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ECONOMICS RESEARCH

8 July 2011

GLOBAL ECONOMICS WEEKLY

Signs of a partial turn

Global Forecasts Global Synthesis

2 3 5 6

Economic data in Japan are improving as the economy is beginning to heal from the contraction after the earthquake. US manufacturing data are bottoming out as the temporary factors impeding growth are starting to fade. We have downgraded our GDP forecast for the euro area, and look for a persistent slowing in growth, in part due to the effects of tighter fiscal policy. In China, we believe that policy firming and tighter credit conditions are also yielding a more lasting slowing in growth than in the US or Japan.

Global Rates and Inflation Global Markets Watch

United States Outlook 7 9 11 InFocus: Auto sector getting out of reverse gear Data Preview & Review

Euro Area Outlook 13 15 Data Preview & Review United Kingdom Outlook Data Preview & Review Japan Outlook Data Preview & Review Emerging Asia China Outlook Asia Outlook InFocus: Thailand A tactical long Data Preview & Review EEMEA Outlook Data Preview & Review Latin America Outlook Data Preview & Review Country Snapshots Global Weekly Calendar 36 38 39 41 31 33 23 25 27 29 20 22 17 19

Developed Economies
United States: A production turn - To everything there is a season 7 A V-shaped recovery appears to be taking hold in Japan, easing supply chain disruptions to auto production and sales in the US. Euro area: Austerity hurts and inflation bites 13 Following the strong growth in Q1 this year, and given what we believe was a weak Q2, real GDP growth in H2 is set to be more modest than thought previously. UK: Q1 wan, Q2 too 17 The available data suggest that growth in Q2 was even weaker than the disappointing 0.5% expansion in Q1, and we now expect growth to have been just 0.2% q/q. Japan: An interim assessment 20 The BoJ will re-visit its GDP and CPI forecasts next week, likely projecting modest real growth and core inflation for FY11. This will not reflect the CPI rebasing.

Emerging Markets
China: Rate hike cycle close to an end 23 The PBoC delivered an overdue benchmark interest rate hike on Wednesday, ahead of the release of the June CPI data, which we expect to jump to 6.3% y/y from 5.5% in May. Emerging Asia: Inflation pains linger on 25 Bank Negara Malaysia kept rates on hold due to moderation in external demand. We expect the central bank to raise the policy rate 25bp in September. EEMEA: Doves rule as inflation peaks and growth slows 31 Global commodity prices are moderating and prospects for local harvests are improving. Latin America: A currency war again? Yes, but not for long. 36 As commodity price pressures dissipate and headline inflation moves south, the crusade against currency appreciation is starting to re-emerge in the Latin region.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 47

Barclays Capital | Global Economics Weekly

GLOBAL FORECASTS
Real GDP % over previous period, saar Global Developed Emerging BRIC America United States Canada Latin America Argentina Brazil Chile Colombia Mexico Peru Venezuela Asia/Pacific Japan Australia Emerging Asia China Hong Kong India Indonesia South Korea Malaysia Philippines Singapore Taiwan Thailand Europe and Africa Euro area Belgium France Germany Greece Ireland Italy Netherlands Portugal Spain United Kingdom Switzerland EM Europe & Africa Czech Repub. Hungary Poland Russia Turkey Israel South Africa 1Q11 2Q11 3Q11 4.2 3.2 3.9 1.6 1.2 2.4 7.4 5.6 5.7 7.6 6.8 7.1 3.0 2.7 3.1 1.9 2.0 3.0 3.9 2.5 2.5 5.7 4.6 3.3 11.8 4.0 2.0 5.4 2.9 3.4 5.4 5.0 5.0 9.8 5.5 3.0 2.1 6.5 3.0 6.6 5.7 4.6 6.9 4.4 5.0 6.3 4.7 6.4 -3.5 -2.3 3.7 -4.7 4.6 4.9 9.3 6.5 7.2 9.4 7.8 8.0 11.9 -1.2 4.1 8.4 7.6 9.1 4.0 6.0 5.8 5.4 4.5 6.2 7.0 4.9 2.5 15.0 4.8 4.0 22.5 0.3 3.0 19.0 0.4 1.9 8.4 0.8 2.0 3.0 1.8 1.7 3.4 1.1 1.2 4.3 1.7 1.5 3.8 0.9 0.8 6.1 1.7 1.5 0.7 -2.2 -2.1 5.1 -1.4 2.4 0.5 1.1 1.7 3.6 2.1 1.7 -2.4 -2.6 -2.3 1.2 0.3 0.8 1.9 0.9 1.0 1.0 1.6 1.6 2.8 3.9 3.0 3.6 2.6 2.4 6.2 1.7 1.4 4.1 3.6 3.7 0.9 5.0 3.3 3.7 2.3 1.7 4.7 4.0 4.0 4.8 3.5 3.7 Real GDP % annual chg 2011 2012 1Q11 4.0 4.3 3.4 1.8 2.7 2.1 6.6 6.2 6.3 7.6 7.4 6.6 3.1 3.6 3.4 2.5 3.4 2.1 2.9 2.5 2.6 4.7 4.1 8.3 7.6 4.2 25.3 3.8 4.2 6.1 6.4 4.5 2.9 5.7 4.6 3.2 3.9 3.7 3.5 6.4 5.2 2.3 4.3 3.5 28.2 6.0 6.5 3.4 -0.5 3.2 -0.2 1.4 4.0 3.3 7.8 7.4 5.4 9.3 8.7 5.1 5.5 4.5 4.0 7.7 7.9 9.5 6.5 6.4 6.8 4.4 4.1 4.5 5.0 5.5 2.8 5.0 5.3 4.0 6.0 4.5 5.2 5.9 4.0 1.3 3.6 4.7 3.0 2.5 2.4 3.3 1.9 1.6 2.5 2.5 1.9 3.5 1.9 1.8 2.0 3.3 1.9 2.2 -3.8 -0.5 4.5 0.4 1.8 0.8 1.0 1.1 2.3 2.3 1.9 2.0 -1.7 -1.3 3.7 0.7 1.5 3.2 1.1 1.9 4.1 2.0 1.4 0.2 4.4 4.2 6.3 2.8 3.3 2.0 2.6 3.2 4.1 3.9 3.7 3.8 4.3 4.6 9.6 5.8 4.1 4.3 5.0 4.2 3.9 3.9 4.1 3.8 Consumer prices % over a year ago 2Q11 4.0 2.8 6.4 6.9 4.3 3.4 3.3 7.9 23.3 6.6 3.2 3.0 3.3 2.9 22.8 3.8 0.5 3.8 5.7 5.6 5.2 9.3 5.9 3.9 3.5 4.6 4.5 1.6 3.6 3.6 2.7 3.3 2.2 2.5 3.3 1.4 2.9 2.4 3.8 3.3 4.5 0.2 6.9 1.9 4.3 4.6 9.7 6.5 3.8 4.5 Consumer prices % annual chg 2011 2012 3.8 3.0 2.7 1.9 6.2 5.3 6.4 5.1 4.1 3.5 3.1 2.4 3.1 2.2 8.1 7.9 23.5 26.1 6.6 5.7 3.4 3.0 3.2 3.3 3.5 4.0 2.9 3.1 24.5 21.9 3.4 2.7 0.2 0.1 3.9 3.3 5.1 4.1 4.8 4.0 5.2 4.7 9.1 6.7 5.9 6.0 3.6 2.1 3.5 2.2 4.7 3.8 4.0 1.8 1.6 1.9 3.8 2.7 3.6 2.6 2.7 1.8 3.5 2.6 2.4 1.7 2.5 1.7 3.8 3.0 1.4 1.4 2.7 1.6 2.5 2.6 3.6 2.4 3.2 2.0 4.6 2.9 0.5 1.1 6.8 5.9 2.1 2.3 4.1 3.6 4.6 3.5 9.1 7.1 7.1 7.1 3.9 3.2 5.0 6.0

4Q11 1Q12 2010 4.2 4.4 4.9 2.9 2.8 2.5 5.9 6.2 7.9 6.8 7.5 8.9 3.6 3.7 3.7 3.5 3.5 2.9 2.5 2.5 3.2 4.3 4.4 6.2 5.5 4.3 9.2 4.5 4.5 7.5 5.0 4.5 5.2 4.5 5.0 4.3 3.0 4.0 5.4 5.4 4.0 8.8 4.6 5.6 -1.4 6.9 6.9 8.1 5.0 4.4 4.0 4.0 4.1 2.7 7.5 7.6 9.3 9.5 8.7 10.4 4.7 5.1 7.0 5.0 8.8 9.0 9.6 4.4 6.1 6.3 3.6 6.2 4.1 5.8 7.3 -0.1 10.3 7.6 4.9 4.3 14.5 4.5 4.8 10.9 5.1 5.0 7.8 1.6 2.1 2.5 1.6 1.5 1.7 2.1 1.8 2.1 1.5 2.0 1.4 1.8 1.6 3.5 -1.0 -0.3 -4.4 1.1 1.8 -0.4 1.9 0.6 1.2 1.7 1.9 1.6 -1.7 -1.1 1.3 1.2 1.4 -0.1 1.5 1.9 1.4 1.2 1.6 2.6 1.9 3.4 4.6 2.4 3.8 2.2 1.2 2.9 1.1 3.7 3.7 3.8 0.9 3.3 4.0 1.2 2.9 9.0 4.0 4.8 4.9 3.9 4.1 2.8

3Q11 4Q11 2010 4.0 3.7 2.6 2.9 2.8 1.4 6.4 5.7 5.3 6.7 5.4 5.0 4.5 4.3 2.8 3.6 3.4 1.6 3.2 3.1 1.8 8.2 8.2 7.5 22.6 22.9 21.5 7.1 6.6 5.0 3.5 4.0 1.4 3.2 3.2 2.3 3.7 3.6 4.2 3.0 3.6 1.5 23.0 24.3 28.2 3.6 2.8 2.3 0.5 0.0 -1.0 4.1 4.5 2.8 5.3 4.2 4.1 5.2 3.4 3.3 6.1 5.4 2.4 9.2 8.3 9.6 5.0 6.0 5.1 3.3 2.8 3.0 3.7 3.9 1.7 5.1 5.0 3.8 3.4 2.8 2.8 1.7 1.8 1.0 4.1 4.5 3.3 3.8 3.8 2.6 2.8 2.9 1.6 3.7 3.4 2.3 2.5 2.7 1.7 2.6 2.7 1.2 3.2 4.2 4.7 1.5 1.8 -1.6 2.7 2.9 1.6 2.8 2.9 0.9 3.4 3.7 1.4 3.3 3.1 2.0 4.7 4.9 3.3 0.7 0.8 0.7 7.3 6.8 5.8 2.2 2.3 1.4 4.0 3.9 4.9 4.8 4.6 2.7 9.1 8.2 6.9 9.0 8.5 8.6 3.8 3.7 2.6 5.7 6.0 4.3

Note: Arrows appear next to numbers if current forecasts differ from that of the previous week by 0.5pp or more for quarterly annualized GDP, by 0.2pp or more for annual GDP and by 0.2pp or more for Inflation. Weights used for real GDP are based on IMF PPP-based GDP (2008-2010 average). Weights used for consumer prices are based on IMF nominal GDP (2008-2010 average). Source: Barclays Capital

8 July 2011

Barclays Capital | Global Economics Weekly

GLOBAL SYNTHESIS

Signs of a partial turn


Dean Maki +1 212 526 1731 dean.maki@barcap.com

We estimate that Q2 11 was the weakest quarter for real global GDP growth since the recession, and that the slowdown has been widespread across economies. We look for moderately stronger Q3 11 growth, but that turn up is expected to be limited in scope. Some reasons for the growth slowdown are expected to be short-lived, notably, the effects of the Japanese earthquake and the energy price surge earlier this year. However, other factors, such as the effect of fiscal tightening in Europe and that of monetary tightening in China, are likely to persist. As a result, we expect the Q3 11 growth improvement to be led by Japan and the US, with little improvement in the euro area or China.

Japan beginning to recover


Japanese consumption data are improving

This weeks data showed some more signs of healing in Japan following the abrupt weakening after the earthquake. The composite index of consumption, which helps in forecasting GDP-based consumption, increased 0.3% in May after a 1.9% rise in April and has now retraced more than half of its March drop (Figure 1). New auto sales gained 15.7% m/m in June after a 29.6% climb in May, and have now reversed about 80% of the postearthquake decline. While we still expect a 2.3% annualized drop in real GDP growth in Q2 11, the moves up in the consumption-related series suggest we are on track for a turn to significantly positive GDP growth in Q3 11; we look for a 3.7% annualized gain.

US manufacturing growth appears to be bottoming out


Manufacturing data in the US have started to modestly improve

We expect US economic growth to be weak again in Q2 11; our tracking estimate stands at an annualized 1.5% pace, below our 2.0% forecast. However, the past week did bring some tentative signals that the slowdown in the manufacturing sector and consumer spending may be starting to ease. After three consecutive declines, the ISM manufacturing index rose to 55.3 in June from 53.5 in May, suggesting that the worst of the manufacturing slowdown is over (Figure 2). The June employment report, however, showed no pickup from Mays meager job growth; indeed, private sector job growth edged down to 57k from 73k. We interpret the labor market weakness as a lagged response to the H1 11 slowdown in real Figure 2: US manufacturing is bottoming; employment is not
1m change, Thous 400 200 0 -200 -400 30 -600 -800 -1000 Jan-09 Change in private payrolls US ISM manufacturing, rhs Jul-09 Jan-10 Jul-10 Jan-11 20 10 60 50 40 Index 70

Figure 1: Japanese consumption indicators moving up


Thous 500 450 400 350 300 250 200 150 100 Jan-09 Japan auto sales Real consumption index, rhs Jul-09 Jan-10 Jul-10 Jan-11 Index 2000=100 112 111 110 109 108 107 106 105 104

Source: Cabinet office, JAMA, JMVA, Haver Analytics, Barclays Capital

Source: BLS, ISM, Haver Analytics

8 July 2011

Barclays Capital | Global Economics Weekly

GDP growth, so the growth data need to turn stronger before the labor market improves. While limited supply from Japan automakers continued to weigh on US auto sales in June, chain store sales grew solidly in June as gasoline prices fell; next weeks reading on core retail sales will give more information on this front. Overall, while the US data are mixed, we read them as consistent with our forecast of a modest H2 11 pickup in growth.

No upturn is imminent in the Euro area or China


Tighter fiscal policy in the euro area means growth will slow more persistently

We look for no improvement in growth in Q3 11 in the euro area or in China, as we believe their slowing is less driven by temporary factors than is that in Japan and the US. In line with this view, the incoming data have remained soft in these regions. In the euro area, domestic demand appears to be weakening; after a weak May retail sales report, our consumption tracking indicator is pointing to a 0.2% contraction (not annualized) in real consumer spending in Q2 11 (Figure 3). Euro area growth is being slowed, in large part, by factors that are likely to be sustained, such as tighter fiscal policy across almost all countries, as well as a slowdown in foreign demand for autos, particularly in Asia, that seems related mainly to tighter monetary policy and credit conditions there. This week, we modestly downgraded our euro area growth forecast and now look for growth of 1.9% (from 2.0%) in 2011 and 1.6% (from 1.8%) in 2012. Despite the modest growth outlook, inflation remains above the ECBs target, and, this week, it delivered another 25bp rate hike, as expected. We continue to look for the ECB to pause for several months before raising rates again in December. In China, the persistent monetary firming and resulting tighter credit conditions continue to yield moderation in growth. The NBS PMI index fell to a 28-month low in June, and the slowdown in China is clearly having an effect on exporters reliant on Chinese growth. For example, this week Taiwanese trade data showed that exports to China slowed to 8% y/y in Q2 11, the weakest pace in nearly two years (Figure 4). The PBoC remains focused on inflation as the main policy risk, and this week delivered the rate hike we had been expecting. While we believe the rate hike cycle is nearing an end, we do not rule out another rate hike in Q3 11, especially if inflation fails to moderate as we expect. Overall, we expect the PBoC to succeed in moderating Chinese growth, and look for a further slowing to 8.7% in 2012 from 9.3% this year. Thus, unlike in Japan and the US, where we believe growth has slowed for temporary reasons, policy tightening in the euro area and China seems likely to yield a more persistent slowing in growth.

Tighter monetary policy in China is slowing growth in a lasting way

Figure 3: Euro area consumption weakening in Q2 11


1.5 1.0 0.5 0.0 -0.5 Q2 estimate: -0.2% q/q -1.0 99 00 01 02 03 04 05 06 07 08 09 10 11
Source: Eurostat, Haver Analytics, Barclays Capital

Figure 4: China slowing shows in Taiwan exports


4Q % change 90 70 50 30 10 -10 -30 Taiwan exports to China China PMI manufacturing, rhs Index 60 58 56 54 52 50 48 46 44 42 -50 40 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
Source: MoF, CFLP/NBS, Haver Analytics

Euro area private consumption % q/q BarCap priv. cons. tracking indicator

8 July 2011

Barclays Capital | Global Economics Weekly

GLOBAL RATES AND INFLATION


Central Bank rates
Official rate % per annum (unless stated) Advanced Fed funds rate BoJ overnight rate ECB main refinancing rate BOE bank rate RBA cash rate Swiss National Bank Norges Bank Riksbank Bank of Canada Emerging China: Working capital rate Hong Kong: Base rate India: Repo rate Korea: Base Rate Poland: 2w repo rate Russia: Refi rate South Africa: Repo rate Turkey: 1wk repo rate Brazil: SELIC rate Chile: Monetary policy rate Mexico: Overnight rate 0-0.25 Easing: 17 Sep 07 0.10 1.50 0.50 4.75 0.25 2.25 2.00 1.00 6.56 0.50 7.50 3.25 4.50 8.25 5.50 6.25 12.25 5.25 4.50 Easing: 30 Oct 08 Tightening: 7 Apr 11 Easing: 6 Dec 07 Tightening: 7 Dec 09 Easing: 8 Oct 08 Tightening: 29 Oct 09 Tightening: 30 Jun 10 Tightening: 1 Jun 10 Tightening: 19 Oct 10 Easing: 19 Sep 07 Tightening: 19 Mar 10 Tightening: 9 Jul 10 Tightening: 19 Jan 11 Tightening: 25 Feb 11 Easing: 11 Dec 08 Easing: 20 Nov 08 Tightening: 19 Jan 11 Tightening: 15 June 10 Easing: 16 Jan 09 5.25 0.50 1.00 5.75 3.00 2.75 1.25 0.25 0.25 5.31 6.75 4.75 2.25 3.50 7.75 Dec 08 (-75-100) Oct 10 (0-10) Jul 11 (+25) Mar 09 (-50) Nov 10 (+25) Mar 09 (-25) May 11 (+25) Jul 11 (+25) Sep 10 (+25) Jul 11 (+25) Dec 08 (-100) Jun 11 (+50) Jun 11(+25) Jun 11 (+25) Apr 11 (+25) Jul 12 (+25) Q1 13 (+20) Dec 11 (+25) May 12 (+25) Q3 11 (+25) Q3 12 (+25) Q3 11 (+25) Q3 11 (+25) Dec 11 (+25) Q3 12 (+25) Beyond 2011 Q3 11 (+25) Sep 11 (+25) Sep 11 (+25) June 12 (-25) Jan 12 (+50) Oct 11 (+25) Jul 11 (+25) Jul 11 (+25) Apr 12 (+25) 0-0.25 0-0.10 1.50 0.50 5.00 0.25 2.50 2.25 1.00 6.56 0.50 7.75 3.75 4.75 8.25 5.50 6.25 12.75 5.50 4.50 0-0.25 0-0.10 1.75 0.50 5.25 0.25 2.75 2.50 1.25 6.56 0.50 7.75 3.75 4.75 8.25 5.50 7.00 12.75 5.50 4.50 0-0.25 0-0.10 2.00 0.50 5.25 0.25 3.00 2.75 1.75 6.56 0.50 7.75 3.75 4.75 8.25 6.50 8.00 12.75 5.50 4.50 0-0.25 0-0.10 2.25 0.75 6.25 0.50 3.25 3.00 2.25 6.56 0.50 7.75 3.75 4.75 8.00 7.00 8.00 12.75 5.50 5.00 Current Start of cycle date level Last move Next move expected 3Q 11 Forecasts as at end of 4Q 11 1Q 12 2Q 12

12.00 Nov 10 (-50) 16.75 Jan 11 (-25) 10.75 Jun 11 (+25) 0.50 8.25 Jun 11 (+25) Jul 09 (-25)

Note: Rates as of COB 7 July 2011. Source: Barclays Capital

Key CPI projections


US
CPI nsa Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 2010 2011 2012 218.3 218.4 218.7 218.8 219.2 220.2 221.3 223.5 224.9 226.0 225.6 225.6 226.2 226.7 226.4 226.3 226.4 227.0 227.8 228.6 y/y 1.1 1.1 1.2 1.1 1.5 1.6 2.1 2.7 3.2 3.6 3.5 3.5 3.6 3.8 3.5 3.4 3.3 3.1 2.9 2.3 1.6 3.1 2.4 nsa 224.5 225.3 225.8 226.8 228.4 229.0 231.3 232.5 234.4 235.2 236.0 235.9 237.1 238.8 240.0 241.2 241.3 240.4 241.9 243.4 RPI y/y 4.7 4.6 4.5 4.7 4.8 5.1 5.5 5.3 5.2 5.2 5.3 5.5 5.6 6.0 6.3 6.3 5.6 5.0 4.6 4.7 4.6 5.6 4.3

