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Summary tables Summary: Balancing act US rates medium-term forecasts Eurozone rates medium-term forecasts US: A country of cross-currents Eurozone: Fragile recovery Japan: Revival or fiscal bust? China: Limited upside Eurozone countries Germany: Growing comfortably France: Downside risks Italy: Political stalemate Spain: Every little helps Netherlands: Fixing the foundations Belgium: Fiscal headwinds Austria: On the mend Portugal: One way or another Finland: A modest improvement Ireland: Outperforming Greece: Sailing in calmer waters Other Europe UK: Better, but not great Sweden: Shallow rebound Norway: Resilient Switzerland: Risks persist CEEMEA Russia: Monetary stimulus ahead 42 35 37 39 41 20 22 24 26 28 29 30 31 32 33 34 2 4 10 11 12 14 16 18 Ukraine: In recession Poland: Wait-and-see at the MPC Hungary: More rate cuts ahead Czech Republic: Disinflation risk Turkey: End of rebalancing Saudi Arabia: Slipping on oil United Arab Emirates: So far so good Qatar: Inflation set to rise Asia Pacific Australia: Temporary relief India: Slow progress South Korea: Low inflation Indonesia: Risky business Taiwan: Forecast table Other Asia: Forecast tables The Americas Canada: Losing altitude Brazil: Enter the (inflation) dragon Mexico: Gearing up for a good year Colombia: In search of growth Chile: Politics increasingly the focus Argentina: Rising inflation Peru: A bump on rapid-growth road Venezuela: Policy paralysis Commodities Long-term economic forecasts Contacts Disclaimer 66 67 69 71 72 73 74 75 76 77 81 Inside back cover 57 59 61 63 64 65 44 46 48 50 52 54 55 56
2012 13 (1) 3.1 1.6 -0.5 0.9 8.3 14 (1) 3.6 2.5 0.8 1.0 7.8 Q1 3.6 2.4 -0.1 3.4 8.1 Q2 3.4 2.1 -0.5 3.9 7.6 2012 13 (1) 3.4 -0.1 1.2 11.0 14 (1) 4.7 3.2 2.5 10.7 Q1 4.4 -1.6 4.8 11.6 Q2 4.8 -2.3 5.3 9.5 2012 13 (1) 7.7 12.7 3.8 14 (1) 7.2 12.9 3.7 Q1 8.3 10.9 4.5 Q2 8.2 11.3 4.4 2012 13 (1) 1.9 1.7 0.0 3.6 14 (1) 2.0 1.3 2.2 3.5 Q1 2.8 2.7 0.3 3.8 Q2 1.9 2.5 0.2 2.9 2012 13 (1) 0-0.25 0.40 2.40 0.50 0.10 1.30 0.10 0.25 0.80 6.00 14 (1) 0-0.25 0.50 2.80 0.50 0.15 1.90 0.10 0.25 1.60 6.25 Q1 0-0.25 0.31 2.21 1.00 0.78 1.41 0.10 0.29 0.99 6.56 Q2 0-0.25 0.28 1.64 1.00 0.65 1.60 0.10 0.26 0.84 6.31 2012 13 (1) 1.33 90 6.05 120 0.85 1.56 14 (1) 1.25 100 6.03 125 0.76 1.64 Q1 1.33 83 6.30 110 0.83 1.60 Q2 1.27 80 6.35 101 0.81 1.57 Q3 1.29 78 6.29 100 0.80 1.62 Q4 1.32 78 6.23 104 0.81 1.63 Q1 (1) 1.33 95 6.20 126 0.88 1.50 Q3 0-0.25 0.36 1.63 0.75 0.22 1.44 0.10 0.33 0.77 6.00 Q4 0-0.25 0.31 1.76 0.75 0.19 1.31 0.10 0.30 0.75 6.00 Q1 (1) 0-0.25 0.28 2.05 0.75 0.20 1.52 0.10 0.30 0.60 6.00 Q3 1.7 2.5 -0.4 1.9 Q4 1.9 2.3 -0.2 2.1 Q1 (1) 1.8 1.8 -0.6 2.8 Q3 8.0 11.5 4.3 Q4 7.8 11.8 4.2 Q1 (1) 7.8 12.2 4.0 Q3 3.4 -2.5 -4.6 9.1 Q4 2.8 -3.2 -5.9 10.0 Q1 (1) 2.1 -1.6 -5.2 10.4 Q3 3.2 2.6 -0.6 0.4 7.4 Q4 (1) 2.9 1.6 -0.9 0.5 7.9 Q1 (1) 2.7 1.5 -0.9 -0.6 8.1
2013 Q2 (1) Q3 (1) 2.7 1.6 -0.7 0.2 8.4 3.0 1.3 -0.5 1.8 8.7
2013 Q2 (1) Q3 (1) 2.7 -0.8 -1.7 11.4 4.0 -0.6 4.2 12.1
2013 Q2 (1) Q3 (1) 1.8 1.8 -0.2 3.4 2.0 1.6 0.4 3.8
2013 Q2 (1) Q3 (1) 0-0.25 0.40 2.00 0.50 0.10 1.50 0.10 0.30 0.40 6.00 0-0.25 0.40 2.20 0.50 0.10 1.40 0.10 0.25 0.60 6.00
Q4 (1) 0-0.25 0.40 2.40 0.50 0.10 1.30 0.10 0.25 0.80 6.00
2013 Q2 (1) Q3 (1) 1.35 95 6.15 128 0.88 1.53 Year 12 (1) -7.0 -3.7 -9.1 -1.5 1.35 90 6.08 122 0.87 1.55
Budget balance 13 (1) -2.5 1.3 0.6 2.7 14 (1) -2.4 1.4 0.5 2.8 (% GDP) US (5) Eurozone Japan China 10 0.0 -6.2 -8.3 -2.5 11 -8.7 -4.1 -8.7 -1.9
Footnotes: (1) Forecast (2) BNPP estimates based on country weights in the IMF World Economic Outlook Update, October 2012 Figures are y/y percentage change unless otherwise indicated
March 2013 2
www.GlobalMarkets.bnpparibas.com
Forecasts Weight 2010 2011 2012 2013 2014 100.0 5.2 4.0 3.1 3.1 3.6 51.1 3.0 1.6 1.3 1.1 1.9 US 19.1 2.4 1.8 2.2 1.6 2.5 Eurozone 14.2 2.0 1.5 -0.5 -0.5 0.8 Germany 3.9 4.0 3.1 0.9 1.0 1.8 France 2.8 1.6 1.7 0.0 0.0 0.9 Italy 2.3 1.7 0.5 -2.4 -1.4 0.3 Spain 1.8 -0.1 0.4 -1.4 -1.6 0.2 Japan 5.6 4.7 -0.6 2.0 0.9 1.0 UK 2.9 1.8 0.9 0.2 0.7 1.6 Canada 1.8 3.2 2.6 1.8 1.4 2.1 Other advanced economies(1) 7.4 5.9 3.2 2.1 2.8 3.2 Advanced Asia ex-Japan(1) 3.9 8.5 4.0 1.8 3.5 3.9 Emerging and developing economies(1) 48.9 7.5 6.3 4.9 5.3 5.5 CEE & Russia(1) 7.8 4.8 4.9 2.4 2.7 3.5 Russia 3.0 4.3 4.3 3.4 2.9 3.6 Developing Asia(1) 25.0 9.5 8.3 6.7 7.2 7.3 China 14.3 10.4 9.3 7.8 8.3 7.8 India 5.6 9.8 7.3 5.1 5.5 7.2 Latin America(1) 8.7 6.3 4.5 2.8 3.5 3.7 Brazil 2.9 7.5 2.7 0.9 3.0 3.5 Mexico 2.1 5.3 3.9 3.9 3.9 4.1 (1) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012 World(1) Advanced economies(1)
Source: BNP Paribas
Forecasts Q4'12 Q4'13 2.7 3.5 0.8 1.6 1.6 2.0 -0.9 0.2 0.4 2.0 -0.3 0.4 -2.8 -0.4 -1.9 -0.8 0.5 2.3 0.2 0.9 1.1 1.8 2.2 3.3 2.4 4.1 4.7 5.5 1.3 3.3 1.8 3.6 6.7 7.2 7.9 8.0 4.5 6.5 2.7 3.9 1.4 3.3 2.7 4.7
Country/region
Forecasts Country/Region World US Eurozone Germany France Italy Spain Japan UK Canada Other advanced economies(2) Advanced Asia ex-Japan(2) Emerging and developing economies CEE & Russia(2) Russia Developing Asia(2) China India Latin America(2) Brazil Mexico (1) HICP where available, India WPI (2) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012
Source: BNP Paribas
(2) (2) (2)
Forecasts Q4'12 Q4'13 3.3 1.8 1.9 2.3 2.0 1.7 2.6 3.2 -0.2 2.7 0.9 1.8 2.3 5.1 6.5 6.5 3.4 2.1 7.2 6.3 5.6 4.1 3.4 1.7 1.9 1.5 2.0 1.5 1.3 0.7 0.5 2.9 1.3 1.9 2.1 5.4 6.0 7.0 4.4 4.5 5.3 7.1 6.7 3.3
Weight 100.0 51.1 19.1 14.2 3.9 2.8 2.3 1.8 5.6 2.9 1.8 7.4 3.9 48.9 7.8 3.0 25.0 14.3 5.6 8.7 2.9 2.1
2010 3.5 1.5 1.6 1.6 1.2 1.7 1.6 2.0 -0.7 3.3 1.8 2.2 2.3 5.7 6.4 6.9 4.9 3.3 9.6 6.3 5.0 4.2
2011 4.6 2.7 3.2 2.7 2.5 2.3 2.9 3.1 -0.3 4.5 2.9 3.0 3.5 6.8 7.9 8.5 6.2 5.4 9.5 6.8 6.6 3.4
2012 3.5 2.0 2.1 2.5 2.1 2.2 3.3 2.4 0.0 2.8 1.5 1.9 2.5 5.3 6.5 5.1 3.8 2.6 7.5 6.2 5.4 4.1
2013 3.3 1.6 1.9 1.7 2.0 1.3 1.7 1.6 0.0 3.1 1.1 1.8 2.1 5.1 6.0 7.1 3.9 3.6 5.5 7.1 6.5 3.4
Advanced economies
Balancing act1
Leading indicators better, hard data worse Developments since our last Global Outlook have been mixed. On the upside, leading indicators have strengthened in a number of countries, particularly Europe, and sentiment surveys have generally improved. The data over the past three months have shown that the recovery in China has gained traction. In addition, Japanese fiscal and monetary policy has changed to a markedly more pro-growth direction. In contrast, the hard real-economy data, such as GDP, surprised to the downside in Q4 in the US, UK, Germany, Japan, France, Italy, Brazil and India, for example. Moreover, leading indicators point to a subdued recovery. The risks that this may be a short mini-cycle have increased. We have lowered our growth forecasts for many countries, with the recovery looking to have even less vigour than we expected. This reflects a number of factors. First, the downturn was not that sharp, particularly in emerging markets. The scope for a bounce is limited if the fall is not great. Second, there are headwinds in a number of countries. In the west, fiscal tightening is impeding growth in the US and in many countries in Europe. We avoided the fiscal cliff in the US, but hit sequestration, and the US medium-term fiscal trajectory is uncertain. Imbalances are still being unwound in the financial and non-financial sectors in highincome countries and financial regulation has tightened. In the eurozone, the gloss has been taken off the post-OMT optimism by uncertainty about what will happen on the political front in Italy. The contraction of credit growth is not a good omen. In emerging markets, the margin of spare capacity is small, limiting how far economies can run above potential and how long they can stave off inflation. China has started to crack down on credit growth and the property market at a comparatively early stage in the upswing. Add to all this the fact that potential growth rates have fallen almost everywhere (demographics, tougher regulation, lower investment rates, increased risk aversion) and it is easy to understand why we forecast global growth of only 3.1% in 2013 and 3.6% in 2014 after 3.0% in 2012. The recovery will build, but at a slower pace than in previous recovery periods. Before talking about growth and inflation, though, lets concentrate on central banks and financial markets. This is the inverse of the usual order. But lets face it, since 2008 it has been the financial markets that have driven the growth cycle more than the other way around. In advanced economies, the failure to build in escape velocity is a concern not just to us, but to central banks. In general, central banks are in a more pro-growth frame of mind for several reasons: output gaps remain wide; inflation has been soft and it is increasingly clear that the issues of the day are how to fire growth and how to facilitate deleveraging by the private and public sectors. Thus, the Feds adoption of
Table 2: BNPP end-period FX forecasts
Spot EURUSD 1.31 126 0.88 1.49 96 6.27 EURJPY EURGBP GBPUSD USDJPY USDRMB
Italian uncertainty
Q2'13
1.35 128 0.88 1.53 95 6.15
Q3'13
1.35 122 0.87 1.55 90 6.08
Q4'13
1.33 120 0.85 1.56 90 6.05
Q1'14
1.33 122 0.82 1.62 92 6.02
Q2'14
1.30 120 0.80 1.63 92 6.08
Q3'14
1.27 121 0.78 1.63 95 6.10
(*) German benchmark. Spot rates as at 12 March 2013 Source: BNP Paribas (Market Economics, Interest Rate Strategy)
1
Economic and central bank forecasts are by BNP Paribas economists. Market forecasts are jointly produced by BNPP Interest Rate Strategy, FX Strategy and Market Economics.
