99343 For more information, visit http://www.worldbank.org/prospects Overview Table of Contents  As presented in its June Global Economic Prospects, the Monthly Highlights………………………….2 World Bank lowered again its 2015 growth forecast for Special Focus……………………………......6 developing countries, to 4.4 percent. Major data releases……………………….....8 Other reports from Prospects Group………...8  The report points to likely improvements in economic Recent WB country reports……………….....8 activity ahead but also significant challenges, as Annex table: economic developments………9 commodity prices remain low and financing conditions Annex table: financial markets……………..10 tighten. U.S. job creation (non-farm payroll employment) Chart of the Month  The 280,000 increase in U.S. non-farm payroll employment in May was the strongest this year, and consistent with an ongoing robust recovery in the United States.  The pace of annual job creation has been running in excess of 3 million over the last six months, for the first time since 2000.  At 5.5 percent, the unemployment rate is below the level prevailing at the start of the previous tightening cycle in 2004, but inflation remains well below target. Source: World Bank, Haver Analytics. Special Focus: Risks around a Liftoff in U.S. Interest Rates  The start of a gradual normalization of U.S. policy interest rates (“liftoff”) is expected to proceed smoothly, given that it has been anticipated for some time and will take place against the backdrop of an ongoing U.S. recovery and highly accommodative monetary policy by other major central banks.  However, there is a risk that the liftoff could be accompanied by bouts of financial market volatility, a sudden increase in long-term interest rates, and a slowdown in capital flows to developing countries.  Disruptions could be particularly pronounced for countries where vulnerabilities have increased, where there has been uncertainty about policy direction, or where growth prospects have deteriorated. Prepared by Marc Stocker (33431). Data support from Trang Nguyen and Anh Mai Bui. DECPG - June 2015 June 2015 Monthly Highlights: Global Economy in Transition Global growth: further disappointments. The global economy hit a soft patch at the start of the year, with slowing activity in the United States and China, outright contractions in Russia and Brazil, and broad-based weakness across other major commodity exporters. On the positive side, growth strengthened in the Euro Area, Japan and India. In its bi-annual Global Economic Prospects report, released on June 10, the World Bank predicts that global growth will average 2.8 percent this year (Figure 1.A), slightly lower than the 3 percent anticipated in January. With conditions expected to gradually improve, global growth should pick up to an average of 3.2 percent in 2016-17, broadly in line with previous expectations. High-income countries: divergence narrowing. Despite setbacks in the first quarter, the U.S. economy is expected to grow above potential through the remainder of 2015, averaging 2.7 percent for the year as a whole. If the recovery continues as predicted and labor market conditions improve further, the U.S. Federal Reserve is likely to start hiking policy rates at a very gradual pace in the near future. The distance to the Federal Reserve dual policy objectives (full employment and 2 percent inflation) is at present broadly comparable to that prevailing a few months prior to the start of the previous tightening cycle in June 2004 (Figure 1.B). Cyclical divergences between major high-income countries are expected to narrow this year, as growth strengthens in the Euro Area and Japan, to 1.5 percent and 1.1 percent respectively, supported by highly accommodative monetary policies. Despite uncertainty surrounding the turmoil in Greece, strong readings of both manufacturing and services PMI in June confirmed that the Euro Area remained in recovery mode during the second quarter. In Japan, Prime Minister Abe announced new policy measures prioritizing growth-enhancing reforms over fiscal consolidation in coming years. A significant depreciation of the euro and yen is contributing to the recovery of those two economies, while a strengthening dollar is a headwind for U.S. manufacturing activity. Emerging and developing countries: slowing in 2015. While the recovery in high-income countries should provide increasing support to global activity (Figure 1.C), growth in developing countries is expected to decelerate further this year, to 4.4 percent (from 4.6 percent in 2014), before recovering above 5 percent in 2016-17. The deceleration this year is relatively broad-based, affecting 54 percent of developing countries (Figure 1.D). While China is slowing broadly as expected (7.1 percent in 2015), and the recession in Russia appears