103026 For more information, visit http://www.worldbank.org/prospects Overview Table of Contents  Global growth in Q3 is currently estimated at about 2.4 Monthly Highlights………………………….2 percent (q-o-q, saar), little changed from previous Special Focus……………………………......6 quarters. Major data releases……………………….....8  Growth in the U.S. and the Euro Area slowed in Q3, Other reports from Prospects Group………...8 while Japan’s economy contracted. Recent WB country reports……………….....8  Despite some signs of stabilization, emerging market Annex table: economic developments………9 currencies remain under pressure in a context of Annex table: financial markets……………..10 weakening capital flows.  Commodity prices remain soft. Ready for Liftoff? Implied probability of a 25bp Chart of the Month U.S. Fed rate hike in December  Following the strong U.S. employment report in October and indications from the U.S. Federal Reserve suggesting that perceived external risks to the U.S. economy had diminished, the implied probability of U.S. policy interest rates being raised in December rose to over 70 percent.  The U.S. dollar appreciated to a new high for 2015. U.S. and emerging-market asset prices weakened only modestly since end-October. Source: Bloomberg. Special Focus: The Risk and Cost of Sudden Stops  Capital inflows to emerging and frontier economies decelerated significantly this year, driven by a combination of unfavorable global “push” factors and domestic “pull” factors.  In a financial market stress situation, the risk of sudden stops would be particularly high in countries with weakening fundamentals and lingering vulnerabilities.  The short-run cost of sudden stops can be substantial. In the two years following such events, average GDP and investment growth declined in affected countries by 7 and 21 percentage points, respectively.  Despite decelerating capital flows and currency pressures in 2015, there has thus far been no sign of unusual stress or of a credit crunch in large emerging markets. Prepared by Christian Eigen-Zucchi (34960) and Marc Stocker (33431), with contributions from John Baffes, Derek H. C. Chen, Xiaodan Ding, Xinghao Gong, Tehmina Khan, Eung Ju Kim, Trang Nguyen, and Ekaterine Vashakmadze. DECPG - November 2015 November 2015 Monthly Highlights Global growth: weak momentum. Based on partial and preliminary national accounts data, global growth in Q3 is estimated at around 2.4 percent (q-o-q saar), little changed from the subdued pace observed in the previous three quarters. Global industrial production, trade and import demand from large emerging economies remained weak in Q3. As a result, exports of major high-income countries were also subdued in Q3, which together with inventory adjustment, weighed on production. PMI surveys point to some recovery in global manufacturing activity at the start of Q4 and still robust conditions in services (Figure 1.A). While services account for a larger share of the global economy, changes in the manufacturing PMI appear more closely correlated with fluctuations in global growth than the services PMI (Figure 1.B). Current PMI levels would be consistent with global growth remaining at around 2½ percent in Q4, but the intensification of geopolitical tensions, both in Europe and the Middle East, poses additional downside risks. United States: supportive labor market. Growth softened in Q3 to 2.1 percent (q-o-q saar), as manufacturing activity was temporarily held back by a decline in inventories, while the strength of the dollar and soft external demand continued to weigh on exports. At the same time, domestic demand continued to be robust. Employment conditions remained strong in October, with job creation reaching 271,000. This, together with the FOMC statement of October 28 suggesting that external risks to the U.S. economy had diminished, significantly increased the implied probability of a first interest rate hike by the U.S. Fed in December (Chart of the Month). The debate will now shift to the expected pace of the tightening cycle, as the unemployment rate dropped to 5 percent, approaching the Fed’s estimated long- term equilibrium, and October wage growth accelerated at the quickest pace since 2009, albeit still at a moderate 2.5 percent (y-o-y) (Figure 1.C). A very gradual normalization of policy rates is expected. Euro Area: modest growth, rising uncertainty. Euro Area growth slowed to 1.2 percent (q-o-q saar) in Q3 from 1.4 percent in Q2. While growth remained robust in Spain and recovered in France, it slowed somewhat in Germany and Italy, stagnated in the Netherlands and Portugal, and contracted in Finland, Estonia, and Greece (Figure 1.D). Industrial production contracted in August and September and export orders have been weak throughout Q3. The Volkswagen emission scandal seems to have had limited effects so far (German orders