Světová ekonomika, Březen 2013 (dokument v AJ)

7/29/2019 Svtov ekonomika, Bezen 2013 (dokument v AJ)

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P bli h d 14 M h 2013 M h 2013

Global Outlook

Summary tables 2

Summary: Balancing act 4

US rates medium-term forecasts 10

Eurozone rates medium-term forecasts 11

US: A country of cross-currents 12Eurozone: Fragile recovery 14Japan: Revival or fiscal bust? 16China: Limited upside 18Eurozone countries

Germany: Growing comfortably 20France: Downside risks 22Italy: Political stalemate 24Spain: Every little helps 26Netherlands: Fixing the foundations 28Belgium: Fiscal headwinds 29Austria: On the mend 30Portugal: One way or another 31Finland: A modest improvement 32

Ireland: Outperforming 33

Greece: Sailing in calmer waters 34

Other Europe

UK: Better, but not great 35

Sweden: Shallow rebound 37

Norway: Resilient 39

Switzerland: Risks persist 41

CEEMEA

Russia: Monetary stimulus ahead 42

Ukraine: In recession 44

Poland: Wait-and-see at the MPC 46Hungary: More rate cuts ahead 48

Czech Republic: Disinflation risk 50Turkey: End of rebalancing 52

Saudi Arabia: Slipping on oil 54

United Arab Emirates: So far so good 55

Qatar: Inflation set to rise 56

Asia Pacific

Australia: Temporary relief 57

India: Slow progress 59South Korea: Low inflation 61Indonesia: Risky business 63

Taiwan: Forecast table 64

Other Asia: Forecast tables 65The Americas

Canada: Losing altitude 66

Brazil: Enter the (inflation) dragon 67Mexico: Gearing up for a good year 69Colombia: In search of growth 71

Chile: Politics increasingly the focus 72

Argentina: Rising inflation 73Peru: A bump on rapid-growth road 74Venezuela: Policy paralysis 75

Commodities 76

Long-term economic forecasts 77

Contacts 81

Disclaimer Inside back cover


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M h 2013

Summary table 1: Economic and financial forecasts

GDP

(% y/y) 10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4(1)

Q1(1)

Q2(1)

Q3(1)

Q4(1)

World(2)

5.2 4.0 3.1 3.1 3.6 3.6 3.4 3.2 2.9 2.7 2.7 3.0 3.2

US 2.4 1.8 2.2 1.6 2.5 2.4 2.1 2.6 1.6 1.5 1.6 1.3 2.0

Eurozone 2.0 1.5 -0.5 -0.5 0.8 -0.1 -0.5 -0.6 -0.9 -0.9 -0.7 -0.5 0.2

Japan 4.7 -0.6 2.0 0.9 1.0 3.4 3.9 0.4 0.5 -0.6 0.2 1.8 2.3

China 10.4 9.3 7.8 8.3 7.8 8.1 7.6 7.4 7.9 8.1 8.4 8.7 8.0

Industrial production

(% y/y) 10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

US 5.4 4.1 3.8 3.4 4.7 4.4 4.8 3.4 2.8 2.1 2.7 4.0 4.8

Eurozone 7.2 3.4 -2.0 -0.1 3.2 -1.6 -2.3 -2.5 -3.2 -1.6 -0.8 -0.6 2.6

Japan 16.4 -2.3 -0.3 1.2 2.5 4.8 5.3 -4.6 -5.9 -5.2 -1.7 4.2 8.0

China 15.7 13.9 10.0 11.0 10.7 11.6 9.5 9.1 10.0 10.4 11.4 12.1 10.9

Unemployment rate

(%) 10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

US 9.6 8.9 8.1 7.7 7.2 8.3 8.2 8.0 7.8 7.8 7.8 7.7 7.6

Eurozone 10.1 10.2 11.4 12.7 12.9 10.9 11.3 11.5 11.8 12.2 12.6 12.8 13.1Japan 5.1 4.6 4.4 3.8 3.7 4.5 4.4 4.3 4.2 4.0 3.8 3.8 3.7

CPI

(% y/y) 10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

US 1.6 3.2 2.1 1.9 2.0 2.8 1.9 1.7 1.9 1.8 1.8 2.0 1.9

Eurozone 1.6 2.7 2.5 1.7 1.3 2.7 2.5 2.5 2.3 1.8 1.8 1.6 1.5

Japan -0.7 -0.3 0.0 0.0 2.2 0.3 0.2 -0.4 -0.2 -0.6 -0.2 0.4 0.5

China 3.3 5.4 2.6 3.6 3.5 3.8 2.9 1.9 2.1 2.8 3.4 3.8 4.5

Interest rates(3)

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

US

Fed funds rate (%) 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 0-0.25 0-0.25 0-0.25

3-month rate (%) 0.30 0.58 0.31 0.40 0.50 0.31 0.28 0.36 0.31 0.28 0.40 0.40 0.40

10-year rate (%) 3.29 1.88 1.76 2.40 2.80 2.21 1.64 1.63 1.76 2.05 2.00 2.20 2.40

Eurozone

Refinancing rate 1.00 1.00 0.75 0.50 0.50 1.00 1.00 0.75 0.75 0.75 0.50 0.50 0.50

3-month rate (%) 1.01 1.36 0.19 0.10 0.15 0.78 0.65 0.22 0.19 0.20 0.10 0.10 0.10

10-year rate (%)(4)

