The External Environment for Developing Countries

November 2009The World Bank

Development EconomicsProspects Group

Global IP gaining momentum in the third quarter of 2009

growth %, 3 month saar

2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3-30

-25

-20

-15

-10

-5

0

5

10

15 High-income Developing excluding China Global

Source: World Bank, DEC Prospects Group.

2006 2007 2008 1H-09* Jul-Oct-09*0

1

2

3

4

5

Corporate bonds

Sovereign bonds

Banking

Equities

% share of GDP, 2009*=annualized

Gross capital inflows to developing countries surge in second half of 2009

Sources: Dealogic and World Bank

Industrial countries

-6.4

-0.7

3.5

-10

-8

-6

-4

-2

0

2

4

6

Q1-2009 Q2-2009 Q3-2009 flash

Source: Department of Commerce.

U.S. economy pulls out of recession with 3.5% growth in Q3-2009 (saar)

growth of real GDP, and contributions to growth in percentage points

Stocks InvestmentGovernmentConsumptionNet exports

A favorable employment turn in Octoberwith retail sales maintaining momentum retail sales growth (saar) [L]; change in employment

(‘000, 3mma) [R]

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09-24

-20

-16

-12

-8

-4

0

4

8

12

-800

-700

-600

-500

-400

-300

-200

-100

0

100

Source: U.S. Departments of Commerce and Labor.

Change in employment [R]

Retail sales [L]

Manufacturing has led recoverybut services emerging to growth

Headline PMI indices for manufacturing and services sector [50=+growth]

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-0930

35

40

45

50

55

Source: Institute for Supply Management.

PMI manufacturing

PMI Services

-12.2

2.74.8

-16

-12

-8

-4

0

4

8

Q1-2009 Q2-2009 Q3-2009 Prelim

Source: Japan Cabinet Office.

Japan’s GDP growth beats expectations for the third quarter at 4.8% (saar)

growth of real GDP, and contributions to growth in percentage points

Net ExportsStocks

GovernmentConsumption

Investment

Japan’s export- and production growth waning into the third quarter

export volumes and manufacturing production, ch% saar

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-80

-60

-40

-20

0

20

40

60

80

Source: Japan Cabinet Office.

Production

Goods export volumes

Q1 2006

Q2 2006

Q3 2006

Q4 2006

Q1 2007

Q2 2007

Q3 2007

Q4 2007

Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009100

125

150

175

200

Source: Japan Cabinet Office.

New Japanese government inherits debt equivalent to 190% of GDP

general government balance as a share of GDP in percent

Euro Area emerges from recessionon growth in the ‘Big-3” economies

GDP growth, q/q percentage change saar

-16

-12

-8

-4

0

4

Euro Area France Germany Italy U.K.

2009-Q1 2009-Q2 2009-Q3

Source: Eurostat.

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-60

-45

-30

-15

0

15

30

Euro Area production up in September on exports and stock rebuilding

manufacturing output, German and French export volumes, ch% (saar)

Germany exports

Source: Eurostat.

Euro Area IP

France exports

Houshold spending still a damper on growth

retail volume growth, Euro Area, Germany and France, (ch%, 3mma, y/y)

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-5

-4

-3

-2

-1

0

1

2

Source: EUROSTAT.

France retail volumes

Germany retail volumes

Euro Area retail volumes

Industrial production

Global IP picked-up sharply in the third quarter of 2009

growth %, 3 month saar

2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3-30

-25

-20

-15

-10

-5

0

5

10

15 High-income Developing excluding China Global

Source: World Bank, DEC Prospects Group.

High-income countries emerged to growth in output during 2009-Q3

growth %, 3 month saar

2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3-60.0

-40.0

-20.0

0.0

20.0

40.0 United States Euro Area Japan

Source: World Bank, DEC Prospects Group.

