The document summarizes the global economic outlook following the 2008 financial crisis. It discusses different theories on the shape and strength of economic recoveries after financial crises. It then analyzes the economic situations and outlooks of various regions and countries around the world, including challenges faced by developed economies in Europe and growth prospects for emerging economies such as China, India, and countries in the Middle East.

1. The new normal Or, where the world goes from here Robert Powell Senior editor, MENA [email_address] Dubai June 2010

2. Where are we now?

3. Global: Recoverology Bounce-back theory: “V” The sharper the contraction, the stronger the recovery Financial-impairment theory: “U”, “L” Recoveries following financial crises are much slower than normal recoveries Borrowed-time theory: “W” Stimulus boosts economy at the cost of weakness later Armageddon theory: “Q” Too grim to talk about

4. Global: World trade bounces back World trade volumes. 2000=100. Seasonally adjusted. Source: CPB Netherlands Bureau for Economic Policy Analysis.

5. Financial markets: Fragile 3-month LIBOR/3-month overnight index swap (OIS) spread, percentage points. A higher spread denotes more market stress . Sources: Haver Analytics; Economist Intelligence Unit. Lehman fails Financial markets crash Fed introduces QE Euro zone woes spook markets

6. Policy: No Keynesian free lunch Gross public debt stock as a % of GDP. End-period. Source: Economist Intelligence Unit, CountryData .

7. The bad news

8. US: A recovery is under way … Jobs in ‘000s; unemployment, %. Source: Bureau of Labour Statistics.

9. … but housing is still sluggish US housing starts, ‘000s, SAAR. Source: Bureau of the Census.

10. Euro zone: Sisyphean task … Why stay? Cost of leaving too high Keeps borrowing costs down Provides a stability blanket Provides an inflation anchor Why leave? Adjustment costs too high—eg Greece needs to “do a Latvia” Difficulties of converging with Germany—can only come through increasing competitiveness by cutting wages etc Reform? Monetary union AND a fiscal union? Real private consumption, 2000 Q1=100. Source: Economist Intelligence Unit, CountryData .

11. The good news

12. Crises accelerate existing trends GDP, purchasing power parity (PPP) US$ bn. Source: Economist Intelligence Unit, CountryData .

13. China: Massive credit expansion Bank credit rose sharply in 2009 By 33% of GDP By 31% from previous year By RMB9.6trn (US$1.4trn) Govt started to slow loan growth Target is RMB7.5trn increase in 2011 Implies growth of 19%; 18% of GDP There is a housing bubble, but: Average LTV is 46% (08/2009) 24% of buyers pay all cash 23% of houses bought by investors What’s the risk of a credit bust? CCP is the world’s most liquid financial institution NPLs can be “disappeared” Chinese bank credit growth. % change, year on year. Sources: PBC; NBS; Haver Analytics; EIU.

14. India: Growth strong, but fiscal risks Monetary and fiscal stimulus measures implemented in 2009 have driven recovery Industrial output growth has rebounded strongly Service sector growth remains rapid—pharma/healthcare and retail see highest demand for labour in short term Construction sector outlook is improving Assisted by favorable demography, India’s economic growth rate is expected to exceed China’s by 2018 BUT medium-term fiscal consolidation is needed, including implementation of GST India’s GDP trends. Source: Economist Intelligence Unit.

16. The CIVETS: Six to watch for Forecasts are for 2010, as of June 2010. Source: Economist Intelligence Unit, CountryData . Population (m) GDP/head (US$, PPP) Inflation (%) Growth (%) C olombia 46.9 8,910 2.9 2.4 I ndonesia 243.0 4,240 5.1 5.6 V ietnam 87.8 3,140 10.5 6.2 E gypt 84.7 5,920 12.2 5.2 T urkey 73.3 12,750 10.1 4.8 S Africa 49.1 10,720 5.8 2.8

17. Currencies: It’s still the ugly sisters US$/€ strongly correlated with risk perception Euro zone structural concerns to dominate over short term US fiscal tightening will give support to US$ in 2H 2011 Euro zone can’t cope with a strong €? Pity the yen Racing up against the € and keeping up with the US$. Bad news for Japan’s exporters and for its deflation Emerging markets RMB “wobbly peg” to US$ EMs to depend on risk tolerance Source: Haver Analytics. Average

18. What this means

19. Globalisation—a new phase Globalisation index. Source: Economist Intelligence Unit. Hyperglobalisation “ Embracing manyness”—a world with no centre Treat emerging markets as you would your home market Watch for the new competitive landscape Technology continues to be a driver of globalisation Expect an innovation surge But watch the politics —Sino-US and in fiscally stretched developed world

20. Where’s the growth? Real GDP growth; % change, year on year. ASEAN = Association of South East Asian Nations. CIS = Russia, Ukraine etc. As of April 2010. Source: Economist Intelligence Unit, CountryData .

21. The Middle East – after the windfall Sheikh Zayed Road -1990 Sheikh Zayed Road – 2007

22. Resilient! MENA grew by 1.4% in 2009 Oil prices back at US$70-80/b Tourism recovering FDI flows shifting Financial investors still nervous Infrastructure and real estate projects at risk Fiscal funding to the fore!