2.96 1.83 1.31 1.30 1.90 1.41 1.60 1.44 1.31 1.52 1.50 1.40 1.30

Japan

O/N call rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

3-month rate (%) 0.34 0.33 0.30 0.25 0.25 0.29 0.26 0.33 0.30 0.30 0.30 0.25 0.25

10-year rate (%) 1.12 0.99 0.75 0.80 1.60 0.99 0.84 0.77 0.75 0.60 0.40 0.60 0.80

China

Official interest rate (%) 5.81 6.56 6.00 6.00 6.25 6.56 6.31 6.00 6.00 6.00 6.00 6.00 6.00

FX rates(3)

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

EURUSD 1.34 1.29 1.32 1.33 1.25 1.33 1.27 1.29 1.32 1.33 1.35 1.35 1.33

USDJPY 81 77 78 90 100 83 80 78 78 95 95 90 90

USDRMB 6.59 6.29 6.23 6.05 6.03 6.30 6.35 6.29 6.23 6.20 6.15 6.08 6.05

EURJPY 109 100 104 120 125 110 101 100 104 126 128 122 120

EURGBP 0.86 0.83 0.81 0.85 0.76 0.83 0.81 0.80 0.81 0.88 0.88 0.87 0.85

GBPUSD 1.56 1.55 1.63 1.56 1.64 1.60 1.57 1.62 1.63 1.50 1.53 1.55 1.56

Current account Budget balance Year

(% GDP) 10 11 12 13(1)

14(1)

(% GDP) 10 11 12(1)

13(1)

14(1)

US -3.0 -3.0 -3.0 -2.5 -2.4 US(5)

0.0 -8.7 -7.0 -5.5 -4.4

Eurozone 0.0 0.1 1.2 1.3 1.4 Eurozone -6.2 -4.1 -3.7 -2.7 -2.2

Japan 3.7 2.0 1.0 0.6 0.5 Japan -8.3 -8.7 -9.1 -8.7 -7.6

China 3.9 2.7 2.6 2.7 2.8 China -2.5 -1.9 -1.5 -2.1 -2.1

2012

2012

2012

2012

2013

(3) End period (4) Bund yield (5) Fiscal year Figures are y/y percentage change unless otherwise indicated

2012

2012

Footnotes: (1) Forecast (2) BNPP estimates based on country weights in the IMF World Economic Outlook Update, October 2012

2013

Year

Year

Year

2013

2013

2013

2013

Year

Year

Year

Year

Source: BNP Paribas


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

Country/region Weight 2010 2011 2012 2013 2014 2012 2013 2014 Q4'12 Q4'13

World(1) 100.0 5.2 4.0 3.1 3.1 3.6 0.0 -0.3 -0.2 2.7 3.5

Advanced economies 51.1 3.0 1.6 1.3 1.1 1.9 0.1 -0.2 -0.1 0.8 1.6

US 19.1 2.4 1.8 2.2 1.6 2.5 0.1 -0.4 -0.3 1.6 2.0

Eurozone 14.2 2.0 1.5 -0.5 -0.5 0.8 -0.1 -0.1 -0.2 -0.9 0.2

Germany 3.9 4.0 3.1 0.9 1.0 1.8 -0.1 0.5 -0.4 0.4 2.0

France 2.8 1.6 1.7 0.0 0.0 0.9 -0.1 0.0 0.0 -0.3 0.4

Italy 2.3 1.7 0.5 -2.4 -1.4 0.3 -0.3 -0.7 -0.4 -2.8 -0.4

Spain 1.8 -0.1 0.4 -1.4 -1.6 0.2 0.0 0.2 0.2 -1.9 -0.8

Japan 5.6 4.7 -0.6 2.0 0.9 1.0 0.3 0.7 1.0 0.5 2.3

UK 2.9 1.8 0.9 0.2 0.7 1.6 0.2 -0.3 0.0 0.2 0.9

Canada 1.8 3.2 2.6 1.8 1.4 2.1 -0.3 -0.5 -0.1 1.1 1.8

Other advanced economies 7.4 5.9 3.2 2.1 2.8 3.2 0.3 0.1 -0.4 2.2 3.3

Advanced Asia ex-Japan3.9 8.5 4.0 1.8 3.5 3.9 0.2 0.1 -0.5 2.4 4.1Emerging and developing economies 48.9 7.5 6.3 4.9 5.3 5.5 -0.2 -0.4 -0.1 4.7 5.5

CEE & Russia 7.8 4.8 4.9 2.4 2.7 3.5 -0.2 -0.2 -0.4 1.3 3.3

Russia 3.0 4.3 4.3 3.4 2.9 3.6 -0.4 -0.3 -0.4 1.8 3.6

Developing Asia 25.0 9.5 8.3 6.7 7.2 7.3 0.0 -0.3 0.0 6.7 7.2

China 14.3 10.4 9.3 7.8 8.3 7.8 0.1 0.0 0.0 7.9 8.0

India 5.6 9.8 7.3 5.1 5.5 7.2 -0.3 -1.4 -0.1 4.5 6.5

Latin America 8.7 6.3 4.5 2.8 3.5 3.7 -0.4 -1.0 -0.2 2.7 3.9

Brazil 2.9 7.5 2.7 0.9 3.0 3.5 -1.1 -2.5 -0.5 1.4 3.3

Mexico 2.1 5.3 3.9 3.9 3.9 4.1 0.1 0.1 0.0 2.7 4.7

(1) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012

Difference from

November 2012

Global Outlook (pp) ForecastsForecasts

Source: BNP Paribas

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

Country/Region Weight 2010 2011 2012 2013 2014 2012 2013 2014 Q4'12 Q4'13

World(2) 100.0 3.5 4.6 3.5 3.3 3.4 -0.2 -0.3 -0.1 3.3 3.4

Advanced economies(2)

