Global outlook q1 2013

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Global outlook q1 2013

  1. 1. Sent to print 21 November 2012 November 2012 Global Outlook www.GlobalMarkets.bnpparibas.com Global Outlook Summary tables 2 Summary: Looking for the recovery 4 Risk scenarios 6 US rates: Medium-term forecasts 10 Eurozone rates: Medium-term forecasts 11 US: Avoiding the cliff 12 Eurozone: Slow road to recovery 14 Japan: Anaemic recovery from Q1 16 China: Green shoots 18 Eurozone countries Germany: Temporary struggle 20 France: Rough seas 22 Italy: Headwinds softening 24 Spain: Recession deepening 26 Netherlands: Pruning for health 28 Belgium: Resilience waning 29 Austria: A wait-and-see attitude 30 Portugal: Not much room left 31 Finland: A narrow escape 32 Ireland: Green streak 33 Greece: Never-ending story 34 Other Europe Denmark: Recovery elusive 35 UK: Triple dipper? 36 Sweden: Slowing 38 Norway: Holding up 40 Switzerland: Growing from within 42 CEEMEA Saudi Arabia: Oil output slowing 43 United Arab Emirates: Food-driven inflation 44 Qatar: Inflation pressures rising 45 Russia: Gradual slowdown 46 Ukraine: Hard landing 48 Poland: Sharp rate cuts ahead 50 Hungary: Stagflation for longer 52 Czech Republic: At the zero bound 54 Turkey: Investment worthy 56 South Africa: Weaker growth 58 Asia Pacific Australia: Shocking stuff 60 India: Delhi deadlock eases 62 South Korea: Low rates 64 Indonesia: Under pressure 66 Taiwan: Forecast table 67 Other Asia: Forecast tables 68 The Americas Canada: Waiting to exhale 69 Brazil: Take a hike 70 Mexico: Still in a sweet spot 72 Colombia: Will get better, later 74 Chile: Rate hikes likely in 2013 75 Argentina: Growth recovery ahead? 76 Peru: As the world turns (faster) 77 Venezuela: Deteriorating outlook 78 Commodities 79 Long-term economic forecasts 80 Contacts 84 Disclaimer Inside back cover
  2. 2. Market Economics November 2012 Global Outlook 2 www.GlobalMarkets.bnpparibas.com Summary table 1: Economic and financial forecasts GDP (% y/y) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) World (2) 5.1 3.9 3.1 3.4 3.8 3.6 3.4 3.1 2.9 2.8 3.0 3.2 3.5 US 2.4 1.8 2.1 2.0 2.8 2.4 2.1 2.3 1.5 1.5 1.8 2.0 2.5 Eurozone 1.9 1.5 -0.4 -0.4 1.0 0.0 -0.4 -0.6 -0.7 -0.8 -0.6 -0.4 0.2 Japan 4.5 -0.7 1.7 0.2 0.0 2.9 3.3 0.1 0.4 -0.7 -0.4 0.8 1.2 China 10.4 9.3 7.7 8.3 7.8 8.1 7.6 7.4 7.6 8.1 8.4 8.7 8.0 Industrial production (% y/y) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) US 5.4 4.1 3.7 3.2 4.8 4.4 4.8 3.2 2.4 1.8 2.4 3.8 4.7 Eurozone -1.5 3.5 -1.6 0.8 2.5 -1.6 -2.2 -2.0 -0.5 0.1 0.8 0.5 1.6 Japan 16.5 -2.4 -1.2 -1.5 -0.2 4.7 5.3 -4.6 -9.0 -8.7 -5.1 0.9 7.6 China 15.7 13.9 10.0 11.4 10.6 11.6 9.5 9.1 10.0 10.8 11.8 12.6 11.3 Unemployment rate (%) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) US 9.6 9.0 8.1 7.8 7.4 8.3 8.2 8.1 7.9 7.9 7.8 7.7 7.6 Eurozone 10.1 10.2 11.4 12.6 12.8 10.9 11.3 11.5 11.9 12.2 12.5 12.8 13.0 Japan 5.1 4.6 4.3 4.2 4.2 4.5 4.4 4.3 4.2 4.3 4.2 4.2 4.2 CPI (% y/y) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) US 1.6 3.2 2.2 2.4 2.3 2.8 1.9 1.7 2.3 2.2 2.7 2.5 2.2 Eurozone 1.6 2.7 2.5 1.8 1.5 2.7 2.5 2.5 2.4 2.0 1.7 1.8 1.7 Japan -0.7 -0.3 0.0 -0.1 1.0 0.3 0.2 -0.4 -0.1 -0.6 -0.3 0.3 0.3 China 3.3 5.4 2.7 3.6 3.5 3.8 2.9 1.9 2.3 3.2 3.5 3.6 4.0 Interest rates (3) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) US Fed funds rate (%) 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 3-month rate (%) 0.30 0.58 0.40 0.40 0.50 0.31 0.46 0.36 0.40 0.40 0.40 0.40 0.40 10-year rate (%) 3.29 1.88 1.75 2.40 2.80 2.21 1.64 1.63 1.75 1.75 2.00 2.20 2.40 Eurozone Refinancing rate 1.00 1.00 0.75 0.75 0.75 1.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 3-month rate (%) 1.01 1.36 0.20 0.20 0.50 0.78 0.65 0.22 0.20 0.20 0.20 0.20 0.20 10-year rate (%) (4) 2.96 1.83 1.25 1.75 2.35 1.81 1.60 1.44 1.25 1.20 1.30 1.50 1.75 Japan O/N call rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 3-month rate (%) 0.34 0.33 0.30 0.25 0.25 0.32 0.33 0.33 0.30 0.30 0.30 0.25 0.25 10-year rate (%) 1.12 0.99 0.75 0.85 0.95 0.99 0.84 0.77 0.75 0.75 0.80 0.80 0.85 China Official interest rate (%) 5.81 6.56 6.00 6.00 6.25 6.56 6.00 6.00 6.00 6.00 6.00 6.00 6.00 FX rates (3) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) EURUSD 1.34 1.29 1.33 1.32 1.25 1.33 1.27 1.29 1.33 1.35 1.32 1.35 1.32 USDJPY 81 77 78 75 85 83 80 78 78 76 76 75 75 USDRMB 6.59 6.29 6.20 6.02 6.00 6.30 6.35 6.29 6.20 6.15 6.10 6.05 6.02 EURJPY 109 100 104 99 106 110 101 100 104 103 100 101 99 EURGBP 0.86 0.83 0.79 0.74 0.70 0.83 0.81 0.80 0.79 0.78 0.76 0.74 0.74 GBPUSD 1.56 1.55 1.68 1.78 1.79 1.60 1.57 1.62 1.68 1.73 1.74 1.82 1.78 Current account Budget balance Year (% GDP) 10 11 12 (1) 13 (1) 14 (1) (% GDP) 10 11 12 (1) 13 (1) 14 (1) US -3.0 -3.0 -2.8 -2.2 -2.2 US (5) -9.0 -8.7 -7.0 -5.9 -4.8 Eurozone -0.1 0.0 0.9 1.4 1.8 Eurozone -6.2 -4.1 -3.4 -2.6 -1.8 Japan 3.7 2.0 1.1 1.0 1.4 Japan -8.4 -9.7 -8.7 -7.3 -6.1 China 3.9 2.7 2.5 2.0 2.1 China -1.7 -1.1 -2.1 -2.2 -2.4 2012 2012 2012 2012 2013 (3) End period (4) Bund yield (5) Fiscal year Figures are y/y percentage change unless otherwise indicated 2012 2012 Footnotes: (1) Forecast (2) BNPP estimates based on country weights in the IMF World Economic Outlook Update, April 2012 2013 Year Year Year 2013 2013 2013 2013 Year Year Year Year Source: BNP Paribas (Market Economics, Interest Rate Strategy and FX Strategy)
  3. 3. Market Economics November 2012 Global Outlook 3 www.GlobalMarkets.bnpparibas.com Summary table 2: GDP forecasts Country/region 2010 2011 2012 2013 2014 2012 2013 2014 Q4'12 Q4'13 World(1) 5.2 3.9 3.1 3.4 3.8 0.0 0.0 0.1 2.8 3.7 Advanced economies(1) 3.0 1.6 1.2 1.2 2.0 -0.1 -0.2 -0.1 0.8 1.8 US 2.4 1.8 2.1 2.0 2.8 -0.1 -0.1 0.1 1.5 2.5 Eurozone 1.9 1.5 -0.4 -0.4 1.0 0.0 -0.6 -0.2 -0.7 0.2 Germany 4.0 3.1 0.9 0.5 2.2 0.2 -0.6 0.2 0.7 1.2 France 1.6 1.7 0.1 0.0 0.9 0.0 -0.3 -0.2 0.0 0.3 Italy 1.8 0.6 -2.1 -0.7 0.7 0.4 0.1 -0.1 -2.2 0.2 Spain -0.1 0.4 -1.4 -1.8 0.0 0.2 0.0 -0.5 -2.0 -1.2 Japan 4.5 -0.7 1.7 0.2 0.0 -0.5 -0.3 -0.2 0.4 1.2 UK 1.8 0.9 -0.1 0.9 1.6 0.2 -0.1 -0.2 0.3 1.1 Canada 3.2 2.6 2.1 2.0 2.2 0.1 -0.1 0.0 2.1 2.0 Other advanced economies (1) 5.8 3.1 1.8 2.7 3.6 0.0 0.3 -0.1 1.6 3.6 Advanced Asia ex-Japan (1) 8.5 4.0 1.6 3.4 4.3 0.1 0.6 0.0 1.8 4.3 Emerging and developing economies(1) 7.4 6.3 5.1 5.7 5.7 0.0 0.1 0.2 5.0 5.7 CEE & Russia (1) 4.8 4.9 2.6 2.9 3.9 -0.2 -0.3 0.1 2.0 3.1 Russia 4.3 4.3 3.8 3.2 4.0 -0.1 -0.4 -0.2 3.3 3.0 Developing Asia(1) 9.3 8.3 6.8 7.5 7.3 0.0 0.3 0.2 6.6 7.5 China 10.4 9.3 7.7 8.3 7.8 0.3 0.3 0.3 7.6 8.0 India 8.9 7.5 5.4 6.9 7.3 -0.1 0.0 0.0 5.2 7.6 Latin America(1) 6.3 4.5 3.2 4.5 3.9 0.1 0.1 0.1 3.8 4.4 Brazil 7.5 2.7 2.0 5.5 4.0 0.0 0.0 0.0 4.2 4.7 Mexico 5.3 3.9 3.8 3.9 4.1 0.0 0.3 0.3 2.7 4.7 (1) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012 Difference from September 2012 Global Outlook (pp) ForecastsForecasts Source: BNP Paribas Summary table 3: CPI forecasts (1) Country/Region 2010 2011 2012 2013 2014 2012 2013 2014 Q4'12 Q4'13 World (2) 3.6 4.7 3.7 3.6 3.5 0.0 0.0 0.0 3.6 3.6 Advanced economies (2) 1.5 2.7 2.0 1.9 1.9 0.0 0.0 0.0 2.0 1.8 US 1.6 3.2 2.2 2.4 2.3 0.0 0.2 0.2 2.3 2.2 Eurozone 1.6 2.7 2.5 1.8 1.5 0.0 -0.2 0.0 2.4 1.7 Germany 1.2 2.5 2.1 1.6 1.8 0.0 -0.4 0.1 2.0 1.6 France 1.7 2.3 2.3 1.7 2.1 -0.1 -0.2 0.3 1.9 1.9 Italy 1.6 2.9 3.3 2.1 1.7 0.1 -0.1 0.0 2.6 2.3 Spain 2.0 3.1 2.5 2.5 0.9 -0.1 0.4 -0.1 3.4 1.3 Japan -0.7 -0.3 0.0 -0.1 1.0 -0.1 -0.1 -1.0 -0.1 0.3 UK 3.3 4.5 2.8 2.5 2.0 0.1 0.2 0.2 2.7 2.1 Canada 1.8 2.9 1.5 1.9 2.3 0.0 0.0 0.0 1.5 1.9 Other advanced economies(2) 2.2 3.0 1.9 2.0 2.1 -0.1 0.0 -0.1 1.8 2.0 Advanced Asia ex-Japan(2) 2.3 3.5 2.6 2.3 2.1 -0.2 0.2 -0.3 2.4 2.3 Emerging and developing economies (2) 5.7 6.9 5.4 5.4 5.1 0.0 -0.1 -0.1 5.4 5.4 CEE & Russia(2) 6.4 7.9 6.8 6.3 5.1 0.0 0.0 0.0 7.2 5.9 Russia 6.9 8.5 5.1 7.7 6.3 0.0 0.0 0.0 6.8 7.1 Developing Asia(2) 4.9 6.2 3.9 4.5 4.2 -0.3 -0.3 -0.3 3.8 4.7 China 3.3 5.4 2.7 3.6 3.5 -0.3 0.0 0.0 2.3 4.0 India 9.6 9.5 7.7 7.6 6.5 -0.1 -0.4 -0.6 8.0 7.2 Latin America(2) 6.3 6.8 6.2 6.6 7.1 0.1 0.1 0.0 6.2 6.7 Brazil 5.0 6.6 5.4 6.1 6.0 0.0 -0.1 0.0 5.4 6.5 Mexico 4.2 3.4 4.2 4.2 3.8 0.0 0.2 0.0 4.3 4.1 (1) HICP where available, India WPI (2) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012 Forecasts Forecasts Difference from September 2012 Global Outlook (pp) Source: BNP Paribas
  4. 4. Paul Mortimer-Lee November 2012 Global Outlook 4 www.GlobalMarkets.bnpparibas.com Looking for the recovery Our basic macro story at the global level is unchanged from our view three months ago – growth in 2013 will be a little better than in 2012, but with regional divergences, while global inflation will remain virtually flat. Within that picture, however, we have made revisions that are broadly offsetting in terms of global growth. The largest revision is a 0.6pp cut in our forecast for eurozone growth in 2013. We now expect the eurozone to see its second successive year of a 0.4% decline in GDP. This is more pessimistic than the recent European Commission forecast (which was basically in line with our September projection, though conditions have deteriorated since then). It is also likely to be about 0.5pp below the upcoming ECB forecast, which is usually close to the Commission’s estimate. The revision reflects weaker recent information on activity in the core eurozone countries. Our downward revisions to Germany and France both reflect how weak activity in the periphery is dragging them down, with France also being affected by a tough budget. Tail risks to the eurozone have fallen and financial tensions have eased. We see this as one reason to expect growth to pick up over the course of 2013. However, positive quarter-on-quarter growth may not emerge until the second half of the year. Softer-than-expected numbers of late are also behind our downward revision to Japanese growth, which we now put at only 0.2% in 2013, while GDP is expected to be flat in 2014. The territorial dispute with China has also hurt Japanese growth prospects. Our US forecast, which continues to be predicated on the avoidance of serious damage over the fiscal cliff – the expiry of fiscal measures that would lead to an increase in taxation and reduction in spending – is for growth of 2.0% in 2013 after 2.1% this year, down only minimally in both cases on our September view. The annual averages mask the strengthening of growth we expect over the course of next year. While we see US GDP in Q4 2012 rising only 1.5% y/y, the corresponding figure for Q4 2013 is 2.5%. We have revised up our 2013 Chinese growth forecast slightly to reflect increasing evidence that the economy has turned and is now starting to expand more quickly. However, China’s growth problems are partly structural and we do not expect the upswing to be vigorous. We forecast GDP to grow by 8.3% in 2013 after 7.7% in 2012. Elsewhere in emerging markets, in Latin America, we were already well above consensus in our Brazilian growth forecasts and are happy to remain there, but we have nudged up our forecast for Mexico a little. A slower eurozone would not be expected to be good news for the Central European economies and it isn’t – we have revised down our forecasts. Our global inflation projections are virtually flat at close to 3½% in 2013 and 2014, little changed from 2012. There are differences between regions and countries. As with the global picture, US inflation is expected to be flat, at around 2¼%, over the forecast period, a slight increase on last time. Meanwhile, our 2012 and 2013 forecasts for Japanese inflation have been revised down slightly. In the eurozone, the rising output gap and reduced reliance on indirect tax increases are expected to lead to a declining profile for inflation. From 2.5% inflation in 2012, we forecast a dip to 1.8% in 2013 and 1.5% in 2014. Our 2013 forecast is down by 0.2pp on last time, mainly due to a 0.4pp lower forecast for Germany, stemming from the abolition of some medical fees. Our Asian inflation forecasts are largely unchanged; 2012 Chinese inflation looks a little lower than expected and we have cut our Indian inflation forecasts by around 0.5pp in 2013 and 2014. Weaker Japanese picture US growth set to accelerate in 2013 Global growth to pick up slowly in 2013 Eurozone GDP growth revised down – below consensus More convinced China has turned the corner Bullish on Latam, but bearish on central Europe Global inflation to remain contained We expect a softening in eurozone inflation