slightly less severe than initially predicted (-2.7 percent), deteriorating prospects in Brazil (-1.3 percent) and across major oil exporters (Nigeria, Angola, Venezuela, Colombia, Mexico, Kazakhstan) are contributing to the downward revision to developing country growth this year (Figure 1.E). Reflecting a robust recovery in India (7.5 percent), South Asia will be the fastest-growing developing region this year, and the only one registering stronger growth compared with 2014. For now, growth prospects for low-income countries (LICs) remain robust, above 6 percent this year (Figure 1.F). Good harvests, still robust remittances, and rising public investment are supporting activity and cushioning the impact of deteriorating terms of trade among commodity exporting LICs. Ongoing investments are coming on-stream (Mozambique, Dem. Rep. of Congo) and public infrastructure investments are proceeding (Kenya, Rwanda). Two transitions. Against the backdrop of weakening growth in recent years, developing countries are facing two important transitions as they adapt to a protracted period of low commodity prices and prospects of tighter financial conditions. o Low commodity prices. Oil prices appear to have found some support in recent months, as unconventional oil production capacity in the United States continues to adjust sharply (Figure 2.A), but are likely to remain low over the medium term. Other commodity prices, as well, continue to be soft, on weak demand and ample supplies. On average, commodity price declines since 2011 have reversed more than a third of price increases during the boom years of the preceding decade (Figure 2.B). A number of oil exporters (Colombia, Kazakhstan, Nigeria, Russia, Venezuela, and to a lesser extent, Mexico) have experienced acute terms-of-trade shocks over the past year as a result of the drop in oil prices. Negative spillovers from weaker activity in those countries will continue to affect some regions, including Eastern Europe and Central Asia, which is being impacted by the recession in Russia through trade (Armenia, Belarus, Georgia, Moldova) and remittances (Armenia, Georgia, Kyrgyz Republic, Moldova, Tajikistan). Countries reliant on export revenues from metal and other non-energy commodities (Argentina, Indonesia, Peru, South Africa, Zambia) also face challenges. As a result, activity has slowed across commodity-exporting countries, especially those with limited reserve and fiscal 2 June 2015 buffers (Figure 2.C). Offset by country-specific headwinds, low oil prices have not yet been fully reflected in stronger activity in large oil-importing countries such as China, Turkey or South Africa, but have led to declining vulnerabilities in a number of countries, as current account balances have strengthened and inflation has fallen (India, Hungary). o Tighter financing conditions. Developing countries face the prospect of tighter financial conditions, albeit from very accommodative levels as global interest rates remain historically low (Figure 2.D). Quantitative easing policies by the European Central Bank (ECB) and the Bank of Japan are exerting downward pressure on global yields, but the prospect of interest rate hikes in the United States has been associated with a broad- based appreciation of the U.S. dollar and could cause bouts of financial market volatility. Currency depreciations against the U.S. dollar have been most pronounced in countries with deteriorating growth prospects or significant external vulnerabilities. Since the start of the 2015, countries experiencing depreciation in excess of 10 percent against the U.S. dollar include Belarus, Azerbaijan, Ukraine, Ghana, Mongolia, Brazil, Angola, Turkey, Zambia and Colombia. This has raised concerns about U.S. dollar exposures of sovereign and corporate balance sheets in some countries, especially those with rapid post-crisis credit growth. In real trade- weighted terms, depreciations have been limited for most developing countries and may not deliver significant competitiveness gains, with the exception of some commodity exporters where previous currency overvaluation is being reversed (Russia, Colombia, Mexico, Brazil, Malaysia, Nigeria; Figure 2.E). With the gradual tightening in U.S. monetary policy likely to start later in 2015, capital flows are expected to ease and financial conditions for developing countries to tighten—but unevenly, as investors focus more on country- specific vulnerabilities, differences in the monetary policy stance, and divergent growth prospects. Policy challenges. Low oil prices, set against the prospect of tighter financial conditions, raise diverging policy challenges and opportunities. In many oil-importing countries, lower inflation (Figure 2.F) and shrinking fiscal and external vulnerabilities have created space for