51.1 1.5 2.7 2.0 1.6 1.9 0.0 -0.3 0.0 1.8 1.7

US 19.1 1.6 3.2 2.1 1.9 2.0 -0.1 -0.5 -0.3 1.9 1.9

Eurozone 14.2 1.6 2.7 2.5 1.7 1.3 0.0 -0.1 -0.2 2.3 1.5

Germany 3.9 1.2 2.5 2.1 2.0 1.8 0.0 0.3 0.0 2.0 2.0

France 2.8 1.7 2.3 2.2 1.3 1.7 0.0 -0.4 -0.4 1.7 1.5

Italy 2.3 1.6 2.9 3.3 1.7 1.3 0.0 -0.4 -0.4 2.6 1.3

Spain 1.8 2.0 3.1 2.4 1.6 0.7 -0.1 -0.9 -0.2 3.2 0.7

Japan 5.6 -0.7 -0.3 0.0 0.0 2.2 0.0 0.1 1.2 -0.2 0.5

UK 2.9 3.3 4.5 2.8 3.1 2.7 0.0 0.6 0.7 2.7 2.9

Canada 1.8 1.8 2.9 1.5 1.1 2.0 0.0 -0.8 -0.3 0.9 1.3

Other advanced economies(2)

7.4 2.2 3.0 1.9 1.8 2.1 0.0 -0.2 0.0 1.8 1.9

Advanced Asia ex-Japan(2)

3.9 2.3 3.5 2.5 2.1 2.3 0.0 -0.3 0.3 2.3 2.1

Emerging and developing economies(2)

48.9 5.7 6.8 5.3 5.1 5.2 -0.1 -0.2 0.1 5.1 5.4

CEE & Russia(2)

7.8 6.4 7.9 6.5 6.0 5.6 -0.3 -0.3 0.5 6.5 6.0

Russia 3.0 6.9 8.5 5.1 7.1 6.3 0.0 -0.6 0.0 6.5 7.0

Developing Asia(2)

25.0 4.9 6.2 3.8 3.9 4.0 -0.2 -0.6 -0.2 3.4 4.4

China 14.3 3.3 5.4 2.6 3.6 3.5 -0.1 0.0 0.0 2.1 4.5

India 5.6 9.6 9.5 7.5 5.5 5.8 -0.2 -2.1 -0.7 7.2 5.3

Latin America(2)

8.7 6.3 6.8 6.2 7.1 7.4 0.0 0.4 0.3 6.3 7.1

Brazil 2.9 5.0 6.6 5.4 6.5 6.2 0.0 0.4 0.2 5.6 6.7

Mexico 2.1 4.2 3.4 4.1 3.4 3.6 -0.1 -0.8 -0.2 4.1 3.3

(1) HICP where available, India WPI

(2) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012

Forecasts Forecasts

Difference from

November 2012

Global Outlook (pp)

Source: BNP Paribas


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Balancing act1

Developments since our last Global Outlookhave been mixed. On the upside, leading

indicators have strengthened in a number of countries, particularly Europe, andsentiment surveys have generally improved. The data over the past three monthshave shown that the recovery in China has gained traction. In addition, Japanesefiscal and monetary policy has changed to a markedly more pro-growth direction. Incontrast, the hard real-economy data, such as GDP, surprised to the downside in Q4 in the US, UK, Germany, Japan, France, Italy, Brazil and India, for example.Moreover, leading indicators point to a subdued recovery. The risks that this may be ashort mini-cycle have increased. We have lowered our growth forecasts for manycountries, with the recovery looking to have even less vigour than we expected.

This reflects a number of factors. First, the downturn was not that sharp, particularly inemerging markets. The scope for a bounce is limited if the fall is not great. Second,there are headwinds in a number of countries. In the west, fiscal tightening is impedinggrowth in the US and in many countries in Europe. We avoided the fiscal cliff in theUS, but hit sequestration, and the US medium-term fiscal trajectory is uncertain.Imbalances are still being unwound in the financial and non-financial sectors in high-income countries and financial regulation has tightened.

In the eurozone, the gloss has been taken off the post-OMT optimism by uncertaintyabout what will happen on the political front in Italy. The contraction of credit growth isnot a good omen.

In emerging markets, the margin of spare capacity is small, limiting how far economiescan run above potential and how long they can stave off inflation. China has started tocrack down on credit growth and the property market at a comparatively early stage inthe upswing. Add to all this the fact that potential growth rates have fallen almosteverywhere (demographics, tougher regulation, lower investment rates, increased riskaversion) and it is easy to understand why we forecast global growth of only 3.1% in

2013 and 3.6% in 2014 after 3.0% in 2012. The recovery will build, but at a slowerpace than in previous recovery periods. Before talking about growth and inflation,though, lets concentrate on central banks and financial markets. This is the inverse ofthe usual order. But lets face it, since 2008 it has been the financial markets that havedriven the growth cycle more than the other way around.

In advanced economies, the failure to build in escape velocity is a concern not justto us, but to central banks. In general, central banks are in a more pro-growth frame ofmind for several reasons: output gaps remain wide; inflation has been soft and it isincreasingly clear that the issues of the day are how to fire growth and how to facilitatedeleveraging by the private and public sectors. Thus, the Feds adoption of

1Economic and central bank forecasts are by BNP Paribas economists. Market forecasts are jointly produced by BNPP

Interest Rate Strategy, FX Strategy and Market Economics.