UK
CPI y/y 3.1 3.1 3.2 3.3 3.7 4.0 4.4 4.0 4.5 4.5 4.5 4.6 4.5 5.0 5.1 5.1 4.5 3.8 3.4 3.5 3.3 4.6 2.9

Euro area
HICPx nsa y/y 109.54 109.76 110.16 110.27 110.93 110.11 110.57 112.11 112.75 112.74 112.67 112.17 112.51 113.02 113.43 113.47 113.89 112.75 113.03 114.17 1.53 1.71 1.84 1.84 2.14 2.19 2.28 2.77 2.89 2.76 2.71 2.62 2.71 2.97 2.97 2.90 2.67 2.40 2.22 1.84 1.5 2.7 1.7 HICP y/y 1.6 1.9 1.9 1.9 2.2 2.3 2.4 2.7 2.8 2.7 2.7 2.7 2.8 2.9 3.0 2.9 2.7 2.5 2.3 1.9 1.6 2.7 1.8

France
CPI ex tobacco nsa y/y 119.97 119.88 120.03 120.09 120.61 120.32 120.90 121.90 122.32 122.40 122.45 122.27 122.71 122.82 123.18 123.19 123.61 123.03 123.35 124.02 1.32 1.49 1.52 1.50 1.69 1.69 1.61 1.94 2.02 1.97 2.02 2.16 2.28 2.45 2.62 2.58 2.49 2.25 2.03 1.74 1.5 2.2 1.6

Sweden
CPI nsa 302.06 304.60 305.57 306.58 308.73 306.15 308.02 310.11 311.44 312.44 312.36 312.05 312.27 314.69 316.20 316.39 317.29 316.45 318.01 319.39 y/y 0.9 1.4 1.5 1.8 2.3 2.5 2.5 2.9 3.3 3.5 3.4 3.7 3.7 3.6 3.8 3.5 3.1 3.4 3.2 3.0 1.2 3.3 3.1

Japan
CPI ex perishibles nsa y/y 99.1 99.1 99.5 99.4 99.4 99.0 98.9 99.4 99.8 99.9 99.7 99.6 99.7 99.4 99.5 99.4 99.5 99.1 99.1 99.6 -1.0 -1.1 -0.6 -0.5 -0.4 -0.2 -0.3 -0.1 0.6 0.6 0.4 0.6 0.6 0.3 0.0 0.0 0.1 0.1 0.2 0.2 -1.0 0.4 0.2

Note: Shaded values indicate actual data. R indicates revision to front-month forecast. Source: Barclays Capital

8 July 2011

Barclays Capital | Global Economics Weekly

GLOBAL MARKETS WATCH


Global Equities
1-week Index Global Developed Emerging BRIC United States Euro area Japan UK China India Korea EMEA Russia Turkey Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. S&P 500 FTSE Euro 100 Nikkei 225 FTSE 100 Shanghai Comp. NIFTY KOSPI Weighted Avg. MICEX ISE (% chng) 0.7 0.7 0.7 0.2 2.5 1.1 2.6 1.8 1.2 1.2 1.4 3.8 1.3 4.4 1.3 1.4 0.1 -0.3 % chng from 12/31/2009 Local Curr 5.2 0.0 7.9 -7.6 21.4 4.3 -4.5 11.9 3.8 -14.7 10.1 29.6 20.6 27.0 21.3 16.7 3.1 -9.3 USD 3.5 1.9 5.7 0.2 21.4 4.5 8.6 10.5 1.3 -10.0 9.8 41.8 16.6 36.7 12.4 29.4 0.6 1.7

Key USD Exchange Rates


Index: July 7 2010 =100 105 100 95 90 85 80 Jul-10 USD/EUR USD/JPY USD/GBP

Emerging Asia Weighted Avg.

Oct-10

Jan-11

Apr-11

Jul-11

US Treasury Yields
% 6 Jul 1, 2007

South Africa JALSH Latin America Weighted Avg. Brazil Bovespa

4 Jan 1, 2008 July 7, 2011 0 3m 2yr 5yr 10yr 30yr

Mexico IPC 0.1 13.9 12.4 Note: Updated as of COB 7 July 2011. Weighted averages calculated using IMF share of world GDP. EM Asia includes China, India, HK, Indonesia, Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. EMEA includes Russia, Czech Republic, Hungary, Poland, Romania, Turkey, Ukraine and South Africa. LatAm includes Brazil, Argentina, Chile, Colombia, Mexico, Peru and Venezuela. Source: Bloomberg, Barclays Capital

Source: Bloomberg, Barclays Capital

Rates, Credit and Commodities


1 week 3 months 12 months Latest Rates 2 year Treasury 10 year Treasury 30 year Treasury Overnight LIBOR 3-month LIBOR Spread 3M LIBOR over 3M OIS Credit Barclays Global Aggregate Barclays US Aggregate Barclays EM Aggregate Barclays US Credit Barclays US Corporate IG Commodities CRB/Reuters Commodities Index WTI Gold Barclays Metals Total Return Index Barclays Agri. Total Return Index 553.4 98.67 1532.4 170.1 173.7 550.3 95.42 1500.4 166.0 170.4 578.1 110.30 1458.1 169.0 188.9 419.9 74.07 1202.8 121.8 120.3 68.8 56.1 297.3 138.7 150.9 67.5 56.1 301.1 141.5 154.6 56.3 49.2 266.0 127.7 137.5 63.0 56.6 360.9 178.7 192.2 0.47 3.14 4.37 0.12 0.25 0.14 0.46 3.16 4.37 0.13 0.25 0.13 0.78 3.55 4.62 0.16 0.29 0.17 0.63 2.98 3.96 0.29 0.53 0.34 ago ago ago

Global FX
1-week Spot G7 Rates DXY Dollar Index EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD USD/AUD USD/NZD Selected EM Rates USD/KRW USD/CNY USD/BRL USD/RUB USD/INR USD/TRY 1064 6.47 1.55 27.91 44 1.62 -0.3 0.0 -0.6 0.2 -0.6 -0.4 -2.2 -1.2 -2.0 -1.1 0.5 7.0 -13.0 -4.6 -12.1 -10.1 -5.6 4.2 74.96 1.44 81.25 1.60 0.84 0.96 0.84 1.20 0.9 -1.0 0.9 -0.5 0.5 -0.5 0.5 -0.5 -0.8 0.4 -4.3 -2.1 -7.9 0.1 -7.9 -6.6 -10.6 13.7 -7.4 5.2 -19.7 -8.4 -19.7 -15.6 % Chg. 3-month % Chg. 12-month % Chg.

Note: Updated as of COB 7 July 2011. Barclays indices expressed in optionadjusted spreads. Source: Bloomberg, Barclays Capital

USD/MXN 11.54 -1.5 -2.0 -10.1 Note: Updated as of COB 7 July 2011. DXY Dollar Index consists of EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%). Source: Bloomberg, Barclays Capital

8 July 2011

Barclays Capital | Global Economics Weekly

OUTLOOK: UNITED STATES

A production turn: To everything there is a season


Michael Gapen +1 212 526 8536 michael.gapen@barcap.com

A V-shaped recovery appears to be taking hold in Japan, easing supply chain disruptions to auto production and sales in the US. However, the US private sector is behaving cautiously; nominal consumer spending growth has held up, but labor market conditions took another step back in June. The outcome of the debt ceiling negotiations and the potential for a cautious consumer remain the most pressing risks to a second-half recovery.

A V-shaped recovery appears underway in Japan

Given the link between supply constraints in Japan and the slowdown in US growth, it is worth monitoring developments in Japan that may foreshadow a turn in US production. Incoming data in Japan suggest that a recovery from the steep earthquake-induced slowdown in March and April is underway. New auto sales rose a seasonally adjusted 29.5% and 15.7% in May and June, respectively, and core private-sector machinery orders rose 3.0% in May after falling 3.3% in April. These data come on the heels of last weeks industrial production report, which indicates that Japanese output is now close to preearthquake levels. Although uncertainties remain, our Japan economists continue to expect a V-shaped recovery to take hold in the second half of this year and extend into Q1 12.

A time to rebuild
Auto production is set to rebound in July

If the incoming data in Japan are indicative of a turning point, then the constraints on US growth from supply chain disruptions should begin to ease. As we write this week in Auto sector getting out of reverse gear, supply chain disruptions have had a significant effect on US vehicle output. Figure 1, for example, shows that the main source of weakness in the April report on industrial production was autos; we expect the disruption to persist in the May and June data as automakers return to pre-earthquake production levels. Altogether, we estimate that the decline in auto production, largely confined to US-based Japanese automakers, shaved 0.5-1.0pp off Q2 GDP growth. However, we expect the recovery in auto production to accelerate in July, potentially boosting Q3 GDP growth as much as 1.0-1.5pp.

Figure 1: Supply chain disruptions on auto production should peak in the second quarter
% m/m 1.2 1.0 0.8 f/c 0.6 0.4 0.2 0.0 -0.2 -0.4 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
Source: Federal Reserve, Haver Analytics

Figure 2: Comparable chain store sales suggest nominal spending growth has held up
6m/6m % chg, saar 10 8 6 4 2 0 -2 -4 -6 -8 -10 05 06 07 08 09 10 11
Source: ICSC, Census Bureau, Haver Analytics

Manufacturing Manufacturing ex autos

Chain store sales (ex-Walmart) Core retail sales

8 July 2011

Barclays Capital | Global Economics Weekly

A time for resilience, a time for caution


Consumers remain resilient, but labor market conditions worsened further

A rebound in auto production is only one part of an expected turn in activity. As we have frequently written, soft goods production often follows soft goods consumption: the slow start to goods production in Q2 was also related to the surge in headline inflation that caused a moderation in real goods consumption in Q1. After rising only 0.4% in April and declining 2.5% in May, comparable chain store sales rose 1.8% m/m in June (7.0% y/y). As shown in Figure 2, comparable chain store sales are often a good indicator for the trend in core retail sales and suggest nominal consumer spending has remained resilient. The expected rebound in auto sales and the moderation in headline inflation suggest stronger real consumption in the months ahead. As shown in Figure 3, both ISM indexes remain in expansionary territory, suggesting that manufacturers see the slowdown as short-lived. However, the corporate sector has clearly turned much more cautious. The June employment report, in which private payrolls expanded only 57k, and the May reading, which was revised lower, to 75k, provide further indication that labor market conditions have weakened. In addition to tepid payroll growth, the report suggests that growth in nominal income may have slowed (Figure 4). The softer trend in the payroll proxy for labor income (hours worked times average hourly earnings) and worsened employment prospects, if persistent, may cause households to follow the corporate sector and become more cautious in regards to their spending plans.

and the corporate sector has turned cautious

A time to agree (its not too late)


The pendulum has swung in the direction of fiscal consolidation

Altogether, while the data at home and abroad points toward a rebound in production, several risks to a broader H2 recovery remain. An important near-term one is the debt ceiling negotiations, which have likely become more difficult in the face of a weaker job market, as the administration will be less likely to accept an outcome that threatens the recovery. A failure to reach an agreement to raise the debt ceiling would certainly curtail growth in H2 11. If an agreement is reached, the risk to growth in 2012 from fiscal consolidation is still uncertain, since the details of the composition and timing of the re-profiling of revenues and expenditures remain in flux. A second risk, highlighted above, is that consumers turn cautious and push the saving rate higher while reducing expenditures on durables. We will continue to monitor these risks and look for better real GDP growth in H2 11 as the most likely outcome.

Figure 3: Both ISM indexes remain in expansion territory


Diffusion index 65 60 55 50 ISM manufacturing index ISM nonmanufacturing index

Figure 4: Growth in labor income may have softened in June


3m/3m % chg, saar Wage and salary income 15 Payroll proxy (agg hours * avg hourly earnings) 10 5 0

45 40 35 30 05 06 07 08 09 10 11

-5 -10 -15 05 07 09 11

Note: Shading indicates recession. Source: Institute of Supply Management, Haver Analytics

Note: Shading indicates recession. Source: BLS, Haver Analytics

8 July 2011

Barclays Capital | Global Economics Weekly

IN FOCUS: UNITED STATES

Auto sector getting out of reverse gear


Peter Newland +1 212 526 3153 peter.newland@barcap.com Supply chain disruptions have hit auto output

The auto sector will be a sizable drag on Q2 GDP growth, but output started to rebound at the end of June and is set to rise further in July, suggesting a significant boost to Q3 GDP growth. Supply chain disruptions in the aftermath of the Japan earthquake have had a significant effect on US vehicle output. Auto production declined 9.3% m/m in April and a further 1.5% in May. Another drop is expected in June. This is likely to translate into a sizable drag on Q2 GDP growth and has had broader implications, too: auto inventories have fallen sharply among Japanese producers, imports from Japan were down a record $3.0bn (nsa) in April, and auto sales fell in May and June. However, disruptions have begun to ease and production should bounce back during Q3, providing a boost to Q3 GDP growth.

A rebound in auto production should become clear in July


specifically among the USbased Japanese producers

The cut in production has been centered in the US-based plants of Japanese producers (the three largest Toyota, Honda and Nissan account for about 40% of car output and 20% of truck output). Weekly production data compiled by Automotive News show that Honda, for example, cut output sharply during April, and Toyota halted production altogether for the first week of June. As disruptions have eased, Toyotas production has rebounded, although Honda remains at about half of pre-disruption levels (Figure 1). The effect on domestic producers, meanwhile, has been much smaller (Figure 2). Monthly production schedule data from Wards suggest a more significant increase is likely among the Japanese producers in July. Allowing for seasonal factors and differences between the two data sources, the Wards production schedules point to about a 15-20% m/m (sa) increase in auto output in July, although they suggest that another small decline is likely in June (Figure 3).

Production schedules point to a strong rebound in July

providing a boost to Q3 GDP growth


which should boost Q3 GDP growth

All in all, schedule data point to a solid recovery by the end of Q3, consistent with a rebound of about 65% q/q (saar), following a decline of about 27% in Q2. Figure 2: but US producers have been largely unaffected
000s, nsa 120 100 80 60 40 20 0 Jan-10 US makes Japanese makes

Figure 1: Honda and Toyota cut output sharply


000s, nsa 24 20 16 12 8 4 0 Jan-10 Honda Toyota

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Source: Automotive News, Barclays Capital

Source: Automotive News, Barclays Capital

8 July 2011

Barclays Capital | Global Economics Weekly

What does this mean for GDP?


Auto production has accounted for about 2.5% of GDP in recent quarters, so the pattern suggested above points to a drag on growth of 0.5-1.0pp (annualized) in Q2 and a boost of 1.0-1.5pp in Q3 (allowing for the fact that the monthly measures of output and production schedules do not map one-for-one to the series in the GDP report and tend to be more volatile).
The auto sector has distorted GDP growth in the past

While significant, this is far from unprecedented the auto sector may be relatively small, but volatility in production and inventory levels have dominated the growth picture in several quarters in the past. Indeed, the sector contributed more than 1pp to the 1.8% GDP growth recorded in Q1 this year. Looking further back, vehicle production was a large drag on growth at the height of the recession in late 2008 and early 2009, reflecting the closure of GM and Chrysler plants which were both forced to file for bankruptcy protection on the back of a sharp and sudden drop off in demand. However, aided by government support and the boost to sales from the cash for clunkers program, output rebounded sharply in the second half of 2009, a key factor behind the emergence of the economy from recession (Figure 4).

The expenditure side of the national accounts paints a similar picture


The associated drop in auto sales will hit Q2 consumption

Looking at GDP from the expenditure side (as we do with our tracking estimate) the drop in auto sales in May and June will materially hit real consumer spending in Q2. Sales fell to 11.8m (saar) units in May and 11.5m in June from 13.1m in April. Again it was the US-based Japanese producers who were hit hardest. For example, sales at Honda and Toyota were down about 20% y/y in June, compared with gains of 5-10% at GM and Ford. This suggests that supply constraints played a significant role. In addition, press reports have highlighted a cut in incentives and a rise in prices in response to the supply effect as hitting sales more broadly. Our equity analysts expect a rebound during Q3, driven by the Japanese producers. Meanwhile, auto inventory accumulation looks set to be a drag on Q2 growth, although this is likely to be partially offset by a stronger trade picture in part reflecting the drop in imports from Japan. All in all, our GDP tracking estimate currently suggests that the risks to our 2.0% forecast for Q2 growth are tilted to the downside, but an auto-driven rebound in Q3 looks increasingly likely.

but should also rebound in Q3

Figure 3: Auto output and production schedules


Index (sa), 2007=100 100 95 90 85 80 75 70 Jan-10 Apr-10 Jul-10 IP auto production (lhs) Ward's production schedule (rhs) Units, mil (saar) 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 Oct-10 Jan-11 Apr-11 Jul-11

Figure 4: Motor vehicle contribution to GDP growth


pp 2

-1 Forecasts Q100 Q102 Q104 Q106 Q108 Q110

-2 Q198

Source: Federal Reserve, Wards, Barclays Capital

Source: BEA, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: UNITED STATES


Dean Maki, Michael Gapen, Troy Davig, Peter Newland Review of last weeks data releases
Main indicators Factory orders, %m/m ISM non-manufacturing index ADP private employment, chg, thous Initial jobless claims, thous (4wma) Nonfarm payrolls, chg, thous Private nonfarm payrolls, chg, thous Unemployment rate, % Average hourly earnings, % m/m (y/y) Average weekly hours Period May Jun Jun 1-Jul Jun Jun Jun Jun Jun Previous -0.9 R 54.6 38 429 (426) 25 R 73 R 9.1 0.3 (1.9) R 34.4 Barclays 0.9 54.5 425 75 100 9.1 0.1 (1.9) 34.4 Actual 0.8 53.3 157 418 18 57 9.2 34.3 Comments Factory orders improved significantly, as we expected Mixed signals: lower headline, but solid employment Strong, but a misleading signal for the BLS report Jobless claims declined by more than expected Very weak employment report Declines in construction and finance payrolls Fully reflected weakness in employment Aggregate hours rose 2.8% in Q2

0.0 (1.9) Payroll proxy of labor income rose 4.6% in Q2

Preview of the next week


Monday 11 July

No significant events or data releases scheduled


Tuesday 12 July 8:30 Trade balance, $bn Period May Prev 2 -46.0 Prev 1 -46.8 Latest -43.7 Forecast -43.5 Consensus -44.1

14:00 Fed releases minutes from June 21-22 FOMC meeting

Trade balance: The ISM imports index suggests modest real import growth in May. And given that import prices rose that month, we also expect a rise in nominal imports. The ISM export index still points to steady export growth, though it was slightly softer in May relative to its much stronger readings earlier in the year. Export prices slightly outpaced import prices in May, leading us to forecast a modest narrowing of the trade deficit, from $43.7 to $43.5bn. FOMC minutes: We look for the minutes of the June FOMC meeting to provide additional insight into the committees view that much of the slowing in recent months stemmed from the temporary impact of higher commodity prices and supply-chain disruptions from the earthquake in Japan. Given the chairmans heavy focus on commodity prices in his June 7 speech in Atlanta and the dropping of a reference to core or underlying inflation in the statement, we look for the minutes to provide additional context on the determinants of commodity price pressures, the relative advantage of focusing on core versus headline inflation, and the recent behavior of actual and expected inflation. Finally, we look for the minutes to suggest that the trade-off for further stimulus has worsened and that the bar for additional asset purchases remains high.
Wednesday 13 July 8:30 9:10 Import prices, % m/m (y/y) Period Jun Prev 2 3.0 (10.3) Prev 1 2.1 (11.4) Latest 0.2 (12.5) Forecast -0.4 (13.3) Consensus -0.7 (13.3)

Boston Fed President Rosengren (FOMC non-voter) speaks on economic outlook in Worcester

10:00 Fed Chairman Bernanke delivers semi-annual monetary policy report to house 13:20 Dallas Fed Fisher (FOMC voter) speaks on economy in Dallas 14:00 Treasury budget balance, $bn Jun 33.5 (08) -94.3 (09) -68.4 (10) -66.0 (11) -65.0 (11)

Import prices: We expect a 0.4% decline in import prices in June. This largely reflects a decline in petroleum prices, partly offset by our expectation of a 0.3% rise in ex-petroleum prices, reflecting a softer dollar and rising cost pressures abroad. Treasury budget balance: We forecast the June federal deficit to be $66bn, bringing it to $993bn for the first nine months of the current fiscal year.

