90013 WEEKLY ECONOMIC BRIEF For more information, see our website www.worldbank.org/globaloutlook Second quarter growth in China was broadly stable at 7.5 percent in line with expectations, with little indication thus far of a rebalancing away from investment towards consumption. Weak activity in the Euro Area and strengthening growth in the US have led to the widest level of the long-term yield spread in fifteen years. Steady stock-to-use ratios suggest a broadly stable outlook for most grain prices. Growth in China was 7.5 percent in the second quarter of 2014, in line with Second quarter GDP growth in China was steady at 7½ expectations. A detailed composition of GDP is not yet available; however, high percent. frequency data suggest that growth in the second quarter was increasingly driven by Year-on-year growth (percent) or 4-quarter rolling average (percent of GDP) rising net exports. There is, as yet, little indication of a rebalancing of growth away 11 45 from investment towards consumption, as fixed asset investment growth has 10 Total social financing 40 continued at a steady pace throughout 2014. As in the previous three years, there (percent of GDP, LHS) 35 9 have been several policy reversals. In the first quarter, the authorities tightened 30 Real GDP regulations on and clarified supervisory oversight over shadow banking, discouraged 8 growth (percent, RHS) 25 banks from lending to sectors with overcapacity, and urged local governments to 7 Fixed asset investment 20 ease demand for new projects. The authorities also signaled a willingness to impose M2 growth growth (percent, 6 LHS) 15 (percent, LHS) investor losses by allowing a partial default of a trust loan to a coal mine in January and a bond issue by a solar company in March. These measures contributed to a 5 10 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 slowdown in the first quarter in fixed investment growth, M2 growth, and total social financing. Since then, however, renewed policy support measures estimated at 2½ percent of GDP were implemented to support growth, including declines in required Source: World Bank, and Haver. reserves and loan-to-deposit ceilings on banks, development bank lending, and additional fiscal spending. Such policy support is likely to ensure that the authorities’ The yield curve flattened as yields of longer-dated U.S. and growth target of 7-8 percent for 2014 is met; however, a rebalancing of growth German bonds declined. towards a more sustainable path appears difficult. Year-to-date basis points change in government bonds yields 2- year 5-year 10-year 30-year 2s10s* 10s30s* Weak activity in the Euro Area and strengthening growth in the US have 10 widened the long-term yield spread to its widest level in fifteen years. Since end- 0 -10 2013, yields on long-dated U.S. government securities—especially on 10-year and 30- -20 -30 Flatter yield curve year bonds—have fallen sharply, while