Leading indicators

better, hard data worse

Upturn lacks vigour

Global growth of 3.1%in 2013

Lack of escape velocityprompting more easing

Italian uncertainty

Table 1: BNPP end-period interest-rate forecasts (%) Table 2: BNPP end-period FX forecasts

Spot Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14

US

Fed Funds 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25

2-year 0.26 0.20 0.25 0.25 0.25 0.30 0.50

10-year 2.06 2.00 2.20 2.40 2.50 2.60 2.70

Eurozone

Refi 0.75 0.50 0.50 0.50 0.50 0.50 0.50

2-year* 0.07 0.10 0.10 0.10 0.15 0.20 0.25

10-year* 1.51 1.50 1.40 1.30 1.40 1.50 1.70

Japan

ODR 0.30 0.30 0.30 0.30 0.30 0.30 0.30

Call Rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10

2-year 0.05 0.05 0.05 0.10 0.10 0.10 0.10

10-year 0.67 0.40 0.60 0.80 1.10 1.40 1.50

Spot Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14EURUSD 1.31 1.35 1.35 1.33 1.33 1.30 1.27

EURJPY 126 128 122 120 122 120 121

EURGBP 0.88 0.88 0.87 0.85 0.82 0.80 0.78

GBPUSD 1.49 1.53 1.55 1.56 1.62 1.63 1.63

USDJPY 96 95 90 90 92 92 95

USDRMB 6.27 6.15 6.08 6.05 6.02 6.08 6.10

(*) German benchmark. Spot rates as at 12 March 2013Source: BNP Paribas (Market Economics, Interest Rate Strategy)

Spot rates as at 12 March 2013Source: BNP Paribas (FX Strategy)


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thresholds for rate action represents a commitment to be easier for as long asunemployment remains too high. The Bank of England is contemplating a rate cutdespite forecasting inflation would be above its target for longer than two years. Japan

has seen an even more drastic change, with a 2%-of-GDP fiscal stimulus and a moveto monetise this to end deflation. Radical stuff.

The ECB has, in some respects, looked like the last old-school central bank.However, the fact that it forecasts inflation to decline to closer to 1% than 2% in 2014gives considerable policy flexibility, which is why we expect it to cut rates further,taking the refi rate to 0.5%. If easing by others results in significant upward pressureon the EUR, the impact of this on inflation could lead to further action by the ECB.

The easy stance of central banks is clearly one of the factors that have supported riskappetite in recent months. The most important element was the ECBs commitment todo whatever it took to hold the euro together, which reduced tail risk. Easy rates andlarge-scale asset purchases, actual and prospective, have been important in building

on this and in boosting stock markets and narrowing credit premia. A better growthoutlook has also helped.

We welcome the expansive mood of central banks. However, it is concerning thatgrowth is mediocre despite massive monetary support. Where would we be without it?Isnt this a signal of the fundamentals being fundamentally weak? And what happenswhen the stimulus is withdrawn? Will the financial markets and global economy suffercold turkey?

This is a risk, but we would argue that central banks are aware of the risks, particularlyBernanke & Co, where the Feds references to avoiding a premature end to easinghave been clear. The lessons of 2011, when the Fed talked of exit and the ECB hikedtwice (can you credit it?) are clear. We expect a slow recovery in the US and verylimited progress in cutting unemployment queues, and with inflation low enough for theFed to avoid forecasting inflation anywhere near its 2.5% threshold, exit is not on theagenda. The hawks have switched their rhetoric from fretting that QE would causeinflation to its causing bubbles. This will not sway the key players Bernanke, Yellen,Dudley et al from concentrating on the Feds mandate, as they feel that financialexcesses are not a risk to the mandate at present. Of course, financial asset pricesare distorted thats the whole point of QE. (The word distort is not used when QE isexplained, of course, but portfolio balance effects are just a politically correct way ofsaying the same thing.)

Our view is that the Fed will continue to buy USD 85bn a month throughout this year,before tapering off its purchases in 2014. We expect tapering to be discussed by FedChairman Ben Bernanke late in Q3 and not before the very earliest, at JacksonHole. This exit will need very careful handling, as it could lead to a sharp re-pricing ofTreasuries and a re-pricing of risk. However, we expect skill and finesse to be shownand so only see a small rise in 10y Treasury yields this year to 2.4% by end year.

In Europe, tail risk has been removed by OMTs and the feeling that if an existentialcrisis threatens, the ECB will do whatever it takes, even if circumstances lock it out ofactivating its OMT programme. This and the weight of domestic holdings of BTP helpto explain why Italian spreads have reacted in a relatively moderate way to the verypoor Italian election result. The perception that Italian politics are often messy, but thata government will be formed in the end, has been an important factor, as has thenegative net supply of BTPs. Will yields rise or fall from here?

We believe the path will be uneven there will be many twists and turns with thepossibility of an early election remaining firmly on the table (we assume it will come

next March but October is an increasing risk). The lesson of the last election is thatausterity and reform are not the path to electoral success (ask Mario Monti). Thus,there will be no reforms, cyclical fiscal slippage will go uncorrected and there is a risk

ECB the old-schoolcentral bank

Central banks the maindriver of risk appetite

Is cold turkey the

future?

Expect softly, softly

from central banks

Fed carry on QEing

What will Italy do forrisk appetite?

