Your SlideShare is downloading. ×
Db Oil & The Global Economy
Upcoming SlideShare
Loading in...5

Thanks for flagging this SlideShare!

Oops! An error has occurred.


Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Db Oil & The Global Economy


Published on

One of the better global perspective pieces I\'ve read out of DB in while.

One of the better global perspective pieces I\'ve read out of DB in while.

  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

No notes for slide


  • 1. Global 3 March 2011Macro Global Economic Perspectives Economics Oil and the Global Economy: Table of Contents Key Economic Forecasts .................................... Page 2Global Markets Research Oil and the Global Economy: Measured Impact Measured Impact ............................................... Page 3 Central Bank Watch .......................................... Page 10 Global Data Monitor ......................................... Page 14 Over the past six months, oil prices have risen more than 50%, with more Charts of the Week .......................................... Page 15 than one-fourth of that rise coming in recent weeks as tensions in the Middle Global Week Ahead.......................................... Page 16 East have risen. We estimate that most of the rise on oil prices to date (i.e., Financial Forecasts .......................................... Page 18 to a level of about $100/barrel Brent) can be attributed to the strengthening of aggregate demand in the global economy and therefore does not have Main Deutsche Bank Global Economics Publications ...................... Page 19 significant negative implications for global growth. If the roughly $10-15/barrel additional increase in oil prices in recent weeks that can be attributed to concerns about possible disruptions to oil production in and distribution from the Middle East to the rest of the world is sustained, global growth could be reduced by about ½% this year relative to our current baseline forecast for global growth in the vicinity of 4.3%. The risk of a more severe disruption, while not high, has risen in the wake of recent events, and we would put a 10-15% probability on oil prices rising to $150/barrel in the near term and remaining near that for a time. Such a shock would reduce global growth by an estimated 2.5%, moving it back into recession territory. The positive effects of the shock on inflation would be somewhat greater in terms of percentage points than the negative effect on real GDP. Countries that are more dependent on imported oil or do not have significant domestic sources of energy would be hit more than the global average (Japan and Korea, for example), while those with significant domestic production of energy would be hit less. Everything else equal, industrial countries would be hit less than emerging market economies given their greater energy efficiency (lower dependence of output on energy input). Impact of oil price shocks on GDP growth and inflation for year ahead Mild oil shock Severe oil shock Oil prices to stay at $110/brl Oil prices reach $150/brl Research Team GDP Inflation GDP Inflation Peter Hooper US -0.35 0.5 -1.75 2.6 (+1) 212 250-7352 Euro Area -0.5 0.4 -2.3 1.8 Thomas Mayer Japan -0.3 0.3 -1.5 1.5 (+49) 69910-30800 Total Developing -0.2 -1.0 Michael Spencer countries (+852) 220-38303 Asia ex Japan -0.8 0.7 -4.0 3.5 World -0.4 -2.0 Source: DB Global Markets Research Torsten Slok (+1) 212 250-2155 torsten.slok@db.comEconomics Deutsche Bank Securities Inc. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010
  • 2. 3 March 2011 Global Economic PerspectivesKey Economic Forecasts Real GDP Consumer Prices Current Account Fiscal Balance % growthb % growthc % of GDPd % of GDP 2010F 2011F 2012F 2010F 2011F 2012F 2010F 2011F 2012F 2010F 2011F 2012F US 2.8 3.5 3.9 1.6 2.2 2.4 -3.7 -4.1 -4.3 -8.8 -9.7 -6.9 Japan 3.9 1.6 2.2 -0.7 -0.1 -0.6 3.6 3.8 4.5 -8.7 -7.7 -7.4 Euroland 1.7 1.4 1.5 1.6 2.3 1.9 -0.6 0.0 0.4 -6.0 -4.8 -3.7 Germany 3.5 2.5 1.4 1.2 2.0 1.7 5.1 4.8 4.1 -3.7 -2.8 -2.0 France 1.5 1.2 1.6 1.7 1.7 1.6 -2.1 -2.2 -2.6 -7.6 -6.2 -4.8 Italy 1.1 0.9 1.2 1.5 2.1 1.9 -3.2 -2.8 -2.4 -5.0 -4.1 -3.1 Spain -0.1 0.6 1.1 1.8 1.8 1.6 -4.5 -4.5 -3.6 -9.0 -6.5 -4.8 UK 1.3 1.8 2.0 3.3 4.1 1.8 -2.4 -2.0 -1.7 -9.5 -7.9 -4.4 Sweden 5.3 3.5 2.5 1.3 1.5 2.0 6.8 6.5 6.0 -1.0 -0.5 0.5 Denmark 2.1 2.4 2.0 2.3 2.0 2.0 5.3 4.0 3.5 -5.3 -3.5 -3.0 Norway 0.4 1.5 2.5 2.4 1.5 2.0 12.8 12.9 13.0 6.8 7.5 8.5 Poland 3.8 3.9 3.5 2.6 3.4 2.7 -3.1 -3.2 -3.7 -7.9 -5.8 -4.7 Hungary 0.8 3.0 3.2 5.0 4.1 3.4 1.5 0.3 -0.4 -3.8 -2.9 -4.0 Czech Republic 2.4 2.3 3.1 1.5 2.1 2.2 -1.5 -1.0 -1.2 -5.2 -4.6 -4.2 Australia 2.7 3.2 3.1 2.8 2.9 3.0 -2.7 -2.7 -4.0 -4.5 -3.5 -2.2 Canada 3.1 2.6 3.2 1.8 2.3 2.4 -3.3 -3.6 -3.4 -3.5 -2.0 -1.7 Asia (ex Japan) 9.4 8.0 7.6 4.6 5.5 4.4 4.0 3.1 2.9 -3.1 -2.8 -2.3 India 9.8 8.2 8.5 9.4 8.2 6.7 -2.6 -3.0 -3.0 -8.5 -7.8 -7.2 China 10.3 9.4 8.6 3.3 5.0 3.5 5.2 4.3 3.8 -2.5 -2.0 -1.5 Latin America 5.9 4.3 3.9 8.9 8.8 7.4 -0.8 -1.5 -2.0 -2.6 -2.5 -2.4 Brazil 7.7 4.2 4.4 5.9 5.8 4.8 -2.3 -2.8 -3.7 -2.6 -2.9 -2.9 EMEA 4.5 4.7 5.1 8.0 7.5 7.1 0.6 -0.5 -1.3 -4.6 -3.4 -2.9 Russia 4.0 5.4 5.5 6.9 9.6 7.2 5.0 3.7 2.0 -3.9 -2.0 -1.7 G7 2.7 2.6 2.9 1.4 1.9 1.8 World 4.8 4.2 4.4 3.2 3.9 3.3 (a) Euroland forecasts as at the last forecast round on 10/12/10. Bold figures signal upward revisions, bold, underlined figures signal downward revisions. (b) GDP figures refer to working day adjusted data. (c) HICP figures for euro-zone countries and the UK (d) Current account figures for Euro area countries include intra regional transactionsForecasts: G7 quarterly GDP growth% qoq saar/annual: % yoy Q1 10 Q2 10 Q3 10 Q4 10F 2010F Q1 11F Q2 11F Q3 11F Q4 11F 2011F 2012F US 3.7 1.7 2.6 2.8 2.8 3.8 4.2 4.1 4.3 3.5 3.9 Japan 6.0 2.1 3.3 -1.1 3.9 0.8 3.2 2.5 1.9 1.6 2.2 Euroland 1.5 4.1 1.4 1.2 1.7 1.2 0.9 1.1 1.3 1.4 1.5 Germany 2.6 9.2 2.8 1.5 3.5 3.0 1.1 1.3 1.4 2.5 1.4 France 1.1 2.4 1.0 1.4 1.5 1.0 0.8 1.6 1.5 1.2 1.6 Italy 1.8 1.9 1.1 0.2 1.1 1.0 0.7 0.8 1.4 0.9 1.2 UK 1.3 4.2 2.8 -2.3 1.3 1.3 2.1 2.1 2.0 1.8 2.0 Canada 5.5 2.2 1.8 3.3 3.1 3.4 3.7 3.3 2.1 2.6 3.2 G7 3.5 2.8 2.5 1.4 2.7 2.6 3.0 3.0 2.9 2.6 2.9Sources: National authorities, DB Global Markets ResearchPage 2 Deutsche Bank Securities Inc.