central banks to cut rates to support weak activity (India, Egypt, Peru, Romania). In countries with large fuel subsidies and low energy taxation, lower oil prices also present an opportunity for subsidy and tax reform to re-build buffers against future cyclical downturns, or to expand spending on infrastructure investment and poverty-reducing activities. In contrast, many commodity-exporting countries have had to tighten fiscal policy even as growth slows. This is particularly the case in countries where fiscal deficits were already large before commodity price declines (Angola, Brazil, Cameroon, Ghana, Mongolia, Venezuela, Zambia), where debt levels were elevated (Ghana, Mongolia), and where “rainy day” savings or stabilization funds were of limited size (Mongolia, Nigeria). Inflation continues to edge higher in some oil-exporting countries (Colombia, Nigeria, Russia) and countries struggling with weakening investor confidence and depreciating currencies (Brazil, Turkey). Central banks in those countries are balancing the need to support growth, to stabilize inflation and temper currency pressures. In most developing countries, the growth slowdown underway is a reminder of the need for structural reforms, including to promote diversification beyond commodity exports. Risks to the global outlook remain tilted to the downside. Some pre-existing risks, especially of deflation in the Euro Area, have receded, but new financial stability and growth risks have emerged. Deteriorating prospects in some developing economies, especially commodity-exporting ones, are eroding their resilience. This, together with the possibility of volatility around U.S. policy interest rate hikes, is increasing the risk of financial stress. Greece. As of June 23 (date of publication of the Global Monthly), a resolution to difficult negotiations between Greece and its creditors appeared possible. However, debt sustainability concerns remain over the medium-term while the economy fell back into recession early this year and deposit outflows have intensified banking sector stress. Thus far, the turmoil in Greece has had limited repercussions for the rest of the Euro Area or elsewhere. Foreign bank exposure to Greek debt has declined sharply since 2010, the ECB’s quantitative easing program has shielded sovereign bonds in other peripheral countries and several new institutional mechanisms could help limit contagion in a stress situation. However, should Greece move closer to default and the irrevocability of the euro starts being questioned, spillovers could become more evident. Greece’s exit from the Euro Area would have dire consequences for the domestic economy and would be a blow to European integration. Some developing countries in Southeastern Europe are vulnerable to spillovers from economic stress in Greece through sizeable local subsidiaries of Greek banks, trade linkages, and a contraction in remittance flows. 3 June 2015 Figure 1: Further growth disappointment in developing countries While the recovery in high-income countries provides increasing support to global activity, growth in developing countries is expected to decelerate further in 2015. Growth disappointments are broad-based this year, with the notable exception of India. Low-income countries remain resilient, but risks are tilted to the downside. A. Growth forecasts B. Distance to U.S. Fed policy targets Percent Distance to dual policy target World Percentage point 10 High-income countries 5 Developing countries 8 4 Distance to target 6 Expected in 15Q4 3 4 2 2 0 1 -2 0 -4 2016 2000 2002 2004 2006 2008 2010 2012 2014 2007 2009 2011 2013 2015 2017 C. High-income countries: Contribution to D. Fraction of countries slowing across developing global growth regions Percent Percent 100 Share of countries with growth slowing in 2015 80 90 Share of countries with growth revised down in 2015 70 80 60 70 60 50 percent threshold 50 50 40 40 30 30 20 20 10 10 0 0 1980s 1990s 2000-08 2011-14 2015-17 LAC ECA SAS DEV EAP MNA SSA E. Contribution to developing countries’ growth F. Emerging, developing, and low-income countries: revisions Growth Percent Oil Exporters Percent 0.4 Oil Importers 10 India 2013 2014 2015 2016 0.3 8 Brazil 0.2 Developing Countries 6 0.1 0 4 -0.1 2 -0.2 0 -0.3 -2 -0.4 -0.5 -4 Low Income India Mexico Brazil Federation Developing China South Africa Nigeria countries Russian countries -0.6 2015 2016 Sources: World Bank, Bloomberg, Haver Analytics, Federal Reserve Bank of St. Louis, U.S. Federal Reserve Board. A. Shaded area indicates forecast. B. Distance to target is equal to [(π − π∗ )2 + (μ − μ∗ )2 ] where π is inflation, π∗ is the target rate of inflation in percentage points, μ is the unemployment rate and μ∗ is the long-run average rate of unemployment (Bullard 2014). E. Oil importers exclude Brazil, China, and India. 