103025 For more information, visit http://www.worldbank.org/prospects Overview Table of Contents  Mixed signals on the trajectory of U.S. economic growth Monthly Highlights………………………….2 are complicating the Fed interest rate decision. Special Focus……………………………......6  Euro Area industrial production declined at the fastest Major data releases……………………….....8 pace in a year in the third quarter, but economic activity Other reports from Prospects Group………...8 may be rebounding this month. Recent WB country reports……………….....8  Slowing or contracting growth in emerging markets in Annex table: economic developments………9 Q2 has been followed by slackening high frequency data. Annex table: financial markets……………..10  Trade is contracting in many large economies.  Commodity prices remain weak, and the medium-term outlook softened further. Gross capital flows to EFEs Chart of the Month US$, billions 200 Bank Bond Equity  Gross private capital flows to EFEs during Q3 fell by 150 almost half compared with the same quarter in 2014. 100 About 60 percent of the drop in gross flows was 50 accounted for by China.  Bond and equity issuance showed signs of improvement 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 in mid-October, with emerging market bond and equity 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 funds seeing inflows for the first time in three months. 2015 Source: Bloomberg. Special Focus: The Coming U.S. Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters?  If the lift-off proceeds at the pace reflected in current market expectations, then it should have limited implications for the global economy.  The impact of increasing U.S. yields on emerging and frontier economies will depend on its trigger, with more benign effects expected if liftoff is associated with a robust recovery in the United States.  Important risks persist, however. Interest rate increases could be associated with sudden bouts of volatility. These raise the risk of capital outflows from emerging and frontier economies, which could be amplified by lingering vulnerabilities and weakening growth prospects. Prepared by a team led by Christian Eigen-Zucchi (34960), comprising John Baffes, Mai Anh Bui, Xinghao Gong, Eung Ju Kim, Trang Nguyen, Marc Stocker and Ekaterine Vashakmadze. DECPG - October 2015 October 2015 Monthly Highlights Global growth: further signs of weakness in Q3. Preliminary GDP data for Q3 is beginning to emerge, and in those countries where estimates have been published, growth is slowing (U.S., China and the U.K.). Industrial production decelerated in much of the world during Q3, especially the U.S., Japan and China (Figure 1A). Other indicators, such as retail sales, also point to a softening of growth in several countries (Argentina, Brazil, Indonesia, and Russia). Commodity prices eased further and capital flows to emerging markets have stabilized but remained weak. The contraction in global trade is continuing, with sharp declines in imports in major economies, led by falls in BRICS (Figure 1B). Looking ahead, initial Purchasing Managers Indexes (PMIs) for October are in expansionary territory in the U.S. and Euro Area, indicating that activity in advanced economies may be picking up going into Q4 (Figure 1C). United States: signs of softening after a strong second quarter. Preliminary estimates for Q3 show that GDP growth softened to 1.5 percent (q/q saar) from an upwardly revised 3.9 percent in Q2, as manufacturing activity was temporarily held back by a significant decline in inventories while the strength of the dollar and soft external demand continued to weigh on exports. Retail sales growth was sluggish in September (0.1 percent, m/m, sa), after remaining flat in August. U.S. industrial production fell by 0.2 percent in September (m/m), as the strength of the dollar and weak external demand weigh on durable goods output, low energy prices induce a scaling-back in extraction and drilling activity, and inventories are drawn down. Activity may be gaining momentum at the start of Q4, with a higher-than- expected increase in the flash U.S. Manufacturing PMI (Markit) to 54 in October. New applications for jobless benefits in the U.S. fell to 232,883 in the week ending October 17, more than expected and close to a 42 year low. Overall, the data create uncertainty about the growth trajectory, complicating the Federal Reserve’s decision on when to start raising policy interest rates, which were