  • 3. 3 March 2011 Global Economic PerspectivesOil and the Global Economy: Measured Impact Over the past six months, oil prices have risen past and most recent movements in oil prices, since the more than 50%, with more than one-fourth of that effects of an oil price increase will depend importantly on rise coming in recent weeks as tensions in the what it was that drove prices higher——increases in demand Middle East have risen. We estimate that most of associated with strong global growth or cutbacks in supply the rise on oil prices to date (i.e., to a level of associated with disruptions in major producing regions. about $100/barrel Brent) can be attributed to the The assessment then moves to a survey of various model- strengthening of aggregate demand in the global based and other empirical estimates of the effects of oil economy and therefore does not have significant price increases on the growth of real GDP and consumer negative implications for global growth. prices in major regions of the world. Finally, we provide quantitative estimates of the effects of the recent rise in oil If the roughly $10-15/barrel additional increase in prices and the potential implications of a further run-up in oil prices in recent weeks that can be attributed to oil prices that could materialize if oil supplies in the Middle concerns about possible disruptions to oil East are significantly disrupted. production in and distribution from the Middle East to the rest of the world is sustained, global growth could be reduced by about ½% this year Chart 1. Oil prices moving higher $/barrel $/barrel relative to our current baseline forecast for global 150 Brent WTI 150 growth in the vicinity of 4%. The risk of a more severe disruption, while not 125 125 high, has risen in the wake of recent events, and we would put a 10-15% probability on oil prices 100 100 rising to $150/barrel in the near term and remaining near that for a time. Such a shock 75 75 would reduce global growth by more than 2%, moving it back into recession territory. The 50 50 positive effects of the shock on inflation would be somewhat greater in terms of percentage points 25 25 than the negative effect on real GDP. 2006 2007 2008 2009 2010 2011 Countries that are more dependent on imported oil Source: WSJ, DB Global Markets Research or do not have significant domestic sources of energy would be hit more than the global average on impact (Japan and Korea, for example), while Global oil market those with significant domestic production of In the past six months, world oil prices have risen by about energy would be hit less. Everything else equal, $40/barrel or more than 50% (Chart 1).1 Roughly one-third industrial countries would be hit less than of this increase has occurred since the flare-up of tensions emerging market economies given their greater in the Middle East began to hit the market a little over a energy efficiency (lower dependence of output on month a ago (Chart 2). Before addressing the potential energy input). effects of this rise in oil prices on the global economy, it is useful to review some of the basic features of the globalIntroduction market for oil, including its major demand and supplyOil prices have been on the rise, and ongoing tensions in features.the Middle East have again raised questions about thepotential risks to the global economy associated with a Oil continues to be the single most important source ofpossible significant disruption of oil supplies. In this week’’s energy in the global economy; it currently accounts for wellGEP we address these questions in a number of over one-third of total primary energy supply. Oil and gasdimensions. We begin with an overview of the world oil combined account for over 60% of primary energy, andmarket, including a breakdown of the majordemanders/users and suppliers/producers of oil. We thenassess the potential effects of a sustained increase orsurge in oil prices on economic activity and prices. This 1 We focus on the Brent price rather than the WTI series because of theassessment begins with analysis of the extent to which extent to which the latter price has been artificially depressed in recentdemand factors and supply factors have contributed to weeks by oil pipeline distribution problems in Cusning Oklahoma.Deutsche Bank Securities Inc. Page 3
  • 4. 3 March 2011 Global Economic Perspectivestogether with coal, these fossil fuels account for more than about two thirds to roughly half, as their oil usage has80% of energy (Chart 2). remained relatively stable while that of emerging market regions has risen strongly (Chart 4). These trends implyChart 2. Relative importance of oil in total global that GDP growth in emerging markets, especially Asia,energy usage have become increasingly important as a driver of world oil OECD: total primary energy supply demand and therefore oil prices. They also imply that (2009, 5.2 m toe) industrial regions of the world have become less sensitive Combustibe Other renewables 1.1% to ““oil shocks”” over time as their dependence on oil has 4.4% Hydro diminished. To some extent, decreasing oil dependency Coal 2.1% 19.7% reflects a shift to other sources of energy——natural gas in Nuclear 11.3% particular, and here, given the relatively high correlation of prices across energy sources noted above, exposure to oil Oil 37.2% shocks may not have declined commensurately. Chart 4. Global demand for oil by region Gas 24.2% mln brls per day Global demand for oil by region mln brls per day 100 100 Non OECD Other OECD US: North America TotalSource: IEA, DB Global Markets Research 90 90 80 80 70 70What has been striking about the energy market in the past 60 60few years has been the near-perfect synchronization of 50 50prices of these three major sources of energy (Chart 3).Whereas historically gas and oil prices have had a 40 40reasonably high correlation, coal had historically been 30 30uncorrelated with the other two commodities. But since 20 202007 the three prices have clearly moved together. This 10 10period has seen robust demand for energy of all types. 0 0And if anything, oil price increases have tended to lead gas 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11and coal price increases since 2007. Source: IEA, OECD and DB Global Markets ResearchChart 3. Prices of oil, gas and coal moving together However, there is also ample evidence that energy%y/y, % y/y,3mma efficiency has increased substantially in response to past 3mma Oil Coal Gas increases in the relative price of oil and other sources of 225 225 200 200 energy. The World Bank has tracked energy efficiency 175 175 (measured as the amount of energy consumed to produce 150 150 125 125 one unit of real GDP) going back at least 15 years for 125 100 100 economies. It finds that In the United States and Germany, 75 75 50 50 for example, between 1990/91 and 2006/07, real GDP per 25 25 unit of energy consumed has increased by one-third. Gains 0 0 in energy efficiency have not been limited to industrial -25 -25 -50 -50 countries. In India, the ratio of GDP per unit of energy -75 -75 consumed has increased more than 50% since 1990/91 00 02 04 06 08 10 and in China it has more than doubled. Interestingly, whenSource: IMF, DB Global Markets Research we measure the major emerging market economies up against each other, the Latin American economies stand out as generally achieving a higher real GDP per unit of energy consumed than economies in the other regions.Demand EMEA are over-represented at the inefficient right tail butDemand for oil has been driven increasingly by emerging are well represented in the middle of the range toomarket regions. Over the past 15 years, the OECD (Chart 5).countries’’ share of global oil consumption has fallen fromPage 4 Deutsche Bank Securities Inc.
  • 5. 3 March 2011 Global Economic PerspectivesChart 5. Energy efficiency across EM could have a large impact on prices. Because the short-runGDP/kgoe GDP/kgoe elasticities of demand for and supply of oil are very low,25 25 relatively small changes in supply from any source in the oil market can have a large impact on price. Supply may be20 20 elastic up to a certain point if major producers like Saudi Arabia are producing short of their full capacity and to the15 15 extent that consuming countries have built up strategic petroleum reserves. The International Energy Agency10 10 estimates that current excess capacity in major producing regions (primarily Saudi Arabia) are currently more than 5 5 sufficient to replace production by Libya and Algeria if it is cut off (Chart 6). Thus it is unlikely that events in the Middle 0 0 East will result in a large shock to world oil prices (pushing them to $150/barrel or more) unless production in Saudi MEX PER COL ISR PHL CHL HUN POL KOR IND VEN IDN CHN UKR HKG ARG ZAF KAZ LKA SGP BRA ROM SVK EGY CZE THA MYS PAK VNM RUS TUR Arabia is disrupted.Source: World Bank and DB Global Markets Research Chart 6. OPEC spare capacity exceeds Libyan +Supply Algerian production Mln brl/day OPEC Libya Algeria Mln Brl/dayOn the supply side of the ledger, the Middle East accounts 6.0 6.0for about 25% of total world oil production, with SaudiArabia being the biggest producer at close to 10% of world 5.0 5.0oil production (Table 1). 4.0 4.0Table 1. Global supply of oil by region 2010 3.0 3.0 Share in world Mil B/day 2.0 2.0 supply (2010)Saudi Arabia 8.2 9.4Iran, I.R 3.7 4.3 1.0 1.0Iraq 2.4 2.8Kuwait 2.3 2.6 0.0 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010UAE 2.3 2.6 Source: USDOE/EIA,DB Commodity Research and DB Global MarketsVenezuela 2.3 2.6 ResearchNigeria 2.1 2.4Angola 1.8 2.1Libya, SPAJ 1.6 1.8 How oil price shocks affect the economyAlgeria 1.3 1.5Qatar 0.8 0.9 Whether a rise in oil prices is benign or a threat to globalEcuador 0.5 0.5 growth depends of course on whether the price increase isTotal Middle East driven by an expansion of demand or a cut in supply. In the 22.6 25.8 former case, higher oil prices reflect a buoyant economyCountriesNon Middle East OPEC (i.e., are endogenous to economic developments), in the 6.6 7.6countries latter case they restrict economic activity (i.e., areTotal OPEC 29.2 33.4 exogenous to economic developments). One way to seeOECD 18.9 21.6 whether an oil price increase is endogenous or exogenousFormer Soviet Union 13.6 15.6 is to check whether it precedes or follows changes inOther non OECD 25.6 29.4 economic activity. Chart 7 shows global GDP growth andTotal World 87.3 100.0 changes in the world market price for oil since the earlySource: OPEC, OECD,IEA and DB Global Markets Research 1970s. Clearly, the oil price spikes of 1974-75 and 1979-80 preceded the change in global growth. Thus, these periodsWhile the Middle East is not the dominant global producer, are correctly remembered as ““oil price shocks”” triggeringit does account for enough of world production to mean economic downturns. Since then, however, the lead of oilthat a substantial disruption to production in that region price changes over economic growth seems to have disappeared. Periods of declining growth have tended toDeutsche Bank Securities Inc. Page 5
  • 6. 3 March 2011 Global Economic Perspectivesbe followed by periods of falling oil prices, and vice versa, Chart 8. Brent prices and global PMIsuggesting that oil price changes have been endogenous. yoy% Brent crude oil prices (ls) IndexThe spike in oil prices in 2007-08 was a bit ambiguous. As 120 Global PMI: composite output (50+ = expansion, rs) 65the chart shows that spike slightly preceded the slow-down in economic growth, suggesting some influence 60 80from rising oil prices on economic activity. However, thedeep recession of 2009 then clearly caused a sharp drop in 55 40oil prices, while the recovery of 2010 pushed oil prices 50higher again. 0 45Chart 7. World GDP and spot oil prices -40% y/y % y/y 40 World GDP (ls) World spot price for oil(rs) -80 35 -2.0 200 2001 2003 2005 2007 2009 2011 150 Source: WSJ, JPM, DB Global Markets Research 0.0 100 2.0 50 To what extent is the current level of 4.0 0 prices supply-driven or demand driven? 6.0 As we have noted, before judging how strong an effect a -50 given move in oil prices is going to have on activity, we 8.0 -100 need to judge whether that move is driven by supply 71 76 81 86 91 96 01 06 11 factors or demand factors. In Chart 9, we plot monthly dataSource: OECD, DB Global Markets Research on yoy changes in real oil prices (deflated by US CPI) against changes in a world industrial production index. A key indicator of growth is demand for oil. The estimatedThe relationship between oil prices and economic activity relationship indicates that the estimated 7.5% increase inin the more recent past is explored further in Chart 8, world industrial production over the past year waswhich plots changes in oil prices against the global consistent with a 35-40% increase in the price of oil. Thiscomposite purchasing managers’’ index on a monthly basis. would put the price of oil about $25-30 above where it wasAgain, the lead of economic activity over oil prices is clearly a year ago, or in a range of $100-105/bl, compared with itsvisible until 2007-08. Developments in 2006-07 suggest current level of about $110-115/bl (Brent). This suggeststhat growth had already begun to weaken when oil pricesstarted to rise. The acceleration of oil price increases that most of the rise in oil prices over the past can betowards the end of 2007 and during the first half of 2008 explained by demand factors, and about $10/bbl of thethen seems to have exacerbated the weakening of most recent increase can be attributed to actual or moreeconomic growth. This changed during the second half of likely anticipated/feared supply disruptions.2008, when the weakening of economic activity draggeddown oil prices. Recovery during 2009-10 clearly led oil Chart 9. World IP growth and oil prices, 2001-2011prices higher again, and even the latest round of oil price 100 WTI, %yoyincreases to February 2011 appears to have followed the 80renewed pick-up of activity. Oil = 5.07 x IP - 2.5 60 R² = 0.51 40 20 0 -20 -40 -60 -80 World IP, %yoy -15 -10 -5 0 5 10 15 Source: IMF, BLS. Haver, DB Global Markets ResearchPage 6 Deutsche Bank Securities Inc.
