Gma 20121212
Upcoming SlideShare
Loading in...5
×
 

Gma 20121212

on

  • 694 views

 

Statistics

Views

Total Views
694
Views on SlideShare
342
Embed Views
352

Actions

Likes
0
Downloads
0
Comments
0

2 Embeds 352

http://caldeiraodebolsa.jornaldenegocios.pt 336
http://caldeiraodebolsa.negocios.pt 16

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Gma 20121212 Gma 20121212 Document Transcript

  • MORGAN STANLEY RESEARCH Global Economics Team Coordinators of this publication Joachim Fels Joachim.Fels@morganstanley.com +44 (0)20 7425 6138 December 12, 2012 Manoj Pradhan Manoj.Pradhan@morganstanley.com +44 (0)20 7425 3805Global The Global Macro Analyst Spyros Andreopoulos Spyros.Andreopoulos@morganstanley.com +44 (0)20 7677 0528 Macro Surprises for 2013 We pick up a tradition introduced nearly three decades ago at Morgan Stanley by our legendary former US strategist Byron Wien. Each year, Byron (now at Global Economics Forecasts Blackstone) publishes his ten surprises for the upcoming Real GDP (%) CPI inflation (%) year. He defines a surprise as an event that the average 2012E 2013E 2014E 2012E 2013E 2014E investor believes to have only at most a one in three Global Economy 3.1 3.1 4.0 3.4 3.1 3.3 chance of happening, while Byron believes it has at least G10 1.2 0.7 1.9 2.0 1.4 1.7 a 50% likelihood of coming true. For our purposes, we Emerging Markets 5.0 5.4 5.9 4.7 4.8 4.8 are bending Byron’s rules somewhat. First, reflecting the Source: Morgan Stanley Research forecasts many countries and regions we cover, we have more than ten surprises. Second, these surprises do NOT represent our base case. Rather, the events we describe would come as a surprise to us as well. However, we do believe that they depict plausible possible outcomes that Spotlight would represent a meaningful surprise to the prevailing Italy and the Political Cliff: A Winding Path to consensus. We outline the surprises below p2 Where? The most pressing question for the next government is  Just When You Thought it Was Dead, Inflation Returns how to strengthen Italy’s economic fabric, and achieve a  Debt Cancellation ‘new normal’ with sustained growth. More than anything else, this will determine the views of market participants  US Over the Cliff and Likes it on the reform path of Italy’s next leaders. p5  US Housing Stalls Out The Morgan Stanley Global Economics View p6  BoJ Adopts Rule-Based Monetary Policy  BoJ First to Buy Euro Area Bonds  Italian Politics Revives CRIC Cycle and Triggers OMT Global Macro Watch  From ‘Grexit’ to ‘Brixit’ Euro Area: ECB Watch – Not Christmas Yet ............. p 8 UK: Autumn Statement: Not Pleasant Reading .......... p 8  The UK Formally Gives Up the Fight Against Inflation UK: Slow Progress through the Twilight...................... p 9  Recession Returns to Australia CEEMEA: 2013 Preview – Macro Views and Risks ... p 9  Not the Right Green Shoots in EM Latin America: Optimism Beyond the 2013 Cycle ... p 10  China’s Shocking Tightening  The AXJ Productivity Booster  Mexico’s Moment Arrives  Brazilian Policy Shifts to Boosting Supply For important disclosures, refer to the  Turkey Goes Boringly Orthodox in Rates Disclosures Section, located at the end of this report.  Back in the USSR
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystMacro Surprises for 2013Joachim Fels (44 20) 7425 6138 government debt/GDP ratios are brought down by 11pp, 18pp and 25pp, respectively. Ratings agencies love it, as does theOver the past several weeks, we have been pushing our 2013 bond market – until it realises that large-scale debtOutlook: Stuck in the Twilight Zone (November 19, 2012), monetisation has just taken place, and sells off sharply.highlighting our twilight, day and night scenarios for the globaleconomy next year. In our base case, we expect global US Over the Cliff and Likes it (Vincent Reinhart)growth to remain stuck in the twilight zone that dividessustainable expansion from renewed recession. During 1H13, The US goes over the fiscal cliff and likes it. A deal delayed toas long as policy uncertainty prevails, markets may be early 2013 in which politicians compromise because ofworrying more about a darker ‘night’ scenario, but during 2H, concerns about financial markets would resolve uncertaintyif the right policy actions are taken, twilight may give way to a more assuredly than the baseline of stop-gap legislationbetter ‘day’ scenario and a better 2014. followed by a plan later in the year. As a consequence, confidence gets a boost, pent-up business investment kicks inHowever, in our last Global Macro Analyst for this year, we and the labour market improves more rapidly.pick up a tradition introduced nearly three decades ago atMorgan Stanley by our legendary former US strategist Byron US Housing Stalls Out (David Greenlaw)Wien. Each year, Byron (now at Blackstone) publishes his ten The burgeoning housing recovery in the US begins to stallsurprises for the upcoming year. He defines a surprise as an due to credit tightening. There is still no private mortgageevent that the average investor believes to have only at most a market at this point and financial problems are brewing at theone in three chance of happening, while Byron believes it has FHA which could lead to a dramatic reduction in creditat least a 50% likelihood of coming true. For our purposes, we availability for first-time homebuyers. Meanwhile, putback riskare bending Byron’s rules somewhat. First, reflecting the continues to cause originators to increase scrutiny formany countries and regions we cover, we have more than ten conforming loans.surprises. Second, these surprises do NOT represent ourbase case. Rather, the events we describe would come as a BoJ Leads World in Adopting Rule-Based Monetarysurprise to us as well. However, we do believe that they Policy, but Exit from Deflation Lags (Robertdepict plausible possible outcomes that would represent a Feldman/Takeshi Yamaguchi)meaningful surprise to the prevailing consensus. Following a change in its leadership, the Bank of JapanJust When You Thought it Was Dead, Inflation switches to target the ex-food ex-energy CPI, adopts priceReturns (Joachim Fels/Charles Goodhart) level targeting to make up for past deflation, and implements a base money growth rule based on deviations of the actualA strong economic rebound in China and the US, adverse CPI from the desired path. However, the targeted CPIsupply shocks in agriculture and worries about swelling measure remains negative year on year in December 2013,central bank balance sheets lead to a sharp rise in actual and and the BoJ maintains aggressive policy into 2014 andexpected global inflation. Central banks don’t dare to respond, beyond.given high debt levels and financial fragilities, and eithercontinue to ignore or abandon their inflation targets. Rising BoJ First to Buy Euro Area Bonds, ECB Leftwheat prices lead to bread riots. In the UK, Chancellor Watching and Waiting (Elga Bartsch)Osborne advises the British to eat oatcakes instead. The Bank of Japan, as part of its more aggressive policyDebt Cancellation (Spyros Andreopoulos) stance to fight deflation (see above), starts to acquire euro area government bonds in order to push down the yen beforeThe US Treasury, Japan’s Ministry of Finance and Her the ECB is able to activate its OMT programme. While theMajesty’s Treasury jointly announce that the Treasury debt BoJ acts, the ECB waits in vain for the Spanish government toheld by the Federal Reserve, Bank of Japan and Bank of apply for an ESM credit line and OMT bond purchases. TheEngland respectively as a consequence of QE purchases are BoJ focuses its purchases on ESM/EFSF bonds as well ascancelled, and that these central banks will operate with higher-yielding core and large peripheral markets and thusnegative equity until further notice. As a consequence, effectively becomes a lender of last resort for the euro area. 2