thresholds for rate action represents a commitment to be easier for as long as unemployment remains too high. The Bank of England is contemplating a rate cut despite forecasting inflation would be above its target for longer than two years. Japan has seen an even more drastic change, with a 2%-of-GDP fiscal stimulus and a move to monetise this to end deflation. Radical stuff. ECB the old-school central bank The ECB has, in some respects, looked like the last old-school central bank. However, the fact that it forecasts inflation to decline to closer to 1% than 2% in 2014 gives considerable policy flexibility, which is why we expect it to cut rates further, taking the refi rate to 0.5%. If easing by others results in significant upward pressure on the EUR, the impact of this on inflation could lead to further action by the ECB. The easy stance of central banks is clearly one of the factors that have supported risk appetite in recent months. The most important element was the ECBs commitment to do whatever it took to hold the euro together, which reduced tail risk. Easy rates and large-scale asset purchases, actual and prospective, have been important in building on this and in boosting stock markets and narrowing credit premia. A better growth outlook has also helped. We welcome the expansive mood of central banks. However, it is concerning that growth is mediocre despite massive monetary support. Where would we be without it? Isnt this a signal of the fundamentals being fundamentally weak? And what happens when the stimulus is withdrawn? Will the financial markets and global economy suffer cold turkey? This is a risk, but we would argue that central banks are aware of the risks, particularly Bernanke & Co, where the Feds references to avoiding a premature end to easing have been clear. The lessons of 2011, when the Fed talked of exit and the ECB hiked twice (can you credit it?) are clear. We expect a slow recovery in the US and very limited progress in cutting unemployment queues, and with inflation low enough for the Fed to avoid forecasting inflation anywhere near its 2.5% threshold, exit is not on the agenda. The hawks have switched their rhetoric from fretting that QE would cause inflation to its causing bubbles. This will not sway the key players Bernanke, Yellen, Dudley et al from concentrating on the Feds mandate, as they feel that financial excesses are not a risk to the mandate at present. Of course, financial asset prices are distorted thats the whole point of QE. (The word distort is not used when QE is explained, of course, but portfolio balance effects are just a politically correct way of saying the same thing.) Our view is that the Fed will continue to buy USD 85bn a month throughout this year, before tapering off its purchases in 2014. We expect tapering to be discussed by Fed Chairman Ben Bernanke late in Q3 and not before the very earliest, at Jackson Hole. This exit will need very careful handling, as it could lead to a sharp re-pricing of Treasuries and a re-pricing of risk. However, we expect skill and finesse to be shown and so only see a small rise in 10y Treasury yields this year to 2.4% by end year. In Europe, tail risk has been removed by OMTs and the feeling that if an existential crisis threatens, the ECB will do whatever it takes, even if circumstances lock it out of activating its OMT programme. This and the weight of domestic holdings of BTP help to explain why Italian spreads have reacted in a relatively moderate way to the very poor Italian election result. The perception that Italian politics are often messy, but that a government will be formed in the end, has been an important factor, as has the negative net supply of BTPs. Will yields rise or fall from here? We believe the path will be uneven there will be many twists and turns with the possibility of an early election remaining firmly on the table (we assume it will come next March but October is an increasing risk). The lesson of the last election is that austerity and reform are not the path to electoral success (ask Mario Monti). Thus, there will be no reforms, cyclical fiscal slippage will go uncorrected and there is a risk
March 2013 www.GlobalMarkets.bnpparibas.com
of some backsliding (such as the cancellation of the planned VAT hike). Our belief is that spreads, currently narrowing, will eventually re-widen, but not to previous highs, because of the ECB and because the risk of a eurozone break-up is off the agenda. We have assumed a high for yields of around 5.0% (a high for the spread to Bunds of 370bp or so). We doubt the Italian bond market will move in a straight line until the next election. The more the government is stable and able to do the right thing, the lower and more stable yields will be. The question is whether higher yields are a prerequisite to the government doing the right thing. Risks in Italy So, what could cause a sell-off? Events is the answer, with the possibilities a cocktail of adverse political developments, weaker-than-expected growth, worse-thanexpected budgets, negative comments from Germany, back-tracking on progress under Mr Monti, rating downgrades and possible external shocks. As to when a sell-off would come, the timing is uncertain and we expect periods in which things are quiet to see good rallies as people become tempted by the yield. Italys problem when it comes to sustainability is a lack of growth. The primary budget surplus is already about as big a proportion of GDP as is reasonable to expect in the long run, so moving to a more sustainable debt/GDP ratio (which is important, as Bunds will not stay at 1% forever) requires growth. That requires structural reform. This is not going to happen under any conceivable government until after the next election, so downgrades will be difficult to avoid. Spains problem is not only growth, but more immediately, the budget deficit. At just under 7% of GDP in 2012, it remains uncomfortably high. In an economy where many agents are stretched financially and where the banks are troubled, the fiscal multiplier is high. Basically, Spain has to tighten by 2-3% of GDP to achieve a 1%-of-GDP reduction in the deficit. About 1-1% of GDP reduction in the headline deficit is the maximum we believe Spain can achieve. The budget deficit is going to remain a problem for some time and is probably the key risk to Spain losing its investmentgrade rating. However, the agencies are reluctant to move Spain to junk, maybe having already gone too far too fast. A return to growth which we expect late this year will help to stabilise the ratings. We forecast Spains spread to settle above Italys, with Spains fiscal worries continuing after Italian political uncertainties fade. Will Spain avoid the ESM and OMT? That looks increasingly likely and is our basecase scenario in this forecast. We assume that Greece remains on track and that a fudge is found for Cyprus. There, setting adverse precedents by haircutting depositors, for example, is an option, but not one seen to answer the problem of how to recapitalise the banks without burdening the state with too much debt. The fudge will be to keep a lid on the estimate of the cost of rehabilitating the banks, to pencil in high privatisation receipts (including possibly relating to natural gas) and to be too optimistic on growth and the budget. A typical eurozone programme, in other words. The IMF may not be involved in putting up money, but Russia will, though on what terms is uncertain. There are likely to be easier terms for Ireland and Portugal (lower rates, longer maturities for their borrowing), which will reinforce the picture of solidarity in Europe and help to limit any widening of spreads. In terms of German Bund yields, we expect them to stay trapped in a narrow range this year. First, Treasuries remain supported. Second, we see the refi rate settling at 0.5%, with the ECB keeping its options open as regards future policy. Third, we project inflation on a downward track. Fourth, eurozone growth remains weak. Fifth, while we see no blow-out in peripheral spreads, we do continue to see them coming under pressure. In Japan, new BoJ Governor Haruhiko Kuroda and Deputy Governor Kikuo Iwata have made it clear they expect to pursue aggressive policies in pursuit of the 2% inflation target. With the G20 having made clear that buying foreign bonds and FX intervention
March 2013 www.GlobalMarkets.bnpparibas.com
are beyond the pale, super-aggressive domestic balance-sheet expansion by the BoJ is the way to fight currency wars (which the US cannot criticise, because it is employing the same weapon). A longer maturity of stepped-up buying should come in April. We expect the 10-year bond yield to respond quite aggressively, probably dropping to the 0.3-0.4% range. We see a rise back up to 0.8% by end year, partly on better growth, but also in response to higher inflation. If inflation stays stubbornly low, the logic of the new BoJ is that it will step up aggression. Chinese upswing yes, but with financial risks In China, we have seen increasing disintermediation outside the banking system, with a rapid rise in wealth management products and associated lending on the asset side of the balance sheets of trust companies among others. Total credit (in Chinese terms, total social financing, or TSF) has been rising too fast and property prices have started to bubble up. The risk of non-performing loans down the road is very clear. Indeed, some of the rise in TSF may be due to local-authority financing vehicles refinancing previous excessive borrowing from the main banking system. The authorities face a dilemma. Cracking down too hard on the mushrooming shadow banking system would interrupt the now undeniable cyclical upswing the economy is enjoying and may crystallise local-government defaults and broader financial stress. But doing nothing, and allowing bubble dynamics to continue, would only increase the systemic risks to the financial system and the real economy. Our forecast assumes the authorities manage to keep their balance on this fine wire. For the moment, the supply of liquidity to the global economy and the fact that we are in the upswing phase of the cycle, if not a particularly strong one, should maintain the search for yield in the immediate months ahead. Real challenges would come from developments that unhinged the magic formula of better growth and easy policy. Geopolitical events and rising inflation are two such developments, though the spare capacity and weak wage growth in advanced countries limit the latter. So, for now, while the music is playing, many continue to dance. When the music ends, for example, when the Fed starts to exit quantitative easing, things could look much less comfortable. Our macro forecasts predicated on this financial backdrop are not, in broad terms, that different from our forecasts three months ago, though in general, there have been downward revisions to growth for 2013. We now expect the global economy to expand by 3.1% in 2013, down from our forecast of 3.4% three months ago and not much better than 2012 as a whole. Of the major economies, the biggest downward revisions have come in Brazil (our 2013 growth forecast slashed from 5.5% to 3.0%), India (down 1.4pp to 5.5%) and Canada (down 0.5pp in 2013 to a meagre 1.4%). Our US forecast for 2013 as a whole now sees growth of 1.6% from 2.0% last time. The main reason is a weaker-than-expected end to 2012 and a softer start to 2013. Growth should accelerate throughout the year, from 1.6% y/y in Q4 2012 to 2.0% in Q4 2013. With fiscal tightening knocking about 1% points off growth, the underlying picture of private-sector demand is reasonably firm. However, we expect only slow progress to be made on cutting unemployment. Inflation is expected to remain well controlled, freeing up the Fed to deal with the real economy. In the eurozone, there have been competing pressures on our forecast. On the upside, Germany seems to have turned stronger earlier than we had expected as a result of the global recovery, and also due to favourable domestic fundamentals (not much of a downturn, little impact on employment, decent real wage growth, good profitability and cheap readily available financing). On the downside, Q4 last year was weaker than expected. In addition, the Italian election will increase risk aversion, delay investment and be negative for the country and, consequently, its trading partners. We have revised down our previous forecast for Italian growth from a contraction of 0.7% y/y for 2013 as a whole, to a fall of 1.4%.
We have revised up our forecast for Spain, reflecting a better start than expected to 2013. We now think Spain could see quarter-on-quarter growth by the end of this year. French indicators have been a bit weaker than expected, especially the PMIs, but other indicators are less threatening, including the Banque de France survey. So, until the uncertainty is resolved, we maintain our forecast of 0% growth in 2013. Overall, we continue to see a fall in GDP in the eurozone of around % in 2013 as a whole. However, a lot of this reflects base effects and the forecast assumes growth returns to the region as a whole in H2 this year. Naturally, the picture differs between countries, with Germany outperforming and the periphery underperforming. Eurozone inflation to undershoot target in 2014 Inflation in the eurozone last year was a bit stickier than expected, but recent numbers have started to improve. Our expectation is that inflation will run below 2% y/y in coming months. For 2014 as whole, inflation will be 1.3%, down from 1.7% this year, which does not seem to us to be consistent with the second leg of the ECBs definition of price stability: below but close to 2%. This inflation profile, driven by subdued or falling wages in a number of countries and little scope for profit margins to widen, is the reason we expect the ECB to be dovish. Our Japanese growth forecasts have seen chunky upward revisions. We now forecast growth of 0.9% in 2013 and 1.0% in 2014, an upward revision of nearly 2pp in the two years put together and compared with potential growth of % or so per annum. This reflects more expansionary money-financed fiscal expansion and a lower yen. Higher inflation is expected to result from the new strategy, to be reflected in lower real interest rates in this forecast than in our last. In terms of inflation, our view is that the Japanese economy has little spare capacity, so upward price pressures should emerge. However, after so many years of deflation, sticky expectations should limit the upward dynamic at first. We believe the BoJ will work hard to raise expectations and, on this basis, we expect the BoJ to achieve sustainable 2% inflation in 2015, though the timing is uncertain (the figure in 2014 will be 2.2%, but this includes a surge following a sales tax hike). At that stage, we may see a real fiscal challenge emerging, as there will be upward pressure on bond yields, which will set in play an adverse fiscal dynamic, including the deficit, the yen and bond yields. But that is beyond the end of our formal forecasts. Chinese growth we have kept at 8.3% in 2013, edging down to 7.8% in 2014, as in our last forecast, with inflation staying under control, registering around 3 % p.a. in 2013 and 2014. Elsewhere in the emerging-market world, Brazilian 2012 GDP growth was even slower than our sub-consensus forecast. The economy has little spare capacity and we now expect real growth of only 3.0% in 2013, down from 5.5% previously. Stronger demand is feeding inflation and inflation expectations, so we expect the next move in Brazilian rates to be a hike. In contrast, in Mexico, where we expect steady growth of around 4% p.a., a recent fall in inflation allowed Banxico to cut rates in March and we now see rates being kept on hold over the forecast period. The new government has made good progress on its reform agenda and we expect capital flows to be supportive. Things look much less favourable in Russia, where growth is slowing due to financial constraints on investment and where inflation exceeds 7%. We expect GDP growth in 2013 to be 2.9%, after 3.4% in 2012, but with a pickup to around 3% in 2014. Slow growth is leading to political pressure for the central bank to cut rates. With a new governor at the helm of the CBR from June, we expect the first rate cut of 25bp as soon
as Q3 2013. High inflation risks should limit the extent of the easing in 2013, however.
India is another emerging market where growth surprised to the downside late last year, with growth sinking to 4.5% y/y in Q4 2102, its slowest since the global financial crisis. Growth probably bottomed out around year end, but we expect the pickup to be
March 2013 www.GlobalMarkets.bnpparibas.com
slow. A large output gap is helping to subdue inflation, with core WPI inflation down from 7.2% y/y last August to 4.5% y/y in January. However, fuel-subsidy reductions will put pressure on food prices and we expect WPI inflation to be in the 5-5% range in 2013 and 2014 as a whole. This will crimp the ability of the RBI to lower rates, though some small easing is likely to be delivered this year. Turkey to see a strong pickup, but lower inflation Turkey is an emerging market where we expect a sharp pickup in growth this year, from 2.5% y/y in 2012 to 4.5% this year, fuelled by domestic demand. A key reason for this is the CBRTs easy monetary policy, reflected in improved consumer confidence, better PMIs and faster credit growth. We expect the budget deficit to stay low, as better growth boosts tax revenues and privatisation receipts. The deficit on the current account is likely to widen from 5% of GDP in 2012 to 6% of GDP this year. The slowdown in 2012 is helping to subdue inflation and we expect this to continue. After CPI inflation averaged 8.9% in 2012, we expect an average of 7.3% in 2013 and 5.9% in 2014. Globally, we have revised down our inflation forecasts: we now see global inflation averaging 3.3% in 2013 compared with the 3.6% forecast last time, though we expect that by 2014, our previous forecast of 3% inflation will come good. The biggest downward revisions to our inflation estimates have come in India (-2.1pp to 5.5% in 2013), Mexico (-0.8pp to 3.4%) and Canada (-0.8pp to 1.1%). The two countries where we have made significant upward revisions to inflation are the UK (up by 0.6pp in 2013 to 3.1%) and Brazil (up by 0.4pp to 6.5% in 2013). Both are countries in which central bank credibility has come into question and where the enthusiasm to follow inflation targeting has waned. At least Brazil has the excuse of having no output gap. Currency markets are the lakes into which the various national economic and policy rivers flow, creating turbulent and sometimes unpredictable currents. Our FX Strategy team expects the USDs negative correlation with risk appetite to return as the Fed maintains QE3, causing the USD to weaken against the commodity currencies. However, we have made a number of revisions to our FX forecasts over the last three months. We have the yen significantly weaker than before, following the markets increased expectations that Prime Minister Shinzo Abes government will be able to deliver policies to stimulate inflation. In the UK, it is clear that the central bank has changed, even before the new governor arrives, so we have softened our previously bullish sterling forecast. For EURUSD, our target for the peak is 1.35, as it was three months ago. We continue to like emerging-market currencies relative to the currencies of high-income countries.
R e ta il s a le s ,
5 2 .5
C o n s u m p tio n , U S 0 .0
4 7 .5
-2 .5 R e ta il s a le s , e u ro z o n e -5 .0 -7 .5 -1 0 .0
05
06
07
08
09
10
11
12
2 .0
3 m r a te le s s F e d fu n d s
BNPP fo re c a s t
F e d fu n d s ta rg e t ra te 94 96 98 00 02 04 06 08 10 12 14
94
96
98
00
02
04
06
08
10
12
14
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
The Fed will keep policy rates unchanged until 2015. Real rates will remain well below zero over the forecast period.
Based on our forecast of a long period of unchanged policy rates, the spread between the three-month and the Fed funds rate should see little change.
-1 0
-1 .0 94
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
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.
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.
6 U S 1 0 y y ie ld 5 4 3
0 .0 0 2 1 0 -1 R e a l y ie ld ( d e f la te d b y c o r e C P I) -0 .2 5 7 6 5 4 3 2 1
U S 1 0 y , T re a s u ry
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
We expect longer-term yields to rise over the forecast period as the US growth outlook firms and the Fed starts to taper QE.