  • 7. 3 March 2011 Global Economic PerspectivesTo corroborate this finding, we consider the relationship the same effect is observed in export markets. So growthbetween the S&P500 stock price index and oil prices. To is likely to slow down by more than the initial impactthe extent that oil prices are impinging on economic assessment –– indeed, even an oil exporting country mayactivity rather than respond to it we would expect the ratio find growth slows down despite a positive terms of tradeof stock to oil prices to drop. If strong demand is driving oil shock –– but the impact on inflation is ambiguous. Slowerprices up, the stock price/oil price ratio should be flat to growth means weaker demand for non-oil items, sorising. This ratio did decline in 2007-08 (Chart 10), headline inflation may rise by less than the initial impact asconfirming our earlier observation that concerns about oil non-oil prices disruptions played a role in the relationship between To help us sort through these complications we use aoil and activity during that period——the jump in oil prices did computational general equilibrium (CGE) model of thecontribute to the drop in growth. More recently, the world economy calibrated to 2009 levels of activity/pricesstock/oil price ratio has been more stable, edging lower and so on2 . Such a model is well suited to analyzing amodestly over the past couple months and a bit more shock such as an exogenous increase in oil prices,noticeably in the past few days. This suggests that demand although the use of a 2009 base year in this particularfactors have dominated the rise in oil prices until very instance is perhaps unfortunate given how low oil pricesrecently. were then. Unlike VAR analysis, though, this approach doesn’’t allow us to identify separately the impact andChart 10. Ratio of S&P500 to Brent oil price eventual effects of an oil price increase. Instead, we reportRatio Ratio in the table below the changes in prices and GDP levels28 28 after the global economy has returned to equilibrium. We are cautious about reading too much into the individual24 24 figures in the tables, but view this exercise at least as offering a means of ranking economies according to their20 20 sensitivity to an oil price shock.16 16 Table 2. Impact on levels of GDP and CPI of a 10% oil price increase12 12 Oil Importers Latest value for March 1 GDP CPI GDP CPI Chile -0.33 0.69 Philippines -0.23 0.66 8 8 2006 2007 2008 2009 2010 2011 China -0.27 0.46 Poland -0.41 0.64 Chech Rep -0.41 0.68 Singapore -0.25 0.44Source: WSJ, DB Global Markets Research France -0.62 0.71 S. Africa -0.29 0.7 Germany -0.43 0.65 S.Korea -0.69 0.57 HK -0.11 0.48 Spain -0.41 0.66Empirical estimates of the effects of oil Hungary -0.31 0.6 Taiwan -0.53 0.46price shocks on the global economy. India -0.52 0.01 Thailand -0.56 0.48 Italy -0.34 1.08 Turkey -0.46 0.58We consider a variety of model-based estimates, including Japan -0.29 0.73 U.K -0.72 0.53two done in-house (CGE and VAR models) and several by Netherlands -0.72 0.49 U.S -0.49 0.45external research groups (the IMF, OECD, and Fed). We Oceania -0.35 0.6then derive a ““consensus”” measure to be used in the Oil Exporterssensitivity analysis that follows. GDP CPI GDP CPI Argentina -0.44 0.59 Malaysia -0.49 1.05CGE model-based estimates Brazil -0.69 0.62 Mexico -0.32 0.77 OtherFiguring out how higher oil prices impact an economy cries Colombia -0.71 0.98 MENA -0.22 0.82 Egypt 0.38 0.34 Peru -0.51 0.62out for a general equilibrium approach because beyond the Indonesia -0.26 0.55 Russia -0.26 0.9immediate impact of oil prices on headline inflation and Iran -0.34 1.08 Venezuela -0.15 0.87energy demand the ““second round”” effects quickly Source: DB Global Markets Researchbecome too difficult to sort out as many of these effectsoperate in conflicting directions. For a small openeconomy, for example, an increase in the world price of oilmay be genuinely a supply shock, pushing up headlineinflation and reducing demand for oil. But the latter will 2 Our CGE model is a modified version of the Purdue University GTAPtend to depress activity as will a decline in export growth if model.Deutsche Bank Securities Inc. Page 7
  • 8. 3 March 2011 Global Economic PerspectivesWhat is interesting about the results is how similar they are Other model simulationsacross regions. Of particular importance, while oil Extensive work has been done by the IMF and OECD onexporters see a rise in their trade surpluses (not reported) capturing the impact of oil price shocks on GDP andand importers generally experience a decline, by the time inflation of US and Euro Area. The Fed, too has reportedall the second- and third-round effects are worked out, simulations for the US economy with its FRB-US model.most countries don’’t differ too much. On average, real The results of this work, standardized to capture theGDP falls by about 0.4% -- slightly less for the exporters, effects of a $10 per barrel increase in oil prices, areonly slightly more for the importers. Only one oil exporter summarized in Table 3A and 3B. We have also added a–– Egypt –– is estimated to enjoy an increase in GDP, ““consensus”” estimate, which is our own judgmentallyalthough Venezuela, possibly the most oil dependent weighted average of the various model results, givingeconomy in this sample –– experiences only a very mild some weight to the CGE results discussed above.reduction in output. But the message is that even for oilexporting countries, the impact of weaker global demand Table 3A. Impact on GDP growth due to rise in oil prices bygrowth after an oil price shock generally more than offsets $10 per barrelthe initial gains. OECD- IMF- Interlink FRB/US Mulitmod DB VAR Consen-There is more variance across countries in terms of the model (1999) Model (2011) susimpact on inflation. While the average increase in inflation (2004-05) (2000)for the countries we present above is 0.6%, oil exportersare estimated to see relatively higher price level increases US -0.3 -0.2 -0.6 -0.4 -0.35than the importers –– where the dampening effect on Euro Area -0.5 -0.4 -0.5growth is stronger.The model suggests that the developed economies are Japan -0.4 -0.2 -0.3slightly worse off after an oil price shock than emerging Totalmarkets. The former group would see a larger drop in GDP Developing -0.2 -0.2and a slightly larger increase in inflation than the oil- countriesimporting emerging market economies would on average, Asia ex -0.8 -0.8although the group-wise differences are not large. JapanBetween the US and Europe, the simulation suggests that World -0.4 -0.4the biggest difference will be on the inflation front, with Source: OECD, FRB, DB Global Markets Researchmore inflation in Europe than the US after an oil shock.We are surprised at the relative resilience of growth inHong Kong and Singapore that falls out of the simulations ––the other ““high beta”” Asian oil importers do see a larger Table 3B. Impact on inflation due to rise in oil prices by $10GDP drop than in the developed economies, as we’’d per barrelexpect. OECD- IMF- Interlink FRB/US Mulitmod DB VAR Consen-VAR model-based estimates model (1999) Model (2011) sus (2004-05) (2000)We have also used a VAR (vector autoregression) model togauge the impact of changes in oil prices on the US real US 0.5 0.5 0.6 0.5 0.5GDP growth and consumer price inflation. The model Euro Area 0.5 0.2 0.4incorporates two lags on the quarterly annualized growthrates for each of these variables. The impulse response to Japan 0.3 0.3a one standard deviation shock to oil price growth shows Totalan immediate fall in real GDP growth by about -0.4 to - Developing0.5% while the consumer price inflation rise by about 0.4 countriesto 0.5%. The accumulated responses for GDP growth and Asia exinflation over a period of 10 quarters are -1.8% and 2.2%. 0.7 0.7 JapanThese results, when translated into $10 rise in oil prices,imply a reduction in real growth rate by about 0.2% Worldimmediately and 0.6% over a period of 10 quarters. Source: OECD, FRB, DB Global Markets ResearchInflation rises by 0.2% and 0.7% for a $10 rise in oil pricesduring the same periods.Page 8 Deutsche Bank Securities Inc.