Uneven path for BTPslikely


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of some backsliding (such as the cancellation of the planned VAT hike). Our belief isthat spreads, currently narrowing, will eventually re-widen, but not to previous highs,because of the ECB and because the risk of a eurozone break-up is off the agenda.

We have assumed a high for yields of around 5.0% (a high for the spread to Bunds of370bp or so). We doubt the Italian bond market will move in a straight line until thenext election. The more the government is stable and able to do the right thing, thelower and more stable yields will be. The question is whether higher yields are aprerequisite to the government doing the right thing.

So, what could cause a sell-off? Events is the answer, with the possibilities a cocktailof adverse political developments, weaker-than-expected growth, worse-than-expected budgets, negative comments from Germany, back-tracking on progressunder Mr Monti, rating downgrades and possible external shocks. As to when a sell-offwould come, the timing is uncertain and we expect periods in which things are quiet tosee good rallies as people become tempted by the yield.

Italys problem when it comes to sustainability is a lack of growth. The primary budgetsurplus is already about as big a proportion of GDP as is reasonable to expect in thelong run, so moving to a more sustainable debt/GDP ratio (which is important, asBunds will not stay at 1% forever) requires growth. That requires structural reform.This is not going to happen under any conceivable government until after the nextelection, so downgrades will be difficult to avoid.

Spains problem is not only growth, but more immediately, the budget deficit. At justunder 7% of GDP in 2012, it remains uncomfortably high. In an economy where manyagents are stretched financially and where the banks are troubled, the fiscal multiplieris high. Basically, Spain has to tighten by 2-3% of GDP to achieve a 1%-of-GDPreduction in the deficit. About 1-1% of GDP reduction in the headline deficit is themaximum we believe Spain can achieve. The budget deficit is going to remain a

problem for some time and is probably the key risk to Spain losing its investment-grade rating. However, the agencies are reluctant to move Spain to junk, maybehaving already gone too far too fast. A return to growth which we expect late thisyear will help to stabilise the ratings. We forecast Spains spread to settle aboveItalys, with Spains fiscal worries continuing after Italian political uncertainties fade.Will Spain avoid the ESM and OMT? That looks increasingly likely and is our base-

case scenario in this forecast.

We assume that Greece remains on track and that a fudge is found for Cyprus. There,setting adverse precedents by haircutting depositors, for example, is an option, but notone seen to answer the problem of how to recapitalise the banks without burdeningthe state with too much debt. The fudge will be to keep a lid on the estimate of thecost of rehabilitating the banks, to pencil in high privatisation receipts (including

possibly relating to natural gas) and to be too optimistic on growth and the budget. Atypical eurozone programme, in other words. The IMF may not be involved in puttingup money, but Russia will, though on what terms is uncertain. There are likely to beeasier terms for Ireland and Portugal (lower rates, longer maturities for theirborrowing), which will reinforce the picture of solidarity in Europe and help to limit any

widening of spreads.

In terms of German Bund yields, we expect them to stay trapped in a narrow rangethis year. First, Treasuries remain supported. Second, we see the refi rate settling at0.5%, with the ECB keeping its options open as regards future policy. Third, weproject inflation on a downward track. Fourth, eurozone growth remains weak. Fifth,while we see no blow-out in peripheral spreads, we do continue to see them comingunder pressure.

In Japan, new BoJ Governor Haruhiko Kuroda and Deputy Governor Kikuo Iwata havemade it clear they expect to pursue aggressive policies in pursuit of the 2% inflationtarget. With the G20 having made clear that buying foreign bonds and FX intervention

Risks in Italy

Italys real problem isno reform and nogrowth

Spains problem is thebudget

Greece and Cypruscondemned to succeed

Bunds to remaintrapped in a narrowrange

Could we see 0.3% onthe 10-year JGB?


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are beyond the pale, super-aggressive domestic balance-sheet expansion by the BoJis the way to fight currency wars (which the US cannot criticise, because it isemploying the same weapon). A longer maturity of stepped-up buying should come in

April. We expect the 10-year bond yield to respond quite aggressively, probablydropping to the 0.3-0.4% range. We see a rise back up to 0.8% by end year, partly onbetter growth, but also in response to higher inflation. If inflation stays stubbornly low,the logic of the new BoJ is that it will step up aggression.

In China, we have seen increasing disintermediation outside the banking system, witha rapid rise in wealth management products and associated lending on the assetside of the balance sheets of trust companies among others. Total credit (in Chineseterms, total social financing, or TSF) has been rising too fast and property priceshave started to bubble up. The risk of non-performing loans down the road is veryclear. Indeed, some of the rise in TSF may be due to local-authority financing vehiclesrefinancing previous excessive borrowing from the main banking system. Theauthorities face a dilemma. Cracking down too hard on the mushrooming shadow

banking system would interrupt the now undeniable cyclical upswing the economy isenjoying and may crystallise local-government defaults and broader financial stress.But doing nothing, and allowing bubble dynamics to continue, would only increase thesystemic risks to the financial system and the real economy. Our forecast assumesthe authorities manage to keep their balance on this fine wire.

For the moment, the supply of liquidity to the global economy and the fact that we arein the upswing phase of the cycle, if not a particularly strong one, should maintain thesearch for yield in the immediate months ahead. Real challenges would come fromdevelopments that unhinged the magic formula of better growth and easy policy.Geopolitical events and rising inflation are two such developments, though the sparecapacity and weak wage growth in advanced countries limit the latter. So, for now,while the music is playing, many continue to dance. When the music ends, for

example, when the Fed starts to exit quantitative easing, things could look much lesscomfortable.

