GlobalOutlook Q1 2014

Global Outlook
Summary tables Summary: Orchestrating growth US rates: Medium-term forecasts Eurozone rates: Medium-term forecasts US: When will the chicken finally lay an egg? Eurozone: Flying low Japan: Continued deflation or financial repression? China: New reforms to trim growth Eurozone Germany: More tortoise than hare France: The path of true growth never runs smooth Italy: Life in slow motion Spain: Viva growth! Netherlands: Domestic disturbance Belgium: Short-term gain, longer-term pain Austria: Business as usual Portugal: Hobsons choice Finland: Cyclical and structural weakness Ireland: Taking off the stabilisers Greece: And debt shall have no dominion Other Europe Switzerland: No sign of price pressures UK: Jolly good Sweden: Easy does it Norway: Moving on up CEEMEA Russia: Glum and glummer Ukraine: Crunch time Poland: Goldilocks and the political bugbears 46 48 50 Commodities: Its all down to supply Contacts Disclaimer 87 88 89 39 40 42 44 24 26 28 30 32 33 34 35 36 37 38 2 4 14 15 16 18 20 22 Hungary: High-stakes activism Czech Republic: Walking the walk Romania: On the inflation see-saw Turkey: Challenging times South Africa: Fundamentally flawed Saudi Arabia: Rising breakeven oil prices UAE: A packed redemption schedule Qatar: Infrastructure-driven growth Asia Pacific Australia: Early stages India: A long road ahead South Korea: Safe haven Indonesia: Light at the end of the tunnel Other ASEAN: A sweet and sour mix Taiwan and Hong Kong: Forecast tables The Americas Canada: Taking it easy Brazil: Living on borrowed economic time Mexico: Loosening the purse strings Colombia: Recovery and elections Chile: Settling down Argentina: A post-election reality check Peru: Copper blues Venezuela: Dogged by instability Long-term economic forecasts 73 74 76 78 79 80 81 82 83 63 65 67 69 70 72 52 54 55 56 58 60 61 62
Published 20 November 2013 Global Outlook
November 2013
www.GlobalMarkets.bnpparibas.com
Summary table 1: Economic and financial forecasts

GDP (% y/y) (2) World US Eurozone Japan China Industrial production (% y/y) US Eurozone Japan China Unemployment rate (%) US Eurozone Japan CPI (% y/y) US Eurozone Japan China 11 4.0 1.8 1.6 -0.6 9.3 12 3.2 2.8 -0.6 1.9 7.7 Year 13 (1) 2.9 1.6 -0.4 1.8 7.7 Year (1) 13 2.4 -0.5 -0.9 9.7 Year 13 (1) 7.5 12.1 4.0 Year (1) 13 1.5 1.3 0.3 2.7 Year (1) 13 0-0.25 0.25 2.85 0.25 0.20 1.80 0.10 0.22 0.50 3.00 Year 13 (1) 1.32 102 6.08 135 0.82 1.61 Year (1) 13 -2.4 2.2 0.9 2.4 14 (1) 3.3 2.2 1.0 1.3 7.3 15 (1) 3.4 2.3 1.0 0.9 6.8 Q1 2.5 1.3 -1.2 0.3 7.7 Q2 2013 Q3 (1) 3.0 1.6 -0.4 2.7 7.8 Q4 (1) 3.2 2.0 0.4 3.4 7.6 Q1 (1) 3.4 2.2 0.9 3.1 7.5 2014 Q2 (1) Q3 (1) 3.2 2.2 0.9 0.9 7.3 3.2 2.0 1.0 0.8 7.0 Q4 (1) 3.4 2.2 0.9 0.4 7.3
2.8 1.6 -0.6 1.1 7.5 2013
11 3.3 3.3 -2.8 13.9
12 3.6 -2.0 0.6 10.0
14
(1)
15
(1)
Q1 2.5 -2.2 -7.9 9.5
Q2 2.0 -0.7 -3.1 9.1 2013
Q3 2.5 -0.9 2.3 10.1
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.9 3.7 1.0 8.9
Q4
(1)
2.8 3.3 2.6 9.1
3.1 2.1 2.4 8.2
2.6 1.9 5.6 9.8
2.5 3.1 6.4 9.5
2.8 2.9 2.8 9.1
3.0 3.5 0.2 9.3
11 8.9 10.2 4.6
12 8.1 11.4 4.4
14 (1) 6.8 12.1 3.7
15 (1) 6.2 11.9 3.5
Q1 7.7 12.0 4.2
Q2 7.6 12.1 4.0 2013
Q3 7.3 12.2 4.0
Q4 (1) 7.2 12.2 3.9
Q1 (1) 7.0 12.2 3.8
2014 Q2 (1) Q3 (1) 6.9 12.1 3.7 6.7 12.1 3.7
Q4 (1) 6.6 12.0 3.6
11 3.2 2.7 -0.3 5.4
12 2.1 2.5 0.0 2.6
14
(1)
15
(1)
Q1 1.7 1.9 -0.6 2.4
Q2 1.4 1.4 -0.3 2.4 2013
Q3 1.6 1.3 0.9 2.8
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 1.4 0.7 2.9 3.2
Q4
(1)
1.4 0.9 2.6 3.2
1.8 1.2 1.9 3.5
1.3 0.8 1.2 3.4
1.1 0.8 1.3 3.5
1.5 0.8 3.5 3.6
1.8 1.2 2.8 2.7
Interest rates US
(3)
11 0-0.25 0.58 1.88 1.00 1.36 1.83 0.10 0.33 0.99 3.50
12 0-0.25 0.31 1.76 0.75 0.19 1.31 0.10 0.31 0.80 3.00
14
(1)
15
(1)
Q1 0-0.25 0.28 1.85 0.75 0.21 1.28 0.10 0.25 0.56 3.00
Q2 0-0.25 0.27 2.49 0.50 0.22 1.73 0.10 0.23 0.84 3.00 2013
Q3 0-0.25 0.26 2.72 0.50 0.23 1.78 0.10 0.23 0.69 3.00
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0-0.25 0.25 3.30 0.10 0.10 2.05 0.10 0.20 0.60 3.00
Q4
(1)
Fed funds rate (%) 3-month rate (%) 10-year rate (%) Eurozone Refinancing rate 3-month rate (%) (4) 10-year rate (%) Japan O/N call rate 3-month rate (%) 10-year rate (%) China Official interest rate (%)
0-0.25 0.25 3.45 0.10 0.10 2.10 0.10 0.20 0.70 3.00
0.50 0.85 3.85 0.10 0.10 2.50 0.10 0.20 2.50 3.25
0-0.25 0.25 2.85 0.25 0.20 1.80 0.10 0.22 0.50 3.00
0-0.25 0.25 3.10 0.10 0.10 1.90 0.10 0.20 0.40 3.00
0-0.25 0.25 3.25 0.10 0.10 2.00 0.10 0.20 0.50 3.00
0-0.25 0.25 3.45 0.10 0.10 2.10 0.10 0.20 0.70 3.00
FX rates EURUSD
(3)
11 1.29 77 6.29 100 0.83 1.55
12 1.32 87 6.23 114 0.81 1.63
14 (1) 1.23 118 6.12 145 0.78 1.58
15 (1) 1.25 120 6.10 150 0.76 1.64
Q1 1.28 94 6.21 121 0.84 1.52
Q2 1.30 99 6.14 129 0.86 1.52
Q3 1.35 98 6.12 133 0.84 1.62
Q4 (1) 1.32 102 6.08 135 0.82 1.61
Q1 (1) 1.28 108 6.15 138 0.83 1.54
2014 Q2 (1) Q3 (1) 1.26 112 6.10 141 0.81 1.56 Year (1) 13 -4.0 -3.1 -8.3 -2.1 1.25 114 6.15 143 0.80 1.56
Q4 (1) 1.23 118 6.12 145 0.78 1.58
USDJPY USDRMB EURJPY EURGBP GBPUSD Current account (% GDP) US Eurozone Japan China
(3) End period (4) Bund yield
Budget balance 14
(1)
11 -2.9 0.1 2.0 1.9

(5) Fiscal year
12 -2.7 1.3 1.0 2.3
15
(1)
-2.4 2.3 0.7 2.0
-2.2 2.5 0.5 1.9
(% GDP) (5) US Eurozone Japan China
11 -8.4 -4.2 -8.7 -1.9
12 -6.8 -3.7 -9.1 -1.5
14
(1)
15
(1)
-4.0 -2.5 -6.1 -2.3
-3.5 -2.0 -5.6 -2.5
Footnotes: (1) Forecast (2) BNPP estimates based on country weights in the I MF World Economic Outlook Update, October 2013 Figures are y/y percentage change unless otherwise indicated
Source: BNP Paribas Market Economics Global Outlook November 2013
Summary table 2: GDP forecasts (% y/y)

Difference from September 2013 Global Outlook (pp) 2015 3.4 1.9 2.3 1.0 1.5 1.3 0.5 0.8 0.9 2.3 2.2 2.9 3.6 5.0 3.0 2.5 6.4 6.8 6.4 3.0 1.0 4.2 2013 0.0 0.0 0.1 -0.1 -0.1 0.1 -0.1 0.0 -0.1 -0.1 0.0 0.1 0.1 -0.1 -0.3 -0.8 0.0 0.0 0.0 -0.1 0.0 -0.3 2014 -0.1 -0.1 0.0 -0.1 -0.1 -0.1 -0.2 -0.1 0.1 0.1 0.0 0.0 -0.1 -0.1 -0.2 -0.5 -0.1 0.0 -0.2 0.0 0.0 0.0 2015 -0.1 -0.1 -0.4 -0.1 0.0 -0.1 0.0 0.0 0.0 0.0 -0.1 0.0 0.1 -0.1 -0.1 0.0 -0.2 -0.2 -0.2 0.0 0.0 0.0 3.3 1.9 2.2 1.0 1.7 0.7 0.3 0.8 1.3 2.7 2.0 3.2 3.9 4.8 2.7 2.5 6.1 7.3 4.2 2.9 1.5 4.1
Forecasts Country/region World US Eurozone Germany France Italy Spain Japan UK Canada Other advanced economies(1) Advanced Asia ex-Japan(1) Emerging and developing economies(1) CEE & Russia(1) Russia Developing Asia(1) China India Latin America(1) Brazil Mexico
Source: BNP Paribas
(1) (1)
Forecasts Q4 13 Q4 14 3.2 1.8 2.0 0.4 1.4 0.6 -0.9 -0.1 3.4 2.6 1.9 2.6 3.1 4.5 2.0 1.7 6.2 7.6 3.4 2.6 1.6 2.0 3.4 1.8 2.2 0.9 1.4 0.9 0.6 0.8 0.4 2.3 2.0 3.1 3.9 5.0 3.0 2.3 6.5 7.3 5.6 3.2 1.9 4.4
Weight 100.0 50.4 19.5 13.5 3.8 2.7 2.2 1.7 5.5 2.8 1.8 7.3 3.8 49.6 7.6 3.0 25.0 14.7 5.7 8.7 2.8 2.2
2011 4.0 1.7 1.8 1.6 3.4 2.0 0.5 0.1 -0.6 1.1 2.5 3.2 4.1 6.5 5.0 4.3 8.3 9.3 7.5 4.6 2.7 4.0
2012 3.2 1.5 2.8 -0.6 0.9 0.0 -2.4 -1.6 1.9 0.1 1.7 2.0 1.7 5.0 2.3 3.6 6.8 7.7 5.1 2.9 0.9 3.8
2013 2.9 1.2 1.6 -0.4 0.5 0.2 -1.8 -1.2 1.8 1.4 1.6 2.2 2.6 4.6 1.8 1.4 6.5 7.7 4.2 2.7 2.3 1.4
2014
Advanced economies
(1) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2013
Summary table 3: CPI forecasts (% y/y)(1)

Difference from September 2013 Global Outlook (pp) 2015 3.5 1.8 1.8 1.2 1.5 1.1 1.0 0.8 1.9 2.4 2.1 2.2 2.4 5.4 5.2 5.2 3.9 3.5 5.1 8.4 6.2 3.4 2013 0.0 0.0 -0.1 -0.2 -0.1 0.0 -0.1 -0.3 0.1 -0.1 -0.1 0.0 0.0 0.1 0.0 0.1 0.1 0.0 0.3 -0.1 -0.2 0.0 2014 -0.1 -0.3 -0.5 -0.4 -0.3 -0.2 -0.4 -1.3 0.2 -0.2 -0.6 -0.1 0.0 0.0 -0.1 0.0 0.2 0.0 0.5 0.1 -0.4 0.4 2015 0.0 0.0 -0.1 -0.1 0.0 -0.3 -0.3 -0.4 -0.1 -0.1 -0.2 0.1 0.1 0.1 0.6 1.4 0.0 0.0 -0.2 -0.1 0.0 0.0 3.3 1.5 1.4 0.9 1.3 1.1 0.9 0.1 2.6 2.4 1.5 1.9 1.9 5.1 4.8 5.3 3.6 3.2 4.6 8.4 6.1 3.5
Forecasts Country/Region World(2) Advanced economies(2) US Eurozone Germany France Italy Spain Japan UK Canada Other advanced economies Advanced Asia ex-Japan CEE & Russia(2) Russia Developing Asia China India Latin America Brazil Mexico
(1) HICP where available, India WPI (2) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2013
(2) (2) (2) (2)
Forecasts Q4 13 Q4 14 3.1 1.2 1.3 0.8 1.1 0.8 0.8 0.1 1.2 2.2 0.8 1.4 1.3 5.2 5.2 6.0 4.2 3.4 6.9 7.2 6.0 3.4 3.3 1.8 1.8 1.2 1.7 1.3 1.0 0.4 2.8 2.5 1.5 2.1 2.3 4.9 4.8 5.1 3.0 2.7 3.4 8.7 6.7 3.8
Weight 100.0 50.4 19.5 13.5 3.8 2.7 2.2 1.7 5.5 2.8 1.8 7.3 3.8 49.6 7.6 3.0 25.0 14.7 5.7 8.7 2.8 2.2
2011 4.8 2.7 3.2 2.7 2.5 2.3 2.9 3.1 -0.3 4.5 2.9 3.0 3.6 7.1 7.9 8.5 6.1 5.4 9.5 6.7 6.6 3.4
2012 3.8 2.0 2.1 2.5 2.1 2.2 3.3 2.4 0.0 2.8 1.5 1.9 2.6 5.7 6.5 5.1 3.8 2.6 7.5 6.2 5.4 4.1
2013 3.1 1.4 1.5 1.3 1.5 1.0 1.3 1.5 0.3 2.6 1.0 1.5 1.5 5.0 5.4 6.7 3.6 2.7 6.2 7.4 6.2 3.7
2014
Emerging and developing economies(2)
Source: BNP Paribas Market Economics Global Outlook November 2013
Global outlook: Orchestrating growth

We see slow growth globally, with any pickup in tempo likely to be moderate. We expect inflation to remain low on a global basis, though with isolated hot spots. Monetary policy in the US, Japan and the eurozone will stay soft, though we expect the Fed to taper from March. Fed tapering will hit some emerging markets harder than others, but there will be no widespread crisis. Bond yields should head up in the US and the eurozone, more in the former. Japanese yields will fall. We like the USD for economic and policy reasons.
Global growth is more sluggish than expected
Global growth is recovering, but from a very slow pace, and is making less progress than most expected. We forecast global growth of 2.9% this year and 3.3% in 2014. This has forced the orchestrators of monetary policy in a number of countries to adopt a more accommodating approach than they expected later tapering by the Fed and continued easing in the eurozone, for example. Policy cacophony prevails. The Fed will have a new conductor in Janet Yellen next year. What tempo of tapering she adopts and what tune emerging markets will have to dance to as a result remain to be seen. Mario Draghis ECB board members dont all seem to be singing from the same hymn sheet, meanwhile, with the majority backing a rate cut in November, but discord being struck by a quarter of the Council. In China, reform is on the agenda, but what difference will it make and how will it affect global growth and markets? We address these issues in our new forecasts. What are our chief conclusions? 1. Global growth will remain slow. It can take a decade to recover from a good financial crisis and 2008s was certainly a good un. We are halfway through the adjustment. Dont expect big positive surprises. 2. The world is left with a lot of spare capacity, not just from the recession, but also from malinvestment, for example, in China. This makes disinflation a threat globally, particularly in the eurozone, but with pockets of inflation that need to be calmed as a result of excessively expansionary past policy (India, Brazil). Emerging markets will find Fed tapering a challenge, but not a disaster. Markets will differentiate between markets according to their various positions. Countries with large current account deficits are among the most vulnerable, as are those with high inflation. Table 2: BNPP end-period FX forecasts
Spot
EURUSD EURJPY EURGBP GBPUSD USDJPY USDRMB 1.35 135 0.84 1.61 100 6.09
Any pickup is likely to be very moderate indeed
3.
Table 1: BNPP end-period interest-rate forecasts (%)

Spot US Fed Funds 2-year 10-year Eurozone Refi 2-year* 10-year* Japan ODR Call Rate 2-year 10-year 0-0.25 0.29 2.70 0.25 0.11 1.71 0.30 0.10 0.09 0.63 Q1 14 0-0.25 0.40 3.10 0.10 0.10 1.90 0.30 0.10 0.08 0.40 Q2 14 0-0.25 0.50 3.25 0.10 0.15 2.00 0.30 0.10 0.09 0.50 Q3 14 0-0.25 0.65 3.30 0.10 0.20 2.05 0.30 0.10 0.10 0.60 Q4 14 0-0.25 0.85 3.45 0.10 0.25 2.10 0.30 0.10 0.12 0.70 Q1 15 0-0.25 1.10 3.55 0.10 0.30 2.20 0.30 0.10 0.15 1.00
Q1 14
1.28 138 0.83 1.54 108 6.15
Q2 14
1.26 141 0.81 1.56 112 6.10
Q3 14
1.25 143 0.80 1.56 114 6.15
Q4 14
1.23 145 0.78 1.58 118 6.12
Q1 15
1.23 148 0.77 1.60 120 6.07
Source: BNP Paribas (FX Strategy)
Spot rates as at 15 November 2013
*German benchmark. End period, spot rates as at 15 November 2013 Source: BNP Paribas (Market Economics, Interest Rate Strategy)
Paul Mortimer-Lee Global Outlook
November 2013
4.
Bond yields in the major economies will remain low. Japans may move lower from here, while US and eurozone rates may rise, the former by more than the latter. Beyond the very short term, Fed tapering should widen the risk premia required on risk assets. In the currency markets, the strengthening US economy and the move to less monetary accommodation should favour a stronger USD.
5. Markets have struggled to strike the right note
Markets have struggled to strike the right note this year, as we saw with the taper-tantrum earlier in the year, partly because policymakers are also struggling. There are a number of key questions facing markets in 2014:
In the US, the Fed is finding it difficult to scale back QE (which it obviously wants to do),
because the economic recovery lacks vigour and because the effects of tapering on markets may be bigger than it expected on the basis of its analysis of how QE works. When will the Fed start to taper, how fast will it go and what will the bond and other market effects be?
We saw earlier in the year that when the Fed tightens, bad stuff happens, including to
emerging markets. Has the tapering scare drawn the sting out of the action and will emerging markets be only mildly affected, or will there be a sizeable sell-off in local markets?
In China, reform is on the agenda, but can it proceed smoothly or will the transition to more
market-oriented structures throw up big problems? Will growth pick up strongly, or are we on a declining growth trend? Will there be a crisis?
As fears about eurozone inflation increase, should we be encouraged that Japan will escape
from deflation? What does this mean for markets? Or will the economy sink back into deflation?
Having survived the trauma of the euro crisis, is the euro area going to be pulled down by the
insidious tentacles of deflation? What will the ECB do and what does that mean for markets? We see Fed tapering from March 2014 US policy and the economy The Fed signalled quite strongly in May and June that it was preparing to scale back its QE bond purchases if conditions allowed. They didnt. The extent of the bond sell-off surprised the Fed and knocked consumer spending and, apparently, activity in housing and autos. Moreover, Washingtons fiscal wrangling presented a threat to both confidence and activity that counselled the Fed to wait and see. Better data, including payrolls consistently around or above the 200k-amonth mark, is what we believe we will need to see for tapering to start. Our current best estimate is March, but further fiscal fights and soft data could delay it again. Earlier tapering could come, but only on strong data, which is not our central projection. The Fed was surprised by the extent of the sell-off in bonds over the summer. Not only did the term premium move up, but the market also moved forward the date on which it estimated the Fed funds rate would rise. The Fed did not care for this much and could now try to de-link tapering from rate hikes in the markets mind. As both depend on the economy looking better, this may be tough. Chart 1: Ending QE means more volatility Chart 2: US drivers of inflation have shifted
Source: Reuters EcoWin Pro, BNP Paribas
Source: Reuters EcoWin Pro
November 2013
More pressure on yields when tapering starts
Accordingly, we expect more upward pressure on bond yields when the Fed begins to decrease its purchases, or signals its intent to do so (watch the January FOMC meeting and minutes, as well as the Humphrey Hawkins testimony in February). We believe 10y bond yields could move up to the 3-3.25% range initially. This would be a smaller sell-off than in the summer, as positions have been scaled back and markets know the tapering is coming. Its just a question of when, so there should be less of a shock value. However, there will be effects and it is likely that the economy will not strengthen as much as the Fed and some outside commentators would like to believe. Accordingly, we can see the risks of tapering being stretched out rather than completed in less than a year, as some expect. After all, whenever the Fed has ended QE in the past, it has had to re-engage (Chart 1). We do believe the US economy will strengthen, but more gradually than some expect. We forecast growth of 2.3% in 2015, after 1.6% in 2013 and 2.2% in 2014. The key differences between our analysis and that elsewhere is that we see a slower pace of investment build-up and also feel that some have misread the shift in fiscal stance between 2013 and 2014 the headline numbers show much less fiscal tightening next year than in 2013. As most of this relates to shifts in payments to government from the agencies and to tax shifting across years, we see a much smaller impact from these sources close to zero. Hence, our caution. One of the key US issues we are watching at the moment is core inflation (Chart 2). Core services inflation has slowed in recent months, not typically a happy sign. If inflation dwindles from here, the markets will have to reassess what the Fed will do. Large-scale QE for longer, perhaps? Impact of QE on emerging markets A key element in our discussions of emerging markets has been how much Fed tapering will affect them. Was what we saw earlier in the year just a taster of a bigger, beefier main course response when the tapering actually begins, or is it a case of forewarned is forearmed? Chart 3 shows the sell-off between May and September was related to the scale of the rally in the period preceding it. Since September, the local markets that sold off have rallied, but to a relatively small extent. Chart 4 shows that inflation was a key vulnerability in explaining FX reactions to the external shock of tapering talk.
US to strengthen, but more slowly than thought
Keeping an eye on core US inflation
Tapering will not be great news for emerging markets
We do not regard tapering as good news for emerging markets, far from it. But neither do we see it as a disaster, as positioning has been reduced and as current pricing is more appropriate than before the tapering talk began. Chart 5 is reproduced from the IMFs most recent publications and tries to give some idea of what countries the IMF has suggested could be relatively more affected in the event of a liquidity shock. We feel that having only two dimensions is too simplistic and would not put too much weight on the rankings; some seem wrong if we take into account a wider range of indicators, for example. Nonetheless, we reproduce it here to give some idea of where policymakers may need to be most mindful of the need for fully credible policies. What is clear is that emerging markets have, on the whole, fallen short of market growth expectations. This is not because advanced markets have disappointed. There are two reasons: Chart 4: Inflation and exchange-rate movements
2 Israel China
Emerging markets have disappointed on growth
Chart 3: Change in 10y local-currency government bond yields

450
CEEMEA
Turkey
Foreign exchange change versus USD May 22 - Sep 5, 2013 (%)
400 May 22 - Sep 5, 2013 (basis points) 350 300 250 200 150 100 50 0 200
Asia
LATAM
0 -2 -4 -6 -8 -10 -12 -14 -16 -18

CEEMEA
Chile Colombia Thailand Malaysia Peru Philippines Mexico
South Africa
Brazil Peru Hong Kong India China Malaysia Israel
Colombia Hungary Mexico Poland
y = -1.4 * x - 0.8
LATAM Asia
0 2 4 6 8
India
-200
-400
-600
-800
-1000
10
March 31, 2009 - April 30, 2013 (basis points)
Inflation rate (y/y, May-July average, %)
Source: Reuters EcoWin Pro, IMF, BNP Paribas
November 2013
cyclical and structural. We would lend weight to both. On the structural front, emerging markets benefited from two periods of excess. The first, prior to 2008, was the build-up of excessive credit in the advanced economies, which boosted emerging-market exports and also allowed excessively soft global financial conditions. Post-2008, while export markets in advanced countries floundered, local markets, themselves, were able to stimulate their domestic economies substantially by monetary and fiscal means. Super-easy monetary policy in the majors means that this expansionary, and risky, policy was not punished on the FX markets. In contrast, it was rewarded with inflows. Market estimates of trend growth were based on actual performance and gave too much weight to the periods of external and internal excess. Those estimates are being revised down. Some inflation hotspots Now, some local markets are struggling with inflation as the consequence of excessively slack policy in the past (for example, Brazil and India), while others have seen pressure on exchange rates and have had to tighten monetary conditions (Turkey). While there is, therefore, a cyclical element to these slowdowns, it is also clear that previous estimates of their trend growth rates were too high. In some cases, this has led the market to be too optimistic on growth and not pessimistic enough on inflation Chart 6 tells the story well for Brazil. We are not likely to go back to the rates of emerging-market growth we saw before the crisis or in the years of post-crisis domestic stimulus. Moreover, the slower pace of global growth we are now seeing translates into poorer terms of trade for a number of emerging markets. Not all developing economies will suffer from this. Korea and China, for example, are likely to see improved terms of trade. However, exporters of raw materials and agricultural commodities will be hurt. For example, Brazil benefited from a big shift in its terms of trade after the global crisis (subdued inflation in advanced countries, booming commodity demand from China), which, together with domestic policy settings, has led to a substantial deterioration in the real net trade balance. When the Fed tightens, a number of emerging markets will see their exchange rates decline and imported inflation rise, while at the same time the capital inflows that have supported domestic demand and credit will diminish. We do not feel that the fall in capital flows to emerging markets will be savage Chart 7 shows how our model predictions of flows are likely to evolve but those with large current account deficits are likely to feel the brunt of the shift. Domestic conditions will have to be tightened (when the US conductor signals tighten, the orchestra will have to play the same tune) and this will constrain demand growth. The emerging countries least likely to be affected by the fall-out from Fed tapering will be those countries with healthy current account positions and only moderate domestic credit growth, as well as low inflation. Korea is one of our favourites and, in Latin America, Mexico. Eastern Europe is the region least likely to be affected overall by Fed tapering. For one, it is more linked to the EUR than the USD and, second, the euro crisis had knock-on effects capital outflows from Eastern Europe that reduced previous excesses. For example, our forecasts for Poland and Hungary see a significant acceleration in growth from 2013 to 2014.
We wont see pre-crisis EM growth rates again
Fed tightening will affect EM FX rates and inflation
Korea and Mexico likely to be least hit by tapering
Chart 5: Emerging-market external and domestic vulnerabilities

external -10 Average current acount balance 2010-12 (% of GDP) -8 -6 -4 -2 0 2 4 6 8 10 -8 -6
CEEMEA
Chart 6: Brazil Less growth, more inflation

7.0 B N P fo rec as t: Inflatio n 2014 (6.5%
Turkey Poland Ukraine Romania India South Africa Mexico
6.5 6.0 5.5

C o nsensus 2 0 14 inf lat io n
Colombia Brazil Chile Thailand Indonesia
5.0 4.5 4.0 3.5 3.0 2.5

C o nsensus 2 0 14
China Philippines Russia
LATAM Asia
-4 -2 0
Malaysia 2 4 6 8
internal vulnerability
2.0 1.5
16
B N P fo rec as t: Gro wt h 2014 (1.5%)
10
12
14
1.0 J an 11 J ul 11 J an 12 J ul 12 J an 13 J ul 13
Real credit growth in excess of GDP growth, average, 2010-12 (%)
November 2013
China is badly unbalanced
Chinas challenges China is one of the economies that benefited most from the pre-crisis excesses in advanced countries, increasing its share of world trade, while excess demand prevailed, particularly in the US and Europe. The response to the reduction of excesses in the advanced countries was to create its own excesses; the credit boom of 2009-10 was by any measure hugely excessive (Chart 8). This resulted in inflationary pressures, so tightening ensued, giving us the slowdown in 2012-13. Easier policy resumed and the economy has started to pick up, aided by a reduction in uncertainty following the leadership transition. However, the Chinese economy is badly unbalanced. Investment accounts for 49% of GDP and credit has grown at rates normally associated with large non-performing loan (NPL) problems, Furthermore, the countrys shadow banking system has mushroomed as a means of circumventing credit restrictions, while credit from the state banks is too often directed towards state-owned enterprises (SOEs), which are sometimes inefficient and more focused on scale than profitability.
Embarking on SOE, land and financial reform
Thus, China has embarked on a period of reform encompassing SOEs, land reform and the financial sector, among other things. Longer term, this will lead to a better allocation of resources and better quality growth. However, reform means the assumptions and projections some made under the pre-reform agenda will be rendered false. What will be the effect, for example, of higher rates on leveraged SOEs? Will the economy really be able to switch from investment and export-led growth to consumption-led growth? Doesnt this inevitably mean slower growth? What does this mean for investment in the old sectors? Will it fall rapidly? What does this means for producers of investment goods within China? Can their resources smoothly be transferred to services and consumer goods-producing sectors? We do not foresee a crisis resulting from this, but there will be challenges. The more reform there is, the less the forces driving the economy will be in the full control of the government. If there are surprises to the downside, how will leveraged sectors and shadow banking evolve? These are not easy questions. However, our forecast incorporates no such adverse shocks, so the net result in our forecast is a mild acceleration of growth this year, with a beneficial carryover into 2014, but a trend slowing of growth into 2015. Our Chinese growth projection for 2013 is 7.7%, the same as in 2012, with 7.3% in 2014 and a forecast of 6.8% in 2015. Inflation is likely to see a mild acceleration, from 2.7% in 2013 to 3.2% in 2014 and 3.5% in 2015, with the pickup partly the result of a retreat in domestic PPI deflation, itself a result of better internal and external demand. We expect the PPI to fall 1.8% this year, close to the result in 2012, but to rise by 1.5% in 2014. We expect RMBUSD to average 6.13 in 2014 and 6.10 in 2015, compared with a spot level of 6.09.
We dont see a crisis, but we do see challenges
The China effect in 2014 will be similar to 2013
Overall, our forecast for China is that its influence on the global picture in 2014 will not be much different to this year, though we have a downward tilt to our projections. There is no strong resurgence, but no negative shock either, just a gradual ebbing of vigour, with fixed-asset investment growth slowing to 15% from 20% (still faster growth than GDP growth). This should Chart 8: Chinese credit
200 190 180 170
IIF
Chart 7: Emerging-market capital inflows forecast

350 Capital inflows to emerging markets* (USD bn) 300 250 200 150 100 50 0 -50 -100 Q105 Q106 Q107 Q108 Q109 Q110 Q111 Q112 Q113 Q114 Q115 Trend BNPP
160 150 140 130 120 110 100
Total social financing (% of GDP)
* BRICs, Turkey, Mexico and Indonesia
90 80 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
November 2013
help to keep global trade growth muted and commodities subdued. At the margin, China has been the most important influence on commodities in recent years, so any innovations in the economy that resulted in a different path to that we are predicting would have large knock-on effects on emerging markets. To the extent that China shifts from export and investment-led growth in order to rely more on consumption (which includes services), emerging markets will see lower demand. The most adverse constellation of events from the emerging-market commodity-exporters standpoint would be weak demand in China and substantial fallout on financial markets from Fed tapering. Split views on where Japan will end up Japan: Differing perceptions In Japan, there is a bifurcation of views as to where the country will end up. The majority of domestic investors seem to believe that without further stimulus and yen-weakening polices, inflation will slip back after the sales-tax hike works through, with the implication being very low bond yields, a strong yen and weak equities. Foreign investors generally see a happier ending, with Abenomics succeeding in ending deflation and elevating the trend growth rate. We see the probability of this scenario at about 10% and of slipping back into deflation at about 35%. So what do we think will happen? Basically, we are more optimistic than the domestic crowd, but less optimistic than the foreigners. We expect further fiscal stimulus in H2 2014, which will push the economy beyond potential and succeed in raising inflation in 2015. There will then be a choice between letting bond yields soar and the yen plunge, or adopting financial repression. We expect the latter, otherwise government finances could spiral out of control. We assign a 40% probability to this scenario, so not all that much more than a return to deflation. The key will be policy and how hard resources are pressed to their full employment threshold. If financial repression were not adopted, things could turn very nasty indeed, with rocketing inflation, soaring bond yields and a runaway depreciation of the yen, to which scenario we would attach a 15% probability. A choice between unpalatable scenarios If we sum up our scenario analysis, then, we see it basically coming down to a choice between unpalatable scenarios financial repression, deflation or financial disaster. The scenario with lowest probability is the one with the happy ending. For now, above-trend growth persists because of the fiscal spending being financed by the BoJ. Without further fiscal stimulus, the economy will lose steam by the end of next year, partly under the influence of the sales-tax hike, which will add 2pp to price growth, but also as the impact of the weak yen fades. We do not think Prime Minister Shinzo Abe will allow the growth rate to plunge, so we expect him to take further fiscal measures in H2 2014. Further monetary easing is unlikely Will there be further monetary measures as well? The stated aim of the BoJ is to get inflation to 2%. Without the sales-tax hike, that would be difficult, especially once the effects of yen depreciation work through the system, as wages remain restrained (Chart 9). Based on the evidence of recent years, we think wages will start to pick up once unemployment pierces the 3.5% rate (Chart 10). Chart 10: Japanese unemployment rate (sa, %)
6.0 5.5 5.0 4.5 4.0 3.5 Forecas t
We think fiscal repression is on the cards
Chart 9: Japanese wages and CPI (% y/y)

8 6 4 2 0 -2 -4 80 82 84 86 88 90 92 94
CPI
Totalcashearnings
96 98 00 02 04 06 08 10 12
3.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: MIC, MHLW, BNP Paribas
Source: MIC, BNP Paribas
November 2013
Japanese inflation is currently 1.1% and the sales-tax hike will likely take this to 3%. This will not be popular with workers or retirees and the BoJ is unlikely in such circumstances to embark on further substantial monetary easing, though it will keep bankrolling the government at around its current pace. We think Japanese bond yields will hit a record low The BoJ currently dominates the JGB market, with some doubting that there is much of a market any more. We think bond yields can reach a record low, with the 10-year maturity hitting 0.4%. Thereafter, we expect bond yields to rise to 0.7% by end 2014, but to 2.5% a year later, heralding a debt spiral and fiscal crisis in the absence of financial repression. The risks to our Japanese forecasts are that policy does not stimulate the economy beyond full employment, resulting in deflation, or that once inflation emerges, it leads to a fiscal crisis and crashes on the Japanese financial markets. Worrying signs of the eurozone following Japan Eurozone: Following in Japans footsteps? Just as policy in Japan is directed toward Japan not being Japan anymore, in the sense of deflation, there are worrying signs that the eurozone may be following in its footsteps, especially as eurozone inflation is now lower than Japan's. A prolonged monetary squeeze, slow solutions to a banking problem, too cautious a monetary stance and too strong a currency were all significant elements in the recipe that gave Japan deflation. Are the ingredients in the European cake much different? The missing ingredient is probably another recession in the eurozone, Were that to come, then prices, having dipped in the recovery, could crack inflation expectations to the downside. The eurozone crisis has been subdued, largely by the ECB and its promise of an OMT (outright monetary transaction) bond-buying programme. Vicious spirals between debt sustainability, bond yields and growth have been interrupted. We have gone from a crisis to a more long-term challenge. The self-destructive pace of tightening in the periphery has been slowed and growth has picked up. This has been aided by a recovery from the extreme financial stresses during the crisis. Unfortunately, both these spurs have had an essentially one-off effect on growth. Unless there is a follow-through in terms of investment and/or consumption, we cannot expect a normal cyclical response. We see investment as likely to be muted for a number of key reasons:
The ECB and its OMT have subdued the crisis
Investment likely to remain muted
Lack of available credit Lack of domestic demand Challenges to competitiveness from the strong euro Excess capacity in a number of markets Uncertainty about the future, including political uncertainty Restructuring of balance sheets
Germany humming to a different tune Not all factors play in all markets. In Germany, for example, real wage growth has been better than for several years (though the marginal tax take is high) and there is a prospect of wage rises for the less well paid under a new minimum wage. German unemployment is close to its post-unification lows and the governments budget heralds a lack of fiscal pressure. However, German exports (50% of GDP) are being hampered by weak demand elsewhere in Germanys major market, the rest of the eurozone (37% of exports). There are also severe impediments to an increase in eurozone consumption:
Severe impediments to consumption growth
Negative or only weakly positive real wage growth Poor employment prospects Higher taxes Balance-sheet restructuring Uncertainty about the future
November 2013
10
Growth set to mark time
Our forecast is, therefore, that the eurozone recovery will not build steam and that growth in 2015 will be 1.0% after 1.0% and -0.4% in 2014 and 2013, respectively. The upside risks are that external demand is stronger than expected and investment picks up more than forecast. On the downside, any re-emergence of tensions within the euro area is a downside risk, as are a stronger EUR exchange rate and weaker world trade growth. There is also a risk that the ECBs asset quality review (AQR) and subsequent stress tests give rise to tighter credit constraints. If higher provisions against NPLs are deemed a likely outcome (and whats the point otherwise?), some banks may find themselves sitting on an excessively low capital ratio. There are two ways to fix that: raise capital or cut the balance sheet. Some may opt for the latter. Indeed, knowing this is coming, they may already be holding back credit.
A negative growth shock could prove problematic
Were downside risks to growth to materialise, there could be adverse consequences for the sovereign space and in terms of disinflation. The debt-to-GDP ratios of a number of countries are uncomfortably high. The market has been more relaxed about fiscal prospects because of the ECB, but also thanks to the prospect of growth coming back to increase revenues, cut expenditures and help the debt-to-GDP ratio. A negative shock to growth would raise questions about sustainability. Portugal is one obvious case, Greece another. However, we have seen favourable ratings actions for some of the peripherals recently Portugal being switched to neutral outlook by Moodys, for example. While fiscal progress remains intact and growth picks up, then peak debt-to-GDP ratios are within sight and markets will remain calm about the peripheral eurozone countries. Weak growth would also be a challenge on the inflation front, where the scale of the challenge has recently become more apparent. Annual eurozone HICP inflation sank to just 0.7% y/y in October, well below the ECBs definition of price stability of below, but close to 2%. A fading of upward pressure from food and energy has been a major part of this, but the trend in core inflation has been down. Wages are weak and there is considerable excess capacity (the OECD reckons there is an output gap of 4% of GDP). In terms of forecasting inflation, best practice is to rely heavily on judgemental forecasts over the short term (taking account of known, specific prices rises, taxes, etc). Further out, it is difficult to beat simple models that suggest inflation is a random walk (where the central forecast is close to the starting point), but with some tendency, over time, to return to the central banks inflation target (which assumes it can and will strive to achieve that target). We expect inflation to pick up to around 0.9% in November, thanks to the VAT increase in Italy, but then to hover close to that level over the course of 2014. Further out, we have inflation edging up, as the gravitational pull of inflation expectations around 2% makes itself felt. Upside risks to our forecast come from indirect tax increases and the potential for commodity prices to surprise to the upside. However, with weak global growth and a good harvest, commodities also pose a downside risk, with others coming from weak monetary growth, a still high output gap (Chart 11) and a downward trend in core inflation (Chart 12). Against this backdrop, the ECBs conclusion that the risks to inflation are evenly balanced is almost Chart 12: Eurozone core inflation
6 U n e m p lo ym e n t ra te (% , R H S , in ve rte d )
Weak growth would cause deflationary problems
We see eurozone inflation around 0.9% in 2014
Risks to ECBs inflation targets skewed downwards
Chart 11: Eurozone unemployment and inflation

