88790 DECPG Weekly Global Economic Brief Number 34 For more information, see www.worldbank.org/gem 21 January 2010 U.S. inventories posted a second consecutive monthly increase in November, after having contracted for over a year, indicating that the inventory adjustment is largely over. While the shift to stock-building is expected to contribute positively to GDP growth in Q4-2009, a sustainable recovery in GDP will require a prolonged period of growth in sales. The recent fall-off in domestic credit growth across most G-20 economies suggests that banks are consolidating their balance sheets, given loan losses. An extended period of loan losses would likely lead to a contraction in credit and undermine growth prospects. Rising high-income country external debt is expected to raise their borrowing costs and benchmark rates for developing countries in the coming years. The U.S. inventory-to-sales ratio returns to a healthier level. U.S. retail sales growth remains positive; Total business inventories rose 0.4% in November 2009, inventory/sales ratio continues to improve posting a second monthly increase following 14 consecutive Retail sales in 3mma saar and y-o-y (% change), I/S ratio in months months of decline. With sales growing more rapidly than 20 1.5 Inventory/sales ratio - R stocks, the number of months of sales required to clear stocks 10 (or I/S ratio) continued to shrink and reached 1.28 in 1.4 November. This is in line with pre-crisis ratios and well-below 0 the recent peak of 1.46 in December 2008. The shift to stock- 1.3 -10 building is expected to contribute positively to GDP growth in Retail sales Q4-2009. But, a sustainable expansion in GDP will require an -20 y-o-y % - L 1.2 extended period of growth in sales. Notably, momentum Retail sales saar % - L growth in retail sales remained positive for a sixth consecutive -30 1.1 month in December (q/q, saar). Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Sources: U.S. Census Bureau, Thomson Datastream and World Bank Domestic credit growth slowed in recent months. Momentum Credit growth is moderating from elevated growth of banking sector credit (3m/3m, annualized) has levels in most G-20 countries decelerated in many G-20 economies, after having generally 60 Banking sector domestic credit, %-change, 3m/3m, annualized peaked in early-2009. This suggests that banks are focusing on Euro Area 50 rebuilding their balance sheets, which have been weakened by United States loan losses. Total credit growth has been hobbled in a number 40 China of mature economies by the sharp pull-back by ‘shadow’ 30 G-20 Median banks—non-bank institutions, e.g., investment banks and 20 hedge funds, that were at the epicenter of the crisis. Greater- 10 than-expected realized credit losses could result in further 0 deterioration in the health of the financial sector and lead to a -10 credit contraction, which could undermine growth prospects. Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Sources: IMF and World Bank External debt positions rise across many economies, led by External debt rises across the G-7 by at least high-income countries. As of Q2-2009, total external debt has 7.5 percentage points as a share of GDP jumped by a minimum 7.5 percentage-points as a share of Total external debt in percent share of GDP, ranked by 2009-Q2 GDP among the G-7 countries since Q1-2007. Rising Japan 8.2 government debt has been a key driver, as budget deficits Canada 7.5 have deteriorated sharply. Governments in Greece, Ireland United States 7.8 and Portugal, among other high-income countries, have come Australia 17.9 Percentage point increase since Q1-2007 under significant pressure due to their large financing needs. Italy 12.7 High-income country government debt is expected to Germany 16.6 