For more information, visit http://www.worldbank.org/prospects July 27, 2018 Taking Stock U.S. GDP growth accelerated in 2018Q2; composite PMI edged down in July. The first reading of U.S. GDP growth in 2018Q2 came in at 4.1 percent (q/q, saar), up from 2.2 percent in Q1—the fastest pace since September 2014 (Figure 1). The acceleration in GDP growth in Q2 reflected a strong rebound in consumer spending and exports. Contributing to the recovery in exports, U.S. soybean exports rose sharply in Q2, likely reflecting efforts by buyers to purchase soybeans before China’s retaliatory tariffs come into effect. Separately, the preliminary U.S. composite Purchasing Managers’ Index (PMI) edged down from 56.2 in June to a three-month low of 55.9 in July (a reading above 50 indicates expansion). The pace of activity in the services sector softened in July, although growth in the manufacturing sector remained solid. The U.S. and European Union reached agreement to ease trade tensions. On July 26, the United States and the European Union (EU) held trade talks and reached an agreement on the following items: they will work to reduce tariffs, non- tariff barriers, and subsidies on non-auto industrial goods; the EU will buy more U.S. soybeans and liquid natural gas; they will have a dialogue on regulatory standards in the United States and EU; and they will work together on WTO reform. U.S. tariffs on steel and aluminum from the EU, and the retaliatory tariffs imposed by the EU, will stay in place. The United States will also refrain from imposing tariffs on auto imports from the EU, as the two sides work to strengthen trade relationships. The ECB kept policy on hold; Euro Area composite PMI softened in July. The European Central Bank (ECB) kept interest rates unchanged at its July meeting, as expected. The main refinancing rate remains at zero percent, and the marginal lending rate and deposit rate at 0.25 percent and minus 0.4 percent, respectively. The ECB said it expects to hold interest rates at these levels until the summer of 2019. It also reaffirmed plans to end its bond-buying program in December 2018. Separately, the preliminary Euro Area composite PMI fell from 54.9 in June to a six-month low of 54.3 in July, as activity in the services sector softened while the manufacturing PMI was unchanged (Figure 2). Japan’s manufacturing PMI fell to a 20-month low in July. Japan’s preliminary manufacturing PMI for July came in at 51.6, the lowest level since November 2016 and down from 53 in June. While new domestic orders were broadly flat, export demand decreased for the second consecutive month in July, and business confidence dipped. Capital outflows from EMDEs slowed in July. Preliminary data indicated that investors pulled $6 billion from emerging markets and developing