2 .1
3.0
1 .9
2.5
1 .7 8
(%, y/y)
1 .5
2.0
1 .3
10
1.5
1 .1
11
1.0
0 .9 C o re in fla tio n (% , y/y ) 12
0 .7
06
07
08
09
10
11
12
13
13
0.5 2001
2003
2005
2007
2009
2011
2013
November 2013
11
laughable. We see the risks as heavily skewed to the downside relative to the ECBs goals. The ECB sets considerable store in inflation expectations being anchored at 2%. However, a long period of substantially low inflation (which the ECB itself expects) and not much action risks inflation expectations breaking to the downside. How the ECB would prop them up again, given the likelihood of continued low inflation and limited usable and effective ammunition, is a moot question. We expect another 15bp ECB rate cut by March Certainly, the November 25bp rate cut will do little to help. Market rates are determined, with excess liquidity, by the deposit rate, not the repo. While the currency has edged off a tad, it is still too strong. We expect the ECB to lower rates by a further 15bp by March and see a good chance that it will try to emphasise in its forward guidance that its inflation objective means rates will remain at that level for a long time. The most favourable interpretation of a refi cut is that it is strong forward guidance and prevents a future stealth tightening via a liquidity-driven move up in EONIA within the corridor. We do not expect QE. The Governing Council is divided, with a bloc of six members centred on Germany reportedly having voted against the rate cut. If they oppose this so vehemently, what would it take for them to agree to QE? That would probably only come after it was too late, for example, after a severe recession and/or the onset of deflation. The recent extension by a year of three-month fixed-rate full-allotment tenders reduces the chances of another LTRO, but we think this will be instituted in the spring as one of the least contentious means of coping with the effects of Fed tapering. So, the ECBs main strategy is to cross its fingers and hope that something turns up. European bonds likely to outperform the US When it comes to the bond market, with disinflation a problem in the eurozone and the US growth outlook better than that across the pond, it is likely that European bonds will outperform those in the US. Moreover, net supply in the core eurozone is set to fall by about a third from 2013 to 2014, when foreign buyers are diversifying out of US Treasuries. Fed tapering clearly implies a very different shift in US Treasury supply to the market an increase of USD 85bn a month once QE ends. The ECBs bias to ease leans in the same direction. Our forecast is, therefore, for Bund yields to rise, but only to 1.90% by end Q1, to 2.10% by end 2014 and to 2.50% by end 2015. What about spreads within the eurozone? The positives for the periphery are low growth rates and the approaching prospect of peak debt levels being reached soon. A new LTRO would also help. The negatives are the lack of substantial monetary easing and higher bond yields globally as a result of Fed tapering. Which will dominate? While US bond yields moving up by half a point or so in Q1 is not a recipe for improved risk appetite, our view is that the other forces will dominate and that spreads will narrow. Downside risks to our bond-yield forecast are that the Fed will taper later or by less than we expect, that the ECB will be more aggressive than we forecast and that inflation will come in lower still. Upside risks are likely to stem from renewed pressure on the peripheral countries (for example, Portugal) or on the political front (for example, Italy). For Italy, at a spread of 239bp over Bunds now, we envisage 175bp at the end of 2014 and 125bp at end 2015. We expect Spain to get to the same place by end 2015. The risk-weighting of government assets in the AQR could also hurt spreads. The risk of narrower spreads could come from better peripheral growth and progress on eurozone integration (such as a centralised deposit resolution mechanism and fund). Japan the best-performing bond market short term Markets and FX We address above the prospects for the various bond markets. To sum up, though, in the near term, we expect the best-performing bond market to be Japan, as BoJ dominance of the market forces yields to new lows. The worst performer is likely to be the US, as tapering is coming and the market will be very sensitive on the upside to stronger-than-expected news. The threshold for weak numbers to move the market will be higher, as this will merely be a stay of execution. Core Europe should see a more sideways move, as it lacks the central-bank balance-sheet action driving the two other markets. The spill-over from the US will tend to push up yields, but supply, inflation and a continued ECB bias to ease should be supportive. By historical comparison, yields in the major markets will remain very low, with negative real rates in the eurozone and Japan.
November 2013
Search for yield to persist, spreads set to edge in
Core Europe to move sideways
12
EM sell-off will be less than earlier this year
As we have detailed above, emerging markets are likely to see setbacks once the start of Fed tapering becomes clearer, but with a lesser sell-off than we saw earlier in the year. Countries with high current account deficits, relatively high inflation and rapid rates borrowing growth (private and/or public) are where policymakers need to be most credible in avoiding the brunt of the reduction in capital flows that will follow Fed tapering. In terms of FX, we like the USD for economic and policy reasons. In terms of growth, the US will accelerate, even if only mildly, over the forecast period. We expect the eurozone to get stuck at a rate not far away from potential. Japans growth is tied to its fiscal stimulus, which the market believes cannot last forever, and we think significant fiscal challenges lie ahead. The quality of Japans growth is poorer than that of the US. At the same time, US policy is moving towards less accommodation, and whatever the Fed says, the market will continue to view tapering as tightening. We expect real yields in the US to be positive, whereas investors will have to pay up, in real terms, for the privilege of lending to the Japanese and German governments. Therefore, our forecast is that EURUSD will move from 1.35 now to 1.28 at the end of Q1 and to 1.23 at end Q4 next year. The corresponding figures for USDJPY are 100, 108 and 118, respectively (as of 15 Novembers close).
We like the USD for policy and economic reasons
November 2013
13
US rates: Medium-term forecasts

Chart 1: Fed funds target rate and real yields (%) Chart 2: 3m rate and Fed funds (%)
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
We do not expect the first rate hike from the Fed until Q4 2015. We forecast real rates to remain well below zero over the period. Chart 3: 2y and Fed funds rate (%)
Based on our forecast of a long period of unchanged policy rates, the spread between the three-month and the Fed funds rate should change little until H2 2015. Chart 4: 10y/2y spread and Fed policy (%)
The spread between two-year Treasury yields and the Fed funds rate is likely to widen over the period as the market prices in eventual rate hikes by the Fed. Chart 5: 10y yields (%)
The US yield curve steepens into 2014, but then flattens from the second half of the year and through 2015 as policy rate hikes are priced into the two-year. Chart 6: 10y swap spread (%)
We do not expect Fed purchases to be scaled back until late Q1 2014. But 10-year yields should rise over the forecast period as policy normalises.
Swap spreads should rise as monetary policy and the economy gradually normalise.
Dominic Bryant Global Outlook
November 2013
14
Eurozone rates: Medium-term forecasts

Chart 1: Policy rates (%) Chart 2: 2y rate & ECB policy (%)
We forecast the ECB to cut the refinancing rate to 0.10% by end Q1 2014 and to keep it there until at least H1 2016. In real terms, the refi rate will become moderately more negative in 2015. Chart 3: 10y/2y spread & ECB policy (%)
The spread of two-year yields to the refi rate is forecast to turn positive in 2014. The two-year rate is likely to be dragged higher by developments in the US, while ECB policy remains accommodative for the foreseeable future. Chart 4: 10y/3m spread & ECB policy (%)
The 10y/2y curve should steepen, reflecting a further refi rate cut by the ECB, while 10-year yields are pulled up by US yields. Chart 5: US-German yield & policy spreads (%)
Although the expected sell-off in the US will raise eurozone 10-year yields, the steepening of 10y/3m sector will be gradual, due to weak eurozone growth and inflation. Chart 6: 10y Bund yields (%)
We forecast the US 10-year bond yield to rise much faster than the Bund yield, so the US Treasury-Bund spread should widen further in 2014.
We forecast 10-year Bund yields to rise over the next two years, but to remain low by historical standards. The real yield is expected to rise by less as inflation edges up.
Dominic Bryant Global Outlook
November 2013
15
US: When will the chicken finally lay an egg?

US still facing a chickenand-egg conundrum The US economy continued to tread water in H2 2013, rather than pick up with the fading fiscal drag, as was widely expected by most forecasters, including the Fed. In light of downside forecast errors throughout the recovery, Fed speakers continue to cite the need for evidence of a pickup in growth before tapering QE. They have used a chicken-and-egg analogy, in which consumers are not spending because they do not expect stronger income and businesses are not hiring and investing with greater force because consumers are not spending. We think the analogy is a good one for the US economy and that the chicken will be a bit slower in laying an egg than we previously thought. While fiscal tightening has taken a heavy toll on growth in 2013, the Feds policies have stimulated an offsetting wealth effect. The fiscal drag should fade in 2014, while there is a considerable wealth effect in the pipeline owing to the 2013 equity-market performance. This should allow somewhat stronger growth in 2014 (Table 1). The underlying pace of growth has faded in 2013, however, reflecting weaker exports and investment, as well as slower housing momentum due to the rise in interest rates. Consumers expect slightly stronger income growth, although their expectations remain quite low by historical standards. We expect underlying growth to improve slowly, but we do not think such evidence will be decisive enough for the Feds taste until the March 2014 FOMC meeting, when we look for it to taper by USD 15bn. We also expect a slower pickup in growth than the Fed is forecasting and believe it will take its time tapering as a result, so that QE will not conclude until Q1 2015. We expect the first increase in the Fed funds rate to come in Q4 2015. Fiscal policy dysfunction is still high. The fiscal drag is set to fade, though it remains a negative for growth, as does the uncertainty and lack of clarity on policy and regulatory issues. The regulatory push is reaching a crescendo in nearly all industries, as healthcare, finance and energy all face intense scrutiny. This will take some time to work through and US firms are not rewarded for sticking their necks out and taking growth-oriented risks. The Fed will ensure stability, but the US still faces a long road to recovery. Chart 1: Investment slowing, uncorrelated with surveys
1
Consumers will not spend until they see income
Firms will not hire and invest till consumers spend
Fiscal dysfunction and monetary support
Table 1: Underlying growth soft

% y/y Real GDP Fiscal tightening2,3 Wealth effect2,4 Underlying GDP growth2 2011 1.8 -0.7 0.9 1.7 2012 2.8 -1.0 0.7 3.1 2013 1.6 -1.2 1.5 1.4
1
2014 2.2 -0.7 1.3 1.5
2015 2.3 -0.5 0.8 2.1
Source: (1) Forecasts, (2) BNP Paribas estimates, (3) % of GDP change in structural budget deficit, (4) pp contribution to GDP growth
Source: BNP Paribas
Chart 2: Consumers expect subdued income growth
Chart 3: Housing demand has taken a hit
MBA 30y mortgage rates (%)
Source: Reuters EcoWin Pro, BNP Paribas Julia Coronado Global Outlook
Source: Reuters EcoWin Pro, BNP Paribas November 2013
16
US: Economic and financial forecasts

11 Components of growth % Q/Q SAAR GDP Dom. demand ex stocks Private consumption Public consumption Residential investment Non-residential investment Stocks (cont. to growth) Exports Imports GDP (% y/y) Industrial production (% y/y) Savings ratio (%) 1.8 2.5 -3.2 0.5 7.6 0.2 7.1 4.9 1.8 3.3 5.7 2.4 2.2 -1.0 12.9 7.3 -0.5 3.5 2.2 2.8 3.6 5.6 1.5 1.8 -2.0 13.7 2.2 0.4 2.6 1.4 1.6 2.4 4.6 Year 13 (1) 1.5 1.8 1.3 1.3 1.9 1.6 7.5 Year 13 (1) -483 -411 -2.4 Year (1) 13 6.3 -667 -4.0 -2.7 72.7 Year (1) 13 14 14 2.0 2.0 -0.4 9.8 3.8 0.0 4.3 2.4 2.2 2.8 4.8
(1)
12
Year (1) 13
2013 14
(1)
15
(1)
Q1
Q2
Q3
Q4
(1)
Q1
(1)
Q2
(1)
2014 Q3
(1)
Q4
(1)
2.2 2.1 -0.3 10.0 4.6 0.0 3.4 2.5 2.3 3.1 4.9 15 (1) 1.8 1.9 1.6 3.0 2.0 1.9 6.2 15 (1) -444 -417 -2.2 15
(1)
1.1 0.5 2.3 -4.2 12.5 -4.6 0.4 -1.3 0.6 1.3 2.5 4.1
2.5 2.1 1.8 -0.4 14.2 4.7 -0.9 8.0 6.9 1.6 2.0 4.5 2013
2.8 1.7 1.5 0.2 14.6 1.6 0.6 4.5 1.9 1.6 2.5 4.7 Q4
1.5 1.6 1.8 -0.7 5.0 3.7 -2.0 6.1 2.3 2.0 2.6 5.0
(1)
2.1 2.0 2.0 -0.4 10.0 4.4 0.4 3.4 1.8 2.2 2.5 4.7 Q1 (1) 1.1 1.7 1.3 1.1 2.0 1.6 7.0 Q1 (1) -117 -109 -2.4 Q1
(1)
2.2 2.2 2.2 -0.4 10.0 4.0 -0.9 3.4 2.2 2.2 2.8 4.7 2014 Q2 (1) Q3 1.5 1.8 1.5 1.7 2.0 1.7 6.9 2014 Q2 (1) Q3 -118 -107 -2.4
2.3 2.2 2.2 -0.4 10.0 4.0 0.6 3.4 2.5 2.0 2.9 4.8
(1)
2.3 2.0 2.0 -0.4 10.0 4.0 -2.0 3.4 2.5 2.2 3.0 5.0 Q4 (1) 1.8 1.9 1.5 2.2 2.0 1.8 6.6 Q4 (1) -119 -102 -2.4 Q4
(1)
11 Inflation & labour CPI CPI (Ex F&E) Core PCE deflator Producer prices Monthly wages Employment Unemployment rate (%) 3.2 1.7 1.4 6.0 2.0 1.2 8.9
12 2.1 2.1 1.8 1.9 1.9 1.7 8.1
Q1 1.7 1.9 1.5 1.5 1.9 1.5 7.7
Q2 1.4 1.7 1.2 1.6 1.9 1.6 7.6 2013
Q3 1.6 1.7 1.2 1.3 2.0 1.7 7.3
1.4 1.8 1.5 1.6 2.0 1.7 6.8

(1)
1.3 1.8 1.2 1.0 2.0 1.7 7.2 Q4

(1)
1.4 1.9 1.5 1.6 2.0 1.8 6.7

(1)
11 External trade Trade balance (USD bn, sa) Current account (USD bn, sa) Current account (% GDP) -557 -458 -2.9
12 -535 -440 -2.7
Q1 -123 -106 -2.6
Q2 -118 -102 -2.5 2013
Q3 -119 -103 -2.5
-471 -424 -2.4 14

(1)
-123 -99 -2.4 Q4

(1)
-117 -106 -2.4

(1)
11 Financial variables Money supply Fed. gov. budget (USD bn) Fed. gov. budget (% GDP) 7.3
(2) (2)
12 8.5 -1089 -6.8 -5.4 70.0
Q1 7.1 -307 -5.5 -4.2 72.1
Q2 6.9 91 -4.2 -2.9 71.6 2013
Q3 5.0 -157 -4.0 -2.7 71.9
2014 (1) Q2 Q3 6.0 110 -4.0 -2.7 72.7 Q2

(1)
5.9 -691 -4.0 -2.7 74.0 14

(1)
6.1 -634 -3.5 -2.1 74.0 15

(1)
6.0 -319 -4.1 -2.8 73.1 Q4

(1)
6.0 -326 -4.1 -2.8 74.2 Q1

(1)
6.0 -156 -3.9 -2.6 72.7

(1)
6.0 -324 -3.9 -2.6 73.7 Q4

(1)
-1297 -8.4 -7.0 65.8

(3)
Fed. gov. primary budget (% GDP)(2) Gross Fed. gov. debt (% GDP)
11 Interest & FX rates (3) Fed funds rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) EURUSD USDJPY
12
Q1
Q2
Q3
2014 Q3
0-0.25 0-0.25 0-0.25 0-0.25 0.58 0.25 0.83 1.88 1.29 77 0.31 0.25 0.72 1.76 1.32 87 0.25 0.35 1.55 2.85 1.32 102 0.25 0.85 2.30 3.45 1.23 118
0.50 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0.85 2.30 3.10 3.85 1.25 120 0.28 0.25 0.77 1.85 1.28 94 0.27 0.36 1.40 2.49 1.30 99 0.26 0.33 1.48 2.72 1.35 98 0.25 0.35 1.55 2.85 1.32 102 0.25 0.40 1.80 3.10 1.28 108 0.25 0.50 2.00 3.25 1.26 112 0.25 0.65 2.15 3.30 1.25 114 0.25 0.85 2.30 3.45 1.23 118
Footnotes: (1) Forecast (2) Fiscal year (3) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas, national statistics
Julia Coronado Global Outlook
November 2013
17
Eurozone: Flying low

Low inflation likely for some time to come Eurozone inflation is uncomfortably low and likely to remain that way for some time for a range of reasons, including weak domestic demand, excess capacity, competitiveness adjustments and low credit growth. The risks to price stability look to be to the downside and an additional adverse shock has the potential to unanchor expectations. The ECB has been slow in its response to persistent below-objective inflation and concerns about insufficient monetary policy accommodation have increased in the context of a diminishing safety margin against deflation. Cuts in policy rates are a welcome step in the right direction, but more needs to be done. Further trimming of rates and additional liquidity provision are the probable next steps, but given divisions on the Governing Council, progress towards more powerful, but contentious unconventional measures may prove frustratingly slow. Balance-sheet expansion via asset purchases would probably be a last resort. Low inflation implies lower nominal growth, which will have a detrimental impact on sovereign debt-to-GDP ratios, making fiscal consolidation more challenging. The breathing space afforded the economy by pushing back the timetable for budget adjustments has contributed to a return to growth, with improvements in economic conditions evident in the periphery and the core. Sentiment is fragile, however. Businesses are cautious about investing and hiring and a marked upturn in domestic demand remains unlikely in this context. For this reason, the economy will remain highly sensitive to external demand developments and an appreciating exchange rate would be very unwelcome amid low growth and inflation. Potential growth is low, at a little below 1%, and the structural reforms required to boost it are politically difficult to achieve. European Parliament elections in May 2014 will not be helpful in this regard. A bright spot is that banks credit conditions are heading in the right direction due to the better economic climate. The ECBs comprehensive review of banking-sector balance sheets should help in the long run, but near term, will reinforce the develeraging process. Chart 2: Eurozone surveys signal slow growth
65 1 .5 60 55 50 45 40 35 30 G D P (% q /q , R H S ) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 25 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 C o m p o s ite P M I 1 .0 0 .5 0 .0 -0 .5 -1 .0 -1 .5 -2 .0 -2 .5 -3 .0
Policy response insufficient
Fiscal issues still challenging
Domestic demand in the doldrums
Credit conditions a brighter spot
Chart 1: Uncomfortably low eurozone inflation

4 .5 4 .0 3 .5 3 .0 2 .5 2 .0 1 .5 1 .0 0 .5 0 .0 -0 .5 -1 .0 E u ro z o n e H IC P (% y /y )
Chart 3: Diminished domestic-demand drag

70 4 60 N e t e x p o rts 50 40 0 In v e n to rie s -2 D o m e s tic dem and G D P (% y /y , c o n trib u tio n s b y c o m p o n e n t) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 30 20 10 0 -1 0 -2 0
Chart 4: Eurozone credit conditions to improve

N e t % o f b a n k s tig h te n in g c re d it s ta n d a rd s (to n o n -fin a n c ia l c o rp o ra te s )
A c tu a l
-4
E x p e c te d
-6
03
04
05
06
07
08
09
10
11
12
13
14
Source: Reuters EcoWin Pro, BNP Paribas Ken Wattret Global Outlook
18
Eurozone: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, q/q) (2) Exports Imports
(2)
12 -0.6 -1.7 -1.4 -0.5 -3.8 -0.5 2.7 -0.8 -2.0
Year (1) 13 -0.4 -1.0 -0.6 0.3 -3.7 0.0 1.5 0.3 -0.5 Year (1) 13
14
(1)
15 -
(1)
Q1 -0.2
Q2
2013 (1) Q3 0.1 -0.4 -0.8 -0.5 0.6 -3.5 -0.1 1.3 0.4 -0.9
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.2 1.0 0.7 0.6 0.6 1.1 -0.1 4.2 3.6 3.7
Q4
(1)
0.3 -0.6 -1.0 -0.7 0.3 -3.8 -0.1 1.3 0.0 -0.7
0.3 0.4 -0.1 0.1 0.7 -1.7 -0.1 3.2 2.6 1.9
0.3 0.9 0.7 0.6 0.9 1.0 -0.1 5.4 4.8 3.1
0.2 0.9 0.6 0.6 0.6 0.8 -0.1 3.9 3.4 2.9
0.2 0.9 0.5 0.5 0.5 0.7 -0.1 3.4 2.9 3.5
1.6 0.5 0.3 -0.1 1.7 0.2 6.7 4.6 3.3
1.0 0.7 0.6 0.7 0.9 -0.1 4.2 3.7 3.3
1.0 0.7 0.7 0.4 1.5 0.1 3.6 3.4 2.1
-1.2 -2.0 -1.3 -0.4 -5.8 0.1 0.2 -1.8 -2.2
Industrial production
11 Inflation & labour HICP Core HICP Producer prices Comp. per employee Unit labour costs Employment Productivity Unemployment rate (%) 2.7 1.4 5.7 2.1 0.8 0.3 1.4 10.2
12 2.5 1.5 2.8 1.9 1.9 -0.7 0.0 11.4
14
(1)
15
(1)
Q1 1.9 1.4 1.2 1.7 1.9 -1.0 1.9 12.0
Q2
2013 (1) Q3 1.4 1.1 1.3 1.1 -0.6 1.6 1.0 -0.9 1.0 12.2
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.7 0.7 1.3 1.5 0.8 0.3 0.8 12.1
Q4
(1)
1.3 1.1 -0.1 1.6 1.1 -0.9 0.4 12.1 Year (1) 13
0.9 0.8 0.9 1.6 0.7 0.1 0.8 12.1
1.2 1.0 -0.9 1.7 1.2 0.5 0.5 11.9
0.8 0.8 -0.8 1.6 0.6 -0.6 0.6 12.2
0.8 0.9 -0.2 1.4 0.3 -0.2 0.3 12.2
0.8 0.8 1.0 1.6 0.7 0.0 0.7 12.1
1.2 0.7 1.4 1.7 1.2 0.4 1.2 12.0
-0.1 1.5 1.1 -1.0 1.1 12.1
11 External trade Trade balance (EUR bn, sa) Current account (EUR bn, sa) Current account (% of GDP) -18 8 0.1
12 79 126 1.3
14
(1)
15
(1)
Q1 39 50 2.1
Q2
2013 (1) Q3 42 58 2.4 2013 38 52 2.2
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 40 60 2.4
Q4
(1)
151 210 2.2 Year (1) 13 -290 -3.1 -13 -0.1 96.6 Year (1) 13 0.25 0.20 0.10 0.70 1.80 1.32 0.82 135
160 225 2.3
195 250 2.5
32 49 2.0
40 50 2.1
40 60 2.5 2014
40 55 2.2
11 Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP) -396 -4.2 -105 -1.1 88.0
12 -351 -3.7 -57 -0.6 92.7
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-242 -2.5 36 0.4 97.1
-197 -2.0 91 0.9 96.6
11 Interest & FX rates Refinancing rate (%) 3-month rate (%) (4) 2-year rate (%) 5-year rate (%) EURUSD EURGBP EURJPY
(4) (4) (3)
12 0.75 0.19 -0.03 0.30 1.31 1.32 0.81 114
14
(1)
15
(1)
Q1 0.75 0.21 -0.02 0.31 1.28 1.28 0.84 121
Q2 0.50 0.22 0.19 0.74 1.73 1.30 0.86 129
Q3 0.50 0.23 0.18 0.79 1.78 1.35 0.84 133
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.10 0.10 0.20 0.90 2.05 1.25 0.80 143
Q4
(1)
1.00 1.36 0.14 0.75 1.83 1.29 0.83 100
0.10 0.10 0.25 1.00 2.10 1.23 0.78 145
0.10 0.10 0.50 1.45 2.50 1.25 0.76 150
0.25 0.20 0.10 0.70 1.80 1.32 0.82 135
0.10 0.10 0.10 0.75 1.90 1.28 0.83 138
0.10 0.10 0.15 0.80 2.00 1.26 0.81 141
0.10 0.10 0.25 1.00 2.10 1.23 0.78 145
10-year rate (%)
Footnotes: (1) Forecast (2) Includes intra-eurozone trade (3) End period (4) Bund yield Figures are year-on-year percentage changes unless otherwise indicated
Ken Wattret Global Outlook
November 2013
19
Japan: Continued deflation or financial repression?

Deflation could resume without more growth Japanese economic growth continues to outpace its trend rate, thanks to fiscal spending financed by the BoJ. However, real exports remain stagnant and the economy is likely to lose steam from Q4 2014 without a further fiscal expansion. Inflation, meanwhile, is likely to creep higher in the near term on the lagged impact of JPY depreciation, though it will probably start to edge lower again from Q3 2014 if there is no further yen depreciation or fiscal stimulus. The BoJ is unlikely to achieve its stated goal of 2% inflation within two years. However, the headline inflation rate should jump temporarily to around 3% after April 2014 due to the consumption tax hike. As wage growth remains limited and prices are rising, political pressure to rein in inflation could mount, making additional easing unlikely. Indeed, if bond yields fall further, the BoJ may struggle to implement its current asset-purchase programme in a smooth manner, as financial institutions may hesitate to sell their JGB holdings out of concern over reinvestment risk. To double the monetary base, the BoJ may have to buy JGBs at negative yields, thereby further strengthening the downward pressure on the long-term interest rate. At any rate, with the long-term rate already close to zero, the potency of BoJ monetary policy has waned. Whether deflation is defeated will largely depend on fiscal policy. Scenario 1: Continued deflation (35% probability) without further yen depreciation or fiscal stimulus, inflation edges down and growth loses steam. Scenario 2: Financial repression (40%) with the government adopting more fiscal stimulus in H2 2014, above-trend growth persists, bringing full employment by H2 2015. As inflation soars and upward pressure on bond yields mounts, the authorities adopt financial repression to prevent a fiscal crisis. Scenario 3: High inflation (15%) under financial repression, holding inflation at 4-5% proves hard. Double-digit inflation sparks social unrest. Scenario 4: Happy ending (10%) Abenomics succeeds in ending deflation and raising the trend growth rate. While we see a significant risk of a return to deflation, we view Scenario 2 as more likely at this point, as we expect the government to persist with its fiscal pump-priming. Chart 1: Contracted public works (JPY trn, sa)
18 17 16 15 14 13 12 11 10 9 07 08 09 10 11 12 13
6500 6000 5500 5000 4500 4000 07 08 09 10 11 12 13 7500
Higher prices will forestall pressure for more easing
Defeating deflation could need financial repression
Chart 2: Real Japanese exports (JPY bn, sa)

Monthly
7000
Quarterly
Source: EJCS, BNP Paribas
Source: MoF, BoJ, BNP Paribas
Chart 3: Private consumption, integrated estimates (sa)

110 108
Chart 4: Goods and services CPI inflation (% y/y)

6 4
Monthl y
106 104 102 100 98 07 08 09 10 11 12 13
Servi ces
2 0 -2
Qua rterly
-4
Goods,l essfresh food

-6 06 07 08 09 10 11 12 13
Source: Cabinet office, BNP Paribas Ryutaro Kono Global Outlook
Source: MIC, BNP Paribas November 2013
20
Japan: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP (% q/q annualised) GDP (% y/y) Domestic demand ex-stocks Private consumption Government expenditure Residential investment Private non-residential investment Stocks (cont. to growth) Exports Imports Industrial production (% q/q) Industrial production (% y/y) Savings ratio (%) -0.6 0.8 0.4 -0.2 5.5 3.3 -0.5 -0.4 5.9 -2.8 2.3 1.9 2.8 2.3 4.2 3.0 2.0 0.0 -0.1 5.5 0.6 -0.1 1.8 2.1 1.8 4.0 8.1 -1.3 -0.1 1.8 2.9 -0.9 -1.4 Year 13 (1) -0.5 -0.3 0.3 0.3 0.3 -0.2 -0.1 0.5 4.0 Year (1) 13 -10.2 4.2 0.9 Year (1) 13 2.5 -43.2 -9.1 -7.4 199 3.8 -40.5 -8.3 -6.8 203 Year 13 (1) 0.10 0.22 0.09 0.20 0.50 102 135 1.3 1.1 0.0 3.1 -8.1 4.1 0.2 4.6 5.2 2.6 -2.4 0.9 0.9 -0.1 2.2 -0.7 3.6 0.1 4.1 5.1 2.4 -2.6 1.1 4.3 0.3 0.7 0.8 0.5 2.3 0.1 0.0 3.9 1.0 0.6 -7.9 0.9 3.8 1.1 0.9 0.6 1.6 0.4 1.1 -0.1 2.9 1.7 1.5 -3.1 2013 14
(1)
12
Year 13 (1)
2013 14
(1)
15 (1)
Q1
Q2
Q3 0.5 1.9 2.7 0.6 0.1 1.6 2.7 0.2 0.4 -0.6 2.2 1.8 2.3 -
Q4 (1) 0.8 3.4 3.4 1.1 1.0 0.3 2.0 2.1 -0.1 1.5 2.0 1.7 5.6 -
Q1 (1) 0.8 3.3 3.1 1.2 1.9 0.4 -4.0 0.7 -0.3 1.5 2.3 1.4 6.4 -
Q2
(1)
2014 Q3 (1) 0.4 1.5 0.8 0.3 0.1 0.8 -3.0 0.9 0.1 1.0 1.3 0.0 1.0 -
Q4 (1) 0.4 1.7 0.4 0.4 0.2 0.6 1.5 1.0 0.0 1.0 1.2 0.8 0.2 -
-1.2 -4.6 0.9 -2.2 -3.8 0.9 -8.0 0.9 0.6 1.0 -1.5 -2.0 2.8 -
(% y/y) Inflation & labour GDP deflator Consumption deflator CPI Core CPI ex consumption tax US-like core CPI (2) Monthly wages Employment Unemployment rate (%)
11 -1.9 -0.8 -0.3 -0.3 -0.3 -0.9 -0.2 -0.1 4.6
12 -0.9 0.0 0.0 -0.1 -0.1 -0.6 -0.6 -0.3 4.4
15 (1) 1.2 1.3 1.9 2.0 1.1 1.9 1.6 -0.1 3.5
Q1 -1.1 -0.9 -0.6 -0.3 -0.3 -0.8 -0.5 0.3 4.2
Q2 -0.5 -0.6 -0.3 0.0 0.0 -0.4 0.2 0.6 4.0 2013
Q3 -0.3 0.4 0.9 0.7 0.7 -0.0 -0.3 0.6 4.0
Q4 (1) -0.3 0.1 1.2 0.9 0.9 0.2 0.3 0.6 3.9
Q1 (1) 0.2 0.4 1.3 1.2 1.2 0.5 0.4 0.2 3.8
Q2
(1)
2014 Q3 (1) 1.9 2.3 2.9 2.8 0.8 2.2 1.1 -0.4 3.7
Q4 (1) 2.0 2.3 2.8 2.8 0.8 2.4 1.4 -0.3 3.6
1.5 1.9 2.6 2.5 1.0 1.8 1.1 -0.2 3.7
1.9 2.6 3.5 3.2 1.2 2.2 1.6 -0.4 3.7
11 External trade Trade balance (JPY trn, sa) Current account (JPY trn, sa) Current account (% GDP) -1.6 9.6 2.0
12 -5.8 4.8 1.0
14
(1)
15
(1)
Q1 -10.1 3.1 0.7
Q2 -7.4 8.9 1.9 2013
Q3 -11.3 2.2 0.5
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 -11.0 3.8 0.8
Q4
(1)
-11.4 3.4 0.7
-12.5 2.5 0.5
-11.9 2.7 0.6
-12.7 2.0 0.4
-10.7 4.0 0.8 2014
-11.3 3.6 0.7
11 Financial variables Money supply (M2, % y/y ) Government budget (JPY trn) Government budget (% GDP) Primary balance (% GDP) Gross gov. debt (% GDP)
(3) (3)
12
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
2.9
(3) (3)
4.2 -30.5 -6.1 -4.8 204
3.0 -28.7 -5.6 -4.2 205
-41.0 -8.7 -6.8 191
11 Interest & FX rates O/N call rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) USDJPY EURJPY
(4)
12 0.10 0.31 0.10 0.19 0.80 87 114
14
(1)
15 (1) 0.10 0.20 0.60 1.50 2.50 120 150
Q1 0.10 0.25 0.07 0.14 0.56 94 121
Q2 0.10 0.23 0.15 0.31 0.84 99 129
Q3 0.10 0.23 0.11 0.24 0.69 98 133
Q4 (1) 0.10 0.22 0.09 0.20 0.50 102 135
Q1 (1) 0.10 0.20 0.08 0.15 0.40 108 138
Q2
(1)
2014 Q3 (1) 0.10 0.20 0.10 0.25 0.60 114 143
Q4 (1) 0.10 0.20 0.12 0.30 0.70 118 145
0.10 0.33 0.14 0.35 0.99 77 100
0.10 0.20 0.12 0.30 0.70 118 145
0.10 0.20 0.09 0.20 0.50 112 141
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)End period Figures are quarter-on-quarter percentage changes unless otherwise indicated
Ryutaro Kono Global Outlook
November 2013
21
China: New reforms to trim growth

7.5% growth target is secured for 2013 The Chinese economy rebounded in Q3. GDP growth rose to 7.8% y/y from 7.5% in Q2, dissipating fears of a hard landing. The 7.7% y/y average GDP growth rate in the first three quarters means China will have little difficulty achieving its 7.5% annual growth target for this year, enabling the leadership to proceed with its reform agenda unimpeded. For next year, we are maintaining our growth forecast of 7.3%, but we are lowering our forecast for 2015 from 7.0% to 6.8%. We think the countrys new reform programmes may deter local government and state-owned enterprises from adopting policies to promote growth and believe this is unlikely to be fully offset by greater private investment. Meanwhile, businesses will have to adjust their goals and priorities for a new round of reforms and market liberalisation. So, we expect the Chinese economy to go through 2-3 years of transition. On the positive side, Chinas economic structure should improve. Private consumption will be underpinned by a better social safety net and more robust income growth. Exports are likely to be boosted by the economic recovery in developed countries. Services share of the Chinese economy should continue to rise. PPI deflation has damped consumer prices this year, but we expect inflation to rise from 2.7% in 2013 to 3.2% in 2014 and 3.5% in 2015 on base effects and resource/utility price liberalisation. A new round of reforms is set to take place A new round of comprehensive economic reforms is set to be adopted after the Third Plenum of the 18th Party Congress. The objective is to rebalance the functions of government, markets and enterprise in order to rein in the role of government and promote market competition. On top of these reforms, the Chinese government will maintain its so-called range management over the next 2-3 years. Under this policy, growth should not dip far below 7.0% and inflation should not exceed 4%. As long as the economy continues to tick over within this range, reforms will be top of policymakers agenda. Chart 2: FAI growth is set to slow (% y/y)
35 Budget of newly started project (RHS) 100 80 FAI (LHS) 60 29 40 20 0 23 -20
Growth to slow to 7.3% in 2014, 6.8% in 2015
Structural improvements to be made
Range management to set a floor for GDP growth
Chart 1: Economic structure to improve (% y/y)

19 17 15 13 11 9 7 5 Q1 01 Q2 02 Q3 03 Q4 04 Q1 06 Q2 07 Q3 08 Q4 09 Q1 11 Q2 12 Q3 13 Secondary industry - real growth Tertiary industry - real growth
32
26
20 -40 Feb 05 Dec 05 Oct 06 Aug 07 Jun 08 Apr 09 Feb 10 Dec 10 Oct 11 Aug 12 Jun 13
Source: NBS, BNP Paribas
Source: NBS, BNP Paribas
Chart 3: External demand is strengthening (% y/y)

45 China export growth (3MMA, LHS) 65 60 30 55 15 50 Average EU & US PMI (RHS) 45 40 -15 35 -30 30
10 8 6 4 2 0
Chart 4: Inflation is rising (% y/y)

PPI CPI
-2 -4 -6 -8 -10 05 06 07 08 09 10 11 12 13
01
02
03
04
05
06
07
08
09
10
11
12
13
Source: NBS, BNP Paribas Xingdong Chen Global Outlook
Source: NBS, BNP Paribas November 2013
22
China: Economic and financial forecasts

Year 11 Components of growth Total GDP Retail sales Fixed asset investment Exports Imports Industrial output
(3) (2)
2013 14
(1)
2014 Q3 Q4 7.8 13.3 20.3 3.9 8.4 10.1

(1)
12 9.3 7.7 14.3 20.6 8.0 4.5 10.0
13
(1)
15
(1)
Q1 7.7 12.4 20.9 18.3 8.4 9.5
Q2 7.5 13.0 19.7 3.7 5.0 9.1 2013
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
7.7 13.0 20.0 7.2 7.5 9.7 Year
7.3 12.5 16.2 7.5 8.3 9.1
6.8 12.8 15.8 8.7 9.0 8.2
7.6 13.0 19.4 5.1 8.1 9.8
7.5 12.9 17.9 4.5 9.3 9.5
7.3 12.5 17.0 7.6 8.9 9.1 2014
7.0 12.1 15.2 8.0 7.2 8.9
7.3 12.4 15.7 9.5 7.9 9.3
17.1 23.8 20.4 25.1 13.9
11 Inflation CPI PPI 5.4 6.0
12 2.6 -1.7
13
(1)
14
(1)
15
(1)
Q1 2.4 -1.9
Q2 2.4 -2.7 2013
Q3 2.8 -1.7
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
2.7 -1.8 Year
3.2 1.5
3.5 2.7
3.4 -1.0
3.5 -0.3
3.6 1.5 2014
3.2 2.6
2.7 2.1
11 External trade Trade balance (USD bn)

(4)
12 231.9 193.1 2.3 8247
13
(1)
14
(1)
15
(1)
Q1 43.5 47.6 2.5 1914
Q2 65.7 48.1 2.3 2104 2013
Q3 61.5 72.5 3.2 2267
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
157.9 136.1 1.9 7322
243.2 226.6 2.4 9251 Year
245.8 208.3 2.0 10288
260.8 211.7 1.9 11353
73.3 58.4 2.0 2966
23.2 27.5 1.3 2144
64.5 65.0 2.8 2335 2014
70.5 65.2 2.6 2496
88.6 50.6 1.5 3313
Current account (USD bn) Current account (% GDP)
Memo: Nom. GDP (USD bn)
11 Financial variables Gen. gov. budget (% GDP) Primary budget (% GDP) Foreign reserves (USD bn)
(6) (5)
12 -1.5 -1.1 3312
13
(1)
14
(1)
15
(1)
Q1 3440
Q2 3500 2013
Q3 3662
Q4
(1)
Q1 -
(1)
Q2 -
(1)
Q3 -
(1)
Q4 -
(1)
-1.9 -1.4 3181
-2.1 -1.6 3718 Year
-2.3 -1.8 3877
-2.5 -2.1 3932
3877
3718
3720
3777 2014
3797
11 Interest & FX rates USDRMB

(6)
12 3.00 6.23
13
(1)
14
(1)
15
(1)
Q1 3.00 6.21
Q2 3.00 6.14
Q3 3.00 6.12
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
Official interest rate (%)
3.50 6.29
3.00 6.08
3.00 6.12
3.25 6.10
3.00 6.08
3.00 6.15
3.00 6.10
3.00 6.15
3.00 6.12
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
Source: BNP Paribas
Xingdong Chen Global Outlook
November 2013
23
Germany: More tortoise than hare

