89655 DECPG Weekly Global Economic Brief Number 100 For more information, see www.worldbank.org/gem 14 July 2011 Global industrial production surged a seasonally adjusted 3.5% in May, suggesting that the recent sharp fall-off in industrial activity was temporary in nature. Recovery in Japan supported the rebound, along with vibrant gains in Germany and France. Notwithstanding, the slump in retail sales deepened in May (in the 25 countries with current data), as high food and fuel prices crimped real incomes. The fading negative supply- and demand- side impacts of Japan’s earthquake and the retreat in international commodity prices from recent spikes should support a firming of global growth ahead. However, the nascent rebound could be derailed by significant downside risks tied to growing market concerns that fiscal woes in Greece, Ireland and Portugal could spread to Italy and Spain, and about the standoff over the debt-ceiling talks in the United States. In particular, contagion of the fiscal crisis to larger Euro Area economies would likely have wide-ranging consequences, potentially spilling over to developing regions, especially Latin America and the Caribbean, the Middle East and North Africa, and Eastern Europe and Central Asia, given their strong financial and trade links to Europe. Global IP rose 3.5% in May—regaining and Following a 1.7% contraction in April, world industrial production surpassing the pre-crisis volume high surged 3.5% in May—the strongest monthly gain since the onset of 15 Industrial output (IP), seasonally adjusted volumes, index and percent growth, 3m/3m annualized and m/m 110 the crisis (m/m, seasonally adjusted volumes). A post-Tohoku rebound 10 in activity in Japan, combined with robust growth in Germany and 5 105 France, contributed to the sharp upswing. Among reporting 0 100 developing regions, output jumped 2.9% in Latin America and the -5 95 Caribbean, rose by a more modest 0.7% in Europe and Central Asia, -10 and contracted by 1.4% in South Asia (albeit less sharply than the April -15 3m/3m, saar % (LHS) 90 -20 decline of 2.0%). While further easing of Japan’s earthquake-related -25 m/m, sa % (LHS) 85 supply constraints should support global output in the near-term, -30 Aug-2008=100 (RHS) 80 along with falling (albeit still high) oil prices, a deepening of fiscal May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 turmoil in mature economies could heighten already elevated Sources: Thomson Datastream and World Bank DEC Prospects Group headwinds to recovery. Slump in retail sales volumes continued in May, amid still high—but falling—oil prices Global retail sales volumes contracted by a seasonally adjusted 0.4% %-changes of GDP-weighted retail sales(3m/3m, seasonally adj., in May (m/m), lowering annualized growth to 0.7% in the 3-months 10annualized rates, 25 countries) and crude oil prices (3m/3m, ar) 140 ending May (3m/3m, saar). The decline in May was led by the United States (slow job growth), and the Euro Area (low consumer 5 120 confidence, including Germany despite booming industrial activity), 