89792 DECPG Weekly Global Economic Brief Number 150 For more information, see www.worldbank.org/gem 27 September 2012 The latest bout of G3 monetary stimulus is likely to increase capital flows to developing countries, but may be limited by lingering economic uncertainty, and lower interest rate spreads. Notwithstanding the recent easing of financial market tensions, the anticipated rebound in real-side activity is lagging behind. September Purchasing Manager Indices suggest a continued contraction of output or weak growth at best. Retail sales growth data through August, show diverging tendencies, with developing-country sales easing from high levels, while those in high-income are countries beginning to stabilize after declining for months. Partial data for August and September – including strengthening US housing market, and various stimulus measures – bode well for Q4 spending and economic activity. Major monetary stimulus measures were announced by G3 economies Selected assets response to earlier US QE measures in September. The European Central Bank announced an unlimited 15 (%change 1-month after the announcement) bond buying program, the Federal Reserve announced a $40 billion per 10 month asset purchase program, and the Bank of Japan added ¥10 5 trillion ($129 billion) to its asset purchase program. Based on past experience, these steps could support capital flows to developing 0 countries (indeed bond flows are up in September), as well as -5 commodity prices. However, impacts may be modest because of -10 EM MSCI High-income MSCI ongoing economic uncertainty; lower interest rate spreads; and -15 EM Bond Yield Commodity Prices because the efficacy of quantitative easing measures appears to have -20 QE1 QE2 QE2 Operation been declining over time. Available data show only a weak correlation QE1 (expanded) (hinted) Twist between recent quantitative easing measures and hot-money flows to Source: Bloomberg, JP Morgan and World Bank DEC Prospects developing countries. September Purchasing Manager’s Indicators (PMI) suggest that the September Purchasing Manager indicators signal pace of contraction has eased somewhat, but that weakness in global persistent weakness in real side activity (where 50 mark = no expansion or contraction) manufacturing activity persists (with diverging fortunes across regions). 60 Activity in the Euro Area continues to be weighed down by fiscal consolidation, rising unemployment, and weak consumer sentiment. 