Monday, June 22, 2009

World Bank report is getting markets back to reality

From the World Bank:
Amidst global economic recession and financial-market fragility, net private capital inflows to developing countries fell to $707 billion in 2008, a sharp drop from a peak of $1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to $363 billion
Developing countries are expected to grow by only 1.2% this year, after 8.1% growth in 2007 and 5.9% growth in 2008. When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6%, causing continued job losses and throwing more people into poverty. Global growth is also expected to be negative, with an expected 2.9% contraction of global GDP in 2009.
“Many corporations will be hard pressed to service their foreign currency liabilities with revenues earned in depreciating domestic currencies at the same time that export demand has plummeted,” noted Mansoor Dailami, Manager of International Finance in the Prospects Group and lead GDF author.

The announcement in and of itself is not surprising. What is interesting however is how strongly the markets are responding, all pointing to a higher risk in the system. Here are the reactions:



Brazilian real spot (BRL dropping vs. USD)


Private capital inflows have stalled and are projected to fall further. The reality must be finally setting in that the "V" looks more like an "L" (as we discussed earlier).

Here is the video on this report from the World Bank:
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