German export growth is set to pick up in 2014 It should come as no great surprise, in light of recent data, that we are sticking with our view that German growth will outperform the eurozone average over our forecast period. In 2014, Germany, alone, should account for half of all eurozone growth. Improved foreign demand should boost German growth in 2014, but we are unlikely to see any further pickup the year after unless global growth exceeds expectations. Stronger German domestic demand in 2015 will lead to an increase in imports and, hence, a negative net export contribution to GDP, limiting overall German growth. The much-needed rebalancing of German growth towards domestic demand, however, will be slow. Growth in consumption, real wages and disposable income remains modest; the recent labour-market stumble is likely to slow the rebalancing by about a year. However, negative real rates will lead to a decline in the savings rate and rising house prices are generating positive wealth effects, only partially offset by the impact of negative real rates on household savings. German companies have been citing domestic demand and the international political environment (rather than just the domestic government stalemate) as the two main hurdles to corporate investment. As growth picks up, investment should rebound. However, capacity utilisation currently stands below its pre-crisis high and is unlikely to return to this level in 2014. Investment is, therefore, likely to be focused on postponed maintenance and repairs rather than new production capacity. Inflation pressures, meanwhile, will remain subdued. Domestically, rising unit labour costs will squeeze profits and prompt companies to pass on cost increases to the consumer. Low and slowing inflation globally, however, should offset the upward pressure and keep inflation stable. There is still a risk that the German economy will overheat at some stage, but global growth would have to overshoot expectations considerably. With German monetary policy decided at the eurozone level, any inflationary pressures will have to be curtailed by tighter fiscal policy. Chart 2: German capacity utilisation and investment
20 15 10 5 0 -5 8 0 .0 -1 0 -1 5 -2 0 -2 5 -3 0 -3 5 C a p a c ity u tilis a tio n (R H S ) 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 7 2 .5 7 0 .0 E q u ip m e n t in v e s tm e n t (% y /y ) 7 7 .5 7 5 .0 8 5 .0 8 2 .5 9 0 .0 8 7 .5
Domestic demand will be the main driver of growth
Corporate investment will only pick up gradually
Domestic inflation muted by import price dynamics
Overheating risk could be offset by fiscal tightening
Chart 1: Ifo business clock for Germany
Chart 3: German compensation and consumption (% y/y)

4 C o m p e n s a tio n 3 C o n s u m p tio n 1 2 .5 1 0 .0 7 .5 5 .0 2 .5 0 .0 0 -2 .5 RPDI -5 .0 -7 .5 -2 -1 0 .0 -3 -1 2 .5
Chart 4: German inflation pipeline (% y/y)

4 .0 3 .5 3 .0 2 .5 2 .0 1 .5 P ro d u c e r p ric e s Im p o rt p ric e s 1 .0 0 .5 0 .0 -0 .5 -1 .0
H IC P (R H S ) U LC
-1
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Source: Reuters EcoWin Pro, BNP Paribas Evelyn Herrmann Global Outlook
24
Germany: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Domestic demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, q/q) Exports Imports Industrial production Savings ratio
(2)
12 0.9 0.4 0.7 1.0 -1.3 -0.6 3.8 1.8 0.3 10.3
Year 13 (1) 0.5 0.6 1.0 0.8 -0.9 0.1 1.0 1.4 0.3 9.8 Year 13 (1) 1.5 1.1 -0.1 1.9 0.5 6.8 Year 13 (1) 197.5 194.6 7.1 Year 13 (1) -23.7 -18.8 -0.7 26.8 1.0 79.2 Year 13 (1) 0.20 1.80
14 (1) 1.7 1.5 1.1 0.6 4.0 0.1 4.0 4.3 3.1 9.4
15 (1) 1.5 1.7 1.3 0.4 4.2 0.0 5.0 5.8 2.7 8.8
Q1 0.0 -0.3 -0.5 0.6 0.2 -4.5 0.1 -0.4 -0.5 -2.4 -
Q2
2013 Q3 (1) 0.3 0.6 0.8 1.0 0.8 0.0 -0.1 1.0 2.0 0.2 -
Q4 (1) 0.4 1.4 1.2 1.2 0.8 1.5 -0.1 3.2 3.3 3.4 -
Q1 (1) 0.5 2.0 2.0 1.3 1.0 5.4 0.0 4.7 4.9 5.0 -
2014 Q2 (1) Q3 (1) 0.4 1.7 1.4 1.0 0.5 4.0 0.0 3.6 3.6 2.6 2014 Q2 (1) Q3 (1) 1.2 1.1 0.0 1.7 0.6 6.7 1.1 1.2 0.9 1.8 0.7 6.6 0.3 1.6 1.4 1.1 0.5 3.2 0.1 3.4 3.6 2.4 -
Q4 (1) 0.2 1.4 1.4 1.1 0.5 3.3 0.0 4.2 4.9 2.3 -
0.7 0.5 0.8 1.1 1.3 -0.8 -0.1 0.3 0.8 -0.1 -
3.4 2.9 2.3 1.0 7.1 -0.1 8.1 7.5 6.9 10.4
11 Inflation & labour HICP Core HICP PPI Compensation per employee Employment Unemployment rate (%) 2.5 1.2 5.3 3.3 1.4 7.1
12 2.1 1.3 1.6 3.0 1.1 6.8
14 (1) 1.3 1.1 1.0 1.8 0.7 6.6
15 (1) 1.5 1.3 1.3 1.9 0.6 6.3
Q1 1.8 1.4 1.3 3.2 0.9 6.9
Q2
2013 Q3 (1) 1.5 1.0 0.8 2.6 0.6 6.9 2013 1.7 1.2 -0.1 2.1 0.6 6.8
Q4 (1) 1.1 0.9 -0.3 1.5 0.5 6.8
Q1 (1) 1.1 0.9 -0.7 1.4 0.3 6.8
Q4 (1) 1.7 1.3 1.2 1.9 0.8 6.5
11 External trade Trade balance (EUR bn, sa) Current account (EUR bn, nsa) Current account (% GDP) 156.1 161.3 6.2
12 190.9 189.5 7.1
14 (1) 202.2 203.5 7.1
15 (1) 204.9 205.6 6.9
Q1 47.0 46.4 -
Q2 50.1 46.4 2013
Q3 47.7 49.4 -
Q4 (1) 49.6 49.4 -
Q1 (1) 50.1 49.4 -
2014 Q2 (1) Q3 (1) 49.8 50.3 2014 51.0 50.6 -
Q4 (1) 50.8 51.6 -
11 Financial variables Federal gov. budget (EUR bn) General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (3) -27.0 -21.2 -0.8 29.8 1.1 80.0
12 -14.5 2.5 0.1 50.8 1.9 81.0
14 (1) -5.8 1.1 0.0 44.5 1.6 76.3
15 (1) -1.2 4.7 0.2 48.1 1.6 73.3
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest rates
(3)
12 0.19 1.31
14 (1) 0.10 2.10
15 (1) 0.10 2.50
Q1 0.21 1.28
Q2 0.22 1.73
Q3 0.23 1.78
Q4 (1) 0.20 1.80
Q1 (1) 0.10 1.90
2014 Q2 (1) Q3 (1) 0.10 2.00 0.10 2.05
Q4 (1) 0.10 2.10
3-month rate (%) 10-year rate (%)
1.36 1.83
Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) End period Figures are year-on-year percentage changes unless otherwise indicated
Evelyn Herrmann Global Outlook
November 2013
25
France: The path of true growth never runs smooth

The path to recovery is unlikely to run smooth The path of French economic recovery is unlikely to run smooth until Q2 2014, primarily for fiscal reasons, but growth should become stronger and less volatile thereafter. It will take time and wider profit margins for corporate investment to recover fully. The key risks to our recovery scenario are a jump in energy prices, which would kill off consumption, and an even stronger euro, which would stall export growth. The slow pace of French growth will probably not spark any great improvement in employment before the second half of 2014. The unemployment rate may stabilise before then, helped by subsidised jobs, more people being enrolled on training schemes and individuals coming off the jobless register as they are not actively searching for work. However, we are unlikely to see any sign of wage pressures before 2015 and underlying inflation will remain subdued. Although the scheduled VAT rate hike should add about 0.25pp to the headline inflation rate in January, we believe the tax credit for competitiveness and employment should easily offset the adverse impact on trend inflation. French inflation had been below that of the eurozone, but the gap has largely vanished over the past few months. This is unlikely to change anytime soon, indeed, not as long as disinflation persists in the peripheral eurozone. French fiscal tightening will continue in 2014 and 2015, but to a much lesser degree than in 2011-13. We think a general budget deficit of 3.0% of GDP is achievable, but only via larger spending cuts and fewer tax hikes, as France is suffering from tax-hike fatigue. Structural reforms are likely to grind to a halt between the end of 2013 and elections in 2014. French municipal elections will be held in March and the European Parliament election will be held in May. A poor showing by the ruling Socialist Party, which has been slumping in the polls, is likely to prompt President Franois Hollande to reshuffle the cabinet, at the latest after the May vote in response to a near party meltdown. The risk of anti-reform industrial action (mass strikes) is limited, but the risk of violent protest persists. Chart 2: French employment vs. GDP growth
5 R e ta il s a le s v o lu m e (3 -m m e a n , % y /y ) 0 -5 2 -1 0 1 -1 5 -2 0 -2 5 -1 -3 0 -2 H o u s e h o ld c o n fid e n c e (d iffu s io n in d e x , E U s u rv e y , R H S ) 06 07 08 09 10 11 12 13 -3 5 -4 0 -3 -4 -5 1 0 -1 -2 4 3 2 G D P (% y /y )
Labour market to remain under pressure until 2015
Inflation is subdued, despite tax hikes
A 3.0% deficit ratio is achievable
Outlook for structural reforms is uncertain
Chart 1: French household confidence vs. retail sales

4 3
P riv a te s e c to r e m p lo y m e n t (n o n -fa rm p a y ro lls , % y /y )
-3
02
03
04
05
06
07
08
09
10
11
12
13
Chart 3: Subdued price and wage inflation in France

4 .0 3 .5 3 .0 2 .5 2 .0 1 .5 1 .0 -2 .0 0 .5 0 .0 -0 .5 -1 .0 C o re H IC P (% y /y ) H e a d lin e H IC P (% y /y ) -3 .0 -4 .0 M o n th ly a v e ra g e w a g e (9 m la g , % y /y ) 5 .0 4 .0 3 .0 2 .0 1 .0 0 .0 -1 .0
Chart 4: Budget balance change vs. GDP growth

2 .5 G D P g ro w th (% y /y ) P o te n tia l g ro w th (% y /y ) 1 .5
0 .5
-0 .5
-1 .5
A n n u a l c h a n g e in b u d g e t b a la n c e (p p o f G D P , R H S )
-2 .5
B N P -3 .5 P a rib a s fo re c a s t -5 .0 -4 .5 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 13 14 N B : W h e n c h a n g e in b u d g e t d e fic it e x c e e d s G D P g ro w th : tig h t b u d g e ta ry p o lic y (a n d v ic e v e rs a )
03
04
05
06
07
08
09
10
11
12
Source: Reuters EcoWin Pro, BNP Paribas Dominique Barbet Global Outlook
26
France: Economic and financial forecasts

11 Components of growth (2) GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, q/q) Exports Imports (3) GDP unadjusted Industrial production Savings ratio (%) 2.0 0.9 0.5 0.4 3.0 1.1 5.7 5.4 2.0 2.3 16.1 0.0 -0.1 -0.4 1.4 -1.2 -0.8 2.5 -0.9 0.1 -2.5 15.6 0.2 0.2 0.4 1.7 -2.3 0.2 0.4 1.0 0.1 -0.4 15.4 Year (1) 13
2.2 1.5 2.1 -0.3 10.3 1.0 0.7 1.7 -0.7 11.0
12
Year (1) 13
2013 14
(1)
15 -
(1)
Q1 -0.1 -0.4 -0.3 -0.4 1.6 -2.6 0.2 -0.4 -0.9 -0.8 -1.9 15.9
Q2 0.5 0.5 0.3 0.6 1.9 -2.6 0.1 1.2 0.4 0.4 0.7 15.9 2013
Q3 -0.1 0.2 0.4 0.6 1.8 -2.4 0.5 -0.5 1.5 0.2 -1.4 15.2
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3
0.3 0.8 0.7 0.6 0.5 1.3 0.1 4.3 3.0 0.8 0.6 14.7
Q4
(1)
0.2 0.6 0.6 0.8 1.5 -1.6 -0.3 1.2 3.0 0.5 0.9 14.7
0.0 0.6 0.6 0.8 1.3 -0.8 -0.1 2.6 3.5 0.6 0.1 15.1
0.3 0.3 0.5 0.6 0.6 0.1 0.0 1.7 2.9 0.4 -1.1 15.1
0.3 0.9 0.8 0.5 0.4 1.9 0.0 4.3 3.8 0.9 0.3 14.7
0.7 0.7 0.6 0.7 0.6 0.1 3.2 3.3 0.7 0.0 14.9
1.3 1.3 1.0 0.4 3.2 0.1 4.7 4.6 1.3 1.2 15.0
11 Inflation & labour HICP Core HICP Monthly wages Private NF payrolls Unemployment rate (%)
2.3 1.1 2.2 0.7 9.6
12
14
(1)
15
(1)
Q1
1.2 0.8 1.9 -0.8 10.8
Q2
0.9 0.5 1.9 -0.9 10.8
Q3
1.1 0.7 1.6 -0.7 11.0
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3
1.0 1.0 1.7 -0.3 11.6
Q4
(1)
1.1 1.0 1.7 -0.3 11.5
1.1 0.9 2.0 0.3 11.5
0.8 0.8 1.6 -0.5 11.2
1.1 1.1 1.6 -0.5 11.4
1.2 1.1 1.6 -0.4 11.6
1.3 0.9 1.8 -0.1 11.6
11 External trade Trade balance (EUR bn, sa) Current account (EUR bn, sa) Current account (% GDP) -74 -35 -1.8
12 -66 -44 -2.2
Year (1) 13 -62 -39 -1.9 Year (1) 13

-80 -74 -3.6 -84 -4.1 -31 -1.5 93.6
2013 14
(1)
15
(1)
Q1 -16 -11 -2.1
Q2 -14 -6 -1.2 2013
Q3 -16 -11 -2.1
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 -17 -11 -2.1
Q4
(1)
-67 -42 -2.0
-59 -37 -1.7
-16 -11 -2.1
-16 -11 -2.1
-17 -10 -1.9 2014
-17 -11 -2.1
11 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) (4) Gross gov. debt (% GDP)
-88 -4.4 -104 -5.2 -48 -2.4 85.8
12
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-72 -3.4 -76 -3.6 -22 -1.1 96.0
-66 -3.1 -65 -3.0 -9 -0.4 96.5
-3.9 -98 -4.8 -43 -2.1 90.2
11 Interest rates 3-month (%) 10-year rate (%) Spread over Bund (bp)
(4)
12 0.19 2.13 83
Year (1) 13 0.20 2.35 55
14
(1)
15
(1)
Q1 0.21 2.03 75
Q2 0.22 2.35 63
Q3 0.23 2.32 55
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.10 2.60 55
Q4
(1)
1.36 3.15 132
0.10 2.65 55
0.10 3.00 50
0.20 2.35 55
0.10 2.50 60
0.10 2.60 60
0.10 2.65 55
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
Dominique Barbet Global Outlook
November 2013
27
Italy: Life in slow motion

Italy to return to growth Stronger external demand and a significant slowdown in the planned pace of fiscal adjustment should underpin Italian economic activity over the next few quarters. After declining for nine consecutive quarters, we expect GDP to start growing again from Q4 2013. The recovery will be modest, however, as a number of headwinds persist. While the latest bank lending survey showed some potential easing of credit standards, the decline in Italian bank lending to corporates has picked up pace of late (Chart 2), as banks continue to adjust their balance sheets ahead of the ECBs asset quality review next year. This is likely to limit the potential for investment and hiring. In addition, the decline in employment has been limited, set against the sharp contraction in Italian GDP, a reflection of the rigidities of the labour market (Chart 3). This suggests that the recovery in job creation during the upswing will be slow. Whats more, the household savings rate has fallen significantly (Chart 4). We suspect consumers will use future rises in disposable income to rebuild some of their savings. All these factors will limit the upside potential for domestic demand, leaving the recovery pretty feeble and dependent on external demand. Italys fiscal targets for this year and next are within reach (though they will have to keep a firm grip on spending over the rest of this year). Further down the road, the assumptions for nominal growth underlying the budget appear to be optimistic. In the absence of additional corrective measures, the fiscal targets for 2015 will be very hard to meet. By our estimates, the publicdebt-to-GDP ratio will continue to rise next year and decline only marginally in 2015. Italy has managed to avoid a fully fledged political crisis, but tensions between the two main government parties continue to simmer beneath the surface. The risk of Italy being forced to hold another early general election remains. And the threat of a return to the polls will make it hard for the government to deliver much needed, but unpopular reforms.
Recovery will be modest
Jobs-market improvement set to be slow
2015 fiscal targets will be very hard to meet
Political tensions risk persist
Chart 1: Export orders vs. exports

40 30 20 10 0 -1 0 -2 0 -3 0 -4 0 M a n u fa c tu rin g P M I N e w e x p o rt o rd e rs (R H S ) E xp o rts (% y/y, 3 m m a ) 70 65 60 55 50 45 40 35 30
Chart 2: Gross fixed capital formation vs. bank lending
E xp o rt o rd e rs (% y/y )
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Chart 3: GDP vs. employment (index, 2001 = 100)
Chart 4: Household net savings rate (%)
Source: Reuters EcoWin Pro, BNP Paribas Luigi Speranza Global Outlook
28
Italy: Economic and financial forecasts

11 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 0.5 -0.4 0.1 -1.2 -1.4 -0.5 6.6 1.1 1.2 -2.4 -4.7 -4.3 -2.9 -8.0 -0.6 2.2 -7.8 -6.3 -1.8 -2.6 -2.7 -0.1 -5.6 -0.2 0.1 -3.3 -3.4 Year (1) 13 1.3 1.3 1.4 -1.7 12.2 Year 13 (1) 36.4 14.6 0.9 Year 13 (1) -49.0 -3.1 36.8 2.4 133.3 Year (1) 13 0.20 4.16 236 0.3 -0.5 -0.7 -0.8 0.2 0.2 4.2 2.3 1.6 0.5 0.2 0.5 -1.5 1.3 0.0 4.3 4.0 2.0 -0.6 -2.4 -3.5 -3.4 -0.7 -7.1 -0.1 -0.4 -5.0 -4.2 -0.3 -2.1 -3.0 -3.3 0.0 -5.9 -0.5 0.2 -4.6 -3.7 -0.1 -1.9 -2.3 -2.3 0.3 -5.4 -0.3 -0.1 -2.5 -4.2 0.1 -0.9 -1.7 -1.6 0.0 -4.0 0.2 0.8 -1.1 -1.6 0.2 -0.1 -1.1 -1.3 -0.4 -1.0 -0.1 4.0 0.8 -0.5 0.2 0.4 -0.7 -0.9 -0.7 -0.2 0.4 4.1 2.0 1.2 0.1 0.5 -0.3 -0.4 -0.9 0.7 0.2 4.3 2.7 2.8 0.1 0.6 0.0 0.0 -1.1 1.3 0.1 4.5 3.4 2.9 12 Year (1) 13 14
(1)
15
(1)
Q1
Q2
2013 (1) Q3
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3
Q4
(1)
11 Inflation & labour HICP Core HICP Monthly wages Employment Unemployment rate (%) 2.9 2.0 1.7 0.3 8.4
12 3.3 2.0 1.5 -0.4 10.7
14
(1)
15
(1)
Q1 2.1 1.5 1.4 -1.7 11.9
Q2
2013 (1) Q3 1.1 1.1 1.4 -1.7 12.3
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.7 0.8 1.1 -0.1 12.7
Q4
(1)
0.9 0.9 1.2 -0.3 12.7
1.0 0.9 1.2 0.5 12.6
1.3 1.3 1.4 -2.0 12.1
0.8 1.2 1.2 -1.3 12.5
0.8 1.2 1.1 -0.7 12.6
0.8 1.0 1.0 -0.4 12.7
1.0 0.7 1.2 0.2 12.7
11 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) -23.0 -48.3 -3.1
12 17.1 -6.0 -0.4
14 (1) 38.4 16.6 1.0
15 (1) 30.8 8.6 0.5
Q1 2.5 -5.8 -
Q2
2013 Q3 (1) 13.0 6.6 -
Q4 (1) 8.1 10.0 -
Q1 (1) 3.0 -5.3 -
2014 Q2 (1) Q3 (1) 13.4 4.4 2014 13.5 7.1 -
Q4 (1) 8.6 10.5 -
12.9 3.9 2013
11 Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) (2) Gross gov. debt (% GDP) -58.8 -3.7 17.7 1.1 120.7
12 -45.1 -2.9 39.7 2.5 127.0
14 (1) -43.0 -2.7 42.7 2.7 134.9
15 (1) -35.0 -2.2 52.3 3.2 134.1
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest rates
(2)
12 0.19 4.53 322.5
14
(1)
15
(1)
Q1 0.21 4.78 351
Q2 0.22 4.55 282
Q3 0.23 4.57 280
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.10 4.00 195
Q4
(1)
3-month rate (%) 10-year rate (%) Spread over Bund (bp)
Footnotes: (1) Forecast (2) End period
1.36 7.08 525
0.10 3.85 175
0.10 3.75 125
0.20 4.16 236
0.10 4.15 225
0.10 4.15 215
0.10 3.85 175
Figures are year-on-year percentage changes unless otherwise indicated
Luigi Speranza Global Outlook
November 2013
29
Spain: Viva growth!

Growth set to return We expect Spanish GDP to continue to grow on a quarterly basis over our forecast horizon. Growth in the second half of the year will not be enough to prevent GDP from contracting 1.2% for 2013 as a whole, but we think the Spanish economy should grow by 0.8% in 2014. Economic expansion will remain underpinned by gains in net trade, as a sizeable fall in unit labour costs has improved the countrys competitiveness and led to a rebound in exports. Faster exports should, in turn, prompt an increase in capital investment. In addition, as the labour market stabilises, we expect the contraction in domestic demand to slow over our forecast horizon, boosting overall growth. Still, though Spains economic adjustment is well underway and some of the structural imbalances are being remedied, challenges remain. As credit conditions remain tight and deleveraging persists, depressing demand, credit to the private sector is shrinking. With further fiscal consolidation scheduled for the coming quarters, the pickup in growth will be limited. As the deficit-ridden countries of the euro area regain cost competitiveness via internal devaluation, disinflationary forces are becoming evident, and Spain is no exception. As the impact of the VAT hike in September 2012 has fallen out of the annual comparison, consumer price inflation has moderated significantly of late. With labour-market reforms prompting a fall in wages and domestic demand sliding, we expect the downward pressure on inflation to persist. We see headline and core HICP inflation averaging 0.1% and -0.4%, respectively, next year. We expect Spains general government budget deficit to come in on target, at 6.5% of GDP, this year an improvement on the downwardly revised 6.8% (excluding bank recapitalisation costs) in 2012. The governments fiscal room for manoeuvre is declining, however, as public debt is set to rise to 100% of GDP in 2014. We expect the government to embark on further structural reforms and overshoot its fiscal targets by just a small amount over our forecast horizon. Any significant slippage still runs the risk of fuelling a deterioration in sentiment, though. Chart 2: Spanish manufacturing PMI new export orders
Net trade the main driver of growth
Internal devaluation to continue
2013 deficit target likely to be met
Chart 1: Spanish GDP growth and composite PMI
Chart 3: Nominal unit labour costs (index, Q1 2001 = 100)
Chart 4: Spanish non-performing loans (% of total credit)

2 0 .0 1 7 .5 1 5 .0 1 2 .5 1 0 .0 7 .5 5 .0 2 .5 0 .0 T o h o u s e h o ld s fo r m o rta g e s T o b u s in e s s e s fo r 'p ro d u c tiv e a c tiv ity'
T o ta l
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Source: Reuters EcoWin Pro, BNP Paribas Gizem Kara Global Outlook
30
Spain: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment - Construction - Other Stocks (cont. to growth, y/y) Exports Imports Industrial production 0.1 -1.8 -1.2 -0.5 -5.4 -10.8 -1.6 -0.1 7.6 -0.1 -1.4 12 -1.6 -3.9 -2.8 -4.8 -7.0 -9.7 -5.0 0.1 2.1 -5.7 -6.1 Year 13 (1) -1.2 -2.9 -1.4 -1.9 -6.5 -8.8 -4.3 -0.1 5.7 -1.5 -1.4 Year (1) 13 1.5 1.2 -3.9 -2.9 26.4 Year 13 (1) -6.6 7.1 0.7 Year 13 (1) -65.5 -6.5 -27.2 -2.7 94.5 Year 13 (1) 0.20 4.16 236 14 (1) 0.8 0.0 0.4 -2.3 2.2 -5.0 0.1 0.1 7.7 2.9 1.5 15 (1) 0.8 0.2 0.6 -1.7 5.3 -1.9 2.9 0.0 6.3 4.1 2.9 Q1 -0.4 -2.0 -4.5 -4.2 -3.3 -7.5 -10.2 -7.5 0.1 3.6 -4.8 Q2 2013 Q3 (1) 0.1 -1.2 -2.6 -2.4 -0.4 -7.2 -8.4 -3.3 0.1 4.6 -2.8 Q4 (1) 0.2 -0.1 -1.0 -0.3 -1.2 -4.7 -6.2 -1.1 0.0 5.5 -1.5 Q1 (1) 0.3 0.5 -0.5 0.4 -1.6 -2.7 -6.0 -0.9 0.0 12.8 6.1 2014 Q2 (1) Q3 (1) 0.2 0.8 -0.2 0.5 -3.0 1.4 -5.0 0.1 0.0 7.0 0.0 2014 Q2 (1) Q3 (1) 0.2 -0.5 -0.2 0.2 25.9 -0.4 -0.5 -0.1 0.3 25.8 0.2 0.9 0.2 0.4 -2.5 4.1 -4.8 0.3 0.0 5.9 1.9 Q4 (1) 0.2 0.8 0.4 0.2 -2.0 6.1 -4.0 1.1 0.0 5.4 3.9 -
-0.1 -1.6 -3.4 -3.1 -2.4 -6.4 -10.5 -5.4 0.2 9.2 3.1 -
11 Inflation & labour HICP Core HICP Compensation of employees Employment Unemployment rate (%) 3.1 1.2 1.4 -1.9 21.6
12 2.4 1.3 -5.6 -4.2 25.0
14 (1) 0.1 -0.4 -0.2 0.1 25.8
15 (1) 0.8 0.6 0.3 0.5 25.7
Q1 2.8 2.1 -5.9 -4.1 27.2
Q2
2013 Q3 (1) 1.3 1.1 -3.4 -2.6 26.0
Q4 (1) 0.1 -0.2 -0.9 -1.2 26.0
Q1 (1) 0.0 -0.3 -0.8 -0.4 25.9
Q4 (1) 0.4 -0.3 0.4 0.3 25.8
1.8 1.9 -5.0 -3.6 26.3
12 -30.8 -11.5 -1.1
14 (1) 7.4 13.6 1.3
15 (1) 21.2 27.3 2.6
Q1 -4.0 -4.7 -1.9
Q2
2013 Q3 (1) -1.4 4.1 1.6
Q4 (1) 0.6 4.6 1.7
Q1 (1) 1.0 -3.0 -1.2
2014 Q2 (1) Q3 (1) 1.5 4.2 1.6 2014 2.1 6.9 2.8
Q4 (1) 2.8 5.5 2.0
-1.8 3.1 1.2 2013
11 Financial variables General gov. budget (EUR bn)

General gov. budget (% GDP) (2)
12 -109.1 -10.6 -78.2 -3.5 86.0
14 (1) -61.0 -6.0 -20.3 -2.0 100.0
15 (1) -47.4 -4.6 -4.1 -0.4 104.6
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-100.0 -9.6 -73.7 -6.9 70.5
Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (3)
11 Interest rates
(3)
12 0.19 5.31 401
14 (1) 0.10 3.60 150
15 (1) 0.10 3.75 125
Q1 0.21 5.07 379
Q2 0.22 4.78 305
Q3 0.23 4.30 253
Q4 (1) 0.20 4.16 236
Q1 (1) 0.10 4.05 215
2014 Q2 (1) Q3 (1) 0.10 3.95 195 0.10 3.80 175
Q4 (1) 0.10 3.60 150
3-month rate (%) 10-year rate (%) Spread over Bund (bp)
1.36 5.11 329
Footnotes: (1) Forecast (2) Includes one-off transfers (3) End period Figures are year-on-year percentage changes unless otherwise indicated
Gizem Kara Global Outlook
November 2013
31
Netherlands: Domestic disturbance

Domestic economy remains fragile The Dutch economy is set to remain weak in the short term, largely due to domestic factors. Employment is contracting, as is credit growth, and fiscal tightening is scheduled to continue in 2014 and 2015. Accordingly, we expect consumption to fall again in 2014, before picking up modestly in 2015. Net trade is likely to make a positive contribution to growth over our forecast period. The favourable mix of the Netherlands export destinations should help to cushion the weakness in domestic demand. As a result, the Dutch current account surplus should remain in the region of 10% of GDP, where it has been for a number of years. This could be considered an obstacle to rebalancing trade within the eurozone. Dutch inflation dropped sharply in October to just 1.3% y/y, as last years VAT hike fell out of the year-on-year comparison. Despite some potential volatility in the headline rate over the coming months due to further base effects, we expect inflation to decline. Annual inflation in 2014 and 2015 will be considerably weaker than in 2013. As wages in the private and public sectors are virtually frozen, this will limit losses of purchasing power. Still, it is also slowing the erosion of the mortgage debt burden, which is weighing on young households, in particular. Weakening credit growth to consumers and corporates is a concern. A lack of competition in the Dutch financial sector and the introduction of new regulations mean that the cost of credit is increasing, especially for SMEs. Moreover, Dutch banks asset quality has been deteriorating due to continued problems in residential and commercial real estate. There are some concerns as to the stability of the government, too. It lacks a majority in the senate and had to strike a deal with opposition parties to push through the 2014 budget. On the positive side, though, the growing costs of the ageing population are likely to weigh less on the Dutch economy than neighbouring countries, as a large part of the pension system is funded. Netherlands: Economic forecasts
2011
HICP
Net trade providing a boost
Inflation set to fade
Risks remain
Chart 1: Dutch inflation rates (% y/y)

4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 Constant taxes
2012 -1.2 -1.8 -1.6 -0.7 -4.0 0.2 3.2 3.3 -0.7 4.1
2013
(1)
2014
(1)
2015
(1)
Components of growth Total GDP Dom. demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports 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) (2) Gross gov. debt (% GDP) Interest rates 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
(2)
0.9 0.6 -1.1 0.2 6.1 0.1 4.1 4.2 3.4 4.9
-1.1 -2.7 -2.2 -1.0 -6.5 0.2 0.7 -0.6 -0.9 4.1
0.2 -0.2 -1.1 -0.3 2.1 0.1 3.9 4.0 3.5 4.0
0.9 0.8 0.5 0.0 2.8 -0.3 3.8 3.7 2.8 4.2
03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ulJa J Ja J J a J Ja J J a J J a J J a J Ja J Ja J J a J Ja J
Chart 2: Growth in Dutch nominal GDP and corporate loans (% y/y)

20 NFC loans
2.3 2.5 1.7 1.2 0.0 4.4
2.5 2.8 2.2 1.4 -0.1 5.3
2.5 2.6 2.5 1.3 -1.4 6.7
1.5 1.4 1.5 1.0 -0.5 7.5
1.1 1.2 1.1 1.2 0.2 7.9
15
44.4 56.8 9.5
40.3 56.5 9.4
45.4 62.3 10.4
45.9 64.8 10.6
48.3 68.5 10.9
10
-27.0 -4.5 -18.1 -3.0 65.8
-24.3 -4.1 -16.2 -2.7 71.3
-19.0 -3.2 -11.3 -1.9 74.9
-20.8 -3.4 -13.2 -2.2 76.3
-19.4 -3.1 -11.5 -1.8 77.2
-5
Nominal
-10 Mar 04
1.36 2.17 35
0.19 1.50 19
0.20 2.15 35
0.10 2.45 35
0.10 2.80 30
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes, unless otherwise indicated
Source: Reuters EcoWin Pro, BNP Paribas Raymond van der Putten / Colin Bermingam Global Outlook
Source: BNP Paribas, national statistics November 2013
32
Belgium: Short-term gain, longer-term pain

Improving outlook for domestic demand The outlook for Belgiums economy has improved. Confidence indicators have risen strongly in recent months, revealing a growing appetite for major household purchases and better demand prospects for business. We do not see any strong headwinds short term: bank lending to the private sector is expanding and fiscal consolidation should ease in 2014. The recovery should persist near term. Beyond that, though, the outlook remains fragile. Fiscal consolidation efforts will have to be stepped up (Chart 1), while a loss of competitiveness is a real threat (Chart 2). Whats more, the rebound will be a modest one, as most indicators are only moving towards their average levels. The weak spot for private consumption is the jobless rate, currently at a 10-year high and set to barely decline over our forecast horizon. Businesses are looking to rebuild their profit margins first. Purchasing power will no longer enjoy the kind of increases it has seen in recent years, as wage moderation prevails. Belgian inflation is in line with the eurozone average, but only because energy prices are declining faster. Core inflation, in contrast, remains higher. While this makes Belgium less prone to deflationary pressures, it also makes a much-needed correction in labour costs a lot trickier. Belgium has cut its budget deficit to less than 3% of GDP, but this is still short of target. With 2014 an election year, we are unlikely to see additional consolidation measures on top of those already announced. The country will face a significant uphill climb in 2015-16 as a result. Likewise, the governments ability to enact structural reform has been damped by the election. The rise in the debt-to-GDP ratio will be limited through the sale of state assets. Risks to our scenario The main downside risk to our scenario is that exports underperform. On the upside, there is a chance that the recovery in domestic demand could prove stronger than expected. Belgium: Economic forecasts
2011 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation & labour HICP Core HICP Wages Employment Unemployment rate (%)
120 115 Netherlands France 110 105 100 Belgium Germany 95 90 85 80 2013
Recovery set to be modest
Core inflation higher than the eurozone average
Chart 1: Structural fiscal balance (% of GDP)

1 0 -1 -2 -3 -4 -5 2009 2010 2011 2012 2013 2014 2015 2016
2012 -0.1 -0.2 -0.3 1.4 -2.0 0.5 1.8 1.3 -3.3 15.3
2013
(1)
2014
(1)
2015
(1)
2014 16: 3.0%
2009 13: 1.7%
1.8 1.1 0.2 0.7 4.1 -0.3 6.4 6.9 4.5 14.1
0.2 0.0 0.6 0.2 -2.4 -0.2 0.6 0.0 0.7 15.2
1.1 1.1 1.4 -0.3 2.1 0.0 4.8 4.7 4.5 13.9
0.8 0.8 0.9 -0.4 1.9 0.0 3.1 3.1 2.9 13.0
Source: European Commission
Chart 2: Real export market shares (index, 1991=100)
3.4 1.5 3.2 1.3 7.2
2.6 1.9 3.2 0.2 7.6
1.1 1.4 1.7 -0.2 8.7
1.0 0.9 0.7 0.4 8.8
1.1 1.0 0.5 0.6 8.4
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) Interest rates 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
(2)
7 -4 -1.1
6 -6 -1.6
8 -6 -1.5
7 -6 -1.4
10 -4 -1.1
-14 -3.7 -1.6 -0.4 97.8
-15 -3.9 -1.9 -0.5 99.8
-10 -2.7 2.3 0.6 101.2
-9 -2.3 4.3 1.1 100.2
-8 -2.0 5.4 1.4 99.9
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
1.01 3.97 101
1.36 4.11 228
0.20 2.55 75
0.10 2.85 75
0.10 3.10 60
Source: Ameco
Source: BNP Paribas Fortis, national statistics; (1) forecast, (2) period end
IMPORTANT DISCLOSURE:
This analysis has been produced by Fortis Bank SA/NV and has been reviewed, but not amended, by BNP Paribas. BNP Paribas SA is the majority shareholder of Fortis Bank SA/NV with a 99.93% stake. This analysis does not contain investment research recommendations. Steven Vanneste Global Outlook November 2013
33
Austria: Business as usual

Catch-up effects should boost the recovery We forecast Austrias economic recovery to gather pace in the coming months, primarily due to catch-up effects and the continued implementation of business-friendly economic policy, now that the previous grand-coalition government has been returned to power after Septembers general election. Austrias labour market will be opened up to Bulgarian and Romanian nationals from 1 January 2014. Over the next few months, the increased supply of labour is likely to nudge up the unemployment rate, which has been the eurozones lowest since 2009, causing wage growth to slow further. Despite the slower wage growth, an expected fall in inflation is likely to help support consumer confidence and bolster household purchasing power. Against this backdrop, private consumption should improve gradually, as the uncertainties that held sway prior to the election and the concern relating to the resolution of the euro crisis dissipate. In addition, the current loose fiscal stance should help support the nascent recovery. The recovery in Austrian capital investment is likely to be gradual, though, as companies excess production capacity is still running above its long-term average. The improvements in the survey data and the resolution of the eurozone crisis are likely to help remove some of the hesitation besetting corporate investment, though. As Austria has very close ties to Italy through its external trade and cross-border banking exposure, the easing of worries about the Italian political and fiscal landscape has been a particular relief. Austrias banking sector remains very exposed to Central and Eastern European countries, however, particularly Hungary and Romania. Should economic conditions in these areas deteriorate, the Austrian banking system, which has already received substantial government support, may need to turn to the state for more help. As a result, Austrian government debt, which currently stands at more than 75% of GDP, could rise further before peaking. In the meantime, Austrian banks could tighten conditions on loans to individuals and companies. Austria: Economic forecasts
2011 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports 2.7 2.0 0.7 0.1 7.3 0.4 7.2 7.2 5.7 7.5 2012 0.8 0.6 0.2 0.5 1.6 -0.3 1.9 1.3 1.7 7.4 2013
(1)
Inflows of migrants to push up the jobless rate
Domestic demand should strengthen further
The banking sector remains vulnerable
Chart 1: Austrian growth outstripping the eurozone

5 4 3 2 1 0 -1 -2 -3 -4 -5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 GDP growth dif f erential (pp) Eurozone GDP growth (y /y ,%) Austria GDP growth (y /y ,%)
2014
(1)
2015
(1)
0.5 0.0 0.1 0.6 -0.3 -0.4 1.7 1.3 0.7 7.7
1.7 1.3 0.8 0.8 0.8 0.0 4.1 3.6 3.5 7.7
1.8 1.8 1.2 1.0 2.5 0.0 4.6 4.2 1.8 7.7
Imports Industrial production Savings ratio (%) Inflation & labour HICP Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP)
3.6 2.5 1.8 4.2
2.6 2.1 0.6 4.3
2.2 1.5 0.2 4.7
1.8 1.5 0.5 4.9
1.6 1.5 0.5 4.9
Source: Eurostat, BNP Paribas
Chart 2: Unemployment rising, despite wage slowdown

6 Jobless rate 5 4 5
-7.5 1.7 0.6
-6.4 6.0 1.9
-5.1 7.5 2.3
-4.3 8.5 2.5
-3.5 9.5 2.6
Financial variables General gov. budget (EUR bn) -7.6 -2.5 0.2 0.1
(2)
-9.7 -2.5 -0.4 -0.1 75.5
-8.7 -2.3 -0.6 -0.2 75.3
-6.1 -1.9 0.0 0.0 75.0
-5.8 -1.8 1.3 0.4 74.5
5 3 4 2 Hourly wages (y /y , %) 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3
General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(2)
72.4
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
1.36 2.90 108
0.19 1.75 44
0.20 2.15 35
0.10 2.40 30
0.10 2.80 30
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: Reuters EcoWin Pro, BNP Paribas Caroline Newhouse Global Outlook
34
Portugal: Hobsons choice

