Transcript Highlights Second-quarter GDP growth slows in U.S. and Japan… surges in Euro Zone growth at seasonally-adjusted annualized rates Q4-2009 Q1-2010 Q2-2010 United States Japan Euro Area Source: National Agencies.

Highlights
6
Second-quarter GDP growth slows in U.S.
and Japan… surges in Euro Zone
growth at seasonally-adjusted annualized rates
Q4-2009
Q1-2010
Q2-2010
4
2
0
United States
Japan
Euro Area
Source: National Agencies through Datastream.
Domestic demand growth was robust in the
United States and Europe in Q2-10
domestic demand, growth at seasonally adjusted annualized rates
5
Q4-2009
4
Q1-2010
Q2-2010
3
2
1
0
-1
-2
United States
Japan
Euro Area
Source: World Bank, DEC Prospects Group.
OECD Developments
6
Second-quarter GDP growth slows in U.S.
and Japan… surges in Euro Zone
growth at seasonally-adjusted annualized rates
Q4-2009
Q1-2010
Q2-2010
4
2
0
United States
Japan
Euro Area
Source: National Agencies through Datastream.
Domestic demand in U.S. and Europe…
offset and amplified by external trade
growth at seasonally-adjusted annualized rates
contributions to growth a annualized rates
Foreign contribution to GDP
Domestic demand growth
6
5
4
3
2
1
0
-1
-2
4
3
2
1
0
-1
-2
-3
-4
Q4-2009
Q1-2010
Q2-2010
United
States
Japan
Euro Area
United
States
Japan
Source: World Bank, DEC Prospects Group.
Euro Area
Second-quarter surge in trade
unlikely to be sustained
U.S real imports of goods and services; German real exports of goods and services
40
30
U.S. imports
German exports
20
10
0
-10
-20
-30
-40
Q1 2008
Q3 2008
Q1 2009
Q3-2009
Q1 2010
Source: Thomson/Datastream and DEC Prospects Group
U.S. retail up monthly in July & August
but momentum has faded as savings rise
retail ex autos and real-PCE, ch% (saar) [L]; personal saving rate (%) right
10
8
5
0
7
-5
-10
6
-15
Retail excluding autos (left scale)
-20
5
Personal consumption (left scale)
-25
-30
4
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Source: U.S. Department of Commerce.
Jul-10
U.S. factory output easing
with I/S in better balance and orders down
manufacturing production, ch% (saar) [Left]; capital goods orders, ch% (saar) [Right]
15
60
10
40
5
20
0
-5
0
-10
Capital goods orders, [right scale]
-20
Mfgr production [left scale]
-15
-40
-20
-25
-60
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Source: Thomson/Datastream and DECPG calculations.
U.S. employment growth stagnant while
hourly earnings drop to 1.7% growth (y/y)
change in non-farm employment (‘000), [Left]; hourly earnings (ch%, year/year)
600
400
4.0
Hourly earnings, [right scale]
3.5
200
0
3.0
-200
2.5
-400
-600
-800
-1000
Jan-08
2.0
Change in employment [left scale]
May-08 Sep-08
Jan-09
May-09 Sep-09
1.5
Jan-10
Source: U.S. Department of Labor.
May-10
Japan’s 2nd quarter growth falters on
weaker net exports and consumer spending
growth of real GDP, and contributions to growth in percentage points
6
4
5.0
3.4
1.5
2
0
-2
Q4-2009
Prv Consumption
change in Stocks
Q1-2010
Gvt Consumption
Net Exports
Q2-2010
Fixed Investment
GDP
Source: Japan Cabinet Office, MITI.
Japan’s export volumes fall to negative ground
on weaker Asian demand and stronger yen
goods export volumes, ch% (saar) [Left]; yen per U.S. dollar [right]
75
100
Export volumes [left scale]
98
50
96
25
94
0
92
90
-25
88
-50
86
Yen per U.S. dollar [right scale]
-75
84
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Source: Thomson/Datastream and DECPG calculations.
Euro zone growth mixed across
countries
GDP growth
12
10
Germany
8
6
4
2
0
-2
-4
-6
-8
IRL
DEU
SWE
FIN
BEL
NLD
FRA
ITA
PRT
ESP
NOR
GRC
Investor expectations of future
economic conditions on downward
path in Germany
60
Industrial production, ch% (3m/3m saar)
50
40
30
ZEW
20
10
0
-10
Nov-09
Jan-10
Mar-10
May-10
Source: World Bank, DEC Prospects Group
Jul-10
Sep-10
Planned budget cuts in Europe (%GDP)
in 2010-2015
Country
Austria
Belgium
France
Germany
Greece
Hungary
Ireland
Italy
Netherlands
Portugal
Spain
Budget cuts
(%0.90%
of GDP)
5.30%
4.50%
3.00%
10.70%
1.60%
3.20%
1.60%
2.10%
6.60%
8.20%
Source: CESIFO
U.S. LIBOR easing on expectations of
continued loose policy on part of the Fed
1.30
EURIBOR 6M
1.15
1.00
0.85
USD LIBOR 6M
0.70
0.55
0.40
0.25
Jan-10
Feb-10 Mar-10
Apr-10 May-10
Jun-10
Jul-10
Source: Thomson/Datastream.