Thursday 14 July 8:30 PPI, % m/m (y/y)

Period Jun

Prev 2 0.7 (5.8)

Prev 1 0.8 (6.8)

Latest 0.2 (7.3)

Forecast 0.0 (7.4)

Consensus -0.2 (7.4) 11

8 July 2011

Barclays Capital | Global Economics Weekly 8:30 8:30 8:30 8:30 8:30 Core PPI, % m/m (y/y) Retail sales, % m/m Retail sales excluding autos, % m/m Core retail sales, % m/m Initial jobless claims, thous (4wma) Jun Jun Jun Jun 8-Jul 0.3 (1.9) 0.8 1.2 0.6 429 (426) 0.3 (2.1) 0.3 0.5 0.3 432 (428) 0.2 (2.1) -0.2 0.3 0.2 418 (425) 0.2 (2.1) -0.2 -0.1 0.3 415 (424) 0.2 (2.2) 0.0 0.1 0.4

10:00 Fed Chairman Bernanke delivers semi-annual monetary policy report to Senate 10:00 Business inventories, % m/m May 0.7 1.3 0.8 0.8 0.6

PPI: We expect a 0.0% reading on the headline PPI in June, and a 0.2% rise in the core PPI. Within non-core items, a sizeable drop in gasoline prices during the month should be partly tempered by the rebound we expect in food prices (following a 1.4% decline in May). Within the core, our 0.2% forecast is consistent with our view that pipeline price pressures are gradually building across most consumer-related components. Retail sales: We expect retail sales to fall 0.2% in June, reflecting declines in auto and gasoline sales. On the former, reports show that sales were down sharply among US-based Japanese producers during the month, suggesting that supply constraints in the aftermath of the earthquake in Japan were again a factor. On the latter, the decline in gasoline prices is likely to be reflected in nominal sales, too. Excluding autos, gasoline and building materials, we are looking for a solid 0.3% increase in the core retail sales measure, consistent with the rebound in weekly chain store sales during June.
Friday 15 July 8:30 8:30 8:30 8:30 9:15 9:15 9:55 CPI, % m/m (y/y) Core CPI, % m/m (y/y) CPI, NSA index Empire State mfg index Industrial production, % m/m Capacity utilization, % U. Michigan consumer sentiment index Period Jun Jun Jun Jul Jun Jun Jul p Prev 2 0.5 (2.7) 0.1 (1.2) 223.467 21.70 0.6 76.8 69.8 Prev 1 0.4 (3.2) 0.2 (1.3) 224.906 11.88 0.0 76.7 74.3 Latest 0.2 (3.6) 0.3 (1.5) 225.964 -7.79 0.1 76.7 71.5 Forecast -0.3 (3.5) 0.2 (1.5) 225.6 10.00 0.3 77.0 73.0 Consensus -0.1 (3.6) 0.2 (1.6) 4.00 0.4 77.0 72.5

CPI: We expect a 0.3% decline in the CPI and a 0.2% increase in the core CPI in June, consistent with an NSA CPI index print of 225.6, down from 225.964 in May. Within non-core components, we expect a significant negative contribution from gasoline prices, with the decline during the month likely to be amplified by a negative seasonal factor. We expect this to be only partly offset by a small positive contribution from food prices. Within the core, we expect the recent trend of small increases in the heavily weighted Owners Equivalent Rent (OER) index to continue, boosting core services prices. Meanwhile, core goods inflation is likely to come in softer than May, when prices were boosted by sharp gains in the volatile apparel and vehicle components. Empire State manufacturing: We expect the Empire State manufacturing index to rebound to 10.0 in July after falling to -7.8 in June. Growth in manufacturing activity slowed sharply during Q2, but we think this stemmed largely from transient factors, including supply disruptions in the auto sector. We expect a rebound in Q3. Industrial production: We expect industrial production to rise 0.3% and manufacturing output to rise 0.2% in June. Manufacturing activity was hit by a decline in auto production in April and May, resulting from supply-chain disruptions following the earthquake in Japan. We expect another small drop in auto output in June. However, strength in the ISM manufacturing survey points to solid growth in manufacturing activity more broadly. University of Michigan consumer sentiment: We expect the University of Michigans index of consumer sentiment to increase to 73 (previous: 71.5) in the July preliminary survey. We see the recent rally in equity markets and lower gasoline prices as the main factors driving the improvement. The stabilization of gasoline prices should lead to some further moderation of near-term inflation expectations.

8 July 2011

12

Barclays Capital | Global Economics Weekly

OUTLOOK: EURO AREA

Austerity hurts and inflation bites


Frank Engels +49 (0)69 7161 1832 frank.engels@barcap.com

Following the strong growth in Q1 this year, and given what we believe was a weak Q2, real GDP growth in H2 is set to be more modest than thought previously. Even in Germany so far the powerhouse of growth among the large core countries indications increasingly suggest that its activity expansion is about to moderate notably. Despite this, the ECB remains in gradual tightening mode so as to normalise rates. After yesterdays rate hike, we expect another 25bp hike to occur in December.

Real GDP growth has been facing increasing headwinds

Following its very strong first quarter activity expansion (Q1 real GDP growth reached 0.84%), euro area growth faced increasing headwinds in the second quarter, suggesting that real GDP growth slowed to 0.3% in Q2. This was not a surprise: the previous growth pace was unsustainable, driven to a large extent by the favourable effects of unwinding weather-induced distortions to construction and transport activity, and supported by stillstrong foreign demand. Rising inflation and higher financing costs have started to erode domestic purchasing power, as evidenced by weak car and retail sales (Figures 1 and 2). Moreover, the adverse effects of fiscal austerity applied across almost all euro area countries, a broad-based slowdown in foreign demand (partially reflecting temporary adverse effects in Japan and the US, but also weaker demand in large parts of Asia for consumer durables such as cars) and rising uncertainties related to the resolution of problems faced by the periphery countries (most notably Greece, Portugal and Ireland) have been and are likely to continue to be a drag on real GDP growth. This weeks (surprisingly ambitious) announcement by Italy of EUR68bn in additional fiscal tightening over the next three years proves a good case in point in this regard. Along those lines, we expect Germany so far the powerhouse of growth and the main driving force behind above-potential growth in the euro area to expand more modestly. In fact, survey indicators have been pointing to growth moderation in the quarters to come, and recent factory orders have revealed a notable slowdown in foreign demand (Figures 3 and 4), Figure 2: as have euro area retail sales
130

Rising inflation, fiscal austerity and slowing foreign demand are the main drivers of this deceleration in growth

Germany likely to expand more modestly

Figure 1: Car sales have taken a turn weaker


4.5 4.0 3.5 3.0 2.5 2.0 1.5 Spain 1.0 0.5 00 01 02 03 04 05 06 07 08 09 10 11 France Italy Germany

125 120 115 110 105 100 95 90 85 05 06 07 08 09 10 11 France Ireland Euro Germany Greece Portugal Italy Spain

Source: Haver Analytics, Barclays Capital

Source: Haver Analytics, Barclays Capital

8 July 2011

13

Barclays Capital | Global Economics Weekly

while domestic demand held up reasonably well. Similarly, car and truck production, as well as vehicle exports, have turned lower in Q2, thus resembling recent trends in car sales in important export markets, specifically of German car producers across Asia (for more details, see Emerging Asia: Auto sales - Pulling over, 6 July 2011). As a consequence, we have lowered our euro area growth forecasts moderately for Q3 and Q4 11 (by 0.1pp each) and for 2012 (by 0.2pp), thus implying annual real GDP growth rates of 1.9% and 1.6%, respectively. Weaker private consumption and foreign demand growth are the main drivers behind this revision.
The recent decline in the macro momentum has not gone unnoticed by the ECB

yet the policy rate has been raised to 1.5%

Minimum rating restrictions on Portuguese debt have been suspended by the ECB

We believe it is time for European policymakers to address the lack of price and liquidity support in periphery bond markets

The recent decline in the macro momentum has not gone unnoticed by the ECB in its policy statement. The tone of the economic analysis has been softened somewhat to reflect the weaker incoming data and greater uncertainty. Despite this, as widely expected, the ECB announced a 25bp increase in its policy rate from 1.25% to 1.50%, arguing that mediumterm inflation risks were still skewed to the upside and the risk of second-round inflation pressures thus had to be addressed, particularly since monetary liquidity remained ample and the overall policy stance still accommodative. Moreover, in line with our expectations, the ECB provided no further indications as to future policy adjustments and reiterated that uncertainty remained elevated. Against this backdrop, we continue to expect the ECB to pause the tightening cycle until late this year, with the next 25bp rate hike most likely in December. As in previous ECB policy meetings, the tensions in European government bond markets did not feature prominently in the introductory statement, even though the ECB decided to lift minimum rating restrictions on Portuguese debt pledged as collateral in its repo operations. Instead, the crisis in the periphery received focal attention at the press conference. It became clear that the ECB remains of the view that fiscal policies ought to address the problems and that any euro area-wide solution would need to be sought and coordinated by euro area governments. We take issue with this stance because, in our view, even marginally negative news such as this weeks rating downgrade of Portugal by Moodys results in substantial spread widening across periphery bonds, reflecting poor liquidity. We believe that European policymakers need to realise that both the EFSF and ECB should lend support to liquidity and prices of periphery sovereign bonds to contain financing costs and, thereby, limit contagion.

Figure 3: Foreign core manufacturing orders and Ifo expectations seem to roll over
140 120 100 80 60 40 20 0 Jan-00 Foreign Manufacturing Core Orders, LHS IFO Business expectations, RHS Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 20 10 0 -10

Figure 4: and PMI survey information points to downside risks to future growth
3 2 1 0 -1 -20 -30 -40 -50 -2 -3 -4 PMI production PMI new orders - finished goods inventory Manufacturing production

-5 Nov-01 May-03 Nov-04 May-06 Nov-07 May-09 Nov-10


Source: Markit, Haver Analytics, Barclays Capital

Source: Haver Analytics, Barclays Capital

8 July 2011

14

Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: EURO AREA


Julian Callow, Fabio Fois, Frank Engels, Franois Cabau, Marion Laboure, Marcus Widen, Thorsten Polleit Review of last weeks data releases
Main indicators Period Previous BarCap Actual Comments

E17: PPI, % m/m (y/y) E17: Retail sales, % m/m (y/y) E17: Final composite PMI, index

May May Jun

0.9 (6.7) R 0.7 (0.8) R 53.6 P

-0.1 -1.3 53.6

- 0.2 (6.2) -1.1 53.3

Shows further evidence of pipeline pressure Imply weakness in private consumption in Q2 New orders index at its lowest level since November 2009; services should be the main support to growth in Q2 Hiked the repo rate to 2.0%, and left its policy rate forecast unchanged, implying a high probability of two more hikes during the three remaining meetings this year and further normalisation during 2012 No revision from the preliminary figure Owing to strong rise in domestic capital goods orders; foreign orders down strongly French export momentum fades Industrial production growth has remained resilient for now despite global headwinds As widely expected Defying global trends May's decline in IP still consistent with positive q/q GDP growth in Q2

Sweden: Interest rates announcement, %

Jul

1.75

2.00

2.00

E17: Final GDP, % q/q Germany: Factory orders, %m/m (y/y) France: Trade balance, bn Germany: Industrial production, % m/m E17: ECB Interest rate announcement, % Germany: Trade Balance sa, bn Italy: Industrial production, % m/m

Q1 May May May Jul May May

0.8 P 2.9 (10.6) -7.2 R -0.8 R 1.25 11.9 R 1.1 (3.8) R

0.9 -1.3 (8.7) -5.7 0.7 (7.2) 1.50 12.1 -0.5 (2.1)

0.8 1.8 (12.2) -7.4 1.2 1.50 12.8 -0.6 (1.8)

Preview of week ahead


Sunday 10 July 06:30 07:15 Period Prev 2 Prev 1 Latest Forecast Consensus E17: ECB President Trichet speaks at the annual Aix-en-provence economic forum in France Global: Banque de France Governor Noyer & OECD Secretary General Gurria speak at Economic Forum in France Period Prev 2 Prev 1 Latest Forecast Consensus

Monday 11 July 13:00 15:00 EU: Eurogroup meeting

France: French Senate examines revised bill seeking to impose constitutional rules on balancing the Government's Budget E17: Banque de France Governor Noyer speaks on security of payment cards E17: ECB Executive Board member Bini Smaghi speaks at a panel debate organised by the Ruling Companies Association

06:45 08:00

France: Industrial production, % m/m (y/y) Norway: CPI, % m/m (% y/y)

May Jun

0.4 (5.8) 0.3 (1.0)

-1.1 (3.2) 0.5 (1.3)

-0.3 (2.6) -0.2 (1.6)

0.5 -

0.5 -

Euro area Eurogroup/Ecofin meetings: We expect the Eurogroup/Ecofin meetings to focus on the results of the EU bank stress tests and discuss implications for possible backstops. The meeting will also focus on the ongoing discussions with the private sector on private sector involvement (PSI) and how to proceed on Greece. France Industrial Production: We forecast French industrial production to have increased 0.5% m/m (+0.5% y/y) in May (consensus: 0.5%; previous: -0.3% m/m and 2.6% y/y), led by a 0.3% m/m (+4.2% y/y) increase in manufacturing production and a 3.7% m/m (-4.7% y/y) increase in energy production. Such an outcome would leave April-May industrial production 0.7% below Q1 (which itself was 1.8% above Q4).

8 July 2011

15

Barclays Capital | Global Economics Weekly Tuesday 12 July 07:30 Period Prev 2 Prev 1 Latest Forecast Consensus

EU: EU Economic & Financial Affairs Council (ECOFIN) Meeting in Brussels EU: EU Competition commissioner Almunia testifies before EU Parliament's economic committee

05:30 05:30 05:30 06:00 06:00 07:30 07:30 09:00

France: HICP, % m/m (y/y) France: CPI, % m/m (y/y) France: CPI ex tobacco index Germany: Final HICP, % m/m (y/y) Germany: Final CPI, % m/m (y/y) Sweden: CPI Headline, % m/m (y/y) Sweden: CPIF, % m/m (y/y) Portugal: HICP, % m/m (y/y)

Jun Jun Jun Jun Jun Jun Jun Jun

0.9 (2.2) 0.8 (2.0) 121.90 0.3 (2.7) 0.2 (2.4) 0.7 (2.9) 0.4 (1.5) 1.6 (3.9)

0.4 (2.2) 0.3 (2.1) 122.32 -0.2 (2.4) 0.0 (2.3) 0.4 (3.3) 0.4 (1.8) 0.6 (4.0)

0.1 (2.2) 0.1 (2.0) 122.40 0.0 (2.4) P 0.1 (2.3) P 0.2 (3.3) 0.1 (1.7) -0.1 (3.7)

0.0 (2.2) 0.0 (2.1) 122.45 0.0 (2.4) 0.1 (2.3) -0.1 (3.2) -0.1 (1.6) 0.1 (3.6)

0.0 (2.2)
-

0.0 (2.4) 0.1 (2.3)


-

Sweden CPIF: We expect Swedish headline CPI to decrease 0.1% m/m, bringing the inflation rate to 3.2% y/y. On the Riksbank preferred inflation measure, CPIF, we also forecast a decrease of 0.1% m/m with an inflation rate of 1.6%, slightly lower than the Riksbank's forecast of 1.7% y/y.
Wednesday 13 July Period Prev 2 Prev 1 Latest Forecast Consensus

07:00 09:00

Spain: Final HICP, % m/m (y/y) E17: Industrial production, % m/m (y/y)

Jun May

0.9 (3.5) 0.6 (7.8)

-0.1 (3.4) 0.0 (5.8)

3.0 P 0.4 (5.5)

-0.2 (3.0)
0.6

-0.2 (3.0) -

Euro area Industrial production: We look for euro area industrial production to increase by 0.6% m/m in May (consensus: +0.5% m/m), after a modest +0.4% m/m rise in the first month of the quarter. This would then leave industrial production in May 1.2% above Q1. Assuming a flat reading in June, this would thus be consistent with industrial production having slightly slowed down in Q2 from 1.8% q/q in Q4 to 1.2% q/q in Q1 and 1.0% q/q in Q2.
Thursday 14 July 08:00 Period Prev 2 Prev 1 Latest Forecast Consensus

Global: EU/IMF/ECB hold press conference on Irish progress France: Bank holiday (National Day) E17: ECB publishes monthly bulletin Jul

06:00 07:00 08:00 08:00 08:00 09:00 09:00 09:00 10:00

Finland: HICP, % m/m (y/y) Slovakia: HICP, % m/m ( y/y) Austria: HICP, % y/y Italy: Final HICP, % m/m (y/y) Italy: Final CPI, % m/m (y/y) E17: Final HICP, % m/m (y/y) E17: HICP ex tobacco, index (2005 = 100) E17: 'Eurostat' core (HICP x fd, alc, tob, ene), % m/m (y/y) Ireland: HICP, % m/m (y/y)

Jun Jun Jun Jun Jun Jun Jun Jun Jun

0.6 (3.5) 0.4 (3.8) 1.2 (3.3) 1.0 (2.9) 0.5 (2.6) 0.6 (2.8) 112.11 1.4 (1.3) 0.5 (1.2)

0.2 (3.4) 0.5 (3.9) 0.6 (3.7) 0.2 (3.0) 0.1 (2.6) 0.0 (2.7) 112.75 0.5 (1.6) 0.3 (1.5)

-0.1 (3.4) 0.3 (4.2) -0.1 (3.7) 0.1 (3.0) P 0.1 (2.7) P (2.7) P 112.74 0.0 (1.5) 0.0 (1.2)

0.1 (3.3) 0.1 (4.3) -0.1 (3.6) 0.1 (3.0) 0.1 (2.7) -0.1 (2.7) 112.67 0.0 (1.5) 0.1 (1.4)

0.1 (3.0) 0.1 (2.7) 0.0 (2.7)


-

Euro area HICP: We are in line with the consensus in expecting the euro area final HICP to be confirmed at 2.7% y/y in June, unchanged versus May, though we are slightly below-consensus in expecting it to have declined -0.1% on the month against market expectations for a flat reading. Also in line with the consensus, we expect the Eurostat core HICP to have held steady at 1.5% y/y. We project the euro area HICPx to have to have edged down to 112.67 from 112.74 (no consensus available).
Friday 15 July Period Prev 2 Prev 1 Latest Forecast Consensus

10:00

EU: European bank stress test results expected to be released


E17: ECB Executive Board member Bini Smaghi inaugurates an art exhibition

06:00 09:00

EU 27: New car registrations, % y/y E17: Trade balance, bn (sa)

Jun May

-5.0 -2.7

-4.1 -2.2

7.1 -2.9

-1.6

-3.3

Euro area Trade balance: Notably, on the back of a 0.9bn increase in the German trade balance surplus to 12.8bn, and only a slight increase of the French trade deficit by 0.2bn in May, we expect the euro area trade deficit to improve from 2.9bn to 1.6bn, which would therefore more than offset last months increase from -2.2bn.
8 July 2011 16

Barclays Capital | Global Economics Weekly

OUTLOOK: UNITED KINGDOM

Q1 wan, Q2 too
Simon Hayes +44 (0) 20 7773 4637 simon.hayes@barcap.com

The available data suggest that growth in Q2 was even weaker than the disappointing 0.5% expansion in Q1, and we now expect growth to have been just 0.2% q/q. The PMIs point to a slowing in Q2, and the available official data on services, construction and IP similarly point to a weak GDP estimate. Such tepid growth rates are likely to keep the MPC nervous about tightening monetary policy and to increase the pressure for a further expansion of QE.

The UK data conveyor belt has paraded a long line of disappointing activity numbers. The weather-related contraction in Q4 10 was followed by only a pallid rebound in Q1, implying zero growth over the two quarters. The indicators for Q2 have been similarly unimpressive. This week we received the final set of PMIs for Q2 and the last of the official data that will feed into the first estimate of Q2 GDP, which is due to be published on 26 July. Although it is important to be mindful of the uncertainty surrounding forecasts of preliminary GDP estimates, the indications so far are that Q2 growth was lower than the 0.5% q/q in Q1, and we now expect growth to have been just 0.2% q/q (our previous forecast was 0.3%).
Our composite PMI points to a slowing in GDP in Q2

Our composite PMI was 53.7 in Q2, down from 56.6 in Q1. A mechanical mapping across to GDP points to a 0.3% q/q expansion, which is a touch above our new forecast (Figure 1). The drop-off in momentum was largest in manufacturing, for which the output index fell from 61.6 in Q1 to 53.0 in Q2, the largest quarterly decline in its 19-year history. The services and construction PMIs also fell on the quarter, although by appreciably less. The PMIs have failed to match the variability in the official GDP estimates in recent quarters one reason the Q4 contraction came as such a surprise. Q2 activity is also likely to have been affected by some temporary factors, in particular the extra public holiday for the royal wedding in April and supply-chain dislocation that followed the Japanese tsunami. Oil and gas output was also affected by maintenance-related closures. The extent to which these disruptions have been reflected in the PMIs is unclear, so we caution against taking the PMIbased indicator as the final word on Q2 growth. Figure 1: GDP and the composite PMI
% q/q 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Source: Haver Analytics, Barclays Capital

GDP Estimate based on composite PMI BarCap Q2 forecast

8 July 2011

17

Barclays Capital | Global Economics Weekly

Information gaps mean there is always great uncertainty in forecasting the preliminary GDP estimate

This week also brought official May data for industrial production and construction output. These are the last of the official output data that will be published ahead of the preliminary estimate of Q2 GDP. Before considering the outturns, it is worth reiterating the sparseness of the available information set at this stage. The white segments in Figure 2 denote data that we do not yet have to estimate overall GDP growth. The biggest blind spot relates to services: without the May and June Index of Services, we are in the dark for about 50% of Q2 activity. In fact, the available data cover just 41% of GDP. Our forecast of the preliminary estimate therefore requires us to guess what the ONS will include for these components. (In fact, given that the ONS itself has only about 60% of the full information needed, we have to guess the ONSs guesses.) According to the Index of Services, services output fell by 1.2% m/m in April. Some of this weakness can be attributed to the extra public holiday, but exactly how much is unknown. If we unwind all of this fall in May and assume an additional 0.5% m/m rise in June, then services output would have grown by 0.5% q/q in Q2, down from 0.9% in Q1, contributing 0.4pp to q/q GDP growth. IP in May was held back by maintenance-related closures that produced a 5.7% m/m drop in oil and gas output. We should therefore expect some rebound in June, and factoring in a 0.5% m/m increase, we forecast that IP fell by 1.3% q/q in Q2 after falling by 0.1% in Q1. This would subtract 0.2pp from q/q GDP growth. Lastly, we expect construction output to have been close to flat in Q2 after the large 3.4% q/q contraction in Q1. Putting these together points to growth of 0.2% q/q. The MPC voted to keep policy on hold this week, as had been expected. The committee has become increasingly concerned about the growth outlook, noting in the minutes of the June meeting that extending QE remained an option. Although Q2 GDP is likely to have been depressed artificially by temporary factors, if the ONS publishes a number as low as we expect, the calls for more QE are likely to grow louder. However, we would continue to highlight the influence of high and rising inflation on this decision. Although soft activity is likely to mean that an interest rate hike is unlikely over the next several months, if we are right to expect inflation to rise above 5% in the autumn, we still doubt a majority of MPC members would be comfortable sanctioning more QE.