PSI unlikely, so two options for bailout exit The key issue for Portugal remains the form of its exit from its bailout programme. We think any private-sector involvement (PSI) would immediately spark concerns about Italian debt, so the potential for contagion means PSI is unlikely for now. This leaves two Portugal with two options at the end of its programme: a credit line from the ESM or a second, full bailout. Which way it goes will depend to a large degree on the markets, as any credit line would require yields to be at sustainable levels for Portugal to be able to finance itself in the market. This could be problematic, if the Constitutional Court rules against the governments budgetary measures, once again. Either way, Portuguese yields are unlikely to come in sufficiently for a credit line, so we see a second bailout programme as the more probable outcome. A second bailout is likely to be interpreted as a sign that the current bailout was unsuccessful, so it could lead to political instability and elections. Economic data for Portugal point to some improvement in activity. Accordingly, we have raised our GDP forecasts, particularly for 2014, but we remain somewhat short of government and IMF forecasts of 0.8% growth. Our view is that headwinds to the economy, including weak disposable income growth, subdued credit dynamics and further fiscal consolidation, are likely to weigh on growth next year. Portugals debt-to-GDP ratio will begin to fall in 2015, by our estimates. By then, the countrys primary budget surplus should be enough to set its debt on a downward path. Inflationary pressures should remain subdued over our forecast period, with core inflation set to remain below 1% until March 2015. With real growth anaemic and still dependent on external sources, there are a number of downside risks to our forecasts for nominal GDP.
Exit will largely depend on the market
Recent pickup in the data
Another bailout still the most likely scenario
Chart 1: Credit growth (% y/y)

20
Portugal: Economic forecasts

2011 Components of growth Total GDP Dom. demand ex. stocks Private consumption Public consumption -1.5 -5.0 -3.7 -2.6 -12.0 0.1 7.1 -4.2 -2.1 9.0 2012 0.0 -1.0 0.0 0.0 0.0 -0.2 0.0 -1.0 -4.3 11.6 2013
(1)
2014
(1)
2015
(1)
15 10 5 0 -5 -10 -15 Jan 04

Households
-1.7 -3.3 -2.1 -2.7 -8.3 -0.1 5.4 1.1 -3.2 12.5
-0.1 -1.8 -0.5 -4.6 -3.8 0.1 4.2 -0.2 -0.7 12.9
1.1 0.1 0.2 -2.2 2.4 0.1 4.2 1.8 1.8 12.7
Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%)
Corporate
Inflation & labour HICP Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) -14.2 -12.0 -7.0 -8.6 -2.5 -1.5 -5.6 1.5 0.9 -3.1 2.2 1.3 -1.8 3.8 2.2 3.6 2.0 -1.8 12.7 2.8 1.2 -4.2 15.6 0.5 0.2 -2.3 16.5 0.0 0.2 0.1 16.3 0.6 1.0 1.1 15.0
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Chart 2: Core inflation (% y/y)

3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Jan 07
Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(3) (2)
-7.4 -4.3 -0.5 -0.3 108.2
-10.6 -6.4 -3.5 -2.1 124.2
-9.8 -5.9 -2.5 -1.5 130.2
-8.1 -4.8 -0.7 -0.4 130.5
-6.5 -3.8 0.9 0.5 128.7
3-month rate (%) 10-year bond yield (%)

Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15
1.36 13.56 1173
0.10 9.00 770
0.20 6.06 426
0.10 5.60 350
0.10 5.50 300
Spread over Bund (bp)
Footnotes: (1) forecast, (2) includes one-off measures, (3) end of period Figures are year-on-year percentage changes, unless otherwise indicated
Source: BNP Paribas, national statistics Colin Bermingham Global Outlook November 2013
35
Finland: Cyclical and structural weakness

A gradual recovery is under way Finlands GDP growth is likely to remain steady over the remainder of 2013. Though growth will remain moderate into 2014, it should pick up sufficiently to allow the economy to expand 1% in 2014 as a whole (after an estimated 0.8% contraction in 2013). Finlands small, open economy should benefit in the coming months from the more favourable economic climate in the rest of the eurozone, its main trading partner (taking 30% of its exports). However, the restructuring of some of its export industries, especially the electronics sector, and its lack of competitiveness will continue to weigh on exports. Whats more, investment, which should start to grow again in 2014, will only gradually return to pre-crisis levels, despite favourable financing conditions. Finnish household consumption is likely to remain weak in the coming months. The decline in employment is likely to keep a cap on household earnings until at least the end of the year. The employment situation will restrict nominal wages, while income tax rises and inflation will damp consumer purchasing power. Moreover, the household savings rate is unlikely to decline in the short term, as the economic climate remains uncertain. A decrease in oil prices should reduce inflation pressures through the end of the year and into the new year. Thereafter, an increase in excise duties on soft drinks, alcohol and tobacco and higher taxes on transport fuels and electricity are expected to boost prices in 2014. However, Finlands persistently weak economic and wage growth are likely to ensure that its core and headline inflation rates decline towards the end of this year and into next. The Finnish government deficit is likely to have widened to 2.5% of GDP in 2013 from 1.8% in 2012. A drop in corporate income-tax revenue will continue to weigh on public finances. However, the deficit should fall slightly next year, as growth and tax revenues improve. Finlands general government debt will still exceed the 60% threshold in 2014, though. Finland: Economic forecasts
2011
HICP 4
Household consumption to remain weak
Inflation to slow short term
Public debt will soon be above 60% of GDP
Chart 1: Decline in inflation (%, y/y)

5
2012 -0.8 0.0 0.2 0.6 -1.0 -1.1 -0.2 -0.8 2.2 1.2
2013
(1)
2014
(1)
2015
(1)
Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports
Core HICP
2.7 2.0 2.6 0.5 5.7 1.7 2.7 6.2 5.0 1.2
-0.8 -0.1 -0.2 0.9 -0.6 0.4 -1.2 -6.7 -0.9 1.2
1.0 0.9 0.8 0.9 1.1 0.0 2.0 2.2 2.9 0.8
1.5 1.4 1.5 0.7 1.9 0.0 3.0 3.2 1.6 0.7
Imports Industrial production Savings ratio (%)
Inflation & labour CPI

-1 2005 2006 2007 2008 2009 2010 2011 2012 2013
3.5 3.3 1.8 1.1 7.8
2.8 3.2 2.1 0.4 7.7
1.5 2.2 1.8 -1.0 8.2
2.0 2.1 1.5 0.1 8.2
1.7 1.8 1.4 0.8 8.0
HICP Core HICP Employment Unemployment rate (%)
Chart 2: General government debt and deficit (% GDP)

External trade
55 Public deficit (RHS) 50 8
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)
-1.3 -2.8 -1.5
-0.1 -3.2 -1.7
0.4 -2.9 -1.5
0.6 -2.8 -1.4
0.8 -2.5 -1.2
4 45 2 40 Public debt 0 35
-1.3 -0.7 0.8 0.3 49.2
-3.4 -1.8 -1.6 -0.8 53.6
-4.9 -2.5 -1.7 -0.9 58.3
-4.7 -2.3 -1.6 -0.8 61.8
-4.2 -2.0 -1.0 -0.5 64.6
-2
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
1.36 2.31 48
0.10 1.60 30
0.20 2.05 25
0.10 2.35 25
0.10 2.75 25
30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-4
Footnotes: (1) Forecast (2) End Period Figures are year-on-year percentage changes unless otherwise indicated
Catherine Stephan Global Outlook
November 2013
36
Ireland: Taking off the stabilisers

Stronger growth in 2014 and 2015 Leading indicators point to building momentum in the Irish economy. Following a weak start to the year, we expect the economy to have picked up in H2 2013 and for this to continue into 2014. We expect consumption and investment to increase next year. Government consumption will remain a drag on domestic demand in 2014, but this should ease in 2015. Weak export growth in 2013 should give way to more robust growth rates in 2014 and 2015 as the impact of the fall in pharmaceutical exports washes out of the numbers. The key policy challenge for the government is to continue to reduce its budget deficit and debt ratios. Ireland has a softer deficit target for 2014 in nominal terms, following a concession from its official lenders. The measures adopted to reduce the deficit by EUR 2.5bn in 2014 include a EUR 600m spending cut in the health sector. Considering the healthcare cost overruns that have been racked up in recent years, we think this target looks challenging. Ireland will exit its three-year bailout programme without seeking the support of a precautionary credit line. Instead, it will rely on existing cash reserves, which total in excess of EUR 25bn, to smooth its return to the market. Ireland has also been encouraged by improved sentiment on the debt markets, making it unwilling to accept the conditionality attached to a credit facility. Some might view the lack of a credit line as a concern. We think the risk is minimal. There is still an implicit guarantee of European funding for Ireland, if required, although it may come at less favourable terms. Banking sector still poses a risk There is still potential for capital calls for the banking sector from the European asset quality review (AQR), but an Irish AQR, due to be published before end November, is unlikely to result in significant capital calls.
Fiscal policy is still the key challenge
Exiting the bailout with no credit line
Chart 1: Services PMI and retail sales growth

15% Services PMI (right axis) 70
Ireland: Economic forecasts

2011 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 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) (2) Interest rates 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
(2)
2012 0.2 -1.1 -0.3 -3.7 -1.0 -0.9 1.6 0.0 -1.9
2013 (1) 0.5 -1.5 -0.7 -1.8 -5.5 -0.1 1.8 0.6 -2.6
2014 (1) 1.5 0.4 0.7 -2.6 1.7 0.0 4.2 3.5 1.7
2015 (1) 2.5 1.4 1.3 -0.8 4.8 0.0 4.6 3.9 2.4
10%
60
50 5% 40 0% 30 -5% Retail sales (y/y,%) -10% 20
2.2 -3.0 -1.6 -2.8 -9.5 -0.4 5.4 -0.4 0.0
10
-15% May 06
0 Mar 07 Jan 08 Nov 08 Sep 09 Jul 10 May 11 Mar 12 Jan 13
Chart 2: Irish financing needs deficits and redemptions (EUR bn)

18 16 14 12 10 8 6 4 2 0 2014 2015 2016 2017 2018
Redemptions gov bonds Redemptions of official debt GG deficit
2.6 1.2 -0.2 -1.8 14.3
1.7 1.9 0.7 -0.6 14.7
0.5 0.4 0.4 1.8 13.5
0.0 0.1 0.0 2.0 12.2
0.7 0.6 0.7 2.1 11.1
42.9 2.0 1.3
42.5 7.3 4.5
40.4 9.3 5.6
40.9 10.6 6.3
41.5 12.0 6.9
-21.8 -13.4 -9.1 -9.1 -5.6 104.1
-12.5 -7.6 -7.5 -6.4 -3.9 117.4
-12.7 -7.7 -7.0 -4.5 -2.7 122.6
-8.5 -5.0 -4.9 0.0 0.0 123.3
-5.4 -3.1 -3.1 3.5 2.0 120.9
1.36 8.57 674
0.19 4.53 323
0.20 3.64 184
0.10 3.50 140
0.10 3.60 110
Footnotes: (1) forecast, (2) end period Figures are year-on-year percentage changes, unless otherwise indicated
Source: BNP Paribas, national statistics Colin Bermingham Global Outlook November 2013
37
Greece: And debt shall have no dominion

GDP to fall c.4% in 2013 Net trade to continue to prop up the economy We continue to expect real Greek GDP to fall by about 4% this year and to grow by 0.6% in 2014. The recovery should slowly gather momentum from 2015. As Greece continues to consolidate its finances and as labour-market conditions remain weak due to the consequent decline in economic activity, domestic demand will remain a drag on the economy. As structural reforms aimed at boosting competitiveness have started to bear fruit, net trade should continue to make a positive contribution. The removal of uncertainty over Greeces future in the eurozone, along with cost-competitiveness gains, has helped revive tourism. We expect the recent increase in Greek exports to persist and have a positive knock-on effect on investment over our forecast horizon. However, with Greeces export base relatively low (exports account for only around 24% of GDP), this is unlikely to lead to a significant increase in overall GDP. Still, a rise in exports, as imports continue to contract, should bring about a further narrowing of the current account deficit. A further fall in prices A general lack of pricing power due to the progressive decline in domestic demand is putting continued downward pressure on Greeces core consumer prices. This, together with a relatively strong EUR and a lack of pipeline price pressures, suggests the countrys HICP rate will remain in deflationary territory in 2014. We expect the ongoing review of Greeces second rescue programme to find a solution to the countrys looming 2014 funding gap, at the very least. In the longer term, however, the Troika will need to find a way to put Greek debt on more sustainable footing. We believe that moving the programmes sustainability goalposts is the easiest solution politically, though the IMF will need some kind of justification for a more flexible interpretation of its definitions. With the IMF due to become the only provider of Greek financing from Q3 2014 until the end of the bailout programme in 2016, a more lasting solution for Greece will have to be found by mid-2014.
Short-term debt solutions will be found shortly
Chart 1: Compensation per employee (index, Q1 2001=100)
Greece: Economic forecasts

2011 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 HICP 3.1 1.1 -6.8 17.7 1.0 -0.3 -8.0 24.2 -0.7 -2.3 -4.1 27.3 -1.0 -1.6 -0.3 27.5 0.4 -0.1 0.8 27.3 -7.1 -11.0 -7.6 -5.2 -19.5 0.7 0.0 -7.3 -7.8 -6.4 -9.0 -9.1 -4.1 -19.0 0.3 -2.0 -13.6 -3.3 -3.9 -7.8 -5.8 -4.1 -5.8 -0.4 2.6 -6.1 -2.9 0.6 -2.8 -1.5 -5.4 5.1 0.2 4.8 -1.7 1.6 1.6 -0.7 1.1 -4.6 5.8 0.0 5.2 1.3 3.4 2012 2013
(1)
2014
(1)
2015
(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)
Chart 2: Greek HICP inflation (% y/y)
-16.9 -24.5 -11.7
-14.1 -10.3 -5.3
-9.7 -4.4 -2.4
-7.9 -3.3 -1.8
-6.3 -2.6 -1.4
-19.8 -9.5 -5.0 -2.4 170.3
-11.6 -6.0 -1.9 -1.0 156.9
-6.8 -3.7 0.7 0.4 175.6
-6.1 -3.3 2.7 1.5 174.9
-4.6 -2.5 5.0 2.7 171.1
Source: Reuters EcoWin Pro, BNP Paribas Gizem Kara Global Outlook
38
Switzerland: No sign of price pressures

Economy is coping well with external weakness The Swiss economy has been coping well in the face of sluggish export markets. In the first half of 2013, GDP growth averaged 0.5% q/q. Because of the slow growth in much of Europe, Switzerlands open economy has largely had to rely on domestic growth drivers. Consumer spending, in particular, has been driving the economys expansion to date. Consumer spending should continue to rise, but we expect consumption growth to cool somewhat. Deflation has led to a fairly sharp slowdown in wage growth and this will crimp spending power in the coming quarters. Offsetting this to some extent, consumer confidence is still supportive of spending and the labour market remains firm. Because of their heavy reliance on European demand, Swiss exports have been on the soft side. However, leading indicators, such as the KOF business situation indicator and the manufacturing PMI, suggest that the performance of the external sector is set to improve markedly. Together with robust domestic demand, this should help the economy grow in 2013 and 2014 at its fastest rate since 2010. The period of rapidly falling prices appears to be have ended. However, there is little sign that prices are about to rise decisively. The easing in wage and unit labour cost growth suggests inflation will remain low, though 2013 should be the trough. The persistence of deflationary risks in the economy means that the Swiss National Bank (SNB) is set to maintain its 1.20 floor under EURCHF for the foreseeable future. With EURCHF having traded above this level for some time, it is a relatively costless policy to leave the floor as it is. Moreover, the policy may have some continued benefits in helping to raise inflation expectations, or at least stopping deflation from becoming entrenched.
Growth in consumer spending set to cool
Exports should firm
No sign yet of inflation
SNB to keep policy unchanged
Chart 1: KOF business-situation indicator and GDP

2 .5 2 .0 1 .5 1 .0 0 .5 0 .0 -0 .5 -1 .0 -1 .5 -2 .0 -2 .5 G D P (% q /q ) KO F 3 .0 2 .5 2 .0 1 .5 1 .0 0 .5 0 .0 -0 .5 -1 .0 -1 .5 -2 .0
Switzerland: Economic forecasts

2011 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation CPI CPI (ex-petrol) Nominal wages Unemployment rate (%) Financial variables Current account (CHF bn) Current account (% GDP) General gov. balance (CHF bn) General gov. balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest & FX rates (2) 3-month rate (%) 10-year bond yield (%) 0.05 0.67 -116 1.25 0.25 0.35 -95 1.21 0.00 1.10 -70 1.25 0.25 1.40 -70 1.35 0.25 1.60 -90 1.35 52.5 9.0 1.8 0.3 0.7 35.5 66.3 11.2 0.6 0.1 0.4 35.7 70.0 11.6 1.8 0.3 0.6 34.7 73.5 11.8 3.1 0.5 0.7 32.5 76.5 11.9 3.8 0.6 0.6 31.1 0.2 -0.1 1.0 2.8 -0.7 -0.9 0.8 2.9 -0.1 0.0 0.7 3.1 1.0 0.6 1.2 2.8 0.7 0.9 1.7 2.8 1.8 1.9 1.1 1.2 4.5 -0.1 3.8 4.2 2.0 13.3 1.0 1.8 2.4 3.2 -0.4 -0.6 2.5 3.1 2.5 14.0 2.0 2.2 2.6 1.7 1.3 -0.8 2.4 1.1 3.0 13.4 2.3 2.1 1.6 0.8 4.2 -0.1 3.6 3.5 3.6 13.8 1.8 1.5 1.5 0.8 1.8 0.0 4.0 4.0 2.6 13.7 2012 2013 (1) 2014 (1) 2015 (1)
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Chart 2: Swiss CPI inflation (% y/y)

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 Core 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Headline
Spread over Bund (bp) EURCHF
Source: Reuters EcoWin Pro, BNP Paribas David Tinsley Global Outlook
Source: BNP Paribas , national statistics November 2013
39
UK: Jolly good

Improvement has momentum UK growth has continued to pick up and the economy appears to have some forward momentum. Strikingly, sentiment has firmed up across the manufacturing and services sectors, as well as among consumers. After rising to a solid 0.7% q/q in Q2, growth picked up to 0.8% in Q3. The improvement in the UK economy is not just a consumer-led upswing, though this is certainly a key component. Consumer spending has actually been contributing to growth at a fairly steady pace for more than a year, but this is now being augmented by an upswing in construction investment. Business investment, however, remains a source of weakness, while net trade only made a small positive contribution to growth in the first half of 2013. Forward indicators suggest there is good short-term momentum behind the upswing, supported by the gradual improvement in the eurozone economy a key UK export market. However, there is also a strong domestic component, with past policy action, such as the Bank of Englands Funding for Lending Scheme, helping to reduce borrowing costs and increase the availability of credit, especially for housing. The governments Help to Buy scheme should help sustain the improvement in the housing sector, with positive knock-on effects on household spending. The outlook is not without risks, however. Real income growth in the UK is weak, which raises questions about the extent to which consumer spending can underpin the recovery. And small businesses have yet to benefit from the improvement in credit availability. These factors, in addition to external risks, suggest growth will cool in the second half of 2014. UK public finances are likely to benefit from better nominal GDP growth. Meanwhile, the Bank of Englands forward guidance should see rates remaining on hold at least until 2015. A gentle downward drift in inflation is no barrier to this, although, in time, it could look like a policy error. For now, however, the Banks intentions are clear.
Consumers helping, as is construction
Housing enjoying an upswing
Growth likely to slow in H2 next year
BoE on hold until 2015
Chart 1: UK GDP growth

11 10 9 8 7 6 5 4 3 2 1 0 -1 -2
Chart 2: Inflation (% y/y)
BNPP fo re c a s t
RPI
CPI
2 % ta rg e t
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Chart 3: UK earnings and productivity
Chart 4: UK housing market surveys (balance, 3mma)

75 50 25 0 P rices -25 -50 -75 -100 N ew buyer enquiries
02
03
04
05
06
07
08
09
10
11
12
13
40
UK: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Investment Stocks (cont to growth, q/q) Exports Imports Services output Manufacturing production 1.1 -0.6 -0.4 0.0 -2.4 0.4 4.5 0.3 1.5 1.8 0.1 1.2 1.2 1.7 0.9 -0.3 1.0 3.1 1.2 -1.7 1.4 1.1 2.1 0.7 -2.5 0.1 2.3 1.9 2.0 -0.2 Year 13 (1) 3.1 3.1 2.6 2.1 1.2 7.6 1.3 1.1 Year (1) 13 -101.5 -59.8 -3.7 Year (1) 13 -104 -6.4 -4.5 91.2 Year 13 (1) 0.50 0.50 2.90 110 0.82 1.61 2.7 2.9 2.4 2.5 5.8 -0.1 3.7 4.1 2.8 2.1 2.3 2.4 1.8 2.0 5.7 0.0 3.3 3.7 2.5 1.5 0.4 0.2 -0.2 1.7 -1.1 -6.8 -0.4 -0.1 0.5 0.0 -2.7 0.7 1.3 0.4 1.5 0.8 -5.3 0.2 3.3 1.9 2.2 -0.4 0.8 1.5 1.7 2.5 1.4 -1.5 -0.2 1.5 1.6 1.8 0.1 0.8 2.6 2.6 2.6 1.7 4.0 -0.1 4.5 3.6 2.8 2.3 0.7 2.9 3.0 2.7 2.6 5.6 0.0 5.3 5.5 2.9 2.8 0.6 2.9 3.4 2.9 2.6 6.5 0.0 3.0 3.5 2.9 2.4 0.5 2.6 2.8 2.2 2.4 5.9 0.0 3.5 3.9 2.8 1.8 0.5 2.3 2.5 1.9 2.4 5.4 0.0 3.0 3.6 2.5 1.5 12 Year (1) 13 14
(1)
15
(1)
Q1
Q2
2013 (1) Q3
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3
Q4
(1)
11 Inflation & labour RPI RPIX CPI Core CPI Employment Unemployment rate (ILO, %) Headline avg. earnings Avg. earnings ex-bonuses 5.2 5.3 4.5 3.2 0.5 8.1 2.5 2.0
12 3.2 3.2 2.8 2.4 1.2 7.9 1.4 1.7
14 (1) 3.3 3.1 2.4 2.3 1.2 7.1 2.2 1.7
15 (1) 3.2 3.1 2.4 2.5 0.9 6.9 2.5 2.2
Q1 3.3 3.2 2.8 2.3 1.5 7.8 0.6 0.8
Q2
2013 Q3 (1) 3.2 3.2 2.7 2.1 1.4 7.6 0.9 1.1
Q4 (1) 2.7 2.7 2.2 1.8 1.0 7.4 1.7 1.4
Q1 (1) 2.9 2.8 2.3 2.1 1.4 7.3 1.8 1.5
2014 Q2 (1) Q3 (1) 3.1 3.0 2.4 2.1 1.4 7.1 2.2 1.7 3.1 2.9 2.3 2.3 0.9 7.1 2.3 1.8
Q4 (1) 3.2 3.0 2.5 2.5 0.9 7.1 2.5 2.0
3.1 3.1 2.7 2.2 1.0 7.8 2.2 1.1
External trade Trade balance (GBP bn, sa) Current account (GBP bn, sa) Current account (% GDP)
11 -100.1 -22.5 -1.5
12 -108.7 -59.8 -3.8
14
(1)
15
(1)
Q1 -26.2 -
Q2
2013 (1) Q3 -25.1 2013
Q4
(1)
Q1 -
(1)
Q2 -
(1)
2014 (1) Q3 -24.3 2014
Q4
(1)
-97.6 -46.6 -2.8
-94.5 -41.8 -2.4
-25.3
-24.9
-24.7
-24.5
-24.1 -
11 Financial variables PSNB (GBP bn, FY) PSNB (% GDP, FY) Primary budget (% GDP, FY) (2) Gross gov. debt (% GDP) -118 -7.7 -5.1 85.1
12 -81 -5.2 -3.5 88.2
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-93.9 -5.5 -3.4 93.0
-75.4 -4.3 -2.2 93.6
11 Interest & FX rates Bank rate (%) 3-month rate (%) 10-year rate (%) Spread over Bund (bp) EURGBP GBPUSD
(2)
12 0.50 0.52 1.84 53 0.81 1.63
14 (1) 0.50 0.50 3.35 125 0.78 1.58
15 (1) 1.00 1.00 3.55 105 0.76 1.64
Q1 0.50 0.51 1.78 50 0.84 1.52
Q2 0.50 0.51 2.46 73 0.86 1.52
Q3 0.50 0.52 2.72 95 0.84 1.62
Q4 (1) 0.50 0.50 2.90 110 0.82 1.61
Q1 (1) 0.50 0.50 3.10 120 0.83 1.54
2014 Q2 (1) Q3 (1) 0.50 0.50 3.25 125 0.81 1.56 0.50 0.50 3.25 120 0.80 1.56
Q4 (1) 0.50 0.50 3.35 125 0.78 1.58
0.50 1.08 1.98 15 0.83 1.55
David Tinsley Global Outlook
November 2013
41
Sweden: Easy does it

Activity picking up After a soft first half to 2013, the Swedish economy looks to be picking up and we forecast growth to accelerate from Q3. However, the improvement is relatively tentative and gradual and could be blown off course by any worsening of conditions in the eurozone. On the plus side, consumer spending and investment are likely to prop up growth and inflation remains low, helping the Riksbank to keep policy on hold. Swedish GDP dipped slightly in Q2, reflecting both domestic and external weakness. However, the monthly data, such as the services PMI, suggest that the domestic economy is now improving. Consumer confidence and real incomes are also rising. Swedish exports have performed poorly, though, falling for four consecutive quarters. Given the importance of European demand, the blocs weakness has clearly been a drag. The past appreciation of the krona has also weighed on Swedish exports. The eurozones return to growth should help exports. Indeed, the improvement, albeit modest, in export orders reported in the manufacturing-sector surveys already points in this direction. Weaker-than-expected growth in the eurozone would weigh on Swedish exports and, in turn, investment. The Swedish headline inflation rate remains around zero, with the underlying rate stubbornly at or below 1.0%. The weak growth outlook suggests that the unemployment rate will remain relatively high, so there is barely any near-term inflationary pressure. We do not expect the inflation rate to return to the Rikbanks 2.0% target until 2015. The Riksbank forecasts that it will begin to raise the repo rate from the second half of 2014. The risks to this view are probably evenly balanced for now. While there is a possibility that domestic demand will take longer to recover than the central bank expects, the bank is also concerned about the level of household debt and it looks reluctant to ease policy further.
Consumer sector strengthening
Exports should improve
Inflation around zero
Repo rate sticky
Chart 1: Swedish GDP growth

7 .5 % y /y 2 5 .0 1 2 .5 0 0 .0 -1 -2 .5 % q /q (R H S ) -2 -8 -1 2 -3 -1 6 -7 .5 -4 -2 0 4 0 -4 12 8 3 20 16
Chart 2: Swedish exports and new orders

80 E x p o rts (% y/y ) 75 70 65 60 55 50 45 40 M a n u fa c tu rin g P M I: n e w e xp o rt o rd e rs (la g g e d 6 m th s , R H S ) 35 30 25 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 20
-5 .0
01
02
03
04
05
06
07
08
09
10
11
12
13
Chart 3: Swedish CPI and CPIF

3 .5 C P IF (% y/y) 3 .0 4 5 8 7 6 5 2 .5 T a rg e t 3 4 3 2 2 1 0 1 .0 0 -1 -2 0 .5 C P I (% y /y, R H S ) 0 .0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -2 -1 -3 -4 -5 96
Chart 4: Swedish employment and vacancies

80 P riva te s e c to r e m p lo y e e s (% y /y , 3 m m a ) 70 60 50 40 30 20 10 0 -1 0 -2 0 -3 0 (% y /y , 3 m m a , 1 0 -m th la g , R H S ) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 -4 0 -5 0
2 .0
1 .5
42
Sweden: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment Exports Imports Industrial production 3.0 2.7 1.7 1.1 8.3 6.5 7.2 6.9 1.3 1.9 1.7 1.1 3.6 1.1 0.0 -3.2 0.7 0.7 1.8 1.0 -2.8 -1.2 -0.7 -3.3 Year (1) 13 0.0 0.9 2.8 0.9 8.0 Year (1) 13 57.9 181.8 5.0 Year 13 (1) -1.3 -0.5 39.0 Year 13 (1) 1.00 1.20 2.38 58 8.70 6.59 1.7 1.9 1.8 0.7 3.8 3.3 3.8 1.8 2.2 2.0 1.7 1.2 3.8 4.6 4.5 3.0 0.3 1.3 0.1 2.0 1.3 -6.3 -0.5 -1.7 -3.3 -0.2 0.1 0.7 1.8 1.4 -3.2 -2.9 -1.8 -5.5 0.5 0.4 1.0 1.7 0.8 -0.6 -1.6 -0.3 -3.9 0.5 1.0 1.0 1.9 0.6 -0.9 0.1 0.8 -0.5 0.4 1.1 1.6 1.6 0.6 3.3 1.5 2.5 -0.5 0.5 1.9 1.9 1.9 0.5 4.2 3.6 3.9 2.0 0.5 2.0 2.0 2.0 0.8 4.0 3.9 4.3 2.3 0.4 1.9 2.0 1.8 1.0 3.8 4.1 4.5 3.5 12 Year (1) 13 14
(1)
15
(1)
Q1
Q2
2013 (1) Q3
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3
Q4
(1)
11 Inflation & labour CPI CPIF Wages & salaries/hour Employment Unemployment rate (nsa, %) 3.0 1.4 3.3 2.3 7.8
12 0.9 0.7 3.2 0.6 8.0
14
(1)
15
(1)
Q1 0.0 0.9 4.0 0.8 8.1
Q2
2013 (1) Q3 0.1 1.1 3.0 1.1 7.9
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 1.1 1.2 3.3 0.5 8.4
Q4
(1)
1.2 1.4 3.0 0.7 8.4
1.8 2.1 3.9 1.2 8.2
-0.3 0.7 1.6 0.8 8.0
0.2 0.9 2.5 0.9 8.1
0.8 1.3 2.5 0.7 8.4
1.1 1.3 2.8 0.6 8.4
1.7 1.6 3.6 0.8 8.3
11 External trade Trade balance (SEK bn) Current account (SEK bn) Current account (% of GDP) 64.4 221.9 6.4
12 67.9 212.1 6.0
14
(1)
15
(1)
Q1 19.9 57.1 6.6
Q2
2013 (1) Q3 9.7 39.8 4.6
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 10.7 41.0 4.5
Q4
(1)
60.2 173.5 4.6
73.0 191.6 4.9
17.7 46.9 5.1 2013
10.6 38.0 4.0
18.3 49.0 5.5
18.9 45.0 4.7 2013
12.4 38.6 3.9
11 Financial variables General gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) 0.2 1.2 38.4
12 -0.5 0.2 38.2
14 (1) -0.9 -0.1 38.2
15 (1) -0.2 0.5 36.8
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest & FX rates (2) Repo rate (%) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp) EURSEK USDSEK 1.75 2.64 1.62 -21 8.91 6.89
12 1.00 1.29 1.53 23 8.58 6.50
14 (1) 1.25 1.50 2.70 60 8.40 6.83
15 (1) 2.25 2.65 3.00 50 8.30 6.64
Q1 1.00 1.24 1.81 53 8.36 6.52
Q2 1.00 1.21 2.20 48 8.71 6.70
Q3 1.00 1.21 2.45 67 8.69 6.43
Q4 (1) 1.00 1.20 2.38 58 8.70 6.59
Q1 (1) 1.00 1.20 2.60 70 8.90 6.95
2014 Q2 (1) Q3 (1) 1.00 1.20 2.70 70 8.80 6.98 1.00 1.20 2.65 60 8.70 6.96
Q4 (1) 1.25 1.50 2.70 60 8.40 6.83
November 2013
43
Norway: Moving on up
Economic activity has started to firm After weakness in activity earlier in 2013, the monthly data suggest Norwegian economic activity has started to firm. Meanwhile, inflation has been edging down from its recent highs, though it remains at levels that should still be of concern to the central bank. After a rise in inflation weighed on real incomes and mainland GDP growth in H1 2013, manufacturing surveys have reported a rise in output and new orders in recent months suggesting activity has improved in H2 2013. An improvement in external demand should result in a pickup in export growth, though, clearly, the risks are skewed to the downside because of the vulnerability of the general European outlook. We also expect domestic demand to continue to rise, with retail spending solid and credit still expanding strongly. Overall, after the weakest annual growth performance in three years in 2013, we expect Norwegian growth to strengthen in 2014 and 2015. However, the rise in activity is unlikely to be strong enough to prevent unemployment from rising over the next two years. Against this backdrop of somewhat sluggish activity data, the Norges Bank is also being confronted by this years rise in inflation. Although the headline inflation rate has fallen back from its August peak, the degree of excess capacity in the economy is relatively small and wage growth has picked up. So, the Norges Bank needs to sound more hawkish than many other policymakers in Europe. For now, that will come from talk, but the bank is likely to be one of the first advanced-economy central banks to raise rates. House-price inflation has cooled, though, which takes some of the immediate pressure off the bank. The new government formed after Septembers general election has announced a number of tax changes to try and stimulate investment in the mainland economy. But the impact of the fiscal stimulus is likely to be small, in our opinion. There is considerable room for further easing, should the situation warrant it.
but risks remain skewed to the downside
Overall, the rise in growth will be modest
Inflation is on the high side
The fiscal position remains healthy
Chart 1: Manufacturing PMIs
Chart 2: Norwegian inflation
Chart 3: Unemployment rates (%)

13 12 11 10 9 8 7 US 6 5 4 3 2 93 94 95 96 97 98 99 00 N o rw a y 01 02 03 04 05 06 07 08 09 10 11 12 13 E u ro z o n e
Chart 4: Norwegian house prices and credit (% y/y)
44
Norway: Economic and financial forecasts

11 Components of growth GDP (% q/q) Mainland GDP (% q/q) GDP Mainland GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment Exports Imports Manufacturing production 1.3 2.6 3.5 2.5 1.9 7.5 -1.8 3.9 0.9 12 3.0 3.3 3.9 3.1 1.7 8.1 1.8 2.3 2.8 Year (1) 13 1.0 2.0 3.7 2.8 2.4 6.8 -1.9 1.0 4.7 Year (1) 13 2.1 1.6 4.3 3.4 Year (1) 13 427.9 -139.3 446.6 14.9 Year (1) 13 12.8 10.1 27.1 Year (1) 13 1.50 1.68 2.83 113 7.50 5.68 14
(1)
15 -
(1)
Q1 -0.1 0.6
Q2
2013 (1) Q3 0.6 0.8 1.5 1.7 3.5 2.7 2.3 6.5 -0.2 -0.1 4.9
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.7 0.8 2.4 3.0 3.1 2.3 2.0 5.8 1.9 3.9 1.6
Q4
(1)
0.8 0.2 0.4 1.7 4.0 2.2 2.3 9.4 -3.9 0.3 4.9
0.6 0.8 2.0 2.3 3.6 3.1 2.4 5.7 1.9 2.2 5.5
0.5 0.7 2.7 2.4 4.2 2.5 2.3 9.5 3.9 4.8 4.6
0.5 0.7 2.4 2.9 3.3 2.8 2.0 5.7 2.0 4.7 2.7
0.6 0.7 2.3 2.9 2.9 1.8 2.0 6.0 1.6 3.0 1.8
2.4 2.8 3.4 2.4 2.1 6.7 2.4 4.1 2.6
1.9 2.3 2.2 1.2 2.0 4.2 2.0 2.9 1.5
0.0 2.2 3.6 3.2 2.6 5.6 -5.3 1.5 3.5
11 Inflation & labour CPI CPI-ATE Wages & salaries Unemployment rate (sa, %) 1.3 1.0 3.4 3.3
12 0.7 1.2 3.6 3.2
14
(1)
15
(1)
Q1 1.2 1.1 3.6 3.6
Q2
2013 (1) Q3 2.0 1.4 4.8 3.4 2013 3.0 2.0 4.3 3.3
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.1 1.5 4.1 3.7
Q4
(1)
2.2 1.7 4.2 3.6
2.1 1.9 3.9 4.0
2.3 1.9 4.3 3.3
2.1 2.0 4.2 3.4
2.2 1.8 4.2 3.6 2014
1.7 1.6 4.1 3.9
11 External trade Trade balance (NOK bn) - Ex-oil (NOK bn) Current account (NOK bn) Current account (% of GDP) 390.0 -148.5 351.4 12.8
12 428.1 -147.5 412.0 14.2
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 2014
Q3 -
Q4 -
456.5 -133.3 451.3 14.4
467.5 -125.8 466.7 14.9
11 Financial variables General gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) 13.4 11.3 28.7
12 13.9 11.7 29.6
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
12.5 8.9 26.5
12.3 7.7 26.0
11 Interest and FX rates Repo rate (%) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp) EURNOK USDNOK
(2)
12 1.50 1.83 2.14 83 7.34 5.56
14
(1)
15
(1)
Q1 1.50 1.88 2.19 91 7.49 5.85
Q2 1.50 1.66 2.56 83 7.89 6.07
Q3 1.50 1.70 2.83 105 8.13 6.01
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.00 2.20 3.25 120 7.60 6.08
Q4
(1)
1.75 2.89 2.44 61 7.74 5.98
2.25 2.45 3.30 120 7.30 5.93
3.25 3.45 3.80 130 7.20 5.76
1.50 1.68 2.83 113 7.50 5.68
1.50 1.70 3.00 110 7.70 6.02
1.75 1.95 3.20 120 7.60 6.03
2.25 2.45 3.30 120 7.30 5.93
November 2013
45
Russia: Glum and glummer

Trend growth has fallen to 2.5% Russian GDP growth remains lacklustre and is unlikely to exceed 1.5% y/y in 2013. Without a much faster and lasting rise in energy commodity prices (an unlikely scenario, in our view), this glum economic picture is unlikely to brighten much in 2014-15. Consequently, we only expect a slight pickup in Russian growth in the coming years, premised on somewhat stronger disposable income growth, as inflation is set to slow, and softer fiscal policy. However, with Russian trend growth having declined to around 2.5% per year since the global financial crisis, the recovery is unlikely to be strong or sustainable in the longer term. As domestic demand and consumption growth, in particular, are lagging the slowdown in GDP growth, Russias external balances continue to deteriorate. Without a major improvement in the countrys terms of trade, ie, higher oil and gas prices, the current account will move from a surplus to a deficit by 2015. A strong harvest this summer and falling food prices globally suggest Russia will be subject to disinflation in the coming months. As food accounts for more than 35% of the CPI basket, the impact on headline inflation will be substantial. Hence, we expect inflation to slow to a 5% handle next year, allowing the CBR to meet its inflation target in 2014. However, underlying price pressures are likely to remain fairly high, as Russia does not have an output gap (despite very disappointing growth, the unemployment rate remains close to its alltime low and wages continue to rise at a double-digit pace). Consequently, core inflation will be slow to decline, preventing faster CPI disinflation after mid-2014. It is going to be very challenging for Russia to meet its inflation targets of 4.5% in 2015 and 4.0% in 2016. Relatively high inflation and lofty inflation expectations make any kind of sharp monetary easing unlikely, in our view, despite the setback in economic growth. We expect only 50bp in rate cuts by the end of Q1 2014. The main policy rate is likely to be reduced to 5.00% and remain at that level over the rest of our forecast period. Chart 2: Dependent on energy commodity prices
Current account to swing to a deficit by 2015
Food disinflation pushing down inflation
Underlying price pressures to remain high
Limited scope for interestrate cuts
Chart 1: Trend growth has slowed
Chart 3: Current account surplus is narrowing
Chart 4: Limited room for rate cuts
Source: Reuters EcoWin Pro, BNP Paribas Michal Dybula Global Outlook
46
Russia: Economic and financial forecasts