Our macro forecasts predicated on this financial backdrop are not, in broad terms, thatdifferent from our forecasts three months ago, though in general, there have beendownward revisions to growth for 2013. We now expect the global economy to expandby 3.1% in 2013, down from our forecast of 3.4% three months ago and not muchbetter than 2012 as a whole. Of the major economies, the biggest downward revisionshave come in Brazil (our 2013 growth forecast slashed from 5.5% to 3.0%), India(down 1.4pp to 5.5%) and Canada (down 0.5pp in 2013 to a meagre 1.4%).

Our US forecast for 2013 as a whole now sees growth of 1.6% from 2.0% last time.The main reason is a weaker-than-expected end to 2012 and a softer start to 2013.

Growth should accelerate throughout the year, from 1.6% y/y in Q4 2012 to 2.0% inQ4 2013. With fiscal tightening knocking about 1% points off growth, the underlyingpicture of private-sector demand is reasonably firm. However, we expect only slowprogress to be made on cutting unemployment. Inflation is expected to remain wellcontrolled, freeing up the Fed to deal with the real economy.

In the eurozone, there have been competing pressures on our forecast. On theupside, Germany seems to have turned stronger earlier than we had expected as aresult of the global recovery, and also due to favourable domestic fundamentals (notmuch of a downturn, little impact on employment, decent real wage growth, goodprofitability and cheap readily available financing). On the downside, Q4 last year wasweaker than expected. In addition, the Italian election will increase risk aversion, delayinvestment and be negative for the country and, consequently, its trading partners. We

have revised down our previous forecast for Italian growth from a contraction of 0.7%y/y for 2013 as a whole, to a fall of 1.4%.

Chinese upswing yes,but with financial risks

The music is playing, sorisk is dancing

Global growth forecast

edged down for 2013

US growth distinctlylacklustre

Eurozone some up,some down


9/84

We have revised up our forecast for Spain, reflecting a better start than expected to2013. We now think Spain could see quarter-on-quarter growth by the end of this year.French indicators have been a bit weaker than expected, especially the PMIs, but

other indicators are less threatening, including the Banque de France survey. So, untilthe uncertainty is resolved, we maintain our forecast of 0% growth in 2013. Overall,we continue to see a fall in GDP in the eurozone of around % in 2013 as a whole.However, a lot of this reflects base effects and the forecast assumes growth returns tothe region as a whole in H2 this year. Naturally, the picture differs between countries,with Germany outperforming and the periphery underperforming.

Inflation in the eurozone last year was a bit stickier than expected, but recent numbershave started to improve. Our expectation is that inflation will run below 2% y/y incoming months. For 2014 as whole, inflation will be 1.3%, down from 1.7% this year,which does not seem to us to be consistent with the second leg of the ECBs definitionof price stability: below but close to 2%. This inflation profile, driven by subdued orfalling wages in a number of countries and little scope for profit margins to widen, is

the reason we expect the ECB to be dovish.

Our Japanese growth forecasts have seen chunky upward revisions. We now forecastgrowth of 0.9% in 2013 and 1.0% in 2014, an upward revision of nearly 2pp in the twoyears put together and compared with potential growth of % or so per annum. Thisreflects more expansionary money-financed fiscal expansion and a lower yen. Higherinflation is expected to result from the new strategy, to be reflected in lower realinterest rates in this forecast than in our last.

In terms of inflation, our view is that the Japanese economy has little spare capacity,so upward price pressures should emerge. However, after so many years of deflation,sticky expectations should limit the upward dynamic at first. We believe the BoJ willwork hard to raise expectations and, on this basis, we expect the BoJ to achieve

sustainable 2% inflation in 2015, though the timing is uncertain (the figure in 2014 willbe 2.2%, but this includes a surge following a sales tax hike). At that stage, we maysee a real fiscal challenge emerging, as there will be upward pressure on bond yields,which will set in play an adverse fiscal dynamic, including the deficit, the yen and bondyields. But that is beyond the end of our formal forecasts.

Chinese growth we have kept at 8.3% in 2013, edging down to 7.8% in 2014, as in ourlast forecast, with inflation staying under control, registering around 3 % p.a. in 2013and 2014.

Elsewhere in the emerging-market world, Brazilian 2012 GDP growth was even slowerthan our sub-consensus forecast. The economy has little spare capacity and we nowexpect real growth of only 3.0% in 2013, down from 5.5% previously. Stronger

demand is feeding inflation and inflation expectations, so we expect the next move inBrazilian rates to be a hike. In contrast, in Mexico, where we expect steady growth ofaround 4% p.a., a recent fall in inflation allowed Banxico to cut rates in March and wenow see rates being kept on hold over the forecast period. The new government hasmade good progress on its reform agenda and we expect capital flows to besupportive.

Things look much less favourable in Russia, where growth is slowing due to financialconstraints on investment and where inflation exceeds 7%. We expect GDP growth in2013 to be 2.9%, after 3.4% in 2012, but with a pickup to around 3% in 2014. Slowgrowth is leading to political pressure for the central bank to cut rates. With a newgovernor at the helm of the CBR from June, we expect the first rate cut of 25bp as soonas Q3 2013. High inflation risks should limit the extent of the easing in 2013, however.

