88815 DECPG Weekly Global Economic Brief Number 56 For more information, see www.worldbank.org/gem 15 July 2010 The boost to U.S. growth provided by the restocking of depleted inventories may be coming to an end. The U.S. trade deficit and China’s trade surplus have both widened of-late, as overall trade flows continue to rise. The rapid increase in China’s trade surplus reflected a 44% (y/y) rise in exports in June, even as slowing domestic demand saw imports decelerate to 33% from 47% in May (y/y). In the U.S., European weakness and a rise consumer demand conspired with an elevated oil-import bill to lift its trade deficit to $700bn (annualized) in May. Emerging market bond-issuance firmed somewhat in June after anemic activity in May, but remained subdued. Spain and Greece launched successful sovereign issuances in July, although Greece was restricted to 6-mo. T-bills. Meanwhile, as the ECB reduces access to long-term emergency lending, commercial interbank rates in Europe are rising in reaction to increased demand. Restocking of depleted inventories in the U.S. appears to be Positive contribution to U.S. growth of diminishing, suggesting that inventories are now consistent with business inventories may be coming to an end underlying demand and will contribute less to growth going forward. Contribution to total business sales growth (manufacturing, wholesale and retail), seasonally adjusted The contribution of inventories to growth in sales remains positive at 10 8 one percentage point in May, but down sharply from an 8.2 percentage- 6 point contribution in November 2009. Restocking (after a severe 4 drawdown in the acute phase of the crisis) added 1.9 percentage points 2 to GDP in Q1-2010 vs. 3.8 percentage points in Q4-2009. Sales remain 0 well below their pre-crisis growth path and are still expanding rapidly -2 (12.7% annualized during the three months ending May), as are -4 inventories (5.9% annualized over the same period). These growth rates -6 compare with long-term averages of 4.3% and 3% for sales and -8 inventories, respectively. Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Sources: U.S. Census Bureau and World Bank DEC Prospects Group Latest readings show a rise in trade imbalances in the months prior to Trade imbalances expand in U.S. and China— China’s decision to introduce a more flexible renminbi. China’s with China’s surplus nearing pre -crisis levels merchandise trade surplus rose in June with a surge in capital goods Merchandise trade balances, US$-billions, 3mma, annualized 600 exports, while the U.S. trade deficit expanded in May with import China excl. oil 400 growth outpacing export growth. Since the renminbi’s peg against the 200 dollar was lifted, it has appreciated 0.8% vs. the dollar (or 10% at an 0 China total annualized rate, as of Jul-14 close). Over the longer-run, this could -200 support a firming of