55 Nonetheless, Euro Area manufacturing PMI, though still signaling a contraction, hit a six-month high in September. Manufacturing 50 sentiment for China has also improved marginally. Manufacturing sentiment in the US remains steady (51.5 for both August and 45 September) – signaling modest output growth. Going forward, the USA Euro Area Developing (ex. China) easing of financial market tensions, and increased access to credit (e.g. 40 2011M01 2011M05 2011M09 2012M01 2012M05 2012M09 G3 monetary stimulus) should translate into a pick-up in Q4 real-side Source: Haver and World Bank DEC Prospects Group activity. Retail sales growth in developing countries is easing from high levels, Retail sales contract in high-income countries but continue expanding in developing countries, albeit weaker. even as sales levels in high-income countries stabilize after months of (volumes, %ch 3m/3m) 20 contraction. After contracting during the three months ending July Developing High-Income 2012 at a 1.7 percent annualized pace (3m/3m, saar), high-income 15 countries retail sales showed signs of stabilizing in August. Indeed, retail sales in the United States were up 0.93 percent (m/m) for the 10 month of August. Although slowing, household retail sales among developing countries grew at a robust 8.7 percent annualized pace 5 (3m/3m, saar) in August, still above the long-term average of 8.0 percent. September consumer confidence indicators suggest divergent 0 paths among high-income countries: weaker sentiment in the Euro -5 Area, relatively unchanged in Japan and a strong rebound in the United 2010M11 2011M06 2012M01 2012M08 States. Consumer demand is expected to continue to strengthen in Q4, Source: Datastream and World Bank DEC Prospects as employment and income prospects in high-income countries firm. DECPG Weekly – 27 September 2012 Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 27-Sep-12 2011 2012 2008 2009 2010 2011 Q3 Q4 Q1 Q2 Mar Apr May June July Industrial Production, S.A. World 0.5 -8.2 9.1 4.4 3.6 0.8 9.4 -2.0 3.2 3.4 2.7 2.5 3.2 High Income Countries -1.9 -12.8 8.2 2.8 2.7 -0.5 8.0 -3.8 1.8 2.5 1.1 0.9 1.5 Developing Countries 5.8 1.2 10.7 7.3 5.0 3.0 11.8 0.8 5.6 4.9 5.4 4.9 5.8 East Asia and Pacific 10.8 8.5 14.5 11.6 10.7 4.2 17.0 2.7 10.4 8.6 8.9 7.9 7.9 East Asia x. China 2.7 -3.3 9.5 0.1 8.9 -30.4 45.6 -0.2 2.2 4.2 4.2 -1.0 -1.1 Europe and Central Asia 0.1 -10.1 9.5 5.9 1.5 5.5 5.2 -4.0 1.6 1.1 3.3 1.4 3.3 Latin America and Caribbean 1.0 -6.9 6.7 3.2 0.0 -1.9 4.0 -3.4 -0.1 -0.3 -0.5 -0.2 0.9 Middle East and N. Africa 3.6 -2.8 1.6 -9.8 -3.2 9.5 13.8 12.1 8.3 8.0 8.1 7.5 - South Asia 6.8 -0.2 9.9 5.0 -3.8 0.7 10.8 -6.9 -2.7 -1.2 2.5 -1.4 -0.3 Sub-Saharan Africa -2.2 0.7 4.2 4.0 -4.5 0.3 -0.2 4.4 -3.4 -0.7 -3.9 4.6 - 1 Inflation, S.A. High Income Countries 3.4 0.2 1.6 2.7 3.0 2.8 2.4 1.9 2.3 2.1 1.8 1.8 1.6 Developing Countries 8.4 4.3 5.8 7.1 7.5 7.0 6.4 6.1 6.4 6.4 6.0 5.9 5.8 East Asia and Pacific 6.3 -0.2 3.5 5.5 6.2 4.7 3.9 3.0 3.7 3.5 3.2 2.4 2.1 Europe and Central Asia 12.5 8.9 7.1 8.1 8.0 8.6 7.6 6.8 7.4 7.5 6.3 6.7 7.5 Latin America and Caribbean 6.4 5.6 7.7 12.6 7.1 7.2 6.8 6.3 6.5 6.3 6.3 6.3 6.1 Middle East and N. Africa 16.9 9.3 6.1 6.8 13.0 13.5 14.8 16.2 15.1 15.7 15.6 17.1 17.9 South Asia 10.0 10.5 11.7 9.2 9.4 8.6 7.7 10.2 9.2 10.2 10.3 10.3 