4 June 2015 Figure 2: Challenging transition to low commodity prices and tighter financing conditions Oil prices appear to have found a floor on evidence of supply adjustment in the United States, but should remain low over the medium term. On average, commodity price declines since 2011 have reversed more than a third of price increases since 2001, affecting terms of trade for a growing number of commodity exporters. Global financing conditions remain favorable but emerging market currencies have been under pressure and financial market volatility has increased. A. Oil prices and U.S. rig counts B. Commodity prices U.S. dollar per barrel Count Cumulative change in percent of 2001Q1, real 2010 US$ 600 2011Q1-2015Q1 120 1800 500 2001Q1-2011Q1 400 Cumulative 2001-2015Q1 100 1600 300 200 1400 100 80 0 1200 -100 60 -200 Brent (LHS) 1000 -300 WTI (LHS) -400 40 US oil rig count (RHS) 800 -500 Soybean oil Soybean oil Palmoil Tin Copper Cocoa Coffee (Arabica) RiceGold Nickel Zinc Tobacco Tea Lead Crude oil Aluminum Natural gas Rubber (Malaysia) Iron oil Soybean Wheat Banana Sugar Cotton Silver Coal Maize 20 600 Jan-14 Jul-14 Jan-15 Mar-14 May-14 Sep-14 Nov-14 Mar-15 C. General government debt and primary D. 10-year government bond yields balance, developing countries Percent of GDP Percent of GDP Percent 12 German U.K. Japan U.S. 100 Government debt Government primary 3.6 balance (RHS) 3.2 80 8 2.8 2.4 60 2 4 40 1.6 1.2 0 20 0.8 0.4 0 -4 0 2007 2014 2014 2007 2007 2014 2007 2014 Jan-13 Jan-14 Jan-15 May-13 Sep-13 May-14 Sep-14 May-15 Oil Ex. Oil Im. Oil Ex. Oil Im. E. Depreciation since mid-2014 and deviation F. Median inflation in developing countries of the real effective exchange rate from the long-term average 20 Year-on-year, percent Reversal of undervaluation CHN ECU Increased overvaluation 16 THA Oil importers NEER change, June 2014- 10 IND EGY PAK 14 Oil exporters MAR PER IDN 12 January 2015 0 CHL TUR MYS BGR NGA ROM 10 HUN -10 MEX 8 -20 COL BRA 6 Increased undervaluation 4 -30 Reversal of RUS overvaluation 2 -40 0 2011 2014 2008 2009 2010 2012 2013 2015 80 100 120 140 160 180 REER deviation in June 2014 from long-term average Sources: World Bank, Bloomberg, Haver Analytics C. Bar illustrates interquartile range. Dot shows median. E. A decline in the nominal effective exchange rate (NEER) or real effective exchange rate (REER) denotes a depreciation. F. Hydrocarbon exporters (as proxy for oil exporters) are Algeria, Angola, Argentina, Azerbaijan, Cameroon, Côte d’Ivoire, Colombia, Chad, Ecuador, Gabon, Indonesia, Iran, Iraq, Kazakhstan, Libya, Malaysia, Mexico, Nigeria, Papua New Guinea, South Africa, Sudan, Turkmenistan, Uzbekistan, Venezuela, Vietnam, and Yemen. 5 June 2015 Special Focus: Risks around a Liftoff in U.S. Interest Rates Most likely: smooth liftoff. The expected increase of policy interest rates by the U.S. Federal Reserve (“liftoff”) will most likely proceed smoothly, leading to only modest downward pressure on emerging market capital inflows. Despite the recent volatility, global long-term interest rates remain low and financing conditions for emerging and developing countries generally supportive. The European Central Bank and the Bank of Japan continue to pursue exceptionally accommodative policies and positive spillovers associated with a robust U.S. economy should help offset the negative impact of rising U.S. interest rates on emerging markets. If the liftoff proceeds as smoothly as expected, the term spread in the United States would remain narrow, as in a number of past rate hikes episodes (Figure 3.A), but emerging market currencies could remain under pressure (Figure 3.B). Risks. However, the liftoff and subsequent rate increases carries risks for emerging markets. The “taper tantrum” of May-June 2013 is a reminder that even an event anticipated by markets can generate spikes in U.S. long-term yields, significant financial market volatility, and shifts in emerging market capital flows. Three factors currently heighten the risk of volatility. First, U.S. term premia are well below their historical average and could correct sharply (Figure 3.C). Second, market expectations of future interest rates are currently below those of members of the U.S. Federal Open Market Committee. And third, market liquidity conditions are fragile. Risks: Declining capital flows to developing countries. If the liftoff were accompanied by a surge in U.S. long-term yields, as happened during the taper tantrum, the reduction of capital flows to emerging markets could be substantial. Changing global financial conditions—especially U.S. yields—drive a large part of movements in capital flows to emerging markets. Estimates suggest that a 100 basis point jump in U.S. long-term yields in response to the liftoff (as occurred during