import demand in China and contribute to a -400 U.S. excl. oil reduction in China’s surplus. However, in the short-run it could lead to -600 increased imbalances by making U.S. imports more expensive. -800 -1000 U.S. total Emerging market bond issuance firmed somewhat amid mixed signals -1200 from European markets. Led by $3.1bn in Telecom bonds in Mexico, Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 emerging market issuance rose to $7.1bn in June from a mere $3.5bn in Sources: Thompson Datastream, Haver Analytics, DEC Prospects Group May. Following the withdrawal of ―442bn in long-term bank financing, European interbank rates have been rising and now stand at 0.85 bps Emerging market bond issuance inches up (close Jul-15), still well-below the effective ceiling created by the ECB’s in June after sharp retreat in May US$ billion 3-month window, which is available in unlimited quantities at 1%. ECB 50 lending to commercial banks has declined some ―250bn since July 1, as 45 banks are increasingly relying on the commercial interbank-market. 40 35 Despite rising Euribor rates, the spread between the 3-mo. Euribor and 30 overnight (Eonia) rates has remained relatively stable and in line with 25 early-2010 levels, suggesting that rising risk premiums have not 20 contributed to the increase in Euribor rates. In July, Spain successfully 15 issued new bonds, indicating an easing of concerns around European 10 sovereign debt. Greece was also able to tap markets, but was restricted 5 0 to 6-mo. T-bills, vs. 10- and 15-year bonds for Spain. Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Sources: Dealogic and World Bank DEC Prospects Group The material presented here and on the GEM website is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. Content is not for quotation unless specifically authorized in writing by the World Bank. For permission, please contact pubrights@worldbank.org. Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annualized 15-Jul-10 2009 2010 2007 2008 2009 Q2 Q3 Q4 Q1 Jan Feb Mar Apr May Industrial Production, S.A. World 4.9 0.5 -8.1 5.5 12.1 10.8 12.1 8.4 10.0 12.0 11.5 11.7 High Income Countries 3.0 -1.8 -12.6 1.0 11.8 8.3 11.2 5.4 7.6 11.0 10.5 11.1 Developing Countries 9.6 5.9 1.3 14.5 12.8 15.6 13.7 14.1 14.3 13.9 13.5 12.8 East Asia and Pacific 15.3 10.9 8.6 24.9 14.2 18.6 18.6 20.0 19.7 17.5 16.8 15.5 East Asia x. China 4.5 3.0 -3.6 15.2 5.4 24.1 15.2 15.3 13.1 15.8 11.8 - Europe and Central Asia 6.3 1.1 -10.7 4.6 12.9 15.0 12.5 10.2 10.2 13.1 12.4 13.5 Middle East and N. Africa 1.5 2.2 -3.2 1.1 0.5 6.7 5.2 2.6 3.8 3.7 3.2 - Latin America and Caribbean 3.9 0.9 -6.9 1.6 11.5 11.1 4.9 5.6 7.7 8.2 8.2 9.1 South Asia 9.1 4.1 5.4 15.1 19.2 13.0 9.8 15.3 13.5 13.9 15.3 11.2 Sub-Saharan Africa 5.3 1.1 -6.4 -0.3 3.3 16.9 13.8 6.7 7.1 10.7 8.4 - 1 Inflation, S.A. High Income Countries 2.4 4.3 1.2 1.3 0.3 0.9 1.6 1.5 