Global market conditions and implications for trade A developing country perspective

1
Global market conditions and implications for
tradeA developing country perspective
Andrew Burns World Bank Development Economics
Prospects Group

• 2nd Annual GTFP Bank Partners MeetingParis,
  October 22, 2008

2
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

3
Most recent measures appear to be thawing credit
markets
Spread between 3-month Libor and policy interest
rates
Basis points
Euro zone
US
Source Datastream.
4
However, emerging markets bond spreads have
widened substantially
Emerging-market bond spreads Jan 2007 Oct 20,
2008
Basis points
Source JPMorgan
5
Regional corporate bond spreads reflect
differences in soverign risk
Emerging-market corporate bond (CEMBI)
spreads Jan 2007 Oct 20, 2008
Basis points
Source JPMorgan
6
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
Bank lending
Equity issuance
Bond issuance
Source World Bank.
7
Private capital flows expected to decline further
Net private debt and equity flows 1990-2007,
projected 2008-09
billions
Percent
Percent of GDP (right axis)
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.
8
Main transmission channel to middle-income
countries will be through investment demand
Contribution to developing country growth, percent
Investment
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.
9
Provoking a sharp slowdown in growth
Real GDP growth, percent
Developing countries
High-income OECD
Projection confidence intervals
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.
10
World Trade like to contract in 2009
Annual percent change in trade volumes
Developing country exports
World trade volumes
Source World Bank.
11
Inflation and fiscal cost of responding to high
food prices have reduced room for maneuver
Percentage change(12m/12m)
Median inflation ratesJan 2000 to July 2008
Developing countries
High-income OECD
Source DEC Prospects Group.
12
Current account stress has risen substantially
for oil importers
Current account balance / GDP oil-importing
developing countries ( ex. China), 2000-07,
projected 2008-10
Percent
Source DEC Prospects Group.
13
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

14
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

15
China and India have become growth poles
Average percent increase in nominal exports,
1990-2008
16
Developing country import markets are twice as
large as the U.S. market
Other developing
USA
China
Europe, Japan other OECD
Source World Bank.
17
Developing economies responsible for 75 of the
increase in demand for oil and metals in 2004
Breakdown of demand (2007)
Breakdown of additional demand (2000-07)
Other developing
China
OECD
Metals and minerals
Metals and minerals
Oil
Oil
Source World Bank
18
Trade expansion is centered in developing
countries
Value of exports, average annual growth rate ()
High-income exports
Developing exports
19
Spillover effects from fast trade growth in
China, India and Russia
South-South trade as percent of all South trade
20
South-south linkages are strengthening
Share of other developing countries in revenues,
by source (2005)
Source World Bank, Global Development Finance,
(2005)
21
Developing country GDP will more than double by
2030
GDP of high-income and developing countries
(market exchange rates)
US2001 trillion
72 trln
High-income countries
40 trln
Developing countries
31
23
16
Source World Bank. Global Economic Prospects,
2007
22
Developing countries exports to reach 12
trillion by 2030
Exports of developing and developed countries,
USD trillion
27 trln
High-income countries
45
Developing countries
32
22
Source World Bank. Global Economic Prospects,
2007
23
Huge developing-country middle-class will shape
global trends and markets
Number of people earning a middle-class income
(million)
Africa
South Asia
Middle East
Latin America
Europe Central Asia
East-Asia
Source World Bank. Global Economic Prospects,
2007
24
Some final thoughts

• Were 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

25
Global market conditions and implications for
tradeA developing country perspective
Andrew Burns World Bank Development Economics
Prospects Group

• 2nd Annual GTFP Bank Partners MeetingParis,
  October 22, 2008