JP Morgan - Global Report

Economic Research
March 28, 2013
Global Data Watch

Cyprus stress adds to case for more ECB ease; it wont come in April US corporate strength seen in durables to be reinforced by strong April employment gain BoJ takes first step on path to reflation next week Through noisy industry data, PMIs point to solid regional performance
Contents
Assessing shifts in ex port market performance US labor force participation still trending low er Italy 's structural challenge: law and the judicial sy stem What does Chinas recent ex port strength tell us? Glass-half-full RBA to ease again in Nov ember, not May Singapore: MAS to fade soft data and keep inflation focus Global Economic Outlook Summary Global Central Bank Watch Now cast of global grow th Selected recent research from J.P. Morgan Economics The J.P. Morgan View : Markets 23 4 6 7 8 9 25 33 37 41 43 45 47 49 51 55 59 61 65 69 71 75 77 80 21 19 17 15 13
Caught one more time up on Cyprus avenue

The seeds of the decisions made in Cyprus this week were sown by last summers OMT program. By stepping into the role of a sovereign lender of last resort, the ECB significantly lowered the risk that a Euro area sovereign would lose access to funding. However, as systemic sovereign risk has abated so has the pressure for the region to move forward on institutional reforms and burden sharing. This has empowered Germany to push a position that legacy problems need to be addressed at the sovereign level in advance of broader regional reforms. The repercussions arising from the OMT program were first seen last September when Germany made it clear that area-wide resources for bank recapitalizationwhich had been in the banking union roadmap announced in June would only be available to resolve subsequent banking crises. As such, ESM support for Spanish banks came in a loan to the sovereign rather than the acquisition of an equity investment in the banks. Greece also faced a very difficult set of negotiations last autumn to release money from the second program. The pattern continued with Cyprus where the lack of sovereign capacity to deal with a banking crisis produced an agreement where the burden of recapitalizing banks incorporated a broad-based bail-in of bank creditors. The recognition that regional burden sharing is limited is putting upward pressure on bank funding costs, unwinding a portion of the decline seen since the announcement of the OMT. There should be little doubt that recent developments will weigh on area-wide economic performance. Our current forecast has the regional recession continuing through midyear. It will also exacerbate regional divergences between those countries now doing relatively well (Germany, Austria, Belgium) and those still in recession (the periphery).
Data Watches United States Euro area Japan Canada Mex ico Brazil Argentina Colombia and Chile United Kingdom Central Europe South Africa Australia and New Zealand China, Hong Kong, and Taiw an Korea ASEAN India Asia focus Regional Data Calendars
EMU bank CDS and equity prices

Bank CDS, Equity prices inverted scale 100 1450 150 200 250 300 350 2011 2012 2013 1350 1250 1150 1050 Bp Index
Core cap goods shipments and orders

%ch saar over 3 mos, both scales Shipments New orders 30 20 10 0 -10 -20 2011 2012 2013
Bruce Kasman
45 30 15 0 -15 -30
(1-212) 834-5515 bruce.c.kasman@jpmorgan.com JPMorgan Chase Bank NA
David Hensley
(1-212) 834-5516 david.hensley@jpmorgan.com JPMorgan Chase Bank NA
Joseph Lupton
(1-212) 834-5735 joseph.p.lupton@jpmorgan.com JPMorgan Chase Bank NA
Source: J.P.Morgan, Bloomberg, Morgan Stanley
Source: Census Bureau
www.jpmorganmarkets.com
JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com
Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com
Economic Research Global Data Watch March 28, 2013
Japan equity prices and small business sentiment

Index 13000 12000 11000 10000 9000 8000 7000 2010 2011 2012 2013 Nikkei 225 DI, sa; adj for Tohoku disaster Shoko-Chukin 50 49 48 47 46 45 44 43
force this message as nonfarm payroll employment is anticipated to rise 210,000. The underlying source of business strength is the solid profit performance through a period of modest growth. This weeks GDP report showed that corporate profits grew at a 9.7% annualized pace during 2H13, calming fears of weakness that depressed spending and hiring around the middle of last year. With margins elevated and hourly labor costs growing modestly, the prospects for continued strong employment gains look good, even as the economy absorbs the fiscal drag.
Japan: a historic meeting next week

Next weeks BoJ meeting, on April 3 and 4, will be a historic event, marking a regime change in Japanese monetary policy. Indeed, Governor Kuroda stated at the Diet this week that the BoJ would achieve 2% inflation target at any cost and that it would purchase a wide range of assets to achieve this goal. In this context, next weeks decision should be viewed as the first step on a long path toward Japanese reflation. At the meeting we expect four initiatives: Pulling forward the start of the open-ended asset purchase to May 2013. An increase in asset purchase to 4 trillion a month (or 48 trillion a year) on a net basis. The purchase of long-dated JGBs by the consolidation of the APP and the Rinban operation, with the extension of JBG maturity up to 30 years. A change in wording on forward guidance to the BoJ will continue the virtually zero rate policy until the 2% inflation target is in sight from the current wording that the Bank will pursue aggressive monetary easing through a virtually zero rate policy and purchases of financial assets, as long as the Bank judges it appropriate to continue with each policy measure respectively. Although these actions are anticipated, the BoJ is expected to guide expectations in the direction of further actions in the months ahead. We expect that raising actual inflation will be difficult and take time and that the BoJ will need to build credibility through actions that expand the scope of the asset purchase to include more equities and corporate bonds. An agreement with the government to share potential BoJ losses, derived from holding risk assets, would provide a signal laying the groundwork for these purchases.
Source: Shoko-Chukin Bank, Reuters
We have argued for some time that there need to be macroeconomic policies that support regional demand in the midst of these adjustments. For a region that has been in recession for more than a yearfacing record-high unemployment and an ongoing large fiscal dragfurther monetary easing is essential. Looking to next weeks ECB meeting, no action is expected. Arguably the appropriate response to disappointments with the bank lending channel would be an easing of collateral requirements and further LTROs. This would also help to contain any deposit flight from peripheral banking systems. But, while ECB policymakers have spoken for many months about wanting to support bank lending to small and medium-sized companies, there is no indication that anything is imminent. We expect that the main refinancing rate will be cut 25bp to 0.5% by June and hope that a signal is sent next week that opens the door for a move in May.
US corporates drive the bus

While the Euro area economy remains mired in recession, the US economy is rebounding. The forecast for current quarter GDP growth was revised up to 2.7%q/q saar this week. As consumption growth moderates in the face of a tax increase and higher gasoline prices, growth should moderate next quarter. However, our current 1H13 projection of 2.1% annualized growth would represent an impressive outcome in the face of a large front-loaded 2013 fiscal drag. US resilience reflects corporate sector health, and we anticipate firms will perceive this years fiscal drag as a temporary shock. In this regard, the building momentum on business spending and hiring is encouraging. Following last summers slump, real business fixed investment rebounded to a 13.2% annualized gain last quarter. Positive news on business spending from the February durable goods report points to a solid gain in capital spending in 1Q13. This lift is being reinforced by stronger hiring and a turn in the inventory cycle. Indeed, next week we expect the March labor market report to rein2
JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com
EM Asian manufacturing
Ratio, sa; incl Mar 13 est 1.3 1.2 1.1 1.0 0.9 0.8 2010 2011 2012 2013 PMI orders/inventory Mfg output %3m, saar 25 20 15 10 5 0 -5
macro-prudential measures appear to have failed and the Bank decided to use liquidity management instead. As the CBRT reduces the repo funding to the banks, we expect ON rates to settle in the upper half of the interest rate corridor.
Argentina flirts with technical default

Investor concerns over sovereign default risk have focused on Europe in recent years. Now Argentina faces a challenging legal situation as a US court is requiring it to propose a settlement for defaulted debt held by a minority of private creditors (8% of total) that did not participate in its 2005 and 2010 restructurings. Argentina can surprise with a generous offer and resolve the uncertainty favorably; it has enough resources today and a combination of high growth and a large haircut on other creditors has resolved its prior debt overhang. But Argentine policymakers are averse to offering holdouts better terms and have suggested they prefer to petition the Court for an unprecedented sovereign cram down. This is a risky strategy given that interpretation of sovereign contractual law is not framed in the context of a bankruptcy code common to corporate debt workouts. If it fails, the court orders under review could trigger a ban on Argentinas access to the US banks that it uses to pay restructured bondholders. True, any resulting technical default on external debt (22% of total public debt) might have only a limited impact on Argentinas banking system while its strict capital outflow controls can mitigate the threat of a run on central bank reserves. But a miscalculated decision that further isolates the economy should be expected to undermine long-term growth and investment.
Source: J.P. Morgan, Markit
Global PMI likely steady in March

Global manufacturing grew at a robust 4.5% annualized clip in the three months through January, riding a wave of stronger final demand growth and a positive turn in the inventory cycle. The forecast calls for this growth pace to moderate to near 3% in coming months as US consumption growth fades, along with the inventory impulse. Our global PMI index has given an early signal in this direction. The output index dropped a half-point in February, accompanied by a similar decline in new orders. Likewise, the finished goods inventory index has moved to an elevated level. Looking to next weeks March release, our expectation is that the PMI will hold near the February level. The EM Asian PMIs will be of special interest. Manufacturing output pulled out of its slump in EM Asia a few months earlier than elsewhere, and likewise, the forecast has called for some cooling off in regional IP growth during the current quarter. Tracking this story is made complicated by distortions in January and February data due to the Lunar New Year holidays, seen in the volatility of recent IP and export readings. Experience shows the manufacturing PMIs are less affected by these holiday distortions, so we look to them for signal. Through February, the EM Asian PMI stood well above the 4Q average, despite a pullback on the month, suggesting that any slowing in IP growth is modest.
China acts to rein in nonbank lending

Following a spike in nonbank lending early this year, Chinese officials are moving to rein in this channel of credit creation, which has grown to be nearly as large as bank lending. A few weeks ago, government regulators (CBRC) announced guidelines on local government financing vehicles. This week they followed up with new guidelines to control WMPs, requiring that investment in non-standard assets should not exceed 35% of a banks total WMP issuance, or 4% of a banks total assets. Tighter regulatory controls over the credit channel primarily restrain investment, especially by local governments. Continued action along these lines would reinforce our forecast for trend-like growth in Chinas economy this year.
EMEA central banks in motion

In the emerging markets, a handful of central banks are still easing, dominated by the EMEA region. This week Hungary cut the base rate 25bp for the eighth consecutive meeting and will probably gradually lower rates from the current 5% level to 4.50% by May. Wary of inflation, Romanias central bank left the policy rate on hold at 5.25% this week. The Czech National Bank reached the zero bound in 4Q12, so this week the bank turned to communications, signaling that the policy rate will be kept low over a longer horizon. In contrast to policymakers in the rest of the region, Turkeys central bank is preoccupied with rapid credit expansion and potential inflation risk. The CBRTs attempts to restrain loan growth using
Editor: Sandy Batten (1-212) 834-9645 sandy.batten@jpmorgan.com

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JPMorgan Chase Bank NA David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com Carlton Strong (1-212) 834-5612 carlton.m.strong@jpmorgan.com
Global economic outlook summary

Real GDP
% over a year ago
Real GDP
% over previous period, saar
Consumer prices
% over a year ago
2011 The Americas United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Africa/Middle East Israel South Africa Europe Euro area Germany France Italy Spain United Kingdom Emerging Europe Bulgaria Czech Republic Hungary Poland Romania Russia Turkey Global Developed markets Emerging markets 1.8 2.6 4.2 8.9 2.7 5.9 6.6 8.0 3.9 6.9 5.7 4.2
2012 2.2 1.8 2.6 1.9 0.9 5.6 4.0 5.0 3.9 6.3 3.5 5.6 4.8 2.0 3.6 2.5 6.2 7.8 1.4 5.0 6.2 2.0 5.6 6.6 1.3 1.3 6.4
2013
2014
3Q12 3.1 0.7 2.0 3.2 1.5 5.0 -2.9 6.3 1.5 6.9 7.8 5.2
4Q12
1Q13
2Q13 1.5 1.6 4.0 3.0 3.7 5.1 5.5 3.0 4.5 7.0 3.0 2.0
3Q13 2.0 2.0 4.2 1.6 4.4 4.8 5.5 3.0 4.6 7.5 5.0 2.0
4Q13 2.5 2.1 3.7 1.5 3.9 4.5 5.1 4.0 4.0 6.0 5.0 2.0
1Q14 2.0 1.9 3.9 1.5 4.2 4.5 4.5 5.0 3.5 6.5 4.0 4.0 5.4 3.4 4.3 4.3 7.0 8.0 2.0 7.6 5.5 4.0 6.3 5.3 6.1 3.4 4.5
3Q12
4Q12
2Q13
4Q13
4.7 -0.5 2.4 1.4 7.4 9.3 4.9 6.2 6.5 3.7 5.1 3.9 5.2 4.1 0.1
1.9 1.4 3.4 3.0 3.0 5.5 4.5 4.0 3.6 6.0 3.7 2.0 4.8 1.3 2.7 2.5 6.7 8.2 3.8 5.8 5.7 2.8 5.4 5.3 2.4 4.2 5.4 3.1 2.6 0.1 -0.6 0.6 -0.7 -1.6 -1.7 0.8 2.3 1.2 -0.2 -0.7 1.3 1.9 2.5 3.7 2.4 0.9 5.1
2.3 2.1 3.8 1.5 4.0 4.5 5.0 4.5 3.6 6.5 4.0 3.0 4.9 1.2 3.2 2.9 6.7 8.0 3.6 6.5 5.3 3.9 5.4 5.3 3.9 3.9 4.5 3.3 3.6 1.7 1.2 2.1 1.0 0.7 0.5 1.9 3.4 1.7 1.9 1.4 2.6 2.3 3.6 4.5 3.1 1.8 5.4
0.4 0.6 3.4 5.2 2.2 6.1 7.4 5.5 3.1 2.5 2.3 5.7
2.7 1.6 3.0 3.5 2.7 6.0 4.2 5.0 3.9 5.0 4.0 -4.0 5.2 3.0 2.4 2.1 6.6 8.0 3.5 6.4 5.0 3.1 4.7 4.5 1.2 4.0 4.5 3.2 2.7 -0.3 -0.5 1.5 -1.3 -1.5 -1.8 0.5 0.2 -0.1 -0.3 1.1 0.8 0.0
1.7 1.2 4.7 10.0 5.2 2.6 3.1 5.1 4.6 3.5 8.0 19.0 2.1 -0.4 2.0 0.8 3.2 1.9 3.1 9.8 4.5 1.6 1.4 3.5 4.2 2.9 2.9 1.8 5.1 3.2 2.5 2.1 2.3 3.4 1.9 2.4 6.1 3.3 6.1 3.9 4.1 6.0 9.0 2.5 1.7 4.0
1.9 0.9 4.7 10.6 5.6 2.2 2.8 4.6 4.1 2.9 8.9 18.7 2.2 -0.2 2.2 0.9 3.4 2.1 3.8 10.1 4.4 1.7 1.3 3.0 4.0 1.8 3.2
1.9 1.7 1.4 2.0 5.0 4.7 10.0 11.0 6.4 5.9 2.2 3.1 2.0 2.4 5.4 4.7 4.0 3.4 2.3 2.5 8.4 7.7 31.0 35.7 2.6 0.0 2.8 1.1 3.7 3.0 3.5 9.0 3.9 1.8 2.3 3.1 3.0 1.3 4.2 3.0 0.5 2.7 2.2 4.2 3.6 3.7 8.5 4.6 2.6 2.6 3.4 3.4 2.3 4.0 2.2 5.7 2.4 1.5 1.6 1.2 1.8 2.6 2.9 4.8 2.4 2.8 1.8 5.1 5.5 6.3 2.6 1.6 4.4
2.9 5.1 -3.7 0.2 2.6 2.4 0.7 6.1 5.9 7.7 8.0 9.4 3.2 4.9 3.5 4.7 5.3 6.9 0.2 1.1 5.2 7.9 7.0 6.1 -4.6 3.3 3.9 7.3 6.1 15.0 2.7 1.2 0.5 -0.3 0.9 0.7 -0.8 -1.3 3.8 1.3 -1.8 -1.4 1.2 -1.0 2.2 2.4 2.1 -1.6 -2.3 -2.3 -1.2 -3.7 -3.1 -1.2 1.5 -0.7 -3.4 0.8 0.3 2.5
5.6 3.2 2.7 3.5 7.0 8.2 3.5 6.5 6.0 4.0 4.5 4.9 7.0 4.0 4.5 2.8 2.8
5.3 2.5 3.7 -2.0 6.9 8.2 5.0 5.3 6.0 4.5 5.4 5.3 4.1 4.2 5.0 3.6 3.4
5.4 2.9 2.6 4.4 6.9 8.2 5.0 5.6 5.5 4.5 5.4 5.3 4.1 4.3 5.0 3.6 3.6
4.6 3.5
2.1 1.5 3.1 1.7 0.5 0.4 1.0 4.8 1.8 1.9 1.6 4.3 2.2 4.3 8.5 3.1 1.4 6.1
3.1 2.5 0.2 -0.5 0.9 0.0 -2.4 -1.4 0.3 2.4 0.8 -1.3 -1.7 2.0 0.3 3.4 2.6 2.4 1.2 4.7
3.2 3.8 1.8 1.5 2.5 1.5 1.0 0.0 2.0 3.0 2.0 1.5 2.8 1.6 3.5 3.3 2.1 5.6
1.6 1.9 5.6 6.2 3.0 2.3 2.0 1.7 2.6 3.2 2.7 5.7 2.8 5.4 2.9 4.8 6.5 6.8 2.5 1.6 1.6 1.1 1.7 2.6 2.8 5.5 2.2 2.9 1.0 6.3 6.8 6.7
0.3 1.2 1.5 -0.5 0.5 1.0 1.0 1.8 2.0 -1.3 0.0 0.5 -1.5 0.0 0.5 -1.8 -0.8 -0.8 1.0 1.5 2.0 3.1 3.9 3.1 0.5 1.0 1.0 0.3 1.2 1.5 1.6 2.3 2.8 3.9 5.9 2.8 4.0 4.8 3.5
Memo: Global PPP weighted 3.8 3.0 3.1 3.6 2.7 2.5 3.2 3.3 3.6 3.6 3.6 2.9 3.0 3.0 3.0 Note: For some emerging economies, 2012-2014 quarterly forecasts are not available and/or seasonally adjusted GDP data are estimated by J.P. Morgan. Bold denotes changes from last edition of Global Data Watch, with arrows showing the direction of changes. Underline indicates beginning of J.P. Morgan forecasts. Unless noted, concurrent nominal GDP weights calculated with current FX rates are used in computing our global and regional aggregates. Latin America CPI aggregate now includes only those countries where central banks actively target inflation (excluding Argentina, Ecuador and Venezuela).
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2.1 1.6 2.6 2.7 3.1 3.3 0.9 -0.5 1.5 1.1 1.6 2.0 4.2 5.7 4.7 5.6 5.7 5.5
2.5 2.6 1.7 1.6 4.1 4.3
JPMorgan Chase Bank NA David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com Carlton Strong (1-212) 834-5612 carlton.m.strong@jpmorgan.com
G-3 economic outlook detail

Percent change over previous period; seasonally adjusted annual rate unless noted
2012 2011 United States Real GDP Private consumption Equipment investment Non-residential construction Residential construction Inventory change ($ bn saar) Government spending Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (%oya) Excluding food and energy (%oya) Federal budget balance (% of GDP, FY) Personal saving rate (%) Unemployment rate (%) Industrial production, manufacturing Euro area Real GDP Private consumption Capital investment Government consumption Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (HICP, %oya) ex unprocessed food and energy General govt. budget balance (% of GDP, FY) Unemployment rate (%) Industrial production Japan Real GDP Private consumption Business investment Residential construction Public investment Government consumption Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (%oya) General govt. net lending (% of GDP, CY) Unemployment rate (%) Industrial production 1.8 2.5 11.0 2.8 -1.4 31.0 -3.1 6.7 4.8 1.7 -0.2 0.2 3.1 1.7 -8.6 4.3 8.9 3.4 1.5 0.1 1.6 -0.1 6.5 4.3 0.3 0.2 1.0 2.7 1.7 -4.1 10.2 3.2 -0.5 0.5 3.3 5.5 -6.9 1.4 -0.4 5.9 0.8 -0.5 -0.8 -0.3 -9.7 4.6 -2.3 2012 2.2 1.9 6.9 10.8 12.1 43.0 -1.7 3.4 2.4 2.0 0.1 0.1 2.1 2.1 -6.9 3.9 8.1 3.9 -0.5 -1.2 -3.9 -0.1 2.9 -0.9 -1.4 -0.7 1.6 2.5 1.8 -3.8 11.4 -2.3 2.0 2.4 2.0 2.9 12.5 2.7 -0.2 5.3 2.7 0.0 -0.8 0.0 -10.0 4.4 -1.0 2013 1.9 1.8 5.9 2.2 17.4 51.2 -1.7 2.9 2.9 1.9 0.0 0.0 1.8 1.8 -5.4 2.7 7.7 3.5 -0.6 -0.9 -3.0 -0.5 2.5 0.9 -1.2 -0.2 0.8 1.6 1.4 -2.8 12.1 -1.6 1.3 1.5 0.7 9.4 12.3 1.8 -1.4 2.7 2.1 -0.2 -0.6 0.1 -10.6 4.1 2.4 2014 2.3 1.9 7.1 8.3 21.7 43.5 -1.1 5.1 5.9 2.6 -0.1 -0.2 1.7 1.6 -4.3 3.3 7.4 2.9 1.2 0.7 0.9 0.7 4.0 3.7 0.7 0.1 0.3 1.5 1.4 -2.2 12.3 2.0 1.2 0.1 4.9 3.3 0.9 1.4 5.1 4.7 1.1 0.0 0.1 1.9 -8.9 3.9 5.1 3Q 3.1 1.6 -2.6 0.0 13.6 60.3 3.9 1.9 -0.6 2.0 0.7 0.4 1.7 2.0 3.6 8.0 -0.5 -0.3 -0.4 -3.0 -0.4 4.1 0.4 -0.9 -1.1 1.6 2.5 1.7 11.5 0.4 -3.7 -1.9 -12.5 6.8 10.7 1.6 -19.0 -1.9 -0.5 -0.1 -3.0 -0.4 4.3 -15.8 4Q 0.4 1.8 11.8 16.7 17.5 13.3 -7.0 -2.8 -4.2 1.6 -1.5 0.3 1.9 1.9 4.7 7.8 2.4 -2.3 -1.6 -4.4 -0.3 -3.5 -3.5 -1.8 -0.4 -0.2 2.3 1.6 11.8 -8.1 0.2 2.0 -5.7 14.9 7.2 2.7 -14.0 -9.0 1.0 0.1 -1.0 -0.2 4.2 -7.2 1Q 2.7 2.3 5.8 -11.2 11.7 55.8 -0.7 4.0 6.5 1.9 1.3 -0.5 1.7 1.9 2.4 7.8 7.0 -0.5 -1.0 -3.0 -1.0 3.5 1.5 -1.3 -0.1 1.0 1.8 1.4 11.9 -0.5 3.0 3.5 4.0 8.0 5.0 1.6 9.0 10.0 3.3 -0.2 0.0 -0.4 4.1 15.0 5.4 0.9 2013 2Q 1.5 1.0 5.5 4.0 23.0 55.8 -1.4 5.0 5.0 1.6 0.0 -0.1 1.9 1.7 2.7 7.7 3.0 -0.5 -1.0 -3.0 -0.5 3.5 2.0 -1.2 -0.1 0.8 1.6 1.3 12.1 -0.5 3.2 1.2 8.0 8.0 20.0 1.8 5.2 5.6 3.1 0.1 0.0 0.0 4.1 10.0 3.9 2.1 3Q 2.0 1.8 7.0 8.0 25.0 49.9 -1.6 5.0 6.0 2.4 -0.2 -0.2 1.8 1.7 2.9 7.6 4.0 0.5 -0.5 -1.0 0.0 4.0 3.5 -0.5 0.6 0.4 1.6 1.4 12.2 1.0 2.5 0.7 6.0 10.0 20.0 1.5 5.6 5.0 2.6 -0.3 0.1 0.4 4.1 6.0 4.4 3.4 4Q 2.5 2.2 7.0 9.0 25.0 43.5 -1.6 5.0 5.0 2.8 -0.2 -0.1 1.7 1.7 3.0 7.5 4.0 1.0 0.5 1.0 0.5 4.0 3.5 0.6 0.0 0.4 1.5 1.4 12.3 2.0 2.9 2.7 5.0 8.0 10.0 1.5 5.6 4.2 2.9 -0.3 0.3 0.5 4.0 8.0 4.9 4.6 2014 1Q 2.0 1.5 8.0 9.0 20.0 38.9 -1.0 5.0 6.0 2.4 -0.1 -0.2 1.7 1.6 3.1 7.4 2.0 1.5 1.3 2.0 1.0 4.0 4.0 1.3 0.0 0.2 1.5 1.5 12.3 2.5 3.4 4.8 5.0 8.0 -5.0 1.5 5.2 10.0 4.1 -0.1 -0.6 0.4 4.0 5.0 4.0 4.3 2Q 2.5 2.0 7.0 9.0 20.0 39.8 -0.8 5.0 6.0 2.7 0.0 -0.2 1.7 1.6 3.3 7.4 2.0 1.5 1.3 1.5 1.0 4.0 4.0 1.2 0.1 0.2 1.5 1.5 12.3 2.5 -3.6 -8.0 3.5 -5.0 -10.0 1.2 4.7 -1.5 -4.5 -0.1 0.9 2.4 3.9 -2.0 3.0 4.0
Memo: Global industrial production 3.9 1.7 2.8 4.1 -0.3 0.0 %oya 0.9 0.9 Note: More forecast details for the G-3 and other countries can be found on J.P. Morgans Morgan Markets client web site
JPMorgan Chase Bank NA David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com Michael Mulhall (1-212) 834-9123 michael.r.mulhall@jpmorgan.com
Global Central Bank Watch

Official rate Global excluding US Developed Emerging Latin America EMEA EM EM Asia The Americas United States Canada Brazil Mexico Chile Colombia Peru Uruguay Europe/Africa Euro area Refi rate United Kingdom Bank rate Czech Republic 2-wk repo Hungary Israel Poland Romania Russia South Africa Turkey Asia/Pacific Australia New Zealand Japan Hong Kong China Korea Indonesia India Malaysia Philippines Thailand Taiwan Cash rate Cash rate O/N call rate Disc. wndw 1-yr working Base rate BI rate Repo rate O/N rate Rev repo 1-day repo Official disc. 2-wk dep Base rate 7-day interv Base rate Repo rate Repo rate Effctve rate Fed funds O/N rate SELIC O/N Repo rate Disc rate Repo rate Reference Reference Current rate (%pa) 2.20 2.87 0.50 5.39 5.88 4.68 5.47 1.40 0.125 1.00 7.25 4.00 5.00 3.25 4.25 9.25 1.58 0.75 0.50 0.05 5.00 1.75 3.25 5.25 5.50 5.00 5.53 3.66 3.00 2.50 0.05 0.50 6.00 2.75 5.75 7.50 3.00 3.50 2.75 1.875 Change since (bp) 05-07 avg -218 -145 -299 -169 -489 -177 -39 -392 -438 -273 -800 -387 31 -406 19 200 -228 -223 -444 -235 -213 -250 -127 -294 N/A -329 -1041 -3 -294 -488 -17 -548 -14 -140 -412 63 -24 -356 -108 -71 Trough1 Jul 11 36 39 0 50 0 74 96 23 0 75 0 -10 450 25 300 300 3 0 0 0 0 125 0 0 N/A 0 0 76 0 0 0 0 69 75 0 275 100 0 150 62.5 -52 -62 -31 -88 -315 34 -51 -64 0 0 -525 -50 -25 -125 0 125 -38 -75 0 -70 -100 -150 -125 -100 N/A -50 -72 -47 -175 0 0 0 -56 -50 -100 -50 0 -100 -50 0 4 Dec 12 (-25bp) 10 Mar 11 (-50bp) 5 Oct 10 (-5bp) 17 Dec 08 (-100bp) 7 Jul 12 (-31bp) 11 Oct 12 (-25bp) 9 Feb 12 (-25bp) 19 Mar 13 (-25bp) 5 May 11 (+25bp) 25 Oct 12 (-25bp) 17 Oct 12 (-25bp) 30 Jun 11 (+12.5bp) 2 Apr 13 24 Apr 13 4 Apr 13 2 May 13 11 Apr 13 11 Apr 13 3 May 13 9 May 13 25 Apr 13 3 Apr 13 2Q 13 Nov 13 (-25bp) Sep 13 (+25bp) On hold On hold 1Q 14 (+25bp) 11 Apr 13 (-25bp) On hold On hold On hold On hold On hold 1Q 14 (+12.5bp) 5 Jul 12 (-25bp) 5 Mar 09 (-50bp) 1 Nov 12 (-20bp) 26 Mar 13 (-25bp) 24 Dec 12 (-25bp) 6 Mar 13 (-50bp) 29 Mar 12 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) N/A 4 Apr 13 4 Apr 13 2 May 13 23 Apr 13 24 Mar 13 10 Apr 13 2 May 13 2 Apr 13 23 May 13 16 Apr 13 Jun 13 (-25bp) On hold On hold 23 Apr 13 (-25bp) On hold On hold On hold 2Q 13 (-25bp) On hold N/A 16 Dec 08 (-87.5bp) 1 May 13 8 Sep 10 (+25bp) 10 Oct 12 (-25bp) 8 Mar 13 (-50bp) 12 Jan 12 (-25bp) 22 Mar 13 (-50bp) 12 May 11 (+25bp) 28 Dec 12 (+25bp) 17 Apr 13 17 Apr 13 26 Apr 13 11 Apr 13 26 Apr 13 11 Apr 13 2Q 13 On hold 1Q 14 (+25bp) May 13 (+25bp) 2Q 14 (+25bp) Jul 13 (+25bp) 26 Apr 13 (-25bp) On hold 2Q 13 (+25bp) Last change Next mtg Forecast next change Forecast (%pa) Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 2.20 2.87 0.50 5.39 5.88 4.66 5.47 1.40 0.125 1.00 7.25 4.00 5.00 3.25 4.25 9.25 1.57 0.75 0.50 0.05 5.00 1.75 3.25 5.25 5.50 5.00 5.40 3.66 3.00 2.50 0.05 0.50 6.00 2.75 5.75 7.50 3.00 3.50 2.75 1.875 2.14 2.80 0.42 5.38 6.00 4.54 5.45 1.42 0.125 1.00 7.50 4.00 5.00 3.00 4.25 9.50 1.38 0.50 0.50 0.05 4.50 1.75 3.25 5.25 5.25 5.00 5.40 3.65 3.00 2.50 0.05 0.50 6.00 2.50 5.75 7.50 3.00 3.50 2.75 1.875 2.17 2.83 0.42 5.45 6.59 4.31 5.45 1.54 0.125 1.00 8.50 4.00 5.50 3.00 4.25 9.50 1.33 0.50 0.50 0.05 4.50 1.75 3.25 5.25 4.75 5.00 5.35 3.65 3.00 2.75 0.05 0.50 6.00 2.50 5.75 7.50 3.00 3.50 2.75 1.875 2.16 2.83 0.41 5.46 6.64 4.31 5.45 1.55 0.125 1.00 8.50 4.00 5.75 3.50 4.25 9.50 1.33 0.50 0.50 0.05 4.50 1.75 3.25 5.25 4.75 5.00 5.35 3.63 2.75 2.75 0.05 0.50 6.00 2.50 5.75 7.50 3.00 3.50 2.75 1.875 2.21 2.89 0.42 5.58 6.73 4.34 5.60 1.59 0.125 1.25 8.50 4.00 6.00 4.50 4.25 9.50 1.34 0.50 0.50 0.05 4.50 1.75 3.25 5.25 4.75 5.00 5.50 3.73 2.75 3.00 0.05 0.50 6.25 2.50 5.75 7.50 3.00 3.50 2.75 2.00
1 Refers to trough end-quarter rate from 2009-present Effective rate adjusted on daily basis Bold denotes move since last GDW and forecast changes. Underline denotes policy meeting during upcoming week. Aggregates are GDP-weighted averages.
JPMorgan Chase Bank NA Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com
Michael Mulhall (1-212) 834-9123 michael.r.mulhall@jpmorgan.com
Nowcast global growth: 1Q13 Model upside holding steady

This week saw modest mixed revisions to our national current quarter GDP forecasts, with the official J.P. Morgan 1Q outlook holding at 2.6% ar. Stronger-than-anticipated business equipment spending and inventory gains prompted us to raise our sights marginally for 1Q US growth. Offsetting this were larger downgrades to our Malaysia and Singapore calls. We maintain our forecast that global GDP growth will accelerate slowly and steadily over the course of the year, moving from just-below trend in 1H to justabove trend growth in the second half. Like our bottom-up projection, our nowcast of 1Q global GDP growth held at last weeks pace, again printing 3.2% ar. Also like the bottom-up projection, this week brought slight rotation in the nowcast inputs. Incoming data were limited but helped flesh out our global IP, retail sales, and G-3 capital goods orders aggregates for January. In particular, IP is now understood to have grown a touch stronger than previously believed, while capital goods orders did slightly worse. As it has since the start of the quarter, the nowcaster points to some upside risk to our official projection. The strength of the 1Q nowcast owes to the strong momentum heading into and maintained at the start of the year. The nowcast model estimates global GDP was expanding at a solidly above-trend 3.6% ar in January before cooling in each of the following two months to a 2.7% rate in March. As we enter 2Q next week we will receive the first official nowcast input data points for the final month of the current quarter. Mondays European holiday will delay release of the J.P. Morgan global manufacturing PMI until Tuesday. Last weeks flash PMIs from the US, Euro area, and China suggest the output index (the nowcast input) will hold at 51.8, a fact already incorporated into the model. We judgmentally look for a modest decline in Thursdays services activity PMI. We briefly turn now to the sister of the global GDP nowcast, the DFM-Cmd model, which tracks imputed global manufacturing growth based on real-time commodity price moves. Apart from a late-year commodity price lift head fake, the DFM-Cmd model has tracked global IP growth relatively well over the past year. At present, this nowcast looks for a stall in global IP growth, posing downside risk to the more reliable but less timely PMI-implied growth rate, which points to a moderate 3% annualized expansion of global industry.
Global real GDP

%q/q, saar (current forecast shaded) 4Q12 J.P. Morgan Nowcaster (DFM-Eco) Global PMI model
Source: J.P. Morgan
1.6 1.7 2.6
Current 2.6 3.2 2.6
1Q13 Last week 2.6 3.2 2.6
4 weeks ago 2.4 3.2 2.3
Nowcasting global real GDP by forecast date, 1Q2013

%q/q, saar 3.8 3.4 3.0 2.6 2.2 1.8 1.4 J.P.Morgan Nowcast
May 03
May 10
May 17
May 24
Source:J.P.Morgan
J.P. Morgan global aggregates

Quarters are %3m/3m saar (PMIs avg level); months are %m/m (PMIs level) 4Q12 1Q13 Jan 13 Feb 13 Mar 13 PMI, mfg 49.7 52.0 52.3 51.8 51.8 PMI, serv 54.0 53.3 53.4 53.3 53.0 0.2 0.2 0.2 IP -0.7 3.9 0.3 0.0 0.0 Retail sales 1.4 1.9 -0.2 -1.1 0.0 Auto sales 4.8 -0.6 2.9 0.3 0.3 Cap. orders 17.2 16.0 Nowcast 1.7 3.2 3.6 3.0 2.7
Note. Shaded values show forecasts computed by the Kalman filter estimates from the dynamic factor model. Underlined values are our estimates based on available data and our judgment. Source: J.P. Morgan, Markit, and national statistical agencies
Global manufacturing output

%3m, saar; Nowcast is 13-week annualized change 18 12 6 0 -6 2010
Source:J.P.Morgan
Implied by Mfg PMI (thru Mar prelim) Actual (thru Jan)
Implied by commodity price nowcast (thru Mar 28)
2011
2012
2013
May 31
7
Mar 01
Mar 08
Mar 15
Mar 22
Mar 28
Feb 08
Feb 15
Feb 22
Apr 05
Apr 12
Apr 19
Apr 26
JPMorgan Chase Bank NA, New York Bruce Kasman (1-212) 834-5515 Joseph Lupton (1-212) 834-5735 bruce.c.kasman@jpmorgan.com joseph.p.lupton@jpmorgan.com David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com
Selected recent research1 from J.P. Morgan Economics

Global
Weaker global pricing power redistributes growth, Mar 15, 2013 Global FX reserves resume steady trend upward, Feb 8, 2013 Any turn in the EM credit cycle will be limited, Feb 1, 2013 Positive demand surprises confirm pickup in global growth, Jan 18, 2013 Global consumers: look for solid holiday shopping season, Nov 30, 2012 EM bank tightening is gradually abating, Oct 19, 2012 FX reserve accumulation nears stall speed, Oct 19, 2012 Fed, ECB shock and deliver, Sep 21, 2012 Tracking a low-level bottom in global growth, Aug 3, 2012 Expecting a wide but shallow global monetary easing cycle, Jul 27, 2012 EM inflation slide tempered by jump in agriculture prices, Jul 13, 2012 Global economic aggregates get new weights, Jul 6, 2012
Central Europe, Middle East, and Africa

Egypt: fiscal performance raises refinancing risk, Mar 22, 2013 Hungary: thoughts on NBH policy after the changeover, Mar 8, 2013 Hungary: a greater tolerance for weaker HUF, but with limits, Feb 8, 2013 Russia: capital investment growth to slow in 2013, Jan 18, 2013 Morocco: bright side of the Arab Spring, Jan 18, 2013 Egypt: FX stability to prove challenging, Jan 11, 2013 Ghana: awaiting fiscal discipline, Jan 4, 2013 MENA: regional turmoil sends tourists to Southern Europe, Dec 14, 2012
Japan
Japan: wages unlikely to rise much in the near future, Mar 1, 2013 Japans FY2013 budget: expansionary or restrictive? Feb 1, 2013 BoJ: more easing likely in April with a new governor, Jan 25, 2013 Japan: Abe trying to end deflation with Abenomics, Dec 21, 2012 Second chance for next PM Abe to change Japan, Dec 21, 2012 Japan: what can and cannot be expected from the election, Nov 23, 2012 Macroeconomic impacts of Japan/China dispute, Oct 5, 2012
United States and Canada

The next BoC governor, Mar 22, 2013 US consumers: dont think twice, its all right, Mar 15, 2013 Gauging the recovery in US capital spending, Mar 8, 2013 US: finally, the last act of the fiscal cliff drama, Mar 1, 2013 US: what prices say about the healthcare slowdown, Feb 15, 2013 Will US nonresidential construction catch fire, too? Feb 15, 2013 US: profit margins should weather the storm, Feb 8, 2013 Steady US job growth and more labor supply in 2013, Feb 8, 2103 Behind the music: details of the US 4Q GDP report, Feb 1, 2013 US: the credit easing effect of rising house prices, Jan 25, 2013 A funny thing happened on the way to the US mfg renaissance, Jan 25, 2013 US: stress testing the Fed balance sheet, Jan 18, 2013 US: is I.T. over? Jan 11, 2013 External headwinds dominate 2013 Canada outlook, Jan 11, 2013 US: from one cliff to the next, Jan 4, 2013 Accounting for the US current account improvement, Dec 14, 2012 Will unlimited QE limit US bank lending? Dec 7, 2012 US: a numerical thresholds primer, Nov 30, 2012 US households know how to read the labor market data, Nov 30, 2012 Six more weeks of fiscal cliff, if you dont jump off one, Nov 9, 2012
Non-Japan Asia and Pacific

