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Prospects Weekly: Market confidence has been rattled once again

Market confidence has been rattled once again following recent election results in France and Greece. However, credit default swaps rates, while up, remain well below their fall 2011 highs. Through March, retails sales have continued strengthening among both developing and high-income economies, although weakness still persists in the Euro Area. Notwithstanding the post-crisis appreciation in the currencies of several developing countries, in general, their currencies still remain below pre-crisis peaks.

 
Euro Area sovereign debt concerns have resurfaced once again. Following elections in France and Greece, the political landscape in the Euro Area has changed. The new French President-elect has indicated his intention to add a growth component to the EU fiscal treaty, while the Greek elections were inconclusive, and the influence of anti-austerity parties has increased markedly. These events, plus the announced bail out of one of Spain’s largest banks have rattled investors’ confidence once again. Credit default swap rates (CDS) have risen by 95.3, 37.3, 25.8 and 19.4 basis points in Portugal, Spain, Italy and France, respectively between 4th and 9th May. Among other Euro Area countries, CDS rates are up an average 5.2 basis points, but remain 116.5 basis points below their fall 2011 peaks.

Retail sales continue to strengthen across most regions. Easing inflationary pressures, rising employment strong credit growth, and in some cases lower policy rates have contributed to an up-tick in developing country retail sales volumes during the three months ending February (10.7%, 3m/m saar). The strength of developing-country domestic demand is also reflected in their import demand, which increased at a 19 percent annualized pace over the same period. In the U.S., improving labor market and consumer confidence conditions have boosted retail sales growth. Even in Europe, where consumer confidence remains low, retail sales expanded in March - the first increase in 5 months. Nevertheless, demand remains shackled by high unemployment and ongoing fiscal austerity. Looking forward, recent easing in oil prices could support real-incomes and further boost retail sales.

 
Despite substantial appreciations since the trough of the crisis, the real-effective exchange rates of many developing countries remain below pre-crisis peaks. Measured from post-crisis troughs the currencies of many developing countries have appreciated strongly (by more than 30 percent in many cases). However, measured on a longer-term perspective, the real-effective exchange rates of currencies of Indonesia, Brazil, Russia, India and Turkey remain below pre-crisis peaks. Among major middle-income countries, China’s Renminbi has appreciated the most. While capital flows have contributed to short-term volatility, the appreciation since 2005 among commodity exporters like Brazil, Indonesia, and Russia appears to mainly reflect higher commodity prices.

Download the Prospects Weekly as PDF here.

‘Simplicity’ Key to Results-Based Aid & Financing

Christopher Neal's picture

“Results-based approaches” (RBAs) to development financing have mushroomed in recent years, partly due to tighter aid budgets, but more in response to a consensus that has emerged at development effectiveness forums in Rome, Paris, Accra and Busan.

RBAs have been adopted in numerous health and water projects, where expansion of access to a service—typically an immunization, an attended birth, a water connection—is the key indicator.

But RBAs are more scarce in the energy sector.

Why? Is the energy sector too complex? Are energy business models too diverse? Is there a results-based model that could work in the energy sector?

Minh bạch tài sản ở Việt Nam – Cần hành động mạnh mẽ và quyết liệt hơn

Huong Thi Lan Tran's picture

Available in English

Nếu bạn hỏi ai đó là điều gì hấp dẫn anh hay chị đến với Bangkok, bạn sẽ thường nghe câu trả lời đó là những món ăn đậm đà gia vị ngon tuyệt vời, những người Bangkok vui nhộn và hiều khách và một thành phố sống động kỳ lạ luôn tràn ngập ánh sáng mặt trời. Nhưng điều gì nữa đã đưa gần 40 chuyên gia trong lĩnh vực phòng chống tham nhũng từ 15 quốc gia trong khu vực Châu Á – Thái Bình Dương, từ Bộ phát triển quốc tế Anh, từ các cơ quan của Liên hợp quốc và từ Ngân hàng thế giới, đến với Bangkok cuối tháng 3 vừa qua? Đó là sự quan tâm học hỏi xem việc kê khai tài sản công chức ở các nước trên thế giới được thực hiện như thế nào và làm thế nào để kê khai tài sản trở thành một công cụ hữu hiệu hơn trong phòng chỗng tham nhũng.

