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Nomura global economic outlook 121016 Nomura global economic outlook 121016 Document Transcript

  • Nomura | Global Economic Outlook Monthly 15 October 2012Global Economic Outlook MonthlyEconomics Research | North America Suspending disbelief 15 OCTOBER 2012 Financial markets have positioned for a smooth path to sovereign debt relief in Europe and deficit reduction in the US. Global Economics nomura-globalEconomics@nomura.com Contributor names can be found within the body of this report and on the back cover This report can be accessed electronically COUNTRY AND REGIONAL ECONOMIC OUTLOOKS via: www.nomura.com/research or on Bloomberg (NOMR) Australia | Slower growth in H2, but back to trend by 2013 4 Brazil | Inflation storm on the horizon 5 Canada | Steady as she goes; growth around trend in H2 2012 6 China | Leading indicators suggest an economic recovery in Q4 7 Euro area | Deeper and more protracted contraction as consolidation bites 8 Hong Kong | Looming fiscal stimulus 9 Hungary | Little clarity on backstop path, rate cuts could still occur 10 India | Still a lot needs to be done 11 Indonesia | Some improvement 12 Japan | Weaker external demand likely leads to a recession in H2 2012 13 Malaysia | Signalling fiscal responsibility 14 Mexico | Growth supported by domestic demand 15 Philippines | Sticking to an easing bias 16 Poland | NBP dovishness but not ready to cut - growth still outperforming 17 Singapore | Tolerating slower growth 18 South Africa | Structural MPC dovishness in a year of crucial political battles 19 South Korea | Prolonged sub-potential growth 20 Taiwan | Hinges on the global outlook 21 Thailand | New growth engines 22 Turkey | A healthy rebalancing 23 United Kingdom | Inflections 24 United States | US budget in the crosshairs 25 Rest of EEMEA 26 Rest of Latin America 27 Nomura Securities International Inc. See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures
  • Nomura | Global Economic Outlook Monthly 15 October 2012Forecast Summary Real GDP (% y-o-y) Consum er Prices (% y-o-y) Policy Rate (% end of period) 2012 2013 2014 2012 2013 2014 2012 2013 2014Global 3.1 3.0  3.6 3.3 3.4 3.4 2.97  3.21  3.34Developed 1.1  0.6  1.6 2.1  1.6  1.7 0.38  0.42 0.49Emerging Markets 5.4 5.7  5.8 4.8 5.4 5.2 6.00  6.35  6.36Americas 2.3  2.0  2.9 3.6 3.6 3.4 2.08  2.42  2.52United States* 2.1  1.3  2.7 2.2 1.6  1.4 0.13 0.13 0.13Canada 2.0 2.1  2.3 1.7  1.9  2.0 1.00 1.75 3.00Latin America†† 2.9  3.7  3.6 7.7 9.2  8.7 7.49  8.54  8.38 Argentina 2.0 4.0 3.5 25.0  30.8  28.3 15.00 17.00  14.00 Brazil 1.3 4.1 3.5 5.4  5.7 5.5 7.25  9.00  8.50 Chile 5.1  5.8 5.0 3.0 3.1 3.0 5.00  5.50 5.00 Colombia 4.5  4.5  4.5 2.9 3.5 3.5 4.50 4.50 5.50 Mexico 3.7 3.5  3.5 4.1 3.4 3.5 4.50 4.50 5.50 Venezuela 6.8  -1.0 3.0 17.3  32.4  24.6 15.00  17.00  16.00Asia/Pacific 5.6  5.4  5.7 3.2 3.8 4.0 4.66  4.92  4.94Japan† 2.0  0.5  1.2 0.0  0.0  2.0 0.05 0.05 0.05Australia 3.6 2.4  2.8 1.6 2.6 2.5 3.00  3.50 4.00New Zealand 2.7 3.2 3.3 1.7 2.4 2.8 2.75 3.50 4.25Asia ex Japan, Aust, NZ 6.4 6.5  6.6 3.9 4.6  4.4 5.65  5.90  5.85 China 8.1 7.7  7.5 2.9 4.2 4.0 6.00 6.50 6.50 Hong Kong*** 1.5 2.5  3.5 4.0 3.5 3.9 0.40 0.40 0.40 India** 5.5 6.4  6.6 7.8 7.2 6.9 8.00 7.50 6.75 Indonesia 6.1 6.1  6.2 4.5 5.0 5.1 5.75 6.25  6.75 Malaysia 4.8 4.0  4.6 1.7 2.4 2.5 3.00 3.50 4.00 Philippines 6.0 6.0  5.8 3.4  4.4 4.5 3.50 4.00  4.50 Singapore*** 1.8 3.4  4.2 4.8 2.8 3.8 0.38  0.44  0.50 South Korea 2.3  2.5  3.5 2.2  2.7  3.0 2.75 2.75 3.25 Taiw an 1.5 3.0  4.0 2.0  1.2  1.5 1.88 2.13 2.13 Thailand 5.5 4.5  5.0 3.0 3.0 3.1 2.75  2.75  3.25Western Europe -0.5 -0.6  0.2 2.6  1.9  1.7 0.50 0.50 0.50Euro area -0.6  -0.9  0.0 2.6  1.8  1.6 0.50 0.50 0.50 Austria 0.3 0.1  0.8 2.5  2.1  1.8 0.50 0.50 0.50 France 0.0 -0.5  0.5 2.3  1.6  1.5 0.50 0.50 0.50 Germany 0.8  0.2  0.7 2.1 1.7 1.7 0.50 0.50 0.50 Greece -6.4  -4.2  -1.6 1.1  0.1  -0.3 0.50 0.50 0.50 Ireland -0.1  0.4  1.3 2.0 0.5  0.6 0.50 0.50 0.50 Italy -2.5  -2.5  -1.4 3.3  1.8  1.5 0.50 0.50 0.50 Netherlands -0.4  -0.4  0.2 2.8  2.5  1.9 0.50 0.50 0.50 Portugal -3.2  -2.8  0.0 2.9  1.3  0.7 0.50 0.50 0.50 Spain -1.7  -3.0  -1.5 2.6  2.6  1.3 0.50 0.50 0.50United Kingdom -0.3  0.3 1.2 2.8  2.6  2.3 0.50 0.50 0.50EEMEA 2.0 2.8 3.6 5.7  4.7  4.6 4.66  4.48  5.31Czech Republic -0.7 0.9 1.4 3.2  1.9  1.4 0.25  0.50  1.00Hungary -1.1 0.3 1.2 5.9 5.0  4.1 6.25 5.00 6.00Israel 2.8 3.3  3.5 2.1  2.6  3.0 2.25 3.00 3.00Poland 2.6 2.3 3.7 4.0 3.2 3.1 4.75 4.00 5.00Romania 0.2  0.8  1.3 3.3  4.5  5.0 5.00  6.00 9.00South Africa 2.4 2.9 3.6 5.4 5.0  5.7 5.00  4.50  6.00Turkey 3.0 4.5 5.0 9.1  6.7  6.3 5.75  5.75  5.75Note: Aggregates calculated using purchasing power parity (PPP) adjusted shares of world GDP (table covers about 84% of world GDP on a PPP basis); ourforecasts incorporate assumptions on the future path of oil prices based on oil price futures, consensus forecasts and Nomura in-house analysis. Currently assumedaverage Brent oil prices for 2012, 2013 and 2014 are $112, $109 and $104, respectively. *2012, 2013 and 2014 policy rate forecasts are midpoints of 0-0.25% targetfederal funds rate range. **Inflation refers to wholesale prices. ***For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively.†Policy rate forecasts in 2012, 2013 and 2014 are midpoints of BOJ‟s 0-0.10% target unsecured overnight call rate range. ††CPI forecasts for Latin America areyear-on- utlook Monthly.Source: Nomura Global Economics. 2
  • Nomura | Global Economic Outlook Monthly 15 October 2012Our View in a Nutshell (changes from last month highlighted)United States Waning business confidence will continue to dampen hiring and investment. Ample economic slack should restrain inflation and keep inflation expectations anchored. We expect the FOMC to continue long-term asset purchases through the third quarter of 2013. Europe‟s debt crisis and the looming “fiscal cliff” should continue to weigh on growth through the rest of 2012. Addressing fiscal policy is likely to be contentious, but we ultimately expect agreement on a long-term deficit reduction plan.Europe Fiscal tightening, financial deleveraging and sovereign debt market tensions should lead to a deeper-than-expected recession. We continue to expect Spain to delay an official call for help, but our baseline remains an ECCL is requested by end-month. After a phase of relative calm, markets will likely test the backstop and pressure will rebuild in Q1 around weak sovereigns. GDP contraction, higher non-performing loans and rising debt trajectories remain the key challenges. Chances of a rate cut in Dec (our baseline) have reduced, though the ECB needs to respond to weaker growth, in our view. We expect inflation to settle close to target in the UK but in the euro area to remain above 2% for most of 2012. The BoE extended liquidity and funding support before announcing £50bn QE in July. We expect £25bn more in November.Japan Deterioration of external demand is likely to lead to negative growth in Q2 and Q3 2012. Economic recovery in Asia should help Japan get back on a moderate recovery track from early 2013. We expect the BOJ to announce a further expansion of its Asset Purchase Program by Q4 2012. The main risks are yen appreciation, a worsening European debt problem and the US and China slowing.Asia The export slump calls for policy stimulus, but raises the risk next year of a build up in debt, inflation and asset price bubbles. China: Macro data are mixed, but policy easing is picking up speed, supporting the growth outlook for Q4. Korea: We expect the BOK to stay on hold at 2.75% through 2013 as growth and inflation should rise modestly from low base India: Recent reforms have surprised positively and growth is bottoming out. But a V-shaped recovery is unlikely. Australia: With indications that growth is slowing due to external factors, the RBA is likely to cut rates in November. Indonesia: An increasingly uncertain policy environment could lead to delays in reforms and sustained current account deficits.EEMEA (Emerging Europe, Middle East and Africa) and Latin America South Africa: With inflation now falling fast into target and growth slowing, the SARB may cut rates further. Hungary: In a difficult spot having rejected the IMF aid conditions over policy concerns, market pressure should force a deal in 2013. Poland continues to outperform strongly , a recession is difficult to envisage, as such we don‟t see cuts occurring this year. Turkey: Rebalancing continues and is likely to pave the way for an upgrade to investment grade. Economic growth in Brazil will likely be well below 2% in 2012, despite the Selic policy rate falling to 7.50%. Mexico: Inflation will likely remain above the target and growth will likely moderate in H2 2012. Argentina‟s growth looks set to slow down in 2012, but inflation to stay high. ARS real appreciation should continue. 3 View slide
  • Nomura | Global Economic Outlook Monthly 15 October 2012Australia | Economic OutlookSlower growth in H2, but back to trend in 2013Growth is likely to slow in H2, due to the impact on exports and the terms-of-trade ofslower Asian growth. We believe the RBA will cut rates by another 25bp in Q4.Activity: After a strong start to the year, the Australian economy grew at trend in Q2. Charles St-Arnaud +1 212 667 1986Household spending was resilient, likely supported by the previous cuts in the policy rate, while charles.starnaud@nomura.cominvestment slowed markedly, especially in the housing sector. Net exports contributed positively Martin Whettonto growth as exports remained strong while imports slowed. However, net exports should act as +61 2 8062 8611a small drag on the economy later this year, as imports should remain strong owing to robust martin.whetton@nomura.combusiness investment expectations but exports should still be affected by slowing growth in Asiaand the impact of the recent currency strength. Moreover, the decline in commodity prices willalso impact the terms-of-trade, likely leading to a decline in gross national income. We alsoexpect fiscal policy to continue to act as a small drag on the economy.Inflation: CPI inflation dropped sharply in H1 and likely bottomed in Q2. We expect inflation torise in H2, owing to the impact from the carbon tax and a reduction in the deflationary pressuresfrom the past appreciation of the Australian dollar. Underlying inflation has also moderated inrecent quarters, and we expect it to remain close to the 2-3% RBA target over the forecasthorizon.Policy: The RBA cut its policy rates by 25bp at the October meeting and signaled that it is likelyto cut again. We expect a further 25bp reduction in the official rate before the end of the yearbut this depends more on external factors, such as continued weakness in Asia and theeurozone crisis, than on domestic factors. Moreover, the latest budget shows that fiscal policywill be restrictive this year, leaving the burden of stimulating the economy to the RBA.Risks: A disorderly resolution to the European debt crisis, a strong currency and a sharpslowdown in Chinese growth remain the main downside risks to the outlook. On the flip side, animprovement in risk sentiment, increased global trade and renewed increases in commodityprices represent upside risks to growth and inflation.Fig. 1: Details of the forecast% q-o-q ar. 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2011 2012 2013 2014Real GDP (% y-o-y) 4.4 3.7 3.1 3.0 2.3 2.3 2.5 2.7 2.1 3.6 2.4 2.8Real GDP 5.6 2.6 2.1 1.9 2.5 2.8 2.7 2.8 2.1 3.6 2.4 2.8 Personal consumption 7.5 2.3 2.1 2.1 2.3 2.5 2.5 2.6 3.3 3.8 2.3 2.6 Private investment 15.8 2.3 6.6 7.1 8.5 8.5 8.6 8.7 11.4 9.9 7.6 8.4 Business investment 23.0 4.7 8.0 8.5 10.1 10.0 9.9 9.9 14.8 14.4 9.2 9.7 Dw elling investment -7.9 -6.7 1.1 1.4 2.0 2.4 2.9 3.3 1.3 -5.4 1.5 3.2 Government expenditures 4.3 7.8 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 0.1 2.5 0.3 -0.2 Exports -3.5 10.2 6.0 6.0 7.5 8.0 8.0 8.0 -1.3 5.7 7.4 8.0 Imports 4.4 3.7 6.0 8.0 7.6 7.5 7.5 8.0 11.5 7.5 7.2 8.0Contributions to q-o-q GDP: Domestic final sales 8.8 3.6 2.1 2.2 2.6 2.7 2.7 2.8 3.5 4.1 2.6 3.0 Inventories -1.2 -2.2 0.0 0.1 0.0 0.1 0.0 0.0 0.8 -0.2 -0.1 -0.1 Net trade -2.0 1.2 0.0 -0.4 -0.1 0.0 0.0 -0.1 -2.1 -0.3 0.0 -0.1Unemployment rate 5.2 5.2 5.2 5.3 5.4 5.5 5.5 5.5 5.1 5.2 5.4 5.3Employment, 000 25 40 1 12 12 23 46 58 11 19 35 71Consumer prices 1.6 1.2 1.6 2.1 2.7 2.8 2.4 2.5 3.4 1.6 2.6 2.5 Trimmed mean 2.1 1.9 2.3 2.4 2.6 2.6 2.5 2.5 2.7 2.2 2.6 2.5 Weighted median 2.2 2.0 2.3 2.2 2.5 2.6 2.5 2.5 2.5 2.2 2.5 2.5Fiscal balance (% GDP) -3.4 -1.8 -0.2 0.1Current account balance (% GDP) -2.3 -2.6 -3.0 -3.0RBA cash rate target 4.25 3.50 3.50 3.00 3.00 3.00 3.25 3.50 4.25 3.00 3.50 4.003-month bank bill 4.30 3.54 3.36 3.05 3.00 3.00 3.30 3.60 4.50 3.05 3.60 4.002-year government bond 3.47 2.46 2.49 2.50 2.50 2.55 2.65 2.70 3.16 2.50 2.70 3.105-year government bond 3.58 2.58 2.56 2.55 2.50 2.50 2.55 2.60 3.29 2.55 2.60 3.2010-year government bond 4.08 3.04 2.94 2.75 2.95 3.00 3.10 3.20 3.67 2.75 3.20 3.60AUD/USD 1.04 1.02 1.05 1.03 1.00 0.99 1.00 1.00 1.02 1.03 1.00 1.00Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. CPI inflation includes the impact from, the carbon tax, but not the underlying measures. Interest rateand exchange rate forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Australian Bureau of Statistics, Reserve Bankof Australia, Nomura Global Economics 4 View slide