left on hold in October. The U.S. budget deficit narrowed to 2.5 percent of GDP in fiscal-year 2015, the lowest level since 2007, as revenues were boosted by rising incomes and corporate profits whereas expenditures were constrained by the sequester. A tentative budget agreement has been reached (approved by the House but still to be considered by the Senate) to extend the Treasury’s borrowing authority to March 2017. Euro Area: sluggish growth. Indicators of economic activity in the Euro Area are mixed, complicating policy formulation to support the recovery. At its October 22 meeting, the ECB decided to leave its monetary policy stance unchanged, but noted that the asset-purchase program will need to be reevaluated in December with a view to further expansion. Although inflation returned to zero in October (y/y), from -0.1 percent in September, it remains far below the 2 percent target. Industrial production slowed to 0.5 percent (m/m) in August, consistent with expectations, following a revised 0.8 percent rise in July. Other indicators suggest that the recovery is still on track, however, as retail sales remained solid through August, consumer confidence is still robust, and car sales continue to increase. The ECB’s Bank Lending Survey also showed that credit standards improved further in the third quarter, with low interest rates contributing to stronger loan demand. Euro Area headline consumer price inflation was confirmed at -0.1 percent (y/y) in September. Momentum may be firming going into Q4, however, and the flash Euro Area PMI Composite Output Index (Markit) increased more than expected to 54 in October, signaling broad-based expansion in services and manufacturing. The index rose ahead of expectations in the region’s two largest economies, Germany and France. China: financial market stabilization amidst slightly stronger-than-expected growth. Third quarter GDP growth was marginally stronger than expected, expanding by 6.9 percent (y/y) compared to a consensus forecast of 6.8 percent, but continuing on a slowing path (Figure 1D). CPI inflation eased to 1.6 percent in September (y/y), about half of the People’ Bank of China (PBoC) target of 3 percent for 2015. The government and PBoC implemented a wide range of stimulus measures throughout 2015 to support demand and avoid a sharp slowdown, including lowering interest rates and reserve requirements, boosting fiscal stimulus, implementing a debt-for-bond swap to support local government spending, and easing regulations. At its October 23 meeting, the PBoC lowered policy interest rates by 25 basis points to 4.35 percent (the sixth reduction this year), reduced reserve requirements to 17.5 percent for commercial banks, and removed the deposit rate ceiling. Activity data point to continued rebalancing from industrial production towards services. On the demand side, consumption remained resilient and investment growth rebounded from a dip in Q1, but the contribution from net exports turned negative for the first time since Q2 of 2014. Despite continued capital outflows, the renminbi has been stable since mid-August, supported by a reserve drawdown. In September, foreign reserves declined by $43 billion, bringing the total stock of foreign reserves to $3.5 trillion (about 34 percent of GDP). Stock markets have also been stable since late August, following a 40 percent correction which started in mid-June. The 13th five year plan (2016 – 2020) is to be approved at a plenary of the Central Committee, and will include new annual GDP growth targets, as well as policy initiatives on yuan convertibility, the environment, and SOE reform. 2 October 2015 South Africa: slowest growth in 7 years. South Africa’s GDP contracted in the second quarter, but high-frequency data points to a modest rebound in the third quarter. Growth of about 1.5 percent is expected for the year as a whole, the slowest since 2008. The combination of weak domestic demand, power sector challenges and low commodity prices is weighing heavily on growth. The power supply bottlenecks are the accumulated result of several years of underinvestment in new capacity, compounded by difficult labor relations and a drought. Gross capital flows: sharply down amid global volatility. Capital flows to developing countries fell sharply in Q3, down 49 percent compared with Q3 2014. Bond and equity flows were particularly weak in August/September on heightened uncertainties about the Chinese