  • 9. 3 March 2011 Global Economic PerspectivesEffects of mild and severe oil price have made the global economy less sensitive than inshocks the past. But the increasing importance of emerging market economies to the global GDP picture andUsing the consensus estimates in Tables 3A and B, we can their lower energy efficiency would have tended toconsider the possible effects of two alternative scenarios go the other way and increase sensitivity somewhat.involving disruption of Middle East oil supplies. The first isa mild disruption that entails holding the Brent price in therange of 110 to 115/brl for much of the year ahead. In this Peter Hooper, (+1) 212 250-7352case, we see US, Euro area and global growth slowing by Thomas Mayer, (49) 69 910 30800about 0.4 to 0.5% relative to our baseline forecast. Thesecond scenario entails a more severe disruption of output, Michael Spencer, (852) 2203 8305with unrest spreading meaningfully to Saudi Arabia and/orother major Middle Eastern producers by enough to push Torsten Slok, (+1) 212 250-2155the Brent oil price up to $150 per barrel until global growthresponds negatively. In this case, the hit to global growthwould be five times as large as in the mild shock case,enough to reduce global growth to near recession levels(less than 2%).Table 4. Impact of oil price shocks on GDP growth andinflation for year ahead Mild oil shock Severe oil shock Oil prices to stay at Oil prices reach $110/brl $150/brl GDP Inflation GDP InflationUS -0.35 0.5 -1.75 2.6Euro Area -0.5 0.4 -2.3 1.8Japan -0.3 0.3 -1.5 1.5TotalDeveloping -0.2 -1.0countriesAsia ex -0.8 0.7 -4.0 3.5JapanWorld -0.4 -2.0Source: DB Global Markets ResearchOur estimate that a 50% supply-induced oil price shockwould cut roughly 2 to 2.5% points off global growthallows for an interesting historical comparison withpast supply-induced shocks. Oil prices jumpednearly 200% in 1973-75, and global growth droppedby 6% points. In 1979-80, a 67% jump in oil pricesresulted in nearly a 4% point drop in olobal growth.Thus our current estimate is not too far out of linewith this earlier experience. Increases in energyefficiency and reduced dependence on oil per unit ofoutput, especially among industrial countries, wouldDeutsche Bank Securities Inc. Page 9
  • 10. 3 March 2011 Global Economic PerspectivesCentral Bank Watch Euroland We expect the ECB to leave policy rates unchanged at theUS next Council meeting on March 3. We expect moreThe Feds stated intention is to purchase $600 bn of hawkishness but also insistence that there is ““nolonger-term US Treasury securities by June under QE2. precommitment”” to hikes. In our opinion, the most likelyWe expect that intention to be fulfilled and not extended occasion for the first hike is June. We see May as thebeyond this commitment unless the economy takes a earliest possible date for a hike where we expect a moresignificant turn for the worse. The improving US definitive decision on March 3 is on the non-standardeconomic picture suggests that once QE2 terminates, the liquidity policies. Against the prevailing uncertainties (e.g.,Fed will likely turn next to ending the MBS rollover Spanish bank refinancing in the next few months, EFSFprogram later this summer or fall. It will likely also begin reforms, Irish and EU bank stress tests) we expect theto modify its "extended period" language sometime during ECB to leave the full allotment regime intact.that time frame, signaling that the initial rate hike will Current Mar11 Jun 11 Dec 11follow within several meetings. With economic news Refi rate 1.00 1.00 1.25 1.75improving, we see a good chance of an initial hike inpolicy rates occurring around the end of 2011--our US Key rates in the G3 countrieseconomics teams call has been for this December. Prior % K ey rates in th e G 3 co u n tries %to hiking rates, the Fed will most likely engage in reverse 7 BoJ 7repo operations and term deposits to reduce the liquidity 6 E C B refi F orecast 6 Fed Fundsof its liabilities. And it should begin to sell off some of its 5 5holdings of MBS and Treasury securities after it has begun 4 4to raise policy rates. How quickly it proceeds in raising 3 3rates and selling its holdings of longer-term assets will 2 2depend on how the markets and the economy are 1 1responding to this shift toward policy tightening. But onour current growth and inflation forecast, and the Fed’’s, 0 0 1999 2001 2003 2005 2007 2009 2011we think that tightening could proceed somewhat faster Source: DB Global Markets Research, Bloomberg Finance LPthan the market currently has priced in for 2012. Current Mar11 Jun11 Dec11 UKfed funds rate 0 - 0.25 0 - 0.25 0 - 0.25 0.50 The minutes of the last MPC meeting show that three ofJapan the nine committee members are now voting for rateHad there been a severe slump in the economy in 4Q hikes, with Andrew Sentence voting for 50bp; Adam2010 and 1Q 2011, the BoJ may have been forced to Posen continues to support additional QE. Among the fiveenact further monetary easing purely from the business members voting for the status quo, there are ““some””cycle viewpoint but it seems reasonable to consider that who worry about inflation developments but want to bethe decline in economic activity now assumed likely has sure the Q4 GDP contraction is an aberration beforeeffectively eliminated the possibility of further monetary taking action. Q1 GDP will be available by the time of theeasing. After a temporary increase in the current account May MPC meeting. We still see risks of a delay on thebalance of commercial banks with the BoJ (bank reserves) first hike until ¥22trn to satisfy year-end rise in demand for funds Current Mar11 Jun 11 Dec 11(Figure 12), we expect the bank reserves to settle at Bank rate 0.50 0.50 0.50 1.00around the ¥18trn level once again in January 2011.The SwedenBoJ started the purchase of ¥5trn worth of financial The Riksbank raised rates from 1.25% to 1.50% at itsassets proposed in the 5 October 2010 ““Comprehensive February meeting, as the market expected. The nextMonetary Easing”” (¥1.5trn long-term government meeting is on 20th April.securities, ¥2trn short-term Treasury bills, ¥500bnCPs,¥500bn corporate bonds, ¥450bn ETFs, and ¥50bn Current Mar11 Jun 11 Dec 11REITs) but we are not certain that the total amount will Repo rate 1.50 1.50 2.00 2.50definitely lead to an increase in BoJ total assets by thesame magnitude. Current Mar11 Sep11ON rate 0 - 0.10 0.10 0.10Page 10 Deutsche Bank Securities Inc.