Thailand: autos slowing but domestic demand not stalling, Mar 22, 2013 New RBNZ toolkit: release valves, not circuit breakers, Mar 15, 2013 The discomforting math behind Indonesia's energy balance, Mar 15, 2013 More comfort on Australia's mining investment pipeline, Mar 8, 2013 Bank of Korea: time to watch domestic policy mix, Mar 8, 2013 China: the concept of total social financing, Feb 22, 2013 Potential cease-fire in Aussie fiscal/monetary standoff, Feb 22, 2013 Tech product cycles mixing up EM Asias cyclical signals, Feb 22, 2013 Malaysia: watching for signs of credit disintermediation, Feb 22, 2013 RBA easing no panacea for monetary conditions, Feb 15, 2013 China: tracking the corporate sectors recovery, Feb 1, 2013 Singapore: tightening the screws on property again, Jan 18, 2013 Thailand: brisk credit growth calls for targeted tightening, Jan 18, 2013 Reconstruction spillovers to dictate RBNZ policy in 2013, Jan 11, 2013 Philippines: higher investment is key to the peso problem, Jan 11, 2013
Western Europe
UK: are inflation expectations behaving differently? Mar 22, 2013 Euro area labor markets: institutions & demand shocks, Mar 15, 2013 ECB's tolerance of low inflation has increased, Mar 15, 2013 UK: slack is limited, but demand growth will lift supply, Mar 15, 2013 Italy: September elections looking more likely, Mar 15, 2013 Euro area growth divergences are increasing in the core, Mar 8, 2013 Euro area inflation risks now tilting to the downside, Mar 8, 2013 Germany: what better wage growth means for consumers, Mar 8, 2013 The institutional structure of Euro area labor markets, Mar 1, 2013 UK: lower expected real rates unlikely to lift spending, Mar 1, 2013 Cyclical lift in the Euro area: lets have another go, Feb 22, 2013 Euro area wages: sticky overall, adjusting underneath, Feb 22, 2103 Cyprus: phony war is over, now for the hard part, Feb 22, 2013 Frances position at Europes epicenter is under challenge, Feb 15, 2013
Latin America
Argentina: capital controls are turning into a "catch-22," Mar 22, 2013 Mexico CPI: a change in consumption patterns, Mar 1, 2013 Argentina: facing a worse growth/inflation trade-off, Jan 25, 2013 MXN: whats taking you so long? Jan 18, 2013 Brazil can't blame its growth disappointment on China alone, Dec 21, 2012
Special Reports and Global Issues

Italian election: Analysis of potential outcomes, Feb 15, 2013 Beyond whatever it takes, ECB policy changes in the year ahead, Feb 5, 2013 Chinas growth trend to slow below 7%, Feb 1, 2013 More growth, less fear: 2013 global economic outlook, Jan 9, 2013
1. Research notes listed have been published in GDW; Special Reports and Global Issues are stand-alone features, but may also have appeared in some form in GDW.
JPMorgan Chase Bank NA Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com
The J.P. Morgan View: Markets
Local forces are dominating

Asset allocation: Local risks and opportunities trump global forces in driving investment opportunities. Crossmarket correlations to remain much lower than in recent years. Economics: US activity data are coming in better than hoped, but we need another one to two months to see how consumers are responding to higher taxes. Fixed income: Search for carry to trump Euro area jitters over time. Equities: Japan remains our main country overweight. Credit: We OW covered bonds in the Euro periphery over senior bank bonds and subordinated vs. senior bank bonds in the core. Currencies: Cyprus to have minimal further impact on EUR, but an ECB rate cut would push it a few cents lower versus the dollar. Commodities: Stay long Brent and short gasoline. US equities continue to gain, with the benchmark S&P500 breaching its all-time high level on Mar 28 in a gentle fashion. Bonds are generally up this week on dovish comments from both the Fed and the BoJ. Commodities have gained also, but credit remains the troubled asset class with spreads wider in most markets, especially in EM external debt. Our overall investment theme remains that there is no overarching global investment theme anymore this year but instead a number of unrelated local forces that have largely local impact. The generalized asset reflation we saw last year, with risk premia coming down consistently across the globe and asset classes, was due to a gradual fading of tail risks that has since been largely completed. Risk-on, riskoff is so last year. In addition, we are seeing no momentum either way in global growth, price, or earnings expectations that could put us into a bullish or bearish growth story. Our 2.4% projection for 2013 world economic growth is unchanged since November. YTD activity data for the world are tracking our 2.6% forecast for 1Q, comfortably up from the dismal 1.6% in 4Q of last year. Amid offsetting up- and downside surprises in the US and Japan versus Europe, there has been no reason yet to raise the growth profile for the year as a whole. We hope, but need evidence first.
Without a global growth or fading-of-tail-risks force, we are left with a set of local issues and opportunities that are having a local impact, at the regional, asset class, and company level, that should leave the rest of the world largely unmoved. In this environment, correlations across regions and risk markets should remain significantly lower than in past years. Various markets may seem to behave inconsistently with others, but we caution against expecting simple mean reversion, given our view of the reduced impact of global factors. Active investors should pay more attention to local fundamentals while longterm investors can expect to achieve greater gains from crossmarket and international diversification. Local issues must be monitored and understood, though, to decide how to allocate capital and risk. Just to review a few, Japanese policymakers continue to present a concerted plan to reflate their economy through monetary, fiscal, and structural measures. The strong control of the government and its high approval rating are steadily raising the chance of success. We stay overweight Japanese equities and grow wary of the short yen trade, as capital inflows and rising growth expectations are ultimately bullish for the currency. Watch next weeks BoJ meeting, led by newly appointed Governor Kuroda, for new reflationary measures. The Euro area economy remains in recession, while policymakers are making little effort to reverse the contraction. We monitor signs of any large deposit flight post Cyprus over coming weeks and months to judge whether the bailout may actually be worsening conditions in the Euro area. Economic forecast momentum remains negative. These are good reasons to underweight the Euro area, if not all of Europe, across asset classes, against the rest of the world. The US, in contrast, is seeing better spending from both corporates and consumers than we could have expected post Fiscal Cliff and sequestration. But given the huge amount of fiscal drag, which is a fact, we want to see another one to two months of data before extrapolating the good news. It did support US equities in recent weeks, which continue to benefit from US corporates issuing debt to buy their own shares and others, through M&A. This corporate rotation from debt to equities is almost exclusively a US flow, which helps explain US equity outperformance. Across risk assets, we are similarly seeing huge delinking, with equities rallying greatly and commodities and credit seeing no gains, very much unlike last year. Commodities are delinking as there are no growth upgrades in EM, and inflation concerns are concentrated on two countries, UK and Japan. Credit is delinking as most investors are massively overweight credit versus equities, as evidenced by the disparity in buying flows in 2011-12. Relevering by US corporates
9
Economic Research The J.P. Morgan View: Markets March 28, 2013
and the Fed debating the end of QE are signaling that the three-decade-long rally in bonds is likely over. Investors are starting to dollar-average away from bonds to equities.
YTD returns through: 27-Mar

%, equities in lighter color 25 20 15 10 5 0 -5 -10
Fixed income
Bonds rallied again, except for Euro area peripherals, the source of this weeks market concerns. The imposition of capital controls on Cypriot deposits is sure to be a watershed moment, but for now not one we expect to spark significant deposit withdrawals elsewhere. Meanwhile, the most likely outcome to the Italian impasse appears to be new elections in the autumn. With seemingly little prospect of a material rise in yields on the safest assets, we think the search for carry evident across the full gamut of asset markets will see peripheral spreads narrow over time. Ten-year JGB yields have rallied to within a few bp of their all-time low, ahead of next weeks inaugural meeting for the new BoJ leadership. We do indeed expect aggressive easing, with JGB purchases out to 30 years, but think this will be trumped by profit-taking in JGBs after the fiscal year-end. Our latest Inflation Expectations Survey (F. Diamond, K. Gupta) was out on Mar 27. One interesting result is that almost 90% of respondents believe the BoJ has less than a 50/50 shot of hitting its 2% inflation target in two years, a reflection of the formidable challenge of sparking inflation expectations after two decades of falling prices.
US Fixed Income
EM Local Bonds
Europe Fixed Inc
Global Gov Bonds
MSCI AC World
EMBIG
MSCI EM
US High Yield
US High Grade
MSCI Europe
EM $ Corp.
GSCI TR
EM FX
US cash
S&P500
Source: J.P. Morgan, Bloomberg
2013 Japan GDP forecasts: J.P. Morgan and consensus

% 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jan 12 Consensus
J.P. Morgan
Apr 12
Jul 12
Oct 12
Jan 13
Source: J.P. Morgan, Consensus Economics
Equities
The global rally in equity markets slowed this week, but did not reverse, on continued concerns about the fallout from a poorly executed Cyprus solution. The Euro area underperformed again, for a second week in a row. As discussed last week, we view Cyprus as a local problem that we address by underweighting Euro area equities in a global portfolio. A potential negative feedback loop from markets to the economy poses a serious downside risk for Euro area growth over coming months prolonging the current run of negative economic surprises from the region. Japan is the region we like the most. In our mind the Japanese equity trade has further legs not only due to prospective BoJ balance sheet expansion but more importantly due to a reform agenda to be unveiled into the summer. EM equities are suffering from renewed policy tightening in major EM economies such as Brazil and China. Investors have bitter memories of previous property tightening measures in China. As within DM, we see a lot of divergences within EM and prefer to focus on under-owned markets with good domestic demand stories such as Mexico and
10
2013 Euro area GDP forecasts: J.P. Morgan and consensus

% 1.2 1.0 0.8 0.6 0.4 0.2 J.P. Morgan 0.0 -0.2 -0.4 -0.6 -0.8 Jan 12 Apr 12
Consensus
Jul 12
Oct 12
Jan 13
Source: J.P. Morgan, Consensus Economics
Malaysia. See Consensus Asset Allocation, Adrian Mowat and team, Mar 26. Open overweights in Mexican and Malaysia equities vs. MSCI EM. For long-term investors we just released our quarterly publication Trade opportunities for long term investors Mar 27. We monetize risk premia in Value stocks via a long in S&P500 Value vs. S&P500 ETFs. It appears that a five-yearlong underperformance of Value stocks has come to an end. We take profit on trades that monetize skew risk premia in
Topix
Gold
S&P500 due to sharp contraction over the past quarter. We continue to monetize equity risk premia via buying highdividend yield equity ETFs against USTs. Our preference is to buy ETFs that track the S&P US Preferred stock due to its high yield, around 6%, and its high weight on Financials.
Credit
The news flow from the Cypriot bailout continued to push spreads wider and vol higher this week, with European Financials underperforming as creditor bail-in risks returned to the forefront. iTraxx senior and subordinated financials indices widened 20bp as investors sought to hedge via CDS rather than sell bonds. European credit continued to underperform US credit. The fact that Cypriot banks debt is only 1.3% of total liabilities was a key factor in the decision to bail-in depositors. Yet events surrounding the banking sector restructuring also suggest that keeping senior unsecured bondholders immune from costly bail-outs is politically untenable. This removes the implicit cover that senior bond holders have enjoyed and has increased speculation that implementation of the bailin proposals under the EUs Resolution & Recovery Directive (RRD) will be brought forward to 2015 from the current 2018 time frame. As such, our colleagues in European Credit have examined the implications of changing recovery rate expectations across the bank capital structure. Assuming that covered bonds remain outside the scope of the proposals, we expect senior bank bond spreads to widen relative to covered bonds and prefer being OW covered bonds vs. senior bonds in the periphery, particularly in Spain, where covered bonds have first claim over the entire mortgage book of the bank. From a relative value point of view, we also suggest owning subordinated bank bonds vs. senior bank bonds in the core as, under the new RRD regime, there is a higher probability than before that senior bank bond holders will lose money and this risk is, in our mind, not yet in the price (Rethinking the capital structure, R. Henriques et al., Mar 27).
For example, during the first Greek crisis in May 2010 EUR undershot by 10% relative to cyclical conditions at that time, and during Greek elections in May 2012 the currency undershot by 5%. The combination of Italian and Cypriot events have eliminated the euros overvaluation from early 2013, when the currency spiked to the high $1.30s on a presumption that LTRO funds would be repaid rapidly, driving European rates higher. The currency is now close to fair value, so carries no risk premium for contagion. The message is similar in vol markets: the 1% premium for 3-month implied versus realized vol is far less than the 5% premium witnessed during previous crises. While there is no evidence that the EUR/USD cash or options market carries a risk premium, it is also true that the required premium should probably be far less than in previous crises given that a sovereign funding backstop like the OMT is in place. We are thus reluctant to extrapolate this mini-crisis into a systemic event that triggers broad deleveraging, or to forecast trend euro weakness. The currency could trade down a couple of cents around an ECB rate cut, but assuming that fears around Cyprus contagion pass in a month or two, the currency should reverse its recent decline by the summer.
Commodities
Commodities rallied this week, up almost 2%, led by energy. We went tactically long Brent in last weeks J.P. Morgan View as we believed that the correction in oil markets had brought prices too far below our price forecast of $112/bbl. Since then Brent is up around 1.5%. We stay long and expect further price appreciation over coming months. We are also short gasoline vs. Brent. Gasoline cracks (the premium for gasoline over crude prices) spiked over the first three months of the year due to a combination of low inventories and refinery closures that came during refinery maintenance season. As refinery maintenance comes to a close and demand falls seasonally, gasoline prices should fall relative to Brent. We went long Soybean time spreads late last year (GMOS, Dec 5) on a view that much higher Brazilian supplies would find it difficult to leave the country due to logistical constraints. Since then we have seen a record number of ships planning to load soybeans in Brazilian ports and this number is still rising. The average waiting time before loading is also rising, now 38 days compared to 26 days a month ago. This has caused the front Soybean contract to rally while longer maturity contracts have been depressed by the much higherthan-normal supply inside the country. The spread between the May-13 and Jul-13 contracts has doubled since we put the trade on in December. We stay long as we think these logistical issues are unlikely to be resolved anytime soon.
Foreign exchange
This weeks FX research note, Sacrificing Cyprus, examines several presumptions that have arisen over the past two weeks due to the Cyprus crisis, and scores them on a scale of truths, half-truths, and falsehoods. There are indeed some right conclusions to draw from this experience, but also some wrong ones. As examples, it is true that capital controls have created a two-tier euro, but very unlikely that Cyprus is exiting EMU. And while it is true that markets deserve a risk premium for policy uncertainty, the size of the premium should be much lower than in previous crises due to backstops like the OMT.
11
Interest rates
United States Euro area United Kingdom Japan GBI-EM hedged in $ Fed funds rate 10-year yields Refi rate 10-year yields Repo rate 10-year yields Overnight call rate 10-year yields Yield - Global Diversified
Current 0.125 1.85 0.75 1.29 0.50 1.77 0.05 0.51 5.59 Current 159 165 496 633 305 322
Jun 13 0.125 2.00 0.75 1.55 0.50 2.40 0.05 0.65
Sep 13 0.125 2.10 0.75 1.70 0.50 2.50 0.05 0.65
Dec 13 0.125 2.25 0.75 1.80 0.50 2.55 0.05 0.70
Mar 14 0.125 2.35 0.75 1.90 0.50 2.60 0.05 0.80 5.70
YTD Return* -0.5% 0.0% -0.1% 2.0% 0.1% YTD Return* -0.1% 0.6% 2.9% 1.6% -2.3% 0.5%
Credit markets
US high grade (bp over UST) Euro high grade (bp over Euro gov) USD high yield (bp vs. UST) Euro high yield (bp over Euro gov) EMBIG (bp vs. UST) EM Corporates (bp vs. UST)
Index JPMorgan JULI Portfolio Spread to Treasury iBoxx Euro Corporate Index JPMorgan Global High Yield Index STW iBoxx Euro HY Index EMBI Global JPM EM Corporates (CEMBI) Quarterly averages
Commodities
Brent ($/bbl) Gold ($/oz) Copper ($/metric ton) Corn ($/Bu)
Current 110 1595 7577 6.95
2Q13 108 1775 8700 8.00
3Q13 120 1800 9000 6.50
4Q13 120 1775 9200 6.00
1Q14 122 1800 9400
GSCI Index Energy Precious Metals Industrial Metals Agriculture 3m
YTD Return* -0.1% -3.8% -6.1% 0.0% YTD Return* CCY vs. USD -1.9% -9.0% -6.5% 1.3% 3.7% 0.7% -3.6% -0.5% EM YTD ($) -5.5% -10.0% -1.3% -2.2% 1.2% 1.9% 1.5% 0.8% -5.1% 1.0% -1.8%
Foreign exchange
EUR/USD USD/JPY GBP/USD AUD/USD USD/BRL USD/CNY USD/KRW USD/TRY
Current 1.28 94.1 1.52 1.05 2.02 6.2 1113 1.8 YTD Return
Mar 13 1.32 94 1.50 1.04 1.92 6.28 1070 1.8
Jun 13 1.32 97 1.47 1.05 1.90 6.25 1060 1.8
Sep 13 1.34 97 1.51 1.06 1.92 6.2 1040 1.75 US
Dec 13 1.34 96 1.51 1.07 1.95 6.15 1020 1.75 Europe YTD 3.0% -2.1% 8.3% 5.9% 13.8% 14.7% 3.5% 7.5% 7.2% -0.3% 6.6%
Cash EUR JPY GBP AUD BRL CNY KRW TRY Japan YTD 14.8% 17.2% 17.4% 24.6% 26.7% 32.6% 26.3% 16.4% 24.6% 12.3% 22.8%
Equities
S&P Nasdaq Topix FTSE 100 MSCI Eurozone* MSCI Europe* MSCI EM $* Brazil Bovespa Hang Seng Shanghai SE
Current 1563 3261 1037 6388 154 1214 1032 56028 22300 2236
(local ccy) 10.2% 8.6% 22.8% 9.4% 1.9% 6.6% -1.8% -7.5% -0.5% -2.4%
Sector performance*
Energy Materials Industrials Discretionary Staples Healthcare Financials Information Tech. Telecommunications Utilities Overall
YTD 10.5% 4.3% 10.0% 11.7% 14.0% 14.7% 11.2% 4.3% 9.1% 11.6% 10.2%
*Levels/returns as of Mar 27, 2013 Local currency except MSCI EM $
12
JPMorgan Chase Bank NA David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com
Economic Research Note
Export performance
%chg, ratio of export volume to constant market share baseline 90-02 03-12 2009 2010 2011 DM US -8.8 0.6 2.3 -2.5 0.4 Japan -30.6 -22.0 -17.0 7.5 -6.2 UK -9.2 -15.8 2.8 -3.8 -1.0 Germany 2.3 11.1 -1.3 1.8 2.4 France 5.2 -19.8 -1.1 -1.3 0.5 Italy -13.4 -21.7 -7.5 0.6 1.0 Canada -5.8 -24.5 0.0 -5.4 -0.6 EM Korea 98.9 18.8 7.2 -0.6 2.0 Mexico 46.0 22.5 -0.8 8.2 1.6 Turkey 56.3 6.6 6.1 -5.0 1.3 Poland 54.3 21.9 6.6 0.6 1.0
Source: J.P. Morgan
Assessing shifts in export market performance

DM countries on the whole have experienced a trend loss of market share to the EM US share has stabilized reflecting a weaker dollar and restrained ULC Germanys global share has held up due to a strong competitive position inside the Euro zone Japans two-decade slide is striking In recent decades, the volume of international trade has expanded much more rapidly than world GDP, reflecting the trend decline in the barriers to trade and in the costs of transporting goods. With trade on the ascent in most countries, more sophisticated metrics are needed to gauge the performance of a countrys manufacturers in the global arena. One important measure is the OECDs index of export market performance, which tracks the ratio of an economys real exports to a constant market share baseline of the imports of its trading partners. The OECDs data extend from 1975 through 2012, enabling an examination of how export performance has evolved over time, including any shifts in performance since the Great Recession. Among the influences on export market performance are relative variations in national trade-weighted exchange rates and in unit labor costs. For countries outside of the OECD, we can construct a proxy export market share, dividing that countrys exports by rest of world imports. OECD data show that developed market export performance has trended lower since 1990, an unsurprising outcome given the rapid development of the emerging economies and their integration into the global manufacturing system over the period. While the OECD performance indexes for their EM members show impressive gains over the past decades, the full magnitude of the DM underperformance owes importantly to China. Over the past two decades, Chinas share of global imports has increased by about 10%-pts, with most of the gain occurring since China joined the WTO in 2001. While DM performance has broadly declined in recent decades, there has been notable cross-country divergence. Germany stands out for its near-20%-pt improvement in export performance since 1999, an outcome that owes in large part to Germanys strong competitive position inside the Euro area as well as briskly rising EM demand for German capital goods. The mirror image of this was seen in the EMU
2012 0.4 -2.7 -2.2 3.0 1.2 -1.1 -1.1 0.2 3.2 12.6 0.1
EM exports to DM
% of total DM imports 65 Total EM
50
35 20
Source:J.P.Morgan, IMF
EM ex China
80
85
90
95
00
05
10
DM export market performance

Ratio, export volume to constant 2005 market share baseline 1.4 1.3 Germany 1.2 1.1 1.0 US 0.9 0.8 Japan 0.7 0.6 75 80 85 90 95 00 05 10
Source: OECD
EMU export market share

Ratio, export volume to constant 2005 market share baseline 1.3 1.2 1.1 1.0 0.9 0.8 99
Source: OECD
Portugal Spain Germany Italy
01
03
05
07
09
11
13
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JPMorgan Chase Bank NA David Hensley (1-212) 834-5516 david.hensley@jpmorgan.com Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com
Economic Research Assessing shifts in export market performance March 28, 2013
periphery, where export market share eroded virtually across the board, with especially severe losses in Italy and Greece. There are some signs of a shift in relative performance of late. Germanys share has leveled off since the middle of 2011, while export shares in the periphery have generally stabilized. The US has also done well relative to its DM peers over the past decade, with essentially unchanged export performance over this time. In part, this outperformance is due to the roughly 25% drop in the trade-weighted dollar from 2002 to mid 2008, while US manufacturers also have benefited by unusual labor cost restraint. (The more recent slide in US natural gas prices is a highly visible though minor factor in manufacturing costs.) That these powerful supports for US exporters merely held performance steady underscores the large gains in market share achieved by the EM over this period, notably China. The counterfactual can be seen in the experience of other major DM exporters that did not benefit from currency tailwinds over the past decade, including the UK, France, Canada, Australia, and Japan. Japans loss of market share really stands out. Japans export market share rose steadily in the 1970s and 1980s, reaching a peak in 1991. Since then, however, Japanese export performance has tumbled, falling below its 1975 starting point for the first time last year. This U-turn is partly explained by the steady rise in Japans trade-weighted exchange rate in the 1980s and early 1990s. In addition, by the early 1990s, Japan had lost competitive position on a more fundamental level, reflecting the high level of labor costs, rigid labor markets, and slowing population growth. This condition has persisted to the present day, aggravated by the countrys slide into deflation and lack of progress in joining free trade agreements. These domestic forces coincided with the rise of the EM Asian economies, beginning with the Asian Tigers (Korea, Taiwan, Hong Kong, and Singapore) and eventually extending to China. To be fair, robust EM Asian import demand for commodities has been a factor in Japans loss of market share, and this does not reflect a loss of competitive position. With the bursting of the asset bubble, these developments prompted the business sector to reassess Japans growth prospects. Having boomed during the 1980s, the growth of real business spending subsequently stalled, with the level stagnating since 1991. This stall coincided with an acceleration in Japanese FDI, especially to Asia. The resulting lack of growth in the capital stock helped to undermine the growth of productivity and potential growth, further eroding Japans competitive position.
US export performance and USD real effective exchange rate

Ratio 1.3 1.2 1.1 1.0 0.9 0.8 0.7
Source:J.P.Morgan, OECD
Index, 2000 = 100 (inverted) 70 80 90 100 Export performance USD REER 00 05 10 110 120
75
80
85
90
95
Manufacturing unit labor costs

%ar, 2000-11 TWN USA JPN KOR GBR DEU FRA ESP CAN ITA AUS -6.0 -4.5 -3.0 -1.5 0.0 1.5 3.0 4.5 6.0 7.5 9.0 Local currency USD terms
Source:J.P. Morgan, BLS
Japan outward FDI and domestic capital investment

$ bn 150 100 50 0 70 75 80 85 90 95 00 05 10
Source: JETRO, BoJ, OECD
Outward FDI Capital investment
Index, 1970 = 100 350 300 250 200 150 100
Export volume
Indexed 1990=1.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 90
Source: OECD
US Germany
Japan
95
00
05
10
14
JPMorgan Chase Bank NA Robert E Mellman (1-212) 834-5517 robert.e.mellman@jpmorgan.com
Labor force participation rate

Sa, 3mma, both scales 66.5 66.0 65.5 65.0 64.5 64.0 63.5 03
Source: BLS
US labor force participation still trending lower

Almost four years into the expansion, the labor force participation rate is still trending lower Participation is below year-ago levels, even in states where the jobless rate approaches pre-recession norms Shorter-term swings are not very reliable, but the participation rate has stabilized over the past six months The sharp drop in labor force participation has been an important and unusual feature of this US expansion. Participation rates often drop during recessions and then gradually gain ground in the subsequent recovery. But labor force participation declined especially sharply through the 2007-09 recession, and then continued to decline as the economy gradually recovered. The decline in labor force participation through this expansion, counter to the usual pattern, has allowed a reasonably rapid decline in the unemployment rate despite unexciting economic growth and job growth. Between 4Q09 and 4Q12 real GDP growth averaged only 2.0% per year, a pace widely regarded as close to trend. The old rules of thumb, summarized by the Okuns Law relationship, would have predicted little or no change in the unemployment rate over this period. But the falling participation rate allowed the unemployment rate to decline 2.1%-pts, or 0.7%-pt per year. The future path of the unemployment rate (and expectations of when the Fed removes policy accommodation) will depend partly on whether labor force participation keeps declining, stabilizes, or even reverses course. If a gradually improving labor market were to encourage substantial re-entry into the labor force, the unemployment rate probably would prove sticky on the downside. Recent data indicate that the labor force participation rate is still trending lower. The latest February reading, 63.5%, matches the monthly low for the expansion and was down from an average 63.8% in the year-ago quarter. Continued declines are not too surprising, since many measures indicate that labor market conditions are still very weak. The employment/population measure, for example, is barely off its lows and has retraced less than 10% of the peak-to-trough decline associated with the recession. The probability of an unemployed person being hired in any month has also retraced only a small part of its recent decline.
Total
83.5 83.0 25-54 year old 82.5 82.0 81.5 81.0
04
05
06
07
08
09
10
11
12
13
Employment /population ratio , share of unemployed finding work

Sa, percent, 3mma 64 63 62 61 60 59 58 03
Source: BLS
Sa, % per month, 3mma 30 Employment/ population ratio 25
Percent of unemployed who become employed
20
15 04 05 06 07 08 09 10 11 12 13
Labor force participation rate

%, sa, 3mma, both scales 67 66 65 64 63 03
Source: BLS
United States
68.5 67.5 66.5
Texas
65.5 64.5
04
05
06
07
08
09
10
11
12
13
While national labor markets are still weak, the jobless rate in several states is back to within a percentage point of its 2003-07 average. And it is natural to ask whether better labor market conditions in these states have started to push participation rates back toward their prior norms. Results from these states, the largest of which is Texas, generally show that labor force participation rates have continued to decline over the past year and about in line with the national average.
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Economic Research US labor force participation still trending lower March 28, 2013
Participation down across most age groups

One influence that explains part of the decline in the labor force participation rate is the aging of the baby-boom generation. An increasing share of the population is at or approaching retirement. However, this seems to explain only a small part of the decline in the participation rate since 2007, since the participation rate is tracking sharply below forecasts made pre-recession that incorporated effects of an aging population. Younger workers have had an especially hard time in this expansion, and unemployment rates have shot up for younger workers, both teenagers (24.0%) and 20- to 24-year-olds (13.7%). And this has continued to discourage labor force participation by 16- to 24-year-olds. But the declining labor force participation is not simply a matter of an aging population or discouraged younger workers. Participation rates have continued to decline for the so-called prime-age 25- to 54year-olds. Indeed, the annual decline in labor force participation for this group, 0.4%-pt, has matched the overall decline.
Labor force participation by education

%, sa, 3mma, age 25 and older Not high school graduate High school graduate Some college College graduate
Source: BLS
2003-07 avg 45.7 63.2 72.4 77.9
Feb 12 46.5 59.8 69.1 76.0
Feb 13 45.5 59.1 68.5 75.7
Labor force participation rate in select states, change from year ago
Pct pt ch over 12 months 0.4 0.0 Texas -0.4 -0.8 Ohio -1.2 2011
Source: BLS
Minnesota
Not a simple story of lower skills

Unemployment rates as well as income are closely related to education. The unemployment rate for college graduates (for those 25 and older) is 3.8%, the rate for high-school graduates is 7.9%, and the rate for high-school drop-outs is 11.2%. Moreover, the increase in the unemployment rate since its cyclical trough is also inversely related to education. The unemployment rate for college graduates is up 2.0% from its 4Q06 trough. The unemployment rate for high-school graduates is up nearly twice as much. Some popular accounts ascribe falling participation rates to the rise in unemployment and decline in relative wages for lower-skilled and lesseducated workers. With job prospects bleak and compensation falling, people with less education are more likely to drop out of the labor force. There may well be some truth to this story, but participation rates have declined across the population over the past few years, even for college graduates.
2012
2013
Labor force participation rate, select groups

Sa 66.5 66.3 66.1 65.9 65.7 65.5 2011
Source: BLS
Age 20 and older College graduates
Sa 77.2 76.7 76.2 75.7 75.2 74.7
2012
2013
do not seem to respond, or respond quickly at any rate, as jobless rates head back toward prior norms.
Looking at some stronger states

Some parts of the country are doing better than others. While the national unemployment rate is 2.4%-pts above its 2002-07 average, there are several states where the gap is within one percentage point, and conditions can be characterized as getting back to normal. Most of these states are relatively sparsely populated rural states, (e.g., Alaska, Nebraska, and the two Dakotas). But three states with more than five million people each are in this categoryTexas, Ohio, and Minnesota. Trends in these three states provide some information about whether national labor force participation rates will respond as the unemployment rate gets back toward normal. As it turns out, participation rates for all three have declined over the past year and by more than the national average. Participation rates
16
Hints of recent stabilization

Data for the US and for major demographic groups indicate that labor force participation has continued to decline over the past year. However, the overall labor force participation rate in February was exactly the same as six months earlier, as was the participation rate for those 20 and older. And, the participation rate for college graduates has increased over the past six months. However these results are no more than a hint of stabilization. Six months do not make a trend in data from the household labor market survey, and we have seen other signs of stabilization several times over the past few years that proved to be temporary.
JPMorgan Chase Bank N.A, London Branch David Mackie (44-20) 7134-8325 david.mackie@jpmorgan.com
Italian GDP growth

%oya Contributions GDP 1971-1980 1981-1990 1991-2000 2001-2010
Source: IMF
Italy's structural challenge: law and the judicial system

Italys underlying growth performance is very poor Montis 2012 reforms are a step in the right direction But, there is plenty more to do As well as changing the law, the judicial system also needs to be reformed According to the IMF, Italys underlying growth potential is currently close to zero. This continues the steady and dramatic deterioration seen over the past three decades. Meanwhile, according to the OECD, Italys natural rate of unemployment is currently around 7.6%. It is almost universally acknowledged that this dismal picture is due to rigid structures in labor and product markets, which limit flexibility and competitiveness. Structural reform is thus viewed as the solution to Italys economic problems. The key uncertainties relate to what exactly needs to be changed and how much change needs to occur. Our analysis suggests that a lot more needs to be done, but that this is not just about changing the law. Of critical importance is the way that laws are interpreted, especially by the judiciary. The judicial system needs to be reformed to quicken the decision-making process and make legal judgments more predictable. Only with reform of both the legal and judicial systems will Italy get the flexibility it needs.
Hours worked -0.2 0.4 0.1 0.2
Net capital stock 1.3 0.9 0.6 0.6
Total factor productivity 2.6 1.1 0.9 -0.4
3.7 2.4 1.6 0.4
Structural indicators
Ranking Euro Germany area Fraser Institute 2012 report (144 countries) Overall economic freedom 42 31 Labor market regulation 89 112 Business regulation 42 26 France 47 94 34 Italy 83 72 100 73 84 Spain 34 123 50 44 136
World Bank Doing Business 2013 report (185 countries) Overall ease of doing business 36 20 34 Starting a business 76 106 27
World Economic Forum Global Competitiveness 2012/13 report (134 countries) Overall competitiveness 29 6 21 42 36 Labor market efficiency 67 53 66 127 108 Goods market efficiency 39 21 46 65 55 OECD 2008 report (20 countries) Employment protection legislation Product market regulation 14 13 15 14 19 19 14 15 20 6
Source: Fraser Institute, World Bank, World Economic Forum, OECD, and J.P. Morgan
Predicted effect on Italian institutional structure indicators

Indicator 2008 actual OECD Average EPL PMR 1.9 2.38 1.32 6.73 6.48 5.59 4.50 3.72 4.29 Latest 2013 predicted 1.65 2.08 1.22 6.83 7.08 5.66 4.62 3.94 4.35 0.66 0.74 0.15 0.37 0.69 0.31 R-squared of regression
Where Italy stood before the 2012 reforms

Broadly speaking, there are two ways to directly assess the health of the Italian economy from a structural perspective. The first is to look at quantitative indicators of the structure of the economy, such as those produced by the Fraser Institute, the World Bank, and the OECD. The second is to look at survey-based measures of business peoples perceptions of the structure of the economy, such as the one produced by the World Economic Forum. The adjacent table provides the most recent data on these measures of structure, which do not reflect the impact of the latest reforms. According to the Fraser Institute overall economic freedom index, Italy ranks poorly, although this is due to business regulation rather than labor market regulation. According to the World Bank, Italy ranks poorly in terms of the overall ease of doing business, essentially because of the difficulty of enforcing contracts, dealing with construction permits, acquiring credit, and getting electricity. In the World
Fraser Institute Overall 6.90 Labor 6.30 Business 5.40 World Economic Forum Overall 4.31 Labor 3.74 Goods 4.22
For the OECD data, a higher reading indicates less flexibility. For the Fraser Institute and WEF data, a higher reading indicates more flexibility. Source: OECD, Fraser Institute, World Economic Forum, and J.P. Morgan
Bank category on starting a business, Italy does poorly but is somewhere close to the Euro area average. The OECD data on employment protection legislation and product market regulation rank Italy in the bottom half, but not a long way from the Euro area average.
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JPMorgan Chase Bank N.A, London Branch David Mackie (44-20) 7134-8325 david.mackie@jpmorgan.com
Economic Research Italy's structural challenge: law and the judicial system March 28, 2013
The World Economic Forum, which judges structure on the basis of an executive opinion survey, ranks Italy poorly overall and in terms of goods market efficiency, but spectacularly poorly in terms of labor market efficiency. According to business executives, the Italian labor market is one of the worst-performing labor markets in the world.
Impact of 2012 reforms on rankings

Rank Latest actual Fraser Institute (144 countries) Overall economic freedom Labor market regulation Business regulation World Economic Forum (134 countries) Overall competitiveness Labor market efficiency Goods market efficiency OECD (20 countries) Employment protection legislation Product market regulation 83 72 100 42 127 65 14 15 Predicted for 2013 79 56 95 36 113 57 11 11
The impact of the 2012 reforms

During 2012, the Monti government introduced broad-based product market reforms covering energy, transport, and professional services. The aim of the reforms was to reduce tariffs and increase flexibility. It also introduced labor market reforms to reduce dismissal costs, promote apprenticeships, decentralize wage settlements, and liberalize employment placement services. Estimating how these reforms will impact the various measures of structure mentioned earlier is not easy. One way to do this is to use the Italian Treasurys estimates of how the reforms have impacted the OECD measures of structure. According to the Italian Treasury, the 2012 labor market reforms have reduced the OECD employment protection legislation index by 0.3pt, while the 2012 product market reforms have reduced the OECD product market regulation index by 0.1pt (lower readings on these indicators indicate less restrictive labor and product markets). We can use these estimates, along with bivariate regressions linking the other measures of structure to the OECD measures, to estimate how the 2012 reforms will have impacted the Fraser Institute indices and the World Economic Forum indices. We are not able to do this for the World Bank Doing Business survey due to a lack of sufficient data. The adjacent table provides predictions for how these indicators will move from the latest readings (before the reforms) to 2013 readings (after the reforms). Not surprisingly, all of these indicators show that the 2012 reforms have improved the structure of the Italian economy. In terms of gauging the extent of the improvement, we can calculate where Italy would rank in these surveys after the 2012 reforms, assuming that nothing has changed in any other country. This is shown in the adjacent table. Thus, Italys ranking in the Fraser Institute overall economic freedom index would improve from 83 to 79. This is clearly an improvement but would leave Italy still looking significantly worse than the Euro area as a whole. This analysis suggests that there is a lot more work for Italy to do to improve the structure of the economy. But, this change is not just about reforming laws. It is also importantly about changing the judicial system. This is very evident from looking at the relationship between quantitative measures of
18
This table uses the estimated impact of the product and labor market reforms on the ranking of Italy in these various surveys, assuming no changes in any other countries. Source: Fraser Institute, WEF, OECD, and J.P. Morgan
WEF labor market efficiency and OECD employment protection index

WEF labor market efficiency, 2008 5.0 FI IE 4.5 NL AT DE 4.0 IT 3.5 1.0 1.5 2.0 2.5
Source: OECD and WEF
BE FR ES PT GR 3.0 3.5 OECD EPI, 2008
WEF goods market efficiency and OECD product market regulation

WEF labor market efficiency, 2008 5.5 NL 5.0 IE FI DE FR 4.5 ES PT IT 0.5
Source: OECD and WEF
AT BE
4.0 1.0
GR 1.5 2.0 2.5 OECD PMR, 2008
structure, such as the OECD measures of employment protection legislation and product market regulations, and the perceptions of businesspeople. According to the OECD, Italy is not too far from the Euro area average. But, the WEF indices show that business perceptions of working in Italian goods and labor markets are much poorer. This suggests that the problem is as much about how the laws are interpreted by the judiciary, as it is about the laws themselves. The Italian judicial system is viewed as difficult to navigate due to lengthy and unpredictable processes.
JPMorgan Chase Bank, N.A., Hong Kong Haibin Zhu (852) 2800-7039 Lu Jiang (852) 2800-7053 haibin.zhu@jpmorgan.com lu.l.jiang@jpmorgan.com Grace Ng (852) 2800-7002 grace.h.ng@jpmorgan.com
Global real industrial output and China exports

%3m/3m, saar, both scales 20 15 10 5 0 -5 10 11 12 13
Source: China Customs, J.P. Morgan
What does Chinas recent export strength tell us?