economy and the U.S. interest rate outlook (Chart of the Month). The sharpest declines were in flows to Brazil and China. The Q3 decline in bank lending was less severe than in equity and bond flows, amid strong loan activities in Brazil, Mexico, Turkey and several African countries (including Ghana and Nigeria). In October, bond and equity issuance activity showed signs of improvement as market sentiment began to turn more favorable. Emerging-market bond and equity funds recorded inflows for the first time in at least three months in the week ending October 14th (Figure 2A). Furthermore, emerging-market assets have rallied this month amid revised expectations on the timing of the Fed’s rate hike, rebounding from sharp losses in the summer. However, questions remain about how long the current turnaround will last given the weak growth outlook for emerging markets and heightened political risks in a series of EM countries such as Brazil and Turkey. Emerging market foreign exchange reserves: decline led by China. Emerging-market foreign-exchange reserves fell by more than $200 billion in Q3, compared with a $12 billion accumulation in Q2 (Figure 2B). The decline in reserves was driven mostly by a $170 billion decline in China. The drawdowns reflected central banks’ efforts to stem depreciation pressures; nevertheless, EM currencies, on average, depreciated by 9 percent. Most EM countries still have ample reserve cushions to cover temporary shortfalls in financing flows, but several countries have increasingly limited buffers against a sustained reversal of capital flows. Remittances: slowing growth. The growth of remittances to developing countries is projected to fall from 3.3 percent in 2014 to 2.0 percent in 2015 (Figure 1E). The slowdown in remittances is largely due to weak growth or contractions in the major remittance-source countries, especially Russia. Depreciation of the euro and the ruble against the U.S. dollar further dampened remittance flows in US dollar terms, especially to countries in Europe and Central Asia (Migration and Development Brief 25 - October 2015). Poverty: estimates revised lower. The international poverty line was raised to $1.90 at 2011 purchasing power parity conversion factors (PPPs), from $1.25 at 2005 PPPs, all the while seeking to keep the real purchasing power of the line constant. The global number of extreme poor was 897 million in 2012, and is estimated to have fallen to 702 million in 2015, bringing the global poverty headcount ratio into single digits for the first time, at 9.6 percent (Figure 1F) (Policy Research Note – October 2015). Commodity prices: continued weakness. With global commodity markets well supplied and demand subdued, especially for industrial commodities, commodity prices slid by an average of 2 percent in the third quarter of 2015 (Figure 2C). Annual price forecasts for 2015 and 2016 have been revised downwards, and only a modest recovery is projected for 2016. Oil prices: the agreement with Iran. The international agreement on Iran’s nuclear program to be implemented in the first half of 2016 could lead to a suspension of sanctions and termination in 2023. Shipments from Iran’s 40 million barrels of floating storage of oil could start immediately, and Iran could increase crude oil production by 0.5-0.7 mb/d within a few months of sanctions being lifted, potentially reaching a 2011 pre-sanctions level of 3.6 mb/d (Figure 2D). Iran accounts for 9.3 percent of the world’s proven oil reserves, and the long-term impact could be significant if Iran is able to attract foreign investment and technology into the sector. With the world’s largest known gas reserves, Iran also has the potential to export large volumes of natural gas (Commodity Markets Outlook - October 2015). Agricultural commodities: strongest El Niño on record but limited global impact. The El Niño phenomenon is characterized by the winds of the equatorial Pacific slowing or reversing direction, in turn raising the temperature of waters over a vast area of the Pacific Ocean. The current episode could be the strongest on record and is projected to peak between December and February, though it could extend into early summer of 2016. While El Niño typically reduces agricultural production in the Southern Hemisphere and may have strong local impacts, especially in Australia, East Asia, and Latin America, upward pressure on global commodity prices in 2016 is likely to be limited (Figure 2E), as markets are well-supplied (Figure 2F) and the transmission from spikes in local food prices to global markets is weak (Commodity Markets Outlook - October 2015). 