Share as of Q1-2007 continue to rise in the coming years, which is likely to raise France 19.0 their borrowing costs along with benchmark rates for United Kingdom 57.1 developing countries. However, the relative riskiness of 0 50 100 150 200 250 300 350 400 450 developing country debt (and risk premiums) may decline, as Sources: OECD and World Bank developing public debt is not expected to rise as much as in high income countries. The material presented here and on the GEM website is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. Content is not for quotation unless specifically authorized in writing by the World Bank. For permission, please contact pubrights@worldbank.org. Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 21-Jan-10 2008 2009 2009 2006 2007 2008 Q4 Q1 Q2 Q3 Jul Aug Sep Oct Nov Industrial Production, S.A. World 4.8 4.7 0.6 -20.4 -22.1 6.0 12.9 -8.9 -7.3 -5.2 -3.7 0.4 High Income Countries 3.2 2.6 -1.8 -23.3 -31.2 1.2 12.7 -13.9 -12.1 -9.7 -8.6 -4.4 Developing Countries 8.8 9.8 5.9 -14.2 -1.6 15.3 13.4 1.2 2.5 3.8 6.1 - East Asia and Pacific 12.9 15.2 11.0 -9.1 11.2 26.5 14.0 8.4 9.7 11.6 14.1 - East Asia x. China 1.2 4.3 3.3 -17.9 -6.6 13.3 5.6 -3.3 -3.3 0.4 2.9 4.2 Europe and Central Asia 7.8 7.2 1.2 -29.0 -16.2 4.8 14.4 -9.0 -8.2 -7.0 -3.2 3.1 Middle East and N. Africa -0.6 -0.4 1.6 -2.4 -6.8 6.2 4.5 -0.2 0.3 0.6 1.2 - Latin America and Caribbean 4.6 4.4 0.7 -20.2 -16.1 1.9 10.3 -7.9 -6.7 -5.9 -4.1 1.0 South Asia 10.6 9.1 4.1 -3.7 1.9 15.5 20.8 6.4 9.7 8.5 10.2 11.8 Sub-Saharan Africa 4.1 6.3 3.6 -13.0 -16.5 -4.7 11.7 -7.3 -6.6 -4.8 -4.2 - Inflation, S.A. 1 High Income Countries 2.5 2.4 4.3 3.6 1.9 0.7 0.2 0.0 0.2 0.2 0.2 1.0 Developing Countries 6.2 6.1 10.4 10.5 7.8 4.8 2.5 3.0 2.3 2.0 2.4 - East Asia and Pacific 6.2 5.5 9.5 9.7 4.4 1.4 0.3 1.3 0.0 0.2 -0.3 1.4 Europe and Central Asia 6.6 8.4 10.7 9.4 8.4 4.2 2.9 3.0 2.7 2.8 3.2 2.8 Middle East and N. Africa 6.2 3.9 14.9 13.8 4.5 3.3 4.2 3.7 4.0 4.8 5.0 - Latin America and Caribbean 4.3 6.4 8.8 8.6 6.2 4.0 1.9 2.7 1.9 2.7 2.8 3.1 South Asia 7.5 7.6 10.9 14.2 9.6 8.9 9.7 11.2 7.6 7.4 8.8 10.6 1 Inflation is calculated as medians for all groups. Trade and Finance indicators expressed as %ch y/y, except International Reserves %ch p/p and trade quarterly figures are %ch q/q, annualized 2008 2009 2006 2007 2008 Q4 Q1 Q2 Q3 Jul Aug Sep Oct Nov Exports, Nominal, US$, S.A. World 15.9 15.3 14.9 -55.9 -51.5 7.7 36.8 -29.8 -26.3 -18.6 -11.8 -10.5 High Income Countries 13.3 13.6 12.4 -55.8 -49.8 7.0 38.6 -29.2 -25.6 -17.5 -11.2 -16.9 Developing Countries 23.0 19.7 20.8 -56.2 -54.9 9.3 32.9 -31.3 -27.9 -20.9 -13.2 3.2 East Asia and Pacific 23.4 22.0 16.7 -41.1 -49.1 2.9 28.3 -24.1 -22.4 -15.3 -9.9 1.8 Europe and Central Asia 23.0 22.0 29.3 -70.0 -61.4 9.9 51.9 -38.6 -34.3 -27.9 -14.3 4.6 Middle East and N. Africa 31.4 16.2 37.1 -71.1 -74.4 15.3 - -46.9 -41.0 -32.8 - - Latin America and Caribbean 19.7 13.2 11.8 -55.1 -46.6 16.0 7.5 -30.9 -26.5 -20.4 -13.6 5.1 South Asia 19.1 18.4 24.2 -59.0 -46.8 14.3 58.1 -28.4 -19.5 -13.4 -6.6 13.6 Sub-Saharan Africa 24.2 20.1 27.9 -69.3 -70.0 32.5 - -36.9 -36.0 -26.9 - - Imports, Nominal, US$, S.A. World 15.1 16.6 16.2 -57.4 -51.7 2.2 40.6 -32.1 -26.9 -19.1 -12.2 -10.3 High Income Countries 13.7 14.7 12.8 -59.1 -48.9 -3.7 42.3 -33.6 -27.1 -18.9 -10.9 -17.0 Developing Countries 19.4 21.9 25.3 -53.3 -57.7 17.4 36.9 -28.5 -26.5 -19.5 -15.1 4.8 East Asia and Pacific 16.9 18.8 21.1 -52.5 -55.4 63.1 44.2 -20.0 -19.6 -7.9 -7.1 19.0 Europe and Central Asia 25.6 30.3 26.3 -63.6 -64.7 -7.5 40.8 -41.7 -36.7 -29.3 -21.9 - Middle East and N. Africa 9.7 23.0 44.7 -33.7 -40.7 14.0 - -15.5 -15.2 -17.4 - - Latin America and Caribbean 19.6 19.0 22.1 -44.6 -58.0 -15.1 24.0 -31.8 -30.7 -26.5 -26.3 -7.6 South Asia 20.5 21.4 38.3 -61.7 -67.3 13.6 