shorter-dated bond yields remained broadly -40 stable, resulting in a significant flattening of the yield curve. However, robust -50 Lower yields -60 U.S. Treasuries employment data and rising inflation expectations in the U.S. have driven policy- -70 sensitive short-term yields somewhat higher in recent weeks, providing an early -80 German bunds -90 indication that financial markets expect policy normalization to draw nearer. Over the Yields Slopes same period, German 5- and 10-year bond yields have even fallen further than U.S. * The difference between yields on 2-and 10-year bonds and 10-and yields, especially since mid-June when the European Central Bank announced 30-year bonds. Source: World Bank, Haver, Bloomberg unprecedented stimulus measures amidst deflation fears and disappointing economic activity indicators in the Euro Area. As a result of the perceived divergence in growth Grain markets are expected to be adequately supplied, and inflation prospects in the Euro Area and the United States, the yield spread supporting broadly stable prices. between the U.S. and German 10-year bonds has reached its widest level since June 1999. Stock-to-Use Ratio (in percent) 35% Steady stock-to-use ratios suggest that grain markets are adequately supplied, 30% supporting a broadly stable outlook for most grain prices. In its July Wheat assessment, the U.S. Department of Agriculture maintained a comfortable outlook for 25% maize, rice, and oilseeds for the upcoming, 2014/15, season. The wheat market, Rice 20% however, is still tight as yields are projected to retreat from last year's record, causing production shortfalls in the world's key suppliers (U.S., Canada, and Australia). A key 15% risk at this stage is El Niño, the probability of which is assessed currently at 70 Maize percent. If 2014 becomes an El Niño year (the last was in 2009-10), then a number 10% of commodities produced in the Southern Hemisphere, including wheat, rice, and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 some edible oils, could suffer losses. Source: World Bank and COMTRADE. Number 229 | July 17, 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 Q2 Q3 Q4 Q1 Feb Mar Apr May Industrial Production, S.A. World 9.2 5.2 3.0 2.6 6.0 2.7 5.2 3.7 4.6 5.1 2.9 - High Income Countries 8.0 3.5 0.9 0.5 7.1 1.1 4.5 3.4 4.2 5.1 1.9 - Developing Countries 11.2 8.0 6.3 5.5 4.5 5.0 6.3 4.0 5.1 5.1 4.3 5.6 East Asia and Pacific 14.4 11.4 9.1 8.9 4.5 11.1 11.6 3.6 7.8 7.5 7.9 8.1 East Asia x. China 9.4 1.2 4.4 4.8 -3.4 4.3 12.4 -4.1 3.4 1.2 2.8 - Europe and Central Asia 13.4 14.9 8.3 2.2 1.1 1.5 7.6 11.3 4.5 6.6 4.0 - Latin America and Caribbean 6.2 2.6 -0.1 1.1 11.8 -4.0 -5.2 0.6 2.0 0.9 -4.2 - Middle East and N. Africa 2.2 -10.1 6.4 -8.0 -0.2 -32.6 -15.7 13.3 -9.3 -12.5 -11.7 - South Asia 9.4 5.4 1.3 1.5 -7.9 8.8 -2.9 4.5 -0.6 0.4 4.0 - Sub-Saharan Africa 4.6 3.4 3.4 0.9 9.2 -7.6 9.9 -3.7 1.5 1.3 -1.3 - Inflation, S.A. 