89789 DECPG Weekly Global Economic Brief Number 147 For more information, see www.worldbank.org/gem 6 September 2012 The financial turmoil of May/June 2012 has weakened global economic activity significantly. Second quarter GDP was slowed and, to-date, neither industrial production nor business sentiment indicators show clear signs of improvement. However, financial market indicators, including yields, CDS rates, stock markets and capital flows for both Euro Area and developing countries have strengthened – suggesting a firming of activity may be in the offing. However, the recovery is expected to be slow and growth projections have been revised downwards by 0.2 and 0.4 percentage points for 2012 and 2013. Outturns will depend importantly on developments in the Euro Area, and the handling of the U.S. fiscal cliff. For the poor, the recent up-tick in internationally traded maize and wheat prices is a major concern. Economic activity remains weak through July, as uncertainty Economic activity remains weak surrounding Euro Area debt weighs on business sentiment. Global GDP slowed in 2012Q2, with economic activity in developing countries Quarterly GDP, percent change, saar decelerating to a 4.6% annualized pace from 5.4% in 2012Q1. GDP 10.0 7.5 contracted at a 0.8% annualized pace in the Euro Area but expanded 5.0 at a 1.6% pace in the rest of the high-income world (down from 2.7% 2.5 in the preceding two quarters). Data for 2012Q3 are still sparse. While 0.0 there are signs of pick up among countries for which July industrial -2.5 production data are available (6.2% annualized growth in East Asia and -5.0 World Pacific), purchasing manager surveys suggest that activity remains -7.5 High-income Developing weak. Given developments to-date and assuming a recovery takes -10.0 shape in the coming months, growth projections for 2012 and 2013 are I II III IV I II III IV I II III IV I II III IV I II III IV I II 2007 2008 2009 2010 2011 2012 likely to be downgraded by between 0.2 and 0.4 percentage points Source: World Bank Prospects Group and Datastream from those released in June 2012. Financial market conditions have improved and capital flows to Capital flows to developing countries were subdued in August developing countries have rebounded. Gross capital flows to Gross capital flows, $ billions developing countries rebounded in July, boosted by record levels of 60 Syndicated Bank Lending bond issuance (mainly corporate paper). Capital flows weakened again 50 Bond Issuance in August, partly reflecting seasonal effects and partly a natural decline Equity Issuance 40 Total capital flows* from the unusually high bond issuance in July. Overall, flows for the 30 two months combined were 3% higher than in the same two months of 20 2011. The stronger flows reflect improved financial market sentiment 10 globally. Euro Area yields are down sharply – with 10 year sovereign yields in Spain and Italy having declined to 5.7% and 5.1%, while 