  • 11. 3 March 2011 Global Economic Perspectives Current Mar11 Jun11 Dec11Central Bank Watch (continued) OC rate 4.75 4.75 5.00 5.50Switzerland New ZealandThe SNB left policy rates unchanged in December. While higher prices for energy, food and other raw materialsthe economy has performed better than expected, we see probably explain an increase in both the number of firmsthe franc continuing to limit the rise in core inflation. The intending to rise selling prices (up 4pts to +26) and a risenext meeting is on 17 March. in surveyed inflation expectations (up 0.18bps to 3.02%). Current Mar11 Jun 11 Dec 11 Whilst the latter will not be welcomed by the RBNZ, we3M Libor tgt 0.25 0.25 0.50 1.00 do not expect this to be an obstacle to an easing of the OCR when the Bank formally reviews policy settings onKey rates in the peripheral European countries 10 March. A rate hike could occur marginally earlier% Switzerland 3m interbank rate %7 UK repo rate 7 (perhaps in July) if the economy and/or underlying inflation Sweden repo rate Forecast strengthens considerably more than we presently expect6 6 or be delayed beyond September if the economy fails to5 5 gather pace over coming months. Whilst clearly not on4 4 the table at present, in the near term we think the only3 3 conceivable change is a wind-back of the rate hikes implemented last year should signs emerge that the2 2 economy is set to continue a sideways crawl of the1 1 second half of 2010 for a significant part of 2011.0 0 1999 2001 2003 2005 2007 2009 2011 Current Mar11 Jun11 Dec11Source: DB Global Markets Research, Bloomberg Finance LP OC rate 3.00 2.50 2.50 2.50Canada Key rates in the Peripheral $-blocThe Bank of Canada left its target for the overnight rate % Official interest rates (cash rates) %unchanged at 1% today as expected. Policy Rate 9 9 New Zealand Australia Canadaannouncement is considerably more dovish that we 8 8 7 7expected given the strong pattern of full time job growth 6 6over the past six months, the stronger than expected (by 5 5the Bank) growth of GDP in the fourth quarter of 2010 and 4 4the evidence of stronger inflationary expectations noted in 3 3the most recent BoC Business Outlook Survey. Looking 2 2forward, it is still possible that the Bank will begin to 1 Forecast 1tighten at its April 15 Policy Rate Announcement. 0 0However, the emphasis on downside risks in this Policy 1999 2001 2003 2005 2007 2009 2011 Source: DB Global Markets Research, Bloomberg Finance LPRate Announcement makes it unlikely it will do so. Thisbeing said, given sustained growth of US/global economic Chinaactivity, persisting strength of domestic demand in Chinas official CPI inflation came in at 4.9% yoy inCanada, a further intensification of domestic inflationary January, up from 4.6% in December but significantly below market and our expectations of 5.3-5.4%. Theexpectations and an abatement of concerns regarding the widely speculated reason for this lower-than-expectedrisk of an oil shock, it appears more likely that the Bank figure -- the government adjustment to the CPI weights --will adopt a more restrictive policy stance in late May. was incorrect. The main surprises were that the official Current Mar11 Jun11 Dec11 mom increase in food prices (at 2.8%) was significantlyON rate 1.00 1.00 1.50 2.25 lower than our expectation of 3.7% (based on 6.2% mom rise in the agriculture price index in January, as reportedAustralia by the Ministry of Agriculture), and that clothing prices fellWith a positive global and domestic backdrop, RBA views in Jan (which is difficult to explain, after a 86% rise inthe monetary stance in Australia as mildly restrictive and cotton prices last year). We believe that Feb food pricelook for inflation to be consistent with the 2-3% target inflation in the official CPI statistics will likely surprise onover the year aheadWe therefore see nothing in the the upside, as the pass-through from agriculture prices tostatement to suggest that the Bank is contemplating any processed food prices are being delayed. We maintain ournear-term change in policy. Hence, even though our year- annual average CPI inflation forecast of 5%, and continueend cash rate target of 5.50% is likely (in our assessment) to expect yoy inflation to peak in June (at 5.8%yoyto be at the relatively hawkish end of views, we continue according to our latest forecast, vs the previous 6%). Forto struggle to see the Bank tightening again before mid- the second half of this year, we expect CPI inflation to fallyear (i.e. June / July).Deutsche Bank Securities Inc. Page 11
  • 12. 3 March 2011 Global Economic Perspectives would complement the increase in interest rates, implyingCentral Bank Watch (continued) that they could help reduce the magnitude of the tightening cycle. We expect two additional 50bp hikes ingradually towards 4% at the end of the year. The key March and in April, although the sharp deterioration inassumptions behind this projection include a 3% inflation expectations has increased the likelihood of acumulative decline in mom food prices in March-May, a longer cycle.stable global oil price, a stable velocity of money, andlimited pass-through of raw materials and wage inflation Current Mar11 Jun11 Dec11to consumer prices. CBR refi rate 11.25 11.75 12.25 12.25 Current Mar11 Jun11 Dec11 Russia1-year rate 3.00 3.20 3.50 3.50 Most recently, the CBR declared that it would hike interest rates across the spectrum of its instruments ofIndia monetary policy. Starting from the last day of February,Stressing that ““inflation is clearly the dominant concern,”” the refinancing rate, the key benchmark rate of thethe Reserve Bank of India resumed monetary policy Russian money market, is be set at 8% - 25bps above itstightening in its January review, raising the repo and current value of 7.75%. Overnight deposit rates werereverse repo rates to 6.5% and 5.5%, respectively. Apart hiked 25bp from 2.75% to 3% and overnight credit ratesfrom elevated food and fuel inflation risks, the central reached sees emerging demand side risk to inflation as well. Separately, reserve requirements were raised on FridayThe output gap has been closing, wage growth is robust, from 3.5% to 4.5% in foreign currency and from 3% toand public social spending programs are boosting income 3.5% in local currency. We note that this is the secondof the rural poor. Given these risks, the central bank time (the first one was at the end of January), when therevised up its inflation forecast for March 2011 to 7% CBR raises reserve requirements in foreign currency(from 5.5%), lower than our projection of 8%. It also together with local currency reserve requirements. Werecognized that the risk to the forecast was to the upside. link these hawkish actions by the CBR with the still highCuriously, the RBI statement did not entertain the inflation inflation levels, which reached 2.4% in January and 0.7%trajectory beyond March. Incorporating the risks thus far in February.highlighted by the central bank, we see inflation remaining The high levels of inflation observed in February werearound 8% through the course of the year. [January observed despite the significant reduction in fuel prices,inflation print of 8.2% further reinforces our concerns]. which suggests that the in-built inflationary momentumThe RBI justified the rate hikes by arguing that the growth- remains substantial. Furthermore, we note that the CBRinflation balance of risk has tilted toward the opted to raise rates in spite of the disappointing growthintensification of inflation. We see the RBI remaining open figures for January, which suggests that inflation concernsto further rate hikes, especially as we see no major respite have taken on prime importance for the monetaryfrom inflation pressure in the coming months. The central also seems ready to allow for some growth to be As for inflation prospects later this year, Deutsche Banksacrificed, if necessary, in its fight on inflation. If the non- forecasts the oil prices to remain high in 2011, averagingcore to core price spillover begins, which seems rather at USD101/bbl for Brent. We think that with oil prices atlikely in our view, the central bank will have no choice but such a high level, the government’’s forecast (and theto act. We expect 100 more basis points in rate hikes CBR’’s target) of 6-7% CPI inflation in 2011 will be hardlyduring 2011. achievable. We currently forecast the inflation to reach Current Mar11 Sep11 Dec11 8.5% in 2011.Repo rate 6.50 6.75 7.50 7.50 Current Mar11 Sep11 Dec CBR refi rate 8.00 8.25 8.25 8.00Brazil Key rates in major emerging marketsThe Central Bank initiated a new tightening cycle in % B razil C hina India %January, raising the SELIC overnight rate by 50bp to 30 3011.25%. The increase in interest rates was inevitable 25 F orecast 25given the strength of domestic demand and sharp 20 20deterioration in inflation expectations. Market participantscurrently expect inflation to surpass the 4.5% target in 15 152011 and 2012. The official statement released by the 10 10Central Bank explained that the hike in the SELIC rate was 5 5the ““beginning of a process of adjustment,”” indicatingthat it planned to implement additional hikes. At the same 0 2002 2004 2006 2008 2010 0time, however, the Central Bank stated that ““macro- Source: DB Global Markets Research, Bloomberg Finance LPprudential measures”” (such as the increase in reserverequirements on bank deposits announced in December)Page 12 Deutsche Bank Securities Inc.