1 High Income Countries 1.7 2.8 2.1 1.6 1.5 1.7 1.4 1.5 1.4 1.6 2.0 2.1 Developing Countries 5.9 7.5 6.4 7.4 7.2 7.7 7.9 7.4 7.2 7.5 7.5 7.8 East Asia and Pacific 3.4 5.6 2.8 3.0 2.7 3.3 3.4 2.9 2.7 3.0 2.5 3.2 Europe and Central Asia 7.3 8.2 8.7 6.2 6.3 6.2 5.5 5.8 5.7 6.2 7.1 7.7 Latin America and Caribbean 6.8 7.7 7.0 9.9 9.5 10.4 11.6 12.4 12.3 12.9 13.6 14.0 Middle East and N. Africa 7.0 11.9 11.7 19.1 20.0 20.4 17.4 13.7 13.2 11.8 10.7 10.4 South Asia 10.2 9.8 9.5 9.6 9.0 9.3 10.0 8.2 7.9 8.2 8.4 8.1 Sub-Saharan Africa 7.7 9.6 10.8 7.8 8.0 7.3 6.6 6.6 6.6 6.6 6.7 6.9 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 Q2 Q3 Q4 Q1 Feb Mar Apr May Exports, Nominal, US$, S.A. World 22.1 19.3 0.6 1.7 -5.1 4.4 10.7 -4.4 -0.9 2.7 3.1 - High Income Countries 19.3 18.3 -0.9 1.4 -0.5 4.8 9.4 -1.9 2.2 5.0 3.9 - Developing Countries 29.6 21.7 4.1 2.6 -14.4 3.6 13.6 -9.6 -7.7 -2.3 1.3 3.4 East Asia and Pacific 30.8 19.7 6.2 6.2 -19.8 -0.7 25.8 -11.7 -12.6 -3.5 1.8 4.7 Europe and Central Asia 18.4 25.6 0.7 0.9 -7.1 14.4 4.5 6.9 2.9 9.3 2.9 - Latin America and Caribbean 28.4 23.2 1.6 0.7 5.6 2.0 2.9 -12.2 1.9 -3.4 -1.2 -1.6 Middle East and N. Africa 26.3 16.2 5.9 - - - - - - - - - South Asia 34.3 31.6 -1.7 5.9 -22.3 55.7 -1.1 -17.9 -3.0 -2.3 9.3 11.3 Sub-Saharan Africa 40.1 24.7 2.8 -12.0 -7.8 -17.6 -25.0 - - - - - Imports, Nominal, US$, S.A. World 21.2 19.4 0.8 1.3 -5.1 5.2 5.3 0.4 1.1 2.9 0.9 - High Income Countries 18.2 17.4 -0.9 0.4 -3.3 6.6 6.0 1.3 1.5 6.6 3.0 - Developing Countries 29.4 24.5 4.8 3.4 -9.1 2.1 3.8 -1.9 0.2 -5.1 -3.9 -4.3 East Asia and Pacific 38.1 24.2 5.6 5.4 -14.2 8.0 7.8 -2.6 4.6 -11.0 -2.5 -4.9 Europe and Central Asia 20.8 28.0 0.2 4.6 2.9 -0.6 9.1 -12.2 -3.1 1.4 -3.7 - Latin America and Caribbean 28.9 22.7 3.8 3.3 0.5 -1.8 -2.2 3.8 0.6 3.0 -5.0 -2.0 Middle East and N. Africa 14.3 17.1 10.3 - - - - - - - - - South Asia 33.9 31.4 4.9 -3.9 -19.6 -15.1 -9.8 3.0 -14.7 -1.7 -8.1 -9.7 Sub-Saharan Africa 8.1 23.2 5.0 - - - - - - - - - International Reserves, US$ High Income Countries 10.4 11.1 9.5 3.8 0.3 2.4 1.1 0.7 0.5 0.4 0.1 - Developing Countries 15.4 10.0 5.0 9.1 0.5 3.0 2.9 2.1 0.9 0.8 - - East Asia and Pacific 19.3 11.8 4.5 12.6 0.9 4.1 3.8 2.8 1.1 0.7 - - Europe and Central Asia 8.4 2.6 3.1 5.0 -0.2 0.6 2.4 -3.1 -0.3 1.1 2.2 - Latin America and Caribbean 16.2 15.1 8.3 0.3 -0.9 0.3 -0.9 0.7 0.3 0.4 1.4 - Middle East and N. Africa 5.9 2.6 6.0 3.1 1.9 2.4 -0.5 - - - - - South Asia 5.4 -1.9 -0.2 2.5 -1.6 -1.9 7.2 3.8 1.4 3.5 5.5 - Number 229 | July 17, 2014. Financial Markets 1 2013 2014 2014 MRV Chg since 2010 2011 2012 2013 Q2 Q3 Q4 Q1 Mar Apr May June Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.18 0.10 0.14 0.11 0.12 0.09 0.09 0.07 0.08 0.09 0.09 0.10 0.09 -2.01 ECB repo 1.00 1.25 0.88 0.55 0.59 0.50 0.35 0.25 0.25 0.25 0.25 0.16 0.15 -4.10 US$ LIBOR 3-months 0.34 0.34 0.43 0.27 0.28 0.26 0.24 0.24 0.23 0.23 0.23 0.23 0.23 -2.59 EURIBOR 3-months 0.75 1.34 0.49 