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Prospects Weekly: Developing-country bond issuance has reached an all-time high

Global Macroeconomics Team's picture

So far this year, developing-country bond issuance has reached an all-time high as corporate borrowers in the financial and oil and gas sectors in Latin America and Emerging Europe attracted a lot of investors. Partly reflecting international developments, domestic maize and wheat prices in developing countries are up 35% and 15% from a year ago in real local currency terms, implying significant cost pressures and hardship for poor households. Notwithstanding subdued global growth and soft labor markets in high-income countries global tourist arrivals rose 5% in the first half of 2012.  The World Tourism Organization expects tourist arrivals to slow down in the second half of 2012, bringing annual tourist arrivals growth to between 3% and 4% in 2012.

Developing-country corporates have sold $145 billion in external  bonds thus far this year, well ahead of 2011’s full year record high of $129 billion. Latin American borrowers continued to dominate the market accounting for slightly more than half of the issuance, followed by developing Europe ($34 billion) and developing East Asia ($31 billion). Other developing regions issued less than $7 billion combined. The developing-country corporate bond universe is highly concentrated at the sectoral level, with the financial, oil and gas, metal and mining, and telecommunication sectors attracting most of the inflows. Regionally, the sectoral distribution is heavily skewed in developing Europe with the financial sector accounting for 71% of flows, while in Latin America the financial and oil and gas sectors accounted for 56% of total flows. Brazil, Russia, Mexico, and China, who collectively account for 56% of developing countries GDP, received 68% of total corporate bond volume.

 

Local real grain prices are up markedly from a year ago in developing countries. United Nations Food and Agriculture Organization (FAO) data shows median local grain prices are up 24% year-on-year in real terms in developing countries. The median increase in real local currency maize price was 35%, while for wheat prices it was 15%. About 80% of the countries reporting local grain (maize, rice, and wheat) prices reported higher prices relative to a year ago.  Developing countries in East and Southern Africa and Latin America saw some of the sharpest increases, with some of these countries heavily dependent on imports. Less than one in five countries reported year-on-year declines in food prices, mostly for rice.

Global tourist arrivals performed well despite subdued global growth in 2012H1, but are expected to slowdown in 2012H2. Data released by the United Nations World Tourism Organization (WTO) show international tourist arrivals increased by 4.9% in the first half of 2012 (compared with 5% in 2011). Among developing regions, the increase was strongest in North Africa, up 10.5% y/y rebounding from a 9.1% decline in 2011. The strongest rise was recorded in Tunisia and Egypt– where a more stable situation allowed the tourism sector to recover sharply. East Asia and South Asia saw tourist arrivals rise by more than 8% y/y, the Caribbean 5.2% and Central America 6.8%. Growth in tourist arrivals is likely to slow down in the second half of 2012 due to subdued consumer confidence in major tourist-origin countries, with the WTO projecting an increase of between 3% and 4% in 2012.

 

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