Recent strength in Chinas export data partly driven by tech sector, especially new product launches. China data show remarkable export growth to Hong Kong, but Hong Kong data do not. We think global demand will improve especially by midyear, while REER appreciation may exert near-term drag. The latest macro data from China suggest the economy is tracking a moderate recovery going into early 2013. Meanwhile, one of the surprises in the recent data flow is the impressive strength in exports, especially over the past three months, as merchandise exports jumped 52.5%3m/3m saar in February. While the global manufacturing sector has rebounded since late last year, Chinas export performance appears to have significantly outperformed (first chart). Indeed, while domestic exporters outlook has improved modestly lately (the export orders component of the March flash manufacturing PMI rose moderately to 51.1, compared to the monthly average of 47.9 in 2012), the export data in the three months through February still appeared surprisingly strong.
Global IP China exports
80 60 40 20 0 -20
North Asia merchandise exports

Index, 1Q11=100, sa, 3mma 130 120 110 100 90 80 70 2010 2011 Taiwan 2012 2013 China Korea
Sources: China Customs, Taiwan MoF, Korea, J.P. Morgan.
Major export categories: low-end consumer goods vs. tech

Index, 1Q11=100, sa, 3mma 140 130 120 110 100 90 80 2010 2011 2012 Tech products 2013 Lower-end consumer goods
The role of the tech sector

It is interesting that even among the heavyweight North Asian exporters, Chinas exports have outperformed Korea and Taiwan since mid-2011, with the gap widening notably since late last year (second chart). Recent J.P. Morgan research has noted that the North Asian producers of China, Korea, and Taiwan have been leaders in the production of smart phones and tablets, mobile computing devices (MCDs) (see Tech product cycles mixing up EM Asias cyclical signals, GDW, February 22, 2013). With Chinas role as a regional conduit for final assembly and export, including for the newer MCD products, the recent strength in its exports partly reflects the impact of new product launches in this space. Not surprisingly, Chinas tech exports surged at a remarkable 86.3%3m/3m saar pace through February. Meanwhile, for the lower value-added, more labor-intensive consumer goods sector, including textiles, garments, toys, and shoes, the picture has been somewhat less clear. Despite general concerns of rising costs of production in China and exporters complaints that they are losing competitiveness, exports of lower-end consumer goods, which should have been most adversely affected by the rising costs, have registered solid growth (indeed at a pace roughly similar to
Source: China Customs, J.P. Morgan.
tech exports) in the past three years (third chart). For the three months through February, exports of lower-end consumer goods expanded at an impressive 37.1%3m/3m saar.
Intriguing trade with Hong Kong

Looking at demand growth by region, exports to Hong Kong (up 126.4%3m/3m saar in February), which account for 15.8% of Chinas total exports, were the most significant contributor to total export growth (in %oya terms) in 2H12 and the first two months of this year, followed by the ASEAN region (first chart, next page). Meanwhile, during the same period, the contribution from exports to the US and Europe was well below previous performance. The remarkable
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Economic Research What does Chinas recent export strength tell us? March 28, 2013
strength in exports to Hong Kong is somewhat intriguing, as most of Hong Kongs imports (more than 70%) are for reexport to rest of the world (including the US and Europe). Also, comparing China customs exports to Hong Kong with data from the Hong Kong Census and Statistics Department (CSD) on imports from China reveals an anomaly. The two data series, which historically have tracked each other very closely, began to diverge in late 2010, with Chinas exports to Hong Kong consistently exceeding Hong Kongs imports from China (second chart). The divergence has widened notably recently, averaging US$12.1 billion per month for the three months through February (for comparison, Chinas trade surplus averaged $25.3 billion during the same period). In contrast, the outperformance of Chinas exports to the ASEAN region (as measured by China) is also reflected in the ASEAN import data. There is not an obvious explanation for the divergence in the China-Hong Kong trade data. One argument is that, given sluggish external demand since the global financial crisis, Chinese exporters have either over-invoiced exports, or engaged in round-tripping of exports between different ports within China, in order to benefit from export tax rebates. Meanwhile, our F/X strategists suspect that export overinvoicing, if true, may reflect Chinese corporates desire to build up offshore F/X assets/reduce F/X liabilities in recent quarters, as the appreciation in the CNY/USD exchange rate is no longer seen as a one-way proposition. In any case, if we adjust Chinas customs exports to Hong Kong for the gap with Hong Kong imports, Chinas overall exports would have risen 14.6%oya 3mma in February rather than the official 19.8% increase.
Export growth breakdown by destinations

Contribution to total %oya export growth 100% 80% 60% 40% 20% 0% -20% 2010 2011 1H12 2H12 Jan - Feb13
Others Taiwan& Korea
Japan
ASEAN HK US
EU
Trade between China and Hong Kong

US$ bn, sa 40 35 30 25 20 15 10 5 0 04 06 China exports to HK
HK imports from China 08 10 12
Source: China Customs, Hong Kong C&SD, J.P. Morgan.
Merchandise exports
%oya, 3mma 30 25 20 15 10 5 0 2011 2012 China exports adjusted by Hong Kong import data 2013 China exports
Moderate export growth in 2013

Looking ahead, we believe the 2013 outlook for Chinas trade is moderately better than last year; we look for trade flows to rise 12%oya (compared to 6.2% last year). Meanwhile, our global team has noted some surprising resilience in the US economy amid near-term fiscal drag, and anticipates a move to above-trend global GDP growth after midyear, which should provide a boost to Chinas exports. On the other hand, it should be noted that the CNY REER has appreciated about 5% in the past six months, which will likely exert some drag on exports in the coming months. Overall, it appears that the external sector will remain subjected to considerable global uncertainty in 1H13. As such, we think Chinas domestic demand, in particular infrastructure investment and recovery in the property sector, as well as steady consumer demand growth, will likely be the major drivers of the 8.2% GDP growth that we forecast for this year.
China Customs, Hong Kong C&SD, J.P. Morgan.
CNY REER and merchandise exports

%oya, 3mma 50 40 30 20 10 0 2010 2011 2012 2013 Merchandise exports Real effective exchange rate %oya, leading by 6 months, reverse scale Appreciation -9 -6 -3 0 3 6
20
J.P. Morgan Australia Limited Stephen Walters (61-2) 9003-7980 stephen.b.walters@jpmorgan.com
RBA cash target rate and monetary conditions

Percent per annum, end of period 8 7 6 5 4 3 2 06 07 08 09 10 11 12 13 14
Source: RBA, J.P. Morgan
Glass-half-full RBA to ease again in November, not May

We have pushed out the preferred timing of the RBAs final rate cut to November, from May Firmer tone to domestic data and better offshore news have brought comfort to RBA officials Implied easing bias remains in place as officials track transition from mining to non-mining investment Unexpected AUD strength could trigger earlier rate cut We are changing our RBA call to reflect a later end to the easing cycle, in November rather than May. The forecast still anticipates a terminal rate for this cycle at 2.75%, but we now expect to get there later. We had been forecasting the RBA would deliver a further and final quarter-point cut to the cash rate in May, but this now looks unlikely. Recent public commentary from senior officials, informed by a firmer tone to domestic data and better news from offshore, indicates they are comfortable that the much-anticipated transition from mining investment as the principal driver of growth, to lift outside mining, is playing out broadly as expected. Indeed, the RBAs earlier rate cuts, starting in late 2011, finally are getting traction. The economy, therefore, needs no further policy support, at least not yet. The RBA, in glass-half-full mode, is in the midst of a tactical pause in the easing cycle.
Percent MCI 8 6 4 2 0 Cash rate -2 -4
Business investment: mining and non-mining

% of GDP 7 6 5 4 3 2 1 0 03 05 07 09 11 13
Source: ABS, J.P. Morgan
% of GDP Non-mining 6.5 6.0 5.5 5.0 Mining 4.5 4.0
Still question marks over the outlook

There still are, however, key question marks about two issues of substance: the durability of the lift in non-mining investment and the level of AUD. The transition away from mining to non-mining investment is critical, given that spending by the miners is poised to peak this year. The evidence of lift outside mining is tentative and patchy; business managers may need another nudge from the RBA at some point to complete the transition. And, our house view anticipates renewed AUD strength this year. The relationship is non-linear, but the higher AUD goes in trade-weighted terms, the lower the cash rate should be in order for monetary conditions to be held steady (chart). This anticipated AUD strength and the likelihood that a growth gap will open later this year once mining investment peaks are why we retain a final rate cut in our forecasts, albeit later than before. There is a risk, however, that the RBAs easing cycle may already have ended with the most recent rate cut last December. The rising prospect of further material fiscal slippage as the federal election nears, now that the unpopular Labor government has abandoned its pledge to return the
Budget to surplus this year, alone could be sufficient to keep the RBA sidelined. Unexpected AUD weakness, not the house view, also could see the RBA inactive. Out-of-cycle rate cuts by the domestic banks, given the fall in the cost of wholesale funding, also could be a factor here, but independent cuts to variable home mortgage rates remain somewhat unlikely.
Growth gap still likely to open this year

For now, by using language implying that a bias to ease policy remains in place, RBA officials are signaling they are prepared to deliver policy support as needed. In particular, the transition to growth outside mining is unlikely to be seamless, as Governor Stevens indicated late last year. The swollen pipeline of work still to be done means investment in mining (including the now dominant oil and gas sector) will keep rising as a share of GDP for a few quarters yet. The peak in spending, though, is nearing; the forecast anticipates that mining investment will become a drag on GDP growth from around year-end. The most recent official investment intentions survey showed little lift in non-mining investment in the near term, but a decent gain in the year to June 2014. The resulting growth gap likely to emerge after mining investment peaks, though, means there will be a period of sub-trend growth; the forecast
21
J.P. Morgan Australia Limited Stephen Walters (61-2) 9003-7980 stephen.b.walters@jpmorgan.com
Economic Research Glass-half-full RBA to ease again in November, not May March 28, 2013
anticipates CY12 growth of just 2.5%. The resulting rise in the unemployment ratewe still expect a rise from the current 5.4%and AUD appreciation to a record high in trade-weighted terms are the most likely triggers for the RBAs move in November.
Consumer confidence and change in the cash rate

Index, adv 6 mos 130 120 110 Consumer confidence % change, 6 mo 2 1 0 -1 Cash rate -2 -3 -4 00 02 04 06 08 10 12 14
RBA policy no longer spinning its wheels

It is clear that the RBAs previous 175bp of rate cuts since late 2011 finally are getting some traction, and broadly as would be expected based on observations from previous easing cycles. Asset prices are liftingthe local equity market has surged and house prices are higherconsumer confidence has risen 10% since the start of the year, and there are hopeful signs that the labor market has firmed. We are fading the message from the February employment report, which showed a spectacular surge in employment. The subsequent release of the sector breakdown, though, showed a near40,000 gain in construction employment in the six months to February, a key signpost flagged earlier by RBA officials that the rate cuts are working. And, of course, the export phase of the mining lift still lies ahead, albeit after a lag. One important piece missing from this otherwise constructive picture, though, is business confidence, which remains low and fragile, partly owing to a resumption of uncertainty in Europe, a lack of conviction about the nascent lift in the interest-sensitive parts of the economy, and, perhaps, heightened domestic political instability. Business investment often is the last part of the economy to lift after official rates are lowered, but is unlikely to do so until corporate confidence solidifies. The fact that firms have improved hiring is a positive sign that a pickup in investment also is near. Home construction remains weak, but recent house price gains hint that activity also will lift. The leading indicators of building activity have firmed, albeit modestly.
100 90 80 70
Source: WMI, RBA, J.P. Morgan
Business confidence and the unemployment rate

6 mo change in jobless rate, inverse scale Net balance, adv. 6 mo Unemployment rate -1.0 30 -0.5 0.0 0.5 1.0 1.5 2.0 98 00 02 04 06 08 10 12 14
Source: NAB, ABS, J.P. Morgan
20 10 0 -10 Business confidence -20 -30 -40
reductions (in the cash rate) may be required. The Bank does not expect growth to return to trend until later in 2014. It follows that, other things equal, only a lower cash rate will return growth to trend earlier than the Bank forecasts.
Post-Budget fiscal slippage a key risk

The worse the governments standing gets in opinion polls (and it plunged this week in the wake of the bout of infighting at senior levels of the government last week that saw a slew of senior ministers resign), the greater the risk that the government tries to buy support in the electorate by loosening the purse strings. Treasurer Swan already has abandoned his pledge to return the budget to surplus, which was an important constraint on government largesse. Now, though, the perception among MPs facing looming political oblivion may be that it matters little whether the deficit is modest or significantly larger. The Treasurer is said to be resisting ministerial requests like lifting unemployment benefits but, given the governments political troubles, there probably will be some sweeteners offered in the May Budget. We have penciled in the start of a hiking cycle in 2H14. By then, the upswing in global demand should be entrenched and the transition to domestic non-mining activity more advanced. Inflation likely will have troughed.
RBA forecasting sub-trend growth

Although the tactical imperative suggests there is no need for the provision of further rate cuts in the near term, the underlying official narrative still supports the case for further easing at some point. Indeed, the Reserve Banks latest official forecasts published last month in the Statement of Monetary Policy (SoMP) assume an unchanged cash rate at the current 3%, and show that growth in the economy will be sub-trend, growing between 2% and 3% out to June 2014. The Bank also expects the unemployment rate to rise. The RBA predicts that inflation will be confined to the 2%3% target range. In other words, the economy will underperform unless officials provide further policy support, against a backdrop of low inflation. The minutes from the March Board meeting, therefore, indicated that further
22
JPMorgan Chase Bank, N.A., Singapore Branch Matt L Hildebrandt (65) 6882-2253 matt.l.hildebrandt@jpmorgan.com
Singapore: employment
Index, 1Q08=100 140 130 120 110 100 90 2008 2009 2010 Manufacturing 2011 2012 2013 Construction Total Services
Singapore: MAS to fade soft data and keep inflation focus

Government-led economic restructuring process has worsened labor market and inflation dynamics. But, macroprudential rules on housing and cars should lead to lower CPI inflation, even as core inflation firms. MAS to stay on hold as core inflation risks trump soft data; risk of a steeper slope is greater than a flatter one. Global demand has traditionally dictated economic dynamics in Singapore as soft external conditions have led to weaker GDP growth, higher unemployment, and lower inflation. But, the transmission process has broken down in recent years as soft economic growth has not led to deterioration in labor market conditions. Rather, hiring has been solid, which along with stricter immigration policy has led to tight labor market conditions and elevated inflation despite sluggish growth. Sticky core inflation (ex. accommodation and private transport) has contributed to high CPI inflation, but the latter has also been lifted by rising prices of certificates of entitlement (COE) for auto registrations and of housing. The government, however, recently implemented measures to curb housing and COE prices, which should lead to a slowdown in CPI inflation. Core inflation will still firm though as labor market conditions are tight and because service sector productivity has been weak. In fact, data suggest that the historical trade-off between unemployment and inflation has shifted (worsened) since the 2008-09 global crisis, and we expect inflation to be higher for any given rate of unemployment or output growth than it has been in the past. CPI and core prices both surged in February, but their trends should diverge over the rest of this year as CPI inflation eases while core prices firm further. The issue is whether the MAS will focus more on soft growth and the COE and housing-led slowdown in CPI inflation or more on tight labor market conditions and core inflation. We expect the MAS to fade the soft growth figures and volatile CPI trends and instead focus on the labor market and core inflation risks. This would keep MAS policy on hold, with the balance of risks tilted toward a steeper rather than flatter slope.
Source: Ministry of Manpower.
Singapore: GDP level

Index, 1Q08=100 160 145 130 115 100 85 70 2008 Total 2009 Manufacturing 2010 2011 2012 2013 Services Construction
Source: Department of Statistics.
Singapore: productivity by sector

Index, 1Q08=100 140 120 100 80 60 2008
Source: J.P. Morgan.
Manufacturing
Total
Construction
Services
2009
2010
2011
2012
2013
Singapore: Phillips curve

Vertical = core inflation (%oya); horizontal = unemployment rate, sa 5 4 3 2 1 0 0.6 1990-2000 2002-11 2005-12 2% unemployment rate
Phillips curve trade-off has worsened

Since the 2008-09 global crisis, the strength of Singapores labor market and intensification of price pressures has been surprising. Some of the increase in CPI price pressures has reflected higher housing and COE prices, but much of it has also reflected stickier core inflation and low productivity,
1.4
2.2
3.0
3.8
4.6
Sources: Department of Statistics, Ministry of Manpower, J.P. Morgan
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JPMorgan Chase Bank, N.A., Singapore Branch Matt L Hildebrandt (65) 6882-2253 matt.l.hildebrandt@jpmorgan.com
Economic Research Singapore: MAS to fade soft data and keep inflation focus March 28, 2013
particularly in services. Since 2008, hiring in services has been much stronger than in construction or manufacturing, while growth in that sector has been the weakest. This implies low productivity, which explains why hiring in services has held up even during periods of sluggish growth. Tight labor market conditions partly explain high inflation. However, core inflation has been higher than in the past even relative to a given unemployment rate. This suggests that high core inflation is not just related to the economys cyclical state but that it also reflects a structural shift up in price pressures. This structural shift is at least partly a result of weak productivity, which explains the official focus on economic restructuring and boosting productivity. In other words, even if the labor market were to soften a bit, core inflation would likely stay higher than past experience would suggest as the inflation-unemployment trade-off has worsened.
Singapore: certificate of entitlement prices and CPI private transport

%oya 200 150 100 50 0 -50 -100 05 07 09 11 13 %-pt contribution to %oya inflation, 1-mo lag COE prices Private transport 4 3 2 1 0 -1 -2
Singapore: consumer prices

%oya 8 6 4 2 0 -2 2007 2008 2009 2010 2011 2012 2013 2014 CPI inflation %-point contribution to %oya CPI inflation Housing and private transport 8 6 4 2 0 -2
CPI and core inflation trends to diverge

COE and housing prices have also pushed CPI inflation higher in recent years. This trend was visible in the February inflation release this week as private transport prices rose 17.4%oya from 10.5% in January, resulting in a CPI inflation rate of 4.9%oya from 3.6% (with a modest boost from food, too). But, COE prices have moderated in recent months and will not likely rise again soon because of the stricter financing rules for cars announced in the budget last month. Thus, the contribution to CPI inflation from private transport will fall sharply in coming months. In addition, property prices are expected to be better behaved following the strict housing measures introduced in January (see Singapore: tightening the screws on property again, GDW, January 18, 2003). As a result, CPI inflation is expected to ease sharply in coming months to around 3%oya from the most recent 4.9% print. While CPI inflation is forecast to ease, core inflation should firm if sequential price pressures in coming months remain similar to those in recent months. In such a scenario, core inflation should climb to around 2.5% by year-end from 1.9% in February (and 1.2% in January). Given tight labor market conditions and stricter immigration, risk to this forecast is to the upside. So, core and CPI inflation trends should diverge over the rest of this year as their rates converge toward 3%.
Source: Department of Statistics
Singapore: accommodation and private transport prices

%-pt contribution to %oya inflation 5 4 3 2 1 0 -1 -2 05 06 07 08 09 10 11 12 13
Accommodation Private transport
Singapore: core and CPI prices

%oya 8 6 4 2 0 -2 05 06 07 08 09 10 11 12 13
Source: Department of Statistics
MAS on hold in April

In October, the MAS maintained its policy stance because of tight labor market conditions and upside risks to core inflation, rather than easing as the market had expected. We expect that the same combination of factors will take precedence now, and that the MAS will maintain its current monetary stance in light of recently weak economic data and lower CPI inflation.
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United States
Real GDP for 4Q12 now 0.4%, forecast for 1Q13 raised to 2.7%; domestic final sales much steadier than GDP Latest reports on 4Q12 profits and 1Q13 core capital goods shipments highlight corporate resilience Forecast still looks for 1.5% growth in 2Q13, but slowing is unlikely to show in upcoming March reports The economic news this past week highlights the continuing rebound in business investment following last summers slump. The governments latest estimate shows a modest upward revision to real GDP growth in 4Q12 to 0.4% saar (from 0.1%) with the entire net revision accounted for by real business fixed investment, now reporting a 13.2% saar rebound. Unexpectedly strong news on business spending also prompted an upward revision to the forecast of real GDP growth in 1Q13 to 2.7% (from 2.3%). Februarys strong gain in core capital goods shipments (and the upward revision to January) lift the forecast for real spending on equipment and software for 1Q13 to a trend-like 5.8% saar (from 2.7%). The forecast had previously expected a weak patch for spending while business monitored the economic effects of substantial tax hikes that took effect at the beginning of the year. The latest report on 4Q12 GDP contains the governments first estimate of 4Q12 corporate profits, and the results help explain the corporate resilience early this year. Adjusted profits rose 9.5% saar and nonfinancial profits from domestic operations, the more important influence on domestic capital spending, also rose 9.5% saar despite a quarter of very weak real GDP growth. Incoming news on the housing market is also generally upbeat. New home sales for February came up a bit short, but the average sales pace for January-February (421,000 saar) is sharply above the average 4Q12 pace (380,000) and supports the outlook for further strong gains in new home construction this year. Rising home sales and lean inventories of unsold homes are encouraging increases in house prices as well. Real GDP growth over the past year shows fairly large quarterly swings, including the acceleration from growth of only 0.4% last quarter to an estimated 2.7% this quarter. But these swings are exaggerated by the ups and downs of inventories. Growth of real domestic final sales has maintained a fairly steady and subdued growth pace close to 2.0%, and this trend is expected to continue. The forecast looks for real domestic final sales to accelerate modestly from 1.5% saar in 4Q12 to 2.0% in the current quarter.
Real domestic final sales and real GDP

%ch saar 5 4 3 2 1 0 2011
Source: BEA, J.P. Morgan
Real GDP
Real domestic final sales
Forecast
2012
2013
Core capital goods shipments and new orders

%ch saar over 3 months, both scales 30 20 10 0 -10 -20 2011
Shipments
New orders
45 30 15 0 -15 -30
2012
2013
The forecast still looks for real GDP growth in 2Q13 to moderate to 1.5% saar, but the tone of the upcoming March economic reports is expected to be similar to February results without any downside break. The forecast looks for nonfarm payroll employment to increase 210,000 (close to the 236,000 in February) and for the unemployment rate to edge up to 7.8%, giving back a part of Februarys 0.2% decline. Forecasts for the March final PMI (54.5), the ISM manufacturing survey (54.0), and the ISM nonmanufacturing survey (55.0) are each expected to be close to February results. And March auto sales are forecast to be unchanged at a pace of 15.3 million. There will also be interest in February reports on construction spending and foreign trade. These releases will provide source data used to refine the forecast of 1Q13 real GDP growth. And reports on March auto sales and chain store sales will provide some sense of the tone of March consumer spending.
Capex rebound continues

Monthly readings for durable goods orders have been choppy lately, as is often the case. However, the trend in growth has turned stronger over the past few months, reflecting in part the turn in the inventory cycle from sharply negative in 4Q12 to sharply positive in 1Q13. Total new orders for durable
25
Economic Research United States March 28, 2013
goods rebounded 5.7% samr in February and are up 22.7% saar over the past three months. Total orders ex. transportation, a better measure of the trend, edged down 0.5% in February but are at a 13.3% pace over the past three months. Detail of the February durables report shows that the trend in core capital goods orders and shipments continued to increase following the snap back in 4Q12. Core capital goods orders for February gave back some of Januarys surge. But the January-February level is running 31.4% saar above the 4Q12 average. Core capital goods shipments, key source data for estimating GDP, are up 5.3% so far this quarter and, as noted, the forecast for real spending on business equipment and software for 1Q13 has been raised to a trend-like 5.8% pace. Within capital goods, new orders for machinery gave back part of their January surge and new orders for computers and electronic parts made up part of their January decline. Growth in new orders for machinery over the past three months (45.6% saar) continues to run hugely stronger than for computers and electronics (-2.9%).
Single-family new home sales and months' supply of unsold inventory

Mn, saar, 3mma 0.43 New home sales Sa, 3mma 7.8 7.2 6.6 6.0 0.33 Inventory 5.4 4.8 0.28 2011
0.38
4.2 2012 2013
Two measures of quality-adjusted house prices

%oya 10 Case-Shiller 20-city index for existing homes Census index for new homes
Real GDP and profits

Revisions to 4Q12 real GDP were minor and largely anticipated. The two main surprises relative to expectations are the downward revision to real consumer spending to 1.8% (from 2.1%) that could have modest negative implications for current-quarter growth and the smaller-than-expected upward revision to inventories that has modest positive implications for current-quarter growth. That the first report on 4Q12 corporate profits increased 9.5% at an annual rate is a bigger surprise (see Focus page.) Domestic nonfinancial profits increased 9.5% saar, increasing more rapidly than the trend over the previous year in a quarter when both real GDP growth and labor productivity were very weak. And profits earned abroad advanced at a double-digit pace last quarter, counter to the prior trend of gradual declines, in a quarter when foreign growth was also weak. Profits are volatile from quarter to quarter. But the broad message from 2012 results is that corporate business managed to maintain elevated profit margins despite a year of subpar real GDP growth in the US and in the rest of the world. The forecast of somewhat stronger real GDP growth this year, if realized, should bring stronger profit growth this year as well.
-5 2010
2011
2012
2013
Source: Census Bureau, Case-Shiller
accelerating. The latest Census report indicates that sales are turning much stronger in 1Q13. New home sales did slip a bit in February, but this follows a double-digit monthly increase in January. New home sales for the first two months of the year have averaged 421,000 at an annual rate and are running 63.5% at an annual rate above their 4Q12 average. The months supply of inventory (including homes permitted but not yet started) has averaged a lean 4.3 months (sa) so far this year, down from 4.7 months in 4Q12. Lean inventories for new and existing homes are an important positive influence on both new construction activity and house prices. Not unexpectedly, the latest report on house prices was strong as well. The Case-Shiller 20-city house price index rose 1.0% samr and 8.1%oya in January. Prices rose in all 20 of the cities, both for the month and on an over-year-ago basis. Several of the areas that seemed hopeless a couple of years ago are now reporting double-digit house price increases, including Phoenix (23.2%oya), Las Vegas (15.3%oya), and Miami (10.8%oya). This reinforces the message from the other quality-adjusted house price measures. The supply/demand balance in the market is unlikely to change anytime soon, so prices are expected to continue to rise through the rest of the year.
Home sales and prices continue to rise

News on the new home market has been conflicting lately. The monthly Homebuilders survey peaked in December and has been drifting lower early this year. But the large public companies have been reporting that sales growth is
26
JPMorgan Chase Bank NA Michael Feroli (1-212) 834-5523 michael.e.feroli@jpmorgan.com Robert E Mellman (1-212) 834-5517 robert.e.mellman@jpmorgan.com
Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Jimmy Coonan (1-212) 622-0547 james.k.coonan@jpmorgan.com
Data releases and forecasts

Fri Mar 29 8:30am
Personal income
%m/m sa, unless noted Nov Personal income Wages & salaries Consumption Real consumption PCE price index Core Mkt-based Core Core (%oya) Mkt-based Core (%oya) Saving rate 1.0 1.1 0.4 0.5 -0.2 0.07 0.0 1.5 1.6 4.0 Dec 2.6 0.7 0.1 0.1 0.0 0.03 0.0 1.4 1.4 6.4 Jan -3.6 -0.6 0.2 0.1 0.0 0.15 0.2 1.3 1.4 2.4 Feb 1.1 0.8 0.6 0.2 0.4 0.11 1.3 2.9
Mon Apr 1 10:00am
ISM manufacturing survey

Sa Dec Overall index Production New orders Inventories Employment Supplier deliveries Export orders Imports Prices 50.2 52.6 49.7 43.0 51.9 53.7 51.5 51.5 55.5 Jan 53.1 53.6 53.3 51.0 54.0 53.6 50.5 50.0 56.5 Feb 54.2 57.6 57.8 51.5 52.6 51.4 53.5 54.0 61.5 Mar 54.0
Data not released at time of publication.

Fri Mar 29 9:55am
Consumer sentiment
Jan 73.8 85.0 66.6 3.3 2.9 164 Feb 77.6 89.0 70.2 3.3 3.0 154 Pre Mar 71.8 87.5 61.7 3.3 2.9 160 Fin Mar 73.0 Mon Apr 1 10:00am
Univ. of Mich. Index (nsa) Current conditions Expectations Inflation expectations Short term Long term Home buying conditions
We believe the ISM manufacturing surveys headline edged down 0.2pt to 54.0 in March. The headline increased 1.1pts to 54.2 in the February report with favorable underlying details. The ISM weighted composite indexes calculated from the various regional survey data that we already have in hand for March suggest that the ISM survey should weaken in March. However, the national PMI index reported for March (the flash report) was stronger than the ISM survey reported for February, so we do not expect much weakening in the ISM survey. Construction spending
%m/m sa Nov Nominal Private Residential Nonresidential Public 1.9 2.7 -0.1 5.5 0.0 Dec 1.1 2.1 1.7 2.4 -1.0 Jan -2.1 -2.6 0.0 -5.1 -1.0 Feb 1.0 1.5 2.5 0.5 -0.3

Mon Apr 1 8:58am
Markit manufacturing PMI

Index, sa Jan 55.8 57.4 56.8 55.6 45.7 51.5 51.5 50.3 53.3 59.0 50.4 53.7 55.1 Feb 54.3 55.4 57.3 53.5 48.5 49.5 48.5 49.9 53.5 58.2 50.7 53.6 53.4 Flash Mar 54.9 55.9 56.8 54.6 46.6 50.2 51.2 50.1 52.9 55.2 49.4 53.0 54.2 Final Mar 54.5
Composite1 New orders (30%) Output (25%) Employment (20%) Sup. del., (15%, inv.) Stks of purch (10%) New export orders Backlogs of work Output prices Input prices Stocks of finished goods Quantity of purchases ISM-weighted composite2
1. Weights in parentheses 2. Attributes ISM-composite weights (equal weights) to corresponding PMI series
We forecast that the Markit manufacturing PMI will be revised down from 54.9 to 54.5 between the flash and final reports for March, which would still be a slight improvement over the final figure reported for February (54.3). Most manufacturing indicators have been decent lately, but the PMI has been stronger than many other related surveys suggesting that it might be due to cool off a bit. Downward revisions in the PMI have also been fairly common since late in 2011.
We estimate that nominal construction spending put in place increased 1.0% in February. Private spending on residential construction has been increasing lately while the housing market has been recovering, and we believe these figures will continue to improve. We forecast that private residential construction spendingincluding improvements, which are not used to estimate GDPincreased 2.5% in February while spending on new residential construction rose 3.4%. Private nonresidential construction spending has also been trending higher throughout the past few years, though spending dropped 5.1% in January after strong growth at the end of 2012. We look for a resumption of the upward trend in the data and forecast a 0.5% increase for February. Public construction spending has been weak in recent months, declining 3.7% saar over the six months through January. With look for some moderation in the downward trend related to public spending in February and forecast a decline of 0.3% samr.
Sources: ADP/Moodys Analytics, BEA, BLS, Census Bureau, Conference Board, Federal Reserve Board, ISM, J.P. Morgan, NAHB, NAR, NFIB, NY Fed, Markit, Philadelphia Fed, Standard & Poors, University of Michigan, US Treasury
27
Tue Apr 2 10:00am
Factory goods report

%m/m sa, unless noted Nov New orders Shipments Inventories Inventory/sales ratio -0.3 0.3 0.0 1.27 Dec 1.3 0.0 0.0 1.27 Jan -2.0 -0.2 0.5 1.28 Feb 3.4 1.2 0.6 1.27
Wed Apr 3 10:00am
ISM nonmanufacturing survey

Sa Dec Nonmfg. index (NMI) Business activity New orders Employment Prices 55.7 60.8 58.3 55.3 56.1 Jan 55.2 56.4 54.4 57.5 58.0 Feb 56.0 56.9 58.2 57.2 61.7 Mar 55.0
We believe factory orders increased 3.4% in February while related shipments increased 1.2% and inventories rose 0.6%. The advance durable goods report already showed that durable goods orders increased 5.7% during the month while durable shipments increased 1.0% and inventories rose 0.4%. The trends related to the important core capital goods data continued to look solid despite the 2.7% decline in the related orders figure; over the three months through February, core capital goods orders increased 12.7% saar while core capital goods shipments increased 5.6% saar. We estimate that new orders and shipments of nondurable goods popped up 1.5% in February while nondurable inventories increased 0.9%. Price increases for most of the related products (especially petroleum products) should boost the nominal figures reported for February.
Tue Apr 2
We believe the ISM nonmanufacturing indexs headline declined 1.0pt to 55.0 in March. The improvement in the housing market appears to have provided a nice boost to service sector activity recently, and the ISM nonmanufacturing survey looked very solid in February (with regard to both its headline and underlying details). We look for some softening in the March survey, largely due to seasonal issues. The surveys index related to supplier deliveries (25% of the headline composite) is not seasonally adjusted and is typically weak in March. February has also been the peak for the overall ISM index each of the past two years, so there could be some seasonality in the data that is not being correctly accounted for by the surveys seasonal factors (away from the supplier deliveries index).
Thu Apr 4 8:30am
Jobless claims
000s, sa New claims (wr.) Wkly 4-wk avg Jan 19 Jan 26 Feb 2 Feb 9 Feb 16 Feb 23 Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 343 374 361 348 366 348 340 334 341 357 350 360 360 357 357 362 356 351 347 341 343 346 Continuing claims Wkly 4-wk avg 3207 3219 3140 3163 3102 3105 3058 3077 3050 3201 3210 3183 3182 3156 3128 3107 3086 3073 Insured Jobless,% 2.5 2.5 2.4 2.5 2.4 2.4 2.4 2.4 2.4
Motor vehicle sales

Mn, saar Dec Light trucks and autos Imports Domestics Autos Light trucks 15.3 3.3 12.0 5.6 6.4 Jan 15.2 3.2 12.0 5.7 6.4 Feb 15.3 3.3 12.0 5.5 6.4 Mar 15.3
We forecast light vehicle sales of 15.3 million saar for March based on available industry guidance, which would be unchanged from the pace of sales reported for February. After trending higher throughout most of the recovery, the pace of sales has flattened out since late in 2012. But sales have held up reasonably well considering the fiscal tightening implemented at the start of the year.
Wed Apr 3 8:15am
1. Payroll survey week
ADP employment
Change from month ago, sa Dec ADP BLS private payroll 209 224 Jan 215 140 Feb 198 246 Mar
The deviation between the first prints of the ADP employment report and the BLS data on private payrolls has averaged only 6,000 over the five months since the former began using a new methodology. However, the directions of these deviations have varied and the magnitude of the misses has averaged 35,000 over these five months. We will be able to better evaluate the reliability of the ADP reports new methodology in predicting the BLS data as we get additional reports each month.
We forecast that initial jobless claims declined 7,000 to 350,000 during the week ending March 30. The claims data are often volatile around this time of year because of seasonal adjustment issues related to the varied timing of Good Friday, Easter, Passover, and school spring breaks. Claims had been trending lower early in 2013 before increasing in the most recent two weeks (7,000 the week ending March 16 and 16,000 the week ending March 23). If some of this recent deterioration in the data was due to issues with the seasonal adjustment process, we will likely see a decline in the upcoming report. The last year to show increases in the two weeks leading up to the week of Good Friday (the pattern evident this year) was 2008, and claims declined that year during the week of Good Friday.
28
However, there are differences between the seasonal factors for that year and this year so a similar outcome in the seasonally adjusted data is far from assured.
Fri Apr 5 8:30am
Labor market report

Sa Dec Payroll employment (ch, m/m, 000s) Private payrolls Goods-producing Construction Manufacturing Service-providing Private service-providing Wholesale trade Retail trade Professional services Temporary help Education/health Leisure and hospitality Government Average weekly hours Index, hrs worked (%m/m) Hourly earnings (%m/m) (%oya) Unemployment rate (%) 219 224 58 38 13 161 166 6 6 35 12 36 40 -5 34.5 0.5 0.3 2.1 7.8 Jan 119 140 41 25 12 78 99 16 29 16 -3 9 30 -21 34.4 -0.2 0.1 2.1 7.9 Feb 236 246 67 48 14 169 179 6 24 73 16 24 24 -10 34.5 0.5 0.2 2.1 7.7 Mar 210 215 55 40 10 155 160
-5 34.5 0.2 0.3 2.1 7.8
data to moderate in March, and forecast a decline in payrolls of 5,000. Most other details of the establishment survey should also have been relatively upbeat in March. We believe the average workweek held at 34.5 hours in March after ticking up the prior month. In February, the average workweek for production workers popped up 0.2 hour to 33.8 (matching the peak for the expansion to date), suggesting that the increase in the overall workweek from February will be sustained because the production worker series is generally a more reliable measure. A steady workweek and our forecast for payroll growth should generate a 0.2% increase in the index of hours worked. Although the broad trend in earnings remained soft through February (+2.1% oya), we have seen some signs of firming lately. Between November and February, earnings have increased by an average of 0.3% each month (for the series for all workers as well as production workers), and we believe earnings increased by a similar amount in March. For the household survey, we believe the unemployment rate ticked up 0.1%-pt to 7.8% in March. The unemployment rate dropped 0.2%-pt in February (partly due to decreased participation). Given the general volatility in the household survey data, we expect some of this decline to be undone in the upcoming report.
Fri Apr 5 8:30am
International trade
$ bn, samr Nov Balance (BOP basis) Services Merchandise Exports (%m/m) Imports (%m/m) -48.2 17.3 -65.5 1.2 3.8 Dec -38.1 17.9 -56.1 2.2 -2.6 Jan -44.4 17.3 -61.8 -1.2 1.8 Feb -45.1 17.4 -62.5 1.2 1.3
We forecast that nonfarm payrolls increased 210,000 in March while the unemployment rate ticked up to 7.8% during the month. The labor market indicators we track have been generally upbeat so far in 2013 despite the fiscal tightening implemented at the start of the year. Nonfarm payrolls increased by an average of almost 180,000 jobs per month in January and February, which was a modest step down relative to the 4Q12 average (almost 210,000 jobs per month) but very close to the average growth reported over the second half of 2012 as well as the full year. And since the reference week for the February employment report, the jobless claims data have been trending lower, which signals additional improvement in the labor market (the tone of the economic data in general has also been fairly upbeat). We believe the private sector added 215,000 jobs to the payroll count in March. Private goods-producing industries have added an average of 55,000 jobs per month over the three months through February with most of this growth coming from construction workers due in part to the housing recovery. We believe these trends carried over into March. We also forecast that private service-producing industries added 160,000 jobs in March; this would be a modest pickup relative to the trend reported for the prior few months reflecting some general improvement in the labor market. Government payrolls declined by an average of 12,000 jobs per month between December and January, continuing the downward trend in the public-sector jobs data from the past few years. About 80% of the most recent weakness was related to state-level education workers, which may have been some payback from strength in this sector around the start of the school year in the fall of 2012. We look for the downward trend in the government payroll
We believe the nominal trade balance widened from -$44.4 billion in January to -$45.1 billon in February with imports increasing 1.3% and exports rising 1.2%. In volume terms, the trade data have been choppy lately with soft underlying trendsreal goods imports edged down 0.6% saar over the six months through January while real goods exports declined 2.8% saar. US port data on container traffic as well as trade figures already reported by other countries signal a pickup in activity in February, and we forecast that real goods imports rose 0.8% while real goods exports increased 1.1%. For the figures on nominal trade in services, we forecast that both imports and exports increased 0.6% in February in line with the recent trends in the data.
29
Review of past weeks data