9.7 Sub-Saharan Africa 12.4 8.8 7.1 8.5 8.9 9.3 9.0 8.6 9.0 8.9 8.6 8.3 8.0 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 2011 2012 2012 2008 2009 2010 2011 Q3 Q4 Q1 Q2 Mar Apr May June July Exports, Nominal, US$, S.A. World 15.9 -22.8 21.8 19.2 -0.4 -7.7 16.2 -8.7 1.7 0.0 0.2 -2.1 -3.9 High Income Countries 13.8 -23.0 18.4 17.7 -1.3 -11.0 16.6 -12.2 0.3 -1.5 -2.8 -3.6 -5.4 Developing Countries 21.1 -22.5 29.9 22.5 1.4 -0.5 15.6 -1.0 4.8 3.2 6.7 1.1 -0.6 East Asia and Pacific 16.8 -16.4 31.0 19.5 7.8 -7.0 14.3 17.5 6.6 4.1 12.4 6.9 -0.4 Europe and Central Asia 30.8 -32.6 26.9 29.3 -7.0 22.1 18.2 -21.9 7.4 1.2 4.9 -2.6 0.4 Latin America and Caribbean 11.4 -20.0 28.1 22.5 1.4 2.9 14.1 -20.2 4.9 2.8 0.2 -6.6 0.9 Middle East and N. Africa 38.4 -36.3 27.3 17.0 -12.2 23.6 9.5 - 1.4 0.1 4.8 - - South Asia 28.0 -13.3 31.4 32.3 4.3 -21.1 11.9 -7.0 -9.0 -0.1 -4.5 -6.5 -13.4 Sub-Saharan Africa 28.5 -31.0 35.4 25.6 -10.0 -11.7 34.2 - 2.5 8.7 0.1 - - Imports, Nominal, US$, S.A. World 16.7 -23.9 21.2 19.7 -4.7 -3.6 18.4 -14.1 1.6 -0.2 -0.6 -4.2 -2.0 High Income Countries 13.8 -25.0 17.6 17.4 -7.0 -10.6 18.9 -14.5 -0.5 -1.5 -4.2 -6.7 -5.1 Developing Countries 25.6 -20.7 30.3 25.1 0.8 13.4 17.5 -13.1 6.4 2.6 7.7 1.5 5.2 East Asia and Pacific 21.4 -15.5 37.2 24.9 10.3 22.6 14.9 -14.9 6.2 2.3 13.2 6.2 7.6 Europe and Central Asia 26.6 -33.7 26.0 30.0 -16.1 5.0 25.5 -14.3 1.5 -1.5 0.2 -2.8 5.4 Latin America and Caribbean 22.3 -24.7 29.1 21.8 -0.4 1.7 18.4 -5.1 4.1 5.4 6.2 -1.7 3.9 Middle East and N. Africa 40.4 -6.6 14.2 16.3 8.4 11.3 1.7 - 10.5 12.9 15.4 - - South Asia 42.8 -19.3 32.0 31.9 -9.3 17.3 26.9 -39.3 17.5 3.9 -6.5 -11.0 -6.1 Sub-Saharan Africa 25.9 -18.3 14.0 23.9 -2.5 0.4 14.9 - 6.3 -4.0 9.6 - - International Reserves, US$ High Income Countries 5.7 15.6 10.8 11.8 2.5 2.0 1.6 3.0 0.0 0.7 0.2 2.0 0.8 Developing Countries 12.9 15.0 14.7 9.7 -0.4 -0.8 2.9 -0.9 0.1 0.7 -2.4 1.0 - East Asia and Pacific 23.5 22.7 19.3 11.8 -0.1 -0.8 3.6 -1.9 -0.1 0.1 -2.7 0.8 - Europe and Central Asia -8.8 2.4 7.5 2.0 -3.5 -4.1 2.5 -0.7 0.3 1.8 -3.1 0.7 -1.1 Latin America and Caribbean 11.3 10.3 15.6 16.9 2.9 2.1 3.2 2.9 1.9 1.9 -0.6 1.6 0.4 Middle East and N. Africa 22.6 5.1 5.9 3.1 -0.3 0.9 - - - - - - - South Asia -9.0 10.9 5.4 -1.9 -2.9 -4.6 -1.2 -1.0 -0.3 0.7 -2.9 1.3 0.1 Sub-Saharan Africa 7.8 2.3 0.7 10.5 -1.3 2.5 2.2 1.1 0.2 2.1 -0.6 -0.4 - Weekly Global Economic Brief – 27th of September 2012 2 Financial Markets 27-Sep-12 2009 2010 2011 2011 2012 2012 MRV 1 Chg since Q3 Q4 Q1 Q2 May Jun Jul Aug Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.16 0.18 0.10 0.08 0.08 0.08 0.08 0.16 0.16 0.16 0.13 0.15 -1.95 ECB repo 0.70 0.48 0.82 0.93 0.41 0.41 0.41 0.12 0.10 0.02 -0.01 -0.01 -4.38 US$ LIBOR 3-months 0.69 0.34 0.34 0.30 0.48 0.48 0.48 0.47 0.47 0.45 0.43 0.36 -2.46 EURIBOR 3-months 1.23 0.81 1.39 1.56 1.50 1.50 1.50 0.69 0.66 0.50 0.33 0.22 -4.74 US 10-yr Treasury