  5. 5. Paul Mortimer-Lee November 2012 Global Outlook 5 www.GlobalMarkets.bnpparibas.com As regards monetary policy, our view on the US continues to be that in December, the Fed will announce that its long-end purchases under Operation Twist will be continued after the end of the year, but the short-end sales will stop. Thus, the Fed will be acquiring some USD 85bn a month of long assets next year. We expect these purchases to continue until the middle of 2014. We do not expect the Fed to raise rates until 2015. In Europe, we dropped our earlier forecast of another rate cut a few weeks ago. The ECB appears to feel it has already done a lot to stabilise markets and improve confidence and seems reluctant to adjust policy much further unless it really has to. Thus, the eurozone’s current mild recession, which we expect to continue over the coming months, is not sufficient to prompt the ECB to cut rates unless conditions take a sudden turn for the worse. We expect the ECB to use its outright monetary transactions (OMTs), but only after a memorandum of understanding has been signed by Spain and formally approved. We expect this to occur in Q1 2013. We have assumed that bond spreads will widen in Q1 in the eurozone, reflecting uncertainties about the Italian election, Greece and Portugal and the likelihood that Spain will only ask for a programme when it has to. Pressure on the BoJ to ease is unlikely to diminish after the December snap election, and with the economy back in recession, we expect the BoJ to keep on expanding its balance sheet. Not so the Bank of England, where there appears to be a greater focus on credit easing. There are a number of countries where we expect further monetary easing – Australia, India, Sweden and Poland, for example. However, we do not expect any more rate cuts in China, while in other countries, we expect tightening – in the Latin American economies, for example. Tables 1 and 2 show our market forecasts, as agreed with our strategists. In terms of the major bond markets, we see yields remaining low for a long period, with the US and eurozone bond yields very flat in the immediate months ahead. As global growth starts to pick up – with Europe very firmly lagging – we expect the pressure on bond yields to be gently upwards. With quantitative easing continuing in the US and Japan, zero rates in most of the large advanced economies and inflation stable, we expect this to be a drift upward, not a sharp sell-off. In the currency market, the story is a weak EUR, but a weaker USD, against strong EMK currencies. Table 1: Interest-rate forecasts (%) Table 2: FX forecasts Spot Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 US Fed Funds 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 2-year 0.26 0.25 0.20 0.20 0.25 0.25 0.25 10-year 1.67 1.75 1.75 2.00 2.20 2.40 2.50 Eurozone Refi 0.75 0.75 0.75 0.75 0.75 0.75 0.75 2-year* 0.00 -0.05 0.00 0.10 0.15 0.20 0.20 10-year* 1.41 1.25 1.20 1.30 1.50 1.75 1.85 Japan ODR 0.30 0.30 0.30 0.30 0.30 0.30 0.30 Call Rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 2-year 0.10 0.10 0.10 0.10 0.10 0.10 0.10 10-year 0.73 0.75 0.75 0.80 0.80 0.85 0.85 Spot Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 EURUSD 1.28 1.33 1.35 1.32 1.35 1.32 1.31 EURJPY 105 104 103 100 101 99 102 EURGBP 0.80 0.79 0.78 0.76 0.74 0.74 0.72 GBPUSD 1.59 1.68 1.73 1.74 1.82 1.78 1.82 USDJPY 82 78 76 76 75 75 78 USDRMB 6.29 6.20 6.15 6.10 6.05 6.02 6.05 USDBRL 2.09 2.00 2.00 1.98 1.97 1.95 1.98 USDRUB 31.20 30.65 30.15 29.98 30.24 31.47 31.07 End period, spot rates as of 21 November 2012 *Bund yield Source: BNP Paribas (Market Economics, Interest Rate Strategy) End period, spot rates as of 21 November 2012 Source: BNP Paribas (FX Strategy) Fed to carry on expanding its balance sheet No ECB rate cuts, failing a sharp softening of activity Spain to go to ESM in Q1, opening the door to OMT BoJ balance sheet up, BoE to remain flat Low-yield environment to persist; dollar to weaken
  6. 6. Michal Dybula November 2012 Global Outlook 6 www.GlobalMarkets.bnpparibas.com Risk scenarios Deeper eurozone crisis – 15% probability (Tables 1 to 4) Despite a reduction in stress since the summer, the risk of a deeper crisis in the eurozone remains significant, with a number of potential triggers over the coming quarters. Although the Greek parliament has approved the budget for 2013, including new austerity measures and structural reforms, implementation risks remain significant. While Greece could be given two more years to meet its fiscal targets, a sizeable breach of its commitments cannot be ruled out. Such a breach could bring external assistance to a halt, provoking speculation about whether or not Greece would stay in the eurozone. Meanwhile, in Spain, fiscal consolidation has been disappointingly slow. Even assuming a bailout for the banking system and lower bond yields next year, a reduction in the deficit will not be easy. Further austerity measures could backfire, leading to a deeper and/or longer-lasting recession, with negative consequences for the budget. Alternatively, market sentiment could be hit by political uncertainty in Italy ahead of the general election in spring 2013, leading to a rise in yields and risk premia. In general, there is a risk that additional austerity measures will spark social unrest, heightening political risk in the peripheral countries. Furthermore, the reduction in stress during Q3 2012 has again led to political complacency and further progress towards closer integration of the eurozone, such as setting up a banking union, has been very slow, at best. In the event of a renewed deepening of the crisis, we would expect the eurozone economy to contract by around 1½% in 2013, some 1pp more than we currently expect, with the weakness being particularly severe in the first half of the year. While peripheral countries would be affected most, core economies would suffer from increased uncertainty, too. Because of the bigger firewalls in place, the crisis should be rather short lived and economic activity would pick up in 2014. Depending on which particular trigger intensifies the crisis, we would expect policy responses at both the eurozone and country level. In response to a deeper recession and disinflation risks, we would expect the ECB to lower its policy rate to 0.50% by mid-2013 and expand unconventional measures. Under a scenario of a deeper, yet relatively short setback for the eurozone economy, the impact on the rest of the world should be relatively small: we assume a 40-60% pass-through to other countries of any change in eurozone growth relative to the baseline, because of greater risk aversion and lower trade volumes. Also, assuming there are effective policy responses from within the eurozone, as well as additional easing measures in the US and China, a global recession should be averted. However, as a result of weaker demand and lower commodity prices, inflation would continue to decline beyond 2014. This would further delay policy normalisation in the developed economies, keeping bond yields in core countries very low for longer and resulting in a weaker profile for EURUSD in 2013. US goes over the fiscal cliff – 15% probability (Tables 5 to 8) While we expect a compromise resolution of the US fiscal cliff, with discretionary tightening in the order of 1% of GDP next year, a more adverse outcome cannot be ruled out. We do not think that an extreme scenario, in which the full scheduled fiscal tightening occurs and is maintained, is politically feasible, but the US may still go over the fiscal cliff for a month or so. A subsequent bi-partisan agreement would also probably result in a greater tightening of fiscal policy than we currently expect, of about 2% of GDP in 2013. We estimate the US fiscal multiplier to be in the 0.7-0.8 range, but the impact on growth even of a temporary fall off the fiscal cliff is likely to be larger than implied by the multipliers. We would expect US growth in 2013 to be 1.2pp lower than in our base case, because of the resultant slump in confidence in the early weeks of next year. As a result, US GDP would fall sharply in Q1 2013 and the slump would simultaneously hurt global growth, both directly, through a drop in global trade, and indirectly, as risk aversion surged. In addition, the subsequent recovery would be shallower, Many factors could trigger a deeper eurozone crisis Eurozone GDP would fall by around 1½% next year ... ... but the global economy would continue to grow US could temporarily go over the fiscal cliff Weaker US growth would hurt global activity
  7. 7. Michal Dybula November 2012 Global Outlook 7 www.GlobalMarkets.bnpparibas.com undermined by tighter US fiscal policy than we currently forecast, even if financial markets were to stabilise in Q2 on larger QE in the US and further monetary accommodation by the other major central banks. It is unlikely that monetary measures would help to engineer a swift rebound in the global economy. For instance, in this scenario also, we would expect eurozone GDP to fall by close to 1½% y/y in 2013 increasing the risks to the peripheral countries and the bloc as a whole. In response to weaker activity during 2013, we would expect a sharp drop in commodity prices, hitting many emerging-market economies, but supporting substantial disinflation around the globe. Although the US would be the epicentre of the crisis, the USD would probably strengthen in early 2013 on a surge in risk aversion. Consequently, we would expect EURUSD to drop below 1.20 in Q1. Greater eurozone risks would also keep the EUR weak in Q2 and Q3. However, as the Fed’s loosening of monetary policy would be likely to be more aggressive than that of the ECB, EURUSD would probably gradually strengthen to above 1.30 in 2014. In terms of bond markets, the surge in risk aversion would trigger a flight to safety in Q1 2013. A very weak and fragile recovery, as well as more quantitative easing, would keep bond yields very low during 2013. Stronger global recovery – 15% probability (Tables 9 to 12) Financial and monetary conditions are very accommodative in a number of major global economies, such as the US, and this is reflected in an easing of credit standards for the corporate sector. In the eurozone, the reduction in spreads in autumn 2012 has also improved funding conditions, which should further reduce the headwinds for the real economy. Meanwhile, in China, the new leadership is likely to be keen on delivering stronger growth at the start of its term, which is consistent with additional support measures for the economy. Finally, lower oil prices are also conducive to a more marked rebound in activity soon. These factors could lead to a larger growth recovery than forecast. The pace of recovery in global manufacturing and trade volumes could accelerate from Q2 2013, supporting corporate investment, labour markets and consumption. While fiscal adjustment in the eurozone’s peripheral economies suggest it will underperform, stronger global trade would be of huge benefit to Germany and should gradually feed into other core European countries. In this scenario, we would expect GDP growth in the major economies, such as the US and China, to be close to 0.4pp higher than our base case, on average, in 2013 and 2014. The eurozone is likely to lag in 2013 and the economy as a whole would still contract in year-on-year terms. In 2014, however, as the recovery spread to more European countries, eurozone GDP growth would be 0.4pp higher than in our base case. Stronger growth would push up inflation, initially because of rising commodity prices. In developed economies, where the output gap would narrow, but remain negative, core inflation should stay low until late 2014. In emerging-market economies, however, faster growth and higher commodity prices would boost inflation more markedly, necessitating more decisive policy tightening from late 2013. As a result, we would also expect a stronger RMB in 2014. In response to faster growth and higher inflation, yields at the front end of interest-rate curves in developed economies would rise faster from late 2013 and curves would flatten in anticipation of an earlier start of monetary normalisation. While the bar would be high for the Fed to raise interest rates, we would expect the first hike by Q4 2014, following more than 12 months of above-trend growth. In this scenario, the EURUSD profile would initially be shaped by stronger US growth supporting the dollar in mid-2013. Afterwards, as risk appetite increased and the eurozone recovery caught up, the pair would be likely to rise to 1.40 by late 2013 or early 2014. An earlier start of monetary normalisation in the US than in Europe would, however, probably underpin dollar strength in late 2014, with the pair falling below 1.30. Flight to safety on surge in risk aversion in Q1 2013 Soft monetary conditions could support a stronger recovery Rebound in global trade would lift growth everywhere Faster monetary normalisation; Fed would hike before end 2014