3 October 2015 Figure 1: Selected Activity Indicators A. Industrial production B. EME Volume of Imports Year-on-year, percent United States Euro Area Japan 20 EME BRICS 15 10 5 0 -5 -10 May-12 Sep-12 May-13 Sep-13 May-14 Sep-14 May-15 Sep-15 Jan-12 Jan-13 Jan-14 Jan-15 C. Manufacturing PMI   D. China GDP growth Index Year-on-year, percent US Japan Euro zone 8.5 60 France Germany 8.0 55 7.5 50 7.0 45 40 6.5 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 Apr-13 May-15 Oct-15 Jan-12 Jun-12 Sep-13 Feb-14 Jul-14 Nov-12 Dec-14 E. Remittances F. Share of the population below $1.90 per day US$, billions Percent 2014 2015 1990 1999 2011 2012 2015* 500 70 60 400 50 300 40 200 30 20 100 10 0 0 DEV EAP ECA MNA SSA EAP SSA LAC SAR LAC SAR World ECA Sources: World Bank, Bloomberg, Haver Analytics, CPB World Trade Monitor, Markit. Panel A: The latest available observation is September 2015 for United States, August 2015 for all others. Data are year-on-year growth rates, seasonally adjusted. Panel B: The last observation is August 2015. Panel C: The last observation is for October 2015 (Markit). Panel D: The last observation is 2015Q3. Panel E: Migration and Development Brief 25 – October 2015. Panel F: Estimates based on the $1.90 poverty line and 2011 PPPs. 4 October 2015 Figure 2: Selected Financial and Commodity Indicators A. Flows to EM bond and equity funds B. Monthly changes in official reserves Weekly flows US$, millions Change in reserves US$, billions 120 15,000 EM equity funds EM bond funds 80 10,000 40 0 5,000 -40 0 -80 -120 -5,000 -160 China -10,000 -200 Other EM economies* -240 -15,000 Aug-08 Sep-15 Mar-07 Jan-10 Jun-11 Nov-12 Apr-14 Jan-15 Feb-15 Mar-15 Apr-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15   C. Commodity price indices, monthly D. Iran oil production US$ nominal, 2010=100 mb/d Consumption US$/bbl 150 7 140 Iranian Revolution Net exports Sanctions Real oil price (RHS) Escalation 6 120 Energy 5 Iran-Iraq War 100 125 1980-1988 4 80 100 3 60 Agriculture 2 40 75 Metals 1 20 0 0 1965 1975 1985 1995 2005 2015 50 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 E. Monthly agriculture prices and El Nino episodes F. Stock-to-use ratio Index, deflated by U.S. CPI, Percent Agriculture price index 2006-07 200 30 10-yr average ENSO Index peaks 2015-16 25 170 1.4% -7.1% 20 140 -2.9% -0.9% -6.5% -14.8% -2.2% -7.3% 15 110 10.4% -12.6% 9.8% -19.6% 10 3.8% 80 -3.5% 5 50 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014   0 Maize Wheat Rice Sources: World Bank, Bloomberg, Haver Analytics, BP Statistical Review of World Energy. Panel A: The last observation is October 2015. Panel B: The last observation is October 2015. Panel C: Commodity Price Indices, 2010=100. The last observation is September 2015. Panel D: Includes crude oil and natural gas liquids. The bar for 2015 is based on the first nine months. Panel E: The ENSO index peaks reflect values greater than 1. The numbers denote percent changes of the six-month average price index leading to the episode compared to the previous six-month period (bold) and the corresponding six-month period of the previous year (italic). The last observation for both agricultural price index and El Niño is September 2015. Panel F: The 2015-16 value reflects the October 2015 update. 5 October 2015 Special Focus: The Coming U.S. Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters? If the timing of the liftoff and subsequent path of policy rates are accurately reflected in market expectations, the normalization of U.S. policy rates could be part of a smooth transition for the global economy. Barring a sudden acceleration in inflation or an unexpected change in the Fed policy stance, U.S. long-term yields should rise only modestly as the U.S. yield curve is expected to flatten. Although conditions differed during previous monetary tightening cycles, these generally had mild initial repercussions for emerging and frontier economies (EFEs). The U.S. yield curve usually flattened and term premia rose only slowly, if at all, during the first year of the tightening cycle (Figure 3A). In 2004, term spreads even narrowed dramatically (dubbed the “conundrum”), partly reflecting ample global liquidity and declining medium-term inflation expectations. This tightening