for motor vehicles declined in September, but production has held up). PMIs in both manufacturing and services remained robust in October and November, the unemployment rate continued to decline, and consumer confidence remained high. Growth is expected to firm in Q4, but the terrorist attacks on Paris may dampen confidence amid heightened security concerns. The impact of the refugee crisis remains uncertain. Given persistently low inflation (0.1 percent y/y in October), the ECB indicated that it may ease policy further at its December meeting. Greece: bank recapitalization. The results of the ECB’s stress test of Greek banks were better than expected, but banks still require €4.4 billion of additional capital under the baseline scenario and €14.4 billion under the adverse scenario. Bank deposits started rising again and the economy shrank less than anticipated in Q3 (-2.0 percent q-o-q saar), despite the introduction of capital controls in June. Most of the bank recapitalization needs will likely be covered by existing bailout funds. The Eurogroup approved on November 24 the immediate disbursement of €2 billion following the implementation of agreed reforms (prior actions), with a further €10 billion made available for bank recapitalization. Japan: shallow recession. In Q3, Japan entered its second technical recession in the last two years, as GDP contracted 0.8 percent (q-o-q saar) on a significant cutback in inventories, following an (upwardly revised) decline of 0.7 percent in Q2. Preliminary national accounts data confirm a weak underlying trend, and the continued slide in investment suggests that corporate sector confidence and willingness to expand capacity is still low, despite rising profits. A rebound in private consumption and export growth added a more positive note to the Q3 data, while an increase in the November manufacturing PMI suggests that some stabilization in Q4 is possible. With inflation expected to remain below the central bank target in 2016, further monetary policy stimulus may be considered in coming months. China: further rebalancing. High-frequency indicators for October point to deceleration and rebalancing (Figure 1.E), after Q3 GDP growth came in slightly stronger than expected at 6.9 percent (y/y). Weak external demand and appreciation of the RMB (in trade-weighted terms) continue to weigh on exports. Policy easing, including cuts in interest rates and reserve requirements, as well as measures to boost fiscal spending and ease regulations, should help support activity in the short-term. China’s foreign exchange reserves rose in October for the first time in five months, suggesting that capital outflow pressures may have abated. The 13th five year plan (2016 – 2020) will likely include 2 November 2015 revised GDP growth targets, and policy initiatives on the environment, SOE reform, and yuan convertibility. The IMF staff assessment of the suitability of the RMB for inclusion in the SDR basket was favorable, and will be considered by the IMF Executive Board on November 30. India: continuing recovery despite weak exports. Industrial production growth has continued to strengthen in recent months and investment has begun to revive, helped by government efforts to kick-start public infrastructure projects. Real consumption is also growing, supported by lower inflation. However, non-oil exports in U.S. dollar terms fell for the 10th consecutive month in October, contracting 7.2 percent (y-o-y). Reform initiatives announced in November seeking to improve the ease of doing business and facilitate FDI have reassured investors. The government announced the liberalization of FDI in 15 sectors, including construction, banking, defense, and commerce, as well as measures to rationalize foreign investment processes, fast-track decision-making, and increase FDI caps. Still, progress on major land acquisition and GST reforms is not assured, as the upper house of parliament, which the ruling party does not control, has the power to block the government’s legislative agenda. The closure of the border with Nepal continues, adding to the country’s economic difficulties following the destructive earthquake. Brazil: intensifying economic challenges. Brazil’s manufacturing PMI fell to a 7-year low in October, while the contraction in industrial production also deepened (Figure 1.F). Consumer price inflation accelerated to a 12-year high of 9.9 percent (y/y) in October, and retail sales fell for the eighth consecutive month in September. The fiscal deficit continued to widen. The government has submitted a bill to Congress seeking approval of a revision to the 2015 budget that would allow for a primary deficit equivalent to 0.5 percent of GDP, compared with a primary surplus target of 1.2 percent of GDP planned at the beginning of the year. Russia: bottoming out? The Russian