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystItalian Politics Revives the CRIC Cycle and Triggers Complacency sets in and structural reforms to move awayOMT (Elga Bartsch/Daniele Antonucci) from the broken, export-investment-led model are put on the back-burner. The result? EM growth deteriorates shortly after.A lively anti-austerity campaign in the run-up to the earlyelections causes investors to seriously worry as to whether China’s Shocking Tightening (Helen Qiao)Italy could be contemplating an exit from the euro. Theconvertibility risk, which the ECB’s OMT announcement had The Chinese government inadvertently tightens financialreduced, returns and Italy is forced to seek an ESM credit line conditions aggressively by applying a ‘shock therapy’ duringand becomes the first country to trigger the OMT. the early stage of the recovery. Off-balance sheet lendingUnfortunately, the damage has been done as markets now activities are banned and forced to roll back onto commercialbelieve that the convertibility risk is political rather than banks’ balance sheets, causing a major liquidity freeze in themonetary. Investors sell the euro and peripheral assets and system. More credit defaults occur, giving rise to higherstock up on tinned food and mood-boosting pills. systemic risks. The economic recovery unravels.From ‘Grexit’ to ‘Brixit’ (Elga Bartsch) The AXJ Productivity Booster (Chetan Ahya)Financial markets come round to the idea that Greece will Policy-makers in Asia ex-Japan move aggressively tostay in the euro for the foreseeable future. Instead, investors implement policy reforms, boosting the region’s productivityare getting increasingly concerned about the UK’s political dynamic. China accelerates the move up the value chain andstance on Europe, especially in view of a possible referendum boosts consumption growth; India unveils more measures toon EU membership. Polls during 1H13 start to suggest that an lift investment in the economy; and Indonesia initiates reformsexit of the UK from the EU is now seen as more likely than an which improve the competitiveness of the non-commodityexit of Greece from the euro. The London property market sectors. This raises productivity growth in the region, whichwobbles as financial institutions start making contingency has slowed significantly since the crisis, and results in higherplans for moving employees to Frankfurt and Paris. corporate profitability.The UK Formally Gives Up the Fight Against Mexico’s Moment Arrives in its Long-Troubled OilInflation (Melanie Baker) and Gas Industry (Gray Newman/Luis Arcentales)As inflation looks set to remain well above 2% for yet another Newly inaugurated President Enrique Peña Nieto surprisesyear, the government begins to fear that targeting inflation at with a passage of aggressive constitutional change inthe 2% level will mean an abrupt end to very low interest rates Mexico’s oil and gas industry – he gains the political upperin the not-too-distant future...or a sharp loss of Bank of hand in energy and fiscal reform by starting his six-year termEngland credibility. MPs increasingly argue that embedding a with a big boost in social programmes and promises thatbit more inflation might be a good thing for helping the UK energy/fiscal reform will provide even more revenues foreconomy out of its difficulties. The government raises the social spending. MXN rallies on the prospects of a new FDIMPC’s inflation target and, for good measure, it merges the wave and the sovereign sees an upgrade.Monetary Policy Committee and Financial Policy Committeetogether. Brazilian Policy Shifts from Stimulating Demand to Boosting Supply, with Ambitious InfrastructureRecession Returns to Australia (Gerard Minack) Programme (Gray Newman/Arthur Carvalho)Australia hasnt had a recession for 21 years - arguably, one President Dilma Rousseff surprises most Brazil watchers asis overdue. Markets view the risk as low: fixed income she follows through on her promise of an ambitiousmarkets are pricing in only 1-2 more rate cuts, and equities infrastructure programme, lifting the globe’s sixth-largesthave re-rated through 2012. economy from near the bottom of the globe’s infrastructure rankings. The technical details show attractive IRR triggeringNot the Right Green Shoots in EM (Manoj Pradhan) large investment inflows from abroad. BRL rallies more thanEM green shoots develop further, but from the ‘wrong’ sources expected on the news.of growth. Better DM growth and/or an unwinding of the shockto global exports stabilises EM exports and hence production. 3
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystTurkey Goes Boringly Orthodox in Rates (Tevfik Back in the USSR (Jacob Nell)Aksoy) Putin is successful in enticing Ukraine into the EurasianThe Central Bank of Turkey switches back to a conventional, Customs Union in return for energy subsidies which reduce itsorthodox and less exciting monetary policy in 2013. It balance of payments financing need to a level which requiresremoves the non-standard and creative tools designed to neither painful policy adjustment nor a sharp FX adjustment.achieve inflation and financial stability goals at the same time. This closes the door on EU entry for Ukraine, since you can’tAs a consequence, it faces new challenges of currency be a member of two customs unions at once, and leads toappreciation, currency volatility and no meaningful decline in economic reintegration of the main post-Soviet states –the current account deficit. The experiment fails and policy Russia, Ukraine, Kazakhstan and Belarus. The removal ofswitches back to non-conventional measures later in the year trade and investment barriers – particularly if accompanied byin an attempt to recoup the loss of credibility. a pro-investment, pro-market set of Russian-led policies – triggers higher growth across the region, while Russian energy subsidies would stabilise the hyrvnia and ruble. 4
