88721 Weekly Global Economic Brief 25 June 20091 For more information, please see: www.worldbank.org/gem Improving new durable and capital goods orders in the U.S. are the latest indicators of stabilization and an easing of negative pressures in the real sector, suggesting that the rise in consumer savings could be leveling off and the drawdown in business inventories could be abating. An uptick in the latest U.S. jobless claims through end-last week, however, underscores that continued weakness in the labor market will act as a drag on the recovery for some time to come. Similarly, record low capacity utilization rates combined with financial sector weakness will restrain investment and temper the path of the recovery. Falling commodity prices, rising joblessness and excess capacity have contributed to a sharp decline in headline inflation, but much smaller declines in core inflation. In the short-run, simulations suggest that the recent stabilization of commodity prices will cause headline inflation to pick-up during the second half of the year, even as core inflation moderates further—weighed down by ample spare capacity. U.S. durable goods and capital goods orders rose in May, U.S. durable- and capital goods suggesting that firms and consumers are gaining confidence orders continued to stabilize in May that the worst of the recession is behind them. Durable goods durable- and capital goods orders, 3m/3m ch%, saar 20 orders rose 1.8% (m/m) in May, surprising on the upside. The upturn was led by an increase in orders for capital goods, which increased 10 Durable goods 9.5%. Orders for non-defense capital goods, excluding aircraft—an 0 indicator of coming business investment—rose 4.8%, the largest gain -10 since September 2004. On a momentum basis (rolling 3m/3m -20 percent change, saar), durable and capital goods orders remain in Capital goods -30 negative territory, but are vastly improved from sharp contractions attained in early-2009 (chart). In contrast, Euro Area industrial orders -40 declined 1% (m/m) in April, despite a recent rebound in Euro Area -50 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 business confidence. There too, however, the pace of decline Source: U.S. Census Bureau. moderated significantly, which, combined with improving sentiment, suggest a firming of Euro Area orders is in the offing. Capacity utilization rates continued to plunge in Q1 2009 - less severe in emerging markets Capacity utilization has plunged in both high-income and GDP-weighted, normalized 84 86 developing countries, albeit less severely in the latter. Since a Selected developing (left) recent peak in Q4-2007, capacity utilization rates for high-income 82 84 countries have collapsed by 11.1 percentage points and in 80 82 developing countries by 8.2 percentage points. Rates are currently 78 80 well below the previous lows. Extremely low capacity utilization will 76 High-income (left) 78 have a strong bridling effect on the global recovery for some time. 74 76 Similarly, low resource utilization rates will contribute to disinflationary 72 74 and deflationary price dynamics—along with weak demand, rising 70 72 unemployment and lower commodity prices. Q 995 Q 995 Q 996 Q 997 Q 998 Q 998 Q 999 Q 000 Q 001 Q 001 Q 002 Q 003 Q 004 Q 004 Q 005 Q 006 Q 007 Q 007 08 20 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 1 4 3 2 1 4 3 2 1 4 3 2 1 4 3 2 1 4 3 Q Headline consumer prices fell by 0.45% (y/y) in May for high- Sources: Thomson/Datastream and World Bank. income countries (GDP-weighted) down from a peak of 4.5% in July Dynamic Simulation: Disinflationary 2008. This is the first outright fall in prices in decades. Core inflation pressures projected to ease in m-term is also easing, but is much higher—1.8% (y/y) in