economies (EMDEs)’ bond and equity funds in July, compared with $23 billion in June. The slowdown in capital outflows reflected a rebound of flows into EMDE bond funds as pressures on EMDE currencies eased. Figure 1. U.S. GDP growth accelerated in 18Q2. Figure 2. Euro Area composite PMI softened in July. Annualized quarterly change in U.S. GDP. Markit Euro Area PMI. Source: U.S. Commerce Department. Source: Markit and Bloomberg. Produced by DECPG. Number 399 | July 27, 2018 Major Data Releases (Percent change y-o-y) (Percent change y-o-y) Recent releases: Friday, 19 July - Thursday, 26 July 2018 Upcoming releases: Friday, 27 July - Thursday, 2 August 2018 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous Japan 7/19/18 CPI JUN 0.7% 0.8% 0.7% United States 7/27/18 GDP Q2 2.6% Canada 7/20/18 CPI JUN 2.5% 2.2% France 7/27/18 GDP Q2 2.2% Australia 7/24/18 CPI Q2 2.1% 1.9% Germany 7/30/18 CPI JUL 2.1% Saudi Arabia 7/24/18 CPI JUN 2.1% 2.3% Mexico 7/31/18 GDP Q2 1.3% South Korea 7/25/18 GDP Q2 2.9% 2.8% Brazil 8/2/18 IP JUN -6.6% 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 Q2 Q3 Q4 Q1 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 1 Industrial Production, sa World 2.1 4.0 4.8 3.7 5.7 4.2 3.9 4.2 4.3 4.3 4.1 4.4 4.6 4.6 4.7 4.4 4.5 4.1 Advanced Economies 0.0 2.8 4.6 2.1 5.4 -0.2 3.0 3.1 3.1 3.0 3.1 3.5 3.6 2.7 3.0 3.2 2.5 2.7 Emerging Market and Developing Economies 4.2 5.2 5.1 5.2 6.1 8.7 5.0 5.3 5.6 5.7 5.1 5.4 5.5 6.6 6.5 5.7 6.6 5.6 Commodity-exporting EMDE 0.5 2.6 2.4 4.8 1.2 7.3 1.5 2.4 3.7 3.7 3.1 2.6 2.3 3.8 3.1 4.8 6.2 2.9 Other EMDE 5.3 6.0 5.9 5.3 7.4 9.1 5.9 6.2 6.1 6.2 5.7 6.2 6.4 7.4 7.4 5.9 6.7 6.3 East Asia and Pacific 5.8 6.2 5.8 4.9 5.8 11.3 6.5 5.9 5.8 6.4 5.8 5.7 5.8 7.4 7.1 6.3 7.6 7.2 East Asia excl. China 4.6 3.9 0.4 8.2 0.2 23.6 0.5 3.2 4.7 5.5 3.0 3.2 3.1 8.3 6.5 8.4 11.1 9.8 Europe and Central Asia 3.4 5.9 8.7 5.8 6.3 7.1 5.6 6.7 7.7 7.8 6.0 5.8 6.4 7.7 7.5 5.8 5.9 5.3 Latin America and Caribbean -2.2 0.7 -1.0 3.6 2.8 3.1 0.7 1.2 1.4 0.8 1.7 1.5 2.1 1.5 1.9 3.0 4.3 -1.5 Middle East and North Africa -1.1 5.4 -1.8 26.7 0.1 -8.7 2.8 15.8 7.7 2.2 6.1 7.0 8.7 2.2 2.6 5.0 2.5 2.1 South Asia 5.3 4.7 3.2 6.7 13.7 4.2 0.1 4.0 6.5 4.7 3.8 8.8 7.6 8.1 7.4 5.1 5.2 3.7 Sub-Saharan Africa 1.0 -0.2 3.0 3.7 8.0 -8.5 -2.8 -0.7 1.1 -0.9 1.8 2.5 3.4 1.6 1.0 1.4 -1.3 1.6 2 Inflation, sa World 1.5 2.2 2.2 2.2 2.3 2.3 2.0 2.1 2.3 2.3 2.3 2.4 2.3 2.4 2.3 2.4 2.1 2.1 Advanced Economies 0.3 1.4 1.4 1.4 1.4 1.3 1.2 1.4 1.4 1.5 1.4 1.5 1.5 1.5 1.4 1.4 1.6 1.9 Emerging Market and Developing Economies 2.7 3.2 3.1 2.9 2.8 3.0 2.8 2.6 3.1 3.2 3.0 3.0 3.0 3.0 3.0 2.7 2.6 2.8 Commodity-exporting EMDE 3.5 3.5 3.5 3.3 2.8 2.9 3.1 3.1 3.4 3.3 3.3 3.0 2.9 2.9 2.9 2.7 2.4 2.4 Other EMDE 1.3 2.9 2.9 2.7 2.8 3.7 2.6 2.4 2.6 3.0 2.8 2.9 3.0 3.7 3.5 3.1 