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystSpotlight: Italy and the Political Cliff: A Winding Path to Where?Daniele Antonucci (44 20) 7425 8943 If market pressure were to resume in full force, the OMTItaly’s experiment with its one-year-old technocratic backstop might be a possibility. But the hurdle to apply forgovernment is coming to an end earlier than expected. sovereign support – if needed – is probably higher thanThe chances are that an elected government will follow, with elsewhere, and difficult to negotiate in the midst of an electionelections possibly as soon as next February. campaign.With austerity taking a toll on an already weak economic There are some tentative signs that the economy is shrinkingfabric, the risk is that discontent might well continue to at a slower pace, as the bulk of the budget correction isrise, thus affecting the next government’s ability or willingness behind us. But one risk is that interest rates – which haveto pursue bold reforms – or result in a tough anti-reform recently been lower than expected and better behaved – willelection campaign at the very least. start rising again, as they’ve been doing over the past couple of days.Historical evidence indicates that, close to a governmentcollapse, the cumulative rise in short-term interest rates is Will the fiscal policy path change? Not really. Its directionabout 24bp. Similarly, equity markets fall by around 5% over is set, we think. U-turns are unlikely. Could someonethe same period. These effects have tended to reverse after a envisage, say, a reduction in the pension age, now that it hasgovernment change. been raised and indexed to life expectancy? This seems too far-fetched, as markets would punish such slippage, in ourItalian Political Events Do Move Italian Bond and view.Equity Markets – Based on History Sizeable Primary Surplus to Offset Interest 50 Asset Prices Before / After Govt Changes* Expenses Almost Entirely Going Forward 39 Short-term interest rates (bp) 40 8 Budget Balance (% of GDP) Budget Balance & Govt Debt (% of GDP) Equity returns (%) Interest spending MS Forecasts 30 Primary budget balance 24 20 4 Overall budget balance 20 10 10 8 3.0 0 0.6 0 -2.6 -4.1 -5.0 -10 -4 2 weeks before Same day and Period between 2 weeks before Same day and end of old 2 weeks after end of old and start of new 2 weeks after end of old start of new start of new 15 Asset Prices Before / After External Events* -8 2002 2004 2006 2008 2010 2012 2014 Source: ISTAT, Bank of Italy, Morgan Stanley Research forecasts 11 10 The most pressing question for the next Italian 8 government is how to strengthen the country’s economic fabric, and achieve a ‘new normal’ with sustained growth. 5 3 More than anything else, this is what will determine the views of market participants on the reform path of Italy’s next 0.2 0 political leaders. -0.4 -0.4 For full details, see Italy and the Political Cliff – A Winding Short-term interest rates (bp) Equity returns (%) -5 Path to Where? December 10, 2012. 1 week before event 1 week after event 2 weeks after eventSource: Adapted from Fratzscher and Stracca (2009), “Does It Pay to Have the Euro?” ECBWorking Paper No. 1064, Morgan Stanley Research; *Cumulative responses (1973-2007). 5
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystThe Morgan Stanley Global Economics ViewOur Core Global Views Key Macro Risk EventsGlobal economy stuck in the ‘twilight zone’: The global economy remains stuck in December 13-14, 2012the twilight zone, the fuzzy region that separates sustainable growth from renewed EU Summitrecession. Deleveraging in the DM world, broken EM growth models and huge January 1, 2013uncertainty around DM policy are to blame for taking us there. We will need both policy US fiscal cliff – current law means 5pp of potential GDPaction and traction by policy-makers to get us out of this zone. fiscal tighteningEurozone not out of the woods yet: We think that resolution of the euro area January 1, 2013sovereign and banking crisis requires both a fiscal union and a banking union coupled Deadline for legislative framework on eurozone Singlewith the ECB being willing and able to be the lender of last resort to governments. Supervisory MechanismWhile the ECB has taken a decisive step towards fulfilling this role, progress on fiscaland banking union remains painfully slow and full of setbacks. Eurozone break-up, February 2013although not our central case, remains conceivable. Italian parliamentary electionsFiscal dominance: Don’t expect DM central banks to tighten soon – they are locked Around February 2013into a regime of fiscal dominance, where increases in the real interest rate worsen Successor to Bank of Japan Governor Shirakawagovernment debt sustainability, inflation targeting becomes unfeasible and monetary announcedpolicy is forced to remain super-accommodative. Mid-February 2013Financial repression and inflation: Part of the solution to high government debt US government expected to reach debt ceilinglevels can be imposing artificially low, or even negative, real returns on captive investorgroups – financial repression. Inflation – allowed by central banks constrained by fiscal April 8, 2013dominance into a passive monetary stance – could be part of this solution, too. Shirakawa’s tenure as Bank of Japan governor endsEM growth model broken – needs structural reform: EM economies face external September 2013and internal challenges that render the old, export-led model of growth defunct. Weak German parliamentary electionsDM consumers, onshoring of DM manufacturing and risks to external funding all work January 1, 2014against EMs externally. Internally, the focus on export-led growth has meant that ECB to assume regulation of all eurozone banksimportant sources of domestic demand have been neglected. Aggressive policystimulus will probably make imbalances worse. For potential output growth to rise,policy stimulus needs to go to the ‘right’ sources of domestic demand. There is someprogress in India and to lesser extent in Brazil, but the key remains China.Regional ThemesAsia ex Japan: India and China need internal rebalancing – China needs to boostconsumption, India investment. This would be part of global rebalancing, too. WhileChina undergoes its policy transition, India’s administration has unveiled some reformsthat go in the right direction. However, the rebalancing is likely to be a drawn-outprocess in both countries.Latin America: Greater divergence in Latin America, with Brazil reaccelerating, Peruand Colombia slowing, and Argentina and Venezuela recently suffering from weakerdomestic conditions and weaker commodity prices. Recent policy measures from Brazil,and especially Mexico, are encouraging, but implementation remains a key risk.CEEMEA: Growth is slowing everywhere in the region but countries are at differentstages of the cycle. Russia’s performance will depend on delivery of President Putin’spro-investment economic strategy, CEE’s on developments in the euro area.For our global forecasts, see The Global Macro Analyst: 2013 Outlook: Stuck in the Twilight Zone, November 19, 2012.For our cross-asset views, see Cross-Asset Strategy: 2013: Transition Path, December 12, 2012. 6