Cuộc hội thảo khu vực về minh bạch tài chính (minh bạch hóa tài sản) đã được Ban liêm chính thị trường tài chính và Sáng kiến thu hồi tài sản bị đánh cắp (Stolen Asset Recovery Initiative (StAR)) của Ngân hàng thế giới tổ chức. Hội thảo này đã tạo ra cơ hội để chuyên gia các nước tham dự chia sẻ thông tin về thực hiện kê khai tài sản trong khu vực công của mỗi quốc gia, từ các quốc gia đã xây dựng hệ thống kiểm soát việc kê khai tài chính tương đối phát triển như Hàn Quốc và Thái Lan, hay các hệ thống mới được xây dựng như Đông Timor, và các hệ thống đã đạt được môt số kết quả nhất định như của Việt Nam và Trung Quốc. Các đại biểu đã nhiệt tình chia sẻ kinh nghiệm của mình, những khó khăn mà họ gặp phải và mong muốn được học hỏi lẫn nhau. Đối với Việt Nam, cùng với việc đánh giá 5 năm thực hiện Luật phòng chống tham nhũng, có một số thông điệp bổ ích có thể được nghiên cứu và áp dụng. 

About Development Economics

Shanta's picture

UPDATE (May 15th, 2012) Caroline Freund, World Bank Chief Economist for the Middle East and North Africa has joined the debate. See her remarks.

The Chief Economists of all the regions where the World Bank implements programs got together recently to exchange thoughts about the current state of development economics.

You can read a summary of our views related to Africa, South Asia, and Europe and Central Asia here. 

And we hope you can participate in this debate by sharing your own views via the comments section below.  

One Woman's Return from the Diaspora

Richard Cambridge's picture

I met Roselynd Laubhouet in 2004 when, as a recent graduate, she accepted an assignment as a Junior Professional Associate with the World Bank's Africa Region in Washington, D.C.  From day one, it was evident that Roselynd was special. Being an entrepreneur at heart, she was filled with dreams, aspirations, and a passion for her home country of Senegal (and her continent) that set her apart. 

When Roselynd and I reconnected in Abidjan last December, eight years after our first meeting, I was pleasantly surprised to learn that not only had she moved home to Senegal, but she had also started a successful international business. The journey from bureaucrat to entrepreneur was not easy, but it was clear that--having returned home--Roselynd was realizing her dreams.

I was curious to learn the secrets of her success, to understand the challenges facing returnees, and gather any advice for other Africans in the Diaspora considering a return.  Roselynd was kind enough to share her experiences with me in the hopes that other young women in the Diaspora might be inspired to follow in her footsteps.

Prospects Weekly: Headwinds from Euro Area likely to persist through the second quarter of 2012

Latest business surveys for the Euro Area suggest that the nascent recovery in activity in the region may be shortlived. Recent data suggests that Euro-Area deleveraging has had a negative impact on trade finance, but that trade finance availability should firm during 2012. Developing countries have made substantial progress toward reducing global poverty, but progress reducing child and maternal mortality rates (two factors closely linked to nutrition) has lagged.
 

Headwinds from Euro Area likely to persist through the second quarter of 2012. After Euro Area industrial production accelerated through February 2012, recent business surveys have taken a turn for the worse, suggesting that the recovery in activity may be short lived. Markit’s Purchasing Manager’s Index for both manufacturing and services in the Euro Area dipped deeper into contractionary territory in April. Although not conclusive, the decline suggests that the ongoing banking sector deleveraging, fiscal consolidation, rising unemployment, high-oil prices, and recent renewed concerns on Euro Area sovereign debts will continue to weigh on real sector activity in Q2. Continued European weakness bodes ill for developing country exporters.

 
Trade finance for firms in developing countries appears set to firm after recent weakness. European banking-sector deleveraging cut into trade finance flows as measured by Dealogic in the second half of 2011. Europe (includes both high-income and developing European economies) had been hardest hit, with Q1 2012 flows well below the levels observed even in Q4 2011, when European trade activity was falling at a 29.5 percent annualized pace. In developing regions the story is more mixed. In East Asia and Latin America the data shows some pick up perhaps reflecting entry of regional banks into the trade finance arena. In the Middle East the dissipation of some of the turmoil associated with political change in North Africa has supported flows. Trade finance flows to Africa are also up slightly. However, in South Asia, which witnessed a sharper Q4 2012 trade contraction, flows remain down. A recent ICC-IMF survey observed that the majority of respondents expected an improvement in the outlook for trade finance in 2012.

 
Developing countries make progress towards the Millenium Development Goals (MDGs). Two of the MDGs (benchmark development objectives for the year 2015 set by the UN in 2000) have been met, with a halving of global poverty rates and of the proportion of people without access to safe drinking water. However, MDGs closely linked to food and nutrition are lagging. One conservative estimate suggests that over 200 million children under five years of age in developing countries fail to reach their cognitive development potential because of risks of poor nutrition and poor health. Despite its critical role, only about 0.3% of aid flows are oriented toward nutrition. In recent years, progress has been further complicated by high food prices, which affect diet quality, real-incomes and access to quality of care for infants and young children.

 

Download the Prospects Weekly as PDF here.

Can global headwinds slow down Mexico’s economy?

Paloma Anós Casero's picture

También disponible en español

Uncertainty surrounding the global economy remains high. Despite relative calm in the markets, several black clouds are on the global economic horizon in 2012, with potentially serious consequences for Mexico, depending on how complicated the global situation becomes.