Year 11 Components of growth GDP (% y/y) GDP (USD bn) Private consumption Public consumption Fixed investment Exports (% y/y) Imports (% y/y) Industrial production 4.3 1896 6.3 0.8 9.0 0.3 21.3 4.8 3.6 2014 6.9 -0.2 7.8 1.4 9.6 2.7 1.4 2090 5.0 0.3 -0.3 2.2 2.1 0.6 Year 11 Inflation & labour CPI CPI (2) Unemployment rate (%) 8.5 6.1 6.5 5.1 6.6 5.5 6.7 5.9 5.6 Year External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Net FDI (USD bn) Net FDI (% GDP) 11 196.9 97.3 5.1 -11.8 -0.6 12 192.3 72.0 3.6 1.8 0.1 13 (1) 181.7 42.7 2.0 -17.2 -0.8 Year 11 Financial variables General gov. budget (% GDP) Primary gov. budget (% GDP) Gross gov. debt (% GDP) (2) 1.0 1.5 9.6 0.1 0.6 10.4 -0.4 0.2 10.8 Year 13 (1) 5.25 6.50 33.26 -1.7 -1.2 11.9 -3.1 -2.5 14.4 2013 14 (1) 5.00 6.20 33.50 15 (1) 5.00 6.20 34.80 Q1 5.50 7.11 31.08 Q2 5.50 7.05 32.71 Q3 5.50 6.82 32.38 Q4 (1) 5.25 6.50 33.26 Q1 (1) 5.00 6.20 34.01 2014 Q2 (1) 5.00 6.20 34.24 Q3 (1) 5.00 6.20 33.26 Q4 (1) 5.00 6.20 33.50 12 13 (1) 14 (1) 15 (1) Q1 Q2 14 (1) 155.0 32.4 1.5 -2.4 -0.1 15 (1) 101.1 -9.0 -0.4 -2.3 -0.1 Q1 48.3 25.0 5.1 -25.6 -5.2 Q2 42.5 3.4 0.7 9.7 1.9 2013 Q3 Q4 Q1 Q2 5.3 5.2 5.4 5.2 5.0 5.2 7.1 7.0 5.8 7.2 6.9 5.4 2013 Q3 35.6 1.1 0.2 -0.6 -0.1 Q4 (1) 47.8 12.6 2.2 -0.6 -0.1 Q1 (1) 48.5 21.7 4.3 -0.6 -0.1 6.4 6.1 5.6 6.0 5.9 5.5 5.6 5.4 6.1 5.3 5.3 5.1 2014 Q2 (1) 40.3 6.8 1.2 -0.6 -0.1 2014 Q3 Q4 Q3 (1) 21.6 -7.8 -1.4 -0.6 -0.1 Q4 (1) 35.3 2.9 0.5 -0.6 -0.1 5.1 5.0 5.1 5.1 5.2 5.2 12 13 (1) 14 (1) 15 (1) Q1 Q2 2.5 2208 4.0 0.2 3.5 2.3 4.2 3.3 2.5 2274 3.8 0.3 4.3 2.0 4.3 3.2 1.6 493 6.1 0.5 0.1 0.4 4.9 -0.1 1.2 509 5.4 -0.2 -2.5 4.1 1.4 0.3 2013 Q3 Q4 (1) Q1 (1) 1.2 523 4.9 0.6 -0.3 1.9 2.2 -0.1 1.7 566 3.7 0.3 1.5 2.5 -0.1 2.4 2.4 509 3.6 0.2 3.4 2.6 -0.2 3.3 3.0 552 3.5 0.3 4.7 2.8 4.8 3.4 2014 Q2 (1) Q3 (1) Q4 (1) 2.3 556 4.3 0.1 2.9 1.8 6.0 3.0 2.3 591 4.5 0.2 2.9 2.2 6.3 3.6 12 13 (1) 14 (1) 15 (1) Q1 Q2 2013 Q3 (1) Q4 (1) Q1 (1) 2014 Q2 (1) Q3 (1) Q4 (1)
11 Interest & FX rates 3-month rate (%) USDRUB

(2)
12 5.50 7.47 30.37
5.25 7.22 32.19
Michal Dybula Global Outlook
November 2013
47
Ukraine: Crunch time

Ukraine continues to struggle economically Ukraine continues to face strong headwinds. With its key export markets (steel, mechanical engineering, fertilisers) suffering protracted weakness, the economy has fallen deeper into recession. We expect it to contract in 2013, followed by an anaemic recovery (if any) next year. The authorities seem committed to defending the UAHs dollar peg, despite being constrained by rapidly declining NBU reserves (which we expect to fall 25% to just USD 18.4bn in 2013, or 2.6 months of merchandise imports). The peg has had strongly negative effects on growth and the current account, in particular, where we expect a deficit of 7.8% of GDP this year. Inflation is low and the economy is shrinking CPI inflation came in at 0.4% m/m in October and -0.1% y/y, below expectations, as the authorities postponed necessary adjustments in utility tariffs and continued to run large quasi-fiscal losses in the energy sector. With inflation this low, we think the NBU will have to find ways to loosen monetary policy by expanding the volume of government bonds on its balance sheet, extending its liquidity provision and cutting the refi rate (to 5.5% by the end of 2014). However, any easing is likely to be quickly reversed in the event of downward pressure on the exchange rate. With GDP and prices falling, the government faces a growing budget shortfall, with a deficit of 5.0% of GDP likely this year (not counting subsidies to the energy sector). To plump up the state coffers, the government is issuing promissory notes worth 1.4% of GDP in 2013, which it will use instead of cash to repay government arrears, such as VAT reimbursements. The key short-term risks for Ukraine are whether it will be able to secure an EU association deal in November and re-engage with the IMF in 2014. Without these events, it is likely to face a fullscale balance-of-payments and fiscal crisis next year, potentially leading to significant currency devaluation and a restructuring of sovereign debt.
Budget deficit set to reach 5% of GDP in 2013
Ukraine needs to strike financing deals
Chart 1: Ukrainian GDP growth (% y/y)

4% 3% 2% Quarterly GDP grow th 1% 0% -1% 0% -2% -3% Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 -5%
0
Chart 2: Ukraines NBU FX reserves

20%
40 USD bn Months of merchandise imports (RHS) Months 4.5
Total budget revenue grow th (YTD, RHS)
15%
30
4.2
10%
3.9 20 FX reserves 3.6
5%
10
3.3
3.0
Source: State Statistics Service of Ukraine
Source: National Bank of Ukraine
Chart 3: Ukrainian CPI inflation (% y/y)

5 4 3 2 1 0 -1 -2 -3 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 -0.1
-12 -14
Chart 4: Ukrainian current account, FX rate

Thousands
USD bn --2 4 -4 -6 -8 -10 7 Current account 6 5 USDUAH 3
8 -16 -18 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 USDUAH 9
Source: State Statistics Service of Ukraine
Source: National Bank of Ukraine
This analysis has been produced by JSCIB UkrSibbank and has been reviewed, but not amended, by BNP Paribas. BNP Paribas owns a 84.99% controlling stake in JSCIB UkrSibbank. This analysis does not contain investment research recommendations. Serhiy Yahnych Global Outlook November 2013
48
Ukraine: Economic and financial forecasts

11 Components of growth GDP (% y/y) GDP (USD bn) GDP per capita (USD) 5.2 164.0 3644 0.2 174.0 3867 -0.4 173.2 3848 Year 13 (1) -0.2 0.6 2.9 8.5 Year 13 (1) -15.3 -13.5 -7.8 3.2 18.4 133.8 77.3 Year 13 (1) -5.0 -4.8 30.0 Year 13 (1) 6.00 11.50 8.35 1.0 178.6 3969 2.5 189.5 4212 -1.1 37.2 -1.3 41.7 2013 14 (1) 3.4 4.0 4.2 8.4 15 (1) 5.5 6.0 6.5 8.2 Q1 -0.5 0.1 8.6 Q2 -0.4 0.2 8.0 Q3 -0.3 -0.6 8.2 Q4 (1) 0.3 0.6 8.5 Q1 (1) 2.0 1.0 8.5 -1.5 47.7 1.5 48.0 0.5 38.1 0.8 42.5 2014 Q2 (1) Q3 (1) 2.0 1.5 8.3 4.0 2.5 8.2 1.2 48.8 1.1 49.6 12 Year 13 (1) 2013 14 (1) 15 (1) Q1 Q2 Q3 Q4 (1) Q1 (1) 2014 Q2 (1) Q3 (1) Q4 (1)
11 Inflation & labour CPI CPI (2) PPI (2) Unemployment rate (%) 8.0 4.6 14.2 8.6
12 0.6 -0.2 0.3 8.1
Q4 (1) 5.0 4.0 8.4
External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Net FDI (USD bn) International reserves (USD bn) (2) External debt (USD bn) External debt (% GDP)
11 -16.3 -10.2 -6.2 7.0 31.8 126.2 77.0
12 -19.5 -14.3 -8.2 6.6 24.5 135.1 77.6
14 (1) -13.5 -11.6 -6.5 3.0 16.0 134.4 75.2
15 (1) -9.5 -8.5 -4.5 7.0 18.0 143.4 75.6
Q1 -3.8 -2.9 -7.8 0.8 24.7 136.3 -
Q2
2013 Q3 (1) -6.4 -5.0 -10.5 1.2 21.6 133.8 -
Q4 (1) -2.1 -3.3 -6.9 0.7 18.4 133.8 -
Q1 (1) -2.5 -2.1 -5.5 0.5 17.5 132.6 -
2014 Q2 (1) Q3 (1) -2.9 -2.6 -6.1 1.5 17.0 132.9 2014 -3.8 -3.2 -6.6 3.0 16.5 132.8 -
Q4 (1) -4.3 -3.7 -7.5 2.0 16.0 134.4 -
-3.0 -2.3 -5.5 0.5 23.2 134.4 2013
11 Financial variables General gov. budget (% GDP) Primary budget balance (% GDP) Gross gov. debt (% GDP) (2) -1.8 -1.8 27.0
12 -3.6 -3.8 28.0
14 (1) -5.7 -5.5 31.0
15 (1) -3.2 -3.0 32.0
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest & FX rates 3-month rate (%) USDUAH

(2)
12 7.50 24.00 8.05
14 (1) 5.50 12.50 8.80
15 (1) 5.50 11.00 9.00
Q1 7.50 10.00 8.13
Q2 7.00 9.05 8.16
Q3 6.50 10.30 8.10
Q4 (1) 6.00 11.50 8.35
Q1 (1) 6.00 9.50 8.40
2014 Q2 (1) Q3 (1) 5.50 9.00 8.50 5.50 11.00 8.60
Q4 (1) 5.50 12.50 8.80
7.75 20.83 8.03
Source: UkrStat, MinFin, NBU, UkrSibbank
Serhiy Yahnych Global Outlook
November 2013
49
Poland: Goldilocks and the political bugbears

Ongoing growth recovery Polish economic growth gathered pace in Q3 2013 and leading indicators point to faster growth in the coming quarters. The recovery is primarily being driven by exports, but consumption has also rebounded of late. Very low inflation has boosted real disposable income and, as the savings rate stopped rising in mid-2013, household spending has grown. Steadily improving labour-market conditions will underpin better consumer confidence in 2014. Even before Polands cyclical recovery started, though, corporate profitability had improved in the first half of the year. Higher profits and lower financing costs, also a function of Polands reduced risk premium, suggest corporate investment will increase in the months ahead. By H2 2014, we also expect higher public-sector capital spending, largely financed by EU structural funds. As a result, investment is set to become an increasingly important factor in keeping Polish GDP growth above 3% y/y from next year. Despite the pickup in growth, inflation should remain subdued. This is mainly thanks to the wide, negative output gap, which will close only gradually in 2014-15, relatively weak nominal wages and lacklustre credit growth. Moreover, this years strong harvest should cut food prices, largely offsetting the impact of higher excise duties and base effects early next year. As CPI inflation is likely to remain below the central banks target of 2.5%, we continue to expect no change in rates next year. The dovish ECB and uncertainties about global growth and inflation would also argue against any early tightening in Poland. We expect 100bp in rate hikes only in 2015, when growth starts to become driven by more inflationary fiscal spending. The main risk is political, with rising tensions in Polands senior ruling party and a waning government coalition majority in parliament. However, an early election is still far less likely than the current administration serving its full term to autumn 2015. Despite some legal concerns, we expect the pension system overhaul to go ahead as proposed, with some 7.5% of GDP in pension-fund assets (T-bonds) transferred to the general government sector by mid-2014. Chart 2: Lower risk premium suggests faster growth
Stronger investment will sustain GDP acceleration
No inflation anytime soon
Rates on hold in 2014
Main risk is political
Chart 1: Polands recovery is underway
Chart 3: Absence of inflationary pressure for now
Chart 4: Rate-hike expectations are fading

3m Wibor (%)
Inflation (% y/y)
50
Poland: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 4.5 3.0 2.6 -1.7 8.0 0.7 7.8 5.7 6.8 12 2.0 0.5 1.2 0.2 -0.5 -0.6 3.9 -0.6 1.4 Year 13 (1) 1.3 0.5 1.2 1.9 -2.2 -1.0 4.0 0.7 3.1 Year (1) 13 1.0 1.2 -0.5 3.2 0.2 13.6 Year 13 (1) 2.25 -7.22 -1.8 Year (1) 13 -68 -4.2 -1.6 57.0 Year (1) 13 2.50 2.80 2.80 3.50 4.30 250 3.00 3.55 4.10 4.10 3.11 14 (1) 3.1 2.1 2.1 1.5 3.0 0.6 7.1 6.2 6.4 15 (1) 3.3 2.8 2.4 2.4 5.1 0.1 7.2 6.7 6.7 Q1 0.3 0.5 -0.5 0.0 -0.1 -2.1 -0.7 1.3 -1.6 -1.5 Q2 2013 Q3 (1) 0.6 1.9 0.8 2.2 1.5 -2.6 -0.9 5.0 2.1 4.9 Q4 (1) 0.7 2.2 1.2 2.2 1.8 -1.0 -0.5 6.6 4.4 7.7 Q1 (1) 0.8 2.7 1.6 2.0 2.1 1.0 0.2 7.3 5.8 8.6 2014 Q2 (1) Q3 (1) 0.8 3.0 1.9 1.9 0.3 2.6 0.6 7.1 6.0 6.9 0.8 3.3 2.3 2.1 1.4 3.5 0.7 7.1 6.5 5.4 Q4 (1) 0.8 3.4 2.7 2.2 2.3 4.9 0.8 6.9 6.6 4.9
0.5 0.8 0.4 0.2 4.3 -3.2 -2.1 3.2 -1.9 1.3 2013
11 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 4.3 2.4 0.6 5.2 -2.1 12.4
12 3.7 2.2 0.2 3.7 -0.6 12.8
14
(1)
15
(1)
Q1 1.3 1.2 -0.7 2.6 -0.2 14.3
Q2 0.5 1.0 -0.5 3.3 1.2 13.6 2013
Q3 1.1 1.4 -0.6 4.0 0.6 13.0
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 1.8 1.4 0.3 3.9 -0.8 12.9
Q4
(1)
1.8 1.6 0.3 3.7 -0.9 13.6
2.3 1.4 0.9 4.6 0.1 12.9
1.0 1.2 -0.3 2.9 -0.6 13.5
1.7 2.1 0.0 3.1 -1.3 14.6
1.8 1.8 0.1 3.6 -0.9 13.7
2.0 1.2 0.6 4.1 -0.5 13.1
12 -5.18 -14.12 -3.7
14 (1) 4.16 -6.60 -1.5
15 (1) 8.68 -2.62 -0.6
Q1 -0.14 -2.32 -2.5
Q2 1.19 0.37 0.4 2013
Q3 1.09 -2.31 -2.4
Q4 (1) 0.11 -2.96 -2.7
Q1 (1) 1.10 -2.24 -2.3
2014 Q2 (1) Q3 (1) 1.78 -0.81 -0.8 2014 1.58 -1.03 -1.0
Q4 (1) -0.30 -2.52 -2.1
11 Financial variables General gov. budget (PLN bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -76 -5.0 -2.3 56.2
12 -62 -3.9 -1.1 55.6
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
76 4.4 7.0 49.6
-53 -2.9 -0.7 49.1
11 Interest rates & bonds Policy rate (%) 3-month rate (%) 2-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) Interest rate swaps (2) 2-year swap (%) 5-year swap (%) 10-year swap (%) FX rates (2) EURPLN USDPLN
(2)
12 4.25 4.11 3.11 3.21 3.73 243 3.37 3.38 3.59 4.07 3.08
14
(1)
15
(1)
Q1 3.25 3.39 3.15 3.43 3.92 265 3.19 3.33 3.61 4.17 3.25
Q2 2.75 2.73 3.08 3.75 4.37 264 3.15 3.82 4.14 4.32 3.32
Q3 2.50 2.67 3.07 3.88 4.50 272 3.21 3.84 4.24 4.22 3.12
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.50 2.80 3.10 3.70 4.45 240 3.35 3.75 4.20 3.95 3.16
Q4
(1)
4.50 4.99 4.87 5.34 5.91 408 4.76 4.82 4.97 4.46 3.44
2.50 2.80 3.10 3.65 4.35 225 3.25 3.70 4.10 4.15 3.37
3.50 3.80 3.50 4.00 4.90 240 3.60 4.05 4.50 4.18 3.34
2.50 2.80 2.80 3.50 4.30 250 3.00 3.55 4.10 4.10 3.11
2.50 2.80 2.75 3.45 4.25 235 2.95 3.50 4.05 4.00 3.13
2.50 2.80 2.80 3.45 4.20 220 3.05 3.50 4.00 3.90 3.10
2.50 2.80 3.10 3.65 4.35 225 3.25 3.70 4.10 4.15 3.37
November 2013
51
Hungary: High-stakes activism

Domestic demand-led recovery to continue The Hungarian economy continues to recover, with domestic demand becoming an increasingly important driver of growth. This trend should last throughout 2014, at least. The EUs decision to lift its Excessive Deficit Procedure against Hungary in the spring markedly increased the governments fiscal room for manoeuvre, sparking a hefty pickup in public-sector investment. At the same time, sizeable cuts in energy and utility prices pushed down headline inflation to the 1% handle, boosting households real disposable income and, in turn, consumption. The government is now mulling steps to ease inflation, such as a cut in the VAT rate on pigs to 5% from 27% in early 2014 and possibly additional reductions in food prices. Hence, we think Hungarys CPI inflation rate is likely to remain very low over the coming 12 months. However, we see a substantial risk of inflation bouncing back sharply and topping the central banks 3% target once the impact of administered measures fades, possibly as soon as late 2014. The main reason for this is Hungarys very small negative output gap, if it has a gap at all. Any gap should close swiftly because of Hungarys very low potential growth rate, which is no more than 0.5% y/y currently. The NBHs very loose monetary policy also increases inflationary risks over the next year or two, in our view. The monetary easing is set to continue, however. We see the main policy rate falling to 3.00% in the coming months. In addition to lower rates, the NBHs Funding for Growth programme is set to support HUF-denominated lending for small and medium-sized companies. Whether the scheme is boosting corporate investment is doubtful; it is primarily fending off a credit crunch in the SME segment, with the bulk of lending in the form of working-capital loans. Legal uncertainties have delayed the governments planned phase-out of FX-denominated mortgages. The plan should be presented before year end, but official comments suggest that FX loans will not be converted into HUF loans in one swift move, so the operation should be less bad for banks than initially feared. Chart 2: increasing inflation risks
Government is mulling steps to curb inflation
Risk of CPI inflation rising from late 2014
Sizeable monetary stimulus
No details on the phasing out of FX mortgages, yet
Chart 1: Faster growth
Chart 3: Monetary stimulus boosting lending
Chart 4: HUF supported by external surpluses
52
Hungary: Economic and financial forecasts

11 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 1.6 -0.5 0.4 -0.2 -3.5 0.7 6.5 5.3 5.9 12 -1.7 -2.1 -1.9 0.0 -3.7 -1.5 2.0 0.2 -1.7 Year 13 (1) 1.0 1.0 0.8 -0.5 1.0 0.3 4.6 5.5 1.5 Year 13 (1) 1.8 3.3 1.1 4.0 0.7 10.8 Year (1) 13 5.99 1.17 1.3 Year 13 (1) -788 -2.7 1.0 78.6 Year 13 (1) 3.00 3.10 4.20 4.90 5.80 400 3.90 4.60 5.50 295 223
2013 2014
14 (1) 2.2 1.6 1.4 0.2 2.9 0.0 9.1 8.8 6.4
15 (1) 2.1 1.8 1.0 2.3 4.1 0.0 8.8 8.5 5.9
Q1 0.9 -0.8 -2.0 -1.1 -2.3 -6.0 0.2 1.1 0.4 -3.8
Q2 0.4 0.5 1.2 0.3 0.6 4.9 0.5 3.0 4.7 0.8
Q3 (1) 0.8 1.7 2.1 1.9 0.1 2.3 0.1 5.2 6.6 3.2
Q4 (1) 0.7 2.8 2.5 2.1 -0.2 3.0 0.3 8.9 10.1 5.9
Q1 (1) 0.5 2.5 2.1 2.0 0.7 3.0 0.0 9.7 10.0 7.0
Q2 (1) 0.4 2.4 1.9 1.9 -0.1 2.9 0.0 9.2 9.2 6.6
Q3 (1) 0.4 2.0 1.4 1.2 0.0 2.7 0.0 9.1 8.5 6.4
Q4 (1) 0.4 1.7 0.9 0.6 0.1 2.7 0.0 8.3 7.4 5.7
2013 14 (1) 2.8 3.6 1.2 4.5 -0.4 10.5 15 (1) 3.7 3.9 1.1 7.4 2.2 10.3 Q1 2.9 3.6 0.7 3.0 1.8 11.8 Q2 1.8 3.2 1.4 3.8 0.9 10.3 Q3 1.5 3.1 1.0 5.6 1.6 10.5 Q4 (1) 0.9 3.3 1.3 3.7 -1.3 10.6 Q1 (1) 1.6 3.3 1.2 5.6 0.8 11.5
11 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 3.9 2.7 0.8 5.2 1.2 10.9
12 5.7 5.1 1.7 4.7 5.0 10.9
2014 Q2 (1) Q3 (1) 2.6 3.5 1.2 5.1 0.1 10.0 3.2 3.8 1.2 4.3 -0.7 10.2
Q4 (1) 3.9 3.9 1.1 3.0 -1.8 10.4
11 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) 3.11 0.45 0.4
12 6.65 1.02 1.0
14
(1)
15
(1)
Q1 1.71 0.67 3.0
Q2
2013 (1) Q3 1.27 0.02 0.1
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 1.45 0.12 0.4
Q4
(1)
6.57 1.59 1.6
6.86 2.28 2.1
1.79 0.61 2.5 2013
1.21 -0.13 -0.5
1.87 0.61 2.7
1.96 1.05 4.0 2014
1.28 -0.19 -0.7
11 Financial variables General gov. budget (HUF bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) 1527 5.5 9.7 81.4
12 -602 -2.1 2.2 79.3
14 (1) -850 -2.7 0.0 76.4
15 (1) -874 -2.6 0.2 73.9
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest rates & bonds Policy rate (%) 3-month rate (%) 3-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) (2) Interest rate swaps 3-year swap (%) 5-year swap (%) 10-year swap (%) (2) FX rates EURHUF USDHUF
(2)
12 5.75 5.75 5.73 6.01 6.23 493 5.11 5.16 5.49 291 220
14 (1) 3.00 3.10 4.25 4.75 5.60 350 3.90 4.40 5.25 300 244
15 (1) 4.50 4.60 5.25 5.50 6.50 380 4.75 5.00 5.75 285 228
Q1 5.00 4.90 5.24 5.73 6.39 512 4.57 4.74 5.44 304 237
Q2 4.25 4.20 5.23 5.56 6.24 451 4.81 5.14 5.83 295 227
Q3 3.60 3.56 4.65 5.18 5.93 415 3.92 4.33 5.21 297 220
Q4 (1) 3.00 3.10 4.20 4.90 5.80 400 3.90 4.60 5.50 295 223
Q1 (1) 3.00 3.10 4.15 4.80 5.65 375 3.90 4.55 5.40 300 234
2014 Q2 (1) Q3 (1) 3.00 3.10 4.10 4.70 5.50 350 3.80 4.40 5.20 295 234 3.00 3.10 4.10 4.65 5.40 335 3.70 4.25 5.00 295 236
Q4 (1) 3.00 3.10 4.25 4.75 5.60 350 3.90 4.40 5.25 300 244
7.00 7.24 9.21 9.79 9.90 807 7.37 7.40 7.55 315 243
November 2013
53
Czech Republic: Walking the walk

FX intervention does away with deflationary risk After months of verbal intervention, the CNB announced on 7 November that it was targeting a EURCZK rate of close to 27.0. The direct FX intervention policy should do away with the risk of Czech deflation next year. On the flip side, it will postpone any broader-based recovery, as consumers and domestic demand-focused businesses will be hit by higher import prices. Moreover, the CNBs exit from intervention, once inflation reaches its 2% target, will not be easy, clouding the outlook for interest rates and the exchange rate beyond H2 2014. The weaker koruna will support faster GDP growth in 2014, although only by way of net trade. While export competitiveness will increase, exporters higher profits are unlikely to translate into more investment, greater demand for labour or higher wages. As a result, the consumer is likely to retrench again as higher inflation causes real disposable incomes to fall from early next year. If the FX intervention policy proves successful and nominal growth picks up swiftly, market interest rates will rise faster than they otherwise would, generating an additional headwind to investment and total domestic demand. Thus, the growth outlook for 2015 will worsen, irrespective of the cyclical backdrop. Octobers inconclusive general election is a further risk to growth, due to the resulting uncertainty over the fiscal outlook for the coming years. The CNB made clear it would target its desired exchange rate until inflation reaches its 2% goal. We expect this to happen in late 2014. The CPI inflation rate should continue to rise through early 2015, but should then stabilise because of the Czech Republics relatively weak domestic demand and as the central bank will start to tolerate a stronger koruna exchange rate. The exit from FX intervention policy will be very gradual, though, as a sudden stop would lead to a massive spike in the CZK, because of the countrys a much larger trade surplus by late 2014. The process is unlikely to be smooth, however, due to the increase in inflation and slowing economic growth.
Move delays any broaderbased economic recovery
Inflation to reach the 2% target in late 2014
Exit from FX intervention to start in late 2014
Chart 1: CNB projections with FX intervention
Czech Republic: Economic forecasts

2011 Components of growth GDP Private consumption Fixed investment Exports Imports Inflation & labour CPI Employment Wages Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) Financial variables General gov. budget (CZK bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) Interest rates, bonds & FX (2) Policy rate (%) 3-month rate (%) 10-year bond (%) Spread over Bund (bp) EURCZK USDCZK 1.8 0.5 0.4 9.8 7.3 2012 -1.2 -2.6 -2.5 4.2 2.5 2013 (1) -1.3 0.4 -3.2 2.5 1.4 2014 (1) 2.0 1.1 1.8 9.5 7.9 2015 (1) 2.4 1.9 2.9 9.5 8.2
1.9 -0.4 2.5 6.7
3.3 -0.7 2.7 6.8
1.3 -1.3 1.1 7.6
1.5 0.3 3.0 7.3
2.5 0.3 4.0 6.9
Source: CNB, BNP Paribas
Chart 2: 2y swap and nominal GDP proxy
3.65 -4.24 -2.7
5.81 -3.72 -2.5
7.82 -0.14 -0.1
10.92 0.18 0.1
13.51 1.85 1.2
-123 -3.2 -1.8 41.4
-167 -4.4 -2.9 46.2
-124 -3.3 -2.1 49.0
-123 -3.1 -1.6 50.1
-110 -2.7 -1.1 50.7
0.75 1.17 3.59 176 25.55 19.73
0.05 0.50 1.86 55 25.05 18.99
0.05 0.40 2.25 45 27.00 20.45
0.05 0.35 2.65 55 27.00 21.95
0.25 0.60 3.15 65 25.00 20.00
Source: CNB, Reuters EcoWin Pro, BNP Paribas Michal Dybula Global Outlook
54
Romania: On the inflation see-saw

Inflation set to remain volatile Following a strong harvest and a reduction in the VAT rate on bread, a sharp fall in food prices has pushed Romanian CPI inflation below 2% y/y. However, higher excise duties on fuel from early next year should reverse the disinflationary trend. Hence, the room for further policy easing from the Romanian central bank in 2014 is narrowing. Preliminary data for Q3 2013 and leading indicators suggest Romanian GDP growth will average slightly less than 3% y/y this year. Improved external demand suggests a better export performance to come, while a rise in household disposable income and softer monetary policy should underpin stronger consumption and investment growth. We expect the Romanian economy to grow by 2.5% y/y in 2014 and 2.9% y/y in 2015. The governments plan to cut social-security contributions by 5% from mid-2014 should also boost growth, but to implement the cut, the countrys fiscal position will have to improve. With revenues likely to disappoint, the chances of budgetary improvement look slim, even taking into account the higher excise duties. Romanian food prices fell 1.7% y/y in September 2013, which, because of their hefty 37% weighting in the CPI basket, helped headline inflation dip below 2% y/y. Food deflation will persist in the coming months, keeping CPI inflation just above 1% y/y until year end. However, the January 2014 hike in excise duty on fuel will add some 0.6pp to the inflation rate. In H2 2014, CPI inflation should top the central banks 2.5% target, especially as the impact of the cut in VAT on bread will have faded. We expect headline inflation to stabilise above 3.0% y/y in 2015. The recent sharp fall in inflation and the softness of economic growth have allowed the central bank to ease monetary policy considerably, with the policy rate cut to 4.00% in November. In light of dovish talk by policymakers, we see a good chance of another 25bp rate cut in Q1 2014. Faster inflation will make any further policy easing difficult, however. By 2015, we expect the Romanian central bank to have switched to rate increases, delivering a total of 75bp of monetary tightening that year. Romania: Economic forecasts
2011 Components of growth GDP Private consumption Fixed investment Exports Imports Inflation & labour CPI Employment Wages Unemployment rate (%)
Slightly better growth prospects for 2014-15
Inflation to rise above the target in H2 2014
One more cut in Q1 2014, rate hikes in 2015
Chart 1: Disinflation facilitating monetary easing
2012 0.7 1.0 5.9 -2.9 -0.8
2013 (1) 2.8 2.0 0.6 10.6 3.9
2014 (1) 2.5 2.5 5.5 6.7 6.8
2015 (1) 2.9 3.3 6.7 8.0 8.5
2.1 1.2 6.4 11.0 10.3
5.8 -1.8 5.0 5.4
3.3 3.1 4.9 5.1
4.0 1.4 4.8 5.3
2.6 0.7 3.3 5.2
3.5 0.9 5.7 5.2
Chart 2: Softer policy to support Romanian growth
External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) Financial variables Gen. gov. budget (RON bn) Gen. gov. budget (% GDP) Primary budget (% GDP) Gen. gov. debt (% GDP) Interest rates & FX (2) Policy rate (%) 3-month rate (%) EURRON USDRON
-7.39 -5.92 -4.6
-7.38 -5.84 -4.5
-4.24 -1.38 -0.8
-2.81 -1.71 -1.1
-3.34 -2.17 -1.3
-29 -5.2 -3.6 34.7
-17 -2.9 -1.0 37.9
-16 -2.6 -0.1 38.6
-16 -2.5 -0.2 39.5
-15 -2.2 0.1 39.3
6.00 6.05 4.32 3.33
5.25 6.05 4.44 3.37
4.00 3.70 4.46 3.38
3.75 3.70 4.42 3.59
4.50 4.60 4.42 3.54
55
Turkey: Challenging times

Growth set to slow in 2014 We expect Turkish GDP growth to weaken next year, from around 3.5% in 2013, due to tighter external financing conditions. In addition, recent macroprudential measures and the potential tightening of financial and monetary conditions are set to stand in the way of robust credit growth next year. The contribution of public spending to growth has been strong to date, but could abate if the government sticks to the spending targets set out in its latest medium-term programme. Our calculations show that total factor productivity has been on a declining trend and that Turkeys potential GDP growth rate has declined to less than 4%. We doubt that the CBRTs revised inflation forecasts for 2013 and 2014 of 6.8% and 5.3%, respectively, can be achieved with policy as it currently stands. Still, the inflation rate is set to ease slightly in 2014, as the tax hikes on alcohol and tobacco in early 2014 are likely to be smaller than the increases in 2013. After a difficult summer, Turkish markets have enjoyed a brief rally on the back of more dovish signals from the US Fed. They remain cautious, however, and pressures could resurface once the Fed approaches the tapering of its asset purchases. This summers experience has shown that the CBRTs pain threshold for TRY weakness is high; the bank will try to absorb future shocks, initially with gradual increases in the funding rate and foreign-exchange sales, but ultimately with an increase in rates. The Turkish central government budget deficit will end the year at 1.2% of GDP, by our estimates, almost 1pp lower than the initial budget target, mostly thanks to higher-than-expected one-off revenues. The medium-term programme is focused on reining in domestic demand and reducing the countrys current account deficit over time. However, without a significant decline in oil prices, we believe the current account deficit will remain high, around 7.0% of GDP, barring a recession scenario. As a result of Turkeys large external financing requirement, the macroeconomic outlook will remain dependent on global liquidity and sentiment. Chart 2: Contribution to growth, breakdown by factor
6% 5% 20% 4% 3% 2% 10% 1% 0% 1% 0% 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f) 2% 1992 1997 1998 2007 2007 2012
T otal factor productivity L abour Capital
Inflation to exceed the CBRTs forecasts
Global liquidity and sentiment will be crucial
Chart 1: Primary spending growth (y/y)

25%
15%
5%
(f) Medium-term plan forecast
Chart 3: Core inflation (%, 3mma, saar)

15%
Chart 4: TRY vs. EM currencies (2 January 2013 = 1.00)
h inflation 10%
5% i inflation 0% Jan 10
Oct 10
Jul 11
Apr 12
Jan 13
Oct 13
This analysis has been produced by Trk Ekonomi Bankasi 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 recommendations. Selim akr / Emre Tekmen November 2013 Global Outlook
56
Turkey: Economic and financial forecasts

11 Components of Growth GDP Private consumption Fixed investment Exports Imports 8.8 7.7 18.0 7.9 10.7 12 2.2 -0.6 -2.7 16.7 -0.3 Year 13 (1) 3.5 3.5 4.0 2.2 5.6 Year 13 (1) 7.5 7.5 7.6 9.7 Year 13 (1) -96.3 -61.0 -7.5 Year 13 (1) -1.2 2.1 35.1 Year 13 (1) 4.50 6.30 6.50 8.00 8.80 2.05 2.71 14 (1) 3.0 1.8 4.5 4.4 4.3 15 (1) 3.5 3.0 5.4 5.0 6.0 Q1 2.9 3.1 2.3 5.6 7.1 Q2 2013 Q3 (1) 4.1 4.8 5.8 0.7 3.0 Q4 (1) 2.7 1.1 4.2 2.0 0.5 Q1 (1) 2.7 1.0 3.9 4.2 3.6 2014 Q2 (1) Q3 (1) 1.6 0.6 2.4 4.3 3.8 2.7 1.5 5.6 4.5 4.5 Q4 (1) 4.8 4.0 6.2 4.6 5.2
4.4 5.3 3.7 1.2 11.7 2013
11 Inflation & labour CPI CPI (2) Core CPI (2) Unemployment rate (%) (3) 6.5 10.4 8.2 9.9
12 8.9 6.2 5.7 9.2
14 (1) 6.6 6.8 6.1 9.9
15 (1) 6.4 6.0 5.9 9.3
Q1 7.2 7.3 5.8 9.4
Q2 7.0 8.3 5.6 9.6 2013
Q3 8.3 7.9 6.4 9.9
Q4 (1) 7.6 7.5 7.6 10.1
Q1 (1) 6.6 6.6 7.7 10.1
2014 Q2 (1) Q3 (1) 7.2 6.6 7.6 10.0 6.4 6.5 7.3 9.8
Q4 (1) 6.3 6.8 6.1 9.6
11 External Trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) -105.9 -75.1 -9.7
12 -84.1 -48.5 -6.1
14 (1) -98.6 -60.1 -7.1
15 (1) -102.7 -62.9 -6.9
Q1 -21.8 -16.5 -
Q2 -28.9 -20.5 2013
Q3 -24.4 -12.0 -
Q4 (1) -21.2 -12.0 -
Q1 (1) -22.5 -16.7 -
2014 Q2 (1) Q3 (1) -28.3 -18.2 2014 -24.8 -11.4 -
Q4 (1) -23.0 -13.8 -
11 Financial Variables Gen. gov. budget (% GDP) Primary budget (% GDP) Gen. gov. debt (% GDP) -1.4 1.9 39.9
12 -2.0 1.4 37.6
14 (1) -2.0 1.0 33.9
15 (1) -2.3 0.7 33.4
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest rates and bonds Policy rate (%) ISE o/n rate (%) 2-year bond (%) 10-year bond (%) FX rates (2) USDTRY EURTRY
(2)
12 5.50 5.57 5.24 6.16 6.64 1.78 2.35
14 (1) 5.50 8.00 8.00 9.00 9.30 2.08 2.56
15 (1) 6.50 9.00 9.00 9.00 9.00 2.12 2.65
Q1 5.50 5.55 5.28 6.35 7.13 1.81 2.32
Q2 4.50 5.00 5.38 7.89 8.43 1.92 2.51
Q3 4.50 6.54 6.22 8.55 9.16 2.02 2.71
Q4 (1) 4.50 6.30 6.50 8.00 8.80 2.05 2.71
Q1 (1) 4.50 6.80 6.75 7.70 8.50 2.07 2.65
2014 Q2 (1) Q3 (1) 4.50 7.50 7.50 8.25 8.75 2.09 2.63 5.50 7.75 7.75 8.50 9.00 2.07 2.59
Q4 (1) 5.50 8.00 8.00 9.00 9.30 2.08 2.56
5.75 7.87 11.07 11.04 10.02 1.89 2.44
CBRT's average cost of funding
Footnotes: (1) Forecast (2) End period (3) Seasonally adjusted Figures are year-on-year percentage changes unless otherwise indicated
This analysis has been produced by Trk Ekonomi Bankasi 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 recommendations. Selim akr / Emre Tekmen November 2013 Global Outlook
57
South Africa: Fundamentally flawed

Strikes still a key hindrance to growth Once again, strikes seem to have weighed down South African GDP in Q3, this time in manufacturing. Evidence of this has already been seen in the trade deficit, which continued to push higher in the quarter. Industrial action has now moved to the platinum sector which, if not promptly resolved, has the potential to eat into growth towards the end of the year. Inflation has proved slightly lower than we expected and, after peaking in Q3, looks set to slip below target in Q4, mainly as a result of lower fuel prices. However, we remain cautious because of the sustained weakness of the currency, the upward pressure on food prices and high wage settlements. We expect CPI inflation to remain close to the 6% upper end of the target band in the coming months as core inflation creeps up. Still, the absence of demanddriven inflation pressures and the still precarious growth climate mean the MPC will probably keep policy rates at current levels well into next year. Market pricing continues to suggest that policy tightening will come sooner, however. The delay in US Fed tapering has helped ease some of the pressure on emerging-market currencies and the local fixed-income market. However, persistently weak fundamentals as a result of South Africas high twin deficits should keep the ZAR weak relative to its peers. Fiscal challenges persist. Weak domestic growth is weighing on tax revenue. Reigning in the public-sector wage bill will probably prove difficult going into an election year. While we think it unlikely that the ratings agencies will downgrade South Africa again before next years general election, we cannot rule out a further downgrade by Moodys (currently one notch above S&P and Fitch) in the coming months, particularly if South Africas external accounts deteriorate and labour unrest in the countrys platinum sector intensifies.
CPI inflation looking tamer, but we are cautious
Weak fundamentals keep the ZAR on the back foot
Fiscal challenges ahead of the 2014 election
Chart 1: CPI inflation tamer, but core will continue to rise