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystKey Forecast ProfileGlobal Economics Team Quarterly Annual 2012 2013 2014 2012E 2013E 2014EReal GDP (%Q, SAAR) 1Q 2Q 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QEGlobal** 2.9 2.3 3.0 2.6 2.7 3.2 3.7 4.1 3.9 3.7 3.8 3.8 3.1 3.1 4.0G10 1.7 0.4 1.1 -0.2 0.4 0.9 1.7 2.1 2.1 1.6 1.9 2.0 1.2 0.7 1.9US 2.0 1.3 2.8 0.7* 0.8 1.2 2.2 2.8 2.8 2.9 2.9 2.9 2.2 1.4 2.7Euro Area 0.0 -0.7 -0.5 -1.6 -0.8 0.0 0.6 1.0 1.0 1.0 1.0 1.0 -0.5 -0.5 0.9Japan 5.2 0.3 -3.5 -0.2 0.6 1.7 1.9 2.3 2.0 -2.4 -0.2 0.9 2.0 0.4 0.8UK -1.2 -1.5 3.9 -1.2 1.2 0.0 1.6 1.6 1.9 2.0 1.2 1.2 -0.2 0.8 1.6EM (%Y) 5.3 4.9 4.6 5.0 5.1 5.2 5.6 5.5 5.8 5.9 5.9 5.9 5.0 5.4 5.9China (%Y) 8.1 7.6 7.4 7.7 8.0 8.2 8.4 8.2 8.1 8.1 7.9 7.7 7.7 8.2 8.0India (%Y) 5.3 5.5 5.3 5.1 5.8 6.0 6.2 6.3 6.4 6.9 7.1 7.1 5.3 6.1 6.9Brazil (%Y) 0.8 0.5 0.9 1.8 2.3 2.5 3.3 2.9 3.1 3.1 3.9 3.6 1.6 2.8 3.4Russia (%Y) 4.9 4.0 2.9 2.7 2.6 3.0 3.1 3.5 4.0 4.3 4.3 4.1 3.6 3.1 3.7Consumer price inflation (%Y)Global 3.7 3.3 3.2 3.2 2.9 3.1 3.3 3.2 3.2 3.4 3.4 3.2 3.4 3.1 3.3G10 2.4 1.8 1.7 1.9 1.4 1.4 1.4 1.3 1.5 1.7 1.7 1.7 2.0 1.4 1.7US 2.8 1.9 1.7 1.9 1.2 1.5 1.4 1.3 1.5 1.5 1.6 1.6 2.1 1.3 1.6Euro Area 2.7 2.5 2.5 2.5 2.1 1.8 1.8 1.8 1.9 2.0 1.7 1.6 2.5 1.9 1.8Japan 0.1 0.0 -0.2 0.0 -0.3 -0.5 -0.5 -0.5 -0.4 1.4 1.5 1.6 0.0 -0.4 1.0UK 3.5 2.8 2.4 2.7 2.6 2.7 2.8 2.5 2.5 2.6 2.5 2.1 2.8 2.6 2.4EM 5.0 4.9 4.6 4.5 4.4 4.8 5.1 5.0 4.9 4.9 4.9 4.7 4.7 4.8 4.8China 3.8 2.9 1.9 1.9 1.6 2.8 3.8 3.9 3.6 3.9 3.9 3.2 2.6 3.0 3.6India 7.2 10.1 9.8 9.3 8.6 7.5 6.9 7.1 6.7 6.4 6.6 6.9 9.1 7.5 6.7Brazil 5.8 5.0 5.2 5.5 5.6 5.8 5.7 5.5 5.8 5.8 5.7 5.9 5.4 5.6 5.8Russia 3.9 3.8 6.0 6.6 7.0 7.2 6.5 6.0 5.5 5.1 5.2 5.4 5.1 6.7 5.3Monetary policy rate (% p.a.)Global 3.2 3.1 3.0 2.9 2.9 2.9 2.9 2.9 3.0 3.1 3.1 3.2 2.9 2.9 3.2G10 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.4 0.4US 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15Euro Area 1.00 1.00 0.75 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 0.50 0.50Japan 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05UK 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.00 0.50 0.50 1.00EM 6.1 5.9 5.7 5.6 5.6 5.5 5.5 5.5 5.6 5.8 5.9 5.9 5.6 5.5 5.9China 6.56 6.31 6.00 6.00 6.00 6.00 6.00 6.00 6.25 6.50 6.75 6.75 6.00 6.00 6.75India 8.50 8.00 8.00 8.00 7.75 7.25 7.25 7.25 7.00 7.00 7.00 7.00 8.00 7.25 7.00Brazil 9.75 8.50 7.50 7.25 7.25 7.25 7.25 7.25 8.25 8.25 8.25 8.25 7.25 7.25 8.25Russia 5.25 5.25 5.50 5.50 5.75 5.75 5.75 5.50 5.25 5.00 4.75 4.75 5.50 5.50 4.75Note: Global and regional aggregates are GDP-weighted averages, using PPPs. Japan policy rate is a range from 0.00-0.10%, with 0.05% as the midpoint; CPI numbers are period averages. *USGDP forecast for the current quarter is a tracking estimate. **G10+BRICs+KoreaSource: Morgan Stanley Research forecasts 7
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystGlobal Macro WatchEuro Area: ECB Watch – Not Christmas Yet UK: Autumn Statement: Not PleasantElga Bartsch (44 20) 7425 5434 ReadingContrary to our expectations, but in line with market Melanie Baker (44 20) 7425 8607expectations, the ECB did not cut rates on December 6: In Jonathan Ashworth (44 20) 7425 1820addition, the press conference did not send the strong signal As expected, the Autumn Statement and latest set of OBRfor a rate reduction in 1Q13 that we hoped for either. Hence, economic and fiscal projections did not make forwe need to acknowledge the risk that the ECB might simply particularly pleasant reading: The fiscal projections arestay put going forward. Apparently, there were some Council broadly worse than in March and the OBR now judges thatMembers pushing for a rate reduction. But the prevailing the supplementary fiscal rule is unlikely to be met. Weconsensus was to keep rates unchanged. The rate cut continue to think that all this will lead investors to furtherdiscussion also did not extend to an in-depth debate on a question the future of the UK’s credit rating.depo rate cut. The OBR sharply lowered its GDP growth forecasts andGrowth projections lowered markedly again, inflation revised its deficit and debt projections up: The deficitseen inside the target range: The new staff projections numbers were not as bad as we’d expected for this and nextshow another marked reduction in the growth outlook and a fiscal year largely because of additional special factors wesubdued inflation rate in 2014. The Governing Council now hadn’t anticipated (rather than any underlying improvementssees the current weakness extending into next year and in the fiscal position), including an earlier effect from the APFexpects a recovery to set in only in 2H13. Despite the marked cash transfer, 4G spectrum sale proceeds and Swiss taxdownward revisions, however, the outlook for price stability repatriation. Still, the deficit forecast at the end of thishas not changed materially in the view of the Governing parliament (2014-15) is now ~1pp higher than in March 2012Council. Instead, ECB President Draghi stressed on several at 5.2% of GDP (3pp higher than in the current government’soccasions that the ECB’s policy stance is accommodative and first budget). Public sector net debt as a percentage of GDPthat the ECB has already taken far-reaching measures. peaks a year later on the new OBR forecasts, implying a break of the fiscal rules.No encouraging policy signals from the ECB on rates orunconventional measures at this stage: Unfortunately, Lots of policy measures – little effect on our economicthere was little in the press conference to give us hope on forecasts: These included a lower corporation tax rate andadditional ECB easing early in the New Year. Hence, we the cancellation of the January fuel duty rise, partly offset bymight have to brace ourselves for the ECB staying on hold in additional departmental spending cuts and lower planned2013. Similarly, there were no clear hints on unconventional increases in benefits. All in all, however, there was nothing inmeasures of credit easing. In fact, when asked about this statement to materially change our forecasts for theadditional measures the ECB could take, Draghi rattled economy.through what the ECB has done in the past and the positive Big picture for the UK’s fiscal finances is unchanged:impact that these measures have had. None of this changes the big picture for UK public finances.For full details, see ECB Watch: Not Christmas Yet, The fiscal numbers still look worrying to us. Austerity is set toDecember 6, 2012. remain a significant drag on the economy for many years to come. Partly as a result, we continue to find it hard to get tooEuro Area: New ECB Staff Projections excited about the UK’s near-term growth prospects. %Y 2012 2013 2014 For full details, see UK Economics: Autumn Statement: Not GDP -0.5 -0.3 1.2 HICP 2.5 1.6 1.4 Pleasant Reading, December 5, 2012.Source: ECB 8
