Transcript Highlights CDS spreads for selected economies Spreads on credit default swaps basis points 1,200 1,000 Average of Brazil, Russia, China, Turkey, and Indonesia Greece Portugal Ireland Spain Italy 200Oct-09 Nov-09 Dec-09 Jan-10 Source:

Highlights
CDS spreads for selected economies
Spreads on credit default swaps
basis points
1,200
1,000
800
Average of Brazil, Russia, China, Turkey, and Indonesia
Greece
Portugal
Ireland
Spain
Italy
600
400
200
0
Oct-09 Nov-09 Dec-09
Jan-10
Source: JP Morgan and World Bank data
Feb-10 Mar-10 Apr-10 May-10 Jun-10
Jul-10
Developing-country production growth easing
industrial production, ch% (3mma, saar)
25
Developing countries
15
5
World
-5
-15
High-income OECD
-25
Developing ex China
-35
Jan-08
May-08 Sep-08
Jan-09
May-09 Sep-09
Source: DECPG.
Jan-10
May-10
OECD developments
WEO Update lowers growth outlook
for Europe in 2011
2011
4.3
0.4
0.0
2.6
2.4
0.3
0.0
-4.1
1.0
1.3
0.0
-0.2
Germany
-4.9
1.4
1.6
0.2
-0.1
Spain
-3.6
-0.4
0.6
0.0
-0.3
Japan
-5.2
2.4
1.8
0.5
-0.2
United States
-2.4
3.3
2.9
0.2
0.3
Advanced Econ
Euro Area
2011
-0.6
4.6
-3.2
Difference from
April WEO
2010
World GDP
2009 2010
Source: IMF, WEO Update, July 8, 2010.
G-20 agrees to the principle of
“growth friendly” fiscal consolidation
Fiscal balances, %GDP
Public sector financial liabilities, %GDP
0
250
-2
200
-4
150
-6
100
-8
-10
50
-12
0
2007 2008 2009 2010F 2011F
2007 2008 2009 2010F 2011F
OECD Fiscal
U.S. Fiscal
OECD Debt
U.S. Debt
Euro Area Fiscal
Japan Fiscal
Euro Area Debt
Japan Debt
Source: DECPG staff estimates.
Select OECD core CPI moves lower on muted
goods prices tied to weaker demand
6
core-CPI: OECD, USA, Euro Area, Spain , Japan and Ireland, ch% (3m/3m saar)
USA
Euro Area
Spain
Japan
Ireland
4
2
0
-2
-4
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
Source: Thomson/Datastream and DECPG calculations
May-10
Progress in reducing U.S. layoffs stalls
adding downward pressure on retail sales
unemployment claims, 4-wk average ‘000 [L] ; retail sales (x-auto) volume, ch% saar [R]
650
12
unemployment claims [L]
600
6
550
0
500
450
retail sales (x-autos)
volume [R]
400
350
300
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Source: U.S. Departments of Commerce and Labor.
-6
-12
-18
Jul-10
U.S. investment to pick-up in second quarter
with orders, exports and output higher
capacity utilization (%) [L], growth of orders, production and export volumes (saar) [R]
82.5
80.0
capacity util [L]
cap-goods orders [R]
exports [R]
25
77.5
75.0
40
10
production [L]
-5
72.5
-20
70.0
-35
67.5
-50
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10
Source: U.S. Department of Commerce.
U.S. bank lending continues decline
hitting business without access to bond markets
1,700
Commercial & industrial loans ($billions) [L] ; percentage change (y/y) [R]
percentage change (y/y) [R]
1,600
-5
C&I loans [L]
1,400
-10
-15
1,300
Jan-08
5
0
1,500
1,200
10
-20
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Source: Federal Reserve of St. Louis.
-25
Jul-10
German exports surge on weaker euro
and foreign demand for capital goods
export orders, export volumes and manufacturing output, ch% (saar)
65
50
35
20
5
-10
-25
-40
-55
-70
export orders
exports
manufacturing output
Jan-08
May-08 Sep-08
Jan-09
May-09 Sep-09
Source: Eurostat.
Jan-10
May-10
Euro Zone household spending
continues in the doldrums
4.5
retail sales volumes: Euro Area, Germany, France (mfg gds), Italy, ch% (y/y)
France
3.0
1.5
Euro Area
Italy
0.0
-1.5
Germany
-3.0
-4.5
Jan-08 May-08 Sep-08
Jan-09 May-09 Sep-09
Source: Eurostat.
Jan-10 May-10
Japan sees sobering slump in machinery
orders, exports and manufacturing output
machinery orders, export volumes and manufacturing output, ch% (saar)
60
45
30
15
0
-15
-30
-45
-60
-75
exports
manufacturing output
machinery orders
Jan-08
May-08 Sep-08
Jan-09
May-09 Sep-09
Source: Japan Cabinet Office.