Aug-10
Sep-10
Industrial Production
Industrial growth momentum slows
down across regions (3mm, saar)
20.0
BRC
HIY
DEV
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10
Jul-10
In contrast with other economies, industrial
production firms up in the US (3mm, saar)
35
CHN
DEU
JPN
USA
30
25
20
15
10
5
0
-5
-10
Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10
Jul-10
Global PMI for manufacturing output
continues downslide
59
58
57
56
55
54
53
52
51
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10
Jul-10 Aug-10
International Trade
World trade growth has recovered to
pre-crisis levels
1200
40
Export volume $ billion (left scale)
30
Export volume s saar % (right scale)
1000
20
10
800
0
600
-10
-20
400
-30
-40
200
-50
0
-60
08 Jan
Apr
Jul
Oct
09 Jan
Apr
Jul
Oct
10 Jan
Apr
US and Japan import demand gaining
momentum
100.0
Import volume growth, saar, %, June 2008—August 2010
80.0
80.0
60.0
60.0
40.0
40.0
20.0
20.0
0.0
0.0
-20.0
-20.0
-40.0
-60.0
-80.0
08Jun
Sept
Dec
Mar
Jun
Sept
Dec
BRICs
Euro Area
Japan
US
Mar
Jun
-40.0
-60.0
-80.0
An unabated accumulation of trade
distorting measures
700
600
Measures that are discriminatory
Measures that may discrimanate
Trade liberalizing measures
500
400
300
200
100
0
G20 May
G20 August
Source: National Agencies through Datastream.
Commondity Prices
Daily oil prices
$/bbl
160
140
120
100
WB average
80
60
40
20
0
Jan-00
May-01
Oct-02
Feb-04
Jul-05
Nov-06
Apr-08
Aug-09
OPEC production and spare capacity
32
OPEC crude oil production (left scale)
9
31
8
30
7
6
29
5
28
4
27
3
26
2
Spare capacity (right scale)
25
24
Jan-00
1
0
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
OECD oil stocks
million bbl
2,800
2,700
2,600
2,500
2,400
2,300
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Agriculture Prices
2000=100
350
Raw Materials
300
Beverages
250
200
150
Food
100
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Nickel price and LME stocks
$/ton
10,000
$/ton
60000
Copper
8,000
50000
40000
6,000
30000
4,000
20000
Nickel [RHS]
10000
2,000
0
0
Aluminum
-10000
World Copper Consumption
'000 tons
1,200
1,000
800
Other
China
600
400
200
0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
International Finance
Capital flows to emerging markets
slowed in August
$ billion
2008
Total
Total
Bonds
Banks
Equity
390
65
257
68
110
36
43
32
353
115
129
109
Lat. America
Bonds
E. Europe
Bonds
Asia
Bonds
Others
90
20
157
35
98
7
45
37
15
22
13
44
6
7
137
62
72
33
122
16
22
2009
2010
H1 Total Jan-Aug H1 Jun Jul Aug YTD
Source: DECPG
167 196 27 52 21 268
56 86 6 23 9 118
63 54 10 13 10 77
48 56 11 15 3 74
55
22
39
23
62
8
11
64 11 11 6
36 4 10 5
51 9 13 4
31 2 9 1
66 6 24 10
14 0.4 2.7 3
15 1 3 1
80
51
69
41
99
20
20
Bank lending has failed to recover
to pre-crisis levels
$ billion
320
Bond issuance
280
Bank lending
240
200
160
120
80
40
0
2005
2006
2007
2008
2009
2010e
Sovereign debt of some European
countries is under pressure again
5-year sovereign CDS spreads (bps)
1200
1000
800
600
Greece
Ireland
Spain
Portugal
400
200
0
Nov-09
Jan-10
Mar-10
Source: Bloomberg and DECPG staff calculations.
May-10
Jul-10
Sep-10
Market Focus: EM Valuation
Equity Performance
(Rebased)
300
250
MSCI EM
MSCI Developed
200
150
100
50
0
Jan-00
Source: MSCI
Jul-01
Jan-03
Jul-04
Jan-06
Jul-07
Jan-09
Jul-10
Relative equity valuation EM vs DM
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6
-0.7
Jan-00
Jul-01
Jan-03
Jul-04
Source: Bloomberg, MSCI, CCS Calculations
Jan-06
Jul-07
Jan-09
Jul-10
Emerging Market Correlations with S&P 500
Mar/2010 - Sep/2010
Feb/2008 - Feb/2010
Jan/2001 - Mar/2007
Malaysia
Philippines
China
India
Thailand
Indonesia
South Africa
Morocco
Egypt
Turkey
Russia
Poland
Czech Rep
Hungary
Brazil
Chile
Colombia
Peru
Argentina
Mexico
-0.4
Source: MSCI and
CCS Calculations
-0.2
0
0.2
0.4
0.6
0.8
1
Currencies and Inflation
Euro picks up modestly….