Capacity utilization- outside of Europe trending back toward pre-crisis levels

Argentina

Philippines

Mexico

United States

Brazil

Turkey

Thailand

Euro Area

0 10 20 30 40 50 60 70 80 90

Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

Source: Thomson Datastream and World Bank.

International trade

East Asian imports step up as Chinese import momentum begins to slow

imports, 3mma saar % change

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-80

-60

-40

-20

0

20

40

60

80

100Chinese imports

Other East Asian imports

Source: Haver Analytics.

Import recovery in China grounded in capital-and consumer goods

imports, year-over-year % change

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09-60

-40

-20

0

20

40

60Consumer goods

Machinery and other equipment

Source: Haver Analytics.

German and Japanese export volumes surge on rising external demand

developing import volumes, German and Japanese export volumes, 3mma saar % change

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09-80

-60

-40

-20

0

20

40

60

Developing country imports

German exports

Japanese exports

Source: World Bank, DEC Prospects Group.

Oil prices

Oil prices break out of recent range… but market still well supplied

23

24

25

26

27

28

29

30

31

32

0

20

40

60

80

100

120

140

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

$/bbl mb/d

Oil price [L scale]

OPEC Production [R]

Source: IEA and DECPG Commodities Group.

OECD total oil stocksdays of forward consumption

1Q91

2Q91

3Q91

4Q91

1Q92

2Q92

3Q92

4Q92

1Q93

2Q93

3Q93

4Q93

1Q94

2Q94

3Q94

4Q94

1Q95

2Q95

3Q95

4Q95

1Q96

2Q96

3Q96

4Q96

1Q97

2Q97

3Q97

4Q97

1Q98

2Q98

3Q98

4Q98

1Q99

2Q99

3Q99

4Q99

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

49

50

51

52

53

54

55

56

57

58

59

60

61

62

Source: IEA and DECPG Commodities Group.

WTI Futures Prices - NYMEX

30

40

50

60

70

80

90

100

Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Nov 11

$/bbl

Monthly contract prices to Dec 2017* for select dates in 2009

Feb 18

Jul 13

*Monthly prices interpolated for 2015-17

Non-oil commodity prices

Grains prices rise on late U.S harvest

Jan-04Jan-04Jan-04Jan-04Jan-04Feb-04Feb-04Feb-04Feb-04Feb-04Mar-04Mar-04Mar-04Mar-04Mar-04Mar-04Apr-04Apr-04Apr-04Apr-04Apr-04May-04May-04May-04May-04May-04May-04Jun-04Jun-04Jun-04Jun-04Jun-04Jul-04Jul-04Jul-04Jul-04Jul-04Jul-04Aug-04Aug-04Aug-04Aug-04Aug-04Sep-04Sep-04Sep-04Sep-04Sep-04Sep-04Oct-04Oct-04Oct-04Oct-04Oct-04Nov-04Nov-04Nov-04Nov-04Nov-04Dec-04Dec-04Dec-04Dec-04Dec-04Dec-04Jan-05Jan-05Jan-05Jan-05Jan-05Feb-05Feb-05Feb-05Feb-05Feb-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Apr-05Apr-05Apr-05Apr-05Apr-05May-05May-05May-05May-05May-05May-05Jun-05Jun-05Jun-05Jun-05Jun-05Jul-05Jul-05Jul-05Jul-05Jul-05Jul-05Aug-05Aug-05Aug-05Aug-05Aug-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Oct-05Oct-05Oct-05Oct-05Oct-05Nov-05Nov-05Nov-05Nov-05Nov-05Nov-05Dec-05Dec-05Dec-05Dec-05Dec-05Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Feb-06Feb-06Feb-06Feb-06Feb-06Mar-06Mar-06Mar-06Mar-06Mar-06Apr-06Apr-06Apr-06Apr-06Apr-06May-06May-06May-06May-06May-06May-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jul-06Jul-06Jul-06Jul-06Jul-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Sep-06Sep-06Sep-06Sep-06Sep-06Oct-06Oct-06Oct-06Oct-06Oct-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Dec-06Dec-06Dec-06Dec-06Dec-06Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09200

400

600

800

1,000

1,200

1,400

1,600

0

100

200

300

400

500

600

700

800

c/bushel

Soybeans [left scale]

Corn [right scale]

Wheat [left scale]

Source: Datastream and DECPG Commodities Group.