0.15 0.13 0.15 0.20 0.27 0.27 0.30 0.30 0.21 0.17 -4.78 US 10-yr Treasury yield 3.20 2.77 1.78 2.33 1.98 2.70 2.73 2.75 2.72 2.69 2.55 2.59 2.52 -1.20 German Bund, 10 yr 2.78 2.65 1.57 1.63 1.41 1.79 1.79 1.68 1.59 1.53 1.40 1.35 1.19 -2.99 Spreads (basis points) JP Morgan Emerging Markets 301 341 342 319 308 347 342 352 341 315 303 282 282 -75 Asia 206 218 216 219 202 254 237 231 214 209 193 189 198 -98 Europe 247 301 320 267 254 299 290 301 313 288 271 236 239 -74 Latin America & Caribbean 360 404 393 379 370 406 409 429 408 371 365 343 337 -51 Middle East 342 366 449 435 460 438 428 408 398 387 379 360 371 -127 Africa 274 364 337 322 312 359 338 332 316 294 288 278 274 274 Stock Indices (end of period) 2 Global (MSCI) 331 300 340 409 356 382 409 411 411 414 422 429 431 34.8 High-Income ($ Index) 1280 1183 1339 1661 1434 1544 1661 1674 1674 1688 1715 1743 1751 36.5 United States (S&P-500) 1258 1258 1426 1848 1606 1682 1848 1872 1872 1884 1924 1960 1959 56.5 Euro Area (S&P-350$) 1124 1005 1143 1339 1165 1267 1339 1361 1361 1382 1408 1401 1407 21.8 Japan (Nikkei-225) 10229 8455 10395 16291 13677 14456 16291 14828 14828 14304 14632 15454 15370 25.8 Developing Markets (MSCI) 1151 916 1055 1003 940 987 1003 995 995 995 1028 1051 1067 24.7 EM Asia 468 379 447 446 413 431 446 444 444 444 461 472 477 45.5 EM Europe 529 395 473 438 409 446 438 409 409 396 428 435 432 -15.1 EM Europe & Middle East 450 336 402 372 348 379 372 348 348 337 364 360 363 -11.3 EM Latin America & Caribbean 4614 3602 3798 3201 3187 3303 3201 3194 3194 3254 3242 3370 3476 -1.7 Exchange Rates (LCU / USD) High Income Euro Area 0.76 0.72 0.78 0.75 0.77 0.75 0.73 0.73 0.72 0.72 0.73 0.00 0.73 4.2 Japan 87.76 79.74 79.85 97.61 98.68 98.88 100.51 102.78 102.36 102.51 101.84 102.06 101.42 -6.0 Developing Brazil 1.76 1.67 1.95 2.16 2.07 2.29 2.28 2.36 2.33 2.23 2.22 2.23 2.19 23.2 China 6.77 6.46 6.31 6.15 6.15 6.13 6.09 6.10 6.17 6.22 6.24 6.23 6.22 -9.1 Egypt 5.63 5.94 6.07 6.87 6.95 6.97 6.89 6.96 6.96 6.98 7.09 0.00 7.15 31.8 India 45.73 46.67 53.41 58.55 55.91 62.14 62.00 61.75 60.97 60.22 59.37 59.75 60.09 31.4 Russia 30.37 29.41 31.06 31.86 31.67 32.79 32.56 35.07 36.13 35.67 34.84 34.38 33.73 32.1 South Africa 7.32 7.26 8.21 9.65 9.50 9.99 10.16 10.86 10.75 10.54 10.41 10.66 10.59 32.5 Memo: USA nominal effective rate 100.21 98.60 102.18 105.07 104.29 106.19 106.70 108.75 108.94 108.52 109.02 109.68 109.42 14.2 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 Q2 Q3 Q4 Q1 Mar Apr May June Sep-12 '08 3 Oil price, $/b, nominal 1 79 104 105 104 99 107 105 104 104 105 106 108 104 7.0 Non - Oil Index 2 .. 97 85 79 79 76 75 76 78 79 78 76 75 .. Food Index 2 .. 99 97 89 91 86 85 86 90 91 91 86 79 .. 3 Metals and Minerals Index 103 117 99 94 91 91 92 88 86 88 87 87 97 -7.2 Baltic Dry Index 4 2755 1545 916 1215 889 1298 1876 1375 1484 1035 992 912 755 -84.3 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 229 | July 17, 2014.