Durable goods (Mar 26)
%m/m sa Dec 3.6 0.8 -0.8 0.6 0.1 -0.1 Jan -4.9 2.3 7.2 -1.2 -1.1 0.2 -3.8 2.9 6.7 -0.7 -0.7 0.3 Feb 1.2 -2.2 -3.0 1.1 2.5 5.7 -0.5 -2.7 1.0 1.9 0.4 Sa
drifting higher over the past few months. Limited inventories should generate new home construction and keep upward pressure on prices. Consumer confidence (Mar 26)
Jan Conference Bd index Present situation Jobs plentiful Jobs hard to get Labor mkt diff Expectations 58.4 56.2 8.5 36.6 -28.1 59.9 Feb 69.6 63.3 10.5 37.0 -26.5 73.8 68.0 61.4 10.1 36.9 -26.8 72.4 Mar 68.0 59.7 57.9 9.4 36.2 -26.8 60.9
New orders Ex transportation Nondef cap. gds ex air Shipments Nondef cap. gds ex air Inventories
Business investment spending is continuing to recover nicely from last falls stumble, as core (nondefense, ex-aircraft) capital good shipments climbed 1.9% in February. Core capital good orders slipped 2.7%, but that was after a 6.7% gain the prior month. The latest data take our estimate of real business spending on equipment and software to a trend-like 5.8% annual pace. The headline gain in new orders for durable goods was 5.7%, supported by a 75.2% jump in orders in the volatile aircraft category. Outside of transportation equipment, orders slipped 0.5%, following five months of solid increases. Machinery orders fell 2.2%, but held on to most of the previous months 15.9% increase. The gain in core capital goods shipments was mostly due to an increase in the machinery category, as tech orders and shipments continue to look soft. Inventories at manufacturers of durable goods rose $1.6 billion last month, and real stockbuilding looks to be on track for about a $65 billion annual rate of increase in 1Q. S&P/Case-Shiller home price index (Mar 26)
%oya, unless noted 20-city composite %m/m, sa 10-city composite Nov 5.4 0.7 4.4 Dec 6.8 0.9 5.9 Jan 8.2 1.1 8.1 1.0 7.3
The Conference Board consumer confidence index dropped 8.3pts to 59.7 in March, undoing most of the 9.6pt increase reported for the prior month. The recent volatility in the Conference Board measure as well as mixed results from other related indicators over the past few months make it difficult to decipher the underlying trend for consumer attitudes. The survey period for the Conference Board report occurred around when the sequestration was implemented, though other factors may have affected confidence as well (including the tax hikes and increase in gasoline prices earlier in the year as potential negatives, and the recent performance of equity markets and the housing market as potential positives). Most details of the Conference Board report weakened in the March survey and expectations measures generally performed worse than measures of current conditions. The labor market differential in the Conference Board survey held at -26.8 in February, which is disappointing considering the relatively upbeat news in most other recent labor market indicators. Pending home sales (Mar 27)
Sa, unless noted Total (mn, ar) %ch m/m %oya (nsa) Dec 101.3 -2.0 4.7 Jan 105.9 4.5 10.4 105.2 3.8 9.6 Feb 104.3 -1.5 7.9 104.8 -0.4 5.0
0.6
Most measures of house prices have been firming already while the housing market has been recovering. The Case-Shiller house price index increased 1.0% samr in January and was up 8.1% oya. There have been widespread increases in house prices across the reported metropolitan areas in the Case-Shiller data. New home sales (Mar 26)
Dec Total (000s,saar) %m/m %oya nsa Months supply Median price (%oya) 378 -3.8 12.5 4.8 14.3 381 -3.3 19.0 Jan 437 15.6 34.8 4.1 2.1 431 13.1 30.4 4.2 8.1 Feb 415 -5.0 13.4 411 -4.6 10.0 4.4 2.9
New single-family home sales declined 4.6% to 411,000 saar in February and there were net downward revisions to the earlier data of 2,000. This most recent decline in home sales only gave up a portion of the 13.1% jump reported for the prior month, and the trend in the sales data still appears to be headed higher and other related measures continue to signal improvement in the housing market. New home sales increased 25% saar over the six months through February, though levels of activity remain weak by historical standards. Performance has been mixed across regions lately, with sales in the West generally outpacing sales in the other reported regions. In other details of the new home sales report, inventories of new homes available for sale remained very lean in February despite
30
The pending home sales index slipped 0.4% samr in February which gave back a small portion of the 3.8% increase reported for January (revised from 4.5%). Through some monthly ups and downs, the pending home sales data continue to be trending higher as the housing market recovers; the national index increased 6.0% saar over the six months through February with growth in the Northeast (5.3%), Midwest (11.5%), and South (11.1%), but a decline reported in the West (-6.9%). And the gains in pending home sales over the past few months point to upcoming increases in existing home sales because pending home salescounted when contracts are signedtypically lead existing home salescounted when transactions are completedby one or two months.
Gross domestic product (Mar 28)

%ch, q/q, saar, unless noted Adv 4Q12 -0.1 1.1 1.3 2.2 12.5 -1.1 15.3 -6.6 -0.2 -1.3 0.9 1.5 0.6 1.7 Sec 4Q12 0.1 1.7 1.4 2.1 11.3 5.7 17.4 -6.9 0.2 -1.6 0.9 1.5 0.9 1.8 Thi 4Q12 0.7 2.1 1.8 2.0 11.6 17.2 18.0 -6.8 0.3 -1.4 0.4 1.9 1.5 1.8 11.8 16.7 17.5 -7.0 -1.5 1.0 1.5 1.0 1.8 2.3 3.1
Real GDP Final sales Domestic final sales Consumption Equip. and software Nonres. structures Residential investment Government Net exports%-pt cont. Inventories%-pt cont. Core PCE price index (%oya) GDP chain price index (%oya) Adj. corporate profits (%oya)
The BEA revised up 4Q12 real GDP growth to 0.4% saar in its third estimate for the quarter. This was modestly below expectations, but stronger than the BEAs earlier estimates of 4Q GDP (-0.1% in its first report, +0.1% in its second). And 4Q growth was restrained by a large decline in government spending and a sharp slowing in inventory accumulation, which will likely be one-time factors, and the underlying growth momentum was much better than implied by the headline GDP figure. In the details underlying GDP, real consumption growth in 4Q was revised down from 2.1% to 1.8% (due to services) and the change in inventories was revised up slightly from $12.0 billion to $13.3 billion, both of which were softer than expected. Most of the other details were close to our forecast, including a sizable upward revision to nonresidential structures investment (from 5.7% to 16.7%) as well as small upward revisions to equipment and software spending, residential investment, and net exports. Government spending was revised down slightly from -6.9% to -7.0%. The BEAs report of corporate profits was stronger than expected; pretax profits increased 2.3% saqr in 4Q (+3.1% oya) with domestic nonfinancial profits up 2.3% saqr (+4.3% oya). There were also slight upward revisions to the PCE price index in 4Q (headline from 1.5% to 1.6% saar; core from 0.9% to 1.0% saar), but these measures of inflation still look very tame.
31
JPMorgan Chase Bank NA Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com
Focus: corporate profits in 4Q

Adjusted corporate pretax profits increased 9.6% saar in 4Q during a quarter when real GDP growth was very soft (+0.4% saar). The increase in profits in 4Q was a pickup relative to the average growth reported during the first three quarters of 2012 (+1.4% saar), but on an over-year-ago basis, growth in profits continued to decelerate through the fourth quarter. Profits increased only 3.1%oya in 4Q, the softest oya growth in the expansion to date. Real GDP growth and nonfarm productivity growth were also soft in 2012, coming in at 1.7%oya and 0.5%oya, respectively, in the fourth quarter. Our forecast assumes that real GDP growth accelerates to 2.2%oya in 4Q13 and that growth in corporate profits picks up to 4.7%oya. The remainder of this Focus looks at various subcategories of the broad profits measure. The term corporate profits (or profits) will continue to refer to adjusted pretax profits, which calculate depreciation and inventory expense on a consistent cost basis and measure earnings from current production and omit capital gains. These are also not affected by changes in taxes. Domestic nonfinancial profits are an important factor behind domestic capital spending. These profits bounced back 9.5% saar in 4Q after declining 5.0% the prior quarter. Through some quarterly volatility, domestic nonfinancial profits increased only 4.3% on a year-ago basis in 4Q. Growth in these profits has moderated over the past few years after much stronger increases in the early stages of the recovery. Corporate profits from the rest of the world popped up 24.5% saar in 4Q but were basically flat on a year-ago basis (+0.3%). This recent soft trend in foreign profits is not very surprising given the struggles with growth abroad, and the relative strength reported in 4Q might have reflected normal volatility in the series. Domestic financial profits slipped a little in 4Q (-3.0% saar), but the longer term trend continued to move modestly higher. Financial profits can be very choppy and are not very related to capital spending.
Adjusted corporate pretax profits

%ch, saar 150 100 50 0 -50 -100 00
Source: BEA
%q/q
%oya 02 04 06 08 10 12
Domestic nonfinancial profits

%oya 60 40 20 0 -20 -40 00
Source: BEA
02
04
06
08
10
12
Rest of world profits

%oya 60 40 20 0 -20 -40 00
Source: BEA
02
04
06
08
10
12
Domestic financial profits

$bn, saar 500 400 300 200 100 0 -100 00
Source: BEA
02
04
06
08
10
12
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JPMorgan Chase Bank N.A, London Branch Greg Fuzesi (44-20) 7134-8310 greg.x.fuzesi@jpmorgan.com Raphael Brun-Aguerre (44-20) 7134-8308 raphael.x.brun-aguerre@jpmorgan.com
Euro area
Cyprus agreement reflects the way Germany wants to deal with legacy problems Extent of any deposit flight is still unclear, but bank funding costs are likely to rise and weigh on growth Strong case for the ECB to ease policy as early as next week; we expect a rate cut by June Euro area loan growth remained weak in February, while deposits continued to slowly improve Throughout this crisis, Germany has wanted legacy problems to be dealt with at the national level through fiscal consolidation, bank recapitalization, and structural reform. For a long time, this strategy led to financial stress. However, since the ECB announced the OMT in July last year, financial stress has been greatly reduced, and this has allowed Germany to become more assertive again about how it wants legacy assets to be dealt with. Hence, Germany has made clear that direct bank recapitalizations via the ESM will only be available to tackle the next banking crisis, rather than deal with the present one. And Greece faced a very difficult set of negotiations last summer to release money from the second program. This pattern continued with the Cyprus agreement last week. This makes clear that bank creditors will be bailed in if the government cannot shoulder the burden of recapitalizing the banks. This is the way the region was moving forward in terms with the Resolution and Recovery Directive, but it has now just happened a couple of years earlier. It remains to be seen how much deposit flight there will be from peripheral countries and how markets will behave. It is likely that bank funding costs will go up again and unwind some of the OMT-related improvement of the last few months, which will weigh on the Euro area economy and likely exacerbate the regional divergences. The GDP revisions we made last weeka later exit from recession and a more moderate recoveryreflected not only the disappointing PMI data but also the recognition that however Cyprus was to be resolved, bank funding costs would rise. It is also likely that regional divergences will be exacerbated between the few countries doing well and the rest.
Euro area business surveys

Standard deviation from 2000-07 average 2 0 -2 -4 99 01 EC economic sentiment 03 05 07 09 11 13 Composite PMI
Source: European Commission, J.P.Morgan
Euro area economic sentiment

Idx, sa 120 110 100 90 80 70 07 09 11 13
Source: European Commission, J.P.Morgan
Other core Germany
Periphery
PMI and the EC sentiment index are pointing to further modest contraction in the economy. And, strikingly, sentiment is above the long-run average (of 100) only in Germany and Estonia, with most other countries below 90. While sentiment actually improved slightly in the periphery in March and Greek sentiment continued to close in on the Euro area average, any uncertainty created by the bailout of Cyprus could have a larger effect there in April. Against this backdrop of weaker growth and higher bank funding costs, our expectation is that the ECB will ease policy. Arguably the appropriate response to disappointments with the bank lending channel would be an easing of collateral requirements and further LTROs. This would also help to contain any deposit flight from peripheral banking systems. But, while ECB policymakers have spoken for many months about wanting to support bank lending to small and mediumsized companies, there is no indication that anything is imminent (likely because such policy measures imply a larger and riskier ECB balance sheet they are seen as controversial). As a result, our expectation is that the main refinancing rate will be cut instead by 25bp to 0.5% (with a narrower corridor). Such a move is possibly as early as next week, but there has been no signal for that and it is possible that recent political events are complicating a very quick response. For now, it looks as if any ECB policy response will be quite modest. As we noted recently, the ECBs tolerance of low
33
ECB to ease, but perhaps not yet

This weeks economic data reinforced the sense that the economy has suffered a setback and that the move out of recession will be slow and bumpy. Following the decline in last weeks flash PMI, the European Commissions economic sentiment index, which also largely preceded the problems in Cyprus, also fell in March (-1.1pts to 90.0). In terms of levels, both the
Economic Research Euro area March 28, 2013
inflation and disappointments on growth has increased significantly since the middle of last year. This is likely because the central bank wants to keep pressure on politicians, because it wants to preserve its remaining bullets, and because it questions the effectiveness of some policy options. Some of these reasons are questionable, and it is striking just how much macroeconomic underperformance the ECB is tolerating. Having emphasized the positive developments in financial markets in recent months, it will be important to see how Draghis rhetoric shifts at next weeks policy meeting, given the disappointing business surveys in March.
Bank deposits of nonbank private sector

Cumulative flows since Jan 2008 1500 1000 500 Periphery 0 2008 2009 2010 2011 2012 2013 2014 Core
Pre-Cyprus, another mixed M3 report

Even though the latest M3 report preceded the problems in Cyprus, it was mixed. In general, bank deposits continued to slowly improve. In the region overall, M3 rose 0.2%m/m in February and the annual rate declined modestly to 3.1%oya. To some extent this just reflects shifts from longer-term deposits into the shorter-term deposits included in M3. But, even at the country level there continues to be a modest improvement. In particular, deposits are still rising in the core countries and they are continuing to edge higher again in the periphery overall. There are some nuances within the peripherydeposits are trending higher in Italy, the improvement has stalled a bit in Spain, there is a larger improvement in Greece, there is a modest downward trend in Portugal, and there is broad stability in Greece. We also think that the deposit data are hard to interpretdeposit flight or its reversal, income pressures that force households to dip into their savings, and net repayments of loans. In any case, despite these caveats, the pre-Cyprus trends were still encouraging. In contrast, the news on bank lending to the real economy continued to be weak. Loans to the nonbank private sector edged up in February, but the annual change remained at -0.4%oya. Within this, corporate loans rose for the first time in six months, albeit only slightly, and the annual rate remained very negative at -1.4%oya. And loans to households are now stagnating, after having increased over the past four years; the annual rate stayed at +0.4%oya in February but that was well below the 1.8%oya seen in February last year. There also continues to be a very large split between the core and the periphery. Corporate loans extended by German banks are stagnating, perhaps due to the internal funds available to German corporates. Corporate loans of other core banks are still rising modestly, while those of peripheral banks continue to contract sharply. Corporate loans are down 8.4%oya in Spain, 3.0%oya in Italy, 4.3%oya in Portugal, 4.8%oya in Greece, and 4.1%oya in Ireland. The pace of decline has recently increased only in Spain, however. The broad trends are quite similar for household loans. The weakness in the periphery will likely reflect increased pressures to delever and tighter bank lending conditions.
34
Source: ECB, J.P.Morgan
Euro area bank loans to nonbank private sector

%oya, adjusted for loan sales and securitiz ations 12 10 8 6 4 2 0 -2 99 01 03 05 07 09 11 13
Source: ECB, J.P. Morgan
Euro area bank loans

Jan 09 = 100, index of notional stocks, adjusted for loan sales, securitizations 108 106 104 102 100 98 96 2009 2010 Nonfinancial corporates 2011 2012 2013 2014 Households
Euro area bank loans to nonfinancial corporates

%oya, adjusted for securitization 4 2 0 -2 -4 -6 2010 2011 Periphery 2012 2013 2014 Core

Week of April 1 - 5
The disappointment was broad-based across many categories, with export orders particularly weak. Weak bulk orders weighed on the outcome. We expect a 2%m/m gain in February, but that would leave 1Q13 still looking weak.
Output and surveys

Purchasing managers index final (manufacturing)
Dec Tue Apr 2 10:00am 9:55am 9:50am 9:45am 9:15am Euro area Overall region Germany France Italy Spain 46.1 46.0 44.6 46.7 44.6 Jan 47.9 49.8 42.9 47.8 46.1 Feb 47.9 50.3 43.9 45.8 46.8 Mar 46.6 48.9 43.9
Demand and labor markets

Retail sales
Nov Fri Apr 5 11:00am Euro area Total sales, volumes %m/m sa %oya, working-day adj. Dec Jan Feb
0.2 -2.0
-0.8 -3.0
1.2 -1.3
-0.1
Purchasing managers index final (services)

Dec Thu Apr 4 10:00am 9:55am 9:50am 9:45am 9:15am Euro area Overall region Germany France Italy Spain 47.8 52.0 45.2 45.6 44.3 Jan 48.6 55.7 43.6 43.9 47.0 Feb 47.9 54.7 43.7 43.6 44.7 Mar 46.5 51.6 41.9 Tue Apr 2 11:00am Mar 46.5 51.0 42.1
Euro area retail sales may broadly hold the January level, leaving 1Q13 tracking a solid 2.5%q/q saar increase on 4Q12. A big part of this will be related to surging retail sales in Germany, but it will act to offset the weakness in car registrations. The outlook for consumer spending remains weak due to the labor market, but 1Q13 may not see much of a decline. Unemployment
Nov Euro area Harmonized measure (Eurostat) Unemployment rate (%, sa) Dec Jan Feb
Purchasing managers index final (composite)

Dec Thu Apr 4 10:00am 9:55am 9:50am 9:45am 9:15am Euro area Overall region Germany France Italy Spain 47.2 50.3 44.6 45.7 43.9 Jan 48.6 54.4 42.7 45.4 46.5 Feb 47.9 53.3 43.1 44.2 45.3
11.8
11.8
11.9
12.0
The Euro area unemployment rate is set to rise further in the coming months due to the weakness in the economy, and it could reach 12% as early as February.
Inflation
Consumer prices
Dec Jan 2.0 Feb 1.8 Mar 1.6 Wed Apr 3 11:00am Tue Apr 2 8:00am Euro area (flash) HICP (%oya nsa) Germany (prelim) %m/m nsa %oya HICP (%oya) Baden Wuerttemberg (%oya) Bavaria (%oya) Brandenburg (%oya) Hesse (%oya) North-Rhine West (%oya) Saxony (%oya) 2.2
The Euro area composite PMI fell sharply in March, according to the flash report. If confirmed, the PMI would have almost entirely reversed the improvement since last October. This has already prompted us to revise down our GDP forecast for this year. By country, the flash PMI fell sharply in Germany, but the level was consistent with trend-like growth. In France, the flash PMI fell to a new cycle low, with survey respondents mentioning domestic uncertainties that are restraining spending. Finally, the flash results implied a smaller decline in the periphery, but even that would be disappointing given the low level. Manufacturing orders
Nov Fri Apr 5 11:00am Germany Volumes, sa Total (%m/m) %oya Domestic (%m/m) %oya Foreign (%m/m) %oya Dec Jan Feb
0.3 2.0 2.0 1.7 2.1 1.8 2.0 2.0 2.0
-0.5 1.7 1.9 1.3 1.8 1.4 1.7 1.7 1.8
0.6 1.5 1.8 1.3 1.4 1.3 1.5 1.6 1.5
-2.6 -1.1 0.3 -5.0 -4.7 2.2
1.1 -1.8 0.3 -4.0 1.6 -0.2
-1.9 -2.1 -0.6 -4.6 -3.0 -0.3
2.0
Euro area headline inflation began to decline late last year, as energy price inflation dropped sharply. This year, the decline in energy prices was reinforced by a move down in core inflation, which we expect to continue in the coming months. In our view, headline inflation will likely decline by another two tenths in March to 1.6%oya. This move down would be spread across the main countries of the region, including Italy and Spain.
Source: Eurostat, European Commission, FSO, Bundesbank, INSEE, ISAE, Istat, INE, Markit, and J.P. Morgan
German orders made a very weak start to the first quarter, with the January level down 8% are on the 4Q12 average.
35
Economic Research Euro area March 29, 2013

Output and surveys
European Commission survey
Jan Euro area % balance of responses, sa Industrial conf. -14 89.5 Economic conf. Recent prod. trend -17 Production exp. -5 Exp. order books -29 Stocks of fin. prod. 5 Selling-price exp. 2 Construction conf. -29 Retail confidence -16 Service conf. -7.7 Consumer conf. -23.9 Feb Mar
Unemployment
Jan Germany Registered (ch m/m, 000s) 000s, nsa Unempl. rate (%) -14 3138.2 6.9 -13 Feb -3 3156.2 6.9 0 Mar -8 6.9 13 3097.8
Employment
-11 91.1 -12 -1 -25 5 1 -30 -16 -5.4 -23.6 -13 90.0 -14 -1 -26 6 -2 -30 -18 -6.7 -23.5 Germany Ch m/m, 000s, sa Dec 24 26 Jan 25 30 Feb 15 44
The German labor market held up well in March. Unemployment rose, but that was likely due to the long winter (according to the Labor Agency). Other indicators were in line with their recent trends. The unemployment rate held at 6.9%. Vacancies edged a bit lower but the level remained very high. And employment growth actually picked up, in line with the business survey indicators.
Economic sentiment fell in March, consistent with last weeks PMI. In terms of levels, both surveys are pointing to further modest contraction in the economy. Neither survey will likely have been much affected by the problems in Cyprus, which emerged toward the end of the sampling period. Hence, a further decline cannot be ruled out in April. In the details, there were declines in all business sectors of around 1pt. Only consumer confidence edged up by a mere tenth, but the level remained very depressed. Both business and consumer sentiment are still higher than in October last year, but the momentum has changed. By country, only Germany (-1.6pts to 100.4) and Estonia (-0.7pt to 102.4) are above their long-run averages of 100; most other countries are much weaker, at below 90. But, while sentiment improved a bit further (+0.6pt to 86.5) in the periphery, it fell 1.5pts to 89.1 in the non-German core. French sentiment declined 1.7pts to 88.2, Italian sentiment rose 1.4pts to just 85.3, and Spanish sentiment fell 0.9pt to 88.8. Remarkably, Greek sentiment continued to close in on the Euro area average (+1.2pts to 88.1), but any spillover from Cyprus would only be visible next month (in this context, sentiment still increased in Cyprus in this weeks data).
Inflation
Consumer prices
Jan Spain (flash) HICP (%oya nsa) 2.8 Feb 2.9 Mar 2.6
Financial activity and public finance

Money and credit data
Dec Euro area M3 (%m/m sa) M3 (%oya) M3 (%oya 3mma) Loans (%oya)1. Loans (m/m, bn)1. -0.4 3.4 3.7 -0.2 3.6 -0.1 3.5 Jan 0.3 3.5 3.6 -0.4 -10.9 0.4 Feb 0.2 3.1 3.3 -0.4 5.6
2.4
-0.5 -9.9
1. Loans to nonbank private sector, adjusted for securitization
See Euro area essay for details.

Source: Eurostat, European Commission, FSO, Bundesbank, INSEE, ISAE, Istat, INE, BNB, CBS, Markit, and J.P. Morgan
Demand and labor markets

Retail sales
Dec Germany Sales ex autos and petroleum, volumes %m/m sa -2.1 -1.9 %oya sa -2.9 -2.7 Jan Feb
3.1 1.9
3.0 2.0
0.4 2.1
German retail sales look very strong so far the first quarter. Following a 3%m/m jump in January, retail sales rose a bit further in February, leaving the Jan/Feb level 9.4% ar above the 4Q12 average. Our consumption tracker is pointing to a 3% consumption gain in the first quarter, which would be a big improvement on the stagnant spending of last year. Revisions are always a risk with the retail data, but tax changes may be driving the gains and may therefore prove lasting.
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JPMorgan Securities Japan Co., Ltd. Masamichi Adachi (81-3) 6736-1172 masamichi.x.adachi@jpmorgan.com
Japan
Small firms sentiment improved markedly in March, adding evidence that positive momentum continued Retail sales rose in February, but largely in fuel and with large downward revisions to past data The new BoJ probably will act next week, but this will likely not be the end of attempts to reflate the economy Small firms business sentiment improved markedly in March in both manufacturing and nonmanufacturing, providing more evidence that recent upbeat momentum has been maintained. To be sure, the jump in the sentiment index probably reflected seasonality as March is the end of the Japanese fiscal year. Also, hard data on exports and business investment have been weak so far. Retail sales are tracking a steady gain this quarter, but largely on fuel sales. Still, we believe that a strong recovery is occurring throughout this year as there are at least four separate tailwinds boosting the Japanese economy: fiscal stimulus, a weak yen, a gradual recovery in the global economy, and front-loaded demand ahead of the consumption tax rate hike scheduled for April next year. The February IP report, including manufacturers output projections for March and April, and the March PMI manufacturing report will offer more color on the latest state of the recovery. Next week is critical for Japanese financial markets. The BoJ will hold its first policy meeting (April 3-4) led by the new governor (Kuroda) and one of two new deputy governors (Iwata), who committed to achieve a 2% inflation target within two yearswhich looks extremely challenging in our and many market participants view. Worth highlighting is that yields on 10-year and 30-year bonds have fallen sharply lately with the market expectation that the new BoJ will purchase long-dated JGBs aggressively in the coming months and even years. Interestingly, moves in the currency and equity markets have been rather mild, probably reflecting that participants in these markets, especially foreigners, had already priced in the BoJs expected bold actions at the next policy meeting. Our call looks for a purchase of 30-year bonds for the purpose of monetary easing as the key signal of the new BoJs boldnessand an early start of open-ended purchases of assets at 4 trillion per month including reinvestment of matured bonds, and setting policy rate guidance like the Fed. We think the market is expecting about what we are, so a lack of any aggressive action would be a significant disappointment. However, it should be noted that next week is not the only chance for the new BoJ to demonstrate its boldness. The next policy meeting will come within three weeks (April 26), and Kuroda likely will reiterate his strong
Small firms business sentiment

DI, boxes show outlook for April 55 50 45 40 Manufacturing 35 2010 2011 2012 2013
Nonmanufacturing
Source: Shoko Chukin Bank
JGB yields
% for both scales 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 Jan 12
Source: Bloomberg
10-yr
30-yr
2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 Apr 13
Apr 12
Jul 12
Oct 12
Dec 12
commitment in the coming weeks and months, especially if the market reaction is unfavorable. More importantly, Prime Minister Abe most likely will demand that the central bank do more. The latest poll by the Nihon Keizai Shimbun showed that the approval rate of Abes administration remained high at 69% (70% a month ago). Even if the market is disappointed next Thursday, its not the end of the game, in our view.
Small firms are upbeat, partly due to seasonality

The Shoko Chukin small firm sentiment jumped 3.7pts to 49.7 in March, the highest level since March 2007. The strength was broad-based as sentiment in both the manufacturing and the nonmanufacturing sectors soared. The manufacturing DI rose 3.5pts to a year-high of 48.3 in March, with only the electric machinery sector showing a m/m drop, albeit from a very high level. The nonmanufacturing DI rose 3.8pts to 50.7, the highest level since November 2006. The March rise in the nonmanufacturing DI reflected improvement in the assessment of business conditions by all eight subsectors, especially restaurants/hotels (amid probable acceleration in consumer spending) and construction (likely due to a boost from the supplementary budget).
37
JPMorgan Securities Japan Co., Ltd. Masamichi Adachi (81-3) 6736-1172 masamichi.x.adachi@jpmorgan.com
Economic Research Japan March 28, 2013
It should also be noted that the strength of the March DI needs to be discounted somewhat as the DI has risen in every March during 2002-12, by an average of 2.7pts. Looking forward, the outlook DI predicts the first drop in five months in April. However, the predicted 0.9pt decline in April likely also reflected the seasonality of this survey as the index fell on average 0.6pt between March and April in the previous expansion during 2002-07. Also worth noting is that the predicted index level in April is still well above the 1Q average (48.8 vs. 46.7).
Retail sales and real private consumption

%3m/3m, saar 20 15 10 5 0 -5 -10 2010
Source: METI, Cabinet Office
Retail sales (before revision) Retail sales
Real consumption
Retail sales rose in February, but

Retail sales rose 1.6%m/m sa in February. While the solid gain in the month is encouraging, it should be noted that the annual revision in seasonal factors and re-basing of the index from 2005 to 2010 led to a significant downward revision in the January print from +2.3% to -0.2%. While the average of January and February is tracking a 3.7% annualized gain from the 4Q average, showing a steady recovery of sales, this is largely driven by sales of fuel (+22.5% ar). After the revision, the retail sales index moved closer to the Cabinet Offices private consumption index, which is the most reliable indicator for tracking consumption in GDP. Accordingly, we maintain our forecast for 1Q GDP-based consumption at 3.5%q/q saar after a 2.0% gain in 4Q, but we need confirmation from the Cabinet Offices index for February (due around April 5) to be more confident in this forecast.
2011
2012
2013
Household financial assets

Yen tn, eop 1600 1530 1460 1390 % of GDP 1320 1250 97
Source: BoJ
% of GDP Outstanding 340 320 300 280 260 240 99 01 03 05 07 09 11 13
Households financial assets increased

According to the BoJs flow of funds statistics, households financial assets outstanding increased 3.1%oya in 2012 after being little changed in 2011. The level (1,547 trillion, 325% of GDP) is still below that at the end of 2005 (1,572 trillion) and 2006 (1,586 trillion), but the ratio to GDP is the highest on record, starting in 1997. The increase in assets was broadbased in terms of asset class: cash and deposits (+2.0%), equities (+12.3%), insurance and pension reserves (+2.5%), and investment trust (+13.3%). The only major class that fell was bonds. The gain in equity, reserves, and investment trust mainly reflected a rise in value from higher equity prices and a weaker yen57% of assets in investment trust are foreign securitiesrather than new purchases. The gain in financial assets value should have boosted consumption, at least to some extent.
General government debt

% of GDP 250 200 150 100 50 0 98
Source: BoJ
Gross
Net
00
02
04
06
08
10
12
discrepancy between these two. Indeed, the official national accounts deficit was 42.0 trillion in 2011. Meanwhile, general government gross debt increased 4.2%oya, reaching 1,095.6 trillion (230% of GDP) at the end of 2012. Net debtgross debt minus assets held by the government (mainly social security funds)rose more at 7.2% to 612.5 trillion (129% of GDP). JGBs outstanding (including TBs) were 960 trillion, of which 12.0% was held by the BoJ, 10.6% by the general government and public firms, and 8.7% by foreigners.
Government debt continues to rise

The government financial deficit (fiscal deficit) in 2012 (38.1 trillion, 8% of GDP) was less than that in 2011 (41.2 trillion, 9%). Note, though, that the deficit in these data is not exactly same as in the national accounts, which is regarded as official data. There is a relatively large
38
JPMorgan Securities Japan Co., Ltd. Miwako Nakamura (81-3) 6736-1167 miwako.nakamura@jpmorgan.com

Fri Mar 29 8:15am
Purchasing managers survey (manufacturing)

Diffusion index Dec Overall index 45.0 Jan 47.7 Feb 48.5 Mar 49.0
Fri Mar 29 2:00pm
Housing starts
Nov Housing units %oya %m/m sa Mn units saar 10.3 -6.4 0.91 Dec 10.0 -2.9 0.88 Jan 5.0 -1.9 0.86 Feb -1.8 4.2 0.90

Fri Mar 29 8:30am

During the week
Consumer prices
%oya Dec Tokyo Overall Core (ex fresh food) Ex food and energy Nationwide Overall Core (ex fresh food) Ex food and energy -0.6 -0.6 -1.0 -0.1 -0.2 -0.6 Jan -0.5 -0.5 -0.9 -0.3 -0.2 -0.7 Feb -0.9 -0.6 -1.0 -0.5 -0.3 -0.9 Mar -0.7 -0.5 -0.9
Cabinet Office private consumption index

%m/m sa Nov Overall 0.3 Dec 0.0 Jan 0.5 Feb 0.3
This index, our preferred monthly consumption indicator, should show a second consecutive gain in February. Sentiment indicators for both consumer-oriented businesses and consumers, as well as some activity indices have been indicating a strong response from Japanese consumers to the marked policy shift and the rise in asset prices triggered by that shift.
Mon Apr 1 8:50am

Fri Mar 29 8:30am
BoJ Tankan
DI, good minus bad Sep Large firms Manufacturers Nonmanufacturers Small firms Manufacturers Nonmanufacturers Capex projections, %oya Large firms Small firms -3 8 -14 -9 FY2012 Sep 6.4 0.0 0.0 4.9 Dec -12 4 -18 -11 Dec 6.8 6.2 -2.2 2.6 Mar -7 10 -15 -7 Mar 6.0 8.0 -1.5 1.2 Jun 1 18 -12 -5 FY2013 Mar 1.5 -15.0 12.0 25.0
Labor force survey

%m/m sa Nov Unemployment rate (% sa) Labor force (%m/m sa) Total employment (%m/m sa) Unemployed (%m/m sa) Job offers ratio (sa) 4.2 -0.1 -0.1 -0.4 0.82 Dec 4.3 -0.3 -0.4 1.8 0.83 Jan 4.2 0.6 0.5 0.4 0.85 Feb 4.1
0.86

Fri Mar 29 8:30am
Household survey of expenditures

%m/m sa, incl. agricultural worker households Nov All households Real spending %oya Core %oya Worker households Real disposable income Propensity to spend (%) 0.1 0.2 -0.2 0.5 -0.5 74.7 Dec -0.1 -0.7 0.6 0.1 -0.4 75.0 Jan 1.9 2.4 1.8 2.2 -0.4 76.7 Feb 0.3 -0.5
Current profit projections, %oya Large firms Small firms

Fri Mar 29 8:50am
Industrial production-preliminary
%m/m sa Nov Production Shipments Inventories Inventory/shipments ratio -1.4 -0.8 -1.2 -0.3 Dec 2.4 4.0 -1.2 -0.6 Jan 0.3 -0.3 -0.4 -3.2 Feb 2.0
The large manufacturers business conditions DI will probably continue its improvement since December 2012 in March 2013, amid the rebound in manufacturing output and the further weakening of the yen. Still, the DI is not expected to recover to an above-neutral level, though the large manufacturers outlook DI will likely show respondents expectations for a revival of good conditions in the coming few months (positive readings represent respondents overall assessment on business conditions as good). Sentiment of large nonmanufacturers is likely much more upbeat, as consumer spending is being boosted by higher equity prices and the weaker yen while the supplementary budget is supporting public works. We expect firms plans for sales/profits/capex in FY2013 will not be noteworthy, as firms are thought to remain quite cautious about prospects in the medium to long term.
Sources: Markit, Statistics Office, METI, MLIT, BoJ, CAO, and J.P. Morgan
39
JPMorgan Securities Japan Co., Ltd. Miwako Nakamura (81-3) 6736-1167 miwako.nakamura@jpmorgan.com
Economic Research Japan March 28, 2013
Mon Apr 1 2:00pm
Auto registrations
Dec Total %oya -3.4 Mn units saar 3.10 J.P. Morgan adjusted (incl. light vehicles) Mn units saar 3.84 Jan -12.9 3.21 4.04 Feb -12.2 3.27 4.1 Mar -20.0 3.14
Auto producers predictions for a decline in their March output, which was included in the latest January IP report, as well as the recent softening in sentiment DIs for the auto sector, suggest that new auto registrations will slip some in March after the solid recovery since late last year.
Tue Apr 2 10:30am
In February, advertising service fees, which are thought to be a timely reflection of business sentiment, firmed to +0.9%oya from -1.0% in January and -2.3% in 4Q, helped by high-priced large deals during the month. Meanwhile, office rental fees continued to mark a meaningful oya decline at -2.6%, and the pace of decline for software development fees accelerated to 2.7%oya from -2.0% in January and -1.7% in 4Q. Construction machinery rental and temporary material rental fees, which were likely boosted by reconstruction demand, appear to be stabilizing (the February readings were +3.8%oya and +8.5%oya, respectively). Shoko Chukin small firm survey (Mar 26)
Diffusion index Jan Feb 46.0 44.8 46.9 Mar 48.0 48.8 47.1 50.2 Sentiment index Manufacturing Nonmanufacturing 44.3 41.1 46.9
Employers' survey
%oya Nov Total earnings per employee Contract wages Scheduled payments Overtime payments Special payments Total hours worked Regular employment Full-time workers Part-time workers -0.8 -0.3 -0.1 -1.3 -9.2 1.6 0.6 -0.1 2.3 Dec -1.7 -0.6 -0.6 -0.2 -2.8 -1.4 0.8 -0.3 3.2 Jan 0.1 -0.7 -0.7 -1.5 22.1 -1.7 0.6 -0.5 3.1 Feb -0.5
It will probably take a while to see a clear improvement in total wages, given that the number of full-time employees with higher wages is now declining slightly while the number of part-time employees with lower wages is increasing at a steady pace. Note that there has been a tendency in this survey for initial readings to be revised down significantly in final reports.
Wed Apr 3 8:15am
The headline index for March rose a sharp 3.7pts to 49.7 (the highest level since March 2007); the rise was broad-based. The manufacturing DI rose 3.5pts to a one-year high of 48.3 in March, with only the electric machinery sector showing a m/m drop, albeit from a very high level (the recent softness in exports appears to have weighed on sentiment in this sector). At the same time, the nonmanufacturing DI rose 3.8pts to 50.7, the highest level since November 2006. The March rise in the nonmanufacturing DI reflected improvement in the assessment of business conditions by all eight subsectors, especially restaurants/hotels (amid the apparent pickup in consumer spending) and construction (likely due to a boost from the supplementary budget). Note, though, that the strength of the March DI should be discounted somewhat, as the DI has risen in every March during 2002-12, by an average of 2.7pts. Apart from general business sentiment, it is encouraging that the output price DI marked a positive reading for the first time in the current recovery (marked 0.4), and the input price DI continued to rise rapidly amid yen depreciation. Indeed, the profit margin DI improved, though it remained within negative territory, for the second consecutive month. The employment DI remained upbeat (rising further to 1.4 from 0.2 in February), indicating a growing sense of labor shortage among small firms. Commercial sales (Mar 28)
Services/composite PMIs
Diffusion index Dec Services (business activity) Composite (output) 51.5 49.3 Jan 51.5 50.4 Feb 51.1 50.2 Mar

Corporate service prices (Mar 26)
%oya Dec Overall Ex international transport -0.4 -0.4 Jan -0.2 -0.4 Feb 0.0 0.1 -0.2
%oya Dec Wholesale sales Total retail sales %m/m sa -2.5 0.2 0.0 Jan 0.1 -1.1 -0.2 Feb -2.5 1.2 -1.3 -2.3 1.6
See main essay.
In February the CSPI ex. international transportation extended its string of oya declines since June last year. The three-month moving average of the index edged down from the lowest level in its history, which began in 2005, that had been marked in the previous month. Although the overall index has recently been boosted by an FX-led rise in international transportation prices, the report continued to point to the softness in corporate service prices.
Sources: Japan Auto Dealers Association, MHLW, BoJ, Shoko Chukin Bank, METI, and J.P. Morgan
40
JPMorgan Chase Bank NA Sandy Batten (1-212) 834-9645 sandy.batten@jpmorgan.com Silvana Dimino (1-212) 834-5684 silvana.dimino@jpmorgan.com
Canada
GDP rebounds in January Led by a jump in manufacturing output But growth likely still sub-trend in 1Q Inflation jumps up in February on a surge in gasoline prices Economic activity showed more strength in January after a dismal December. Monthly GDP rebounded, rising 0.2%m/m in January after having fallen 0.2% in December, led by a jump in manufacturing output. The CPI surprised on the upside in February after months of downside surprises. Led by a jump in gasoline prices, headline inflation jumped back into the BoCs 1%-3% comfort zone. With global commodity prices on the rebound, headline inflation should continue to edge up going forward. Core inflation also rebounded in February but given the widening of the output gap in the second half of 2012, it will probably remain sticky in the near term. The Canadian economy rebounded in January with GDP rising 0.2%m/m after having fallen 0.2% in December. Goods production, up 0.4%m/m, led the rebound with services output up 0.2%m/m. Compared to a year ago, GDP was up 1.0% in January versus 0.7% in December. Over the past six months, GDP rose an anemic 0.6% ar in January, but this is up from 0.5% ar in December. After a very weak 4Q12, the January reading gets 1Q13 off to an OK start. But given the decline in December, the level of GDP in January is only 1.3% ar above the 4Q average. It will take monthly gains in February and March on par with the one in January to reach our 1.6%q/q expected growth for the entire quarter. There is little hope of reaching the Bank of Canadas expectation from the January MPR for a 2.3%q/q ar increase in 1Q. The rise in goods production was led by an outsize increase in manufacturing output, up 1.2%m/m, led by a 1.7%m/m surge in output of durable goods. But even this jump did not offset the 1.9%m/m decline in manufacturing in December. Construction slipped 0.1%m/m (concentrated in residential), its first monthly decline in six months. Mining and oil and gas extraction was up 0.2%m/m, its fourth consecutive monthly increase. Services production posted a more modest 0.2%m/m in January after having been unchanged in December. Wholesale trade (+0.7%m/m) and real estate (+0.3%) led the rise in services output, though the end of the hockey labor dispute led to a 4.1%m/m jump in arts, entertainment, and recreation.
Monthly real GDP