Jan-10
May-10
Industrial production
Growth in retail sales eases on weak labor
markets in high-income countries
15
11
Retail sales proxy, ch% (y/y)
Developing countries
7
Global, excl. USA
3
-1
High-income, excl.USA
-5
Jan-04 Nov-04 Sep-05 Jul-06 May-07 Mar-08 Jan-09 Nov-09
Sources: Thomson Datastream and DEC Prospects Group
Recovery continues through April / May
but may be slowing
Industrial production, index August 2008=100
130
120
110
100
90
80
70
China
Other high-income
Euro Zone
60
50
Jan-05
Jan-06
Jan-07
Jan-08
Other developing
USA
Japan
Jan-09
Jan-10
Sources: Thomson Datastream and DEC Prospects Group
Positive contribution to U.S. growth of
business inventories may be coming to an end
Contribution to total business sales growth (manufacturing, wholesale
and retail), seasonally adjusted
10
8
6
4
2
0
-2
-4
-6
-8
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
Sources: U.S. Census Bureau and World Bank DEC Prospects Group
International Trade
120
Export volumes losing momentum
across developing regions
115
110
105
100
95
90
85
80
75
East Asia & Pacific
Europe & Central Asia
70
Latin America & the
Caribbean
Middle East & North Africa
65
South Asia
60
Sub-Saharan Africa
55
U.S. and Japanese exports slow as
East Asian demand decelerates
import and export volumes, ch% (3mma, saar)
100
China M
NIE M
80
USA exports
JPN exports
60
EU imports
40
20
0
-20
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
Source: DEC Prospects Group.
May-10
Source: WTO.
Commodity Prices
Oil price and OECD stocks
$/bbl
million bbl
160
140
2900
Price
Stocks
2800
120
2700
100
2600
80
2500
60
2400
40
2300
20
2200
0
Jan-00 Mar-01 May-02 Jul-03 Sep-04 Nov-05 Jan-07 Mar-08 May-09 Jul-10
2100
Growth in world oil demand (y/y)
4.0
mb/d
3.0
2.0
1.0
0.0
-1.0
Other
Other Asia
-2.0
-3.0
China
OECD
-4.0
1Q00 4Q00 3Q01 2Q02 1Q03 4Q03 3Q04 2Q05 1Q06 4Q06 3Q07 2Q08 1Q09 4Q09
OPEC spare capacity
9.0
8.0
mb/d
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jan-01 Dec-01 Nov-02 Oct-03 Sep-04 Aug-05 Jul-06 Jun-07 May-08 Apr-09 Mar-10
Non-Commodity Prices
Agriculture Prices
350
300
2000=100
Raw Materials
Beverages
250
200
150
Food
100
50
0
Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10
Nickel price and LME stocks
$/ton
'000 tons
60,000
180
160
50,000
Price
Stocks
140
40,000
120
100
30,000
80
20,000
60
40
10,000
20
0
Jan-05
0
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Ocean Bulk Freight - Baltic Dry Index
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07
Jul-08
Feb-09 Sep-09 Apr-10
International Finance
Subdued June recovery in cross-border debt flows
$ billion
2008
2009
2010
H1
Total
H1
Total
H1
Apr
May
Jun
180
305
77
253
154
39
12
17
Bonds
51
62
35
124
91
29
3
7
Banks
129
243
42
129
63
11
9
9
Lat. America
38
63
31
109
49
15
1
7
E. Europe
84
145
21
65
48
12
4
5
Asia
27
47
14
45
37
8
4
3
Others
32
51
12
34
21
4
4
1
Total
$ billion
EM corporates increasingly relied on
international bond markets in 2010
60
Corporate (Private and Public)
50
Sovereign
40
30
20
10
0
2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2
4
3
International banks' claims in developing
countries rose in 2009
Local currency claims
International claims
3
2
2
1
1
0
Mar.2006 Sep.2006 Mar.2007 Sep.2007 Mar.2008 Sep.2008 Mar.2009 Sep.2009
Foreign exchange / Inflation
Euro losses start to dissipate in July
yen gains appreciably vs dollar in the month
USD per Euro (inverse) [Left] and Yen per USD [right]
Jan-10
1.180
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
95.00
1.220
93.75
1.260
92.50
1.300
91.25
1.340
90.00
1.380
1.420
88.75
USD/Euro (inverse)
yen/USD
1.460
Source: Thomson/Datastream and DECPG calculations.
87.50
86.25
End of dollar-fix for Chinese RMB
yields modest gains vs U.S. unit
Index, RMB cross-rates, March 1, 2010=100
115.0
112.5
USD per RMB, daily: March 1 to July 16
0.1480
LCU per RMB
0.1475
110.0
107.5
0.1470
105.0
102.5
0.1465
100.0
97.5
0.1460
US dollar
Euro
Yen
USD per RMB
Source: Thomson/Datastream and DECPG calculations.
Net U.S. capital flows show dramatic
“flight to quality” in the 6 months to March
net annualized flows in billions U.S. dollars
700
600
500
400
300
200
100
0
-100
-200
-300
Q1-2009
Q2-2009
Net FDI + Equity
Net Other Flows
Q3-2009
Q4-2009
Q1-2010
U.S. Treasuries
Financing requirement
Source: Department of Commerce.
FOCUS
0.90
Euro Interbank Offer rates continued to rise,
while Euribor/Eonia spread eased slightly
percent
percent
0.85
0.5
0.45
0.80
0.4
0.75
0.35
3-month Euribor (left axis)
0.70
0.3
0.65
0.25
0.60
Euribor/Eonia spread (right axis)
0.55
0.2
0.50
Jan-10
0.15
Source: Bloomberg
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Excess reserves at the ECB declined
significantly in recent weeks
450
400
350
300
250
200
150
100
50
0
-50
Jan-09
Mar-09
Source: Bloomberg
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
CDS spreads for selected economies
Spreads on credit default swaps
basis points
1,200
1,000
800
Average of Brazil, Russia, China, Turkey, and Indonesia
Greece
Portugal
Ireland
Spain
Italy
600
400
200
0
Oct-09 Nov-09 Dec-09
Jan-10
Source: JP Morgan and World Bank data
Feb-10 Mar-10 Apr-10 May-10 Jun-10
Jul-10