  8. 8. Michal Dybula November 2012 Global Outlook 8 www.GlobalMarkets.bnpparibas.com Table 6: Eurozone economic and financial forecasts – US goes over the fiscal cliff 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) GDP (% q/q) - - - - - 0.0 -0.2 -0.1 -0.4 -0.4 -0.4 -0.3 -0.2 GDP (% y/y) 1.9 1.5 -0.4 -1.3 0.3 0.0 -0.4 -0.6 -0.7 -1.1 -1.3 -1.5 -1.3 HICP (% y/y) 1.6 2.7 2.5 1.5 1.1 2.7 2.5 2.5 2.4 2.0 1.5 1.4 1.3 CPI (Ex F&E) 1.0 1.4 1.5 1.4 0.9 1.5 1.6 1.6 1.5 1.4 1.3 1.4 1.3 Refinancing rate (%)(2) 1.00 1.00 0.75 0.50 0.50 1.00 1.00 0.75 0.75 0.50 0.50 0.50 0.50 2-year rate (%)(2)(3) 0.85 0.14 -0.05 0.10 0.25 0.05 -0.03 0.02 -0.05 -0.05 -0.05 0.00 0.10 10-year Bund (%) (2)(3) 2.96 1.83 1.25 1.40 1.80 1.81 1.60 1.44 1.25 1.00 1.10 1.20 1.40 EURJPY(2) 109 100 104 95 106 110 101 100 104 84 88 95 95 Year 2012 2013 Table 7: Japanese economic and financial forecasts – US goes over the fiscal cliff 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q) - - - - - 1.3 0.1 -0.9 -0.1 -0.1 0.0 0.1 0.0 GDP (% y/y) 4.5 -0.7 1.7 -0.4 -0.4 2.9 3.3 0.1 0.4 -1.0 -1.0 0.0 0.1 CPI (% y/y) -0.7 -0.3 0.0 -0.3 0.6 0.3 0.2 -0.4 -0.1 -0.7 -0.5 0.0 0.0 CPI (Ex F&E) -1.0 -0.3 -0.1 -0.2 0.8 0.1 0.0 -0.2 0.0 -0.3 -0.2 0.0 -0.1 O/N call rate (%)(2) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 2-year rate (%)(2) 0.18 0.14 0.10 0.10 0.10 0.12 0.11 0.10 0.10 0.05 0.05 0.05 0.10 10-year rate (%)(2) 1.12 0.99 0.75 0.35 0.95 0.99 0.84 0.77 0.75 0.60 0.65 0.70 0.35 Year 2012 2013 Source: BNP Paribas (1) Forecast (2) End period (3) Bund yield Table 1: US Economic and financial forecasts – Deeper eurozone crisis 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q ann) - - - - - 2.0 1.3 2.0 1.0 1.5 1.4 1.9 3.0 GDP (% y/y) 2.4 1.8 2.1 1.5 2.9 2.4 2.1 2.3 1.5 1.4 1.4 1.4 1.9 CPI (% y/y) 1.6 3.2 2.2 2.3 2.2 2.8 1.9 1.7 2.3 2.2 2.6 2.3 2.0 CPI (Ex F&E) 1.0 1.7 2.1 1.8 2.1 2.2 2.3 2.0 2.0 1.9 1.8 1.8 1.9 Fed funds rate (%) (2) 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 2-year rate (%)(2) 0.61 0.25 0.25 0.20 0.75 0.34 0.31 0.23 0.25 0.15 0.10 0.20 0.20 10-year rate (%) (2) 3.29 1.88 1.75 2.15 2.70 2.21 1.64 1.63 1.75 1.65 1.55 1.85 2.15 EURUSD(2) 1.34 1.29 1.33 1.17 1.25 1.33 1.27 1.29 1.33 1.30 1.22 1.20 1.17 USDJPY (2) 81 77 78 78 85 83 80 78 78 74 72 75 78 Year 2012 2013 Table 2: Eurozone economic and financial forecasts – Deeper eurozone crisis 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) GDP (% q/q) - - - - - 0.0 -0.2 -0.1 -0.4 -0.4 -0.6 -0.5 0.2 GDP (% y/y) 1.9 1.5 -0.4 -1.5 1.2 0.0 -0.4 -0.6 -0.7 -1.1 -1.5 -1.9 -1.3 HICP (% y/y) 1.6 2.7 2.5 1.6 1.2 2.7 2.5 2.5 2.4 2.0 1.5 1.5 1.3 CPI (Ex F&E) 1.0 1.4 1.5 1.3 1.1 1.5 1.6 1.6 1.5 1.4 1.3 1.3 1.2 Refinancing rate (%)(2) 1.00 1.00 0.75 0.50 0.50 1.00 1.00 0.75 0.75 0.75 0.50 0.50 0.50 2-year rate (%)(2)(3) 0.85 0.14 -0.05 0.05 0.25 0.05 -0.03 0.02 -0.05 -0.05 -0.05 0.00 0.05 10-year Bund (%) (2)(3) 2.96 1.83 1.25 1.25 2.00 1.81 1.60 1.44 1.25 0.95 0.80 1.00 1.25 EURJPY(2) 109 100 104 91 106 110 101 100 104 96 88 90 91 Year 2012 2013 Table 3: Japanese economic and financial forecasts – Deeper eurozone crisis 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q) - - - - - 1.3 0.1 -0.9 -0.1 0.1 0.0 0.0 0.3 GDP (% y/y) 4.5 -0.7 1.7 -0.3 0.1 2.9 3.3 0.1 0.4 -0.8 -0.8 0.1 0.4 CPI (% y/y) -0.7 -0.3 0.0 -0.2 0.8 0.3 0.2 -0.4 -0.1 -0.6 -0.3 0.2 0.1 CPI (Ex F&E) -1.0 -0.3 -0.1 -0.1 0.8 0.1 0.0 -0.2 0.0 -0.2 -0.2 0.0 0.0 O/N call rate (%)(2) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 2-year rate (%)(2) 0.18 0.14 0.10 0.10 0.10 0.12 0.11 0.10 0.10 0.10 0.05 0.05 0.10 10-year rate (%)(2) 1.12 0.99 0.75 0.85 0.95 0.99 0.84 0.77 0.75 0.75 0.60 0.65 0.85 Year 2012 2013 Table 4: Chinese economic and financial forecasts – Deeper eurozone crisis 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% y/y) 10.4 9.3 7.7 7.7 8.0 8.1 7.6 7.4 7.6 7.9 7.8 7.7 7.3 IP (% y/y) 15.7 13.9 10.0 10.4 11.1 11.6 9.5 9.1 10.0 10.5 11.0 11.2 9.9 CPI 3.3 5.4 2.7 3.4 3.2 3.8 2.9 1.9 2.3 3.2 3.3 3.3 3.6 PPI 5.3 6.0 -1.7 1.4 3.5 0.2 -1.4 -3.3 -2.1 -0.9 0.1 2.5 3.7 Policy rate (%)(2) 5.81 6.56 6.00 5.75 6.00 6.56 6.00 6.00 6.00 6.00 5.75 5.75 5.75 USDRMB(2) 6.59 6.29 6.20 6.02 6.00 6.30 6.35 6.29 6.20 6.15 6.15 6.10 6.02 Year 2012 2013 Table 5: US Economic and financial forecasts – US goes over the fiscal cliff 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q ann) - - - - - 2.0 1.3 2.0 1.0 -0.5 0.7 1.6 1.7 GDP (% y/y) 2.4 1.8 2.1 0.8 2.2 2.4 2.1 2.3 1.5 0.9 0.8 0.7 0.9 CPI (% y/y) 1.6 3.2 2.2 2.1 1.8 2.8 1.9 1.7 2.3 2.0 2.5 2.0 1.7 CPI (Ex F&E) 1.0 1.7 2.1 1.8 1.6 2.2 2.3 2.0 2.0 1.9 1.8 1.8 1.7 Fed funds rate (%) (2) 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 2-year rate (%)(2) 0.61 0.25 0.25 0.10 0.55 0.34 0.31 0.23 0.25 0.05 0.00 0.05 0.10 10-year rate (%) (2) 3.29 1.88 1.75 1.90 2.00 2.21 1.64 1.63 1.75 1.35 1.45 1.65 1.90 EURUSD(2) 1.34 1.29 1.33 1.27 1.35 1.33 1.27 1.29 1.33 1.20 1.22 1.30 1.27 USDJPY (2) 81 77 78 75 80 83 80 78 78 70 72 73 75 Year 2012 2013
  9. 9. Michal Dybula November 2012 Global Outlook 9 www.GlobalMarkets.bnpparibas.com Table 8: Chinese Economic and financial forecasts – US goes over fiscal cliff 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) GDP (% y/y) 10.4 9.3 7.7 7.5 7.5 8.1 7.6 7.4 7.6 7.9 7.7 7.7 6.8 IP (% y/y) 15.7 13.9 10.0 10.3 10.2 11.6 9.5 9.1 10.0 10.5 10.8 11.1 9.6 CPI 3.3 5.4 2.7 3.3 3.1 3.8 2.9 1.9 2.3 3.1 3.3 3.2 3.4 PPI 5.3 6.0 -1.7 1.4 3.7 0.2 -1.4 -3.3 -2.1 -1.2 0.1 2.8 3.6 Policy rate (%) (2) 5.81 6.56 6.00 5.50 5.75 6.56 6.00 6.00 6.00 6.00 5.50 5.50 5.50 USDRMB (2) 6.59 6.29 6.20 6.20 6.10 6.30 6.35 6.29 6.20 6.25 6.30 6.30 6.20 Year 2012 2013 Table 9: US Economic and financial forecasts – Stronger global recovery 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q ann) - - - - - 2.0 1.3 2.0 1.0 2.0 3.1 4.1 3.8 GDP (%y/y) 2.4 1.8 2.1 2.3 3.2 2.4 2.1 2.3 1.5 1.5 2.0 2.5 3.2 CPI (% y/y) 1.6 3.2 2.2 2.5 2.7 2.8 1.9 1.7 2.3 2.2 2.7 2.7 2.5 CPI (Ex F&E) 1.0 1.7 2.1 2.0 2.4 2.2 2.3 2.0 2.0 1.9 1.8 2.0 2.2 Fed funds rate (%) (2) 0-0.25 0-0.25 0-0.25 0-0.25 0.50 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 2-year rate (%)(2) 0.61 0.25 0.25 0.65 1.70 0.34 0.31 0.23 0.25 0.20 0.40 0.55 0.65 10-year rate (%) (2) 3.29 1.88 1.75 2.60 3.10 2.21 1.64 1.63 1.75 1.75 2.10 2.35 2.60 EURUSD(2) 1.34 1.29 1.33 1.37 1.25 1.33 1.27 1.29 1.33 1.33 1.22 1.35 1.37 USDJPY (2) 81 77 78 85 95 83 80 78 78 76 80 82 85 2012 2013Year Table 10: Eurozone economic and financial forecasts – Stronger global recovery 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q) - - - - - 0.0 -0.2 -0.1 -0.4 -0.1 0.0 0.3 0.4 GDP (% y/y) 1.9 1.5 -0.4 -0.3 1.4 0.0 -0.4 -0.6 -0.7 -0.8 -0.6 -0.2 0.6 HICP (% y/y) 1.6 2.7 2.5 1.9 1.7 2.7 2.5 2.5 2.4 2.0 1.7 1.9 1.9 CPI (Ex F&E) 1.0 1.4 1.5 1.4 1.5 1.5 1.6 1.6 1.5 1.4 1.4 1.5 1.5 Refinancing rate (%) (2) 1.00 1.00 0.75 0.75 0.75 1.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 2-year rate (%) (2)(3) 0.85 0.14 -0.05 0.45 1.00 0.05 -0.03 0.02 -0.05 0.00 0.15 0.30 0.45 10-year rate (%) (2)(3) 2.96 1.83 1.25 1.90 2.60 1.81 1.60 1.44 1.25 1.20 1.30 1.60 1.90 EURJPY(2) 109 100 104 116 119 110 101 100 104 101 98 111 116 2012 2013Year Table 11: Japanese economic and financial forecasts – Stronger global recovery 10 11 12(1) 13(1) 14(1) Q1 Q2 Q3(1) Q4(1) Q1(1) Q2(1) Q3(1) Q4(1) GDP (% q/q) - - - - - 1.3 0.1 -0.9 -0.1 0.2 0.5 0.6 0.4 GDP (% y/y) 4.5 -0.7 1.7 0.5 0.3 2.9 3.3 0.1 0.4 -0.7 -0.2 1.2 1.7 CPI (% y/y) -0.7 -0.3 0.0 0.0 1.2 0.3 0.2 -0.4 -0.1 -0.6 -0.3 0.4 0.5 CPI (Ex F&E) -1.0 -0.3 -0.1 -0.1 1.1 0.1 0.0 -0.2 0.0 -0.3 -0.2 0.0 0.1 O/N call rate (%)(2) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 2-year rate (%)(2) 0.18 0.14 0.10 0.30 0.40 0.12 0.11 0.10 0.10 0.10 0.10 0.20 0.30 10-year rate (%)(2) 1.12 0.99 0.75 1.00 1.15 0.99 0.84 0.77 0.75 0.75 0.85 0.90 1.00 2012 2013Year Table 12: Chinese economic and financial forecasts – Stronger global recovery 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) GDP (% y/y) 10.4 9.3 7.7 8.6 8.2 8.1 7.6 7.4 7.6 8.1 8.6 9.2 8.7 IP (% y/y) 15.7 13.9 10.0 12.0 11.1 11.6 9.5 9.1 10.0 10.8 12.1 13.3 12.4 CPI 3.3 5.4 2.7 3.8 4.0 3.8 2.9 1.9 2.3 3.2 3.6 3.9 4.5 PPI 5.3 6.0 -1.7 2.3 4.6 0.2 -1.4 -3.3 -2.1 -0.8 0.7 3.9 5.1 Policy rate (%) (2) 5.81 6.56 6.00 6.25 6.75 6.56 6.00 6.00 6.00 6.00 6.00 6.00 6.25 USDRMB (2) 6.59 6.29 6.20 5.97 5.93 6.30 6.35 6.29 6.20 6.15 6.10 6.03 5.97 Year 2012 2013 Source: BNP Paribas (1) Forecast (2) End period (3) Bund yield
  10. 10. David Tinsley November 2012 Global Outlook 10 www.GlobalMarkets.bnpparibas.com US rates: Medium-term forecasts Chart 1: Fed funds target rate (%) Chart 2: 3-month rate and Fed funds (%) 92 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 -3 -2 -1 0 1 2 3 4 5 6 7 Nominal Real (deflated by core CPI) BNPP forecast 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0 2 4 6 Fed funds target rate -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Mean 3Mth Rate less Fed funds BNPP forecast Source: Reuters EcoWin Pro, BNP Paribas (Market Economics and Interest Rate Strategy) We forecast that the Fed will keep policy rates unchanged until 2015. Real rates will remain well below zero over the forecast period. Source: Reuters EcoWin Pro, BNP Paribas (Market Economics and Interest Rate Strategy) Given our forecast of a long status quo on policy rates, the spread between the three-month and the Fed funds rates should stay relatively flat for some time. Chart 3: 2-year and Fed funds (%) Chart 4: 10/2-year spread and Fed policy (%) 92 94 96 98 00 02 04 06 08 10 12 14 0 2 4 6 Fed funds target rate -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 US 2-yr less Fed funds BNPP forecast 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Percent -1 0 1 2 3 4 5 6 7-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Fed funds target rate (Inverted, RHS) 10-yr less 2-yr BNPP forecast Source: Reuters EcoWin Pro, BNP Paribas (Market Economics and Interest Rate Strategy) The spread between two-year Treasury yields and the Fed funds rate should also see little change, with the latter not forecast to start rising until 2015. Source: Reuters EcoWin Pro, BNP Paribas (Market Economics and Interest Rate Strategy) The yield curve is unusually flat relative to the policy rate. We expect a steepening over the forecast period as the US and global outlook improves and tail risks fall. Chart 5: 10-year yield (%) Chart 6: 10-year swap spread (%) Source: Reuters EcoWin Pro, BNP Paribas (Market Economics and Interest Rate Strategy) We expect longer-term yields to rise over the forecast period because of the removal of eurozone-related tail risk and a firming in the US growth outlook. Source: Reuters EcoWin Pro, BNP Paribas (Market Economics and Interest Rate Strategy) We expect little change in the swap spread over the forecast period, because of the Fed’s commitment to maintain loose monetary policy over the medium term.