The available data suggest our 0.3% q/q forecast is in the right ballpark, with risks to the downside

Such weak growth is likely to prompt calls for more QE

Figure 2: Published information on Q2 GDP


Agriculture 1% Jun IoS 25% Apr IP 6% May IP 6% Jun IP 6%

Apr Construction 2%

May Construction 2% Jun Construction 2%

May IoS 25%

Apr IoS 25%

Note: White segments indicate components for which no information has been published. Source: Haver Analytics, Barclays Capital

8 July 2011

18

Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: UNITED KINGDOM


Blerina Urui Review of last weeks data releases
Main Indicators Period Previous Barclays Actual Comments

Construction PMI Services PMI Halifax house price index, % m/m (3m/y) Industrial output, % m/m (y/y) Manufacturing output, % m/m (y/y) BOE Bank Rate decision, % BOE asset purchase decision, bn PPI input prices, % m/m (y/y) PPI output prices, % m/m (y/y) PPI core output prices, % m/m (y/y)

Jun Jun Jun May May Jul Jul Jun Jun Jun

54.0 53.8 0.1 (-4.2) -1.7 (-1.2) -1.6 (1.2) R 0.5 200 -1.7 (16.1)R 0.2 (5.4 R) 0.2 (3.4)

53.0 53.2 1.0 (-0.6) 0.8 (1.9) 0.5 200 0.2 (16.4) 0.0 (5.5) 0.1 (3.1)

53.6 53.9 1.2 (-3.5) 0.9 (-0.8) 1.8 (2.8) 0.5 200.0 0.4 (17.0) 0.1 (5.7) 0.2 (3.2)

Output growth remains solid Services sector continues expansion Market conditions remain challenging Rebound in IP, but growth rate dampened by falling oil and gas output MPC held monetary policy unchanged as expected UK producer prices increased at a moderate pace on the month to June, but pipeline inflationary pressures remain strong

Preview of week ahead


Monday 11 July Period Prev 2 Prev 1 Latest Forecast Consensus

No data releases or policy speeches scheduled


Tuesday 12 July Period Prev 2 Prev 1 Latest Forecast Consensus

00:01 00:01 09:30 09:30 09:30 09:30

RICS house price balance BRC total sales, % y/y CPI, % m/m (y/y) RPI, % m/m (y/y) RPIx, % m/m (y/y) Visible trade balance, bn

Jun Jun Jun Jun Jun May

-23 -1.9 0.3 (4.0) 0.5 (5.3) 0.5 (5.4) -6.9

-21 6.9 1.0 (4.5) 0.8 (5.2) 0.9 (5.3) -7.7

-28 -0.3 0.2 (4.5) 0.3 (5.2) 0.3 (5.3) -7.4

-26 0.3 (4.5) 0.3 (5.3) 0.3 (5.4) -7.3

-25 0.3 (4.5) 0.3 (5.2) (5.3) -7.4

RICS house price balance: We expect a small increase in the price balance to -26 from -28 in May; however, the data would still be consistent with tough conditions in the housing market mainly owing to weak demand. Data from other surveys such as the Nationwide and the Halifax indices also suggested the housing market remained broadly subdued in June. Inflation data: We expect June CPI inflation to have remained at 4.5% y/y, and RPI inflation to have increased to 5.3% from 5.2% in May. We expect further price pressure from food and energy to be partially offset by a decline in inflation for nonenergy industrial goods, in part owing to early summer discounting as retailers responded to disappointing sales in May. Visible trade balance: We forecast a slight narrowing in the trade deficit to 7.3bn in May from 7.4bn previously. We expect the fall in oil and gas extraction during May from maintenance-related closures to have increased the oil deficit, but weaker demand for imports to have offset its effect.
Wednesday 13 July Period Prev 2 Prev 1 Latest Forecast Consensus

09:30 09:30 09:30 09:30

Average earnings, % 3m/y Core average earnings, % 3m/y Claimant count unemployment, k ILO unemployment rate, %

May May Jun May

2.2 2.1 6.4 7.8

2.5 2.1 16.9 7.7

1.8 2.0 19.6 7.7

2.3 1.9 14.9 7.7

2.1 2.0 15.0 7.7

Labour market: We forecast headline average weekly earnings to have increased by 2.3% 3m/y in May from 1.8% 3m/y previously and core earnings growth at 1.9% 3m/y from 2.0% 3m/y previously. We expect the claimant count to have increased by 14.9k from 19.6k previously, in line with our assessment of a deterioration in labour market conditions for Q2 and as indicated by the weakness in the REC jobs survey data. We forecast the ILO measure of unemployment to have remained unchanged at 7.7%.
Thursday 14 July Period Prev 2 Prev 1 Latest Forecast Consensus

No data releases or policy speeches scheduled


Friday 15 July Period Prev 2 Prev 1 Latest Forecast Consensus

No data releases or policy speeches scheduled 8 July 2011 19

Barclays Capital | Global Economics Weekly

OUTLOOK: JAPAN

An interim assessment
Kyohei Morita +81 (3) 4530 1688 kyohei.morita@barcap.com

The BoJ will revisit its GDP and CPI forecasts next week, likely projecting slightly lower real growth and modest core inflation for FY11. While such inflation could virtually be erased by the CPI rebasing, perceptions have clearly changed, both among households and businesses. Consumers are starting to spend and higher bonuses may help, but sluggish base wages, together with several economic and political risks, cloud the outlook.

Yuichiro Nagai +81 (3) 4530 1064 yuichiro.nagai@barcap.com James Barber, CFA +81 (3) 4530 1542 james.barber@barcap.com BoJ reassesses prior to the rebasing

The BoJ will revisit its GDP and CPI forecasts when it conducts an interim assessment of its semi-annual Outlook Report on 11-12 July. Although the real GDP forecast could be lowered slightly for FY11, we expect few other changes (Figure 1). If so, the new forecasts will project a picture of marginal real growth and modest core inflation for the current year. Note, however, that these forecasts do not factor in the August CPI rebasing, which we estimate will lower the core CPI by about 0.6pp. All else being equal, this means technical factors are likely to result in forecasts for slightly stronger real growth and virtually zero inflation in October, when the BoJ publishes its next Outlook Report. Even so, price perceptions are clearly changing. A Cabinet Office survey, for example, finds that nearly 70% of Japanese households expect prices to be higher one year forward. In this context, the latest Tankan report suggests terms of trade are improving, at least for large companies. This is also evident in the corporate goods price index, which shows rising prices not only for market-sensitive goods and basic materials but also for processed goods. Over the next six months or so, we believe the core CPI is likely to be somewhat weaker than we had previously forecast, but mainly due to a downward revision to our oil price assumptions. Further forward, however, there is likely to be an offsetting effect as the output gap is reduced by the earthquake impact on potential GDP (downward) and reconstruction efforts on real GDP (upward).

Price perceptions changing regardless of the technicalities

Outlook for a V-shaped recovery supported by recent data on capex

For now, we expect real GDP to see a V-shaped recovery from Q3 2011 to Q1 2012. As discussed last week, this partly reflects an expectation for private capex to start increasing in Q3 on support from post-earthquake reconstruction demand an outlook unchanged by this weeks machinery orders data. On a more microeconomic level, our chief equity strategist points out in this weeks Japan Cross Asset Monthly that companies with high levels of free cash flow and relatively high returns on equity have become more aggressive in their capital investment. This week also provided evidence that consumption is finding firmer ground. New auto sales (new passenger vehicle registrations and minicar sales), for example, showed another strong increase (m/m, sa) in June after the steep quake-induced drops of March and April. Base effects alone will give them a boost of 18.5% in Jul-Sep even if monthly sales are flat during that period. The composite index of consumption also rose for a second consecutive month, even in the face of bad weather and adverse calendar effects. In this light, our forecast of a Q2 upturn in GDP-based private consumption is unchanged. In addition to buying cars, consumers also spent money to cope with restrictions on electric power, purchasing high-efficiency air conditioners and cool summer apparel, for example. Sales of flat-panel TVs also showed strong growth prior to a switch to digital terrestrial broadcasting on 24 July 2011.
20

and consumption

8 July 2011

Barclays Capital | Global Economics Weekly

Higher bonuses help, but base wages remain sluggish

Higher summer bonuses, which led to a surprise increase in wages per worker, may have helped. However, scheduled pay (the core component of wages) fell for a fifth consecutive month, suggesting that companies still prefer to treat labor as a variable cost rather than a fixed cost. Wages have become more volatile as a result. It is easy to understand why, despite improving sentiment, companies remain apprehensive about increasing base wages. There are a number of risks to the economy. Although industrial production is near pre-earthquake levels, it looks set to flatten out in Jul-Sep due to constraints on electric power over the summer months. For now, we view this as a temporary drag on growth. As discussed in our Japan Cross Asset Monthly, however, it is also part of a larger energy problem involving questions about the future feasibility of nuclear power. In a nutshell, the use of thermal power makes it more expensive to do business in Japan. In our view, this together with, for example, a proposal to raise corporate taxes to finance reconstruction and a failure to engage more proactively in trade agreements such as the Transport-Pacific Partnership (TPP) agreement threatens to accelerate the exodus of businesses and employment opportunities from Japan. We also continue to monitor the risks associated with overseas economic deceleration. This weeks machinery orders data, while firm for the core component, saw a third consecutive decline in overseas orders. Viewed together with machine tools data, where the overseas component began to fall even prior to the earthquake, these figures suggest a possible impact from a slowdown abroad. The deceleration in China, which accounts for nearly 20% of Japanese exports (2010), is a particular concern, at least over the short term. In its previous economic assessment, the BoJ added signs of deceleration in emerging markets to its list of risk factors. This is likely to be unchanged in next weeks report. The BoJ is also likely to reiterate that attention should be paid for the time being to the downside risks to economic activity, especially the possible effects of the disaster. Combined with last months quasi-fiscal action, which helped specific companies and addressed solvency concerns (see Japan Outlook Global Economic Weekly, 20 June 2011), such remarks are about as close as the BoJ will get to telling the government to hasten the process of compiling a third supplementary budget. We now know that budget passage is likely to be delayed until at least late-autumn, but even that timeframe remains uncertain under current political conditions. The pattern of economic growth could easily be affected by the size and timing of that budget dubbed the reconstruction budget to distinguish it from its smaller predecessors compiled for emergency assistance, temporary housing and initial clean-up.

Reasons behind the reluctance to increase fixed costs (= risks to our economic outlook): the energy situation

overseas economic deceleration

and delays in passing the third supplementary budget

Figure 1: Real GDP and core CPI forecasts BoJ (majority of BoJ Policy Board members) versus BarCap and consensus
Real GDP BoJ BarCap As of 28 Apr FY10 median (range) FY11 median (range) FY12 median (range) +2.8% As of 12 Jul +2.8%
FY10 median BoJ Core CPI

Consensus

BarCap As of 28 Apr -0.3% As of 12 Jul -0.3% -0.8%

Consensus

+2.8 to +2.8% +2.8 to +2.8% +0.6% +0.5 to +0.9% +2.9% +2.7 to +3.0% Revision to 0.1-0.4%?? No change??

2.3%

2.3%

-0.8%

(range) FY11 median +0.7% +0.5 to +0.8% +0.7% +0.5 to +0.7% No change? No change? 0.3% 0.5%

0.4%

0.1%

(range) FY12 median

3.2%

2.9%

0.1%

0.4%

(range)

Note: Core CPI excludes fresh foods. Forecasts do not factor in August rebasing, which we estimate will lower the core CPI by 0.6pp. Source: BoJ Outlook Report, EPS survey of Economic Planning Association, Barclays Capital Japan

8 July 2011

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Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: JAPAN


Kyohei Morita, Yuichiro Nagai, James Barber

Review of this weeks data


Main indicators Period Previous BarCap Actual Comments

Wages per worker (% y/y)

May

-0.6

-0.5

1.1

Surprise uptick due to a surge in bonuses. Scheduled pay, however, fell for a fifth consecutive month. Companies continue to adjust pay on a variable basis. Core orders will likely be weaker than major machinery maker forecasts for Q2, but we still expect capex to turn up from Q3. Overseas orders, however, continue to fall. Trade account showed a wider deficit, but this was offset by a large surplus in the income account. Despite a pick-up in demand from some companies in the quake-hit region, loans are likely to continue trending downward due to surplus liquidity in the corporate sector Larger improvement than market consensus, showing that sentiment is also recovering along with the V-shaped recovery in industrial production.

Core machinery orders (% m/m)

May

-3.3

2.5

3.0

Current account (JPY bn) Bank lending including shinkin banks (% y/y)

May Jun

406 -0.8

125 -0.5

591 -0.6

Economy Watchers DI

Jun

36.0

NA

49.6

Preview of the week ahead


Monday 11 July Period Prev 2 Prev 1 Latest Forecast Consensus

08:50

M2/M3 (% y/y)

Jun
Period

2.6/1.9
Prev 2

2.7/2.1
Prev 1

2.7/2.1
Latest

2.9/2.3
Forecast

2.7/2.1
Consensus

Tuesday 12 July

08:50

Corporate goods price index (% y/y) Index of tertiary industry activity (% m/m) BoJ MPM ends

Jun May

2.0 0.8

2.5 -5.9

2.2 2.6

2.7 0.5

2.4 0.5

No policy change expected. However, the BoJ will update its GDP and CPI forecasts as part of its interim assessment of the semiannual Outlook Report. We expect a slight downward revision to real GDP for FY 11. Otherwise, forecasts should be largely unchanged. See Outlook section for details.

Week ahead: We estimate that M2 growth (excluding Japan Post Bank) strengthened to 2.9% y/y in June from 2.7% in May. M3 (including Japan Post Bank) likely rose 2.3%, also stronger than in May (2.1%). More generally, the recent trend in money stock data has been marked by slower growth in both quasi-money, such as time deposits, and broad liquidity. We estimate that the domestic CGPI rose 2.7% y/y in June versus a 2.2% gain in May. Month on month, we expect the index to increase 0.1% after Mays 0.1% decline. This assumes prices rose in textiles, chemicals and plastics, while falling for oil/coal products and scrap. We expect CGPI inflation to remain around 2-3% y/y for the rest of the year. For the index of tertiary industry activity, we look for a second consecutive increase in May (0.5% versus Aprils 2.6%). During this period, sales were lower on the wholesale side, while increasing in retail. Within retail, the sharpest gains were in machinery, including household appliances, and autos.

8 July 2011

22

Barclays Capital | Global Economics Weekly

OUTLOOK: CHINA

Rate hike cycle close to an end


Jian Chang +852 2903 2654 jian.chang@barcap.com Lingxiu Yang +852 2903 2653 lingxiu.yang@barcap.com PBoC delivered its third rate hike this year

The PBoC delivered an overdue benchmark interest rate hike on Wednesday, ahead of the release of the June CPI data, which we expect to jump to 6.3% y/y from 5.5% in May. Minutes of the PBoC monetary policy committee meeting (held in July) emphasised stability, targeted, and flexibility as well as the pace and intensity of policies. We forecast Q2 real GDP growth of 9.4% y/y, versus 9.7% in Q1, and expect slower IP and trade growth, as well as relatively stable domestic demand in June.

On Wednesday, the PBoC announced the third benchmark interest rate hike of 2011. This is the fifth increase in the current tightening cycle, which started in October 2010. The structure of the hike was symmetrical a 25bp increase in the lending and deposit rates across all tenors, except the demand deposit rate, which was left unchanged (Figure 1). While we had maintained our forecast of a rate hike in early to mid-July, the June rate pause (versus a widely expected hike) suggested to us increasing domestic concerns about an over-tightening of monetary policy. The timing of the July rate hike therefore suggests that policymakers likely consider the risk of full-year inflation exceeding 5% as higher than the risk of a sharp growth slowdown, especially as June CPI is expected to exceed 6% y/y (see China: The much-anticipated interest rate hike to end the tightening cycle, or not?, 6 July). Meanwhile, the wording of the Q2 PBoC Monetary Policy Committee meeting minutes regarding the operational focus was amended to "Stability, targeted and flexibility" from "Targeted, flexibility, and effectiveness" as in the Q1 11 and Q4 10 minutes (for details see China: PBoC Q2 policy committee minute emphasise pace and intensity of policies, 5 July). On credit expansion, the committee maintained its aim to "guide the banks to improve credit support to key areas, as well as vulnerable segments of the economy" and added "especially support to rural credit and SMEs lending". The next key event to watch is the State Council mid-year regular meeting, usually held in mid-July to discuss/assess the economic performance in the first half of the year, and set the tone for policy in H2. Also, the NPC Financial and Economic Committee will hold an economic assessment forum (on July 15-16 in the past three years), followed by a Politburo meeting. These meetings should provide further clarification on policy directions in H2.

Upside risks to inflation higher than downside risks to growth

MPC minutes wording amended to emphasise pace and intensity of policies

The next key event is the regular mid-year assessment meetings

Figure 1: The benchmark rate hike structure


Current % pa Deposit Demand 3m 6m 1y 2y 3y 5y Lending 1y 1-3 y 3-5 y >5 y
Source: PBoC, Barclays Capital

Total (+) bp 14 139 132 125 161 163 190 125 125 114 111

Deposit and lending rate hike structure 6 Jul 5 Apr 8 Feb (+) bp 0 25 25 25 25 25 25 25 25 25 25 (+) bp 10 25 25 25 25 25 25 25 30 20 20 (+) bp 4 35 30 25 35 35 45 25 25 23 20

25 Dec (+) bp 0 34 30 25 30 30 35 25 25 26 26

19 Oct (+) bp 0 20 22 25 46 52 60 25 20 20 20

Before % pa 0.36 1.71 1.98 2.25 2.79 3.33 3.60 5.31 5.40 5.76 5.94

0.50 3.10 3.30 3.50 4.40 5.00 5.50 6.56 6.65 6.90 7.05

8 July 2011

23

Barclays Capital | Global Economics Weekly

Not yet the time to loosen monetary policy

Overall, while we think policy rate hikes are close to an end, we do not rule out the possibility of a fourth hike in Q3. Our baseline forecast is for CPI inflation to fall below 6% in July (5.8%) and below 5% in September. A clear upside risk to this forecast would make another rate hike more likely, in our view. We think the room for more RRR hikes is limited, though they are possible given liquidity pressures arising from capital inflows. We expect continued credit controls to contain 2011 M2 growth at 16% and new loans at CNY750bn. We have held a view that interest rates needed to be raised to reverse the situation of negative real rates, anchor inflation expectations and limit inefficient investment, given the elevated inflation pressures in the Chinese economy (both in the near term and structurally in the medium term) and still relatively stable domestic demand/growth (Figure 2). Persistent negative real rates have increased risks to both the real economy and financial stability, through such outcomes as asset price bubbles, an unstable deposit base and accelerated banking sector disintermediation. The June RRR hike, which resulted in a liquidity crunch and a surge in interbank rates (Figure 3), in our view, helped to generate some policy consensus for the greater use of price-based tools, such as interest rates. Over the next week, China will release three batches of June economic data: inflation (9 July), trade (10 July) and activity/Q2 GDP data (13 July). We forecast a rise in the June CPI inflation to 6.3% y/y (5.5% in May) on a low year-earlier base and pick-up in m/m momentum. In particular, we estimate that food prices surged 13.8% y/y in June, from 11.7% in May. On a y/y basis in June, pork and grain prices rose 46% and 16.6%, respectively. We expect the June PPI inflation to have risen to 7.1% from 6.8%, as suggested by a modest pick-up in the CRB index, but expect a fall in the m/m rate. We look for export growth to slow further to 18% y/y from 19.4 % in May on soft external demand, and see nominal import growth at 24.5% y/y (vs 28.4% in May), supported by still elevated global commodity prices despite a greater moderation in real import growth. We look for real GDP growth to have slowed both on a y/y and q/q basis in Q2 (forecast: 9.4% y/y vs 9.7% in Q1), though to remain on track to achieve full-year growth of around 9%. We expect industrial production at 13.2% y/y in June (May: 13.3%) on modest destocking and slower export growth. Fixed asset investment is expected to remain strong at 25.8% y/y, ytd (vs 25.8% in May), on strength in property investment, and we think the driver will shift to residential property investment in H2 as more public housing construction starts. While real retail sales likely slowed, we forecast nominal retail sales to edge higher to 17.1% y/y from 16.9%, given higher inflation and an expected y/y pick-up in auto sales. Figure 3: 7d repo rate surged following the June RRR hike
10 8 6 4 10.0 9.0 8.0 7.0 6.0 5.0 2 4.0 3.0 2.0 -2 -4 12 1.0 0.0 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 % 3m CB bill issue rate 7d Interbank repo rate

and negative real interest rates need to be corrected

We forecast a further rise in June CPI to 6.3% y/y

and look for Q2 GDP growth to have slowed to 9.4% y/y

Figure 2: Inflation and growth mix warrants a rate hike


16 14 12 10 8 6 4 01 02 GDP (% y/y) CPI (% y/y, RHS) 1y benchmark deposit (%pa, RHS) 03 04 05 06 07 08 09 10 11 Projection June

Source: CEIC, Barclays Capital

Note: Circles highlight RRR hikes. Source: CEIC, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

OUTLOOK: EMERGING ASIA

Inflation pains linger on


Rahul Bajoria +65 6308 3511 rahul.bajoria@barcap.com

Bank Negara Malaysia kept rates on hold due to moderation in external demand. We expect the central bank to raise the policy rate 25bp in September. Inflation concerns are likely to persist in Emerging Asia, with core price pressures increasing and persistent. Next week, Chinese data are expected to show slower growth and sticky inflation. We also have monetary policy meetings in Korea, Thailand and Indonesia.

