3 WEO Update, January 2011
During the second half of 2010, global financialconditions broadly improved, amid lingeringvulnerabilities. Equity markets rose, risk spreadscontinued to tighten, and bank lending conditionsin major advanced economies became less tight,even for small and medium-sized firms. Nonetheless, pockets of vulnerability persisted;real estate markets and household income werestill weak in some major advanced economies(for example, United States), and securitizationremained subdued. And, in an echo of last May’sevents, financial turbulence reemerged in the periphery of the euro area in the last quarter of 2010. Concerns about banking sector losses andfiscal sustainability—triggered this time by thesituation in Ireland—led to widening spreads inthese countries, in some cases reaching highs notseen since the launch of the European Economicand Monetary Union. Funding pressures alsoreappeared, although to a lesser extent thanduring the summer. One key difference was morelimited financial market spillovers to other countries. The turmoil in mid-2010 led to a spikein global risk aversion and a scaling back of exposures in other regions, including emergingmarkets. During the recent bout of turbulence,markets have been more discriminating:measures of risk aversion have not risen, equitymarkets in most regions have posted significantgains, and financial stresses have been limited
Figure 3. Recent Financial Market Developments
Sources: Bloomberg Financial Markets; Datastream; and IMFstaff calculations.Vertical lines on each panel correspond to May 10 and November 30, 2010.ECB = European Central Bank; LIBOR = London interbank offered rate; OIS = Overnightindex swap.VIX = Chicago Board Options Exchange Market Volatility Index, a measure of the impliedvolatility of options on the S&P 500 index; VXY = JPMorgan emerging markets impliedvolatility index, a measure of the aggregate volatility in currency markets.TOPIX = Tokyo stock price index; MSCI = emerging markets stock price index.Bilateral exchange rates against the U.S. dollar (increase denotes depreciation).APSP = average petroleum spot price.
Commodity Price Indices(Jan. 1, 2010 = 100)Exchange Rate Indices(Jan. 1, 2010 = 100)
EuroYenRenminbiSwiss francSterlingMetalsFoodRaw materialsCrude oil (APSP)Gold
Government Bond Spreads(two-year yield spreads over German bunds, basis points)
Equity Indices(Jan. 1, 2010 = 100)
S&P 500Euro First 300TOPIXMSCI Emerging Markets
Money Market Spreads(basis points)
ECB depositfacility(billions of euros;rightscale)EuroLIBOR–OISspread(three-monthforward; leftscale)
Emerging Markets(VXY)U.S. (VIX)Jan.10Jan.11Apr.JulyOct.
Figure 2. Recent Economic Indicators
Sources: Haver Analytics; and IMFstaff calculations.Not all economies are included in the aggregations. Aggregates are computed on thebasis of purchasing-power-parity (PPP) weights unless noted otherwise.Argentina, Brazil, Bulgaria, Chile, China, Colombia, Estonia, Hungary, India, Indonesia,Latvia, Lithuania, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Romania, Russia,South Africa, Thailand, Turkey, Ukraine, and Venezuela.Australia, Canada, Czech Republic, Denmark, euro area, Hong Kong SAR, Israel, Japan,Korea, New Zealand, Norway, Singapore, Sweden, Switzerland, Taiwan Province of China,United Kingdom, and United States.PPP-weighted averages of metal products and machinery for euro area, plants andequipment for Japan, plants and machinery for the United Kingdom, and equipment andsoftware for the United States.
Quarterly World Growth(percent; quarter over quarter,annualized)
Employment Growth inAdvanced Economies(percent; three-month movingaverage (3mma) over previous3mma, annualized)
Real Gross Fixed Investment(annualized percent change frompreceding quarter)
of which:machinery and equipment
Real Private Consumption(annualized percent changefrom preceding quarter)