economy contracted by 4.1 percent (y/y) in Q3, a slower pace than the 4.6 percent fall in Q2. Industrial production fell at a slower pace in Q3 and the manufacturing PMI increased to above 50 in October, suggesting expansion. Still, retail sales fell sharply in October, as real wages continue to decline. With the drop in oil prices and the imposition of international sanctions associated with the conflict in Ukraine, the ruble has depreciated 48 percent against the U.S. dollar over the past year, and inflation has accelerated to above 15 percent (Figure 2A). The recession has led to substantial spillovers in the region, especially central Asia. Emerging market equities and currencies: broadly stable. Despite the rising probability of an interest rate increase in the United States in December, emerging market equities and currencies have stabilized since the end of October (Figures 2B and C). Relative to the summer, concerns of a disorderly slowdown in China have abated, the likelihood of further easing by the ECB and the Bank of Japan has increased, and perceptions that a Fed hike indicates firming economic conditions in the U.S. have risen. Emerging market bonds: subdued issuance. Bond issuance by emerging and developing economies remained weak in October, at $11 billion, compared with a historical average for October of $19 billion (Figure 2D). Issuance was especially depressed in Latin America and East Asia and the Pacific, while remaining strong in Sub-Saharan Africa (reflecting Ghana’s $1 billion bond sale). So far in November, several EM sovereigns, including Albania, Angola, Cameroon, Jordan, and Lebanon, have issued international bonds ahead of a potential December U.S. interest rate hike. The Philippines and Vietnam are also planning issuances in the coming month. Investors continue to show some appetite for higher yielding EM bonds, though flows to EM bond and equity funds eased in early-November. Oil: prices declining further. Oil prices have remained within a very narrow range averaging $47 per barrel since August, but declined again towards $40 per barrel in the second half of November. Prices have been driven lower by expectations of slowing global growth, high stocks in OECD countries, resilient non-OPEC output, and greater expected Iranian production next year. U.S. crude oil production has begun to decline due to lower investment and drilling – the rig count is now two thirds below the all-time high reached in August 2014 (Figure 2E). Other commodities: mixed. Agricultural prices rose 1.2 percent in October (m/m), mainly reflecting price increases in grains and sugar (Figure 2F). Grain prices made some gains on weather concerns, notably in India and the United States, as well as in Ukraine for maize and Thailand for rice. Sugar prices were up more than 17.3 percent in October (m/m), mainly due to developments in Brazil (the world’s largest sugar supplier), including both dry weather constraining harvests and the removal of fuel subsidies by Petrobras making sugar-based ethanol a more attractive substitute. On the other hand, metals prices dropped by another 2 percent (m/m) in October, with losses mainly in iron ore and aluminum (down 7 and 4.7 percent, respectively). The metals market continues to be in surplus reflecting weak global industrial activity, and demand from China. 3 November 2015 Figure 1: Selected Global Activity Indicators A. Global PMI indices B. Correlation of global PMI to global growth Composite Output Correlation Coefficient Manufacturing Output 1 58 Services 56 54 0.8 52 0.6 50 48 0.4 46 44 0.2 May-12 May-13 May-14 May-15 Sep-12 Sep-13 Sep-14 Sep-15 Jan-12 Jan-13 Jan-14 Jan-15 0 Composite Manufacturing Services C. United States: unemployment and wage growth C. Euro Area: real GDP growth  Percent of labor force Percent, Y-O-Y Percent, Q-O-Q SAAR 2015Q3 2015Q2 Unemployment Rate 6 12 4 Hourly Wage Growth (RHS) 10 4 3 8 2 0 6 2 -2 4 1 -4 2 France Italy Spain Austria Greece Germany Netherlands Portugal Euro Area Finland 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015   E. China: IP, investment and retail sales F. EM industrial production and PMI, latest Percent, Y-O-Y IP Percent, Y-O-Y IP (LHS) Index Retail Sales (Nominal) 6 PMI (RHS) 55 25 Investment (Nominal) 2 50 20 -2 45 15 -6 40 10 -10 35 -14 30 5 India Russia Turkey China Mexico Indonesia Brazil South Africa Poland 0 2012 2013 2014 2015 Sources: World Bank, Haver Analytics. Panel A,C & E: The last observation is October 2015. Panel F: The last observation is September for IP and October 2015 for PMI. 4 November 2015 Figure 2: Selected Financial and Commodity Indicators A. Inflation versus inflation targets: Oct 2015 B. EM currency and stock-market index Percent Percent Index, Jan.1 2015 = 100 16 Distance from inflation target 16 115 Inflation (RHS) 12 12 110 8 8 105 4 4 100 0 0 95 