%m/m 0.9 0.6 0.3 0.0 -0.3 -0.6 -0.9 -1.2 -1.5
05
07
09
11
13
Source: Statistics Canada
Consumer prices
%oya 5 4 3 2 1 0 -1 98 Core 00 02 04 06 08 10 12 Total
Employment and GDP

%oya 5.0 2.5 0.0 Employment from labor force survey -2.5 -5.0 2008 GDP
2009
2010
2011
2012
2013
2014
The headline CPI inflation rate jumped up to 1.2%oya in February from 0.5%oya in January, which was the lowest oya rate since October 2009. On a monthly basis, the headline CPI also jumped up 1.2%m/m nsa after a 0.1%m/m nsa rise in January. There is typically a seasonal boost in February, but this year it was much larger than usual. The seasonally adjusted headline index rose 0.7%m/m in February after having been unchanged in January. In a reversal of the January slowdown, a rebound in gasoline prices (among an outsize jump in overall transportation prices) accounted for most of the acceleration in the oya rate in February. Gasoline prices were up
41
JPMorgan Chase Bank NA Sandy Batten (1-212) 834-9645 sandy.batten@jpmorgan.com Silvana Dimino (1-212) 834-5684 silvana.dimino@jpmorgan.com
Economic Research Canada March 28, 2013
3.9%oya in February versus a 1.8%oya decline in January. This accounted for nearly half of the acceleration in the headline oya rate. While the jump in the headline index in February was more than expected, it was likely at least in part a correction for the unusual weakness in prices since November and is not likely to be repeated. With the February reading, headline inflation appears to be right on track to realize the 0.9%oya rate the BoC anticipates for all of 1Q13. The core index also exhibited an outsize jump in February, rising 0.8%m/m nsa after having edged up 0.1%m/m nsa in January. Compared to a year ago, the core index rose 1.4%, up from only 1.0%oya in January. After seasonal adjustment, the core index was up 0.4%m/m versus 0.1%m/m in January. So far in 1Q, core inflation is averaging 1.2%oya, still below the BoCs 1.4% expectation and indicative of the economy also underperforming the Banks forecasts. After underperforming both the markets and the Banks expectations recently, inflation roared back in February. In that context, some of the surprising strength in February appears to be payback for some of the previous surprising weakness, and not the beginning of a new trend. We doubt that this report will have any impact on the Banks current view of policy. The trend inflation environment is consistent with the current performance of the economy. One months reading will not likely alter that. The Canadian economy continues to be hit by external headwinds, and so we look for the Bank to remain on the policy sidelines for quite a whileat least into 1Q14. The US economy is proving to be more resilient in 2013 than we had forecast. This should provide a boost to Canadian activity during this year and allow the Bank to resume its normalization of policy by early 2014. Next week sees the release of the March labor force survey. Apart from a decline in employment in January, job gains have markedly outperformed the overall economy over the past seven months. Over that period, the economy has barely grown yet employment is up 213,000, or 30,400 per month. The current performance of the overall economy is consistent with monthly job gains of only around 10,000. So, we continue to look for some significant retreat in job gains and expect no change in March.
Fri Apr 5 8:30am
(%m/m) (%oya) Labor force (mn) (%m/m) (%oya) Unemployment rate (%) Avg hrly earnings (%oya) Hours worked (%m/m)
Dec 0.2 1.8 19.03 0.1 1.4 7.1 2.5 0.1
Jan -0.1 1.6 18.97 -0.3 1.0 7.0 2.0 0.2
Feb 0.3 1.9 19.03 0.3 1.5 7.0 2.2 0.4
Mar 0.0 1.5 19.05 0.1 1.3 7.0 2.0 0.2
International trade
Sa Nov Balance (C$ bn) Exports (%m/m) Imports (%m/m) Real balance -2.00 -0.5 3.9 -2.18 Dec -0.33 0.3 -3.9 -0.49 Jan -0.24 2.1 1.9 -0.49 Feb 0.1 3.1 2.2
Fri Apr 5 10:00am
Ivey PMI
Dec Composite index (sa) Purchasing index (sa) Purchasing index (nsa) 49.2 52.8 43.1 Jan 52.8 58.9 54.8 Feb 49.6 51.1 51.6 Mar 50.2 52.4 54.6
1. Calculated and seasonally adjusted by J.P. Morgan

Consumer price index (Mar 27)
%m/m nsa, unless noted Dec Total CPI %oya BoC core CPI %oya Ex food & energy %oya CPI-XFET (%oya) -0.6 0.8 -0.6 1.1 -0.6 0.9 0.7 Jan 0.1 0.5 0.1 1.0 -0.1 0.6 0.5 Feb 0.8 0.9 0.5 1.1 0.5 0.8 1.2 1.2 0.8 1.4 0.9 1.1 1.0
Monthly GDP (Mar 28)

Sa Nov Total, %m/m %oya 0.3 1.5 1.4 Dec -0.2 0.8 0.7 Jan 0.2 1.0
Industrial PPI (Mar 28)

%m/m nsa, unless noted Dec Jan 0.0 -0.2 -0.1 0.0 0.1 -0.1 0.1 0.2 Feb 0.5 0.1 0.3 0.2 1.4 1.0 0.6 0.7

Week of April 1 5
Fri Apr 5 8:30am
Labor force survey

Sa Dec Employment (mn) (ch, m/m, 000s) 17.67 31.2 Jan 17.65 -21.9 Feb 17.70 50.7 Mar 17.70 0.0
Total %oya Ex energy %oya
0.0 0.3 0.1 0.3
Source: Statistics Canada, Richard Ivey School of Business
42
Banco J.P.Morgan, S.A., Institucin de Banca Mltiple, J.P.Morgan Grupo Financiero Gabriel Lozano (52-55) 5540-9558 gabriel.lozano@jpmorgan.com Iker Cabiedes (52-55) 5540-9339 iker.x.cabiedes@jpmorgan.com
Mexico
Growth is starting to show signs of improvement after a soft start of the year The services sector should be a key driver as credit and employment continue to expand The external sector, however, remains a source of concern and poses a downside risk for growth After a worrisome start of the year, with most economic releases surprising to the downside, we are now seeing some relatively upbeat numbers that point to a gradual take-off during this year. This has been particularly the case for the services sector, while manufacturing activity remains soft. The economic activity index was stronger than expected in January, rising to 3.2%oya from 1.4% a month earlier. The stronger print was mainly explained by the resilience of services output, which advanced at a robust 3.5%oya pace, up from 1.9% in December. Sequential figures showed output in the services sector has been persistently accelerating since bottoming last October, reaching an annualized 5.1% pace in the three months through January. Though moderate, the expansion in formal employment, coupled with credit growth, rising consumer confidence, and falling inflation, is likely to have boosted the services sector in the four months through January, sustaining its healthy expansion. We expect resilience in services output to help offset softness in manufacturing. However, the slow start in manufacturing is expected to have a negative carryover effect on growth in the first quarter. Despite managing to lift from Decembers -1.8%oya, factory output remained fairly weak at 1.7%, the second lowest reading in the expansion to date. Furthermore, factory output has contracted for three months in a row, contrasting with dynamics in the US, where manufacturing has lifted significantly from last quarters weakness (first chart). We continue to look for manufacturing activity to rebound over the coming months, particularly since uncoupling between the US and Mexicos manufacturing cycles has historically proved to be short-lived. Nevertheless, as mentioned, the negative carryover from weak prints early in the year is likely to hurt industrial productions performance in the first quarter of 2013.
Industrial production and services output

%3m/3m saar 20 15 10 5 0 -5 -10 09 10 11 12 IP Services
Source: INEGI
Non-oil consumer imports and services output

%oya, 3mma 40 20 0 -20 -40 04
Source: INEGI
Imports
Services output 10 5 0 -5 -10
05
06
07
08
09
10
11
12
13
GDP and IMEF manufacturing PMI

%oya 20 10 0 -10 -20 GDP Index PMI 60 55 50 45 40
05
07
09
11
13
Source: INEGI and IMEF
Diverse growth across sectors

The diverse performance of the domestic and external sectors was further echoed by the trade balance for February, which despite showing softer-than-expected imports signaled healthy domestic demand and failure of manufacturing to lift
fully from 4Q12 weakness. Februarys trade balance posted a surprising US$46 million surplus, contrasting with market expectations for a large US$1.2 billion deficit. The deviation in February came mainly on a weak performance of imports, which were virtually flat on a monthly basis and down 1.5%oya. Within imports, consumer-related imports were the most surprising, dropping 1.4%m/m and leading to an annual decline of 4.4% in February. It is worth noting, however, that the fall was explained by the volatile oil-related component (-30%oya), as in fact non-oil consumer imports rose 12.8%,
43
Banco J.P.Morgan, S.A., Institucin de Banca Mltiple, J.P.Morgan Grupo Financiero Steven Palacio (52 55) 5283-1651 Gabriel Lozano (52-55) 5540-9558 steven.palacio@jpmorgan.com gabriel.lozano@jpmorgan.com Iker Cabiedes (52-55) 5540-9339 iker.x.cabiedes@jpmorgan.com
Economic Research Mexico March 28, 2013
topping our forecast for a 12% increase and suggesting domestic consumption remains healthy (second chart previous page). Nevertheless, the all-important intermediate goods componenthighly correlated with manufacturing exports fell 0.6%m/m and -1.5%oya. Although remaining weak, exports were a touch better, at least in sequential terms. The year-over-year rate was in line with our expectations at -2.9%, weighed down in part by leapyear effects. On a monthly basis, however, exports popped up 4.9%m/m, reversing the 4.7% drop posted in January. The rise in exports was supported by a large 5.3%m/m rebound in manufacturing exports, which nevertheless was not sufficient to offset the 7.7% decline posted a month earlier, leaving the year-over-year rate at a subdued -1.5%. As mentioned above, we are still expecting the manufacturing sector to lift, catching up with the rebound in US manufacturing early this quarter. Nevertheless, the lift is likely to be limited and growth should continue being diverse in the coming months, with the services sector remaining the main driver ahead.

Week of April 1 5
Mon Apr 1 11:00am
Family remittances
Nov Total (US$ bn) %oya 1.7 -5.1 Dec 1.7 -4.4 Jan 1.5 -2.3 Feb 1.7 -4.3
Mon Apr 1 2:00pm
IMEF PMI survey Index, nsa Dec Manufacturing Nonmanufacturing 51.4 54.3 Jan 51.7 51.9 Feb 51.5 51.1 Mar 51.7 51.8
Tue Apr 2 11:00am
Central bank foreign reserves %m/m sa, unless noted Mar 8 Gross reserves 165.4
Mar 15 165.7
Mar 22 165.8
Mar 29 ___
Next weeks releases

We expect next weeks releases to show a modest lift in activity late in the first quarter. In this context, we are looking for March manufacturing PMI to support this view, ticking up marginally to 51.7 from 51.5, pointing to a mild pickup in the sectors momentum and validating our view of a gradual improvement in overall economic activity (third chart previous page). Regarding nonmanufacturing activity, it is likely that calendar effects related to Holy Week provided a mild boost to the services sector. As a result, we expect the index to rise to 51.8 in March, from 51.1 in February. We look for consumer confidenceto be released on Thursdayto inch down to 95.4 in March from 95.5 a month earlier. The seasonally adjusted figure should mimic this move, falling to 96.9 from 97.5. The rapid reversal in agricultural prices has pushed inflation to 4.1%oya, up from the 3.2% trough reached early in the year. We expect this increase to dampen consumer confidence through its negative impact on the purchasing power component. However, the fact that the peso strengthened in March could offset some of this negative impactan appreciated peso is historically correlated with higher consumer confidence. Although confidence has moved down lately, it remains high by postcrisis standards. We continue to see the gradual improvement in formal employment dynamics, as well as the healthy expansion of consumer credit, supporting sentiment over the next months.
Thu Apr 4 10:00am
Consumer confidence, INEGI Jan 2003=100 Dec Composite 99.0
Jan 100.0
Feb 95.5
Mar 95.4

Indicator of overall economic activity (IGAE) (Mar 25)
%oya, unless noted Nov %oya %m/m sa US$ bn Mar 7 Gross reserves 165.4 Mar 15 165.7 Mar 22 ___ 165.8 3.9 1.3 Dec 1.4 -1.0 Jan 2.5 0.5 3.2 0.2
Central bank foreign reserves (Mar 26)
Trade balance (Mar 27)

Dec Balance (US$ mn) Exports (US$ bn) %oya Imports (US$ bn) %oya
Source: INEGI, Banxico, and IMEF
Jan -2,866 27.3 0.0 30.2 9.5
Feb -1,424 29.2 -2.5 30.6 3.8 46 29.1 -2.9 29.1 -1.5
962 30.2 3.5 29.2 0.2
44
Banco J.P. Morgan S.A. Fabio Akira (55-11) 4950-3634 fabio.akira@jpmorgan.com Cassiana Fernandez (55-11) 4950-3369 cassiana.fernandez@jpmorgan.com
Brazil
Meaningful increases in inflation projections justify recent shift in BCBs communication Maintaining the call for a 25bp Selic hike in May, after remaining on hold in April Some moderation in labor markets, and a marginal tightening in bank credit conditions in February Amid myriad communications concerning inflation and monetary policy, authorities continue to move gradually and cautiously toward a rate tightening. This week, the 1Q13 Inflation Report contained significant increases in official inflation projections for both the short and long term, when assuming the current Selic rate remains at 7.25%. At the same time, it reaffirmed that monetary policy needs to be cautious on the back of ongoing external and domestic uncertainty. The domestic uncertainty around the pace of the economic recovery should be heightened with next weeks February IP report, which is expected to post a 2%m/m sa contraction, following a 2.5% increase in January. There are no hard data for March yet, but sentiment surveys are mixed, with the FGV manufacturing index declining further while services surveys are improving.
Forecasts in Inflation Report

Mar 12 IPCA %Dec/Dec forecast baseline scenario: 12m ahead 4.9 End-2013 (target: 4.5%) 5.2 End-2014 (target: 4.5%) 8 quarters ahead 5.1 Macro assumptions in the baseline scenario: Selic rate (% p.a.) 9.75 R$/US$ 1.75 IPCA %Dec/Dec forecast market scenario: Focus 2011 End-2013 (target: 4.5%) 5.3 End-2014 (target: 4.5%) 8 quarters ahead 5.2 Macro assumptions in the market scenario: Selic rate (% p.a. by Dec 13) 10.00 Selic rate (% p.a. by Dec 14) Selic rate (% p.a. by Dec 15) R$/US$ (by Dec 13) 1.75 R$/US$ (by Dec 14) R$/US$ (by Dec 15)
Source: BCB
Jun 12 Sep 12 Dec 12 Mar 13 5.0 5.0 5.1 8.50 2.00 4.6 4.9 5.1 7.50 2.05 4.8 4.8 4.9 4.9 7.25 2.05 5.4 5.7 5.3 5.4 7.25 1.95
4.9 5.1 8.92
4.8 5.0 8.07
4.9 4.8 4.8 7.25 8.29 2.08 2.02
5.8 5.1 5.2 7.79 8.33 8.29 2.00 2.05 2.07
1.89
2.00
Real labor income decelerating

%oya 12 10 Real labor income 8 6 4 2 0 -2 2006 2007 2008 2009 2010 2011 Employment
1Q13 Inflation Report endorses a monetary tightening, with caution

In sync with the recent BCB communication signaling increased inflation concerns, this weeks 1Q13 Inflation Report showed a meaningful deterioration in BCBs numerical inflation projections, which now anticipates IPCA around 100bp above the 4.5% target midpoint over the next two years, including breaching the 6.5% target ceiling in the first two quarters of this year. In addition, the report expressed a lot of concern with the broad-based deterioration in inflation expectations that have been affected by both the rate of inflation and the dispersion of price increases. It is worth mentioning that despite the hawkish projections in this report, it reaffirmed that remaining domestic and external uncertainty recommend a cautious monetary policy, thereby reducing the chances of an immediate Selic rate hike. In this context, we keep our call that after remaining on hold in April, the COPOM will start to increase the Selic rate at the May 29 meeting, with a 25bp hike, followed by two more hikes of 50bp each in July and August. According to the BCB projections, with the Selic rate at 7.25% and FX at 1.95, IPCA does not converge to target even when including tax reductions in food and health care prices. The baseline projection that assumes the FX rate is flat at 1.95 and the Selic rate at 7.25% for the whole period now
2012
2013
2014
Source: IBGE
Delinquency rates from corporates and households

% of arrears (over 90days), both scales 2.5 Corporates 2.4 2.3 2.2 2.1 2.0 1.9 Households 6.10 5.88 5.66 5.44 5.22
1.8 5.00 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13
Source: BCB
anticipates IPCA in 2Q13 at 6.7% (above the target ceiling), up from 5.5% in the previous report. The end-2013 projection jumped to 5.7% (from 4.8%), and the end-2014 IPCA was increased to 5.3%, from 4.9% (table). Even the newly released
45
Banco J.P. Morgan S.A. Fabio Akira (55-11) 4950-3634 fabio.akira@jpmorgan.com Cassiana Fernandez (55-11) 4950-3369 cassiana.fernandez@jpmorgan.com
Economic Research Brazil March 28, 2013
1Q15 IPCA projection is at 5.4%, reinforcing that the current monetary policy stance is not consistent with convergence to the target midpoint. Besides unchanged FX and interest rates, this baseline projection is already factoring in the recent tax reductions on food and health care prices. Furthermore, the BCB projections assuming market scenarios for FX and rates (as of March 8) are slightly lower but still do not converge to targeted rates. In this context, it seems that BCB models indicate that the market consensus for rates prevailing in the beginning of this month for a modest tightening cycle (around 100bp) starting in the last quarter will not be sufficient to promote inflation convergence within the forecast horizon.
Despite lower unemployment rate, moderate wage pressures in February

The February unemployment rate printed at 5.6%, below our estimate (5.8%) and slightly below the market consensus of 5.7%. Seasonally adjusted, the unemployment rate slipped to 5.4% from 5.5% in January, mostly on the back of a 0.9%m/m sa decline in the labor force. On the other hand, those employed decreased 0.5%m/m sa (from 0% in January), in line with the signs of moderation in net hiring from the CAGED report for formal labor markets. The decline in employment is probably a lagged response to slower growth observed recently, and should ease some of the labor market pressures this year. Looking at labor income data, February real wage growth slowed to 0.9%3m/3m saar from 3.2% in January and 6.1% in December. Real wages are slowing on the back of recent upward inflation pressures, but also due to nominal wages decelerating. This could be a result of the smaller increase in minimum wage this year (9% versus 14% in 2012). In that context, we look for this gradual moderation in labor income growth to persist, although we do not expect a disruptive hit to consumption, as we still think credit conditions will remain supportive of household spending.
Good credit flow and lower delinquencies in February

The February bank credit report was good news in terms of loan growth and credit quality, but also showed that the recent widening in the local yield curve has started to limit the decline in the interest rates charged by banks to final borrowers. Public banks continue to lead the credit growth, expanding even more their share of outstanding bank credit to 48.4% (from 48.2%), while private sector local banks stabilized their participation at 35.6%, and foreign banks shrank further to 16.0%. Corporate and household loans rose in February. Although it is difficult to gauge whats going on with the new loans sequentially due to the recent methodological change in this report that broadened the types of credit covered but shortened the time series (see Brazil: A broader (but shorter) picture of bank credit), it appears that the flow of new loans increased in February for both corporates and households. The daily average of loans for households increased 18.2%oya (deflated by IPCA) in February, with both earmarked and non-earmarked loans rebounding from Januarys slowdown, while the loans for corporates improved in February on the back of private sector-driven non-earmarked credit. Easing in conditions was halted, but improved quality was positive. The long-standing improvement in credit conditions was interrupted in February, with a marginal increase in the rates charged on households (24.9%, from 24.7% in January), and a decline in the average maturity of new corporate loans (57 months, from 69.5). We believe this marginal tightening in credit conditions reflects the recent widening of the local yield curve triggered by market expectations of a monetary tightening cycle. Despite this tightening in conditions, credit quality continues to improve on a very gradual basis, with the delinquency rate of non-earmarked loans declining to 7.7%, the lowest level since December of 2011.

Week of April 1 5
Tue Apr 2 8:00am
Industrial production
Nov %m/m sa %oya nsa -1.3 -0.8 Dec 0.2 -3.5 Jan 2.5 5.6 Feb -2.0 -2.3

General prices (IGP-M)
Jan %m/m %oya 0.3 8.2 Dec Open rate, nsa (30 days) 4.6 Dec -22.3 -2.4 2.5 35.0 Feb 0.2 8.4 Jan 5.4 Jan -30.3 -2.5 2.4 35.2 Mar 0.17 8.02 Fev 5.8 Jan -9.0 -2.4 2.3 35.4 3.0 -2.2 2.7 35.7 5.6 0.21 8.06
National unemployment
Public sector borrowing requirement

Minus denotes surplus R$ bn Primary 12-month sum, as % of GDP Primary Nominal Net debt, % of GDP
Source: IBGE, BCB, FGV, and J.P. Morgan
46
J.P. Morgan Securities LLC Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com Vladimir Werning (1-212) 834-4144 vladimir.werning@jpmorgan.com
Argentina
Export proceeds sold to BCRA showing a recovery The spot parallel FX spread remains high, close to 66% US courts to be in spotlight again next week, as Argentina files an alternative pro rata formula After the severe underperformance of agro exports in the first two months of the year, the latest available data of export proceeds sold to BCRA show a recovery. Indeed, our estimated weekly average of tons exported (USD export sales of farmers divided by the price of crops) shows a converging path with the weekly average of the past five years (first chart). However, in cumulative terms, exporters have sold 16.9% less in dollars ytd than in 2012. We expect exporter dollar sales to gain momentum as the soy crop harvest approaches, although we cannot rule out further tensions between the government and farmers, which could affect exports. In spite of the increased pace of exporters dollar sales to BCRA, gross international reserves have declined to US$40.6 billion (-US$2.2 billion ytd, -US$0.4 million in the last five days). It should be noted that BCRA reserves (excluding both commercial banks deposits and Treasury deposits at the central bank) have declined by US$0.3 billion ytd to US$33.2 billion. Therefore, the bulk of the gross reserves decline is explained by Treasury repaying transitory peso loans (ARS credit from BCRA) with dollars for US$1.0 billion, as well as commercial banks reserves contracting US$0.74 billion ytd. Finally, the decline of gross international reserves on Wednesday (US$223 million) is explained by the service of Par bonds (coupon payments for US$ 185 million). Taking advantage of the increasing dollar sales of farmers, the authorities managed to assuage the pressures on the parallel FX market. Indeed, the FX spread is currently running at 66%, still high but down from 70% last week. We believe the government is likely to keep accelerating the official crawling peg, to around 30% (the current depreciation pace is 20.1% 20d/20d ar, compared to 16.1% by the end of February). Last week we emphasized that, as a necessary condition for an acceleration of the official crawling peg, price agreements with supermarkets should remain in place. Therefore, this weeks announcement of the agreement extension for another 60 days did not come as a surprise. Moreover, we expect food price controls to remain in place up to the elections (to be held in October), with relatively minor price adjustments in May. Next week the market focus will likely be directed to the NY courts, as Argentina will be filing an alternative pro rata formula on Friday, March 29 (see Argentina: Preparing for the March 29 filing: The PDI swing factor and relevant
Agro export FX proceeds

% of total agricultural export proceeds sold to BCRA, weekly basis 3 2008 agro strike
1 2013 0 1 5 9 13
2008
Avg 2012-07 (exc. 2008) 37 41 45 49
17 21 25 29 33 Weeks of the year
Gross international reserves

US$ bn 55 50 45 40 35 30 Jun-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Reserves of the central bank Gross international reserves
Peso exchange rates

USD/ARS, inverse scale 3.8 4.8 5.8 6.8 7.8 Jan-11 Capital controls tightened Jul-11 Parallel (implied in bond prices) Jan-12 Jul-12 Jan-13 Official
Benchmark sovereign bond: Discount 33

Bp spread 1500 1400 1300 1200 1100 1000 900 800 Sep 12 Nov 12 Jan 13 Spread Adverse ruling Extension of stays Appeals Court hearing
Ratio of spreads Arg/EMBIG 4.8 4.3 3.8
Under/outperformance 3.3 vs. market Mar 13 2.8
Sources for all charts: BCRA, CIARA, and J.P. Morgan
47
J.P. Morgan Securities LLC Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com Vladimir Werning (1-212) 834-4144 vladimir.werning@jpmorgan.com
Economic Research Argentina March 28, 2013
NPVs (...and thoughts on the Ambito deal), March 27). On March 26, the NY Appeals Court denied Argentina its petition for an en banc rehearing (notwithstanding support for that petition from the US government). The development is a negative for Argentine sovereign credit as it suggests little sympathy from the Court to the arguments Argentina is using in its defense against holdout creditors in the pari passu litigation. Moreover, the timing of the decision to deny a rehearing could be interpreted as a warning from the Court, raising the stakes for Argentina ahead of its filing. We interpret the timing of the Courts denial of a rehearing as a message to Argentina that it should not expect much flexibility from the Court if it is not willing to embrace flexibility when it designs and files its pro rata payment proposal. (See Argentina: The denial of en banc rehearing raises the stakes of Argentinas March 29 filing, March 26.)

Economic activity (official)
Nov %oya %oya, 3mma %oya, 3m/3m saar 1.8 1.4 3.1 Dec 1.1 1.9 5.0 Jan 1.5 1.5 __ 3.2 2.1 4.5

Week of April 1 5
Mon Apr 1
Revenues
%oya Dec Tax revenues External trade-related Domestic activity-related Labor market-related -7.8 31.3 32.2 Jan -19.1 28.9 31.2 Feb -14.1 35.1 31.9 Mar 5.0 31.5 29.0
Januarys monthly economic indicator (EMAE) surprised on the upside, printing 3.2%oya (J.P. Morgan: 1.5%oya; Bloomberg consensus: 2.1%), or 2.1%oya 3mma. The sequential growth pace of activity (as officially reported) is now running at 4.5%3m/3m saar, slightly below the (revised) pace through December (5.0%3m/3m saar). The gap between official and genuine activity continues to widen. Our model estimates of genuine activity suggest that activity contracted slightly in January (-0.6%oya). Therefore, the overreporting gap (difference between official releases and genuine model estimates) reached 3.8%-pt in January 2013. Indeed, the over-reporting gap has widened since October 2012, averaging 3.3%-pts, compared to a 1.1%-pt average in the first nine months of 2012. Genuine activity likely improved in February, but we expect the over-reporting gap to narrow. Our preliminary model estimates of genuine activity point to a slight recovery on an over-yearago basis in February. Indeed, activity growth ran at 0.5%oya in February, compared to -0.6%oya in January. The improvement in genuine growth is likely to be accompanied by a narrower over-reporting gap, which should start to converge to its longterm trend (1.8%-pts). Thus, and in spite of the upward surprise in the monthly indicator, we maintain our full-year 2013 real (official) GDP forecast at 3.0%. Industrial production (official)
Thu Apr 4
Auto production
%oya %oya, 3mma Dec 16.4 8.6 Jan 4.9 7.7 Feb -2.3 6.3 Mar
Dec %oya -3.4
Jan 0.2
Feb 0.9 -4.4
__ __
Construction (official)
Thu Apr 4
Auto sales
%oya Dec Exports Domestic sales 11.6 6.6 Jan -8.2 -7.7 Feb -15.3 6.0 Mar %oya
Dec -8.0
Jan -1.9
Feb 3.0 1.0
__ __
Sources for all tables: INDEC, Mecon, UTDT, and J.P. Morgan
Thu Apr 4
Cement sales
Dec %oya -13.1 Jan 1.0 Feb 7.1 Mar
__
48
J.P. Morgan Securities LLC Ben Ramsey (1-212) 834-4308 benjamin.h.ramsey@jpmorgan.com Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com
Colombia and Chile

Colombia January retail sales remained strong despite poor auto sales in the period Supply and demand gap continue to widen In Chile, unemployment surprised to the upside But February economic activity is likely to print above potential again
Colombia: IP and retail sales

%q/q, saar 30 20 10 0 -10 -20 2008 2009 2010 2011 IP 2012 2013 Retail sales
Colombia: supply and demand gap still widening

January activity prints continued to show a widening gap between supply and demand conditions, with January IP posting a 1.7%oya contraction compared to a 1.3%oya increase in retail sales. The contrasting trends are much more pronounced on a sequential comparison, with industrial production falling 9.5%3m/3m saar in January (versus -9.7% in December and +4.5% in September, first chart), while retail sales grew at a double-digit pace (13.3%3m/3m saar from 8.2% in December and -1.3% in September)despite a poor January for car sales (-14%m/m in January, sa by J.P. Morgan). While the manufacturing sector should be a bigger drag in 1Q13, consumption remains solid in our view, particularly consumption ex. autos. This, in addition to better prospects for investment brought to light by the 4Q GDP report, indicates the demand side of the economy remains solid, which in turn means latent inflation concerns cannot be dismissed entirely, even with headline CPI hovering below the lower bound of the target for now. BanRep at its last meeting proved more reactive than we thought it would be, andgiven the mixed 1Q data and low inflationwe now look for a final 25bp rate cut to 3% at the April meeting. However, given our perception following full-year 2012 GDP that there is less slack in the economy than we initially thought, we think supply-demand imbalances should close Colombias negative output gap sooner rather than later. As such, our own monetary policy forecast does not see BanRep staying low for long, and we continue to see a tightening cycle commencing by 4Q13, continuing into 2014 to take the policy rate to 4.5%.
Colombia: retail ex-auto reaccelerating

Jan 2011 = 100, sa by J.P. Morgan 115 Retail ex-auto 110 105 100 95 2011 Retail IP
2012
2013
2014
Source for Colombia charts: DANE and J.P. Morgan
Chile: retail sales and manufacturing production

%oya, 3mma 20 15 10 5 0 -5 -10 -15 Jan 07 Jan 08 Jan 09 Jan 10 Manufacturing production Jan 11 Jan 12 Retail sales
Jan 13
Chile: economic activity (IMACEC)

% oya, 3mma 10 8 6 4 2 0 -2 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13
Sources for Chile charts: INE and J.P. Morgan
IMACEC exmining
Chile: expect February IMACEC to print 5.3%oya

In February, manufacturing production in Chile increased 0.9%oya, mining production rose 2.6%oya, and utilities rose 0.9%oya. Meanwhile, retail sales continued to show solid consumption growth, 7.4%oya. In addition, employment momentum remained positive, rising 1.3%oya, although the unemployment rate surprised to the upside by increasing to
IMACEC
49
J.P. Morgan Securities LLC Ben Ramsey (1-212) 834-4308 benjamin.h.ramsey@jpmorgan.com Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com
Economic Research Colombia and Chile March 28, 2013
6.2% (3mma) from 6.0% in January, thereby relaxing some of the pressure on the tight labor market, at least temporarily. The partial data suggest that economic activity (IMACEC) could print in the neighborhood of 5.3%oya in February. If so, growth would continue its above-potential trend (February: 5.7%oya 3mma and IMACEC ex. mining 6.2%oya 3mma). The current pace of consumptionretail sales sequential growth pace is running at 15.9%oya 3m/3m saar (sa by J.P. Morgan)should reinforce BCChs concerns, by its continued pressure on the current account balance. Indeed, the current account balance posted a 3.5% of GDP deficit in 2012 (but which, on a structural basis, is equivalent to about 7.3% of GDP), and we expect the deficit to further deteriorate in 2013 (to 5.5% of GDP). Next week, both the minutes of the March policy meeting (due Monday) and the Monetary Policy Report (due Tuesday) should provide more details on how BCCh is viewing the latest acceleration of economic activity. Particularly relevant will be the discussions on economic overheating (driven by the current account deficit and not by above-target inflation), as well as the current account deterioration and the real FX appreciation. Indeed, on the back of sustained above-potential economic growth and the pace of the current account deficit deterioration, we have penciled in a three-pronged approach to tightening policy: (1) we expect BCCh may engage in FX intervention sometime in 2Q; (2) we expect macroprudential measures to follow FX intervention, and (3) we anticipate that BCCh may begin hiking in July by 25bp with subsequent hikes every other month. If so, the policy rate would end the year at 5.75% and would reach 6.0% by January 2014.
%oya Mining Manufacturing production
Sources for Chile tables: BCCh and INE
Dec 2.9 -2.5
Jan 8.4 4.3
Feb 2.2 0.8
2.6 0.9
Colombia: Data releases and forecasts

Week of April 1 5
Fri Apr 5 Consumer prices Dec %m/m nsa %oya 0.09 2.43 Jan 0.30 1.99 Feb 0.44 1.83 Mar 0.21 1.91

No data released.
Sources for Colombia tables: DANE
Peru: Data releases and forecasts

Week of April 1 5
Mon Apr 1 Consumer prices Dec %m/m nsa %oya 0.26 2.66 Jan 0.12 2.88 Feb -0.09 2.44 Mar 0.62 2.29
Chile: Data releases and forecasts

Week of April 1 5
Fri Apr 5 %oya

Nov 5.5 Dec 4.7 Jan 6.7 Feb 5.3
Sources for Colombia tables: INEI
Economic activity (IMACEC)
No data released.

Labor report
Dec Unemployment (%, 3mma) 6.2 Jan 6.0 Feb 5.9 6.2
Retail sales
Dec %oya 11.0 Jan 9.5 Feb 7.5 7.4
50
JPMorgan Chase Bank N.A, London Branch Allan Monks (44-20) 7134-8309 allan.j.monks@jpmorgan.com Malcolm Barr (44-20) 7134-8326 malcolm.barr@jpmorgan.com
United Kingdom
Services output rebounded in January, but GDP still looks likely to print 0.0%-0.1%q/q in 1Q Gfk consumer confidence steady in March No change expected at next weeks MPC meeting, but QE likely to follow in May FPC highlights 25 billion capital shortfall for lenders A rebound in services output in January left GDP on track to show a very small gain at best in 1Q. Although the impact of the weather on the March data poses downside risks, we continue to think that growth in an underlying sense is doing a little better than the official data suggest. Next weeks BCC business surveya key ingredient in our nowcasting exercisewill be an important cross-check on this view. Meanwhile, the Gfk consumer confidence survey overall was steady in March. But the reading on the climate for major purchases, along with several other consumer-related indicators lately, continues to flag modest signs of improvement. That said, we still think a weaker growth outlook due to external headwinds from the Euro area will prompt further gilt purchases from the MPC in May. But we do not think the growth picture has changed dramatically enough to prompt more easing from the MPC as soon as next weeks meeting.
Index of services output

2009=100, sa 105.0 104.5 104.0 103.5 103.0 102.5 102.0 101.5 101.0 Jan 11
Source: ONS
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Jan 14
Gfk consumer confidence: climate for major purchases

% balance, sa 20 10 0 -10 -20 -30 -40 -50 2007
Source: Gfk
2008
2009
2010
2011
2012
2013
2014
Services output rebounds, Gfk stable

Following a 0.4%m/m drop in December, services output rebounded with a 0.3%m/m gain in January. The details of the report show fairly broad-based gains, with a particularly large 1.3%m/m gain in the transport, storage, and communications category. If adverse weather conditions do not prevent services output from recording small gains in February and Marchwhich the business surveys suggest is a reasonable viewoutput is likely to rise by around 0.2%q/q in 1Q. Construction and IP look set to provide an offsetting drag. But the hard data to date suggest that 1Q GDP will narrowly avoid a second consecutive contraction, with an outturn of zero or 0.1%q/q looking likely. The Gfks headline confidence reading held steady at -26 in Marchslightly higher than the 4Q average in the survey. The climate for major purchases reading, which conceptually is the part of the survey closest to household durables spending, reversed the prior months decline to stand at -23, relative to a 4Q average of -29. Although the CBI retail survey weakened in March, the national accounts report for 4Q this week showed moderate growth in consumer spending last year (see below). Retail sales in February also showed a strong 2%m/m gain, while there were signs of improvement in the housing market and higher private car registrations.
Monthly services output

% m/m sa Services Details: Distribution, hotels, restaurants Transport, communication Business services and finance Government and other
Source: ONS
Oct 12 0.2 -1.2 1.5 0.9 -0.4
Nov 12 0.0 0.7 -0.4 -0.1 0.0
Dec 12 -0.4 -0.7 0.0 -0.7 -0.2
Jan 13 0.3 0.0 1.3 0.2 0.3
Gfk consumer confidence

% balance, sa Headline Personal finances Last 12 months Next 12 months Economic situation Last 12 months Next 12 months Climate for major purchases Future saving intentions
Source: Gfk
Dec 12 -29 -22 -7 -55 -31 -27 -20
Jan 13 -26 -24 -7 -51 -25 -22 -16
Feb 13 -26 -20 -5 -52 -25 -26 -20
Mar 13 -26 -20 -6 -54 -27 -23 -23
51
Economic Research United Kingdom March 29, 2013
Consumption growth looking healthier

The publication of the full set of national accounts for 4Q left GDP showing a 0.3%q/q contraction, with modest revisions to output by sector. The demand side revealed another upward revision to private consumption, which is now estimated to have expanded 1.6% last year (4q/4q). In particular, consumption in 4Q was revised up from 0.2%q/q to 0.4%. Given the backdrop of weak pay growth and high inflation, any growth in household spending at present appears impressive. But despite household real incomes falling 0.1% last quarter, a strong gain in social benefits net of taxes in 2Q together with a more moderate consumption deflator helped to leave real incomes showing a gain of 2.3% (4q/4q) for the year as a whole (see chart and table, next page). Either households have decided to spend this typically more volatile component of their income (which has not usually been the case in the UK), or the stability in the measured saving rate last year has masked a desire by households to spend more than the increase in their regular income from employment. This comes despite the ongoing contention that households would not be able to increase spending due to balance sheet constraints, something we have never believed. As noted above, various monthly consumer-related indicators have shown some signs of improvement lately. This may indicate that consumption has continued to grow in 1Q, despite still weak labor income. The demand-side details suggest that trade was a key factor behind last years disappointing growth outturn. Indeed, the drag from net trade on growth in 2012 (4q/4q) was revised up from 0.9%-pt to 1.2%-pts, while the current account remains very wide by historical standards at 3.6% of GDP. The latter reflects not only a poor trade performance, but also weaker investment income. It is difficult to say whether the weakness in investment income will persist, as this component in the current account can be very unpredictable. But we expect last years net trade drag to moderate this yearas the decline in energy production fades, and the Euro area eventually pulls out of recession.
Demand-side breakdown of GDP