Metals prices remain rangebound

Jan-04Jan-04Jan-04Jan-04Jan-04Jan-04Feb-04Feb-04Feb-04Feb-04Feb-04Mar-04Mar-04Mar-04Mar-04Mar-04Apr-04Apr-04Apr-04Apr-04Apr-04Apr-04May-04May-04May-04May-04May-04Jun-04Jun-04Jun-04Jun-04Jun-04Jun-04Jul-04Jul-04Jul-04Jul-04Jul-04Aug-04Aug-04Aug-04Aug-04Aug-04Aug-04Sep-04Sep-04Sep-04Sep-04Sep-04Oct-04Oct-04Oct-04Oct-04Oct-04Nov-04Nov-04Nov-04Nov-04Nov-04Nov-04Dec-04Dec-04Dec-04Dec-04Dec-04Dec-04Jan-05Jan-05Jan-05Jan-05Jan-05Feb-05Feb-05Feb-05Feb-05Feb-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Apr-05Apr-05Apr-05Apr-05Apr-05May-05May-05May-05May-05May-05Jun-05Jun-05Jun-05Jun-05Jun-05Jun-05Jul-05Jul-05Jul-05Jul-05Jul-05Aug-05Aug-05Aug-05Aug-05Aug-05Aug-05Sep-05Sep-05Sep-05Sep-05Sep-05Oct-05Oct-05Oct-05Oct-05Oct-05Oct-05Nov-05Nov-05Nov-05Nov-05Nov-05Dec-05Dec-05Dec-05Dec-05Dec-05Dec-05Jan-06Jan-06Jan-06Jan-06Jan-06Feb-06Feb-06Feb-06Feb-06Feb-06Mar-06Mar-06Mar-06Mar-06Mar-06Mar-06Apr-06Apr-06Apr-06Apr-06Apr-06May-06May-06May-06May-06May-06May-06Jun-06Jun-06Jun-06Jun-06Jun-06Jul-06Jul-06Jul-06Jul-06Jul-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Sep-06Sep-06Sep-06Sep-06Sep-06Oct-06Oct-06Oct-06Oct-06Oct-06Oct-06Nov-06Nov-06Nov-06Nov-06Nov-06Dec-06Dec-06Dec-06Dec-06Dec-06Dec-06Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-090

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

10,000

20,000

30,000

40,000

50,000

60,000

$/ton

Copper

Zinc

Nickel

$/ton

Source: LME and DECPG Commodities Group.