  • Nomura | Global Economic Outlook Monthly 15 October 2012Brazil | Economic OutlookInflation storm on the horizonThe combination of a record low policy rate and a “dirty band” preventing BRL fromappreciating will likely lead to soaring inflation in 2013 Tony VolponActivity: The Brazilian economy had a fairly poor start to the year, with H1 GDP growing merely +1 212 667 2182 tony.volpon@nomura.com0.6% y-o-y, and investment falling 2.9% y-o-y. Policymakers have rolled out a series ofmonetary and fiscal stimuli this year in an attempt to revive growth. However, given thestructural issues on the supply side, ongoing drags from credit markets and a still troubledinternational environment, GDP growth will likely remain sluggish at 1.3% in 2012. Given thegradually improving global growth profile and the lagged effects of domestic stimuli, we shouldsee more robust growth in 2013, reaching 4.1%.Inflation: Consumer prices are currently around 5.3% and we expect inflation pressures toaccelerate, given the ongoing commodity price shock and the very accommodative monetarypolicies in Brazil. Tradable goods prices are low at around 3.0%, yet several factors – inclementweather in Brazil and the US, the recent surge in world food prices and BRL above 2.0 – arealready pushing up domestic food prices and we expect this to continue, with inflation ending2012 at 5.3%. As a result of faster growth, a low base of comparison, the lagged effects of aweaker currency and a lower policy rate, inflation will likely accelerate in 2013, ending the yearat 5.7%.Policy: The Central Bank of Brazil (BCB) has slashed its policy rate, Selic, by 525bp sinceAugust 2011, and stated in the October communiqué that “stability of monetary conditions for asufficiently long period is the best strategy.” We believe the “stability for long period” languageoffers a strong signal that the easing cycle is coming to an end, and the key question now ishow long the BCB will stay put, even in the face of rising inflation.Risks: The biggest risk, we believe, is the likelihood of a persistent supply shock as a result ofthe recent run-up in commodity prices, further amplified by monetary easing from major centralbanks. Such a shock should push up inflation rapidly and force the BCB to hike Selic in 2013,despite still slow GDP growth, leading to a state of lower growth, higher inflation and still higherrates (see “Inflation storm on the horizon”, August 15 2012). We now expect the new hikingcycle to start in Q2 2013, as rising consumer prices threaten to go above 6%, and we think Selicwill likely finish 2013 at 9%.Details of the forecast % y-o-y change unless noted 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2012 2013 Real GDP 2.1 1.8 0.8 0.5 1.8 2.1 3.3 4.4 1.3 4.1 Personal consumption 2.8 2.8 2.5 2.4 4.2 4.1 4.4 5.7 3.3 5.0 Fixed investment 2.5 2.0 -2.1 -3.7 -1.5 -1.1 4.5 8.1 -2.1 6.2 Government expenditure 1.2 1.3 3.4 3.1 3.8 3.5 4.0 1.2 4.0 3.6 Exports 4.1 3.7 6.6 -2.5 -1.7 -2.3 -0.5 5.5 1.4 4.5 Imports 5.8 6.4 6.3 1.6 5.2 2.7 7.5 11.3 5.1 9.8 Contributions to GDP growth (pp) Industry 0.5 0.4 -0.4 0.1 0.4 0.5 0.8 1.1 0.3 1.0 Agriculture 0.1 0.1 0.0 0.0 0.1 0.1 0.2 0.2 0.1 0.2 Services 1.2 1.0 0.9 0.3 1.0 1.2 1.9 2.5 0.7 2.3 IPCA (consumer prices) 7.3 6.5 5.2 4.9 5.3 5.4 5.7 5.8 5.4 5.7 IGPM (wholesale prices) 7.5 5.1 3.2 5.1 8.1 7.5 7.0 6.4 6.0 5.6 Trade balance (US$ billion) 5 30 29 24 22 20 18 21 20 25 Current account (% GDP) -3.0 -3.0 Fiscal balance (% GDP) -2.0 -2.0 Net public debt (% GDP) 36.0 35.0 Selic % 12.00 11.00 9.75 8.50 7.50 7.25 7.25 8.25 7.25 9.00 BRL/USD 1.88 1.86 1.83 2.01 2.03 1.98 1.92 1.88 1.98 1.85Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-on-year changes for Q4. Trade dataare a 12-month sum. Interest rate and currency forecasts are end of period. Contributions to GDP growth do not include taxes. Numbers in bold are actual values,others forecast. Table reflects data available as of 12 October 2012.Source: Nomura Global Economics. 5
  • Nomura | Global Economic Outlook Monthly 15 October 2012Canada | Economic OutlookSuspending disbeliefFinancial markets have positioned for a smooth path to sovereign debt relief in Europeand deficit reduction in the US.Activity: Growth in Q2 was around potential, supported by business investment and inventory Charles St-Arnaudaccumulation. Net exports were the major drag to growth, as production disruptions in the oil +1 212 667 1986 charles.starnaud@nomura.comindustry have resulted in anemic exports gains, while strong domestic demand, led by businessinvestment, has boosted imports. For the rest of 2012, we expect growth of around 2%. Weexpect personal spending growth to remain modest as households gradually reduce their debtburdens and income growth remains slow. Business investment in machinery and equipment islikely to slow, after a strong Q2, but should remain strong. Below-trend global growth and thestrong Canadian dollar will likely mean that net exports are not a significant source of growth.However, the impact from the strong currency is partly reversed by weaker funding costs, owingto strong foreign inflows into Canadian securities.Inflation: With some spare capacity and the output gap likely to close in 2013, we thinkinflationary pressures are likely to remain contained. We expect headline inflation to fallgradually to 1.6%, as the impact from high food and energy prices gradually disappears, andend the year close to the central bank‟s 2% target. Core inflation should follow a similar pattern,reaching a low of 1.7%.Policy: With considerable monetary stimulus in place, and a narrowing of the output gap, weexpect the BoC to remain on hold in 2012, waiting for some clarity on the US fiscal cliff and theeurozone crisis before reducing the amount of stimulus and taking any further action. We expectthe BoC to be cautious about tightening monetary policy and to bring rates to 1.75% by end-2013. The latest budgets show that the various levels of government are in consolidation mode,causing a small drag on the economy.Risks: A disorderly resolution of the euro-area debt crisis remains an immediate risk to theCanadian economy, However, we think the threat from the US „fiscal cliff‟ is much bigger andwould have a much larger impact on the Canadian economy, given the strong economic linksbetween the two countries. On the upside, domestic demand may be more resilient thanexpected, and the US economy may perform better than expected. Moreover, QE3 in the UScould be positive for Canada by boosting commodity prices and the terms of trade.Fig. 1: Details of the forecast % 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2011 2012 2013 2014 Real GDP 1.8 1.8 1.9 2.0 2.2 2.3 2.3 2.2 2.4 2.0 2.1 2.3 Personal consumption 0.7 1.1 1.5 1.5 1.8 1.8 1.8 1.8 2.4 1.6 1.7 1.8 Non residential fixed invest 5.8 9.4 7.0 7.0 6.5 6.5 6.5 6.5 13.1 6.5 6.8 6.5 Residential fixed invest 11.5 1.8 4.0 4.0 5.0 5.0 5.0 5.0 2.3 5.9 4.5 5.0 Government expenditures -2.0 -0.5 0.0 0.0 0.3 0.3 0.3 0.3 0.1 -1.6 0.2 0.3 Exports 4.0 0.8 4.0 4.2 4.3 4.3 4.3 4.2 4.6 4.8 4.0 4.2 Imports 5.2 6.4 4.0 4.0 4.2 4.2 4.2 4.2 7.0 4.0 4.3 4.2 Contributions to GDP: Domestic final sales 1.4 1.8 2.0 2.0 2.2 2.2 2.2 2.2 3.0 1.8 2.1 2.2 Inventories 0.9 1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.1 0.0 Net trade -0.4 -1.8 -0.1 0.0 0.0 0.0 0.1 0.1 -0.8 0.2 -0.1 0.1 Unemployment rate 7.4 7.3 7.3 7.3 7.3 7.2 7.2 7.2 7.5 7.3 7.2 7.1 Employment, 000 41 120 17 50 60 60 60 60 51 57 60 63 Consumer prices 2.3 1.6 1.3 1.7 1.8 1.8 2.0 2.0 2.9 1.7 1.9 2.0 Core CPI 2.1 1.7 1.6 1.7 2.0 2.0 2.0 2.0 1.7 1.8 2.0 2.0 Fiscal balance (% GDP) -4.4 -3.8 -3.0 -2.2 Current account balance (% GDP) -2.8 -3.4 -3.7 -3.7 Overnight target rate 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.75 1.00 1.00 1.75 3.00 3-month T-Bill 0.91 0.87 0.97 1.00 1.00 1.00 1.30 1.80 0.82 1.00 1.80 3.00 2-year government bond 1.20 1.03 1.07 1.20 1.20 1.30 1.60 2.20 0.95 1.20 2.20 3.20 5-year government bond 1.57 1.21 1.31 1.40 1.50 1.80 2.10 2.30 1.28 1.40 2.30 3.20 10-year government bond 2.11 1.74 1.73 1.90 2.00 2.10 2.30 2.50 1.94 1.90 2.50 3.40 USD/CAD 1.00 1.02 0.98 0.98 1.00 1.00 0.99 0.97 1.02 0.98 0.97 0.97Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates (saar). Inflation measures and calendar year GDP are year-over-year percent changes. Interest rateforecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Bank of Canada, Statistics Canada, Nomura Global Economics. 6
  • Nomura | Global Economic Outlook Monthly 15 October 2012China | Economic OutlookLeading indicators suggest an economic recovery in Q4The growth outlook depends on the strength of housing and infrastructure investmentsForecast change: We revise down our GDP growth forecast for 2013 to 7.7% from 7.9% as our Zhiwei Zhang +852 2536 7433European team revised down its 2013 euro-area growth forecast to -0.9% from 0.8%. We keep zhiwei.zhang@nomura.comour 2012 GDP growth forecast unchanged at 8.1%. Wendy ChenActivity: Macro data remain mixed but recent data releases provided positive signals. Growth in +86 21 6193 7237 wendy.chen@nomura.comindustrial production slowed to 8.9% y-o-y in August from 9.2% in July; fixed asset investmenteased to 20.2% from 20.4%, while retail sales rose marginally to 13.2% from 13.1%. In contrast,export growth rose sharply to 9.9% y-o-y in September from 2.7% in August, import growthrebounded to 2.4% from -2.6%, and the PMI rebounded to 49.8 from 49.2, with a big jump innew orders. Leading indicators in the property sector rose sharply in August: growth in newhousing starts jumped to 14% y-o-y from -27% in July, while developers land purchase growthsnapped back to 66% from -39% in July.Inflation: CPI inflation edged down to 1.9% y-o-y in September from 2.0% in August, drivenmostly by base effects. We believe CPI inflation climb to 3.1% in Q4 and 4.2% in 2013 asgrowth rebounds and food prices accelerate. The PPI dropped to -3.6% y-o-y from -3.5%.Policy: Policy easing has picked up. The government announced last month that it hadapproved many infrastructure projects with a total investment value of about RMB1trn. Totalsocial financing rose sharply to RMB 1.6trn in September from 1.2trn in August. This reinforcesour view that the authorities are becoming less tolerant of slower GDP growth as the economyapproaches the official annual target of 7.5%, while the upcoming Communist Party meeting on8 November imparts a further sense of urgency. We expect the People‟s Bank of China to cutthe bank reserve requirement ratio (RRR) by 50bp in October to boost infrastructure investmentfurther. We maintain our forecast for no interest rate cuts over the remainder of 2012, as a cutwould risk reigniting the property bubble and could damage bank profitability.Risks: The key risks to our forecast are related to exports and the property market. If crisesescalate in Europe or the US, our export forecast may be too optimistic. If property prices risequickly and the government is forced to take further action to cool the sector, any rebound inproperty investment could be temporary and offer less support for a growth recovery in Q4.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP 8.1 7.6 7.7 8.8 8.4 8.0 7.4 7.0 8.1 7.7 7.5Consumer prices 3.8 2.9 1.9 3.1 3.5 4.2 4.5 4.5 2.9 4.2 4.0 Core CPI 1.5 1.3 1.1 1.8 2.0 2.1 2.4 2.1 1.4 2.2 2.0Retail sales (nominal) 14.9 13.9 13.2 15.0 16.2 15.9 15.5 15.6 14.3 15.8 16.0Fixed-asset investment (nominal, ytd) 20.9 20.4 20.4 21.0 20.8 21.2 21.3 22.0 21.0 22.0 20.0Industrial production (real) 11.6 9.5 9.2 12.0 10.9 10.7 10.5 10.3 10.6 10.6 10.5Exports (value) 7.6 10.5 4.5 6.0 3.0 4.0 6.0 6.0 7.1 5.4 6.0Imports (value) 6.9 6.5 1.4 8.0 7.0 8.0 9.0 9.0 5.6 8.3 10.0Trade surplus (US$bn) 1.1 68.8 79.5 41.8 -16.0 53.4 70.4 29.4 191.2 137.2 65.7Current account (% of GDP) 1.7 1.0 -0.4Fiscal balance (% of GDP) -1.5 -1.5 -1.6New increased RMB loans 8.0 9.0 9.01-yr bank lending rate (%) 6.6 6.3 6.0 6.0 6.0 6.0 6.3 6.5 6.0 6.5 6.51-yr bank deposit rate (%) 3.5 3.3 3.0 3.0 3.0 3.0 3.3 3.5 3.0 3.5 3.5Reserve requirement ratio (%) 20.5 20.0 20.0 19.0 18.0 18.0 18.0 18.0 19.0 18.0 17.0Exchange rate (CNY/USD) 6.29 6.35 6.28 6.28 6.27 6.25 6.24 6.22 6.28 6.22 6.22Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 15 October 2012. Source: CEIC and Nomura Global Economics. 7
  • Nomura | Global Economic Outlook Monthly 15 October 2012Euro Area | Economic OutlookDeeper and more protracted contraction as consolidation bitesWe have revised down our growth forecasts and expect aggressive fiscalconsolidation to deepen recessionary forces. Spain continues to delay a call for help.Activity: We downgraded our forecasts in Euro area Economics: Marking down growth, 5 Nick MatthewsOctober, and expect recessionary forces to deepen across the area. While foreign demand is +44 (0) 20 710 25126 Nick.Matthews@nomura.comlikely to remain weak, we expect aggressive fiscal consolidation in a growing number of largeeconomies to adversely affect domestic demand in those countries. With no monetary policy Stella Wang +44 (0) 20 710 20599offset and already negative output gaps, we (like the IMF) believe the fiscal multiplier might be stella.wang@nomura.comclose to unity in the case of Italy and Spain and these countries will experience much deeperrecessions than currently expected (particularly by their respective governments). We forecasteuro area GDP to contract by 0.9% in 2013 after a slightly smaller contraction in 2012.Inflation: We expect euro area headline inflation to fall back to 1.8% on average next year andthen to 1.6% in 2014, driven by softening core inflation trends due to weak domestic demand.Upside risks will likely remain from further additional administered price/indirect tax increases todeliver fiscal consolidation in some member states.Policy: No discussion on changing interest rates at the last ECB meeting suggests the chancesof a rate cut in December (our baseline) are reduced, though we think the ECB will need torevise down its growth forecast much further in December. President Draghi continues to stressconditionality as the essential part of Outright Monetary Transactions (OMTs) and also set outfurther limits (i.e. purchases will stop around quarterly reviews and full market access isrequired; for more details see Ready and Waiting... (Post ECB meeting), 4 October or lastmonth‟s GEOM, 10 September). These are further indications that OMTs should not beconfused with a full QE-type programme as they come with more strings attached than investorswould have liked, which could make smooth execution more difficult. Spain continues to delayan official call for help, but our baseline remains an ECCL is requested by end-month.Risks: A number of risks and limits to current support mechanisms remain related toconditionality, maturity restrictions, limited EFSF/ESM financial resources and the uncertainseniority status. Whether the sovereign bank nexus can be effectively broken now also needsclarification, given the recent guidance on ESM direct bank recaptalisation from some AAAcountries that legacy assets should be the responsibility of national authorities (see Implicationof statement on ESM from Germany, Netherlands and Finland, 26 September).Details of the forecast% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP -0.1 -0.7 -1.4 -1.6 -0.8 -0.6 -0.2 -0.1 -0.6 -0.9 0.0 Household consumption -0.7 -1.0 -1.7 -1.7 -1.7 -1.5 -1.5 -1.5 -1.1 -1.6 -1.4 Fixed investment -5.1 -3.5 -7.0 -6.6 -5.6 -4.5 -3.9 -3.6 -3.9 -5.3 -3.2 Government consumption 0.7 0.4 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 0.0 -0.7 -0.5 Exports of goods and services 2.6 5.3 0.9 -3.1 0.6 1.6 2.6 2.6 2.3 0.8 2.7 Imports of goods and services -1.2 3.7 -4.7 -7.0 -2.8 -2.1 -0.8 -0.4 -1.4 -2.9 0.2Contributions to GDP: Domestic final sales -1.3 -1.1 -2.5 -2.4 -2.2 -1.9 -1.7 -1.6 -1.4 -2.0 -1.4 Inventories -0.6 -0.4 -1.5 -0.9 -0.2 -0.5 -0.1 0.1 -0.9 -0.5 0.2 Net trade 1.8 0.9 2.6 1.7 1.6 1.7 1.6 1.4 1.7 1.7 1.3Unemployment rate 10.9 11.1 11.4 11.5 11.6 11.8 11.9 12.0 11.2 11.8 12.0Compensation per employee 1.9 1.7 1.8 1.4 0.9 0.7 0.4 0.3 1.7 0.6 0.6Labour productivity 0.4 0.2 -0.2 -0.4 -0.7 -0.5 -0.3 0.1 0.0 -0.4 0.5Unit labour costs 1.5 1.4 2.0 1.8 1.6 1.2 0.7 0.2 1.7 0.9 0.1Fiscal balance (% GDP) -3.3 -3.1 -2.9Current account balance (% GDP) -0.3 0.1 0.5Consumer prices 2.7 2.5 2.6 2.5 2.0 1.9 1.7 1.5 2.6 1.8 1.6ECB main refi. rate 1.00 1.00 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.503-month rates 0.78 0.65 0.22 0.52 0.67 0.67 0.67 0.67 0.52 0.67 0.6710-yr bund yields 1.81 1.60 1.41 1.25 1.31 1.38 1.44 1.50 1.25 1.50 1.75$/euro 1.32 1.25 1.29 1.28 1.25 1.20 1.18 1.18 1.28 1.15 tbcNotes: Quarterly real GDP and its contributions are seasonally adjusted annualised rates. Unemployment rate is a quarterly average as a percentage of the labourforce. Compensation per employee, labour productivity, unit labour costs and inflation are y-o-y percent changes. Interest rate and exchange rate forecasts are endof period levels. Numbers in bold are actual values, others forecast. Table reflects data available as of 10 September 2012.Source: Eurostat, ECB, DataStream, Nomura Global Economics. 8