0 100 which more-than offset a rebound in Japan (post-disaster) and strengthening sales in the U.K. and Norway (easing price pressures, -5 80 and less influence of the Euro Area fiscal-sustainability turmoil on consumer sentiment). The deepening slump in retail sales reflects a -10 Retail sales, 3m/3m (LHS) 60 continued drag from elevated international commodity prices, which -15 Crude oil, 3m/3m (RHS) 40 have cut into real disposable incomes. Looking ahead, declining oil May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 prices (along with stabilizing agricultural commodity prices) should Sources: Thomson Datastream and World Bank DEC Prospects Group provide a boost to consumer’s real purchasing power. However, consumer sentiment remains a key concern, particularly in the Euro Area, and increasingly the United States. The level of Italy and Spain’s public debt dwarfs that of Greece, Ireland and Portugal Heightened uncertainty about fiscal sustainability has led to a 2500Stock of public debt, $ billions and % shares of GDP, 2010 119 marked upswing in sovereign borrowing interest rates and costs of Non-residents insuring against default across a number of Euro Area 2000 Other residents economies—now including Italy and Spain. Portugal and Ireland’s Domestic non-bank fin. institutions sovereign-debt ratings have been further downgraded to ‘junk’ 1500 Domestic banks Central Bank status, joining Greece. Market sentiment has deteriorated, while 1000 Total public debt/gdp, %-share discussions on ‘voluntary’ restructuring plans continue, which ratings 52 114 agencies have indicated they would classify as ‘default events’. 500 104 85 Contagion to Italy and Spain, which together represent 28% of Euro 0 Area GDP, could result in significant financial and economic Italy Spain Greece Ireland Portugal dislocation in the Euro Area. Separately, amid stalling debt-limit Sources: ECB, DG ECFIN, Central Banks, World Bank DEC Prospects Group talks, Moody’s has joined S&P in considering an unprecedented cut in the U.S. government’s debt from its top-notch ‘AAA’ rating. 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 13-Jul-11 2010 2011 2011 2008 2009 2010 Q2 Q3 Q4 Q1 Jan Feb Mar Apr May Industrial Production, S.A. World 0.4 -8.5 9.1 8.5 0.7 8.0 8.5 7.9 6.9 4.4 2.6 6.0 High Income Countries -2.0 -12.9 8.1 9.2 -0.4 5.1 6.2 7.0 5.8 2.2 0.3 4.2 Developing Countries 6.0 0.9 10.9 7.2 2.8 13.2 12.8 9.6 8.8 8.3 6.7 - East Asia and Pacific 10.7 8.4 14.5 9.4 6.1 17.1 18.6 12.9 12.4 12.7 11.5 - East Asia x. China 2.3 -4.3 8.7 5.0 -7.3 13.8 3.2 5.7 2.3 2.2 -0.2 - Europe and Central Asia 0.1 -10.1 9.5 8.7 -1.0 19.6 8.7 10.6 8.8 6.9 5.2 6.1 Latin America and Caribbean 1.0 -7.0 6.5 6.0 0.2 4.8 10.3 5.8 5.6 4.4 1.9 4.9 Middle East and N. Africa 3.1 -3.5 1.6 -1.1 -5.7 6.1 -18.0 0.0 -4.6 -10.7 - - South Asia 6.8 -0.2 9.3 2.6 3.6 10.9 12.6 7.1 6.2 8.7 4.2 5.9 Sub-Saharan Africa 1.0 -6.7 5.6 2.8 -7.6 -3.5 6.4 -0.9 0.9 -1.8 - - Inflation, S.A. 1 High Income Countries 4.3 1.2 1.9 2.0 1.9 2.5 3.3 3.0 3.4 3.5 3.3 3.4 Developing Countries 10.3 4.0 4.4 4.5 4.0 4.9 5.2 5.1 5.2 