EM currency index -4 -4 90 EM stock index Philippines Brazil Russia Indonesia Peru South Africa Nigeria Colombia Chile Mexico China India Thailand Poland Romania Czech Rep. Turkey Hungary 85 Oct-15 Jul-15 Feb-15 Apr-15 May-15 Aug-15 Sep-15 Nov-15 Jan-15 Jun-15 Mar-15   C. EM currency pressures against USD D. Bond issuance across regions Percent $ million 2010-2014 Oct. average 1 9,000 2015 October -4 7,500 -9 6,000 -14 Summer turmoil (mid-Jul. to late Sept.) 4,500 -19 Since Oct. FOMC statement -24 3,000 Brazil Mexico Russia Colombia Turkey Thailand China Malaysia South Africa Indonesia Philippines 1,500 0 EAP ECA LAC MNA SAR SSA E. Oil prices and the U.S. rig count   F. Main commodity prices, 2015  US$/bbl US oil rig count (RHS) Rig count Oct/Jan Oct /Sep Percent 150 Oil price, WTI (LHS) 1800 Metals and Minerals 125 1500 Food 1200 Non-energy 100 900 Fertilizers 75 Agriculture 600 Precious metals 50 300 Energy 25 0 Beverages Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Raw materials   -20 -15 -10 -5 0 5 Sources: World Bank, Bloomberg, Haver Analytics, Dealogic, BP Statistical Review of World Energy. Panel A: The last observation is October 2015. Panel B&C: The last observation is November 23, 2015. Panel E: The last observation is November 23, 2015. 5 November 2015 Special Focus: The Risk and Cost of Sudden Stops Capital flows: challenging conditions persist. Capital inflows to emerging and frontier economies (EFEs) slowed significantly in 2015, driven by a combination of unfavorable “push” factors (tighter global financing conditions) and weakening “pull” factors (deteriorating growth prospects and lingering vulnerabilities in EFEs). Looking ahead, the upcoming tightening cycle of the U.S. Federal Reserve will likely result in a further rise in borrowing costs for EFEs, while creditworthiness has been declining for some as result of weakening growth, diminished policy buffers and continuing uncertainty. Downward pressure on capital flows could be particularly abrupt in the face of rising global financial market volatility. Empirically, interest rate developments across major advanced economies, together with global investor risk appetite and the growth differential between advanced economies and EFEs, have been found to account for about three quarters of quarterly fluctuations in capital flows to EFEs since 2000 (Figure 3A, see Policy Research Note – September 2015 for details and background references). Sudden stops: a perfect storm scenario. While the upcoming Fed tightening cycle has long been signaled, there is a risk that it could be accompanied by disorderly market adjustments. In a stress situation, the likelihood of a reversal in capital flows to EFEs would be accentuated by the broad-based deterioration of economic fundamentals across large emerging economies and weakening investor sentiment towards EFE assets more generally. Past periods of heightened global financial market volatility increased the likelihood of sudden stop episodes, as observed during the Asian and Russian crises in 1997-99, the global financial crisis in 2008, the Euro Area crisis in 2011-12 and, to a lesser extent, during the taper tantrum episode in 2013 (Figure 3B). These sudden stops generally hit countries that are highly integrated in international capital markets. A low probability but high cost event. The short-run costs of sudden stops are substantial. Average GDP growth in EFEs declined, on average, by almost 7 percentage points in the two years following a systemic sudden stop (Figure 3C). Similarly, average investment growth in EFEs declined more than 21 percentage points in the two years around these events (Figure 3D). The bilateral exchange rate with the U.S. dollar depreciated on average by about 14 percent more than in unaffected countries in the year following the onset of an episode (Figure 3E). The negative effects on activity were generally larger in countries with a greater share of foreign-currency-denominated liabilities, among other factors. Contractions and job losses during sudden stops in less financially-developed countries appear to be larger in sectors and industries that exhibit greater liquidity needs, that depend on external finance, or that produce durable goods. Capital flows, currency pressures and financial stress. A third of past banking crises in EFEs occurred after a period of strong capital inflows and often happened in the year of a sudden retrenchment in capital flows. There is tentative evidence suggesting that U.S. monetary tightening and a strong U.S. dollar may affect the incidence of financial stress in EFEs. For example, the frequency of sovereign debt crises among EFEs tends to be somewhat higher at the beginning of U.S. tightening cycles and when term spreads are rising. Periods of rapid dollar appreciations were also sometimes associated with