We expect little change in the swap spread over the forecast period because of the Feds commitment to maintain loose monetary policy over the medium term.
10
5 N o m in a l r e f i r a t e 4 E O N IA
0 R e a l r e f i r a t e ( d e f la te d b y c o r e H I C P ) -1
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
We forecast the ECB refi rate to be cut to 0.5%. In real terms, the refinancing rate will remain negative.
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.
13
14
5.0
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
The 10y/2y spread is likely to remain low in relation to the policy rate in coming quarters. Political tensions are likely to push the 10-year Bund yield lower towards the end of 2013, before a rise in 2014.
Uncertainty about the future of the eurozone has diminished. The curve should, therefore, steepen relative to the level of policy rates.
10y B un d
Percent
R e al yie ld (D eflate d b y co re H IC P )
-1
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
The US is moving faster towards normalisation, so the UST-Bund spread will widen.
We expect Bund yields to rise over the forecast period. The real yield should stay close to zero over 2013.
11
2011 2.0%
2012 1.6%
2013
(1)
2014
(1)
Households
2.0%
2.7%
-2
Fiscal tightening2
-0.8%
-1.0%
-1.3%
-0.9%
-6
Government
-10
Underlying pace2
2.8%
2.6%
3.2%
3.6%
-14 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Reuters EcoWin Pro, BNP Paribas
Source: Reuters EcoWin Pro, BNP Paribas; (1) Forecast (2) Estimate
12
2012 13
(1)
11
12
14
(1)
Q1
Q2
Q3
Q4
Q1
(1)
Q2
(1)
2013 (1) Q3
Q4
(1)
1.7 1.6 -1.4 14.7 5.0 0.3 2.4 2.1 1.6 3.4 3.0
2.0 1.8 -1.1 20.2 8.1 -0.2 5.6 4.7 2.5 4.7 3.1
2.0 2.2 2.4 -3.0 20.5 7.5 -0.4 4.4 3.1 2.4 4.4 3.6
1.3 1.4 1.5 -0.7 8.5 3.6 -0.5 5.3 2.8 2.1 4.8 3.8 2012
3.1 1.9 1.6 3.9 13.5 -1.8 0.7 1.9 -0.6 2.6 3.4 3.6
0.1 1.4 2.1 -6.9 17.5 9.7 -1.3 -3.9 -4.5 1.6 2.8 4.6
1.5 1.5 1.2 0.7 10.0 2.4 -0.4 3.1 4.3 1.5 2.1 2.7
1.7 1.7 1.5 -2.0 15.0 6.6 -0.5 4.1 4.7 1.6 2.7 2.9
2.0 2.0 1.5 -1.4 20.0 7.2 0.7 5.2 5.0 1.3 4.0 3.1
2.6 2.6 2.0 -1.4 22.0 7.9 -1.3 7.3 5.8 2.0 4.8 3.1
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
Fed. gov. primary budget (% GDP) Gross Fed. gov. debt (% GDP)
10 Interest & FX rates (3) Fed funds rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) EURUSD USDJPY 0-0.25 0.30 0.61 2.01 3.29 1.34 81
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
Footnotes: (1) Forecast (2) Fiscal year (3) End period Figures are year-on-year percentage changes unless otherwise indicated
13
H e a d lin e
E x -fo o d , e n e rg y , a lc o h o l & to b a c c o
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
% 6m ann. -1 Looser -2 -3 E x c lu d in g G re e k y ie ld s (a n d e x c lu d in g e u ro z o n e c re d it g ro w th ) 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
14
2012 13
(1)
11
12
14 -
(1)
Q1 -0.1 -0.1 -1.1 -1.1 0.1 -2.5 0.0 2.5 -1.1 -1.6
Q2 -0.2 -0.5 -1.4 -1.1 -0.1 -3.9 0.0 3.6 -0.7 -2.3 2012
Q3 -0.1 -0.6 -1.7 -1.5 -0.1 -4.4 -0.3 3.2 -1.0 -2.5
Q4 -0.6 -0.9 -1.7 -1.2 -0.2 -4.9 -0.4 2.2 -0.6 -3.2
Q1
(1)
Q2
(1)
2013 (1) Q3 0.1 -0.5 -0.7 -0.6 -0.4 -1.4 -0.4 1.3 0.8 -0.6
Q4
(1)
-0.1 -0.9 -1.5 -1.1 -0.4 -4.0 -0.4 2.1 -0.1 -1.6
0.1 -0.7 -1.0 -0.8 -0.4 -2.4 -0.4 1.4 -0.1 -0.8
0.2 0.2 -0.2 -0.1 -0.4 -0.1 -0.4 3.2 2.6 2.6
10 Inflation & labour HICP Core HICP Producer prices Comp. per employee Unit labour costs Employment Productivity Unemployment rate (%) 1.6 1.0 2.8 1.8 -0.7 -0.5 2.5 10.1
13
(1)
14
(1)
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 1.6 1.3 0.7 1.5 1.6 -0.4 1.6 12.8
Q4
(1)
10 External trade Trade balance (EUR bn, sa) Current account (EUR bn, sa) Current account (% of GDP) -15 3 0.0
11 -16 12 0.1
Q1 10 22 0.9
Q2 20 27 1.1 2012
Q3 26 30 1.3
Q4 (1) 27 31 1.3
Q1 (1) 25 31 1.3
Q4 (1) 34 32 1.3
10 Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP) -568 -6.2 -309 -3.4 85.4
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
2013 Q2 (1) Q3 (1) 0.50 0.10 0.10 0.50 1.50 1.35 0.88 128 0.50 0.10 0.10 0.70 1.40 1.35 0.87 122
Footnotes: (1) Forecast (2) Includes intra-eurozone trade (3) End period (4) Bund yield Figures are year-on-year percentage changes unless otherwise indicated
15
Chart 2: Proportion of countries where nominal growth exceeds nominal interest rate (23 OECD countries)
100% 90% 80%
16
2012 13
(1)
11
12
14 -
(1)
Q1 1.5 6.1 3.4 1.0 1.2 2.7 -1.7 -2.5 0.3 3.4 2.1 1.3 4.8 -
Q2 -0.2 -0.9 3.9 0.4 -0.0 1.5 2.2 -0.1 -0.4 0.0 1.7 -2.0 5.3 2012
Q3 -0.9 -3.7 0.4 -0.5 -0.5 0.8 1.7 -3.3 0.2 -5.1 -0.5 -4.2 -4.6 -
Q4 0.0 0.2 0.5 0.4 0.5 0.8 3.5 -1.5 -0.2 -3.7 -2.3 -1.9 -5.9 -
Q1
(1)
Q2
(1)
2013 (1) Q3 0.6 2.3 1.8 0.6 0.4 0.6 3.0 0.8 0.0 1.3 1.5 1.7 4.2 -
Q4
(1)
0.5 2.0 -0.6 0.3 0.2 -0.1 3.0 0.5 0.2 0.8 0.4 2.9 -5.2 -
0.6 2.6 0.2 0.5 0.3 0.8 4.0 0.5 0.0 1.3 0.7 1.7 -1.7 -
0.6 2.4 2.3 0.9 1.0 0.4 2.0 0.8 -0.1 1.3 2.3 1.6 8.0 -
0.9 1.4 1.0 2.3 12.5 -1.4 0.1 -2.7 0.7 1.2 -0.6
1.0 1.0 0.3 2.4 -7.2 3.1 0.0 4.5 4.8 2.5 -2.2
10
11
12
13
(1)
14
(1)
Q2 -1.0 -0.5 0.2 -0.0 -0.0 -0.5 -0.5 -0.3 4.4 2012
Q1
(1)
Q2
(1)
2013 (1) Q3 -0.6 -0.1 0.4 0.2 0.2 -0.3 0.0 0.0 3.8
Q4
(1)
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables Money supply (M2, % y/y ) Government budget (JPY trn) (3) Government budget (% GDP) (3) Primary balance (% GDP)
(3)
Q1 3.0 -
Q2 2.4 2012
Q3 2.4 -
Q4 2.3 -
Q1 (1) 2.6 -
2013 Q2 (1) Q3 (1) 2.7 2013 Q2 (1) Q3 (1) 0.10 0.30 0.05 0.10 0.40 95 128 0.10 0.25 0.05 0.15 0.60 90 122 2.8 -
Q4 (1) 2.9 -
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
17
%y/y
25 20 15
20 15 10 5 0 2004
Real
18
2012 13 (1) 14 (1) 7.8 14.4 18.0 10.5 11.0 10.7 Q1 8.1 14.8 20.9 7.6 7.1 11.6 Q2 7.6 14.0 20.2 10.5 6.5 9.5 2012 13 (1) 14 (1) 3.5 4.0 Q1 3.8 0.2 Q2 2.9 -1.4 2012 13 (1) 308.1 261.4 2.7 9570 14 (1) 330.5 266.8 2.8 10931 Q1 1.1 59.0 3.4 1715 Q2 68.8 53.7 2.9 1882 2012 13 (1) -2.1 -1.6 3600 14 (1) -2.1 -1.7 3868 Q1 3305 Q2 3240 2012 13 (1) 6.00 6.05 14 (1) 6.25 6.03 Q1 6.56 6.30 Q2 6.31 6.35 Q3 6.00 6.29 Q4 6.00 6.23 Q1(1) 6.00 6.20 Q2(1) Q3 3290 Q4 3312 Q1(1) 3407 Q2(1) Q3 79.5 70.6 3.5 2000 Q4 83.3 30.4 1.1 2657 Q1(1) 61.4 61.4 3.2 1938 Q2(1) Q3 1.9 -3.3 Q4 2.1 -2.3 Q1(1) 2.8 -1.5 Q2(1) Q3 7.4 13.8 20.6 4.5 1.6 9.1 Q4 7.9 14.9 20.6 9.4 2.7 10.0 Q1(1) 8.1 12.8 21.0 20.3 6.3 10.4 Q2(1)
2013 Q3(1) 8.7 13.7 20.5 10.0 12.9 12.1 Q4(1) 8.0 13.3 19.1 11.7 10.4 10.9
11 5.4 6.0
3.6 1.5
10 External trade Trade balance (USD bn) (4) Current account (USD bn) Current account (% GDP) 183.1 237.8 3.9 5931
10 Financial variables Gen. gov. budget (% GDP) (5) Primary budget (% GDP) Foreign reserves (USD bn) (6) -2.5 -2.0 2847
Q3(1) 3531
Q4(1) 3600
3465 2013
11 6.56 6.29
12 6.00 6.23
5.81 6.59
6.00 6.15
Footnotes: (1) Forecast (2) Forecasts of GDP 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 5mn (4) Trade balance is customs merchandise trade balance (5) Government budget balance denotes the fiscal balance released by the Ministry of Finance, not the actual budget balance (6) End period Figures are year-on-year percentage changes unless otherwise indicated
19
20
11 3.1 2.4 1.7 1.0 6.4 0.2 7.9 7.5 6.9 10.4
Year 12 0.9 0.3 0.6 1.4 -1.9 -0.6 4.3 2.2 0.3 10.3 Year 12 2.1 1.3 2.0 2.8 1.1 6.8 Year
2012 13
(1)
14
(1)
Q1 0.5 1.2 0.8 0.6 1.8 0.4 0.3 2.9 2.7 1.1 -
Q2 0.3 1.0 0.7 1.3 0.9 -1.7 0.2 5.7 2.8 0.2 2012
Q3 0.2 0.9 -0.2 0.0 1.4 -2.4 -0.1 5.1 1.8 -0.7 -
Q4 -0.6 0.4 -0.2 0.4 1.4 -3.9 0.1 3.4 1.5 -2.1 -
Q1
(1)
Q2
(1)
2013 (1) Q3 0.5 0.9 0.8 1.0 0.9 -0.1 0.1 0.5 0.6 0.4 -
Q4
(1)
4.0 1.9 0.8 1.7 5.6 0.6 13.4 10.9 10.1 10.9
1.0 0.6 0.9 1.0 -0.7 0.0 2.1 1.5 0.4 9.0
1.8 1.4 1.5 0.5 2.4 0.0 4.8 4.7 3.9 8.1
0.4 0.3 0.0 0.5 1.1 -3.1 0.1 3.2 2.4 -1.6 -
0.7 0.7 0.6 0.7 1.5 -0.9 0.1 1.1 0.6 -0.8 -
0.4 2.0 1.1 1.2 0.6 1.4 0.1 3.9 2.4 3.6 -
10 Inflation & labour HICP Core HICP PPI Compensation per employee Employment Unemployment rate (%) 1.2 0.6 1.7 2.4 0.6 7.7
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 External trade Trade balance (EUR bn, sa) Current account (EUR bn, nsa) Current account (% GDP) 151.8 147.8 5.9
12 189.4 168.6 6.4 Year (1) 12 -17.4 -3.3 -0.1 45.0 1.7 81.8 Year
13
(1)
14
(1)
Q1 43.1 40.1 -
Q3 51.0 46.5 -
Q4 47.3 39.4 -
Q1
(1)
Q2
(1)
Q4
(1)
43.5 40.5 -
46.1 37.9 -
10 Financial variables Federal gov. budget (EUR bn) General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP) -82.1 -102.7 -4.1 -51.1 -2.0 82.5
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
10 Interest rates (3) 3-month rate (%) 10-year rate (%) 0.67 1.80
11 1.36 1.55
12 0.19 1.31
13
(1)
14
(1)
Q1 0.78 1.41
Q2 0.65 1.60
Q3 0.22 1.44
Q4 0.19 1.31
Q1
(1)
Q2
(1)
Q4
(1)
0.10 1.30
0.15 1.90
0.20 1.52
0.10 1.50
0.10 1.30
Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) End period Figures are year-on-year percentage changes unless otherwise indicated
21
Many French business surveys were poor at the end of 2012 and in early 2013. However, we believe the PMIs overstate the severity of the recession and we put more faith in Bank of France surveys, which signal little change in activity. A forecast improvement in Germany is key to our expectation that French economic activity will rise slightly from Q2 2013. Germany buys 16.2% of French exports, much more than the UK and Italy (France's second and third-most important trading partners) combined. In 2012, the change in net trade made a positive contribution to the change in GDP for the first time in 11 years, and a strong one, at 0.7pp (Chart 2). We expect net trade to make another positive contribution in 2013, although less than last year, as imports are unlikely to continue to fall. Consumption is being held back by a lack of net income growth. We expect a further rise in unemployment to lead to continued downward pressure on wage growth. Tax increases will also continue to reduce households' purchasing power, with income tax hikes this year and a rise in VAT in 2014. The rise in unemployment will maintain pressure on the government to carry out structural reforms. Next on the agenda are new rules for unemployment benefits, another pension reform and measures to support investment in small and medium-sized enterprises and housing. We forecast core inflation to stay low as rising unemployment restrains both demand pressures and wage costs (Chart 3). As growth forecasts have been lowered, fiscal policy has been tightened slightly, with more spending postponed. The aim is to avoid any slippage in government expenditure beyond the effect of automatic stabilisers. The authorities appear to have accepted that the deficit will not fall to 3% of GDP this year, as originally planned, but any further delay in this target beyond 2014 could be a cause of tension among Frances European partners and the markets, so policy will stay tight (Chart 4).
