89791 DECPG Weekly Global Economic Brief Number 149 For more information, see www.worldbank.org/gem 20 September 2012 The looming US ‚fiscal cliff‛ is one of the main downside risks to the global economy in 2013, with Latin America and East Asia and Pacific to be among the most affected if it materializes. Several developing country central banks have eased monetary policy in recent months on concerns about the growth outlook, but they may now pause as growth is expected to pick-up and as they assess the impact of the monetary easing in high-income countries. Precious metal prices have risen sharply on supply concerns, related to labor disputes in South Africa’s platinum mining sector, and on higher investment demand, related to uncertainty about the global outlook and the Federal Reserve‘s quantitative easing QE3. One of the main downside risks to global growth is the looming US ‚fiscal US fiscal cliff - global implications in 2013 cliff‛. Automatic tax hikes and spending cuts are set to take effect starting percentage poitns difference from the baseline in 2013 if the US Congress fails to agree on an alternative debt-reduction Real GDP Current Account Fiscal Balance, Balance, % of % of GDP plan. The US’s Congressional Budget Office forecasts that the US fiscal GDP deficit will decline 3.3 percentage points to 4% of GDP in 2013. In the USA World -2.2 -1.0 1.2 -0.1 2.9 0.4 event the full ‚fiscal cliff‛ materializes we estimate global growth will be 1 High Income Countries -1.1 0.1 0.8 percentage point weaker than our revised 2.6% forecast (which assumes Euro Area -0.4 -0.3 -0.1 that only about 30% of the fiscal cliff will materialize), as US growth would Developing countries -0.6 -0.4 -0.3 be 2.2 percentage points lower in 2013 at -0.2%. The Euro area would also Low income Middle income -0.1 -0.6 -0.1 -0.4 0.0 -0.3 fall back into recession, as output is expected to decline by 0.4 East Asia & Pacific -0.8 -0.3 -0.1 percentage points relative to the baseline growth of 0.3%. Growth in Europe & Central Asia Latin America & Caribbean -0.3 -0.7 -0.8 -0.6 -0.4 -0.4 developing countries would be 0.6 percentage points lower in 2013 with Middle East & N. Africa -0.2 -0.6 -0.9 the more open economies and the ones that have strong economic South Asia Sub-Saharan Africa -0.2 -0.3 0.1 -1.1 0.1 -0.9 linkages with the US being the hardest hit. Source: World Bank Prospects Group. Concerns about growth following disappointing outturns in 2012H1 prompted several developing country central banks to ease monetary Central bank policy rates policy in July-August. Central banks of several developing countries, Percent including Brazil, Colombia, and the Philippines cut policy rates between 14 Brazil Romania South Africa late-July and August. Brazil’s easing cycle was one of the most aggressive, 12 Philippines China India (500 bps since August 2011), slashing the policy rate to a record low of 10 7.5% by late-August. In contrast Russia’s central bank raised its policy rates by 25 bps, the first hike in 16 months, on inflation concerns. We expect 8 developing country central banks to remain on hold over the next months, 6 given the expected pick-up in growth in Q4 and as they pause to assess the impact of monetary easing in the US, the Euro Area, and Japan. In 4 China, concerns about growth deceleration in the context of low inflation 2 may prompt further easing. If investors’ appetite for riskier assets Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 intensifies, bringing hot money back to emerging markets, central banks Source: Bloomberg and the World Bank staff may cut rates further and/or impose capital controls to stem currency Precious metal prices have surged appreciation. US$/troy ounce US cents/troy ounce Precious metals have risen sharply on rising investment demand and 1,900 supply concerns. The precious metals prices are up between 15% and 30% 1,800 3,800 from the lows reached in the May-June period. Gold prices rose 15% to 3,600 $1,770 by mid-September, matching the year-ago all-time highs, while 1,700 3,400 silver and platinum prices rose 30.6% and 22%, respectively. Demand for 1,600 3,200 precious metals by institutional investors (who are increasingly turning to 1,500 3,000 platinum) has increased recently, following the Federal Reserve‘s QE3. In Gold Platinum 2,800 1,400 addition, labor disputes in several South African platinum mines that Silver (right axis) 2,600 began a month ago and escalated in early September, have pushed 1,300 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 platinum prices to 6-month highs. Source: World Bank Prospects Group and Handy&Harman DECPG Weekly – 20 September 2012 Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 20-Sep-12 