India is another emerging market where growth surprised to the downside late lastyear, with growth sinking to 4.5% y/y in Q4 2102, its slowest since the global financialcrisis. Growth probably bottomed out around year end, but we expect the pickup to be

Eurozone inflation toundershoot target in

2014

Japan stimulatorypolicy will work

Japanese policy willbring inflation back

Chinese growthforecast unchanged

Russia slow growth,fast inflation

Brazil growth revised

down, inflation up

Indian growth weakerthan before, inflationlower


10/84

slow. A large output gap is helping to subdue inflation, with core WPI inflation downfrom 7.2% y/y last August to 4.5% y/y in January. However, fuel-subsidy reductionswill put pressure on food prices and we expect WPI inflation to be in the 5-5%

range in 2013 and 2014 as a whole. This will crimp the ability of the RBI to lower rates,though some small easing is likely to be delivered this year.

Turkey is an emerging market where we expect a sharp pickup in growth this year,from 2.5% y/y in 2012 to 4.5% this year, fuelled by domestic demand. A key reason forthis is the CBRTs easy monetary policy, reflected in improved consumer confidence,better PMIs and faster credit growth. We expect the budget deficit to stay low, asbetter growth boosts tax revenues and privatisation receipts. The deficit on the currentaccount is likely to widen from 5% of GDP in 2012 to 6% of GDP this year. Theslowdown in 2012 is helping to subdue inflation and we expect this to continue. AfterCPI inflation averaged 8.9% in 2012, we expect an average of 7.3% in 2013 and 5.9%in 2014.

Globally, we have revised down our inflation forecasts: we now see global inflationaveraging 3.3% in 2013 compared with the 3.6% forecast last time, though we expectthat by 2014, our previous forecast of 3% inflation will come good. The biggestdownward revisions to our inflation estimates have come in India (-2.1pp to 5.5% in2013), Mexico (-0.8pp to 3.4%) and Canada (-0.8pp to 1.1%). The two countrieswhere we have made significant upward revisions to inflation are the UK (up by 0.6ppin 2013 to 3.1%) and Brazil (up by 0.4pp to 6.5% in 2013). Both are countries in whichcentral bank credibility has come into question and where the enthusiasm to follow

inflation targeting has waned. At least Brazil has the excuse of having no output gap.

Currency markets are the lakes into which the various national economic and policyrivers flow, creating turbulent and sometimes unpredictable currents. Our FX Strategyteam expects the USDs negative correlation with risk appetite to return as the Fed

maintains QE3, causing the USD to weaken against the commodity currencies.However, we have made a number of revisions to our FX forecasts over the last threemonths. We have the yen significantly weaker than before, following the marketsincreased expectations that Prime Minister Shinzo Abes government will be able todeliver policies to stimulate inflation. In the UK, it is clear that the central bank haschanged, even before the new governor arrives, so we have softened our previouslybullish sterling forecast. For EURUSD, our target for the peak is 1.35, as it was threemonths ago. We continue to like emerging-market currencies relative to the currenciesof high-income countries.

Turkey to see a strongpickup, but lowerinflation

Chart 1: Chinese manufacturing PMI Chart 2: Consumption: A tale of two continents(real values, % y/y)

04 05 06 07 0 8 09 10 11 12 1340.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

-2 5

-2 0

-1 5

-1 0

-5

0

5

10

15New o rders lesss tocks o f f in ished goods

Head l ine PMI (RHS)

05 06 07 08 09 10 11 12-10.0

-7.5

-5.0

-2.5

0. 0

2. 5

5. 0

7. 5

10.0

Retail sales,

Consumpt ion, eurozone

Consumpt ion, US

Retai l sa les, eurozone

Source: Reuters EcoWin Pro Source: Reuters EcoWin Pro


11/84

2013

US rates: Medium-term forecastsChart 1: Fed funds target rate (%) Chart 2: 3m rate and Fed funds (%)

9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4- 3

- 2

- 1

0

1

2

3

4

5

6

7

N o m in a l

B N P Pf o r e c a s t

R e a l y ie l d ( d e f la t e d b y c o r e C P I )

9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 40

1

2

3

4

5

6

7

F e d f u n d s t a r g e t r a t e

- 0 . 5

0 .0

0 .5

1 .0

1 .5

2 .0

2 .5

M e a n

3 m r a t e le s s F e d f u n d s


Source: Reuters EcoWin Pro, BNP Paribas Market Economics and

Interest Rate Strategy

The Fed will keep policy rates unchanged until 2015. Realrates will remain well below zero over the forecast period.


Interest Rate Strategy

Based on our forecast of a long period of unchangedpolicy rates, the spread between the three-month and theFed funds rate should see little change.

Chart 3: 2y and Fed funds rate (%) Chart 4: 10y/2y spread and Fed policy (%)

9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 40

2

4

6

F e d f u n d s t a r g e t ra t e

- 1 . 5

- 1 . 0

- 0 . 5

0 . 0

0 . 5

1 . 0

1 . 5

2 . 0

2 . 5

U S 2 y l e s s F e d f u n d sB N P P

f o r e c a s t

9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4

Percent

- 1

0

1

2

3

4

5

6

7- 1 . 0

- 0 . 5

0 .0

0 .5

1 .0

1 .5

2 .0

2 .5

3 .0

3 .5

4 .0

F e d f u n d s t a r g e t ra t e ( I n v e r te d , R H S )

1 0 y l e s s 2 y


Source: Reuters EcoWin Pro, BNP Paribas Market Economics andInterest Rate Strategy

The spread between two-year Treasury yields and the Fedfunds rate should also see little change, with the latter notforecast to start rising until 2015.


The yield curve is unusually flat relative to the policy rate.We expect a steepening over the forecast period as theUS and global outlook improves and tail risks fall.