  • 13. 3 March 2011 Global Economic Perspectives G loba l c ent r a l ba nk polic y r a t e hikes s inc e S ept em ber 2008 Trough 2009 2010 2011 Total bps policy rate Aug Oct Nov Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb hikeIsrael 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 200Australia 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 175Norway 1.25% 1.50% 1.75% 2.00% 75Vietnam 7.00% 8.00% 9.00% 11.00% 400Malaysia 2.00% 2.25% 2.50% 2.75% 75India 4.75% 5.00% 5.25% 5.75% 6.00% 6.25% 6.50% 175Brazil 8.75% 9.50% 10.25% 10.75% 11.25% 250Peru 1.25% 1.50% 1.75% 2.00% 2.50% 3.00% 3.25% 3.50% 225Canada 0.25% 0.50% 0.75% 1.00% 75Chile 0.50% 1.00% 1.50% 2.00% 2.50% 2.75% 3.00% 3.25% 3.50% 300New Zealand 2.50% 2.75% 3.00% 50Taiwan 1.25% 1.38% 1.50% 1.63% 38Sweden 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 125S Korea 2.00% 2.25% 2.50% 2.75% 75Thailand 1.25% 1.50% 1.75% 2.00% 2.25% 100Serbia 8.00% 8.50% 9.00% 9.50% 10.50% 11.50% 12.00% 400Uruguay 6.25% 6.50% 25Nigeria 6.00% 6.25% 6.50% 50China 2.25% 2.50% 2.75% 3.00% 75Hungary 5.25% 5.50% 5.75% 6.00% 75Poland 3.50% 3.75% 25Indonesia 6.50% 6.75% 25Colombia 3.00% 3.25% 25Russia 7.75% 8.00% 25Note: Reserve Bank of India hiked twice in July, each by 25bpsDeutsche Bank Securities Inc. Page 13
  • 14. 3 March 2011 Global Economic PerspectivesGlobal data monitor: Recent developments and near-term forecasts B’’bergcode Q1-10 Q2-10 Q3-10 Q4-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11OECD leading indicators(6M change, %, ann.)OECD 10.1 8.2 4.1 1.4 2.0 1.4 0.9US OLEDUSA 11.2 9.9 5.3 2.5 3.2 2.5 1.9Euro area OLEDEU12 9.6 6.9 2.4 -0.4 0.3 -0.4 -0.9Japan OLEDJAPN 7.4 7.6 4.7 2.5 3.0 2.4 2.0China OLEDCHIN 23.7 17.6 12.4 10.8 11.2 10.8 10.3India OLEDINDI 14.8 11.4 8.9 6.5 7.4 6.5 5.7Russia OLEDRUSS 15.9 14.4 10.6 8.8 9.1 8.8 8.5Brazil OLEDBRAZ 20.8 13.3 5.5 2.7 3.2 2.6 2.4Purchasing manager indicesGlobal (manufacturing) 56.0 56.4 54.3 55.4 54.9 55.2 56.2 57.4US (manufacturing ISM) NAPMPMI 58.6 57.6 55.2 57.9 56.9 58.2 58.5 60.8 62.0Euro area (composite) 54.4 56.6 55.7 55.0 53.8 55.5 55.5 57.0 58.4 fJapan (manufacturing) SEASPMI 52.5 54.1 50.8 47.6 47.2 47.3 48.3 51.4 52.9China (manufacturing) EC11CHPM 56.7 52.8 51.4 54.8 54.8 55.3 54.4 54.5 51.7India (manufacturing) 58.0 57.8 56.6 57.4 57.2 58.4 56.7 56.8 57.9Russia (manufacturing) 50.4 52.2 52.3 52.2 51.8 51.1 53.5 53.5 55.2Other business surveysUS dur. goods orders (%pop1) DGNOCHNG 1.8 0.7 1.8 -1.2 -3.1 -0.1 -0.4 2.7Japanese Tankan (LI) JNTSMFG -14.0 1.0 8.0 5.0Euro area EC sentiment EUESEMU 96.4 99.1 102.2 105.6 104.3 105.6 106.9 106.8 107.8Industrial production (%pop1)US IP CHNG 7.2 7.1 6.4 3.0 -0.1 0.3 1.2 -0.1 0.6Euro area EUITEMUM 9.8 9.9 4.4 6.9 0.8 1.4 -0.1Japan JNIPMOM 30.9 6.2 -7.1 -6.1 -2.0 1.0 3.3 2.4Retail sales (%pop1)US RSTAMOM 8.9 5.0 3.3 13.7 1.6 0.8 0.5 0.3 1.0Euro area RSSAEMUM 1.9 0.1 1.4 -1.7 0.0 -0.1 -0.6Japan (household spending) 1.5 -6.4 6.0 -6.3 -0.8 0.2 -2.4 1.0Labour marketUS non-farm payrolls2 NFP TCH 39 181 -46 128 171 93 121 36 250Euro area unemployment (%) UMRTEMU 9.9 10.0 10.0 10.0 10.1 10.0 10.0 9.9Japanese unemployment (%) JNUE 5.1 5.1 5.0 5.0 5.1 5.1 4.9 4.9CP inflation (%yoy)US CPICHNG 2.4 1.8 1.2 1.3 1.2 1.1 1.5 1.6Euro area ECCPEMUY 1.1 1.6 1.7 2.0 1.9 1.9 2.2 2.3 2.5Japan JNCPIYOY -1.2 -0.9 -0.8 0.1 0.2 0.1 0.0 0.0China CNCPIYOY 2.1 2.7 3.3 4.7 4.3 5.2 4.8 5.1India 9.4 10.6 9.3 8.3 8.7 8.1 8.3 8.1Russia RUCPIYOY 7.2 5.9 6.1 8.1 7.5 8.1 8.8 9.6Brazil 4.9 5.1 4.6 5.6 5.2 5.6 5.9 6.0Current account (USD bn)3US (trade balance, g+s) USTBTOT -38.0 -44.2 -44.7 -39.1 -38.3 -38.3 -40.6 -41.0Euro area -0.8 -2.8 -6.2 -15.1 -13.3 -14.3 -17.6Japan 17.1 13.7 17.2 16.8 17.9 13.9 18.7China (trade in goods) 11.1 15.9 19.3 14.2 15.0 13.7 13.9 5.4Russia (trade in goods) 16.0 12.7 9.5 13.1 11.5 12.7 15.0Other indicatorsOil prices (Brent, USD/b) EUCRBRDT 76.3 78.3 77.6 87.2 83.7 85.9 92.1 97.7 103.1FX reserves China (USD bn) CNGFOREX 2447.1 2454.3 2648.3 2847.3 2760.9 2767.8 2847.3 Quarterly data in shaded areas are quarter-to-date. Monthly data in the shaded areas are forecasts. (1) % pop = % change this period over previous period. Quarter on quarter growth rates is annualised. (2) pop change in ‘‘000, quarterly data are averages of monthly changes. (3) Quarterly data are averages of monthly balances. (4) ‘‘f’’ stands for flash estimate. Sources: Bloomberg Finance LP, Reuters, Eurostat, European Commission, OECD, Bank of Japan, National statistical offices.Page 14 Deutsche Bank Securities Inc.
  • 15. 3 March 2011 Global Economic PerspectivesCharts of the WeekChart 1. In the US, optimism was seen in consumer Chart 2. ……while the core inflation pulse rose from 2010expectations... lows Index University of Michigan consumer expectations and PCE % yoy 5.0 % US core PCE deflator110 6.0 4.0 5.0100 4.0 3.0 90 3.0 2.0 80 2.0 1.0 70 1.0 0.0 0.0 60 UoM expectations (ls) -1.0 3 month, saar Real PCE (rs) -1.0 6 month, saar 50 yoy -2.0 40 -3.0 -2.0 1997 1999 2001 2003 2005 2007 2009 2011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: UoM, BEA, DB Global Markets Research Source: BEA, DB Global Markets ResearchChart 3. In Euro zone, core inflation remain contained in Chart 4. ……however, the private sector bank loan growthJanuary…… recovered % yoy Euro zone inflation % yoy Euro zone M3 and private sector loan growth 5.0 15 Headline CPI Private sector bank loans 4.0 12 M3 growth Core CPI 3.0 9 2.0 6 1.0 3 0.0 0 -1.0 -3 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: Eurostat, DB Global Markets Research Source: ECB, DB Global Markets ResearchChart 5. In the UK, CBI retailer survey plunged in Chart 6. ……while in China manufacturing PMI dippedFebruary…… further UK CBI retail survey and retail sales % yoy China PMI and industrial production IndexNet respondents % yoy100 10 25 65 IP (ls) PMI (rs) 80 8 60 20 60 6 55 40 4 15 20 2 50 0 0 10 45 -20 -2 CBI retail survey (ls) 5 40 -40 Retail sales, volume (rs) -4 -60 -6 0 35 1997 1999 2001 2003 2005 2007 2009 2011 2005 2006 2007 2008 2009 2010Source: CBI, ONS, DB Global Markets Research Source: NBS, CFL, DB Global Markets ResearchDeutsche Bank Securities Inc. Page 15
  • 16. 3 March 2011 Global Economic PerspectivesGlobal Week Ahead: Thursday, Thursday, 3 March –– Wednesday, 9 March• Dollar Bloc: In the US, markets will keenly watch the February employment report –– we envisage unemployment rate to come down to 8.9%. The January factory orders number should accelerate. Besides, non-farm productivity, labour costs, consumer credit and non- mfg ISM and consumer credit numbers are also due this week. In Australia, January’’s trade balance report is releasing this week –– we project a surplus of AUD 1.5bn. In Canada, housing starts is the most important data release. In New Zealand, the RBNZ will announce its official cash rate decision on Wednesday. Data-wise, we have manufacturing activity index for Q4.• Europe: In the Eurozone, focus will be on the ECB rate setting meeting –– we believe the ECB to keep rates unchanged. Data- wise, we will get services PMI from across the board. The release of area-wide Q4 GDP along with German and Spanish IP figures should tell us about the activity level in the region, while Euroarea and German retail sales will capture the consumption trends. Elsewhere, German factory orders, French trade balance and Italian PPI data are scheduled for release. In the UK, trade balance and services PMI data are the most important release. In Switzerland, we will get retail sales and unemployment rate figures. In Scandinavia, the week will see the release of IP data from across the region. Asia incl. Japan: In Japan, all eyes will be on the final estimate of Q4 GDP data. Besides, we will also monitor the money supply and trade balance figures. Country GMT Release DB Expected Consensus Previous Thursday, 3 MarchAUSTRALIA 00:30 Dwelling approvals (Jan) -5.5% -3.3% (-6.6%) 8.7% (-5.0%)AUSTRALIA 00:30 Intl. trade in G and S (Jan) AUD1.5bn AUD1.6bn AUD2.0bnGERMANY 07:00 Retail sales (Jan) 0.5% (1.7%) -0.3% (-1.3%)SLOVAKIA 08:00 GDP(final) (Q4) (3.5%) (3.8%)TURKEY 08:00 CPI (Feb) 0.7% 0.8% (4.2%) 0.4% (4.9%)SWITZERLAND 08:15 Adjusted real retail sales (Jan) (-0.8%)SPAIN 08:15 PMI services (Feb) 49.8 49.3ITALY 08:45 PMI services (Feb) 51.0 51.1 49.9FRANCE 08:50 PMI services (Feb) 60.8 60.8 57.8GERMANY 08:55 PMI services (Feb) 59.5 59.5 60.3EUROLAND 09:00 PMI services (Feb) 57.2 55.9EUROLAND 09:00 PMI composite (Feb) 58.4 57.0ITALY 09:00 PPI (Jan) 0.9% (4.6%) 0.6% (4.6%)UK 09:30 PMI services (Feb) 53.5 53.7 54.5EUROLAND 10:00 Retail sales (Jan) 0.3% (0.0%) -0.6% (-0.9%)EUROLAND 10:00 GDP first estimate (Q4) 0.3% (2.0%) 0.3% (1.9%)BRAZIL 12:00 GDP IBGE (Q4) 0.9% (5.5%) 0.8% (5.2%) 0.5% (6.7%)EUROLAND 12:45 ECB rate decision (Mar) 1.00% 1.00%US 13:30 Initial jobless claims (Feb 26) 395.0k 391.0kUS 13:30 Productivity (Q4) 2.1% 2.3% 2.3% (2.5%)US 13:30 Unit labor costs (Q4) -0.2% -0.5% -0.1% (-1.1%)US 15:00 ISM non-mfg (Feb) 59.5 59.4 59.4Events and Meetings: US: Fed’’s Bernanke to hold speech in New York –– 01:00 GMT. SWITZERLAND: SNB’’s Jordan to hold speech inBern –– 08:30 GMT. EUROLAND: ECB to hold Governing Council meeting, interest rate announcement scheduled –– 12:45 GMT; newsconference by Trichet to follow at 13:30 GMT. EUROLAND: ECB’’s Mersch to hold speech in Frankfurt –– 14:45 GMT. US: Fed’’sKocherlakota to hold speech in Minnesota –– 16:00 GMT. US: Fed’’s Lockhart to hold speech in Tallahassee –– 17:15 GMT. Friday, 4 MarchSPAIN 08:00 Industrial production (Jan) (1.2%) (0.5%) (-0.1%)BRAZIL 12:00 IBGE inflation IPCA (Feb) 0.9% (6.1%) 0.8% (6.0%) 0.8% (6.0%)US 13:30 Avg hourly earning (Feb) 0.3% 0.2% (1.9%) 0.4% (1.9%)US 13:30 Avg workweek (Feb) 34.4hours 34.3hours 34.2hoursUS 13:30 Index of agg hours (Feb) -0.3% (1.4%)US 13:30 Payrolls (Feb) 250.0k 190.0k 36.0kUS 13:30 Unemployment rate (Feb) 8.9% 9.1% 9.0%US 15:00 Factory orders (Jan) 4.0% 2.0% 0.2% (8.1%)MEXICO 15:00 Overnight rate (Mar) 4.50% 4.50% 4.50%Page 16 Deutsche Bank Securities Inc.
