“Bear market” spurred by financial and inflation uncertainties indexes, Jan1 2008=100

The External Environment for Developing Countries

July 2008The World Bank

Development EconomicsProspects Group

75

80

85

90

95

100

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08

Source: Thomson/Datastream.

“Bear market” spurred by financial and inflation uncertainties indexes, Jan1 2008=100

Dow Jones

MSI

TOPIX

CACI

U.S. inflation pipeline suggests further price hikes for consumer

Headline CPI, PPI- and Import price indexes, ch% 3mma y/y

0

3

5

8

10

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-080

5

10

15

20

Source: U.S. Department of Commerce.

PPI [left]

Import price [right]

CPI [left]

Industrial countries

Stimulus checks boost disposable incomes in May – but outlays rise less

disposable income and personal consumption, ch% saar

-2

0

2

4

6

8

10

May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08

Source: U.S. Department of Commerce.

income personal consumption

retail sales

Consumer expectations at record lows... a threat to second-half growth

expectations for economy: percentage of survey responses, 3mma

-25

-15

-5

5

15

25

35


Source: Conference Board.

expectations “worse”

“better” minus “worse”

expectations “better”

Manufacturing losses had been spared worse outturns by overseas demand goods export volume and IP, ch% saar

-4

-2

0

2

4

6

8

Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08-5

0

5

10

15

20

25

30

Source: Department of Commerce, Thomson/Datastream.

Export volume [R]

IP manufacturing [L]

Japan’s households retrench after strong spending in first quarter

retail sales volume and houshold expenditure, ch% 3mma y/y

-1

0

1

2

3

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08

Source: Cabinet Office-- Thomson/Datastream.

HH expenditures

Retail sales

Japan’s export growth waning as import demand plummets

Export- and import volume growth, ch% saar

-30

-20

-10

0

10

20

30


Source: Japan Cabinet Office.

Exports

Imports

Fall of the yen and new orders growth sustain export hopes

USD per Yen index [right], and factory orders [left] ch% 3mma y/y

-4

-2

0

2

4

6

8

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-0895

100

105

110

115

120

Source: Japan Cabinet Office; Thomson/Datastream.

Dollar per Yen index [right]

Factory orders [left]

1.2

3.2 2.9

-2

0

2

4

Q4-2007 Q1-2008-P Q1-2008-F

Source: Eurostat and DECPG calculations.

Euro Area first-quarter GDP marked down on investment and net-X growth of real GDP, and contributions to

growth in percentage points

Change in StocksFixed Investment

GovernmentConsumptionNet exports

German exports drop sharply in May in step with export orders growth export volumes and overseas factory

orders, ch% 3mma

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5


Source: Bundesbank-- Thomson/Datastream.

Export volume

Export orders

HICP breaches 16-year highs illiciting ECB 25-bp rate hike

HICP ch% y/y and ECB policy rate (%)

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08

HICP

Source: Eurostat through Thomson/Datastream.

Industrial production

Other East Asia

Latin America and the Carribean

Industrial production growth across developing regions is slowing IP ch% saar: ECA, LAC [left]; Other East

Asia [right]

-4

0

4

8

12

16


0

10

20

30

40

Source: Thomson/Datastream, DECPG.

Europe and Central Asia

China remains strong; output in the remainder of East Asia is lapsing

IP ch% saar

-10

-5

0

5

10

15

20

25

30



Other East Asia

China

Weaker manufacturing orders take a toll on German production

IP ch% saar: production [left], orders [right]

-8

-6

-4

-2

0

2

4

6

8

10


-10

-5

0

5

10

15

20

25


IP

Manufacturing orders*

* One month lag

International trade

G-3 exports slow into second quarter of 2008

export volumes, ch% saar

-5

0

5

10

15

20

25

2007M1 2007M3 2007M5 2007M7 2007M9 2007M11 2008M1 2008M3 2008M5

Source: Thomson/Datastream, DECPG calculations.

Japan

USA

Germany

Export market demand falling more quickly than anticipated

nominal imports, ch% saar

-20

0

20

40

60

80

100

2007M1 2007M3 2007M5 2007M7 2007M9 2007M11 2008M1 2008M3 2008M5


Taiwan, China

Russia

East Asia

High-income

Brazil Non-OECD High-income

High-tech exporters see slowdown in outbound shipments

nominal exports, ch% saar

-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

62.5

2007M1 2007M3 2007M5 2007M7 2007M9 2007M11 2008M1 2008M3


Taiwan, China

Thailand

Malaysia

Hong Kong SAR China

Oil prices

Oil prices climb on low stocks and sluggish supply growth

20

40

60

80

100

120

140

Jan-04 Jan-05 Jan-06 Jan-07 Jan-082400

2500

2600

2700

2800

$/bbl million bbl

WB Oil price [L scale]

OECD stocks [R]

Source: IEA and DECPG Commodities Group.