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystGlobal Macro WatchUK: 2013 and 2014 Outlook: Slow Progress CEEMEA: 2013 Preview – Macro Views andthrough the Twilight RisksMelanie Baker (44 20) 7425 8607 CEEMEA economics teamJonathan Ashworth (44 20) 7425 1820 We analyse briefly the macro outlook for each countryAn untidy recovery, prone to setbacks… Our central case under our coverage, with an emphasis on risk events inis for untidy progress; for growth that grinds rather than 2013: As always, we note that CEEMEA is a very diversebounds higher; and for monetary policy that will have region. We believe that the aggregate CEEMEA growth rateincreased traction over the period rather than given the (GDP-weighted average growth of the main countries) willeconomy the kick-start it could do with at present. The remain unchanged, at 2.6%Y (same as this year), but theregradual rebalancing we envisage over the medium term is will be significant country differences.likely to continue to make for an untidy recovery, especiallygiven that much of the rest of the world are keen to/need to For instance, we remain bearish on growth prospects for thepull off a rebalancing act too. Central European countries. Essentially, we expect no growth at all in Hungary and in the Czech Republic in 2013,…assumes policy-makers ‘stick to the programme’: For despite the fact that both countries contracted in 2012. Eventhe UK, we think we are close to the limits of policy Poland, once a growth outperformer thanks to resilienteffectiveness and room for manoeuvre. Monetary policy domestic demand, will see a mere 1.5%Y expansion in 2013needs to be kept accommodative and fiscal austerity plans due to slower credit, consumption and investment.need to remain in place. On the other hand, we expect that other countries will performOur central case outlook: We expect only 0.8% GDP growth better. Turkey will accelerate and grow by 4%Y in 2013, thein 2013 and 1.6% in 2014, remaining below consensus. The fastest among the large CEEMEA economies, in our view.key drags on UK growth (the external environment, fiscal Russia will grow by a respectable 3.1%Y, but still a clearausterity and credit conditions) seem set to drag a little less slowdown in comparison to 2010, 2011 and 2012. Southover the next two years, and we think that there are good Africa is expected to improve its growth rate only marginallyreasons to expect a grind higher in consumer spending to 2.5%Y in 2013 from 2.3%Y in 2012, partially due the impactgrowth. Whether or not we get more QE remains a finely of the local strike action of late 2012.balanced call, but by mid-2014 we expect to see somemodest reduction in policy accommodation (including two On the policy front, we expect most central banks to deliver25bp rate rises). monetary easing, in response to the benign interest rate environment. We believe that policy rates will test new lows inThree things likely to make for a bumpy ride: In addition to Central Europe and Turkey, they will be lowered in Nigeria,the ongoing need to rebalance, we think that inflation risks Ghana and Kenya, and will stay on hold in South Africa. Inmay build quickly in a recovery as the economy bumps up Russia, we see a modest hike in 1Q13 (25bp), followed by aagainst capacity constraints and political developments could 25bp rate cut in late 2013 as inflation declines to target.well throw up challenges as we get closer to the May 2015general election. As always in such a diverse region, there are a number of country-specific risk/reward events, such as central bankThree key themes: We suggest three themes that we think management changes in Russia and Hungary, IMFwill (continue to) be important for the next two years: i) Fiscal negotiations in Ukraine and Hungary, geopolitical issues inslippage; ii) Resolution of the productivity puzzle; iii) Political Turkey and Israel, investment initiatives in Russia anduncertainty and institutional change. Poland, political/election risks in South Africa, Romania, theFor full details, see UK Economics: 2013 and 2014 Outlook: Czech Republic, Ghana and Kenya and our expectations ofSlow Progress through the Twilight, December 11, 2012. a sovereign rating upgrade in Turkey and a downgrade in Hungary. For full details, see “CEEMEA 2013 Preview: Macro Views and Risks”, CEEMEA Macro Monitor, December 7, 2012. 9
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystGlobal Macro WatchLatin America: Optimism Beyond the 2013CycleGray Newman (1 212) 761 6510We expect Latin America to once again post above-trendgrowth, even as the region’s pace of growth slows slightlyfrom 2012: Sounds familiar? The cyclical story for 2013 at facevalue seems similar to the one we described a year ago as welooked towards 2012 and even that of two years ago going into2011. In both years, we argued that the region would slow, butwould still manage to produce above-trend growth. And onceagain, as was the case last year, we argue that the greatestrisks to our forecast for Latin America lie outside the region –what we have described as the Risks to Abundance (see “LatinAmerica in 2012: The Risks to Abundance Return”, This Weekin Latin America, November 28, 2011). For all the challengesthat Latin America faces, none are likely to have as great of animpact on the cycle in 2013 as the global environment.This year our global economics team has christened itsoutlook as that of the Twilight Zone – the grey, fuzzy areathat divides sustainable recovery from a renewed recession(see 2013 Outlook: Stuck in the Twilight Zone, November 19,2012). By now, I suspect that all global watchers are familiarwith the trio of risks: the US ‘fiscal cliff’; the unfoldingsovereign crisis in Europe; and the uncertainty in China.What makes this year different is our global team’s viewthat the outlook for 2013 could change depending on theactions taken by policy-makers: Indeed, our global teamrecommends that investors should remain “nimble andprepared” to switch between Night, Twilight and Day.You might argue that there is little surprise that the globematters so much to the region: Yet a decade ago, Iremember when the idiosyncratic risks within the region weremuch greater and were our central concern. Today, thebalance sheets of the region’s largest economies are simplyin strong enough shape that, with one or two exceptions(Venezuela and perhaps Argentina), it is difficult to argue thatthe greatest risks to the region are home-grown.The good news and what sets our forecast for the regionfor 2013 apart from our past forecasts is our optimismthat there may be significant upside to the outlook for theregion’s two largest economies – not so much in the 2013cycle, but beyond next year. There is also the potential for astronger reform push in Colombia led by an ambitiousinfrastructure programme as Daniel Volberg has argued, but Ithink that the possible upside surprises in Brazil and Mexicohave the potential to have the greatest regional impact.For full details, see “Latin America: Optimism Beyond the 2013Cycle”, Week Ahead in Latin America, December 7, 2012. 10
