The External Environment for Developing Countries June 2010 The World Bank Development Economics Prospects Group

Overview

CDS spreads have risen by 60 bp or more in 7 European countries Source: Bloomberg, World Bank.

Spreads have risen, but remain close to earlier levels EMBI spreads, index January 1, 2010=100 Source: World Bank, JP Morgan.

Euro Area Crisis

CDS spreads for selected EMs Spreads on credit default swaps STRMG brainstorm April 6, 2010 CDS spreads for selected EMs Spreads on credit default swaps FIGURE 1.5 Theo’s new (Additional!) Industrial Production for Chapter 1 (This graph first calculates the 3-month moving averages for IP monthly data, then do m-o-m % change on an annualized basis). NOT SURE THAT THIS CHART WILL BE IN CHAPTER, BUT KEEP IN FOR NOW Source: JP Morgan and World Bank data

Spreads on highly-indebted European bonds increasing again 10-year government bond spread over comparable German debt (basis points) Sources: Bloomberg and DECPG staff calculation 7

Substantial uncertainty characterizes equity market developments STRMG brainstorm April 6, 2010 Substantial uncertainty characterizes equity market developments Dow Jones, DAX and CACI [Left], VIX and VSTOXX indices [Right] FIGURE 1.5 Theo’s new (Additional!) Industrial Production for Chapter 1 (This graph first calculates the 3-month moving averages for IP monthly data, then do m-o-m % change on an annualized basis). NOT SURE THAT THIS CHART WILL BE IN CHAPTER, BUT KEEP IN FOR NOW Source: Thomson/Datastream.

OECD developments

Consumer confidence and retail turnover fall in affected countries Consumer confidence and retail turnover fall in affected countries** retail sales, ch% (3mma , y/y) [left]; consumer sentiment index, dispersion [right] Source: National Agencies. ** Greece, Portugal and Spain.

Although exports are recovering, EU growth remains weak

German export orders, export volumes and production reviving in spring 2010 factory orders from abroad, export volumes, industrial production, ch% saar Source: Eurostat

U.S. indicators point to favorable growth outturns for the second quarter capital goods orders, retail sales and export volumes, ch% (3m/3m, saar) Source: U.S. Department of Commerce

Japanese industrial production catching up Source: U.S. Department of Commerce

Developing country first quarter growth strong, save for ECA region Source: Haver Analytics and World Bank data. 15

Country Focus: Hungary

Fiscal and External Balances – 2010 percent of GDP Source: European Commission, BofA/ML

Composition of debt flows – Hungary (billions of U.S. dollars) Source: Economist Intelligence Unit

External debt in Hungary percent of GDP Source: Moody’s

Industrial Production

Euro Area output remains robust in April on demand for intermediate goods Source: DECPG

ZEW economic sentiment deteriorated for all markets in June in the aftermath of the sovereign debt crisis Source: ZEW Survey.

Momentum in China is easing gradually, but remains robust ,while growth in the U.S. stepped up in May Source: DECPG

International Trade

Exports from some developing regions have returned to pre-crisis levels

Chinese capital goods exports to developing countries

Number of Trade Measures Implemented Worldwide and by the G20 Source: Global Trade Alert

Commodity Prices

Crude oil prices rebound $/bbl WTI Brent Dubai Source: Datastream and DECPG.

U.S. oil demand surges (y/y) (3 month moving average) kb/d Source: U.S. EIA and DECPG.

Non-OPEC oil production rising mb/d Non-OPEC Non-OPEC x FSU OPEC Source: IEA and DECPG.

Raw materials and beverage prices remain strong in June (2000=100) Source: DECPG.

Metals prices stabilize $/ton ‘000 tons Aluminum price LME stocks Source: Datastream and DECPG.

Global steel production (000 tons) Source: IISI.

International Finance

Capital flows were sluggish in May Source: DECPG.

European banks have big exposure to Europe’s troubled economies Total claims by euro-zone banks at the end of 2009 ($ billion) Sources: The Bank for International Settlements 37

EM assets rebounded from May sell-off MSCI EM index in USD [L]; EMBIG bond index [R] EM bond index [R] EM equity index [L] Sources: Bloomberg, JPMorgan, and DECPG staff calculation 38

Currencies and inflation

Dollar gains vs euro and yen continues but China RMB led to short-rally in other units USD per Euro (inverse) [Left] and Yen per USD [right] USD/Euro (inverse) yen/USD Source: Thomson/Datastream.

China RMB rose on an effective basis recently Currency indexes: USD per RMB; Dollar and RMB effective. USD per RMB index China effective U.S. effective Source: World Bank data.

Inflation among developing countries (save SAR) converging toward 5% pace headline consumer price index, ch% (yr-on-yr) Source: National Agencies.

The External Environment for Developing Countries June 2010 The World Bank Development Economics Prospects Group