Gold prices surge above $1,100/toz

Jan-04Jan-04Jan-04Jan-04Jan-04Feb-04Feb-04Feb-04Feb-04Feb-04Mar-04Mar-04Mar-04Mar-04Mar-04Mar-04Apr-04Apr-04Apr-04Apr-04Apr-04May-04May-04May-04May-04May-04May-04Jun-04Jun-04Jun-04Jun-04Jun-04Jul-04Jul-04Jul-04Jul-04Jul-04Jul-04Aug-04Aug-04Aug-04Aug-04Aug-04Sep-04Sep-04Sep-04Sep-04Sep-04Sep-04Oct-04Oct-04Oct-04Oct-04Oct-04Nov-04Nov-04Nov-04Nov-04Nov-04Dec-04Dec-04Dec-04Dec-04Dec-04Dec-04Jan-05Jan-05Jan-05Jan-05Jan-05Feb-05Feb-05Feb-05Feb-05Feb-05Mar-05Mar-05Mar-05Mar-05Mar-05Mar-05Apr-05Apr-05Apr-05Apr-05Apr-05May-05May-05May-05May-05May-05May-05Jun-05Jun-05Jun-05Jun-05Jun-05Jul-05Jul-05Jul-05Jul-05Jul-05Jul-05Aug-05Aug-05Aug-05Aug-05Aug-05Sep-05Sep-05Sep-05Sep-05Sep-05Sep-05Oct-05Oct-05Oct-05Oct-05Oct-05Nov-05Nov-05Nov-05Nov-05Nov-05Nov-05Dec-05Dec-05Dec-05Dec-05Dec-05Jan-06Jan-06Jan-06Jan-06Jan-06Jan-06Feb-06Feb-06Feb-06Feb-06Feb-06Mar-06Mar-06Mar-06Mar-06Mar-06Apr-06Apr-06Apr-06Apr-06Apr-06May-06May-06May-06May-06May-06May-06Jun-06Jun-06Jun-06Jun-06Jun-06Jun-06Jul-06Jul-06Jul-06Jul-06Jul-06Aug-06Aug-06Aug-06Aug-06Aug-06Aug-06Sep-06Sep-06Sep-06Sep-06Sep-06Oct-06Oct-06Oct-06Oct-06Oct-06Nov-06Nov-06Nov-06Nov-06Nov-06Nov-06Dec-06Dec-06Dec-06Dec-06Dec-06Jan-07Jan-07Jan-07Jan-07Jan-07Jan-07Feb-07Feb-07Feb-07Feb-07Feb-07Mar-07Mar-07Mar-07Mar-07Mar-07Apr-07Apr-07Apr-07Apr-07Apr-07Apr-07May-07May-07May-07May-07May-07Jun-07Jun-07Jun-07Jun-07Jun-07Jun-07Jul-07Jul-07Jul-07Jul-07Jul-07Aug-07Aug-07Aug-07Aug-07Aug-07Aug-07Sep-07Sep-07Sep-07Sep-07Sep-07Oct-07Oct-07Oct-07Oct-07Oct-07Oct-07Nov-07Nov-07Nov-07Nov-07Nov-07Dec-07Dec-07Dec-07Dec-07Dec-07Jan-08Jan-08Jan-08Jan-08Jan-08Jan-08Feb-08Feb-08Feb-08Feb-08Feb-08Mar-08Mar-08Mar-08Mar-08Mar-08Mar-08Apr-08Apr-08Apr-08Apr-08Apr-08May-08May-08May-08May-08May-08May-08Jun-08Jun-08Jun-08Jun-08Jun-08Jul-08Jul-08Jul-08Jul-08Jul-08Jul-08Aug-08Aug-08Aug-08Aug-08Aug-08Sep-08Sep-08Sep-08Sep-08Sep-08Oct-08Oct-08Oct-08Oct-08Oct-08Oct-08Nov-08Nov-08Nov-08Nov-08Nov-08Dec-08Dec-08Dec-08Dec-08Dec-08Dec-08Jan-09Jan-09Jan-09Jan-09Jan-09Feb-09Feb-09Feb-09Feb-09Feb-09Mar-09Mar-09Mar-09Mar-09Mar-09Mar-09Apr-09Apr-09Apr-09Apr-09Apr-09May-09May-09May-09May-09May-09May-09Jun-09Jun-09Jun-09Jun-09Jun-09Jul-09Jul-09Jul-09Jul-09Jul-09Jul-09Aug-09Aug-09Aug-09Aug-09Aug-09Sep-09Sep-09Sep-09Sep-09Sep-09Sep-09Oct-09Oct-09Oct-09Oct-09Oct-09Nov-09Nov-09200

300

400

500

600

700

800

900

1,000

1,100

1,200

per toz

Gold in US$

Gold in euros

Source: LME and DECPG Commodities Group.

International Finance

Flows to emerging markets surge to $50 billion in October… a new record

Source: DECPG Finance Team.