9 BNP Paribas forecast 8 7 Headline CPI (% y/y) 6
Chart 2: FRA pricing vs. consensus and BNP Paribas (%)

7.5 FRA curve pricing 7.0 6.5 6.0 BNPP policy rate forecast Consensus policy rate forecast
5 4 3 Core 2 2009 2010 2011 2012 2013
5.5 5.0 4.5 1x4 3x6 6x9 9x12 12x15 15x18 18x21 21x24
Source: Stats SA, BNP Paribas
Source: Reuters EcoWin Pro, Bloomberg, BNP Paribas
Chart 3: ZAR underperformance relative to EM peers

120 ZAR versus EM basket (01 Jan 2009=100) USDZAR index
Chart 4: Public-sector wages will prove difficult to contain

550 500 450 % of consolidated exp (RHS) BNP Paribas forecasts 36 37
110
100
400 35
90
350 34
80
300 33 250 Compensation of employees (ZAR bn) 200 32 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
70
60 2009
2010
2011
2012
2013
Source: Bloomberg, BNP Paribas
Source: National Treasury, BNP Paribas
This analysis has been produced by BNP Paribas Cadiz Securities (Pty) Ltd and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of BNP Paribas Cadiz Securities (Pty) Ltd with a 60% stake. This analysis does not contain investment research recommendations. Jeffrey Schultz November 2013 Global Outlook
58
South Africa: Economic and financial forecasts

11 Components of growth GDP Private consumption Fixed investment Exports Imports 3.5 4.8 4.5 5.9 9.7 2.5 3.5 5.7 0.1 6.3 2.1 2.6 3.7 4.4 6.0 Year 13 (1) 5.9 5.9 5.6 Year 13 (1) -7.7 -20.1 -5.8 Year 13 (1) -4.2 -1.1 44.8 Year 13 (1) 5.00 5.20 7.30 8.00 10.30 2.7 2.9 4.1 4.8 5.9 3.4 3.2 5.2 7.3 8.3 1.9 2.7 4.2 1.7 4.8 2.0 2.5 3.5 8.7 8.9 2013 14 (1) 5.7 5.6 5.2 15 (1) 5.8 5.5 5.0 Q1 5.7 5.9 5.1 Q2 5.7 5.5 5.1 Q3 6.2 6.0 5.3 Q4 (1) 5.8 5.9 5.6 Q1 (1) 6.0 5.6 5.4 2.0 2.4 3.6 -1.5 0.9 2.4 2.7 3.4 8.5 9.3 2.6 2.8 3.5 3.1 3.7 2.7 2.9 3.9 3.5 4.9 2.7 3.0 4.3 6.5 7.2 2.9 3.0 4.7 6.2 7.8 12 Year 13 (1) 14 (1) 15 (1) Q1 Q2 2013 Q3 (1) Q4 (1) Q1 (1) 2014 Q2 (1) Q3 (1) Q4 (1)
11 Inflation CPI CPI (2) Core CPI (2) 5.0 6.1 3.9
12 5.7 5.7 4.8
2014 Q2 (1) Q3 (1) 5.6 5.5 5.3 5.5 5.5 5.2
Q4 (1) 5.6 5.6 5.2
11 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) 2.4 -13.6 -3.4
12 -9.1 -24.1 -6.3
14 (1) -7.2 -19.1 -5.3
15 (1) -7.5 -21.7 -5.4
Q1 -1.7 -4.8 -5.2
Q2
2013 Q3 (1) -2.1 -5.3 -6.2
Q4 (1) -1.9 -4.9 -5.7
Q1 (1) -1.7 -4.8 -5.5
2014 Q2 (1) Q3 (1) -1.9 -4.7 -5.3 -1.9 -4.9 -5.2
Q4 (1) -1.7 -4.8 -5.0
-2.0 -5.2 -5.9 2013
11 Financial variables General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -3.6 -0.9 39.9
12 -4.2 -1.3 42.5
14 (1) -4.1 -1.1 46.0
15 (1) -3.8 -0.7 47.3
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 (1) -
2014 Q2 (1) Q3 (1) 2014 Q2 (1) Q3 (1) 5.00 5.20 7.10 7.70 10.30 5.50 5.70 7.40 8.10 9.90 -
Q4 (1) -
11 Interest rates and bonds (2) Policy rate (%) 3-month rate (%) 5-year bond (%) 10-year bond (%) FX rates (2) USDZAR 5.50 5.61 7.23 8.04 8.13
12 5.00 5.13 5.79 6.79 8.48
14 (1) 5.50 5.70 7.70 8.30 10.00
15 (1) 7.00 7.20 8.20 8.75 10.70
Q1 5.00 5.10 5.90 6.80 9.25
Q2 5.00 5.10 7.10 7.50 9.97
Q3 5.00 5.15 7.00 7.60 10.10
Q4 (1) 5.00 5.20 7.30 8.00 10.30
Q1 (1) 5.00 5.20 6.90 7.45 10.50
Q4 (1) 5.50 5.70 7.70 8.30 10.00
Source: BNPP Cadiz Securities, national statistics
This analysis has been produced by BNP Paribas Cadiz Securities (Pty) Ltd and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of BNP Paribas Cadiz Securities (Pty) Ltd with a 60% stake. This analysis does not contain investment research recommendations. Jeffrey Schultz November 2013 Global Outlook
59
Saudi Arabia: Rising breakeven oil prices

Growth is slowing due to fall in oil output Saudi Arabia remains the swing producer of the global oil industry, with a current oil output level of around 10 million barrels per day (mbbld). This level of output is unlikely to be sustained in 2014, however, as additional non-OPEC production is likely to exceed the increase in global demand. Still, sanctions on Iran, coupled with continued regional supply disruptions, particularly in Libya and Syria, may limit the decline in Saudi Arabias oil output. Strong non-oil sector growth as a result of additional fiscal spending will remain the main driver of Saudi GDP growth next year. We expect GDP growth to increase to 4.8% in 2014 from an estimated 4.0% in 2013. Food price inflation has eased of late, bringing down consumer price inflation, which came in at 3.0% y/y in October, well below around 4% in early 2013. We do not see any imminent price pressures, as global food prices remain benign and housing projects should keep rental inflation in check. So, CPI inflation is likely to remain within the 3-4% range until 2015. Oil revenues account for around 85% of Saudi Arabias export receipts and 90% of budget revenues. Increased public spending has led to a rise in the Saudi breakeven oil prices for its fiscal and external balances in recent years. The fiscal breakeven oil price has risen from USD 70/bbl in 2010 to around USD 85/bbl in 2013. The breakeven price for its external balance is lower, at USD 62/bbl. Hence, we expect Saudi Arabia to continue to deliver fiscal and current account surpluses in the coming years. New jobs due to the strong pace of growth are mostly being filled by expatriates, leaving Saudi unemployment high, at 12%, compared with the total unemployment rate of around 6%. The jobless rate among Saudi women is particularly high, at 35%, despite a participation rate of 18%. Population growth is strong, at around 3% a year, and due to a rising participation rate, the Saudi labour force is likely to grow by around 3-4% annually in the coming years. Saudi Arabia: Economic forecasts
2011
Real GDP (% y/y) CPI (% y/y) CPI (% y/y) (2) Current account (% GDP)
5% Non-OPEC 0% OPEC
Inflation remains in check
Posting surpluses
Sustained job creation is needed
Chart 1: Global oil output (% y/y)

20%
2012
15%
8.6 3.7 2.7 23.7 11.6 11.9

(2)
2013 (1) 2014 (1) 2015 (1) 5.1 4.0 4.8 4.7
2.9 3.6 3.3 17.2 9.7 9.9 3.7 2.00 3.75 3.2 3.1 14.6 9.6 9.7 3.4 2.00 3.75 3.4 3.7 10.1 5.9 6.0 3.3 2.00 3.75
10%
3.6 23.2 14.0 14.3 3.7 2.00 3.75
Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) (2) USDSAR (2)
(1) Forecast (2) End period
5.4 2.00 3.75
-5% Saudi Arabia -10%
Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13
Source: IEA, BNP Paribas
Chart 2: Saudi fiscal breakeven oil price (USD/bbl)

120 Brent
Chart 3: Saudi unemployment rate (%)

40 35 30
100
80
Fiscalbreakevenoil price
25 20
60
40 Budget balance(% GDP)
15 10 5
2006 2007 2008 2009 2010 2011 2012 2013 (f) 2014(f) 2015 (f)
20
0
20
Total
Saudi
Saudifemale
Saudimale
NonSaudi
Source: Haver, BNP Paribas; (f) forecast
Source: Haver
This analysis has been produced by Trk Ekonomi Bankasi 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 November 2013
60
UAE: A packed redemption schedule

Non-oil sector continues to drive growth The UAEs non-oil sectors, particularly trade, logistics, hospitality and manufacturing, will remain the main drivers of growth in 2014. The countrys bid to host Expo 2020, if successful, should provide an additional boost to the economy. Bank deposits are rising, partly as a result of inflows from less politically stable countries, while credit growth is below the regional average. The authorities, meanwhile, have been bulking up their macroprudential arsenal in a bid to fend off another housing bubble. The UAE Central Bank has set maximum loan-to-value limits on residential mortgages and the Dubai Land Department has recently doubled its property transaction fees. Oil production was strong in the first three quarters of 2013, posting a 3% y/y increase, on average. Consequently, we have raised our 2013 UAE growth forecast to 4% on higher oil production. Growth will moderate to 3.6% in 2014, though, as growth in oil production moderates once again. On the inflation front, rents continue to rise, particularly in Dubai. However, the pace of growth will slow in the medium term as new supply comes onto the market. Overall, we expect CPI inflation to finish the year at 1.8% y/y and to rise to 2.5% by the end of 2014, in tandem with the recovery in rents. Because of the UAEs conservative fiscal spending policies and increased oil production, its fiscal breakeven oil price is unlikely to increase any further above USD 75/bbl. The UAE is likely to continue to enjoy a comfortable current account surplus as a result of higher oil prices. At USD 30bn, Dubais debt redemption schedule in 2014 is set to be challenging. Its dependence on external financing makes the UAE vulnerable to any squeeze in global liquidity conditions. Still, two-thirds of the repayments are to Abu Dhabi and can probably be rolled over if need be. UAE: Economic forecasts
65
New rules to prevent speculative buying
House prices continue to recover
Conservative spending
Challenging redemption schedule
Chart 1: Saudi and UAE PMIs

65
2011 Real GDP (% y/y) 3.9 0.9 0.4 14.6 14.1 14.8 17.4 1.00 3.67 CPI (% y/y) CPI (% y/y) (2) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest rate (%) (2) USDAED (2)
2012 4.4 0.7 0.6 17.3 15.5 16.1 16.5 1.00 3.67
2013 (1) 4.0 1.2 1.8 15.4 14.8 15.5 16.8 1.00 3.67
2014 (1) 3.6 2.2 2.5 14.3 15.2 15.9 16.5 1.00 3.67
2015 (1) 3.7 2.5 2.6 13.5 15.1 15.7 16.2 1.00 3.67
60 Saudi Arabia 55 UAE 50
60
55
50
45 Jan 11
45 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13
Source: EIA
Chart 2: UAE credit and deposit growth (% y/y)

20% Bank deposits 15% 15.0% 2% 20.0% 4%
Chart 3: UAE rental inflation (% y/y)

4%
2% Abu Dha bi
0% 10% 10.0% 2% 5% 5.0% 4% 0% Claims on private sector Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 0.0% UAE
0%
2%
4%
6% Dubai (1)
6%
-5% Aug 09
-5.0%
8% Jun11 Oct11 Feb 12 Jun12 Oct12 Feb 13 Jun13
8%
Source: Haver
Source: Haver; (1) Housing inflation
This analysis has been produced by Trk Ekonomi Bankasi 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 / Nazl Karamollaoglu Global Outlook November 2013
61
Qatar: Infrastructure-driven growth

Non-hydrocarbon sector propping up growth The expansion of Qatari non-hydrocarbon activity, underpinned by the countrys substantial public investment projects, will continue to drive Qatari GDP growth in 2014 and 2015. The oil and gas sectors contribution to GDP growth is likely to be limited. Financial, government and real-estate services, as well as construction, were the main drivers of the strong growth in H1 2013 (6% y/y), prompting us to raise our GDP growth forecasts for this year and next by around 1pp. Accordingly, we expect real Qatari GDP growth of about 5% in 2013 and 2014. Although Qatari credit growth has been declining on an annual basis since Q1, it is still higher than that of most of its regional peers. The slowdown in lending growth stems from the public sector, while private-sector credit growth has been fairly stable, at 15% y/y so far this year. In addition, the recent pickup in consumer loan growth shows that domestic demand is strong. Annual headline inflation has been falling since May, thanks to relatively subdued food price inflation and a gradual decline in transportation prices. This, together with an unusual and marked decline in miscellaneous goods inflation in the first three quarters, has prompted us to revise down our year-end inflation forecast to 3.3%. Still, domestic demand remains robust and rents continue to increase. We expect annual inflation to increase to around 4% in 2014 due to a likely correction in miscellaneous goods inflation and a rise in rental inflation. Qatars strong fiscal buffers should remain in place in the near future. The budgets breakeven oil price remains less than USD 55/bbl, despite the governments heavy capital spending. Although not an immediate threat, the expansion of shale gas and oil production globally could weigh on gas prices in the medium and long term. According to the Energy Information Administrations (EIA) latest report, shale gas production in the US is likely to grow 113% from 2011 to 2040.
Strong domestic demand
Unusual decline in cost of miscellaneous goods
Shale gas a threat in the medium term
Chart 1: US shale gas production (trillion cubic feet)

18 15 12 9 6 3 0 2010 2020 2025 2030 2035 2040
Qatar: Economic forecasts

Real GDP (% y/y) 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
2011 13.0 1.9 2.1 30.3 7.7 9.3 37.9 4.50 3.64
2012
2013 (1) 2014 (1) 2015 (1) 6.2 5.0 5.2 5.3 1.9 2.6 3.0 3.3 28.3 11.8 13.4 33.4 4.50 3.64 3.7 4.0 24.7 11.3 12.7 29.8 4.50 3.64 4.0 4.0 18.2 9.6 11.0 29.6 5.50 3.64
32.0 14.2 15.5 36.3 4.50 3.64
Source: EIA
Chart 2: Qatari private credit breakdown

45% 40% 35% 30% 25% Othersectors 20% Generaltrade 15% 10% Jan08 Aug08 Mar09 Oct09 May10 Dec10 Jul11 Feb12 Sep12 Apr13 Consumption Construction&realestate
Chart 3: Qatari CPI inflation (% y/y)

8 6 4 2 0 2 4 6 8 Dec10 Apr11 Aug11 Dec11 Apr12 Aug12 Dec12 Apr13 Aug13 Rent CPI Food
Source: Haver
Source: Haver
This analysis has been produced by Trk Ekonomi Bankasi 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 / Tuba Talnl Global Outlook November 2013
62
Australia: Early stages

Markets too aggressive in expecting hikes The money markets are quickly pricing out any chance of further rate cuts in Australia. A quarter ago, the OIS curve implied an 80% chance of a 25bp cut in the cash rate; now, it is virtually flat. Further out, swaps suggest the RBA will tighten aggressively in 2015. We do not believe that additional rate cuts will be required, but neither do we expect rates to be increased at any point over our forecast horizon. For its part, the central bank continues to leave the door open to further easing. In its most recent policy-meeting minutes, the Board said it did not want to close off the possibility of reducing rates further. At the same time, however, the RBA has been explicit in its belief that monetary easing thus far is not only having the desired effect, but that its benefits will continue to be felt. This assessment seems reasonable. As might be expected, the housing market has been the first to respond to looser policy, with house price appreciation accelerating to around 16% annualised and an uptrend in housing approvals pointing to a pickup in residential building activity. Credit growth is edging higher, albeit slowly, and retail sales rebounded strongly in Q3 from a flat reading the previous quarter. We expect these interest rate-sensitive indicators to continue to improve through next year. There are a number of clear headwinds, however. Despite surging business confidence, surveyed capex intentions in the non-mining sectors are extremely weak for the year ahead. Mining investment, which accounted for around 1.5pp of growth in 2012 alone, is also likely to fall, considering the decline already seen in mineral commodity prices. Public spending is expected to be a drag, with the new government having come to power in September on a platform of fiscal retrenchment. A weak labour market will hamper private spending, too. The biggest challenges, though, are likely to come from offshore. Even if China is able to smoothly shift away from its investment-led growth model, reliance on Australias mineral resources will almost certainly fall. And, as the RBA notes, the AUD is still uncomfortably high and a key risk; a lower exchange rate is likely to be needed to achieve balanced growth in the economy. Chart 2: Happy together
RBA banking on benefits of lower rates
but headwinds are numerous
Chart 1: Residential response to looser monetary policy
Chart 3: Non-mining capex the real concern
Chart 4: Australias inflation remains benign (% y/y)
Source: Reuters EcoWin Pro, BNP Paribas Mark Walton Global Outlook
63
Australia: Economic and financial forecasts

Year 11 Components of growth GDP (% q/q) GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) 2.4 4.2 3.3 2.5 7.1 0.4 -0.7 10.9 -0.9 10.9 3.7 4.8 3.2 3.2 8.9 -0.1 5.8 6.2 3.8 10.3 2.7 1.1 2.2 1.3 -1.0 -0.4 6.0 -1.1 2.4 10.6 Year 11 Inflation & labour CPI Underlying CPI Employment Unemployment rate (%) 3.3 2.7 1.8 5.1 1.8 2.3 1.1 5.2 2.3 2.3 1.1 5.7 Year 11 External trade Trade balance (AUD bn) Current account (AUD bn) Current account (% GDP) 18.5 -33.0 -2.3 -16.2 -54.9 -3.7 -1.5 -38.7 -2.5 Year 11 Financial variables General gov. budget (AUD bn) General gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP)
(2)
2013 14
(1)
2014
(1)
12
13
(1)
15 -
(1)
Q1 0.5 2.5 1.4 2.1 0.7 0.4 -1.0 6.9 -3.2 3.4 10.5
Q2 0.6 2.6 0.6 1.8 0.3 -1.6 -0.2 6.4 -1.8 3.9 10.8
Q3
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
0.9 2.7 1.0 2.4 1.7 -1.9 -0.4 6.6 -0.7 1.2 10.7
0.8 2.9 1.6 2.6 2.5 -0.9 0.0 4.2 1.5 1.1 10.6
0.7 3.0 2.3 2.7 2.2 1.8 0.3 4.5 5.7 2.0 10.3
0.8 3.2 2.4 2.8 1.8 1.8 0.1 4.3 3.6 2.4 10.6 2014
0.4 2.7 2.0 2.6 1.6 1.1 -0.1 4.1 3.8 2.7 10.6
0.4 2.2 1.4 2.5 1.6 -0.8 -0.1 3.9 1.7 2.5 10.4
2.8 2.0 2.7 1.8 1.0 0.1 4.2 3.7 2.4 10.5
2.4 1.3 2.1 1.7 -0.5 0.0 3.4 -1.6 2.6 10.0
2013 14
(1)
12
13
(1)
15
(1)
Q1 2.5 2.5 1.5 5.5
Q2 2.4 2.4 1.3 5.6
Q3
(1)
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
2.5 2.3 0.7 5.8
2.5 2.7 1.8 5.8
2.2 2.3 1.0 5.8
2.2 2.1 0.8 5.9
2.6 2.3 0.2 5.9
2.6 2.2 0.3 5.8 2014
2.4 2.4 0.9 5.7
2.5 2.5 1.4 5.7
2013 14
(1)
12
13
(1)
15
(1)
Q1 0.1 -8.7 -2.3
Q2 0.0 -9.4 -2.4
Q3
(1)
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
-1.8 -37.0 -2.3
-16.0 -53.7 -3.2
-1.5 -11.8 -3.1
-0.2 -8.8 -2.2
-0.3 -8.8 -2.2
-1.0 -9.6 -2.4 2014
0.0 -9.4 -2.3
-0.4 -9.2 -2.3
2013 14
(1)
12 -43.9 -2.9 -2.5 27.2
13
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 2014
Q3 -
Q4 -
-61.4 -4.2 -3.9 24.1
-18.0 -1.2 -0.7 27.5 Year
-15.2 -0.9 -0.4 27.4
-11.4 -0.7 -0.2 26.7
11 Interest & FX rates Cash rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) AUDUSD
(2)
12 3.00 3.24 2.65 2.84 3.29 1.04
13
(1)
14
(1)
15
(1)
Q1 3.00 3.28 2.84 3.04 3.42 1.04
Q2 2.75 3.00 2.66 3.05 3.77 0.91
Q3 2.50 2.71 2.58 3.25 3.89 0.93
Q4
(1)
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
4.25 4.65 3.17 3.32 3.79 1.02
2.50 2.50 2.65 3.45 4.20 0.98
2.50 2.50 2.85 3.60 4.75 0.93
2.50 2.50 4.00 4.40 5.05 0.93
2.50 2.50 2.65 3.45 4.20 0.98
2.50 2.50 2.60 3.40 4.35 0.93
2.50 2.50 2.70 3.50 4.55 0.89
2.50 2.50 2.75 3.50 4.60 0.93
2.50 2.50 2.85 3.60 4.75 0.93
Mark Walton Global Outlook
November 2013
64
India: A long road ahead

Indicators point to little improvement in H2 FY2014 Despite the abundant monsoon and stronger exports, we expect Indian GDP growth to remain weak until FY2015, an assessment supported by the latest PMI surveys. Sluggish nominal growth has left Indias public finances, and potentially its sovereign rating, under pressure. If the government largely eschews pre-election giveaways and acts to arrest some of the overshoot, GDP growth in H2 FY2014 is unlikely to receive much additional support from fiscal policy. Our FY2014 GDP forecast, currently the lowest in the market, is for growth to slow to 3.7%, Indias slowest rate since FY1992. WPI inflation will continue to fall in response to the still widening negative output gap, but CPI inflation is likely to prove much more stubborn, as will household inflation expectations, which remain in double-digit territory and rising. The sharp improvement in the trade balance in Q3, due to a combination of slower GDP growth and restrictions on gold imports, suggests the current account deficit is on course to halve between FY2013 and FY2014. The FY2014 current account deficit now seems likely to come in at USD 44bn. Assuming stable net FDI flows, the basic balance deficit could be as low as USD 20-25bn, reducing the vulnerability of the INR to future swings in risk appetite. However, despite much reduced external financing requirements, the INR, supported by temporary swap facilities with oil-marketing companies and a resumption of foreign equity inflows, remains fragile. As temporary swap arrangements are eventually unwound and growth continues to disappoint, fresh INR weakness is likely. Fed tapering will probably spark another bout of INR weakness: we forecast USDINR to return to 70 by end Q2 2014. Stubborn CPI inflation, half-hearted support from fiscal policy and the likelihood of renewed balance-of-payment strains leave the more hawkish Raghuram Rajan-led RBI with work to do. We expect two more RBI repo-rate hikes by Q2 next year. Next years general election is seen as a potential game changer. We are sceptical. While the Modi-led BJP opposition should make sizeable gains, the risk is of a continued fractious, weak coalition government. Chart 2: Sharp improvement in external balances
Quarterly change, USD bn
FY2014 GDP growth on course to be below 4%
C/A gap shrinking on weak GDP and gold import bans
Fed tapering set to spur a new bout of INR weakness
RBI will be forced to hike rates again
Chart 1: Growth still slowing (% y/y)

7.5 7.0 6.5 Consensus 6.0 5.5 BNPP 5.0 4.5 4.0 3.5 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 India FY2014 GDP forecast
Chart 3: INR not out of the woods
Chart 4: Raghuram Volcker
Source: Reuters EcoWin Pro, BNP Paribas Richard Iley Global Outlook
65
India: Economic and financial forecasts

Fiscal year 11 Components of growth GDP Agriculture & allied activities - Agriculture & forestry & fishing - Mining & quarrying Industry - Manufacturing - Electricity, gas & water supply - Construction Services - Trade, hotel, transport & comm. - FIRE & business - Community, social & personal Industrial production Private consumption Public consumption Fixed investment Exports Imports Memo: Non-agricultural GDP Nominal GDP Nominal GDP (INR trn) 9.6 20.3 78.0 6.6 15.1 89.7 5.5 11.7 100.2 3.7 9.4 109.6 5.1 10.7 121.3 5.3 10.8 27.5 4.6 8.1 25.0 4.4 10.4 25.6 3.1 9.4 28.8 2.7 9.5 30.1 3.4 11.1 27.8 4.4 9.7 28.1 5.9 10.1 31.8 9.3 7.5 7.9 4.9 9.5 9.7 5.2 10.2 9.8 12.3 10.1 4.3 8.2 8.6 5.9 14.0 19.7 15.8 6.2 3.1 3.6 -0.6 3.8 2.7 6.5 5.6 8.2 7.0 11.7 6.0 3.0 8.0 8.6 4.4 15.3 21.5 5.0 1.6 1.9 -0.6 2.3 1.0 4.2 4.3 7.1 6.4 8.6 6.6 1.1 4.0 3.9 1.7 3.0 6.8 3.7 3.9 4.3 1.0 0.4 -1.2 5.3 2.4 5.1 2.4 6.7 8.6 0.3 1.1 10.7 -1.1 4.9 0.6 5.1 4.6 4.7 4.3 4.4 3.7 5.3 5.6 5.4 5.3 6.1 4.7 4.2 5.5 5.6 5.1 9.1 10.4 4.8 0.7 1.4 -3.1 3.2 2.6 2.8 4.4 6.6 6.2 9.1 4.0 1.9 3.8 0.6 3.4 -0.6 3.3 4.4 2.0 2.7 -2.8 0.4 -1.2 3.7 2.8 6.6 3.9 8.9 9.4 -0.9 1.6 10.5 -1.2 -1.2 0.7 4.3 3.5 3.9 1.0 2.0 0.8 6.5 3.4 5.4 2.5 7.3 8.4 1.8 1.4 8.7 0.0 4.3 0.0 3.4 4.3 4.5 2.4 -0.4 -2.2 4.1 2.0 4.6 1.7 6.3 8.7 0.1 0.5 11.9 -1.9 9.8 0.7 3.1 5.5 5.8 3.1 -0.3 -2.0 6.8 1.6 3.9 1.5 4.5 7.9 0.1 1.0 11.4 -1.2 6.9 0.8 3.6 5.2 5.2 5.4 3.3 2.9 5.4 3.5 3.3 3.1 4.2 2.5 4.1 4.7 2.6 4.2 8.2 7.7 4.4 4.6 4.8 3.9 3.7 2.6 4.3 5.5 4.7 4.9 5.5 3.3 3.0 5.7 3.7 4.7 8.8 10.4 5.6 4.4 4.5 3.9 5.1 4.4 5.7 6.4 6.2 6.1 6.9 5.4 4.6 5.7 6.6 5.6 9.3 11.5 12 13 14
(1)
15
(1)
Q1
Q2
2013 Q3
(1)
Q4
(1)
Q1
(1)
Q2
(1)
2014 Q3
(1)
Q4
(1)
11 GDP Memo: Non-agricultural GDP 7.9 7.5
12
Calendar year (1) 14 13 4.2 4.4
(1)
15
(1)
Q1 4.8 5.3
Q2
2013 Q3
(1)
Q4
(1)
Q1
(1)
Q2
(1)
2014 Q3
(1)
Q4
(1)
5.1 5.6
4.2 4.1
6.4 6.7
4.4 4.6 2013
4.3 4.4
3.4 3.1
3.1 2.7
3.6 3.4 2014 Q3
4.4 4.4
5.6 5.9
11 Inflation WPI WPI (Food) WPI (ex. Food & Energy) WPI (non-food manufactured products) CPI - All India CPI - AII India (ex. Food & Energy) 9.5 7.9 9.2 7.7 7.7 8.4
12
Calendar year 14 13 (1) 6.2 10.5 3.1 2.8 10.0 8.2
(1)
15
(1)
Q1 6.7 10.0 4.4 3.9 10.7 8.5
Q2 4.9 7.7 2.6 2.6 9.5 8.0 2013
Q3 6.4 11.8 2.3 2.2 9.7 8.2
Q4
(1)
Q1
(1)
Q2
(1)
(1)
Q4
(1)
7.5 8.1 6.1 5.4 9.7 9.3
4.6 5.7 1.7 1.0 8.5 7.7
5.1 7.7 3.1 2.5 8.5 7.4
6.9 12.3 3.1 2.5 10.2 8.0
5.9 9.9 2.4 1.7 9.7 7.8
5.7 7.6 1.9 1.1 9.3 8.0 2014
3.4 2.8 1.4 0.6 7.8 7.6
3.4 3.2 1.1 0.4 7.3 7.6
Fiscal year 11 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) -127.3 -48.1 -2.8 -189.8 -78.2 -4.2 -195.7 -88.2 -4.8 Fiscal year 11 Financial variables Central gov. budget (INR trn) Central gov. budget (% of GDP) Primary budget (% of GDP) Gross central gov. debt (% of GDP)
(2)
12
13
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 2014
Q3 -
Q4 -
-151.3 -43.7 -2.5
-145.8 -35.5 -2.0
12 -5.2 -5.7 -2.7 46.5
13 -5.2 -5.2 -2.0 47.3
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-3.7 -4.8 -1.8 45.7
-5.8 -5.3 -2.0 49.0
-6.1 -5.0 -1.6 49.7
11 Interest and FX rates Repo rate (%) 3-month rate (%) 2-year (%) 10-year (%) USDINR
(2)
12
Calendar year 13 (1) 14 8.00 9.20 8.50 8.75 63.00
(1)
15
(1)
Q1 7.50 9.47 7.74 7.95 54.30
Q2 7.25 8.36 7.57 7.45 59.40
Q3 7.50 9.96 8.65 8.73 68.00
Q4
(1)
Q1
(1)
Q2
(1)
2014 Q3
(1)
Q4
(1)
8.50 9.55 8.12 8.57 53.07
8.00 8.70 7.81 8.05 55.00
8.25 9.00 8.50 8.50 66.00
7.75 8.50 8.80 8.90 69.00
8.00 9.20 8.50 8.75 63.00
8.25 9.70 8.40 8.35 63.00
8.25 9.40 8.30 8.25 65.00
8.25 8.80 8.45 8.40 66.00
8.25 9.00 8.50 8.50 66.00
Richard Iley Global Outlook
November 2013
66
South Korea: Safe haven

KRW stability belies highbeta tradition The recent stability of the KRW contrasts not only with the experience of its Asian peers, but also its own, volatile history. While most Asian currencies have yet to recover from the beating they got from speculation that the US Fed would taper its asset purchases, the KRW has appreciated by more than 3% since the start of May, belying its traditional role as a high-beta currency. However, while it appears to be a recent phenomenon, the roots of South Koreas emergence as a relative safe haven can be traced to long-standing improvements in its position vis--vis the rest of the world. Notably, its sustained current account surplus has propelled foreign reserves to new highs and, as a consequence, short-term external debt has fallen to 36% of reserves, its lowest since 2006. South Koreas fiscal position is also sound and its credit ratings are converging on their pre-Asian-financial-crisis levels. We believe these ongoing improvements in South Koreas external fundamentals will continue to be reflected in the KRW, which we expect to strengthen over the course of 2014, even in the face of Fed QE tapering. Though export volumes declined in Q3, consistent with a slowing in US equipment investment, the underlying trends are positive. Over the past year, export sales have increased, despite a massive correction in KRWJPY, suggesting Korean exporters may have gained some pricing power (at least relative to their Japanese counterparts), while on a trade-weighted basis, the exchange rate is still slightly below its long-run average. We have lowered our expectations for export growth slightly in recognition of the stronger KRW track, but continue to believe that the modest acceleration in developed-economy income growth will drive improved export demand. Risks to Koreas near-term GDP outlook are to the downside; Q4 is likely to see an reverse of the inventory accumulation that helped lift Q3 GDP. Thereafter, though, improving domestic demand will augment export sales, supported by the tail end of the governments stimulus package and a very tight labour market. The BoK will feel comfortable leaving policy unchanged as a result, despite low inflation readings. Headline inflation is at multi-year lows, due to falling commodity prices and a negative output gap. We do not expect it to be a policy concern until 2015. Chart 2: South Korea is externally sound
Safe-haven status due to better fundamentals
and will continue to support the KRW Western income growth will drive export demand
BoK to remain on hold
Chart 1: KRW stands apart from its peers
USDKRW, inverted
Chart 3: Good export omens
Chart 4: Extreme disinflation in South Korea
Source: Reuters EcoWin Pro, BNP Paribas Mark Walton Global Outlook
67
South Korea: Economic and financial forecasts

11 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 Net trade (cont. to growth, y/y) Industrial production Memo: Nominal GDP (KRW trn) Nominal GDP 1235 5.3 1272 3.0 1322 3.9 Year (1) 13 1.1 1.3 1.5 3.0 Year (1) 13 60.1 68.4 5.8 Year 13 (1) 11.2 0.8 -0.2 34.0 Year (1) 13 2.50 2.75 3.60 1,060 1399 5.8 1485 6.1 325 2.3 328 3.5 2013 14
(1)
12 2.0 1.1 1.7 3.9 -1.6 0.0 4.2 2.5 1.1 1.2
Year (1) 13 2.8 2.4 1.9 3.3 2.9 -0.2 4.4 3.5 0.8 -0.6
2013 14
(1)
15 -
(1)
Q1 0.8 1.5 -0.1 1.5 1.3 -3.8 0.1 3.5 1.7 1.1 -0.8
Q2 1.1 2.3 2.3 1.8 3.8 2.2 -0.6 5.7 4.7 1.0 -1.7
Q3 1.1 3.3 3.3 2.1 3.1 6.0 -0.1 2.8 2.9 0.2 1.1 333 4.8
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.9 3.8 2.5 2.4 2.4 2.7 0.3 8.7 7.7 1.3 7.3 353 6.0
Q4
(1)
0.8 3.9 4.0 2.0 4.9 7.8 -0.3 5.5 4.7 0.9 -0.7 336 5.0
1.0 4.1 3.8 3.1 4.2 5.0 0.0 4.8 4.5 0.6 2.7 342 5.2
1.0 3.9 3.0 2.9 2.2 3.8 0.6 5.3 5.6 0.4 6.2 347 5.7
0.8 3.8 2.5 2.3 1.6 3.3 0.3 9.4 8.5 1.3 7.9 357 6.5
3.7 1.4 2.4 2.1 -0.7 0.6 9.1 6.1 1.9 5.9
3.9 2.9 2.7 2.6 3.7 0.3 7.1 6.6 0.9 6.0
3.4 2.5 2.2 2.0 3.2 0.1 7.7 7.1 1.1 6.7
11 Inflation & labour CPI Core CPI (ex. food & energy) Employment Unemployment rate (%) (2) 4.0 2.2 1.7 3.1
12 2.2 1.7 1.8 3.0
15
(1)
Q1 1.4 1.4 1.1 3.3
Q2 1.1 1.3 1.3 3.1 2013
Q3 1.2 1.2 1.7 3.1
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.0 1.7 1.6 3.1
Q4
(1)
1.8 1.6 1.9 3.1
2.7 2.3 1.3 3.2
0.8 1.3 2.1 3.0
1.0 1.2 2.3 3.0
1.6 1.5 2.0 3.1
2.6 1.9 1.6 3.1
11 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) 30.2 25.1 2.3
12 39.2 43.5 3.8
14
(1)
15
(1)
Q1 14.3 15.3 5.2
Q2 13.5 17.4 5.9 2013
Q3 16.0 17.7 5.8
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 15.2 17.3 5.5
Q4
(1)
61.5 70.1 5.7
54.0 62.8 4.9
16.2 18.0 6.1
15.7 17.8 5.9
15.5 17.8 5.9 2014
15.1 17.2 5.6
11 Financial variables General gov. budget (KRW trn) General gov. budget (% of GDP) General gov. primary budget (% of GDP) (2) Gross gov. debt (% of GDP) 22.5 1.8 0.9 36.2
12 24.5 1.9 1.0 35.1
14 (1) 18.7 1.3 0.3 31.7
15 (1) 24.2 1.6 0.7 29.2
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 Interest and FX rates 7-day repo rate (%) 3-month rate (%) 10-year rate (%) USDKRW
(2)
12 2.75 3.00 3.15 1,064
14
(1)
15
(1)
Q1 2.75 2.86 2.80 1,111
Q2 2.50 2.76 3.41 1,142
Q3 2.50 2.75 3.40 1,075
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.50 2.75 4.00 1,020
Q4
(1)
3.25 3.71 3.77 1,152
2.50 2.80 4.20 1,000
3.25 3.75 5.50 975
2.50 2.75 3.60 1,060
2.50 2.75 3.75 1,080
2.50 2.75 3.85 1,040
2.50 2.80 4.20 1,000
Mark Walton Global Outlook
November 2013
68
Indonesia: Light at the end of the tunnel

External deficit levelling off With Indonesias painful terms-of-trade shock now fading and capital-goods imports down sharply, the deficit on the countrys external balance is now levelling off. With Chinas minieconomic upswing, faster G2 growth and slower domestic demand, we expect a further improvement in the external balance next year. Nominal GDP growth has slumped to levels not seen since the Asian crisis. Its impact on consumption, as well as fuel price hikes and slower investment, should push real GDP growth below 5% in 2014. Thanks to foreign investors continued confidence in Indonesias long-run prospects, FDI inflows continue to climb and are better diversified. With next years parliamentary and presidential elections unlikely to change the investment landscape, a further pickup looks likely, reducing the countrys dependence on hot-money inflows to finance its current account deficit. Through its policy action, Bank Indonesia has shown its clear intent to minimise balance-ofpayment strains. With external deficits peaking and slower domestic demand growth set to curb the second-round impact of fuel price hikes on inflation, only further modest policy tightening is expected, with the resumption of Fed tapering talk in H1 2014 the likely catalyst. IDR less exposed, but not immune to Fed tapering The IDR now looks less exposed than it did before the first taper tantrum. Indonesias external financing needs have peaked, the IDR is more competitive and some monetary policy discipline has been restored. Yet, the central banks greater tolerance of currency weakness means the IDR is likely to succumb when the external environment inevitably weakens once again. We are targeting a USDIDR rate of 12,200 by mid-2014, in line with our March tapering forecast. Slow nominal GDP growth and further currency weakness leave Indonesias still robust public finances under pressure, despite fuel price hikes. We forecast next years budget deficit at 2.5% of GDP, above the proposed target of 1.7%. As a result of its greater reliance on primary commodities, slower-than-forecast Chinese growth remains Indonesias key macro risk.
Rising FDI to further boost the basic balance
Chinese outlook the key macro risk factor
Chart 1: Nominal GDP growth falling
Indonesia: Economic forecasts

2011 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Inflation CPI Core CPI 5.4 4.6 4.3 4.3 7.0 4.4 5.5 4.9 4.5 4.5 6.5 5.7 4.7 3.2 8.8 0.4 13.6 13.3 6.2 6.2 5.3 1.2 9.8 1.8 2.0 6.6 5.7 5.1 5.3 5.9 4.5 -0.6 5.0 0.7 4.8 4.5 4.7 4.5 4.0 -1.0 5.1 3.8 5.5 5.6 5.2 4.7 6.9 0.0 6.2 6.5 2012 2013 (1) 2014 (1) 2015 (1)
Chart 2: Current account levelling off
External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Financial variables Gen. gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) Interest & FX rates (2) Interest rate (%) Official benchmark rate (%) USDIDR 5.27 6.00 9,069 5.02 5.75 9,700 7.60 7.50 11,600 8.25 7.75 12,000 7.25 6.75 12,400 -1.1 0.1 24.4 -1.9 -0.6 24.0 -2.5 -1.2 25.9 -2.5 -1.2 26.6 -2.0 -0.6 26.3 32.8 1.7 0.2 8.6 -24.4 -2.8 1.6 -32.1 -3.7 11.5 -21.1 -2.5 11.3 -21.5 -2.2
Source: Reuters EcoWin Pro, BNP Paribas Richard Iley / Mole Hau Global Outlook
69
Other ASEAN: A sweet and sour mix