the taper tantrum) could temporarily reduce capital flows to developing countries by 0.8–1.8 percentage points of GDP, depending on the degree of pass-through into long-term interest rates in other major advanced economies (Figure 3.D). Stated differently, developing countries would collectively experience an estimated 18–40 percent decline in the level of capital flows they received in 2014. While the decline in capital flows could create policy challenges, they would probably be manageable for most countries. Risks: Disproportionate pressure for some countries. The taper tantrum is a reminder that financial stress tends to disproportionately affect those countries that have weak growth prospects, sizable vulnerabilities and challenging policy environments. In general, emerging markets are significantly more resilient now than in the 1990s, with flexible exchange rate regimes more widespread and currency mismatches smaller. Since the taper tantrum, however, emerging market growth prospects have deteriorated, while vulnerabilities remain (Figures 3.E & 3.F). Although, on average, current account balances have improved, there has been wide variation across countries. Private debt and inflation have, on average, increased and fiscal positions have generally deteriorated. Foreign currency exposures in some emerging markets remain elevated, rendering them vulnerable to sharp movements in their currencies. Risks: Interaction between rising financing cost and other challenges. The countries that stand to be most affected by the liftoff are those that need to adjust to the prospects of persistently low commodity prices and tighter financial conditions, or that face domestic policy uncertainty against the backdrop of lingering vulnerabilities and weaker growth. An abrupt change in risk appetite for emerging market assets could potentially lead to contagion effects. Policy options. Emerging markets should prioritize monetary and fiscal policies that reduce vulnerabilities and strengthen policy credibility, and structural policy agendas that improve growth prospects. In countries facing elevated inflation, buttressing monetary and fiscal policy credibility may be a priority. Banks with large foreign currency liabilities may merit close monitoring or tighter prudential requirements. Although the benefits of structural reforms take time to materialize, decisive moves to implement ambitious reform agendas signal improving growth prospects to investors. In the event that risks surrounding the liftoff materialize, exchange rate flexibility could buffer shocks in some countries but may need to be complemented by monetary policy measures and targeted interventions to support orderly market functioning. 6 June 2015 Figure 3. Risks around U.S. Rate Liftoff If the liftoff proceeds smoothly, the term spread would remain narrow as in some past episodes. However, emerging market currencies could remain under pressure and there is a risk of a spike in U.S. long-term yields, since term premia are well below their historical average and market expectations of future interest rates are below those of Fed policymakers. A surge in U.S. yields could lead to a substantial drop in emerging market capital flows. This risk is exacerbated by deteriorating growth and credit ratings in emerging markets. A. U.S. term spreads around previous U.S. tightening B. Median nominal effective exchange rate of cycles developing countries Basis points; deviations from t = 0 Percent, deviations from t = 0 Feb-94 Jun-99 Jun-04 May-13 Feb-94 Jun-99 60 Jun-04 May-13 2 20 -20 0 -60 -2 -100 -4 -140 -180 -6 -4 -3 -2 -1 0 1 2 3 4 -3 -2 -1 0 1 2 3 Quarters Months C. U.S. 10-year Treasury term premium D. U.S. interest rates and capital inflows Percent Deviation from baseline, percentage points 6 G4 long-term interest rates 5 2 Historical average Capital inflows to emerging and developing 4 countries (percent of GDP) (1961-2015) 1 3 2 0 1 -1 0 Average since 2000 -1 -2 2015 2016 2017 1965 1993 1961 1969 1973 1977 1981 1985 1989 1997 2001 2005 2009 2013 E. Developing-country growth F. Developing-country credit ratings Percent Average rating, 100 = United States Developing Countries (excluding China) 44 6 Developing Countries Average since 2000 43 5 42 Average since 2000 (excluding China) 41 4 40 3 39 38 2 2007 2008 2010 2012 2013 2015 2012 2013 2014 2015 Source: IMF, Haver Analytics, Bloomberg, Federal Reserve Bank of New York, World Bank, U.S. Fed FOMC. A. Term spread denotes the difference between yields on 10-year U.S. Treasury bonds and 6-month T-bills, four quarters before until four quarters after the launch of the U.S. tightening cycle (t= 0). C. Term premium estimates are obtained from the model described in Adrian, Crump, and Moench (2013b). This model belongs to the affine class of term structure