the United States CPI inflation and the effect of international commodity prices, and 1.5% in the Euro Area in May. The process of disinflation in 12-month log difference, median for all developing countries developing countries continued in May, with the median headline rate 0.1 declining to 4.7% (y/y)—the lowest rate since June 2004 and down from a recent peak of 11.7% in September 2008. Much of this fall reflects the drop in food and fuel prices. Simulations of headline rates 0.05 in developing countries suggest that headline inflation will pick-up Actual inflation Dynamic simulation again in 2010 as stable commodity prices cease to exercise a heavy 0 negative influence on headline inflation. However, given excess 2001m1 2002m1 2003m1 2004m1 2005m1 2006m1 2007m1 2008m1 2009m1 2010m1 2011m1 capacity and large output gaps, significant downward pressures on inflation will remain and over the longer-term further declines in core Sources: International Labor Organization, Global Development Finance 2009. inflation can be expected. 1 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. Weekly Global Economic Brief - 25 June 2009 1 Economic Developments all indicators expressed as %ch y-o-y update: 25-Jun-09 2008 2009 2008 2009 2006 2007 2008 Q2 Q3 Q4 Q1 Jan-09 Feb-09 Mar-09 Apr-09 Industrial Production, S.A. High Income Countries 3.0 2.4 -1.9 0.9 -2.0 -8.8 -17.1 -15.9 -17.6 -17.9 -17.5 Developing Countries 8.8 9.8 6.2 8.6 6.6 0.0 2.4 6.3 2.9 -2.1 -2.9 East Asia and Pacific 13.0 15.0 11.2 13.8 11.3 4.8 14.9 23.2 16.0 5.7 5.2 East Asia x. China 1.1 4.4 2.7 4.7 2.7 -4.1 -9.8 -13.2 -9.5 -6.6 -5.5 Europe and Central Asia 8.1 7.2 0.7 4.3 1.7 -8.3 -15.5 -17.2 -14.5 -14.9 - Middle East and N. Africa -0.5 -0.4 3.1 3.0 4.0 2.8 -1.0 -0.4 -1.2 -1.4 - Latin America and Caribbean 4.3 4.7 1.0 3.0 1.9 -5.4 -11.1 -11.5 -11.6 -10.2 -11.2 South Asia 10.6 9.2 4.1 5.0 4.0 0.6 -1.4 0.3 -1.5 -3.0 -0.4 Inflation 1 High Income Countries 2.3 2.1 3.3 3.6 4.3 2.1 0.7 0.8 0.9 0.4 0.2 Developing Countries 6.2 6.0 9.3 9.0 11.3 9.4 6.4 7.1 6.3 5.8 5.2 East Asia and Pacific 5.4 5.2 7.5 8.9 11.3 8.7 3.7 3.9 3.7 3.5 3.0 Europe and Central Asia 5.6 7.9 10.4 11.4 11.3 8.3 6.0 7.1 6.0 4.9 4.8 Middle East and N. Africa 5.4 4.7 - 14.1 13.6 - - - - - - Latin America and Caribbean 5.8 6.2 8.7 9.1 9.9 9.1 6.2 6.5 6.2 6.0 5.7 South Asia 7.7 7.6 20.3 8.4 12.1 16.9 9.4 10.7 9.6 8.0 8.7 1 Inflation is calculated as the median for developing country groups, and the GDP-weighted aggregate for high income countries. Weights for the high income country aggregates are based on 2005 nominal GDP. Trade and Finance all indicators expressed as %ch y-o-y, except International Reserves %ch over previous period 2008 2009 2008 2009 2006 2007 2008 Q2 Q3 Q4 Q1 Jan-09 Feb-09 Mar-09 Apr-09 Exports, Nominal, US$ High Income Countries 12.7 12.3 13.0 23.3 18.6 -8.5 -28.5 -27.9 -28.9 -28.9 -32.5 Developing Countries 23.1 19.5 10.6 16.3 15.4 -3.9 -24.5 -23.2 -28.1 -22.3 -28.2 East Asia and Pacific 23.3 19.9 7.3 11.6 11.3 -3.6 -23.0 -21.7 -27.1 -20.2 -27.1 Europe and Central Asia 22.3 24.4 26.2 41.5 37.7 -9.5 -36.2 -35.9 -37.5 -35.2 -39.4 Middle East and N. Africa 30.5 6.2 - 63.6 53.4 - - - - - - Latin America and Caribbean 19.8 13.2 11.6 20.1 18.6 -10.2 -26.9 -29.2 -27.0 -24.2 -23.6 South Asia 19.1 18.4 20.2 35.0 25.4 -9.8 -25.9 -20.5 -25.7 -31.3 -32.2 Sub-Saharan Africa 24.6 15.2 - 47.4 49.0 - - - - - - Imports, Nominal, US$ High Income Countries 13.0 11.0 13.0 22.8 19.3 -8.5 -29.7 -27.0 -30.1 -32.0 -33.6 Developing Countries 19.9 20.5 18.5 26.9 24.5 -1.1 -23.9 -31.8 -19.2 -21.0 -34.3 East Asia and Pacific 16.7 14.6 9.8 22.0 14.1 -14.3 -32.9 -45.3 -26.3 -27.2 -26.9 Europe and Central Asia 24.9 28.2 27.1 31.2 34.5 13.1 -13.9 -17.7 -11.0 -13.6 -42.7 Middle East and