% GDP (%q/q/) Quarterly growth: Final domestic demand Household consumption Public consumption Fixed investment Business investment Domestic demand Exports Imports Quarterly contributions: Final domestic demand Household consumption Public consumption Fixed investment Business investment Inventories Alignment adj. Domestic demand Net trade Exports Imports
Source: ONS
1Q12 -0.1 0.9 0.4 2.9 0.5 -0.2 0.7 -1.5 0.6
2Q12 -0.4 0.3 0.5 -1.7 1.7 1.6 0.5 -1.1 1.3
3Q12 0.9 0.1 0.3 0.3 -0.4 0.2 0.5 1.8 0.3
4Q12 -0.3 0.3 0.4 0.6 -0.2 -0.8 -0.1 -1.6 -1.0
0.9 0.2 0.7 0.1 0.0 -0.3 -0.3 0.7 -0.7 -0.5 0.2
0.3 0.3 -0.4 0.2 0.1 0.2 0.1 0.5 -0.8 -0.4 0.4
0.1 0.2 0.1 -0.1 0.0 0.4 0.5 0.6 0.4 0.6 0.1
0.3 0.2 0.1 0.0 -0.1 -0.4 -0.4 -0.1 -0.2 -0.5 -0.3
Household spending
%q/q, sa 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 2007
Source: ONS
2008
2009
2010
2011
2012
2013
FPC highlights 25 billion capital shortfall

The FPC this week published a statement from its March 19 meeting. The FPC has recommended that banks aim for an intermediate target for their tier one capital ratios by end-2013 (en route to broader Basel III and ICB requirements) of 7% of risk weighted assets. For those banks that had not already reached this intermediate target by the end of last year, the FPC concluded that there was an aggregate capital shortfall of 25 billion. This is smaller than the 24-60 billion mentioned following last years Financial Stability Review. This estimate was revised to 52 billion in this weeks statement and reflects the BoEs measure of the extent to which banks have overstated their capital positionswhich in turn is driven by the BoEs assessment that banks need greater provisions against likely future losses (related to European and UK
52
Household disposable income

%oya 10
-5 87
Source: ONS
92
97
02
07
12
commercial property assets), to cover costs (payments related to Libor and PPI mis-selling), and to reflect the need to use more conservative risk weightings. Taking into account actions already put in place by lenders to rebuild capital positions, the 25 billion quoted this week by the FPC represents the additional work that needs to be done to achieve this years targets. The good news is that the stated shortfall of 25 billion was smaller than most had expected. And around half of this is thought to have already been built into banks plans for this year. Critically, the FPC is asking banks to make up the capital shortfall without restraining lending to the real economy. Whether this is the case in reality is unclear. But our equity analysts are feeling a little less worried about the challenge for banks this year with regard to their capital requirements. They believe that the intermediate objective for this year set by the FPC is attainable without fresh equity issuance, via a combination of non-core asset disposals, retained earnings, reductions in risk-weighted assets, and convertible capital issuance. As of April 1, the FPC will take on statutory powers that will enable it to direct the PRA (Prudential Regulation Authority, also under the BoEs wing) to carry out the recommendations described above.
Household disposable income

%oya 6 5 4 3 2 1 0 -1 -2 07
Source: ONS
Nominal Deflator
Real
08
09
10
11
12
13
14
Contributors to household nominal income

Cumulative contribution to % change since 2007 10 5 0 -5 2007 Net social benefits 2008 2009 Gross operating surplus 2010 2011 2012 2013 Wages and salaries

Week of April 1 - 5
During the week
Source: ONS
Household income breakdown

%q/q Dec 0.9 2.3 3.2 Jan -0.3 1.0 7.7 Feb 0.5 2.1 7.8 Mar Nominal income Deflator Real income % changes Gross operating surplus Wages and salaries Employer social contribution Net property income Net social benefits Net current transfers Contributions Gross operating surplus Wages and salaries Employer social contribution Net property income Net social benefits Net current transfers
Source: ONS
Halifax house price index

Sa %m/m %oya %3m/3m saar
1Q12 -0.3 0.5 -0.9 0.9 0.0 5.5 -13.4 3.6 -2.6 0.2 0.0 0.9 -1.8 0.5 -0.1
2Q12 3.8 0.6 3.1 2.0 2.0 -8.3 11.6 15.0 11.3 0.4 1.5 -1.4 1.3 2.0 0.4
3Q12 0.7 0.5 0.2 2.0 0.5 3.2 1.2 -6.0 3.7 0.4 0.4 0.5 0.1 -0.7 0.1
4Q12 0.7 0.9 -0.1 1.1 0.1 -0.6 0.9 9.0 -16.0 0.2 0.1 -0.1 0.1 1.1 -0.6
Tue Apr 2 12:01am
BCC quarterly economic survey

Index Manufacturing- Deliveries Manufacturing- Prices Services- Deliveries Services- Prices 2Q12 9 9 10 18 3Q12 3 15 1 16 4Q12 8 36 11 21 1Q13
Tue Apr 2 9:30am
Money supply
Sa M4 ex IOFCs (%m/m) M4 ex IOFCs (%3m/3m, ar) M4 (%m/m) M4 (%oya) M4 lending (%m/m)1 M4 lending (%oya)1
1. Excludes the effect of securitization.
Nov 0.4 5.1 -0.2 -2.9 0.0 -4.5
Dec 0.0 3.9 0.7 -1.0 1.6 -2.7
Jan 0.9 5.6 0.9 -0.8 -0.4 -2.3
Feb
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Economic Research United Kingdom March 29, 2013
Tue Apr 2 9:30am
Net lending to individuals (BoE release)

bn, average Consumer credit (ch, m/m) Secured lending (ch, m/m) Mortgage approvals (000s sa) Nov 0.1 0.3 53.9 Dec 0.9 0.9 55.6 Jan 0.4 0.1 54.7 Feb

BBA lending
Sa Dec Secured lending (ch bn, sa) Loan approvals (000s sa)1 Mar 48.5
1. For house purchase.
Jan -0.4 33.2 32.3 32.0
Feb -0.1 30.5
0.4 33.4
Tue Apr 2 9:30am
PMI survey, manufacturing

% balance, sa Overall index Dec 50.7 Jan 50.5 Feb 47.9
CBI survey of distributive trades

% balance Vol. of retail sales Jan 17 Feb 8 Mar 0
The February release was a surprise and we think manufacturing declines are likely to fade from here. The gain in the output expectations reading of the CBI industry survey for March reinforces this view, although the disappointment in the Euro area PMI survey poses a potential challenge.
Wed Apr 3 11:00am
Real GDP (national accounts)

Sa 3Q12 4Q12 0.9 0.4 3.8 -0.3 0.3 -1.0 0.1 1.6 -0.3 0.1 0.4 0.1 0.2 -1.2 4Q12 -0.3 0.3 -1.0 0.2 -1.2 0.4 0.6 -0.2 -1.6 -1.0 0.4 Total GDP %q/q sa %oya sa %q/q saar Breakdown (%q/q sa): Private cons. Public consumption Fixed investment Exports Imports
1. Preliminary outcome
BoE quarterly Credit Conditions survey

Net % balances 2Q12 3Q12 Availability of secured credit to Households: Past three months -4.1 21.9 Next three months 0.1 36.1 Availability of unsecured credit to Households: Past three months 8.1 -4.2 Next three months 5.6 6.8 Availability of overall Corporate credit: Past three months -3.2 -5.5 Next three months 0.7 2.6 4Q12 26.2 24.7 6.6 14.6 29.4 14.9 1Q13
1.0 0.2 3.9 0.3 0.5 -0.6 1.7 0.3 0.3
0.3 -0.4 1.8
Thu Apr 4 9:30am
PMI survey, construction

% balance, sa Overall index Dec 48.7 Jan 48.7 Feb 46.8 Mar
Balance of payments (quarterly report)

bn, sa Goods and services Income Current transfers Current balance 2Q12 -10.6 -1.0 -5.4 -17.4 -10.5 -0.5 -5.6 -16.7 3Q12 -8.3 1.2 -5.7 -12.8 4Q12 -8.1 -1.4 -5.6 -15.1 -9.6 2.1 -6.5 -14.0
Thu Apr 4 9:30am
PMI survey, services

% balance, sa Business activity Dec 48.9 Jan 51.5 Feb 51.8 Mar 51.5 Sa
GFK consumer confidence

% balance Jan -26 Feb -26 Mar -26
Although the services PMI has shown some improvement in 1Q, it remains low in absolute terms and is pointing to a pace of growth that is less than 1% ar. We look for the March business activity reading to show a small decline following the disappointing Euro area flash PMI. But our growth forecast implies this survey should improve in 2Q.
Thu Apr 4 12:00pm Fri Apr 5 9:30am
Nationwide house price index

Sa %m/m %oya %3m/3m saar Jan 0.5 0.0 1.7 Feb 0.2 -0.1 2.3 Mar 0.0 0.8 2.4
MPC rate announcement & asset purchase target

No change expected.
1.5
2.2
Index of services
Sa %m/m %oya %3m/3m saar Nov 0.1 1.2 2.3 0.0 2.6 Dec -0.4 0.7 -0.3 Jan 0.3 0.9 -0.8
New car registrations

%3m/12m nsa Total Private (ex business and fleet) Dec 1.8 3.3 Jan 1.7 2.8 Feb 1.2 2.2 Mar
-0.1
-1.0
Source: Halifax, BCC, ONS, Bank of England, Markit, SMMT, Nationwide, BBA, CBI, Gfk, and J.P. Morgan
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JPMorgan Chase Bank N.A, London Branch Nora Szentivanyi (44-20) 7134-7544 nora.szentivanyi@jpmorgan.com Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466 nicolaie.alexandru@jpmorgan.com
Central Europe
CE-3: modest downward revisions to GDP forecasts Czech Republic: turning slightly more dovish Hungary: cautious monetary easing continues Romania: on hold for the eight month Large downward revisions to J.P. Morgans Euro area GDP forecast have prompted us to lower our forecasts for Central Europe. The main impact is through direct trade links to the Euro area. More than half of CE-3 exports are destined for the Euro area, with 27% of CE-3 exports going to Germany alone. The forecast revisions we have made (see table) take the 2013 forecasts down to 1.3% for Poland, -0.7% for Hungary, and -0.2% for Czech. Our forecasts still assume that the worst of the downturn is behind us, but the recovery is likely to be more gradual than previously expected. There are country-specific factors that should help growth to varying degrees within the region this year, including expanding auto production capacity (Hungary), rate cuts (Poland and Hungary), regulatory measures to ease credit conditions (Poland), and a base effect from a poor agricultural year in 2012. A slower recovery is likely to keep the regions central banks dovish, with risk tilted toward more rate cuts than we currently forecast.
CE-3 GDP forecast revisions

1Q13 Czech new old Hungary new old Poland new old
Source: J.P. Morgan
%q/q saar 2Q13 3Q13 0.5 1.1 0.3 0.5 1.8 2.0 1.0 1.6 1.2 2.0 2.3 2.8
4Q13 1.0 1.0 1.5 2.0 2.8 3.0
%oya 2013 2014 -0.2 0.0 -0.7 -0.5 1.3 1.5 1.9 2.1 1.4 1.5 2.6 2.6
-0.1 0.0 -0.3 0.0 1.1 1.3
CNB: still no CZK sales, but more dovish

The CNB board again decided unanimously to leave the twoweek repo rate unchanged at 0.05%. While Governor Singer surprised the markets in February with less dovish rhetoric at the press conference, this time he was again dovish. Currency weakening due to verbal intervention has already eased monetary conditions and thus the bank refrained once again from direct CZK sales. To compensate for that, the Bank has started to use the communication channel more actively, indicating that the policy rate will be kept low over a longer horizon; the aim is to anchor interest rate expectations at a low level. Importantly, risks for the inflation forecast are now seen as tilted toward slightly easier monetary conditions, while previously they were seen as balanced. We remain of the view that CZK has weakened enough to already ease monetary conditions and thus FX intervention is unlikely.
cuts to 3.50% later in 2013 should not be ruled out provided FX loan stock is reduced substantially in the period ahead. The MC is linking further key rate cuts to moderation in CPI and lower uncertainty on external markets. In the new inflation report, the NBH is forecasting headline CPI at 2.6% in 2013 and 2.8% at end-2014, below the 3% inflation target over the entire forecast horizon. The MC statement clearly states that the outlook for both inflation and the real economy points to a further easing in monetary conditions, while another key phrase is that ensuring stability of financial markets required a cautious approach to policy. The latter basically suggests that the NBH is not happy with excessive forint weakening. Excessive currency weakening could prevent the NBH from cutting too much (the bank remains sensitive to FX movements as the stock of households foreign currency loans is above 50%).
NBR: on hold again, but with easing bias

The NBR left the policy rate unchanged at 5.25% as widely expected. The tone of the press release seemed balanced to us, which indicates the bank will likely remain on hold at least during next few months. Despite earlier comments that key rate cuts would only fuel inflation expectations, the NBR governor reiterated at the briefing that the policy rate may be cut after the CPI slows down. The CPI is already slowing down so we think the governor may want to see headline CPI closer to the target band and/or a forecast showing headline CPI well inside the target band (currently the NBR forecast is 3.5% for end-2013, exactly the upward limit of the variation band around the 2.5% inflation target). We think the earliest the forecast could show headline CPI well inside the target band is August (the next inflation report is in May and after that is in August). Considering our inflation forecast for above 4% at the end of 2013 and the upper limit of the target band at 3.5%, we believe that the key rate will most likely be unchanged this year. However, a bumper harvest could push headline CPI toward 3% and would allow key rate cuts.
The Central Europe data watch is published biweekly, next on April 12.
NBH: gradual cuts remain likely

As widely expected, the Monetary Council (MC) cut the policy rate 25bp; this is the eighth consecutive rate cut with the policy rate reaching 5%, a new record-low level (the key rate was previously cut to 5.25% in 2010). As evidenced in the statement after the meeting, the bias in the MC is clearly for key rate cuts, but with an eye on the exchange rate. We believe the MC of the NBH will continue with gradual cuts, and we expect the base rate to reach 4.50% by mid-2013; key rate
55
Economic Research Central Europe March 28, 2013
Czech Republic: Data releases and forecasts

Weeks of April 1 - 12
Mon Apr 8 9:00am
Fri Apr 5 9:00am
Industrial output
%oya Production, wda Production, nsa %m/m swda Nov -7.1 -7.1 -0.6 Dec -3.4 -7.6 -1.6 Jan -1.4 -1.4 2.9 Feb -2.5 -4.5 -0.8
External trade
CZK bn Trade balance Ytd Ytd a year ago Exports %oya Imports %oya Nov 33.3 303.5 184.0 3.3 -2.5 Dec 5.9 309.5 191.1 -7.1 -6.8 Jan 31.5 31.5 30.4 -3.2 -4.1 Feb 29.6 61.1 58.2 -4.0 2.3
On seasonally adjusted data we expect only a mild advance in exports (+0.2%m/m versus -0.2% in January) and a stronger advance in imports on improved consumer confidence and as a correction to the large fall seen in January (we forecast 0.7%m/m versus -3.6% in January). The trade surplus is likely to remain strong in February and the next few months despite what appears to be weakness in external demand.
Tue Apr 9 9:00am
IP likely posted some payback after the large January gain. The manufacturing PMI remained in expansion territory in February but declined from the previous month, as did new industrial orders. The auto sector remains the main driver of growth (a new auto model in late January). Yet new car sales in the Euro area continue to look soft, limiting demand for car imports from the CEE region.
Mon Apr 8 9:00am
External trade
EUR mn Trade balance Ytd Ytd a year ago Exports, %oya Imports, %oya Nov 676 6680 6760 -1.9 -1.8 Dec 143 6823 7061 -8.5 -6.2 Jan 318 318 357 4.3 5.2 Feb 650 968 1100 __ __
Consumer prices
%oya %oya %m/m nsa Food Housing Transport Dec 2.4 0.1 5.2 3.6 0.2 Jan 1.9 1.3 5.7 2.6 -1.1 Feb 1.7 0.1 5.0 2.6 -0.6 Mar 1.6 0.0 3.1 2.7 -0.9 Thu Apr 11 9:00am
Consumer prices
%oya All items (KSH) %m/m nsa Food Consumer durables Fuel Services Core inflation %m/m sa Regulated g&s (NBH) Market g&s (NBH) Dec 5.0 0.0 7.0 -1.8 1.7 4.5 4.9 0.3 4.0 5.2 Jan 3.7 0.8 5.8 -2.1 1.1 3.1 3.7 0.3 2.4 4.5 Feb 2.8 -0.1 4.1 -2.3 -1.2 3.5 3.6 0.4 -2.8 4.1 Mar 2.5 0.5 __ __ __ __ __ __ __ __
We expect inflation to trend lower to 1.6%oya in March on the back of limited food and fuel price increases and positive base effects. We think inflation will not go below 1.5%oya in 1H13, but 1.4%oya is possible in 4Q13 with year-end inflation at 1.9%. Monetary-policyrelevant inflation is likely to remain around the lower band of the inflation target at 1%.
Review of past two weeks data

Monetary policy announcement No changes in policy rates, but a more dovish tone. See main text for details.
Inflation likely declined further in March on the back of base effects in fuel (fuel prices rose 3%m/m in March 2012) and in the alcohol and tobacco component.

Average gross wages
%oya Gross wages, nominal Private sector ex bonuses Public sector Nov 5.4 6.3 7.2 3.7 Dec 4.9 8.3 7.3 -3.2 Jan __ __ __ __ 2.5 3.0 3.3 0.9
Hungary: Data releases and forecasts

Thu Apr 4 9:00am
Retail trade
% change %oya wda %m/m swda Nov -4.1 -0.4 Dec -2.1 0.2 Jan -4.1 0.2 Feb -2.0 -0.1
Monetary policy announcement The NBH cut the base rate 25bp as widely expected. See main text for details.
Source: National Statistics, J. P. Morgan
56
Balance of payments
EUR mn Current account balance Trade balance Exports %oya Imports %oya Service balance Income balance Current transfers Fin + cap balance FDI, net Portfolio investment Other investment 2Q12 478 1308 3.4 1.1 857 -1720 33 -964 -530 -676 -123 3Q12 532 780 1303 1187 3.0 1.2 0.3 903 1094 -1572 47 70 -984 -1992 -523 847 1962 -170 -5516 4Q12 843 215 1163 815 3.1 __ 0.6 __ 1163 750 -1567 -1550 84 200 -1927 __ 934 __ 1963 __ -5576 __ 242 711 0.7 0.4 665 -1675 541 -514 1386 134 -3642
The C/A surplus came in close to our forecast and market consensus, and posted a significant narrowing versus 3Q12. Nonetheless, the surplus was wider than in 4Q11 when it stood at just EUR1m.
Industrial production declined more than expected in February, giving back much of Januarys gain. Despite the contraction, a very gradual improvement is visible on a sequential basis: the level of IP is down 1% annualized in the first two months of the year versus its 4Q average, which is a bit better than the 2%q/q saar decline in 4Q12. Key export-oriented sectors of manufacturing continued to contract, although output in some branches fell at a slower pace. The biggest drag came from machinery and equipment (-13.2%oya), computers, electronics, and optical products (-12.8%), basic metals (-8.2%), and motor vehicles (-5.9%). Increases were recorded, among other sectors, in food (1.7%oya). The sectors that drove growth the January increase (energy and mining) predictably pulled back in February. The activity figures are broadly consistent with our forecast for oya GDP growth to slow marginally further to 0.8%-1% in 1Q13 from 1.1% in 4Q12, but in sequential terms the economy should have bottomed in 4Q12. We expect a gradual recovery to unfold by April/May. Producer prices
%oya Producer prices %m/m nsa Dec -1.1 -0.6 Jan -1.2 0.1 Feb -0.3 __ -0.4 0.3
Poland: Data releases and forecasts

Wed Apr 10
Monetary policy announcement We expect the NBP to remain firmly in wait-and-see mode next week and to return to rate cuts only if the activity data fail to validate the MPCs expectation of a gradual recovery by May-June, or if inflation falls materially below 1%.
Retail sales
%oya, unless otherwise stated Retail sales (nominal) Real, CPI-adjusted %m/m sa Dec -2.5 -3.6 -4.1 -4.3 Jan 3.1 2.4 5.2 Feb 0.5 -0.8 2.2 -0.8 -1.3 -0.4
5.5
Romania: Review of past two weeks data

Gross wages and employment
%oya Gross wages, nominal Real (CPI adj.) Employment, 000s, nsa Employment, %oya Dec 2.4 0.0 5474 -0.5 Jan 0.4 -1.3 5507 -0.8 Feb 3.5 2.0 5489 -1.0 4.0 2.7 5497 -0.8

Tue Apr 2 10:00am
Retail sales
%oya Retail sales, sa %m/m nsa Nov 2.4 1.3 Dec -2.3 -3.2 Jan 2.4 4.3 Feb 2.7 -0.7
The corporate sector shed 10,000 jobs m/m in February, with payrolls down 46,000 from a year earlier. While the worst for the job market is likely over, we do not expect a material change in the negative trend until the second half of the year. Meanwhile, wage growth accelerated in February on the back of a base effect linked to shifts in the timing of wage payments. Industrial output
%oya Industry %oya swda by GUS %m/m swda by GUS Manufacturing Construction Dec -9.6 -4.5 -1.4 -11.8 -24.9 Jan 0.4 -2.1 1.5 -0.4 -16.1 Feb -2.5 -2.5 -0.5 __ __ -2.1 -2.4 -1.0 -1.9 -11.4
After a strong start in January, we look for a mild correction in February. However, this should not reverse the general trend of improvement in retail sales and should support acceleration in GDP growth as well. We forecast a strong positive contribution to GDP growth in 1Q13 from retail sales (we also expect industry to positively contribute to GDP growth).
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Economic Research Central Europe March 28, 2013
Wed Apr 3 10:00am
Real GDP, final

%oya, unless otherwise stated Real GDP %q/q saar Domestic demand Private consumption Gross fixed capital formation Contribution to %oya GDP Domestic final sales Inventories Net trade 1Q12 0.1 -0.6 2.7 0.9 11.3 3.5 -0.7 -2.7 2Q12 1.3 1.6 2.7 2.0 5.4 3.6 -1.1 -1.1 3Q12 -0.3 -1.0 1.4 -1.3 8.0 1.8 -0.9 -1.2 4Q12 0.3 0.4 __ __ __ __ __ __
The third GDP release is expected to confirm previously released data without any big surprises.
Tue Apr 9 10:00am
Industrial output
%oya Industrial output, nsa Industrial output, sa %m/m sa Nov -0.5 -1.1 0.4 Dec -2.2 -0.7 0.5 Jan 5.7 3.4 0.3 Feb 3.8 4.1 0.2
IP is expected to continue to grow on a seasonally adjusted basis as the weakening external demand from Euro zone countries is offset by exports to other countries inside the EU and countries outside the EU. Also, there is a recovery in domestic consumption in 1Q13 that is expected to be quite large.
Wed Apr 10 10:00am
Consumer prices
%oya %oya %m/m nsa Dec 5.0 0.6 Jan 6.0 1.3 Feb 5.7 0.3 Mar 5.5 0.2
Disinflation is expected to continue in March on the back of base effects, lower price increases in the case of volatile items, and a flat exchange rate. The only significant price increase in March is the hike in water and sewerage prices (about 14%). We also believe that CORE3 inflation (the one most closely followed by the NBR) will trend marginally lower. We look for inflation to start increasing again toward 6% during 2Q13, but to trend again lower below 5% in 2H13.

Monetary policy announcement The key rate was kept on hold at 5.25% with no other changes. See main text for details.
58
J.P. Morgan Securities plc Jos Cerveira (44-20) 7742-3556 jose.a.cerveira@jpmorgan.com
South Africa
February trade deficit narrows more than expected to R9.5 billion, from a record R24.5 billion in January At the Durban summit, BRICS agree on new development bank; Transnet secures US$5 billion in financing Recovery in mining will likely support higher 1Q13 GDP growth After posting a record R24.5 billion deficit in January, the trade balance improved in February, narrowing to R9.5 billion, somewhat better than market expectations of R12.5 billion. Looking at the details, the recovery was driven mainly by a 17% increase in exports, but also by a 7.7% drop in imports. The strong rise in exports was mostly accounted for by higher precious metals (25.6%m/m) and vehicles sales to foreigners (80.1%), but most other subcategories also showed improvement. On the import side, seasonal effects were exacerbated by the lumpiness of oil and machinery imports, which tend to revert in months following large increases/decreases. Imports of machinery, which had increased 34%m/m in January, fell 15% in February, and oil purchases increased only 6%, lower than seasonally implied. On a 12-month trailing basis (see chart), the trade deficit has reached a new record of R128.6 billion, from R126.6 billion previously, but we expect it to stabilize in the next few months. Looking ahead, we think imports will remain resilient (partly supported by the public infrastructure programs), but the normalization in the mining sector and the currency weakness are expected to improve the export sector, supporting some narrowing of the trade deficit.
South Africa trade balance

R bn 10 5 0 -5 -10 -15 -20 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: SARS, J.P. Morgan
12-month trailing 70 35 0 -35 -70 Monthly -105 -140
of the governmentengaged in a seven-year R300 billion (around US$32 billion) development plan to improve the countrys rail and ports network, two thirds of which it expects to finance through internal resources, and the rest from capital markets. The agreement secures an important part of Transnets external financing needs ahead and, while the details of the deal were not made public yet, likely at favorable conditions. This important inflow will also be an important contributor to the financing of the current account, which is expected to remain high in 2013, at around 6% of GDP. The discussions between the five countries also resulted in an agreement to establish a BRICS development bank, which is reportedly targeted to start with a capitalization of around US$50 billion. However, the leaders of the BRICS failed to agree on how the bank would be funded (whether equally or in proportion to each economys size) or where it should be headquartered, suggesting the forums first official institution may take some time to materialize.
NERSA prohibits electricity buybacks, raising risks of tight electricity supply

South Africas energy regulator (NERSA) has prohibited ESKOM from passing on to customers the cost of its electricity buyback program, through which ESKOM compensates large industrial users for not using electricity during peak usage periods. NERSA argues that these buybacks are too costly and introduce production inefficiencies. In our view, however, by removing the incentive to temporarily shut down intensive users, the prohibition increases the risks of electricity supply shortages, in which case the costs to the economy as a whole could be far larger.
GDP growth expected to improve in 1Q13 to 3%, due to technical rebound in mining
The next two weeks will provide a wide set of activity data releases that will allow us to better gauge GDP growth during 1Q13. Both mining and manufacturing output surprised on the upside in January, accelerating above market expectations to 7.3%oya (consensus: 4.2%) and 3.9% (consensus: 2.7%), respectively. The manufacturing PMI for February jumped to 53.6 from 49.1, suggesting manufacturing production continued to perform well that month but should moderate in March, in line with that of main trading partners for manufactured goods. The weakness in mining production in 3Q12 and 4Q12 provides a low base for rebound in 1Q13, but given that the mining component of 4Q12 GDP growth declined much less than suggested by the fall in the mining index, the rebound is also expected to be proportionally smaller. Overall, we expect 1Q13 GDP growth to improve modestly to 2.7%q/q saar from 2.1% in 4Q12.
The South Africa data watch is biweekly, next on April 12, 2013.
CDB agrees to US$5 billion loan to Transnet; BRICS to launch development bank
The fifth BRICS summit, held this week in South Africa, resulted in a number of important agreements, both at the group level and country deals. The most significant, in our view, is the agreement between China Development Bank (CDB) and Transnet for a US$5 billion loan to support infrastructure projects over a period of five years. The parastatal ison behalf
59
J.P. Morgan Securities plc Jos Cerveira (44-20) 7742-3556 jose.a.cerveira@jpmorgan.com
Economic Research South Africa March 28, 2013

Tue Apr 2 11:00am

Quarterly employment statistics
Nsa
Dec 7.0 -12.9 -13.3 11.8 1.8 -13.4 Jan 11.8 18.2 18.6 17.1 14.1 19.5 Feb 4.2 -5.4 5.2 -7.7 1.6 -3.2 Mar __ __ __ __ __ __ 2Q12 8430 352.4 3Q12 4Q12 8440 8439 __ 369.9 371.9 __
New vehicle sales

%oya, except as noted Passenger car sales %m/m nsa Light commercial vehicles Heavy/medium commercial Total vehicle sales %m/m nsa
No. of employees (000) Gross earnings (R bn)
8461 393.8
Consumer prices
%oya, except as noted CPI %m/m sa Core
Dec 5.7 0.2 4.7 Jan 5.4 0.3 4.5 Feb 5.6 0.7 5.9 1.0 5.1
Tue Apr 2 11:00am
Kagiso BER PMI

Dec 47.4 47.3 44.9 56.4 47.3 44.7 79.7 55.1 49.9 Jan 49.1 49.6 50.9 48.8 56.8 42.3 82.0 58.2 44.3 Feb 53.6 52.2 60.2 51.8 55.6 45.7 86.0 56.8 52.9 Mar 51.0 __ __ __ __ __ __ __ __
PMI (% weights) Business activity (25) New sales orders (30) Suppliers performance (15) Inventories (10) Employment (20) Memo: prices paid Business expectations PMI nsa Wed Apr 3 12:00am
Monetary and credit aggregates

%oya, except as noted M3 M0 Private sector credit %m/m nsa Credit to households Total domestic credit
Dec 5.2 11.5 10.1 1.2 9.9 10.6 Jan 6.7 9.6 8.6 -0.6 9.9 10.0 Feb __ __ __ __ __ __ 7.7 8.4 7.9 0.8 9.8 9.5
RMB/BER business confidence

Index
2Q12 3Q12 4Q12 1Q13
Trade balance
R bn, except as noted Trade balance Exports %m/m Imports %m/m
Dec -2.7 59.8 -9.8 62.5 -15.8 Jan -24.5 53.3 -10.9 77.8 24.5 Feb __ __ __ __ __ -9.5 62.3 17.0 71.8 -7.7
Composite total Manufacturing Retail Wholesale Mon Apr 8 8:00am
41.0 29.0 39.0 50.0
47.0 33.0 46.0 53.0
46.0 38.0 54.0 57.0
__ __ __ __
SARB official reserves

US$ bn, except noted Gross reserves (R bn) Gross reserves International liquidity
Dec Jan Feb 430.9 458.7 450.7 50.7 51.2 50.4 47.9 48.1 47.2 Mar __ __ __
Tue Apr 9 12:00pm
BER consumer confidence

Index
2Q12 3Q12 4Q12 1Q13
Composite total Thu Apr 11 1:00pm
-3.0
-1.0
-3.0
__
Manufacturing production
Volume output Manufacturing (%oya) %m/m sa
Nov 3.7 2.6 Dec 2.0 -2.3 Jan 3.9 2.0 Feb __ __
Source: Stats SA, SARB, SARS, DTI, BER, J.P. Morgan
60
J.P. Morgan Australia Limited Stephen Walters (61-2) 9003-7980 stephen.b.walters@jpmorgan.com Ben K Jarman (61-2) 9003-7982 ben.k.jarman@jpmorgan.com
Tom Kennedy (61-2) 9003-7981 tom.kennedy@jpmorgan.com
Australia and New Zealand

RBA Governor eluded policy discussion, following a slew of official commentary last week Credit growth in Australia still driven by investor housing, as many households de-lever RBNZ moves to increase banks capital buffers, while business confidence deteriorates The last couple of weeks have been all but devoid of major data releases in Australia, but in their place there has been a steady flow of commentary from senior RBA officials. All of this has left us comfortable that next weeks Reserve Bank Board meeting will deliver more of the same, an unchanged cash rate. The lift in consumer confidence and asset prices witnessed so far this year has been succor for a Board that wants to see further signs of traction from low rates by now, nearly 18 months since the easing cycle began. We expect the Board to leave the cash rate on hold and, in a change of call, now forecast this pause to extend until 4Q, when the Board will deliver a final 25bp cut as the transition away from mininginvestment-led activity falters and AUD climbs. The highlight this coming week will be the February retail report, which should register a modest payback from a January result that was artificially supported by government transfer payments. In New Zealand this week, the news flow was light but nevertheless touched on the most relevant issues facing the economy at present. The February trade data exceeded expectations, recording a large rise in dairy exports, though the slide in business confidence, particularly among farmers reported for March, highlights drought conditions as a risk to the outlook. Also, the RBNZ pushed further along the path of developing a suite of macroprudential measures, with a consultation paper proposing an increase in regulatory capital requirements for banks engaged in high LVR lending.
Australia: official cash rate

% 8 7 6 5 4 3 2 06
Source: RBA
J.P. Morgan forecasts
07
08
09
10
11
12
13
14
Australia: AUD trade-weighted index

Index 80 75 70 65 60 55 50 05
Source: RBA
07
09
11
13
RBA decision likely a snoozer

The RBA Governors speech this week at a regulatory forum focused on big-picture issues around financial markets and bank regulation, and did not stray into the macro-policy arena. Nevertheless, we have a pretty good sense of how officials are seeing things, given the multitude of communications released over the past couple of weeks. Last week alone saw speeches from the Deputy Governor and two Assistant Governors, as well as the minutes to the March Board meeting. Since the first rate decision of the year in February, we have characterized the Boards position as reflecting two assessments: the idea that easier policy is getting preliminary traction, set against the idea that the increased flexibility that is
afforded by better productivity outcomes and a soft labor market will allow the Board to provide more support if needed. The latter guidance has left the market content that an easing bias remains in play, even as better news has rolled in on consumer sentiment and housing. It will be important for the Governors commentary next week to reaffirm the easing bias, which we believe it will, given lingering downside risks. The alternative, hinting even at an end to accommodative policy, however tentative the move, could push AUD higher, exacerbating the awkward divergence in the monetary mix officials currently are dealing with. We remain of the view that more work will need to be done in this cycle, although the risks have now evolved toward a later move. Better cyclical momentum is giving officials scope to save their ammunition for now, but it still seems likely that acceleration in non-mining investment will prove insufficient to offset the significant fade in the contribution from mining investment. We now expect the last rate cut of the cycle to come in November, rather than May.
Retail sales to lose some steam

Retail sales surged 0.9%m/m in January, after a downwardly revised 0.4%m/m fall at the end of 2012. We had flagged the possibility of a strong number in January, given the
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Economic Research Australia and New Zealand March 28, 2013
rearrangement of fiscal transfer payments to households as part of last years carbon tax compensation package. With that one-off lift to disposable income having disappeared, the path of retail spending from here will rest on underlying labor income dynamics. Although the retail figures are likely to take a step back from last months stellar stimulus-supported result, we still expect the numbers to hold on to some of the improvement relative to the disappointing run rate seen during the final quarter of 2012, where retail sales contracted for three consecutive months. We expect retail sales to have increased 0.2%m/m throughout February. In the other data to be released next week, we expect building approvals to have recorded a modest improvement in February, increasing 1%m/m after having contracted outright over the previous two months. The swing factor, as always, will be the number of high-density housing approvals, with this category expected to recover some ground after plunging 10%m/m in the prior months release. Any upside surprise in high-density housing should largely be offset by further weakness in detached housing, with the growth rate in this category set to remain uninspiring for some time yet. The February trade data also are released in the week ahead. Australia has not posted a single monthly trade surplus in over a year, as lower prices for key commodity groups and a firming stream of capital imports have taken their toll on the external accounts. The preliminary import data that we currently have at hand suggest Australian demand for foreign goods slipped 1%m/m in February, which coupled with the anticipated uptick in export values (resulting from accumulated improvements in commodity prices) should see the monthly deficit narrow to around A$700 million, the smallest trade gap since February 2012.
Australia: retail sales

%m/m 1.5 1.0 0.5 0.0 -0.5 -1.0 2011
Source: ABS, J.P. Morgan
J.P. Morgan forecast
2012
2013
Australia: private sector credit aggregates

%3mo ar 20 15 10 5 0 -5 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: RBA
post-2000 average, and it is doing so at very low levels of owner-occupier activity. So while the shift in the composition of housing activity is a symptom that low rates are getting some traction in the usual pockets, so far this trend looks far too subtle to have broader macro significance, and clearly is not sufficient to lift overall credit growth. Given the current composition of activity, if the RBA maintains its easing bias, but with its tactical interest rate pause extending for most of this year, as we now expect, the credit aggregates could perversely get some lift over the next few months, as we cycle out of a run of months where persistentlty lower rates were allowing a steadily increasing flow of principal repayments. But this would not represent any net stimulus to demand. In the other details of this weeks report, business (-0.2%m/m) and personal (+0.1%m/m) credit are still bobbing around, and generally only treading water.
Credit growth in a slumber

Another month, another soft credit report in Australia, as overall growth in the pool of private sector credit expanded a modest 0.2%m/m in February. The 6-month annualized run rate now sits at 1.8%, having only previously plumbed those depths in the GFC fallout of 2009 and in the recession of the early 1990s. There are more interesting developments occurring beneath the surface, particularly in housing, the largest component of the credit pool and the (relative) outperformer in growth terms, which maintained its recent pace of 0.4%m/m. Within that category, a composition shift is under way with existing owner-occupiers using low rates to amortize more quickly, while new loans to investors are starting to perk up. The gap between annual credit growth in the investor and owneroccupier segments now is 1.7%-pts, the widest it has been post crisis. But this move still only brings it in line with its
62
RBNZ moves to boost capital buffers

The NZ banking system uses the internal models approach in implementing the Basel capital requirements. This means that, rather than set their risk weights for various types of loan (e.g., business, housing, etc.) at fixed values decreed under Basel, the banks set their own risk weights according to their own internal risk models (after the RBNZ signs off on them).
Unlike the Basel requirements then, the internal models approach produces risk weights that are sensitive to LVRs. That is probably a good idea, and so the RBNZs proposal, announced this week, to alter the capital adequacy framework, is not about changing the internal models approach, but in fact pushes them further down the existing path, and away from the fixed weights of Basel. The RBNZs proposal, flagged in a consultation paper, is to make the domestic banks adjust their models so that risk weightings are more sensitive to LVRs, meaning they would have to hold more capital against high-LVR loans than previously. The argument for higher risk weights on high-LVR housing loans follows the RBNZs long-held conviction that the correlation factor that sits behind the models, as recommended in Basel II, is inappropriately low. The correlation factor essentially represents concentration risk, and in the eyes of the RBNZ does not sufficiently incorporate systemic risk (i.e., that which cannot be diversified away in looking at the nations housing portfolio overall, where outcomes still are highly correlated). In the past, the RBNZ has made the banks tinker with other parts of their models (probability of default and loss given default) to compensate for this shortcoming, but now wants to address the issue head-on. The consultation paper uses the RBNZs own modeling on various stress scenarios for house price declines and interest rate rises. The range of scenarios presented suggests the appropriate correlation factor for loans with an LVR above 80% should be between 21% and 25%, rather than the current 15% (though 15% is still deemed appropriate for LVRs under 80%, so no change there). The fact that NZ is currently in a low rate environment has fed into the analysis here, in that from a low starting point, there are more significant upside possibilities for interest rates and debt servicing ratios in the stress scenarios. Mapping these higher-correlation factors into capital requirements, analysis suggests an increase in regulatory capital on high LVR housing loans of between 14% and 23%. To put this proposal in context, the overall regulatory capital requirements are still far less burdensome at present than they were even pre-crisis. The internal models approach may generate risk weights for high LVR loans that are already much higher than Basels flat rate, but those on the remaining loans (which comprise the majority of the book) are generally lower. The RBNZ previously has cited international evidence that increased capital requirements are overwhelmingly met by raising equity, rather than pulling back on lending and shrinking the balance sheet. As such we continue to view capitaltype measures as having limited implications for the economic and policy outlooks. In our view LVR caps are the only measure that could genuinely masquerade as monetary policy, and change the outlook for the OCR.
New Zealand: ANZ business confidence survey

Percent balance 100 50 0 -50 -100 2008
Source: ANZ
2009
2010
2011
2012
2013
2014
New Zealand: trade balalnce

NZ$ bn, year to date 2 0 -2 -4 -6 -8 00
Source: Stats NZ
02
04
06
08
10
12
NZ businesses tempering expectations

After recording a very strong start to the year, the New Zealand ANZ business confidence survey ticked lower in March, falling from an index level of 39.4 to 34.6. Although a downshift in confidence is never the optimal outcome for an economy, this weeks result is significantly better than we had expected, which suggests the impact of the drought is not yet as far-reaching as many in the market had assumed. Businesses also reined in their activity expectations in March, although, with the outlook index currently tracking at 32.4, it appears firms are still more optimistic on the outlook than they were in 2012. While mild, the effects of the drought are starting to take hold, with the livestock index plunging from 16 in February to 2 in the March release. Although it is a little opaque what this actually measures, the impact of the drought is most likely to appear first and be most pronounced in the livestock index, which makes this one of the key components to watch over the coming months to gauge how the drought is weighing on New Zealands farming sector. Pricing intentions picked up over the month, which could signal an anticipated increase in agricultural prices as supply starts to wane.
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Economic Research Australia and New Zealand March 28, 2013
The remaining categories held up fairly well over the month, with employment and profitability ticking slightly lower and hanging on to the majority of the prior months gains. Residential and commercial construction continues to be the standout performer, with the ongoing Canterbury rebuild promising a steady flow of construction activity over the coming quarters. The strength in both of these construction sectors is unsurprising and synchs with the fourth-quarter GDP report, which revealed strong growth in both residential (2%q/q) and other construction (+9.6%q/q) over the quarter, dispelling suggestions that construction activity has been narrowly confined to only residential activity.
Wed Apr 3 11:30am
Trade balance
Nov A$ bn -2.4 Dec -0.7 Jan -1.1 Feb -0.7
Thu Apr 4 11:30am
Building approvals
Nov %m/m 3.4 Dec -1.7 Jan -2.4 Feb 1.0
Thu Apr 4 11:30am
Retail sales
Nov %m/m -0.2 Dec -0.4 Jan 0.9 Feb 0.2
Traded sector firing pre-drought

After a disappointing start to the year, New Zealands trade sector bounced back in February with the monthly trade data recording a surplus of NZ$414 million (J.P. Morgan: -NZ$20 million; consensus: -NZ$12 million). The most significant contributor to the February surplus was a 15%m/m sa surge in export values, a move that completely unwinds the prior months plunge and easily offsets the more benign 3.9%m/m pickup in imports over the month. The improvement on the export side was a fairly broad-based phenomenon, although the principal driver was clearly the 21%m/m increase in the milk powder, butter, and cheese categorya sector that comprises almost a third of New Zealands total export basket. The strength (or weakness) in dairy exports must be taken with a grain of salt during the first few months of the year, with distortions generated over the Chinese New Year period making the underlying trend difficult to decipher. Therefore, we are treating the 49%oya surge in exports to China in February with a fair amount of skepticism. Most of the other major export categories also moved higher throughout February, with logs, wood, and wooden articles (+4.7%m/m), crude oil (+52%m/m), and fruit (+24%m/m) all increasing over the month. The only decline of note was in the meat and edible offal category, where export values fell 3%m/m. Although this is a sector that is particularly vulnerable to the impacts of NZs recently declared drought, it appears most of this weakness at this stage is due to softer price outcomes, with export volumes for this category actually ticking higher over the month.