episode—which, like the upcoming one, also started at very low U.S. policy interest rates—was fairly benign for EFE currencies and capital flows. In contrast, a rapid tightening cycle, as in 1994, would lead to greater bond market stress, capital flow declines and a more pronounced depreciation of EFE currencies (Figure 3B). The impact of increasing U.S. yields on EFEs depends on the trigger of the increase. Rising U.S. yields that reflect a strengthening U.S. economy would likely have more benign consequences for EFEs, as the positive growth spillovers would offset the effects of higher borrowing costs. In contrast, rising U.S. yields that purely reflect a perception of accelerated monetary tightening would likely be accompanied by weakening activity, tighter financial conditions, bouts of volatility and sudden adjustments in capital flows. A panel vector autoregression (VAR) model was estimated to examine the diverging impacts of different types of U.S. shocks on measures of real activity and financial market conditions in EFEs. As expected, the results suggest that a U.S. yield increase triggered by a favorable real shock has a considerably more benign impact on EFEs than one resulting from an adverse monetary shock. Higher U.S. yields supported by a perceived improvement in economic conditions in the United States tend to be followed by stronger activity in EFEs (Figure 3C), higher equity market valuations, and more stable borrowing conditions (Figure 3D). Since the taper tantrum in 2013, monetary conditions are perceived to be more favorable. Looking forward, upward pressure on long term yields that reflect a strengthening U.S. economy would likely have manageable if not positive effects on EFEs, but important risks persist. Three factors currently heighten the risk of volatility from the tightening cycle. First, U.S. term premia are well below their historical average, reflecting a modest assessment of inflation risks and strong global demand for U.S. Treasuries as safe assets. Second, market expectations of future policy interest rates are currently significantly below those of members of the U.S. Federal Open Market Committee (Figure 3E). While Fed policy makers could continue to adjust their expectations down in coming months, markets could also revise theirs up significantly, depending on data outcomes. Third, several factors make liquidity conditions more fragile than before the global financial crisis. These include reduced dealer inventories and market-making activities by banks, diminished risk appetite, and tighter regulatory requirements (Figure 3F). During episodes of financial stress, fragile liquidity conditions tend to amplify market reactions and increase the risk of contagion effects. The upcoming U.S Federal Reserve tightening cycle will take place in a challenging environment for EFEs. Global trade has been subdued in recent years, commodity prices have declined substantially, and the U.S. dollar has appreciated significantly. Domestically, productivity growth in EFEs has slowed while corporate leverage increased substantially in the post-crisis period, and countries facing bank asset quality problems have seen little improvement. Weakening growth could reduce resilience to external shocks as well. Concerns about growth prospects in major emerging markets and reduced credit worthiness could potentially raise the risk of capital outflows associated with tighter global financing conditions. In the event that risks surrounding the upcoming tightening cycle materialize, exchange rate flexibility could buffer shocks in some countries but may need to be complemented by monetary policy measures and targeted interventions to support orderly market functioning. Emerging and frontier market economies may hope for the best during the upcoming tightening cycle, but given the substantial risks involved, they need to prepare for the worst (Policy Research Note – September 2015). 