  • 17. 3 March 2011 Global Economic Perspectives Country GMT Release DB Expected Consensus Previous Friday, 4 March (continued)Events and Meetings: GERMANY: German Chancellor Merkel to hold speech in Helsinki. EUROLAND: ECB’’s Noyer (07:45 GMT &17:10 GMT), Weber (08:00 GMT), Draghi (10:15 GMT), Bini Smaghi (10:15 GMT) and Orphanides (13:00 GMT) to hold speech in Paris.EUROLAND: ECB’’s Gonzalez Paramo to hold speech in Cape Town –– 10:50 GMT. MEXICO: Central Bank of Mexico to announceovernight rate –– 15:00 GMT. US: Fed’’s Yellen to hold speech in Paris –– 15:00 GMT Monday, 7 MarchJAPAN 05:00 Leading economic index (Jan) 70.0JAPAN 05:00 Coincident index (Jan) 50.0DENMARK 08:30 Industrial production (Jan) -1.1%NORWAY 09:00 Industrial production (Jan) 0.9% (-2.7%)CHILE 11:30 Economic activity (Jan) (5.8%) (5.7%)CANADA 13:30 Building permits (Jan) 2.4%US 20:00 Consumer credit (Jan) USD5.0bn USD4.0bn USD6.1bnNEW ZEALAND 21:45 Manufacturing activity (Q4) 1.3%JAPAN 23:50 BoP trade balance (Jan) JPY699.5bnJAPAN 23:50 Money supply M2 and CDS (Feb) (2.3%)Events and Meetings: EUROLAND: ECB’’s Trichet to hold speech in Basel –– 11:30 GMT. US: Fed’’s Lockhart to hold speech in Virginia ––13:00 GMT. US: Fed’’s Fisher to hold speech in Washington –– 14:15 GMT. Tuesday, 8 MarchSWITZERLAND 06:45 Unemployment rate (Feb) 3.8%FRANCE 07:45 Trade balance (Jan) -EUR5.0bnSLOVAKIA 08:00 Industrial production (Jan) (19.7%)TURKEY 08:00 Industrial production (Jan) (16.9%)CZECH 08:00 Unemployment rate (Feb) 9.7%GERMANY 11:00 Factory orders (Jan) -3.4% (19.7%)GERMANY 11:00 Domestic factory orders (Jan) -2.4% (14.2%)GERMANY 11:00 Foreign factory orders (Jan) -4.2% (24.3%)CANADA 13:15 Housing starts (Feb) 170.4kEvents and meetings: No significant events scheduled. Wednesday, 9 MarchSWEDEN 08:30 Industrial production (Jan) -2.1% (10.0%)CZECH 09:00 CPI (Feb) 0.7% (1.7%)UK 09:30 Trade balance non EU25 (Jan) -GBP5.4bn -GBP5.8bnUK 09:30 Visible trade balance (Jan) -GBP9.0bn -GBP9.3bnMEXICO 15:00 CPI (Feb) 0.5% (3.8%)US 15:00 Wholesale inventories (Jan) 0.8% 1.0% 1.0% (10.5%)NEW ZEALAND 20:00 RBNZ official cash rate (Mar) 2.88% 3.00%JAPAN 23:50 Real GDP (annualised) (Q4) 4.5%JAPAN 23:50 Real GDP (Q4) 1.1%JAPAN 23:50 GDP deflator (Q4) (-2.4%)Events and meetings: AUSTRALIA: Reserve Bank of Australia’’s Stevens to hold speech in London –– 10:00 GMT. NEW ZEALAND:Reserve Bank of New Zealand to announce official cash rate –– 20:00 GMT.Source: Australian Bureau of Statistics; Bank of Canada; Bank of Japan; BEA; BLS; Bundesbank; Bureau of Labor Statistics, U.S.Department of Labor; Cabinet Office, Government of Japan; ECB; Eurostat; Indian Central Statistical Organization; INE; INSEE; ISTAT;ISTAT.IT; Ministry of Finance japan; National Association of Realtors; National Bureau of Statistics; National Statistics Office; OECD -Composite Leading Indicator; Peoples Bank of China; Reserve Bank of Australia; Reserve Bank of New Zealand; Statistics Canada; StatisticsNetherlands; Statistics of New Zealand; U.S. Census Bureau; U.S. Department of Labor, Employment & Training Administration; U.S.Department of the Treasury; U.S. Federal Reserve.Note: Unless otherwise indicated, numbers without parenthesis are either % month-on-month or % quarter-on-quarter, depending on thefrequency of release, while numbers in parenthesis are % year-on-year. * on the release time means indicative release time. * on indicatorname means indicative/earliest release date.Deutsche Bank Securities Inc. Page 17
  • 18. 3 March 2011 Global Economic Perspectives Financial Forecasts US Jpn Euro UK Swe* Swiss* Can* Aus* NZ* 3M Interest Actual 0.31 0.34 1.05 0.80 1.50 0.25 1.00 4.75 3.00 Rates1 Mar11 0.30 0.35 1.10 0.80 1.50 0.25 1.00 4.75 2.50 DB forecasts futures 0.32 0.34 1.15 0.84 --- --- --- --- --- & Futures Jun11 0.30 0.30 1.40 0.90 2.00 0.50 1.50 5.00 2.50 futures 0.36 0.35 1.45 1.10 --- --- --- --- --- Dec11 0.75 0.30 2.00 1.40 2.50 1.00 2.25 5.50 2.50 futures 0.62 0.38 1.93 1.59 --- --- --- --- --- 10Y Gov’’t2 Actual 3.44 1.29 3.17 3.60 3.26 1.68 3.03 5.45 5.14 Bond Mar11 3.50 1.30 3.40 3.70 3.30 2.00 3.50 5.75 5.50 Yields/ futures 3.57 1.35 3.26 3.71 --- --- --- --- --- Spreads3 Jun11 4.00 1.30 3.60 3.80 3.55 2.25 3.50 5.50 5.25 DB forecasts futures 3.70 1.40 3.34 3.81 --- --- --- --- --- & Forwards Dec11 4.00 1.40 4.00 4.00 4.05 2.75 3.50 5.00 5.00 futures 3.91 1.49 3.46 3.96 --- --- --- --- --- EUR/ USD/ EUR/ GBP/ EUR/ EUR/ CAD/ AUD/ NZD/ USD JPY GBP USD SEK CHF USD USD USD Exchange Actual 1.38 82.1 0.85 1.63 8.73 1.29 0.97 1.02 0.75 Rates 3M 1.35 80.0 0.86 1.57 8.50 1.29 1.00 0.95 0.70 6M 1.40 75.0 0.86 1.63 8.20 1.35 1.00 0.90 0.68 12M 1.30 78.0 0.84 1.55 8.00 1.37 1.05 0.85 0.67 (1) Future rates calculated from the March, June and December 3M contracts. Forecasts are for the same dates. * indicates policy interest rates. (2) Forecasts in this table are produced by the regional fixed income strategists. Forwards estimated from the asset swap curve for 2Y and 10Y yields. (3)Bond yield spreads are versus Euroland. Sources: Bloomberg Finance LP, DB Global Markets Research. Revised forecasts in bold type. All current rates taken as at Tuesday 11:00 GMT.US 10Y rates Euroland 10Y rates 6.0 US government bond yields, % 5.0 6.0 Euro government bond yields, % 2.5 4.0 5.0 2.0 5.0 3.0 1.5 4.0 4.0 1.0 2.0 3.0 3.0 0.5 1.0 2.0 10Y 10Y 0.0 2.0 0.0 2Y/10Y spread (rhs) 2Y/10Y spread (rhs) 1.0 -0.5 1.0 -1.0 1/1/2002 1/1/2004 1/1/2006 1/1/2008 1/1/2010 1/1/2002 1/1/2004 1/1/2006 1/1/2008 1/1/2010Source: DB Global Markets Research, Bloomberg Finance LP Source: DB Global Markets Research, Bloomberg Finance LP Japan 10Y rates UK 10Y rates 2.5 Japan government bond yields, % 2.0 2.0 1.5 1.5 1.0 1.0 10Y 0.5 2Y/10Y spread (rhs) 0.5 0.0 1/1/2002 1/1/2004 1/1/2006 1/1/2008 1/1/2010 Source DB Global Markets Research, Bloomberg Finance LP Source: DB Global Markets Research, Bloomberg Finance LPPage 18 Deutsche Bank Securities Inc.