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystInflation Target Monitor & Next Rate MoveGlobal Economics Team. Contact: Spyros.Andreopoulos@morganstanley.com Market MS Latest 12M MS Next rate Current expects expects Inflation target month fcast decision rate (bp) (bp) Risks to our callUS 2.0% PCE Price Index 1.6% 1.7% 30 Jan 0.15 -1 0 No risks, same through mid-2015Euro Area < 2% HICP (u) 2.2% 1.8% 10 Jan 0.75 -3 -25 ECB could wait to cut, esp. with depo rateJapan 1% CPI (u) 0.0% -0.5% 20 Dec 0.05 0 0 Easing in Dec MPM likely, but BoJ may wait until JanUK 2% CPI 2.6% 2.5% 10 Jan 0.50 -3 0 Some risk of a QE restartCanada 1-3% CPI 1.2% 1.8% 23 Jan 1.00 0 0 -Switzerland <2% CPI (u) -0.2% 0.2% 13 Dec 0.00 - 0 -Sweden 2.0% CPI 0.4% 0.7% 18 Dec 1.25 -8 -25 Cut in Feb insteadNorway 2.5% CPI 1.1% - 19 Dec 1.50 -2 0 Balanced risksAustralia 2-3% over the cycle 2.0% 2.1% 05 Feb 3.00 -15 0 -New Zealand 1-3% CPI 0.8% - 31 Jan 2.50 -3 0 -Russia 5-6% CPI 6.5% 6.1% 1-15 Jan 5.50 - 0 -Poland 2.5% (+/- 1%) CPI 3.4% 2.5% 09 Jan 4.25 - -25 -Czech Rep. 2.0% (+/-1%) CPI 2.7% 2.6% 19 Dec 0.05 - 0 -Hungary 3.0% CPI 5.2% 5.4% 18 Dec 6.00 - -25 -Romania 3.0% (+/-1%) CPI 4.6% 4.0% 07 Jan 5.25 - 0 -Turkey 5% CPI end-’12 6.4% 6.3% 18 Dec 5.75 0 -25 CBT might hold until 1Q13Israel 1-3% 1.8% 2.0% 24 Dec 2.00 - 0 -S. Africa 3-6% 4.9% 6.0% 24 Jan 5.00 - 0 SARB GDP downgrade ushers in rate cutNigeria - 11.7% 11.6% Jan 12.00 - 0 Collapse in core CPI ushers in early rate cutGhana 8.7% CPI 9.2% 10.0% 23 Jan 15.00 - 0 CPI decelerates further, MPC cuts ratesChina - 2.0% 3.0% N/A 6.00 - 0 Further deterioration in global growth outlookIndia - 7.5% 7.5% 18 Dec 8.00 - 0 -Hong Kong - 3.8% 5.6% 11-12 Dec 0.50 - 0 -S. Korea 2-4% 1.6% 3.0% 13 Dec 2.75 - 0 Rate cut due to weak domestic demandTaiwan - 1.6% 1.5% 19 Dec 1.88 - 0 Rate cut as domestic demand and exports remain weakIndonesia 4.5% +/- 1.0% 4.3% 5.4% 10 Jan^ 5.75 - 0 Evenly balancedMalaysia - 1.3% 2.7% 31 Jan 3.00 - 0 Downside risksThailand 0.5-3.0% core CPI 2.7% 3.3% 09 Jan 2.75 - 0 Downside risksBrazil 4.5% +/-2.0% IPCA 5.5% 5.5% 16 Jan 7.25 0 0 -Mexico 3% +/-1% CPI 4.2% 3.8% 18 Jan 4.50 0 0 -Argentina 15.5-24.2% M2 growth 10.2% 10.0% NA 12.07 - - -Chile 3% +/-1% CPI 2.2% 3.5% 13 Dec 5.00 0 0 Buoyant domestic demand pushing inflationPeru 2% +/-1% CPI 2.7% 2.5% 10 Jan 4.25 0 0 -Colombia 3% +/-1% CPI 2.8% 3.2% 21 Dec 4.50 0 0 -(u) = unofficialNotes: Inflation numbers in red indicate values above target; MS expectations in red (green) indicate our rate forecasts are above (below) market expectations. Japan policy rate is an interval of0.00-0.10%; *Core measure. ^Approximate date.Source: National central banks, Morgan Stanley Research 11
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystGlobal Monetary Policy Rate Forecasts Current 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14United States 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15Euro Area 0.75 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50Japan 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05United Kingdom 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.00Canada 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Switzerland 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.50Sweden 1.25 1.00 1.00 1.00 1.00 1.25 1.25 1.50 1.50 1.75Norway 1.50 1.50 1.50 1.50 1.75 1.75 2.00 2.00 2.25 2.50Australia 3.00 3.00 2.75 2.50 2.50 2.50 2.50 2.50 2.75 3.00New Zealand 2.50 2.50 2.50 2.50 2.75 3.00 3.25 3.25 3.25 3.25Russia 5.50 5.50 5.75 5.75 5.75 5.50 5.25 5.00 4.75 4.75Poland 4.25 4.25 3.75 3.25 3.25 3.25 3.25 3.25 3.25 3.50Czech Republic 0.05 0.05 0.05 0.05 0.05 0.05 0.25 0.50 0.75 1.00Hungary 6.00 5.75 5.25 5.00 5.00 5.00 5.00 5.00 5.00 5.00Romania 5.25 5.25 5.25 5.25 5.25 5.25 5.50 5.75 6.00 6.00Turkey 5.75 5.50 5.25 5.25 5.25 5.25 5.50 5.75 5.75 5.75Israel 2.00 2.00 1.75 1.75 1.75 2.00 2.50 2.75 2.75 2.75South Africa 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00Nigeria 12.00 12.00 10.50 9.00 9.00 9.00 9.00 9.00 9.00 9.00Ghana 15.00 15.00 15.00 14.50 14.00 14.00 14.00 14.00 14.00 14.00China 6.00 6.00 6.00 6.00 6.00 6.00 6.25 6.50 6.75 6.75India 8.00 8.00 7.75 7.25 7.25 7.25 7.00 7.00 7.00 7.00Hong Kong 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50S. Korea 2.75 2.75 2.75 2.75 2.75 2.75 3.00 3.25 3.50 3.50Taiwan 1.88 1.88 1.88 1.88 1.88 2.00 2.13 2.25 2.38 2.38Indonesia 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75Malaysia 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00Thailand 2.75 2.75 2.75 2.75 2.75 2.75 2.75 2.75 2.75 2.75Brazil 7.25 7.25 7.25 7.25 7.25 7.25 8.25 8.25 8.25 8.25Mexico 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50Chile 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.50 5.50Peru 4.25 4.25 4.25 4.25 4.25 4.25 4.50 4.75 4.75 4.75Colombia 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.75 5.00 5.00Source: National Central Banks, Morgan Stanley Research forecasts; Note: Japan policy rate is an interval of 0.00-0.10%.Fed and Eurosystem Balance Sheet Monitor3,000 Federal Reserve (Bil.$) 3,500 Eurosystem (Bil.€)2,500 3,000 2,5002,000 2,0001,500 1,500 Size of B/S1,000 1,000 Total Reserves 500 Size of B/S 500 Excess Reserves 0 0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12Source: Haver Analytics Source: Haver Analytics 12
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystGlobal GDP and Inflation Forecasts Real GDP (%) CPI inflation (%) 2011 2012E 2013E 2014E 2011 2012E 2013E 2014E Global Economy 3.9 3.1 3.1 4.0 4.4 3.4 3.1 3.3 G10 1.4 1.2 0.7 1.9 2.7 2.0 1.4 1.7 US 1.8 2.2 1.4 2.7 3.1 2.1 1.3 1.6 Euro Area 1.5 -0.5 -0.5 0.9 2.7 2.5 1.9 1.8 Germany 3.0 0.8 0.3 1.3 2.3 2.0 2.1 1.7 France 1.7 0.1 -0.1 0.8 2.1 2.0 1.4 1.7 Italy 0.6 -2.1 -1.2 0.5 2.8 3.1 1.7 2.2 Spain 0.4 -1.5 -1.5 0.8 3.2 2.5 2.1 1.4 Japan -0.6 2.0 0.4 0.8 -0.3 0.0 -0.4 1.0 UK 0.9 -0.2 0.8 1.6 4.5 2.8 2.6 2.4 Canada 2.4 2.0 1.8 2.5 2.9 1.7 1.7 2.0 Sweden 3.9 0.8 1.4 2.3 3.0 0.9 0.7 2.1 Australia 2.4 3.5 3.3 3.8 3.3 1.8 2.6 2.4 Emerging Markets 6.6 5.0 5.4 5.9 6.2 4.7 4.8 4.8 CEEMEA 5.1 2.9 3.1 4.1 6.9 5.7 5.9 5.4 Russia 4.3 3.6 3.1 3.7 8.5 5.1 6.7 5.3 Poland 4.3 2.4 1.5 2.7 4.3 3.7 2.3 2.0 Czech Rep 1.7 -1.0 0.0 1.9 1.9 3.4 2.6 1.7 Hungary 1.7 -1.3 0.0 1.3 3.9 5.8 5.3 3.6 Ukraine 5.2 0.2 0.8 4.0 8.4 0.6 7.0 8.8 Kazakhstan 7.5 4.5 5.8 6.5 8.4 5.2 7.2 7.3 Turkey 8.5 3.0 4.0 5.0 6.5 8.9 6.2 6.1 Israel 4.7 2.8 3.0 3.4 3.5 1.8 2.1 2.1 South Africa 3.1 2.3 2.5 3.3 5.0 5.6 5.8 5.5 Nigeria 7.4 6.3 7.5 8.2 10.9 12.0 10.0 10.5 Ghana 14.4 7.5 7.5 7.0 8.7 9.2 9.6 10.3 Asia ex-Japan 7.6 6.2 6.8 7.0 5.8 4.1 4.0 4.2 China 9.3 7.7 8.2 8.0 5.4 2.6 3.0 3.6 India 7.5 5.3 6.1 6.9 8.9 9.1 7.5 6.7 Hong Kong 4.9 1.2 3.8 4.5 5.3 4.1 5.6 4.7 Korea 3.6 2.3 3.7 4.2 4.0 2.5 3.0 3.2 Taiwan 4.0 1.2 2.9 4.0 1.4 1.9 1.5 1.8 Singapore 4.9 1.5 2.3 4.0 5.2 4.7 3.6 3.6 Indonesia 6.5 6.2 5.6 5.9 5.4 4.4 5.4 5.4 Malaysia 5.1 5.1 4.0 4.5 3.2 1.7 2.5 2.5 Thailand 0.1 5.2 4.0 4.7 3.8 3.0 3.4 3.2 Latin America 4.5 3.0 2.9 3.8 6.7 6.2 6.5 6.6 Brazil 2.7 1.6 2.8 3.4 6.6 5.4 5.6 5.8 Mexico 3.9 3.8 3.2 4.2 3.4 4.2 3.9 3.8 Chile 6.0 5.1 4.2 4.7 3.3 3.2 3.5 3.1 Peru 6.9 6.4 5.5 5.8 3.4 3.8 3.0 2.5 Colombia 5.9 4.9 4.4 5.1 3.4 3.2 3.2 3.1 Argentina 8.9 1.1 0.5 2.5 9.8 10.1 10.1 10.1 Venezuela 4.2 4.8 2.1 1.7 26.1 20.8 24.9 28.0Source: IMF, Morgan Stanley Research forecasts 13