Wai Ho Leong +65 6308 3292 waiho.leong@barcap.com

Malaysia: A pause to reassess the monetary stance


BNM remains on hold

Bank Negara Malaysia left the policy rate unchanged at 3.0%; we and consensus expected a 25bp hike. In its statement, BNM indicated that the latest indications point to moderation in growth that is being driven by supply disruptions and weaker external demand. Private consumption, however, remains a pillar of support for the economy. We believe the central bank again left the door open to further monetary tightening if growth holds up. Indeed, the statement indicated risks to inflation are on the upside, and the MPC will keep price stability as its top priority, if growth momentum is sustained. As such, we maintain our view that BNM is likely to increase the policy rate in H2 11, with our base case being a hike at the September policy meeting. We believe Malaysias privatisation programme will remain the key driver of the MYR and MGS, and we maintain our positive view on the currency. The government has identified 33 entities for either complete or partial privatisation over the next 12-18 months. The timing of the announcement is significant, in our view, as it could be tied to the timing of a general election, which could be held as early as September. We expect more positive news ahead of the elections, including potentially, IPO announcements and major FDI projects, as well as a stronger MYR. We maintain our year-end MYR forecast at 2.90/USD and look for it to appreciate to 2.84/USD in 12 months (see Malaysia: Privatisation on track positive for bonds and FX, 6 July 2011).

Risks to inflation remain biased to the upside

We expect a 25bp rate hike at the September policy meeting

Figure 1: Nonfood inflation is rising faster than headline


12

Figure 2: Inflation is likely to remain elevated


5.0 (pp contribution to CPI) 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 Aug-09 Food
Source: CEIC, Barclays Capital

10 8 6 4 2 0 -2 -4 -6 May 07 May 08 May 09 May 10 May 11

Mar-10

Oct-10

May-11

Dec-11

MY: Headline CPI (% 6m/6m, saar) Non-food (% 6m/6m, saar)


Source: CEIC, Barclays Capital

Non-food

MY: Headline (% y/y)

8 July 2011

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Barclays Capital | Global Economics Weekly

Emerging Asia: Inflation remains sticky


Strong momentum in growth is spilling over into higher wages and rising core price pressures in Taiwan

There are more signs that regional inflation remains sticky. In Taiwan, consumer prices rose 1.93% y/y in June, exceeding expectations. It also accelerated from the 1.66% print in May and was the highest reading since November 2008. On a 3m/3m saar basis, our estimate of core inflation held steady at 1.4% m/m, the same pace as May. Even so, we believe the trend for core inflation is up, driven by the structural revival in discretionary consumer spending, which is being fuelled by nine consecutive quarters of q/q growth (five in double digits), stronger job prospects, resurgent property values and an influx of tourist from mainland China. We expect the trajectory of inflation to worsen, with headline readings likely to top out at above 2% in the coming months. The main factor is the fading of the downward distortion from lower agricultural prices. Also, importantly, given the recent hot weather, peak utility rates took effect from June. In the Philippines, while headline inflation surprised on the downside, core price pressures continue to build. Given the acceleration in core inflation, we maintain our view that Bangko Sentral ng Pilipinas will raise the policy rate 25bp, to 4.75%, in July given the uptrend in core prices and the risk that headline inflation will breach the top end of the 3-5% target band in the coming months.

Core inflation is also rising in the Philippines

The week ahead: Focus on inflation and central bank meetings


Next week: Monetary policy meetings in Korea, Indonesia and Thailand

We expect Chinas June inflation to rise to 6.3% y/y, on higher food prices and a low base. We think PPI inflation is likely to remain elevated, at 7.1% y/y. We believe growth is moderating at the margin, and look for GDP to expand 9.4% y/y in Q2. We expect Junes trade data to show ongoing moderation in China, but nominal imports may hold up given elevated commodity prices. On the monetary policy front, we expect the Bank of Korea and Bank Indonesia to leave rates unchanged, but expect the BoK to sound hawkish as the governments focus shifts to cost-of-living concerns with the start of the election campaign. In Indonesia, we expect BI to stay on hold, but we expect it to raise rates in Q3, given rising core price pressures. We expect the Bank of Thailand to deliver a 25bp rate hike, in line with the consensus view. Finally, in India, we expect May industrial production to show modest improvement, but inflation is likely to rise to 9.5% in June, given the recent hike in domestic fuel prices.

Figure 3: Core inflation is above historical levels in Taiwan


5 4 3 2 1 0 -1 -2 -3 Jun-07 TW: Core CPI, % 3m/3m saar

Figure 4: Inflation expectations are elevated in Korea


0.7 0.5 0.3 140 0.1 -0.1 -0.3 Jun-08 \ 130 160

150

Jun-08

Jun-09

Jun-10

Jun-11

120 Jun-09 Jun-10 Jun-11 KR: Core inflation (% m/m, sa) Expected change in prices in 6 mths (RHS)

Source: CEIC, Barclays Capital

Source: CEIC, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

IN FOCUS: THAILAND

Thailand A tactical long


Rahul Bajoria +65 6308 3511 rahul.bajoria@barcap.com

Puea Thai party election win paves the way for Yingluck Shinawatra to become the new PM. While we view the election result as constructive in the near term by reducing uncertainty, we do not believe it resolves the longer-term issues in Thai politics. But in the short term, we expect the markets focus to switch back to the economy. The Yingluck Shinawatra-led Puea Thai party (supported by the red shirts), which is linked to ex-PM Thaksin Shinawatra, emerged victorious from the July 3 general election, winning a simple majority of 265 seats out of 500, according to the preliminary results. This was below the 313-seat win forecast by some exit polls and fewer than the 460 seats the Thaksin-led party won in 2006. The official results are expected to be released on 12 July, according to the Election Commission. We do not expect any major change from the initial results. Although the election was peaceful, the national police adviser said that the police would remain vigilant and provide protection to over 400 candidates to counter any post election-related violence (see EC: Election is transparent, official result will be known in a week, NNT, 3 July 2011.) In the lead up to the voting, Puea Thai was already courting coalition partners. According to PM-elect Yingluck, four smaller parties including Chart Thai Pattana and Chart Pattana Puea Pandin will join Puea Thai in government adding 34 more seats, giving it 299 seats and a larger majority in parliament. Other smaller parties may also join later. The selection of cabinet members is likely to begin soon and could be completed within the next two weeks. Despite Puea Thai's victory, the political outlook remains unclear. Some of the main issues in Thai politics, especially the granting of an amnesty to former members of the 2006 government of Thaksin Shinawatra, are unlikely to be resolved in the near term. But given Puea Thai's clear win, the risks of intervention by the judiciary or military in the near term have reduced significantly. Shortly after the initial poll results were announced, Defence Minister Prawit Wongsuwon reiterated that the armed forces would accept the peoples decision, and would not intervene in the electoral process (All eyes turn to army's reaction, Bangkok Post, 5 July 2011). Figure 1: Election results and proposed combination of Puea Thai-led government

Puea Thai wins general election by a simple majority

New government will be a coalition of five parties

Near-term stability is unlikely to signal long-term reconciliation

Others, 8 Bhumjaithai, 34

Government, 299

Chart Thai Pattana, 19 Puea Pandin, 7 Puea Thai, 265 Others, 8

Democrats, 159

Source: Bangkok Post, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

We see upside risks to our BoT rate hike projections in H2

Beyond the election, we continue to believe that economic growth momentum in Thailand is likely to slow in H2 11, given global growth concerns, weaker consumer confidence and moderating investment. Negative newsflow around the recent election could also mean that tourist arrivals do not pick up meaningfully in H2, which could, in turn, contribute to a period of sluggish domestic demand. In this scenario, we believe the Bank of Thailand would adopt a more cautious approach to further monetary normalisation. We believe the THB is likely to outperform in the coming month, helped by a resumption of equity inflows. But the upside is likely to remain limited given deteriorating support from the balance of payments and the likelihood of intervention by the central bank to moderate the pace of appreciation.

Bank of Thailand to deliver another rate hike next week


A 25bp hike next week is likely

For now, we expect the BoT to raise rates 25bp in its 13 July policy meeting. The central bank has delivered five consecutive 25bp rate hikes since December 2010 and seven overall in the current hiking cycle. We believe a sixth straight increase is likely, especially as the central bank may look to counter rising inflation expectations given risks of significantly looser fiscal policy in the coming months. June headline inflation rose to 4.1%, and is expected to accelerate in the second half of 2011. Core inflation also rose significantly in June, accelerating to 2.54% y/y, the highest level since August 2008. On a sa m/m basis, the core CPI rose for the 13th consecutive month, climbing 0.13% (+0.51% in May). It appears that risks of the core inflation breaking the top end of the target (3.0%) are present, although is not our base case for now. We believe the pass-through from higher raw food and energy prices has been much stronger than expected, and is likely to remain elevated in the next three months. If we see signs of a sharp uptick in the next CPI print, due on 1 August, we believe the likelihood of the BoT raising rates again in August is likely to rise materially. However, it is unlikely that the BoT will completely ignore growth momentum. We also see the BoT remaining firmly inclined to pre-empt inflation risks by moving rates to a neutral level.

Core prices remain elevated

Risks of another rate hike in August cannot be discounted

Figure 2: Core prices key driver of headline inflation


5 (pp contribution to CPI) 4 3 2 1 0 -1 Dec 09

Figure 3: Core inflation could breach the inflation band


5 4 3 2 1 0 -1 -2 -3 May-05 May-07 May-09 Lower end May-11 Higher end

Jun 10 Core Energy

Dec 10 Raw food

Jun 11

Core inflation (% y/y)


Source: Bloomberg, Barclays Capital

Source: Bloomberg, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: ASIA


Rahul Bajoria, Jian Chang, Lingxiu Yang, Joaquin Vespignani Review of last weeks data releases
Main indicators Period Previous BarCap Actual Comments

Philippines: CPI (% y/y) Taiwan: CPI (% y/y) Bank Negara Malaysia (% y/y)

Jun Jun

4.5 1.7 3.00

5.0 1.7 3.25

4.6 1.9 3.00

Core prices continue to climb. Highest reading since November 2008. BNM stays on hold, citing risks to global growth.

Preview of week ahead


Saturday 9 July Period Prev 2 Prev 1 Latest Forecast Consensus

09:30 09:30

China: CPI (% y/y) China: PPI (% y/y)

June June June

5.4 7.3 16.6

5.3 6.8 15.3

5.5 6.8 15.1

6.3 7.1 15.2

6.2 6.9 15.3

9-15 Jul China: M2 (% y/y)

China: CPI: Driven by a lower base and a pick-up in m/m momentum, with pork and grain prices up 46% and 16.6% y/y, respectively. China: PPI: To remain elevated on a y/y basis, as suggested by a modest increase in the CRB index, but the m/m rate is expected to ease. China: M2: We expect a modest rebound, with new lending likely coming in at about CNY600bn.
Sunday 10 July Period Prev 2 Prev 1 Latest Forecast Consensus

10:00 10:00

China: Exports (% y/y) China: Imports (% y/y)

June June

35.8 27.3

29.9 21.8

19.4 28.4

18 24.5

18.6 25.7

China: Exports to continue to slow, along with real imports. Nominal imports remain supported by still-elevated global commodity prices.
Monday 11 July Period Prev 2 Prev 1 Latest Forecast Consensus

12:00 08:00 09:30 09:30

Malaysia: Industrial production (% y/y) New Zealand: House price (% y/y) Australia: Investment lending (% m/m) Australia: Home loans (% m/m)

May Jun May May


Period

5.2 -2.0 -2.7 -4.8


Prev 2

2.9 -1.9 2.1 -1.1


Prev 1

-2.2 -1.6 -1.6 4.8


Latest

-1.8 -1.4 1.0 2.0


Forecast

-0.5
Consensus

Tuesday 12 July

08:30 09:00 13:30

Singapore: GDP advance estimate (% y/y) Australia: Business confidence index Philippines: Exports (% y/y) India: Industrial production (% y/y) Indonesia: BI policy rate (%)

Q2 Jun May May

10.5 7.5 8.2 6.5 6.75

12.5 7.0 4.0 8.8 6.75

8.5 6.0 19.1 6.3 6.75

1.6 7.0 3.7 7.3 6.75

0.4 6.75

Singapore: Weighed down by sharp declines in output of pharmaceuticals in May and June. India: Macro headwinds remain strong. However, favourable base effects, owing to the implementation of a new series, are likely to support headline y/y growth. Indonesia: With headline inflation coming down, we expect BI to stand pat this month.

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Barclays Capital | Global Economics Weekly Wednesday 13 July Period Prev 2 Prev 1 Latest Forecast Consensus

07:00 08:30 10:00 10:00 10:00 10:00 15:30

Korea: Unemployment rate (%) Australia: Consumer confidence (% m/m) China: GDP (% y/y) China: FAI (YTD, % y/y) China: Industrial production (% y/y) China: Retail sales (% y/y) Thailand: BoT policy rate (%)

June Jul Q2 June June June

4.0 1.2 9.6 25 14.8 17.4 2.50

3.6 -1.3 9.8 25.4 13.4 17.1 2.75

3.3 -2.6 9.7 25.8 13.3 16.9 3.00

3.4 -1.0 9.4 25.8 13.2 17.1 3.25

3.4 9.3 25.7 13.1 17.0 3.25

China GDP: Slowed both on a y/y and q/q basis in Q2; still on track to achieve a full-year growth of about 9%. China: Fixed asset investment: To remain supported by the strength of property investment, with the driver shifting to the residential sector in H2. China: Industrial production: Likely continued to edge lower on destocking and slowing external demand. China: Retail sales: Consumer sentiment weighed down by surging inflation and elevated property prices; y/y auto sales growth picked up. Thailand: With core inflation close to top of the target range, another rate hike is likely.
Thursday 14 July Period Prev 2 Prev 1 Latest Forecast Consensus

645 08:00 14:30

New Zealand: GDP (% q/q) Korea: BoK policy rate (%) India: WPI (% y/y)

Q1 June

0.1 3.00 9.7

-0.2 3.00 8.7

0.2 3.25 9.1

0.3 3.25 9.5

3.25

Korea: We expect no change in rates but a more hawkish tone in the statement, as the governments focus shifts to cost-ofliving concerns with the start of the election campaign. India: Non-food inflation remains stubborn; partial impact (last week of June only) of fuel price hike adds to inflation pressures.
Friday 15 July Period Prev 2 Prev 1 Latest Forecast Consensus

Philippines: Remittances (% y/y)

May

6.2

4.1

6.3

10.3

8 July 2011

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Barclays Capital | Global Economics Weekly

OUTLOOK: EMERGING EUROPE, MIDDLE EAST & AFRICA

Doves rule as inflation peaks and growth slows


Gina Schoeman +27 1189 55403 gina.schoeman@absacapital.com Christian Keller +44 (0) 20 7773 2031 christian.keller@barcap.com

Global commodity prices are moderating and prospects for local harvests are improving. This, along with slowing growth and greater risks of a harder landing globally, seems to have lent support to more dovish attitudes at central banks across the region.

We had highlighted in our recent Emerging Market Quarterly: Summer Storms, 21 June that central banks in the region now face a different outlook than earlier this year. While monetary policy in core markets remains generally dovish, pressures from commodity prices seem to have abated and growth is clearly slowing, with an increased risk of a harder landing in H2. Against the backdrop of ongoing rate setting meetings and many CPI and IP releases this week and next, we review the monetary policy and growth-inflation developments in the region below. In Russia this week, June headline CPI surprised to the downside, with inflation slowing to 9.4% y/y (9.6% y/y in May) on the back of further moderation in food price inflation. This is likely to continue for a few more months, as last summers food price shock created favourable base effects and this years harvest for the region (including central Europe) should be good. Although we remain watchful of the still rising core inflation, we now expect the CBR to pause, keeping policy rates on hold through 2011. Aside from inflation, we anticipate that Russias IP will moderately accelerate next week. However, overall IP growth has disappointed, given the strong support from oil, and the growth outlook remains mixed. Food prices also surprised to the downside in Turkey, where the m/m decline in June of over 6% more than compensated for the increase in May, bringing the headline print to 6.2% y/y, significantly below expectations. Although core inflation measures are still rising, the CBTs communication on the back of June inflation has turned seemingly more dovish than before, increasing the chance that the policy rate may not rise this year (but note we still expect a 75bp in Q4). However, while high food price increases last summer also provide a favourable base effect in Turkey, pass-through from the weaker TRY could partly offset this. Next weeks data are likely to reflect another dilemma for Turkeys policymakers - May IP slowed further due to weaker external demand, while the May current account deficit is likely to widen even more due to still strong domestic demand. Figure 2: and growth is slowing as well
30% 20% 10% 0% -10%

Russia inflation decelerated slightly last month; we now expect the CBR to keep rates on hold for the remainder of 2011 amid disappointing growth

The Turkish central bank appears to have turned more dovish on a surprise drop in June inflation due to lower food prices

Figure 1: EEMEA food inflation expected to have peaked


25% 20% 15% 10% 5% 0%

Food inflation (% y/y)

Industrial production (% y/y)

-20%

-5% Jul-07

Jul-08 Hungary

Jul-09 Poland

Jul-10 Russia

Jul-11 Turkey

Hungary Poland Russia Turkey May-08 May-09 May-10 May-11

-30% May-07

Source: Haver Analytics, Barclays Capital

Source: Haver Analytics, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

Polands NBP kept rates on hold having raised them by 100bp already this year

Polands NBP kept rates on hold last week (at 4.5%), as was widely expected, indicating that it first wanted to assess the impact of the measures taken so far, having hiked policy rates by 100bp this year (we expect one more 25bp hike this year). We note that real rates remain in negative territory with May headline CPI at 5.0 y/ywe expect a slightly lower print of 4.8% for next weekand core inflation still rising. This also fits into the pattern of central banks behaviour we discussed in our most recent EM Quarterly, namely that actual inflation may not moderate towards official targets rather, central banks may become increasingly willing to look through above-target prints as their concerns about growth increase, and the prospects for lower commodity prices rise. Last but not least, Serbias NBS even cut its policy rate by 25bp this week to 11.75% on the back of an improved risk premium (EU accession candidacy), moderating inflation, and as it had hiked rates by 450bp from August 2010 to April 2011. For next week, we expect favourable food price base effects to also support some moderation in Hungarian June inflation to 3.7% y/y. Against the backdrop of still very weak domestic demand, we estimate that inflation will moderate towards the 3.0% target in 2012. Indeed, Hungarys May IP surprised to the downside this week, with its print suggesting a m/m production decline of 0.8% on seasonally adjusted terms. While this may spark a debate about possible rate cuts later this year, the NBHs MC minutes released this week suggest that this is not very likely. The NBH seems concerned not only about inflation expectations (which have still not adjusted downward) but also about the implications a reduction in carry could have on HUF. We maintain our view that rates will likely remain on hold (at 6.0%) for the remainder of the year. In Israel, we expect a slight moderation in CPI inflation to 4.0% y/y (4.1% y/y previously). However, given the still robust growth, we forecast that the BoIwhich started its hiking cycle in August 2009will further hike rates to bring inflation expectations into the middle of the 1-3% range. We estimate the policy rate will rise by another 75bp (25bp each quarter) to a final rate of 4.0% in Q1 12. In South Africa, we expect the SARB to start hiking rates only in January 2012 (far later than most EEMEA countries). We then estimate 200bp in magnitude for the hiking cycle, but caution that the SARB may chose a stop-and-go pattern, rather than the traditional hike at every meeting. Similarly to other central banks in the region, it could consider the still below-potential GDP and the low core inflation.

