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					           Global market conditions and
              implications for trade

      A developing country perspective



Andrew Burns
                                        2nd Annual GTFP Bank Partners
World Bank                              Meeting
Development Economics Prospects Group   Paris, October 22, 2008
Global market conditions and
implications for trade

 Short-term:
  – the international banking crisis will generate
    a significant growth recession
  – International trade will probably contract in
    2009 and risks being weak in 2010

 Longer-term:
  – Developing countries fundamentals remain
    strong and the catching up process will
    continue
  – South-south trade is still the fastest growing
    trade segment
  – Developing countries will increasingly
    dictate market trends
          Most recent measures appear to be
          thawing credit markets
                   Spread between 3-month Libor and policy interest rates
Basis points
 350

 300

 250

 200

 150

 100                       Euro zone

  50
                                                      US
    0

  -50
     07 7 7 07 7 07 07 07 07 7 07 07 08 8 8 08 8 08 08 08 08 8
   n- eb-0 ar-0 pr- ay-0 un- Jul- ug- ep- ct-0 ov- ec- an- eb-0 ar-0 pr- ay-0 un- Jul- ug- ep- ct-0
 Ja F M A M J                    A S O N D            J F M A M J                     A S O

        Source: Datastream.
  However, emerging markets bond spreads
  have widened substantially

                        Emerging-market bond spreads
Basis points               Jan 2007 – Oct 20, 2008


800
                                               Corporate bonds
700                                                (CEMBI)

600

500

400

300

200                                             Sovereign bonds
                                                 (EMBI Global)
100
 Jan-07        May-07      Sep-07     Jan-08     May-08    Sep-08

 Source: JPMorgan
   Regional corporate bond spreads
   reflect differences in soverign risk
               Emerging-market corporate bond (CEMBI) spreads
                          Jan 2007 – Oct 20, 2008
Basis points
 1500

                                                     Emerging
 1200                                                 Europe


   900


   600          Latin America


   300                                                          Asia


     0
    Jan-07       May-07     Sep-07     Jan-08    May-08     Sep-08

Source: JPMorgan
     Private debt and portfolio equity flows to
     developing countries have been weakened…

                  Bank lending, bond and equity issuance
                          Jan. 2004 – Sep. 2008
$ billions
(12-month moving average)
                                                      August 2007
   35
                                                                       Bank lending
   30

   25

   20                                                           Equity issuance
   15

   10

    5
                                                                    Bond issuance
    0
    2004M1         2005M1      2006M1        2007M1         2008M1

 Source: World Bank.
         Private capital flows expected to decline further

                            Net private debt and equity flows
                             1990-2007, projected 2008-09
   $ billions                                                                          Percent
                                                                                          8
  1000


   800                    Percent of GDP
                                                                                          6
                            (right axis)
   600
                                                                                          4

   400

                                                                                          2
   200



    0                                                                                     0

         1990      1993        1996        1999        2002        2005        2008P


Source: World Bank.
Note: Given the evolving nature of the financial crisis, these projections are indicative only.
The Bank's official forecast will be released around December 9th with the publication of
Global Economic Prospects.
             Main transmission channel to middle-income
             countries will be through investment demand
     Contribution to developing country growth,
     percent
4


3                                                         Investment


2


1


0


-1
      1992     1994     1996     1998     2000     2002       2004     2006      2008     2010

Source: World Bank.
Note: Given the evolving nature of the financial crisis, these projections are indicative only.
The Bank's official forecast will be released around December 9th with the publication of
Global Economic Prospects.
        Provoking a sharp slowdown in growth
Real GDP growth, percent
 8                                Developing countries


  6



  4                                    High-income OECD
                                                                                      Projection
                                                                                      confidence
  2                                                                                   intervals



  0
       2000            2002            2004             2006            2008            2010
Source: World Bank.
Note: Given the evolving nature of the financial crisis, these projections are indicative only.
The Bank's official forecast will be released around December 9th with the publication of
Global Economic Prospects.
      World Trade like to contract in 2009
      Annual percent change in
      trade volumes
18                                      Developing country exports
16
14
12
10
8
6
4                                  World trade volumes
2
0
-2
     1995                   2000         2005                 2010

     Source: World Bank.
           Inflation and fiscal cost of responding to
           high food prices have reduced room for
           maneuver
Percentage change
(12m/12m)                         Median inflation rates
                                  Jan 2000 to July 2008
   12

                                                                     Developing
                                                                     countries
    9