  11. 11. David Tinsley November 2012 Global Outlook 11 www.GlobalMarkets.bnpparibas.com Eurozone rates: Medium-term forecasts Chart 1: Policy rates (%) Chart 2: 2-year rate & ECB policy (%) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 -1 0 1 2 3 4 5 6 EONIA Real refi rate (deflated by core HICP) BNPP forecast Nominal refi rate Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy We forecast ECB policy rates to remain at record low levels through the forecast period. In real terms, the refinancing rate will remain negative. Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy We forecast German two-year yields to remain very low, in line with our policy forecast. Over time, the spread to the policy rate should widen. Chart 3: 10/2-year spread & ECB policy (%) Chart 4: 10-year/3-month spread & ECB policy (%) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.00.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 ECB refi rate (Inv. RHS) BNPP forecast 10/2-yr spread Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy The 10/2-year spread is likely to remain low in relation to the policy rate in coming quarters. Risk aversion is expected to recede over the forecast period. Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy Uncertainty about the future of the eurozone has diminished. The curve should, therefore, steepen relative to the level of policy rates. Chart 5: US − German yield & policy spreads (%) Chart 6: 10-year bund yields (%) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Percent -1 0 1 2 3 4 5 6 Real (deflated by core HICP) BNPP forecast 10-year Bund Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy We expect the spread between US and German yields at the long end to widen significantly in 2013, before stabilising. This reflects the US’s quicker move to ‘normalisation’. Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy We expect Bund yields to rise over the forecast period, though the real yield should stay close to zero over 2013.
  12. 12. Julia Coronado November 2012 Global Outlook 12 www.GlobalMarkets.bnpparibas.com US: Avoiding the cliff The US economy has, once again, registered stable, if unspectacular growth throughout 2012, despite a global slowdown and uncertainties over Europe and the domestic fiscal policy outlook. Divergence has emerged in recent quarters in the components of GDP, between an improving housing market, hiring and consumer spending, which have remained moderate and stable, and business investment, which has fallen off sharply. We attribute the decline in capital spending to political uncertainties and the downswing in the global manufacturing cycle. Therefore, we look for a rebound next year that will gradually strengthen to an above-trend growth rate by the end of 2013. Fiscal policy is the main source of uncertainty in terms of the US outlook. As the domestic private sector heals, the public sector is focusing on a return to a more sustainable fiscal position. At the time of writing, post-election negotiating positions over the fiscal cliff and longer-term outlook were still being established. However, we expect an extension of most elements of the cliff before year end to allow time for more in-depth and, inevitably, complicated negotiations on a medium-term budget package. Reasonably orderly negotiations with bi-partisan compromise will help to prevent ratings downgrades and have a positive knock-on effect on business and consumer confidence. The more divisive and unproductive the talks, the more likely a downgrade from at least two ratings agencies by the end of the year and a negative spill-over to growth through elevated uncertainty and a loss of confidence. The FOMC has signalled that the bar for ceasing its balance-sheet expansion is a sustained and sustainable improvement in the labour-market outlook, something we expect to take more than a year to materialise. We expect mortgage and Treasury buying to continue at a similar pace in 2013, with a tapered pace of purchases continuing into mid-2014. Chart 1: Hiring has held up, but has not accelerated Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Capital spending has fallen sharply Source: Reuters EcoWin Pro, BNP Paribas Chart 3: Trend-like growth will keep the Fed easing Source: Reuters EcoWin Pro, BNP Paribas Chart 4: The fiscal outlook is the key uncertainty 14 16 18 20 22 24 26 Q1 1970 Q1 1977 Q1 1984 Q1 1991 Q1 1998 Q1 2005 Q1 2012 Govt. revenues (% of GDP) Govt. expenditures (% of GDP) Bars mark recession Source: Reuters EcoWin Pro, BNP Paribas Growth in 2013 should gradually strengthen to an above-trend pace Fiscal policy is the main risk to the US outlook We think the cliff will be avoided and the Fed will stay accommodative
  13. 13. Julia Coronado November 2012 Global Outlook 13 www.GlobalMarkets.bnpparibas.com US: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth % Q/Q SAAR GDP - - - - - 2.0 1.3 2.0 1.0 2.0 2.3 2.8 3.0 Dom. demand ex stocks 1.3 1.8 1.9 1.9 2.5 2.2 1.4 2.3 0.8 1.7 2.3 2.9 3.1 Private consumption 1.8 2.5 1.9 2.0 2.3 2.4 1.5 2.0 2.0 1.7 2.2 2.2 2.5 Public consumption 0.6 -3.1 -1.4 -1.0 -1.9 -3.0 -0.7 3.7 -2.6 -0.6 -2.7 -1.4 -1.4 Residential investment -3.7 -1.4 11.7 16.4 21.6 20.5 8.5 14.4 10.0 15.0 20.0 25.0 25.0 Non-residential investment 0.7 8.6 7.0 3.4 8.9 7.5 3.6 -1.3 -3.6 3.0 8.0 10.0 10.0 Stocks (cont. to growth) 0.7 0.2 -0.3 0.3 0.0 -0.4 -0.5 -0.1 0.0 -0.4 -0.5 -0.1 0.0 Exports 11.1 6.7 3.4 5.4 7.7 4.4 5.3 -1.6 4.4 7.2 6.6 7.3 8.8 Imports 12.5 4.8 2.9 4.4 6.7 3.1 2.8 -0.2 2.1 5.1 6.3 7.5 8.3 GDP (% y/y) 2.4 1.8 2.1 2.0 2.8 2.4 2.1 2.3 1.5 1.5 1.8 2.0 2.5 Industrial production (% y/y) 5.4 4.1 3.7 3.2 4.8 4.4 4.8 3.2 2.4 1.8 2.4 3.8 4.7 Savings ratio (%) 5.1 4.3 3.8 3.8 3.7 3.6 4.0 3.7 3.9 3.9 3.8 3.8 3.7 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour CPI 1.6 3.2 2.2 2.4 2.3 2.8 1.9 1.7 2.3 2.2 2.7 2.5 2.2 CPI (Ex F&E) 1.0 1.7 2.1 1.9 2.2 2.2 2.3 2.0 2.0 1.9 1.8 1.9 2.1 Core PCE deflator 1.5 1.4 1.8 1.7 2.0 1.9 1.8 1.6 1.7 1.6 1.7 1.8 1.9 Producer prices 4.2 6.0 2.2 2.8 1.7 3.5 1.1 1.6 2.8 3.0 4.2 2.5 1.5 Monthly wages 1.9 2.0 2.0 2.3 2.3 1.9 1.8 2.0 2.1 2.2 2.2 2.3 2.3 Employment -0.7 1.2 1.4 1.3 1.7 1.5 1.3 1.4 1.3 1.1 1.2 1.3 1.5 Unemployment rate (%) 9.6 9.0 8.1 7.8 7.4 8.3 8.2 8.1 7.9 7.9 7.8 7.7 7.6 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (USD bn, sa) -495 -560 -543 -491 -434 -148 -139 -129 -127 -124 -126 -124 -117 Current account (USD bn, sa) -442 -466 -452 -367 -404 -134 -117 -103 -98 -97 -96 -92 -83 Current account (% GDP) -3.0 -3.0 -2.8 -2.2 -2.2 -3.1 -3.1 -3.0 -2.8 -2.6 -2.4 -2.3 -2.2 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Financial variables Money supply 2.5 7.3 8.1 5.2 5.9 10.2 9.7 5.0 5.0 5.0 5.0 5.0 6.0 Fed. gov. budget (USD bn) (2) -1294 -1297 -1089 -954 -805 -457 -125 -185 -205 -478 -85 -187 -197 Fed. gov. budget (% GDP) (2) -9.0 -8.7 -7.0 -5.9 -4.8 -8.1 -7.9 -6.9 -6.1 -6.2 -5.9 -5.8 -5.7 Fed. gov. primary budget (% GDP) (2) -7.6 -7.2 -5.6 -4.6 -3.4 -6.6 -6.4 -5.5 -4.8 -4.9 -4.6 -4.6 -4.3 Gross Fed. gov. debt (% GDP) (3) 62.9 67.8 72.5 75.8 77.6 70.1 70.9 71.4 72.2 74.5 74.2 74.6 74.9 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest & FX rates (3) Fed funds rate (%) 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 3-month rate (%) 0.30 0.58 0.40 0.40 0.50 0.31 0.46 0.36 0.40 0.40 0.40 0.40 0.40 2-year rate (%) 0.61 0.25 0.25 0.25 0.75 0.34 0.31 0.23 0.25 0.20 0.20 0.25 0.25 5-year rate (%) 2.01 0.83 0.65 1.10 1.85 1.04 0.72 0.63 0.65 0.65 0.80 0.95 1.10 10-year rate (%) 3.29 1.88 1.75 2.40 2.80 2.21 1.64 1.63 1.75 1.75 2.00 2.20 2.40 EURUSD 1.34 1.29 1.33 1.32 1.25 1.33 1.27 1.29 1.33 1.35 1.32 1.35 1.32 USDJPY 81 77 78 75 85 83 80 78 78 76 76 75 75 2013 2013 2013 2013 2013 2012 2012 2012 Year Year Year Figures are year-on-year percentage changes unless otherwise indicated Footnotes: (1) Forecast (2) Fiscal year (3) End period 2012 2012 Year Year Source: BNP Paribas
  14. 14. Ken Wattret November 2012 Global Outlook 14 www.GlobalMarkets.bnpparibas.com Eurozone: Slow road to recovery Weakness has spread from the peripheral to the core countries and the eurozone is set for a further decline in activity. With momentum indicators failing to signal a return to growth any time soon, we have lowered our GDP forecast for 2013 by 0.6pp to a fall of 0.4%, the same size as the drop forecast for 2012. High and rising unemployment is weighing on household income and consumer sentiment, while uncertainty and credit constraints are holding back investment. Fiscal policy will also remain a headwind to domestic demand, though the aggregate tightening at the eurozone level will ease somewhat in 2013. The eurozone will remain highly sensitive to developments in external demand. A gradual improvement in global trade conditions in 2013 should feed through to exports, particularly from H2. The improvement in financial and monetary conditions due to the ECB’s outright monetary transactions (OMTs) should also filter through to the economy, but the recovery will be gradual at best and patchy at the national level. OMTs are the policy tool of choice for the ECB near term, though their potential use remains dependent on political factors. The door remains open for further ECB measures in the event of a more pronounced deterioration in economic and/or financial market conditions than we have assumed in our central forecast. Inflation remains above 2% due to energy price rises and indirect tax increases. However, underlying price pressures are subdued due to the weakness of domestic demand and we forecast inflation to fall below 2% in H1 2013. The prospect of OMTs has reduced tail risks, but uncertainty remains high. German and Italian elections in 2013 will be focal points. Continued belt tightening is likely to lead to further social unrest and political disagreement about support packages. Chart 1: Eurozone financial stress index Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Recovery patterns (GDP, 2008=100) Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 08 09 10 11 12 94 95 96 97 98 99 100 101 102 103 104 France Spain Italy Eurozone Germany Source: Reuters EcoWin Pro, BNP Paribas Chart 3: Survey indicators 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 35 40 45 50 55 60 65 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 Eurocoin Composite PMI (RHS) Source: Reuters EcoWin Pro, BNP Paribas Chart 4: Inflation dynamics 99 00 01 02 03 04 05 06 07 08 09 10 11 12 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Unemployment rate (%, RHS inv.) Core HICP (% y/y) Compensation per employee (% y/y) Source: Reuters EcoWin Pro, BNP Paribas OMT announcement has reduced tail risks, but uncertainty remains The recovery will be delayed to H2 2013 Annual GDP will contract in 2012 and 2013 J a n 1 1 M a r M a y J u l S e p N o v J a n 1 2 M a r M a y J u l S e p N o v StandardDeviationAbove(+)/Below(-)Long-TermAverage 0 .0 0 .5 1 .0 1 .5 2 .0 2 .5 3 .0 3 .5 4 .0 3 - y r L T R O s N o v 2 0 1 2 O M T J u l 2 0 1 2