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro AnalystGlobal Economics TeamGlobal EconomicsJoachim Fels Global Joachim.Fels@morganstanley.com +44 (0)20 7425 6138Manoj Pradhan Global Manoj.Pradhan@morganstanley.com +44 (0)20 7425 3805Spyros Andreopoulos Global Spyros.Andreopoulos@morganstanley.com +44 (0)20 7677 0528Patryk Drozdzik Global Patryk.Drozdzik@morganstanley.com +44 (0)20 7425 7483Sung Woen Kang Global Sung.Woen.Kang@morganstanley.com +44 (0)20 7425 8995AmericasVincent Reinhart US Vincent.Reinhart@morganstanley.com +1 212 761 3537David Greenlaw US David.Greenlaw@morganstanley.com +1 212 761 7157Ted Wieseman US Ted.Wieseman@morganstanley.com +1 212 761 3407Dane Vrabac US Dane.Vrabac@morganstanley.com +1 212 761 1929John Abraham US John.A.Abraham@morganstanley.com +1 212 761 5629Gray Newman Latam, Brazil Gray.Newman@morganstanley.com +1 212 761 6510Luis Arcentales Chile, Mexico Luis.Arcentales@morganstanley.com +1 212 761 4913Arthur Carvalho Brazil Arthur.Carvalho@morganstanley.com +55 11 3048 6272Daniel Volberg Peru, Colombia, Argentina, Venezuela Daniel.Volberg@morganstanley.com +1 212 761 0124Europe & South AfricaElga Bartsch Euro Area, ECB, Germany Elga.Bartsch@morganstanley.com +44 (0)20 7425 5434Daniele Antonucci Italy, Spain, Greece, Portugal Daniele.Antonucci@morganstanley.com +44 (0)20 7425 8943Olivier Bizimana France, Belgium Olivier.Bizimana@morganstanley.com +44 (0)20 7425 6290Melanie Baker UK Melanie.Baker@morganstanley.com +44 (0)20 7425 8607Jonathan Ashworth UK Jonathan.Ashworth@morganstanley.com +44 (0)20 7425 1820Tevfik Aksoy Turkey, Israel Tevfik.Aksoy@morganstanley.com +44 (0)20 7677 6917Pasquale Diana Poland, Hungary, Czech, Romania Pasquale.Diana@morganstanley.com +44 (0)20 7677 4183Jaroslaw Strzalkowski Poland, Hungary, Czech, Romania Jaroslaw.Strzalkowski@morganstanley.com +44 (0)20 7425 9035Michael Kafe South Africa Michael.Kafe@morganstanley.com +27 11 587 0806Andrea Masia South Africa, Nigeria Andrea.Masia@morganstanley.com +27 11 587 0807Jacob Nell Russia, Kazakhstan, Ukraine, Belarus Jacob.Nell@morganstanley.com +7 495 287 2134Alina Slyusarchuk Russia, Kazakhstan, Ukraine, Belarus Alina.Slyusarchuk@morganstanley.com +44 (0)20 7677 6869AsiaRobert Feldman Japan Robert.Tokyo.Feldman@morganstanleymufg.com +81 3 5424 5385Takeshi Yamaguchi Japan Takeshi.Yamaguchi@morganstanleymufg.com +81 3 5424 5387Chetan Ahya Asia ex-Japan, India Chetan.Ahya@morganstanley.com +852 2239 7812Helen Qiao China Helen.Qiao@morganstanley.com +852 2848 6511Denise Yam China, Hong Kong Denise.Yam@morganstanley.com +852 2848 5301Sharon Lam Korea, Taiwan Sharon.Lam@morganstanley.com +852 2848 8927Yuande Zhu China, Hong Kong Yuande.Zhu@morganstanley.com +852 2239 7820Jason Liu Korea, Taiwan Jason.JL.Liu@morganstanley.com +852 2848 6882Deyi Tan ASEAN Deyi.Tan@morganstanley.com +65 6834 6703Derrick Kam Asia ex-Japan Derrick.Kam@morganstanley.com +852 2239 7826Seen Meng Chew ASEAN Seen.Meng.Chew@morganstanley.com +65 6834 6739Upasana Chachra India Upasana.Chachra@morganstanley.com +91 22 6118 2246Morgan Stanley entities: London/South Africa – Morgan Stanley & Co. International plc; New York – Morgan Stanley & Co. LLC; Hong Kong/Shanghai – Morgan Stanley Asia Limited.; Singapore –Morgan Stanley Asia (Singapore) Pte.; Japan – Morgan Stanley MUFG Securities Co., Ltd.; India – Morgan Stanley India Company Private Limited; Russia – OOO Morgan Stanley Bank; Brazil –Morgan Stanley C.T.V.M. S.A. 14
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro Analyst Disclosure SectionThe information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley & Co. LLC and/or Morgan StanleyC.T.V.M. S.A. and/or Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V. and/or Morgan Stanley & Co. International plc and/or RMB MorganStanley (Proprietary) Limited and/or Morgan Stanley MUFG Securities Co., Ltd. and/or Morgan Stanley Capital Group Japan Co., Ltd. and/orMorgan Stanley Asia Limited and/or Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia(Singapore) Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of Singapore (which accepts legalresponsibility for its contents and should be contacted with respect to any matters arising from, or in connection with, Morgan Stanley Research)and/or Morgan Stanley Taiwan Limited and/or Morgan Stanley & Co International plc, Seoul Branch, and/or Morgan Stanley Australia Limited(A.B.N. 67 003 734 576, holder of Australian financial services license No. 233742, which accepts responsibility for its contents), and/or MorganStanley Smith Barney Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813, which acceptsresponsibility for its contents), and/or Morgan Stanley India Company Private Limited, and/or PT Morgan Stanley Asia Indonesia and their affiliates(collectively, "Morgan Stanley").For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see theMorgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative orMorgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.For valuation methodology and risks associated with any price targets referenced in this research report, please emailmorganstanley.research@morganstanley.com with a request for valuation methodology and risks on a particular stock or contact your investmentrepresentative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA.Global Research Conflict Management PolicyMorgan Stanley Research has been published in accordance with our conflict management policy, which is available atwww.morganstanley.com/institutional/research/conflictpolicies.Important Disclosure for Morgan Stanley Smith Barney LLC CustomersThe subject matter in this Morgan Stanley report may also be covered in a similar report from Citigroup Global Markets Inc. Ask your Financial Advisor or use ResearchCenter to view any reports in addition to this report.Important DisclosuresMorgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaningof Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the circumstancesand objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encouragesinvestors to seek the advice of a financial adviser. The appropriateness of an investment or strategy will depend on an investors circumstances and objectives. Thesecurities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and certain investors may not be eligible to purchase orparticipate in some or all of them. Morgan Stanley Research is not an offer to buy or sell any security/instrument or to participate in any trading strategy. The value of andincome from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices,market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights insecurities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions thatmay not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the subject companyssecurities/instruments.The fixed income research analysts, strategists or economists principally responsible for the preparation of Morgan Stanley Research have received compensationbased upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital marketsprofitability or revenues), client