Private sector credit
Dec %m/m %oya 0.4 3.6 3.6 Jan 0.2 3.6 Feb 0.2 3.6
New Zealand Data releases and forecasts

Week of April 1 5 No data releases of note.

International merchandise trade
Dec NZ$ mn 534 Jan -305 -287 Feb -20 414
ANZ consumer confidence index

Dec Index 22.7 2.9 Feb 39.4 3.0 Mar 35
Source: ABS, Stats NZ, RBA, RBNZ
Australia Data releases and forecasts

Week of April 1 5
Tue Apr 2 2:30pm
RBA cash rate announcement
No change expected; see main text.

64
Greater China
China: Jan-Feb industrial profits increased by 17.2%oya. Hong Kong: trade sector posted sluggish readings in February. Taiwan: IP fell 11.45%oya on seasonal effect; demand outlook to turn more constructive by mid-year we believe. Taiwan central bank kept policy rates unchanged The National Bureau of Statistics in China announced that industrial profits (including all industrial companies with annual sales exceeding 200 million yuan) increased 17.2%oya in the first two months of the year, maintaining the solid recovery in profits since 4Q12. Industrial profits fell in the first three quarters in 2012, but rebounded strongly in 4Q12 (increasing by 20.4%oya). In the whole year of 2012, industrial profits increased by 5.3% over the previous year. In the meantime, total industrial sales revenue increased by 13.1%oya in Jan-Feb, compared to 12.8%oya in December (and 11.0% growth in 2012). Industrial enterprises profit margin (profits as a percentage of sales revenue) eased to 5.2% in Jan-Feb, compared to 7.9% in 4Q12. Among major industries, the top five contributors to profit growth are: electricity, petroleum processing, steel, electronic products, and the auto sector. The five industries contributed 26.5%, 15.2%, 13.3%, 10.7% and 9.7%, respectively, to net increases in profits in the first two months of this year. Specifically, profits in electricity increased by 150%oya to 46 billion yuan in Jan-Feb; the petroleum processing industry posted a profit of 5.7 billion in Jan-Feb, compared to a loss of 10.1 billion one year ago; profits in the steel industry increased by 17 times over a year ago (at 14.6 billion); profits in electronic products rose 89%oya to 23.5 billion; and profits in the auto sector rose 19.8%oya to 61.2 billion yuan in Jan-Feb.
China: industrial enterprises' profits and sales revenue

%oya, ytd 150 100 50 0 -50 07
Source: NBS.
Industrial sales revenue
Industrial profits
08
09
10
11
12
13
14
Manufacturing FAI and industry profit margin

%oya, 3mma 50 40 30 20 10 2008
Source: NBS.
% of sales, 3mma Profit margin 12 10 8 6 4 2 2009 2010 2011 2012 2013
Manufacturing FAI
Divergence in industrial profits and manufacturing investment in China

The solid growth in industrial profits in Jan-Feb is partly attributable to a low base (industrial profits declined 5.2%oya in Jan-Feb 2012). But overall, the recoveries in industrial profits, together with the turnaround in inventory cycle since 4Q12 are positive news for the economic recovery. However, manufacturing investment has remained on the weak side. In the first two months of this year, manufacturing investment (which accounted for 34% of total fixed asset investment) increased by 17.0%oya, continuing the softening
trend observed throughout 2012. The divergence between manufacturing investment and industrial profit margins in recent months is somewhat surprising, given their close relationship in the past. This may be driven by overcapacity in certain key industries. For instance, in the steel industry, during the destocking phase many steel producers chose to cut output. The tentative output cut led to a strong rebound in steel prices and corporate profits. But with the recovery in profits, producers resumed outputs and now inventory is climbing back to historically high levels. The adjustment process is shorter than usual and does not involve new investment given overcapacity and low utilization in the sector. In the near term, whether and when manufacturing investment can stabilize remains the biggest uncertainty on the domestic front. Overall, the economic data in the first two months appear to support our view that economic recovery continues, but the momentum of the recovery is somewhat softer in 1Q vs. 4Q12. We expect the economy to expand by 8.0%q/q saar in 1Q (vs. 9.4%q/q saar in 4Q12), or equivalently to grow 8.1%oya (vs. 7.9%oya in 4Q12). We maintain our full-year growth forecast at 8.2%.
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Economic Research Greater China March 28, 2013
Hong Kong: soft trade activity in February

Hong Kongs trade figures came in much softer than expected in February. The total value of exports declined 16.9%oya in the month, after increasing 17.6%oya in January. Our seasonal adjustment suggests that total exports contracted by 11.9%m/m sa versus -2.2%m/m sa in January. Meanwhile, the total value of imports dropped 18.3%oya in February, after gaining 23.9%oya in January. This translated into a decline of 24.8%m/m on seasonally adjusted terms (vs. -7.4%m/m sa in January). The trade deficit as such widened to HK$34.0 billion in February (vs. -HK$27.5 billion in January). Details by destination show that exports to Mainland China fell 17.2%m/m sa after rising consecutively in the previous three months. This was generally consistent with Chinas relatively soft February import reading. Meanwhile, exports to the US picked up slightly, rising 0.4%m/m sa (vs. -10.8%m/m sa in January). Although we do not have details on total exports to the EU at this point, exports to Germany, which account for about 24% of the total exports to EU, fell 15.0%m/m sa in February (vs. -7.2%m/m sa in January). Exports to Japan continued to fall, by 15.2%m/m sa, after dropping 8.2%m/m sa in January. Aside from Japan and China, exports to other Asian countries declined moderately by 3.2%m/m sa (vs. 0.8%m/m sa in January). The difference in timing of the Lunar New Year holiday this year has contributed in part to the recent volatility in trade data. However, if we combine January and February trade figures, total exports and imports delivered only modest growth of 0.3%oya and 1.4%oya, respectively, slower than the growth rates of 7.0%oya and 8.1%oya in 4Q12. Hence, external demand conditions appeared to be soft for Hong Kongs trade sector entering into early 2013. Looking ahead, our global team continues to expect above-trend growth for the global economy from mid-2013, in particular with more resilient outlooks for the US and Japan. This, together with steady recovery of the Chinese economy and improving domestic demand conditions, should provide support for Hong Kongs trade sector during the second half. In the near term, the external sector could still face challenges posed by DM countries, for instance, drags on the US economy from expected softer consumer spending growth due to the payroll tax hike, rising gasoline prices in February, and a further reduction in government spending. Recent weaker data from the Euro area and increased uncertainty surrounding the sovereign debt crisis are also expected to weigh on the Euro area economy and thus its demand from the rest of the world.
Hong Kong: merchandise trade

%3m/3m, saar 80 60 40 20 0 -20 -40 -60 04 05 06 07 08 09 10 11 12 13
Source: Hong Kong C&SD, J.P.Morgan
Imports
Exports
Taiwan: IP and exports

%3m/3m, saar 60 40 20 0 -20 -40 2010
Source: Taiwan MOEA, J.P. Morgan
Export volume (adjusted by export prices) IP
2011
2012
2013
caused by a seasonal effect (the Lunar New Year holidays fell in February this year, compared to January last year), our seasonal adjustment process shows that IP fell 3.0%m/m sa in February, after a 3.8%m/m sa rise in January. Combining the first two months, Jan-Feb IP rose a modest 3.24%oya. In seasonally adjusted sequential terms, average Jan-Feb IP was 0.5% below the 4Q12 monthly average level. Overall, aside from the seasonal volatility around the Lunar New Year holidays, it appears that Taiwans export and industrial sectors growth momentum may be easing somewhat early in the year, following the notable gain during 4Q12. In the breakdown, tech production led the easing in headline IP in February. IP for information and electronics fell 5.1%m/m sa in February (vs. +3.0%m/m sa in January). Meanwhile, non-tech IP also eased in February, falling 2.5%m/m sa (vs. +4.8%m/m sa in January). IP for metal and machinery fell 3.5%m/m sa in February (vs. +6.2%m/m sa in January). IP for chemical industry fell 2.5%m/m sa in February (vs. +1.9%m/m sa in January). Meanwhile, IP for the generally volatile construction sector rose 6.7%m/m sa in February (vs. +23.1%m/m sa in January).
Taiwan: IP fell on seasonal effect

Taiwans February IP was modestly lower than expected, falling 11.45%oya, compared to the downwardly revised 19.05%oya growth in January (from 19.17%oya previously). While the decline in the %oya growth rate in February was
66
Inventory flat in January

The latest data showed that the Taiwanese manufacturing sectors total inventory level was essentially unchanged in January, after rising 1.2%m/m sa in December. Looking at the major categories, tech sector inventories rose 1.5%m/m sa in January, following a 2.5%m/m sa fall in December. On the other hand, non-tech inventories edged down 0.2%m/m sa in January, after a 2.0%m/m sa rise in December. With a notable gain in shipments (up 7.0%m/m sa), the overall manufacturing inventory to shipments ratio fell moderately in January.
Taiwan: benchmark policy rate and market interest

% per annum 4 3 2 1 0 05
Source: CBC.
10Y government bond yield
Central bank rediscount rate
Bank lending rate for new loans
Overnight interbank call loan rate 06 07 08 09 10 11 12 13 14
Better demand outlook by midyear

Looking ahead, on the external environment our global team sees some slight upside risk to the call for a modest deceleration in the US in 2Q13, while on the other hand the Euro area growth picture has continued to disappoint, leading to the recent downgrade of J.P. Morgan forecasts for the Euro area economy for the rest of the year. China appears to be on track for a continued recovery this year. Overall, we continue to anticipate a move to above-trend global GDP growth after midyear, providing support for Taiwans export and industrial sectors down the road. Against this global backdrop, we expect the Taiwanese economy, including the export and manufacturing sectors, to show a steady recovery in the coming quarters. Our real GDP growth forecast for full-year 2013 stands at 4.2%oya.
On the inflation front, the central bank stated that the modest recovery of the global economy, together with the stabilization of international raw material prices has helped alleviate global inflation pressure. Last years domestic oil and electricity price hikes, as well as the weather-related spike in food prices provided a favorable base effect for headline inflation in 2013. For full-year 2013, CPI inflation is expected to average at 1.37%oya, compared to 1.93%oya for 2012. Overall, the statement highlighted that given the overall growth-inflation dynamic (the external environment still carries uncertainties, the domestic economy has been on track for a modest recovery, and inflation pressure is easing), the central bank decided to keep the policy rate unchanged in this weeks quarterly meeting. We expect the central bank will keep its policy rates on hold for most of this year. The central bank statement also highlighted that bank lending for property purchases in certain areas where prices have risen significantly have been warned to exercise caution and enhance their risk management. Recall the central bank imposed selective controls on the luxury housing segment in June 2012, in response to rising concerns on elevated property prices in certain areas. The last round of prudential measures has brought down the average LTV ratio in the targeted areas to 57% and led the average mortgage rate upward to above 2%. Meanwhile, the central bank reiterated that when irregular factors (such as massive inflows or outflows of short-term capital) or seasonal factors lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, it will step in to maintain an orderly market.
Central bank kept policy rate on hold

The Taiwan central bank left its policy rate unchanged at the March quarterly monetary policy meeting. Recall that the Taiwan central bank had implemented five consecutive 12.5bp hikes in the key policy rate from June 2010 through June 2011; after that the key rates were held unchanged during the last seven quarterly policy meetings. With this weeks policy decision, the discount rate, the key policy rate in Taiwan, remains at 1.875%. More details from the central bank statement include: On the external environment, the central bank recognized that monetary stances remained accommodative in major economies entering into this year, and the global economy has been slowly recovering. Recent events in the Euro area together with US fiscal drag still pose uncertainties for global economic growth. For the domestic economy, the central bank expects exports and private investment to recover and drive growth. For full-year 2013, the economy is expected to grow 3.59%oya, compared to 1.26% in 2012.
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Economic Research Greater China March 28, 2013
China: Data releases and forecasts

Week of April 1 5
Mon Apr 1 9:00am
Taiwan: Data releases and forecasts

Week of April 1 5
Mon Apr 1 10:00am
Purchasing managers index

Index Dec Overall (Markit) Output Overall (NBS) Output 51.5 51.9 50.6 52.0 Jan 52.3 53.1 50.4 51.3 Feb 50.4 50.8 50.1 51.2 Mar 51.8 __ 51.5 __
Markit manufacturing PMI

Index, sa Dec Overall Output 50.6 50.4 Jan 51.5 53.3 Feb 50.2 50.2 Mar 50.6 __
Review of past weeks data Review of past weeks data

No data released.
Sources: China National Bureau of Statistics, Markit, J.P. Morgan.
Industrial production (Mar 25)

% change Dec %oya %m/m sa 2.0 -3.6 2.0 -3.6 Jan 19.0 3.8 19.0 3.8 Feb -10.8 -3.0 -11.4 -3.0
Hong Kong: Data releases and forecasts

Week of April 1 5
Tue Apr 2 4:30pm
Composite leading indicator (Mar 27)

% change Dec %m/m sa 1.1 1.2 Jan 1.1 1.3 Feb __ 1.1
Retail sales volume

% change Nov %oya %m/m sa 8.1 4.6 Dec 8.5 1.7 Jan 10.4 0.5 Feb 14.7 3.5 %p.a.
Central bank MPC meeting (Mar 28)

3Q12 Rediscount rate 1.9 1.9 4Q12 1.9 1.9 1Q13 1.9 1.9

Merchandise trade (Mar 26)
HK$ bn Dec Balance Exports %oya Imports %oya -48.0 311.0 14.4 358.9 11.9 -48.0 311.0 14.4 358.9 11.9 Jan -27.5 304.8 17.6 332.3 23.9 -27.5 304.8 17.6 332.3 23.9 Feb -29.4 252.1 -2.9 281.5 -7.9 -34.0 215.7 -16.9 249.7 -18.3
Sources: Taiwan Ministry of Economic Affairs, CBC, J.P. Morgan.
Sources: Hong Kong Census and Statistics Department, J.P. Morgan.
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JPMorgan Chase Bank, N.A., Seoul Branch Min Joo Kang (822) 758-5512 minjoo.kang@jpmorgan.com Jiwon Lim (82-2) 758-5509 jiwon.c.lim@jpmorgan.com
Korea
Second estimate of 4Q real GDP growth trimmed Forward-looking survey indicators firmed modestly Next week: March trade and CPI The Ministry of Strategy and Finance (MoSF) lowered its official forecast of 2013 GDP to 2.3%y/y from 3.0% previously (first table). The government commented that the new forecast assumes a status quo for overall economic policies, implicitly pressuring other government entities and the Bank of Korea to join its effort to boost the economy. J.P. Morgan has long expected that economic policies would turn supportive, with the current growth forecast assuming a Won7 trillion supplementary budget, a modest pace of deregulation for housing transactions, and in a close call, one more policy rate cut and/or an adjustment of the aggregate loan ceiling by the BoK (see Global Data Watch, March 22). Based on the comments by various policymakers, the extra budget would be larger than our expectations, but the extent of housing deregulation could be more modest. Meanwhile, the BoK trimmed 4Q GDP slightly in its second estimate, while upgrading 1H GDP. In the new estimate, the BoK left full-year 2012 real GDP growth unchanged at 2.0%y/y but kept the quarterly profile that showed the pace of growth reaccelerating modestly in 4Q, after having slowed for two quarters. By industry, manufacturing output was revised up to rise 0.8%q/q saar in 4Q12, instead of the 0.1% decline in the advance report, while services and construction were revised down. Revisions to expenditure details were generally constructive: both investment and exports were estimated to decline less than in the advance release, while the consumption and inventory gains were trimmed. We will review our GDP forecast after the February IP and March trade reports and more clarification of government policies next week.
Forecast of key macro indicators

%y/y, unless otherwise noted MoSF new Real GDP Consumer prices Current account (US$ bn)
Source: MoSF, BoK, J.P. Morgan
BoK 2.8 2.5 32.0
JPM 2.8 2.1 36.6
Consensus 3.0 2.5 32.8
old 3.0 2.7 30.0
2.3 2.3 29.0
Real GDP
% change at annual rate 2011 %q/q, saar Real GDP Private consumption Fixed investment Construction Facilities, equipment Intangible assets Export of goods and services Import of goods and services %oya Real GDP Private consumption Fixed investment Construction Facilities, equipment Intangible assets Export of goods and services Import of goods and services 3.7 2.4 -1.0 -4.7 3.6 7.4 9.1 6.1 2.0 1.7 -1.7 -2.2 -1.9 4.1 4.2 2.5 2.8 1.3 3.7 -0.4 8.8 9.4 5.7 4.7 2.4 1.0 -2.6 -3.1 -3.5 6.8 3.5 0.5 1.6 1.7 -2.5 -0.3 -6.9 4.2 3.2 1.4 1.5 2.7 -4.2 -4.2 -5.2 -1.2 4.4 3.5 3.3 3.2 12.8 -5.9 48.4 17.4 16.7 18.4 1.2 1.5 -14.2 -5.3 -27.8 -4.5 -1.4 -6.9 0.2 3.0 -5.9 2.7 -19.1 -2.6 7.9 7.5 1.1 3.1 -6.1 -4.6 -6.9 -14.4 -4.2 -3.0 2012 1Q 2Q 2012 3Q 4Q
Source: BoK; Data series are based on the final revision
Next week: March customs trade and consumer prices

Next weeks releases of March trade and consumer prices will be important for anticipating the Bank of Koreas policy rate decision in April. Given the usual volatility of 1Q data due to lunar holiday noise, we expect some rebound in March, but based on the first-20-day outcome, it should only partially reverse the decline in February. As the February outcome was deflated by unfavorable calendar effects, the over-year-ago growth comparison should have improved sharply in March. Meanwhile, consumer price inflation is expected to rise slightly. Key industrial products and oil prices are expected to increase due to KRW depreciation and higher global oil prices, but these should be partially offset by price declines due to government subsidies on childcare facilities and school lunch programs.
69
Forward-looking indicators improved

Consumer sentiment improved in March with firm details and the headline index marking its highest level since last May. Consumers appeared to have regained confidence with improved global conditions, in addition to optimism from the new governments pledge to support economic growth and boost the real estate market. Consumer spending plans rose on better expectations for household income and real estate prices. Meanwhile, business sentiment also improved modestly further if controlling for seasonal effect. The sentiment gains were more concentrated in the outlook components, but the current conditions assessment also edged upward. Positive news on the global economy and renewed KRW weakness boosted the outlook for exports and profits notably.
JPMorgan Chase Bank, N.A., Seoul Branch Min Joo Kang (822) 758-5512 minjoo.kang@jpmorgan.com Jiwon Lim (82-2) 758-5509 jiwon.c.lim@jpmorgan.com
Economic Research Korea March 28, 2013

March 29: Data had not been released at time of publication
Fri Mar 29 8:00am
Mon Apr 1 9:00am
Purchasing Managers Index

Index, sa Dec PMI - Manufacturing 50.1 Jan 49.9 Feb 50.9 Mar 51.1
% change Nov %oya %m/m sa 2.1 2.1 Dec -0.5 1.6 Jan 7.3 -1.5 Feb -6.5 0.5 Mon Apr 1 9:00am
Customs trade
US$ bn nsa Dec Trade balance Exports Imports 1.2 46.3 45.1 Jan 0.5 45.7 45.2 Feb 2.0 42.3 40.3 Mar 2.6 49.5 46.9
IP is forecast to have rebounded in February, but only modestly, with producers inventory to shipments ratio having risen to a four-year high in January. However, due to unfavorable base and calendar effects, the over-year-ago comparison likely dipped into a negative territory.
Fri Mar 29 8:00am
See main story.
Producer shipments and inventories

%oya Nov Shipments Inventories 1.2 2.1 Dec -1.5 3.4 Jan 4.4 7.1 Feb -4.0 7.0

Real GDP2nd estimate (Mar 26)
% change 3Q12 %q/q %oya 0.1 1.5 0.0 1.6 4Q12 0.4 1.5 0.4 1.5 2nd-4Q 0.4 1.5 0.3 1.5
On a month-on-month basis, producers shipments likely rebounded, accompanied by a reduction in inventory.

Fri Mar 29 8:00am
Composite leading indicator

2005=100, sa Nov Index 109.1 Dec 109.9 Jan 110.1 Feb 110.0
According to the updated series, real GDP grew 3.7%y/y (revised up from 3.6%) in 2011 and 2.0% in 2012. On a quarterly basis, real GDP growth in 4Q12 was revised down modestly to 1.1% q/q saar from 1.5%. Consumer survey (Mar 27)
100=neutral reading, nsa Jan Index 102.0 102.0 Feb 102.0 102.0 Mar 102.5 104.0
Fri Mar 29 8:00am
Service activity
% change Nov %oya 1.4 Dec 0.7 Jan 1.7 Feb -0.3
Current account (Mar 28)

US$ bn nsa Dec Balance 2.1 2.1 Jan 2.3 2.3 Feb 1.8 2.7
Service activity likely rose modestly in February, but the over-year-ago comparison probably slowed due to an unfavorable calendar effect.
Fri Mar 29 8:00am
Consumption goods sales

% change Nov %oya 4.0 Dec 2.0 Jan -2.8 Feb 4.4
Reflecting outsize seasonal effects, the seasonally adjusted current account surplus narrowed sharply from US$6.7 billion in January to US$4.4 billion in February. FKI business survey (Mar 28)
Index, sa Jan 1-month outlook Current conditions 93.7 89.2 94.0 89.3 Feb 96.1 88.8 96.6 90.2 Mar 99.0 91.0 100.9 92.7
Consumption good sales are likely to have rebounded in February, after the previous months decline. This monthly volatility has been caused mostly by the different timing of the Lunar New Year holidays in 2012 and 2013. Week of April 1 - 5
Mon Apr 1 8:00am
Consumer prices
% change Dec %oya %m/m sa 1.4 0.1 Jan 1.5 0.0 Feb 1.4 0.0 Mar 1.6 0.1
Business sentiment improved modestly further in February after controlling for seasonal effects. The gain in sentiment was concentrated in the outlook components while the current conditions assessment improved but from a low level.
Source: BoK, NSO, FKI, Markit, and J.P. Morgan
See main story.
70
JPMorgan Chase Bank, N.A., Singapore Branch Sin Beng Ong (65) 6882-1623 sinbeng.ong@jpmorgan.com
ASEAN
Malaysias January trade balance narrows further on imports Current account surplus expected to print 4.5% of GDP in 2013 down from 6.6% in 2012 Domestic indicators remain firm, some modest slowing expected in 1Q13 before recovering solidly in 2H13 The recent data flow from Malaysia suggests that growth continues to be underpinned by domestic demand even as exports have been somewhat lackluster. Although the GDP forecast assumes some deceleration in 1Q13 on the heels of electionrelated uncertainty, the 2H13 forecast assumes a solid recovery to 5.0%-5.5%q/q saar and reflects the uninterrupted implementation of investment projects once the general elections are over in 2Q13. This forecast is also reflected in the further narrowing of the current account surplus to 4.5% of GDP this year, while the central bank in its recent annual report expects a surplus of 4.4%. In the interim, the high frequency data are expected to become choppy ahead of elections though the underlying momentum remains firm despite the headline uncertainty. This momentum is underpinned by several factors. First, domestic labor markets have been surprisingly strong driven by hiring in the services sector that has led to a sustained period of low unemployment. If the forecast is correct and the investment momentum continues after the elections, employment gains should be sustained in 2H13. In addition, domestic bank credit conditions remain supportive with average bank lending rates drifting lower due in part to firm competition even in spite of the normalization in policy rates the past couple years. Despite firm credit and labor markets, inflation has been benign, though the expected liberalization of subsidized prices during 2013 should lift inflation to 2%-3%oya. The forecast of strong domestic demand conditions in 2H13 twinned with a further rise in domestic incomes and credit could lead to reassessment of monetary conditions in 3Q13.
Malaysia: trade
US$ bn, 2mma, sa, both scales 22 20 18 16 14 12 10 8 05 US$ bn, sa 6 Others 07 09 11 13 Balance Exports Imports 5 4 3 2 1 0
Malaysia: intermediate goods imports
4 Parts 2 Fuel and lubricants 05 %oya, LC terms 40 30 20 10 0 -10 -20 05 % GDP, nsa 14 12 10 8 6 4 2 05 06 07 08 09 10 11 12 13
Source for all charts this page: DoS, BNM, and J.P. Morgan
0 07 09 11
13
Malaysia: fixed investment and capital goods imports
Real fixed investment
Capital goods imports, nominal terms
07
09
11
13 US$ bn, nsa 25
Malaysia: current account
Trade surplus narrows further

One of the recent features in the macro data in Malaysia has been the narrowing in the trade surplus, reflecting strong imports for domestic demand. The trade balance in January printed a small surplus of US$1.1 billion sathe narrowest since the Asian crisis of the late 1990s (first chart). The deterioration owed to weaker exports and stronger imports, especially of intermediate goods, which rose a firm 6.8%m/m sa. In the past, strength in intermediate imports would generally be a positive signal for electronics exports, especially given the high import content in Malaysias electronics exports. However, the recent lift in intermediates owed to stronger
% GDP Level 20 15 10 5 0
71
JPMorgan Chase Bank, N.A., Singapore Branch Sin Beng Ong (65) 6882-1623 sinbeng.ong@jpmorgan.com
Economic Research ASEAN March 28, 2013
imports of fuel and lubricants and industrial inputs rather than parts for the electronics sector (second chart previous page). Indeed, imports of parts continued to soften, suggesting that the outlook for electronics exports remains unclear in the near term. The other component of imports that is expected to ease in the near term is investment goods, reflecting some of the likely lull in domestic demand in 1Q13 ahead of elections. This component also provides a useful bellwether of the domestic investment cycle, and the expectation is that there should be a strong sequential recovery in late 2Q13 and into 2H13 following the elections (third chart previous page). The combination of strong domestic demand and modest exports is expected to narrow the current account surplus further in 2013, with J.P. Morgan expecting a 4.5% of GDP surplus while the central banks forecast is marginally narrower at 4.4% (fourth chart previous page).
Malaysia: labor market conditions

% labor force, 3qma, nsa 3.9 Unemployment rate '000s, chg over year ago, 2qma 800 600 400 3.3 Employment 05 06 07 08 09 10 11 12 13 200 0
3.6
3.0
Malaysia: employment by sector

'000s, change from over year ago 600 400 Non-manufacturing
Labor market conditions have been firm

Aside from the external balances, the recent strength of domestic demand has also been reflected in the labor markets, with the unemployment rate declining amid very strong employment gains (first chart). In particular, the gains in employment have been strongest in the service-producing sectors, which contrasts with the recent softness in manufacturing employment (second chart). This also implies that the traditional linkages between domestic and external demand have loosened in the face of the strong domestic investment upturn. Although unemployment has been drifting lower, the link between the tightening in labor markets has not yet showed up in inflation, which has been trending lower in the past year due in large part to easing food and energy prices and strong domestic competition that has helped mitigate the impact of higher input costs (third chart). In addition, following the increase in minimum wages this year, there could be some upward pressure on wages, though firms are expected to respond by cutting costs and compressing margins rather than raising prices.
200 0 -200 05 %oya 10 Headline CPI 5 06 07 08 09 10 11 Manufacturing 12 13
Malaysia: CPI and bank credit

% GDP, sa 130 120 110 100 90 -5 05 07 09 11 Bank credit 13 80
Malaysia: interest rates

%p.a., eop, both scales 7.0 6.0 5.0 4.0 3.0 2.0 1.0 05 Policy rate 07 Average lending rate 09 11 13 2.5 Average lending rate less policy rate 3.5
Bank credit remains on uptrend as lending rates drift lower

Although inflation has been easing, bank credit has continued to rise, reaching 117.7% of GDP in 4Q12 and suggesting that the credit cycle remains firm. Part of this demand also likely owes to the decline in average bank lending rates, which reached 4.7% in January, lower even than the trough of 4.83% at the peak of the easing cycle. This suggests that the transmission from the policy rate to lending rates has loosened and argues for less accommodation (fourth chart).
1.5
Source for all charts this page: DoS, BNM, and J.P. Morgan
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JPMorgan Chase Bank, N.A., Singapore Branch Benjamin Shatil (65) 6882-2311 benjamin.shatil@jpmorgan.com
ASEAN
Indonesia: Data releases and forecasts
Week of April 1 - 5
Mon Apr 1 11:00am
Consumer prices
% change Dec 4.3 0.3 5.7 3.9 Jan 4.6 0.6 7.3 3.7 Feb 5.3 1.0 10.3 3.8 Mar 5.2 0.6 ___ ___ %oya %m/m sa Food, %oya Nonfood, %oya
Import weakness was broad-based with both electronics and nonelectronics falling at double-digit paces. Exports, which were reported on Mar 12, fell more modestly, leaving the trade deficit at US$0.7 billion versus $1.3 billion (nsa) in December. In the details, electronics imports fell 12.6%m/m sa and were down 35.8%3m/3m saar while nonelectronics fell 13.7%m/m sa but were still up 4.2%3m/3m saar. In both cases, the sharp pullback is likely only temporary, especially given the seasonality common around this time of year. Government budget
PHP bn Nov -11.6 155.3 166.9 Dec -115.7 126.4 242.1 Jan -22.7 158.6 174.1 -19.5 138.4 158.0 Balance Revenue Expenditure
Mon Apr 1 11:00am
Merchandise trade
US$ bn, nsa Nov -0.6 -5.3 10.0 Dec -0.2 -9.9 -5.4 Jan -0.2 -1.2 6.8 Feb ___ ___ ___ Trade balance Exports, %oya Imports, %oya
In the details, revenues rose 1.5%m/m sa and 9.5%oya while expenditures crashed, down 26.5%m/m sa and up only 11.0%oya. The sharp decline in expenditure is not surprising as the government ramped up spending as usual in November and December. Indeed, expenditures were still up 92.6%3m/3m saar in January despite the large monthly decline.

No data released.
Malaysia: Data releases and forecasts

Week of April 1 - 5
Fri Apr 5 12:00pm
Singapore: Data releases and forecasts

Week of April 1 - 5
Mon Apr 3 9:30pm Dec 2.7 18.7 -2.4 16.0 -3.2 Jan 1.1 18.7 6.0 17.7 18.8 Feb 1.2 16.5 -12.2 15.4 0.4
Purchasing managers index

Index Dec PMI PMIelectronics 48.6 46.6 Jan 50.2 49.9 Feb 49.4 52.1 Mar 50.5 52.5
Merchandise trade
US$ bn, nsa Nov Trade balance Exports %oya Imports %oya 2.9 19.0 5.4 16.1 7.5

Consumer prices (Mar 25)
% change All items, %oya %m/m sa Dec 4.3 0.8 Jan 3.6 0.1 Feb 4.6 0.8 4.9 1.1

No data releases.
Philippines: Data releases and forecasts

Week of April 1 - 5
Fri Apr 5 9:00am
Consumer prices
% change Nov 2.9 0.1 Dec 3.0 0.3 Jan 3.4 0.2 Feb 3.4 0.2
All items, %oya %m/m sa

Merchandise trade (Mar 26)
US$ bn nsa Nov 5.1 2.2 Dec 5.2 13.2 5.3 14.4 Jan 5.6 8.7 4.7 -8.0 Imports %oya
The jump in CPI inflation was in large part due to COE prices, which hit a record high in January (the CPI computes COE prices with a one-month lag). However, partly due to tighter auto-related financing rules by the government and partly because of base effects, the contribution to CPI inflation from COE prices will now start to decline. This effect, along with slower rises in housing prices, should lead to a sharp slowdown in CPI inflation over the next three months. But the jump in CPI inflation was also partly a result of higher core inflation, a trend that is expected to persist. Core inflation and the labor market have a strong link and the unemployment rate is currently at a cycle low of 1.9% sa. Tight labor market conditions combined with strict immigration and a worsening in the inflation-unemployment trade-off suggest that core inflation will continue to firm further, particularly in the second half of the year. As a result, we expect CPI and core inflation trends to diverge this year. While CPI inflation should slow to around 3%oya, core inflation should gradually firm to 2.5%oya, with much of the firming occurring in 2H (there could even be some
Sources: Central Bureau of Statistics, Indonesia; Department of Statistics, Malaysia; National Statistical Coordination Board, Philippines; National Statistics Office, Philippines; Singapore Department of Statistics; J.P. Morgan
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Economic Research ASEAN March 28, 2013
softness in coming months). Since the MAS NEER has no impact on COE and housing prices, and since the MAS looks 6-18 months in the future when setting policy, we expect the central bank to fade the COE and housing price-led slowdown in CPI inflation and instead focus on the risks to core inflation. Thus, we look for the MAS to stay on hold in April, with risks of a move tilted to the upside rather than to the downside. Industrial production (Mar 26)
% change Dec 1.3 6.6 Jan -0.4 -9.2 Feb -6.5 1.9 -0.7 %oya %m/m sa
Private consumption index (Mar 29)

% change Dec 3.5 -1.7 Jan 6.8 2.0 Feb 5.0 1.0 %oya %m/m sa % change
Private investment index (Mar 29)

Dec 29.0 -0.5 Jan 22.0 0.6 Feb 13.2 0.5 %oya %m/m sa
Data not released by time of publication.
In the details, electronics fell 2.2%m/m sa but were still up 2.4%3m/3m saar versus -7.8% in January. Though modest, the 2.4% rise was the first gain in sequential trend electronics output since last April, and we expect it to firm further in coming months. Biomedical and transport engineering output were also soft, with the former falling 0.5%m/m sa and the latter declining 11.8%. Both of these declines come on the back of weak monthly prints in January. Thus the sequential trend rates moderated notably. Otherwise, chemicals, precision engineering, and general manufacturing all rose 5.5%m/m sa, 9.0%, and 6.3%, respectively. Biomedical and transport engineering output tend to be volatile. After two months of consecutive decline in each industry, we expect some strong payback in coming months.
Vietnam: Data releases and forecasts

Week of April 1 - 5 No data releases.

