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Prospects Weekly: Capital flows to developing countries remained robust in January, Prices of crude oil and other industrial commodities have firmed in recent months, Growth of international tourist arrivals decelerated

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Capital flows to developing countries remained robust in January, led by record bond issuance, reflecting declining risk perceptions and stronger developing country growth. Prices of crude oil and other industrial commodities have firmed in recent months, providing additional evidence of a cyclical recovery in global economic activity. Growth of international tourist arrivals decelerated in 2012 as weak global growth cut into disposable incomes worldwide. Nevertheless, tourist arrivals increased and crossed the 1 billion mark for the first time.

Capital flows to developing countries remained robust in January, led by a record level of bond issuance. Gross capital flows to developing countries remained broadly stable (up 0.8% from December) at $53.7 billion in January, as strong bond issuance offset a sharp decline in bank lending. Bond issuance reached a historic high of $36.9 billion in January, surpassing the previous record of $32.2 billion in September 2012, as borrowers sought to lock in unprecedented low borrowing costs. Yields on emerging-market corporate bonds fell to a record-low 4.1% in January. Equity issuance remained relatively steady at $10.1 billion. However, syndicated bank lending declined 80 percent from December levels. The decline partly reflects seasonal factors (January lending is traditionally 25 percent lower than Q4 levels), but also reflects a return to more normal levels following the unusually high flows in December due to a $16.8bn loan by Russia’s Rosneft, an energy company.

Prices of crude oil and other industrial commodities have firmed in recent months, providing additional evidence of strengthening global economic activity. Despite weak real side data for high income countries in Q4 2012, the stabilization of financial markets, increased optimism about the global economy, and robust growth in China were mirrored in a strengthening of crude oil and industrial commodity prices. Brent topped $117 in the first week of February, up 6 percent since the start of the year and 32 percent higher than its June bottom. Most metal prices have picked up as well since their June lows, reflecting a strengthening in Chinese growth during the second half of 2012 (China accounts for almost half of the world's metal consumption). Tin is up more than 30 percent since June, aluminum by 12 percent, nickel (11%), and copper (9%). Metal prices are expected to increase in 2013 in line with forecasts of a slow acceleration in global growth during the year.

Growth of international tourist arrivals decelerated in 2012 as weaker global growth cut into disposable incomes worldwide; nevertheless tourist arrivals crossed the 1 billion mark for the first time. International tourist arrivals rose at 3.8 percent in 2012, less quickly than the 4.7 percent increase in 2011. Nevertheless, arrivals topped the 1 billion mark for the first time in 2012, reaching 1.035 billion. Arrivals in developing countries rose 4.1 percent, with variation across regions. Economic weakness in Europe and the US caused the pace of increase in arrivals in South Asia and in Latin America and the Caribbean to slow (to 4% in both). Arrivals in East Asia and in Eastern and Central Europe, however, grew strongly by 7 and 8 percent, respectively, reflecting buoyant economic conditions in the former and an uptick in intra-regional tourism in both regions. Tourism to North Africa rebounded (9% growth) after a steep fall in 2011 as political conditions stabilized in some countries, but arrivals in the Middle East continued to decline (-5%).

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