98932 WEEKLY ECONOMIC BRIEF For more information, see our website www.worldbank.org/globaloutlook Markets have reacted positively to news that a ceasefire in eastern Ukraine may be imminent. A diplomatic resolution to the conflict in Ukraine would help growth to resume in Russia, which would benefit the wider region, and would also reduce risks of spillovers to the global economy. Global financial markets rallied briefly this week following news of an apparent Global stocks rallied on Wednesday on news of an imminent ceasefire agreement in eastern Ukraine. This helped lift financial markets in truce in Ukraine Russia and Ukraine, and across Europe on Wednesday, although markets gave up % change in benchmark indices, Sep 3, 2014 some of their gains on confusion over whether a deal really had been reached. The 6 news also contributed to some unwinding of safe-haven flows into German 5.2 5 government bonds, dampening demand for German five-year notes at an auction on Wednesday though yields have since turned lower following the ECB’s decision to 4 4.1 lower benchmark rates and pledge to purchase asset backed securities to support the Euro Area economy and combat risks of deflation. 3 2 An easing in tensions would be particularly welcome given the heavy toll the 1.4 1.5 1.0 conflict has taken on Ukraine and Russia. An estimated 260,000 people have 1 0.7 0.3 been displaced by the conflict in Ukraine and some 2,500 have died according to UN 0 estimates. Moreover, armed strife in the east (where Ukraine’s heavy industry is S&P500 FTSE100 CAC40 Euro Stoxx DAX MICEX RTS Index* $ located) has severely impacted an already fragile Ukrainian economy, which contracted by over 12% (q/q saar) in the first two quarters of 2014, while the Source: World Bank, Bloomberg. * Russian Trading System Index, which is a free-float US$ denominated index of 50 Russian stocks traded on the currency has fallen 34% since the start of 2014 amidst capital flight. IMF and World Moscow Stock Exchange Bank support packages of $17bn and $1.5bn respectively have reduced risks of an outright default, but financing difficulties remain. In Russia, activity has been weakening and the imposition of widening sanctions by Western governments and Developing Europe and Central Asian economies have strong retaliatory measures by Russia have raised inflation, added to funding difficulties for linkages with Russia corporates, and disrupted trade. Consequently, 2014 growth forecasts in the June Global Economic Prospects report for Russia of 0.5% are unlikely to be achieved % of total exports % of GDP 60% Exports to Ukraine (LHS) 35% and outturns for Ukraine may prove worse than projections of a 5% GDP contraction Exports to Russia (LHS) in 2014. 