Hungarian inflation is declining, but remains above the target; and we expect the central bank to remain on hold for the remainder of 2011

We expect a slight moderation in Israel inflation; gradual rate hikes to continue

Figure 3: Turkey: June CPI fell, but C/A deficit still an issue
13 12 11 10 9 8 7 6 5 4 3 Jun-07 70 60 50 40 30 20 10 0 Jun-11

Figure 4: The SARB is expected to stay on hold in 2011


12 10 8 6 4 2 0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Core inflation Headline CPI Repo rate %
Source: Datastream

The SA Reserve Bank has not hik we only expect this in January 20 will the pace be consecutive or s

6% ceiling 3% floor

Jun-08

Jun-09

Jun-10

CPI inflation (%, y/y) Turkey CA deficit (12 months ma; USD bn) RHS
Source: Haver Analytics, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: EMERGING EUROPE, MIDDLE EAST & AFRICA
Eldar Vakhitov, Daniel Hewitt, Christian Keller, Vladimir Pantyushin, Jeffrey Schultz, Alia Moubayed Review of last weeks data releases
Main indicators Period Previous Barclays Actual Comments

Russia: Manufacturing PMI Turkey: Manufacturing PMI Poland: Manufacturing PMI Hungary: Manufacturing PMI Czech Republic: Manufacturing PMI South Africa: Kagiso PMI Kazakhstan: CPI (% y/y) Romania: International reserves (EUR bn) Czech Republic: Retail sales (% y/y) Romania: Retail sales (% y/y) Turkey: CPI (% y/y)

Jun Jun Jun Jun Jun Jun Jun Jun May May Jun

50.7 50.6 52.6 52.4 55.9 55.1 8.3 36.3 2.7 -6.2 7.2

8.6 7.8

50.6 52.3 51.2 54.4 55.1 53.9 8.4 37.9 3.2 -6.4 6.2

Outlook remains positive but weak, as expected All subcategories are slightly up, but levels much lower Although PMI has slowed, other indicators are more upbeat Good news for Hungary, where manufacturing remains key Could signify a growth softness in Q2 11 Suggests some moderation in manufacturing activity, but critically remains in positive territory Food and fuel prices maintain inflation at high levels International reserves higher due to Eurobond sale. Retail sales losing momentum suggestion a soft Q2. Domestic demand remains depressed, implying slow growth A downside surprise, as food prices more than reversed last months large increase. Food price volatility higher than ever. Domestic demand remains weak and unstable Led by strong passenger sales, with encouraging momentum for the investment side of economy Real wage decline accelerates Still reflects uneven nature of business climate in SA It appears that money was transferred to the Samryk fund This should put CBR at ease; but core inflation is a concern As was widely expected The pace of FX reserve depletion is slowing down As expected, food inflation remains the main contributor Remained broadly unchanged Strong jump in forward position as SARB looked to sterilise part of the FDI inflows recorded in June Trade surplus improvement Surprisingly weak, but reflecting a fall in PMI Deceleration, but remains robust Signs of gradual recovery

Croatia: Real retail trade (% y/y) South Africa: Naamsa vehicle sales (% y/y) Romania: Net wages (% y/y) South Africa: SACCI Business Confidence Hungary: Budget balance YTD (HUF bn) Kazakhstan: International reserves (USD bn) Russia: CPI (% y/y) Poland: Base rate announcement (%) Egypt: Gross official reserves (USD bn) Ukraine: CPI (% y/y) Ukraine: Official reserve assets (USD bn) South Africa: Net reserves (USD bn) Czech Republic: Trade balance (CZK bn) Bulgaria: Industrial production WDA (% y/y) Bulgaria: Retail trade (% y/y) Serbia: Repo rate (%) Czech Republic: Industrial output (% y/y) Hungary: Trade balance (EUR bn) Romania: Industrial output (% y/y) Turkey: Industrial production NSA (% y/y)

May P Jun May Jun Jun Jun Jun Jul-07 Jun Jun Jun Jun May May May Jul-07 May May P May May

3.7 6.1 4.3 85.8 -724 36.0 9.6 4.50 27.2 11.0 37.9 45.9 12.8 9.7 9.8 0.5 12.00 4.7 0.5 6.3 8.8

9.6 4.50 11.9 45.8 12.00 7.3 -

1.0 12.6 2.1 86.8 34.8 9.4 4.50 26.6 11.9 37.6 47.2 14.4 2.6 7.8 1.6

-1035 This compares to less than 300bn deficit in H1 10

Hungary: Industrial production WDA (% y/y) May P

11.75 Close call; we maintain our forecast of at least 200bp of cuts by end-2011 15.2 0.7 8.0 8.0 Recovery after sharp deceleration over the past two months Surprising pick up in exports, given disappointing IP print Stabilized after several months of deceleration Slowdown in line with weaker PMI, but still robust prints

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Barclays Capital | Global Economics Weekly

Preview of week ahead


Monday 11 July Period Prev 2 Prev 1 Latest Forecast Consensus

Egypt: CPI (% y/y) 08:00 Romania: CPI (% y/y) 08:00 Romania: Trade balance (EUR bn) 08:00 Turkey: Current account (USD bn) Israel: Trade balance (USD bn) Kazakhstan: Real wages (% y/y) Russia: Budget level YTD (RUB bn) Russia: Trade balance (USD bn)

Jun Jun May May Jun May Jun May

11.5 8.0 -0.4 -6.1 -1.2 8.2 121 17.4

12.1 8.3 -0.9 -9.8 -1.6 11.5 134 17.3

11.9 8.4 -0.9 -7.7 -2.0 2.2 356 19.3

12.0 8.5 -7.7 6.0 -

8.5 -7.8 18.3

Egypt: We believe that increases in basic food prices ahead of Ramadan have put upward pressure on inflation. Romania: We expect one more month of higher CPI until inflation falls in July on favourable base effects. Turkey: The May trade deficit surprised to the upside, reaching over USD10bn for the first time and bringing the 12mma deficit to over USD92bn. This should lead to a further widening of the C/A deficit, which we expect to continue in the coming months. Israel: Further deterioration in terms of trade could send the trade balance weaker, as the C/A surplus is dwindling. Kazakhstan: Consumer incomes continue to grow, further support expected in H2 from higher social payments. Russia: High oil prices will likely maintain strong fiscal and foreign trade balances in the near term.
Tuesday 12 July Period Prev 2 Prev 1 Latest Forecast Consensus

08:00 Czech Republic: CPI (% y/y) 08:00 Czech Republic: Unemployment rate (%) 08:00 Hungary: CPI (% y/y) 09:00 Bulgaria: CPI (% y/y) 12:00 South Africa: Manufacturing production (% y/y) Serbia: CPI (% y/y) Ukraine: Trade balance (USD bn)

Jun Jun Jun Jun May Jun May

1.7 9.2 4.5 5.6 5.8 14.1 -2.1

1.6 8.6 4.7 4.6 4.9 14.7 -3.1

2.0 8.2 3.9 4.8 0.4 13.4 -3.8

2.1 3.7 1.1 13.1 -

2.1 8.1 3.9 2.4 -

Czech Republic: We expect Czech inflation to pick up slightly due to a favourable base effect as food prices uncharacteristically fell in June 2010. Unemployment has declined, but has not helped consumer confidence. Hungary: A large uptick in seasonal food prices last June created a positive base effect, so we expect inflation to decelerate. South Africa: Production growth likely to tick up in May, but still reflect lower PMI business activity as well as some constraints on automotive production in the aftermath of the Japanese earthquake crisis. Serbia: Pressures from food prices have subsided, but we expect only a modest deceleration in inflation in June due to unfavourable base effects. Ukraine: Trade deficit will likely widen further in the near term due to adverse terms of trade effect (mainly high oil and gas prices) and recovering domestic demand.
Wednesday 13 July Period Prev 2 Prev 1 Latest Forecast Consensus

13:00

Poland: CPI (% y/y) Kazakhstan: Industrial production (% y/y)

Jun Jun

4.3 6.6

4.5 6.4

5.0 4.7

4.8 5.1

4.8 4.8

Poland: We think inflation pushed lower in June and expect it to accelerate in Q3 11, due to base effects. However, we see the overall inflation trend as declining due to lower global commodity prices. Kazakhstan: IP is doing well overall, so we consider May reading as a temporary weakness and expect a recovery in June.
Thursday 14 July Period Prev 2 Prev 1 Latest Forecast Consensus

10:00

Croatia: CPI (% y/y)

Jun

2.6

2.4

2.5

Croatia: As pressure from food inflation has stopped mounting, we expect inflation to have roughly stabilised in June.

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Barclays Capital | Global Economics Weekly Friday 15 July Period Prev 2 Prev 1 Latest Forecast Consensus

08:00 Turkey: Unemployment rate (%) 09:00 Czech Republic: Current account (CZK bn) 12:00 Israel: CPI (% y/y) 13:00 Poland: Current account (EUR bn, revised) 13:00 Poland: Trade balance (EUR bn) 14:00 Poland: Budget level YTD (PLN bn) Romania: Current account YTD (EUR bn) Russia: Industrial production (% y/y) Ukraine: Industrial production (% y/y) Ukraine: Retail trade YTD (% y/y)

Apr May Jun May May Jun May Jun Jun Jun

11.9 15.7 4.3 -0.8 -0.8 -17.5 -0.04 5.3 8.0 13.5

11.5 1.5 4.0 -1.1 -0.5 -21.6 -0.6 4.5 4.9 14.9

10.8 -6.7 4.1 -1.2 -0.9 -23.7 -1.2 4.1 8.6 15.5

4.0 -1.3 -0.7 4.6 8.9 -

-20.0 -0.8 -0.8 4.8 8.8 -

Czech Republic: The C/A deficit is gradually widening on a 12-month rolling basis. Romania: C/A deficit much lower than a year ago on weak imports and EU transfers. Poland: First monthly release following the C/A revisions makes forecasting more difficult this month. We expect further C/A deterioration on relatively high imports. Israel: Inflation seems to have stabilized in Israel and is likely to decline moderately in H2 11. Turkey: On a seasonally adjusted basis, unemployment has continued to gradually improve; we expect this trend to continue. Russia: IP will likely regain some of the momentum lost in recent months. Ukraine: Both producer and consumer sectors show improved dynamics this year, which we expect to continue. The recovery is visibly under way and we do not expect any factors to delay it in the short term.

8 July 2011

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Barclays Capital | Global Economics Weekly

OUTLOOK: LATIN AMERICA

A currency war again? Yes, but not for long.


Alejandro Arreaza +1 212 412 3021 Alejandro.Arreaza@barcap.com Marcelo Salomon +1 212 412 5717 marcelo.salomon@barcap.com

As commodity price pressures dissipate and headline inflation moves south, the crusade against currency appreciation is starting to re-emerge in the Latin region. The outlook for core is not as rosy as headline CPI, and in countries such as Brazil and Colombia, we doubt the governments will use the FX channel to control inflation.

The Brazilian Finance Minister, Guido Mantega, was once again at the forefront of economic news this week, claiming that the currency wars were not over. Food and fuel prices are now helping bring headline inflation down across most of the region. Furthermore, there has been some risk decompression due to positive developments in the Greek sovereign debt crisis, which reignited some capital flows towards the region leading to FX strength.. While this is unquestionably the backdrop for Minister Mantegas comments, we think the statement express more than just an attempt to control the appreciation of the currency. In our view, they also state that inflation has moved to the back burner and is not at the top of the priority list of the Brazilian government. While other central banks across the region may have a much more comfortable inflationary backdrop, we believe the Brazilian case is different, with only a temporary respite on the inflation front. Hence, a stronger BRL is not only welcome, but necessary to keep inflation within the target range. Figure 1 shows that with the exception of Chile, m/m inflation prints have been losing momentum this year. Lower food and fuel prices have been making their way out of the index, helping bring headline inflation down and/or keep it low. These effects are lagging in Chile, but we expect them to start appearing as of the June release (due out Friday, July 8). In contrast, a common trend of rising core has been observed across the region (Figure 2). And, even though in Peru the core trend spiked due to a strong 5.0% (SAAR) reading in June, from 2.1% in May and 1.0% in April, shifting it above the 2.0% official target, it is in Brazil that the risks of missing the target remain high. In Brazil, headline inflation dropped to 0.15% in June (slightly above what we and the markets were expecting: 0.10% and 0.07%, respectively), but core remained very sticky. The average

The good season of low inflation in Brazil is only temporary, and the government still needs the FX channel to help fight inflation

Figure 1: Less headline inflation.


1.5 1.0 0.5 0.0 -0.5 -1.0 Jan-10 % m/m

Figure 2: with core trend sturdy or moving up


8.5 6.5 4.5 2.5 0.5 -1.5 -3.5 -5.5 Jan-09 Jul-09 Brazil Mexico
Source: Haver, Barclays Capital

3MMA % m/m saar

May-10 Brazil Mexico

Sep-10 Chile Peru

Jan-11

May-11 Colombia

Jan-10 Chile Peru

Jul-10

Jan-11 Colombia

Source: Haver, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

of the three measures of core inflation tracked by the BCB rose to 6.5% (SAAR), from 6.1% in May. We believe headline inflation should gradually move back to the 0.50% range in AugustSeptember and that core will remain stubbornly high. This means that we do not expect downward surprises as we head out of the northern hemisphere summer.
Food and fuel prices are helping bring headline inflation down, but core measures are not following suit

It is also interesting to note that the downward inflation surprises of the past months have been smaller and shorter lived than the ones observed last year. Figure 3 shows that only in Colombia and Mexico were markets really caught by surprise by the intensity of the downward movement of inflation. And quite differently from last year, in this case the index is moving back up just as fast as it moved down. Meanwhile, in Chile and Brazil, there was little, if any, downward deviation from the expected outcome. So can authorities really dispose of the tightening effects that come with further exchange rate appreciation? We believe not. Figure 4 shows that the COP and BRL experienced the strongest bouts of appreciation in the very short term (a period in which we believe Latin central bankers started to use the FX channel in the fight against inflation). Given our more bearish outlook for inflation in Brazil, we believe it is unlikely that Minister Mantega will resort to further capital control in the short to medium run, and we continue to see the USD/BRL slipping to the 1.50 level.

Despite the rhetorical component, we believe Colombia and Brazil will continue to use the FX channel to help fight inflation

In Colombia, even though inflation remains well behaved and close to target, we do see signs that the recent pressure is related more to domestic demand than to global commodity cycles. President Santos has already signalled his concern with peso appreciation were Banrep to continue tightening monetary policy. This seems to be reviving internal board discussions on macro-prudential measures, at a time when, in our view, Banrep will need to continue to tighten and lift the target rate to 5.0% by year-end. If the demand-driven inflationary pressures become more intense, we believe Colombian authorities would prioritize this over fighting the stronger peso. Hence, despite the pickup in rhetoric, we believe Mantegas second wave of currency wars may be much shorter than originally planned.

Figure 3: Inflation surprised less than last year


1.5 1.0 0.5 0.0 -0.5 SD

Figure 4: COP and BRL experiencing the largest appreciations


104 102 100 98 96 94

-1.0 -1.5 Jan-10 Brazil


Source: Barclays Capital

92 Jun-10 Mexico Nov-10 Chile Apr-11 Colombia 90 Mar-11 BRL

Apr-11 CLP

May-11 COP

Jun-11 MXN

Jul-11 PEN

Source: Bloomberg, Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

DATA REVIEW & PREVIEW: LATIN AMERICA


Alejandro Arreaza, Alejandro Grisanti, Guilherme Loureiro, Marcelo Salomon, Sebastian Vargas Review of the weeks data releases
Main indicators Period Previous BarCap Actual Comments

Uruguay CPI inflation (% m/m) Chile Economic activity index (% y/y) Uruguay Unemployment rate Colombia CPI inflation (% m/m) Colombia PPI inflation (% m/m) Brazil IGP-DI inflation (% m/m) Brazil IPCA inflation (% m/m) Chile Trade balance (USD mn) Mexico CPI inflation (% m/m) Mexico CPI core inflation (% m/m) Venezuela CPI inflation (% m/m) Peru Reference rate Chile CPI inflation (% m/m) Chile CPI ex-perish.&fuel (% m/m) Mexico Overnight rate Argentina Govern. tax revenue (ARS bn)

Jun May May Jun Jun Jun Jun Jun Jun Jun Jun Jul Jun Jun Jul Jun

0.33 6.3 6.6% 0.28 0.60 0.01 0.47 1792 -0.74 0.18 2.5% 4.25% 0.4 0.3 4.50% 50.6

0.25 6.8 6.5% 0.18 NA -0.17 0.10 200 -0.05 0.20 2.0% 4.25% 0.1 0.0 4.50% NA

0.35 7.3 6.4% 0.32 -0.17 -0.13 0.15 594 0.00 0.19 2.5%

8.6 y/y, well above the 4-6% target range. Shows solid activity, in line with our Q2 GDP forecast Labor market remains tight Rebound in food prices and further demand pressures drive higher-than-expected inflation Widening between consumer and producer prices reflects demand pressures Slightly higher-than-expected agriculture prices Low headline reading, with resilient core Higher copper prices in last weeks exports Uptick in perishables food was the main highlight Softer services core inflation, mainly from mobile prices Reflects price adjustment in food and transport

Preview of the week ahead


Tuesday 12 July Period Prev 2 Prev 1 Latest Forecast Consensus

8:00 9:00 9:00 13:00 NA

Brazil Retail sales (% y/y) Mexico Gross fixed investment (% y/y) Mexico Industrial production (% y/y) Uruguay Industrial production (% y/y) Peru Trade balance (USD mn)

May Apr May May May

8.5 9.5 5.0 8.39 817.0

4.0 8.0 4.4 4.33 870.6

10.0 5.8 1.4 0.35 347.7

5.6 4.3 3.4 NA NA

8.0 NA NA NA NA

Brazil retail sales: We look for a 0.5% m/m sa gain at the margin, consistent with a 0.3% m/m sa increase in the broader index (which includes auto and building materials). Overall, tight labor market conditions should remain supportive of consumption. Mexico gross fixed investment: This is consistent with a 0.5% m/m sa gain, in line with growing capital goods imports and construction IP in the month. Mexico industrial production: After two soft prints, we expect industrial production to rebound, increasing 1.0% m/m sa due to a recovery in auto production (after the supply chain disruption caused by the Japanese earthquake) and a pickup in US manufacturing.
Thursday 14 July Period Prev 2 Prev 1 Latest Forecast Consensus

17:00 18:00

Colombia Trade balance (USD mn) Chile Overnight rate target

May Jul

362.4 4.50%

481.4 5.00%

696.6 5.25%

NA 5.50%

NA 5.25%

Chile overnight rate target: While the BCCh indicated in the previous minutes that the tightening cycle could be getting close to an end, we believe the robust pace of economic activity, coupled with tight labor markets and strong credit expansion, is supportive of our call for a 25bp hike in the July monetary policy meeting.
Friday 15 July Period Prev 2 Prev 1 Latest Forecast Consensus

7:00 NA

Brazil IGP-10 inflation (% m/m) Peru GDP (% y/y)

Jul May
Period

0.56 8.2
Prev 2

0.55 7.7
Prev 1

-0.22 7.4
Latest

0.00 6.7
Forecast

0.00 6.9
Consensus

Week 10 -16 July

NA 8 July 2011

Argentina CPI inflation (% m/m)

Jun

0.8

0.8

0.7

0.7

NA 38

Barclays Capital | Global Economics Weekly

COUNTRY SNAPSHOT: AUSTRALIA


2010 % change q/q Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Nominal GDP (% chg, q/q) Real GDP (% chg, q/q) Real GDP (% chg, y/y) Private consumption Public consumption Investment Net exports contribution (pp) Inventories contribution (pp) Unemployment rate (%) CPI inflation (y/y) Underlying CPI (y/y) Current account (% GDP) RBA cash rate (period end, %)

2.3 0.5 2.3 2.2 1.7 6.4 -2.0 1.0 5.4 2.9 3.0 -5.8 4.00

3.5 1.3 3.2 2.5 3.5 7.3 -1.6 0.5 5.1 3.0 2.7 -1.7 4.50

1.3 0.0 2.5 3.2 4.4 6.1 -1.9 -0.2 5.1 2.8 2.5 -2.2 4.50

1.4 0.8 2.7 3.0 4.0 1.5 -1.0 0.5 4.9 2.6 2.3 -2.4 4.75

0.7 -1.2 1.0 3.3 4.5 2.4 -2.8 -0.2 4.9 3.3 2.3 -2.5 4.75

2.9 1.1 0.7 2.5 4.1 5.0 -0.5 0.6 4.9 3.8 2.6 -2.6 4.75

1.9 1.2 1.9 2.4 4.6 7.6 0.2 0.5 4.8 4.1 2.9 -2.7 5.00

1.5 0.8 1.9 2.2 2.8 9.5 0.5 -1.2 4.6 4.5 3.3 -2.7 5.00

1.4 0.6 3.8 1.9 0.4 8.4 2.8 -1.3 4.5 3.7 3.1 -2.8 5.25

1.5 0.8 3.4 2.0 -1.3 7.8 0.0 -1.3 4.4 3.3 2.9 -2.9 5.25

1.7 1.1 3.3 2.4 -1.8 6.7 -0.1 -0.3 4.4 3.0 2.7 -2.7 5.25

1.3 0.8 3.3 3.0 -1.1 5.5 0.0 0.4 4.3 2.9 2.5 -2.7 5.25

2.1 0.7 2.7 2.7 3.4 5.3 -1.6 0.4 5.1 2.8 2.6 -3.0

1.8 0.5 1.4 2.6 4.0 6.1 -0.7 -0.1 4.8 3.9 2.5 -2.6

1.5 0.8 3.4 2.3 -1.0 7.1 0.7 -0.6 4.4 3.2 2.6 -2.8

Note: Calendar year except for fiscal balance, which is financial year end June. Source: Barclays Capital