0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 developing country bond spreads eased 50 basis points to regain their * Total flows shows 2m/2m moving average data. Source: Dealogic and World Bank Prospects Group. long-term average of 310 bps. In addition, syndicated bank lending almost doubled in August – possibly reflecting the easing of Food prices have stabilized or eased in recent weeks deleveraging pressures in the Euro Area. Index Jan 2005=100 Following weather-related surges in July, food prices have stabilized. 480 Maize and wheat futures gained 35% and 40%, respectively from mid- 440 400 Wheat June to mid-July, while soybean prices also rose. The surge in maize 360 Maize prices was due to hot and dry conditions in the US, while adverse 320 Rice weather in Russia and to a lesser extent in Western Europe boosted 280 wheat prices. Stock-to-use ratios for maize and wheat have declined to 240 14.4% and 21.9% (the lowest level since the 1972/3 crop year for 200 maize), increasing the likelihood of further hikes should conditions 160 120 deteriorate further. In contrast to these developments, rice markets 80 remain well-supplied, with no notable price movements. Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Source: World Bank Prospects Group and CME DECPG Weekly – 9 September 2012 Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 07-Sep-12 2011 2012 2012 2008 2009 2010 2011 Q3 Q4 Q1 Q2 Mar Apr May June July Industrial Production, S.A. World 0.5 -8.2 9.1 4.4 3.2 1.2 9.6 -2.0 3.2 3.4 2.7 2.6 - High Income Countries -1.9 -12.8 8.2 2.8 2.3 0.0 8.0 -3.9 1.8 2.5 1.1 1.0 - Developing Countries 5.8 1.2 10.7 7.3 4.8 3.2 12.0 0.9 5.6 4.9 5.4 5.2 - East Asia and Pacific 10.8 8.5 14.5 11.6 10.4 4.4 17.5 2.4 10.4 8.6 8.9 7.9 8.0 East Asia x. China 2.7 -3.3 9.5 0.1 8.1 -30.1 45.8 -0.3 2.2 4.2 4.2 -1.2 - Europe and Central Asia 0.1 -10.1 9.5 5.9 1.1 6.5 5.4 -3.9 1.6 1.1 3.4 2.1 3.9 Latin America and Caribbean 1.0 -6.9 6.7 3.2 0.1 -1.7 4.1 -3.7 -0.1 -0.3 -0.5 -0.3 - Middle East and N. Africa 3.6 -2.8 1.6 -9.8 -3.2 9.7 14.0 - 8.4 8.3 8.5 - - South Asia 6.8 -0.2 9.9 5.0 -4.0 0.9 10.8 -6.5 -2.7 -0.9 2.5 -1.4 - Sub-Saharan Africa -2.2 0.7 4.2 4.0 -3.7 -1.2 -0.7 - -3.5 -0.9 -4.0 - - Inflation, S.A. 1 High Income Countries 3.4 0.2 1.6 2.7 3.0 2.8 2.4 1.9 2.3 2.2 1.8 1.8 1.6 Developing Countries 8.4 4.4 5.8 7.1 7.5 7.0 6.4 6.0 6.4 6.4 6.0 5.8 5.6 East Asia and Pacific 6.3 -0.2 3.5 5.5 6.2 4.7 3.9 3.0 3.7 3.5 3.2 2.4 2.1 Europe and Central Asia 12.5 8.9 7.1 8.1 8.0 8.6 7.6 6.9 7.5 7.5 6.3 6.7 7.5 Latin America and Caribbean 6.4 5.8 7.8 12.8 7.1 7.2 6.8 6.3 6.5 6.3 6.3 6.3 6.1 Middle East and N. Africa 16.8 9.3 6.1 6.8 13.1 13.5 14.8 15.1 15.4 15.8 15.6 - - South Asia 10.0 10.5 11.7 9.3 9.4 8.6 7.7 10.4 9.2 10.3 10.5 10.5 10.0 Sub-Saharan Africa 12.6 8.7 7.2 8.5 9.0 9.3 9.2 8.7 9.0 9.0 8.7 8.4 7.9 1 Inflation is calculated as the GDP-weighted average for all groups. Trade and Finance indicators expressed as %ch y/y, except