  15. 15. Ken Wattret November 2012 Global Outlook 15 www.GlobalMarkets.bnpparibas.com Eurozone: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth GDP (% q/q) - - - - - 0.0 -0.2 -0.1 -0.4 -0.1 0.0 0.1 0.2 GDP 1.9 1.5 -0.4 -0.4 1.0 0.0 -0.4 -0.6 -0.7 -0.8 -0.6 -0.4 0.2 Final domestic demand 0.6 0.3 -1.3 -0.4 0.6 -1.0 -1.2 -1.4 -1.3 -1.1 -0.6 -0.3 0.2 Private consumption 0.9 0.1 -1.0 -0.3 0.4 -1.0 -0.9 -1.2 -0.8 -0.8 -0.4 -0.2 0.1 Public consumption 0.7 -0.1 -0.1 -0.2 0.3 0.0 -0.1 0.0 -0.3 -0.4 -0.4 -0.2 0.0 Fixed investment -0.3 1.6 -3.4 -1.0 1.7 -2.4 -3.6 -3.7 -4.1 -2.9 -1.3 -0.5 0.8 Stocks (cont. to growth, q/q) 0.6 0.1 -0.6 -0.1 0.2 -0.1 0.0 -0.2 0.0 0.0 0.0 0.0 0.0 Exports (2) 11.0 6.4 2.4 1.2 5.0 2.6 3.3 2.0 1.7 1.0 0.2 0.9 2.6 Imports (2) 9.4 4.2 -0.8 1.1 5.2 -0.9 -0.6 -1.4 -0.3 0.0 0.0 1.4 2.9 Industrial production -1.5 3.5 -1.6 0.8 2.5 -1.6 -2.2 -2.0 -0.5 0.1 0.8 0.5 1.6 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour HICP 1.6 2.7 2.5 1.8 1.5 2.7 2.5 2.5 2.4 2.0 1.7 1.8 1.7 Core HICP 1.0 1.4 1.5 1.4 1.4 1.5 1.6 1.6 1.5 1.4 1.4 1.5 1.5 Producer prices 2.9 5.9 2.6 0.4 0.3 3.7 2.2 2.3 2.3 0.9 0.7 0.0 -0.1 Comp. per employee 1.7 2.1 1.8 1.3 1.3 2.0 1.6 1.9 1.7 1.4 1.5 1.3 1.2 Unit labour costs -0.7 0.9 1.6 1.4 0.3 1.5 1.4 1.8 1.8 1.8 1.6 1.4 0.7 Employment -0.5 0.3 -0.6 -0.4 0.0 -0.5 -0.6 -0.6 -0.5 -0.3 -0.4 -0.4 -0.3 Productivity 2.5 1.2 0.1 0.0 0.9 1.5 1.4 1.8 1.8 1.8 1.6 1.4 0.7 Unemployment rate (%) 10.1 10.2 11.4 12.6 12.8 10.9 11.3 11.5 11.9 12.2 12.5 12.8 13.0 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (EUR bn, sa) -15 -9 75 120 155 11 22 22 20 25 30 30 35 Current account (EUR bn, sa) -7 -2 90 140 175 17 28 22 23 30 35 35 40 Current account (% of GDP) -0.1 0.0 0.9 1.4 1.8 0.7 1.2 0.9 1.0 1.3 1.5 1.4 1.6 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Financial variables General gov. budget (EUR bn) -568 -386 -324 -250 -181 - - - - - - - - General gov. budget (% GDP) -6.2 -4.1 -3.4 -2.6 -1.8 - - - - - - - - Primary budget (EUR bn) -309 -104 -23 56 132 - - - - - - - - Primary budget (% GDP) -3.4 -1.1 -0.2 0.6 1.3 - - - - - - - - Gross gov. debt (% GDP) (3) 85.4 87.3 93.6 95.1 94.3 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest & FX rates (3) Refinancing rate (%) 1.00 1.00 0.75 0.75 0.75 1.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 3-month rate (%) 1.01 1.36 0.20 0.20 0.50 0.78 0.65 0.22 0.20 0.20 0.20 0.20 0.20 2-year rate (%) (4) 0.85 0.14 -0.05 0.20 0.35 0.05 -0.03 0.02 -0.05 0.00 0.10 0.15 0.20 5-year rate (%) (4) 1.84 0.75 0.35 0.85 1.30 0.54 0.36 0.51 0.35 0.40 0.50 0.70 0.85 10-year rate (%) (4) 2.96 1.83 1.25 1.75 2.35 1.81 1.60 1.44 1.25 1.20 1.30 1.50 1.75 EURUSD 1.34 1.29 1.33 1.32 1.25 1.33 1.27 1.29 1.33 1.35 1.32 1.35 1.32 EURGBP 0.86 0.83 0.79 0.74 0.70 0.83 0.81 0.80 0.79 0.78 0.76 0.74 0.74 EURJPY 109 100 104 99 106 110 101 100 104 103 100 101 99 2013 2013 2013 2013 2012 2012 Year Year 2012 2012 Year Year Figures are year-on-year percentage changes unless otherwise indicated 2012 Footnotes: (1) Forecast (2) Includes intra-eurozone trade (3) End period (4) Bund yield 2013Year Source: BNP Paribas
  16. 16. Ryutaro Kono November 2012 Global Outlook 16 www.GlobalMarkets.bnpparibas.com Japan: Anaemic recovery from Q1 Japan looks to be in recession. Real GDP fell in Q3 as global growth slowed and the fiscal stimulus faded. Exports have been falling since May and consumption has softened as post-quake pent-up demand has waned and weaker production has started to take its toll on wages. In addition, the end of subsidies in September led to a large drop in vehicle sales. Fixed investment has also weakened, reflecting heightened uncertainty about the global economy. Because of the lingering impact of the end of vehicle subsidies and the damage to exports from strained ties with China, another fall in GDP is likely in Q4. We expect economic growth to resume from Q1 2013, thanks to a recovery in global activity. The consumption tax is scheduled to be raised 3pp from April 2014. A pre-hike surge in consumption should push up growth by 0.5pp in FY2013 while the subsequent pullback in spending should depress growth by 1.0pp in FY2014 (the CY-based impact will be smaller, at 0.3pp in 2013 and ‒0.6pp in 2014). As for the impact on prices, we have lowered our projection, as entrenched deflationary expectations suggest that not all of the tax hike will be passed on and we now expect the tax hike to raise the core CPI by only 1.4pp. At any rate, with underlying CPI inflation likely to remain below the BoJ’s price stability goal of 1%, the zero-rate regime should remain in place throughout the forecast period. The next government, whether led by the DPJ or LDP, is likely to press for more easing to revive the economy and ensure a hike in the consumption tax. We expect the BoJ to ease roughly once every three months, but the next move may come as early as December should the Fed decide to increase bond purchases when Operation Twist ends. As in late October, the BoJ will probably continue to expand its asset purchase programme, raising not only purchases of JGBs, but also risk assets. However, foreign-bond buying is unlikely, as currency policy is the MoF’s domain. Chart 1: Real exports (sa, JPY bn) 4000 4500 5000 5500 6000 6500 7000 7500 08 09 10 11 12 Source: MOF, BoJ, BNP Paribas Chart 2: Sales of new motor vehicles (saar, mn)* 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 08 09 10 11 12 Monthly Quarterly Source: Japan Automobile Dealers Association, Japan Mini Vehicles Association, BNP Paribas *including mini vehicles Chart 3: Capital goods shipments (sa, 2005=100) 60 70 80 90 100 110 120 08 09 10 11 12 Quarterly Monthly Source: METI, BNP Paribas Chart 4: Output gap estimated from Tankan data (%) -6 -4 -2 0 2 4 6 Q1 90 Q1 94 Q1 97 Q1 00 Q1 03 Q1 06 Q1 09 Q1 12 Source: BoJ, BNP Paribas Economy entered recession in mid-2012 We now expect the 3pp consumption tax hike to raise the CPI by only 1.4pp BoJ is likely to ease policy further due to strong political pressure
  17. 17. Ryutaro Kono November 2012 Global Outlook 17 www.GlobalMarkets.bnpparibas.com Japan: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth GDP (% q/q) - - - - - 1.3 0.1 -0.9 -0.1 0.2 0.3 0.3 0.3 GDP (% q/q annualised) - - - - - 5.2 0.3 -3.5 -0.3 0.9 1.4 1.4 1.1 GDP (% y/y) 4.5 -0.7 1.7 0.2 0.0 2.9 3.3 0.1 0.4 -0.7 -0.4 0.8 1.2 Domestic demand ex-stocks 2.1 0.6 2.3 0.6 -0.3 0.8 0.3 -0.4 0.0 0.2 0.3 0.3 0.5 Private consumption 2.6 0.1 2.1 0.4 -0.2 1.2 -0.1 -0.5 -0.2 0.2 0.3 0.3 0.8 Government expenditure 1.9 1.0 3.6 0.8 -0.1 1.6 0.9 1.1 0.4 -0.1 -0.1 -0.1 -0.1 Residential investment -4.2 5.7 2.2 10.8 -7.2 -1.1 1.5 0.9 2.0 3.0 4.0 3.0 2.0 Private non-residential investment 0.8 1.3 1.1 -1.3 1.0 -1.9 0.9 -3.2 -0.5 0.2 0.2 0.2 0.2 Stocks (cont. to growth) 0.8 -0.5 0.1 0.1 -0.1 0.3 -0.2 0.2 0.1 0.0 0.0 0.0 -0.2 Exports 24.3 -0.1 0.9 -0.7 4.1 3.3 1.3 -5.0 -0.5 0.5 1.0 1.0 1.0 Imports 11.2 6.3 6.1 2.3 2.1 2.2 1.8 -0.3 0.5 0.4 0.7 0.7 1.5 Industrial production (% q/q) - - - - - 1.2 -2.0 -4.2 -4.3 1.6 1.8 1.9 2.0 Industrial production (% y/y) 16.5 -2.4 -1.2 -1.5 -0.2 4.7 5.3 -4.6 -9.0 -8.7 -5.1 0.9 7.6 Savings ratio (%) 2.1 3.1 1.4 1.2 0.4 - - - - - - - - (% y/y) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour GDP deflator -2.2 -2.1 -0.8 -0.4 0.2 -1.3 -0.9 -0.7 -0.4 -0.6 -0.3 -0.3 -0.4 Consumption deflator -1.7 -1.1 -0.7 -0.9 0.2 -0.6 -0.6 -0.8 -0.7 -1.1 -0.9 -0.7 -0.7 CPI -0.7 -0.3 0.0 -0.1 1.0 0.3 0.2 -0.4 -0.1 -0.6 -0.3 0.3 0.3 Core CPI -1.0 -0.3 -0.1 -0.1 1.0 0.1 -0.0 -0.2 -0.0 -0.3 -0.2 0.1 0.1 ex consumption tax -1.0 -0.3 -0.1 -0.1 -0.1 0.1 -0.0 -0.2 -0.0 -0.3 -0.2 0.1 0.1 US-like core CPI (2) -1.2 -0.9 -0.6 -0.3 0.7 -0.6 -0.5 -0.6 -0.4 -0.7 -0.5 -0.3 -0.0 Monthly wages 0.5 -0.2 -0.3 -0.2 -0.1 -0.0 -0.4 -0.4 -0.6 -0.1 -0.3 -0.2 -0.1 Employment -0.4 -0.2 0.0 -0.5 -0.6 0.1 0.4 -0.1 -0.3 -0.4 -0.5 -0.6 -0.5 Unemployment rate (%) 5.1 4.6 4.3 4.2 4.2 4.5 4.4 4.3 4.2 4.3 4.2 4.2 4.2 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (JPY trn, sa) 8.0 -1.6 -5.5 -6.0 -4.9 -4.5 -4.4 -6.8 -6.2 -6.1 -6.0 -5.8 -6.2 Current account (JPY trn, sa) 17.9 9.6 5.0 4.9 6.6 5.9 6.1 3.7 4.5 4.6 4.9 5.2 4.9 Current account (% GDP) 3.7 2.0 1.1 1.0 1.4 1.3 1.3 0.8 1.0 1.0 1.0 1.1 1.0 (% y/y) 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Financial variables Money supply (M2) 2.8 2.7 2.5 2.4 2.4 3.0 2.4 2.4 2.3 2.4 2.4 2.4 2.4 Government budget (JPY trn) (3) -40.3 -45.5 -40.8 -34.6 -28.9 - - - - - - - - Government budget (% GDP) (3) -8.4 -9.7 -8.7 -7.3 -6.1 - - - - - - - - Primary balance (% GDP) (3) -6.7 -8.0 -6.9 -5.4 -4.1 - - - - - - - - ex reconstruction (% GDP) (3)(4) -6.7 -6.1 -5.9 -5.6 -4.4 - - - - - - - - Gross gov. debt (% GDP) (3) -180 -192 -199 -206 -212 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest & FX rates (5) O/N call rate (%) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 3-month rate (%) 0.34 0.33 0.30 0.25 0.25 0.32 0.33 0.33 0.30 0.30 0.30 0.25 0.25 2-year rate (%) 0.18 0.14 0.10 0.10 0.10 0.12 0.11 0.10 0.10 0.10 0.10 0.10 0.10 5-year rate (%) 0.40 0.35 0.20 0.20 0.30 0.33 0.22 0.20 0.20 0.20 0.20 0.20 0.20 10-year rate (%) 1.12 0.99 0.75 0.85 0.95 0.99 0.84 0.77 0.75 0.75 0.80 0.80 0.85 USDJPY 81 77 78 75 85 83 80 78 78 76 76 75 75 EURJPY 109 100 104 99 106 110 101 100 104 103 100 101 99 Year Year Year Year 2013 2013 2013 2013 2012 2012 2012 2012 2012 Footnotes: (1) Forecast (2) US-Like Core CPI: CPI excluding food (but including alcoholic beverages) and energy (3) FY, General government excluding social security funds (4) Excluding spending on earthquake disaster reconstruction and revenues from reconstruction tax (5) End period Figures are quarter-on-quarter percentage changes unless otherwise indicated 2013Year Source: BNP Paribas
  18. 18. Chen Xingdong November 2012 Global Outlook 18 www.GlobalMarkets.bnpparibas.com China: Green shoots Chinese economic indicators have improved significantly since September. Some 70% that we closely monitor have picked up. Manufacturing PMI surveys have seen a rebound in new orders, especially domestic ones, while the inventory cycle appears to be turning. Both industrial value-added output and exports have avoided a deeper downturn. Meanwhile, growth in fixed-asset investment (FAI) has accelerated, led by infrastructure. Moreover, funding conditions are easing. Hence, we conclude that the 7.4% y/y GDP growth rate in Q3 is likely to have been the bottom in this cycle. Inflation remains benign in the early stages of the recovery. In recent months, inflation has been softer than expected and looks likely to remain below 3% for the rest of 2012. Thus, we have lowered our inflation forecast from 3.0% to 2.7% for 2012, but are keeping our forecast of 3.6% for 2013. Industrial deflation may also have come to an end, with PMI input prices posting large gains in October. But reflation will be slow, as global commodity prices have retreated after the initial effects of the latest round of developed-market quantitative easing. The improving economy reduces the need for policy easing. The end of the 18 th Party Congress will reduce political uncertainty and boost activity. We no longer expect an interest rate cut this year or next. The PBOC prefers reverse repos to manage both liquidity and interbank rates flexibly. But it is still too early to worry about tightening. Incoming policymakers still regard reasonably high growth as a precondition to solving China’s structural issues. We have raised our GDP growth forecast for 2013 slightly, from 8.0% to 8.3%, on the basis of a cyclical recovery in H1 2013, which will remain limited by structural constraints from Q4 2013. If significant progress is made on reform, boosting confidence, there may be upside risks to our forecast. . Chart 1: Exports remain a drag on the economy (% y/y) -20 -10 0 10 20 30 40 50 01 02 03 04 05 06 07 08 09 10 11 12 -20 -10 0 10 20 30 40 50Delivery value for export Value added of industry (RHS) Source: NBS, BNP Paribas Chart 2: Rising orders and falling inventory -4 -3 -2 -1 0 1 2 3 4 08 09 10 11 12 40 42 44 46 48 50 52 54 56 Final goods inventories (%, inverted, RHS) HSBC/Markit PMI new orders minus output Source: CFLP, BNP Paribas Chart 3: FAI driven by infrastructure (% y/y) -10 0 10 20 30 40 50 60 05 06 07 08 09 10 11 12 FAI Infrastructure PropertyManufacturing Source: NBS, BNP Paribas Chart 4: Rise in inflation reduces need for a rate cut (%) -4 -2 0 2 4 6 8 10 12 14 16 06 07 08 09 10 11 12 -4 -2 0 2 4 6 8 10 12 14 16Real rate deflated by PPI 1-year benchmark lending rate Source: NBS, PBOC, BNP Paribas Green shoots since September suggest Q3 was cyclical bottom Reduced need for additional easing, but tightening is far off Strength and duration of recovery depend on reform progress Inflation remains docile