5.7 6.2 - East Asia and Pacific 9.5 1.5 4.0 4.3 3.7 4.3 4.8 5.2 4.8 5.4 5.3 - Europe and Central Asia 10.2 3.1 6.5 4.4 6.8 7.6 7.5 7.0 7.1 7.7 8.4 7.9 Latin America and Caribbean 8.8 3.3 4.4 3.9 4.0 5.3 3.3 4.9 5.6 5.9 6.2 6.5 Middle East and N. Africa 10.8 3.4 4.2 4.8 3.7 4.9 - 3.6 2.9 2.9 4.5 - South Asia 10.9 10.8 10.0 10.1 9.1 9.2 9.8 9.3 9.8 10.5 10.0 9.0 Sub-Saharan Africa 10.4 7.5 4.0 4.3 3.0 3.8 5.0 5.1 5.1 5.7 6.8 - 1 Inflation is calculated as medians 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 2010 2011 2011 2008 2009 2010 Q2 Q3 Q4 Q1 Jan Feb Mar Apr May Exports, Nominal, US$, S.A. World 15.2 -22.9 21.9 3.8 1.9 42.6 42.5 21.9 19.4 22.0 21.1 26.5 High Income Countries 12.6 -23.0 18.4 -0.2 3.9 38.0 41.4 19.1 19.7 19.0 18.1 26.5 Developing Countries 21.1 -22.6 29.4 12.3 -2.1 52.4 44.5 27.6 18.6 28.0 27.2 27.0 East Asia and Pacific 16.8 -16.4 30.9 27.8 -0.6 39.3 35.7 33.3 9.2 31.4 29.3 19.9 Europe and Central Asia 31.0 -32.7 26.6 -7.3 -19.1 87.0 84.0 17.7 30.8 31.6 37.3 37.2 Latin America and Caribbean 11.7 -20.3 28.4 16.3 6.8 47.2 39.5 27.5 27.7 24.0 21.2 30.4 Middle East and N. Africa 34.0 -33.9 27.0 -16.5 11.7 55.4 - - - - - - South Asia 24.9 -11.5 28.5 16.4 -6.8 112.1 85.1 35.2 49.0 46.6 35.6 55.5 Sub-Saharan Africa 29.5 -31.3 32.0 -8.0 -7.4 48.0 - - - - - - Imports, Nominal, US$, S.A. World 15.8 -23.4 21.2 5.8 1.3 38.9 53.1 25.1 21.6 22.0 21.0 - High Income Countries 12.1 -24.6 17.8 4.1 2.3 31.9 48.3 20.3 20.3 19.9 19.7 - Developing Countries 25.7 -20.4 29.3 9.6 -0.8 55.0 63.6 36.1 24.0 26.8 23.6 32.5 East Asia and Pacific 21.3 -15.4 37.6 6.7 -6.8 83.7 58.8 44.5 20.6 26.9 23.1 28.0 Europe and Central Asia 27.1 -33.5 26.2 24.1 15.5 55.3 83.4 41.1 43.4 41.9 37.7 - Latin America and Caribbean 22.2 -24.7 28.8 30.7 2.6 25.5 50.3 29.0 27.3 22.4 20.1 29.6 Middle East and N. Africa 44.7 -8.9 9.7 -6.2 2.6 35.5 - - - - - - South Asia 38.7 -17.2 27.5 -12.3 -7.6 20.2 127.3 15.0 23.3 27.3 16.4 54.3 Sub-Saharan Africa 26.4 -18.8 12.2 -2.8 4.6 35.6 - - - - - - International Reserves, US$ High Income Countries 5.8 15.8 10.8 2.7 5.7 0.4 3.9 1.0 0.7 2.1 2.3 0.6 Developing Countries 12.5 14.8 14.6 0.5 7.6 4.8 6.0 2.4 1.8 1.8 3.5 0.4 East Asia and Pacific 23.5 22.6 19.3 0.6 8.2 7.5 7.0 2.7 2.1 2.0 3.9 0.6 Europe and Central Asia -8.9 2.1 7.5 0.8 7.7 -2.1 6.0 2.0 1.6 2.2 3.8 -0.6 Latin America and Caribbean 11.3 10.3 15.6 2.7 7.6 4.3 6.2 2.1 2.3 1.6 2.5 1.1 Middle East and N. Africa 22.6 5.1 5.9 -0.9 6.2 1.9 - 1.5 - - - - South Asia -9.0 11.0 5.6 -1.0 6.1 1.5 2.8 0.8 1.0 1.0 2.5 -1.1 Sub-Saharan Africa 8.0 2.2 0.7 -2.2 3.5 0.0 6.4 2.4 0.9 2.7 - - Weekly Global Economic Brief - 14 July 2011 2 Financial Markets 13-Jul-11 2008 2009 2010 2010 2011 2011 MRV 1 Chg since Q2 Q3 Q4 Q1 Jan Feb Mar Apr May Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 1.93 0.16 0.18 0.19 0.19 0.19 0.16 0.17 0.16 0.14 0.10 0.09 0.06 -2.04 ECB repo 3.78 0.70 0.48 0.37 0.50 0.69 0.78 0.65 0.79 0.89 1.07 1.14 1.30 -3.07 US$ LIBOR 3-months 2.91 0.69 0.34 0.43 0.39 0.29 0.31 0.30 0.31 0.31 0.28 0.26 0.25 -2.57 EURIBOR 3-months 4.63 1.23 0.81 0.69 0.87 1.02 1.09 1.02 1.09 