6 October 2015 Figure 3: Impact of U.S. monetary policy tightening on emerging and frontier markets If the tightening cycle comes in response to strengthening U.S. economic conditions, the term spread could remain narrow and U.S. long-term interest rates would rise slowly from current low levels, with more benign effects on EFEs. Still, EFE currencies could remain under pressure and risks remain of spikes in long-term U.S. rates and bouts of volatility, especially since term premia are well below historical averages and market expectations of future interest rates are below those of Fed policy makers. A.U.S. term spreads around previous U.S. B. EFE Nominal effective exchange rates tightening cycles Basis points; deviations from t = 0 Percent, deviations from t = 0 Feb-94 Jun-99 Jun-04 May-13 Feb-94 Jun-99 60 Jun-04 May-13 2 20 0 -20 -60 -2 -100 -4 -140 -180 -6 -4 -3 -2 -1 0 1 2 3 4 -3 -2 -1 0 1 2 3 Quarters Months C. Response of EFE industrial production to D. Response of EFE bond yields to rising U.S. rising U.S. yields yields Percent change Basis points 1.2 45 40 1.0 35 0.8 30 0.6 25 20 0.4 15 0.2 10 0.0 5 -0.2 0 Monetary shock Real shock Monetary shock Real shock E. Gap between FOMC and market expectations F. U.S. 10-year treasury term premium Basis points 2016 Percent 160 6 2017 140 5 120 Historical average 4 (1961-2015) 100 80 3 60 2 40 1 20 0 0 Average since 2000 Jun-14 Sep-14 Jun-15 Latest Mar-14 Dec-14 Mar-15 -1 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 Sources: Haver, Bloomberg, World Bank estimates, IMF, Federal Reserve Bank of New York, Panel A: Term spread denotes the difference between 10-year U.S. Treasury and 6-month T-bill yields. Panel B: A decline denotes a depreciation of the nominal effective exchange rate. The x-axis shows the number of months before and after t = 0, where t = 0 is February 1994, June 1999, June 2004, and May 2013. Panels C & D: Impulse responses after 12 months from a panel VAR model including EFE industrial production, long-term bond yields, stock prices, nominal effective exchange rates and bilateral exchange rates against the U.S. dollar, and inflation, with monetary and real shocks estimated from a separate model as exogenous regressors. All data are monthly or monthly averages of daily data, for January 2013-Sep 2015 for 23 EFEs. For comparability, the size of the U.S. real and monetary shocks is normalized such that each shock raises EFE bond yields by 100 basis points on impact. List of countries is: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Arab Rep., Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Romania, Russian Federation, South Africa, Thailand, Turkey, Ukraine, and Venezuela, RB. Bond yields refer to the yields on 10- year (or nearest equivalent) government treasury bonds. Panel F: Term premium estimates are obtained from the model described in: Adrian, T., R. Crump, and E. Moench. 2013. “Pricing the Term Structure with Linear Regressions.” Journal of Financial Economics 110 (1): 110–38. 7 October 2015 Major data releases Other reports from the Prospects Group Global Economic Prospects – June 2015: The Global Economy in Transition Global Monitoring Report 2015/2016 – Development Goals in an Era of Demographic Change Commodity Markets Outlook – October 2015 Policy Research Note – March 2015: The Great Plunge in Oil Prices Policy Research Note – September 2015: The Coming U.S. Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters? Policy Research Note – October 2015: Ending Extreme Poverty and Sharing Prosperity: Progress and Policies Recent World Bank Working Papers The Impact of Investment Policy in a Changing Global Economy: A Review of the Literature The Impact of China’s Slowdown on the Asia Pacific Region: An Application of the GVAR Model A Global Count of the Extreme Poor in 2012: Data Issues, Methodology and Initial Results Recent World Bank Country Updates Moldova: Economic Update Turkey: Economic Activity Slowdown Due to Political Uncertainty Myanmar: Economic Monitor 8 October 2015 Economic Developments indicators expressed as %ch y/y, except Industrial Production quarterly figures are %ch q/q, annual 2014 2015 2014 2015 2012 2013 Q1 Q2 Q3 Q4 Q1 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Industrial Production, S.A. World 2.9 2.4 3.5 2.3 2.6 3.8 1.6 3.3 3.0 2.8 3.2 2.7 2.5 2.5 2.2 2.0 2.6 2.2 2.3 - High Income Countries 0.7 0.3 2.5 0.3 0.6 3.1 2.1 1.5 1.7 1.3 1.8 1.7 1.4 1.4 1.1 0.8 1.3 1.1 1.3 - Developing Countries 6.6 5.8 5.0 5.2 5.5 4.8 1.0 6.0 5.0 5.1 5.2 4.1 4.1 4.1 3.9 3.7 4.5 3.9 3.8 - East Asia and Pacific 9.0 8.9 5.3 7.9 6.7 8.2 1.9 7.6 7.1 6.6 7.4 6.5 6.1 5.8 5.7 5.4 6.1 5.7 5.5 - East Asia x. China 4.1 4.6 -0.7 8.0 4.7 5.6 -0.7 5.8 4.2 4.0 4.9 4.2 2.3 6.5 3.9 0.7 2.2 3.7 1.9 - Europe and Central Asia 9.7 2.3 4.8 0.8 1.8 0.2 2.3 2.6 2.7 1.9 1.1 -0.5 1.7 2.6 1.4 1.2 3.5 0.8 4.2 - Latin America and Caribbean -0.3 1.2 0.5 -2.8 0.1 -3.7 -4.1 -1.0 -0.6 -1.8 -2.0 -2.4 -2.6 -2.9 -3.2 -3.6 -2.1 -3.6 -4.1 - Middle East and N. Africa 6.0 -7.7 16.6 -0.2 28.8 -0.4 -17.5 17.7 11.0 13.1 7.5 -0.7 -0.6 5.5 4.4 6.7 - - - - South Asia 1.1 1.7 7.7 5.1 1.5 -2.1 12.4 3.6 -1.4 5.9 4.3 3.5 5.2 3.5 4.5 4.4 6.0 5.3 7.4 - Sub-Saharan Africa 3.2 1.1 -3.2 1.4 -5.8 9.8 -1.6 6.3 1.5 -0.8 0.5 -1.2 0.1 3.6 -1.8 -0.4 -0.8 5.2 0.8 - Inflation, S.A. 1 High Income Countries 2.3 2.1 2.4 3.1 3.0 2.9 2.4 3.0 3.1 2.9 2.8 2.4 2.4 2.4 2.0 2.0 1.9 1.8 1.6 1.3 Developing Countries 6.0 6.3 5.6 5.5 5.4 5.0 5.0 5.2 5.0 4.8 5.0 4.7 5.1 5.2 5.4 5.4 5.5 5.2 5.2 5.2 East Asia and Pacific 2.9 3.0 2.9 2.9 2.5 2.2 1.8 2.2 2.1 2.2 2.3 1.5 2.0 2.0 2.2 1.9 2.0 2.2 2.4 2.1 Europe and Central Asia 9.0 6.5 6.3 7.9 8.5 8.9 9.1 8.7 8.9 9.1 8.6 8.3 9.0 9.9 11.1 11.0 10.1 9.7 9.7 10.2 Latin America and Caribbean 4.8 5.1 4.7 4.9 5.3 5.3 5.8 5.4 5.3 5.3 5.2 5.4 5.7 6.2 6.1 6.3 6.6 6.9 6.9 6.9 Middle East and N. Africa 13.8 19.2 13.2 9.7 10.1 10.7 10.7 10.1 10.5 10.5 11.2 10.3 10.8 11.1 11.3 11.7 11.2 9.6 8.7 - South Asia 9.4 10.1 8.1 7.8 6.7 4.2 5.0 5.8 4.8 3.5 4.4 5.1 5.1 4.9 4.6 4.8 5.1 3.5 3.6 4.1 Sub-Saharan Africa 11.1 8.1 8.6 9.2 9.8 8.4 7.6 9.3 8.3 8.4 8.5 7.6 7.5 7.5 8.0 8.3 9.0 8.9 8.8 - 1 Inflation is calculated as the GDP-weighted average for all groups. Trade and Finance indicators expressed as %ch y/y, except International Reserves are %ch p/p and trade quarterly figures are %ch q/q, annualized 2014 2015 2014 2015 2012 2013 Q1 Q2 Q3 Q4 Q1 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Exports, Nominal, US$, S.A. World 0.3 1.8 -1.2 3.9 1.6 -16.0 -28.1 2.8 -1.3 -4.5 -4.0 -11.1 -7.4 -13.4 -13.7 -13.6 -8.1 -13.7 -13.3 - High Income Countries -1.2 1.3 1.8 1.1 -2.5 -19.1 -29.5 1.1 -3.4 -6.3 -5.6 -12.9 -13.6 -13.8 -15.3 -15.5 -9.9 -15.0 -14.7 - Developing Countries 3.9 3.1 -8.1 10.8 11.8 -8.5 -24.9 7.1 3.6 -0.4 -0.2 -7.1 8.3 -12.4 -10.0 -9.3 -3.9 -10.7 -10.0 - East Asia and Pacific 6.3 6.4 -11.3 17.8 19.0 0.5 -17.5 12.6 8.3 3.4 5.6 -3.4 29.3 -11.6 -6.6 -4.4 0.6 -7.8 -6.2 -4.9 Europe and Central Asia 1.6 -1.4 7.9 -7.3 -9.1 -29.0 -17.3 -2.0 -5.7 -11.4 -13.9 -13.4 -16.4 -18.5 -16.4 -21.8 -14.7 -20.8 -15.0 - Latin America and Caribbean 2.4 0.6 -7.5 8.5 3.6 -23.7 -18.5 1.2 -3.3 -7.7 -6.0 -7.8 -12.3 -5.5 -11.9 -14.5 -7.0 -11.4 -16.4 - Middle East and N. Africa 5.0 -11.1 -6.1 -1.4 27.4 -12.1 -60.1 2.0 16.5 -3.4 -10.4 -15.5 -21.8 -18.1 -11.1 - - - - - South Asia -1.8 6.2 -6.9 11.1 0.5 -1.0 -46.8 0.0 -5.5 8.7 -0.7 -7.6 -12.5 -17.2 -12.6 -16.7 -10.0 -8.4 -17.4 -23.1 Sub-Saharan Africa -2.4 -1.1 -1.1 -7.9 -4.3 -29.7 -47.6 -2.6 -10.9 -11.4 -12.4 -25.9 -28.6 -18.6 -25.08 -16.04 -18.0 - - - Imports, Nominal, US$, S.A. World 0.7 1.6 4.5 -1.7 0.4 -14.6 -30.9 4.0 -2.0 -4.1 -3.2 -13.4 -13.0 -11.5 -14.4 -15.4 -9.1 -13.3 -12.5 - High Income Countries -1.0 0.5 5.3 0.0 -3.4 -16.9 -28.6 2.4 -3.3 -5.3 -3.7 -13.2 -13.1 -12.5 -15.1 -15.5 -10.4 -14.8 -11.8 - Developing Countries 4.9 4.1 2.8 -5.7 9.9 -9.0 -36.1 7.6 1.0 -1.3 -1.9 -13.7 -12.8 -9.0 -12.5 -15.3 -5.9 -9.6 -14.2 - East Asia and Pacific 5.7 6.1 5.0 -12.9 11.3 -9.7 -39.9 6.7 2.8 -5.3 -3.8 -17.3 -17.0 -9.7 -14.1 -15.8 -5.3 -9.1 -14.0 -19.1 Europe and Central Asia 0.7 2.6 -14.1 -7.9 -7.2 -6.4 -30.2 -5.2 -7.9 -9.2 -9.8 -15.3 -12.8 -12.5 -17.4 -18.0 -14.2 -15.1 -17.9 - Latin America and Caribbean 4.0 3.8 5.6 1.7 4.7 -5.5 -19.2 8.7 -2.8 2.4 5.2 -7.3 -7.0 -0.6 -10.7 -14.8 -4.0 -10.4 -13.0 - Middle East and N. Africa 10.8 3.9 -0.5 -3.6 17.3 -19.9 -27.2 7.5 -1.6 -3.7 -2.5 -11.2 -7.1 -11.3 -7.6 - - - - - South Asia 4.0 -4.0 11.2 8.7 34.3 -12.9 -54.5 24.5 7.1 21.5 -1.2 -12.3 -13.1 -12.8 -7.5 -12.0 -10.4 -9.2 -12.5 -23.9 Sub-Saharan Africa 3.8 5.9 1.2 17.2 -1.2 4.7 -28.1 9.0 4.7 3.1 7.8 -1.9 1.9 -10.1 -10.8 - - - - - International Reserves, US$ High Income Countries 9.2 3.2 0.8 0.7 -1.9 -1.5 -0.4 -1.4 -0.7 0.1 -0.8 0.3 -0.1 -0.6 0.8 -0.3 -0.1 -0.6 0.2 - Developing Countries 5.5 8.7 1.8 1.5 -1.9 -1.7 -2.5 -1.7 -0.7 -0.2 -0.8 -0.7 -0.2 -1.5 0.7 -0.6 -0.2 -1.0 -1.8 -1.30 East Asia and Pacific 4.5 12.2 3.0 1.2 -2.5 -1.4 -2.8 -2.1 -0.8 -0.3 -0.4 -0.8 -0.2 -1.9 0.6 -0.9 -0.4 -1.3 -2.4 -1.21 Europe and Central Asia 11.4 3.5 -4.7 4.2 -0.5 -7.2 -6.2 -1.4 -1.5 -1.1 -4.7 -1.7 -2.8 -1.9 0.9 0.0 0.2 0.7 1.4 - Latin America and Caribbean 9.9 1.8 0.7 3.3 1.5 -1.8 -0.1 0.2 -0.1 0.4 -2.2 0.4 -0.6 0.0 0.7 -0.1 0.1 -0.4 -0.8 -2.1 Middle East and N. Africa 5.9 3.0 -1.9 -2.2 -3.8 -2.8 -5.9 -2.3 -0.2 0.3 -2.9 -3.3 -0.4 -2.3 1.7 -0.64 - - - - South Asia 0.4 -0.2 3.8 5.6 -0.6 2.1 5.9 -1.4 0.5 -0.3 1.9 1.8 3.2 0.8 1.5 1.7 1.5 -0.3 -0.3 -0.5 9 October 2015 Financial Markets 1 2014 2015 2014 2015 MRV Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Interest rates and LIBOR (%) U.S. Fed Funds Effective 0.09 0.10 0.11 0.13 0.09 0.09 0.09 0.12 0.12 0.11 0.11 0.12 0.12 0.13 0.13 0.15 0.14 0.13 ECB repo 0.12 0.05 0.05 0.05 0.06 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.00 0.05 US$ LIBOR 3-months 0.23 0.24 0.26 0.28 0.23 0.23 0.23 0.25 0.25 0.26 0.27 0.28 0.28 0.28 0.29 0.32 0.33 0.32 EURIBOR 3-months 0.13 0.00 0.00 0.00 0.06 0.06 0.06 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.06 US 10-yr Treasury yield 2.49 2.27 1.96 2.15 2.52 2.29 2.32 2.20 1.88 1.98 2.04 1.92 2.19 2.35 2.32 2.14 2.14 2.03 German Bund, 10 yr 1.07 0.77 0.35 0.53 1.00 0.87 0.79 0.64 0.45 0.35 0.26 0.16 0.58 0.83 0.76 0.66 0.68 0.55 Spreads (basis points) JP Morgan Emerging Markets 301 367 425 380 312 349 350 402 443 420 411 388 369 384 397 397 442 428 Asia 195 202 219 201 187 207 193 206 233 215 208 206 195 203 212 212 250 240 Europe 262 319 399 336 270 295 293 368 417 396 384 350 327 330 328 328 347 324 Latin America & Caribbean 366 471 537 487 390 443 455 516 560 531 521 488 471 504 527 527 585 569 Middle East 369 398 449 420 358 395 388 411 452 452 443 441 409 410 420 420 479 503 Africa 280 319 373 355 270 307 306 343 385 364 371 361 345 358 374 374 472 476 Stock Indices (end of period) 2 Global (MSCI) 417 417 425 424 417 419 426 417 410 432 425 436 435 424 427 403 382 407 High-Income ($ Index) 1698 1710 1741 1736 1698 1708 1740 1710 1678 1773 1741 1778 1779 1736 1766 1659 1582 1684 United States (S&P-500) 1972 2059 2068 2063 1972 2018 2068 2059 1995 2105 2068 2086 2107 2063 2104 1992 1920 2033 Euro Area (S&P-350$) 1411 1401 1624 1552 1411 1382 1425 1401 1502 1603 1624 1618 1630 1552 1614 1478 1405 1473 Japan (Nikkei-225) 16174 17674 19207 20236 16174 16414 17460 17451 17674 18798 19207 19520 20563 20236 20585 18812 17388 18292 Developing Markets (MSCI) 1005 956 975 972 1005 1016 1005 956 962 990 975 1048 1004 972 902 882 792 865 EM Asia 460 457 481 475 460 467 467 457 468 479 481 514 499 475 440 433 391 428 EM Europe 374 297 302 311 374 369 353 297 286 313 302 338 320 311 293 285 259 284 EM Europe & Middle East 321 257 258 266 321 314 303 257 247 269 258 286 271 266 253 246 226 244 EM Latin America & Caribbe 3171 2728 2451 2517 3171 3158 3008 2728 2555 2654 2451 2693 2496 2517 2305 2206 1895 2047 Exchange Rates (LCU / USD) High Income Euro Area 0.76 0.80 0.89 0.90 0.78 0.79 0.80 0.81 0.86 0.88 0.92 0.92 0.90 0.9 0.91 0.89 0.89 0.88 Japan 104.04 114.62 119.16 121.38 107.39 108.02 116.40 119.44 118.33 118.78 120.37 119.53 120.87 123.7 123.39 122.71 120.10 119.44 Developing Brazil 2.28 2.55 2.87 3.07 2.34 2.45 2.55 2.65 2.64 2.82 3.15 3.04 3.06 3.1 3.23 3.53 3.89 3.92 China 6.16 6.15 6.24 6.20 6.14 6.13 6.13 6.19 6.22 6.25 6.24 6.20 6.20 6.2 6.21 6.34 6.38 6.35 Egypt 7.15 7.15 7.49 7.61 7.15 7.15 7.15 7.15 7.27 7.59 7.60 7.60 7.62 7.6 7.81 7.83 7.83 7.93 India 60.59 61.96 62.24 63.43 60.87 61.40 61.70 62.77 62.20 62.06 62.48 62.69 63.76 63.8 63.65 65.09 66.16 64.82 Russia 36.31 47.98 62.87 52.69 38.01 40.96 46.30 56.67 64.33 64.16 60.13 52.82 50.65 54.6 57.53 66.23 67.10 61.28 South Africa 10.77 11.22 11.74 12.08 10.99 11.06 11.09 11.51 11.56 11.58 12.08 11.99 11.97 12.3 12.46 12.94 13.67 13.09 Memo: USA nominal effective ra 110.75 114.29 120.07 121.86 111.87 112.87 114.06 115.94 118.13 119.99 122.10 121.76 121.40 122.4 123.89 126.13 127.55 126.41 1 MRV = Most Recent Value. 2 MSCI Indices for Asia, Africa, and Europe and C. Asia, for 2008 are calculated from February-December, due to data availability. 3 Change expressed in levels for interest rates and spreads; percent change for stock market and exchange rates. Commodity Prices 2014 2015 2015 MRV Q3 Q4 Q1 Q2 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oil price, $/b, nominal 1 100 75 52 60 96 86 77 61 47 55 53 57 63 61 54 45 46 48 Non - Oil Index 2 74 71 66 64 72 71 72 70 67 66 64 64 65 63 62 58 58 59 3 Metals and Minerals Index 89 83 74 73 87 84 84 80 75 74 73 73 76 72 67 64 65 65 Baltic Dry Index 4 954 1105 614 629 1123 1101 1332 881 727 539 576 591 596 699 975 1061 889 754 1 Simple average of Brent, Dubai and WTI. 2 Base Date = Jan 3, 2011 due to data availability. The Index component combination in the Weekly tables differs from 3 Base Date = Jan 4, 2010 due to data availability. The Index component combination in the Weekly tables differs from 4 Base Date = May 1, 1985 10