  19. 19. Chen Xingdong November 2012 Global Outlook 19 www.GlobalMarkets.bnpparibas.com China: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth (2) Total GDP 10.4 9.3 7.7 8.3 7.8 8.1 7.6 7.4 7.6 8.1 8.4 8.7 8.0 Retail sales 18.4 17.1 14.2 15.1 14.8 14.8 14.0 13.8 14.1 14.5 15.1 15.3 15.5 Fixed asset investment 23.8 23.8 20.0 22.0 17.8 20.9 20.2 20.6 18.8 21.5 22.1 23.4 20.8 Exports 31.4 20.4 7.2 9.0 10.5 7.6 10.5 4.5 6.6 5.7 8.2 10.0 11.4 Imports 39.1 25.1 4.8 10.0 11.0 7.1 6.5 1.6 5.1 7.9 11.2 10.7 10.1 Industrial output (3) 15.7 13.9 10.0 11.4 10.6 11.6 9.5 9.1 10.0 10.8 11.8 12.6 11.3 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1(1) Q2(1) Q3(1) Q4(1) Inflation CPI 3.3 5.4 2.7 3.6 3.5 3.8 2.9 1.9 2.3 3.2 3.5 3.6 4.0 PPI 5.3 6.0 -1.7 2.0 4.0 0.2 -1.4 -3.3 -2.1 -0.8 0.6 3.5 4.5 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1(1) Q2(1) Q3(1) Q4(1) External trade Trade balance (USD bn) (4) 183.1 157.9 211.0 211.8 224.0 1.1 68.8 79.5 58.1 -8.2 60.8 84.2 71.2 Current account (USD bn) 237.9 202.0 214.2 198.0 205.3 59.0 53.7 70.6 30.9 11.8 61.8 74.2 50.2 Current account (% GDP) 3.9 2.7 2.5 2.0 2.1 3.4 2.9 3.5 1.2 0.6 2.8 3.2 1.6 Memo: Nom. GDP (USD bn) 5931 7319 8276 9640 11044 1715 1875 2012 2674 1953 2200 2355 3132 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Financial variables Gen. gov. budget (% GDP) -1.7 -1.1 -2.1 -2.2 -2.4 - - - - - - - - Primary budget (% GDP) -1.2 -0.6 -1.6 -1.7 -1.9 - - - - - - - - Foreign reserves (USD bn) (5) 2847 3181 3339 3572 3723 3305 3240 3290 3339 3402 3481 3533 3572 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1(1) Q2(1) Q3(1) Q4(1) Interest & FX rates (5) Official interest rate (%) 5.81 6.56 6.00 6.00 6.25 6.56 6.00 6.00 6.00 6.00 6.00 6.00 6.00 USDRMB 6.59 6.29 6.20 6.02 6.00 6.30 6.35 6.29 6.20 6.15 6.10 6.05 6.02 Footnotes: (1) Forecast (2) Forecasts of GDP growth and industrial output are in real terms but, in the absence of data, forecasts of consumption, investment, exports and imports are in nominal terms (3) Industrial output for enterprises with annual revenue greater than RMB 5 million (4) Trade balance is customs merchandise trade balance (5) End period Figures are year-on-year percentage changes unless otherwise indicated Year 2012 2013 2012 2013Year Year 2012 2013 2012 2013Year Year 2012 2013 Source: BNP Paribas
  20. 20. Evelyn Herrmann November 2012 Global Outlook 20 www.GlobalMarkets.bnpparibas.com Germany: Temporary struggle The German economy is currently suffering from the impact on activity abroad of the eurozone crisis and the downturn in the global manufacturing cycle generally. However, Germany’s fundamentals remain structurally sound and we forecast growth to recover once the global trade cycle picks up in H2 2013. After strong growth in H1 2012, we expect economic conditions to remain weak in the coming months. Industrial production is falling as non-eurozone and domestic orders fail to offset the plunge in eurozone orders. Fixed investment is also continuing to fall as uncertainty over the economic outlook causes companies to postpone investment. However, we expect private consumption to continue to grow throughout the forecast period. The unemployment rate, although rising, is forecast to remain well below its historical average and real wages should continue to rise. As Germany’s exports remain competitive, the economy is set to rebound along with global trade in H2 2013. Inflation pressure will remain subdued due to the current economic slack in the economy and delays in passing though increases in labour costs. The cancellation of some medical fees on 1 January 2013 will also limit inflation next year. We expect core inflation to accelerate gradually from the end of 2013, but to remain well below 2% over the forecast period. The spotlight will increasingly fall on the general election to be held in September 2013. Current polls suggest a grand coalition between the conservative CDU and the Social Democrats (SPD), headed by Chancellor Angela Merkel, is the most likely outcome. We do not believe that this coalition’s approach to the eurozone crisis will change significantly. The pressure for structural adjustment in the eurozone might ease, but mutualisation of debt will remain off the table. Chart 1: GDP expenditure components (2008=100) Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Ifo-clock in downswing Source: Reuters EcoWin Pro, BNP Paribas Chart 3: Factory orders by origin (2005=100,3mma) Source: Reuters EcoWin Pro, BNP Paribas Chart 4: Intra- & extra-eurozone current account (% GDP) Source: Reuters EcoWin Pro, BNP Paribas Economy is structurally sound Consumption to remain strong No inflation pressures for now EU integration dominates the political debate Output will remain weak near term
  21. 21. Evelyn Herrmann November 2012 Global Outlook 21 www.GlobalMarkets.bnpparibas.com Germany: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth (2) GDP (% q/q) - - - - - 0.5 0.3 0.2 -0.3 0.1 0.2 0.4 0.5 GDP 4.0 3.1 0.9 0.5 2.2 1.2 1.0 0.9 0.7 0.3 0.2 0.4 1.2 Domestic demand ex. stocks 1.9 2.4 0.5 0.1 1.6 0.8 1.0 0.3 -0.1 -0.1 0.0 0.0 0.7 Private consumption 0.8 1.7 1.0 1.0 1.7 0.6 1.5 0.7 1.1 1.2 1.0 0.7 1.0 Public consumption 1.7 1.0 1.1 0.6 0.5 1.4 1.1 1.1 0.7 0.8 0.6 0.5 0.5 Fixed investment 5.6 6.4 -1.6 -3.0 2.4 0.5 -0.7 -1.8 -4.5 -5.1 -4.0 -2.8 -0.1 Stocks (cont. to growth, q/q) 0.6 0.2 -0.6 -0.3 0.0 0.4 0.2 0.0 -0.2 -0.2 -0.2 -0.2 -0.2 Exports 13.4 7.9 4.1 2.0 5.0 3.4 5.5 3.5 4.2 3.1 0.9 1.5 2.6 Imports 10.9 7.5 2.3 0.8 4.3 3.3 3.3 1.1 1.5 1.4 -0.5 0.5 1.9 Industrial production 10.1 8.1 0.3 -0.2 3.3 0.7 -0.2 -1.2 -1.4 -0.9 -1.0 -0.8 1.8 Savings ratio 10.9 10.4 10.4 9.5 8.4 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour HICP 1.2 2.5 2.1 1.6 1.8 2.4 2.1 2.1 2.0 1.5 1.6 1.6 1.6 Core HICP 0.6 1.2 1.3 1.0 1.6 1.3 1.4 1.2 1.2 0.8 0.9 1.1 1.1 PPI 1.7 5.7 2.1 2.4 2.5 3.3 2.0 1.4 1.6 1.9 2.3 2.7 2.6 Compensation per employee 2.4 3.4 3.4 2.8 2.8 2.6 2.9 4.1 4.0 3.0 3.0 2.7 2.7 Employment 0.6 1.4 0.9 0.2 0.5 1.4 1.1 0.9 0.3 0.2 0.2 0.1 0.2 Unemployment rate (%) 7.7 7.1 6.8 7.0 6.9 6.8 6.8 6.8 6.9 6.9 7.0 7.1 7.1 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (EUR bn, sa) 151.9 156.0 175.8 170.8 166.5 42.5 47.8 41.4 44.1 43.8 45.8 39.1 42.0 Current account (EUR bn, nsa) 148.0 147.0 169.7 157.5 152.7 39.7 41.9 46.5 41.6 41.0 39.8 37.3 39.4 Current account (% GDP) 5.9 5.7 6.4 5.9 5.5 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Financial variables Federal gov. budget (EUR bn) -82 -26 -28 -20 -16 - - - - - - - - General gov. budget (EUR bn) -103 -19 -13 -9 -1 - - - - - - - - General gov. budget (% GDP) -4.1 -0.7 -0.5 -0.3 0.0 - - - - - - - - Primary budget (EUR bn) -55 26 35 41 49 - - - - - - - - Primary budget (% GDP) -2.2 1.0 1.3 1.5 1.7 - - - - - - - - Gross gov. debt (% GDP) (3) 82.5 80.5 80.9 79.8 77.1 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest rates (3) 3-month rate (%) 1.01 0.50 0.20 0.20 0.50 0.78 0.65 0.22 0.20 0.20 0.20 0.20 0.20 10-year rate (%) 2.96 2.35 1.25 1.75 2.35 1.81 1.60 1.44 1.25 1.20 1.30 1.50 1.75 2013 2013 2013 2013 2013 2012 2012 2012 Year Year Year Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) End period Figures are year-on-year percentage changes unless otherwise indicated 2012 2012 Year Year Source: BNP Paribas
  22. 22. Dominique Barbet November 2012 Global Outlook 22 www.GlobalMarkets.bnpparibas.com France: Rough seas Both business surveys and hard data suggest the economy is now in recession and, with discretionary fiscal tightening amounting to 2% of GDP next year, we forecast GDP to be unchanged, on average, in 2013. After failing to grow for five quarters, GDP surprised to the upside in Q3, rising 0.2% q/q. However, recent data suggest that activity is now contracting. The prospect of next year’s fiscal tightening is already weighing on personal spending. Weak domestic demand and the corporate sector’s low profitability will not support a recovery in investment. Against this background, exports have become the main contributor to growth, but are unlikely to pick up fast enough to lead to a sustained rise in GDP until H2 2013. The unemployment rate is still on a rising trend. The high number of unemployed and under-employed workers is limiting wage growth, which, in turn, should push core inflation down to around 1.1% for most of 2013. Volatility of headline inflation will stem from moves in commodity prices – oil, in particular. The lack of growth should be the main factor behind the overshoot of the 3%-of-GDP target for the budget deficit that we are expecting in 2013. However, the European Commission has already suggested that, given the amount of fiscal tightening already scheduled, it would not recommend further tightening in 2013 to reach the target. The government has presented a plan to boost competitiveness. We believe that it is too back loaded. Structural reforms of the goods and services markets are also needed. Political pressure from the rest of Europe, France’s lack of competitiveness and rising unemployment will increase the need for more reforms. Chart 1: GDP and employment growth (% y/y) Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Unemployment rate (%) Source: Reuters EcoWin Pro, BNP Paribas Chart 3: Foreign trade (real, % of GDP) Source: Reuters EcoWin Pro, BNP Paribas (RHS) Chart 4: HICP, wages and purchasing power (% y/y) Source: Reuters EcoWin Pro, BNP Paribas In recession Inflation set to remain low 2013 budget overshoot acceptable More structural reforms needed
  23. 23. Dominique Barbet November 2012 Global Outlook 23 www.GlobalMarkets.bnpparibas.com France: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth (2) GDP (% q/q) - - - - - 0.0 -0.1 0.2 -0.2 -0.1 0.0 0.2 0.2 GDP 1.6 1.7 0.1 0.0 0.9 0.2 0.1 0.1 0.0 -0.1 0.0 -0.1 0.3 Domestic demand ex stocks 1.5 0.8 0.3 -0.2 0.4 0.1 0.6 0.6 0.1 -0.1 -0.3 -0.4 0.1 Private consumption 1.4 0.2 0.0 0.2 0.3 -0.6 0.1 0.1 0.1 -0.1 0.2 0.0 0.6 Public consumption 1.8 0.2 1.3 1.0 0.7 0.8 1.3 1.6 1.4 1.1 1.0 0.9 0.9 Fixed investment 1.1 3.6 0.3 -2.6 0.4 1.1 1.2 0.7 -1.8 -1.7 -3.0 -3.4 -2.3 Stocks (cont. to growth, q/q) 0.0 0.8 -0.9 0.0 0.1 0.1 0.2 -0.3 0.1 0.0 0.0 0.1 -0.2 Exports 9.2 5.5 2.5 2.4 5.4 3.5 3.0 2.6 1.0 1.4 1.9 2.6 3.6 Imports 8.5 5.3 0.2 1.4 3.7 -1.8 0.7 0.2 1.6 1.2 0.2 1.8 2.4 GDP unadjusted (3) 1.6 1.7 0.2 -0.1 0.8 0.6 0.1 0.1 0.0 -0.5 -0.1 0.0 0.2 Industrial production 4.7 1.8 -2.1 -2.0 1.8 -1.9 -2.0 -2.1 -2.3 -2.5 -2.4 -2.3 -0.7 Savings ratio (%) 15.9 16.2 16.1 15.5 15.2 16.1 16.5 16.0 15.9 15.9 16.0 15.6 14.6 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour HICP 1.7 2.3 2.3 1.7 2.1 2.6 2.3 2.3 1.9 1.7 1.6 1.7 1.9 Core HICP 1.0 1.1 1.5 1.1 1.9 1.5 1.7 1.7 1.1 1.1 1.0 1.0 1.2 Monthly wages 1.8 2.2 2.1 2.0 2.3 2.2 2.1 2.2 2.1 1.9 1.9 2.0 2.0 Private NF payrolls 0.1 0.9 -0.1 -0.7 0.0 0.2 -0.2 -0.2 -0.3 -0.7 -0.8 -0.7 -0.6 Unemployment rate (%) 9.7 9.6 10.3 11.0 11.2 10.0 10.3 10.5 10.6 10.7 10.9 11.1 11.3 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (EUR bn, sa) -52 -73 -66 -60 -50 -18 -18 -15 -15 -16 -16 -15 -13 Current account (EUR bn, sa) -30 -39 -42 -40 -28 -11 -13 -9 -9 -11 -11 -10 -8 Current account (% GDP) -1.6 -2.0 -2.1 -1.9 -1.3 -2.2 -2.5 -1.8 -1.8 -2.2 -2.1 -1.9 -1.5 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Financial variables Central gov. budget (EUR bn) -122 -88 -79 -68 -58 - - - - - - - - Central gov. budget (% GDP) -6.3 -4.4 -3.9 -3.3 -2.8 - - - - - - - - General public budget (EUR bn) -137 -103 -92 -79 -63 - - - - - - - - General public budget (% GDP) -7.1 -5.2 -4.5 -3.8 -3.0 - - - - - - - - Primary budget (EUR bn) -71 -32 -25 -13 -1 - - - - - - - - Primary budget (% GDP) -3.7 -1.6 -1.2 -0.6 0.0 - - - - - - - - Gross gov. debt (% GDP) (4) 82.1 86.0 89.8 92.8 93.5 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest rates (4) 3-month (%) 1.01 1.36 0.20 0.20 0.50 0.78 0.65 0.22 0.20 0.20 0.20 0.20 0.20 10-year rate (%) 3.35 3.15 2.15 2.45 2.85 2.14 2.16 2.19 2.15 2.20 2.20 2.30 2.45 Spread over Bund (bp) 39 132 90 70 50 33 56 75 90 100 90 80 70 Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) Unadjusted for calendar effects (BNP Paribas estimate) (4) End period Year Year 2012 2012 Year Year Year 2012 2012 2012 2013 2013 2013 2013 2013 Source: BNP Paribas