Chart 2: Real foreign trade of goods & services (% GDP)
Comment Core inflation to stay low Comment Fiscal policy remains tight
22
2012 13 (1) 0.0 -0.2 0.3 1.3 -3.0 -0.1 2.3 1.4 -0.1 -1.6 15.6 14 (1) 0.9 0.4 0.4 0.7 -0.1 0.2 6.6 5.1 0.8 1.9 15.3 Q1 -0.1 0.2 0.0 -0.6 0.8 1.0 -0.1 3.3 -2.0 0.6 -1.8 16.0 Q2 -0.1 0.1 0.6 0.1 1.3 1.0 0.2 2.8 0.5 0.1 -1.8 16.4 2012 13 (1) 1.3 1.0 1.9 -0.7 10.9 14 (1) 1.7 1.6 2.2 0.0 11.2 Q1 2.6 1.5 2.2 0.1 10.0 Q2 2.3 1.7 2.1 -0.3 10.2 2012 13 (1) -61 -41 -2.0 14 (1) -53 -31 -1.5 Q1 -18 -12 -2.4 Q2 -18 -14 -2.8 2012 13 (1)
-70 -3.4 -78 -3.8 -26 -1.3 93.0
11 1.7 0.8 0.2 0.2 3.6 0.8 5.5 5.3 1.7 1.7 16.2
12
Q3 0.1 0.0 0.5 0.1 1.6 0.2 -0.3 2.7 0.0 -0.1 -2.0 16.2
Q4 -0.3 -0.3 0.2 0.4 1.8 -2.2 -0.4 0.4 0.2 -0.3 -3.1 15.8
Q1 (1) -0.1 -0.3 0.0 0.1 1.5 -2.3 0.2 0.9 0.6 -0.7 -2.7 15.9
2013 Q2 (1) Q3 (1) 0.1 -0.1 -0.2 0.3 1.4 -3.5 0.1 1.7 0.0 -0.1 -2.3 15.9 0.2 -0.1 -0.3 0.2 1.3 -3.6 0.1 2.2 1.6 0.0 -1.8 15.4
Q4 (1) 0.2 0.4 -0.1 0.4 0.9 -2.8 -0.1 4.3 3.4 0.3 0.6 15.0
1.6 1.5 1.4 1.8 1.1 0.0 9.2 8.5 1.6 4.7 15.9
0.0 0.3 0.0 1.4 0.0 -1.1 2.3 -0.3 0.1 -2.2 16.1 Year
10 Inflation & labour HICP Core HICP Monthly wages Private NF payrolls Unemployment rate (%) 1.7 1.0 1.8 0.2 9.7
2013 Q2 (1) Q3 (1) 1.2 0.9 1.8 -0.9 10.9 1.4 0.9 1.9 -0.7 11.0
10 External trade Trade balance (EUR bn, sa) Current account (EUR bn, sa) Current account (% GDP) -52 -30 -1.6
Q4 -15 -9 -1.8
2013 Q2 (1) Q3 (1) -16 -11 -2.1 2013 -15 -10 -1.9
10 Financial variables Central gov. budget (EUR bn) Central gov. budget (% GDP) General public budget (EUR bn) General public budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (4)
-122 -6.3 -137 -7.1 -90 -4.7 82.1
11
14 (1)
-62 -2.9 -66 -3.1 -13 -0.6 94.2
Q1
-
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
Year 10 Interest rates 3-month (%) 10-year rate (%) Spread over Bund (bp)
(4)
12 0.19 2.13 83
Q1 0.78 2.14 73
Q2 0.65 2.19 59
Q3 0.22 2.24 80
Q4 0.19 2.13 83
1.01 3.35 39
Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) Unadjusted for calendar effects (BNP Paribas estimate) (4) End period Figures are year-on-year percentage changes unless otherwise indicated
23
0 F ra n c e -2 5 Ita ly
-5 0 S p a in
-7 5 G re e ce
-1 0 0
P o rtu g a l -1 2 5 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
24
2012 13 (1) -1.4 -3.2 -3.0 -2.0 -5.3 -0.4 3.3 -4.1 -3.2 14 (1) 0.3 -0.9 -0.6 -1.7 -1.2 0.1 4.4 1.1 3.0 Q1 -0.9 -1.6 -4.1 -3.5 -3.0 -7.2 -0.6 1.9 -9.0 -5.2 Q2 -0.7 -2.6 -4.9 -4.4 -3.2 -8.6 -0.5 2.5 -7.5 -7.5 2012 13 (1) 1.7 1.4 1.4 -1.0 12.1 14 (1) 1.3 1.4 1.3 0.1 12.6 Q1 3.6 2.2 1.3 0.0 10.0 Q2 3.6 2.3 1.4 -0.1 10.6 2012 13 (1) 35.8 6.5 0.4 14 (1) 43.8 14.5 0.9 Q1 -4.2 -13.1 Q2 6.5 -0.7 2012 13 (1) -40.0 -2.6 47.8 3.0 129.8 14 (1) -34.0 -2.1 60.1 3.8 129.8 Q1 Q2 2012 13 (1) 0.10 5.00 370 14 (1) 0.15 4.20 230 Q1 0.78 5.73 432 Q2 0.65 4.76 316 Q3 0.22 4.86 343 Q4 0.19 4.78 347 Q1 (1) 0.20 4.60 308 Q3 Q4 Q1 Q3 8.6 1.0 Q4 8.8 3.3 Q1 (1) -0.2 -9.1 Q3 3.4 2.1 1.5 -0.2 10.7 Q4 2.6 1.5 1.6 -0.5 11.2 Q1 (1) 2.1 1.5 1.5 -0.9 11.8 Q3 -0.2 -2.6 -5.1 -4.8 -2.9 -8.5 -0.5 2.5 -8.0 -6.3 Q4 -0.9 -2.8 -4.6 -4.4 -2.5 -7.6 -0.6 1.9 -6.6 -6.7 Q1 (1) -0.3 -2.2 -3.7 -3.9 -1.5 -5.5 -0.7 3.2 -4.3 -4.8
11
12
2013 Q2 (1) Q3 (1) -0.2 -1.6 -3.3 -3.3 -1.6 -5.4 -0.6 3.2 -4.7 -4.0 -0.1 -1.5 -3.0 -2.6 -2.2 -5.4 -0.5 3.0 -4.1 -3.2
Q4 (1) 0.2 -0.4 -2.7 -2.1 -2.6 -4.8 0.3 3.8 -3.2 -0.5
11
12
2013 Q2 (1) Q3 (1) 1.6 1.4 1.4 -1.1 12.0 1.6 1.4 1.4 -1.1 12.2
11
12
2013 Q2 (1) Q3 (1) 10.5 3.3 2013 Q2 2013 Q2 (1) Q3 (1) 0.10 4.35 285 0.10 4.75 335 Q3 12.6 5.0 -
11
12
Q4 -
3-month rate (%) 10-year rate (%) Spread over Bund (bp)
Footnotes: (1) Forecast (2) End period
25
2013
2014
-7.5
26
2012 13
(1)
14 -
(1)
Q1 -0.4 -0.7 -0.3 -0.6 -6.3 -8.2 -5.0 -3.2 0.3 2.2 -7.2 -
Q2 -0.4 -1.4 -4.9 -1.8 -4.8 -9.9 -4.1 -4.0 0.4 2.1 -7.3 2012
Q3 -0.3 -1.6 -5.5 -3.1 -4.1 -10.9 -3.3 -5.0 0.3 -0.6 -9.4 -
Q4 -0.8 -1.9 -4.5 -3.3 -4.5 -7.8 -2.0 -5.5 0.2 2.5 -2.5 -
Q1
(1)
Q2
(1)
2013 (1) Q3 0.0 -1.7 -0.4 -2.3 -3.5 -0.3 -0.8 1.0 0.1 7.4 4.2 -
Q4
(1)
-0.5 -2.0 -3.1 -4.6 -5.2 -4.9 -1.6 -2.8 0.1 5.5 -0.2 -
-0.3 -2.0 -1.6 -3.9 -4.2 -1.8 -1.0 -2.2 0.2 7.0 2.9 -
0.1 -0.8 0.3 -0.8 -2.5 0.7 -0.5 2.0 0.0 7.6 4.7 -
-1.6 -3.8 -2.3 -3.7 -6.2 -6.3 -3.2 0.0 3.1 -4.5 -0.4
0.2 -0.9 -0.7 -2.7 1.2 -2.1 3.1 0.2 3.9 -0.4 0.8
2013 Q2 (1) Q3 (1) 2.2 1.9 -0.8 -1.5 26.7 1.1 1.0 0.1 -0.5 27.1
2013 Q2 (1) Q3 (1) -4.2 -1.7 -0.7 2013 -5.0 -0.2 -0.1
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP)
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
3-month rate (%) 10-year rate (%) Spread over Bund (bp)
Source: BNP Paribas
Footnotes: (1) Forecast (2) Includes one off transfers (3)End period
27
2013
(1)
2014
(1)
Industrial production Savings ratio (%) Inflation & labour CPI HICP Core HICP Contract wages Employment Unemployment rate (%) External trade
Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(2) (2)
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
1.36 1.75 20
0.19 1.50 19
0.10 1.65 35
0.15 2.20 30
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
28
2011 1.8 1.2 0.2 0.8 4.1 0.7 5.5 5.7 4.3 14.4
2012
(1)
2013 (1) 0.0 0.0 0.4 0.0 -0.7 -0.3 0.5 0.1 0.2 15.2
2014 (1) 1.0 1.0 1.1 -0.1 2.3 0.0 4.1 4.2 3.0 14.2
2.4 1.4 2.7 0.7 -1.4 0.3 9.4 8.6 8.4 15.4
-0.2 -0.4 -0.6 0.1 -0.5 -0.3 0.4 -0.1 -3.3 15.4
13 7 1.9
7 -5 -1.4
9 -3 -0.9
10 -2 -0.5
10 -2 -0.6
0.19 2.05 74
0.10 2.15 85
0.15 2.65 75
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 Global Outlook
29
2013
(1)
2014
(1)
Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest rates
(2)
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
1.36 1.73 18
0.19 1.75 44
0.10 1.65 35
0.15 2.30 40
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
30
Inflation to fall
2011 -1.5 -5.0 -3.7 -2.6 -12.0 0.1 7.1 -4.2 -2.1 9.0
2012
(1)
2013
(1)
2014
(1)
1.3 0.6 2.3 1.2 -5.3 -0.1 8.8 5.1 1.7 10.8
-3.2 -6.8 -5.6 -4.4 -13.7 -0.2 3.3 -6.9 -4.3 9.6
-2.6 -4.6 -4.3 -5.7 -4.4 -0.1 1.7 -3.9 -2.8 10.6
-0.2 -2.4 -1.9 -6.3 0.4 0.1 5.3 -0.2 -0.6 11.3
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
Footnotes: (1) Forecast (2) Includes one-off transfers (3) End period Figures are year-on-year percentage changes unless otherwise indicated
31
2011
2012
(1)
2013
(1)
2014
(1)
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
1.36 1.50 -5
0.10 1.60 30
0.10 1.50 20
0.15 2.10 20
Footnotes: (1) Forecast (2) End Period Figures are year-on-year percentage changes unless otherwise indicated
32
Ireland: Outperforming
GDP growth is slowly recovering Ireland is a relatively strong eurozone economy. The bailout target was for GDP to rise 0.4% in 2012, but we estimate it grew 0.7%, one of the strongest performances in the bloc. Meanwhile, both the manufacturing and the services PMI remain in expansionary territory (Chart 1). However, we expect the recovery in GDP growth in 2013 and 2014 to be slow. Irelands unemployment rate has started to fall. However, it remains high, with many out of work for a long time. The combination of a weak labour market and continued fiscal tightening suggests domestic demand will continue to decline. As last year, we expect this years rise in GDP to be driven by an improvement in net trade. Ireland is an exceptionally open economy and currently benefits from the fact that some of its main trading partners lie outside the eurozone. In addition, the countrys competitiveness has improved as wage costs have fallen steeply (Chart 2). Hence, we expect export growth to continue to offset the fall in domestic demand. Heading for an exit from Net trade to remain the the bailout programme main driver of growth On the fiscal side, the government comfortably met its fiscal targets last year and aims to reduce the deficit to 3% of GDP in 2015. A deal in February to refinance the promissory notes issued to bail out Anglo Irish Bank reduced Irelands future debtservicing costs. Furthermore, discussions continue at the eurozone level on how best to support Ireland after its return to the markets, potentially via an extension of the maturities of its EFSF/EFSM loans. All of these adjustments mean the country is likely to exit its rescue programme successfully when it ends at the end of this year, in our view. Whether Ireland will ask for a precautionary programme at that time will depend on market conditions for Irish government bonds, we believe. Challenges remain, however. Irelands sensitivity to external developments, still high budget deficit and public debt and its ongoing efforts to repair the weak financial sector continue to pose some downside risks to our view.