models, which characterize yields as linear functions of a set of pricing factors. It imposes no-arbitrage restrictions which ensure that the time series and cross-section of bond yields are consistent with one another. D. A 100 basis point shock on the U.S. term spread was applied to a VAR model assuming a range of pass-through rates to Euro Area, U.K. and Japanese bond yields, from zero to 100 percent. Grey area shows the range of estimated effects on capital inflows depending on pass-through rates (the lower bound corresponds to a zero pass-through rate implying a 40 basis point shock to global bond yields, while the upper bound corresponds to a 100 percent pass-through rates, or a 100 basis point shock to global bond yields). In the median case, global bond yields increase initially by 70bp, which corresponds to the observed pass-through rate during the taper tantrum. F. Unweighted average of 120 developing country institutional investor ratings. Ratings are based on information provided by sovereign-risk analysts at global banks and money management and securities firms. The countries are graded on a scale of zero to 100, with 100 representing the lowest likelihood of default. Ratings are reported in percent of the United States’ score. The blue line shows the taper tantrum period in 2013H2. 7 June 2015 Major data releases Major Data Releases 28 May, 2015-23un 2015 Upcoming releases: 24 Jun, 2015-15 July 2015 Country Date Indicator Period Actual Forecast Previous Country Date Indicator Period Previous United States 5/29/2015 GDP (Q/Q) Q1 -0.7% 0.2% 2.2% United States 6/24/2015 GDP (Q/Q) Q1 2.2% Brazil 5/29/2015 GDP (Q/Q) Q1 -0.7% -2.0% 1.1% Malaysia 6/25/2015 Unemployment Rate APR 3.0% India 5/29/2015 GDP (Y/Y) Q1 7.5% 7.2% 6.6% Argentina 6/25/2015 Industrial Production (Y/Y) MAY -1.5% China 5/31/2015 PMI Manufacturing MAY 49.2 50.20 48.9 Japan 6/25/2015 Unemployment Rate MAY 3.3% Euro Area 6/1/2015 PMI Manufacturing MAY 52.2 52.3 52.0 Japan 6/25/2015 CPI (Y/Y) MAY 0.6% Brazil 6/3/2015 PMI Composite MAY 42.9 44.0 44.2 Mexico 6/26/2015 Unemployment Rate MAY 4.3% Turkey 6/3/2015 CPI (Y/Y) MAY 8.1% 8.0% 7.9% UK 6/30/2015 GDP (Q/Q) Q1 2.5% United States 6/5/2015 Unemployment Rate MAY 5.5% 5.4% 5.4% Indonesia 6/30/2015 PMI Manufacturing JUN 47.1 Japan 6/7/2015 GDP (Q/Q) Q1 3.9% 2.5% 1.3% Indonesia 7/1/2015 CPI (Y/Y) JUN 7.2% Brazil 6/10/2015 CPI (Y/Y) MAY 8.5% 8.3% 8.2% Brazil 7/1/2015 PMI Manufacturing JUN 45.9 China 6/8/2015 CPI (Y/Y) MAY 1.2% 1.2% 1.5% United States 7/2/2015 Unemployment Rate JUN 5.5% Euro Area 6/9/2015 GDP (Q/Q) Q1 1.7% 1.6% 1.4% Canada 7/2/2015 PMI Manufacturing JUN 49.8 Turkey 6/10/2015 GDP (Q/Q) Q1 5.3% - 3.1% Turkey 7/3/2015 CPI (Y/Y) JUN 8.1% Malaysia 6/11/2015 Industrial Production (Y/Y) APR 4.0% 4.5% 6.9% South Africa 7/3/2015 PMI Manufacturing JUN 50.1 China 6/11/2015 Retail Sales (Y/Y) APR 10.1% 10.4% 10.0% Australia 7/8/2015 Unemployment Rate JUN 6.0% Japan 6/12/2015 Industrial Production (Y/Y) APR 0.1% 1.0% -1.7% Mexico 7/9/2015 CPI (Y/Y) JUN 2.9% Euro Area 6/12/2015 Industrial Production (Y/Y) APR 0.8% 1.1% 2.1% India 7/10/2015 Industrial Production (Y/Y) MAY 4.1% Turkey 6/15/2015 Unemployment Rate MAR 10.0% - 10.2% Canada 7/10/2015 Unemployment Rate JUN 6.8% United States 6/23/2015 PMI Manufacturing JUN 53.4 55.0 54.0 China 7/14/2015 GDP (Q/Q) Q2 5.3% Euro Area 6/23/2015 PMI Composite JUN 54.1 53.3 53.6 Turkey 7/15/2015 Unemployment Rate APR 10.0% Other reports from the Prospects Group Global Economic Prospects – June 2015: The Global Economy in Transition Commodity Market Outlook – April 2015 Policy Research Note – March 2015: The Great Plunge in Oil Prices Recent World Bank country updates Economic Update – Russia: Economy to Contract in 2015 by -2.7 Percent Economic Update – Tajikistan: Slowing Growth, Rising Uncertainties Economic Update – Kazakhstan: Low Oil Prices, an Opportunity to Reform Economic Update - Lao PRD: Economic Growth Improving but Remain Fragile 8 June 2015 Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 2014 2014 2015 2010 2011 2012 2013 Q1 Q2 Q3 Q4 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Industrial Production, S.A. World 8.8 4.7 3.1 2.5 3.7 2.5 2.4 3.9 3.7 3.6 3.5 3.6 3.5 2.7 3.4 3.1 2.9 3.4 2.7 2.5 2.5 2.2 - High Income Countries 7.7 2.9 1.1 0.6 2.9 0.5 0.5 3.1 2.9 2.8 2.2 2.4 2.5 1.3 1.8 1.8 1.4 2.0 1.8 1.4 1.5 1.2 - Developing Countries 10.8 7.8 6.3 5.5 5.0 5.6 5.3 5.0 4.9 4.8 5.5 5.4 5.0 4.9 5.9 5.1 5.2 5.4 4.1 4.2 4.1 3.7 - East Asia and Pacific 14.2 11.3 9.0 8.9 5.2 8.2 6.4 8.5 7.5 8.0 8.2 8.6 7.8 6.6 7.6 7.1 6.6 7.4 6.5 6.2 5.8 5.6 5.7 East Asia x. China 8.9 0.7 4.1 4.7 -0.6 8.3 3.9 6.6 0.5 2.6 4.0 4.8 1.1 4.6 5.8 4.4 4.0 5.0 4.6 3.0 6.4 3.0 - Europe and Central Asia 11.0 13.1 8.9 2.2 4.8 1.7 1.8 -0.2 4.1 4.1 6.5 3.6 4.0 2.4 2.8 2.6 2.1 1.4 0.1 2.0 3.0 1.7 - Latin