Japan weakens yen at 15-year high vs USD
Jan-10
1.180
USD per Euro (inverse) [Left] and Yen per USD [right]
Mar-10
May-10
Jul-10
Sep-10
95.00
1.220
92.50
1.260
90.00
1.300
1.340
87.50
1.380
85.00
1.420
1.460
USD/Euro (inverse)
yen/USD
Source: Thomson/Datastream and DECPG calculations.
82.50
Mixed developments in
real effective exchange rates
125
115
105
real effective exchange rates, indexes, January 2009 = 100
USA
Germany
Japan
China
Russia
Brazil
India
95
85
2009M01
2009M05
2009M09
2010M01
Source: IMF and DEC Prospects Group.
2010M05
Headline CPI inflation broadly easing
save for India and China
20
15
”Headline” consumer price indexes, ch% (year-on-year)
USA
Germany
Japan
China
Russia
Brazil
Industrial production, ch% (3m/3m, saar)
India
10
5
0
-5
2009M01
2009M05
2009M09
2010M01
Source: IMF and DEC Prospects Group.
2010M05
Focus: Developments in
international grain markets
Wheat prices, weekly averages, US $/ton
500
400
300
200
100
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
300
Wheat daily prices for 2010, CME Nearby contract,
US$/ton
Announcement of the export ban by Russia (August 5)
270
240
210
Weather-related problems began unfolding
180
150
Jan-10
Feb-10 Mar-10 Apr-10 May-10 Jun-10
Jul-10
Aug-10 Sep-10
1,000
Wheat, Maize, and Rice Prices, monthly averages,
US$/ton
800
Wheat
Rice
Maize
Jan-06
Jan-07
600
400
200
0
Jan-04
Jan-05
Jan-08
Jan-09
Jan-10
Wheat Global Balance
Production
Consumption
Stocks
Export
Imports
2007
2008
2009
2010
2011P
596.1
618.3
129.8
111.8
114
611.2
613.2
124.3
117.3
113.8
683.3
635.7
165.1
143.8
136.9
680.4
648.6
196
133.8
132.8
643
658
177.8
126
122.8
Source: US Department of Agriculture (September 10, 2010 update).
Note: The years refer to marketing years (June-May), i.e., 2011 corresponds to June
2010-May 2011. The 2010 and 2011 figures are estimates and projections, respectively.
Energy and Fertilizer Nominal Price
Indices, 2000=100
1,000
Energy
Fertilizer
800
600
400
200
0
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Countries with the highest dependency
on wheat imports relative to their GDP
Eritrea
Mauritania
Georgia
Yemen
Kyrgyzstan
Gambia
Guyana
Ethiopia
Mozambique
Guinea-Bissau
Uganda
St. Vincent
Haiti
Egypt
Fiji
Senegal
Tunisia
Jordan
Guinea
Tanzania
0.0%
0.5%
1.0%
1.5%
Source: DECPG estimates
2.0%
2.5%
3.0%
50
Price changes of key staples: April
08 - July 10
Country
Afghanistan
Nigeria
Rwanda
Mongolia
Mali
Nepal
Burundi
Zimbabwe
Zambia
Tanzania
Uganda
Kenya
Commodity
Percent change
Wheat
Sorghum
Beans
Rice
Millet
Rice
Beans
Maize
27%
20%
13%
10%
10%
9%
-18%
-21%
Maize
Maize
Maize
Maize
-22%
-25%
-25%
-43%
Source: Food Price Watch, September 2010, PREM
Calories derived from wheat as a
share of total calorie intake
Syrian Arab Republic
Kyrgyzstan
Georgia
Turkey
Iran (Islamic Republic of)
Algeria
Tunisia
Uzbekistan
Tajikistan
Turkmenistan
Azerbaijan
-
0.10
0.20
0.30
Source: FAO
0.40
0.50
0.60
0.70
Wheat dependence on selected
AFR countries
Country
Ethiopia
Burundi
Zimbabwe
Malawi
Mozambique
Mauritania
Togo
Own-production Wheat aid,
as % of domestic WFP 2009
supplies
(tons)
79%
47%
37%
5%
0%
0%
0%
627,624
13,261
109,226
21,140
118,036
21,666
24,062
Wheat aid
as a share
of wheat
imports
104%
144%
56%
22%
33%
7%
29%
Source: WFP and DECPG staff calculations