a greater incidence of financial crisis, such as during the first half of the 1980s in Latin America and the second half of the 1990s in Asia (Figure 3F). At present, private external debt remains sizable in several EFEs, implying that a further appreciation of the U.S. dollar could amplify debt rollover and foreign currency risks. Shifting vulnerabilities. Despite decelerating capital inflows and currency pressures during 2015, there has been no unusual stress in short-term funding markets, nor a credit crunch within any large EFEs. Since the late 1990s, the share of debt denominated in foreign currency and the number of countries with currency regimes tightly linked to the U.S. dollar have declined. However, currency exposures are still elevated in some countries, especially in several commodity exporters and in EFEs that have received large capital inflows since the crisis. For these, a dollar appreciation constitutes a tightening of financial conditions and could heighten risks associated with liability exposures and dollar shortages. This is particularly true for some countries with significant short-term dollar denominated debt. Eroding policy buffers and depreciating currencies limit the scope for policy accommodation in many countries. Credible commitments to structural reforms could help enhance investors’ confidence and reduce the risk of a reversal of capital flows. 6 November 2015 Figure 3: capital flows and sudden stops Global interest rates, investor risk appetite, and differences in growth performances account for about three quarters of fluctuations in capital flows to EFEs. Sudden stops generally occur during periods of heightened global market volatility, and tend to have large macroeconomic effects in the affected countries. Periods of rapid dollar appreciations were sometimes associated with a greater incidence of financial crisis. A. Drivers for capital flows to EFEs B. Sudden stops: frequency across EFEs Percent of variance Percent of countries 1 standard deviation threshold 30 60 25 2 standard deviations threshold 20 50 15 10 40 5 0 30 G4-country market growth G4 interest Market volatility Emerging- 20 growth rates 10 0 1997 2000 2003 2006 2009 2012   C. Sudden stops and EFE GDP growth D. Sudden stops and EFE investment growth Percentage point, deviations from t=0 Percentage point, deviations from t=0 Mean Mean 75th percentile 25th percentile 6 25th percentile 15 75th percentile 4 10 2 5 0 0 -2 -5 -10 -4 -15 -6 -20 -8 -25 -2 -1 0 1 2 -2 -1 0 1 2 Years    Years E. Sudden stops and EFE currency depreciation F. U.S. dollar exchange rate and frequency of financial crises in EFEs Percentage point, deviations from t=0 Number Percent Mean Financial crisis Real effective exchange rates of US$ (RHS) 25th percentile 40 150 15 10 75th percentile 140 30 5 130 0 20 120 -5 110 -10 10 100 -15 -20 0 90 1975 1980 1985 1990 1995 2000 2005 2010 -2 -1 0 1 2 Years   Source: World Bank, Haver Analytics and Escolano, Kolerus, and Ngouana (2014). A. Figure shows the variance decomposition of capital inflows to EFEs after eight quarters, according to a six-dimensional VAR model estimated over the period 2001Q1 to 2014Q4. The model links capital inflows (including foreign direct investment, portfolio investment and other investment as a share of GDP), to quarterly real GDP growth in both EFE and G4 countries (United States, Euro Area, Japan and the United Kingdom), real G4 short-term interest rates (three-month money market rates minus annual inflation measured as changes in GDP deflator), G4 term spread (10-year government bond yields minus three month money market rates), and the VIX index of implied volatility of S&P 500 options. To compute the variance decomposition, a structural identification was derived from a Cholesky decomposition on the covariance matrix, using the following order of variables: G4 GDP growth, G4 real short- term rates, VIX, G4 term spread, EFE GDP growth and capital inflows. B. Figures show the fraction of 58 EFEs that experienced a sudden stop. The methodology used to identify sudden stop episodes at the country level is based on Forbes and Warnock (2012), with the threshold for sudden stops being defined as a decline in flows larger than one (or two) standard deviation(s) around a five-year rolling mean (see Policy Research Note – September 2015 for details and background references). Last observation: 2014Q4.C.D.E. Blue line denotes averages for EFEs that experienced systemic sudden stops. E. A decline denotes a depreciation. F. Frequency of crises refers to number of currency, sovereign debt (domestic or external), and banking crises identified by Escolano, Kolerus, and Ngouana (2014).  