2011 2012 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 -2.1 3.2 3.4 2.7 2.5 3.2 High Income Countries -1.9 -12.8 8.2 2.8 2.7 -0.6 8.0 -3.8 1.8 2.5 1.0 1.0 1.5 Developing Countries 5.8 1.2 10.7 7.3 5.0 3.0 11.7 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 -1.0 Europe and Central Asia 0.1 -10.1 9.5 5.9 1.4 5.5 5.3 -4.1 1.6 1.1 3.3 1.5 3.3 Latin America and Caribbean 1.0 -6.9 6.7 3.2 -0.1 -1.8 4.1 -3.5 -0.1 -0.3 -0.5 -0.2 1.0 Middle East and N. Africa 3.6 -2.8 1.6 -9.8 -3.0 9.6 13.9 - 8.3 8.1 8.3 - - 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 0.1 -0.6 - -3.5 -1.0 -4.0 - - Inflation, S.A. 1 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 4.4 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 6.9 7.5 7.5 6.3 6.7 7.5 Latin America and Caribbean 6.4 5.8 7.8 12.8 7.1 7.2 6.8 6.3 6.5 6.3 6.3 6.3 6.1 Middle East and N. Africa 16.8 9.3 6.1 6.8 13.1 13.5 14.8 16.2 15.4 15.8 15.7 17.2 18.0 South Asia 10.0 10.5 11.7 9.3 9.4 8.6 7.7 10.4 9.2 10.3 10.5 10.5 10.0 Sub-Saharan Africa 12.6 8.7 7.2 8.5 9.0 9.3 9.2 8.7 9.0 9.0 8.7 8.4 7.9 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 2011 2012 2012 2008 2009 2010 2011 Q3 Q4 Q1 Q2 Mar Apr May June July Exports, Nominal, US$, S.A. World 15.8 -22.8 21.8 19.2 -0.3 -7.7 16.0 -8.7 1.6 0.2 0.0 -2.1 -3.7 High Income Countries 13.8 -22.9 18.4 17.7 -1.1 -11.0 16.2 -12.2 0.1 -1.2 -3.0 -3.7 -5.1 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$, S.A. World 16.7 -23.8 21.2 19.7 -4.7 -3.5 18.2 -13.9 1.7 -0.2 -0.7 -4.1 -2.0 High Income Countries 13.7 -25.0 17.6 17.5 -7.1 -10.4 18.5 -14.3 -0.3 -1.5 -4.3 -6.5 -5.2 Developing Countries 25.6 -20.7 30.3 25.1 0.8 13.4 17.5 -13.1 6.4 2.6 7.7 1.5 5.2 East Asia and Pacific 21.4 -15.5 37.2 24.9 10.3 22.6 14.9 -14.9 6.2 2.3 13.2 6.2 7.6 Europe and Central Asia 26.6 -33.7 26.0 30.0 -16.1 5.0 25.5 -14.3 1.5 -1.5 0.2 -2.8 5.4 Latin America and Caribbean 22.3 -24.7 29.1 21.8 -0.4 1.7 18.4 -5.1 4.1 5.4 6.2 -1.7 3.9 Middle East and N. Africa 40.4 -6.6 14.2 16.3 8.4 11.3 1.7 - 10.5 12.9 15.4 - - South Asia 42.8 -19.3 32.0 31.9 -9.3 17.3 26.9 -39.3 17.5 3.9 -6.5 -11.0 -6.1 Sub-Saharan Africa 25.9 -18.3 14.0 23.9 -2.5 0.4 14.9 - 6.3 -4.0 9.6 - - International Reserves, US$ 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 – 20th of September 2012 2 Financial Markets 20-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 -4.39 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 0.37 -2.45 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 0.23 -4.73 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 1.78 -1.95 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 1.50 -2.67 Spreads (basis points) US Corporate (High Yield Bonds) 1011 538 544 610 703 703 703 554 596 595 546 507 -226 JP Morgan Emerging Markets 472 301 341 355 417 417 417 383 395 360 320 291 -66 Asia 374 206 218 227 269 269 269 257 270 237 204 179 -117 Europe 449 247 301 321 413 413 413 373 381 332 284 243 -70 Latin America & Caribbean 510 360 404 418 467 467 467 427 444 416 375 354 -34 Middle East 574 342 366 393 430 430 430 450 484 484 483 441 -57 Africa 431 274 364 363 426 426 426 377 374 337 298 266 -69 2 Stock Indices (end of period) Global (MSCI) 299 331 300 281 300 300 300 298 312 316 322 338 5.8 High-Income ($ Index) 1168 1280 1183 1104 1183 1183 1183 1178 1236 1251 1279 1341 4.5 United States (S&P-500) 1115 1258 1258 1131 1258 1258 1258 1310 1362 1379 1407 1461 16.7 Euro Area (S&P-350$) 1358 1353 1171 1120 1171 1171 1171 1088 1172 1185 1233 1322 -10.2 Japan (Nikkei-225) 10546 10229 8455 8700 8455 8455 8455 8543 9007 8695 8840 9087 -25.6 Developing Markets (MSCI) 783 912 725 698 725 725 725 716 740 752 748 797 14.4 Asia 778 906 732 711 732 732 732 744 758 770 763 815 28.4 Europe & C. Asia 616 635 449 472 449 449 449 421 470 458 480 522 -30.4 Latin America & Caribbean 4117 4614 3602 3342 3602 3602 3602 3394 3521 3566 3540 3769 6.6 Africa 815 1049 849 808 849 849 849 847 883 912 909 949 23.7 Exchange Rates (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 0.77 8.6 Japan 93.55 87.81 79.77 77.76 77.35 77.35 77.35 79.75 79.27 78.97 78.68 79.05 -26.5 Developing Brazil 2.00 1.76 1.67 1.64 1.80 1.80 1.80 1.98 2.05 2.03 2.03 2.02 13.5 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 54.31 18.8 Russia 31.76 30.38 29.41 29.16 31.21 31.21 31.21 30.93 32.82 32.50 31.95 31.26 22.2 South Africa 8.43 7.32 7.26 7.14 8.10 8.10 8.10 8.16 8.39 8.25 8.27 8.33 3.2 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 97 105 104 5.8 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 2 127 189 216 220 183 183 183 184 176 175 168 186 0.4 Baltic Dry Index 3 2598 2755 1546 1533 1916 1916 1916 1104 934 1056 759 755 -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 – 20th of September 2012 3