The External Environment for Developing Countries June 2008 The World Bank Development Economics Prospects Group

High-income CPI in 3% range – fastest since early 1990s Median (aggregate), HICP (EA) Headline CPI (US) ch% year on year Euro Area United States Source: Thomson/Datastream DECPG calculations

EM spreads down 75 basis points since recent peaks at mid-March Source: JPMorgan- Chase. Stripped spreads, basis points EAP MSCI LAC ECA

Industrial countries

U.S. households spend rebates in May Retail sales, ch% saar and 3mma y/y Source: U.S. Department of Commerce. Retail sales, saar Retail sales, year-on-year

Slackening labor markets could dim consumer outlays in coming months change in employment 3mma [L], unemployment claims 4wma [R] Source: U.S. Department of Labor. unemployment claims [right] employment [left]

Fed funds target rate Source: Thomson/Datastream. Fed likely to halt rate reductions at 2% as CPI pressures mount

Source: Cabinet Office and DECPG calculations. Japan first-quarter GDP revised up on stronger investment growth of real GDP, and contributions to growth in percentage points Net X Invest PCE Gvt dStok

Japan’s orders, exports and production falter in April orders and export volumes [R], IP mfgr [L] ch% 3mma y/y Source: Cabinet Office-- Thomson/Datastream. Exports [R] Production [L] Orders [R]

Japan’s inflation increasing on fuel prices and weaker yen Tokyo CPI, PPI- and Import price indexes, ch% 3mma y/y Source: Japan Cabinet Office. import price [right] CPI [left] PPI [left]

European surveys broadly lower IFO ‘expect’, Banc d’France [left], EEC consumer sentiment [right] Source: IFO, BdF and EEC through Thomson/Datastream. EEC consumer [right] IFO expectations [left] Banc d’France [left]

German April factory orders plummet-- export orders down 14% (saar) factory orders, domestic, overseas, ch% saar Source: Bundesbank-- Thomson/Datastream. Export orders Domestic orders

HICP breaches 16-year highs pushed by energy costs HICP [left]; HICP energy [right], ch% year on year HICP [L] HICP Energy [R] Source: Eurostat through Thomson/Datastream.

Industrial production

Developing countries continue to outperform IP in high-income countries industrial production, ch% (3m/3m saar) Source: Thomson/Datastream, DECPG. High Income Developing countries

Production in ECA holding up, Latin America shows signs of weakness industrial production, ch% (q/q saar) Source: Thomson/Datastream, DECPG. Europe and Central Asia Latin America and the Carribean

IP in China showing moderation, other East Asia in sharp decline industrial production ch% (q/q saar) Source: Thomson/Datastream, DECPG. Other East Asia China

High-tech Markets

International trade

Oil imports as a share of GDP up sharply oil imports as a share of GP (%) European Union Source: UN Comtrade, National Sources. USA Japan Forecast,assuming price of oil averages $110/bbl in 2008

U.S. and German capital goods exports regaining momentum exports of capital goods in nominal LCU, ch% (3mma y/y) Source: Thomson/Datastream, DECPG calculations. Japan USA Germany

U.S. current account deficit widens on oil during first quarter non-oil and oil balances ($bn) [L] and current account as %GDP [R] Source: U.S. Department of Commerce. non-oil balance oil balance CAB/GDP [R]

Oil prices

Oil prices higher on supply fears $/ bbl mb/d Oil price [L scale] OPEC-11 Production (x Angola) [R] Source: IEA and DECPG Commodities Group.

Crude oil inventories in the U.S. fall on higher refinery runs M bbl 5-year high-low ranges Source: U.S. DOE and DECPG Commodities Group.

Non-OPEC supply growth slumps kb/d Source: IEA and DECPG Commodities Group. Other OPEC FSU

Non-oil commodity prices

Corn and soybean prices rise on threats of flooding c/bushel Soybeans Corn Source: Datastream and DECPG Commodities Group.

Zinc prices plunge on rebound in mine supply $/ton‘000 tons Zinc price LME stocks Source: LME and DECPG Commodities Group.

Freight rates ease Baltic dry freight index Source: Datastream and DECPG Commodities Group.

International Finance

Bank lending falls again in May Source: DECPG Finance Team.

EM equities suffer in 2008 returns over 2008 to date (%) Source: Bloomberg and DECPG Finance Team.

EM bond spreads have remained stable of late Source: Datastream and DECPG calculations. high-yield OECD bond spead and EMBIG EM spread, basis points EM spread HY-OECD

Currencies

Source: Thomson/Datastream. yen/US D USD/Euro (inverse) Dollar moves up on the yen... in trading range on euro $1.54 to $1.58 USD per Euro (inverse) [Left] and Yen per USD [right]

A look at yen cross rates: are carry trades unwinding? Yen/LCU: change 2008 ytd. vs full year 2007 percent Source: Thomson/Datastream. Appreciation of Local Currency 

Libor differentials stabilize: U.S. likely on hold, ECB to raise 25 bp Source: Datastream and DECPG calculations. LIBOR-6 months and EURIBOR 6-months, percent USD LIBOR EURIBOR differential: US less euro rates

FOCUS June 2008 Global inflation developments

High-income CPI in 3% range – fastest since early 1990s Median CPI, ch% year on year Euro Area United States Source: Thomson/Datastream DECPG calculations

Developing inflation at 9% median rate not seen since mid-1990s Median CPI, ch% year on year LAC ECA Source: Thomson/Datastream DECPG calculations SAR

U.S. inflation pipeline suggests further price hikes for consumer Headline CPI, PPI- and Import price indexes, ch% 3mma y/y Source: U.S. Department of Commerce. PPI Import price CPI

The External Environment for Developing Countries June 2008 The World Bank Development Economics Prospects Group