7 November 2015 Major data releases Major Data Releases 28 October, 2015-27 November 2015 Upcoming releases: 28 November, 2015-15 December 2015 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous Japan 10/28/2015 Industrial Production (Y/Y) SEP -0.9% -2.6% -0.4% Malaysia 11/25/2015 Unemployment Rate SEP 3.3% United States 10/29/2015 GDP (Q/Q) Q3 1.5% 1.5% 3.9% Philippines 11/25/2015 GDP (Q/Q) Q3 1.8% South Korea 10/29/2015 Industrial Production (Y/Y) SEP 2.4% 0.3% 0.1% Mexico 11/27/2015 Unemployment Rate OCT 4.2% Japan 10/29/2015 Unemployment Rate SEP 3.4% 3.4% 3.4% South Korea 11/29/2015 Industrial Production (Y/Y) OCT 2.4% Japan 10/29/2015 CPI (Y/Y) SEP 0.0% 0.1% 0.2% Japan 11/29/2015 Retail Trade (Y/Y) OCT -0.2% Eurozone 10/30/2015 Unemployment Rate SEP 10.8% 11.0% 10.9% Argentina 11/30/2015 Industrial Production (Y/Y) OCT 0.7% Brazil 11/4/2015 Industrial Production (Y/Y) SEP -10.9% -9.9% -9.0% Japan 11/30/2015 PMI Manufacturing NOV 52.4 Indonesia 11/5/2015 GDP (Q/Q) Q3 3.2% - 3.8% India 12/1/2015 PMI Manufacturing NOV 50.7 UK 11/6/2015 Industrial Production (Y/Y) SEP 1.1% 1.3% 1.8% Eurozone 12/1/2015 Unemployment Rate OCT 10.8% Brazil 11/6/2015 CPI (Y/Y) OCT 9.9% 9.9% 9.5% Brazil 12/1/2015 GDP (Q/Q) Q3 -1.9% United States 11/6/2015 Unemployment Rate OCT 5.0% 5.1% 5.1% Canada 12/1/2015 GDP (Q/Q) Q3 -0.1% Mexico 11/9/2015 CPI (Y/Y) OCT 2.5% 2.5% 2.5% Australia 12/1/2015 GDP (Q/Q) Q3 0.2% China 11/9/2015 CPI (Y/Y) OCT 1,3% 1.4% 1.6% South Korea 12/2/2015 GDP (Q/Q) Q3 0.3% South Korea 11/10/2015 Unemployment Rate OCT 3.4% 3.6% 3.5% Turkey 12/3/2015 CPI (Y/Y) NOV 7.6% Eurozone 11/13/2015 GDP (Q/Q) Q3 0.3% 0.4% 0.4% United States 12/4/2015 Unemployment Rate NOV 5.0% United States 11/17/2015 CPI (Y/Y) OCT 0.2% 0.1% 0.0% Brazil 12/9/2015 CPI (Y/Y) NOV 9.9% Canada 11/20/2015 Retail Sales (M/M) SEP -0.5% 0.2% 0.5% Mexico 12/9/2015 PPI (Y/Y) NOV 3.5% Malaysia 11/20/2015 CPI (Y/Y) OCT 2.5% 2.6% 2.6% Malaysia 12/9/2015 Industrial Production (Y/Y) OCT 5.1% Mexico 11/20/2015 GDP (Q/Q) Q3 0.8% 0.6% 0.5% Philippines 12/10/2015 Unemployment Rate Q3 6.5% South Africa 11/24/2015 GDP (Q/Q) Q3 0.7% 1.1% -1.3% Turkey 12/10/2015 GDP (Q/Q) Q3 1.3% United States 11/24/2015 GDP (Q/Q) Q3 2.1% 2.0% 3.9% Eurozone 12/14/2015 Industrial Production (Y/Y) OCT 1.7% South Korea 12/15/2015 Unemployment Rate NOV 3.4 % Other reports from the Prospects Group Global Economic Prospects – June 2015: The Global Economy in Transition Global Monitoring Report 2015/2016 – Development Goals in an Era of Demographic Change Commodity Markets Outlook – October 2015 Policy Research Note – September 2015: The Coming U.S. Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters? Policy Research Note – October 2015: Ending Extreme Poverty and Sharing Prosperity: Progress and Policies Recent World Bank Working Papers Domestic Value Added in Exports: Theory and Firm Evidence from China Weak Instruments in Growth Regressions: Implications for Recent Cross-Country Evidence on Inequality and Growth Demand-Driven Propagation: Evidence from the Great Recession The Long-Term Impacts of International Migration Recent World Bank Country Updates Russia - Economy to Contract in 2015 by -2.7 Percent Moldova: Economic Update Turkey: Economic Activity Slowdown Due to Political Uncertainty Myanmar: Economic Monitor 8 November 2015 Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 2014 2015 2014 2015 2010 2011 2012 2013 Q1 Q2 Q3 Q4 Q1 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Industrial Production, S.A. World 8.9 4.8 2.9 2.4 3.6 2.3 2.5 3.8 1.7 3.4 3.4 2.6 3.3 3.0 2.8 3.3 2.7 2.5 2.5 2.2 2.0 2.6 2.1 2.4 1.8 - High Income Countries 7.6 2.9 0.7 0.3 2.6 0.3 0.6 3.0 2.1 2.1 2.2 1.0 1.5 1.7 1.3 1.9 1.7 1.4 1.4 1.1 0.8 1.2 0.9 1.2 0.8 - Developing Countries 11.5 8.1 6.6 5.8 5.2 5.2 5.4 4.8 1.1 5.3 5.1 4.9 6.0 5.0 5.1 5.4 4.1 4.2 4.1 3.9 3.7 4.4 3.7 4.1 3.2 - East Asia and Pacific 14.3 11.3 9.0 8.9 5.5 8.0 6.6 7.9 2.2 8.5 7.8 6.7 7.5 7.0 6.6 7.4 6.5 6.2 5.8 5.7 5.4 6.0 5.5 5.7 4.9 5.1 East Asia x. China 9.0 0.7 4.1 4.6 -1.1 8.4 4.9 5.3 -1.0 4.8 1.3 4.6 5.6 4.2 4.0 4.9 4.2 2.4 6.5 3.9 0.7 1.8 3.0 2.8 1.0 - Europe and Central Asia 11.0 13.7 9.7 2.3 5.0 0.9 1.8 0.0 2.5 2.9 3.5 2.3 2.6 2.6 1.9 1.1 -0.5 1.7 2.6 1.4 1.2 3.5 0.8 4.1 2.8 - Latin America and Caribbean 7.6 2.3 -0.3 1.2 1.2 -3.2 0.4 -2.7 -4.5 -3.2 -0.4 -0.4 -0.8 -0.4 -1.9 -1.1 -2.3 -2.6 -2.8 -3.0 -3.4 -2.1 -3.7 -4.0 -4.5 - Middle East and N. Africa 2.0 -10.0 6.0 -7.7 16.5 0.3 27.4 0.6 -17.8 -7.3 -2.6 9.4 17.7 11.0 13.3 7.7 -0.7 -0.6 5.6 4.4 6.8 2.4 2.8 0.4 - - South Asia 9.3 5.5 1.1 1.8 7.8 5.1 1.0 -2.1 12.5 4.7 1.7 1.9 3.5 -1.5 5.8 4.2 3.4 5.1 3.4 4.4 4.3 5.6 5.1 7.2 3.6 - Sub-Saharan Africa 4.4 3.5 3.2 1.1 -3.2 1.7 -5.9 9.3 -1.2 0.6 -7.3 -0.6 6.2 1.4 -0.8 0.4 -1.2 0.1 3.6 -1.8 -0.3 -0.8 5.1 0.7 0.4 - Inflation, S.A. 1 High Income Countries 1.9 3.0 2.3 2.1 2.4 3.0 3.0 2.9 2.4 3.1 3.0 3.0 3.0 3.1 2.9 2.8 2.4 2.4 2.4 2.0 2.0 1.9 1.8 1.6 1.3 1.3 Developing Countries 5.3 7.1 6.0 6.3 5.6 5.5 5.4 5.0 5.0 5.4 5.6 5.5 5.2 5.0 4.8 5.0 4.7 5.1 5.2 5.4 5.4 