COUNTRY SNAPSHOT: BRAZIL


% change q/q saar (unless otherwise stated) 2010 Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Nominal GDP (in BRL) Real GDP Private consumption Public consumption Investment Net exports (contr., % y/y) Industrial output (PA) CPI inflation (% y/y) CPI inflation (% y/y, PA) Unemployment rate % (PA) Key Central Bank rate (EOP) Current account (% GDP) Gross public debt (% GDP) Gross external debt (% GDP)

13.5 8.9 8.4 -0.3 17.9 -1.7 12.9 5.2 4.9 7.2 -1.8 66.1 12.0

17.9 6.4 4.4 7.1 17.7 -1.5 4.5 4.8 5.1 6.9 -2.1 -3.3 67.4 11.9

9.8 1.8 7.1 -0.4 12.0 -1.7 -2.6 4.7 4.6 6.6 -2.3 -2.3 65.7 12.2

11.7 3.2 9.7 -1.2 1.7 -1.4 0.2 5.9 5.6 6.2 -2.3 -2.6 66.0 12.3

10.6 5.4 2.6 3.4 4.9 0.2 8.0 6.3 6.1 6.1 -2.3 -2.3 64.2 12.9

7.4 2.9 3.2 2.2 5.7 0.6 1.9 6.7 6.6 6.2

12.0 3.4 3.9 2.2 7.4 0.6 3.2 7.1 7.1 6.2

10.7 4.5 4.3 2.8 8.9 -0.9 5.0 6.5 6.6 6.3

9.9 4.5 5.1 2.8 10.0 -2.3 5.0 5.7 6.0 6.4

8.2 4.5 5.7 2.8 9.5 -3.0 5.0 5.5 5.4 6.5

12.6 4.4 4.9 2.2 7.8 -3.1 4.9 5.7 5.7 6.6

10.2 4.5 5.0 2.2 8.1 -1.7 5.1 5.6 5.6 6.7

15.4 7.5 7.0 3.3 21.9 -2.6 10.5 5.9 5.0 6.7 -2.3 -2.6 66.5 12.3

10.7 3.8 4.9 1.9 6.5 -0.7 3.0 6.5 6.6 6.2 12.75 -2.3 -3.0 68.4 11.5

10.2 4.2 4.8 2.6 8.7 -1.1 4.6 5.6 5.7 6.6 12.75 -3.0 -3.0 68.1 10.7

8.75 10.25 10.75 10.75 11.75 12.25 12.75 12.75 12.75 12.75 12.75 12.75 10.75

General govt. balance (% GDP) -3.4

Source: IBGE, BCB, National Treasury, Barclays Capital

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Barclays Capital | Global Economics Weekly

COUNTRY SNAPSHOT: CHINA


2010 % change y/y Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Real GDP Real GDP (q/q, saar) Private consumption Public consumption Investment Net exports contribution (pp) Industrial output CPI inflation Unemployment rate (%) Current account (% GDP) Government balance (% GDP) Key CB rate (period end, %)

11.9 9.7 9.0 9.5 15.7 -0.2 20 2.2 4.2 3.1 5.31

10.3 8.0 7.8 8.6 11.5 0.8 15.8 2.9 4.2 4.9 5.31

9.6 10.4 7.4 8.3 10.4 0.8 13.5 3.5 4.1 7.2 5.31

9.8 11.4 6.5 7.5 10.2 1.7 13.3 4.7 4.1 5.2 5.81

9.7 9.4 7.6 8.0 10.2 1.1 14.3 5.1 4.1 4.6 6.06

9.4 7.8 8.3 8.9 10.4 0.7 13.5 5.6 4.0 4.4 6.31

9.2 8.0 8.1 9.0 10.5 0.1 13.2 5.2 4.0 4.1 6.56

8.7 9.5 8.1 8.0 10.8 0.5 12.7 3.4 4.0 4.1 6.56

8.5 8.7 8.1 8.5 9.7 0.1 12.9 3.6 4.0 3.8 6.56

8.7 8.7 8.4 8.4 9.4 0.2 14.6 3.2 4.0 3.6 6.56

8.9 8.7 8.4 8.6 9.3 0.3 12.9 4.0 4.0 3.5 6.81

8.7 8.7 8.2 8.5 9.5 0.2 11.4 5.0 4.0 3.4 7.06

10.3 7.7 8.5 12 0.8 15.6 3.3 4.2 5.1 -1.6 5.81

9.3 8.1 8.5 10.5 0.4 13.2 4.8 4.0 4.3 -1.9 6.56

8.7 8.3 8.5 9.5 0.2 12.7 4.0 4.0 3.6 -2.0 7.06

Note: * SAFE revised 2010 balance of payments data on 1 April 2011; the current account has been revised accordingly. All numbers are expressed in y/y % change unless otherwise specified. Source: Barclays Capital

COUNTRY SNAPSHOT: EURO AREA


2010 % Change q/q Q1 Q2 Q3 Q4 Q1 2011 Q2E Q3E Q4E Q1E 2012 Q2E Q3E Q4E Calendar year average 2010 2011E 2012E

Real GDP Real GDP (saar) Real GDP (y/y) Private consumption Public consumption Investment - Residential construction - Non-residential construction - Non-construction investment Inventories contribution (pp) Net exports contribution (pp) Industrial output (ex construct.) Employment (q/q) Unemployment rate % CPI inflation (y/y) Core CPI (ex food/energy) y/y Current account % GDP Government balance % GDP Refi rate (period end %)

0.3 1.4 0.9 0.4 -0.3 -0.7 -0.9 -2.8 0.7 0.4 -0.1 2.5 0.0 10.1 1.1 0.9 0.0 ... 1.00

0.9 3.8 2.0 0.2 0.3 2.2 2.4 1.1 2.7 0.2 0.1 2.4 0.1 10.2 1.6 0.9 -0.5 ... 1.00

0.4 1.6 2.0 0.2 0.1 -0.2 -0.4 -0.9 0.3 0.1 0.2 1.1 0.0 10.2 1.7 1.0 -0.4 ... 1.00

0.3 1.1 2.0 0.3 -0.1 -0.2 -1.3 -1.8 1.1 -0.1 0.2 1.8 0.2 10.1 2.0 1.1 -0.7 ... 1.00

0.8 3.4 2.5 0.2 0.5 1.9 1.0 1.4 2.6 0.0 0.3 1.2 0.1 10.0 2.5 1.1 -0.6 ... 1.00

0.3 1.1 1.8 0.2 0.0 0.7 0.5 0.2 1.2 0.2 0.0 0.1 0.1 9.9 2.7 1.5 -0.7 ... 1.25

0.3 1.2 1.7 0.1 -0.1 0.7 0.1 0.2 1.3 0.0 0.1 -0.1 0.1 9.8 2.8 1.4 -0.6 ... 1.50

0.4 1.6 1.8 0.2 -0.1 0.8 0.2 0.3 1.4 0.1 0.1 0.1 0.1 9.7 2.9 1.4 -0.5 ... 1.75

0.4 1.5 1.4 0.4 0.1 0.7 0.5 0.3 1.1 0.0 0.0 0.1 0.1 9.6 2.2 1.4 -0.5 ... 2.00

0.5 1.9 1.6 0.4 0.1 0.7 0.4 0.4 1.0 0.0 0.1 0.3 0.0 9.5 1.7 1.3 -0.4 ... 2.25

0.5 2.1 1.8 0.4 0.2 0.7 0.4 0.4 1.0 0.0 0.1 0.4 0.2 9.4 1.7 1.5 -0.3 ... 2.25

0.4 1.8 1.8 0.4 0.1 0.7 0.5 0.4 1.1 0.0 0.0 0.2 0.2 9.2 1.5 1.5 -0.3 ... 2.25

... ... 1.7 0.8 0.6 -0.9 -2.8 -4.7 2.3 0.6 0.8 7.4 -0.5 10.2 1.6 1.0 -0.4 -6.0 1.00

... ... 1.9 0.8 0.5 3.3 0.8 0.1 6.3 0.3 0.6 3.7 0.6 9.8 2.7 1.4 -0.6 -4.5 1.75 1.6 1.2 0.2 2.9 1.5 1.4 4.7 0.1 0.3 0.7 0.3 9.4 1.8 1.4 -0.3 -3.5 2.25

Note: All numbers expressed in % q/q unless otherwise specified. Source: Barclays Capital

8 July 2011

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Barclays Capital | Global Economics Weekly

COUNTRY SNAPSHOT: INDIA


FY 10 % change y/y Q1 Q2 Q3 Q4 Q1 FY 11 Q2 Q3 Q4 Q1 FY 12 Q2 Q3 Q4 Fiscal year average 2010 2011 2012

Real GDP (q/q saar) Real GDP Private consumption Public consumption Fixed investment Industrial output WPI inflation (y/y) Current account (% GDP) General govt balance (% GDP) Repo rate (period end, %)

7.7 6.3 7.3 21.3 -0.4 4.0 0.7 4.75

11.7 8.6 8.5 37.5 0.3 8.7 0.5 4.75

5.9 7.3 7.0 9.6 8.7 13.1 4.5 4.75

12.2 9.4 7.2 0.6 19.5 15.8 9.6 5.00

7.7 9.3 8.9 6.7 17.4 12.0 10.6 5.25

8.6 8.9 8.9 6.4 11.9 9.1 9.3 6.00

6.4 8.3 8.6 1.9 7.8 6.1 8.9 6.25

8.4 7.8 8.0 4.9 0.4 5.0 9.5 6.75

7.6 7.8 7.8 5.0 2.0 4.0 9.3 7.50

9.1 7.5 7.8 5.0 4.0 6.3 9.2 7.75

5.0 7.9 7.5 8.0 4.0 7.3 8.3 7.75

8.8 7.6 7.5 6.0 5.0 8.0 6.5 7.75

8.0 7.5 14.6 7.4 10.4 3.9 -2.8 -9.5 5.00

8.5 8.6 4.8 8.6 7.8 9.6 -2.5 -8.2 6.75

7.7 7.6 6.1 3.8 6.4 8.4 -2.9 -8.3 7.75

Note: Values expressed in y/y % unless otherwise specified. Indias fiscal year begins in April of previous year and ends in March of the current year. Industrial output data does not take into account the new series published on 10 June 2011. Source: Barclays Capital

COUNTRY SNAPSHOT: JAPAN


2010 % change Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Real GDP (q/q, saar) Real GDP (q/q) Private consumption (q/q) Public consumption (q/q) Residential investment (q/q) Public investment (q/q) Capital Investment (q/q) Net exports (q/q)* Ch. Inventories (q/q)* Nominal GDP (q/q) Industrial output (q/q) Employment (q/q) Unemployment rate (%) CPI inflation (y/y) Core CPI ex food/energy (y/y) Current account (% GDP) Government balance (% GDP) Overnight call rate

9.4 2.3 1.0 -0.4 1.4 -0.6 1.6 0.6 1.0 2.2 7.3 0.5 5.1 -1.2 -1.1 3.8 0.10

0.0 0.0 -0.2 1.2 -0.6 -4.5 2.6 0.2 -0.5 -1.0 0.7 -0.4 5.1 -1.2 -1.6 3.3 0.10

3.6 0.9 0.8 0.3 1.9 -2.5 1.0 -0.1 0.5 0.6 -1.0 0.3 5.0 -1.1 -1.5 3.7 0.10

-2.9 -0.7 -1.0 0.4 3.2 -6.0 0.0 -0.1 0.0 -0.9 -0.1 -0.1 5.0 -0.5 -0.8 3.6 0.10

-3.5 -0.9 -0.6 0.9 0.7 -1.4 -1.3 -0.2 -0.4 -1.3 -2.0 -1.0 4.7 -0.2 -0.6 2.6 0.10

-2.3 -0.6 0.2 0.7 0.8 1.2 -2.3 -1.5 0.7 -0.6 -3.8 0.2 4.8 0.5 0.0 0.4 0.10

3.7 0.9 0.7 1.1 -2.2 1.6 1.5 0.0 -0.1 0.7 5.9 0.4 4.7 0.5 0.2 2.0 0.10

5.0 1.2 0.4 1.3 -0.9 3.2 2.7 0.0 0.2 1.3 2.2 0.3 4.5 0.0 0.0 2.3 0.10

4.4 1.1 0.2 1.5 3.5 3.7 2.6 -0.1 0.1 0.9 4.0 0.3 4.4 0.2 0.2 2.5 0.10

2.9 0.7 0.2 1.3 2.6 4.5 1.2 -0.1 -0.1 0.7 1.5 0.3 4.2 0.2 0.2 2.5 0.10

2.2 0.5 0.2 0.7 0.6 4.0 1.0 0.0 -0.1 0.4 2.5 0.2 4.0 0.1 0.1 2.5 0.10

2.0 0.5 0.3 0.2 0.5 3.1 0.9 0.1 -0.1 0.6 2.5 0.2 4.0 0.1 0.1 2.5 0.10

4.0 1.8 2.2 -6.3 -3.4 2.1 1.8 0.6 1.7 16.5 -0.3 5.1 -1.0 -1.3 3.6 -9.5 0.10

-0.5 -0.3 3.1 3.0 -5.7 -0.4 -1.3 0.3 -1.7 -1.9 -2.2 4.7 0.2 -0.1 1.8 -9.2 0.10

3.2 1.2 4.6 4.4 14.1 6.4 -0.5 0.2 3.0 11.5 -0.1 4.2 0.1 0.1 2.5 -7.8 0.10

Note: *Contribution. Central bank rates are for end of period %. Source: BoJ, Cabinet Office, METI, MIC, MoF, Barclays Capital

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Barclays Capital | Global Economics Weekly

COUNTRY SNAPSHOT: MEXICO


% change q/q saar (unless otherwise stated) 2010 Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Real GDP Real GDP (% y/y, sa) Private consumption (% y/y, sa) Public consumption (% y/y, sa) Investment (% y/y, sa) Real exports (% y/y, sa) Real imports (% y/y, sa) Industrial output (PA) CPI inflation (% y/y, PA) Unemployment rate % (PA) MXN/USD (EOP) Key Central Bank rate (EOP) Current account (% GDP) Government balance (% GDP) Gross public debt (% GDP,) Gross external debt (% GDP)
Source: Haver Analytics, Barclays Capital

1.3 5.1 5.1 1.2 -1.2 24.7 21.8 7.2 4.8 5.3 4.50

8.4 7.3 7.3 5.3 0.3 34.6 33.1 7.0 4.0 5.5 4.50

2.8 5.1 5.1 2.5 3.7 27.9 23.5 2.6 3.7 5.2 4.50

4.6 4.2 4.2 2.0 6.4 16.9 17.0 2.0 4.2 5.4 4.50

2.1 4.4 4.4 1.3 5.9 14.0 10.8 8.1 3.5 5.1 4.50

6.5 4.0 4.0 0.3 7.7 8.8 9.3 3.1 3.3 5.1 4.50

3.0 4.0 4.0 1.7 5.0 8.4 7.8 2.7 3.7 4.9 4.50

3.0 3.6 3.6 2.3 4.1 8.9 7.7 3.1 3.6 4.9 4.50

4.0 4.1 4.1 2.7 4.6 5.4 6.6 4.1 3.6 4.9 4.50

4.0 3.5 3.5 3.2 4.2 5.7 6.2 4.1 4.1 4.9 5.00

3.5 3.6 3.6 3.1 4.3 5.7 6.3 3.7 4.1 4.8 5.50

3.0 3.6 3.6 3.0 4.3 5.7 6.3 3.6 4.0 4.8 5.50

5.4 5.4 5.0 2.8 2.3 24.3 22.1 6.0 4.2 5.4 4.50 -0.5 -2.8 34.0 23.1

3.9 3.9 4.1 1.1 7.5 5.6 8.9 4.3 3.5 5.0 4.50 -1.8 -2.5 33.0 21.9

3.7 3.7 3.9 3.0 4.4 5.6 6.4 3.6 4.0 4.8 5.50 -2.5 -2.0 32.8 22.7

12.46 12.66 12.50 12.36 11.97 11.65 11.50 11.60 11.70 11.80 11.80 11.80 12.36 11.60 11.80

COUNTRY SNAPSHOT: SOUTH AFRICA


2010 % Change q/q saar Q1 Q2 Q3 Q4 Q1 2011 Q2F Q3F Q4F Q1F 2012 Q2F Q3F Q4F Calendar year average 2010 2011F 2012F

Real GDP Real GDP (y/y) Private consumption Public consumption Investment Exports Imports Industrial output (y/y) CPI inflation (y/y) Core CPI ex food/energy (y/y) Current account (% GDP) Government balance (% GDP)* Repurchase rate (period end, %)

4.8 1.4 5.5 7.1 -2.8 -16.4 7.8 4.3 5.7 5.4 -4.4 -1.5 6.5

2.8 2.9 4.4 7.1 1.2 18.2 17.0 8.7 4.5 4.4 -2.9 -5.9 6.5

2.7 3.4 5.7 -0.8 1.0 12.5 26.5 4.5 3.5 3.3 -3.1 -7.3 6.0

4.5 3.7 4.8 3.9 1.5 5.7 -2.0 2.5 3.5 3.4 -1.0 -5.8 5.5

4.8 3.7 5.2 9.5 3.1 -11.9 2.7 4.3 3.8 3.0 -3.1 -6.6 5.5

3.8 4.0 4.8 7.0 3.2 7.6 8.5 ... 4.6 3.6 -3.3 ... 5.5

3.5 4.2 4.6 5.8 3.5 2.8 7.8 ... 5.2 3.7 -3.6 ... 5.5

3.6 3.9 4.7 4.8 3.9 3.9 7.8 ... 6.0 3.8 -3.9 ... 5.5

4.2 3.8 4.9 4.3 6.3 6.4 8.5 ... 6.2 4.1 -4.2 ... 6.5

4.4 3.9 5.0 4.0 7.5 7.8 9.0 ... 6.0 4.5 -4.4 ... 7.0

4.5 4.2 5.0 3.8 8.4 7.9 9.2 ... 5.9 4.9 -4.7 ... 7.5

4.5 4.4 5.1 3.9 8.7 7.4 9.2 ... 5.8 5.3 -4.9 ... 7.5

2.8 2.8 4.4 4.6 -3.7 4.5 9.6 ... 4.3 4.1 -2.8 -6.9 5.5

3.9 3.9 5.0 5.7 2.5 2.3 7.3 ... 4.9 3.5 -3.5 -5.4 5.5

4.1 4.1 4.9 4.6 5.9 6.1 8.5 ... 6.0 4.7 -4.6 -5.1 7.5

Note: All numbers expressed in q/q saar % unless otherwise specified; *quarterly numbers are not seasonally adjusted or annualised, while annual numbers represent financial years (ie, FY 09/10 = 2010). Source: SARB, Statistics South Africa, National Treasury, Absa Capital

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COUNTRY SNAPSHOT: SOUTH KOREA


2010 % Change Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Real GDP (q/q, saar) Real GDP (y/y) Private consumption Public consumption Investment Net exports Industrial output Unemployment rate (%) CPI inflation (y/y) Current account (% GDP) Government balance (% GDP) Key CB rate (period end, %)

8.6 8.1 6.3 3.8 18.9 -9.7 25.8 3.8 2.7 2.2 -1.5 2.00

5.7 7.2 3.7 3.2 22.5 -8.6 19.5 3.5 2.6 2.0 -1.0 2.00

2.6 4.4 3.3 2.8 11.5 -6.7 11.8 3.7 2.9 1.5 0.2 2.25

2.0 4.8 3.2 3.9 4.1 16.4 6.5 3.4 3.6 1.5 1.5 2.50

5.6 4.2 3.0 1.6 -2.5 73.0 9.8 3.9 4.5 2.0 1.2 3.00

8.7 4.8 3.2 2.5 7.3 19.3 4.4 3.7 4.2 1.8 1.5 3.25

4.5 4.9 3.2 2.5 12.2 -1.0 7.6 3.6 2.9 1.0 -1.0 3.50

4.4 5.8 3.6 4.0 7.7 30.9 10.1 3.6 2.6 0.3 -1.0 3.75

2.9 4.5 2.5 1.5 3.0 49.9 5.6 3.6 1.6 3.75

3.6 4.2 3.5 1.5 3.2 18.8 7.5 3.7 1.9 3.75

2.9 3.9 3.0 1.5 3.2 26.6 8.0 3.7 2.4 4.0

2.8 3.4 3.6 1.5 1.8 18.7 4.6 3.7 2.6 4.0

6.1 4.1 3.4 13.4 -1.8 15.3 3.6 3.0 3.2 -0.2 2.50

5.0 3.2 2.7 6.5 26.0 7.9 3.6 3.5 1.7 0.2 3.75

4.0 2.4 1.5 2.9 25.7 6.4 3.7 2.1 1.2 0.2 4.00

Note: All numbers expressed in y/y basis unless otherwise specified. Source: Barclays Capital

COUNTRY SNAPSHOT: UNITED KINGDOM


2010 % Change q/q Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Real GDP Real GDP (saar) Real GDP (y/y) Private consumption Public consumption Investment Inventories (q/q cont.) Net exports (q/q cont.) Nominal GDP Industrial output Employment Unemployment rate % CPI inflation y/y Core CPI y/y Current account % GDP Govt. balance % GDP* Bank Rate