Ireland: Economic forecasts
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Inflation & labour CPI HICP Core HICP Employment -0.9 -1.6 -2.4 -4.0 13.9 2.6 1.2 -0.2 -1.8 14.3 1.7 1.9 0.7 -0.6 14.7 0.9 1.1 0.9 0.3 14.6 1.2 1.2 1.0 1.0 14.2 -0.8 -4.9 1.0 -6.5 -22.6 0.3 6.2 3.6 7.6 1.4 -4.3 -2.4 -4.3 -12.8 -0.4 5.0 -0.3 0.0 0.7 -2.0 -1.4 -3.8 -1.9 -0.4 2.8 0.4 -1.7 1.0 -1.0 -0.4 -3.0 -1.0 0.0 3.0 1.7 1.6 2.2 0.5 1.0 -2.4 2.8 0.0 4.4 3.7 2.8 2011 2012
(1)
Challenges remain
2013
(1)
2014
(1)
Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Ref: Excluding banks (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(2) (2)
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
Footnotes: (1) Forecast (2) End Period
33
2013
(1)
2014
(1)
Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP)
(2)
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
34
00
01
02
03
04
05
06
07
08
09
10
11
12
35
2012 13 (1) 0.7 0.7 0.8 -0.3 1.4 0.0 1.3 1.0 0.9 -0.6 14 (1) 1.6 1.3 1.5 -1.2 4.3 0.0 4.2 3.2 1.8 0.8 Q1 -0.1 0.3 1.0 0.2 3.7 0.0 -0.4 -0.6 1.5 0.0 -1.2 Q2 -0.4 -0.2 1.4 1.0 1.7 2.5 0.2 0.1 3.0 0.0 -2.3 2012 13
(1)
11
12
Q3 1.0 0.2 1.6 1.4 2.1 1.6 0.5 1.8 3.2 1.1 -2.9
Q4 -0.3 0.2 1.8 1.3 2.9 1.7 -0.4 -2.5 0.4 1.2 -2.9
Q1 (1) 0.2 0.5 0.7 1.1 -0.6 1.4 0.0 -0.4 0.7 0.0 -2.1
2013 Q2 (1) Q3 (1) 0.1 1.0 0.6 0.5 0.7 0.0 0.0 1.6 0.1 1.2 -1.1 0.3 0.3 0.6 0.7 -0.2 1.5 0.0 0.8 0.6 0.4 -0.2
Q4 (1) 0.3 0.9 0.7 0.9 -1.1 2.7 0.0 3.2 2.6 0.9 0.9
11
12
14
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 4.0 3.9 3.3 2.1 0.6 7.9 1.9 1.7
Q4
(1)
Q1 -25.6 -
Q2 -27.6 2012
Q3 -26.1 -
Q4 -27.3 -
Q1 (1) -27.0 -
Q4 (1) -26.0 -
10 Financial variables PSNB (GBP bn, FY) PSNB (% GDP, FY) Primary budget (% GDP, FY) Gross gov. debt (% GDP) (2) -142 -9.6 -6.5 76.2
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
2013 Q2 (1) Q3 (1) 0.50 0.50 2.20 70 0.88 1.53 0.50 0.50 2.00 60 0.87 1.55
36
After a flat outturn in quarter-on-quarter terms in Q4 2012, the economic environment for Sweden has improved of late. The main restraint on the Swedish economy has been the external environment. While the economy is not overly exposed to weakness in the eurozone periphery, the general recession in Europe in H2 2012 hit the Swedish economy hard. An improvement in economic conditions in its trading partners in 2013 should also be reflected in a pickup in Swedish growth to 1.8% somewhat below trend growth. The domestic side of the Swedish economy has shown more resilience than total GDP. With wages growing by 2.5-3.0% y/y, well above inflation, and employment continuing to rise, the rise in real personal income will continue to support consumption growth. Government spending is also a support to growth. A debt-to-GDP level around 50pp below the EU average leaves the economy in the enviable position of having the capacity to absorb shocks. While the outlook is for a pickup in growth, a key concern for Sweden is the strength of the krona. The effective exchange rate has risen by more than 4% since the start of the year, building on the currencys gains in 2012. The currencys strength raises the risk that exports will lose market share as global demand picks up. The strength of the currency also means that inflationary pressure is very limited. We expect inflation to remain well below the Riksbanks target of 2.0% throughout 2013. By continuing to signal a relatively hawkish line, the Riksbank runs the risk of being one of the losers in the currency wars. We think the bank will have to refine its policy line and start to sound more dovish.
and no austerity
03
04
05
06
07
08
09
10
11
12
US
Eurozone 45 40 35 Sweden
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
37
2012 13 (1) 1.8 1.8 2.1 0.8 2.5 3.7 3.8 -0.2 14 (1) 2.5 2.2 2.0 0.7 4.8 4.2 3.9 3.9 Q1 0.4 1.2 2.9 1.4 0.7 10.5 1.2 1.0 -4.2 Q2 0.8 1.4 1.3 0.9 0.9 2.9 2.8 0.8 -3.1 2012 13
(1)
Q1 (1) 0.3 1.4 1.3 1.6 1.3 0.5 1.6 1.0 -2.2
2013 Q2 (1) Q3 (1) 0.7 1.3 1.7 2.2 1.1 1.3 2.8 3.3 -2.4 0.8 1.8 2.3 2.5 0.5 4.3 5.7 6.8 -0.3
Q4 (1) 0.8 2.6 2.0 2.2 0.2 3.8 4.7 4.3 4.1
14
(1)
Q4
(1)
Q1
(1)
Q2
(1)
Q4
(1)
13
(1)
14
(1)
Q4
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables General gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) 0.3 1.1 39.5
11
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
38
Norway: Resilient
Shrugging off impact of external weakness The Norwegian economy has shown an impressive ability to shrug off the worst of the slowdown in its trading partners. Although growth has slowed over the past year, mainland GDP continued to rise throughout 2012. A modest improvement in the global environment and firm oil prices should result in annual growth in 2013 and 2014 of around 2% per year. Domestic demand, particularly consumption, has been the main driver of growth over the last few years and we expect this to continue in 2013. Consumer confidence is close to its 2010 highs, while the rate of unemployment remains very low. Government consumption and total investment are also rising. Headline inflation is likely to remain low near term due to the lagged impact of past strength in the NOK. However, underlying price pressures are rising. With the labour market tight, wage growth is around 4%. The rise in unit labour costs implies inflation will pick up later in 2013 and in 2014, but we expect it to remain below the 2.5% Norges Bank target. Norways fiscal position is no hindrance to its growth outlook. While the general government has gross liabilities of around 40% of GDP, the net government asset position is a very healthy 165% of GDP. Norges Banks job is being complicated by macro-prudential considerations rather than the inflation outlook. Low interest rates and the solid labour market have helped raise the risk of asset bubbles developing, with house prices having risen sharply in recent years and credit growth buoyant. Against this backdrop, we continue to expect the Norges Bank to deliver its first rate hike this year, but now look for it to come slightly later in the year in Q4 rather than in Q3, as we had expected previously.
Chart 2: House prices (index, Q1 2000 = 100)
39
2012 13 (1) 14 (1) Q1 1.3 1.0 2.0 2.9 3.1 3.1 1.8 4.4 -0.4 2.8 2.6 2.2 3.0 3.2 2.6 2.0 5.6 2.3 4.8 3.0 4.1 4.1 3.3 2.8 2.4 5.3 4.6 -2.5 0.6 Q2 0.8 0.7 4.4 3.2 4.7 3.0 2.1 11.3 5.1 7.1 2.8 2012 13 (1) 1.7 1.5 4.3 3.6 14 (1) 2.3 1.8 4.2 3.7 Q1 0.8 1.4 3.9 3.2 Q2 0.4 1.1 4.3 3.0 2012 13 (1) 388.8 -193.0 367.8 12.2 14 (1) 376 -226 339 10.8 Q1 136.5 -29.2 133.6 18.0 Q2 103 -37 86 12 2012 13 (1) 12.6 10.4 29.3 14 (1) 12.4 10.2 31.6 Q1 Q2 2012 13 (1) 1.75 2.60 2.55 125 7.35 5.53 14 (1) 2.75 3.70 3.35 145 7.40 5.92 Q1 1.50 1.86 2.44 103 7.59 5.69 Q2 1.50 2.30 2.08 48 7.55 5.96 Q3 1.50 1.97 2.14 71 7.36 5.72 Q4 1.50 1.83 2.14 83 7.34 5.56 Q1 (1) 1.50 1.90 2.36 83 7.40 5.56 Q3 Q4 Q1 Q3 85.2 -38.6 96.4 9.8 Q4 98 -42 74 10 Q1 (1) 125.5 -42.2 129.9 17.2 Q3 0.4 1.2 2.0 3.1 Q4 1.0 1.2 4.2 3.5 Q1 (1) 0.7 1.2 4.2 3.6 Q3 -0.6 0.8 1.7 3.2 3.9 3.4 1.5 7.5 -2.4 5.5 5.1 Q4 0.4 0.3 1.9 2.8 4.0 2.7 1.7 9.3 1.7 3.2 2.7 Q1 (1) 0.7 0.7 1.3 2.6 3.3 2.7 2.2 5.5 -2.7 2.8 3.0
11
12
2013 Q2 (1) Q3 (1) 0.8 0.8 1.3 2.7 3.0 2.8 1.3 5.0 -2.7 1.6 2.3 0.6 0.9 2.6 2.8 2.8 3.1 1.6 3.5 1.5 3.4 1.7
Q4 (1) 0.6 0.9 2.7 3.4 3.3 3.6 2.0 3.8 2.4 3.5 3.4
11
12
2013 Q2 (1) Q3 (1) 1.5 1.4 4.3 3.6 2.4 1.6 4.3 3.6
2013 Q2 (1) Q3 (1) 93 -49 68 9 2013 Q2 2013 Q2 (1) Q3 (1) 1.50 1.95 2.50 100 7.40 5.48 1.50 2.25 2.50 110 7.35 5.44 Q3 80.8 -48.0 80.8 11.0
Q4 (1) 90 -53 89 11
10 Financial variables General gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) 11.2 9.0 42.8
Q4 -
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
40
82
84
86
88
90
92
94
96
98
00
02
04
5.0
Current account (CHF bn) Current account (% GDP) General gov. balance (CHF bn) General gov. balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest & FX rates (2) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
(2)
2.5
0.0
-2.5
EURCHF
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
41
High inflation driven by government policy and food inflation Nevertheless, the CBR is likely to cut rates in Q3
Principal payment
Interest payment
30.5 30 29.5 29
42
11
Year (1) 12
2012 13
(1)
14
(1)
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 3.2 580.0 3.8 0.0 2.0 0.5 7.0 2.2
Q4
(1)
11
12
2013 Q2 (1) Q3 (1) 50.0 17.0 3.1 0.0 0.5 2013 30.0 13.0 2.2 0.5 0.7
11
12
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
Footnotes: (1) Forecast (2) End Period Figures are year-on-year percentage changes unless otherwise indicated
43
Ukraine: In recession
Economy continues to suffer In H2 2012 the Ukrainian economy fell into a deep recession primarily due to a slump in the steel market, a poor harvest and high prices for imported natural gas. With a marked pickup unlikely, low steel prices suggest activity will stay weak in H1 2013. The current delay in reaching an agreement with the IMF on a new loan also bodes poorly for the economy. As a result, we have lowered our GDP growth forecast for 2013 from 2.0% to 1.5%, but expect a stronger rebound in growth to 3.5% in 2014. The inflation rate has slumped into negative territory as demand has weakened and as growth in the money supply has slowed. However, the devaluation of the hyrvnya that we expect in coming months and a hike in utility tariffs should cause inflation to reaccelerate from Q2 2013. We forecast it to jump to 2.5% on average in 2013 and to reach 5.0% by the end of the year. Despite the expected rise in inflation this year, the NBUs policy rates look too high; although they have eased somewhat, money market rates are still at 12-13%. The combination of deflation and an economic recession calls for monetary easing. Although the NBU has repeatedly put off rate cuts to support the currency, it has commented it intends to ease monetary policy and we believe an IMF agreement will allow the NBU to cut rates in Q2 2013. An IMF agreement would also reduce default risks and we believe a sovereign debt default is unlikely in 2013, despite Ukraines high refinancing needs. A drop in steel prices below USD 550/t would cause a sharper devaluation of the UAH and a deeper recession, while failure to agree a new IMF programme would sour sentiment towards the country also leading to more serious economic problems.
Inflation to rebound
Default is unlikely
Loa ns
44
11
Year 12 (1)
2012 13 (1) 1.5 180.0 4000 14 (1) 3.5 194.0 4311 Q1 2.0 37.1 Q2 3.0 43.7 2012 13 (1) 2.5 5.0 13.1 8.2 14 (1) 4.2 4.0 8.0 7.7 Q1 2.9 1.9 8.6 Q2 -0.4 -1.2 7.8 2012 13 (1) -16.0 -9.5 -5.3 3.8 27.0 150.0 83.3 14 (1) -16.5 -9.0 -4.6 6.5 30.0 160.0 82.5 Q1 -3.9 -2.4 -4.6 1.7 31.1 126.9 Q2 -5.6 -3.8 -4.5 1.1 29.3 129.0 2012 13
(1)
Q3 -1.3 48.4 -
2013 Q2 (1) Q3 (1) 0.4 44.0 2013 Q2 (1) Q3 (1) 1.6 2.7 8.3 3.8 4.0 8.0 2.5 48.0 -
11
12
2013 Q2 (1) Q3 (1) -4.2 -2.2 -4.5 0.5 27.0 140.0 2013 -3.8 -2.3 -4.3 1.3 27.0 146.0 -
11
12
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
45
46
14
(1)
Q1 0.4 3.6 1.7 1.7 -0.8 6.0 0.8 3.9 1.6 4.7
Q2 0.1 2.3 1.1 1.2 0.5 1.3 -1.5 2.6 -3.1 2.6 2012
Q3 0.3 1.4 -0.3 0.1 0.2 -1.5 -0.5 0.7 -3.7 0.2
Q4 0.2 1.1 -1.3 -1.0 0.2 -0.3 -0.2 2.5 -2.0 -1.8
