|U.S. GDP grew at a 2.0% annualized pace in the third quarter. Domestic demand continued to expand at a much faster 4.0% pace, with net exports continuing to exert a strong (albeit diminishing) negative effect on growth. The different stages of the recovery in high-income and developing countries are reflected in investment activity. The ratio of investment-to-GDP in rich-countries, held back by moribund housing sectors, remains well below pre-crisis peaks, even as these ratios close with pre-crisis levels in low-and middle-income countries. Stronger fiscal positions and better growth prospects have contributed to a pick-up in developing country credit ratings, in contrast with a deterioration among rich countries.|
|US GDP grew at a 2.0% (saar) pace in Q3, up from 1.7% in Q2. Overall, demand stimulus appears to be working, but is being frustrated by a weak supply-side due to post-crisis structural adjustments in the economy. Domestic demand grew 4.0% in Q3 (after 5.2% in Q2), but much of that demand went into imports which increased at a 17.4% annualized pace. As a result, net exports subtracted fully 2.0 percentage points from GDP growth. Aggregate domestic demand would have been stronger, but was brought down by an almost 30% annualized decline in residential investment following the expiration of tax incentives. Business-sector investment expanded at a solid 9.7% pace, while consumption grew 2.6% (saar). The very rapid import growth in both Q2 and Q3 likely contributed to rising inventories. For example, auto imports rose 70% in Q2, while cars accounted for 80% of the Q3 increase in retail inventories.|
|Developing country investment rates are nearing pre-crisis peaks. At the onset of the crisis, investment-to-GDP ratios fell sharply in both high-income countries (3 points of GDP) and in developing countries (4.2 points). Since then, investment in developing countries has rebounded, and its ratio relative to GDP as of 2010 Q2 stood just 1 percentage point below its pre-crisis peak—and more-than 4 points above its 10-year average. The aggregate investment-to-GDP ratio in rich countries remains 2.5 points below earlier peaks. This weakness partially reflects very soft residential investment rates following pre-crisis booms. Excluding this component, business sector investment in the United States has picked-up to 10.4% of GDP, just 0.1 percentage point below its long-term average level.|
|Developing country credit ratings have improved in 2010. Developing country upgrades in the credit ratings given by private ratings agencies exceeded downgrades by a ratio of 7:1 during the first ten months of 2010. This positive ratings momentum only partially reverses the negative trend observed during 2008 and 2009. On average developing country credit ratings remain marginally lower than they were in 2007. The improvement in ratings is largely concentrated in Latin America and Emerging Europe, with 29 upgrades and only 2 downgrades. Additional ratings upgrades for developing countries are likely in coming months. In contrast, high-income countries’ credit quality deteriorated in the first half of 2010, due to the sovereign debt crisis. No high-income country has been upgraded since 2007.|
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