Tight distillate market bidding up prices for light crudes

-10

0

10

20

30

40

Jan-06 Jan-07 Dec-07

$/bbl

Crude (WTI)

Gasoline

Distillate

Price differentials relative to crude

Source: Datastream and DECPG Commodities Group.

Open Interest Crude Oil NYMEX (‘000 lots)

0

200

400

600

800

1000

1200

1400

1600

0

20

40

60

80

100

120

140

160$/bblOpen interest

Source: NYMEX and DECPG Commodities Group.

Non-oil commodity prices

100125150175200225250275300325350

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Grains

Fats & Oils

Other Food

Beverages

Continued gains in food prices(2000=100)

Source: DECPG Commodities Group.

Copper and aluminum remain firmwhile other metals prices drop

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

15000

20000

25000

30000

35000

40000

45000

50000

55000Cu/Al $/ton Ni $/ton

Nickel

Copper

Aluminum

Source: LME and DECPG Commodities Group.

0

25

50

75

100

125

150

Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06

Iron Ore Prices ($/mt)

Source: LME and DECPG Commodities Group.

International Finance

Bank lending leads flows in June

Source: DECPG Finance Team.

Gross capital flows to emerging markets

$ billion 2006

Total H1 H2 Total H1 Apr May Jun

Total 494 357 326 683 267 48 45 58 Bonds 137 107 39 146 58 13 12 19 Banks 246 164 180 343 165 22 24 36 Equity 111 86 107 194 44 13 8 3

Lat. America 116 69 88 157 54 14 12 9 Bonds 41 31 14 45 17 5 6 1E. Europe 179 156 96 252 104 15 16 35 Bonds 64 50 14 64 33 7 5 15Asia 153 110 113 213 90 16 13 11 Bonds 19 18 6 23 7 0 1 3Others 45 32 28 60 20 3 4 2

2007 2008

1,350

1,400

1,450

1,500

1,550

1,600


350

375

400

425

450

475

Source: Bloomberg.

Equity market downturn appears mirrored in commodity market gains

MSCI global equities (USD) [left]; Reuters/Jeffries CRN [right]

MSCI equity [left]

CRN commodities [right]

255

260

265

270

275


410

415

420

Source: JPMorgan-Chase and Morgan-Stanley.

Returns on high-yield assets suffer amid flight to quality

Developed market- high-yield bond index [left]; EMBIG [right]

EMBIG [right]

JPMorgan Developed HY [left]

Currencies

1.410

1.430

1.450

1.470

1.490

1.510

1.530

1.550

1.570

1.590

1.610


96

98

100

102

104

106

108

110

112


yen/USD

USD/Euro (inverse)

Dollar continues move-up on yen... step-down on euro at ECB rate hike USD per Euro (inverse) [Left] and Yen per

USD [right]

Is oil being viewed as a dollar hedge? USD nominal effective rate [left], oil price

[right], index 2000=100

80

85

90

95

100

105

110

Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 Nov-05 Sep-06 Jul-07 May-0850100150200250300350400450500

Source: Thomson/Datastream, DECPG Commodities Group.

Oil price [right]

USD NEER [left]

90

95

100

105

110

115



Emerging market currencies show mixed movements against the dollar

LCU per USD indexes, Jan1 2008=100 [*increase = weaker LCU]

Turkish lira

Brazilian reis

Indonesian rupiah

Korean won

Philippine peso

FOCUSJuly 2008

Difficulties at Fannie and Freddie

0

5

10

15

20

25

30

35

5/1/2008 6/1/2008 7/1/2008

Fannie Mae Freddie Mac

Share prices ($)


Fannie and Freddie share prices halve over the 2nd week of July

Freddie, 2.2 trillion

Fannie, 3.0 trillion

Others, 6.9 trillion

Source: OFHEO.

Mortgage portfolios and guarantees held by Fannie and Freddie

30

40

50

60

70

80

90


Fannie Mae

CDS spreads of Freddie Mac and Fannie Mae

Basis points

Freddie Mac


Market tension eases post actions by Treasury and Federal Reserve

0

250

500

750

1,000

1,250

1,500

Treasury bonds Agency bonds Corp. bonds Corp. stocks

$ billion

Value of US LT securities held by foreign official institutions(As of June 30, 2007)

Source: U.S. Treasury.

Further difficulties could carry worldwide repercussions

The External Environment for Developing Countries

July 2008The World Bank

Development EconomicsProspects Group

Documents

“Bear market” spurred by financial and inflation uncertainties indexes, Jan1 2008=100