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Prospects for Developing Countries Global Economic Prospects 2008 The World Bank

Prospects for Developing Countries Global Economic Prospects 2008 The World Bank. Prospects for developing countries Key Messages. The U.S. sub-prime crisis has carried limited financial effects to developing countries to date. Prospects for developing countries Key Messages.

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Prospects for Developing Countries Global Economic Prospects 2008 The World Bank

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  1. Prospects for Developing CountriesGlobal Economic Prospects 2008The World Bank

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

  3. Prospects for developing countriesKey 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 countriesKey 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 countriesKey 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 countriesKey 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 countriesKey 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 spreads, basis points High-yield spread EM-BIG spread Source: Bloomberg, JPMorgan-Chase.

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

  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) Emerging market bond yields Emerging market bond spread (EMBIG) Source: JPMorgan.

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

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

  14. Prospects for developing countriesKey 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 demandstarted well before financial turmoilgrowth of investment and imports, 4-quarter moving average U.S. Imports U.S. Investment Source: World Bank.

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

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

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

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

  20. Prospects for developing countriesKey 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 Forecast Developing economies 2001 global downturn East Asia financial crisis Early 1980s debt crisis 1990s recession Transition countries Source: World Bank.

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

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

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

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

  26. Prospects for developing countriesRisks • 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 GDP 2008 percent change Source: World Bank.

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

  30. Prospects for developing countriesRisks • 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 pointswith massive reserve injections to calm inter-bank markets Fed funds target rate LIBOR 6-months Fed funds effective rate Source: Federal Reserve and Datastream.

  32. Prospects for developing countriesKey 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 1990 Millennium Development Goals Source: World Bank.

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

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

  37. Prospects for Developing CountriesGlobal Economic Prospects 2008The World Bank

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