International Reserves are %ch p/p and trade quarterly figures are %ch q/q, annualized 2011 2012 2012 2008 2009 2010 2011 Q3 Q4 Q1 Q2 Mar Apr May June July Exports, Nominal, US$, S.A. World 15.9 -22.9 21.8 19.2 -2.0 -6.7 16.4 -7.4 1.6 -0.1 0.3 -1.3 - High Income Countries 13.9 -23.0 18.5 17.7 -3.2 -9.5 16.7 -11.2 0.2 -1.6 -2.8 -2.8 - Developing Countries 21.2 -22.5 29.9 22.6 0.8 -0.3 15.8 0.8 4.8 3.3 7.1 1.8 0.1 East Asia and Pacific 16.8 -16.4 31.0 19.8 7.4 -6.9 13.3 18.3 6.4 3.9 12.2 6.7 -1.4 Europe and Central Asia 30.8 -32.6 26.8 29.1 -8.0 20.9 22.3 -18.4 8.1 2.6 6.3 -1.0 - Latin America and Caribbean 11.4 -20.0 28.1 22.5 0.8 3.4 14.5 -20.3 4.8 2.8 0.3 -6.5 2.4 Middle East and N. Africa 38.6 -36.3 27.3 16.8 -14.0 25.0 9.1 - 3.3 1.8 - - - South Asia 28.0 -13.3 31.4 32.4 3.1 -20.3 13.2 -7.3 -8.9 0.0 -4.5 -6.1 -13.2 Sub-Saharan Africa 28.5 -31.0 35.4 25.6 -9.8 -11.0 32.2 - -0.6 5.8 - - - Imports, Nominal, US$, S.A. World 16.8 -23.9 21.2 19.7 -6.0 -2.5 19.0 -14.4 1.7 -0.3 -0.9 -4.0 - High Income Countries 13.8 -25.1 17.7 17.4 -8.4 -9.3 18.6 -14.4 -0.6 -1.7 -4.4 -6.4 - Developing Countries 25.6 -20.7 30.2 25.1 -0.3 14.1 20.0 -13.6 6.8 2.9 7.8 1.8 - East Asia and Pacific 21.4 -15.5 37.2 24.8 8.9 23.9 15.2 -14.8 6.2 2.3 13.2 6.3 8.6 Europe and Central Asia 26.6 -33.6 26.0 30.0 -15.9 2.8 39.8 -17.5 3.7 -0.3 1.3 -1.2 - Latin America and Caribbean 22.3 -24.7 29.1 21.8 -1.0 2.2 18.3 -4.9 4.2 5.4 6.3 -1.7 4.1 Middle East and N. Africa 40.4 -6.6 13.9 15.5 6.0 11.4 2.9 - 10.7 13.3 - - - South Asia 42.8 -19.3 32.1 31.8 -12.1 21.8 29.5 -40.8 17.6 4.0 -6.6 -10.9 -6.4 Sub-Saharan Africa 25.9 -18.3 14.0 23.9 -3.4 0.7 14.9 - 7.7 -3.3 - - - International Reserves, US$ High Income Countries 5.7 15.6 10.8 11.8 2.5 2.0 1.6 3.0 0.0 0.7 0.2 2.0 1.0 Developing Countries 12.9 15.0 14.7 9.7 -0.4 -0.8 2.9 -0.9 0.1 0.7 -2.4 0.9 - East Asia and Pacific 23.5 22.7 19.3 11.8 -0.1 -0.8 3.6 -1.9 -0.1 0.1 -2.7 0.8 - Europe and Central Asia -8.8 2.4 7.5 2.0 -3.5 -4.1 2.5 -0.7 0.3 1.8 -3.1 0.7 -1.1 Latin America and Caribbean 11.3 10.3 15.6 16.9 2.9 2.1 3.2 2.9 1.9 1.9 -0.6 1.6 - Middle East and N. Africa 22.6 5.1 5.9 3.1 -0.3 0.9 - - - - - - - South Asia -9.0 10.9 5.4 -1.9 -2.9 -4.6 -1.2 -1.1 -0.4 0.7 -3.0 1.3 -0.2 Sub-Saharan Africa 7.8 2.3 0.7 10.5 -1.3 2.5 2.2 - 0.2 2.1 -0.5 - - Weekly Global Economic Brief – 6th of September 2012 2 Financial Markets 7-Sep-12 2009 2010 2011 2011 2012 2012 MRV 1 Chg since Q3 Q4 Q1 Q2 May Jun Jul Aug Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.16 0.18 0.10 0.08 0.08 0.08 0.08 0.16 0.16 0.16 0.13 0.16 -1.94 ECB repo 0.70 0.48 0.82 0.93 0.41 0.41 0.41 0.12 0.10 0.02 -0.01 -0.02 -4.39 US$ LIBOR 3-months 0.69 0.34 0.34 0.30 0.48 0.48 0.48 0.47 0.47 0.45 0.43 0.41 -2.41 EURIBOR 3-months 1.23 0.81 1.39 1.56 1.50 1.50 1.50 0.69 0.66 0.50 0.33 0.27 -4.69 US 10-yr Treasury yield 3.24 3.20 2.77 2.41 2.03 2.03 2.03 1.78 1.61 1.50 1.66 1.67 -2.06 German Bund, 10 yr 3.24 2.76 2.63 2.27 1.97 1.97 1.97 1.38 1.35 1.23 1.33 1.41 -2.76 