  • Nomura | Global Economic Outlook Monthly 15 October 2012Hong Kong | Economic OutlookLooming fiscal stimulusWe expect expansionary FY13 budget given weak external demand.Forecast change: We cut our GDP growth forecast from 3.5% to 2.5% for 2013. Young Sun Kwon +852 2536 7430 youngsun.kwon@nomura.comActivity: The volume of retail sales growth increased to 3.2% y-o-y in August from 1.4% in July.We believe that, although private consumption is weakening, it should not weaken sharply, as it Aman Mohuntais still supported by a tight labour market and positive wealth effects from buoyant property +91 22 6617 5595 aman.mohunta@nomura.comprices. Further, domestic demand should remain supported by infrastructure works, while visitorarrival numbers continue to show double-digit growth (up 20% y-o-y in August). That said, HongKong‟s export slump looks set to continue into at least Q3, and could start having multipliereffects on domestic demand. Looking ahead, we expect fiscal stimulus and a moderateimprovement in the external demand to lift real GDP growth to 2.5% in 2013 up from 1.5% in2012. A modest recovery in the global economy should boost GDP growth further to 4% in 2014.Inflation: CPI inflation surged to 3.7% y-o-y in August from 1.6% in July on higher food prices,although the rise in residential prices has tapered off and growth in residential mortgage lendinghas moderated, which, with a lag, should help ease inflationary pressures. Inflation shouldremain moderate through 2013, driven by inflation-mitigating fiscal measures (e.g., a temporarywaiver of public housing rents and subsidies on electricity) but higher food and fuel prices wouldrestrict a sharp fall. We see CPI inflation slowing from 4.0% in 2012 to 3.5% in 2013. In 2014, apositive output gap will likely push up CPI inflation to 3.9%.Policy: Hong Kongs fiscal policy is expansionary as the budget for FY12 (starting in April 2012)includes not only inflation-mitigating measures but also an income tax reduction for individualsof up to HKD12,000 per person and a 14.8% increase in capital expenditure. This shouldcontinue to help stabilize inflation and support the job market. We expect the FY13 budget toalso be expansionary given that external demand remains weak.Risks: As a small, open economy and financial hub, Hong Kong is one of the most vulnerablein Asia to a deeper-than-expected global economic downturn. An economic hard-landing inChina would be especially detrimental to Hong Kong through both trade and financial channels.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 1.6 0.8 3.0 3.5 -1.3 4.1 4.2 7.7Real GDP 0.7 1.1 1.7 2.2 1.2 2.3 2.6 3.6 1.5 2.5 3.5 Private consumption 6.5 3.7 2.2 1.8 2.4 3.4 3.8 4.8 3.5 3.6 4.4 Government consumption 2.3 3.5 3.0 3.2 3.5 3.7 4.0 4.2 3.0 3.8 4.4 Gross fixed capital formation 12.9 5.7 5.4 4.9 5.8 5.8 5.7 5.6 7.0 5.7 6.1 Exports (goods & services) -3.9 0.1 0.7 2.3 4.9 5.4 5.6 6.2 -0.2 5.5 7.2 Imports (goods & services) -2.0 0.8 1.4 2.5 6.0 6.3 6.7 6.9 0.7 6.5 7.6Contributions to GDP (% points) Domestic final sales 7.4 4.1 3.0 2.6 3.2 4.0 4.3 4.9 4.2 4.1 4.8 Inventories -1.8 -1.4 0.4 0.0 0.2 0.3 0.4 0.1 -0.7 0.3 -0.5 Net trade (goods & services) -4.1 -1.6 -1.3 -0.2 -2.1 -2.0 -1.8 -1.0 -1.8 -1.7 -0.6Unemployment rate (sa, %) 3.4 3.3 3.2 3.3 3.3 3.3 3.2 3.2 3.3 3.2 3.2Consumer prices 5.2 4.2 2.9 3.6 3.2 3.4 3.6 3.8 4.0 3.5 3.9Exports -1.2 2.0 5.7 7.4 9.6 11.0 10.9 11.2 3.6 10.7 12.3Imports 0.9 2.3 5.5 7.0 10.6 11.5 11.5 11.7 4.0 11.3 12.4Trade balance (US$bn) -12.7 -15.9 -14.8 -15.6 -15.0 -18.1 -17.2 -18.0 -58.9 -68.3 -77.2Current account balance (% of GDP) 2.7 -0.2 -1.4Fiscal balance (% of GDP) -0.2 -0.1 -0.23-month Hibor (%) 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40Exchange rate (HKD/USD) 7.76 7.76 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75Source: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics. 9
  • Nomura | Global Economic Outlook Monthly 15 October 2012Hungary | Economic OutlookLittle clarity on backstop path, rate cuts could still occurWe think 2012 will be a crunch year, when funding difficulties and recession throwfiscal policy off track. An IMF backstop is now expected in January/February.Policy, fiscal and funding: Since the 2010 election there has been a fiscally conservative but Peter Attard Montalto +44 (0) 20 710 28440highly unorthodox policy, which we saw as unsustainable owing to one-off and distortive peter.am@nomura.commeasures. Add in downgrades, deleveraging and patchy capital flows and we think things willcome to a head this year with still some potential funding difficulties. We think the IMF and EUare needed to prevent this, by providing a backstop and engendering a change in policydirection. The government can now fund its FX redemptions until February and as such, talkswon‟t restart in the near future. Thus, we think a backstop is not likely to be in place until aroundJanuary/February time. A key barrier to talks, however, is the financial transactions tax on thecentral bank (an issue which the EU has started treaty infringement proceedings on) as well asthe macro assumptions in the budget which are too bullish. Changing these factors wouldcreate a significant hole in the budget. In addition, the government is attempting to push on withcostly and unfunded growth and jobs programmes. We judge them to be unfunded, in part,because they purport to use budget reserves that will already be eaten up by low growthaccording to our model. Once the economy starts its recovery and a backstop is provided, wethink EURHUF could strengthen to around 294 by end-2013 from “crisis” lows, which requiredthe government to act (around 315-320). We are concerned about the sustainability of thecurrent government programme into the 2014 elections given the lack of growth and popularity,so we do not see an IMF/EU backstop lasting beyond the end of 2013.Rates and inflation: We expect the bulk of the rate cuts to start once a deal is reached with theIMF/EC on a backstop in January/February. Our medium-run forecast, regardless whether thereare “early” cuts or not, is that by Q3 of next year rates will be down to around 5.00% thanks toheavy and rapid cuts after a backstop deal is signed. The headline inflation picture is very bleakthroughout much of 2012, with a peak of 6.6% in Q3, and we see it remaining above target untillate Q2 2014 due to new tax increases. However, core inflation remains very subdued thanks tolow growth.Growth: We expect a sharp slowdown in consumption as unemployment climbs and exposureto eurozone core consumption markets takes a hit in this second crisis period after the balanceof payments event in 2008. However, net trade will likely remain supportive as the surplusclimbs through 2012. Private sector investment will probably contract too, accelerated bydeleveraging. However, there is likely to be a lasting impact from the government‟s policy,weakening FDI with little external help. Our key concern is potential declining growth over thepast four years from 4.0% before the crisis, first to 2.5% and now to just 1.75%.Figure 1. Details of the forecast Figure 2. Headline and core ex-VAT CPI. 2010 2011 2012 2013 Constant tax coreReal GDP % y-o-y 1.2 1.7 -1.1 0.3 Headline 6.5Nominal GDP USD bn 128.7 140.2 150.0 150.7Current account % GDP 1.09 1.4 2.0 1.0Fiscal balance % GDP -3.2 -6.2 -4.2 -3.0 5.5 Structural balance -5.5 -5.0 -6.5 -5.5CPI % y-o-y * 4.7 4.1 6.0 4.8 4.5CPI % y-o-y ** 4.9 3.9 5.9 5.0Core CPI ex VAT % y-o-y ** -0.4 2.6 2.1 2.7 3.5Unemployment rate % 10.8 10.7 11.5 11.0Reserves EUR bn *** 32.3 35.1 30.8 28.1External debt % GDP*** 139.8 138.9 131.6 130.6 2.5Public debt % GDP 81.3 82.8 80.9 79.5MNB policy rate %* 5.75 7.00 6.25 5.00 1.5EURHUF* 279 315 286 294 Jan-2011 Sep-2011 May-2012 Jan-2013 Sep-2013Notes: * End of period. ** Period average. Bold is actual data. *** Includes IMF/EU funds. Source: Nomura Global Economics 10
  • Nomura | Global Economic Outlook Monthly 15 October 2012India | Economic OutlookStill a lot needs to be doneThe pickup in reform momentum is positive, but fundamental issues affectinginvestments and inflation have yet to be addressed.Forecast change: We are revising down our GDP forecasts to 6.4% from 6.6% in 2013 and to Sonal Varma6.6% from 6.8% in 2014 to reflect weaker external demand. +91 22 403 74087 sonal.varma@nomura.comActivity: Recent reforms have reversed months of policy paralysis and boosted sentiment. Aman MohuntaHowever, economic fundamentals will take time to catch up for various reasons. First, many of +91 22 6617 5595these announcements still need to be implemented. Second, external demand remains very aman.mohunta@nomura.comfragile going into 2013. Third, risks on the fiscal deficit and inflation remain in place. As such, weexpect weak exports and investment demand to keep real GDP growth subdued at 5.5% and6.4% y-o-y, in 2012 and 2013 respectively from 7.5% in 2011.Inflation: WPI inflation jumped back to 7.6% y-o-y in August and is likely to inch closer toward8% in the coming months due to the direct and indirect impacts from the recent hike inadministered fuel prices. Recent INR appreciation could reduce imported inflationary pressures,but with food inflation likely to accelerate, we expect headline inflation to remain sticky above7%. A sudden sharp movement in fruit and vegetable prices in either direction is a key risk.Policy: We expect the Reserve Bank of India (RBI) to keep policy rates unchanged in 2012 asinflation remains elevated and the fiscal deficit large. We expect the RBI to cut rates by 50bp inH1 2013 and by another 75bp in 2014, but only once inflation eases. We anticipate fiscalslippage of 0.7 percentage points (pp) from the budgeted 5.1% of GDP in FY13 (year endingMarch 2013) due to the government‟s inability to control subsidies and reduced tax revenuesfrom weak growth. We expect the fiscal deficit to remain above 5% of GDP for the next twoyears, as populist policies take hold ahead of the April 2014 elections.Risks: A rise in oil prices and a sharp global downturn are the key downside risks. A revival inglobal growth and quick turnaround by the government on investment projects are upside risks.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 5.9 5.3 6.1 6.5 7.0 5.9 6.1 7.1Real GDP 5.3 5.5 5.5 5.7 6.4 6.4 6.3 6.5 5.5 6.4 6.6 Private consumption 6.1 4.0 3.5 4.1 4.6 5.7 5.5 6.2 4.4 5.5 6.9 Government consumption 4.1 9.0 5.5 7.0 5.0 4.6 4.6 3.8 6.3 4.5 5.4 Fixed investment 3.6 0.7 2.0 3.9 6.1 9.0 9.1 9.3 2.5 8.3 8.4 Exports (goods & services) 18.1 10.1 9.9 9.1 4.5 9.2 8.8 9.4 12.0 7.8 9.7 Imports (goods & services) 2.0 7.9 6.5 5.8 9.5 10.4 6.7 4.7 5.6 7.6 9.7Contributions to GDP (% points) Domestic final sales 1.3 5.7 5.3 5.4 7.7 7.5 6.3 5.7 4.4 6.8 7.1 Inventories 0.0 0.0 0.1 0.1 0.0 0.1 0.2 0.2 0.0 0.1 0.2 Net trade 4.0 -0.2 0.1 0.1 -1.4 -1.2 -0.2 0.7 1.1 -0.5 -0.7Wholesale price index 7.5 7.5 8.0 8.2 7.5 7.3 7.0 7.2 7.8 7.2 6.9Consumer prices 7.2 10.1 9.7 10.7 10.0 8.7 8.7 9.4 9.5 9.2 9.0Current account balance (% GDP) -3.7 -2.7 -2.8Fiscal balance (% GDP) -5.8 -5.2 -5.0Repo rate (%) 8.50 8.00 8.00 8.00 7.75 7.50 7.50 7.50 8.00 7.50 6.75Reverse repo rate (%) 7.50 7.00 7.00 7.00 6.75 6.50 6.50 6.50 7.00 6.50 5.75Cash reserve ratio (%) 4.75 4.75 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.7510-year bond yield (%) 8.54 8.18 8.15 8.10 7.80 7.80 7.80 7.50 8.10 7.50 7.00Exchange rate (INR/USD) 51.2 54.0 52.7 54.5 55.9 57.3 58.6 60.0 54.5 60.0 57.0Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. CPI is forindustrial workers. Fiscal deficit is for the central government and for fiscal year, e.g, 2012 is for the year ending March 2013. Table reflects data available as of 11October 2012. Source: CEIC and Nomura Global Economics. 11