Q1
(1)
Q2
(1)
2013 (1) Q3 0.6 1.4 0.4 0.5 1.0 -1.0 -0.3 3.3 0.1 4.3
Q4
(1)
0.3 0.9 -0.2 0.1 -0.2 -1.6 -0.4 2.4 -1.4 1.1
0.3 1.2 -0.1 0.1 0.9 -1.4 -0.4 2.9 -0.6 2.7
0.7 2.0 0.9 0.8 1.0 0.4 0.2 5.3 2.8 7.3
10 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 2.6 1.6 0.0 4.2 -1.1 12.1
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) -8.90 -18.13 -5.0
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables General gov. budget (PLN bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -111 -7.9 -5.2 54.8
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
10 Interest rates & bonds Policy rate (%) 3-month rate (%) 2-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) (2) Interest rate swaps 2-year swap (%) 5-year swap (%) 10-year swap (%) (2) FX rates EURPLN USDPLN
(2)
11 4.50 4.99 4.87 5.34 5.91 408 4.76 4.82 4.97 4.46 3.44
13
(1)
14
(1)
Q1 4.50 4.94 4.60 4.94 5.54 373 4.84 4.88 4.96 4.15 3.10
Q2 4.75 5.13 4.67 4.73 5.15 355 4.73 4.65 4.75 4.22 3.35
Q3 4.75 4.92 4.05 4.19 4.68 325 4.25 4.24 4.38 4.11 3.20
Q4 4.25 4.11 3.11 3.21 3.73 243 3.37 3.38 3.59 4.07 3.08
Q1
(1)
Q2
(1)
2013 (1) Q3 3.00 3.30 3.60 3.80 4.30 290 3.80 3.95 4.05 4.20 3.11
Q4
(1)
3.50 3.95 4.80 5.52 6.07 311 4.88 5.48 5.64 3.96 2.96
3.00 3.30 3.70 4.10 4.40 310 3.90 4.10 4.15 4.07 3.06
3.00 3.30 3.90 4.25 4.55 265 4.00 4.40 4.55 4.10 3.28
3.25 3.60 3.40 3.65 4.12 260 3.50 3.65 3.80 4.10 3.08
3.25 3.50 3.50 3.70 4.20 270 3.60 3.70 3.85 4.17 3.09
3.00 3.30 3.70 4.10 4.40 310 3.90 4.10 4.15 4.07 3.06
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
47
48
2012
13
(1)
11
12
14 -
(1)
Q1 -1.0
Q2 -0.6 -1.7 -1.6 -1.6 0.8 -3.0 -2.9 4.6 1.7 -0.6 2012
Q3 -0.4 -1.7 -3.2 -4.1 -0.1 -1.7 -1.2 2.4 -0.3 -0.8
Q4 -0.9 -2.7 -2.1 -1.4 1.7 -5.6 -0.8 -1.1 -1.0 -5.4
Q1
(1)
Q2
(1)
2013 (1) Q3 0.3 -0.2 0.3 0.8 0.0 -1.3 -0.4 2.7 1.9 -0.6
Q4
(1)
-0.1 -1.5 -0.9 -0.6 0.3 -2.6 -1.1 0.3 -1.4 -1.8
0.2 -0.8 -0.7 -0.2 -0.1 -2.4 -0.3 0.9 0.1 -1.3
0.4 0.8 0.9 0.7 -0.5 2.2 -0.6 6.4 4.7 2.4
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) 3.21 1.03 1.1
13
(1)
14
(1)
Q4
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables General gov. budget (HUF bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -1185 -4.5 -0.3 81.8
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
14
(1)
Q1
Q2
Q3
Q4 5.75 5.75 5.73 6.01 6.23 493 5.11 5.16 5.49 291 220
Q1
(1)
Q2
(1)
2013 (1) Q3 4.00 4.10 4.80 5.55 6.30 490 5.00 5.30 5.55 299 221
Q4
(1)
6.50 6.61 6.71 6.84 7.36 593 6.15 6.18 6.58 285 221
5.00 5.10 5.20 5.60 6.40 525 4.75 4.90 5.65 305 229
4.50 4.60 5.00 5.70 6.25 475 5.05 5.20 5.50 295 219
4.00 4.10 4.75 5.50 6.15 485 5.00 5.25 5.40 285 214
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
49
50
14
(1)
Q1 -0.5 -0.4 -1.7 -2.7 -2.3 0.9 -0.8 6.4 3.7 3.0
Q2 -0.6 -1.1 -1.8 -3.3 -1.9 1.1 -0.2 4.2 3.1 -1.4 2012
Q3 -0.4 -1.5 -2.9 -3.9 -0.4 -3.0 -1.7 4.3 0.3 -1.7
Q4 -0.2 -1.7 -3.3 -4.0 0.8 -5.0 1.2 1.4 1.2 -4.1
Q1
(1)
Q2
(1)
2013 (1) Q3 0.4 0.5 -1.0 -0.8 0.3 -2.3 -0.1 2.8 1.6 -0.1
Q4
(1)
0.0 -1.2 -1.1 -1.1 0.6 -2.6 -0.3 1.3 0.2 -1.3
0.3 -0.3 -1.1 -1.0 0.6 -2.4 -0.2 2.7 1.3 -0.5
0.5 1.2 -0.7 -1.2 -0.1 -0.5 0.2 5.0 3.5 2.1
10 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 1.5 0.0 -0.8 2.2 0.4 7.0
2013 Q2 (1) Q3 (1) 1.7 0.1 -1.4 1.9 0.0 6.7 1.4 0.0 -0.9 1.7 0.3 6.7
10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) 2.11 -5.92 -3.9
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables General gov. budget (CZK bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -181 -4.8 -3.4 37.8
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
10 Interest rates & bonds Policy rate (%) 3-month rate (%) 2-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) (2) Interest rate swaps 2-year swap (%) 5-year swap (%) 10-year swap (%) (2) FX rates EURCZK USDCZK
Footnotes: (1) Forecast (2) End period
(2)
11 0.75 1.17 1.76 2.50 3.59 176 1.40 1.79 2.29 25.55 19.73
13
(1)
14
(1)
Q1 0.75 1.24 1.72 2.54 3.55 174 1.45 1.72 2.20 24.79 18.56
Q2 0.50 1.08 0.94 1.86 3.04 144 1.37 1.58 2.01 25.52 20.12
Q3 0.50 0.82 0.50 1.21 2.38 95 1.01 1.20 1.71 25.12 19.51
Q4 0.05 0.50 0.52 0.81 1.86 55 0.70 0.96 1.51 25.05 18.99
Q1
(1)
Q2
(1)
2013 (1) Q3 0.05 0.25 0.40 1.10 2.05 65 0.85 1.15 1.75 26.00 19.26
Q4
(1)
0.75 1.22 1.82 3.18 3.95 99 1.95 2.43 2.90 25.00 18.67
0.05 0.25 0.50 1.25 1.80 50 0.90 1.35 1.90 26.20 19.70
0.05 0.25 1.00 1.50 2.80 90 0.95 1.25 1.95 25.00 20.00
0.05 0.25 0.20 0.65 2.07 55 0.60 0.80 1.40 25.60 19.25
0.05 0.25 0.25 0.80 2.10 60 0.70 0.90 1.55 25.25 18.70
0.05 0.25 0.50 1.25 1.80 50 0.90 1.35 1.90 26.20 19.70
51
Chart 1: PMI
65 60 55 50 45 40 35 30 25 20
Jun 05 Jan 06 Aug Mar Oct May Dec 06 07 07 08 08 Jul 09 Feb Sep Apr 10 10 11 Nov Jun 11 12 Jan 13
50 40 30 20 10
New orders
Source: Markit
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akr / Emre Tekmen Global Outlook
52
11
Year 12 (1)
2012 13 (1) 4.5 3.8 7.2 2.7 5.6 14 (1) 4.0 4.1 6.5 2.8 5.7 Q1 3.4 -0.1 1.4 12.3 -6.1 Q2 3.0 -1.0 -7.2 20.9 -3.7 2012 13
(1)
2013 Q2 (1) Q3 (1) 4.0 3.7 6.6 2.2 5.8 4.8 4.2 6.9 3.7 5.7
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) -71.7 -45.4 -6.2
13
(1)
14
(1)
Q1 -20.6 -16.4 -
Q3 -21.0 -8.1 -
Q4 -20.0 -7.9 -
Q1
(1)
Q2
(1)
Q4
(1)
-23.3 -18.6 -
-24.5 -14.0 -
10 Financial variables General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -3.6 0.8 42.9
12 -2.0 1.4 37.2 Year 12 5.50 5.55 5.94 6.16 6.64 1.78 2.35
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
10 Interest rates and bonds (2) Policy rate (%) CBRT's average cost of funding 3-month rate (%) 2-year bond (%) 10-year bond (%) FX rates (2) USDTRY EURTRY 6.50 6.50 6.34 7.13 8.61 1.54 2.14
2013 Q2 (1) Q3 (1) 5.50 5.50 5.30 5.50 7.00 1.78 2.40 5.50 5.50 5.50 5.70 6.80 1.79 2.41
Footnotes: (1) Forecast (2) End period (3) Seasonally adjusted Figures are year-on-year percentage changes unless otherwise indicated
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akr / Emre Tekmen Global Outlook
53
2011
8.5 5.0 5.3 23.7 11.6 11.9 5.4 2.00 3.75
2012
(1)
2013
(1)
2014
(1)
Chart 2: PMI
65
60
55
50 Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Nov 07
Sep 08
J ul 0 9
M ay 10
Mar 11
Jan 12
Nov 12
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akir / Emre Tekmen Global Outlook March 2013 www.GlobalMarkets.bnpparibas.com
54
Surpluses everywhere
2011 4.2 0.9 0.4 9.1 8.0 8.8 18.0 1.00 3.67
2012 (1) 3.9 0.7 0.6 9.4 6.6 7.3 16.8 1.00 3.67
2013 (1) 3.0 1.2 1.8 8.5 6.5 7.2 16.5 1.00 3.67
2014 (1) 3.1 1.9 1.9 6.4 4.8 5.5 16.6 1.00 3.67
UAE
Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2)
Dubai
Source: IMF
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akir / Nazli Karamollaoglu Global Outlook
55
2011 13.0 1.9 2.1 30.0 8.6 10.1 34.0 4.50 3.64
2012
(1)
2013
(1)
2014
(1)
CPI (% y/y) CPI (% y/y) (2) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest rate (%) (2) USDQAR (2)
(1) Forecast (2) End period
25%
Rent
15%
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Source: Haver
Source: Haver
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akir / Tuba Talinli Global Outlook
56
57
2012 13
(1)
2013 Q3 0.6 3.1 3.7 3.0 2.9 5.7 0.5 4.7 3.8 4.3 10.3 Q4 0.6 3.1 3.5 2.8 1.6 5.9 -0.3 6.2 3.2 1.6 10.1 Q1
(1)
11
12
14 -
(1)
Q1 1.2 4.4 5.5 3.6 4.0 10.4 0.4 7.2 11.5 4.7 9.9
Q2 0.6 3.7 5.9 3.5 4.4 11.9 -0.7 7.2 9.2 2.3 10.7 2012
Q2
(1)
Q3
(1)
Q4
(1)
0.5 2.4 1.4 1.8 1.0 1.0 -0.4 7.7 0.8 1.1 10.3
0.6 2.3 0.7 1.9 0.2 -1.3 -0.1 7.8 1.4 2.0 10.5 2013
0.7 2.4 1.3 2.6 1.8 -1.4 -0.5 8.3 3.2 -0.2 10.2
1.0 2.7 2.0 3.2 2.6 -0.7 -0.1 6.3 4.9 2.5 10.1
2.5 1.3 2.4 1.4 -0.6 -0.3 7.5 2.6 1.3 10.3
2.7 2.7 3.1 2.2 2.4 -0.1 4.8 6.6 2.5 9.3
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
11
12
2013 Q3 Q4 Q1 Q2 2013 Q3 3.25 3.87 2.51 2.63 3.05 1.04 Q4 3.00 3.24 2.65 2.84 3.29 1.04 Q1 (1) 3.00 3.25 2.95 3.15 3.60 1.04 Q2 (1) 2.75 3.00 2.75 3.00 3.55 1.06 Q3 (1) 2.75 3.00 2.85 3.15 3.70 1.08 Q4 (1) 2.75 3.00 2.95 3.35 3.95 1.10 Q3 Q4 -
12
(1)
13
(1)
14
(1)
Q1 -
Q2 2012
10 Interest & FX rates Cash rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) AUDUSD
(2)
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
58
0 .9
0
4 0
-1 -2 -3
- 0 .9
- 1 .8
-4
-2 N o n - a g r ic u ltu ra l o u tp u t g a p ( % , la g g e d 2 q u a r te r s , R H S ) 05 06 07 08 09 10 11 12 13 14 15 - 2 .7
-5 -6 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-4
- 3 .6
59
2012 13
(1)
11 9.3 7.3 7.7 4.8 9.6 10.3 4.6 9.3 9.7 12.1 10.4 4.2 9.1 8.4 6.2 13.0 22.7 17.1
12 6.3 3.0 3.6 -0.8 3.8 2.6 6.9 5.5 8.4 7.6 11.3 6.1 2.6 7.1 7.6 4.7 16.7 15.6
14
(1)
Q1 5.3 2.0 1.7 4.3 1.7 -0.3 4.9 4.8 7.9 7.0 10.0 7.1 0.7 6.1 4.1 3.6 18.1 2.0
Q2 5.5 2.5 2.9 0.1 3.9 0.2 6.3 10.9 7.0 4.0 10.8 7.9 0.8 2.0 8.3 -4.6 7.2 3.9
Q3 5.3 1.3 1.2 1.9 2.8 0.8 3.4 6.7 7.2 5.5 9.4 7.5 1.1 2.0 8.0 -1.0 5.2 13.8 5.8 11.3 23.1
Q4 4.5 0.8 1.1 -1.4 3.7 2.5 4.5 5.8 6.1 5.1 7.9 5.4 2.3 4.6 1.9 6.0 -2.1 -0.3 5.2 12.3 26.3
Q1
(1)
Q2
(1)
2013 (1) Q3 5.8 4.7 5.3 1.7 6.2 5.7 7.9 6.7 5.8 6.6 6.5 3.2 5.5 7.9 -1.9 9.0 7.4 6.4 5.8 13.5 26.3
Q4
(1)
8.4 1.7 1.0 6.3 8.6 9.7 6.3 7.0 10.5 10.3 9.4 12.0 8.9 7.2 14.3 6.8 -4.8 -2.2
4.9 1.6 2.0 -1.2 3.8 1.7 5.4 7.6 6.3 4.6 9.3 5.8 1.7 3.5 4.8 1.9 0.1 7.7
6.1 4.8 5.1 3.0 6.0 5.7 6.7 6.2 6.5 7.1 7.2 4.4 5.5 7.1 2.4 6.9 12.0 12.8
4.6 1.9 2.9 -4.7 4.7 3.1 7.3 7.0 5.2 3.9 9.0 3.0 2.6 5.5 2.3 7.1 -7.3 14.4 4.8 11.2 27.2
5.0 3.1 3.6 -0.3 4.4 4.0 5.7 4.7 5.8 6.8 6.1 3.1 3.7 8.1 -2.1 6.7 3.9 12.5 5.3 12.4 26.1
6.5 5.5 5.6 4.6 6.5 6.2 7.4 6.7 6.8 7.2 7.7 4.6 6.2 5.7 4.4 5.4 17.5 16.0 6.6 13.0 29.8
10 GDP 9.8
11
Q1 5.3
Q2 5.5 2012
Q3 5.3
Q4 4.5
Q1
(1)
Q2
(1)
Q4
(1)
7.3
7.2
4.6
5.0
6.5
Calendar Year 10 Inflation WPI WPI (food) WPI (ex. food & energy) CPI - industrial workers 9.6 13.9 7.0 12.0 9.5 7.9 9.2 8.9 7.5 8.2 6.1 9.3 5.5 7.1 3.6 9.0 5.8 8.8 3.5 8.5 7.5 5.3 6.6 7.2 11 12 13
(1)
14
(1)
Q1
Q1
(1)
Q2
(1)
Q4
(1)
Fiscal Year 10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) -118.4 -38.4 -2.8 -127.3 -48.1 -2.8 -189.8 -78.2 -4.2 -198.9 -86.8 -4.7 -217.2 -88.1 -4.2 11 12 13
(1)
14
(1)
Q1
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 2013
Q3 -
Q4 -
Fiscal Year 10 Financial variables Central gov. budget (INR trn) Central gov. budget (% GDP) Primary budget (% GDP) (2) Gross central gov. debt (% GDP) -4.2 -6.5 -3.2 49.2 -3.7 -4.8 -1.8 45.7 -5.2 -5.7 -2.7 46.5 -5.2 -5.2 -2.0 47.3 -5.7 -5.0 -1.9 47.3 11 12 13
(1)
14
(1)
Q1
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
Calendar Year 10 Interest and FX rates Repo rate (%) 3-month rate (%) USDINR
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
(2)
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
60
20.0
10.0
0.0 BNPP forecast REER -20.0 Export market growth Actual Model estimate -30.0 Q100 Q102 Q104 Q106 Q108 Q110 Q112 Q114
-10.0
61
11 3.6 1.4 2.3 2.1 -0.8 0.7 9.5 6.5 1.9 6.9
Year (1) 12 2.1 1.3 1.8 3.6 -0.9 -0.1 3.7 2.3 0.9 2.0
2012 13
(1)
14 -
(1)
Q1 0.9 2.9 3.0 1.6 4.7 5.0 -0.2 4.6 4.4 0.5 2.8 318 4.4
Q2 0.3 2.3 0.6 1.1 3.6 -2.0 0.1 3.2 0.5 1.4 2.3 317 3.4 2012
Q3 0.1 1.5 0.5 1.6 3.1 -3.1 -0.3 2.8 1.1 1.0 -0.1 317 2.4
Q4 0.4 1.6 1.1 2.9 3.1 -3.6 -0.1 4.0 3.1 0.7 3.0 319 0.9
Q1
(1)
Q2
(1)
2013 (1) Q3 1.1 3.2 2.4 3.3 3.3 0.0 0.3 5.7 5.9 0.5 7.0 335 5.6