Spreads (basis points) US Corporate (High Yield Bonds) 1011 538 544 610 703 703 703 554 596 595 546 543 -190 JP Morgan Emerging Markets 472 301 341 355 417 417 417 383 395 360 320 306 -52 Asia 374 206 218 227 269 269 269 257 270 237 204 196 -100 Europe 449 247 301 321 413 413 413 373 381 332 284 264 -50 Latin America & Caribbean 510 360 404 418 467 467 467 427 444 416 375 363 -25 Middle East 574 342 366 393 430 430 430 450 484 484 483 482 -16 Africa 431 274 364 363 426 426 426 377 374 337 298 275 -60 2 Stock Indices (end of period) Global (MSCI) 299 331 300 281 300 300 300 298 312 316 322 326 2.0 High-Income ($ Index) 1168 1280 1183 1104 1183 1183 1183 1178 1236 1251 1279 1298 1.1 United States (S&P-500) 1115 1258 1258 1131 1258 1258 1258 1310 1362 1379 1407 1432 14.4 Euro Area (S&P-350$) 1358 1353 1171 1120 1171 1171 1171 1088 1172 1185 1233 1263 -14.2 Japan (Nikkei-225) 10546 10229 8455 8700 8455 8455 8455 8543 9007 8695 8840 8872 -27.4 Developing Markets (MSCI) 783 912 725 698 725 725 725 716 740 752 748 751 7.8 Asia 778 906 732 711 732 732 732 744 758 770 763 755 19.0 Europe & C. Asia 616 635 449 472 449 449 449 421 470 458 480 492 -34.5 Latin America & Caribbean 4117 4614 3602 3342 3602 3602 3602 3394 3521 3566 3540 3613 2.2 Africa 815 1049 849 808 849 849 849 847 883 912 909 932 21.4 Exchange Rates (LCU / USD) High Income Euro Area 0.72 0.76 0.72 0.71 0.74 0.74 0.74 0.78 0.80 0.81 0.81 0.79 12.2 Japan 93.55 87.81 79.77 77.76 77.35 77.35 77.35 79.75 79.27 78.97 78.68 78.93 -26.6 Developing Brazil 2.00 1.76 1.67 1.64 1.80 1.80 1.80 1.98 2.05 2.03 2.03 2.04 14.1 China 6.83 6.77 6.47 6.42 6.36 6.36 6.36 6.33 6.36 6.37 6.36 6.34 -7.3 Egypt 5.55 5.64 5.94 5.96 5.99 5.99 5.99 6.04 6.05 6.06 6.08 6.09 12.1 India 48.42 45.73 46.67 45.81 50.87 50.87 50.87 54.42 56.07 55.45 55.56 55.74 21.9 Russia 31.76 30.38 29.41 29.16 31.21 31.21 31.21 30.93 32.82 32.50 31.95 31.91 24.8 South Africa 8.43 7.32 7.26 7.14 8.10 8.10 8.10 8.16 8.39 8.25 8.27 8.28 2.7 Memo: USA nominal effective rate 86.30 83.47 78.33 77.01 79.28 79.28 79.28 81.09 81.99 82.10 81.18 81.18 -5.5 1 MRV = Most Recent Value. 2 MSCI Indices for Asia, Africa, and Europe and C. Asia, for 2008 are calculated from February-December, due to data availability. 3 Change expressed in levels for interest rates and spreads; percent change for stock market and exchange rates. Commodity Prices 2009 2010 2011 2011 2012 2012 MRV Chg since Q3 Q4 Q1 Q2 May Jun Jul Aug Sep-12 '08 3 Oil price, $/b, nominal 1 62 79 104 103 103 103 103 104 91 97 105 107 9.7 Non - Oil Index 2 150 194 234 234 206 206 206 206 198 209 211 214 9.5 Food Index 2 173 194 239 239 226 226 226 231 230 255 260 263 29.3 Metals and Minerals Index 2 127 189 216 220 183 183 183 184 176 175 177 182 -1.9 Baltic Dry Index 3 2598 2755 1546 1533 1916 1916 1916 1104 934 1056 759 669 -86.1 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 1, 2005 3 Base Date = May 1, 1985 Weekly Global Economic Brief – 6th of September 2012 3