5.5 5.2 5.2 5.2 5.2 East Asia and Pacific 3.4 5.6 2.9 3.0 3.0 2.9 2.5 2.2 1.8 3.0 2.7 2.5 2.2 2.1 2.2 2.3 1.5 2.0 2.0 2.2 1.9 2.0 2.2 2.4 2.0 1.7 Europe and Central Asia 7.6 8.6 9.0 6.5 6.2 7.9 8.5 8.9 9.1 8.0 8.2 8.6 8.7 8.9 9.1 8.6 8.3 9.0 9.9 11.1 11.0 10.1 9.7 9.7 10.2 10.0 Latin America and Caribbean 4.5 5.4 4.8 5.1 4.7 4.9 5.3 5.3 5.8 5.0 5.3 5.3 5.4 5.3 5.3 5.2 5.4 5.7 6.2 6.1 6.3 6.6 6.9 6.9 6.9 7.2 Middle East and N. Africa 7.0 12.0 13.8 19.2 13.2 9.7 10.0 10.7 10.8 9.1 9.9 10.2 10.0 10.4 10.5 11.2 10.3 10.9 11.1 11.3 11.7 11.2 9.6 8.7 8.6 - South Asia 10.3 9.8 9.4 10.1 8.1 7.8 6.7 4.2 5.0 6.8 7.4 6.9 5.8 4.7 3.5 4.4 5.1 5.1 4.9 4.6 4.8 5.1 3.5 3.6 4.1 4.7 Sub-Saharan Africa 7.5 10.1 11.1 8.1 8.6 9.2 9.7 8.4 7.5 9.7 9.9 10.1 9.3 8.3 8.4 8.5 7.6 7.5 7.5 8.0 8.2 9.0 8.8 8.7 8.8 9.0 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 2014 2015 2014 2015 2010 2011 2012 2013 Q1 Q2 Q3 Q4 Q1 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Exports, Nominal, US$, S.A. World 21.9 19.2 0.3 1.8 -1.1 4.0 1.0 -16.0 -27.5 3.5 5.2 0.8 2.7 -1.4 -4.6 -4.0 -11.1 -7.3 -13.3 -13.7 -13.6 -8.1 -13.7 -13.4 -12.1 - High Income Countries 19.5 18.5 -1.2 1.3 1.8 1.2 -2.9 -19.0 -29.0 2.9 4.7 -0.5 0.9 -3.4 -6.4 -5.6 -12.8 -13.5 -13.7 -15.2 -15.4 -9.8 -15.0 -14.9 -13.1 - Developing Countries 28.4 20.9 4.0 3.2 -7.7 11.1 10.9 -8.7 -24.3 5.1 6.3 3.7 7.0 3.4 -0.3 -0.2 -7.1 8.3 -12.4 -10.0 -9.2 -3.9 -10.7 -10.0 -9.9 - East Asia and Pacific 30.8 19.7 6.3 6.4 -10.9 18.5 17.8 0.3 -16.8 7.8 11.4 8.2 12.5 8.0 3.4 5.6 -3.4 29.3 -11.6 -6.5 -4.4 0.6 -7.8 -6.2 -5.6 -8.9 Europe and Central Asia 13.4 21.0 1.9 -0.5 8.2 -7.2 -10.2 -28.4 -16.9 3.6 3.4 -4.6 -2.4 -6.0 -10.9 -14.0 -13.6 -16.3 -18.4 -16.8 -21.4 -15.3 -20.3 -15.5 -12.8 - Latin America and Caribbean 28.9 23.2 2.4 0.6 -7.4 8.0 3.1 -23.1 -18.4 2.4 6.5 0.5 1.2 -3.3 -7.7 -6.0 -7.8 -12.3 -5.5 -11.9 -14.5 -7.1 -11.2 -16.2 -14.2 - Middle East and N. Africa 23.9 15.9 5.6 -11.1 -5.9 -1.5 25.9 -11.1 -60.0 -8.8 -18.1 -1.7 2.0 16.5 -3.4 -10.4 -15.5 -21.8 -18.1 -11.1 - - - - - - South Asia 34.4 31.4 -1.8 6.2 -5.1 11.2 -0.3 -3.3 -45.0 8.9 -0.3 1.4 0.0 -6.5 8.7 -0.6 -7.5 -12.5 -17.2 -12.5 -16.7 -9.9 -10.2 -16.3 -21.8 -13.7 Sub-Saharan Africa 32.4 19.7 -2.5 -1.1 -1.0 -8.2 -3.1 -30.6 -47.6 -1.2 -0.3 -9.5 -2.4 -10.9 -11.5 -12.4 -26.0 -28.6 -18.6 -25.64 -16.80 -18.5 - - - - Imports, Nominal, US$, S.A. World 21.1 19.6 0.6 1.6 4.9 -1.6 -0.4 -14.2 -30.5 5.1 3.1 0.9 3.8 -2.0 -4.1 -3.1 -13.3 -12.9 -11.4 -14.2 -15.3 -9.0 -13.2 -12.7 -15.2 - High Income Countries 17.9 17.8 -1.1 0.5 5.6 0.2 -3.9 -16.7 -28.1 6.1 5.4 0.7 2.4 -3.3 -5.3 -3.7 -13.1 -13.1 -12.4 -15.0 -15.3 -10.3 -14.8 -12.2 -13.6 - Developing Countries 30.4 24.5 5.0 4.1 3.3 -5.7 8.4 -8.3 -35.5 3.0 -2.1 1.4 7.2 0.8 -1.4 -1.9 -13.7 -12.7 -9.0 -12.4 -15.2 -6.0 -9.5 -13.8 -18.9 - East Asia and Pacific 37.3 24.1 5.7 6.1 5.5 -12.6 10.2 -9.9 -39.3 2.8 -3.1 -0.4 6.7 2.5 -5.3 -3.7 -17.3 -17.0 -9.6 -14.0 -15.8 -5.2 -9.0 -14.2 -19.6 -18.2 Europe and Central Asia 22.1 29.1 0.8 2.6 -13.7 -7.8 -7.5 -7.2 -29.7 -2.0 -11.2 -4.7 -5.6 -8.2 -9.2 -9.8 -15.4 -12.8 -12.5 -17.4 -18.0 -14.2 -15.1 -17.8 -22.7 - Latin America and Caribbean 31.1 21.0 4.0 3.8 6.1 1.2 5.6 -6.0 -18.8 4.9 0.7 1.6 8.7 -2.8 2.5 5.4 -7.4 -6.9 -0.3 -10.4 -14.5 -3.8 -9.8 -12.6 -13.1 - Middle East and N. Africa 14.8 17.3 10.8 4.0 3.6 -6.4 11.5 -17.6 -23.2 -1.9 0.6 10.7 4.4 -1.5 -4.3 -2.7 -11.2 -7.0 -11.3 -7.5 - - - - - - South Asia 33.9 31.4 4.0 -3.7 9.6 8.9 29.8 -9.9 -54.6 8.6 2.5 5.1 23.6 6.7 21.2 -1.4 -12.3 -13.3 -12.9 -7.5 -12.0 -10.3 -9.3 -11.5 -23.5 -19.3 Sub-Saharan Africa 13.5 25.1 4.2 5.8 -0.3 18.9 -4.7 11.1 -30.2 5.6 3.8 7.0 9.1 5.4 3.6 8.6 -1.8 2.1 -9.7 -9.899 - - - - - - International Reserves, US$ High Income Countries 9.9 11.8 9.2 3.2 0.8 0.7 -1.9 -1.5 -0.4 0.5 -0.5 -0.1 -1.4 -0.7 0.1 -0.8 0.3 -0.1 -0.6 0.8 -0.3 -0.1 -0.6 0.2 0.7 - Developing Countries 16.0 10.8 5.5 8.7 1.8 1.5 -1.9 -1.7 -2.5 0.5 -0.1 0.0 -1.7 -0.7 -0.2 -0.8 -0.7 -0.2 -1.6 0.7 -0.6 -0.2 -1.0 -1.8 -1.3 0.3 East Asia and Pacific 19.3 11.9 4.5 12.2 3.0 1.2 -2.5 -1.4 -2.8 0.3 -0.5 0.1 -2.1 -0.8 -0.3 -0.4 -0.8 -0.2 -1.9 0.6 -0.9 -0.4 -1.3 -2.4 -1.2 0.4 Europe and Central Asia 11.0 4.9 11.4 3.5 -4.7 4.2 -0.5 -7.2 -6.2 1.2 -0.5 1.4 -1.4 -1.5 -1.1 -4.7 -1.7 -2.8 -1.9 0.9 0.0 0.2 0.7 1.4 -0.9 - Latin America and Caribbean 19.6 20.0 9.9 1.8 0.7 3.3 1.5 -1.8 -0.1 1.3 1.2 0.1 0.2 -0.1 0.4 -2.2 0.4 -0.6 0.0 0.7 -0.1 0.1 -0.4 -0.8 -2.0 -0.7 Middle East and N. Africa 6.1 3.0 5.9 3.0 -1.9 -2.2 -3.8 -2.8 -5.9 -0.6 -0.4 -1.1 -2.3 -0.2 0.3 -2.9 -3.3 -0.4 -2.3 1.7 -0.64 0.1 - - - - South Asia 6.1 -0.9 0.4 -0.2 3.8 5.6 -0.6 2.1 5.9 1.5 1.3 -0.4 -1.4 0.5 -0.3 1.9 1.8 3.2 0.8 1.5 1.7 1.5 -0.5 -0.3 -0.5 1.2 9 November 2015 Financial Markets 1 2013 2014 2014 2015 2014 2015 MRV 2013 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.11 0.12 0.09 0.09 0.07 0.09 0.09 0.10 0.11 0.13 0.09 0.09 0.09 0.12 0.12 0.11 0.11 