  • Nomura | Global Economic Outlook Monthly 15 October 2012Indonesia | Economic OutlookSome improvementExternal balances are improving but could remain under pressure given the weakglobal backdrop and risks of domestic policy swings.Forecast changes: For 2013, we lower our forecasts for GDP growth to 6.1% from 6.3%, the Euben Paracuelles +65 6433 6956policy rate to 6.25% from 6.50%, and the fiscal balance to -2.0% of GDP from -1.9%. euben.paracuelles@nomura.comActivity: Our forecast of a slowdown in H2 growth was supported by the sharp drop in export Lavanya Venkateswarangrowth, which fell 16.2% y-o-y in July/August after a 9.0% drop in Q2. The weakness was broad +91 22 3053 3053 lavanya.venkateswaran@nomura.combased and is likely to persist given weak global demand. Indeed, our European team‟sdowngrade of their 2013 GDP growth forecast for the euro area led us to trim our 2013 GDPgrowth forecast. But our downgrade is relatively modest given the strength of domestic demand,as evidenced by still-buoyant credit growth (23.6% y-o-y in August) and consumer confidence.The trade deficit has narrowed and FX reserves are up, providing some respite to concernsabout external imbalances. However, this may prove temporary, as the narrowing was driven bya decline in imports in August resulting from the month‟s extended holidays. Longer term, therisk of a more uncertain pre-election policy environment remains and could add to externaldeficits and lead to slower FDI inflows (see Asia Special Report: Indonesia: Policy swings).Inflation and monetary policy: CPI inflation eased to 4.3% y-o-y in September from 4.6% inAugust due to lower food prices and core inflation. Inflation is likely to remain comfortably withinBank Indonesia‟s (BI) 3.5-5.5% target range this year, but we expect it to gradually rise becauseof strong domestic demand and a weaker IDR. As such, we think it remains appropriate for BI tomaintain its tightening bias which should manifest in the form of administrative measures ratherthan outright rate hikes. We pushed out the timing of our first rate hike forecast to Q3 2013.Fiscal policy: We expect the official fiscal deficit targets of 2.2% and 1.6% of GDP for 2012 and2013, respectively, to be missed, in part because of still-large subsidies. For 2013, the proposedbudget does not account for an adjustment in fuel prices (see Asia Economic Alert: Indonesia:2013 budget - another missed opportunity?, August 23). We expect a higher 2013 fiscal deficitof 2% of GDP, as the government attempts to provide more fiscal support to growth.Risks: Downside risks stem from external shocks: a deeper recession in the euro area, a hardlanding in China and large capital outflows. In addition, more protectionist policyannouncements could further generate negative sentiment on investment.Details of the forecast % y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014 Real GDP (sa, % q-o-q, annualized) Real GDP 6.3 6.4 6.0 5.8 5.6 6.0 6.3 6.5 6.1 6.1 6.2 Private consumption 4.9 5.0 5.5 5.2 5.3 5.3 5.5 5.5 5.2 5.4 5.6 Government consumption 5.9 7.0 9.0 10.0 5.0 8.0 8.0 8.0 8.3 7.5 7.0 Gross fixed capital formation 10.0 12.3 11.2 10.0 9.9 8.8 8.8 7.1 10.9 8.6 9.0 Exports (goods & services) 7.9 1.9 2.7 4.8 5.0 6.0 11.0 8.0 4.2 7.6 10.0 Imports (goods & services) 8.0 10.9 8.0 6.6 6.5 6.5 6.2 14.0 8.3 8.4 11.9 Contributions to GDP (% points) Domestic final sales 5.5 6.2 6.5 6.6 5.7 5.7 5.9 5.9 6.1 6.0 6.0 Inventories 2.0 2.3 0.8 -0.6 0.0 0.0 -0.9 -0.1 1.1 -0.3 -0.3 Net trade (goods & services) 0.7 -3.2 -1.7 -0.2 0.0 0.2 2.9 -1.6 -1.1 0.4 0.2 Consumer prices 3.7 4.5 4.5 5.1 5.2 4.9 5.0 5.0 4.5 5.0 5.1 Exports 5.3 -7.6 -5.0 2.8 5.6 5.9 7.6 15.1 -1.3 8.7 8.0 Imports 21.4 8.9 9.0 11.5 7.2 6.2 4.8 17.3 12.4 9.0 14.4 Merchandise trade balance (US$bn) 1.7 -1.3 -0.7 -1.2 1.0 -1.6 0.8 -2.7 -1.5 -2.5 -3.3 Current account balance (% of GDP) -1.5 -3.2 -2.2 -2.0 -0.8 -2.3 -1.2 -3.1 -2.2 -1.9 -1.6 Fiscal Balance (% of GDP) -2.4 -2.0 -2.2 Bank Indonesia rate (%) 5.75 5.75 5.75 5.75 5.75 5.75 6.00 6.25 5.75 6.25 6.75 Exchange rate (IDR/USD) 9146 9433 9591 9600 9625 9650 9675 9700 9600 9700 9600Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts aremodal (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012.Source: CEIC and Nomura Global Economics. 12
  • Nomura | Global Economic Outlook Monthly 15 October 2012Japan | Economic OutlookWeaker external demand likely leads to a recession in H2 2012We expect decelerating demand across the globe to hurt exports and businessinvestment in 2012 and 2013.Forecast change: We have revised down our real GDP growth forecast for 2012 further to Tomo Kinoshita2.0% from 2.3% and 2013 forecast to 0.5% from 1.1%. +81 3 6703 1280 tomo.kinoshita@nomura.comActivity: Japans exports and production have been affected more severely than expected bythe deterioration in the European economy, anemic recovery in the Chinese economy, and theabrupt decline in business sentiment seen over the past few months in other parts of Asia ex-Japan. The global slowdown in production looks likely to persist through the end of this year,which we think will weigh on Japan‟s exports as the global slowdown in capital investment hurtsJapan‟s capital goods exports. As a result, real GDP growth is likely to be negative in both Q3and Q4 2012. We nonetheless expect a brighter picture to emerge from the beginning of 2013as Japan benefits from a recovery in the manufacturing sector in the rest of Asia includingChina. Capex by non-manufacturers should also stay resilient in 2013.Inflation and monetary policy: We expect core inflation (CPI excluding fresh food) to improveonly marginally from 0% in 2012 to 0.1% in 2013 as the recession in H2 2012 should delay theclosing of the output gap. This is likely to increase political pressure on the Bank of Japan (BOJ)to take more aggressive easing measures. We expect the BOJ to implement further easingpolicy by the end of this year.Policy: We expect post-quake reconstruction spending by the government to contribute togrowth until Q1 2013. The enactment of the consumption tax hike bill on 8 August was animportant fiscal achievement to tackle the medium-term budget deficit problem. We expect thegovernment to raise the consumption tax rate from 5% to 8% in April 2014 and further to 10% inOctober 2015, as scheduled.Risks: External factors continue to represent the main risks facing the Japanese economy.These external factors include an expansion and prolonging of the risks associated withEuropean government debt, a decline in confidence in US economic policy, and concerns abouta global economic slowdown, all of which could have a negative impact on the Japaneseeconomy via financial market turmoil in the form of further strengthening of the yen andweakening of share prices.Details of the forecast% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP 5.3 0.7 -2.2 -0.3 1.7 0.4 1.7 1.6 2.0 0.5 1.2 Private consumption 5.0 0.5 -0.4 -1.2 0.7 1.0 1.2 1.9 2.4 0.4 1.2 Private non res fixed invest -6.3 5.6 -7.8 0.4 3.6 5.0 5.1 4.4 2.3 2.1 5.7 Residential fixed invest -6.3 3.8 4.5 4.9 7.0 8.6 7.0 3.6 1.6 6.2 -2.9 Government consumption 4.4 0.6 1.2 0.9 1.4 1.4 1.2 1.2 2.0 1.2 1.2 Public investment 15.2 7.2 8.9 10.7 8.2 -36.1 -3.3 -8.0 7.8 -3.3 -10.1 Exports 14.3 5.0 -12.2 1.1 1.0 4.9 3.8 3.1 2.1 0.7 5.6 Imports 9.1 6.7 -3.0 -0.1 3.2 4.9 4.8 6.5 5.5 2.7 5.9Contributions to GDP: Domestic final sales 3.7 1.9 -0.3 0.0 1.7 -0.2 1.6 1.7 2.5 0.7 1.2 Inventories 1.2 -0.8 -0.2 -0.5 0.3 0.5 0.2 0.3 -0.1 0.1 0.0 Net trade 0.4 -0.4 -1.7 0.2 -0.3 0.1 -0.1 -0.4 -0.4 -0.3 0.0Unemployment rate 4.6 4.4 4.3 4.4 4.5 4.5 4.4 4.3 4.4 4.4 4.2Consumer prices 0.3 0.2 -0.3 0.0 -0.2 0.0 0.2 0.1 0.0 0.0 2.0 Core CPI 0.1 0.0 -0.2 0.0 0.1 0.1 0.1 0.1 0.0 0.1 2.0Fiscal balance (fiscal yr, % GDP) -9.6 -10.4 -9.4Current account balance (% GDP) 1.3 1.6 2.0Unsecured overnight call rate 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10JGB 5-year yield 0.32 0.22 0.19 0.11 0.17 0.15 0.12 0.15 0.11 0.15 0.20JGB 10-year yield 0.99 0.83 0.77 0.73 0.82 0.82 0.85 0.88 0.73 0.88 1.10JPY/USD 82.9 79.8 78.0 82.0 83.0 85.0 86.0 88.0 82.0 88.0 90.0Note: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. Unemployment rate is as a percentage of the labor force. Inflationmeasures and CY GDP are y-o-y percent changes. Interest rate forecasts are end of period. Fiscal balances are for fiscal year and based on general account. Tablereflects data available as of 15 October. All forecasts are modal forecasts (i.e., the single most likely outcome). Numbers in bold are actual values, others forecast.Source: Cabinet Office, Ministry of Finance, Statistics Bureau, BOJ, and Nomura Global Economics. 13
  • Nomura | Global Economic Outlook Monthly 15 October 2012Malaysia | Economic OutlookSignalling fiscal responsibilityThe governments fiscal deficit targets look ambitious, but considering the upcomingelections they show the governments strong committment to fiscal consolidation.Forecast changes: We reduce our 2013 GDP growth forecast to 4.0% from 4.3% previously. Euben Paracuelles +65 6433 6956 euben.paracuelles@nomura.comActivity: The weakness in exports has deepened in Q3 with average export growth of -3.6% y-o-y in July/August versus 4.0% in Q2. Industrial production, however, continues to grow at a Lavanya Venkateswaranfaster rate than implied by export growth, suggesting that domestic demand remains strong. +91 22 3053 3053 lavanya.venkateswaran@nomura.comThis is likely to be supported by additional expenditures ahead of the national elections, whichin our base case will be held in November, and must be called before April 2013. We reiterateour 2012 GDP growth forecast of 4.8% because of the strong fiscal stimulus, but reduce our2013 forecast to 4.0% (versus the government assumption of 4.5-5.5% in the budget) to reflectthe downgrade in our growth forecast for the euro area, but also the likely fiscal consolidationafter the elections.Inflation and monetary policy: Headline inflation remained stable at 1.4% y-o-y in August.This brings year-to-August inflation to 1.8% y-o-y. Core CPI inflation, however, eased further to1.5% from 1.6% in July. Producer price inflation (which leads the CPI by 2 months) declined by0.5% y-o-y in August from -0.2% in July (and -0.9% in June), consistent with our view that CPIinflation could come off further in the next few months before gradually rising towards year-end.We still expect Bank Negara Malaysia (BNM) to keep the policy rate unchanged late Q3 2013,unless external conditions deteriorate more sharply, in which case it would have room to cut.Fiscal policy outlook: The 2013 budget aims to reduce the fiscal deficit to 4.0% of GDP from4.5% in 2012. The announcement of more one-off handouts was accompanied by deficit-improving measures. In our view, this reflects the government continuing to strike a balancebetween achieving political objectives without undermining fiscal responsibility. Nonetheless, wethink the 2013 fiscal deficit target still looks ambitious. We expect a deficit of 4.5% of GDP in2013 based on higher-than-budgeted operating expenditures (Asia Economic Alert: Malaysia:Budget 2013 - signalling fiscal responsibility, October 1).Risks: With exports nearly 100% of GDP, a sharp drop in commodity prices and a collapse ofglobal growth is the biggest downside risk. The political cycle also poses significant negativerisks that could dim prospects for structural reforms.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP 4.9 5.4 4.7 4.3 4.1 3.5 4.0 4.5 4.8 4.0 4.6 Private consumption 7.4 8.8 7.9 8.1 7.6 4.8 4.9 5.3 8.0 5.6 5.5 Government consumption 7.3 9.4 13.3 9.6 8.0 5.9 4.6 4.4 10.0 5.4 4.5 Gross fixed capital formation 16.2 26.1 19.4 10.7 8.2 5.2 5.0 7.6 18.0 6.4 7.0 Exports (goods & services) 2.8 2.1 1.8 2.1 4.4 5.7 7.1 6.6 2.2 5.9 7.2 Imports (goods & services) 6.8 8.1 8.2 7.9 8.2 8.6 8.3 7.2 7.8 8.1 8.5Contributions to GDP (% points) Domestic final sales 8.1 11.6 10.1 8.4 6.8 4.6 4.5 5.5 9.5 5.3 5.4 Inventories -0.2 -1.2 -0.1 0.9 0.2 1.1 0.1 -0.8 -0.1 0.1 0.0 Net trade (goods & services) -3.1 -4.9 -5.3 -5.0 -2.9 -2.2 -0.6 -0.2 -4.6 -1.4 -0.8Unemployment rate (%) 3.0 3.0 3.0 3.2 3.1 3.1 3.0 2.9 3.0 3.0 3.1Consumer prices 2.3 1.7 1.3 1.6 2.0 2.4 2.7 2.5 1.7 2.4 2.5Exports 3.9 0.9 -0.1 4.7 4.7 7.9 10.2 8.4 2.3 7.8 10.4Imports 6.4 5.7 5.3 11.5 8.4 11.0 11.5 8.9 7.2 10.0 14.4Merchandise trade balance (USD bn) 9.7 6.8 7.3 7.1 8.5 5.8 7.4 7.3 31.0 29.0 23.1Current account balance (% of GDP) 8.0 4.1 8.0 5.9 7.3 2.7 7.7 6.0 6.5 6.2 5.7Fiscal Balance (% of GDP) -4.9 -4.5 -4.2Overnight policy rate (%) 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.50 3.00 3.50 4.00Exchange rate (MYR/USD) 3.06 3.18 3.06 3.07 3.06 3.05 3.03 3.02 3.07 3.02 2.92Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data available as 11 October 2012. Source: CEIC and Nomura Global Economics. 14
  • Nomura | Global Economic Outlook Monthly 15 October 2012Mexico | Economic OutlookGrowth supported by domestic demandGrowth will likely remain above potential in 2012.Activity: The Mexican economy is on track to expand above potential in 2012. However, there Benito Berber +1 212 667 9503are risks to growth associated with a decelerating outlook in the US and the eurozone. On the Benito.Berber@nomura.compositive side, domestic demand in Mexico has picked up, evidenced by strong privateconsumption and investment. Consumption has been supported by credit. After growing at anannual pace of above 4% rate year to date, we now expect growth to moderate to between 3%and 3.5% for the rest of the year. For 2013, we expect the economy to expand at 3.5%.Inflation: Inflation remains above 4%, the upper bound of the target band. We estimate that theoutput gap has already closed. Agricultural prices have been the main culprit of high inflation.For 2013, we expect most of the supply-side shocks to dissipate; therefore, we forecast inflationto moderate to 3.4%.Policy: We forecast the central bank of Mexico (Banxico) to keep the policy rate unchanged at4.50% until 2014. There remains a pass-through of the depreciating exchange rate into inflation.Under most scenarios of the exchange rate, Banxico‟s reaction function will remain unaffectedin the coming years. A rate cut is still possible if the economy decelerates, if MXN appreciatessignificantly. We do not expect the rate to be tightened this year unless US economic activityaccelerates significantly. Our medium-term view for the MXN remains sanguine due to theimprovement in fundamentals. We forecast that MXN will strengthen to 12.00 by 4Q 2013.Risks: The main risk is a double-dip recession in the US economy, which seems unlikely. Interms of inflation, we see the following risks to our call: (1) pass-through effects due to MXNdepreciation; and (2) increases in gasoline prices. In terms of fiscal policy, the main risk stemsfrom a protracted downward correction in oil prices that would put pressure on fiscal revenues.Details of the forecast% y-o-y change unless noted 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2011 2012 2013Real GDP 4.5 3.9 4.6 4.1 2.7 3.5 3.7 3.4 3.9 3.7 3.5 Personal consumption 5.2 4.3 4.3 3.3 1.7 4.7 4.3 3.1 4.6 4.5 3.5 Fixed investment 9.0 5.9 8.6 6.2 2.4 3.2 3.2 3.2 8.2 3.0 3.2 Government expenditure 0.5 1.8 2.9 1.7 5.3 0.4 1.3 0.4 0.6 3.9 3.1 Exports 4.3 3.1 5.1 6.3 4.9 7.2 5.1 4.4 6.7 4.1 4.0 Imports 6.2 3.8 7.1 4.0 2.7 6.3 4.7 3.6 6.8 4.3 3.9Contributions to GDP (pp): Industry 1.3 1.1 1.4 1.2 0.8 1.0 1.1 1.0 1.2 1.1 1.0 Agriculture 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.2 0.2 0.1 Services 2.9 2.5 2.9 2.6 1.7 2.2 2.4 2.2 2.5 2.4 2.2CPI 3.14 3.82 3.73 4.34 4.60 4.00 3.55 3.70 3.82 4.10 3.40Trade balance (US$ billion) -3.9 -0.7 1.8 1.5 -4.1 -3.9 -3.8 -3.8 -1.5 -4.7 -15.2Current account (% GDP) -0.9 -1.5 -1.5Fiscal balance (% GDP) -2.6 -2.2 -2.2Gross public debt (% GDP) 35.6 37.3 35.0Overnight Rate % 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50USD/MXN 13.90 13.94 12.81 13.36 12.86 12.70 12.70 12.50 13.94 12.70 12.00Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-over-year changes for Q4. Trade dataare period sums. Interest rate and currency forecasts are end of period. Contributions to GDP do not include taxes. Numbers in bold are actual values, others forecast.Table reflects data available as of 15 October 2012.Source: Nomura Global Economics. 15
