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                      DECPG Daily
        Economics and Financial Market Commentary
                      July 12, 2011
              Allen Dennis, Eung Ju Kim, Cristina Savescu, Nadia Spivak
  You’ll find recent issues of this Daily and lots of other current analysis and high-frequency data at our
              intranet website: http://gem or for external users http://www.worldbank.org/gem.

Oil prices slide for a third day on fears of worsening European debt crisis. Crude
oil prices fell for a third day on Tuesday on speculation that a worsening European debt
crisis will curb global demand for oil, prompting investors to shun risky assets.
Increased U.S. gasoline supplies last week also weighed negatively on the market.
Ongoing problems in the euro-zone economies reinforced concerns over the outlook for
global economic recovery, suggesting world appetite for energy might not be as strong
as many had anticipated for the second half of 2011. Crude for August delivery declined
as much as $1.60/bbl to $93.55 (WTI) in New York trading. Meanwhile, Brent oil for
August settlement fell more than $2/bbl to $114.95 in London. And the euro slumped to
a five-month low against the U.S. unit, amidst fears that Europe’s debt woes could
spread to Italy and Spain. Soaring yields on Italian and Spanish government bonds fed
market worries that policy makers in the region will be powerless to stop the Greek
problem from spreading to other vulnerable euro-zone economies.
U.S. trade deficit widens on hike in oil imports. The U.S. external deficit on goods
and services widened in May to $50.2 billion, exceeding most forecasts, on the back of
higher landed oil prices and crude petroleum volumes. U.S. refiners stocks of refined
products have been low-, and stronger imports will help supply late summer and early
fall demand. The landed price of a barrel of oil registered $108.70 in May, the highest
since August 2008, pushing the U.S. shortfall on oil up by almost $4 billion to $29.5
billion in the month, an increase of 14.7% versus April [see Chart at http://gem or
http://www.worldbank.org/gem]. At the same time, goods exports dropped 1.1% in
the month to $125.1 billion, while total imports ramped up 2.9%-- a strong showing. If
there are brighter sides to today’s trade story, they are that (1) international oil prices
peaked in May, with Brent off to $115/bbl, and this will work its way through U.S.
imports in coming months. And (2) U.S. imports of durable- and capital goods have
been robust, indicating that some life remains in domestic demand. On the other hand,
after distortions caused by the Tohoku disaster in Japan, exports from that country
(particularly autos) will ramp-up again in coming months—potentially pushing the U.S.
farther into deficit

Among Emerging Markets...in South Asia, India's industrial production growth eased
to 5.6% in May from 5.8% in April (y/y), the slowest pace in nine months. The
slackening rate of growth comes after the central bank raised interest rates 10 times
since March 2010 in an effort to control inflation pressures from higher food and energy
costs spreading to the manufacturing sector. However, inflation remained elevated at
9% (y/y) at last readings, and is widely expected to accelerate further this month,
making another interest rate hike likely.


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