ANNUAL REPORT 2008 - Polymer Bank Notes of the World

As regards the Chinese economy, real GDPgrowth declined from 13% in 2007 to 9% in2008. The economic slowdown was driven byboth external and domestic factors. Reflectingthe trade surplus and money inflows induced byexpectations of steady exchange rate appreciationand a positive interest rate differentialuntil September 2008, the foreign reservescontinued to rise, totalling USD 1.9 trillionin 2008. Consumer price inflation peaked inFebruary at 8.7%, but then dropped significantlyin response to the stabilisation of domestic foodprices. In September, when inflation had recededand the global financial crisis was intensifying,Chinese authorities shifted policies towardsmeasures aimed at enhancing economic growth.The People’s Bank of China started to ease itsmonetary policy stance: the one-year benchmarklending and deposit rates were cut respectivelyfive and four times by a total of 216 and189 basis points, and the reserve requirementratio was lowered by 200-400 basis points,depending on the institution. Furthermore, thesteady pace of appreciation of the renminbiagainst the US dollar halted in the fourth quarter.LATIN AMERICAEconomic growth in Latin America was robustin the first half of 2008 (around 5% in SouthAmerica, but only 2.1% in Mexico), whileinflationary pressures were elevated and rosethroughout the year, with inflation rates forthe region increasing to 8.7% in 2008 from6.1% in 2007. Countries with fixed or quasifixedexchange rates recorded higher inflationthan those with an inflation-targeting regime.Improved macroeconomic fundamentals, highcommodity prices and strong domestic demandcontinued to support the economic outlookin the first half of 2008, but also resulted inincreased inflationary pressures. However,from mid-September 2008 external financialconditions deteriorated as the global financialcrisis unfolded. In particular, spreads on creditdefault swaps on Latin American sovereigndebt widened considerably, especially inArgentina and Venezuela (by around 4,000and 3,000 basis points respectively at the endof the year). In addition, currencies fell visà-visthe US dollar, equity markets droppedsignificantly by around 50% over the year andliquidity shortages emerged. Brazil and Mexicowere particularly hit by liquidity shortages, aslarge outflows affected the financial landscapeof the region.SHARP DECLINES IN COMMODITY PRICES IN THESECOND HALF OF 2008Commodity price developments attracted agreat amount of attention throughout 2008. Inthe first half of the year, oil prices continued tosurge with increasing momentum and peakedon 11 July at USD 147.5 per barrel of Brentcrude oil (see Chart 3). Thereafter, pricesstarted to decline, and the downward trend wasexacerbated by the financial market turmoil. Atthe end of 2008, prices stood at USD 39.5 perbarrel. Measured in euro terms, this correspondsto roughly the level recorded in December 2004.For the year as a whole, the average price ofBrent crude oil was USD 98.3, which was 35%above the average of the previous year.The first half of the year was characterised byvery tight market conditions. On the supplyside, non-OPEC supply figures repeatedlyChart 3 Main developments in commoditymarkets15014013012011010090807060504030Brent crude oil (USD/barrel; left-hand scale)non-energy commodities(USD; index: 2000 = 100; right-hand scale)2005 2006 20072008300285270255240225210195180165150135120Sources: Bloomberg and Hamburg Institute of InternationalEconomics.ECBAnnual Report200825