  • Nomura | Global Economic Outlook Monthly 15 October 2012Philippines | Economic OutlookSticking to an easing biasUpward pressure on the currency is likely to prompt another rate cut this year.Forecast change: We lower our 2013 GDP growth forecast from 6.3% to 6.0%. We also revise Euben Paracuelles +65 6433 6956down our fiscal deficit forecast to 2.2% of GDP this year, but raise it to 2.6% in 2013. euben.paracuelles@nomura.comActivity: Domestic demand, namely investment spending and private consumption, continued Lavanya Venkateswaranto bolster growth in H1 even as the contribution from net exports weakened. The consumer and +91 22 3053 3053 lavanya.venkateswaran@nomura.combusiness confidence indices for Q3 continue to suggest that growth momentum remains strong,putting GDP growth in 2012 well on track to our forecast 6.0%. For 2013, we expect moreprogress in infrastructure projects under the public-private partnership scheme and more fiscalsupport ahead of mid-term elections. As a result, we forecast still robust GDP growth of 6.0%despite the downgrade of euro area 2013 GDP growth by our European economics team.Inflation and monetary policy: Bangko Sentral ng Pilipinas (BSP) kept the policy rateunchanged at 3.75% at its September meeting. BSP sees headline inflation as driven by“transitory” factors such as flooding and oil prices, and remaining within the 3-5% target. Indeed,inflation in September eased to 3.6% y-o-y from 3.8% in August. Upward pressure on PHPremains a primary policy parameter for BSP, in our view. We continue to expect another 25bpcut in the policy rate in one of the remaining two meetings this year. Thereafter, we expect BSPto keep its loose monetary stance, maintaining the policy rate at 3.5% through H1 2013.Fiscal policy: In August, the fiscal balance swung to a surplus of PHP2.5bn from a deficit ofPHP39.2bn in July, reflecting slower expenditure growth of 10.4% y-o-y from 21.8% in July.Expenditures excluding interest payments, however, still rose by a higher 13.9% in August.Surprisingly, revenue growth slowed to 4.3% in August from 15.3% in July. We expect this toincrease in the coming months, helped in part by privatization proceeds which in turn providemore room for expenditure disbursements. On a 12-month rolling sum basis, the fiscal deficit tillAugust was 2.3% of GDP. This is partly behind the reduction of our fiscal deficit forecast for thisyear. For 2013, we expect the deficit to widen given elections and the strong bias to use theavailable fiscal space to improve the pace and quality of spending.Risks: The main risk to our forecast is an external shock from Europe. Slower progress ongovernance reforms, as well as fiscal and infrastructure spending could also hurt growth.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 12.6 1.5 1.3 9.0 14.7 0.1 1.0 7.0Real GDP 6.3 5.9 5.6 6.0 6.5 6.1 6.0 5.5 6.0 6.0 5.8 Private consumption 5.1 5.7 5.8 6.0 6.1 6.8 5.8 5.6 5.7 6.1 5.9 Government consumption 20.9 5.9 14.3 18.1 10.9 13.5 3.8 7.8 14.1 9.2 8.0 Gross fixed capital formation 3.9 8.5 10.8 12.8 11.1 12.1 11.9 11.5 8.9 11.6 14.5 Exports (goods & services) 10.9 8.3 4.6 4.3 3.2 3.3 7.7 7.6 7.2 5.3 9.0 Imports (goods & services) -3.2 4.4 5.9 5.1 13.9 14.7 13.5 9.8 3.0 13.0 13.0Contribution to GDP growth (% points) Domestic final sales 6.4 6.1 7.6 8.4 7.8 8.5 6.9 7.3 7.2 7.6 8.2 Inventories -7.2 -2.4 -1.4 -1.7 3.6 3.2 2.1 -0.1 -3.1 2.1 0.0 Net trade (goods & services) 7.1 2.1 -0.6 -0.7 -4.9 -5.5 -2.9 -1.6 1.9 -3.7 -2.4Exports 4.8 10.5 4.6 4.3 3.2 3.3 7.7 7.6 6.1 5.4 9.0Imports -1.5 2.3 10.2 12.0 14.2 14.7 13.5 9.8 5.6 13.0 13.0Merchandise trade balance (US$bn) -2.6 -1.4 -3.6 -5.0 -4.4 -3.2 -4.8 -5.8 -12.6 -18.2 -22.7Current account balance (US$bn) 0.9 1.6 2.3 0.3 0.1 1.8 1.0 2.0 6.2 4.9 4.7Current account balance (% of GDP) 1.6 2.5 3.8 0.4 0.2 2.8 1.5 2.6 2.5 1.8 1.5Fiscal balance (% of GDP) -2.2 -2.6 -2.2Consumer prices (2006=100) 3.1 2.9 3.5 3.9 4.4 4.6 4.4 4.2 3.4 4.4 4.5Unemployment rate (sa, %) 6.9 7.5 7.5 7.0 6.8 6.8 6.5 6.5 7.2 6.7 6.5Reverse repo rate (%) 4.00 4.00 3.75 3.50 3.50 3.50 3.75 4.00 3.50 4.00 4.50Exchange rate (PHP/USD) 42.90 42.10 41.7 42.0 41.8 41.5 41.3 41.0 42.0 41.0 39.7Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts aremodal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics. 16
  • Nomura | Global Economic Outlook Monthly 15 October 2012Poland | Economic OutlookNBP dovishness but not ready to cut - growth still outperformingThe economy will likely avoid recession despite external shocks and a tightening ofthe currently loose fiscal policy.Growth: As the most closed economy in the region, Poland is well placed to weather severe Peter Attard Montalto +44 (0) 20 710 28440external shocks. A narrowing trade deficit in real terms should actually be slightly supportive to peter.am@nomura.comgrowth through H2, though a stronger currency threatens the deficit improvement. Fiscal policyis due to be tightened throughout this year with numerous austerity measures introduced,including pension reforms and mining taxes. A small drag may be felt through 2013 fromgovernment reforms and because accelerated EU structural fund projects subside. Monetarypolicy being slightly dovish, coupled with still positive real credit growth should support GDP, asshould private investment, which remained strong into Q1. We see gross fixed capital formationgrowth slipping from 7.6% in 2011 to a still healthy 3.6% in 2012. Real disposable incomegrowth of around 2.5% this year, levered by some credit growth, should help cushionconsumption growth, which we see falling from 3.0% in 2011 to 1.3% in 2012. All together, wesee growth in 2012 falling to 2.6% from 4.3% in 2011. In 2013 we expect a drag from publicsector investment and government spending and the trough of the eurozone crisis to see growthof around 2.3%. Deleveraging should hit Poland the least thanks to profitable foreign banks.Currency: We expect to see USD/PLN moving lower due to the following factors: an orthodoxcentral bank can easily hike if animal spirits start up again, and because the central bank isunlikely to get concerned about currency strength anytime soon (unlike some other EMs). Also,it is unlikely to react to a global QE by cutting (again unlike many other EMs).Rates and inflation: We think CPI inflation will remain very sticky outside the target range untilinto Q1 2013, but from there dropping to around 3% by end-2013. Core inflation should remainunder control around target thanks to neutral policy rates. Overall, we expect the MPC to remainconservative, inflation centric and forward looking, but with a dovish bias because of the growthnumbers. The tone of the most recent MPC statement and the press conference made it farfrom a done deal that there would be a cut in November – there was no strong pre-commitmentas in April. Our baseline remains for now only 75bp of cuts starting next year in a slow, shortcycle lower.Fiscal and politics: Prime Minister Tusk has announced ambitious budgetary and structuralreforms for the four years of this parliament – sufficient to avoid a downgrade. They should bringthe deficit to less than 3.0% of GDP in 2013, though not as targeted in 2012 given lower growth.Growth matters the most. Without it, the political dynamic for consolidation becomes moredifficult and there has already been an allowance for lower growth through slower fiscalconsolidation in the 2013 budget. Implementation will be the key after only limited success overthe past four years.Figure 1. Details of the forecast Figure 2. Inflation outlook 2010 2011 2012 2013 % y-o-y Headline Expectations CoreReal GDP % y-o-y 3.9 4.3 2.6 2.3 6.0Nominal GDP USD bn 469.8 513.6 541.3 589.5 5.5Current account % GDP -4.6 -5.0 -4.5 -5.0 5.0Fiscal balance % GDP -7.8 -5.1 -3.4 -2.9 4.5CPI % y-o-y * 3.1 4.6 3.6 3.0 4.0CPI % y-o-y ** 2.6 4.3 4.0 3.2Core CPI ex VAT % y-o-y ** 1.5 2.4 2.0 2.2 3.5Population mn 38.2 38.2 38.0 37.8 3.0Unemployment rate % 12.3 12.5 13.0 12.2 2.5Reserves EUR bn ** 70.0 74.3 71.2 71.9 2.0External debt % GDP 66.9 62.7 53.1 47.9 1.5Public debt % GDP 53.3 53.5 52.8 52.2NBP policy rate %* 3.50 4.50 4.75 4.00 1.0 Jan-2008 Jun-2009 Nov-2010 Apr-2012 Sep-2013EURPLN* 3.96 4.47 4.40 4.00Notes: *End of period, **Period average, Bold is actual data. Source: Nomura Global Economics 17
  • Nomura | Global Economic Outlook Monthly 15 October 2012Singapore | Economic OutlookTolerating slower growthThe drag from weak exports is unlikely to be met with strong counter-cyclical policies.Forecast change: We lower our 2013 and 2014 GDP growth forecasts to 3.4% and 4.2%, Euben Paracuelles +65 6433 6956respectively, from 4.2% and 4.6%. Euben Paracuelles euben.paracuelles@nomura.com +65 6433 6956Activity: According to the GDP flash estimates for Q3, the economy grew by 1.3% y-o-y which Lavanya Venkateswaran euben.paracuelles@nomura.comimplies a sequential contraction of 1.5% q-o-q saar. Q2 GDP growth, however, was revised +91 22 3053 3053significantly higher to 0.2% q-o-q saar (from -0.7% earlier), suggesting that the economy Lavanya Venkateswaran lavanya.venkateswaran@nomura.com +91 22 3053 3053avoided a technical recession (i.e., two sequential quarters of negative growth). Tentative signs lavanya.venkateswaran@nomura.comof a pick-up in electronics exports, and importantly, our view that the Chinese economy isbottoming, suggest that growth in Q4 should pick up. As such, we reiterate our 2012 GDPgrowth forecast of 1.8% (within the government‟s forecast of 1.5-2.5%). For 2013, however, wehave reduced our GDP growth forecasts to reflect a deepening recession in the euro area,where we now forecast 2013 GDP growth of -0.9% from -0.6% in 2012. We believe this willhave a significant impact on Singapore‟s open economy, particularly as we do not expect thegovernment to implement strong counter-cyclical policy to offset the external headwinds (seeSingapore: dont count on counter-cyclical policy, 27 August 2012).Inflation and monetary policy: The Monetary Authority of Singapore (MAS), at it 12 Octobermeeting, continued its FX policy of a modest and gradual appreciation of the S$NEER policyband; the slope, width and mid-point of the band were unaltered. This was in line with ourexpectations, which were mainly based on the view that the growth and inflation mix remainedconsistent with the MAS‟s previous assessment of the outlook. Indeed, the policy statement hada more hawkish tone, and alluded to upside risks to headline and core inflation from a tightlabour market and potentially higher food and services costs, respectively.Fiscal policy: In tandem with these policies, we think the fiscal stance will also remain neutralthis year, with the government expected to run a 0.2% of GDP fiscal surplus. For 2013, weexpect only a small deficit of 0.2% of GDP, with the government‟s focus remaining on socialspending as well as more incentives for firms to adopt productivity-enhancing measures.Risks: With exports accounting for twice its GDP, Singapore remains the most vulnerableeconomy in South-east Asia to a global growth slowdown. A worsening of the European debtcrisis and further weakness in China could lead to slower investment spending and negativewealth effects, which would add further downside risks to growth.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 9.5 -0.7 -1.2 2.3 11.9 -5.5 10.4 1.5Real GDP 1.5 2.0 1.2 2.4 2.9 1.7 4.5 4.3 1.8 3.4 4.2 Private consumption 4.7 1.8 0.6 2.3 4.1 5.1 5.0 4.7 2.3 4.7 3.5 Government consumption -4.0 -0.9 -8.8 5.0 3.8 4.9 11.8 3.0 -2.4 5.6 4.0 Gross fixed capital formation 17.0 1.8 1.0 3.0 2.0 1.8 4.4 7.0 5.3 3.8 5.7 Exports (goods & services) 2.2 2.3 2.6 3.0 3.2 3.9 5.4 7.1 2.5 4.9 10.1 Imports (goods & services) 4.7 2.8 2.6 5.4 2.8 3.7 5.5 8.1 3.9 5.1 11.1Contributions to GDP (% points) Domestic final sales 4.8 1.0 -0.3 2.0 2.5 2.6 3.8 3.7 1.9 3.2 3.1 Inventories 0.7 1.3 0.6 4.0 -1.2 -2.5 -1.1 0.5 1.6 -1.1 1.0 Net trade (goods & services) -4.0 -0.3 0.9 -3.6 1.7 1.6 1.8 0.2 -1.8 1.3 1.2Unemployment rate (sa, %) 2.1 2.0 2.4 2.6 2.6 2.5 2.4 2.4 2.3 2.5 2.5Consumer prices 4.9 5.3 4.3 4.5 3.2 2.8 2.6 2.6 4.8 2.8 3.8Exports 6.0 -0.5 -3.0 -0.7 3.5 6.8 8.2 9.8 0.1 7.3 12.1Imports 11.7 2.6 -2.0 0.8 4.2 6.6 8.3 10.8 3.1 7.4 13.1Merchandise trade balance (US$bn) 7.2 6.7 10.8 9.3 6.8 7.4 11.7 9.2 33.1 35.0 36.0Current account balance (% of GDP) 16.2 16.3 23.1 11.7 13.3 12.9 26.2 16.3 16.8 17.3 18.1Fiscal Balance (% of GDP) 0.2 -0.2 0.43 month SIBOR (%) 0.47 0.46 0.37 0.38 0.38 0.41 0.41 0.44 0.38 0.44 0.50Exchange rate (SGD/USD) 1.26 1.27 1.23 1.24 1.23 1.23 1.22 1.21 1.24 1.21 1.19Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics. 18