Q4
(1)
0.9 1.6 0.0 2.6 2.7 -6.7 0.0 3.8 1.5 1.3 0.9 325 2.2
0.8 2.1 1.5 3.0 4.0 -3.1 0.0 5.8 5.2 0.8 2.6 329 4.0
1.0 3.8 3.6 3.5 4.3 3.3 0.0 8.9 9.4 0.6 5.7 339 6.3
6.3 4.7 4.4 2.9 6.2 1.4 14.7 17.3 0.1 16.6
2.7 1.9 3.1 3.6 -1.7 0.1 6.0 5.5 0.8 4.0 1328 4.5
3.8 3.1 2.8 3.2 3.7 0.2 8.6 8.6 0.8 8.0 1407 5.9
11
12
2013 Q2 (1) Q3 (1) 1.9 2.0 0.7 3.3 2.0 2.0 0.4 3.2
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables General gov. budget (KRW trn) General gov. budget (% of GDP) General gov. primary budget (% of GDP) (2) Gross gov. debt (% of GDP) 19.8 1.7 0.7 34.3
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
2013 Q2 (1) Q3 (1) 2.75 3.05 3.10 1,080 2.75 3.05 3.20 1,060
62
2014
(1)
External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Financial variables Gen. gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest & FX rates Interest rate (%) Official benchmark rate (%) USDIDR
Footnotes: (1) Forecast (2) End Period Figures are year-on-year percentage changes unless otherwise indicated
(2) (2)
63
Taiwan
Taiwan: Economic and financial forecasts
Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 10.8 6.8 4.0 0.4 21.5 2.2 25.6 27.7 26.9 4.1 1.8 3.1 2.2 -2.7 -0.9 4.4 -0.5 5.0 1.7 0.1 1.5 0.4 -4.7 0.0 0.1 -1.9 -0.1 Year 10 Inflation CPI Core CPI (ex. food & energy) Employment Unemployment rate (%) 1.0 0.5 2.1 5.2 1.4 0.8 2.1 4.4 1.8 0.6 1.4 4.2 Year 10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) 28.7 42.0 9.6 27.6 40.9 8.9 30.8 49.7 10.4 Year (1) 12 -2.5 -1.8 41.7 Year 10 Interest and FX rates Discount rate (%) 3-month rate (%) 10-year bond yield (%) USDTWD
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
(2)
2012 13
(1)
11
12
14 -
(1)
Q1 1.2 0.2 -0.9 1.8 1.7 -10.5 -0.7 -3.5 -7.5 -5.8
Q2 0.6 0.5 -0.4 1.6 2.0 -8.0 -0.3 -2.3 -3.9 -0.9 2012
Q3 1.0 1.6 0.4 0.9 -0.6 -0.8 -0.1 2.6 1.9 2.5
Q4 1.8 4.6 1.2 1.6 -1.5 1.6 1.2 4.0 2.4 4.5
Q1
(1)
Q2
(1)
2013 (1) Q3 1.6 5.2 4.0 3.4 2.1 7.3 -0.1 8.6 7.8 8.1
Q4
(1)
0.0 3.3 2.0 1.8 -0.3 4.0 0.7 5.8 7.0 4.0
1.8 4.6 2.5 2.5 0.4 4.3 0.1 8.3 6.7 6.7
1.3 4.7 4.7 3.5 2.3 10.4 -0.4 9.9 11.3 8.7
11
12
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
11
12
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 2013
Q3 -
Q4 -
10 Financial variables Central gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) -3.3 -2.5 38.3
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
64
Other Asia
Thailand: Economic forecasts
2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDTHB
(2)
2014
(1)
2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDMYR (2)
(1) Forecast (2) End Period
2013
(1)
2014
(1)
(1) Forecast
2014
(1)
2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDPHP (2)
(1) Forecast (2) End Period
2013 (1) 2014 (1) 5.9 4.0 2.8 -1.0 1.2 39.5 3.75 39.00 5.2 3.9 2.7 -1.0 1.5 37.7 4.00 38.00
(1) Forecast
2014
(1)
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Net Trade (cont. to growth) Inflation & labour CPI Core CPI Employment Unemployment rate (%) External trade
(1)
2011 4.9 8.6 9.0 2.5 10.1 -1.1 3.7 4.6 -1.0
2012 1.4 5.2 4.0 3.7 9.2 -0.8 1.3 2.5 -2.5
2013
(1)
2014
(1)
21,000 21,000
Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Financial variables
(1)
Gen. gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest & FX rates Interest rate (%) Official benchmark rate (%) USDHKD
Footnotes: (1) Forecast (2) End period
(2) (2)
65
Soft inflation
BoC is on hold
2013
(1)
2014
(1)
CPI Core CPI Unemployment rate (%) External trade Trade balance (CAD bn)
Current account (CAD bn) Current account (% GDP) Financial variables Fed. gov. budget (CAD bn) Fed. gov. budget (% GDP) Fed. gov. primary budget (% GDP) Gross Fed. gov. debt (% GDP) Interest & FX rates Call rate (%) 10-year bond yield (%) USDCAD
Footnotes: (1) Forecast (2) End period
(2) (2)
Jan 03
Jan 06
Jan 09
Jan 12
66
B N P P fo rec as t
Sep 11
J an 1 2
M ay 12
Sep 1 2
J an 13
Jan 03
Jan 05
Jan 07
Jan 09
Jan 1 1
Jan 1 3
67
Year (1) 12 0.9 3.1 3.2 -4.0 0.5 0.2 0.0 -0.9 -2.3 -0.8 1.7 -2.7 -
2012 13
(1)
14 -
(1)
Q1 0.6 0.8 2.5 3.4 -2.1 6.6 6.3 -0.1 -1.2 -8.5 0.1 1.6 -3.5 -3.3
Q2 1.3 0.5 2.4 3.1 -3.7 -2.5 1.6 -0.6 -0.3 1.7 -2.4 1.5 -4.4 -3.3 2012
Q3 1.5 0.9 3.4 3.2 -5.6 -3.2 -6.4 0.5 -1.1 3.6 -0.9 1.4 -2.3 4.1
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 2.4 3.2 3.8 3.8 3.0 6.2 10.9 -0.7 -
Q4
(1)
2.2 1.4 3.9 3.1 -4.5 2.1 0.4 0.2 -1.0 -7.5 0.1 2.2 -1.0 -1.3
5.2 2.6 3.6 3.5 -0.5 4.9 6.4 -0.3 8.0 1.7 2.8 2.0 8.4 -
3.0 3.7 3.5 1.9 5.7 7.1 -0.1 5.1 3.1 2.9 4.1 -
3.5 4.6 2.6 4.1 6.3 8.4 -0.2 5.2 3.8 3.2 3.7 -
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
External trade (USD bn) Trade balance Current account Current account (% GDP) FDI (% GDP)
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
Financial variables General gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP)
13
(1)
14
(1)
Q1 56.2
Q2 57.3 2012
Q3 58.5
Q4 58.6
Q1
(1)
Q2 -
(1)
Q4
(1)
61.7
59.5
60.3
Interest rates & FX rates SELIC rate (%) 1-year swap rate (%) USDBRL EURBRL
(2)
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
68
40 35 30 Jan 06 Jan 07 Jan 08 Jan 09 US PMI manuf ac turing Jan 10 Jan 11 Jan 12 Jan 13
Q1 2006
Q1 2008
Q1 2010
Q1 2012
Q1 2006
Q1 2008
Q1 2010
Q1 2012
69
2012 14
(1)
Q1 5.4 4.9 4.2 3.2 8.6 5.1 6.7 6.4 4.9 4.8 4.9 5.8
Q2 3.3 4.4 3.4 2.2 6.2 6.4 4.8 11.0 4.1 4.3 4.1 1.8 2012
Q3 1.8 3.3 3.6 1.0 3.9 9.8 4.5 1.6 3.6 3.2 3.6 2.2
Q4 1.1 2.7 3.9 0.9 4.8 6.3 8.3 1.5 2.7 4.6 2.7 -2.9
Q1
(1)
Q2
(1)
2013 (1) Q3 4.0 3.9 4.1 0.9 4.8 6.6 6.0 -9.7 3.9 3.9 3.9 4.4
Q4
(1)
3.9 4.3 1.3 5.1 8.4 6.8 3.0 4.3 3.4 4.3 -
4.1 3.9 1.4 6.4 9.7 5.0 1.9 4.8 3.7 4.8 -
6.4 3.0 4.2 1.8 4.7 9.5 6.3 6.1 2.5 3.6 2.5 0.2
4.5 3.9 4.9 1.2 5.2 8.6 7.1 -1.7 5.2 4.1 5.2 3.4
3.6 4.7 4.2 1.3 5.8 9.2 5.4 9.4 3.7 3.8 3.7 4.4
10 Inflation & labour CPI (% y/y) (2) CPI (% y/y) CPI core (% y/y)
(2)
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) -3.0 -1.9 -0.1
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
10 Financial variables
(2)
13
(1)
14
(1)
Q4
(1)
Q1
(1)
Q2
(1)
Q4
(1)
Public balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP)
10 Interest & FX rates (2) Benchmark overnight rate (%) Cetes 1m USDMXN EURMXN
(1) Forecasts (2) End period
13
(1)
14
(1)
Q1
(1)
Q2
(1)
Q4
(1)
70
2011 5.9 3.4 3.7 5.5 -10.1 -3.0 -3.2 -0.5 37.1 4.75 1,939
2012 (1) 3.9 3.2 3.0 4.8 -12.1 -3.2 -2.2 0.4 36.4 4.25 1,767
2013 (1) 4.8 3.4 3.5 5.3 -13.9 -3.4 -2.6 -0.2 35.3 4.00 1,850
2014 (1) 5.2 3.0 2.9 6.5 -16.1 -3.7 -2.4 -0.2 34.8 4.50 1,790
Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDCOP
(2) (2)
(1) Forecast
C B target range
C P I ex-fo o d
J an 08
J an 09
J an 10
J an 11
J an 12
J an 13
71
And BCCh will respond with rate hikes Politics unlikely to influence policy
6.1 1.4 3.0 15.8 3.8 2.0 -0.4 0.0 9.0 3.25 468
Jan 10
Jan 11
Jan 12
Jan 13
(1) Forecast
Non-tradable
Jan 02
Jan 04
Jan 06
Jan 08
Jan 10
Jan 12
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
72
Supply of USDs will remain ample Wage negotiations are expected to be tough
% q/q (saar)
BNPP forecast
(2)
% y/y
Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDARS
(3) (3)
(1)
Total
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 08
Jan 10
Jan 12
73
2011 6.9 3.5 4.7 9.3 -0.8 -0.4 0.9 2.0 21.8 4.25 2.70
2012 6.3 3.7 2.6 5.4 -4.9 -2.4 1.3 2.3 20.4 4.25 2.55
2013 (1) 6.8 2.6 2.6 7.2 -2.8 -1.3 0.4 1.4 18.6 4.75 2.57
2014 (1) 6.7 2.9 3.4 7.2 -2.8 -1.3 -0.2 0.8 17.5 5.25 2.60
Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDPEN
(2) (2)
(1) Forecast
Te rm s o f t ra d e (R H S )
6 5 4 3 2 1 0 -1 Jan 07 Se p 07 Ma y 08 Ja n 09 Se p 09 Ma y 10 Ja n 11 Co r e
Hea d lin e
Ta r g e t ra n g e
E x p o rt s (1 2 m , U S D m n )
100 90
Ja n 0 9
Ja n 1 0
Ja n 1 1
Ja n 1 2
S ep 11
Ma y 12
Ja n 13
74
Inflation will re-accelerate markedly this year Risks for inflation are biased to the upside
2011 4.2 26.1 27.6 46.0 27.2 7.8 -7.6 -6.0 23.9 14.5 4.29
2012 (1) 5.5 21.1 20.1 37.7 20.0 3.1 -10.0 -7.0 24.0 14.5 4.29
2013 (1) 1.0 29.0 33.0 38.0 18.0 3.6 -8.0 -5.0 27.0 14.5 6.30
2014 (1) 1.0 32.0 31.0 34.0 11.0 0.9 -5.0 -2.0 28.0 14.5 7.50
-1.5 28.7 27.2 27.1 12.1 5.1 -2.8 -0.5 18.4 15.0 4.29
Q2 2001 Q3 2003
Q4 2005
Q12008
Q2 201 0
Q3 2012
Q1 2008
Q1 2010
Q1 2012
0 Jan 05
Jan 07
Jan 09
Jan 11
Jan 13
75
Commodities
Oil and US natural gas We continue to expect oil prices to have an upward bias in 2013, with a peak in Q1 followed by a retracement in Q2 and then a rally over the balance of the year. The financial environment is supportive, as the Fed is commited to QE3. On the fundamental side, supply changes rather than demand will drive prices. OPEC has reduced production significantly from its Q2 2012 peak and will probably cut output further to counter strong growth in the US supply of shale oil. Moreover, geopolitical tensions could easily flare up as US- and EU-led sanctions on Iranian oil and negotiations on the countrys nuclear capability continue. The US natural gas market is showing some vulnerability, due to still high inventories and the potential for shortfalls in utility demand as coal recaptures market share and renewables make inroads into electricity generation. Yet, the supply-and-demand balance should tighten this summer, causing prices to rise this year from their spring lows. Base-metal prices look set to rise by around 5% on average in Q1 2013, with the smaller metals far outperforming the two largest, aluminium and copper. We expect base-metal prices to be supported through the rest of 2013 by much stronger demand growth (around 5-6%) than in 2012, the highly accommodative monetary policy and the associated USD weakness. Some metals will also be boosted by severe or emerging supply constraints and/or production cost pressures. Copper, however, may be left behind for once, due to a sharp increase in production. Sentiment towards gold has turned increasingly negative, as recently illustrated by ETF outflows. Golds safe-haven appeal has diminished alongside reduced tail risks in the eurozone. The market also seems to be pricing in an earlier normalisation of US monetary policy than our forecast of the end of 2014. We expect the US dollar to depreciate eventually and inflation expectations to rebound as a result of the Feds asset purchases, supporting the gold price in H2 2013. Platinum remains hampered by a poor European auto sector. Palladium fundamentals are strong, but the price is particularly sensitive to episodes of risk aversion. Agriculture The agricultural sector has trended lower for longer than expected, reaching its seasonal autumn low only in early December 2012, due to a poor performance in the grains and oilseed sector. Fundamentals weakened for grains in the winter as the USDA revised up its estimate of global ending stocks. US corn is also suffering from poor export sales. In livestock, persisting pressures on supplies and steady export demand support a longterm rise in meat prices. While a leg-up is possible in grains, oilseed and soft commodities by May or June 2013, higher global supplies and negative risks to consumption growth may drive up ending stocks, pushing down prices in H2 2013.