Thailand: 2010 redux? Politics are once again dominating the headlines in Thailand. The countrys current economic climate, however, suggests that political turmoil may have greater impact on headline GDP growth than in 2010. Although we forecast GDP growth to accelerate to 4.5% in 2014 from 3.0% in 2013, the latest developments put private investment and tourism receipts, a key contributor to the current account, at risk. Thus, there will be an even greater onus on goods exports to drive economic growth. The disbursement of rebates related to the governments first car purchase scheme may spark some help from private consumption. However, this could be restrained by households burgeoning debt-servicing burden. A desire to limit further increases in this burden and the financial-stability risks that may ensue is also likely to curtail the Bank of Thailands scope to ease policy, despite persistently subdued headline and core CPI inflation readings. That is, of course, unless growth prospects deteriorate sharply. We expect policy rates to remain at 2.50% throughout H1 2014. Headline economic statistics continue to support the bull case for Malaysia. GDP growth is likely to accelerate from 4.0% in 2013 to 4.5% in 2014, the current account will remain in surplus and the fiscal deficit should narrow. Yet, beneath this positive veneer lie uncomfortable truths. First, growth will be powered by the continuation of a credit-fuelled consumption and construction boom, which, with the exception of a mass rapid-transport system, will do little to boost supplyside potential. The governments decision to cut capital expenditure to achieve its 2014 fiscaldeficit target of 3.5% of GDP underlines this. Second, Malaysia, like Indonesia, is feeling the sting of a terms-of-trade shock that is quashing nominal GDP growth, leading to a rapid rise in private-sector and government debt ratios. Household debt, in particular, has been on an explosive trajectory, rising to 85% of GDP in Q2 2013. With bank lending to the sector growing at 14% y/y, this trend shows little sign of abating. Third, the manufacturing sector is already facing repayment stress, boding ill for the labour market. Non-performing loans to the sector rose to 7.2% in September from 5% in January and are up 38% y/y. This has been made worse by a fall in lending to the sector. This is one of the main reasons we expect Bank Negara Malaysia to cut policy rates by 25bp in Q1 2014, despite upside risks to inflation. This bias would be reinforced by any deterioration in Chinese growth prospects. Singaporean GDP growth is likely to pick up to 4.0% in 2014, in tandem with the US economic recovery, despite downside risks to regional growth. Although the external sector will drive the acceleration, it should be complemented by improving domestic demand. This improvement is underpinned by robust construction growth, in the form of both public infrastructure projects and private dwellings. Meanwhile, policy-induced labour-market tightness should continue to push up wages and support gains in consumption spending. This, in turn, suggests underlying demand pressure in the economy, as evidenced by the governments ongoing struggle to cool the property market, will persist. Consequently, core CPI inflation should hover around 2.0% y/y throughout 2014, with a bias to the upside. Coupled with concern over financial-stability risks emanating from rising household debt, this suggests that the Monetary Authority of Singapore will continue to opt for a strengthening bias in its unique SGD NEER-based monetary policy. Malaysia: Economic forecasts
2011 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
Source: CEIC, BNP Paribas Source: BNP Paribas, national statistics
Malaysia: Looking beyond the headlines
Singapore: Banking on a smooth external recovery
Chart 1: All is not well in Malaysia
2012 5.6 1.7 6.1 -4.5 -2.7 53.5 3.00 3.06
2013
(1)
2014
(1)
2015
(1)
5.1 3.2 11.6 -4.8 -2.8 51.8 3.00 3.17
4.0 2.0 2.0 -4.2 -2.0 56.0 3.00 3.20
4.5 3.2 1.0 -3.7 -1.4 56.0 2.75 3.32
5.0 4.0 0.5 -3.0 -0.7 55.0 2.75 3.38
Philip McNicholas Global Outlook
November 2013
70
Philippines: Bubbling up
Amid concern over the impact of tighter global liquidity and the regional externalities of developments in China, the Philippines is a relative economic bright spot among the larger economies in ASEAN. The destruction wrought by Typhoon Haiyan, while tragic, is not expected to detract significantly from the countrys underlying growth outlook. Having instilled good housekeeping practices, the government should continue to reap the benefit of revenue-led fiscal consolidation, combined with more efficient and effective fiscal spending. Improved public confidence in the government has started to manifest itself in strengthened domestic demand, which should see the economy expand by 6.0% in 2014. While this is a slowdown from the 7.5% expected for 2013, it is a function of a more challenging external environment and counter-cyclical monetary tightening. Demand-pull inflation pressure has begun to emerge via a sharp increase in M3 money supply and a surge in the real purchasing power of remittances. Because of the upside risk to inflation this poses, combined with a lowering of the inflation target range from the current 3.0-5.0% to 2.0-4.0% from 2015, we expect the Bangko Sentral ng Pilipinas (BSP) to hike rates by 25bp in both Q1 and Q2 2014. This will be complemented by tolerance of real effective exchangerate appreciation to tackle remittance-related pressures. That said, the recent uptick in domestic rice prices raises the risk that the BSPs tightening cycle will need to be sharper than expected. Vietnams export-oriented economy should benefit from the gradual improvement in the global outlook. However, its own domestic economic recovery will also play a key role in the acceleration in GDP growth from 5.0% in 2013 to 5.5% in 2014. In particular, the rise in FDIlinked construction should complement supply- and demand-side improvements in manufacturing activity. The recent upturn in credit growth should support this, though bad debt issues may continue to inhibit banks capacity and willingness to lend. Stronger domestic activity will inevitably bolster import demand, leading to a deterioration of the trade account. Inflation pressure should also rise in tandem with stronger domestic demand. These pressures, however, are expected to remain manageable, thanks to the favourable regional food price inflation outlook and downward pressure being exerted on factory-gate prices by Chinese industrial deflation. This should minimise fundamental depreciation pressure on the VND, enabling the authorities to maintain their bias of gradual currency adjustment. Thailand: Economic forecasts
2011 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) USDTHB
(2) (2) (2)
Vietnam: On the mend
Singapore: Economic forecasts

2011 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) USDSGD (2)
2012 1.4 4.6 18.6 1.2 2.7 114.1 1.22
2013 (1) 2014 (1) 2015 (1) 3.0 2.3 16.5 1.8 3.3 117.0 1.26 4.0 3.0 17.0 0.8 2.3 118.0 1.28 5.0 3.0 18.0 0.8 2.3 118.0 1.32
2012 6.5 3.0 0.8 -2.2 -0.9 32.3 2.75 30.58
2013
(1)
2014
(1)
2015
(1)
5.2 5.2 24.6 0.1 1.6 109.1 1.30
0.1 3.8 1.7 -1.0 0.2 29.8 3.25 31.52
3.0 2.2 0.5 -1.8 -0.4 31.9 2.50 31.50
4.5 2.0 1.0 -2.5 -0.9 33.5 2.75 32.50
4.0 2.5 1.0 -2.5 -1.1 34.0 3.00 32.80
Official benchmark rate (%)

Philippines: Economic forecasts

2011 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)
Vietnam: Economic forecasts

2014
(1)
2012 6.6 3.1 2.8 -2.4 0.6 51.4 3.50 41.01
2013
(1)
2015
(1)
2011 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) USDVND
(2) (2)
2012 5.0 9.1 6.2 -4.1 -1.1 49.9 20,820
2013 (1) 2014 (1) 2015 (1) 5.0 6.5 2.5 -5.7 -2.5 48.5 5.5 7.0 0.5 -5.0 -1.7 46.0 6.0 7.5 -1.0 -4.5 -1.5 43.0
3.9 4.7 3.1 -2.0 0.8 51.0 4.50 43.79
7.5 3.0 3.0 -2.2 0.8 49.4 3.50 43.50
6.0 4.0 2.0 -2.0 0.9 48.4 4.00 42.80
6.0 3.8 1.0 -2.0 0.8 47.1 4.50 42.00
6.0 18.7 2.6 -4.0 -1.2 49.7 21,031
21,300 21,400 21,500

Source: BNP Paribas, national statistics Philip McNicholas Global Outlook

71
Taiwan and Hong Kong: Forecast tables

Taiwan: Economic and financial forecasts
11 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 4.1 1.7 3.1 2.2 -2.7 -0.9 4.4 -0.5 4.4 1.3 0.1 1.5 0.5 -4.5 -0.1 0.1 -2.1 -0.2 2.1 1.8 1.7 0.6 2.6 -0.1 4.4 4.6 0.9 Year (1) 13 0.8 0.4 0.9 4.2 Year (1) 13 28.0 43.6 9.1 Year (1) 13 -2.4 -1.4 41.6 Year (1) 13 1.875 0.88 1.75 29.6 3.9 2.5 3.2 1.7 0.5 0.1 7.0 6.0 5.9 3.7 2.7 2.9 1.9 2.5 0.0 6.0 5.4 4.3 -0.6 1.8 1.5 0.4 0.3 5.9 0.3 4.9 6.1 1.6 0.6 2.4 1.8 1.6 -0.3 3.7 -1.1 5.2 3.8 -0.4 2013 14
(1)
12
Year (1) 13
2013 14
(1)
15
(1)
Q1
Q2
Q3 1.0 2.6 1.5 2.3 1.1 -0.5 0.9 3.1 3.5 0.3
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.9 4.0 3.0 3.2 2.0 3.0 -0.9 8.1 6.6 6.7
Q4
(1)
0.7 1.6 2.3 2.6 1.5 1.5 -0.6 4.3 5.3 2.2
1.2 3.5 1.9 3.5 0.9 -2.3 0.0 5.8 4.1 4.3
1.0 4.0 2.2 3.1 2.0 -0.6 1.1 6.9 6.7 7.3
0.8 4.0 2.7 3.0 2.0 1.8 0.4 7.0 6.8 5.4
11 Inflation CPI Core CPI (ex. food & energy) Employment Unemployment rate (%) 1.4 0.8 2.1 4.4
12 1.9 0.6 1.4 4.2
15
(1)
Q1 1.8 1.0 1.1 4.2
Q2 0.8 0.4 0.9 4.2 2013
Q3 0.0 0.3 0.8 4.2
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 0.7 0.4 1.3 4.3
Q4
(1)
0.9 0.4 1.2 4.2
1.0 0.5 1.2 4.3
0.7 0.0 0.8 4.2
0.8 0.2 0.9 4.2
1.1 0.4 1.2 4.2 2014
0.8 0.7 1.3 4.3
11 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) 27.6 40.9 8.9
12 31.1 50.1 10.5
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 2014
Q3 -
Q4 -
21.3 34.6 7.0
19.9 30.4 6.0
11 Financial variables Central gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) -2.2 -1.5 40.1
12 -2.5 -1.8 40.9
14
(1)
15
(1)
Q1 -
Q2 2013
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-1.4 -0.4 40.1
-0.6 0.4 38.0
11 Interest and FX rates (2) Discount rate (%) 3-month rate (%) 10-year bond yield (%) USDTWD
12 1.875 0.86 1.17 29.0
14
(1)
15
(1)
Q1 1.875 0.87 1.31 29.8
Q2 1.875 0.88 1.42 30.0
Q3 1.875 0.88 1.70 29.6
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 2.125 1.03 2.00 29.5
Q4
(1)
1.875 0.80 1.29 30.3
2.250 1.10 2.10 29.3
2.375 1.18 2.60 29.0
1.875 0.88 1.75 29.6
1.875 0.88 1.85 30.0
2.000 0.95 1.90 30.0
2.250 1.10 2.10 29.3
Hong Kong: Economic forecasts

2011 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDHKD (2)
2012 1.5 4.1 2.3 3.2 3.0 33.9 0.50 7.75
2013 (1) 2.8 4.4 2.6 1.8 1.6 30.6 0.50 7.75
2014 (1) 3.8 4.2 3.4 1.7 1.5 29.8 0.50 7.80
2015 (1) 3.5 3.4 3.3 1.6 1.5 29.1 0.75 7.80
4.9 5.3 5.6 3.9 3.7 33.9 0.50 7.80
Mole Hau Global Outlook
November 2013
72
Canada: Taking it easy

Fed tapering talk has eased BoC bias Talk of Fed tapering raised Canadian interest rates significantly earlier this year, particularly mortgage rates, prompting the Bank of Canada (BoC), under new governor Stephen Poloz, to remove its hiking bias. The Fed had effectively tightened household credit conditions for the BoC. With these tighter domestic credit conditions, as well as a weaker currency and persistently low inflation, policymakers are likely to stay on the sidelines as household imbalances slowly improve. A sharper correction in the housing market could push the Canadian economy into recession and remains a significant risk. Tighter credit conditions and ongoing macroprudential measures (which tighten mortgage standards) could be the catalyst for a housing correction. However, we have seen few signs of a significant cooling of housing demand. Indeed, housing starts continue to run at a brisk clip, markedly faster than population growth. Meanwhile, house price growth has begun to slow, though it is still outstripping income growth. We expect a 10-15% correction in home prices over our forecast horizon. While some of the froth in housing has yet to fade, domestic demand has slowed. Household debt remains high and, with little income growth and a slowing of household credit, consumption growth has eased from the more rapid pace we have seen over the past 20 years. Employment gains have been resilient, but could also falter as the housing market cools. Inflation remains stubbornly low, suggesting that the economy remains well below its potential level with a sizable output gap. We believe that inflation will be slow to pick up and have shifted our call for a rate hike back a full year to Q4 2015, which is when we expect the first Fed rate hike. We believe the BoC remains biased to hike, but will be patient, as the economy, reliant on exports and investment for growth, continues to struggle with competiveness challenges.
Recession risk remains if house prices fall further
Household debt is high and consumption slowing
BoC to remain on hold until Q4 2015
Chart 1: Domestic demand vs. retail sales (% q/q saar)

10 8 6 4 2 0 -2 -4 -6 -8 -10 Q1 1998 Q1 2001 Domestic demand Q1 2004 Q1 2007 Q1 2010 Q1 2013 Retail sales
Canada: Economic forecasts

2011 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation CPI Core CPI Unemployment rate (%) External trade 2.9 1.7 7.5 1.5 1.7 7.3 1.0 1.3 7.1 1.5 1.4 6.8 2.1 1.8 6.6 2.5 2.4 2.3 -0.6 7.0 0.1 4.7 5.7 3.9 4.4 1.7 2.3 1.9 1.0 5.3 0.0 1.5 3.1 0.9 5.0 1.6 1.5 2.0 0.9 0.8 0.0 2.5 1.9 0.9 5.1 2.0 1.9 1.8 0.2 4.2 -0.1 7.7 6.1 3.1 4.9 2.2 2.2 2.0 0.1 5.5 -0.1 8.4 6.6 3.1 4.7 2012 2013
(1)
2014
(1)
2015
(1)
Chart 2: Debt-to-personal disposable income ratio (%)

165 155 145 135 125 115 105 95 85 75 Q1 1998 Q1 2002 Q1 2006 Q1 2010 Australia United States
Trade balance (CAD bn) Current account (CAD bn) Current account (% GDP) Financial variables
(2)
0.8 -48.5 -2.8
-12.0 -62.2 -3.4
-11.3 -57.6 -3.1
-11.9 -57.3 -3.0
-11.7 -58.9 -2.8
Fed. gov. budget (CAD bn) Fed. gov. budget (% GDP)
-21.6 -1.2 0.5 31.4
-19.3 -1.0 0.5 31.6
-19.5 -1.0 0.6 31.7
-11.5 -0.7 0.8 30.7
-7.7 -0.5 1.3 29.0
Canada (US calculation)
Fed. gov. primary budget (% GDP) Gross Fed. gov. debt (% GDP) Interest & FX rates Call rate (%) 10-year bond yield (%) USDCAD
(3)
1.00 2.01 1.02
1.00 1.76 0.99
1.00 2.65 1.05
1.00 3.45 1.08
1.25 3.60 1.10
Footnotes: (1) forecast, (2) fiscal year; (3) end period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas, national statistics Bricklin Dwyer Global Outlook November 2013
73
Brazil: Living on borrowed economic time

External factors bringing Brazil temporary relief The delay in US Fed tapering and the mini-upturn in Chinese growth should support commodity prices and capital flows into emerging markets like Brazil for a while. However, over the coming quarters, as the tide of abundant global liquidity ebbs and commodity prices retreat, we will see who has been caught skinny dipping. Brazil likes its skimpy beachwear, but its recent macro policies have left it looking exposed. Domestic demand soared during the golden years, but little attention was paid to fostering supply. Brazil is now bumping up against supply constraints, which are showing in its worsening external accounts and its stubbornly abovetarget inflation. In sum, Brazils growth-inflation trade-off is worsening (Chart 1). As we have long argued, Brazilian inflation is proving a much worse headache than most people expected. Market consensus forecasts, as well as the central banks own official projections for 2014 inflation, continue to rise steadily our way (Chart 2). Headline inflation remains stubbornly above target and its composition is worrisome: regulated domestic prices are being kept artificially low (fuel, energy, bus fares), but market-driven inflation is in the highsingle digits (Chart 3). Tax breaks and regulated-price repression can temporarily alleviate headline inflation, but not underlying pressures. Sooner or later, inflation bounces back and often with a vengeance. Brazils fiscal policy remains expansionary, worsening the countrys sovereign rating outlook and increasing the chances of a downgrade. The governments quasi-fiscal expansion is particularly worrisome, with the amount of credit provided by Brazils public-sector banks ballooning in recent years (Chart 4). History suggests that credit booms rarely end well. The central bank has, in turn, been forced to shift from cutting rates in 2012 to raising them in 2013, although it moved too little, too late, at least at first. More tightening will be needed. Brazils outlook could certainly improve with better policies. However, with a presidential election scheduled for October 2014, policymakers are likely to continue to muddle through for the time being, before embarking on structural reform at some point in the future. Chart 2: 2014 inflation forecasts (% Dec/Dec)
6.7 6.5 6.3 Inflation (IPCA) - BNPP forecast 6.1 5.9 5.7 5.5 5.3 5.1 4.9 4.7 4.5 4.3 Jan 11 Jun 11 Nov 11 Apr 12
Repressing inflation buys time, but solves nothing
Fiscal (and quasi-fiscal) policies on borrowed time
Chart 1: Brazilian growth-inflation trade-off (%, 2014)

7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 BNPP forecast: Growth 2014 (1.5%) Consensus 2014 BNPP forecast: Inflation 2014 (6.5%)
Consensus 2014
Inflation (IPCA) - consensus
Central bank forecast
Sep 12
Feb 13
Jul 13
Chart 3: Brazilian inflation breakdown (% y/y)

13.00 11.00 9.00 Inflation target ceiling 7.00 5.00 3.00 1.00 05 06 07 08 09 Inflation target floor 10 11 12 13 Inflation target centre IPCA Regulated prices Market prices
Chart 4: Outstanding loans (% of GDP)

30 25 20 15 10
BNDES Credit from public banks (commercial banks +BNDES)
Credit from private banks
5 03 04 05 06 07 08 09 10 11 12 13
Source: Reuters EcoWin Pro, BNP Paribas Marcelo Carvalho Global Outlook
74
Brazil: Economic and financial forecasts

Components of growth GDP (% q/q SAAR) GDP Demand side Private consumption Public consumption Fixed investment Exports Imports Net exports (cont. to growth) Stocks (cont. to growth) Supply side Agricultural Industrial Services Industrial production IP (% q/q SAAR) 3.9 1.6 2.7 0.4 -2.3 -0.8 1.7 -2.6 Year 13 (1) 5.4 5.8 5.6 7.8 2.2 5.5 9.9 6.2 6.1 6.1 5.5 0.8 5.9 8.2 Year 13 (1) 0.6 -80.8 -3.7 2.7 Year 13 (1) -3.2 1.5 60.3 Year (1) 13 10.00 10.70 2.45 3.23 2.4 58.7 11.7 0.6 2.2 1.5 4.5 1.1 1.4 2.1 4.0 0.7 1.3 1.3 17.0 -1.4 1.9 1.3 3.6 13.0 2.8 2.3 3.3 3.6 7.5 0.6 2.5 0.4 -5.0 8.5 0.2 2.1 1.4 3.5 4.5 0.2 1.8 1.3 3.0 5.3 0.1 0.7 1.3 3.8 3.9 2.0 1.4 3.2 2.5 3.6 1.9 1.8 2.7 1.2 4.1 1.9 4.7 4.5 9.7 -0.8 -0.4 3.1 3.2 -4.0 0.5 0.2 0.0 -0.9 2.1 1.4 5.5 2.9 8.0 -0.7 0.0 1.6 1.9 0.5 6.2 4.5 0.2 0.0 1.1 0.1 0.3 6.3 4.8 0.1 0.0 2.1 1.6 3.0 -5.7 7.4 -1.7 1.6 2.3 1.0 9.0 6.3 7.9 -0.4 0.1 2.4 1.6 7.0 3.2 10.9 -1.0 0.0 1.6 1.5 3.2 7.1 6.2 0.0 0.0 1.8 1.7 0.6 5.8 5.3 -0.1 0.0 0.7 1.4 0.7 7.0 4.2 0.3 0.0 1.9 1.9 0.1 6.1 2.8 0.4 0.0 2.2 2.4 0.7 5.9 5.5 0.0 0.0 11 2.7 12 0.9 Year (1) 13 2.3 14
(1)
15 -
(1)
Q1 2.5 1.9
Q2
2013 (1) Q3 -2.0 2.4
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 1.4 1.7
Q4
(1)
5.9 3.3
0.8 1.6
2.2 1.7
2.4 0.9
0.8 1.9
1.5
1.0
Inflation & labour IPCA (2) IPCA IPCA core IGP-M

(2) (2)
11 6.6 6.5 6.6 5.1 2.1 6.0 9.4
12
14 (1) 6.1 6.5 6.5 7.1 0.3 6.7 8.8
15 (1) 6.2 6.2 6.1 6.2 1.1 6.9 8.0
Q1 6.4 6.6 6.2 8.1 1.9 5.6 8.3
Q2
2013 Q3 (1) 6.1 5.9 6.0 4.4 0.9 5.4 7.5
Q4 (1) 6.0 6.1 6.1 5.5 -0.2 6.5 8.9
Q1 (1) 5.6 5.5 6.1 6.2 0.1 6.0 8.5
2014 Q2 (1) Q3 (1) 5.7 5.9 6.1 6.5 0.5 6.2 8.5 6.5 6.8 6.5 6.7 0.3 7.0 9.3
Q4 (1) 6.7 6.5 6.5 7.1 0.3 7.5 9.0
6.6 6.7 6.3 6.3 0.5 5.9 8.0
Employment Unemployment rate (%) Wages
External trade (USD bn) Trade balance Current account Current account (% GDP) FDI (% GDP)
11 29.8 -52.5 -2.1 2.7
12 19.4 -54.2 -2.4 2.9
14 (1) 5.0 -72.7 -3.6 2.5
15 (1) 10.0 -54.8 -2.5 2.5
Q1 -5.2 -24.8 -3.0 1.0
Q2
2013 Q3 (1) 1.5 -17.1 -3.6 2.0
Q4 (1) 2.2 -20.4 -3.7 4.8
Q1 (1) -0.8 -17.3 -3.4 3.5
2014 Q2 (1) Q3 (1) 3.4 -15.9 -3.4 3.0 2.4 -17.3 -3.5 3.6
Q4 (1) -0.1 -22.2 -3.6 3.3
2.1 -18.5 -3.2 1.2
Financial variables General gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2)
11 -2.6 3.1 54.2
12 -2.5
14 (1) -4.1 1.0 61.4
15 (1) -2.8 1.9 62.3
Q1 59.4
Q2
2013 Q3 (1) 59.3
Q4 (1) 60.3
Q1 (1) 60.5
2014 Q2 (1) Q3 (1) 60.8 61.1
Q4 (1) 61.4
59.3 2013
Interest rates & FX rates (2) SELIC rate (%) 1-year swap rate (%) USDBRL EURBRL
11 11.00 10.00 1.87 2.42
12 7.25 7.10 2.05 2.71
14
(1)
15
(1)
Q1 7.25 7.92 2.02 2.59
Q2 8.00 9.41 2.22 2.88
Q3 9.00 10.10 2.22 3.15
Q4
(1)
Q1
(1)
Q2
(1)
2014 (1) Q3 11.00 11.60 2.75 3.44
Q4
(1)
11.00 12.00 2.60 3.20
12.00 11.70 2.45 3.06
10.00 10.70 2.45 3.23
11.00 11.20 2.50 3.20
11.00 11.30 2.55 3.21
11.00 12.00 2.60 3.20
Marcelo Carvalho Global Outlook
November 2013
75
Mexico: Loosening the purse strings

The factors that have impaired Mexicos economic activity so far this year are turning neutral or supportive of growth. And as the obstacles to growth this year turn into drivers of growth next year, we are forecasting the economy to expand 4.1% in 2014, up from 1.4% in 2013. Growth to pick up substantially in 2014 US demand for Mexicos exports is recovering, as evident in the strengthening non-oil export and manufacturing activity data. After months of post-election spending delays, the government is finally loosening the purse strings and is eager to make up for lost time. The energy shortages that depressed manufacturing in Q2 are over. Reconstruction efforts in the coming months should turn the devastation of recent hurricanes from a negative into an economic positive. The construction sector will hold back growth into 2015, due to structural adjustments in the homebuilding segment, but public spending will help and housing will be less of a drag. Having cut its policy interest rate by 25bp in both October and November, to a record low of 3.50%, Banxico signalled that its rapid easing cycle was over. We expect the bank to remain on hold in 2014. The lower policy rate and a weaker MXN have loosened Mexicos monetary and financial conditions and should help the recovery. Slack capacity and an absence of demand-driven price pressures are keeping core inflation near record lows. After spiking early in the year, headline inflation has fallen sharply on meanreverting food prices and favourable base effects. We expect inflation to end 2013 at 3.5%, but to rise to 3.9% in 2014 due to tax increases included in the recently approved fiscal reform bill. The fiscal reform bill will also ratchet up public spending and widen the fiscal deficit by 1pp to 3.6% of GDP in 2014. The government, which has passed a series of important reforms, is now seeking congressional approval of its key energy reform bill. Failure to successfully pass and implement the energy-sector reform is a significant downside risk to our view. Another is the disorderly adjustment of local financial markets to the US Feds unwinding of its asset-purchase programme, with knock-on effects on the real economy. Chart 2: US PMI and Mexican IMEF (3mma)
60
Banxico to remain on hold
Inflation to rise on the impact of fiscal reform
Pending energy-sector reform is key
Chart 1: Mexican real GDP growth (%)

8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Q1 2006 Q2 2007 Q3 2008 Q4 2009 Q1 2011 Q2 2012 y/y 4q y/y 8% 6% 4% 2% 0% -2% -4% -6% -8% -10%
35 40 50 55
MX IMEF manufacturing 45
US PMI 30 Oct 07
Jul 08
Apr 09
Jan 10
Oct 10
Jul 11
Apr 12
Jan 13
Oct 13
Chart 3: Industrial and manufacturing production (% y/y)

10% 8% 6% 4% 2% 0% -2% -4% -6% Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Total IP Manufacturing
7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5
Chart 4: Mexican headline and core inflation (% y/y)

Headline
Core H2 Apr 2006 H2 Oct 2007 H2 Apr 2009 H2 Oct 2010 H2 Apr 2012 H2 O 201
2.0 H2 Oct 2004
Source: Reuters EcoWin Pro, BNP Paribas Nader Nazmi Global Outlook
76
Mexico: Economic and financial forecasts

11 Components of growth GDP (% q/q SAAR) GDP (% y/y) Demand side Private consumption Public consumption Fixed investment Exports Imports Supply side Agriculture Industry Services Industrial production (% y/y) Industrial production (% q/q SAAR) -2.3 3.1 4.8 3.1 6.6 2.8 4.2 2.8 Year 13 (1) 3.7 3.5 2.7 3.5 5.1 Year 13 (1) 0.6 -23.0 -1.6 Year 13 (1) -2.6 -1.4 32.7 Year 13 (1) 3.50 3.65 13.50 17.82 0.6 -0.1 2.1 -0.1 1.5 3.3 4.6 3.3 1.7 3.4 4.8 3.4 -0.7 -1.7 1.9 -1.7 -2.9 1.3 -0.6 2.6 -0.6 -1.4 2013 14 (1) 3.5 3.9 3.0 3.2 5.3 15 (1) 3.4 3.3 2.9 3.5 5.3 Q1 3.7 4.3 3.0 4.1 4.9 Q2 4.5 4.1 2.8 3.8 5.0 Q3 3.4 3.4 2.5 3.1 5.2 Q4 (1) 3.4 3.5 2.7 2.9 5.2 Q1 (1) 3.4 3.1 2.7 3.1 5.1 1.4 -0.4 2.9 -0.4 3.4 0.4 2.1 1.0 2.1 4.7 0.1 3.4 5.2 3.4 4.4 1.4 2.4 3.5 2.4 5.8 2.0 3.6 5.2 3.6 6.9 2.1 3.8 4.4 3.8 5.6 4.8 2.5 7.8 8.2 8.0 4.6 2.4 5.5 4.2 6.0 2.5 2.1 0.9 3.4 6.8 3.9 5.6 5.0 8.0 8.9 4.6 3.2 5.7 5.8 6.6 2.5 0.1 -0.8 -1.0 -0.9 3.5 0.4 0.4 2.7 2.8 1.5 3.5 1.1 5.6 3.4 2.4 4.2 2.7 6.1 4.4 3.0 5.4 4.9 7.6 10.4 3.1 6.2 3.9 6.4 10.1 5.9 5.9 5.1 9.4 8.0 3.4 5.1 5.9 8.6 7.2 4.0 3.8 1.4 4.1 4.2 0.1 0.6 -2.9 1.5 5.7 1.4 6.5 2.0 2.1 4.1 3.2 3.5 5.5 4.3 6.8 4.4 12 Year 13 (1) 14 (1) 15 (1) Q1 Q2 2013 Q3 (1) Q4 (1) Q1 (1) 2014 Q2 (1) Q3 (1) Q4 (1)
11 Inflation & labour CPI CPI 3.4

(2)
12 4.1 3.6 2.9 4.6 5.0
2014 Q2 (1) Q3 (1) 3.2 3.4 2.8 3.1 5.1 3.6 3.5 2.9 3.4 5.5
Q4 (1) 3.8 3.9 3.0 3.4 5.4
3.8 3.4 4.3 5.2
CPI core (2) Employment Unemployment rate (%)
11 External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) -1.5 -11.8 -1.0
12 0.0 -14.2 -1.1
14 (1) -0.9 -27.4 -1.9
15 (1) 0.1 -24.8 -1.8
Q1 -1.0 -5.3 -1.4
Q2
2013 Q3 (1) -1.0 -2.1 -1.6
Q4 (1) 0.4 -9.6 -1.6
Q1 (1) -1.2 -5.5 -1.7
2014 Q2 (1) Q3 (1) -1.2 -7.6 -1.8 -1.3 -3.0 -1.8
Q4 (1) 1.5 -11.3 -1.9
-0.8 -6.0 -1.7
11 Financial variables
(2)
12 -1.5 -0.6 31.5
14 (1) -3.6 -2.5 33.6
15 (1) -3.1 -2.2 33.4
Q1 0.3 0.0 32.4
Q2
2013 Q3 (1) -2.5 -1.5 32.6
Q4 (1) -2.6 -1.4 32.7
Q1 (1) -3.0 -2.0 33.2
2014 Q2 (1) Q3 (1) -3.2 -2.2 33.5 -3.5 -2.5 33.3
Q4 (1) -3.6 -2.5 33.6
Public balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP)
-1.2 0.7 30.3
-0.2 -0.2 33.0 2013
11 Interest & FX rates (2) Benchmark overnight rate (%) Cetes 1m USDMXN EURMXN
(1) Forecasts (2) End period
12 4.50 4.05 12.85 16.94
14 (1) 3.50 3.65 12.60 15.50
15 (1) 4.50 4.65 12.20 15.25
Q1 4.00 3.95 12.33 15.82
Q2 4.00 3.95 12.93 16.85
Q3 3.75 3.55 13.09 17.71
Q4 (1) 3.50 3.65 13.50 17.82
Q1 (1) 3.50 3.65 13.15 16.83
2014 Q2 (1) Q3 (1) 3.50 3.65 12.90 16.25 3.50 3.65 12.70 15.88
Q4 (1) 3.50 3.65 12.60 15.50
4.50 4.32 13.95 15.34
Nader Nazmi Global Outlook
November 2013
77
Colombia: Recovery and elections

The recovery we were expecting is underway A gradual pickup in Colombian economic activity is underway, aided by accommodative monetary policy and rising public spending. Firming confidence and robust private consumption are helping, too. On the supply side, manufacturing is being held back by weaker external demand, especially from neighbouring Venezuela, as well as competitive disadvantages of its own making. Petroleum and coal exports are seeing higher prices and rising production after supply disruptions. We expect consumer and business confidence to continue to strengthen, boosting domestic demand. Our BILIC model suggests faster growth in 2014. We maintain our long-held GDP growth forecast of 4.1% for 2013, but cut our 2014 forecast to 4.7% on weaker foreign demand. BanRep to hike sooner than the market expects As we had expected, the central bank recently signalled that the easing cycle that had reduced the policy rate by 200bp to 3.25% had ended, but the move surprised the market. We think the market is again mistaken in looking for a dovish central bank in 2014. With the output gap set to close in early 2014, a real policy rate of around zero, plenty of monetary accommodation in the pipeline, a relatively large current account deficit and uncertainty about US Fed action, we expect the forward-looking BanRep to raise its policy rate from Q1 2014. However, we expect the rise to be moderate and gradual, keeping monetary policy accommodative in 2014. Inflation is benign, fluctuating in the lower half of central banks 3.0% 1.0pp target range. We expect it to remain so over our forecast horizon. This has fed market expectations that BanRep will remain on hold well into 2014. We recognise that low inflation and political pressure in the run-up to 2014 elections may keep the central bank on hold longer than the data would suggest. The 2014 congressional and presidential elections will increasingly become the key events to monitor in the coming months. Although President Juan Manuel Santos popularity has been waning, we think he is still likely to win re-election if he decides to run. Economic growth will be a key determinant, but the outcome of peace negotiations between the government and the FARC guerrillas will be an even more important factor, in our view. Colombia: Economic forecasts
2011 Real GDP (% y/y)
8%
Inflation is a non-issue
Elections next year to take centre stage
Chart 1: Colombian real GDP growth (% y/y)

10% Domestic Demand
2012 4.2 3.2 2.4 6.2 -11.4 -3.1 -1.9 0.6 33.3 4.25 1,767
2013 (1) 4.1 2.1 2.3 2.8 -13.1 -3.6 -2.6 -0.2 35.3 3.25 1,950
2014 (1) 4.7 2.9 3.1 3.9 -15.8 -4.0 -2.4 -0.2 34.6 4.25 1,890
2015 (1) 4.3 3.1 3.1 2.3 -15.4 -3.5 -2.0 0.4 34.2 4.75 1,850
6.6 3.4 3.7 3.3 -8.7 -2.8 -2.0 0.5

(2)
CPI (% y/y) CPI (% y/y) Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP)
GDP
(2)
6%
4%
2%
Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%)
(2)
0%
35.1 4.75 1,930
-2% Q2 2007
USDCOP
Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013
(2)
Source: Reuters Ecowin Pro, BNP Paribas
Chart 2: Retail sales and industrial production (% 3mma)

8 BILIC Feb 14 6
Chart 3: Colombian policy and real rates (%)

11 10 4.00 9 8 7 3.00 % Policy rate % 5.00
2.00 6
GDP
Real rate (RHS) 1.00
BILIC IMACO
IMACO Nov 13
5 4
0.00 3
0 Jan 2004
Jan 2006
Jan 2008
Jan 2010
Jan 2012
Jan 2014
2 Oct 05
Oct 06
Oct 07
Oct 08
Oct 09
Oct 10
Oct 11
Oct 12
-1.00 Oct 13
Source: Reuters Ecowin Pro, BNP Paribas Nader Nazmi Global Outlook
Source: Reuters Ecowin Pro, BNP Paribas November 2013
78
Chile: Settling down

Growth and private consumption are slowing Chiles growth, inflation and policy rates are all settling at lower levels. The slowdown in growth persists due to stagnating industrial production and maturing mining investment cycles. There are tentative signs of moderating private consumption, despite record low unemployment and rising real wages. We expect growth to slow from an average of 5.8% in 2011-12 to a belowtrend pace of 4.1% this year. We look for a partial recovery to 4.8% in 2014 on the back of easier monetary conditions and favourable base effects. The central bank (BCCh) finally cut its policy rate by 25bp to 4.75% in October, recognising the downside risks to growth and anticipating a gradual slowdown in private consumption. We have long forecast two 25bp rate cuts in Q4 this year, so we continue to expect another cut. Core and headline inflation remain subdued, near the floor of the BCChs 3% 1pp target band. We continue to expect inflation to remain at the lower end of the target range this year and well into next year. Inflation expectations two years hence remain anchored to the 3.0% target. We forecast Chiles relatively large current account deficit to widen to 4.5% of GDP in 2014, on a narrower trade surplus due to weaker copper prices. This, however, is not a source of concern, as the deficit is easily covered by foreign direct investment. The 2014 budget will see spending rise 3.9%, with a substantial chunk earmarked for education in response to widespread student protests. The 2014 structural deficit is likely to amount to 1% of GDP, down from 3.1% when President Sebastin Piera took office in 2010. Former president Michelle Bachelet of the Nueva Mayoria won the first round of the presidential election by a 22pp margin, but did not get the 50%-plus of the vote necessary to avoid a 15 December run-off against ruling alliance candidate Evelyn Matthei. Centre-left Ms Bachelet has declared reducing inequality as the cornerstone of her second presidential term. The tax reform needed for this is creating concern as to the potential impact on private investment and growth. Chile: Economic forecasts (%)
2011 Real GDP (% y/y)
15 y/y
BCCh has begun what we see as a short easing cycle
We expect inflation to be in the lower target range The current account deficit is high, but fully covered
Fiscal policy to turn more austere in 2014 Former President Bachelet in election run-off
Chart 1: Chilean real GDP growth (%)

20 q/q, saar
2012 5.6 3.0 1.5 3.4 -9.5 -3.5 0.5 1.0 10.0 5.00 479
2013 (1) 4.1 1.7 2.2 3.1 -11.9 -4.3 -0.4 0.0 9.0 4.50 530
2014 (1) 4.8 2.3 2.3 2.8 -12.9 -4.5 0.0 0.5 8.7 5.00 520
2015 (1) 4.4 2.1 2.1 6.9 -11.9 -3.8 0.2 0.7 8.9 5.00 500
5.9 3.3 4.4 10.5 -3.3 -1.3 1.3 1.8

(2)
CPI (% y/y) CPI (% y/y)

(2)
10
Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) (2) USDCLP
(2)
-5
11.6 5.25 520
-10 Q2 2005
Q2 2007
Q2 2009
Q2 2011
Q2 2013
(1) Forecast
(2) End period
Chart 2: Retail sales and manufacturing prod. (% 3mma)

24 20 16 12 8 4 0 -4 -8 -12 Sep 08 Manufacturing production
Chart 3: Chilean policy rate and inflation (%)

10 8 6 4 2 0 -2 Inflation rate (y/y) Policy rate
Real retail sales
Sep 09
Sep 10
Sep 11
Sep 12
Sep 13
-4 Oct 01
Oct 03
Oct 05
Oct 07
Oct 09
Oct 11
Oct 13
79
Argentina: A post-election reality check