  • Nomura | Global Economic Outlook Monthly 15 October 2012South Africa | Economic OutlookStructural MPC dovishness in a year of crucial political battlesBattles could occur around the ANC conferences, between external weakness anddomestic strength, and between inflation and growth for the SARB.Growth: GDP for Q2 surprised us strongly to the upside, printing at 3.0% y-o-y vs our forecast Peter Attard Montalto +44 (0) 20 710 28440of 2.3% and the previous print of 2.1%. Given this we shifted our growth forecast up to 2.4% for peter.am@nomura.comthis year from 2.1% previously and to 2.9% next year from 2.7% previously. However, due to therecent industrial action, we are expressing doubt over these revised forecasts. We expectgrowth to slow through H2 anyway as contagion from the external sector spreads, but theeconomy is clearly leaving the first half at a much higher base than we thought. A contraction inprivate sector investments this year should give way to a boost from the government‟sinfrastructure drive through the end of next year. In 2013, we see a recovery to 2.9%, but anyupside potential is likely to be capped due to limited credit growth and a sluggish recoveryglobally.Currency, inflation and rates: Our current rate call is for a rate cut of 50bp to occur in January.We no longer think there will be a second cut given the recent rating downgrade and thereaction of both the currency and bond markets to WGBI inclusion which has been tepid to saythe least. The currency weakening towards 9.0 in USDZAR has been orderly so far and thebalance of payments integrity has not been called into question. If this were to change then FXintervention and rate hikes could occur, but we are not there yet. We think hikes would be morelikely to occur if core inflation started moving higher faster and risked breaching targets. Notealso that inflation has been in target since May, falling to 5% in August, having peaked at 6.3%in January.Politics and fiscal: We are currently seeing a structural breakdown in the traditional societalstructures around labour, and strike action is occurring because of the linkages between unionleadership, the ANC and BEE funds. The problem we have with the current situation is that wecannot see how it ends easily without employers deciding themselves to grant large wageincreases. The government is doing nothing. We cannot see this situation or lack of control overthe circumstances changing yet, unless we get a more meaningful market, rating or sovereignrisk shock. The outcome of that, however, may simply be centralised minimum wages and largeincreases for workers, which harms competitiveness. The battle for the ANC leadership is likelyto be a key driver of policy direction – more free market if Deputy President Motlanthe wins thecontest, more interventionist if President Zuma continues in his post. The National Treasurypresented a highly conservative budget as the deficit fell sharply to -3% in FY 2014/15, yet it isbased on many assumptions which we see as overly ambitious and which the NT admits arerisks. As such, with lower growth but offset by another year of meaningful underspending and agood wage settlement, we see the deficit at -4.4% in the current FY 2012/13.Figure 1. Details of the forecast Figure 2. Inflation outlook 2010 2011 2012 2013 % y-o-y 12Real GDP % y-o-y 2.9 3.2 2.4 2.9 Food Core CPICurrent account % GDP -1.5 -3.8 -5.7 -5.9 10 Services HeadlinePSCE % y-o-y* 5.5 6.2 7.7 9.5Fiscal balance % GDP -5.6 -4.4 -4.4 -3.9 8FX reserves, gross USD bn* 43.8 48.9 50.1 50.3 6CPI % y-o-y * 3.5 6.1 4.8 5.5CPI % y-o-y ** 4.3 5.0 5.4 5.0 4Manufacturing output % y-o-y 5.0 2.4 0.5 1.8Retail sales output % y-o-y 5.4 5.7 4.5 3.3 2SARB policy rate %* 5.50 5.50 5.00 4.50EURZAR* 9.0 10.5 9.6 9.0 0 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13USDZAR* 6.82 8.09 8.00 7.50Notes: PSCE – Private sector credit extensions. * End of period. ** Period Source: Nomura Global Economicsaverage. Bold is actual data. Source: Nomura Global Economics 19
  • Nomura | Global Economic Outlook Monthly 15 October 2012South Korea | Economic OutlookProlonged sub-potential growthThe negative output gap should persist through 2013, exerting disinflationary pressure.We expect CPI inflation to remain within the BOKs target.Forecast changes: We cut our 2012 and 2013 GDP growth forecasts to 2.3% and 2.5% from Young Sun Kwon2.5% and 3.0%, respectively, while raising our 2012 and 2013 CPI inflation forecasts to 2.2% +852 2252 1370 youngsun.kwon@nomura.comand 2.7% from 2.0% and 2.5%. We also raise our current account surplus forecast for 2012-14.Activity: Our Europe team expects euro area GDP to contract by 0.9% in 2013 after a 0.6% fallin 2012. We expect China‟s GDP growth to slow to 7.7% in 2013 from 8.1% while US GDPgrowth will likely ease to 1.9% from 2.1%. That said, we expect Korea‟s export slump tocontinue into 2013. The new government will likely increase social welfare spending, whichshould partly offset the export slump. However, a high household debt burden (156% ofdisposable income) and falling house prices will likely constrain consumption growth. Thebusiness investment by large conglomerates should remain weak at a time when uncertaintysurrounding the global business outlook and new government reforms remain elevated. As aresult, we forecast Korea‟s GDP growth to rise slightly to 2.5% in 2013 from 2.3% in 2012, farbelow our estimated potential GDP growth of 3.5%, which we expect to be reached only in 2014.Inflation: A negative output gap and stable KRW should exert downward pressure on inflation,but higher food prices and fading favorable base effects (from a one-off decline in school feesand expenses) should push CPI inflation up to 2.7% in 2013 from 2.2% in 2012, still below themidpoint of the Bank of Korea‟s (BOK) new inflation target range of 2.5-3.5% for 2013-15Policy: We expect the BOK to stay on hold at 2.75% through 2013, as growth should increaseslightly and CPI inflation should rise modestly, each from a very low base on a sequential basis.Risks: As a small, open, financially integrated economy, Korea is vulnerable to suddenchanges in global economic conditions, commodity prices and financial markets. The eurozonecrisis, the looming US fiscal cliff and an economic hard-landing in China remain the dominantdownside risks to our growth outlook. Domestically, the new government could formulate asupplementary budget in 2013, which provides an upside risk to our economic outlook.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 3.5 1.1 0.4 2.0 2.8 3.6 3.2 3.6Real GDP (sa, % q-o-q) 0.9 0.3 0.1 0.5 0.7 0.9 0.8 0.9Real GDP 2.8 2.3 1.6 1.7 1.6 2.2 2.9 3.3 2.3 2.5 3.5 Private consumption 1.6 1.1 1.3 2.2 1.8 2.0 2.0 2.1 1.8 2.0 2.3 Government consumption 4.4 3.6 2.9 4.7 2.2 4.1 4.1 4.1 3.7 3.5 4.1 Business investment 9.1 -3.5 -2.1 3.3 -5.4 5.1 5.1 5.1 1.8 1.7 7.7 Construction investment 2.1 -2.1 -1.6 -1.0 1.2 3.9 3.9 4.1 -1.4 2.9 4.1 Exports (goods & services) 5.0 3.2 1.6 5.5 1.9 3.0 2.5 2.5 3.2 2.5 4.8 Imports (goods & services) 4.6 0.5 0.7 5.4 0.6 3.0 2.5 2.5 2.9 2.2 5.2Contributions to GDP growth (% points) Domestic final sales 2.8 0.8 0.4 1.6 1.2 2.2 2.8 3.1 1.6 2.0 3.0 Inventories -0.1 0.1 0.6 -0.4 -0.4 -0.3 -0.1 0.0 0.2 0.1 0.2 Net trade (goods & services) 0.1 1.4 0.5 0.6 0.8 0.3 0.2 0.2 0.5 0.4 0.3Unemployment rate (sa, %) 3.4 3.3 3.1 3.2 3.2 3.2 3.2 3.2 3.3 3.2 3.2Consumer prices 3.0 2.4 1.6 1.6 1.9 2.7 3.1 3.2 2.2 2.7 3.0Current account balance (% of GDP) 2.6 1.6 1.5Fiscal balance (% of GDP) 1.3 1.0 1.0Fiscal balance ex-social security (% of GDP) -1.2 -1.3 -1.0BOK official base rate (%) 3.25 3.25 3.00 2.75 2.75 2.75 2.75 2.75 2.75 2.75 3.253-year T-bond yield (%) 3.55 3.30 2.83 2.80 2.80 2.90 3.00 3.00 2.80 3.00 3.305-year T-bond yield (%) 3.69 3.42 2.93 2.90 2.90 3.00 3.05 3.10 2.90 3.10 3.50Exchange rate (KRW/USD) 1133 1154 1118 1120 1115 1110 1105 1100 1120 1100 1100Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data as of 11 October 2012.Source: Bank of Korea, CEIC and Nomura Global Economics. 20
  • Nomura | Global Economic Outlook Monthly 15 October 2012Taiwan | Economic OutlookHinges on the global outlookThe economy should benefit from an upcycle in global electronics demand.Forecast change: We cut our 2013 GDP growth forecast from 3.5% to 3.0%. Young Sun Kwon +852 2536 7430Activity and inflation: Exports increased 10.4% y-o-y in September, exceeding market youngsun.kwon@nomura.comexpectations by a wide margin. GDP growth should recover more visibly in Q3, but from a very Aman Mohuntalow base. A gradual recovery in global demand for electronics should help lift GDP growth from +91 22 6617 5595 aman.mohunta@nomura.com1.5% in 2012 to 3.0% in 2013 and further to 4.0% in 2014. CPI inflation slowed to 3.0% y-o-y inSeptember from 3.4% in August as a typhoon-led one-time surge in food prices reversed. Giventhat electricity tariff hikes will be implemented in multiple stages, inflation is unlikely to become aserious negative factor for growth through our forecast horizon.Cross-strait relationship: We expect economic linkages between Taiwan and China tocontinue to strengthen, through further trade liberalization under the Economic CooperationFramework Agreement and an increase in tourist arrivals from China. Taiwan‟s central bank andChina‟s PBoC signed a Currency Settlement MOU on 31 August, which should significantlyboost RMB-related business in Taiwan‟s capital markets. Improving cross-strait ties is astructural transformation that, over time, should unleash major benefits for Taiwan‟s economy.Monetary and fiscal policy: The CBC left the discount rate unchanged at 1.875% at its policymeeting in September, citing downside risks to growth from weak exports. The policy rate isalready very low and with inflation set to rise, we judge that the discount rate is only likely to becut if greater downside risks to growth materialize. The government seems focused on reducingthe budget deficit through various measures, including the introduction of a capital gains tax.Risks: Another deep recession in advanced economies would have a large impact on Taiwan‟sopen economy. Positive risks include a stronger-than-expected recovery in the globalelectronics cycle and a faster-than-expected liberalization of trade and investment with China.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 2.8 0.5 7.2 4.4 1.5 -0.4 4.3 7.1Real GDP 0.4 -0.2 2.1 3.7 3.4 3.1 2.4 3.1 1.5 3.0 3.5 Private consumption 1.4 0.8 1.0 1.8 1.9 2.6 2.8 2.8 1.3 2.5 3.2 Government consumption 2.7 2.4 1.0 1.5 3.0 3.5 3.0 2.6 1.9 3.0 3.4 Gross fixed capital formation -10.2 -5.2 0.6 0.5 7.5 5.0 4.0 5.5 -3.6 5.4 4.5 Exports (goods & services) -3.3 -3.3 2.5 3.8 3.0 3.2 3.2 3.2 0.3 3.2 3.3 Imports (goods & services) -7.5 -7.5 2.4 3.5 2.0 2.2 2.1 2.4 -1.2 2.2 3.5Contributions to GDP grow th (% points) Domestic final sales -2.4 -1.0 1.5 4.7 4.1 3.1 3.2 2.8 0.8 4.4 3.2 Inventories 1.4 0.4 0.3 -0.5 -0.4 0.0 -0.4 0.1 0.4 -0.7 0.2 Net trade (goods & services) 1.6 0.6 0.5 1.0 1.1 1.2 1.2 1.1 0.9 1.1 0.5Exports -4.0 -1.3 5.0 6.3 5.5 5.7 5.7 5.7 0.5 5.7 6.3Imports -5.9 -3.1 6.9 7.7 3.5 3.7 3.6 3.9 0.6 3.7 5.0Merchandise trade balance (US$bn) 5.7 5.6 6.9 8.5 7.3 7.3 8.9 10.3 26.6 33.7 39.6Current account balance (% of GDP) 9.6 8.9 7.0 8.1 7.3 7.4 8.1 9.0 8.4 8.0 7.5Fiscal balance (% of GDP) -1.8 -1.9 -2.0Consumer prices 1.3 1.6 2.9 2.1 2.1 1.2 0.2 1.1 2.0 1.2 1.5Unemployment rate (%) 4.1 4.2 4.3 4.3 4.3 4.2 4.2 4.2 4.3 4.2 4.2Discount rate (%) 1.88 1.88 1.88 1.88 1.88 1.88 2.00 2.13 1.88 2.13 2.13Overnight call rate (%) 0.42 0.51 0.38 0.51 0.51 0.64 0.41 0.51 0.51 0.76 0.7610-year T-bond (%) 1.27 1.23 1.19 1.29 1.31 1.42 1.29 1.29 1.29 1.55 1.55Exchange rate (NTD/USD) 29.5 29.8 29.3 29.8 29.7 29.6 29.5 29.4 29.8 29.4 29.0Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics. 21
  • Nomura | Global Economic Outlook Monthly 15 October 2012Thailand | Economic OutlookThailand: New growth enginesWe expect strong domestic demand to offset export weakness, spurred by loosemonetary and fiscal policies following the 2011 floods.Forecast changes: We revise down our 2013 GDP forecast to 4.5% from 4.7% and our policy Euben Paracuelles +65 6433 6956rate forecast to 2.75% by end-2012 from 3.0%. euben.paracuelles@nomura.comActivity: Domestic demand held up in August, with the Bank of Thailand‟s (BOT) composite Nuchjarin Panarodeindices of private consumption and investment rising 4.1% y-o-y and 19.5%, respectively. +662 638 5791 nuchjarin.panarode@nomura.comHowever, from the supply-side, the manufacturing production index (MPI) dropped 11.3% y-o-yin August, led by export-oriented sectors. We believe the MPI decline is a concern for the BOT,as it will pull down Q3 GDP. We believe Q3 GDP slowed to 2.8% y-o-y from 4.2% in Q2 as aresult. For 2013, our growth downgrade mainly reflects the cut to our euro area growth forecasts,but the impact is relatively small as we think domestic demand will stay strong, boosted by loosemacro policies (see Asia Special Report: Thailand: New growth engines, 24 September 2012).Monetary policy and inflation: CPI inflation accelerated to 3.4% y-o-y in September from 2.7%in August due to higher refined oil prices and an excise tax increase on tobacco and liquor. Butinflation expectations for the next 12 months, according to the BOT survey, eased to 3.5% from3.6%. According to the MPC minutes, all MPC members see “the balance of risks for the Thaieconomy was skewed towards growth rather than inflation.” We therefore think further monetarypolicy easing is possible near-term. With the likely continued drop of the MPI, we now expectthe MPC to cut the policy rate by another 25bp on 17 October.Fiscal policy: Government spending rose by 13.7% y-o-y in August after rising by 25.6% inJuly. For the first eleven months of FY2012, the fiscal deficit was THB356bn, or 81% of thetarget. The government cut its spending target for water-management projects to just THB2.0bnfrom THB20bn previously due to weak execution. As a result, we revise down our fiscal deficitforecast for 2012 to 3.8% of GDP from 3.9%, but expect fiscal easing to continue in 2013.Risks: The downside risks to our forecasts stem from a deepening in the euro area recession,and domestically, from increased political uncertainty over the constitutional amendment andreconciliation bill. Slow progress on infrastructure plans could weaken investment sentiment.Details of the forecast% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP (sa, % q-o-q, annualized) 50.8 13.9 1.3 1.3 -0.6 12.2 5.4 7.6Real GDP 0.4 4.2 2.8 15.2 3.8 3.4 4.5 6.1 5.5 4.5 5.0 Private consumption 2.9 5.3 5.0 6.7 6.0 5.7 3.9 3.1 5.0 4.7 4.2 Public consumption -0.2 5.6 4.7 6.4 0.8 -2.3 -2.7 0.9 4.1 -1.0 -0.8 Gross fixed capital formation 5.2 10.2 10.7 16.0 10.0 7.2 7.5 9.8 10.4 8.6 9.9 Exports (goods & services) -3.2 0.9 -3.1 17.1 4.7 2.6 5.1 3.9 2.4 4.1 5.0 Imports (goods & services) 4.3 8.5 0.3 7.4 3.8 1.3 3.3 3.8 5.0 3.1 5.0Contribution to GDP growth (% points) Domestic final sales 2.5 5.7 5.5 7.6 5.2 4.6 3.5 3.7 5.2 4.3 4.4 Inventories 2.9 2.8 -1.3 1.1 -2.3 -2.4 -0.1 0.9 1.4 -1.0 0.0 Net trade (goods & services) -4.7 -4.4 -2.7 7.7 1.3 1.1 1.7 0.7 -1.2 1.2 0.7Exports -1.4 0.0 -4.5 14.5 6.2 5.5 6.6 3.4 2.1 5.4 6.9Imports 10.4 11.9 1.2 8.7 2.5 3.7 9.4 5.2 7.2 5.2 7.2Merchandise trade balance (US$bn) -5.2 -5.2 -3.9 -4.0 -3.3 -4.3 -5.9 -5.3 -18.2 -18.7 -20.6Current account balance (US$bn) 0.6 -2.5 0.5 0.1 0.7 -1.4 -1.3 -0.6 -1.2 -2.6 -2.8Current account balance (% of GDP) 0.6 -2.7 0.6 0.1 0.7 -1.4 -1.3 -0.6 -0.3 -0.7 -0.7Fiscal balance (% of GDP, fiscal year basis) -3.8 -3.5 -3.7Consumer prices 3.4 2.5 2.9 3.4 3.1 2.9 2.7 2.9 3.0 3.0 3.1Unemployment rate (sa, %) 0.7 0.9 0.6 0.6 0.9 0.8 0.6 0.6 0.7 0.7 0.7Overnight repo rate (%) 3.00 3.00 3.00 2.75 2.75 2.75 2.75 2.75 2.75 2.75 3.25Exchange rate (THB/USD) 30.8 31.8 30.8 30.8 30.7 30.6 30.5 30.4 30.8 30.4 30.0Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecastsare modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics. 22