Gross capital flows to developing countries

$ billion 2007

Total H1 Q3 Total H1 Q3 Sep Oct

Total 652 258 82 390 109 94 41 51

Bonds 146 53 9 65 35 34 12 26

Banks 312 151 63 257 40 27 14 6

Equity 194 54 10 68 33 33 15 20

Lat. America 156 61 18 90 36 34 19 30

Bonds 45 17 1 20 15 19 11 17

E. Europe 247 99 35 157 22 20 3 8

Bonds 64 27 7 35 13 11 1 5

Asia 188 69 18 98 44 32 15 11

Bonds 23 7 0 7 6 3 1 4

Others 61 28 11 45 7 8 4 2

2008 2009

1-Jan-07 1-Jun-07 1-Nov-07 1-Apr-08 1-Sep-08 1-Feb-09 1-Jul-090

5

10

15

20

25

US Dol-lar-LI-BOR

EURO-LIBOR

Indian Rupee

Turkey

Low interest rates in high-income countries contribute to inflows to emerging markets

Three-month interbank interest rates (%)

Sources: Thomson Datastream and World Bank.

2002 2003 2004 2005 2006 2007 2008 2009-30

-20

-10

0

10

20

30

40

Deteriorating credit quality for EM sovereigns net rating: number of upgrades minus

downgrades*

Source: Bloomberg and DECPG staff calculations.

*Includes rating actions from Moody’s, S&P, and Fitch.

Currencies

Oct-08 Jan-09 Apr-09 Jul-09 Oct-091.230

1.270

1.310

1.350

1.390

1.430

1.470

1.510

1.550

1.590

1.630 86

90

94

98

102

106

110

Source: Thomson/Datastream.

yen/USD

USD/Euro (inverse)

Dollar’s fall from Spring peaks now 20% vs Euro…10% against yen

USD per Euro (inverse) [Left] and Yen per USD [right]

1990M011990M021990M031990M041990M051990M061990M071990M081990M091990M101990M111990M121991M011991M021991M031991M041991M051991M061991M071991M081991M091991M101991M111991M121992M011992M021992M031992M041992M051992M061992M071992M081992M091992M101992M111992M121993M011993M021993M031993M041993M051993M061993M071993M081993M091993M101993M111993M121994M011994M021994M031994M041994M051994M061994M071994M081994M091994M101994M111994M121995M011995M021995M031995M041995M051995M061995M071995M081995M091995M101995M111995M121996M011996M021996M031996M041996M051996M061996M071996M081996M091996M101996M111996M121997M011997M021997M031997M041997M051997M061997M071997M081997M091997M101997M111997M121998M011998M021998M031998M041998M051998M061998M071998M081998M091998M101998M111998M121999M011999M021999M031999M041999M051999M061999M071999M081999M091999M101999M111999M122000M012000M022000M032000M042000M052000M062000M072000M082000M092000M102000M112000M122001M012001M022001M032001M042001M052001M062001M072001M082001M092001M102001M112001M122002M012002M022002M032002M042002M052002M062002M072002M082002M092002M102002M112002M122003M012003M022003M032003M042003M052003M062003M072003M082003M092003M102003M112003M122004M012004M022004M032004M042004M052004M062004M072004M082004M092004M102004M112004M122005M012005M022005M032005M042005M052005M062005M072005M082005M092005M102005M112005M122006M012006M022006M032006M042006M052006M062006M072006M082006M092006M102006M112006M122007M012007M022007M032007M042007M052007M062007M072007M082007M092007M102007M112007M122008M012008M022008M032008M042008M052008M062008M072008M082008M092008M102008M112008M122009M012009M022009M032009M042009M052009M062009M072009M082009M092009M1075

100

125

150

175

200

Source: JPMorgan-Chase.

Nominal effective rate [NEER]

Dollar fall is half that of 2002-07… but decline compressed into 6 months

Indices, Jan 1990=100.

Real effective rate [REER]

25% decline

12% decline