3.4 3.2 East Asia and Pacific 2.1 2.9 2.7 1.9 2.7 2.5 2.2 2.1 2.5 2.5 2.8 2.6 2.5 2.6 2.7 2.5 2.3 2.6 Europe and Central Asia 0.4 2.4 2.3 2.7 2.8 2.7 2.2 2.5 2.7 2.8 2.6 2.8 2.8 2.5 2.7 2.5 2.2 2.1 Latin America and Caribbean 2.4 2.6 2.6 2.6 2.5 2.9 2.2 2.3 2.4 2.6 2.3 2.5 2.6 2.9 2.9 3.1 2.8 3.1 Middle East and North Africa 2.1 1.6 1.5 1.1 2.2 2.8 1.0 1.2 1.1 1.6 2.1 1.7 1.9 2.9 2.9 2.6 2.6 3.1 South Asia 4.4 3.8 4.5 3.4 3.7 4.2 3.9 3.1 3.5 3.5 3.6 3.8 4.3 4.4 4.1 3.8 4.1 4.9 Sub-Saharan Africa 5.3 5.7 5.8 5.5 4.7 3.5 6.2 5.6 5.5 5.4 5.2 4.6 4.6 4.3 3.3 3.2 3.3 3.3 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 Q2 Q3 Q4 Q1 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Exports, Nominal, US$, sa World -3.0 10.2 3.6 14.1 15.9 24.6 6.7 10.2 11.0 11.0 12.4 13.2 11.7 17.0 16.9 9.2 16.3 10.7 Advanced Economies -0.8 9.5 2.8 17.0 12.5 22.0 6.4 9.9 10.9 10.9 11.9 13.0 11.4 17.4 12.0 10.8 16.4 9.2 Emerging Market and Developing Economies -6.4 11.5 4.9 8.9 22.3 29.3 7.2 10.9 11.3 11.3 13.3 13.7 12.3 16.1 26.0 6.5 16.4 13.6 Commodity-exporting EMDE -8.8 17.6 -8.7 18.3 28.1 32.1 9.8 17.3 16.7 16.7 21.0 15.5 14.4 20.8 15.2 13.0 23.9 15.6 Other EMDE -4.5 9.2 11.0 5.3 20.0 28.1 6.2 8.5 9.2 9.2 10.3 13.0 11.4 14.3 30.5 3.8 13.4 12.6 East Asia and Pacific -6.1 9.5 11.4 5.5 17.4 29.3 5.2 10.4 8.1 9.8 10.0 12.8 10.9 14.0 33.3 1.0 12.6 12.0 Europe and Central Asia -6.1 16.5 0.0 14.6 33.1 40.4 11.1 11.3 20.3 16.5 22.3 19.6 16.3 26.8 21.2 15.3 28.0 19.7 Latin America and Caribbean -2.3 11.9 -0.1 7.4 16.5 23.7 12.5 10.6 11.8 10.3 15.6 9.4 8.6 12.0 11.9 10.7 14.2 7.2 Middle East and North Africa - - - - - - - - - - - - - - - - - - South Asia 0.6 5.6 -7.3 8.2 26.6 4.7 -2.7 11.7 9.8 4.6 4.1 12.1 11.5 6.9 9.9 5.4 6.7 18.3 Sub-Saharan Africa -13.1 15.2 -9.1 11.0 30.1 31.1 11.3 14.9 16.5 8.5 17.5 15.7 16.9 14.3 15.6 13.7 - - Imports, Nominal, US$, sa World -5.3 12.1 14.4 0.7 32.3 16.8 7.3 21.5 16.2 5.8 18.2 13.2 19.5 16.4 21.4 9.1 25.0 4.4 Advanced Economies -3.4 9.1 5.8 13.4 19.0 23.5 5.2 10.7 9.0 9.0 14.6 14.1 13.9 18.6 15.3 11.9 18.3 9.9 Emerging Market and Developing Economies -6.4 13.8 19.3 -5.5 39.9 13.5 8.4 27.7 20.5 3.9 20.2 12.7 22.6 15.2 24.7 7.6 28.7 1.8 Commodity-exporting EMDE -7.3 13.2 27.3 -10.2 47.1 3.7 7.2 31.4 22.5 -0.2 21.2 11.3 25.9 10.2 29.4 6.2 32.0 - Other EMDE -3.0 16.1 -4.3 12.5 18.2 52.7 12.6 15.7 14.3 17.6 16.6 17.7 12.3 32.5 11.1 11.9 18.3 17.5 East Asia and Pacific -3.6 17.4 -11.6 14.1 16.8 70.5 13.7 15.8 13.9 19.1 17.9 18.6 9.7 37.8 9.3 12.0 21.6 20.8 Europe and Central Asia -1.2 18.4 15.7 19.4 17.8 39.5 14.0 27.0 17.1 20.0 21.2 23.4 22.4 29.8 21.4 17.2 18.5 10.7 Latin America and Caribbean -7.3 8.3 -8.0 10.1 19.0 24.3 6.2 7.5 9.3 5.0 16.3 9.2 6.9 14.0 14.2 4.1 21.1 12.1 Middle East and North Africa - - - - - - - - - - - - - - - - - - South