  • Nomura | Global Economic Outlook Monthly 15 October 2012Turkey | Economic OutlookA healthy rebalancingA tightening policy helped the rebalancing in 2012. A global slowdown couldaccelerate it further, resulting in Turkey reaching investment grade in 2012.Activity: GDP growth is likely to slow to 3% in 2012 after 8.5% growth in 2011. Unlike in 2008, Olgay Buyukkayalistock-building has been light, and net exports are likely to contribute more than 3pp to GDP in +44 (0) 20 710 23242 olgay.buyukkayali@nomura.com2012, offsetting weak private consumption (1.3% in 2012) and private fixed investment (-0.5% in2012). We see this as a pretty healthy rebalancing because a faster one would have beenassociated with stagflation.Inflation: Turkey‟s inflation is deteriorating at the expense of a strong fiscal stance. So far it islargely driven by factors beyond the control of the TCMB, but it looks like the market‟s workingnumber for the next six months is now around 7.5% (1.0-1.5pp higher than a month ago) withsome upside risks. There are also tentative signs of creeping service price inflation. Animprovement in the growth backdrop could lead to a deterioration in inflation expectations.Policy: If our framework of a meaningful growth rebound in Q4 2012 and Q1 2013 is right, wewould expect the TCMB to implement some temporary “hikes in disguise” largely forexpectations management purposes later in the last quarter of the year – we think the daily reporate could move up to the 6-6.5% area in November or December. These temporary hikeswould not be incompatible with a lowering of the top of the interest rate corridor, and our basecase sees the TCMB narrowing the interest rate corridor. We are referring to the daily repo ratein these forecasts rather than the 1-week benchmark repo rate (we kept the policy rate constantin the forecast horizon given the TCMB‟s comfort with the current policy setting).Fiscal policy: Since H2 2011 fiscal policy has helped the monetary authorities, as thegovernment has used revenue outperformance as a cushion for a rainy day. The recentlyunveiled Medium Term Programme (MTP) for 2013-15 implies that the tight fiscal stance willcontinue and it looks like the government intends to avoid running an “election budget” or anyform of “election spending”. While primary surplus estimates are not as ambitious as the past sixor seven years, we still expect the debt-to-GDP ratio to fall towards the low-30% levels.Rating outlook: We expect Turkey to receive an investment grade rating in 2012 from at leastone rating agency. We think rebalancing and structural reforms are moving in the right direction.Risks: Terms-of-trade shocks (higher oil prices) and sudden stops of capital inflows are themain risks. In that scenario, inflation could rise again with unwarranted currency weaknessresulting in a sharp fall in consumer confidence. However, this is not our base case. We thinkthe risks of capital controls being implemented, on any rapid appreciation, are extremely low.With EM inflows accelerating in 2012, the likelihood of sudden stops has declined. Tight lendingconditions are currently weighing on credit demand.Fig. 1: Details of the forecast Fig. 2: Tighter policy mix 2010 2011 2012 2013 Ex-ante 14Real GDP % y-o-y 9.0 8.5 3.0 4.5 real rate, % 12 2007Contributions to GDP by selected itemsPrivate consumption 4.7 5.5 1.3 3.2 10 2008 2006Private investments 5.3 4.7 -0.5 2.1Net exports -4.4 -1.7 2.0 -1.2 8CPI % y-o-y * 6.4 10.5 7.5 6.5 2012 - TopCPI % y-o-y ** 8.6 6.5 9.1 6.7 6 point of band CyclicallyBudget balance % GDP -3.6 -1.2 -1.9 -2.0 4 2009 Adj.Primary balance % GDP 0.5 1.6 1.0 1.0 2012-Mid PrimaryPublic debt % GDP 43.0 42.4 38.0 37.0 2 point of Balance, 2011Current account % GDP -6.5 -10.0 -7.0 -6.0 2010 band 0TCMB policy rate %* 6.50 5.75 5.75 5.75 -1 0 1 2 3 4USDTRY* 1.54 1.89 1.70 1.70 -2Notes:* End of period. ** Period average. Bold is actual data. Source: Nomura Global Source: Nomura Global EconomicsEconomics 23
  • Nomura | Global Economic Outlook Monthly 15 October 2012United Kingdom | Economic OutlookInflectionsIntensification of the euro-area crisis remains a serious threat to the UK. The MPC isresponding with aggressively loose policy, despite inflation’s persistent stickiness.Activity: Underlying growth ground to a halt in 2011 and the subsequent double-dip recession Philip Rush +44 20 7102 9595is being compounded by recurrent intensification of the eurozone‟s sovereign debt crisis. Large philip.rush@nomura.comtrade and financial relationships with the euro area tie the UK to its apparently bleak economicfate (see UK Theme: Sounding in a pounding?). Earlier signs of cyclical growth momentumwaned at still weak growth rates leaving the UK on the brink of recession, probably until 2013,besides when one-off factors boost GDP in Q3 (see UK Theme: Several shocking months).Beyond that, growth is still constrained by the ongoing domestic deleveraging and thechallenging rebalancing within the euro area (see UK Comment: Forecast: limping into 2014).Inflation: Inflation has been boosted by a series of “one-off” shocks such as changes to VATand energy prices, but underlying inflation is still probably too strong. And there are further “oneoffs” from tuition fees. Unlike the MPC, we do not expect a sustained fall below the inflationtarget, let alone materially so (see UK Theme: Inflation in a black hole).Policy: The MPC is responding aggressively to signs of weaker global growth and subdueddomestic demand. Upon completing its latest £50bn programme of gilt purchases in May, theMPC resisted doing more. But disappointment at demand growth brought the MPC back toeasing mode in July with another £50bn programme, which we expect to be extended by £25bnin November (see UK Theme: The monetary blunderbuss). Part of demands ongoing weaknessis attributable to the economys unavoidable but impeded rebalancing and associated fiscalconsolidation programme. We estimate fiscal policy alone to subtract about 0.9% from GDP in2012-13, which is a moderation from 1.5% in 2011-12. However, in order to meet its fiscalmandate of reaching a current structural balance by the end of a rolling five-year period, wethink the government will need to implement more measures. That is because its currentspending plans are conditioned on what we still consider to be an overly optimistic view ofpotential growth (see, for example, UK Theme: Policymakers remake mistakes, 24 November2011). As new measures will probably be back-loaded, we expect the secondary target to bebroken and the UK to lose its AAA rating by May 2015 (see UK Theme: Bending the fiscalrules).Risks: Downside risks dominate our growth forecasts, but the risks are to the upside of ourinflation forecasts. With activity dominating the BoE‟s reaction function, we see the risks from itbeing that the MPC delivers even more easing than we expect.Details of the forecast 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014Real GDP -0.3 -0.4 0.7 -0.2 0.0 0.1 0.2 0.2 -0.3 0.3 1.2 Private consumption 0.3 -0.2 0.5 -0.4 0.1 0.3 0.4 0.4 0.4 0.6 1.6 Fixed investment 3.2 -2.7 1.7 -0.2 -0.6 -0.3 0.2 0.5 1.7 -0.7 4.2 Government consumption 3.1 -1.6 -0.3 -0.4 -0.4 -0.4 -0.4 -0.4 2.0 -1.9 -2.2 Exports of goods and services -1.6 -1.1 1.0 0.9 0.7 0.7 0.8 0.9 0.0 2.8 3.1 Imports of goods and services -0.1 1.4 0.6 0.5 0.7 0.7 0.8 0.8 2.6 2.9 2.6Contributions to GDP: Domestic f inal sales 1.4 -0.9 0.5 -0.3 -0.1 0.1 0.2 0.2 1.0 -0.2 1.1 Inventories -1.3 1.2 0.1 0.1 0.1 0.0 0.0 0.0 -0.4 0.6 0.0 Net trade -0.5 -0.8 0.1 0.1 0.0 0.0 0.0 0.0 -0.8 -0.1 0.1Unemployment rate 8.2 8.0 8.0 8.0 8.0 7.9 7.9 7.9 8.1 7.9 7.7Consumer prices (CPI) 3.5 2.8 2.4 2.5 2.3 2.7 2.8 2.4 2.8 2.6 2.3Retail prices (RPI) 3.8 3.1 2.9 3.1 3.0 3.4 3.4 2.8 3.2 3.2 2.6Announced size of the APF (£bn) 325 325 375 400 400 400 400 400 400 400 400Of f icial Bank rate 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.503-month sterling libor 1.03 0.90 0.65 0.65 0.65 0.65 0.65 0.70 0.65 0.70 0.7010-year gilt 2.20 1.73 1.80 1.60 1.50 1.50 1.60 1.75 1.60 1.75 2.50£ per euro 0.83 0.81 0.80 0.78 0.77 0.75 0.75 0.75 0.78 0.75 tbc$ per £ 1.60 1.56 1.60 1.64 1.62 1.60 1.57 1.53 1.64 1.53 tbcNotes: Quarterly figures are % q-o-q changes. Annual figures are % y-o-y changes. Inventories include statistical discrepancy. Inflation is % y-o-y. Interest rates andcurrencies are end-of-period levels. Numbers in bold are actual values; others forecast. Table reflects data available as of 27 September 2012.Source: ONS, Bank of England, Bloomberg, DataStream, Nomura Global Economics. 24
  • Nomura | Global Economic Outlook Monthly 15 October 2012United States | Economic OutlookUS budget in the crosshairsA contentious debate over near- and long-term fiscal policy will weigh on the economy.Activity: In the three years since the Great Recession ended, real GDP has grown at a Lewis Alexander +1 212 667 9665lackluster 2.2% pace and at an even slower 1.65% pace during the first half of 2012. Faced with Lewis.Alexander@nomura.comthe unusual uncertainties about the eventual resolution of the US fiscal challenges and the on- David Reslergoing sovereign debt crisis in Europe, the US economy looks likely to continue along this lower +1 212 667 2415trajectory through Q2 2013. david.resler@nomura.comIn recent months, surveys of confidence have diverged as business caution over slowing Ellen Zentner +1 212 667 9668earnings and uncertain fiscal outcomes later this year has increased, while households appear ellen.zentner@nomura.comto have a more optimistic outlook. Other recent data suggest that firming home values have ledto an increase in household wealth from real estate and, going forward, should encourage morehouseholds to spend. After the election, we expect economic activity to slow and bothbusinesses and consumers to pull back in response to a contentious debate over fiscal policy.Looking ahead to the second half of next year and beyond, we expect the pace of recovery tobegin to accelerate once Washington policymakers resolve the near-term fiscal and other policychallenges that have undermined business confidence.Inflation: Crude oil prices remain volatile and a source of inflation instability. Inflation in the“core” PCE price index shows no hint of developing pressures as the year-on-year rate ofincrease has remained continuously below 2% since Q4 2008. We expect the persistence ofample economic slack to restrain inflation throughout the forecast horizon.Policy: In spite of recent improvements, the slow recovery in labor markets is of “grave”concern for the FOMC. We expect the FOMC to continue its purchases of long-term assetsthrough Q3 2013. Addressing fiscal policy changes is likely to be contentious, but we ultimatelyexpect agreement on a long-term deficit reduction plan. Nevertheless, the forecasts shown inthe table below reflect the risk that scheduled fiscal changes could go into effect in Januarybefore a long-term deal is reached.Risks: The eurozone economic crisis and looming fiscal cliff remain the dominant risks to theoutlook.Details of the forecast% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 2011 2012 2013 2014Real GDP 2.0 1.3 1.8 1.2 0.5 1.1 2.2 2.6 2.9 3.1 1.8 2.1 1.3 2.7 Personal consumption 2.4 1.5 1.7 2.3 0.7 1.4 2.2 2.6 2.8 2.7 2.5 1.9 1.6 2.6 Non residential fixed invest 7.5 3.6 -0.8 1.0 -0.3 0.9 4.7 4.8 3.9 8.2 8.6 7.3 1.3 5.1 Residential fixed invest 20.6 8.4 17.8 11.2 11.4 10.2 10.3 10.2 7.5 8.0 -1.4 12.2 11.5 9.0 Government expenditure -3.0 -0.7 -1.7 -2.2 -2.2 -0.9 -1.0 -0.9 -0.2 -1.0 -3.1 -2.1 -1.6 -0.8 Exports 4.4 5.2 -3.0 2.1 2.9 3.1 3.7 5.3 5.5 4.2 6.7 3.1 2.4 4.6 Imports 3.1 2.8 -0.7 2.7 1.5 1.8 2.3 3.5 3.9 3.1 4.8 2.9 1.8 3.1Contributions to GDP: Domestic final sales 2.3 1.5 1.2 1.5 0.3 1.2 2.1 2.4 2.6 2.8 1.9 2.0 1.3 2.6 Inventories -0.4 -0.5 0.9 -0.2 0.0 -0.2 0.0 0.0 0.2 0.2 -0.2 0.2 0.0 0.0 Net trade 0.1 0.2 -0.3 -0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.1 -0.1 0.0 0.0Unemployment rate 8.3 8.2 8.1 7.9 8.1 8.0 8.0 7.9 7.8 7.6 9.0 8.1 8.0 7.6Nonfarm payrolls, 000 226 67 146 100 100 100 120 150 150 150 139 135 118 169Housing starts, 000 saar 715 736 748 802 816 837 860 876 897 931 612 750 847 955Consumer prices 2.8 1.9 1.7 2.4 1.8 1.9 1.6 1.0 1.2 1.3 3.1 2.2 1.6 1.4 Core CPI 2.2 2.3 2.0 1.9 1.8 1.6 1.6 1.7 1.7 1.7 1.7 2.1 1.7 1.8Federal budget (% GDP) -8.7 -7.0 -6.2 -5.3Current account balance (% GDP) -3.1 -2.8 -1.6 -1.0Fed securities portfolio ($trn) 2.61 2.62 2.60 2.72 3.01 3.30 3.59 3.58 3.57 3.57 2.61 2.72 3.58 3.57Fed funds target 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.253-month LIBOR 0.47 0.46 0.36 0.40 0.40 0.50 0.50 0.50 0.60 0.60 0.58 0.40 0.50 0.65TSY 2-year note 0.33 0.33 0.23 0.20 0.30 0.45 0.55 0.65 0.70 0.80 0.24 0.20 0.65 1.10TSY 5-year note 1.04 0.72 0.63 0.70 0.50 0.70 0.90 1.00 1.10 1.20 0.83 0.70 1.00 1.50TSY 10-year note* 2.23 1.67 1.63 1.75 1.50 1.75 1.90 2.00 2.00 2.10 1.87 1.75 2.00 2.4030-year mortgage 3.99 3.66 3.50 3.50 3.40 3.40 3.60 3.70 3.70 3.80 3.95 3.50 3.70 4.10*The medium term forecast range for the TSY 10-year note is as follows: 1.30-2.30. Notes: Quarterly real GDP and its contributions are seasonally adjustedannualized rates. The unemployment rate is a quarterly average as a percentage of the labor force. Nonfarm payrolls are average monthly changes during theperiod. Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate forecasts are end of period. Housing starts are period averages.Numbers in bold are actual values. Table reflects data available as of 19 October 2012. Source: Nomura 25