  • 19. 3 March 2011 Global Economic PerspectivesMain Deutsche Bank Global Economics PublicationsGlobal Dbdaily –– European Edition (daily) Dbdaily –– Asian Edition (daily) Dbdaily –– Pacific Edition (daily) Global Economics Perspectives (weekly) The World Outlook (quarterly) Global Macro Issues (occasional paper series) Credit impulse: Lessons from the Great Depression (13 March 2009) The impact of credit on growth (19 November 2008) Commodities: Falling off their peak (31 July 2008) How far could US Home Prices Fall? (Oct 5, 2007) Why Hasn’’t Homebuilding Employment Dropped? (July 10, 2007) Is Emerging Asia Holding Down US Inflation (Feb 26, 2007) Evolution in Bretton-Woods II: Controlled Reflation as the Path of Least Resistance (Dec 7, 2006) US Trend Employment Growth Has Fallen To 100,000 Per Month (Dec 6, 2006) Understanding MEW and How It Is Spent (Nov 17, 2006) Financial system modernisation and economic growth in Europe: Financial markets as risk managers for the economy (Oct 27, 2006) Housing and the US Consumer: What Foreign Experience Has to Say (Oct 16, 2006) The Transatlantic Productivity Divide: Reasons and Consequences (Oct 13, 2006)US US Daily Economic Notes (daily) US Economics and Strategy Weekly (weekly)Europe Europe Inflation Report (weekly) Focus Europe (weekly)Japan Japan Economics Weekly (weekly)EmergingMarkets Emerging Markets Daily –– European Edition (daily) Emerging Markets Daily –– Asian Edition (daily) Emerging Markets Daily –– US Edition (daily) EM Event Radar (weekly) EM Monetary Policy Rate Calls (monthly) Emerging Markets Monthly (monthly) EM Balance of Payment Monitor (quarterly) Emerging Markets Special Publications (occasional series)Dollar Bloc Dollar Bloc Weekly (weekly) Australian Economics Monthly (monthly)Asia Asia Economics Daily (daily) Asia Economics Monthly (monthly) Real Exchange Rate Monitor (monthly)Deutsche Bank Securities Inc. Page 19
  • 20. 3 March 2011 Global Economic PerspectivesAppendix 1Important DisclosuresAdditional information available upon requestFor disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please seethe most recently published company report or visit our global disclosure look-up page on our website at CertificationThe views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, theundersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view inthis report. Peter HooperDeutsche Bank debt rating keyCreditBuy (““C-B””): The total return of the ReferenceCredit Instrument (bond or CDS) is expected tooutperform the credit spread of bonds / CDS of otherissuers operating in similar sectors or rating categoriesover the next six months.CreditHold (““C-H””): The credit spread of theReference Credit Instrument (bond or CDS) is expectedto perform in line with the credit spread of bonds / CDSof other issuers operating in similar sectors or ratingcategories over the next six months.CreditSell (““C-S””): The credit spread of the ReferenceCredit Instrument (bond or CDS) is expected tounderperform the credit spread of bonds / CDS of otherissuers operating in similar sectors or rating categoriesover the next six months.CreditNoRec (““C-NR””): We have not assigned arecommendation to this issuer. Any references tovaluation are based on an issuer’’s credit rating.Reference Credit Instrument (““RCI””): The ReferenceCredit Instrument for each issuer is selected by theanalyst as the most appropriate valuation benchmark(whether bonds or Credit Default Swaps) and is detailedin this report. Recommendations on other creditinstruments of an issuer may differ from therecommendation on the Reference Credit Instrumentbased on an assessment of value relative to theReference Credit Instrument which might take intoaccount other factors such as differing covenantlanguage, coupon steps, liquidity and maturity. TheReference Credit Instrument is subject to change, at thediscretion of the analyst.Page 20 Deutsche Bank Securities Inc.
  • 21. 3 March 2011 Global Economic PerspectivesRegulatory Disclosures1. Important Additional Conflict DisclosuresAside from within this report, important conflict disclosures can also be found at under the"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.2. Short-Term Trade IdeasDeutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistentor inconsistent with Deutsche Banks existing longer term ratings. These trade ideas can be found at the SOLAR link at Country-Specific DisclosuresAustralia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the AustralianCorporations Act.EU countries: Disclosures relating to our obligations under MiFiD can be found at Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registrationnumber - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Memberof associations: JSDA, The Financial Futures Association of Japan. This report is not meant to solicit the purchase of specificfinancial instruments or related services. We may charge commissions and fees for certain categories of investment advice,products and services. Recommended investment strategies, products and services carry the risk of losses to principal andother losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Before deciding on thepurchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and otherdocumentation. "Moodys", "Standard & Poors", and "Fitch" mentioned in this report are not registered as rating agency in Japanunless specifically indicated as Japan entities of such rating agencies.Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may from timeto time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank may engage intransactions in a manner inconsistent with the views discussed herein.New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of theNew Zealand Securities Market Act 1988.Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, anyappraisal or evaluation activity requiring a license in the Russian Federation.Risks to Fixed Income PositionsMacroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to payfixed or variable interest rates. For an investor that is long fixed rate instruments (thus receiving these cash flows), increases ininterest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturityof a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation,fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. Butcounterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits fordifferent types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion,repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are alsoimportant risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigatedby indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates –– these are common inemerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move inthe underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swapsmarkets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) areexchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency inwhich the coupons to be received are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the riskstypical to options in addition to the risks related to rates movements.Deutsche Bank Securities Inc. Page 21
  • 22. David Folkerts-Landau Managing Director Global Head of Research Stuart Parkinson Marcel Cassard Associate Director Global Head Company Research Fixed Income Research Europe Asia-Pacific Germany Americas Guy Ashton Fergus Lynch Andreas Neubauer Steve Pollard Regional Head Regional Head Regional Head Regional HeadPrincipal LocationsDeutsche Bank AG Deutsche Bank AG Deutsche Bank AG Deutsche Securities Inc.London New York Hong Kong Japan1 Great Winchester Street 60 Wall Street Filiale Hongkong 2-11-1 NagatachoLondon EC2N 2EQ New York, NY 10005 Intl. Commerce Centre, Sanno Park TowerTel: (44) 20 7545 8000 United States of America 1 Austin Road West,Kowloon, Chiyoda-ku, Tokyo 100-6171 Tel: (1) 212 250-2500 Hong Kong Tel: (81) 3 5156 6770 tel: (852) 2203 8888Deutsche Bank AG Deutsche Bank AG Deutsche Bank AG Deutsche Bank AGFrankfurt Aurora business park Singapore AustraliaGroße Gallusstraße 10-14 82 bld.2 Sadovnicheskaya street One Raffles Quay Deutsche Bank Place, Level 1660272 Frankfurt am Main Moscow, 115035 South Tower Corner of Hunter & Phillip StreetsGermany Russia Singapore 048583 Sydney NSW 2000Tel: (49) 69 910 00 Tel: (7) 495 797-5000 Tel: (65) 6423 8001 Tel: (61) 2 8258 1234Deutsche Bank DubaiDubai International Financial CentreThe Gate, West Wing, Level 3P.O. Box 504 902Dubai CityTel: (971) 4 3611 700Subscribers to research via emailreceive their electronic Global Disclaimerpublication on average 1-2 The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The informationworking days earlier than the herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.printed version. Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this researchIf you would like to receive this report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report.or any other product via email Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarilyplease contact your usual reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this reportDeutsche Bank representative. or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecisePublication Address: and a product of the analyst judgement.Deutsche Bank AG London As a result of Deutsche Bank’’s recent acquisition of BHF-Bank AG, a security may be covered by more than one analyst within the Deutsche Bank group.1 Great Winchester Street Each of these analysts may use differing methodologies to value the security; as a result, the recommendations may differ and the price targets andLondon EC2N 2EQ estimates of each may vary widely.United Kingdom Deutsche Bank has instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for "Hold" rated stocks having a market cap smaller than most other companies in its sector or region. We(44) 20 7545 8000 believe that such policy will allow us to make best use of our resources. Please visit our website at to determine the target price of any stock.Internet: The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investors currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results.Ask your usual contact for a Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report inusername and password. deciding to trade on a proprietary basis. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investors home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Banks prior written consent. Please cite source when quoting. Copyright © 2011 Deutsche Bank AGGRCM2011PROD021396