56.0 -35.1 -31.2 -27.5 -15.1 -2.1 Sub-Saharan Africa 23.1 21.7 23.8 -45.2 -46.7 -7.3 - -25.0 -23.3 - - - International Reserves, US$ High Income Countries 8.5 10.6 1.2 1.8 -1.2 6.7 11.5 1.4 7.1 2.6 1.6 2.1 Developing Countries 33.0 42.0 12.6 -4.5 -2.7 6.4 7.1 1.6 2.8 2.4 2.3 - East Asia and Pacific 29.1 41.5 23.5 1.2 0.5 8.3 7.2 1.8 2.2 2.9 2.4 - Europe and Central Asia 50.9 45.7 -8.5 -19.2 -9.5 6.7 4.8 0.3 3.0 1.4 4.1 2.2 Middle East and N. Africa 37.1 31.7 23.9 0.6 -3.4 1.9 - 1.9 2.1 1.8 0.8 - Latin America and Caribbean 21.6 44.6 11.3 -3.9 -6.0 1.9 9.0 2.0 4.6 2.1 2.2 1.9 South Asia 28.1 53.2 -9.0 -10.0 -2.2 6.6 8.1 2.6 4.0 1.3 1.1 -1.1 Sub-Saharan Africa 40.1 27.3 8.0 -7.0 -8.7 0.1 10.6 0.6 5.9 4.0 0.4 - Weekly Global Economic Brief - 21 January 2010 2 Financial Markets 2007 2008 2009 2009 MRV 1 Chg since Q1 Q2 Q3 Q4 Oct Nov Dec Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 5.02 1.93 0.19 0.18 0.15 0.12 0.12 0.12 0.12 0.13 -1.97 ECB repo 3.98 3.78 1.12 0.79 0.44 0.43 0.44 0.45 0.41 0.36 -4.02 US$ LIBOR 3-months 5.30 2.91 1.24 0.85 0.41 0.27 0.28 0.27 0.25 0.25 -2.57 EURIBOR 3-months 4.28 4.63 2.02 1.31 0.87 0.72 0.74 0.72 0.71 0.67 -4.28 US 10-yr Treasury yield 4.63 3.65 2.71 3.30 3.50 3.45 3.36 3.39 3.59 3.70 -0.03 German Bund, 10 yr 4.22 3.99 3.10 3.35 3.31 3.22 3.23 3.24 3.18 3.23 -0.94 Spreads (basis points) US Corporate (High Yield Bonds) 304 915 1516 1107 803 618 640 628 587 506 -227 JP Morgan Emerging Markets 197 406 683 503 384 318 321 325 309 303 -54 Asia 161 355 558 396 299 244 244 257 231 238 -58 Europe 158 370 692 467 369 269 278 275 253 232 -81 Latin America & Caribbean 208 426 712 548 416 364 364 368 361 360 -29 Middle East 476 585 808 618 470 399 416 404 376 307 -191 Africa 288 452 673 489 307 253 248 273 239 227 -108 Stock Indices 2 Global (MSCI) 393 327 204 234 268 294 291 294 298 303 -5.2 High-Income ($ Index) 1571 1297 820 924 1054 1150 1137 1149 1163 1184 -7.7 United States (S&P-500) 1476 1221 810 892 996 1089 1068 1089 1111 1138 -9.1 Euro Area (S&P-350$) 1909 1544 899 1025 1208 1344 1334 1353 1346 1339 -9.0 Japan (Nikkei-225) 16983 12156 7961 9275 10140 9967 10064 9642 10195 10738 -12.1 Developing Markets (MSCI) … 743 431 566 670 760 752 759 769 789 13.3 Asia … 688 430 571 678 750 742 749 761 786 23.9 Europe & C. Asia … 766 341 424 538 621 614 630 619 648 -13.8 Latin America & Caribbean 3670 3771 2103 2760 3296 4002 3897 4015 4093 4050 14.6 Middle East and N. Africa 693 733 358 433 473 491 515 488 471 484 -30.5 Africa … 772 496 621 728 787 791 778 793 803 4.6 Exchange Rates (LCU / USD) High Income Countries Euro 0.73 0.68 0.77 0.73 0.70 0.68 0.67 0.67 0.69 0.71 0.4 Japan 117.74 103.37 93.52 97.40 93.57 89.62 90.23 88.94 89.70 90.90 -15.4 Brazil 1.95 1.83 2.32 2.08 1.87 1.74 1.74 1.73 1.75 1.79 0.3 Russia 25.57 24.88 34.09 32.18 31.31 29.48 29.43 28.95 30.06 29.75 16.3 India 41.35 43.52 49.83 48.83 48.40 46.64 46.74 46.58 46.61 45.94 0.5 China 7.61 6.95 6.84 6.83 6.83 6.83 6.83 6.83 6.83 6.83 -0.3 Egypt 5.64 5.44 5.58 5.62 5.54 5.47 5.47 5.46 5.49 5.44 0.0 South Africa 7.05 8.26 9.95 8.47 7.81 7.49 7.48 7.51 7.48 7.56 -6.2 Memo: USA nominal effective rate 89.39 84.39 91.12 88.61 84.17 81.30 81.39 80.79 81.73 81.73 -4.9 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 2007 2008 2009 2009 MRV Chg since Q1 Q2 Q3 Q4 Oct Nov Dec Sep-12 '08 3 Oil price, $/b, nominal 1 71 97 44 59 68 75 74 77 75 76 -22.1 Non - Oil Index 2 164 196 137 154 163 176 170 175 183 187 -5.4 Food Index 2 155 218 162 182 175 182 177 181 189 190 -10.4 Metals and Minerals Index 2 182 183 114 133 156 170 164 170 177 183 0.1 Baltic Dry Index 3 7072 6348 1557 2661 2795 3378 2746 3941 3449 3158 -34.2 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 1, 2005 3 Base Date = May 1, 1985 Weekly Global Economic Brief - 21 January 2010 3