N. Africa 8.3 23.1 - 45.1 47.8 - - - - - - Latin America and Caribbean 19.1 18.9 21.1 28.9 27.2 2.9 -25.4 -22.6 -27.8 -25.8 -30.4 South Asia 20.5 21.3 34.4 37.9 50.1 5.5 -33.1 -28.0 -37.3 -34.1 -36.3 Sub-Saharan Africa 20.9 24.7 - 28.7 31.3 - - - - - - International Reserves, US$ High Income Countries 7.6 11.6 -1.5 0.0 -3.1 -1.2 -7.1 -7.5 -0.7 1.1 0.8 Developing Countries 31.7 43.3 7.5 6.6 3.5 -10.3 - - - - - East Asia and Pacific 28.8 42.4 23.7 7.0 4.0 0.6 0.6 -1.4 0.9 1.1 - Europe and Central Asia 51.0 49.2 -3.0 8.3 5.3 -19.0 -8.8 -7.7 -0.8 -0.4 0.1 Middle East and N. Africa 36.0 31.2 - 8.5 2.9 - - - - - - Latin America and Caribbean 16.5 44.3 12.8 3.6 4.5 -3.8 - - - - - South Asia 21.7 55.4 -11.8 3.0 -6.1 -16.2 -1.1 -0.6 2.5 -3.0 1.7 Sub-Saharan Africa 43.2 24.8 - 6.3 4.0 - - - - - - Weekly Global Economic Brief - 25 June 2009 2 Financial Markets 24-Jun-09 24-Jun-08 Change (%) 12-Sep-08 Change (%) Max 3 Change (%) 1 2 2 (or MRV) (since 1 yr) (since 12-Sep) since Max Stock Indices Global (MSCI) 241.3 359.8 -33.0 320.0 -24.6 362.0 -33.4 High-Income ($ Index) 951.1 1,421.1 -33.1 1,283.1 -25.9 1,428.4 -33.4 United States (S&P-500) 900.9 1,314.3 -31.5 1,251.7 -28.0 1,322.0 -31.8 Euro Area (S&P-350$) 1,077.6 1,679.9 -35.9 1,471.3 -26.8 1,697.0 -36.5 Japan (Nikkei-225) 9,590.3 13,849.6 -30.8 12,214.8 -21.5 13,849.6 -30.8 Developing Markets (MSCI) 593.8 887.4 -33.1 696.7 -14.8 898.4 -33.9 Asia 600.1 785.7 -23.6 634.8 -5.5 793.2 -24.3 Europe & C. Asia 449.4 906.8 -50.4 751.1 -40.2 955.9 -53.0 Latin America & Caribbean 2,873.0 4,676.5 -38.6 3,535.8 -18.7 4,784.5 -40.0 Middle East and N. Africa 457.2 854.0 -46.5 696.4 -34.4 854.0 -46.5 Africa 656.3 852.0 -23.0 767.8 -14.5 894.2 -26.6 Interest rates and LIBOR (%) 2 U.S. Fed Funds Effective 0.21 1.93 -1.72 2.10 -1.89 2.97 -2.76 ECB repo 0.60 4.27 -3.67 4.37 -3.77 4.39 -3.79 US$ LIBOR 3-months 0.60 2.81 -2.21 2.82 -2.21 4.82 -4.21 EURIBOR 3-months 1.20 4.96 -3.76 4.96 -3.76 5.39 -4.20 US 10-yr Treasury yield 3.68 4.10 -0.42 3.73 -0.04 4.14 -0.46 German Bund, 10 yr 3.39 4.56 -1.18 4.17 -0.79 4.67 -1.28 Spreads (basis points) 2 US Corporate (High Yield Bonds) 930.2 578.0 352.2 732.8 197.4 1,963.1 -1,032.9 JP Morgan Emerging Markets 455.0 282.8 172.2 357.4 97.7 890.9 -435.9 Asia 355.5 274.3 81.1 296.2 59.3 823.9 -468.4 Europe 410.7 251.4 159.3 313.1 97.6 922.8 -512.1 Latin America & Caribbean 504.0 290.7 213.4 388.3 115.7 914.1 -410.1 Middle East 508.7 456.4 52.3 498.5 10.2 1,045.5 -536.8 Africa 428.4 256.9 171.5 334.7 93.7 880.8 -452.4 Exchange Rates (LCU / USD) 4 Euro 0.71 0.64 -11.1 0.71 -1.0 0.80 11.3 Japan 95.35 107.93 11.7 107.49 11.3 110.33 13.6 Brazil 1.96 1.60 -22.4 1.78 -10.0 2.59 24.3 Russia 31.18 23.58 -32.2 25.57 -21.9 36.36 14.2 India 48.56 42.97 -13.0 45.73 -6.2 51.97 6.6 China 6.83 6.87 0.5 6.85 0.2 6.89 0.8 Egypt 5.60 5.35 -4.7 5.44 -2.9 5.69 1.7 South Africa 8.04 8.02 -0.2 8.07 0.4 11.15 27.9 Memo: USA nominal effective rate 87.99 81.95 -7.4 85.90 -2.4 92.80 5.2 1 MRV = Most Recent Value. 2 Change calculated in actuals and not percent for interest rates and spreads. 3 Max calculated since a year ago. 4 A negative sign on the percent change indicates depreciation of the currency. Commodity Prices 24-Jun-09 24-Jun-08 Change (%) 12-Sep-08 Change (%) Max Change (%) (or MRV) (since 1 yr) (since 12-Sep) since Max Oil Price, $/b, nominal 1 68.5 134.2 -49.0 97.8 -30.0 143.2 -52.2 Non - Oil Index 2 157.1 233.7 -32.8 198.2 -20.7 240.5 -34.7 Food Index 2 185.5 267.7 -30.7 212.1 -12.6 275.5 -32.7 Metals and Minerals Index 2 139.5 208.8 -33.2 183.2 -23.9 214.8 -35.1 Baltic Dry Index 3 3,751.0 9,139.0 -59.0 4,800.0 -21.9 9,599.0 -60.9 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 1, 2005 3 Base Date = May 1, 1985 Weekly Global Economic Brief - 25 June 2009 3