0.12 0.12 0.13 0.13 0.15 0.14 0.12 0.12 ECB repo 0.55 0.59 0.50 0.35 0.25 0.22 0.12 0.05 0.05 0.05 0.06 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.00 0.05 US$ LIBOR 3-months 0.27 0.28 0.26 0.24 0.24 0.23 0.23 0.24 0.26 0.28 0.23 0.23 0.23 0.25 0.25 0.26 0.27 0.28 0.28 0.28 0.29 0.32 0.33 0.32 0.38 EURIBOR 3-months 0.15 0.13 0.15 0.20 0.27 0.27 0.13 0.00 0.00 0.00 0.06 0.06 0.06 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.06 US 10-yr Treasury yield 2.33 1.98 2.70 2.73 2.75 2.61 2.49 2.27 1.96 2.15 2.52 2.29 2.32 2.20 1.88 1.98 2.04 1.92 2.19 2.35 2.32 2.14 2.14 2.04 2.26 German Bund, 10 yr 1.63 1.41 1.79 1.79 1.68 1.43 1.07 0.77 0.35 0.53 1.00 0.87 0.79 0.64 0.45 0.35 0.26 0.16 0.58 0.83 0.76 0.66 0.68 0.55 0.48 Spreads (basis points) JP Morgan Emerging Markets 319 308 347 342 352 300 301 367 425 380 312 349 350 402 443 420 411 388 369 384 397 397 442 437 421 Asia 219 202 254 237 231 197 195 202 219 201 187 207 193 206 233 215 208 206 195 203 212 212 250 246 232 Europe 267 254 299 290 301 265 262 319 399 336 270 295 293 368 417 396 384 350 327 330 328 328 347 332 315 Latin America & Caribbean 379 370 406 409 429 360 366 471 537 487 390 443 455 516 560 531 521 488 471 504 527 527 585 582 563 Middle East 435 460 438 428 408 376 369 398 449 420 358 395 388 411 452 452 443 441 409 410 420 420 479 502 486 Africa 322 312 359 338 332 287 280 319 373 355 270 307 306 343 385 364 371 361 345 358 374 374 472 490 480 Stock Indices (end of period) 2 Global (MSCI) 409 356 382 409 411 429 417 417 425 424 417 419 426 417 410 432 425 436 435 424 427 403 382 411 410 High-Income ($ Index) 1661 1434 1544 1661 1674 1743 1698 1710 1741 1736 1698 1708 1740 1710 1678 1773 1741 1778 1779 1736 1766 1659 1582 1706 1703 United States (S&P-500) 1848 1606 1682 1848 1872 1960 1972 2059 2068 2063 1972 2018 2068 2059 1995 2105 2068 2086 2107 2063 2104 1992 1920 2079 2089 Euro Area (S&P-350$) 1339 1165 1267 1339 1361 1401 1411 1401 1624 1552 1411 1382 1425 1401 1502 1603 1624 1618 1630 1552 1614 1478 1405 1523 1544 Japan (Nikkei-225) 16291 13677 14456 16291 14828 15162 16174 17674 19207 20236 16174 16414 17460 17451 17674 18798 19207 19520 20563 20236 20585 18812 17388 19083 19880 Developing Markets (MSCI) 1003 940 987 1003 995 1051 1005 956 975 972 1005 1016 1005 956 962 990 975 1048 1004 972 902 882 792 848 843 EM Asia 446 413 431 446 444 472 460 457 481 475 460 467 467 457 468 479 481 514 499 475 440 433 391 422 417 EM Europe 438 409 446 438 409 435 374 297 302 311 374 369 353 297 286 313 302 338 320 311 293 285 259 273 279 EM Europe & Middle East 372 348 379 372 348 360 321 257 258 266 321 314 303 257 247 269 258 286 271 266 253 246 226 235 236 EM Latin America & Caribbe 3201 3187 3303 3201 3194 3370 3171 2728 2451 2517 3171 3158 3008 2728 2555 2654 2451 2693 2496 2517 2305 2206 1895 2007 2074 Exchange Rates (LCU / USD) High Income Euro Area 0.75 0.77 0.75 0.73 0.73 0.73 0.76 0.80 0.89 0.90 0.78 0.79 0.80 0.81 0.86 0.88 0.92 0.92 0.90 0.9 0.91 0.89 0.89 0.89 0.94 Japan 97.61 98.68 98.88 100.51 102.78 102.14 104.04 114.62 119.16 121.38 107.39 108.02 116.40 119.44 118.33 118.78 120.37 119.53 120.87 123.7 123.39 122.71 120.10 120.01 122.81 Developing Brazil 2.16 2.07 2.29 2.28 2.36 2.23 2.28 2.55 2.87 3.07 2.34 2.45 2.55 2.65 2.64 2.82 3.15 3.04 3.06 3.1 3.23 3.53 3.89 3.88 3.71 China 6.15 6.15 6.13 6.09 6.10 6.23 6.16 6.15 6.24 6.20 6.14 6.13 6.13 6.19 6.22 6.25 6.24 6.20 6.20 6.2 6.21 6.34 6.38 6.35 6.39 Egypt 6.87 6.95 6.97 6.89 6.96 7.07 7.15 7.15 7.49 7.61 7.15 7.15 7.15 7.15 7.27 7.59 7.60 7.60 7.62 7.6 7.81 7.83 7.83 7.91 7.83 India 58.55 55.91 62.14 62.00 61.75 59.82 60.59 61.96 62.24 63.43 60.87 61.40 61.70 62.77 62.20 62.06 62.48 62.69 63.76 63.8 63.65 65.09 66.16 65.04 66.20 Russia 31.86 31.67 32.79 32.56 35.07 34.96 36.31 47.98 62.87 52.69 38.01 40.96 46.30 56.67 64.33 64.16 60.13 52.82 50.65 54.6 57.53 66.23 67.10 63.31 64.74 South Africa 9.65 9.50 9.99 10.16 10.86 10.54 10.77 11.22 11.74 12.08 10.99 11.06 11.09 11.51 11.56 11.58 12.08 11.99 11.97 12.3 12.46 12.94 13.67 13.48 13.96 Memo: USA nominal effective ra 104.85 104.08 106.03 106.41 108.45 108.81 110.75 114.29 120.07 121.87 111.87 112.87 114.06 115.94 118.13 119.99 122.10 121.76 121.40 122.4 123.89 126.13 127.52 126.92 128.30 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 2015 2015 MRV 2013 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1 Oil price, $/b, nominal 104 99 107 105 104 106 100 75 52 60 96 86 77 61 47 55 53 57 63 61 54 45 46 47 41 Non - Oil Index 2 79 80 77 77 77 78 74 71 66 64 72 71 72 70 67 66 64 64 65 63 63 59 58 58 59 3 Metals and Minerals Index 94 91 91 92 88 87 89 83 74 73 87 84 84 80 75 74 73 73 76 72 67 64 65 63 58 Baltic Dry Index 4 1215 889 1298 1876 1375 980 954 1105 614 629 1123 1101 1332 881 727 539 576 591 596 699 975 1061 889 790 498 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 10