  • Nomura | Global Economic Outlook Monthly 15 October 2012Rest of EEMEA | Economic OutlookCzech Republic: No escape, no safe havenAn ongoing recession in H1 may be inevitable for this most open economy. Politicsremain a key risk under a new coalition with only a marginal majority. 2010 2011 2012 2013  GDP will likely contract in 2012 thanks to contaminationReal GDP % y-o-y 2.7 1.7 -0.7 0.9 from the eurozone, owing to the openness of the economy.Nominal GDP USD bn 197.8 215.5 220.1 221.0 However, a strong banking system, where deleveragingCurrent account % GDP -3.8 -2.9 -2.5 -2.8 should only have a small effect, and the lessening of theFiscal balance % GDP -5.0 -4.0 -4.5 -4.0 fiscal drag vs. 2011 are two positives.CPI % y-o-y * 2.3 2.4 2.3 1.6  We expect the government to make small additionalCPI % y-o-y ** 1.5 1.9 3.2 1.9 measures to keep fiscal consolidation on track, but with aCore CPI ex VAT % y-o-y ** 1.3 0.8 0.2 1.0 potentially unstable coalition we believe any stronger action or structural reforms are unlikely. The ruling coalition‟sPopulation mn 10.5 10.5 10.4 10.4 reduced majority leaves little margin for error, and we doubtUnemployment rate % 9.6 8.6 9.0 8.5 deficit targets will be met. However, with steady access toReserves EUR bn ** 31.8 31.1 29.6 29.2 domestic funding and low debt, little additional fiscalExternal debt % GDP 46.7 50.8 49.2 47.8 consolidation may be needed for the medium-run path toPublic debt % GDP 41.3 43.8 45.2 47.0 remain credible.CNB policy rate %* 0.75 0.75 0.25 0.50  Underlying CPI inflation should stay at the bottom of theEURCZK* 25.0 25.59 25.20 24.20 target in 2012 before falling in 2013. We think the CNB will*End of period, **Period average, Bold is actual data stay on hold after October‟s cut until Q3 2013 as we think inflation is under control and fiscal austerity should lead to lower growth.Source: CSO, CNB, Nomura Global EconomicsRomania: Markets should concentrate on fiscal not politics Peter Attard MontaltoTwin deficits leave little room for supporting growth in a challenging external demand +44 (0) 20 710 28440 peter.am@nomura.comenvironment with domestic political and constitutional uncertainties not helping. 2010 2011 2012 2013  Markets are becoming concerned about Romania due toReal GDP % y-o-y -1.6 2.5 0.2 0.8 Moody‟s ratings outlook downgrade to negative, IMFCurrent account % GDP -4.2 -4.2 -4.0 -5.0 concerns that November elections mean targets are not metFiscal balance % GDP -6.5 -4.5 -3.5 -4.0 and asset fire sales to support higher public sector wages.CPI % y-o-y * 8.0 3.1 4.7 3.4  We think the external slowdown and minimal credit growthCPI % y-o-y ** 6.1 5.8 3.3 4.5 will mean a sluggish recovery in H2, although stronger than others in the region. Romania is also vulnerable toExternal debt % GDP 73.0 72.3 70.0 72.0 deleveraging, which could pose a serious risk for thePublic debt % GDP 30.5 33.3 35.0 33.3 balance of payments. While the BNR has a contingencyBNR policy rate %* 6.25 6.00 5.00 6.00 plan that may involve capital controls, tapping the IMF‟sEURRON* 4.28 4.33 4.25 4.00 precautionary SBA may be necessary if the situation*End of period; **Period average; Bold is actual data deteriorates.  Fears of losing the next election may mean the new Victor Ponta-led coalition will not stick to the IMF-backed austerity programme. We see much political risk this year, although the real policy risk is next year.Source: Ministry of Statistics, Nomura Global EconomicsIsrael: Slower exports, slower growth, but no recession Olgay Buyukkayali +44 (0) 20 710 23242 olgay.buyukkayali@nomura.comAn increasingly weak currency and looser monetary policy should help Israel. 2010 2011 2012 2013  Israel‟s export-driven economy outperformed the region inReal GDP % y-o-y 4.5 4.8 2.8 3.3 the post-crisis environment thanks to an aggressiveCPI % y-o-y * 2.7 2.2 3.4 3.3 monetary policy response resulting in healthy domesticCPI % y-o-y ** 2.7 3.5 2.1 2.6 demand. The economy is currently slowing in line with the global backdrop.Budget balance % GDP -3.0 -2.7 -3.0 -3.5Current account % GDP 3.0 0.3 -0.3 1.0  Inflationary pressures appear to have subsided and inflation expectations are well anchored. This year‟s electricity pricePolicy rate %* 2.00 2.75 2.25 3.00 hikes however, may limit the extent of policy easing. WithUSDILS* 3.52 3.81 3.80 3.60 the policy rate at 2.25%, we see no further cuts unless the*End of period, **Period average, Bold is actual data global economy deteriorates further.  Underlying final demand should not weaken greatly and the recovery in H2 should result in measured rate hikes (75bp to 3.00% by Q3 2013).Source: BOI, Nomura Global Economics 26
  • Nomura | Global Economic Outlook Monthly 15 October 2012Rest of LatAm | Economic OutlookArgentina: Old habits die hard Boris Segura +1 212 667 1375Policy moves after the presidential elections damage economic performance Boris.Segura@nomura.com 2010 2011 2012 2013  The authorities continue to pursue expansionary fiscal andReal GDP % y-o-y 9.2 8.9 2.0 4.0 monetary policies.Consumption % y-o-y 9.4 10.7 4.3 4.2  Exchange controls are effectively segmenting the FX market,Gross Investment % y-o-y 21.2 16.6 -7.1 7.3 with heavy damage to economic activity and microeconomicExports % y-o-y 14.6 4.3 -5.7 6.7 efficiency.Imports % y-o-y 34.0 17.8 -5.2 10.8  Locals are rushing to purchase USDs, as high inflation, policyCPI % y-o-y * 10.9 9.5 9.9 9.7 missteps and other mixed signals sap domestic confidence inCPI % y-o-y ** 25.2 21.8 24.7 30.2 the ARS.Budget balance % GDP *** 1.7 0.3 -0.9 -2.7Current account % GDP 0.8 0.0 1.8 1.9  We expect faster ARS depreciation, but without a supportive macroeconomic framework we fear that a necessary realPolicy Rate % 9.7 14.6 15.0 12.0 depreciation of the currency will be difficult to achieve.USDARS 3.98 4.29 4.90 5.65* Official data, ** Private estimate, ***Primary budget balance, Bold is actual dataSource: CSO, CNB, Nomura Global Economics.Colombia: Growth moderating Benito Berber +1 212 667 9503 Benito.Berber@nomura.comAfter a strong half, the growth will likely lose momentum.  We have revised our 2012 GDP growth forecast to 4.5% y-o-y after a strong first half supported by strong domestic consumption and resilient exports.  Inflation and inflation expectations will remain well anchored around 3.0%.  We expect an additional 25bp interest rate cut to 4.50% during the remainder of the year and for the authorities to continue intervening in the FX market to curb COP appreciation.Source: CSO, CNB, Nomura Global Economics.Chile: Between rock and a hard place Tony Volpon +1 212 667 2182 Tony.Volpon@nomura.comDomestic demand remains strong in Chile, while inflation has moderated. We expect the centralbank to keep its policy rate on hold in the near term.  Chile‟s economy has shown strong resilience in a turbulent year, as robust consumption and investment continue to support growth. We revise up our 2012 GDP growth forecast to 5.1%, slightly above potential.  Both headline and core inflation are now below target (3%) and the currency‟s recent appreciation should help soften the global commodity price shock. We expect end-2012 CPI inflation of around 3%, with expectations well anchored.  Given around-trend growth, below-target inflation and improving external scenarios, we expect the central bank (BCCh) to remain in “wait-and-see” mode and keep the policy rate on hold at 5%.  Strong imports, driven by domestic demand, and a slightly weaker export profile, are pushing the trade balance lower and current account in negative territory, potentially increasing Chile‟s external vulnerability in the medium term.Source: CSO, CNB, Nomura Global Economics. 27
  • Nomura | Global Economic Outlook Monthly 15 October 2012 28
  • Nomura | Global Economic Outlook Monthly 15 October 2012 Disclosure Appendix A-1ANALYST CERTIFICATIONSEach research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately reflect his or herpersonal views about the subject securities and issuers. In addition, each research analyst identified on the cover page hereof herebycertifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or viewsthat he or she has expressed in this research report, nor is it tied to any specific investment banking transactions performed by NomuraSecurities International, Inc., Nomura International plc or any other Nomura Group company.Issuer Specific Regulatory DisclosuresThe term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. 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As a rule, JGBs for individual investors may not be sold in the first 12 months after issuance. When JGBs forindividual investors are sold before maturity, an amount calculated via the following formula will be subtracted from the par value of the bond plusaccrued interest: (1) for 10-year variable rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.8 will be usedthrough 9 January 2013, and an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used starting on 10 January2013, (2) for 5-year and 3-year fixed rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.8 will be used through 9January 2013, and an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used starting on 10 January 2013.Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.25% (tax included) of thetransaction amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time ofredemption. Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an assetmanagement fee (trust fee) of up to 5.25% (tax included, annualized basis) of the net assets in trust, as well as fees based on investmentperformance. Other indirect costs may also be incurred. For foreign investment trusts, indirect fees may be incurred during the course of holdingsuch as investment company compensation.Investment trusts invest mainly in securities such as Japanese and foreign equities and bonds, whose prices fluctuate. Investment trust unit pricesfluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry the risk oflosses. Fees and risks vary by investment trust. Maximum applicable fees are subject to change; please thoroughly read the written materialsprovided, such as prospectuses or documents delivered before making a contract.An annual account maintenance fee of up to ¥1,575 (tax included) is charged for any account held with Nomura Securities containing equities orinvestment securities. An additional annual account maintenance fee of up to ¥3,150 (tax included) is charged for any account containing foreignsecurities. No account fee will be charged for other marketable securities or monies deposited. Transfers of equities to another securitiescompany via the Japan Securities Depository Center are subject to a transfer fee of up to ¥10,500 (tax included) per issue transferred dependingon volume.Nomura Securities Co., Ltd.Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142)Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association of Japan;and Type II Financial Instruments Firms Association.Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but notlimited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employeetraining.Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page:http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx 31
  • Nomura | Global Economic Outlook Monthly 15 October 2012Copyright © 2012 Nomura Securities International Inc.. All rights reserved. 32
  • Nomura | Global Economic Outlook Monthly 15 October 2012 Global EconomicsEconomistsNorth America-Economics ResearchLewis Alexander US Chief Economist Lewis.Alexander@nomura.com +1 212 667 9665 MD- Chief EconomicDavid Resler david.resler@nomura.com +1 212 667 2415 AdviserAichi Amemiya US Economist aichi.amemiya@nomura.com +1 212 667 9347Charles St-Arnaud ED - G10 FX Research charles.starnaud@nomura.com +1 212 667 1986Ellen Zentner Senior US Economist ellen.zentner@nomura.com +1 212 667 9668EMEA-Economics ResearchJacques Cailloux Chief European Economist Jacques.Cailloux@nomura.com +44 (0) 20 710 22734Nick Matthews Nick.Matthews@nomura.com +44 (0) 20 710 25126Silvio Peruzzo silvio.peruzzo@nomura.com +44 (0) 20 710 23205Dimitris Drakopoulos Economist dimitris.drakopoulos@nomura.com +44 20 710 25846Lefteris Farmakis Economist lefteris.farmakis@nomura.com +44 (0) 20 710 39242Takuma Ikeda Senior Economist takuma.ikeda@nomura.com +1 212 667 1153Philip Rush Economist philip.rush@nomura.com +44 20 7102 9595Stella Wang Economist stella.wang@nomura.com +44 (0) 20 710 20599Japan-Economics ResearchTomo Kinoshita Chief Japan Economist tomo.kinoshita@nomura.com +81 3 6703 1280Mika Ikeda Economist mika.ikeda@nomura.com +81 3 6703 1287Shuichi Obata Senior Economist shuichi.obata@nomura.com +81 3 6703 1295Kohei Okazaki Economist kohei.okazaki@nomura.com +81 3 6703 1291Asuka Tsuchida Economist asuka.tsuchida@nomura.com +81 3 6703 1297Asia Ex-Japan-Economics Research Chief Economist Asia, Asia ex-Japan and Head of FixedRob Subbaraman rob.subbaraman@nomura.com +852 2536 7435 Income Research, Asia ex- JapanYoung Sun Kwon MD - Korea Economist youngsun.kwon@nomura.com +852 2536 7430 Southeast Asia Economist,Euben Paracuelles euben.paracuelles@nomura.com +65 6433 6956 Executive Director India Economist, ExecutiveSonal Varma sonal.varma@nomura.com +91 22 403 74087 DirectorZhiwei Zhang Executive Director zhiwei.zhang@nomura.com +852 2536 7433StrategistsGlobal-Emerging Markets ResearchOlgay Buyukkayali Head of EM Strategy, EMEA olgay.buyukkayali@nomura.com +44 (0) 20 710 23242 Head of Emerging MarketsTony Volpon tony.volpon@nomura.com +1 212 667 2182 Research - AmericasPeter Attard Montalto Economist peter.am@nomura.com +44 (0) 20 710 28440 Senior Latin AmericaBenito Berber Benito.Berber@nomura.com +1 212 667 9503 Strategist Senior Latin AmericaBoris Segura Boris.Segura@nomura.com +1 212 667 1375 Strategist 33