  24. 24. Luigi Speranza November 2012 Global Outlook 24 www.GlobalMarkets.bnpparibas.com Italy: Headwinds softening Leading indicators have shown signs of stabilising recently, consistent with our view that the fall in economic activity is already slowing and will continue to do so for the next couple of quarters. In 2013, we expect growth to resume, albeit gradually, reflecting the slower pace of fiscal consolidation (the cyclically adjusted budget deficit will be reduced by around 1% of GDP, compared with a cut of around 3% of GDP in 2012) and easier monetary and financial conditions. Credit constraints persist, especially for small and medium-sized enterprises, but the recent fall in interest rates on loans to businesses (Chart 4) is encouraging. The government has recently raised its fiscal deficit targets for both this year and 2013, reflecting lower-than-anticipated growth. The new estimate for this year’s budget deficit (2.6% of GDP) looks cautious in view of the government’s success in fighting tax evasion and we would not be surprised if the deficit were slightly below target. Conversely, the 2013 target of 1.8% of GDP is at risk, we believe, in the absence of additional fiscal measures. The government’s focus has gradually shifted from fiscal consolidation to growth. The announcement of income tax cuts in 2013, financed by an increase in VAT rates, is part of this strategy. While neutral on the budget, this decision is aimed at demonstrating the eventual rewards of austerity. The general election in spring 2013 is a key risk factor. Recent opinion polls suggest that no party will win a clear victory. In such an event, we believe the current prime minister, Mario Monti, will be asked to lead the new government. However, during the election campaign, traditional parties may be tempted to distance themselves from the Monti administration, leading to a sharp increase in uncertainty about the policy outlook. Chart 1: OECD leading index and IP Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Industrial orders (index, 2005 = 100) Source: Reuters EcoWin Pro, BNP Paribas Chart 3: Change in cyclically adjusted primary balance 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Germany France Italy Spain Portugal Greece Ireland Eurozone 2011 2012 2013 (% GDP) Source: Reuters EcoWin Pro, BNP Paribas Chart 4: Interest rates on new loans to non-financial corporations (%) Source: Reuters EcoWin Pro, BNP Paribas Growth to resume in 2013 New deficit target for 2012 looks cautious Election risk remains high Policy geared towards growth
  25. 25. Luigi Speranza November 2012 Global Outlook 25 www.GlobalMarkets.bnpparibas.com Italy: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth GDP (% q/q) - - - - - -0.8 -0.7 -0.2 -0.5 -0.2 0.1 0.1 0.2 GDP 1.8 0.6 -2.1 -0.7 0.7 -1.4 -2.4 -2.4 -2.2 -1.6 -0.8 -0.5 0.2 Domestic demand ex. stocks 0.9 -0.4 -4.0 -2.3 0.2 -3.3 -4.1 -4.4 -4.0 -3.4 -2.7 -2.0 -1.1 Private consumption 1.2 0.1 -3.5 -2.0 0.1 -2.8 -3.7 -4.0 -3.7 -3.0 -2.4 -1.8 -0.9 Public consumption -0.6 -0.8 -1.2 -2.2 -0.5 -1.5 -0.9 -1.1 -1.2 -1.8 -2.6 -2.3 -2.2 Fixed investment 2.0 -1.3 -8.5 -3.4 1.1 -7.0 -9.0 -9.6 -8.2 -6.2 -4.1 -2.2 -0.7 Stocks (cont. to growth, y/y) 1.2 -0.5 -0.6 0.3 0.0 -1.2 -1.0 -0.3 0.0 0.5 0.5 0.1 0.1 Exports 11.2 6.7 1.2 3.5 5.2 1.7 1.3 0.8 0.8 2.4 3.3 3.7 4.7 Imports 12.3 1.2 -7.7 -0.8 3.9 -9.2 -8.2 -7.3 -5.7 -1.9 -1.6 -0.7 0.9 Industrial production 6.7 0.2 -6.0 -1.2 3.5 -5.3 -7.5 -6.0 -5.0 -3.4 -1.5 -0.9 1.0 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour HICP 1.6 2.9 3.3 2.1 1.7 3.6 3.6 3.4 2.6 2.0 1.7 2.3 2.3 Core HICP 1.7 2.0 2.0 1.9 1.9 2.2 2.3 2.1 1.4 1.3 1.4 2.3 2.6 Monthly wages 2.2 1.8 1.4 1.4 1.5 1.3 1.4 1.5 1.4 1.3 1.2 1.4 1.4 Employment -0.6 0.3 0.0 -0.5 0.5 0.0 0.1 0.0 -0.1 -0.5 -0.7 -0.6 -0.1 Unemployment rate (%) 8.4 8.4 10.6 11.4 11.4 10.1 10.6 10.8 11.1 11.2 11.4 11.5 11.5 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (EUR bn) -30.1 -23.6 8.7 14.7 12.7 -4.2 6.5 4.5 1.8 -2.7 8.0 6.0 3.3 Current account (EUR bn) -54.7 -48.4 -18.7 -12.7 -14.7 -13.1 -0.8 -3.5 -1.3 -11.6 0.7 -2.0 0.2 Current account (% of GDP) -3.5 -3.1 -1.2 -0.8 -0.9 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Financial variables General gov. budget (EUR bn) -67.3 -59.8 -40.0 -29.0 -18.0 - - - - - - - - General gov. budget (% GDP) -4.4 -3.8 -2.5 -1.8 -1.1 - - - - - - - - Primary budget (EUR bn) 1.8 16.5 47.2 61.0 78.5 - - - - - - - - Primary budget (% GDP) 0.1 1.0 3.0 3.8 4.8 - - - - - - - - Gross gov. debt (% GDP) (2) 119.2 120.7 126.5 126.3 123.8 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest rates (2) 3-month rate (%) 1.01 1.36 0.20 0.20 0.50 0.78 0.65 0.22 0.20 0.20 0.20 0.20 0.20 10-year rate (%) 4.87 7.08 5.20 4.50 4.85 5.73 5.02 5.16 5.20 5.25 4.40 4.55 4.50 Spread over Bund (bp) 191 525 395 275 250 392 342 373 395 405 310 305 275 2013 2013 2012 20132012 2013 2013 Year Year Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated 2012 2012 2012Year Year Year Source: BNP Paribas
  26. 26. Ricardo Santos November 2012 Global Outlook 26 www.GlobalMarkets.bnpparibas.com Spain: Recession deepening Fiscal tightening and the deleveraging of Spain’s private sector is leading to a deepening of the recession. As a result, we expect GDP to fall 1.8% in 2013 after contracting 1.4% in 2012. At present, the economy is probably experiencing its steepest quarterly fall of the recession, due to September’s 2pp VAT increase and as consumers tighten their belts ahead of cuts to public-sector wages in December. Banks need to deleverage further to meet the conditions for recapitalisation funding from the EU. Hence, credit is likely to continue to contract. Moreover, as the Spanish ‘bad bank’ steps up the disposal of property assets, the housing market is likely to remain under downward pressure. We forecast house prices to have fallen 13% y/y by the end of this year. Meanwhile, unemployment is likely to continue to rise, averaging almost 27% in 2013, as both the private and the public sector continue to cut jobs. The only support to activity is likely to come from a gain in net trade. However, the improvement will be limited by weak export growth because of falling demand from other eurozone countries. The only bright spot will be exports to outside the eurozone. We forecast inflation to remain above 2% until the impact of September 2012’s rise in VAT falls out of the year-on-year inflation rate late in 2013. We expect Spain to ask for official support from the EFSF/ESM and ECB in Q1 2013 due to its continued fiscal problems, especially if market tensions rise. We forecast the 2012 budget deficit at 8.2% of GDP, above the 6.3% target, as the new financial control mechanisms for the country’s autonomous regions are not yet in place and the deficit will include the cost of banks’ recapitalisation. Although it is likely to be more closely monitored by the European Commission, we expect Spain to miss its deficit target in 2013. Recent comments by the EU suggest some leeway is possible. Chart 1: Public balance (% GDP) Source: Reuters EcoWin Pro, Ministry of Finance, BNP Paribas Chart 3: Composite PMI and GDP growth Source: Reuters EcoWin Pro, BNP Paribas Chart 2: GDP and domestic demand (% y/y) -8.5 -6.5 -4.5 -2.5 -0.5 1.5 3.5 5.5 7.5 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 GDP Domestic Demand Source: Reuters EcoWin Pro, BNP Paribas Chart 4: Labour market Source: Reuters EcoWin Pro, BNP Paribas Chart 1: Fiscal tightening (% GDP) 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2012 2013 2014 Change in cyclically adjusted budget balance April 2012 September 2012 Source: Reuters EcoWin Pro, BNP Paribas Chart 3: Fiscal measures (% of GDP) Mar 12 Jun 12 Sep 12 Regional spending cuts (0.6%)Spending cuts (0.6%) Income-tax increase (0.6%) Social benefit cuts (0.3%) Regional tax increases (0.3%) VAT increase (0.5%) Wage cuts (0.3%) Dec 12 Source: Ministry of Finance, BNP Paribas Chart 2: Public and private employment growth (% y/y) Source Reuters EcoWin Pro, BNP Paribas Chart 4: Central government cash deficit (% GDP) Source: Ministry of Finance, BNP Paribas GDP to shrink further Inflation set to fall Net trade will be the only support Budget deficit to exceed targets in 2012 and 2013 Unemployment to continue to increase
  27. 27. Ricardo Santos November 2012 Global Outlook 27 www.GlobalMarkets.bnpparibas.com Spain: Economic and financial forecasts 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Components of growth GDP (% q/q) - - - - - -0.4 -0.4 -0.3 -0.9 -0.6 -0.3 -0.2 -0.1 GDP -0.1 0.4 -1.4 -1.8 0.0 -0.7 -1.4 -1.6 -2.0 -2.2 -2.1 -2.0 -1.2 Domestic demand ex stocks -1.4 -1.7 -3.6 -3.8 -1.0 -0.3 -4.9 -5.5 -4.5 -3.1 -1.6 -0.4 0.3 Private consumption 0.4 -0.9 -1.9 -2.5 -0.9 -0.6 -1.8 -3.1 -3.3 -4.6 -3.9 -2.3 -0.8 Public consumption -0.7 -0.5 -4.0 -4.6 -2.7 -6.3 -4.8 -4.1 -4.5 -5.2 -4.2 -3.5 -2.5 Fixed investment -7.6 -5.3 -8.8 -5.0 1.2 -8.2 -9.9 -10.9 -7.8 -4.9 -1.8 -0.3 0.7 - Construction -11.1 -7.1 -9.8 -6.3 -2.1 -5.0 -4.1 -3.3 -2.0 -1.6 -1.0 -0.8 -0.5 - Other -2.0 -1.6 -5.0 -3.2 3.1 -3.2 -4.0 -5.0 -5.5 -2.8 -2.2 1.0 2.0 Stocks (cont. to growth, y/y) 0.4 0.2 0.1 0.0 0.2 0.3 0.4 0.3 0.2 0.1 0.2 0.1 0.0 Exports 10.3 7.6 3.5 3.7 3.9 2.2 2.1 -0.6 2.5 5.5 7.0 7.4 7.6 Imports 5.4 -0.9 -4.7 -4.4 -0.7 -7.2 -7.3 -9.4 -2.5 -0.2 2.9 4.2 4.7 Industrial production 0.9 -1.4 -5.4 -0.3 0.8 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Inflation & labour HICP 2.0 3.1 2.5 2.5 0.9 1.9 1.9 2.8 3.4 3.7 3.1 1.9 1.3 Core HICP 0.8 1.2 1.3 1.6 0.8 0.8 0.8 1.3 2.2 2.4 2.3 1.4 0.4 Compensation of employees -2.3 -0.8 -3.6 -2.1 -1.0 -3.2 -4.5 -4.5 -3.5 -1.9 -0.8 0.1 0.3 Employment -2.6 -1.9 -3.8 -2.0 0.2 -2.9 -4.6 -3.2 -2.7 -2.3 -1.7 -0.7 -0.2 Unemployment rate (%) 20.1 21.6 25.4 26.9 27.5 24.4 25.0 25.5 26.0 26.4 26.8 27.2 27.3 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) External trade Trade balance (EUR bn) -52.3 -46.3 -36.5 -17.6 -4.1 -10.7 -9.2 -9.0 -9.4 -5.0 -4.1 -4.6 -5.8 Current account (EUR bn) -47.4 -37.5 -31.7 -11.5 2.4 -15.0 -7.2 -4.4 -7.5 -8.8 -1.7 0.2 -3.2 Current account (% of GDP) -4.5 -3.5 -3.0 -1.1 0.2 -5.8 -2.7 -1.8 -2.8 -3.5 -0.6 0.1 -1.2 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Financial variables General gov. budget (EUR bn) -98.3 -96.1 -87.8 -57.9 -42.2 - - - - - - - - General gov. budget (% GDP) -9.2 -8.9 -8.2 -5.5 -4.0 - - - - - - - - Primary budget (EUR bn) -77.8 -66.9 -49.3 -18.8 -1.2 - - - - - - - - Primary budget (% GDP) -7.3 -6.2 -4.6 -1.3 -0.1 - - - - - - - - Gross gov. debt (% GDP) (2) 60.1 70.9 87.6 93.7 96.3 - - - - - - - - 10 11 12 (1) 13 (1) 14 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) Q2 (1) Q3 (1) Q4 (1) Interest rates (2) 3-month rate (%) 1.01 1.36 0.20 0.20 0.50 0.78 0.65 0.22 0.20 0.20 0.20 0.20 0.20 10-year rate (%) 5.46 5.11 6.10 5.50 5.35 5.97 5.87 5.96 6.10 6.25 5.15 5.40 5.50 Spread over Bund (bp) 250 329 485 375 300 416 427 452 485 505 385 390 375 2013 Figures are year-on-year percentage changes unless otherwise indicated 2012 Footnotes: (1) Forecast (2) End period Year 2013 2013 2013 20132012 2012 2012 2012 Year Year Year Year Source: BNP Paribas