23. OIL: short-term bear, long-term bull

24. Oil price outlook: Near term Oil price: US$/barrel; % change, year on year. Source: Economist Intelligence Unit, CountryData

25. But prices remains below 2008 highs a OECD stocks Source: Economist Intelligence Unit, CountryData EIU oil market outlook m barrels/day 2007 2008 2009 2010 2011 Total world oil production 85.1 86.3 84.8 86.5 88.4 Non OPEC 47.6 47.1 48.8 49.3 49.9 OPEC 35.4 36.6 33.4 34.4 35.7 Total world oil consumption 86.4 86.0 84.9 86.5 87.8 Stock change -1.3 0.3 -0.02 0.1 0.6 Brent dated price (US$/b) 72.7 97.7 61.9 80.2 78.5

26. Long-term picture is still bullish… Source: International Energy Agency Disappointing non-OPEC supply Potential for strong EM demand High cost of E&P Investment depressed Geopolitics OPEC action Oil nationalism

27. The BP Macondo spill effect Algeria Major investor in upstream gas, operating the In Salah and In Amenas fields Egypt Biggest foreign oil producer and a major player in the offshore gas sector Iraq Working with CNPC on boosting output at the Rumaila field to a targeted 2.85 b/d in 2016 Oman Investing US$650m in the Khazzan and Makarem tight gas project UAE Holds minority stakes in several Abu Dhabi oil and gas producers Iraq 1 – Brazil 0 2010 6% of global oil production from deepwater 2020 Plan was for 10% of global oil production from deepwater

28. All of which makes the Middle East more important!! Source: BP, Statistical Review of World Energy

29. ( and don’t forget the gas ….) Source: BP, Statistical Review of World Energy

30. Pushing on

31. Oil economies are in the black … Budget balance, % of GDP Bahrain, Iran, Kuwait, Oman, Qatar, Saudi Arabia, UAE, Yemen Source: Economist Intelligence Unit, MENA RO Country Forecast

32. … and looking good Sovereign wealth funds, % of GDP Sources: SWF Institute

33. But debt remains a worry for some External debt US$ bn Sources: Economist Intelligence Unit.

34. and non-oil economies are in the red Budget DEFICITS, % of GDP Source: Economist Intelligence Unit. Egypt, Israel, Jordan, Lebanon, Morocco, Tunisia .

35. Lots done … Source: World Bank, Doing Business report 2010 .

36. … more to do ( Legal & regulatory risk) Source: Economist Intelligence Unit, Riskbriefing .

38. Ones to watch…

39. GCC single currency – back to the stable GCC Single market created in January 2008 GCC VAT and corporation tax—possible But a GCC single currency? Not likely…. Abdulrahman al-Attiyah, Secretary-General of the Gulf Cooperation Council “ I don't foresee the currency to be launched in 2015 ” The US dollar peg – with us a while yet Meanwhile … Closer economic ties still on track Gulf power grid and rail network Gulf Co-operation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE Population growth (% change)

40. Dubai—debt overhang Property bubble… Fast-rising expat population Tourism boom “ Flipping” … Property bust Inter-bank rates soar Dubai Financial Index crashes Property prices fall by 45% last year Merrill Lynch expects they will fall 15% this year Dubai World asks for US$24.3bn debt “standstill” Dubai International Capital follows suit in May Abu Dhabi steps in Central Bank, commercial banks and SWF help out Slow road back for Dubai, but Abu Dhabi booms on the back of strong oil prices A new city is being built, Masdar, designed around green principles

42. Saudi—conservatism pays Still the oil king 12.5m b/d capacity; producing around 8m b/d China is now largest market for oil sales, overtaking US But rising domestic usage, means exports fall from 5.7m b/d in 2009 to 4.8m b/d in 2014 The region’s next property boom? Mortgage law expected by end of the year Could increase housing demand by up to 200,000 units a year but foreign ownership rules still restrictive (although KAEC may change this)

43. Iraq—the oily tiger? An oil superpower? Ten long-term oil contracts signed Investment of US$100bn in the oil sector predicted Could conceivably boost capacity to 12m barrels/day in a decade Extremely positive ramifications for the economy, employment and immigration inflows A more stable political scene? Iraqi election may see a more cohesive government in place If this proves to be the case, and losing parties are sufficiently placated, the security situation could also continue to improve Source: Economist Intelligence Unit. Iraqi GDP, US$ bn (PPP)

45. Iran—isolated Sanctions No major restrictions on exporting oil CNPC heavily involved in Iran’s energy sector South Pars gas field (LNG) Azadegan oilfield But major restrictions on spending the money Sanctions on banks; insurance; export credits European companies pulling out Impact on Dubai UAE exported over US$2bn in machinery & US$1.2bn in transport equipment to Iran in 2009

46. Where’s the growth? Real GDP growth; % change, year on year. Source: Economist Intelligence Unit, CountryData . 2009 = 9.5% 2010 = 23.3% 2011 = 12.7%

47. More Information? Data and analysis from today’s presentation were taken from the Economist Intelligence Unit’s country analysis and forecasting services. For more information on these services and other EIU capabilities, including risk assessment, industry trends, and economic data, please contact: Economist Intelligence Unit 2 Dubai Media City Tel: + 971 (0) 4 433 4202 Fax: + 971 (0) 4 438 0224