America and Caribbean 5.9 2.5 -0.1 0.9 1.1 -2.3 -0.5 -2.9 1.6 -2.1 -1.1 -2.7 -1.5 -1.0 -1.4 -0.8 -1.5 -1.1 -2.4 -2.8 -2.9 -3.7 - Middle East and N. Africa 2.0 -8.5 5.6 -6.6 18.3 3.0 27.6 -1.6 -9.1 -9.3 -7.3 -4.7 -0.1 11.3 16.3 12.1 13.4 8.1 -0.3 -0.7 5.1 4.7 - South Asia 9.3 5.5 1.1 1.7 7.1 5.3 2.7 -2.5 0.2 3.9 5.3 4.5 1.9 2.5 4.0 -0.9 5.8 4.3 3.4 5.1 3.6 5.0 - Sub-Saharan Africa 4.6 3.5 3.2 1.1 -3.1 0.4 -5.2 10.2 -0.2 0.4 -1.6 0.6 -7.2 -0.7 6.3 1.5 -0.8 0.6 -1.2 0.1 3.4 -1.5 - Inflation, S.A. 1 High Income Countries 1.7 2.8 2.0 1.5 1.4 2.0 1.7 1.4 1.5 2.0 2.0 2.0 1.8 1.7 1.7 1.7 1.5 1.2 0.9 1.0 1.1 0.9 1.0 Developing Countries 5.8 7.5 6.5 7.4 7.5 7.7 7.9 7.9 7.5 7.5 7.9 7.7 7.9 8.0 7.8 7.7 7.7 8.2 7.7 7.9 7.8 7.7 7.5 East Asia and Pacific 3.4 5.6 2.8 3.0 2.9 2.9 2.5 2.2 3.0 2.6 3.1 3.0 2.8 2.5 2.2 2.1 2.2 2.3 1.5 2.0 2.0 2.1 1.9 Europe and Central Asia 7.3 8.2 8.7 6.2 5.8 7.4 7.9 8.2 6.2 7.0 7.6 7.5 7.7 8.0 8.1 8.2 8.4 7.9 7.6 8.2 9.1 10.4 10.4 Latin America and Caribbean 6.4 7.5 6.7 9.8 12.5 13.9 15.5 16.9 12.9 13.6 13.9 14.2 14.9 15.5 16.0 16.3 16.6 17.6 17.2 16.9 16.5 15.2 14.4 Middle East and N. Africa 7.0 12.0 13.8 19.2 13.2 9.7 10.1 10.8 11.3 10.2 9.9 9.2 9.9 10.2 10.1 10.5 10.6 11.3 10.4 10.9 11.1 11.3 - South Asia 10.3 9.8 9.4 10.1 8.1 7.8 6.7 4.2 8.1 8.4 8.1 6.8 7.3 6.9 5.8 4.8 3.5 4.4 5.1 5.1 4.9 4.6 4.8 Sub-Saharan Africa 7.5 10.1 11.1 8.1 8.6 9.2 9.8 8.4 8.5 8.7 9.2 9.7 9.9 10.1 9.3 8.3 8.4 8.5 7.6 7.5 7.5 8.0 8.5 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 2010 2011 2012 2013 Q1 Q2 Q3 Q4 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Exports, Nominal, US$, S.A. World 22.0 19.1 0.3 1.8 -1.8 3.2 2.5 -16.1 2.8 2.5 4.0 3.3 5.7 0.6 2.7 -1.7 -4.5 -3.9 -11.3 -7.3 -13.9 -14.34 - High Income Countries 19.5 18.5 -1.1 1.2 1.2 0.8 -1.6 -19.2 5.4 3.2 4.2 2.6 5.0 -0.5 1.0 -3.4 -6.3 -5.7 -12.8 -13.3 -13.8 -15.58 - Developing Countries 28.4 20.7 3.6 3.1 -8.4 9.0 12.1 -8.8 -2.8 0.7 3.4 4.8 7.3 3.0 6.7 2.1 -0.5 0.0 -8.0 7.0 -14.2 -11.59 - East Asia and Pacific 30.8 19.7 6.3 6.5 -12.0 16.3 19.6 2.5 -3.6 2.4 5.6 7.7 11.3 8.2 12.7 8.3 3.5 5.8 -3.3 29.4 -11.8 -6.729 -3.8 Europe and Central Asia 15.6 20.3 -0.1 -0.2 8.7 -5.0 -7.2 -28.6 9.0 2.9 6.3 5.2 5.6 -4.0 -0.9 -6.5 -9.4 -11.2 -13.2 -15.5 -17.1 -16.11 - Latin America and Caribbean 28.1 23.2 1.7 0.6 -9.3 9.0 3.0 -25.1 -2.8 -0.3 1.4 1.8 5.8 -0.6 0.0 -4.3 -8.8 -6.6 -8.1 -12.6 -4.7 -11.86 - Middle East and N. Africa 25.3 15.1 5.6 -11.2 -0.9 -10.2 27.1 -33.7 -12.6 -12.0 -8.4 -8.9 -3.3 -6.6 0.9 -4.9 -5.2 -10.8 -28.8 -35.3 - - - South Asia 34.3 31.6 -1.8 6.2 -7.5 6.9 5.6 -1.4 1.4 4.6 11.0 8.4 0.1 1.5 -0.4 -5.5 8.7 -0.7 -7.5 -11.5 -18.2 -10.43 -16.6 Sub-Saharan Africa 32.8 19.9 -2.4 -1.0 -4.3 -8.8 -3.0 -16.5 -7.2 -5.3 -9.3 -3.1 -1.7 -10.3 -2.8 -8.5 -8.1 -8.3 -26.9 -26.4 -- - Imports, Nominal, US$, S.A. World 21.1 19.6 0.7 1.3 4.4 -1.4 1.1 -15.6 3.9 1.9 2.0 5.5 3.3 0.5 3.9 -1.8 -4.2 -3.6 -13.9 -13.4 -11.3 -14.72 - High Income Countries 18.0 17.7 -1.0 0.3 5.1 1.1 -3.1 -18.4 7.6 4.3 4.2 6.5 5.4 0.4 2.3 -3.0 -5.3 -4.5 -13.8 -13.4 -12.6 -15.71 - Developing Countries 29.8 24.5 4.7 3.6 2.9 -6.7 10.9 -9.1 -3.8 -3.2 -2.6 3.3 -1.3 0.7 7.5 0.8 -1.6 -1.7 -14.0 -13.2 -8.1 -12.47 - East Asia and Pacific 37.3 24.1 5.7 6.2 5.0 -14.6 13.5 -9.0 -9.9 -2.3 -3.4 3.8 -2.4 -0.7 7.1 2.9 -5.2 -3.4 -17.6 -17.4 -9.8 -14.14 -15.4 Europe and Central Asia 20.6 27.1 -0.4 2.9 -10.7 -5.9 -6.6 -9.1 -0.4 -5.2 -3.0 0.0 -7.3 -4.3 -4.4 -7.2 -8.3 -8.8 -15.1 -13.3 -12.2 -16.89 - Latin America and Caribbean 29.0 22.3 3.8 2.9 3.3 -2.1 5.4 -6.9 2.9 -4.6 -1.9 2.8 -0.5 -1.7 7.7 -4.2 0.3 3.6 -7.6 -8.0 -0.2 -10.15 - Middle East and N. Africa 15.3 17.7 10.6 0.9 2.1 0.2 17.1 -20.2 4.0 2.9 3.9 -1.0 2.8 11.5 8.3 0.1 -3.0 -0.4 -12.9 -8.7 - - - South Asia 33.9 31.4 4.0 -4.0 9.6 10.0 34.6 -12.9 1.5 -10.0 -9.2 8.7 4.1 6.9 23.7 7.1 21.4 -1.2 -12.3 -12.7 -12.3 -7.267 -13.1 Sub-Saharan Africa 13.5 25.0 4.4 2.6 4.9 14.2 0.1 5.4 4.9 1.8 6.5 3.8 4.0 5.9 9.4 5.5 3.2 9.4 -2.2 2.6 - - - International Reserves, US$ High Income Countries 10.2 11.3 9.2 3.6 0.8 0.7 -1.8 -1.5 0.3 0.3 0.0 0.5 -0.4 -0.1 -1.3 -0.6 0.0 -0.9 0.2 -0.1 -0.6 0.7 - Developing Countries 15.6 10.5 5.2 8.2 1.8 1.5 -2.0 -1.7 0.7 1.0 0.1 0.4 -0.2 -0.1 -1.7 -0.7 -0.3 -0.7 -0.7 -0.3 -1.6 - - East Asia and Pacific 19.3 11.9 4.5 12.2 3.0 1.2 -2.5 -1.4 0.8 0.9 0.1 0.3 -0.5 0.1 -2.1 -0.8 -0.3 -0.4 -0.8 -0.2 -1.9 - - Europe and Central Asia 9.3 5.5 7.8 3.6 -2.9 3.4 -1.7 -7.2 0.6 1.6 0.7 1.0 -1.1 1.1 -1.7 -2.0 -1.1 -4.2 -0.9 -3.2 -2.1 1.4 - Latin America and Caribbean 16.2 16.3 8.4 -1.1 0.2 3.4 1.2 -1.2 0.1 1.5 0.6 1.2 1.1 0.0 0.1 -0.1 0.7 -1.8 0.5 -0.3 -0.4 0.7 -0.3 Middle East and N. Africa 6.1 3.0 5.9 3.0 -1.9 -2.2 -3.8 -3.2 -0.8 -0.8 -0.9 -0.6 -0.4 -1.1 -2.3 -0.2 -1.0 -2.1 -3.7 -0.8 - - - South Asia 6.1 -0.9 0.4 -0.2 3.8 5.6 -0.6 2.1 3.3 2.9 1.1 1.5 1.3 -0.4 -1.4 0.5 -0.3 1.9 1.8 3.2 0.9 1.4 1.7 9 