  28. 28. Raymond van der Putten November 2012 Global Outlook 28 www.GlobalMarkets.bnpparibas.com Netherlands: Pruning for health Domestic spending will remain subdued in the coming years. Households, facing high indebtedness and rising unemployment, continue to rein in spending. Moreover, business confidence is at a record low. Production is not only being hampered by a lack of demand, but also increasingly by financing constraints (Chart 2). Hence, the external sector should remain the main engine of growth. Thanks to the impact on competitiveness of limited wage growth, Dutch exporters will retain market share and exports should rise. In contrast, imports are expected to be subdued, resulting in a substantial and growing surplus on the current account. Inflation should remain well above 2% in 2013, mainly due to a 2pp hike in the standard VAT rate to 21% from October 2012, although retailers will find it difficult to pass on all of the VAT increase to their customers. However, higher consumer prices are unlikely to translate into pay rises, as rising unemployment is undermining trade unions’ bargaining position, particularly in light of the pay freeze in the public sector. Wage growth has been below inflation since 2010. Following September’s election, the liberal VVD party and the Labour Party (PvdA) succeeded in bridging their ideological differences to form a grand coalition. The main objective is to achieve a balanced budget in the medium term. To this effect, the parties have agreed a savings plan, worth EUR 16bn, or 2.5% of GDP. The main measures are: limiting mortgage tax deductibility in exchange for lower income taxes, limiting unemployment benefits to two years, easing employment protection rules and gradually raising the retirement age to 66 by 2018 and 67 by 2021. The main risk is the housing market. Around 20% of mortgage borrowers are in negative equity, while house prices are still trending down. The number of mortgages in arrears could increase rapidly in tandem with the deterioration in the labour market. Chart 1: Burst housing bubble weighing on spending -10 -8 -6 -4 -2 0 2 4 6 8 08 09 10 11 12 -5 -4 -3 -2 -1 0 1 2 3 4 House prices (% y/y) Domestic consumption (3mma, % y/y, RHS) Source: Statistics Netherlands Chart 2: Increasing financing problems for industry* 0 10 20 30 40 50 60 70 October 2010 October 2011 October 2012 No bottlenecks Insufficient demand Financing problems % of responses Source: Statistics Netherlands *Factors limiting production Netherlands: Economic forecasts 2010 2011 2012 (1) 2013 (1) 2014 (1) Components of growth Total GDP 1.6 1.0 -0.9 -0.3 0.9 Dom. demand ex. stocks -1.1 0.6 -1.5 -1.1 0.6 Private consumption 0.3 -1.0 -1.2 -1.8 0.2 Public consumption 0.7 0.1 0.3 0.0 0.0 Fixed investment -7.2 5.7 -5.0 -1.0 2.5 Stocks (cont. to growth) 1.2 -0.1 0.0 0.1 0.1 Exports 11.2 3.9 1.9 1.2 4.5 Imports 10.2 3.6 1.5 0.6 4.8 Industrial production 7.0 3.4 -1.5 0.0 2.3 Savings ratio (%) 3.4 5.0 5.2 5.3 5.4 Inflation & labour CPI 1.3 2.3 2.5 2.3 1.7 HICP 0.9 2.5 2.8 2.5 1.8 Core HICP 1.1 1.7 2.2 2.5 1.9 Contract wages 1.2 1.3 1.5 1.3 1.3 Employment -1.1 0.0 -1.1 -1.3 -0.1 Unemployment rate (%) 4.5 4.4 5.4 6.8 7.0 External trade Trade balance (EUR bn) 39.6 44.4 45.8 49.0 50.4 Current account (EUR bn) 45.1 58.6 60.1 64.2 68.7 Current account (% GDP) 7.7 9.7 9.9 10.5 11.0 Financial variables General gov. budget (EUR bn) -30.0 -27.1 -23.3 -19.6 -17.6 General gov. budget (% GDP) -5.1 -4.5 -3.9 -3.2 -2.8 Primary budget (EUR bn) -21.9 -18.3 -15.4 -11.7 -10.2 Primary budget (% GDP) -3.7 -3.0 -2.5 -1.9 -1.6 Gross gov. debt (% GDP) (2) 62.8 65.5 71.9 73.5 74.0 Interest rates (2) 3-month rate (%) 0.67 1.36 0.20 0.20 0.50 10-year bond yield (%) 3.11 1.75 1.55 2.05 2.55 Spread over Bund (bp) 131 39 30 30 20 Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated Source: BNP Paribas Number of mortgages in arrears could rise rapidly Exports remain the main growth engine as domestic sectors continue to deleverage EUR 16bn savings programme to achieve balanced budget in medium term Second-round effects of VAT hike likely to be limited
  29. 29. IMPORTANT DISCLOSURE: This analysis has been produced by Fortis Bank sa/nv and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of Fortis Bank with a 74.93% stake. This analysis does not contain investment research recommendations. Steven Vanneste November 2012 Global Outlook 29 www.GlobalMarkets.bnpparibas.com Belgium: Resilience waning While the Belgian economy escaped recession in Q3, it may not have escaped it entirely. Economic activity was particularly weak at the start of Q4, with all leading indicators pointing downwards and, in some cases, plunging (such as companies’ appraisal of the evolution of industrial production, Chart 1). Recent announcements of mass layoffs pose a real threat to the resilience of the labour market, a key foundation of domestic demand. Furthermore, the need for fiscal consolidation and to control unit labour costs (Chart 2) will weigh on consumers’ purchasing power. Some support is expected from exports in 2013 as activity slowly picks up in the US, China and Germany. Nevertheless, as capacity utilisation remains well below its long-term average, it will take time before this translates into investment growth. A fall in energy inflation has lowered Belgian inflation back in line with the eurozone average. However, core inflation is still rising faster in Belgium as a consequence of its wage growth. While the automatic wage-indexation system will be left largely untouched, the government is set to tighten wage policy to limit real wage growth and bring labour costs more in line with Belgium’s neighbouring countries. A total consolidation effort of almost 4% of GDP has been needed to lower the budget deficit below 3% of GDP in 2012. Although the pace of austerity is more moderate in 2013 (1.3% of GDP), the softer policy options are largely running out, putting stress on the six-party coalition. However, financial conditions have remained favourable, with the 10y Olo government and 3m treasury certificate rates at record lows. Threats to political cohesion, a correction of house prices and a lack of improvement in Belgium’s competitiveness are the main risks to the economic outlook. Chart 1: Industrial production Industrial production (% y/y) -20 -15 -10 -5 0 5 10 15 20 05 06 07 08 09 10 11 12 13 -25 -20 -15 -10 -5 0 5 10 15 20 Appraisal of production rate (RHS) Source: Reuters EcoWin Pro, BNP Paribas Chart 2: Unit labour cost index (whole economy) 95 100 105 110 115 120 125 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 France Belgium Netherlands Germany Q1 2002 = 100 Source: Reuters EcoWin Pro, BNP Paribas Belgium: Economic forecasts 2010 2011 2012 (1) 2013 (1) 2014 (1) Components of growth Total GDP 2.4 1.8 -0.2 0.0 1.2 Dom. demand ex stocks 1.4 1.2 -0.4 -0.1 1.2 Private consumption 2.7 0.2 -0.7 0.0 1.4 Public consumption 0.7 0.8 0.0 -0.4 -0.1 Fixed investment -1.4 4.1 -0.1 -0.1 2.5 Stocks (cont. to growth) 0.3 0.7 -0.3 -0.2 0.0 Exports 9.6 5.6 0.5 2.3 4.7 Imports 8.9 5.8 0.1 1.9 4.8 Industrial production 8.4 4.3 -4.4 -0.3 3.4 Savings ratio (%) 15.4 14.4 15.8 15.5 16.1 Inflation & labour HICP 2.3 3.5 2.6 1.9 1.5 Core HICP 1.1 1.7 1.9 1.7 1.5 Wages 1.5 3.2 3.2 2.2 0.7 Employment 0.8 1.4 0.1 -0.2 1.0 Unemployment rate (%) 8.3 7.2 7.4 7.9 7.6 External trade Trade balance (EUR bn) 13 7 12 13 13 Current account (EUR bn) 7 -5 1 2 2 Current account (% GDP) 1.9 -1.4 0.2 0.6 0.5 Financial variables General gov. budget (EUR bn) -13 -14 -11 -9 -5 General gov. budget (% GDP) -3.8 -3.7 -2.9 -2.3 -1.2 Primary budget (EUR bn) -1.6 -1.5 1.8 4.2 9.3 Primary budget (% GDP) -0.4 -0.4 0.5 1.2 2.3 Gross gov. debt (% GDP) (2) 96.4 98.7 100.7 101.7 100.3 Interest rates (2) 3-month rate (%) 0.67 1.36 0.20 0.20 0.50 10-year bond yield (%) 4.16 3.27 2.30 2.65 3.15 Spread over Bund (bp) 237 192 105 90 80 Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated Source: BNP Paribas Fortis Q4 2012 started badly Wage restraint Moderate fiscal austerity, but difficult political choices
  30. 30. Catherine Stephan November 2012 Global Outlook 30 www.GlobalMarkets.bnpparibas.com Austria: A wait-and-see attitude After GDP fell by 0.1% q/q in Q3 2012, surveys suggest that activity has weakened further towards the end of the year. The weakness of activity in the eurozone, particularly in Germany and Italy, Austria’s two most important trading partners, is expected to continue to weigh on exports in the coming months. Moreover, the further decrease in the capacity utilisation rate to 83.6% in Q3 2012, below its long-term average, together with modest growth prospects and persistent uncertainties are likely to prompt companies to postpone some of their investment plans. Despite wage rises at the beginning of the year and a slowdown in inflation, private consumption remained flat in the autumn and is unlikely to pick up in the coming months. The uncertain economic climate and a further rise in the unemployment rate (from 4.5% in Q3 2012) will weigh on earnings and household confidence. Hence, we forecast Austrian GDP to remain weak in the coming quarters and to grow by only 0.5% and 0.7%, respectively, in 2012 and in 2013. After accelerating in September due to an increase in energy and clothing prices, inflation should resume its downward trend. The high level of spare capacity in the economy will restrain price pressures, particularly in terms of core inflation. After an expected 2.5% this year, we expect the inflation rate to average 2.0% in 2013. Support to the financial sector and measures implemented within the framework of crisis management in the eurozone are weighing on public finances. Although a second package of fiscal-consolidation measures was agreed at the start of the year, we expect the budget deficit to rise from 2.5% of GDP in 2011 to 3.2% in 2012. Due to the economy’s high reliance on economic conditions in its main trading partners, particularly Germany, Austria’s medium-term outlook is dependent on the course of the eurozone debt crisis. Chart 1: GDP and economic sentiment indicator 0 20 40 60 80 100 120 140 Mar 92 Mar 94 Mar 96 Mar 98 Mar 00 Mar 02 Mar 04 Mar 06 Mar 08 Mar 10 Mar 12 GDP (% y/y, RHS) -8 -6 -4 -2 0 2 4 6 8 Economic sentiment indicator: Composite measure Source: European Commission, BNP Paribas Chart 2: Investment and capacity utilisation -15 -10 -5 0 5 10 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 GFCF (% y/y) 72 74 76 78 80 82 84 86 88 90 Capacity utilisation (%, RHS) Source: European Commission, Eurostat, BNP Paribas Austria: Economic forecasts 2010 2011 2012 (1) 2013 (1) 2014 (1) Components of growth Total GDP 2.1 2.7 0.5 0.7 1.8 Dom. demand ex stocks 1.2 2.0 0.6 0.5 1.3 Private consumption 1.7 0.7 0.3 0.4 0.8 Public consumption 0.2 0.1 1.1 0.8 0.6 Fixed investment 0.8 7.3 1.0 0.4 3.1 Stocks (cont. to growth) 0.7 0.4 -0.2 -0.1 0.0 Exports 8.7 7.2 1.8 2.5 4.2 Imports 8.8 7.2 1.7 2.1 3.6 Industrial production 4.5 5.7 2.2 2.0 4.3 Savings ratio (%) 8.4 7.5 7.8 7.7 7.8 Inflation & labour HICP 1.7 3.6 2.5 2.0 2.1 Core HICP 1.3 2.5 2.0 1.7 1.9 Employment 0.6 1.8 1.2 1.0 1.2 Unemployment rate (%) 4.4 4.2 4.4 4.7 4.5 External trade Trade balance (EUR bn) -3.2 -7.5 -6.6 -5.7 -4.6 Current account (EUR bn) 9.7 1.7 3.4 3.6 4.3 Current account (% GDP) 3.4 0.6 1.1 1.1 1.3 Financial variables General gov. budget (EUR bn) -12.9 -7.6 -9.7 -8.7 -6.1 General gov. budget (% GDP) -4.5 -2.5 -3.2 -2.8 -1.9 Primary budget (EUR bn) -5.3 0.2 -0.4 -0.6 2.9 Primary budget (% GDP) -1.8 0.1 -0.1 -0.2 0.9 Gross gov. debt (% GDP) (2) 72.0 72.4 74.7 75.8 75.0 Interest rates (2) 3-month rate (%) 1.01 1.36 0.20 0.20 0.50 10-year bond yield (%) 3.49 1.85 1.70 2.15 2.70 Spread over Bund (bp) 126 49 45 40 35 Figures are year-on-year percentage changes unless otherwise indicated Footnotes: (1) Forecast (2) End period Source: BNP Paribas Downward trend in inflation interrupted A climate of uncertainty Public deficit under control Private consumption remains flat Hit by the eurozone crisis

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