Leaders of UN, World Bank, IMF Discussing Sustainable Development with Finance Ministers

Rachel Kyte's picture

This year, the World Bank’s spring meetings are offering a rare opportunity for the heads of the United Nations, the World Bank Group, and the IMF to jointly talk to finance ministers from around the world about the critical importance of inclusive green growth and careful stewardship of the Earth’s natural resources.

The venue is a breakfast meeting this morning with over 30 national finance ministers. The meeting will be private – and powerful. We’re hoping for an open and frank discussion among ministers on how to achieve concrete outcomes at the UN Conference on Sustainable Development, Rio+20, in June.

Prospects Weekly: Investors have returned to emerging markets equity and fixed-income mutual funds

Investors have jumped back into emerging-market equity and bond mutual funds, bringing quarterly inflows up to about $40 billion—well above the 7-year average. Unemployment rates are retreating in most countries, but continue to rise from an already elevated level in high-spread Euro Area countries. Increased grain planting area announced in the U.S. suggest that, if normal weather conditions prevail, grain markets are likely to be wellsupplied. However, increased plantings were achieved at the expense of soybeans—which could bring price pressures to edible oil markets.
 
Investors have returned to emerging markets (EM) equity and fixed-income mutual funds in the first quarter of 2012, although the pace of inflows has decelerated recently. Emerging market bond funds received total inflows of $14.4 billion in inflows during the first quarter, while equity funds posted inflows of $25.6 billion. This follows a very weak second half of 2011 when investors redeemed positions equal to some $9.6 and $17.6 billion in the third and fourth quarters respectively. Despite recent declines, monthly inflows during March exceeded 7-year averages by 10.8 percent for equities and are almost 4 times higher for bonds.
Unemployment rates continue to rise in high-spread high-income European countries, while in developing and other high-income countries they are declining. So far this year the aggregate unemployment rate in high-spread high-income European countries has risen by 1.1 percentage points and now exceeds 15 percent. This contrasts with Germany where the unemployment rate continues to fall and is now well below pre-crisis levels. Elsewhere in Europe unemployment rates are also declining, but only gradually and unemployment remains well above pre-crisis levels. Unemployment is also declining among high-income countries outside Europe, notably in the United States, although there too the unemployment rate is still almost 3.5 percentage points above its pre-crisis average. Among the 27 developing countries reporting data, unemployment inched down to 7.2 percent of the labor force as of February 2012—regaining its pre-2008-crisis level, and significantly below its 20-year average of 8.8 percent.
Global wheat and maize prices remain relatively low, despite lower than expected stocks. Maize and wheat prices are at broadly the same level as two weeks ago, despite sharp fluctuations in the run-up to and following recent U.S. Department of Agriculture (USDA) reports on planting intentions and grain stocks. The reports indicated that U.S. maize and wheat stocks on March 1st were 8 and 16 percent lower than a year ago, well below expectations and earlier estimates. As a result, futures prices jumped 6.6 and 7.9 percent on March 30th regaining the losses incurred earlier in the week in anticipation of a more upbeat outlook. The USDA also reported that US maize and wheat plantings are expected to rise 4 and 3 percent in 2012. As a result, if normal weather conditions prevail, grain markets will likely be well-supplied in 2012/13. However, most of the increased planting area will be at the expense of soybeans—which could put edible oil markets under upward price pressure,  given weather-related late plantings in South America, cyclical declines in East Asian palm oil output, and increased demand for biodiesel production. 

Download the Prospects Weekly as PDF here.

Beyond Hero Worship

Jill Richmond's picture

Julie Battilana of HBSSupporters of social entrepreneurship often cite examples of “heroes” who have successfully built organizations to solve social problems on a global scale. But social entrepreneurship also includes many efforts to fix targeted, local problems rather than working toward large-scale global change. An increasing number of social entrepreneurs are experimenting with ways to use commercially generated revenue to grow and maintain their social impact.

These findings are part of one of the most robust quantitative studies of social enterprise to date. Undertaken by Harvard Business School Associate Professor Julie Battilana and her colleague Matthew Lee, a doctoral student at Harvard Business School, they analyzed 6 years worth of applicant data from Echoing Green. The purpose of the study is to expand the field of vision beyond “heroic stories” that dominate the discussion on social entrepreneurship. In this interview, they share some initial findings from their research.

Prospects Daily: Japanese Yen strengthens as the country’s current account turns to surplus again

Important developments today:

1. Japanese Yen strengthens as the country’s current account turns to surplus again

2. Japan’s current account returns to surplus in February

Prospects Daily: Spanish bonds fall on debt concerns, continued rise in unemployment rate

Important developments today:

1. Spanish bonds fall on debt concerns, continued rise in unemployment rate

2. US consumers buoy economy.


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