    6


                                                    High-income OECD
    3



    0
    Jan-00    Jan-01   Jan-02   Jan-03   Jan-04   Jan-05   Jan-06   Jan-07   Jan-08

        Source: DEC Prospects Group.
           Current account stress has risen
           substantially for oil importers
                   Current account balance / GDP oil-importing developing
Percent               countries ( ex. China), 2000-07, projected 2008-10

    0


    -1


    -2


    -3


    -4


    -5
           2000-2005     2006           2007      2008        2009          2010
         Source: DEC Prospects Group.
Global market conditions and
implications for trade

 Short-term:
  – the international banking crisis will generate
    a significant growth recession
  – International trade will probably contract in
    2009 and risks being weak in 2010

 Longer-term:
  – Developing countries fundamentals remain
    strong and the catching up process will
    continue
  – South-south trade is still the fastest growing
    trade segment
  – Developing countries will increasingly
    dictate market trends
Fundamentals of developing countries are much
improved and portend renewed convergence



  Improved Macroeconomic policy
   – More flexible and prudent monetary policy
   – Substantial reductions in fiscal deficits

  Improved Microeconomic policy
   – Improved governance
   – Better investment climate

  Trade liberalization
   – Both multilateral and unilateral lowering of tariffs
 China and India have become growth poles


Average percent increase in nominal exports, 1990-2008
25

20

15

10

 5

 0
          China             India      Other Developing   High-income
    Developing country import markets are
    twice as large as the U.S. market


                                 21%
                        15%
                        USA     Other
                                developing

                                                7%
                                        China
                  57%

                      Europe, Japan &
                      other OECD




Source: World Bank.
  Developing economies responsible for 75% of the
  increase in demand for oil and metals in 2004

   Breakdown of demand                Breakdown of additional demand
          (2007)                               (2000-07)
100%
                                 Other
                               developing
80%


60%
                                China
40%


20%
                                OECD
 0%
                  Metals and                             Metals and
         Oil      minerals                     Oil       minerals
 Source: World Bank
     Trade expansion is centered in
     developing countries
     Value of exports, average annual growth rate (%)


      High-income exports                      Developing exports
20
18
16
      1965-1990
14
12
10          1990-
            2007
 8
 6
 4
 2
 0
      North-North   North-South          South-North South-South South-South
                                                                  (ex India
                                                                   China)
  Spillover effects from fast trade growth
  in China, India and Russia
South-South trade as percent of all South trade
35

30

25

20

15

10

 5

 0
       1965       1970       1980        1990     2000   2007
        South-south linkages are
        strengthening

  40 Share of other developing countries in revenues, by source (2005)

  35

  30

  25

  20

  15

  10

    5

    0
               Exports               Remittances         Foreign direct investment

Source: World Bank, Global Development Finance, (2005)
       Developing country GDP
       will more than double by 2030
  GDP of high-income and developing countries (market exchange rates)
  US$2001 trillion
       80                                                             $72 trln

       70

       60
                                                        High-income
       50                                               countries

       40                                    $40 trln


       30

       20
                                                         Developing      31%
       10                                                countries
                             16%                23%
        0
                     1980                       2008                    2030
Source: World Bank. Global Economic Prospects, 2007
       Developing countries exports to reach
       $12 trillion by 2030

   Exports of developing and developed countries, USD trillion
  30000
                                                                    $27 trln

  25000
                                                      High-income
                                                      countries
  20000


  15000


  10000

                                                       Developing     45%
   5000
                                                       countries
                                               32%
       0                     22%
                    1980                       2010                   2030

Source: World Bank. Global Economic Prospects, 2007
        Huge developing-country middle-class will
        shape global trends and markets

Number of people earning a “middle-class” income (million)
1200
                                                                      Africa

1000                                                                South Asia
                                                                    Middle East
 800
                                                                    Latin America

 600                                                                Europe & Central
                                                                        Asia

 400

                                                                      East-Asia
 200


    0
                         2005                                2030

Source: World Bank. Global Economic Prospects, 2007
Some final thoughts

 We’re going through an extremely uncertain and scary
  period, but policy has reacted firmly

 The global growth recession will probably send trade
  into negative territory

 Long-term developing country growth and trade
  volumes will pick back up – with S-S trade being
  increasingly important
           Global market conditions and
              implications for trade

      A developing country perspective



Andrew Burns
                                        2nd Annual GTFP Bank Partners
World Bank                              Meeting
Development Economics Prospects Group   Paris, October 22, 2008

				
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