1. Prospects for Developing Countries Global Economic Prospects 2008 The World Bank

2. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.

3. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date. Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.

4. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date. Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances. Growth in developing economies is expected to slow only modestly over the coming 2 years.

5. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date. Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances. Growth in developing economies is expected to slow only modestly over the coming 2 years. Serious risks remain for developing countries – to the downside as well as to the upside.

6. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date. Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances. Growth in developing economies is expected to slow only modestly over the coming 2 years. Serious risks remain for developing countries – to the downside as well as to the upside. Still- longer term growth appears favorable.

7. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date.

8. Perceived riskiness of high-yield corporate bonds increased more than EM bonds Source: Bloomberg, JPMorgan-Chase. High-yield spread EM-BIG spread spreads, basis points

9. Following onset of crisis – emerging-market spreads increased and have become more volatile... Source: JPMorgan. EMBIG-Total Europe and Central Asia Latin America East Asia spreads over U.S. Treasuries, basis points

10. ...but in historical perspective the present widening of spreads is modest Bond spreads (basis points) Emerging market bond spread (EMBIG) Source: JPMorgan.

11. Bond yields have flattened- with falling U.S. Treasury rates the prime factor raising spreads Bond spreads and yields (basis points) Source: JPMorgan. Emerging market bond spread (EMBIG) Emerging market bond yields

12. Emerging equity markets fell sharply but more-than recouped earlier losses... Source: Morgan-Stanley, Thomson/Datastream. MSCI-Emerging Markets DJIA (USA) TOPIX (Japan) equity market indices (USD): Jan-07 =100

13. ...keeping bullish longer-term trends intact Source: Morgan-Stanley, Thomson/Datastream. All Emerging Markets Latin America Asia Europe and Central Asia equity market indices (USD): Sep-05 =100

14. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries. Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances.

15. Weakening of U.S. domestic demand started well before financial turmoil Weakening of U.S. domestic demand started well before financial turmoil growth of investment and imports, 4-quarter moving average Source: World Bank. U.S. Investment U.S. Imports

16. Developing country growth retained robust momentum through the first-half of 2007... Source: World Bank and National Agencies. real GDP, percent change

17. ...with import demand from the developing world a support U.S. exports...with import demand from the developing world a support U.S. exports nominal growth in US$, 12m/12m ch% U.S. exports Developing country imports Source: World Bank.

18. The dollar’s decline to near all-time lows is a key factor for trade & capital flows The dollar’s decline to near all-time lows is a key factor for trade & capital flows real effective exchange rate Source: IMF.

19. Gradual reductions in U.S. current account deficit likely to continue Gradual reductions in U.S. current account deficit likely to continue U.S. current account balance, % of GDP Source: U.S. Department of Commerce. % of GDP

20. Prospects for developing countries Key Messages The U.S. sub-prime crisis has carried limited financial effects to developing countries to date. Resilience among developing economies is helping to mitigate the U.S. slowdown and promotes adjustment of global imbalances. Growth in developing economies is expected to slow only modestly over the coming 2 years.

21. Modest slowing of growth expected for developing economies Real GDP, percent change Early 1980s debt crisis 1990s recession Transition countries East Asia financial crisis 2001 global downturn Forecast Source: World Bank. Developing economies

22. Growth has far-exceeded that of high- income countries for an extended period Real GDP, percent change High-income Source: World Bank. Developing economies Forecast

23. Source: DECPG Commodities Team. Grains Other foods Fats and oils Extreme headwinds of higher food and energy prices for net importers Commodity price indices, 1990=100 Crude oil

24. Positive developments in Sub-Saharan Africa are of particular note Real GDP, percent change Sub-Saharan Africa Source: World Bank. Developing economies Forecast High-income

25. Prospects for developing countries Risks Serious risks remain for developing countries – to the downside as well as to the upside.

26. Prospects for developing countries Risks Serious risks remain for developing countries – to the downside as well as to the upside.  A low case scenario triggered by sharp decline in U.S. home prices, worsening of the credit crunch and U.S. recession in 2008 would affect developing countries quite adversely.

27. Export and investment falloff hits middle income countries hard Source: World Bank. GDP 2008 percent change

28. Prospects for developing countries Risks Serious risks remain for developing countries – to the downside as well as to the upside.  A low case scenario triggered by sharp decline in U.S. home prices, worsening of the credit crunch and U.S. recession in 2008 would affect developing countries quite adversely.  Retrenchment in business investment an important element as emerging-market corporations now dominate capital flows.

29. $ billions Bond issuance by developing countries, 1998-2007 Corporate debt now accounts for two- thirds of emerging market bond issuance Source: World Bank.

30. Prospects for developing countries Risks Serious risks remain for developing countries– to the downside as well as to the upside.  A low case scenario triggered by sharp decline in U.S. home prices, worsening of the credit crunch and U.S. recession in 2008, would affect developing countries quite adversely.  Retrenchment in business investment an important element as emerging-market corporations now dominate capital flows.  An upside risk... against the background of lower global interest rates and burgeoning liquidity in emerging markets... is potential formation of new asset-market “bubbles”, overheating and escalation in inflation pressures.

31. Fed funds lowered 100 basis points with massive reserve injections to calm inter-bank markets Fed funds effective rate Source: Federal Reserve and Datastream. Fed funds target rate LIBOR 6-months

32. Prospects for developing countries Key Messages Still- longer-term growth appears favorable.  MDG poverty targets are likely to be achieved by developing countries as a group, with Sub- Saharan Africa improving, but still short of goals.

33. Per-capita GDP growth shows marked gains in the current decade annual per-capita GDP growth, percent Source: World Bank data and simulations with the Linkage model.

34. Poverty goals are likely to be reached in most regions, but Africa lags… Percent of pop. living below $1/day Millennium Development Goals Source: World Bank. 1990

35. Poverty goals are likely to be reached in most regions, but Africa lags… Percent of pop. living below $1/day 1990 Source: World Bank. 2004 Millennium Development Goals

36. Poverty goals are likely to be reached in most regions, but Africa lags… Percent of pop. living below $1/day Source: World Bank. Forecast 2015 1990 2004 Millennium Development Goals

37. Prospects for Developing Countries Global Economic Prospects 2008 The World Bank

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39. And emerging-market currencies jumped against the sliding U.S. dollar U.S. dollar per local currency, ch% Aug-December, and Jan-December 2007 Source: Thomson/Datastream.

40. Developing country growth retained robust momentum through the first-half of 2007... Source: World Bank and National Agencies. real GDP, percent change

41. Commodity prices ease in tandem with demand growth in developing countries Indices, crude oil and metals and minerals, 1981=100 Forecast Crude oil Metals Source: World Bank.

42. Firms depend on bank borrowing – likely to be curtailed in event of “ capital squeeze ” Net private debt flows to developing countries, as percent of GDP Source: World Bank.