1.18 1.32 1.43 1.61 -3.35 US 10-yr Treasury yield 3.65 3.24 3.20 3.47 2.77 2.85 3.45 3.37 3.57 3.41 3.43 3.15 2.91 -0.82 German Bund, 10 yr 3.99 3.24 2.76 2.80 2.44 2.60 3.17 3.04 3.22 3.24 3.35 3.08 2.62 -1.55 Spreads (basis points) US Corporate (High Yield Bonds) 915 1011 538 531 577 521 427 459 404 418 396 426 506 -227 JP Morgan Emerging Markets 406 472 301 307 315 285 289 283 286 297 296 305 315 -42 Asia 355 374 206 221 200 172 181 175 180 189 192 196 194 -102 Europe 370 449 247 255 268 232 230 233 227 231 223 240 270 -43 Latin America & Caribbean 426 510 360 365 374 347 352 342 348 364 371 379 381 -8 Middle East 585 574 342 333 380 339 309 292 313 321 309 334 358 -140 Africa 452 431 274 256 324 294 362 351 371 362 298 297 337 2 2 Stock Indices (end of period) Global (MSCI) 228 299 331 268 305 331 344 336 345 344 357 348 336 4.9 High-Income ($ Index) 920 1168 1280 1041 1179 1280 1335 1308 1352 1335 1389 1355 1307 1.9 United States (S&P-500) 903 1115 1258 1031 1141 1258 1326 1286 1327 1326 1364 1345 1314 4.9 Euro Area (S&P-350$) 1039 1358 1353 1102 1302 1353 1436 1411 1453 1436 1544 1480 1402 -4.7 Japan (Nikkei-225) 8860 10546 10229 9383 9369 10229 9755 10238 10624 9755 9850 9694 9963 -18.4 Developing Markets (MSCI) 458 783 912 727 851 912 925 887 876 925 951 922 886 27.1 Asia 457 778 906 740 848 906 917 893 856 917 950 933 906 42.8 Europe & C. Asia 434 616 635 497 629 635 702 664 671 702 768 731 662 -11.9 Latin America & Caribbean 2078 4117 4614 3640 4382 4614 4632 4403 4486 4632 4634 4486 4294 21.5 Africa 567 815 1049 771 937 1049 1008 924 975 1008 1050 1004 963 25.4 Exchange Rates (LCU / USD) High Income Euro Area 0.68 0.72 0.76 0.79 0.77 0.74 0.73 0.75 0.73 0.71 0.69 0.70 0.71 0.1 Japan 103.37 93.53 87.80 92.13 85.84 82.51 82.31 82.61 82.52 81.81 83.26 81.28 79.40 -26.1 Developing Brazil 1.83 2.00 1.76 1.79 1.75 1.70 1.67 1.68 1.67 1.66 1.58 1.61 1.57 -11.9 China 6.95 6.83 6.77 6.82 6.77 6.66 6.58 6.60 6.59 6.57 6.53 6.50 6.47 -5.5 Egypt 5.44 5.55 5.64 5.61 5.70 5.76 5.87 5.81 5.88 5.93 5.96 5.95 5.96 9.6 India 43.52 48.42 45.73 45.66 46.48 44.85 45.28 45.43 45.44 44.97 44.39 44.93 44.53 -2.6 Russia 24.88 31.76 30.38 30.33 30.60 30.71 29.27 30.14 29.25 28.41 28.05 27.94 28.05 9.7 South Africa 8.26 8.43 7.32 7.55 7.32 6.90 7.00 6.92 7.18 6.90 6.72 6.86 6.84 -15.2 Memo: USA nominal effective rate 84.39 86.30 83.47 86.26 83.68 80.56 79.55 80.56 79.65 78.43 77.72 77.44 77.23 -10.1 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 2008 2009 2010 2010 2011 2011 MRV Chg since Q2 Q3 Q4 Q1 Jan Feb Mar Apr May Sep-12 '08 3 Oil price, $/b, nominal 1 97 62 79 78 76 85 100 93 98 109 117 108 108 10.5 Non - Oil Index 2 199 151 196 182 191 229 259 254 266 256 258 246 242 21.6 Food Index 2 218 175 199 175 196 239 264 263 269 260 260 256 249 17.2 Metals and Minerals Index 2 188 127 189 185 181 210 234 231 241 231 236 224 229 23.5 Baltic Dry Index 3 6348 2598 2755 3318 2358 2330 1364 1419 1180 1493 1331 1354 1411 -70.6 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 1, 2005 3 Base Date = May 1, 1985 Weekly Global Economic Brief - 14 July 2011 3