feedback and competitive factors. Fixed Income Research analysts, strategists or economists compensation is not linked to investmentbanking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks.With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to use reliable,comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in MorganStanley Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views presented in Morgan StanleyResearch have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment bankingpersonnel.Morgan Stanley may make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report.To our readers in Taiwan: Information on securities/instruments that trade in Taiwan is distributed by Morgan Stanley Taiwan Limited ("MSTL"). Such information is foryour reference only. Information on any securities/instruments issued by a company owned by the government of or incorporated in the PRC and listed in on the StockExchange of Hong Kong ("SEHK"), namely the H-shares, including the component company stocks of the Stock Exchange of Hong Kong ("SEHK")s Hang Seng ChinaEnterprise Index is distributed only to Taiwan Securities Investment Trust Enterprises ("SITE"). The reader should independently evaluate the investment risks and issolely responsible for their investment decisions. Morgan Stanley Research may not be distributed to the public media or quoted or used by the public media without theexpress written consent of Morgan Stanley. To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, MorganStanley Asia Limited as part of its regulated activities in Hong Kong. If you have any queries concerning Morgan Stanley Research, please contact our Hong Kong salesrepresentatives. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or asolicitation to trade in such securities/instruments. MSTL may not execute transactions for clients in these securities/instruments.Morgan Stanley is not incorporated under PRC law and the research in relation to this report is conducted outside the PRC. Morgan Stanley Research does notconstitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors shall have the relevant qualifications to invest in such securitiesand shall be responsible for obtaining all relevant approvals, licenses, verifications and/or registrations from the relevant governmental authorities themselves.Morgan Stanley Research is disseminated in Brazil by Morgan Stanley C.T.V.M. S.A.; in Japan by Morgan Stanley MUFG Securities Co., Ltd. and, for Commoditiesrelated research reports only, Morgan Stanley Capital Group Japan Co., Ltd; in Hong Kong by Morgan Stanley Asia Limited (which accepts responsibility for its contents);in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registrationnumber 200008434H), regulated by the Monetary Authority of Singapore (which accepts legal responsibility for its contents and should be contacted with respect to anymatters arising from, or in connection with, Morgan Stanley Research); in Australia to "wholesale clients" within the meaning of the Australian Corporations Act byMorgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial services license No. 233742, which accepts responsibility for its contents; inAustralia to "wholesale clients" and "retail clients" within the meaning of the Australian Corporations Act by Morgan Stanley Smith Barney Australia Pty Ltd (A.B.N. 19009 145 555, holder of Australian financial services license No. 240813, which accepts responsibility for its contents; in Korea by Morgan Stanley & Co International plc,Seoul Branch; in India by Morgan Stanley India Company Private Limited; in Vietnam this report is issued by Morgan Stanley Singapore Holdings; in Canada by MorganStanley Canada Limited, which has approved of and takes responsibility for its contents in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main andMorgan Stanley Private Wealth Management Limited, Niederlassung Deutschland, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain byMorgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that MorganStanley Research has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; inthe United States by Morgan Stanley & Co. LLC, which accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized and regulated by theFinancial Services Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services andMarkets Act 2000, research which has been prepared by any of its affiliates. Morgan Stanley Private Wealth Management Limited, authorized and regulated by theFinancial Services Authority, also disseminates Morgan Stanley Research in the UK. Private U.K. investors should obtain the advice of their Morgan Stanley & Co.International plc or Morgan Stanley Private Wealth Management representative about the investments concerned. RMB Morgan Stanley (Proprietary) Limited is a 15
  • MORGAN STANLEY RESEARCH December 12, 2012 The Global Macro Analystmember of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally byMorgan Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited.The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no warranties orrepresentations relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages relating to such data. TheGlobal Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley bases projections, opinions, forecastsand trading strategies regarding the MSCI Country Index Series solely on public information. MSCI has not reviewed, approved or endorsed these projections, opinions,forecasts and trading strategies. Morgan Stanley has no influence on or control over MSCIs index compilation decisions. Morgan Stanley Research or portions of it maynot be reprinted, sold or redistributed without the written consent of Morgan Stanley. Morgan Stanley research is disseminated and available primarily electronically, and,in some cases, in printed form. Additional information on recommended securities/instruments is available on request.The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial ServicesAuthority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services to which this research relates willonly be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client.The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial CentreRegulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined by theQFCRA.As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investmentadvisory activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage houses,portfolio management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones providingthese comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decisionby relying solely to this information stated here may not bring about outcomes that fit your expectations. 16
  • MORGAN STANLEY RESEARCHThe Americas Europe Japan Asia/Pacific1585 Broadway 20 Bank Street, Canary Wharf 4-20-3, Ebisu, 1 Austin Road WestNew York, NY 10036-8293 London E14 4AD Shibuya-ku, KowloonUnited States United Kingdom Tokyo 150-6008, Japan Hong KongTel: +1 (1)212 761 4000 Tel: +44 (0)20 7425 8000 Tel: +81 (0)3 5424 5000 Tel: +852 2848 5200© 2012 Morgan Stanley