More orthodox policies likely after 2015 election Argentinas October mid-term elections have substantially weakened President Cristina Kirchners political base, but the government still has clout, including the power to enact emergency decrees, and it controls Congress. We think any of the likely 2015 presidential candidates (Peronists Sergio Massa and Governor of Buenos Aires Province Daniel Scioli, or right-leaning PRO Mayor of Buenos Aires Mauricio Macri) would introduce more orthodox economic policies and reintegrate the country into the global financial system, where it belongs. We believe the current administration will muddle through its last two years in office without any major shifts in economic policy. It will need to reduce Argentinas balance-of-payments risks, as the countrys international reserves have been declining rapidly and its FX policy is becoming more problematic. A smaller trade surplus, in part due to a wider energy trade deficit, and a large deficit on the tourism account, mainly fuelled by efforts to circumvent capital controls, will keep the current account balance in deficit over our forecast period. This, together with weak foreign direct investment (FDI) and limited access to foreign financing sources, is leading to shrinking international reserves. To mitigate some of the risk, the government has been reaching out to multilateral lenders. It has finally agreed to settle the ICSID (International Centre for the Settlement of Investment Disputes) lawsuits and is making progress on addressing its CPI accuracy issue and normalising relations with the IMF. Financing constraints will probably slow the pace of Argentinian public spending growth. As high inflation eats away at consumers real wages and investors remain on the fence due to the high level of policy uncertainty, domestic demand is likely to weaken. An overvalued real exchange rate and weaker demand from Brazil are set to hold back exports contribution to growth. As a consequence, growth is likely to slow into next year. We maintain our 2013 and 2014 growth forecasts of 5.4% and 2.4%, respectively. Inflation will remain high due to structural factors, but should moderate somewhat from its current 25-30% level (private estimates). Argentina: Economic forecasts
2011
3m sum, saar 20
Mid-term elections have weakened Kirchners base
Argentina has agreed to settle its ICSID lawsuits
Growth is set to slow going into 2014
Chart 1: Argentinian trade balance (USD bn)

25
2012 1.9 10.0 10.8 12.4 0.5 0.1 -2.5 -0.2 41.7 15.4 4.92
2013 (1) 5.4 10.6 10.5 9.2 -3.4 -0.7 -2.3 -0.8 40.8 20.0 6.10
2014 (1) 2.4 12.4 14.5 9.5 -3.5 -0.6 -2.2 -1.2 40.4 22.0 7.09
2015 (1) 3.9 14.9 16.5 11.9 -1.5 -0.2 -2.5 -1.6 41.9 18.0 8.03
Real GDP (% y/y) CPI (% y/y)

(2) (2)(3)
(2)
8.9 9.8 9.5 10.0 -1.6 -0.4 -1.7 0.3

(3)
15
CPI (% y/y) Trade balance (USD bn) Current account (USD bn) Current account (% GDP)
12m sum
10
Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) (3) USDARS
(3)
40.2 17.2 4.30
-5 Jan 00
Jan 02
Jan 04
Jan 06
Jan 08
Jan 10
Jan 12
(1) Forecast (2) Official data (3) End period
Source: Reuters EcoWin Pro,INDEC, BNP Paribas
Chart 2: Economic activity, private CPI estimate (% y/y)

35 30 25 20 15 10 5 0 -5 Jan 07 EMAE (Indec) 3mma Private CPI estimate
Chart 3: BCRA FX reserves and USD purchases (USD bn)

2 0 -2 -4 -6 -8 BCRA FX reserves (change since Dec 31, 2012) Official USD purchases (cumulative YTD)
IP (Indec) 3mma
-10 -12 Jan 13
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Source: Reuters EcoWin Pro, INDEC, BNP Paribas Nader Nazmi Global Outlook
80
Peru: Copper blues

Growth hit a turning point in September We believe Perus economic growth reached an inflection point in September and see a gradual pickup from here, to 6.2% in 2014 from 5.1% in 2013. Peruvian growth had been moderating due to weaker external demand and softer copper prices, expanding 4.3% in the 12 months to August, down from 6.1% in the year to August 2012. The countrys fiscal surplus has narrowed this year on increased spending and weaker revenue growth, due to softer activity and declining mining profits. We think the fiscal balance will shift from a small surplus this year to a small deficit in 2014. Higher public spending should help offset weaker private domestic demand and FDI. The current account deficit will remain high this year (4.5% of GDP) and next (4.6%), but should easily be covered by FDI inflows. We warned in our last Global Outlook that slower growth might prompt the central bank to consider an easing option. However, the Banco Central de Reserva del Pers (BCRP) decision in November to cut its policy rate by 25bp to 4.00% was a surprise. Having kept its policy rate unchanged for 29 consecutive months, the BCRP said the main factors behind its decision were a continued slowdown in activity to levels below potential and slower global growth. It seems anchoring inflation to the 2% mid-point of its target range is not the BCRPs immediate priority. Inflation is sitting just above the upper limit of the central banks 2.0% 1pp target range. Although core inflation is closer to the ceiling than the mid-point, more benign food price inflation and economic slack should keep inflation in check. We see inflation ending 2013 and 2014 near the ceiling of the target range. We expect the BCRP to remain on hold until late next year (we expect hikes in Q4 2014) and rely on reserve requirements to control credit growth. Slower growth in China, lower commodity prices and political noise are the main downside risks to our view. The fallout from Fed tapering is expected to be moderate thanks to the shallowness of local capital markets and the Peruvian public sectors small financing requirement.
September was likely an inflection point for growth
After a surprise 25bp cut, BCRP is now on hold
Inflation not an immediate concern
Chinese slowdown, political noise are risks
Chart 1: Peruvian real GDP growth (%)

4 (y/y, 3m, RHS) 3 2 1 0 -1 Output gap -2 -3 Aug 05 0 -2 Aug 13 10 8 6 4 2 12
Peru: Economic forecasts

2011 Real GDP (% y/y) CPI (% y/y) (2) CPI (% y/y) Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDPEN
(2) (2) (2)
2012 6.3 3.7 2.6 6.1 -7.1 -3.5 1.3 2.3 19.7 4.25 2.55
2013 (1) 5.1 2.8 3.1 -0.3 -9.1 -4.5 0.5 1.5 18.8 4.00 2.82
2014 (1) 6.2 3.0 3.3 0.0 -10.4 -4.6 -0.1 0.9 18.0 4.00 2.78
2015 (1) 6.3 3.0 2.8 1.0 -10.8 -4.3 0.2 1.0 17.3 4.50 2.75
6.9 3.5 4.7 10.3 -3.3 -1.9 1.0 2.0 21.3 4.25 2.70
Aug 07
Aug 09
Aug 11
(1) Forecast
(2) End period
Chart 2: Peruvian trade balance (USD bn)

80% 60% 40% 20% 6 0% -20% -40% -60% Sep 07 4 2 0 Sep 13
10%
Chart 3: Peruvian fiscal revenue and expenditure

12 10 8
40% Expenditure (12m y/y) 30% 3% 4%
Imports, 3mma y/y Exports, 3mma y/y
Trade balance (RHS)
20%
2%
1%
0% Primary balance (% GDP, RHS) -10% Revenue (12m y/y)
0%
-1%
Sep 08
Sep 09
Sep 10
Sep 11
Sep 12
-20% Sep 05
Sep 06
Sep 07
Sep 08
Sep 09
Sep 10
Sep 11
Sep 12
-2% Sep 13
81
Venezuela: Dogged by instability

Scarcity of dollars fuelling inflation Venezuelan inflation continues to overshoot expectations and business conditions continue to deteriorate. Inflation has been rising since the start of the year and we see it climbing closer to 60% y/y by year end. The countrys USD shortage persists, but its problems do not stop there. The government is increasingly intervening in the private sector, blaming the private sector for continued product shortages, and is facing the prospect of a loss of support at Decembers municipal elections. Instability is the watchword. CPI inflation continues to soar, exceeding 50% y/y in October (Chart 1), largely due to a scarcity of US dollars to pay for imports. The government has announced a plethora of new policies to increase the distribution of dollars, but due to the states iron grip on foreign currency, they have had little effect. President Nicolas Maduro recently announced that all mechanisms for injecting dollars into the system would be brought under the umbrella of a new FX agency. There has also been talk of additional official exchange rates, but no detail as yet. Another minimum-wage adjustment and changes in regulated prices will put further upward pressure on prices through the end of the year. We have, therefore, raised our end-year 2013 inflation forecast again, to 56% from 50%, with the risks biased to the upside. For end 2014, we are raising our CPI inflation forecast to 48% from 45%, with a devaluation of the currency forecast to be a key source of price pressure next year. On the political front, the countrys municipal elections on 8 December are the governments key concern. The main opposition party, led by former presidential candidate Henrique Capriles, is likely to see some gains, while some of the parties that supported Mr Maduro in the presidential election may field independent candidates. Government initiatives will dent activity We expect Venezuelas activity indicators to drop sharply due to the ongoing political and economic turmoil and the governments increasing intervention in the economy. Our forecasts of GDP growth are unchanged at 1.0% for both 2013 and 2014. Venezuela: Economic forecasts
2011 Real GDP (% y/y) CPI (% y/y) (2) CPI (% y/y) Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%)
(2) (2)
Inflation is soaring
Minimum wage, regulated price changes wont help
Chart 1: Headline CPI inflation (% y/y)

60 50 40 30 20 10 0 02 03 04 05 06 07 08 09 10 11 12 13
2012 5.5 21.1 20.1 38.0 11.0 2.9 -10.0 -7.0 57.3 14.5 4.29
2013 (1) 1.0 40.2 56.0 38.0 22.0 6.2 -5.5 -3.0 62.0 14.5 6.30
2014 (1) 1.0 52.3 48.0 34.0 25.0 6.5 -6.0 -4.0 63.0 14.5 7.50
2015 (1) 2.0 47.1 46.3 27.0 20.0 6.0 -8.0 -5.5 68.0 14.5 7.50
4.2 26.1 27.6 46.0 24.4 7.7 -7.6 -6.0 39.7 14.5 4.29
USDVEF
(2)
Chart 2: Venezuelan real GDP growth (% y/y)

20 BNP Paribas f orecast 15 10 5 0 -5 -10 -15 -20 Q1 2002
Chart 3: USDVEF
7 6 5 4 3 2 1 0
Q1 2005
Q1 2008
Q1 2011
Q1 2014
02
03
04
05
06
07
08
09
10
11
12
13
Source: Reuters EcoWin Pro, BNP Paribas Gustavo Arruda Global Outlook
82
Long-term economic forecasts

Global growth to gather pace after 2014 Global view From 2014, with the US economy back on a self-sustaining path to recovery and the situation in the eurozone gradually improving, we expect global growth to gather pace, albeit gradually. Driving this acceleration will be loose financial and monetary conditions, which will underpin a more sustainable rebound in investment in developed economies. At the same time, however, demand from many large emerging markets, which has accounted for the bulk of global growth since 2008, is forecast to slow in 2014 and will remain lacklustre, on average, in the following years. There are a number of factors behind the deterioration in emerging-market growth, but part of the story is a structural slowdown in China, which accounts for 30% of emerging-market GDP. The peak in global growth in this cycle, therefore, is likely to be considerably lower than the prefinancial-crisis highs. Moreover, the transmission mechanism of monetary policy in many economies will still be impaired, so credit growth, even if accelerating, will be relatively soft and fiscal policies will have to remain tight in many major economies to keep public debt in check. Inflation to rise quickly mid-decade Faster economic growth in 2014-18 will push up commodity prices, raising inflation by the mid2010s. However, inflation is likely to remain moderate due to its low starting point in large economies, such as the US and, in particular, the eurozone. Monetary policy in a number of developed economies will be tightened from late 2015, but modest growth and, for the most part, a benign inflation outlook at that time should ensure the normalisation of policies is gradual. Prudent policies, leading to reduced budget deficits in developed countries and lower emergingmarket inflation, should encourage more sustainable growth in the longer run. However, adverse demographic trends will become a significant constraint on potential and actual growth rates as soon as the second half of the decade, with the average age of the population in most developed economies and China set to rise. Emerging markets even more important Over the coming years, developments in emerging markets will become even more important to the global picture. Despite a generally slower pace of economic growth across the BRIC countries (Brazil, Russia, India, China), their share of world GDP will increase from 15% in 2008 to around 35% in USD terms by 2020, exceeding that of the G4 economies. US We forecast US economic growth to accelerate to 3% in 2016, supported by the loose monetary policy of the past five years and the continued reduction of imbalances over this period. Abovetrend growth from 2015 will chiefly be driven by stronger corporate investment growth, although consumption should also rise more quickly as household balance sheets improve. Improving labour-market conditions will also provide for a self-sustaining recovery and do away with the need for continued monetary accommodation by 2015. US rate hikes from the middle of the decade The closure of the US output and unemployment gaps will push up headline inflation to 2.5% around 2016-17. To prevent inflation expectations from becoming unanchored, the rise in the Fed funds rate is likely to be steady. However, the peak in the Fed funds rate at 3.75% by 2018 will be much lower than in previous cycles, as prolonged fiscal austerity will continue to weigh on growth. We expect the rise in the Fed funds rate to cool growth towards potential and lower inflation in 2018-22 to the Feds implicit target of around 2%. Eurozone The sovereign debt crisis in the peripheral eurozone economies should be much calmer after 2015, with sufficiently sizeable safety nets in place. Tougher budgetary rules should ensure governments long-term commitment to prudent policies and tighter budgetary coordination. However, the continued consolidation of public finances means the eurozones recovery after 2013 will be relatively slow. Even when trend growth is achieved, it is likely to be weaker than in the US, for instance, with worse demographic trends also holding back the European economies. Persistently slow growth in the coming years means the output gap will remain wide for some time to come. Inflation is, therefore, likely to remain below the ECBs target of close to, but below, 2% for a sustained period. Policy tightening will lag that of the Fed by a considerable margin and when it comes, it will be gradual. The medium- to longer-term risk for the eurozone is that inflation expectations break to the downside in the face of any large negative shocks.
Michal Dybula / Dominic Bryant Global Outlook November 2013
Eurozone recovery will be relatively slow
83
Japan Risks of Japan crisis to Our long-term forecast for Japan reflects the falling trend growth rate, due to demographics, the necessitate fiscal tightening impact of the consumption tax hike and the probable adoption of financial repression. The consumption tax will be hiked twice, in April 2014 (from the current 5% to 8%) and in October 2015 (to 10%) and affect inflation through 2016. However, as inflation picks up, the BoJ will have to prioritise stabilising the long-term interest rate to prevent financial turmoil and a fiscal crisis. Consequently, from 2016, when inflation rises notably above the 2% target, we think the BoJ will move to hold down the long-term rate, engineering negative real interest rates. Through financial repression, the authorities will cut Japans public debt, but a thorough overhaul of social welfare, the main driver of its fiscal deficits, will probably remain unaddressed. BoE to tighten policy from 2015 as output gap closes UK The UK is seeing a sharper pickup in growth than elsewhere, which is reflected in the forecasts for 2013-15. However, fundamental adjustments are still required, such as household deleveraging and fiscal adjustment, which cap the upside. The closure of the output gap and resurfacing inflation pressures are likely to trigger monetary tightening by the Bank of England from 2015. Consequently, GDP growth will slow towards its trend rate in 2018-22. China We expect Chinas GDP growth rates to slow markedly over the coming decade as the current investment-led model runs its course. Excess capacity built up in manufacturing and real-estate over the past five years has fuelled major problems in the financial system. These need to be swiftly addressed by policymakers, but as that happens with the scale of financial intermediation decelerating the pace of capital spending will slow, too. The shift to a more sustainable, consumption-oriented pattern will inevitably lead to softer trend growth, with the services sector having generally lower productivity increases than manufacturing, and also as Chinas demographics are set to worsen in the years ahead. Despite slower trend and actual growth, though, Chinas contribution to global GDP will continue to rise. Rebalancing will put downward pressure on growth via industrial and investment activity. Services and consumption will hold up better, thereby supporting CPI inflation. Rising costs for labour, land, natural resources and environmental protection will also act to keep inflation up at 3-4% over the longer term. India to become fastestgrowing major economy India Indias strong demographics, with the working-age population set to grow until 2035, are a good basis for a positive longer-term growth outlook. However, better policy is required to realise this potential. At present, the economy is weighed down by past policy errors and inaction. If this is overcome, India could become the fastest-growing major world economy in the second half of the decade. However, Indias structural problems (and fractious politics, which may slow reform progress) suggest that long-term trend growth could be less than the 7.0% rate assumed in recent years, while inflation will, on average, be higher than in many other large economies. Brazil With the commodity price boom sparked by rapid Chinese growth coming to an end, Brazils longer-term growth prospects have deteriorated quite markedly. Too-high inflation means policy is being tightened which will slow growth in 2014 and 2015. Thereafter, a fall in inflation will allow a loosening of policy and an upturn in 2016-17, before the economy eases back to its probable longer-run trend of 2.25-2.50% growth. Russia Russias growing dependence on the oil and gas sectors makes the economy increasingly dependent on global commodity price cycles. Moreover, over the coming years, the country will face increasing demographic challenges from the rapid rise in the average age of the workforce and, more generally, a fall in the population. Thanks to low levels of public debt, policymakers have sufficient scope to boost budgetary spending in the medium term. Even so, softer fiscal policy is unlikely to boost GDP growth above 3.0% over the coming decade. Prudent monetary policy should help slow inflation in the years ahead, but CPI inflation readings are unlikely to drop below 4.5% before 2020, as higher energy tariffs will push up domestic oil and gas prices.
Chinas economic growth will further slow after 2015
High inflation requires tighter policy in Brazil
Demographic challenges weigh on Russian growth
Michal Dybula / Dominic Bryant Global Outlook
November 2013
84
Table 1: Long- term economic forecasts

10 11 1.8 3.2 1.7 8.9 -8.4 65.8 0-0.25 0.58 0.25 0.83 1.88 1.29 77
11 1.6 2.7 1.4 10.2 -4.2 88.0 1.00 1.36 0.14 0.75 1.83 100 12 -0.6 2.5 1.5 11.4 -3.7 92.7 0.75 0.19 -0.03 0.30 1.31 114
12 2.8 2.1 2.1 8.1 -6.8 70.0 0-0.25 0.31 0.25 0.72 1.76 1.32 87
13 (1) 1.6 1.5 1.8 7.5 -4.0 72.7 0-0.25 0.25 0.35 1.55 2.85 1.32 102
13
(1)
14 (1) 2.2 1.4 1.8 6.8 -4.0 74.0 0-0.25 0.25 0.85 2.30 3.45 1.23 118
14
(1)
15 (1) 2.3 1.8 1.9 6.2 -3.5 74.0 0.50 0.85 2.30 3.10 3.85 1.25 120
15
(1)
16 (1) 2.7 2.2 2.0 6.1 -3.6 73.8 2.50 2.80 3.30 3.90 4.60 1.25 140
16
(1)
17 (1) 3.0 2.5 2.1 5.9 -3.8 73.9 3.50 3.85 3.80 4.40 5.00 1.25 145
17
(1)
18 (1) 2.7 2.6 2.1 5.9 -3.8 74.2 3.75 4.10 4.00 4.60 5.00 1.26 150
18
(1)
19 (1) 2.5 2.3 2.1 5.8 -3.8 74.6 3.75 4.10 4.00 4.60 5.00 1.26 150
19
(1)
20 (1) 2.3 2.1 1.9 5.8 -3.8 75.2 3.75 4.10 4.00 4.60 5.00 1.28 150
20
(1)
21 (1) 2.2 2.1 1.9 5.9 -3.8 75.8 3.75 4.10 4.00 4.60 5.00 1.28 150
21
(1)
22 (1) 2.2 2.1 1.9 5.9 -3.8 76.5 3.75 4.10 4.00 4.60 5.00 1.28 150
22 (1) 0.8 1.8 1.8 10.5 -0.5 80.7 2.75 2.90 3.00 3.60 4.10 192
US GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) Fed. gov. deficit (%) Gross Fed. gov. debt (% GDP) Fed funds rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURUSD (2) USDJPY (2)
Eurozone GDP (% y/y) HICP (% y/y) Core HICP (% y/y) Unemployment rate (%) General gov. budget (% GDP) Gross gov. debt (% GDP) (2) ECB refinancing rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURJPY (2)
2.4 1.6 1.0 9.6 -8.7 62.9 0-0.25 0.30 0.61 2.01 3.29 1.34 81
10 1.9 1.6 1.0 10.1 -6.2 85.4 1.00 1.01 0.85 1.84 2.96 109
-0.4 1.3 1.1 12.1 -3.1 96.6 0.25 0.20 0.10 0.70 1.80 135
(1)
1.0 0.9 0.8 12.1 -2.5 97.1 0.10 0.10 0.25 1.00 2.10 145
(1)
1.0 1.2 1.0 11.9 -2.0 96.6 0.10 0.10 0.50 1.45 2.50 150
(1)
1.4 1.4 1.2 11.5 -1.5 92.3 0.25 0.25 0.70 1.65 2.70 175
(1)
1.8 1.5 1.3 11.0 -1.0 89.6 0.75 1.00 1.00 1.90 2.80 181
(1)
1.4 1.5 1.4 10.7 -0.7 87.3 1.25 1.50 1.60 2.40 3.20 188
(1)
1.0 1.7 1.6 10.6 -1.0 85.7 1.75 2.00 2.20 2.95 3.60 188
(1)
0.8 1.9 1.8 10.6 -0.9 84.2 2.25 2.50 2.60 3.25 3.75 192
(1)
0.8 1.8 1.8 10.6 -0.6 82.4 2.75 2.90 2.95 3.55 4.05 192
(1)
10
11 -0.6 -0.3 -0.3 4.6 -8.7 190.8 0.10 0.33 0.14 0.35 0.99
12 1.9 0.0 -0.1 4.4 -9.1 199.4 0.10 0.31 0.10 0.19 0.80
13
14
15
16
17
18
19
20
21
22 (1) 0.3 5.0 5.0 3.4 -6.4 189.2 0.10 0.20 0.60 1.50 2.50
Japan GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) Gov. budget (% GDP) (2) Gross gov. debt (% GDP) (2) O/N call rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2)
Footnotes: (1) Forecast (2) End period Source: BNP Paribas
4.7 -0.7 -1.0 5.1 -8.3 179.5 0.10 0.34 0.18 0.40 1.12
1.8 0.3 0.3 4.0 -8.3 203.1 0.10 0.22 0.09 0.20 0.50
1.3 2.6 2.5 3.7 -6.1 204.3 0.10 0.20 0.12 0.30 0.70
0.9 1.9 2.0 3.5 -5.6 205.1 0.10 0.20 0.60 1.50 2.50
0.3 3.7 3.7 3.8 -5.2 202.7 0.10 0.20 0.60 1.50 2.50
0.3 3.5 3.5 3.6 -4.7 201.0 0.10 0.20 0.60 1.50 2.50
0.3 3.9 3.9 3.6 -5.1 198.9 0.10 0.20 0.60 1.50 2.50
0.3 4.3 4.3 3.5 -5.4 196.5 0.10 0.20 0.60 1.50 2.50
0.3 4.6 4.6 3.5 -5.8 194.0 0.10 0.20 0.60 1.50 2.50
0.3 4.9 4.9 3.5 -6.2 191.6 0.10 0.20 0.60 1.50 2.50
November 2013
85
Table 2: Long- term economic forecasts

10 11 1.1 4.5 3.2 8.1 -7.7 85.1 0.50 1.08 0.33 1.06 1.98 0.83 1.55
11 9.3 5.4 -1.9 25.5 3.50 6.29
12 0.1 2.8 2.4 7.9 -5.2 88.2 0.50 0.52 0.25 0.64 1.84 0.81 1.63
12 7.7 2.6 -1.5 22.8 3.00 6.23
13 (1) 1.4 2.6 2.1 7.6 -6.4 91.2 0.50 0.50 0.55 1.75 2.90 0.82 1.61
13 (1) 7.7 2.7 -2.1 23.3 3.00 6.08
14 (1) 2.7 2.4 2.3 7.1 -5.5 93.0 0.50 0.50 1.00 2.25 3.35 0.78 1.58
14 (1) 7.3 3.2 -2.3 23.6 3.00 6.12
15 (1) 2.3 2.4 2.5 6.9 -4.3 93.6 1.00 1.00 2.00 2.85 3.55 0.76 1.64
15 (1) 6.8 3.5 -2.5 23.9 3.25 6.10
16 (1) 2.0 2.7 2.4 7.2 -2.7 92.3 1.50 1.70 2.75 3.50 4.10 0.76 1.74
16 (1) 6.7 3.8 -2.5 24.2 3.50 6.16
17 (1) 1.7 2.9 2.5 6.8 -2.9 91.2 2.50 2.80 3.50 4.20 4.60 0.67 1.85
17 (1) 6.5 4.0 -2.5 24.5 4.00 6.20
18 (1) 1.6 2.8 2.3 6.7 -3.1 90.3 4.00 4.30 4.00 4.50 4.80 0.68 1.85
18 (1) 5.8 4.0 -2.5 24.8 4.00 6.20
19 (1) 1.5 2.7 2.3 6.6 -3.1 89.6 4.00 4.30 4.00 4.50 4.80 0.68 1.85
19 (1) 5.1 3.8 -2.5 25.1 3.75 6.20
20 (1) 1.4 2.2 1.8 6.6 -2.9 88.9 3.50 3.80 3.25 3.70 4.00 0.69 1.74
20 (1) 5.1 3.6 -2.5 25.4 3.75 6.20
21 (1) 1.4 2.3 1.9 6.6 -2.6 88.4 2.50 2.80 2.60 3.10 3.65 0.74 1.74
21 (1) 5.1 3.4 -2.5 25.7 3.50 6.20
22 (1) 1.4 2.4 2.0 6.5 -2.7 87.9 2.50 2.80 2.50 3.00 3.65 0.74 1.78
22 (1) 5.1 3.4 -2.5 26.0 3.50 6.20
UK GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) PSNB (% GDP, FY) Gross gov. debt (% GDP) (2) Bank rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURGBP (2) GBPUSD (2)
China GDP (% y/y) CPI (% y/y) Gen. gov. budget (% GDP) Gross gov. debt (% GDP) (2) Policy rate (%) (2) USDRMB (2)
2.0 3.3 2.9 7.8 -9.5 80.0 0.50 0.76 1.09 2.19 3.40 0.86 1.56
10 10.4 3.3 -2.5 33.5 2.75 6.59
10
11 2.7 6.6 -2.6 54.2 11.00 1.87 11 7.5 9.5 -4.8 45.7 8.50 53.1 11 4.3 8.5 1.0 9.6 5.25 32.2
12 0.9 5.4 -2.5 58.7 7.25 2.05 12 5.1 7.5 -5.7 46.5 8.00 55.0 12 3.6 5.1 0.1 10.4 5.50 30.4
13 (1) 2.3 6.2 -3.2 60.3 10.00 2.45 13 (1) 4.2 6.2 -5.2 47.3 8.00 63.0 13 (1) 1.4 6.7 -0.4 10.8 5.25 33.3
14 (1) 1.5 6.1 -4.1 61.4 11.00 2.60 14 (1) 4.2 4.6 -5.3 49.0 8.25 66.0 14 (1) 2.5 5.3 -1.7 11.9 5.00 33.5
15 (1) 1.0 6.2 -2.8 62.3 12.00 2.45 15 (1) 6.4 5.1 -5.0 49.7 7.75 69.0 15 (1) 2.5 5.2 -3.1 14.4 5.00 34.8
16 (1) 3.0 5.2 -2.8 60.3 10.00 2.35 16 (1) 7.2 4.6 -4.5 48.7 6.50 63.0 16 (1) 3.1 4.5 -3.3 17.5 5.00 35.0
17 (1) 3.0 4.9 -2.6 58.4 10.00 2.35 17 (1) 6.7 5.3 -4.3 47.9 7.00 60.0 17 (1) 3.2 4.5 -3.1 19.0 5.00 34.5
18 (1) 2.5 4.9 -2.7 57.0 10.00 2.40 18 (1) 6.1 5.2 -4.3 47.1 7.25 60.0 18 (1) 3.0 4.5 -3.0 20.4 5.00 34.0
19 (1) 2.4 4.9 -2.7 55.7 10.00 2.40 19 (1) 6.0 5.1 -4.2 46.5 7.50 60.0 19 (1) 2.6 4.4 -3.1 21.8 4.75 34.0
20 (1) 2.2 4.9 -2.7 54.6 10.00 2.40 20 (1) 6.0 5.0 -4.0 45.8 7.25 60.0 20 (1) 2.6 4.1 -3.3 23.2 4.75 34.0
21 (1) 2.1 4.9 -2.6 53.6 9.50 2.40 21 (1) 5.9 5.1 -3.8 44.9 7.25 60.0 21 (1) 2.8 3.9 -3.4 24.6 4.50 34.0
22 (1) 2.1 4.8 -2.6 52.7 9.50 2.45 22 (1) 5.8 5.1 -3.6 44.1 7.25 60.0 22 (1) 2.7 3.6 -3.4 26.0 4.25 34.0
Brazil GDP (% y/y) IPCA (% y/y) General gov. budget (% GDP) Gross gov. debt (% GDP) (2) Policy rate (%) (2) USDBRL (2)
7.5 5.0 -2.5 54.7 10.75 1.66 10
India GDP (% y/y) WPI (% y/y) Central gov. budget (% GDP) Gross cen. gov. debt (% GDP)(2) Policy rate (%) (2) USDINR (2)
9.7 9.6 -6.5 49.2 6.25 44.7 10
Russia GDP (% y/y) CPI (% y/y) General gov. budget (% GDP) Gross gov. debt (% GDP) (2) Policy rate (%) (2) USDRUB (2)
Footnotes: (1) Forecast (2) End period Source: BNP Paribas
4.3 6.9 -3.9 7.9 7.75 30.4
November 2013
86
This publication is classified as non-objective research
Commodities: It's all down to supply

Oil and US natural gas Ongoing and potential oil-supply outages in both non-OPEC and OPEC countries suggest a strong floor under Brent, at USD 100/bbl, and the potential for price rallies. In addition, the next three months have the potential to see material upside to crude oil prices, as refiners emerge from maintenance and ramp up throughputs, as they usually do, ahead of peak winter demand. Equally, prolonged US QE should underpin interest in risky assets, especially oil, the commodity best equipped to accommodate investor flows. Yet, as 2014 unfolds, growth in US light oil production and an accompanying expansion of transport infrastructure, leading to a US retreat from foreign oil, should cap rallies in the oil price and invite greater supply management from OPEC. All told, we expect annual average oil prices to hold steady in 2014 from 2013. In the US natural gas market, we again have a sense of dj vu. The significant threat of surplus inventories is likely to result in lower prices in the first half of 2014, absent extreme weather conditions this winter. Looking further forward, though, we expect balances to tighten. We are likely to see rising substitution of coal by gas in the utility sector. We also expect incremental demand from the repatriation of manufacturing to support firmer prices. We expect the price performance of base metals to be mixed until the end of 2014. The sector as a whole may not fare particularly well, due to the heavy weighting in investor portfolios of copper, where supply-side fundamentals point to fresh downward pressure. There is still considerable fundamental support, though. World base-metal demand growth has picked up markedly in 2013 and we forecast even faster growth in 2014, in line with a pickup in global economic growth. Supply of lead, tin and zinc will become increasingly constrained. Moreover, the prices of those metals with the weakest fundamentals aluminium and nickel are already deep into their cost curves, suggesting price floors are more or less in place. While changes on the supply side are unfolding, dictating the relative performance of the base metals, they are doing so at different rates. For this reason, our balances point to downward pressure on copper developing comparatively swiftly. Upward price pressure on lead and zinc prices will take more time to manifest itself, as it is predicated largely on future mine closures. Gold has proved unable to recover in a sustainable manner and there is little in the way of financial factors (yields or dollar value) to support it. The eventuality of QE tapering is fully embedded in the market psyche, eliminating longer-term price-gain prospects. While gold has consolidated around technical levels recently, we expect continued price erosion throughout the forecast period. The transition from tight old crop fundamentals to record harvests for grain and oilseeds in 2013 has resulted in significant price declines. Field-crop harvests are finishing in the northern hemisphere and producer selling has pushed values to multi-year lows. The downward pressure on prices comes as non-US production of grains and oilseeds is also at record highs; the competition has led to weaker values. Supply responses after price spikes in US grains in 2012 suggest that prices are likely to remain depressed into 2014. The prospects for coffee and sugar look similar, as high prices in 2011 have resulted in large harvests and falling prices this year. Table 1: BNP Paribas commodity price forecasts, period averages
Issue date 15/08/13 15/08/13 07/11/13 11/09/13 11/09/13 11/09/13 11/09/13 11/09/13 11/09/13 11/11/13 18/10/13 01/10/13 11/09/13 11/11/13 2013 (forecast) 100 110 3.65 1,850 7,300 15,000 1,895 2,155 22,400 1,415 582 680 1,400 125 2014 (forecast) 102 110 3.90 1,865 6,675 14,875 2,060 2,325 25,000 1,095 400 630 1,155 98 Q4 2013 (forecast) 107 115 3.55 1,770 7,050 13,825 1,855 2,145 23,300 1,285 438 645 1,275 105 Q1 2014 (forecast) 106 115 3.90 1,790 6,750 14,150 1,880 2,175 23,500 1,110 420 615 1,100 100 Q2 2014 (forecast) 100 108 3.65 1,845 6,875 14,650 1,985 2,275 24,600 1,090 400 625 1,150 95 Q3 2014 (forecast) 99 106 3.95 1,880 6,650 15,050 2,115 2,375 25,700 1,075 393 630 1,175 95 Q4 2014 (forecast) 104 112 4.20 1,945 6,425 15,650 2,260 2,475 26,200 1,100 390 645 1,200 100
Metals
Agriculture
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) Corn (US/bu) Wheat (US/bu) Soybeans (US/bu) Coffee (US/lb)
Commodity Markets Strategy Global Outlook
November 2013
87
Global Outlook team

International Paul Mortimer-Lee Europe Ken Wattret Luigi Speranza Dominic Bryant Gizem Kara Evelyn Herrmann Dominique Barbet Colin Bermingham Raymond van der Putten Steven Vanneste Catherine Stephan Caroline Newhouse Thibault Mercier David Tinsley US Julia Coronado Laura Rosner Yelena Shulyatyeva Bricklin Dwyer Japan Ryutaro Kono Hiroshi Shiraishi Azusa Kato Makoto Watanabe Emerging Markets Richard Iley Mole Hau Philip McNicholas Mark Walton XingDong Chen Jacqueline Rong Michal Dybula Marcin Kujawski Sergey Yahnych Selim Cakir Emre Tekmen Nazli Toraganli Tugba Talnl Jeffrey Schultz Marcelo Carvalho Gustavo Arruda Nader Nazmi Oscar Munoz Florencia Vazquez Commodities Strategy Harry Tchilinguirian Gareth Lewis-Davies Teri Viswanath Stephen Briggs Keith Flury Jean-Philippe Cotis Franois Faure Robert McAdie Laurence Mutkin Steven Saywell
Contacts Global Outlook
Global Head of Market Economics Eurozone Eurozone, Italy Global Eurozone, Greece, Spain Germany, Eurozone France Ireland, Netherlands, Portugal Netherlands Belgium Austria Finland Greece UK, Sweden, Norway, Switzerland, MT rate forecasts US, Canada US US US, Canada Japan Japan Japan Japan Asia Asia SE Asia Australia, South Korea, Taiwan China China CEE, Russia CEE Ukraine Turkey, GCC Turkey, GCC Turkey, GCC Turkey, GCC South Africa Latin America, Brazil Brazil Mexico, Colombia, Peru Mexico, Colombia, Peru Chile, Argentina, Venezuela Oil Oil Natural Gas Base Metals Agriculture Group Chief Economist Head of Country Risk Global Head of Fixed Income Strategy & Credit Research Global Head of G10 Rates Strategy Global Head of FX Strategy
88
London London London London London London Paris London Paris Brussels Paris Paris Paris London New York New York New York New York Tokyo Tokyo Tokyo Tokyo Hong Kong Hong Kong Hong Kong Hong Kong Beijing Beijing Warsaw Warsaw Kiev Istanbul Istanbul Istanbul Istanbul Johannesburg So Paulo So Paulo New York New York Buenos Aires London London Houston London London Paris Paris London London London
44 20 7595 8551 44 20 7595 8657 44 20 7595 8322 44 20 7595 8502 44 20 7595 8783 44 20 7595 8476 33 1 4298 1567 44 20 7595 8228 33 1 4298 5399 32 2 312 1210 33 1 5577 7189 33 1 4316 9550 33 1 5743 0291 44 20 7595 8150 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 5620 852 2108 5077 852 2108 5105 86 10 6535 3327 86 10 6535 3363 48 22 697 2354 48 22 697 2355 380 44 537 50 82 90 216 635 2972 90 216 635 2975 90 216 635 2986 90 216 635 2973 27 11 0882171 55 11 3841 3418 55 11 3481 3466 1 212 417 8216 1 212 471 6599 54 11 4875 4363 44 20 7595 8779 44 20 7595 8775 1 713 393 3137 44 20 7595 8774 44 20 7595 8031 33 1 4316 9558 33 1 4298 7982 44 20 7595 8885 44 20 7595 8639 44 20 7595 8487
November 2013
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Global Outlook

Published 20 November 2013 Global Outlook

Summary table 1: Economic and financial forecasts

2.8 1.6 -0.6 1.1 7.5 2013

11 3.3 3.3 -2.8 13.9

12 3.6 -2.0 0.6 10.0

Q1 2.5 -2.2 -7.9 9.5

Q2 2.0 -0.7 -3.1 9.1 2013

Q3 2.5 -0.9 2.3 10.1

2014 (1) Q3 2.9 3.7 1.0 8.9

2.8 3.3 2.6 9.1

3.1 2.1 2.4 8.2

2.6 1.9 5.6 9.8

2.5 3.1 6.4 9.5

2.8 2.9 2.8 9.1

3.0 3.5 0.2 9.3

11 8.9 10.2 4.6

12 8.1 11.4 4.4

14 (1) 6.8 12.1 3.7

15 (1) 6.2 11.9 3.5

Q1 7.7 12.0 4.2

Q2 7.6 12.1 4.0 2013

Q3 7.3 12.2 4.0

Q4 (1) 7.2 12.2 3.9

Q1 (1) 7.0 12.2 3.8

2014 Q2 (1) Q3 (1) 6.9 12.1 3.7 6.7 12.1 3.7

Q4 (1) 6.6 12.0 3.6

11 3.2 2.7 -0.3 5.4

12 2.1 2.5 0.0 2.6

Q1 1.7 1.9 -0.6 2.4

Q2 1.4 1.4 -0.3 2.4 2013

Q3 1.6 1.3 0.9 2.8

2014 (1) Q3 1.4 0.7 2.9 3.2

1.4 0.9 2.6 3.2

1.8 1.2 1.9 3.5

1.3 0.8 1.2 3.4

1.1 0.8 1.3 3.5

1.5 0.8 3.5 3.6

1.8 1.2 2.8 2.7

11 1.29 77 6.29 100 0.83 1.55

12 1.32 87 6.23 114 0.81 1.63

14 (1) 1.23 118 6.12 145 0.78 1.58

15 (1) 1.25 120 6.10 150 0.76 1.64

Q1 1.28 94 6.21 121 0.84 1.52

Q2 1.30 99 6.14 129 0.86 1.52

Q3 1.35 98 6.12 133 0.84 1.62

Q4 (1) 1.32 102 6.08 135 0.82 1.61

Q1 (1) 1.28 108 6.15 138 0.83 1.54

Q4 (1) 1.23 118 6.12 145 0.78 1.58

11 -2.9 0.1 2.0 1.9

12 -2.7 1.3 1.0 2.3

-2.4 2.3 0.7 2.0

-2.2 2.5 0.5 1.9

(% GDP) (5) US Eurozone Japan China

11 -8.4 -4.2 -8.7 -1.9

12 -6.8 -3.7 -9.1 -1.5

-4.0 -2.5 -6.1 -2.3

-3.5 -2.0 -5.6 -2.5

Source: BNP Paribas Market Economics Global Outlook November 2013

Summary table 2: GDP forecasts (% y/y)

Summary table 3: CPI forecasts (% y/y)(1)

Emerging and developing economies(2)

Source: BNP Paribas Market Economics Global Outlook November 2013