Asia -5.4 22.2 9.1 -6.8 33.5 25.5 12.1 20.5 21.0 18.5 10.9 18.8 19.0 24.3 11.9 7.5 6.5 16.1 Sub-Saharan Africa -13.7 - - - - - - - - - - - - - - - - - 1 International Reserves, US$ World -2.0 7.2 2.1 1.7 1.2 1.4 0.5 0.8 0.6 0.3 0.0 0.5 0.7 1.4 -0.5 0.5 -0.5 -0.5 Advanced Economies 3.2 10.0 2.9 1.7 1.1 1.3 0.5 0.9 0.5 0.3 -0.3 0.7 0.8 1.3 -0.5 0.5 -1.0 -0.2 Emerging Market and Developing Economies -5.3 5.3 1.5 1.7 1.3 1.4 0.4 0.7 0.6 0.4 0.2 0.4 0.7 1.4 -0.5 0.5 -0.2 -0.7 Commodity-exporting EMDE -4.5 3.5 0.5 0.8 1.2 2.1 0.1 0.3 0.2 0.1 0.6 0.3 0.3 1.4 -0.3 1.0 - - Other EMDE -5.7 6.1 2.0 2.2 1.3 1.1 0.6 0.9 0.8 0.5 0.1 0.4 0.8 1.5 -0.6 0.3 -0.6 -0.8 East Asia and Pacific -7.3 5.6 1.7 2.1 1.3 0.6 0.1 0.9 0.6 0.6 0.0 0.4 0.9 1.1 -0.8 0.4 -0.5 -0.5 Europe and Central Asia 3.4 10.2 3.2 3.1 0.9 4.3 2.0 1.1 1.6 0.3 0.2 1.0 -0.3 3.5 0.2 0.6 -0.5 -1.2 Latin America and Caribbean 1.4 2.1 1.7 0.9 -0.9 1.8 0.8 0.6 0.3 -0.1 0.5 -0.4 -0.9 1.5 0.0 0.3 -0.3 -0.4 Middle East and North Africa -10.7 - -1.8 - - - -0.4 -0.9 -0.2 - - - - - - - - - South Asia 3.6 11.8 4.5 2.5 2.3 2.5 1.7 1.1 1.3 0.1 -0.1 0.2 2.1 2.4 -0.2 0.3 -0.2 -2.5 Sub-Saharan Africa -4.9 11.0 0.7 0.5 6.2 9.4 -1.5 2.4 -1.6 -0.3 1.5 0.4 4.2 2.4 0.9 5.8 - - 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 399 | July 27, 2018 Financial Markets 2017 2018 2017 2018 MRV 1 2016 2017 Q3 Q4 Q1 Q2 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 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 1.13 1.13 1.27 1.38 1.38 1.45 1.63 1.63 1.77 1.88 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 1.31 1.31 1.32 1.36 1.43 1.61 1.73 1.87 2.18 2.35 2.34 2.33 2.35 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 -0.33 -0.33 -0.32 -0.32 US 10-yr Treasury yield 1.84 2.33 2.24 2.37 2.76 2.92 2.32 2.21 2.20 2.36 2.35 2.41 2.58 2.86 2.84 2.87 2.97 2.91 2.88 German Bund, 10 yr 0.11 0.37 0.46 0.38 0.57 0.42 0.54 0.42 0.41 0.43 0.37 0.36 0.50 0.67 0.54 0.48 0.46 0.33 0.25 Spreads (basis points) JP Morgan Emerging Markets 410 325 322 313 309 351 327 325 314 306 320 312 299 309 319 322 353 377 362 Asia 221 164 161 151 157 185 163 163 157 148 153 151 146 156 168 171 186 197 189 Europe 302 243 234 233 221 275 243 234 224 226 244 229 212 217 234 246 277 301 292 Latin America & Caribbean 537 429 428 416 418 455 435 435 416 407 422 419 410 420 423 422 459 486 465 Middle East 517 385 383 400 367 429 382 382 384 381 421 398 359 366 374 385 432 472 447 Africa 518 376 380 350 320 385 394 378 367 360 359 332 305 317 337 342 379 436 417 Stock Indices (end of period) Global (MSCI) 424 508 487 508 500 505 478 478 487 497 505 508 502 517 500 510 509 505 516 Advanced Economies ($ Index) 1761 2086 2001 2086 2042 2089 1961 1960 2001 2037 2077 2086 2053 2113 2042 2087 2093 2089 2138 United States (S&P 500) 2258 2668 2519 2668 2590 