0.4 1.4 -0.3 0.1 0.4 5.3 0.6 -1.0 1.7 1.3 -0.3 8.0 3.3 2.9 -2.9 ... 0.50

1.1 4.3 1.6 0.3 0.5 -1.4 0.8 0.2 1.1 1.2 0.7 7.8 3.4 3.0 -3.0 ... 0.50

0.6 2.5 2.5 -0.1 0.0 3.9 0.3 -0.1 0.6 0.2 0.6 7.7 3.1 2.7 -3.3 ... 0.50

-0.5 -2.0 1.5 -0.2 0.1 -0.7 0.0 -0.3 1.2 0.6 -0.2 7.9 3.4 2.8 -3.5 ... 0.50

0.5 1.9 1.6 -0.6 0.5 -2.0 -0.4 1.4 1.7 -0.1 0.4 7.7 4.1 3.2 -2.5 ... 0.50

0.2 0.9 0.8 0.0 0.2 -1.2 0.0 0.4 1.3 0.5 0.1 7.8 4.5 3.4 -2.1 ... 0.50

0.3 1.0 0.4 -0.1 0.0 -0.8 0.1 0.3 1.1 0.2 0.0 7.8 4.7 3.4 -1.8 ... 0.50

0.4 1.5 1.3 0.3 -0.3 -0.5 0.0 0.3 1.0 0.5 0.1 7.9 4.9 3.2 -1.5 ... 0.50

0.5 1.9 1.3 0.3 -0.4 1.8 0.0 0.1 1.2 -0.1 0.1 7.9 3.6 -1.4 ... 0.50

0.6 2.5 1.7 0.5 -0.4 2.3 0.0 0.0 1.3 0.5 0.2 7.9 3.0 -1.3 ... 0.75

0.7 2.6 2.1 0.5 -0.4 2.8 0.0 0.0 1.4 0.3 0.2 7.9 2.8 -1.3 ... 1.00

0.6 2.2 2.3 0.6 -0.4 1.8 0.0 0.0 1.3 0.4 0.2 7.8 2.2 -1.4 ... 1.50

... ... 1.4 0.7 1.0 3.7 1.5 -1.1 4.3 2.1 0.3 7.9 3.3 2.9 -3.2 -9.7 0.50

... ... 1.1 -0.8 0.8 -2.3 0.0 1.7 5.0 1.4 0.8 7.8 4.6 3.3 -2.0 -8.3 0.50

... ... 1.9 1.3 -1.1 4.4 0.1 0.6 4.9 1.2 0.5 7.9 2.9 ... -1.3 -6.6 1.50

Note: *Fiscal year forecasts, 2010 = FY 10-11; includes the impact of financial sector interventions, which reduces overall borrowing. Source: ONS, Barclays Capital

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COUNTRY SNAPSHOT: UNITED STATES


2010 % Change q/q saar Q1 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Calendar year average 2010 2011 2012

Real GDP Private consumption Public consump and invest. Residential investment Equip. & software investment Structures investment Net exports ($bn, real) Net exports (contr to GDP, pp) Final sales Ch. inventories ($bn, real)

3.7 1.9 -1.6 -12.3 20.4 -17.8 -338 -0.3 1.1

1.7 2.2 3.9 25.7 24.8 -0.5 -449 -3.5 0.9 0.8 1.9 3.7 7.1 181 9.6 1.8 0.9 1.5 -3.3

2.6 2.4 3.9 -27.3 15.4 -3.5 -505 -1.7 0.9 1.6 2.1 4.6 6.7 -46 9.6 1.2 0.9 1.2 -3.3

3.1 4.0 -1.7 3.3 7.7 7.6 -398 3.3 6.7 -3.4 0.4 3.5 3.1 139 9.6 1.3 0.7 0.8 -3.0

1.9 2.2 -5.8 -2.0 8.8 -14.8 -393 -0.1 0.6 55.7 0.9 2.0 4.0 4.2 166 8.9 2.1 1.1 0.9 -3.2

2.0 2.0 -1.5 5.0 10.0 10.0 -387 0.4 2.1 47.5 0.1 1.5 3.7 3.0 87 9.1 3.4 1.5 1.2 -3.3

3.0 3.0 -1.0 10.0 10.0 10.0 -401 -0.5 2.6 59.5 0.4 1.8 4.9 4.0 117 9.1 3.6 1.7 1.6 -3.5

3.5 3.0 -1.0 10.0 15.0 10.0 -409 -0.3 3.2 68.5 0.3 1.9 5.5 5.0 200 8.8 3.4 2.0 1.9 -3.5

3.5 3.0 -1.0 10.0 15.0 11.0 -411 -0.2 3.4 70.5 0.1 2.1 5.7 5.0 230 8.4 2.8 2.0 2.0 -3.5

3.5 3.0 -1.0 10.0 13.0 11.0 -413 -0.2 3.2 76.5 0.2 2.3 5.9 5.0 240 8.1 2.0 2.0 1.9 -3.7

4.0 3.5

4.0 3.5

2.9 1.7 1.0 -3.0 15.3 -423 -0.5 1.5 62.6 1.4 1.0 3.8 5.3 78 9.6 1.6 1.0 1.3 -3.2 -8.9

2.5 2.7 -1.5 0.2 11.0 0.5 -397 0.1 2.5 57.8 0.0 1.6 4.1 4.3 142 9.0 3.1 1.6 1.4 -3.4 -8.9

3.4 3.0 -0.9 10.1 13.1 10.6 -413 -0.3 3.3 78.8 0.2 2.1 5.6 4.9 243 8.0 2.4 2.1 2.0 -3.7 -7.1

-0.5 -0.5 12.0 12.0 12.0 12.0 -414 -414 -0.2 -0.2 3.7 0.2 2.3 6.4 6.0 250 7.9 2.3 2.0 2.0 3.8 0.2 2.3 6.4 6.0 250 7.6 2.5 2.2 2.1 81.5 86.5

11.0 11.0 -13.7

44.1 Ch. inventories (contr to GDP, pp) 2.6 GDP price index 1.0 Nominal GDP Industrial output Employment (avg mthly chg, K) Unemployment rate (%) CPI inflation (%y/y) Core CPI (%y/y) Core PCE price index (%y/y) Current account (%GDP) Federal budget bal. (%GDP) Federal funds rate (%) 4.8 8.1 39 9.7 2.4 1.3 1.8 -3.3

68.8 121.4 16.2

-3.7 -3.7

0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0.75 1.25

Note: All numbers expressed in q/q saar % unless otherwise specified. The budget balance is fiscal year. Source: BEA, BLS, Federal Reserve, US Treasury, Barclays Capital

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GLOBAL WEEKLY CALENDAR


Saturday 9 July Global: G20 deputies meeting (final day) 02:00 China: CPI, % y/y 02:00 China: PPI, % y/y Period Jun Jun Prev 2 5.4 7.3 Prev 1 5.3 6.8 Latest 5.5 6.8 Latest 19.4 28.4 Forecast Consensus 6.3 7.1 6.2 6.9

Sunday 10 July Period Prev 2 Prev 1 06:30 E17: ECB President Trichet speaks at the annual Aix-en-provence economic forum in France 35.8 29.9 04:00 China: Exports, % y/y Jun 27.3 21.8 04:00 China: Imports, % y/y Jun

Forecast Consensus 18 24.5 18.6 25.7

Monday 11 July Period Prev 2 Prev 1 Latest Forecast Consensus EU: Eurogroup meeting 15:00 E17: ECB Executive Board member Bini Smaghi speaks at a panel debate organised by the Ruling Companies Association 00:50 Japan: M2/M3, % y/y May 2.6/1.9 2.7/2.1 2.7/2.1 2.9/2.3 2.7/2.1 06:45 France: Industrial production, % m/m (y/y) May 0.4 (5.8) -1.1 (3.2) -0.3 (2.6) 0.5 0.5 23:01 UK: RICS house price balance Jun -23 -21 -28 -26 -25 Tuesday 12 July Period EU: EU Economic & Financial Affairs Council (ECOFIN) Meeting in Brussels Japan: Interest rate announcement, % Jul 18:00 US: Fed releases minutes from June 21-22 FOMC meeting Singapore: GDP advance estimate, % y/y Q2 00:50 Japan: Tertiary industry index, % m/m May 00:50 Japan: CGPI, % y/y Jun 05:30 France: HICP, % m/m (y/y) Jun 05:30 France: CPI ex tobacco index Jun 06:00 Germany: Final HICP, % m/m (y/y) Jun 07:30 Sweden: CPI Headline, % m/m (y/y) Jun 08:30 UK: CPI, % m/m (y/y) Jun 08:30 UK: RPI, % m/m (y/y) Jun 08:30 UK: RPIx, % m/m (y/y) Jun 08:30 UK: Visible trade balance, bn May 09:00 Portugal: HICP, % m/m (y/y) Jun 12:30 US: Trade balance May Prev 2 0.1 10.5 0.8 2.0 0.9 (2.2) 121.90 0.3 (2.7) 0.7 (2.9) 0.3 (4.0) 0.5 (5.3) 0.5 (5.4) -6.9 1.6 (3.9) -46.0 Prev 1 0.1 12.5 -5.9 2.5 0.4 (2.2) 122.32 -0.2 (2.4) 0.4 (3.3) 1.0 (4.5) 0.8 (5.2) 0.9 (5.3) -7.7 0.6 (4.0) -46.8 Latest 0.1 8.5 2.6 2.2 0.1 (2.2) 122.40 0.0 (2.4) P 0.2 (3.3) 0.2 (4.5) 0.3 (5.2) 0.3 (5.3) -7.4 -0.1 (3.7) -43.7 Forecast Consensus 0.1 1.6 0.5 2.7 0.0 (2.2) 122.45 0.0 (2.4) -0.1 (3.2) 0.3 (4.5) 0.3 (5.3) 0.3 (5.4) -7.3 0.1 (3.6) -43.5 0.1 0.4 0.5 2.4 0.0 (2.2) 0.0 (2.4) 0.3 (4.5) 0.3 (5.2) (5.3) -7.4 -44.1

Wednesday 13 July Period Prev 2 Prev 1 Latest Forecast Consensus Jul 2.5 2.75 3.00 3.25 3.25 07:30 Thailand: Interest rate announcement, % 13:10 US: Boston Fed President Rosengren (FOMC non-voter) speaks on economic outlook in Worcester 14:00 US: Fed Chairman Bernanke delivers semi-annual monetary policy testimony to the House 17:20 US: Dallas Fed Fisher (FOMC voter) speaks on economy in Dallas Q2 02:00 China: GDP, % y/y 9.6 9.8 9.7 9.4 9.3 Jun 25.0 25.4 25.8 25.8 25.7 02:00 China: FAI YTD, % y/y Jun 14.8 13.4 13.3 13.2 13.1 02:00 China: Industrial production, % y/y Jun 17.4 17.1 16.9 17.1 17 02:00 China: Retail sales, % y/y Jun 0.9 (3.5) -0.1 (3.4) 3.0 P -0.2 (3.0) -0.2 (3.0) 07:00 Spain: Final HICP, % m/m (y/y) May 08:30 UK: Average earnings, % 3m/y 2.2 2.5 1.8 2.3 2.1 May 08:30 UK: Core average earnings, % 3m/y 2.1 2.1 2.0 1.9 2.0 Jun 6.4 16.9 19.6 14.9 15.0 08:30 UK: Claimant count unemployment, k May 08:30 UK: ILO unemployment rate, % 7.8 7.7 7.7 7.7 7.7 09:00 E17: Industrial production, % m/m (y/y) May 0.6 (7.8) 0.0 (5.8) 0.4 (5.5) 0.6 0.5 12:30 US: Import prices, % m/m (y/y) Jun 3.0 (10.3) 2.1 (11.4) 0.2 (12.5) -0.4 (13.3) -0.7 (13.2) 18:00 US: Treasury budget balance, $ bn Jun 33.5 ('08) -94.3 ('09) -68.4 ('10) -66.0 ('11) -65.0 ('11) Thursday 14 July Period Prev 2 Global: EU/IMF/ECB hold press conference on Irish progress Jul 3.00 01:00 Korea: Interest rate announcement, % Jul 08:00 E17: ECB publishes monthly bulletin 14:00 US: Fed Chairman Bernanke delivers semi-annual monetary policy report to Senate Jul 4.50 21:00 Chile: Interest rate announcement, % Prev 1 3.00 Latest 3.25 Forecast Consensus 3.25 3.25

5.00

5.25

5.50

5.25

Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue.

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Thursday 14 July 08:00 Italy: Final HICP, % m/m (y/y) 09:00 E17: Final HICP, % m/m (y/y) 09:00 E17: HICP ex tobacco, index (2005 = 100) 09:00 E17: 'Eurostat' core (HICP x fd, alc, tob, ene), % m/m (y/y) 10:00 Ireland: HICP, % m/m (y/y) 12:30 US: PPI, % m/m (y/y) 12:30 US: Core PPI, % m/m (y/y) 12:30 US: Retail sales, % m/m 12:30 US: Retail sales excluding autos, % m/m 12:30 US: Core retail sales, % m/m 12:30 US: Initial jobless claims, thous (4wma) 14:00 US: Business inventories, % 22:45 New Zealand: GDP, % q/q Period Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 8-Jul May Q1 Prev 2 1.0 (2.9) 0.6 (2.8) 112.11 1.4 (1.3) 0.5 (1.2) 0.7 (5.8) 0.3 (1.9) 0.8 1.2 0.6 429 (426) 0.7 0.1 Prev 1 0.2 (3.0) 0.0 (2.7) 112.75 0.5 (1.6) 0.3 (1.5) 0.8 (6.8) 0.3 (2.1) 0.3 0.5 0.3 432 (428) 1.3 -0.2 Prev 1 Latest 0.1 (3.0) P (2.7) P 112.74 0.0 (1.5) 0.0 (1.2) 0.2 (7.3) 0.2 (2.1) -0.2 0.3 0.2 418 (425) 0.8 0.2 Latest Forecast Consensus 0.1 (3.0) 0.1 (3.0) -0.1 (2.7) 0.0 (2.7) 112.67 0.0 (1.5) 0.1 (1.4) 0.0 (7.4) -0.2 (7.4) 0.2 (2.1) 0.2 (2.2) -0.2 0.0 -0.1 0.1 0.3 0.4 415 (424) 0.8 0.6 0.3 Forecast Consensus -4.1 -2.2 4.0 0.4 (3.2) 0.2 (1.3) 224.906 11.88 0.0 76.7 74.3 7.1 -2.9 4.1 0.2 (3.6) 0.3 (1.5) 224.964 -7.79 0.1 76.7 71.5 -1.6 4.0 -0.3 (3.5) 0.2 (1.5) 225.600 10.00 0.3 77.0 73.0 -3.3 -0.1 (3.6) 0.2 (1.6) 4.00 0.4 77.0 72.5

Friday 15 July Period Prev 2 Japan: Bank of Japan Publishes Minutes of June 13-14 MPM EU: European bank stress test results expected to be released 10:00 E17: ECB Executive Board member Bini Smaghi inaugurates an art exhibition 06:00 EU 27: New car registrations, % y/y Jun -5.0 09:00 E17: Trade balance, bn (sa) May -2.7 12:00 Israel: CPI, % y/y Jun 4.3 12:30 US: CPI, % m/m (y/y) Jun 0.5 (2.7) 12:30 US: Core CPI, % m/m (y/y) Jun 0.1 (1.2) 12:30 US: CPI, NSA index Jun 223.467 12:30 US: Empire State mfg index Jul 21.70 13:15 US: Industrial production, % Jun 0.6 13:15 US: Capacity utilization, % Jun 76.8 13:55 US: U. Michigan consumer sentiment index Jul p 69.8

Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue.

GLOBAL KEY EVENTS


Jul North America FOMC meeting FOMC minutes Congressional testimony Fed's Beige Book Bank of Canada Europe ECB "policy" meeting ECB monthly bulletin ECB "non-policy" meeting Bank of England BoE Inflation Report BoE minutes Riksbank SNB Norges Bank Asia/RoW Bank of Japan BoJ minutes Reserve Bank of Australia RBNZ 13 Jul 27 19 7 14 21 6-7 20 5 11-12 15 5 9 30 4 11 3-4 10 17 10 4-5 10 2 20 7 7 8 15 21 7-8 21 7 15 21 6-7 12 6 15 11 19 25 6 13 20 5-6 19 27 19 1 23 30 3 10 17 9-10 16 23 13 6 8 15 22 7-8 21 20 15 14 24-25 3 Jan Jan 12 19 26 4-5 18 n/a n/a n/a n/a n/a Feb 9 16 23 8-9 15 22 n/a n/a n/a n/a n/a Mar Mar Mar 8 15 21 7-8 21 n/a n/a 14 n/a n/a n/a 8 Apr Apr Apr Apr 4 11 19 4-5 18 n/a n/a n/a n/a n/a May May 3 10 16 9-10 16 23 n/a n/a 10 n/a n/a n/a Jun Jun 6 13 20 6-7 20 n/a n/a 20 n/a n/a n/a 14 Jul Jul Jul Jul 5 12 19 4-5 18 n/a n/a n/a n/a n/a n/a Aug Sep Oct Nov Dec Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Forthcoming central bank announcement dates

6-7, 27 15-16 20-21 13 1, 21 27 4 1 6 8

Source: Central banks, IMF, European Commission, Reuters, Bloomberg, Market News, Barclays Capital

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GLOBAL ECONOMICS RESEARCH Piero Ghezzi Head of Global Economics, Emerging Markets and FX Research +44 (0)20 3134 2190 piero.ghezzi@barcap.com Global Michael Gavin Head of International Macro Strategy +1 646 412 5915 michael.gavin@barcap.com Nick Verdi International Economist +65 6308 3093 nick.verdi@barcap.com Tal Shapsa International Economist +1 212 526 3724 tal.shapsa@barcap.com

The Americas
Dean Maki Head of US Economics Research +1 212 526 1731 dean.maki@barcap.com Michael Gapen Senior US Economist +1 212 526 8536 michael.gapen@barcap.com Marcelo Salomon Chief Economist Brazil, Chile, Mexico +1 212 412 5717 marcelo.salomon@barcap.com Guillermo Mondino Head of EM Strategy +1 212 412 7961 guillermo.mondino@barcap.com Alejandro Grisanti Chief Economist Latin America Ex-Brazil, Mexico +1 212 412 5982 alejandro.grisanti@barcap.com Nicholas Tenev US Economist +1 212 526 5452 nicholas.tenev@barcap.com Alejandro Arreaza Economist Latin America +1 212 412 3021 alejandro.arreaza@barcap.com Guilherme Loureiro Economist Brazil +55 11 3757 7372 guilherme.loureiro@barcap.com Sebastian Vargas Economist - Argentina, Uruguay +1 212 412 6823 sebastian.vargas@barcap.com Troy Davig Senior US Economist +1 212 526 3714 troy.davig@barcap.com Peter Newland Senior US Economist +1 212 526 3153 peter.newland@barcap.com

Europe
Julian Callow Chief European Economist +44 (0)20 7773 1369 julian.callow@barcap.com Frank Engels Cross European Economist +49 69-7161 1832 frank.engels@barcap.com Daniel Hewitt Senior Economist EMEA +44 (0) 20 3134 3522 daniel.hewitt@barcap.com Thorsten Polleit Chief German Economist +49 69 7161 1757 thorsten.polleit@barcap.com Christian Keller Head of Emerging EMEA Research +44 (0)20 7773 2031 christian.keller@barcap.com Fabio Fois European Economist +44 (0) 20 3134 1136 fabio.fois@barcap.com Marion Laboure French Economist +33 14458 3264 marion.laboure@barcap.com Blerina Uruci UK Economist +44 (0)20 7773 4373 blerina.uruci@barcap.com Francois Cabau European Economist +44 (0) 20 3134 3592 francois.cabau@barcap.com Jeff Gable Head of ABSA Capital Research +27 11 895 5368 jeff.gable@absacapital.com Alia Moubayed Senior Economist Middle East & North Africa +44 (0)20 313 41120 alia.moubayed@barcap.com Chris Crowe UK Economist +44 (0)20 7773 4816 chris.crowe@barcap.com Simon Hayes Chief UK Economist +44 (0)20 7773 4637 simon.hayes@barcap.com Antonio Garcia Pascual Chief Southern European Economist +44 (0)20 313 46225 antonio.garciapascual@barcap.com

Asia-Pacific
Jon Scoffin Head of Credit Research and Head of Research, Asia-Pacific +65 6308 3217 jon.scoffin@barcap.com James Barber, CFA Japan Research +81 3 4530 1542 james.barber@barcap.com Siddhartha Sanyal Chief Economist, India +91 22 6719 6177 siddhartha.sanyal@barcap.com Tetsufumi Yamakawa Head of Japan Research +81 3 4530 1130 tetsufumi.yamakawa@barcap.com Jian Chang Regional Economist China, Hong Kong +852 2903 2654 jian.chang@barcap.com Prakriti Sofat Regional Economist Indonesia, Philippines, Sri Lanka, Vietnam +65 6308 3201 prakriti.sofat@barcap.com Kyohei Morita Chief Economist, Japan +81 3 4530 1688 kyohei.morita@barcap.com Wai Ho Leong Senior Regional Economist Korea, Malaysia, Singapore, Taiwan +65 6308 3292 waiho.leong@barcap.com Lingxiu (Steven) Yang Regional Economist China, Hong Kong +852 2903 2653 lingxiu.yang@barcap.com Rahul Bajoria Regional Economist Malaysia, Thailand +65 6308 2153 rahul.bajoria@barcap.com Yuichiro Nagai Japan Economist +81 3 4530 1064 yuichiro.nagai@barcap.com Joaquin Vespignani Economist Australia, New Zealand +61 (2) 9334 6164 joaquin.vespignani@barcap.com

8 July 2011

47

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