50% 30% Remittances from Russia (RHS) 25% 40% A re-escalation of the crisis could pose risks to the global economy. Direct 20% spillovers from the conflict in Ukraine are mainly regional, reflecting the fact that 30% 15% Russia accounts for more than 10% of total exports from Belarus and most countries 20% 10% in the Baltics, the Caucasus and Central Asia, and remittances from Russia account 10% for more than 10% of GDP for Armenia, Moldova, Tajikistan, and Kyrgyz Republic. 5% However, wider spillovers could emerge from increased risk aversion in global 0% 0% financial markets or major disruptions in production or transportation of oil and natural gas. Although existing sanctions have had only limited effects in a few sectors, a shutdown of gas supplies especially could disrupt production in Western Europe, which depends on Russia for nearly 30% of its natural gas supplies. Source: World Bank Number 231 | September 05, 2014. Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 2013 2014 2014 2010 2011 2012 2013 Q3 Q4 Q1 Q2 Feb Mar Apr May Jun Jul Industrial Production, S.A. World 9.0 4.7 3.0 2.7 4.3 4.8 3.3 1.7 4.0 3.9 3.6 3.5 3.4 3.4 High Income Countries 7.8 2.7 0.8 0.6 3.3 3.7 3.0 -0.3 3.2 3.0 2.9 2.2 2.2 2.2 Developing Countries 11.0 7.9 6.3 5.7 5.9 6.4 3.8 4.8 5.2 5.3 4.8 5.4 5.4 5.2 East Asia and Pacific 14.5 11.6 9.1 9.0 11.2 10.5 4.2 7.5 7.7 7.5 8.0 8.2 8.7 7.7 East Asia x. China 9.2 0.4 4.1 4.9 4.8 6.2 -1.8 5.6 2.2 0.2 2.1 3.8 4.9 -2.0 Europe and Central Asia 10.8 13.1 9.1 2.2 7.3 3.1 6.1 1.2 4.3 4.7 3.7 5.8 3.7 - Latin America and Caribbean 6.3 2.6 -0.1 1.0 -2.3 -4.2 -0.1 -3.0 0.6 1.4 -2.4 -1.5 -3.3 - Middle East and N. Africa 2.2 -10.1 6.3 -8.1 -32.0 -14.7 14.2 -0.9 -9.3 -12.4 -12.4 -9.1 -8.5 -2.7 South Asia 9.3 5.4 1.1 - - - - - - - - - - - Sub-Saharan Africa 4.5 3.3 3.5 0.9 -7.5 9.8 -6.0 -2.1 1.6 1.2 -2.3 -3.5 0.7 - Inflation, S.A. 1 High Income Countries 1.7 2.8 2.1 1.6 1.7 1.4 1.5 2.0 1.4 1.6 2.0 2.1 2.0 1.9 Developing Countries 5.9 7.6 6.4 7.4 7.7 7.9 7.4 7.6 7.2 7.4 7.5 7.8 7.4 7.4 East Asia and Pacific 3.4 5.6 2.8 3.0 3.3 3.4 2.9 2.9 2.7 3.0 2.5 3.2 3.0 2.8 Europe and Central Asia 7.3 8.2 8.7 6.2 6.2 5.5 5.8 7.4 5.7 6.2 7.1 7.6 7.5 7.6 Latin America and Caribbean 6.8 7.7 7.0 9.9 10.4 11.6 12.4 13.6 12.3 12.9 13.6 14.0 13.3 12.9 Middle East and N. Africa 7.0 11.9 11.7 19.1 20.4 17.4 13.7 10.3 13.2 11.8 10.7 10.4 9.7 10.4 South Asia 10.2 9.8 9.5 9.6 9.3 10.0 8.2 8.0 7.9 8.2 8.4 8.1 7.4 7.8 Sub-Saharan Africa 7.6 10.0 11.3 7.6 6.9 6.3 6.4 6.7 6.4 6.5 6.5 6.7 6.9 6.8 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 2013 2014 2014 2010 2011 2012 2013 Q3 Q4 Q1 Q2 Feb Mar Apr May Jun Jul Exports, Nominal, US$, S.A. World 22.0 19.3 0.5 1.7 3.8 10.1 -3.4 5.1 -0.7 2.8 3.1 4.1 4.1 - High Income Countries 19.3 18.5 -0.9 1.4 4.7 9.0 -1.9 3.5 2.2 4.9 3.9 4.0 3.3 - Developing Countries 29.0 21.2 3.9 2.5 1.7 12.6 -6.7 9.3 -6.8 -1.8 1.4 4.5 6.1 10.0 East Asia and Pacific 30.8 19.7 6.2 6.2 -2.6 23.5 -11.2 12.8 -12.6 -3.5 1.8 4.9 7.8 12.3 Europe and Central Asia 15.6 20.3 -0.1 -0.1 14.3 4.7 6.3 -7.0 2.7 9.1 2.8 5.5 4.6 - Latin America and Caribbean 28.4 23.2 1.5 0.7 1.9 