June 2015 Financial Markets 1 2013 2014 2014 2015 MRV Chg since 2010 2011 2012 2013 Q4 Q1 Q2 Q3 Q4 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.18 0.10 0.14 0.11 0.09 0.07 0.09 0.09 0.10 0.10 0.09 0.09 0.09 0.09 0.09 0.12 0.12 0.11 0.11 0.12 0.12 0.13 -1.97 ECB repo 1.00 1.25 0.88 0.55 0.35 0.25 0.22 0.12 0.05 0.16 0.15 0.15 0.06 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 -4.20 US$ LIBOR 3-months 0.34 0.34 0.43 0.27 0.24 0.24 0.23 0.23 0.24 0.23 0.23 0.23 0.23 0.23 0.23 0.25 0.25 0.26 0.27 0.28 0.28 0.28 -2.54 EURIBOR 3-months 0.75 1.34 0.49 0.15 0.20 0.27 0.27 0.13 0.00 0.21 0.17 0.16 0.06 0.06 0.06 0.00 0.00 0.00 0.00 0.00 0.00 0.06 -4.89 US 10-yr Treasury yield 3.20 2.77 1.79 2.33 2.73 2.75 2.61 2.49 2.27 2.59 2.53 2.41 2.52 2.29 2.32 2.20 1.88 1.98 2.04 1.92 2.19 2.32 -1.40 German Bund, 10 yr 2.78 2.65 1.57 1.63 1.79 1.68 1.43 1.07 0.77 1.35 1.19 1.01 1.00 0.87 0.79 0.64 0.45 0.35 0.26 0.16 0.58 0.81 -3.38 Spreads (basis points) JP Morgan Emerging Markets 301 341 342 319 342 352 300 301 367 282 282 310 312 349 350 402 443 420 411 388 369 388 31 Asia 206 218 216 219 237 231 197 195 202 189 195 202 187 207 193 206 233 215 208 206 195 200 -96 Europe 247 301 320 267 290 301 265 262 319 236 244 274 270 295 293 368 417 396 384 350 327 340 27 Latin America & Caribbean 360 404 393 379 409 429 360 366 471 343 336 373 390 443 455 516 560 531 521 488 471 506 118 Middle East 342 366 449 435 428 408 376 369 398 360 372 379 358 395 388 411 452 452 443 441 409 414 -84 Africa 274 364 337 322 338 332 287 280 319 278 278 292 270 307 306 343 385 364 371 361 345 366 366 Stock Indices (end of period) 2 Global (MSCI) 331 300 340 409 409 411 429 417 417 429 423 432 417 419 426 417 410 432 425 436 435 437 36.7 High-Income ($ Index) 1280 1183 1339 1661 1661 1674 1743 1698 1710 1743 1714 1749 1698 1708 1740 1710 1678 1773 1741 1778 1779 1796 40.0 United States (S&P-500) 1258 1258 1426 1848 1848 1872 1960 1972 2059 1960 1931 2003 1972 2018 2068 2059 1995 2105 2068 2086 2107 2123 69.6 Euro Area (S&P-350$) 1124 1005 1143 1339 1339 1361 1401 1411 1401 1401 1380 1404 1411 1382 1425 1401 1502 1603 1624 1618 1630 1610 39.3 Japan (Nikkei-225) 10229 8455 10395 16291 16291 14828 15162 16174 0 15162 15621 15425 16174 16414 17460 0 17674 18798 19207 19520 20563 20428 67.2 Developing Markets (MSCI) 1151 916 1055 1003 1003 995 1051 1005 956 1051 1066 1088 1005 1016 1005 956 962 990 975 1048 1004 987 15.4 EM Asia 468 379 447 446 446 444 472 460 457 472 485 489 460 467 467 457 468 479 481 514 499 483 47.3 EM Europe 529 395 473 438 438 409 435 374 297 435 403 399 374 369 353 297 286 313 302 338 320 320 -37.0 EM Europe & Middle East 450 336 402 372 372 348 360 321 257 360 340 337 321 314 303 257 247 269 258 286 271 273 -33.4 EM Latin America & Caribbean 4614 3602 3798 3201 3201 3194 3370 3171 2728 3370 3399 3664 3171 3158 3008 2728 2555 2654 2451 2693 2496 2577 -27.1 Exchange Rates (LCU / USD) High Income Euro Area 0.76 0.72 0.78 0.75 0.73 0.73 0.73 0.76 0.80 0.74 0.74 0.75 0.78 0.79 0.80 0.81 0.86 0.88 0.92 0.92 0.90 0.88 25.1 Japan 87.76 79.74 79.85 97.61 100.51 102.78 102.14 104.04 114.62 102.07 101.75 102.98 107.39 108.02 116.40 119.44 118.33 118.78 120.37 119.53 120.87 123.07 14.0 Developing Brazil 1.76 1.67 1.95 2.16 2.28 2.36 2.23 2.28 2.55 2.23 2.22 2.27 2.34 2.45 2.55 2.65 2.64 2.82 3.15 3.04 3.06 3.06 71.8 China 6.77 6.46 6.31 6.15 6.09 6.10 6.23 6.16 6.15 6.23 6.20 6.15 6.14 6.13 6.13 6.19 6.22 6.25 6.24 6.20 6.20 6.21 -9.3 Egypt 5.63 5.94 6.07 6.87 6.89 6.96 7.07 7.15 7.15 7.15 7.15 7.15 7.15 7.15 7.15 7.15 7.27 7.59 7.60 7.60 7.62 7.64 40.8 India 45.73 46.67 53.41 58.55 62.00 61.75 59.82 60.59 61.96 59.76 60.06 60.83 60.87 61.40 61.70 62.77 62.20 62.06 62.48 62.69 63.76 63.73 39.4 Russia 30.37 29.41 31.06 31.86 32.56 35.07 34.96 36.31 47.98 34.37 34.75 36.17 38.01 40.96 46.30 56.67 64.33 64.16 60.13 52.82 50.65 53.45 109.4 South Africa 7.32 7.26 8.21 9.65 10.16 10.86 10.54 10.77 11.22 10.68 10.66 10.66 10.99 11.06 11.09 11.51 11.56 11.58 12.08 11.99 11.97 12.25 53.3 Memo: USA nominal effective rate 100.19 98.53 102.00 104.76 106.30 108.31 108.66 110.57 114.05 109.31 109.43 110.61 111.67 112.66 113.83 115.67 117.82 119.65 121.73 121.39 121.03 121.87 27.2 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 Q4 Q1 Q2 Q3 Q4 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Apr Sep-12 '08 3 Oil price, $/b, nominal 1 79 104 105 104 105 104 106 100 75 108 105 100 96 86 77 61 47 55 53 57 63 62 -36.6 Non - Oil Index 2 .. 97 87 80 76 76 78 74 71 77 76 75 72 71 72 70 67 66 64 64 65 63 .. 3 Metals and Minerals Index 103 117 99 94 92 88 87 89 83 87 90 90 87 84 84 80 75 74 73 73 76 70 -32.5 Baltic Dry Index 4 2755 1545 916 1215 1876 1375 980 954 1105 912 796 944 1123 1101 1332 881 727 539 576 591 596 773 -83.9 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