yield 3.24 3.20 2.77 2.41 2.03 2.03 2.03 1.78 1.61 1.50 1.66 1.62 -2.11 German Bund, 10 yr 3.24 2.76 2.63 2.27 1.97 1.97 1.97 1.38 1.35 1.23 1.33 1.36 -2.82 Spreads (basis points) US Corporate (High Yield Bonds) 1011 538 544 610 703 703 703 554 596 595 546 531 -202 JP Morgan Emerging Markets 472 301 341 355 417 417 417 383 395 360 320 309 -48 Asia 374 206 218 227 269 269 269 257 270 237 204 193 -103 Europe 449 247 301 321 413 413 413 373 381 332 284 273 -40 Latin America & Caribbean 510 360 404 418 467 467 467 427 444 416 375 367 -21 Middle East 574 342 366 393 430 430 430 450 484 484 483 447 -51 Africa 431 274 364 363 426 426 426 377 374 337 298 281 -54 2 Stock Indices (end of period) Global (MSCI) 299 331 300 281 300 300 300 298 312 316 322 331 3.3 High-Income ($ Index) 1168 1280 1183 1104 1183 1183 1183 1178 1236 1251 1279 1309 2.0 United States (S&P-500) 1115 1258 1258 1131 1258 1258 1258 1310 1362 1379 1407 1433 14.5 Euro Area (S&P-350$) 1358 1353 1171 1120 1171 1171 1171 1088 1172 1185 1233 1279 -13.1 Japan (Nikkei-225) 10546 10229 8455 8700 8455 8455 8455 8543 9007 8695 8840 8950 -26.7 Developing Markets (MSCI) 783 912 725 698 725 725 725 716 740 752 748 782 12.3 Asia 778 906 732 711 732 732 732 744 758 770 763 802 26.4 Europe & C. Asia 616 635 449 472 449 449 449 421 470 458 480 504 -32.9 Latin America & Caribbean 4117 4614 3602 3342 3602 3602 3602 3394 3521 3566 3540 3683 4.2 Africa 815 1049 849 808 849 849 849 847 883 912 909 934 21.6 Exchange R ates (LCU / USD) High Income Euro Area 0.72 0.76 0.72 0.71 0.74 0.74 0.74 0.78 0.80 0.81 0.81 0.78 10.4 Japan 93.55 87.81 79.77 77.76 77.35 77.35 77.35 79.75 79.27 78.97 78.68 77.70 -27.7 Developing Brazil 2.00 1.76 1.67 1.64 1.80 1.80 1.80 1.98 2.05 2.03 2.03 2.03 13.8 China 6.83 6.77 6.47 6.42 6.36 6.36 6.36 6.33 6.36 6.37 6.36 6.30 -7.9 Egypt 5.55 5.64 5.94 5.96 5.99 5.99 5.99 6.04 6.05 6.06 6.08 6.09 12.0 India 48.42 45.73 46.67 45.81 50.87 50.87 50.87 54.42 56.07 55.45 55.56 53.23 16.4 Russia 31.76 30.38 29.41 29.16 31.21 31.21 31.21 30.93 32.82 32.50 31.95 31.07 21.5 South Africa 8.43 7.32 7.26 7.14 8.10 8.10 8.10 8.16 8.39 8.25 8.27 8.19 1.5 Memo: USA nominal effective rate 86.30 83.47 78.33 77.01 79.28 79.28 79.28 81.09 81.99 82.10 81.18 81.18 -5.5 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 2009 2010 2011 2011 2012 2012 MRV Chg since Q3 Q4 Q1 Q2 May Jun Jul Aug Sep-12 '08 3 Oil price, $/b, nominal 1 62 79 104 103 103 103 103 104 91 97 105 102 4.5 Non - Oil Index 2 150 194 234 234 206 206 206 205 198 209 207 211 7.8 Food Index 2 173 193 238 239 225 225 225 231 229 254 259 263 29.3 Metals and Minerals Index 2 127 189 216 220 183 183 183 184 176 175 168 182 -1.7 Baltic Dry Index 3 2598 2755 1546 1533 1916 1916 1916 1104 934 1056 759 752 -84.3 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 1, 2005 3 Base Date = May 1, 1985 Weekly Global Economic Brief – 27th of September 2012 3