|Global retail sales are on the mend, supported by strong domestic demand in developing countries. If sustained, such growth could provide the private-sector growth needed to offset the waning growth impact of stimulus measures. Private-bank balance sheets are being supported by the rebound in economic activity, and the IMF estimates that two-thirds of the estimated $2.3tn in crisis-related bank losses has been written-off. However, mounting non-performing loans and rising high-income country sovereign risk weigh on prospects. Remittances inflows to developing countries declined by 6% in 2009, with Latin America and Europe and Central Asia recording declines in excess of 10%.|
|Global retail sales are strengthening, with annual sales volumes gaining for a fifth consecutive month. Demand in some developing countries has been particularly robust. The value of China’s retail sales grew at an annualized 30% pace (about 25% in volume terms) in the three months to February, contributing to the shift in its trade balance to a deficit in March. Domestic demand in Brazil is also growing rapidly. Such strengthening private-sector demand will be critical to sustaining the recovery, especially as high-income countries begin to withdraw stimulus measures.|
|Bank restructuring has progressed with the global recovery, even as non-performing loans build. The IMF estimates that $1.5tn of the total projected $2.3tn in bad assets associated with the crisis—held mostly in Europe, the U.K. and U.S.— have been written-off. However, non-performing loans (NPLs) as a share of total loans outstanding rose sharply in 2009. Onefifth of 83 countries report NPLs of 9% or more. Bank provisioning of NPLs loans varies widely. In Ukraine and Sierra Leone between 60% and 70% of NPLs are unprovisioned, while in Albania, Moldova, Romania and Senegal between 45% and 55% are unprovisioned. In contrast, provisioning of NPLs exceeds 150% in Kazakhstan and Serbia. Authorities are expected to raise bank-capital and liquidity requirements, given rising government bond issuance and as emergency supports are removed (IMF, Global Financial Stability Report ).|
|Official remittance flows to developing countries declined to an estimated $315bn in 2009, or 6% (y/y). Europe and Central Asia and Latin America took the biggest hits in level terms, with closest links to the epicenters of the crisis, while, low income countries saw the sharpest (0.5 percentage-point) decline as a share of GDP. In contrast, South Asia posted modest level gains, reflecting diverse migration destinations and resilience in the Persian Gulf, a key destination. In Latin America, flows are expected to recover in tandem with the recovery in the U.S., whereas in South Asia flows may slow further in lagged response to the Dubai debt crisis. Resilience of remittances during the crisis has highlighted their importance in sovereign creditworthiness and debt sustainability analysis for countries with large inflows.
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