2718 2470 2472 2519 2575 2648 2668 2631 2711 2590 2648 2729 2718 2816 Europe (S&P Euro 350) 1475 1558 1571 1558 1493 1533 1526 1512 1571 1600 1563 1558 1518 1522 1493 1556 1545 1533 1553 Japan (Nikkei 225) 19302 22530 20356 22530 21203 22305 19974 19720 20356 22198 22730 22530 21650 21794 21203 22488 22095 22305 22794 Emerging Market and Developing Economies (MSCI) 861 1139 1082 1139 1167 1070 1066 1088 1082 1119 1121 1139 1158 1202 1167 1164 1121 1070 1071 EM Asia 419 577 543 577 589 552 538 544 543 571 572 577 584 603 589 587 582 552 547 EM Europe 295 341 331 341 350 312 315 336 331 330 330 341 354 370 350 335 316 312 311 EM Europe & Middle East 248 275 268 275 280 253 261 274 268 268 265 275 285 295 280 271 257 253 255 EM Latin America & Caribbean 2341 2811 2917 2811 3008 2477 2752 2873 2917 2809 2719 2811 2945 3095 3008 2988 2561 2477 2612 Exchange Rates (LCU / USD) Advanced Economies Euro Area 0.90 0.89 0.85 0.85 0.81 0.84 0.87 0.85 0.84 0.85 0.85 0.84 0.82 0.81 0.81 0.81 0.85 0.86 0.86 Japan 108.80 112.11 110.96 112.75 107.94 109.16 112.31 109.78 110.80 112.93 112.81 112.51 109.83 107.96 106.02 107.62 109.72 110.13 112.87 Emerging and Developing Economies Brazil 3.49 3.19 3.16 3.24 3.24 3.61 3.20 3.15 3.13 3.19 3.26 3.28 3.19 3.25 3.28 3.41 3.64 3.79 3.84 China 6.65 6.76 6.67 6.61 6.35 6.38 6.77 6.67 6.57 6.62 6.62 6.59 6.41 6.32 6.32 6.30 6.37 6.47 6.72 Egypt 10.12 17.85 17.77 17.71 17.68 17.80 17.92 17.75 17.65 17.64 17.68 17.81 17.74 17.67 17.63 17.68 17.83 17.88 17.90 India 67.19 65.11 64.29 64.71 64.40 66.99 64.44 63.97 64.46 65.07 64.85 64.20 63.72 64.44 65.06 65.69 67.49 67.79 68.62 Russia 67.06 58.31 58.93 58.47 56.96 62.03 59.72 59.42 57.66 57.76 58.97 58.70 56.93 56.81 57.15 61.01 62.28 62.81 63.00 South Africa 14.71 13.31 13.19 13.62 11.93 12.65 13.15 13.25 13.17 13.71 14.06 13.11 12.15 11.82 11.84 12.10 12.52 13.33 13.27 Memo: U.S. nominal effective rate (index) 119.7 119.6 116.6 117.5 114.1 116.6 117.9 116.5 115.5 117.5 117.7 117.4 114.7 113.7 113.9 113.9 117.0 118.9 119.8 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 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Energy 2 55 68 65 75 82 92 62 65 68 71 76 78 85 81 81 88 94 95 95 Non-energy 2 80 84 84 85 88 89 83 84 85 85 85 85 87 88 88 90 90 88 88 Agriculture 2 88 87 86 86 89 91 88 85 86 86 86 85 88 89 90 92 92 89 89 Metals and minerals 2 64 79 81 84 88 88 76 83 84 84 84 85 89 89 85 87 88 88 79 Memo items: Crude oil, average ($/bbl) 43 53 50 59 64 71 48 50 53 55 60 61 66 63 64 69 73 72 70 Gold ($/toz) 1249 1258 1278 1275 1329 1307 1237 1283 1314 1280 1282 1264 1331 1331 1325 1335 1303 1282 1282 Baltic Dry Index 676 1152 1138 1509 1171 1256 906 1144 1363 1484 1455 1589 1234 1130 1149 1126 1289 1352 1721 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 399 | July 27, 2018