2.3 -11.6 10.3 2.2 -3.3 -1.0 0.7 1.6 5.9 Middle East and N. Africa 26.3 16.2 5.9 - - - - - - - - - - - South Asia 34.3 31.6 -1.7 6.2 46.2 -1.1 -18.9 10.9 -3.1 -2.3 1.3 9.9 9.4 6.9 Sub-Saharan Africa 40.1 24.7 2.8 -12.2 -19.5 -20.3 - - 5.0 - - - - - Imports, Nominal, US$, S.A. World 16.1 13.6 7.2 6.6 9.3 2.5 -1.0 -1.4 4.0 3.2 -1.3 1.5 6.6 - High Income Countries 15.5 13.0 7.3 6.8 9.7 2.5 -0.9 -2.5 4.2 3.6 -2.1 1.7 6.8 - Developing Countries 29.4 24.7 4.7 3.2 0.9 2.7 -2.2 -9.1 -0.4 -5.4 -4.4 -3.8 2.3 -3.3 East Asia and Pacific 38.1 24.2 5.6 5.4 6.7 7.1 -2.6 -15.2 4.5 -11.0 -2.6 -4.2 2.6 -3.5 Europe and Central Asia 21.8 28.9 0.3 2.7 4.9 1.1 -17.0 -6.3 -6.3 -2.9 -7.7 -4.0 -2.3 - Latin America and Caribbean 28.8 22.8 3.9 3.2 -5.3 -0.4 6.3 -5.1 -0.2 3.4 -4.6 -2.5 3.9 -1.7 Middle East and N. Africa 14.3 17.1 10.3 - - - - - - - - - - - South Asia 33.9 31.4 4.0 -3.8 -17.4 -9.7 2.9 9.9 -14.4 -1.4 -9.4 -9.7 7.9 3.1 Sub-Saharan Africa 8.1 23.2 5.0 - - - - - - - - - - - International Reserves, US$ High Income Countries 10.2 11.2 9.2 3.8 2.4 1.1 0.9 0.6 0.5 0.3 -0.1 0.3 0.4 -0.3 Developing Countries -3.4 -8.9 9.7 -3.3 0.7 3.3 1.7 -2.9 1.0 -0.4 -1.8 -0.8 -0.2 4.9 East Asia and Pacific 19.3 11.9 4.5 12.2 4.1 3.7 3.0 1.2 1.1 0.8 0.9 0.1 0.3 - Europe and Central Asia 9.3 5.5 7.8 3.6 1.5 2.0 -2.9 3.3 0.6 0.6 1.6 0.7 1.0 -1.2 Latin America and Caribbean 16.2 16.3 8.4 -1.1 0.4 -1.2 0.2 3.4 -0.1 0.1 1.6 0.6 1.2 1.1 Middle East and N. Africa -10.7 -18.5 12.7 -10.6 -1.0 3.5 1.5 -6.3 1.1 -1.2 -4.0 -1.6 -0.8 6.0 South Asia 6.1 -0.9 0.4 -0.2 -2.4 6.5 3.7 5.4 1.7 3.3 2.9 1.0 1.5 1.4 Number 231 | September 05, 2014. Financial Markets 1 2013 2014 2014 MRV Chg since 2010 2011 2012 2013 Q3 Q4 Q1 Q2 Feb Mar Apr May Jun Jul Aug Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.18 0.10 0.14 0.11 0.09 0.09 0.07 0.09 0.07 0.08 0.09 0.09 0.10 0.09 0.09 0.09 -2.01 ECB repo 1.00 1.25 0.88 0.55 0.50 0.35 0.25 0.22 0.25 0.25 0.25 0.25 0.16 0.15 0.00 0.15 -4.10 US$ LIBOR 3-months 0.34 0.34 0.43 0.27 0.26 0.24 0.24 0.23 0.24 0.23 0.23 0.23 0.23 0.23 0.24 0.23 -2.58 EURIBOR 3-months 0.75 1.34 0.49 0.15 0.15 0.20 0.27 0.27 0.26 0.27 0.30 0.30 0.21 0.17 0.16 0.12 -4.84 US 10-yr Treasury yield 3.20 2.77 1.78 2.33 2.70 2.73 2.75 2.61 2.70 2.72 2.69 2.55 2.59 2.52 2.43 2.43 -1.29 German Bund, 10 yr 2.78 2.65 1.57 1.63 1.79 1.79 1.68 1.43 1.66 1.59 1.53 1.40 1.35 1.20 1.02 0.93 -3.25 Spreads (basis points) JP Morgan Emerging Markets 301 341 342 319 347 342 352 300 368 341 315 303 282 282 310 307 -50 Asia 206 218 216 219 254 237 231 197 238 214 209 193 189 195 202 188 -108 Europe 247 301 320 267 299 290 301 265 306 313 288 271 236 244 274 278 -35 Latin America & Caribbean 360 404 393 379 406 409 429 360 457 408 371 365 343 336 373 373 -15 Middle East 342 366 449 435 438 428 408 376 414 398 387 379 360 372 379 367 -131 Africa 274 364 337 322 359 338 332 287 347 316 294 288 278 278 292 272 272 Stock Indices (end of period) 2 Global (MSCI) 331 300 340 409 382 409 411 429 410 411 414 422 429 423 432 433 35.3 High-Income ($ Index) 1280 1183 1339 1661 1544 1661 1674 1743 1675 1674 1688 1715 1743 1714 1749 1752 36.5 United States (S&P-500) 1258 1258 1426 1848 1682 1848 1872 1960 1859 1872 1884 1924 1960 1931 2003 2009 60.5 Euro Area (S&P-350$) 1124 1005 1143 1339 1267 1339 1361 1401 1376 1361 1382 1408 1401 1380 1404 1417 22.6 Japan (Nikkei-225) 10229 8455 10395 16291 14456 16291 14828 15454 14841 14828 14304 14632 15454 15621 15425 15676 28.3 Developing Markets (MSCI) 1151 916 1055 1003 987 1003 995 1051 966 995 995 1028 1051 1066 1088 1101 28.7 EM Asia 468 379 447 446 431 446 444 472 438 444 444 461 472 485 489 493 50.6 EM Europe 529 395 473 438 446 438 409 435 406 409 396 428 435 403 399 411 -19.2 EM Europe & Middle East 450 336 402 372 379 372 348 360 345 348 337 364 360 340 337 349 -14.8 EM Latin America & Caribbean 4614 3602 3798 3201 3303 3201 3194 3370 2941 3194 3254 3242 3370 3399 3664 3704 4.8 Exchange Rates (LCU / USD) High Income Euro Area 0.76 0.72 0.78 0.75 0.75 0.73 0.73 0.73 0.73 0.72 0.72 0.73 0.74 0.74 0.75 0.76 8.3 Japan 87.76 79.74 79.85 97.61 98.88 100.51 102.78 102.14 102.12 102.36 102.51 101.84 102.06 101.69 102.91 104.09 -3.6 Developing Brazil 1.76 1.67 1.95 2.16 2.29 2.28 2.36 2.23 2.38 2.33 2.23 2.22 2.23 2.23 2.27 2.24 25.5 China 6.77 6.46 6.31 6.15 6.13 6.09 6.10 6.23 6.08 6.17 6.22 6.24 6.23 6.20 6.15 6.14 -10.2 Egypt 5.63 5.94 6.07 6.87 6.97 6.89 6.96 7.07 6.96 6.96 6.98 7.09 7.15 7.15 7.15 7.15 31.9 India 45.73 46.67 53.41 58.55 62.14 62.00 61.75 59.78 62.19 60.98 60.22 59.37 59.76 60.10 0.00 60.52 32.4 Russia 30.37 29.41 31.06 31.86 32.79 32.56 35.07 34.96 35.31 36.13 35.67 34.84 34.37 34.79 36.26 37.12 45.4 South Africa 7.32 7.26 8.21 9.65 9.99 10.16 10.86 10.54 10.95 10.75 10.54 10.41 10.68 10.67 10.65 10.67 33.5 Memo: USA nominal effective rate 100.19 98.59 102.16 105.06 106.19 106.71 108.77 109.10 109.07 108.96 108.53 109.04 109.73 109.87 110.88 110.78 15.6 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 2013 2014 2014 MRV Chg since 2010 2011 2012 2013 Q3 Q4 Q1 Q2 Feb Mar Apr May Jun Jul Aug Sep-12 '08 3 Oil price, $/b, nominal 1 79 104 105 104 107 105 104 106 105 104 105 106 108 105 100 98 0.2 Non - Oil Index 2 .. 97 85 79 76 75 76 78 76 78 79 78 76 75 73 73 .. Food Index 2 .. 99 97 89 86 85 86 90 86 90 91 91 86 79 76 75 .. 3 Metals and Minerals Index 103 117 99 94 91 92 88 87 89 86 88 87 87 90 89 90 -13.7 Baltic Dry Index 4 2755 1545 916 1215 1298 1876 1375 980 1140 1484 1035 992 912 796 944 1149 -76.1 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 3, 2011 due to data availability. The Index component combination in the Weekly tables differs from that of the Pink Sheet. 3 Base Date = Jan 4, 2010 due to data availability. The Index component combination in the Weekly tables differs from that of the Pink Sheet. 4 Base Date = May 1, 1985 Number 231 | September 05, 2014.