The document provides an economic forecast summary for February 2012 from an global forecasting service. It summarizes forecasts and outlooks for various economies and industries. Key points include revised GDP growth forecasts for some countries and regions due to recent data, monetary policy outlooks, housing and labor market trends, and forecasts for commodity prices and consumption growth. Risks discussed include the eurozone crisis, slowing growth in emerging markets, and geopolitical instability.

1. Global forecasting service Economic forecast summary - February 2012 gfs.eiu.com

2. We have revised our 2012 GDP growth forecast from 1.3% up to 1.8% in light of the better tone of recent data. The economy has been creating more jobs in recent months. The extension of payroll tax cuts and unemployment benefits will mitigate the impact of fiscal tightening. The Fed will keep interest rates very low through to the first half of 2013, but deleveraging will constrain spending. A further round of quantitative easing is possible if the threats of recession and deflation re-emerge. There has been some positive news in the housing market but a large overhang of houses will prevent a strong recovery.

3. The euro zone crisis has spread from the periphery to the core. The latest plan to resolve the crisis centres on a fiscal compact imposing discipline on euro member states. The ECB has eased pressures on banks by making available large amounts of cheap 3-year funding. Some of this money is likely to be channelled into the bonds markets of Italy and Spain. The euro zone economy has slowed sharply since mid-2011 and we now expect it to contract, by 1.2%, in 2012, before staging a modest recovery in 2013.

4. The March 2011 earthquake and tsunami had a severe impact on power supplies and supply chains. Manufacturing has experienced a V-shaped recovery and the economy returned to growth in the second half of 2011. After a contraction of 0.3% in 2011, we forecast GDP growth of 2% in 2012. From 2013 we expect the economy to grow at a rate of just above 1%. While a climate of risk aversion prevails, the yen is set to remain strong, creating headwinds for manufacturers.

5. In response to fears of an economic downturn, a number of EM central banks have cut interest rates or at least postponed monetary tightening. EM currencies and asset markets have fallen as the euro zone crisis has caused a loss of risk appetite. EMs lost momentum during 2011 as developed markets struggled. Problems in China’s housing market could cause growth to slow sharply. For 2012 we have cut our growth forecasts to reflect sluggish demand in the West. EMs will still comfortably outperform their developed peers in 2012-16.

6. Oil consumption growth will be constrained in 2012 by the weak OECD economic outlook. It will average nearly 2% year on year in 2013-16, led by rising demand in the developing world. The prospect of a resumption of Libyan output in the next 1-2 years has improved the supply outlook. Geopolitical risk remains high, however. Prices will weaken in 2012 in tandem with weaker demand but will pick up thereafter.

7. Consumption growth is expected to slow in 2012, constrained by weak EU and growth and somewhat slower growth in the developing world. However, rising emerging market incomes and urbanisation will underpin medium-term demand growth. Years of underinvestment, particularly in agriculture, will support prices. Nominal prices will remain historically high in 2012-16, but prices will ease back in real terms.

8. Faced with persistently high unemployment, the Federal Reserve will keep its policy rate at exceptionally low levels until mid-2013. Another round of quantitative easing (QE) is possible in 2012, particularly if the problems in the euro zone worsen. The ECB cut rates twice in late 2011, reversing the two rate rises earlier in the year. In 2012 we expect the ECB to cut its policy rate to 0.5%. The ECB has injected large amounts of liquidity into the financial system to ease funding stresses.

9. The funding stresses experienced by euro zone sovereigns and banks are being translated to the foreign-exchange market where the euro has fallen out of a recent trading range of US$1.30-1.40: €. The yen is acting as a safe haven and is likely to remain strong until the global economic outlook becomes clearer. In the short term EM currencies are susceptible to a lack of risk appetite. Over the medium term they will be supported by positive growth and interest rate differentials with OECD economies.

10. 20 25 16 15 12 - Resumption of monetary stimulus leads to new asset bubbles - The Chinese economy crashes - Oil prices remain at extremely high levels - The euro zone breaks up - The global economy falls into recession

11. 10 12 9 8 8 + Oil prices slump + Unprecedented policy response in euro zone prevents contagion - Economic upheaval leads to widespread social and political unrest - The US dollar crashes - Tensions over currency manipulation lead to protectionism

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14. Access analysis and forecasting of major industries with the Economist Intelligence Unit I n addition to the extensive country coverage the Economist Intelligence Unit provides each month industry and commodities information is also available. The key industry sectors we cover are listed below with links to more information on each of them. www.gfs.eiu.com Automotive Analysis and five-year forecast for the automotive industry throughout the world providing detail on a country by country basis Commodities This service offers analysis for 25 leading commodities. It delivers price forecasts for the next two years with forecasts of factors influencing prices such as production, consumption and stock levels. Analysis and forecasts are split by the two main commodity types: “Industrial raw materials” and “Food, feedstuffs and beverages”. Consumer goods Analysis and five-year forecast for the consumer goods and retail industry throughout the world providing detail on a country by country basis Energy Analysis and five-year forecast for the energy industries throughout the world providing detail on a country by country basis Financial services Analysis and five-year forecast for the financial services industry throughout the world providing detail on a country by country basis Healthcare Analysis and five-year forecast for the healthcare industry throughout the world providing detail on a country by country basis Technology Analysis and five-year forecast for the technology industry throughout the world providing detail on a country by country basis

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