1.5 1.6 1.9 1.8 Developing Countries 6.2 10.3 4.4 4.8 2.5 2.9 4.3 4.4 4.5 4.2 4.2 - East Asia and Pacific 5.6 9.5 1.5 1.4 -0.1 1.7 4.0 4.2 4.3 3.6 - - Europe and Central Asia 7.1 10.2 3.9 4.7 2.8 2.9 4.4 3.5 4.5 4.3 3.9 3.6 Middle East and N. Africa 3.9 14.9 3.8 3.3 4.2 4.6 4.6 4.8 5.5 4.9 5.7 - Latin America and Caribbean 6.5 8.8 3.3 4.0 1.9 2.4 4.0 3.8 4.3 4.2 4.3 3.5 South Asia 7.6 10.9 10.9 8.9 10.5 10.0 11.2 11.8 11.1 10.9 13.2 13.1 1 Inflation is calculated as medians 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 2009 2010 2007 2008 2009 Q2 Q3 Q4 Q1 Jan Feb Mar Apr May Exports, Nominal, US$, S.A. World 15.2 15.0 -22.7 5.9 32.4 48.8 22.2 22.4 26.0 30.7 27.8 28.5 High Income Countries 13.6 12.6 -22.8 5.7 34.8 40.7 16.9 20.0 22.1 29.2 25.4 23.6 Developing Countries 19.2 20.8 -22.6 6.3 27.0 68.7 34.5 27.7 35.2 34.0 33.1 39.4 East Asia and Pacific 22.0 16.7 -16.4 1.0 26.5 75.8 32.6 26.6 38.6 29.4 32.0 43.9 Europe and Central Asia 20.7 30.9 -32.6 4.5 40.7 85.7 31.8 32.9 37.6 42.8 41.8 32.2 Middle East and N. Africa 15.0 33.5 -33.3 18.5 20.6 40.9 44.5 32.4 29.0 30.3 - - Latin America and Caribbean 13.3 11.7 -20.1 14.6 9.0 66.3 32.9 25.2 27.9 33.4 32.6 37.3 South Asia 18.4 24.8 -14.4 4.1 24.2 34.8 56.7 10.9 29.9 46.9 32.1 31.4 Sub-Saharan Africa 19.9 27.0 -31.5 16.1 72.2 59.6 32.5 40.9 40.1 49.0 - - Imports, Nominal, US$, S.A. World 15.1 15.7 -23.5 -0.2 31.5 46.9 26.5 19.5 23.4 32.2 27.2 - High Income Countries 13.0 12.3 -24.6 -6.7 32.9 39.7 20.7 13.8 19.6 27.8 23.5 - Developing Countries 21.5 25.5 -20.6 17.9 28.0 65.6 41.0 34.8 32.9 43.3 36.3 36.9 East Asia and Pacific 18.7 21.1 -15.3 63.2 41.0 85.0 48.7 70.4 45.5 61.9 47.9 45.0 Europe and Central Asia 30.2 27.0 -33.3 -11.3 24.2 57.0 17.6 14.8 17.1 26.4 28.8 32.5 Middle East and N. Africa 23.0 44.7 -9.4 9.3 6.7 29.3 10.0 14.1 10.1 16.4 - - Latin America and Caribbean 19.0 22.1 -24.7 -16.0 23.7 41.7 52.8 9.4 24.1 34.8 36.8 42.0 South Asia 21.4 38.6 -21.3 20.3 6.1 114.0 85.2 34.3 58.0 59.1 37.6 36.8 Sub-Saharan Africa 21.7 24.3 -17.2 -11.0 29.2 28.1 4.8 2.3 18.2 14.4 - - International Reserves, US$ High Income Countries 13.2 5.8 15.8 5.1 9.6 2.5 1.7 0.8 0.1 0.8 1.4 1.3 Developing Countries 41.9 12.8 15.0 6.3 6.8 4.2 1.3 0.3 0.0 1.0 1.8 -1.9 East Asia and Pacific 41.5 23.5 22.6 8.3 7.1 5.2 2.1 0.9 0.3 0.9 2.0 -2.1 Europe and Central Asia 46.6 -8.8 2.6 6.5 3.2 3.8 0.9 -0.9 -0.4 2.1 2.8 -2.5 Middle East and N. Africa 29.9 22.7 5.7 1.8 5.7 1.6 -0.8 -0.4 -0.9 0.5 - - Latin America and Caribbean 44.5 11.3 10.5 1.8 8.9 5.9 0.4 -0.4 0.1 0.6 1.0 0.2 South Asia 53.2 -9.0 11.0 6.6 8.1 -1.5 -1.1 -0.7 -0.5 0.2 0.4 -2.6 Sub-Saharan Africa 27.4 8.0 0.8 0.1 10.5 0.0 0.7 -0.6 -0.3 1.1 1.8 - Weekly Global Economic Brief – 15 July 2010 2 Financial Markets 15-Jul-10 2007 2008 2009 2010 2010 MRV 1 Chg since Q2 Q3 Q4 Q1 Apr May Jun Sep-12 '08 3 Interest rates and LIBOR (%) U.S. Fed Funds Effective 5.02 1.93 