Table 1: BNP Paribas commodity price forecasts, period averages
Issue date (25/02/13) (25/02/13) (25/02/13) (11/03/13) (11/03/13) (11/03/13) (11/03/13) (11/03/13) (11/03/13) (28/02/12) (13/03/13) (13/03/13) (13/03/13) (07/02/13) (07/02/13) (07/02/13) (07/02/13) (07/02/13) (07/02/13) 2012 (actual) 94.18 111.68 2.80 2,018 7,950 17,526 1,946 2,061 21,093 1,669 31.15 1,547 641 698 81 750 1,465 122 22 2013 (forecast) 100.00 115.00 3.50 2,110 7,825 17,825 2,175 2,460 26,050 1,670 31.35 1,660 800 733 90 751 1,520 140 21 Q4 2012 (actual) 88.23 110.13 3.40 1,997 7,909 16,967 1,947 2,199 21,560 1,718 32.68 1,593 650 737 73 846 1,484 126 20 Q1 2013 (forecast) 97.00 115.00 3.30 2,015 7,975 17,350 2,055 2,315 24,350 1,640 30.10 1,640 740 730 85 775 1,480 130 20 Q2 2013 (forecast) 98.00 114.00 3.20 2,065 8,100 17,500 2,100 2,360 25,550 1,615 27.95 1,595 745 795 100 854 1,585 135 23 Q3 2013 (forecast) 100.00 114.00 3.55 2,140 7,725 17,800 2,195 2,495 26,800 1,680 31.25 1,650 810 730 90 720 1,520 135 21 Q4 2013 (forecast) 104.00 115.00 3.85 2,220 7,500 18,650 2,350 2,670 27,500 1,740 36.10 1,745 895 675 85 665 1,495 140 20
Metals
NYMEX WTI 1m (USD/bbl) ICE Brent 1m (USD/bbl) NYMEX Henry Hub (USD/MBTU) Aluminium cash (USD/t) Copper cash (USD/t) Nickel cash (USD/t) Zinc cash (USD/t) Lead cash (USD/t) Tin cash (USD/t) Gold spot (USD/oz) Silver spot (USD/oz) Platinum spot (USD/oz) Palladium spot (USD/oz) Corn (USD/bu) Cotton (USD/lb) Wheat (USD/bu) Soybeans (USD/bu) Live cattle (USD/lb) Sugar (USD/lb)
Source: BNP Paribas
76
77
Japan Despite a stronger global backdrop, we expect Japans growth rate to fall below 1% as early as 2013, as reconstruction demand, following the 2011 earthquake, fades. Long term, the rapid rise in the average age of the workforce will limit the potential growth rate to just 0.5%. We assume that the Japanese government will gradually tighten fiscal policy from 2014 to achieve a primary budget surplus by 2020. Failure to implement the necessary reform measures would risk a fiscal crisis in the early 2020s. UK The UK will benefit from the upturn in the global economy after 2013, with further gains in net trade raising GDP growth above 2.5% y/y in 2016-17. Domestic demand will lag, as private-sector deleveraging continues and fiscal policy remains tight. The closure of the output gap and resurfacing of inflation are likely to trigger more aggressive tightening by the Bank of England in the second half of the decade. Consequently, growth will decline towards its trend rate in 2019-21. China Over the next 10 years, we expect Chinas potential growth rate to slow as the working-age population declines and the savings rate falls, reining in future investment. Because of a weaker contribution from exports, rising environmental costs and an already high loan-to-GDP ratio, the economy will become increasingly dependent on consumption. We expect annual GDP growth to slow to around 7.0% on average in 2014-18, and to just above 5.0% in 2019-22. Despite weaker growth rates, Chinas contribution to global GDP will continue to rise and we forecast the country will become the worlds largest economy before 2020. Higher costs for labour, land, natural resources and environmental protection, as well as the shift in the growth pattern, will boost inflation pressures. This will require relatively tight monetary policy, especially in 2015-16. We expect the exchange rate to follow the growth path, with the RMB weakening against the USD in 2016-18 and strengthening again to around 6.00 in the long run.
India Strong demographics, with the working-age population rising until 2035, and higher investment rates are the main factors behind Indias positive long-term growth outlook. By mid-decade, it should be the fastest-growing major world economy. Increased investment in agriculture should boost productivity and facilitate a slowing of food and headline inflation. This will also support the growth outlook for both manufacturing and services. However, Indias structural problems suggest that long-term trend growth could be less than 7.0%, while the disinflation process will be slow. Brazil Rising global demand for commodities and favourable demographics will sustain strong economic growth, but also relatively high inflation after 2013, requiring tighter monetary policy. Higher interest rates and a stronger currency in 2015-17 should lead to slower growth and a more sustainable, although gradual, reduction in inflation. Over time, nominal and real interest rates should continue to trend down, converging on levels comparable to those in other emerging markets. Russia Rising oil prices should support Russias GDP growth in the coming years. However, the country will face increasing demographic challenges from the rapid rise in the average age of the workforce and a fall in the population. While diversification away from the oil and gas sectors should increase the productivity of the Russian economy, GDP growth in 2015-22 is unlikely to average more than 3.5-4.0%. Prudent monetary policy should help slow inflation over the medium term, but it is unlikely to drop much below 5.5% before the end of the decade, as domestic oil and gas prices will increase.
Brazil to see a reduction in inflation rates only in the second half of this decade
78
11 1.8 3.2 1.7 8.9 -8.7 67.7 0-0.25 0.58 0.25 0.83 1.88 1.29 77
11 1.5 2.7 1.4 10.2 -4.1 87.3 1.00 1.36 0.14 0.75 1.83 100
12 2.2 2.1 2.1 8.1 -7.0 72.5 0-0.25 0.31 0.25 0.72 1.76 1.32 87
12 -0.5 2.5 1.5 11.4 -3.7 93.2 0.75 0.19 -0.03 0.30 1.31 114
13
(1)
14
(1)
15
(1)
16
(1)
17
(1)
18
(1)
19
(1)
20
(1)
21
(1)
22
(1)
1.6 1.9 1.9 7.7 -5.5 75.9 0-0.25 0.40 0.25 1.10 2.40 1.33 90
13 (1) -0.5 1.7 1.3 12.7 -2.7 95.7 0.50 0.10 0.10 0.85 1.30 120
2.5 2.0 2.1 7.2 -4.4 77.5 0-0.25 0.50 0.75 1.85 2.80 1.25 100
14 (1) 0.8 1.3 1.3 12.9 -2.2 95.6 0.50 0.15 0.30 1.30 1.90 125
2.9 2.5 2.3 6.7 -4.1 78.4 1.00 1.20 2.20 3.30 3.90 1.30 105
15 (1) 1.4 1.8 1.5 10.5 -1.8 88.8 0.50 0.40 1.80 2.50 2.80 137
2.9 3.1 2.5 6.2 -3.7 77.5 3.00 3.20 3.60 4.20 4.50 1.32 105
16 (1) 1.8 2.3 1.7 10.0 -1.6 86.7 2.50 2.70 3.20 3.60 3.80 138
2.7 3.0 2.6 5.7 -3.4 76.6 4.50 4.80 5.00 5.00 5.10 1.29 110
17 (1) 1.8 2.4 1.8 9.4 -1.4 85.0 3.50 3.70 3.90 4.10 4.20 142
2.3 2.7 2.4 5.4 -3.2 75.9 4.50 4.80 5.00 5.00 5.10 1.29 115
18 (1) 1.4 2.2 1.9 8.9 -1.2 83.8 3.50 3.70 3.90 4.10 4.20 148
1.8 2.4 2.2 5.7 -2.9 75.7 4.00 4.25 4.50 4.65 4.90 1.29 115
19 (1) 0.7 2.0 1.8 8.6 -1.0 82.6 3.00 3.20 3.50 3.90 4.10 148
1.8 2.1 2.0 5.9 -2.7 75.4 4.00 4.25 4.50 4.65 4.90 1.29 115
20 (1) 0.7 1.9 1.8 8.6 -1.0 81.5 3.00 3.20 3.50 3.85 4.00 148
1.8 2.0 2.0 5.9 -2.4 74.9 4.00 4.25 4.50 4.65 4.90 1.29 115
21 (1) 0.7 1.8 1.8 8.5 -1.0 80.4 3.00 3.20 3.50 3.85 4.00 148
1.8 2.0 2.0 5.9 -2.4 74.5 4.00 4.25 4.50 4.65 4.90 1.29 115
22 (1) 0.7 1.8 1.8 8.5 -1.0 81.4 3.00 3.20 3.50 3.85 4.00 148
10 Japan GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) (2) Gov. budget (% GDP) (2) Gross gov. debt (% GDP) (2) O/N call rate (%) (2) 3-month rate (%) (2) 2-year tate (%) (2) 5-year rate (%) (2) 10-year rate (%) 4.7 -0.7 -1.0 5.1 -8.3 179.5 0.10 0.34 0.18 0.40 1.12
11 -0.6 -0.3 -0.3 4.6 -8.7 190.8 0.10 0.33 0.14 0.35 0.99
12 2.0 0.0 -0.1 4.4 -9.1 199.7 0.10 0.30 0.10 0.20 0.75
13
(1)
14
(1)
15
(1)
16
(1)
17
(1)
18
(1)
19
(1)
20
(1)
21
(1)
22
(1)
0.9 0.0 0.0 3.8 -8.7 205.9 0.10 0.25 0.10 0.30 0.80
1.0 2.2 2.2 3.7 -7.6 208.8 0.10 0.25 0.15 0.60 1.60
0.5 1.4 1.4 4.2 -5.7 -213.2 0.25 0.35 0.30 1.10 2.10
0.5 1.6 1.6 4.2 -5.7 -217.9 0.50 0.70 0.60 1.25 2.05
0.5 0.8 0.8 4.1 -6.0 -224.0 1.00 1.40 1.25 1.60 2.00
0.5 0.5 0.5 4.2 -6.4 -230.3 1.00 1.40 1.25 1.55 1.90
0.5 0.5 0.4 4.3 -6.7 -237.1 0.50 0.70 0.80 1.30 1.70
0.5 0.5 0.2 4.4 -7.1 -244.2 0.50 0.70 0.80 1.30 1.70
0.5 0.5 0.2 4.5 -7.5 -251.6 0.50 0.70 0.80 1.30 1.70
0.5 0.5 0.2 4.5 -7.8 -259.4 0.50 0.70 0.80 1.30 1.70
10 UK GDP (% y/y) CPI (% y/y) Core CPI (% y/y) RPI (% y/y) Unemployment rate (%) PSNB (% GDP, FY) Gross gov. debt (% GDP) (2) (2) Bank rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURGBP GBPUSD (2)
Footnotes: (1) Forecast (2) End period
11 0.9 4.5 3.2 5.2 8.1 -8.0 83.6 0.50 1.08 0.33 1.06 1.98 0.83 1.55
12 0.2 2.8 2.4 3.2 8.0 -5.3 90.8 0.50 0.52 0.25 0.64 1.84 0.81 1.63
13
(1)
14
(1)
15
(1)
16
(1)
17
(1)
18
(1)
19
(1)
20
(1)
21
(1)
22
(1)
1.8 3.3 2.9 4.6 7.8 -9.6 76.2 0.50 0.76 0.62 1.38 3.40 0.86 1.56
0.7 3.1 2.1 3.8 7.8 -6.6 95.0 0.50 0.50 0.50 1.20 1.80 0.85 1.56
1.6 2.7 1.8 3.6 7.7 -6.0 97.9 0.50 0.50 0.90 1.40 2.60 0.76 1.64
2.1 2.5 1.4 2.6 7.7 -4.6 96.5 1.00 1.25 1.20 2.40 3.40 0.75 1.73
2.5 2.6 2.2 3.5 7.2 -3.6 95.7 3.00 3.25 3.10 3.65 4.10 0.76 1.73
2.6 2.7 2.3 3.3 6.7 -3.1 93.7 4.00 4.30 4.05 4.30 4.45 0.77 1.67
2.2 2.5 2.2 3.2 6.3 -2.8 92.4 4.00 4.30 4.05 4.35 4.50 0.79 1.63
1.8 2.3 2.0 2.6 6.2 -2.6 91.5 3.50 3.75 3.55 3.95 4.25 0.79 1.63
1.3 1.7 1.8 2.1 6.2 -2.3 90.7 3.50 3.75 3.55 3.95 4.25 0.79 1.63
1.3 1.7 1.7 2.1 6.3 -2.1 90.1 3.50 3.75 3.55 3.95 4.25 0.79 1.63
1.3 1.7 1.7 2.1 6.3 -1.8 89.3 3.50 3.75 3.55 3.95 4.25 0.79 1.63
79
22 (1)
5.1 3.4 -2.5 5.50 4.10 6.00
22
(1)
10 India GDP (% y/y) WPI (% y/y) Central gov. budget (% GDP) (2) Gross cen. gov. debt (% GDP) Policy rate (%) (2) (2) 10-year rate (%) USDINR (2) 9.8 9.6 -6.5 49.2 6.25 7.91 44.7
10 Russia GDP (% y/y) CPI (% y/y) General gov. budget (% GDP) Gross gov. debt (% GDP) (2) Policy rate (%) (2) (2) 10-year rate (%) (2) USDRUB
Footnotes: (1) Forecast (2) End period Source: BNP Paribas
80
Global Head of Market Economics Eurozone Eurozone, Italy Eurozone, Fiscal, Inflation, Greece, Ireland Germany France Spain, Portugal Netherlands Belgium Austria Finland Greece UK, Sweden, Norway, Switzerland, MT rate forecasts BNP Paribas surprise indicator, FMCI US, Canada US US US, Canada Japan Japan Japan Japan Asia Asia, Australia Asia China China China CEE CEE Russia, CIS Russia, CIS Turkey, GCC Turkey, GCC Turkey, GCC Turkey, GCC South Africa South Africa Latin America, Brazil Brazil Mexico, Colombia, Peru Chile, Argentina, Venezuela Oil Oil Natural Gas Base Metals Precious Metals Group Chief Economist Head of Country Risk Global Head of Fixed Income Strategy & Credit Research Global Head of FX Strategy
London London London London London Paris London Paris Brussels Paris Paris Paris London London New York New York New York New York Tokyo Tokyo Tokyo Tokyo Hong Kong Hong Kong Hong Kong Beijing Beijing Beijing Warsaw Warsaw Moscow Moscow Istanbul Istanbul Istanbul Istanbul Johannesburg Johannesburg So Paulo So Paulo New York Buenos Aires London London Houston London London Paris Paris London London
44 20 7595 8551 44 20 7595 8657 44 20 7595 8322 44 20 7595 8783 44 20 7595 8476 33 1 4298 1567 44 20 7595 8369 33 1 4298 5399 32 2 312 1210 33 1 5577 7189 33 1 4316 9550 33 1 5743 0291 44 20 7595 8150 44 20 7595 8226 1 212 841 2281 1 212 471 8180 1 212 841 2258 1 212 471 7996 81 3 6377 1601 81 3 6377 1602 81 3 6377 1603 81 3 6377 1605 852 2108 5104 852 2108 5105 852 2108 5620 86 10 6535 3327 86 10 6535 3380 86 10 6535 3363 48 22 697 2354 48 22 697 2355 7 495 785 6022 7 495 785 6000 90 216 635 2972 90 216 635 2975 90 216 635 2986 90 216 635 2973 27 11 088 2171 27 11 088 2180 55 11 3841 3418 55 11 3481 3466 1 212 417 8216 54 11 4875 4363 44 20 7595 8779 44 20 7595 8775 1 713 393 3137 44 20 7595 8774 44 20 7595 8775 33 1 4316 9558 33 1 4298 7982 44 20 7595 8885 44 20 7595 8487
March 2013 www.GlobalMarkets.bnpparibas.com
81
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