Consumer prices
% change Jan 7.1 0.5 Feb 7.0 0.5 Mar 6.7 0.0 6.6 All items, %oya %m/m sa
Thailand: Data releases and forecasts

Week of April 1 - 5
Mon Apr 1 11:00am
Consumer prices
% change %oya %m/m sa Dec 3.6 0.7 Jan 3.4 0.0 Feb 3.2 0.1 Mar 3.1 0.2
Wed Apr 3 2:30pm
BoT monetary policy meeting

% p.a. Nov 2.75 Jan 2.75 Feb 2.75 Mar 2.75 One-day repo rate
The sequential trend rate eased for a fourth straight month to 5.5%3m/3m saar from 7.2% in February and from a recent peak of 15.3% in November. Core prices (ex. food and transport) were also flat on the month, and the annualized rate eased for a second straight month to 9.3%3m/3m saar from 11.6% in January and from 23.2% in November. Core prices were up 11.3%oya. We had expected a soft inflation print given the usual post-Tet New Year trends, and the March report did not surprise in any major way. Monthly price pressures were soft across the board with healthcare and education up the most at 0.6%m/m sa and 0.7%, respectively. Pressures in all other parts of the CPI were benign. Merchandise trade
US$ bn nsa Jan 0.8 43.2 24.8 Feb 0.9 -9.6 -23.1 -0.1 -13.9 -15.6 Mar 0.4 17.9 18.8 -0.3 16.0 24.8 Trade balance Exports, %oya Imports, %oya
Review of past week's data

Manufacturing production (Mar 28)
% p.a. Dec 23.0 -4.5 Jan 10.1 -0.6 10.2 -0.8 Feb 5.4 2.0 -1.2 -1.4 %oya %m/m sa
The small March trade deficit left the year-to-date trade balance in surplus of $481 million, which is the strongest start to any year in recent history except for 2009, when the 1Q trade balance was temporarily buoyed by gold re-exports. Real GDP
% change 3Q12 5.2 9.6 4Q12 5.8 8.3 7.2 1Q13 6.0 -3.9 4.9 -4.6 %oya %q/q saar
Soft electronics led the slowing in output. Overall, electronics were down 2.9%m/m sa, reflecting a 1.5% contraction in hard disk output and a 14.8% plunge in semiconductor production. Auto production was also soft in February, contracting 5.8%m/m. Merchandise trade (Mar 29)
US$ bn, nsa Dec 0.3 13.6 1.3 Jan -2.8 15.5 38.3 Feb 1.8 4.2 6.3 Trade balance Exports, %oya Imports, %oya
Industry and construction accounted for most of the slowdown in growth. We look for another year of subpar growth in Vietnam of 5.2% in 2013.
Sources: Singapore Department of Statistics; Singapore Economic Development Board; Bank of Thailand; Office of Industrial Economics, Thailand; General Statistics Office, Vietnam; J.P. Morgan
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J.P. Morgan India Private Limited Sajjid Z Chinoy (91-22) 6157-3386 sajjid.z.chinoy@jpmorgan.com J.P. Morgan Securities LLC Jahangir Aziz (1-202) 585-1254 jahangir.x.aziz@jpmorgan.com
India
4Q CAD prints at an unprecedented 6.7% of GDP on weak exports and surging gold imports Government rationalizes FII limits in rupeedenominated bonds to boost capital inflows Political uncertainty remains elevated as another regional party voices discomfort with ruling coalition As we had expected, Indias 4Q12 CAD surged to 6.7% of GDP (J.P. Morgan forecast: 6.8%) on weak exports and a sharp rise in gold imports. Recognizing that the current account deficit is likely to remain elevated over the foreseeable future, the government moved to rationalize foreign institutional investor (FII) limits in rupee-denominated government and corporate bonds this week. Specifically, all sub-limits were eliminated and authorities indicated that limits would be reviewed and increased periodically. But perhaps the most important news of the week is that political uncertainty ratcheted up another notch in India. After a key ally had withdrawn support to the government last week, another ally (supporting the coalition from the outside) indicated its discomfort with the government this week. While this is unlikely to result in an election immediately, it distinctly increases the possibility of an election at the end of 2013, and makes it harder for the government to push ahead with politically sensitive economic reform in the coming months.
India: current account balance prints at a record deficit in 4Q12

% of GDP 0 -2 -4 -6 -8
2009
2010
2011
2012
Source: RBI
India: though the February trade deficit narrowed

US$ bn 0 -5 -10 -15 -20 -25 2011 2012
Source: Ministry of Trade and Commerce
4Q12 CAD surges to a record 6.7% of GDP

Indias 4Q12 CAD surged to 6.7% of GDP, rising sharply from the 5.3% of GDP printed in the previous quarter as we had suspected. This was largely due to a sharp decline in the trade deficit from US$48.3 billion (11.5% of GDP) in 3Q to $59.6 billion (12.3% of GDP) in 4Q. While exports just about held up thanks to refined oil exports, imports rose over $13 billion, half of which was due to gold demand. Gold imports increased to a record quarterly high of $17.8 billion. Services surplus remained broadly unchanged at around $27 billion.
Portfolio inflows rose modestly to $8.8 billion and as has been the case for some time, India continued to depend strongly on external borrowing to finance its current account deficit. Loans (both short- and long-term) rose around $5 billion from the previous quarter to $10.6 billion. Indeed, so far this fiscal year (year beginning April), of the $71 billion of net capital inflows, FDI and equity has accounted for only $30 billion. As the data release came after closing, market impact of this outsized CAD print has not yet hit the rupee. While an increase in the deficit was widely anticipated, the extent was underestimated by the market. Surprisingly, the rupee has held firm despite the general EM asset weakness in recent weeks arising from the Cyprus crisis. Much of this underscores a significant improvement in the trade balance this quarter. And so it is possible that the market sees past the 4Q12 print, giving the rupee some respite.
Unspecified capital saves the day

Despite the record high CAD, the balance of payments (BoP) managed to deliver a small surplus of US$0.8 billion. The entire improvement was on account of an $11.6 billion turnaround in other capital and errors and omissions. These flows had been consistently negative in the previous three quarters, but turned sharply positive ($6.1 billion), perhaps lured by the rupee appreciation after the reform blitz in September. Net FDI declined to US$2.5 billion from nearly $9 billion in 3Q as inward investments slowed and outward flows increased.
FII limits rationalized

Recognizing that the current account deficit is likely to stay at elevated levels over the foreseeable future, the government has tried to find ways to boost capital inflows over the last several months. First came reforms to attract FDI into the multi-brand retail and aviation sectors, and authorities are
75
J.P. Morgan India Private Limited Sajjid Z Chinoy (91-22) 6157-3386 sajjid.z.chinoy@jpmorgan.com J.P. Morgan Securities LLC Jahangir Aziz (1-202) 585-1254 jahangir.x.aziz@jpmorgan.com
Economic Research India March 28, 2013
toying with increasing FDI limits in several other sectors. In addition, external commercial borrowing (ECB) for Indian corporates has been eased over the last few years, but this still forces Indian borrowers to bear the FX risk. In light of this, the government moved this week to rationalize foreign institutional investor (FII) limits in rupeedenominated government and corporate bonds. Heretofore, there had been myriad sub-limits with restrictions on tenor, sector, and type of investor that had increased transaction costs for investors and discouraged foreign investment. But this week the government eliminated all the sub-limits such that there are only two buckets of bondsUS$25 billion for government bonds and US$51 billion for corporate bonds. Interest in corporate bonds should increase, because until now about half the limit was reserved for the infrastructure sector, which had seen little interest. Authorities also indicated that the corporate bond limit would be reviewed/increased when utilization hits 80%. There was less to cheer about for government bonds. Authorities indicated that these limits would periodically be increased, but would not surpass 5% of the governments gross borrowing limit. However, more aggressive increases in government bond limits cannot be ruled out if the BoP comes under pressure in the coming months and quarters.
Political uncertainty remains elevated

As we had reported last week, political uncertainty returned to India with one of the leading allies in the ruling coalitionthe DMKpulling out. The DMK was unhappy that the government had not been more receptive of its demand to support a United Nations Human Rights Commission (UNHRC) that condemned alleged human rights violations against one of Indias neighbors. As a consequence, it withdrew from the ruling UPA coalition and would not even offer outside support. This left the UPA even more in a minority with the coalition having 232 MPswell short of the halfway mark of 272and made it more dependent on outside support to survive. Remember that since September the UPA has been technically in a minority, but received outside support from various regional parties, taking its effective governing majority close to 300. This week one of those regional parties supporting the government (SP) indicated that it might consider withdrawing support in the coming months. As such, the government was forced to scramble and offer olive branches to other regional parties for their external support in exchange. These developments have heightened political uncertainty in India. How serious are these developments? Concerns that the government is likely to fall still appear overstated since several other parties are not in favor of an immediate election. However, recent developments will undoubtedly have implications for the governments ability to push through politically sensitive reforms in the coming months. This is because it is more dependent on regional parties, some of which are opposed to some potential upcoming FDI reforms as well as sustained increases in fuel prices. Furthermore, a general election toward the end of 2013 now appears a distinct possibility.
All eyes on March PMI

The volatile year-on-year IP growth in recent months has masked the fact that industrial growth likely bottomed in the third quarter of 2012 and has been modestly accelerating since. This was presaged by solid manufacturing PMIs in 4Q12. However, the PMI unexpectedly collapsed in January with a sharp moderation in both output and new orders. February saw a symmetrically opposite outcome, with the headline bouncing back sharply underpinned by a large pickup in output. New orders were more mixed with domestic orders rising but new export orders falling off. Given this history, all eyes are on the March PMI to ascertain whether January was the aberration or whether it was February, and whether the industrial acceleration is on track or has stumbled in 1Q13. The details, too, will also be the focus of much interest. New export orders have been choppy in recent months, and markets will be keen to see whether there is any pickup on that front, especially given the sobering 4Q12 CAD was driven by tepid export growth. Equally, there will be interest on the evolution of the price indices. Core WPI momentum has collapsed in recent months and with manufacturing output prices being a good leading indicator of core inflation, all eyes will be on whether the momentum remains muted or has begun to rise.

Weeks of April 1 5
Mon Apr 1 10:30am
Manufacturing PMI survey

Index, sa Index Dec 54.7 Jan 53.2 Feb 54.2 Mar ___

Balance of payments (Mar 28)
US$ bn, nsa 2Q12 Current account Merchandise exports Merchandise imports Capital account Overall Source: RBI -16.6 76.7 119.0 16.1 0.5 3Q12 -22.4 69.8 118.2 23.9 -0.2 4Q12 -32.6 71.8 131.4 31.8 0.8
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Asia focus: terms of trade

Moves in commodity prices have a varied impact on the regions terms of trade. While the ASEAN commodity exportersIndonesia and Malaysia in particularhave benefited from rising commodity prices, North Asian importers of fuel and other raw materials have seen a prolonged deterioration in their terms of trade (first two charts and table). In addition to this commodity price impact, there has also been increasing variation in the prices of North and Southeast Asian manufactured goods exports. While export prices of Korean goods have softened, prices of Malaysian and Thai products have increased (third chart). With North Asian producers paying more for imported fuel and other commodities, and earning less for exports of finished manufactured goods, the implication is that profits could increasingly be squeezed at the margin. This may be one factor behind low private investment growth in North Asia relative to the rest of the region, a point we have discussed on this page over the last couple of weeks (fourth chart and see Asia focus: shifting drivers of growth, GDW, March 15, 2013).
Asia: terms of trade
2000=100. Shaded area shows ratio of export prices to import prices China Exports Imports India Exports Imports Indonesia Exports Imports Japan Exports Imports Korea Exports Imports Malaysia Exports Imports Philippines Exports Imports Singapore Exports Imports Taiwan Exports Imports Thailand Exports Imports 2005 87 102 117 105 130 124 107 139 130 83 96 115 79 93 117 102 107 105 86 83 96 87 96 111 110 132 134 97 113 116 2006 84 104 124 111 137 124 113 160 142 75 94 125 74 93 126 102 111 109 77 87 112 86 103 119 105 150 150 96 118 124 2007 81 107 131 114 158 138 116 178 153 72 95 132 72 96 134 102 117 115 75 88 117 84 104 123 102 167 164 96 125 130 2008 75 113 152 117 175 150 124 224 181 62 101 164 62 101 162 104 135 130 67 91 135 83 113 135 96 165 172 94 138 147 2009 81 111 137 132 159 121 120 193 161 74 100 135 68 84 123 99 121 122 72 88 122 83 100 121 103 138 131 97 138 142 2010 77 112 146 138 200 145 127 222 174 68 104 154 68 94 138 100 129 129 69 89 130 83 108 130 98 178 181 98 151 154 2011 73 119 164 136 239 176 134 271 202 60 112 186 63 101 160 101 144 143 65 97 149 81 120 148 95 186 189 94 160 170 Chg. -5.6 6.4 12.7 -1.9 19.0 21.3 5.5 22.3 15.9 -11.3 7.3 21.0 -7.1 7.3 15.5 0.6 12.1 11.4 -5.7 8.5 15.0 -2.3 11.0 13.6 -3.1 4.4 4.2 -4.2 5.6 10.2
1
Asia: terms of trade

% change, 2011 since 2010 6 3 0 -3 -6 -9 -12 ID MY IN SG TW TH CN PH KR JP
EM Asia: terms of trade

2000=100 120 100 80 60 40 Thailand Korea Malaysia
00
02
04
06
08
10
12
EM Asia: export price index for manufactured goods

2000=100 200 150 Thailand 100 50 Korea 0 00 02 04 06 08 10 12 Malaysia
J.P.Morgan commodity price index and North Asian import prices

Index, 2000=100, both scales 200 180 160 140 120 100 80 60 90 95 00 05 10 Korea and Taiwan import prices Global commodity prices 350 300 250 200 150 100 50
1. % change, 2011 since 2010. Source for table and all charts on this page: CEIC, World Bank, J.P. Morgan
77
JPMorgan Chase Bank NA, New York
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JPMorgan Chase Bank NA, New York
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79
JPMorgan Chase Bank NA Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com
US economic calendar
Monday 1 Apr
Manufacturing PMI (8:58am) Mar final 54.5 ISM manufacturing (10:00am) Mar 54.0 Construction spending (10:00am) Feb 1.0%
Tuesday 2 Apr
Factory orders (10:00am) Feb 3.4% Light vehicle sales Mar 15.3mn
Minneapolis Fed President Kocherlakota speaks in North Dakota (1:00pm) Atlanta Fed President Lockhart speaks in Alabama (1:30pm) Chicago Fed President Evans and Richmond Fed President Lacker speak in Richmond (7:30pm)
Wednesday 3 Apr
ADP employment (8:15am) Mar ISM nonmanufacturing (10:00am) Mar 55.0
San Francisco Fed President Williams speaks on monetary policy in Los Angeles, CA (3:30pm)
Thursday 4 Apr
Initial claims (8:30am) w/e Mar 30 350,000 Chain store sales Mar
Announce 3-year note $32 bn Announce 10-year note (r) $21 bn Announce 30-year bond (r) $13 bn Chicago Fed President Evans and Atlanta Fed President Lockhart speak in Ohio (8:45am) Fed Chairman Bernanke speaks via taped video in Ohio (10:30am) Kansas City Fed President George speaks on economy in Oklahoma (12:30pm) Fed Vice Chair Yellen speaks in Washington DC (5:00pm)
Friday 5 Apr
Employment (8:30am) Mar 210,000 Unemployment rate 7.8% Average weekly hours 34.5 International trade (8:30am) Feb -$45.1bn Consumer credit (3:00pm) Feb
8 Apr
Cleveland Fed President Pianalto speaks in Florida (8:30am) Fed Chairman Bernanke speaks at conference in Georgia (7:15pm)
9 Apr
NFIB survey (7:30am) Mar Wholesale trade (10:00am) Feb JOLTS (10:00am) Feb
Auction 3-year note $32 bn Richmond Fed President Lacker speaks in Richmond (9:30am) Atlanta Fed President Lockhart speaks in Georgia (1:00pm)
10 Apr
Federal budget (2:00pm) Mar
Auction 10-year note (r) $21 bn Atlanta Fed President Lockhart speaks in Georgia (8:20am) Minneapolis Fed President Kocherlakota moderates panel in Georgia (8:30am) Dallas Fed President Fisher speaks in Texas (5:00pm)
11 Apr
Initial claims (8:30am) w/e Apr 6 Import prices (8:30am) Mar
Auction 30-year bond (r) $13 bn Announce 5 year TIPS $17 bn Philadelphia Fed President Plosser speaks in Hong Kong (6:00am)
12 Apr
Retail sales (8:30am) Mar PPI (8:30am) Mar Consumer sentiment (9:55am) Apr preliminary Business inventories (10:00am) Feb
Boston Fed President Rosengren speaks in Boston (8:45am)
FOMC minutes
15 Apr
Empire State survey (8:30am) Apr TIC data (9:00am) Feb NAHB survey (10:00am) Apr
16 Apr
CPI (8:30am) Mar Housing starts (8:30am) Mar Industrial production (9:15am) Mar
Minneapolis Fed President Kocherlakota speaks in Minneapolis (3:30pm)
17 Apr
Beige book (2:00pm)
St Louis Fed President Bullard speaks in New York (9:30am) Boston Fed President Rosengren speaks in New York (12:00pm)
18 Apr
Initial claims (8:30am) w/e Apr 13 Philadelphia Fed survey (10:00am) Apr Leading indicators (10:00am) Mar
Auction 5 year TIPS $17 bn Announce 2 year note $35 bn Announce 5 year note $35 bn Announce 7 year note $29 bn Minneapolis Fed President Kocherlakota speaks in New York (9:00am) Fed Governor Raskin speaks in New York (12:00pm)
19 Apr
22 Apr
Existing home sales (10:00am) Mar
23 Apr
Manufacturing PMI (8:58am) Apr flash FHFA HPI (9:00am) Feb New home sales (10:00am) Mar Richmond Fed survey (10:00am) Apr
Auction 2 year note $35 bn
24 Apr
Durable goods (8:30am) Mar
25 Apr
Initial claims (8:30am) w/e Apr 20 KC Fed survey (11:00am) Apr
26 Apr
Real GDP (8:30am) 1Q advance Consumer sentiment (9:55am) Apr final
Times shown are local. 80
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi (44-20) 7134-8310 greg.x.fuzesi@jpmorgan.com
Euro area economic calendar

Monday 1 Apr
Holiday: Easter Monday
Tuesday 2 Apr
Euro area: PMI Mfg (10:00am) Mar 46.6 Index, sa Unemployment rate (11:00am) Feb 12.0%, sa Germany: CPI 6 states and prelim (8:00am) Mar PMI Mfg (9:55am) Mar 48.9 Index, sa France: PMI Mfg (9:50am) Mar 43.9 Index, sa Italy: PMI Mfg (9:45am) Mar Spain: PMI Mfg (9:15am) Mar
Wednesday 3 Apr
Euro area: HICP flash (11:00am) Mar 1.6%oya
Thursday 4 Apr
Euro area: MFI interest rates (9:30am) Mar PMI services and composite (10:00am) Mar Services: 46.5 Index, sa Composite: 46.5 Index, sa PPI (11:00am) Feb ECB rate announcement (1:45pm) no change expected Germany: PMI services and composite (9:55am) Mar Services: 51.6 Index, sa Composite: 51.0 Index, sa France: PMI services and composite (9:50am) Mar Services: 41.9 Index, sa Composite: 42.1 Index, sa Italy: PMI services and composite (9:45am) Mar Spain: PMI services and composite (9:15am) Mar
Friday 5 Apr
Euro area: Retail sales (11:00am) Feb -0.1%m/m, sa Germany: Mfg orders (12:00pm) Feb 2.0%m/m, sa
8 Apr
Germany: Industrial production (12:00pm) Feb
9 Apr
Germany: Foreign trade (8:00am) Feb France: Foreign trade (8:45am) Feb Monthly budget situation (8:45am) Feb Netherlands: CPI (9:30am) Mar
10 Apr
France: Industrial production (8:45am) Feb Italy: Industrial production (10:00am) Feb
11 Apr
Euro area: ECB monthly bulletin (10:00am) Apr Germany: CPI final (8:00am) Mar France: CPI final (8:45am) Mar
12 Apr
Euro area: Industrial production (11:00am) Feb Italy: CPI final (10:00am) Mar Spain: CPI final (9:00am) Mar
15 Apr
Euro area: Foreign trade (11:00am) Feb
16 Apr
Euro area: HICP final (11:00am) Mar Germany: ZEW bus. survey (11:00am) Apr Italy: Foreign trade (10:00am) Feb
17 Apr
Euro area: New car regs (8:00am) Apr
18 Apr
19 Apr
Euro area: Balance of payments (10:00am) Feb Germany: PPI (8:00am) Mar Belgium: BNB cons. conf. (3:00pm) Apr Netherlands: CBS cons. conf. (9:30am) Apr
22 Apr
Euro area: EC cons. conf. prelim (4:00pm) Apr
23 Apr
Euro area: PMI flash - Mfg, services, composite (10:00am) Apr Germany: PMI flash - Mfg, services, composite (9:30am) Apr France: INSEE bus. conf. (8:45am) Apr PMI flash - Mfg, services, composite (9:00am) Apr Italy: ISAE cons. conf. (10:00am) Apr
24 Apr
Euro area: ECB Bank Lending Survey (10:00am) 1Q Germany: Import prices (9:30am) Mar IFO bus. survey (10:00am) Apr Belgium: BNB bus. conf. (3:00pm) Apr Netherlands: CBS bus. conf. (9:30am) Apr
25 Apr
Germany: GfK cons. conf. (9:30am) May
26 Apr
France: INSEE cons. conf. (8:45am) Apr
Highlighted data are scheduled for release on or after the date shown. Times shown are local.
81
JP Morgan Securities Japan Co., Ltd Miwako Nakamura (81-3) 6736-1167 miwako.nakamura@jpmorgan.com
Economic Research Global Data Watch March 28 2013
Japan economic calendar

Monday 1 Apr
BoJ Tankan (8:50 am) 1Q large mfg DI, -7 Auto registrations (2:00 pm) Mar -20.0%oya
Tuesday 2 Apr
Nominal wages (10:30 am) Feb -0.5%oya
Wednesday 3 Apr
PMI services/composite (8:15 am) Mar BoJ Monetary Policy Meeting
Thursday 4 Apr
BoJ Monetary Policy Meeting and statement BoJ Governor Kurodas press conference (3:00 pm)
Friday 5 Apr
BoJ monthly economic report (2:00 pm)
Auction 10-year bond During the week: CAO private consumption index Feb 0.3%m/m, sa
Auction 3-year note
8 Apr
Current account (8:50 am) Feb Economy Watchers survey (2:00 pm) Mar
9 Apr
Minutes of Mar 6-7 BoJ Monetary Policy Meeting (8:50 am)
10 Apr
Bank lending (8:50 am) Mar
11 Apr
Money stock (8:50 am) Mar Corporate goods prices (8:50 am) Mar Private machinery orders (8:50 am) Feb
12 Apr
Tertiary sector activity index (8:50 am) Feb
Auction 6-month bill
Auction 2-month bill
Auction 3-month bill Auction 30-year bond
15 Apr
IP final (8:50 am) Feb BoJ Governor Kurodas address at branch managers meeting
16 Apr
17 Apr
Consumer sentiment (2:00 pm) Mar Construction spending (2:00 pm) Feb
18 Apr
Reuters Tankan (8:30 am) Apr Trade balance (8:50 am) Mar
19 Apr
Auction 5-year note
Auction 1-year note
Auction 3-month bill Auction 20-year bond
During the week: Department store sales Mar, BoJ bank loan officers survey 1Q
22 Apr
23 Apr
24 Apr
Corporate service prices (8:50 am) Mar
25 Apr
26 Apr
Nationwide core CPI (8:30 am) Mar BoJ Monetary Policy Meeting and statement BoJ outlook report (3:00 pm) BoJ Governor Kurodas press conference (3:30 pm)
Auction 3-month bill Auction 2-year note During the week: Shoko Chukin small firm sentiment Apr Highlighted data are scheduled for release on or after the date shown. Times shown are local.
82
JPMorgan Chase Bank NA Silvana Dimino (1-212) 834-5684 silvana.dimino@jpmorgan.com
Canada economic calendar

Monday 1 Apr
RBC manufacturing PMI (9:30am) Mar
Tuesday 2 Apr
BoC Deputy Governor John Murray speaks at the Peterson Institute for International Economics, Washington, D.C. (12:20pm)
Wednesday 3 Apr 4 Apr
Thursday 5 Apr
Friday
Labor force survey (8:30am) Mar unch (0.0%) Unemployment rate 7.0% International trade (8:30am) Feb C$0.1bn Ivey PMI (10:00am) Mar 52.4 (54.6 nsa) J.P. Morgan composite index 50.2 (sa)
8 Apr
BoC Business Outlook Survey (10:30am) 1Q BoC Senior Loan Officer Survey (10:30am) 1Q
9 Apr
Housing starts (8:15am) Mar Building permits (8:30am) Feb
10 Apr
11 Apr
New housing price index (8:30am) Feb
12 Apr
15 Apr
New vehicle sales (8:30am) Feb Existing home sales (9:00am) Mar
16 Apr
Manufacturing sales (8:30am) Feb
17 Apr
Teranet/National Bank HP Index (9:00am) Feb Bank of Canada rate announcement/Monetary Policy Report (10:00am)
18 Apr
Nonresidential construction (8:30am) 1Q
19 Apr
CPI (8:30am) Mar Wholesale sales (8:30am) Feb
22 Apr
23 Apr
Retail sales (8:30am) Feb
24 Apr
25 Apr
CFIB Business Barometer Index (6:00am) Apr Payroll employment (8:30am) Feb
26 Apr
All existing home sales are tentative. Times shown are local.
83
JPMorgan Chase Bank, New York Carmen Collyns (1-212) 834-3921 carmen.p.collyns@jpmorgan.com
Latin America economic calendar

Monday 1 Apr
Brazil: PMI Manufacturing Mar Trade balance Mar Chile: Central bank meeting minutes Peru: CPI Mar 0.62%m/m nsa WPI Mar Mexico: Banxico survey Family remittances Feb US$1.7bn Manufacturing PMI Mar 51.7 Non manufacturing PMI Mar 51.8 Uruguay: Trade balance Budget balance Feb Holiday: Argentina
Tuesday 2 Apr
Brazil: IP Feb -2.3%oya Mexico: Central bank reserves (Prior week)
Wednesday 3 Apr
Brazil: Fipe CPI Mar PMI Services Mar Uruguay: CPI Mar
Thursday 4 Apr
Colombia: PPI Mar Mexico: Consumer confidence Mar 95.4 Uruguay: Current account 4Q12
Friday 5 Apr
Chile: Economic activity index Feb 5.3%oya Colombia: CPI Mar 0.21%m/m nsa BanRep minutes Mexico: Banamex survey of economic expectations
Holiday: Argentina Brazil: Commodity price index Mar Vehicle production (ANFAVEA) Mar Colombia: Vehicle sales Mar
During the week: Argentina: Govt tax revenue Mar
8 Apr
Chile: CPI Mar Trade balance Mar Mexico: Gross fixed investment Jan
9 Apr
Brazil: IGP-DI Apr Colombia: Trade balance Feb Mexico: Central bank reserves (Prior week) CPI Mar
10 Apr
Brazil: IPCA Mar Peru: Trade balance Feb Uruguay: Unemployment rate Feb
11 Apr
Brazil: IGP-M 1st release Apr Retail sales Feb Chile: BCCh meeting Peru: BCRP meeting Mexico: Industrial production Feb Uruguay: IP Feb
12 Apr
Argentina CPI Mar WPI Mar
During the week: Argentina: Budget balance Feb
Brazil: Economic activity index Feb
15 Apr
Peru: Monthly GDP Feb Unemployment rate Mar
16 Apr
Brazil: IGP-10 Apr Mexico: Central bank reserves (Prior week)
17 Apr
Brazil: COPOM meeting
18 Apr
Brazil: IGP-M 2nd release Apr Colombia: Trade balance Feb
19 Apr
Argentina: Economic activity index Feb Brazil: IPCA-15 Apr Colombia: IP Feb Retail sales Feb Mexico: Unemployment Mar
During the week: Argentina: Budget balance Mar
Brazil: Caged formal job creation Mar Tax collections Mar
Mexico: Pension funds report Mar
22 Apr
Argentina: Consumer confidence Apr Mexico: Retail sales Feb Banamex survey of economic expectations Holiday: Uruguay During the week:
23 Apr
Chile: PPI Mar Mexico: Central bank reserves (Prior week)
24 Apr
Brazil: Consumer confidence Apr Current account balance Mar FDI Mar Mexico: CPI Apr 1H
25 Apr
Argentina: IP Mar Brazil: COPOM meeting minutes Unemployment rate Mar Mexico: IGAE (GDP proxy) Feb
26 Apr
Brazil: BCB credit report Mar Chile: BCCh minutes Mexico: Banxico meeting Trade balance Mar
84
JPMorgan Chase Bank N.A, London Branch Malcolm Barr (44-20) 7134-8326 Allan Monks (44-20) 7134-8309
UK economic calendar
Monday 1 Apr
Holiday: Easter Monday
Tuesday 2 Apr
BCC economic survey (9:30am) 1Q M4 & M4 lending final (9:30am) Feb Net lending to individuals (9:30am) Feb PMI Mfg (9:30am) Mar 48.5 % balance, sa
Wednesday 3 Apr
BoE credit conditions survey (9:30am) 1Q BoE housing equity withdrawal (9:30am) 4Q PMI Construction (9:30am) Mar
Thursday 4 Apr
PMI Services (9:30am) Mar 51.5 % balance, sa MPC rate announcement and asset purchase target (12:00pm) no change expected
Friday 5 Apr
New car regs (8:00am) Mar
During the week: Halifax HPI (2-5 Apr)
8 Apr
9 Apr
BRC retail sales monitor (12:01am) Mar Markit jobs report (12:01am) Mar RICS HPI (12:01am) Mar Industrial production (9:30am) Feb Trade balance (9:30am) Feb
10 Apr
Quoted mortgage interest rates (9:30am) Mar
11 Apr
12 Apr
Construction output (9:30am) Feb
15 Apr
Rightmove HPI (12:01am) Apr
16 Apr
CPI (9:30am) Mar ONS HPI (9:30am) Feb PPI (9:30am) Mar
17 Apr
MPC minutes (12:09am) Apr Labor market report (9:30am) Apr
18 Apr
Retail sales (9:30am) Mar
19 Apr
During the week: CBI industrial trends 2Q and Apr (20-25 Apr)
22 Apr
23 Apr
Public sector finances (9:30am) Mar
24 Apr
BBA mortgage lending (9:30am) Mar
25 Apr
Index of services (9:30am) Feb Real GDP 1st est. (9:30am) 1Q
26 Apr
During the week: CBI distributive trades Apr (25-30 Apr) Times shown are local.
85
JPMorgan Chase Bank N.A, London Branch Anthony Wong (44-20) 7134-7549 anthony.wong@jpmorgan.com
Emerging Europe/Middle East/Africa economic calendar

Monday 1 Apr
Russia: Manufacturing PMI (11:00am) Mar Turkey: GDP (10:00am) 4Q 2.4%y/y PMI (10:00am) Mar
Tuesday 2 Apr
Czech Republic: PMI (9:30am) Mar Hungary: PMI (9:00am) Mar Poland: PMI (9:00am) Mar Romania: Retail sales (10:00am) Feb 2.7%oya, sa Russia: CBR rate decision Turkey: PMI (10:00am) Mar South Africa: Kagiso PMI (11:00am) Mar Vehicle sales (11:00am) Mar
Wednesday 3 Apr
Romania: GDP (10:00am) 4Q Turkey: CPI (10:00am) Mar 0.4%m/m PPI (10:00am) Mar 1.1%m/m
Thursday 4 Apr
Czech Republic: Retail sales (9:00am) Feb Hungary: Retail sales (9:00am) Feb 0.1%m/m, sa
Friday 5 Apr
Hungary: Industrial output prelim (9:00am) Feb -0.8%m/m, swda
Holiday: Czech Republic, Poland, Hungary, Israel, South Africa
During the week: Russia: Current account 1Q (1-5 Apr); GDP 4Q (2-3 Apr); CPI Mar (4-5 Apr)
8 Apr
Czech Republic: Industrial output (9:00am) Feb Trade balance (9:00am) Feb Hungary: Trade balance (9:00am) Feb Turkey: Industrial output (10:00am) Feb South Africa: Gross reserves (8:00am) Mar During the week:
9 Apr
Czech Republic: CPI (9:00am) Mar Romania: Industrial output (10:00am) Feb
10 Apr
Hungary: NBH minutes (2:00pm) Poland: NBP rate decision Romania: CPI (10:00am) Mar
11 Apr
Hungary: CPI (9:00am) Mar Turkey: Current account (10:00am) Feb Russia: Foreign trade Feb South Africa: Manufacturing production (1:00pm) Feb
12 Apr
15 Apr
Czech Republic: PPI (9:00am) Mar Current account (10:00am) Feb Poland: CPI (2:00pm) Mar Current account (2:00pm) Feb Budget balance (3:00pm) Mar Romania: Current account Feb Turkey: Unemployment (10:00am) Jan Israel: CPI (6:30pm) Mar
16 Apr
Poland: Core inflation (2:00pm) Mar Turkey: CBRT rate decision (2:00pm)
17 Apr
Poland: Average gross wages and Employment (2:00pm) Mar South Africa: CPI (10:00am) Mar Retail sales (1:00pm) Feb Israel: GDP final 4Q
18 Apr
Hungary: Average gross wages (9:00am) Feb Poland: Industrial output (2:00pm) Mar PPI (2:00pm) Mar
19 Apr
Holiday: Israel
During the week: Russia: Industrial output Mar (15-16 Apr); PPI Mar (17-18 Apr); Retail sales, unemployment, and investment Mar (17-18 Apr)
22 Apr
23 Apr
Hungary: NBH rate decision (2:00pm)
24 Apr
Turkey: Capacity utilization (2:30pm) Apr
25 Apr
Poland: NBP minutes South Africa: PPI (11:30am) Mar
26 Apr
Hungary: Unemployment (9:00am) Feb
Holiday: Turkey During the week: Poland: Retail sales Mar (23-27 Apr), Unemployment Mar (23-27 Apr) Times shown are local.
86
Non-Japan Asia economic calendar

Monday 1 Apr
China: PMI mfg. (NBS) (9:00am) Mar 51.5 Index PMI mfg. (Markit) (9:45am) Mar 51.8 Index India: PMI Mfg. (10:30am) Mar Indonesia: CPI (11:00am) Mar 5.2%oya Trade balance (11:00am) Feb Korea: CPI (8:00am) Mar Trade balance (9:00am) Mar PMI mfg. (9:00am) Mar Taiwan: PMI mfg. (10:00am) Mar 50.6 Index, sa Thailand: CPI Mar 3.1%oya Holiday: Australia, New Zealand, Hong Kong During the week:
Tuesday 2 Apr
Australia: RBA official rate announcement (2:30pm) No change New Zealand: ANZ commodity price (1:00pm) Mar Hong Kong: Retail sales (4:30pm) Feb 14.7%oya
Wednesday 3 Apr
Australia: Trade balance (11:30am) Feb A$0.7bn Singapore: PMI (9:30pm) Mar 50.5 Index Thailand: BoT monetary policy meeting (2:30pm) No change
Thursday 4 Apr
Australia: Building approvals (11:30am) Feb 1.0%m/m Retail sales (11:30am) Feb 0.2%m/m
Friday 5 Apr
Malaysia: Trade balance (12:00pm) Feb US$1.2bn Philippines: CPI (9:00am) Mar 3.4%oya
Holiday: China, Hong Kong
Holiday: China
Singapore: GDP flash 1Q (5-13 Apr) -0.1%oya
8 Apr
Australia: ANZ job advertisements (11:30am) Mar Taiwan: CPI (8:30am) Mar Trade balance (4:00pm) Mar
9 Apr
Australia: NAB business confidence (11:30am) Mar China: CPI (9:30am) Mar PPI (9:30am) Mar
10 Apr
China: Trade balance Mar Korea: Export price index (6:00am) Mar Import price index (6:00am) Mar Unemployment rate (8:00am) Mar Money supply (12:00pm) Feb Philippines: Exports (9:00am) Feb
11 Apr
Australia: Unemployment rate (11:30am) Mar New Zealand: Business NZ PMI (10:30am) Mar Indonesia: BI monetary policy meeting Apr Korea: BoK monetary policy meeting (9:00am) Malaysia IP (12:00pm) Feb
12 Apr
India: CPI Mar IP (11:00am) Feb
Holiday: Thailand During the week: India: Trade balance Feb (10-15 Apr) China: Money supply Mar (10-15 Apr)
Singapore: NODX Mar (11-17 Apr), Retail sales Feb (13-17 Apr)
15 Apr
Australia: Housing finance (11:30am) Feb China: FAI (10:00am) Mar GDP (10:00am) 1Q IP (10:00am) Mar Retail sales (10:00am) Mar India: WPI (12:00pm) Mar Philippines: OFW remittances Feb Holiday: Thailand
16 Apr
Australia: New motor vehicle sales (11:30am) Mar
17 Apr
Korea: PPI (6:00am) Mar Malaysia: CPI (5:00pm) Mar
18 Apr
Hong Kong: Unemployment rate (4:30pm) Mar
19 Apr
Holiday: Thailand
Holiday: India
22 Apr
Hong Kong: CPI (4:30pm) Mar Taiwan: Unemployment rate (8:30am) Mar Export orders (4:00pm) Mar
23 Apr
China: Flash PMI (9:45am) Apr Taiwan: IP (4:00pm) Mar
24 Apr
Australia: CPI (11:30am) 1Q New Zealand: RBNZ rate announcement(9:00am) Vietnam: CPI Apr
25 Apr
Hong Kong: Trade balance (4:30pm) Mar Korea: GDP prelim (8:00am) 1Q Philippines: Imports (9:00am) Feb BSP monetary policy meeting
26 Apr
New Zealand: Trade balance (10:45am) Mar Korea: Consumer survey (6:00am) Apr Taiwan: Leading index (4:00pm) Mar
During the week:
Singapore: IP Mar (23-26 Apr), CPI Mar (23-25 Apr)
Philippines: Budget balance Mar (23-27 Apr)
Thailand: Mfg. production Mar (26-28 Apr)
Times shown are local. 87
JPMorgan Chase Bank NA Michael Mulhall (1-212) 834-9123 michael.r.mulhall@jpmorgan.com
Global Data Diary

Week / Weekend 30 Mar - 5 Apr
Brazil Auto sales (Mar) Japan CAO prv cons index (Feb) Russia GDP (4Q)
Monday 1 April
China PMI mfg final (Mar) Japan BoJ Tankan (1Q) Auto registrations (Mar) Korea Trade report (Mar) United States ISM mfg (Mar) Markit PMI mfg final (Mar)
Tuesday 2 April
Australia RBA mtg: no chg Brazil IP (Feb) Euro area Unemployment rate (Feb) PMI mfg final (Mar) Germany CPI prelim (Mar) Russia CBR mtg: no chg United States Factory orders (Feb) Auto sales (Mar) Global PMI mfg (Mar)
Wednesday 3 April
Euro area HICP flash (Mar) Thailand BoT mtg: no chg United Kingdom BoE cred conds surv (1Q) United States ADP employment (Mar)
Thursday 4 April
Euro area MFI interest rates (Mar) ECB mtg: no chg Japan BoJ MPM: Extend APP holding maturity, pull forward unlimited QE, strengthen language Kuroda press conference United Kingdom BoE MPC mtg: no chg United States Bernanke speech Global PMI srv & all-ind (Mar)
Friday 5 April
Canada Labor force survey (Mar) Euro area Retail sales (Feb) Germany Mfg orders (Feb) United Kingdom Auto regs (Mar) United States Employment (Mar) Trade report (Feb)
6 -12 April
Brazil BCB IBC-Br (Feb) Singapore NODX (Mar)
8 April
Germany IP (Feb) Japan Econ Watchers surv (Mar) Taiwan Trade report (Mar) United States Bernanke speech
9 April
Australia NAB bus conf (Mar) China CPI (Mar) Japan BoJ MPM mins (Mar) United Kingdom IP (Feb)
10 April
Brazil IPCA (Mar) China Trade report (Mar) France IP (Feb) Italy IP (Feb) Poland NBP mtg: no chg
11 April
Brazil Retail sales (Feb) Chile BCCh mtg: no chg Indonesia BI mtg: no chg Japan Prv machinery ords (Feb) Korea BoK mtg: -25bp Mexico IP (Feb) Peru BCRP mtg: no chg
12 April
Euro area IP (Feb) India CPI (Mar) IP (Feb) United States Retail sales (Mar) UMich cons sent plm (Apr) Bus inventories (Feb)
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JP Morgan - Global Report

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Economic Research

March 28, 2013

Global Data Watch

Caught one more time up on Cyprus avenue

EMU bank CDS and equity prices

Core cap goods shipments and orders

Source: J.P.Morgan, Bloomberg, Morgan Stanley

Source: Census Bureau

Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

Japan equity prices and small business sentiment

Japan: a historic meeting next week

Source: Shoko-Chukin Bank, Reuters

US corporates drive the bus

Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

Argentina flirts with technical default

Source: J.P. Morgan, Markit

Global PMI likely steady in March

China acts to rein in nonbank lending

EMEA central banks in motion

Editor: Sandy Batten (1-212) 834-9645 sandy.batten@jpmorgan.com

Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

Global economic outlook summary

2.5 2.6 1.7 1.6 4.1 4.3

Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

G-3 economic outlook detail

Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

Global Central Bank Watch

Michael Mulhall (1-212) 834-9123 michael.r.mulhall@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

Nowcast global growth: 1Q13 Model upside holding steady

Global real GDP

1.6 1.7 2.6

Current 2.6 3.2 2.6

1Q13 Last week 2.6 3.2 2.6

4 weeks ago 2.4 3.2 2.3

Nowcasting global real GDP by forecast date, 1Q2013

J.P. Morgan global aggregates

Global manufacturing output

Implied by Mfg PMI (thru Mar prelim) Actual (thru Jan)

Implied by commodity price nowcast (thru Mar 28)

Economic Research Global Data Watch March 28, 2013

Selected recent research1 from J.P. Morgan Economics

Central Europe, Middle East, and Africa

United States and Canada

Non-Japan Asia and Pacific

Special Reports and Global Issues

JPMorgan Chase Bank NA Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com

Economic Research Global Data Watch March 28, 2013

The J.P. Morgan View: Markets

Local forces are dominating

JPMorgan Chase Bank NA Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com

YTD returns through: 27-Mar

Europe Fixed Inc

Global Gov Bonds

Source: J.P. Morgan, Bloomberg

2013 Japan GDP forecasts: J.P. Morgan and consensus

Source: J.P. Morgan, Consensus Economics