0.18 0.15 0.12 0.13 0.20 0.20 0.18 0.17 -1.93 ECB repo 3.98 3.78 0.79 0.44 0.43 0.36 0.36 0.36 0.38 0.51 -3.86 US$ LIBOR 3-months 5.30 2.91 0.85 0.41 0.27 0.26 0.31 0.46 0.54 0.52 -2.29 EURIBOR 3-months 4.28 4.63 1.31 0.87 0.72 0.66 0.64 0.69 0.73 0.85 -4.11 US 10-yr Treasury yield 4.63 3.65 3.30 3.50 3.45 3.71 3.82 3.40 3.19 3.04 -0.69 German Bund, 10 yr 4.22 3.99 3.35 3.31 3.22 3.20 3.08 2.75 2.57 2.66 -1.52 Spreads (basis points) US Corporate (High Yield Bonds) 304 915 1107 803 618 522 453 539 602 579 -154 JP Morgan Emerging Markets 197 406 503 384 318 299 255 325 342 328 -29 Asia 161 355 396 299 244 231 184 234 245 221 -75 Europe 158 370 467 369 269 235 196 275 293 276 -37 Latin America & Caribbean 208 426 548 416 364 354 310 384 401 390 2 Middle East 476 585 618 470 399 318 297 344 358 371 -128 Africa 288 452 489 307 253 224 172 250 344 336 2 Stock Indices 2 Global (MSCI) 393 327 234 268 294 297 312 285 278 286 -10.6 High-Income ($ Index) 1571 1297 924 1054 1150 1161 1219 1112 1081 1113 -13.3 United States (S&P-500) 1476 1221 892 996 1089 1121 1196 1123 1083 1095 -12.5 Euro Area (S&P-350$) 1909 1544 1025 1208 1344 1296 1324 1143 1126 1204 -18.2 Japan (Nikkei-225) 16983 12156 9275 10140 9967 10502 11130 10240 9786 9686 -20.7 Developing Markets (MSCI) … 743 566 670 760 768 817 742 737 761 9.3 Asia … 688 571 678 750 758 805 742 738 759 19.6 Europe & C. Asia … 766 424 538 621 619 660 553 516 549 -26.9 Latin America & Caribbean 3670 3771 2760 3296 4002 3993 4211 3734 3783 3871 9.5 Middle East and N. Africa 693 733 433 473 491 492 530 502 474 471 -32.3 Africa … 772 621 728 787 807 870 806 795 814 6.0 Exchange Rates (LCU / USD) High Income Countries Euro 0.73 0.68 0.73 0.70 0.68 0.72 0.74 0.80 0.82 0.78 9.9 Japan 117.74 103.37 97.40 93.57 89.62 90.73 93.42 92.08 90.88 88.13 -18.0 Brazil 1.95 1.83 2.08 1.87 1.74 1.80 1.76 1.81 1.81 1.77 -0.9 Russia 25.57 24.88 32.18 31.31 29.48 29.87 29.19 30.53 31.26 30.42 19.0 India 41.35 43.52 48.83 48.40 46.64 45.94 44.51 45.89 46.57 46.62 1.9 China 7.61 6.95 6.83 6.83 6.83 6.83 6.83 6.83 6.82 6.78 -1.0 Egypt 5.64 5.44 5.62 5.54 5.47 5.47 5.53 5.62 5.68 5.70 4.7 South Africa 7.05 8.26 8.47 7.81 7.49 7.51 7.35 7.66 7.65 7.55 -6.4 Memo: USA nominal effective rate 89.39 84.39 88.61 84.17 81.30 83.38 84.32 87.12 87.35 87.35 1.7 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 2007 2008 2009 2010 2010 MRV Chg since Q2 Q3 Q4 Q1 Apr May Jun Sep-12 '08 3 Oil price, $/b, nominal 1 71 97 59 68 75 77 84 75 75 76 -22.4 Non - Oil Index 2 165 197 150 159 172 180 183 173 170 175 -11.9 Food Index 2 155 218 182 175 182 186 177 175 174 182 -14.3 Metals and Minerals Index 2 184 184 123 146 160 171 183 165 156 160 -14.1 Baltic Dry Index 3 7072 6348 2661 2795 3378 3015 3038 3826 3088 1709 -64.4 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 1, 2005 3 Base Date = May 1, 1985 Weekly Global Economic Brief – 15 July 2010 3