385 367 360 359 332 305 317 337 342 379 436 420 445 415 Stock Indices (end of period) Global (MSCI) 424 508 487 508 500 505 487 497 505 508 502 517 500 510 509 505 520 524 525 Advanced Economies ($ Index) 1761 2086 2001 2086 2042 2089 2001 2037 2077 2086 2053 2113 2042 2087 2093 2089 2153 2179 2189 United States (S&P 500) 2258 2668 2519 2668 2590 2718 2519 2575 2648 2668 2631 2711 2590 2648 2729 2718 2816 2902 2920 Europe (S&P Euro 350) 1475 1558 1571 1558 1493 1533 1571 1600 1563 1558 1518 1522 1493 1556 1545 1533 1581 1547 1554 Japan (Nikkei 225) 19302 22530 20356 22530 21203 22305 20356 22198 22730 22530 21650 21794 21203 22488 22095 22305 22554 22788 23797 Emerging Market and Developing Economies (MSCI) 861 1139 1082 1139 1167 1070 1082 1119 1121 1139 1158 1202 1167 1164 1121 1070 1087 1055 1046 EM Asia 419 577 543 577 589 552 543 571 572 577 584 603 589 587 582 552 553 546 537 EM Europe 295 341 331 341 350 312 331 330 330 341 354 370 350 335 316 312 319 294 308 EM Europe & Middle East 248 275 268 275 280 253 268 268 265 275 285 295 280 271 257 253 263 246 254 EM Latin America & Caribbean 2341 2811 2917 2811 3008 2477 2917 2809 2719 2811 2945 3095 3008 2988 2561 2477 2702 2466 2535 Exchange Rates (LCU / USD) Advanced Economies Euro Area 0.90 0.89 0.85 0.85 0.81 0.84 0.84 0.85 0.85 0.84 0.82 0.81 0.81 0.81 0.85 0.86 0.86 0.87 0.86 Japan 108.80 112.11 110.96 112.75 107.94 109.16 110.80 112.93 112.81 112.51 109.83 107.96 106.02 107.62 109.72 110.13 111.45 111.03 113.40 Emerging and Developing Economies Brazil 3.49 3.19 3.16 3.24 3.24 3.61 3.13 3.19 3.26 3.28 3.19 3.25 3.28 3.41 3.64 3.79 3.82 3.93 4.00 China 6.65 6.76 6.67 6.61 6.35 6.38 6.57 6.62 6.62 6.59 6.41 6.32 6.32 6.30 6.37 6.47 6.72 6.85 6.89 Egypt 10.12 17.85 17.77 17.71 17.68 17.80 17.65 17.64 17.68 17.81 17.74 17.67 17.63 17.68 17.83 17.88 17.90 17.88 17.95 India 67.19 65.11 64.29 64.71 64.40 66.99 64.46 65.07 64.85 64.20 63.72 64.44 65.06 65.69 67.49 67.79 68.74 69.62 72.60 Russia 67.06 58.31 58.93 58.47 56.96 62.03 57.66 57.76 58.97 58.70 56.93 56.81 57.15 61.01 62.28 62.81 62.83 66.48 65.36 South Africa 14.71 13.31 13.19 13.62 11.93 12.65 13.17 13.71 14.06 13.11 12.15 11.82 11.84 12.10 12.52 13.33 13.39 14.13 14.09 Memo: U.S. nominal effective rate (index) 119.7 119.6 116.6 117.5 114.1 116.6 115.5 117.5 117.7 117.4 114.7 113.7 113.9 113.9 117.0 118.9 119.6 120.6 120.8 Sources: World Bank, Bloomberg, Haver Analytics, and J.P. Morgan. 1 MRV = Most Recent Value. Commodity Prices 2017 2018 2017 2018 MRV 1 2016 2017 Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Energy 2 55 68 65 75 82 90 69 71 76 78 85 81 81 86 92 91 92 90 90 Non-energy 2 79 84 83 84 88 89 84 84 85 84 87 88 88 90 90 88 84 83 83 Agriculture 2 87 87 86 85 88 91 85 85 85 85 87 88 90 92 92 89 86 85 85 2 Metals and minerals 64 79 81 84 88 88 84 84 84 85 89 89 85 87 88 88 81 79 78 Memo items: Crude oil, average ($/bbl) 43 53 50 59 64 71 53 55 60 61 66 63 64 69 73 72 73 71 78 Gold ($/toz) 1249 1258 1278 1275 1329 1307 1314 1280 1282 1264 1331 1331 1325 1335 1303 1282 1238 1202 1202 Baltic Dry Index 676 1152 1138 1509 1171 1256 1363 1484 1455 1589 1234 1130 1149 1126 1289 1352 1649 1710 1503 Sources: World Bank, World Bank Commodities Price Data (The Pink Sheet), and Bloomberg. 1 MRV = Most Recent Value. 2 Indexes, 2010 = 100. Produced by DECPG. Number 403 | September 28, 2018