Chart 5: 10-year yield (%) Chart 6: 10-year swap spread (%)

9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 1 3 1 4- 1

0

1

2

3

4

5

6

7

U S 1 0 y y i e ld


R e a l y ie l d ( d e f la t e d b y c o r e C P I )

9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 1 3 1 41

2

3

4

5

6

7

U S 1 0 y , T r e a s u r y

- 0 . 2 5

0 . 0 0

0 . 2 5

0 . 5 0

0 . 7 5

1 . 0 0

1 . 2 5

1 . 5 0B N P P

f o r e c a s t

U S 1 0 y , s w a p l e s s T r e a s u r y


We expect longer-term yields to rise over the forecastperiod as the US growth outlook firms and the Fed starts totaper QE.


We expect little change in the swap spread over theforecast period because of the Feds commitment tomaintain loose monetary policy over the medium term.


12/84

2013

Eurozone rates: Medium-term forecastsChart 1: Policy rates (%) Chart 2: 2y rate & ECB policy (%)

9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 1 1 1 2 1 3 1 4- 1

0

1

2

3

4

5

6

E O N I A

R e a l r e f i ra t e ( d e f la t e d b y c o r e H I C P )


N o m i n a l r e f i r a t e


Interest Rate StrategyWe forecast the ECB refi rate to be cut to 0.5%. In realterms, the refinancing rate will remain negative.


Interest Rate StrategyWe forecast German two-year yields to remain very low,in line with our policy forecast. Over time, the spread tothe policy rate should widen.

Chart 3: 10y/2y spread & ECB policy (%) Chart 4: 10y/3m spread & ECB policy (%)

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

0. 5

1. 0

1. 5

2. 0

2. 5

3. 0

3. 5

4. 0

4. 5

5. 00.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

ECB refi rate

(Inv. RHS)

BNPPforecast

10y/2y spread


The 10y/2y spread is likely to remain low in relation to thepolicy rate in coming quarters. Political tensions are likelyto push the 10-year Bund yield lower towards the end of2013, before a rise in 2014.


Uncertainty about the future of the eurozone hasdiminished. The curve should, therefore, steepen relativeto the level of policy rates.

Chart 5: US-German yield & policy spreads (%) Chart 6: 10y Bund yields (%)

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Percent

-1

0

1

2

3

4

5

6

Real yield (Deflated by core H ICP)

BNPPforecast

10y Bund


The US is moving faster towards normalisation, so theUST-Bund spread will widen.


We expect Bund yields to rise over the forecast period.The real yield should stay close to zero over 2013.


13/84

US: A country of cross-currents

We expect growth in 2013 to be similar to that of the past few years. The overallsubdued pace of growth reflects intensifying cross-currents. Because of higher taxesand sequestration spending cuts, fiscal tightening looks set to strengthen this year.Meanwhile, easy monetary policy is finally having more of an impact on the housingand durable goods sectors, and we look for these areas to make strongercontributions to growth. The lack of a cyclical pickup highlights a reality we have beenstressing for some time: the US economy is in a phase of structural adjustment, not atraditional business cycle, and it is still right in the middle of this longer-term process.We do think less fiscal tightening will allow an above-trend performance in 2014,although this would require stronger underlying private-sector demand, which we havenot seen to date (Chart 1).

Fiscal policy developments reflect a deeply divided and contentious policymakingenvironment. Sequestration spending cuts are expected to take effect with littlemoderation, and no grand bargain, major tax overhaul or entitlement reform appearslikely at this juncture. Rather, we will be cliff hopping making policy in a sub-optimal,piecemeal fashion that keeps uncertainty about government policy at a persistentlyhigh level.

Extreme business-sector caution has been a key restraint on growth, as companiesare generating profits faster than they are investing and hiring. This abnormalbusiness saving behaviour is expected to ease gradually as companies slowly gainconfidence in the outlook.

The Fed is committed to meeting its mandate, and concerns about financial stabilitybrought about by QE are not expected to hold the FOMC back from expanding itsbalance sheet throughout 2014. We expect the first rate hike in Q3 2015.

Chart 1: Private-sector pickup

% Q4/Q4 2011 2012 2013(1)

2014(1)

Real GDP 2.0% 1.6% 2.0% 2.7%

Fiscal tightening2

-0.8% -1.0% -1.3% -0.9%

Underlying pace2

2.8% 2.6% 3.2% 3.6%

Source: Reuters EcoWin Pro, BNP Paribas; (1) Forecast (2) Estimate

Chart 2: Too much business saving, govt dissaving

-14

-10

-6

-2

2

6

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Domestic business

Households

Government

Current account balance

Net saving (% of GDP)

Source: Reuters EcoWin Pro, BNP Paribas

Chart 3: Stabilising labour force participation


Chart 4: No inflationary pressures


The Fed is committedto QE

A stronger pace offiscal tightening

to be offset by apickup in investment

leading to a steady,subdued pace of growth


14/84

US: Economic and financial forecasts

10 11 12 13

(1)

14

(1)

Q1 Q2 Q3 Q4 Q1

(1)

Q2

(1)

Q3

(1)

Q4

(1)

Components of growth

% Q/Q SAAR

GDP - - - - - 2.0 1.3 3.1 0.1 1.5 1.7 2.0 2.6

Dom. demand ex stocks 1.3 1.8 1.9 1.7 2.0 2.2 1.4 1.9 1.4 1.5 1.7 2.0 2.6

Private consumption 1.8 2.5 1.9 1.6 1.8 2.4 1.5 1.6 2.1 1.2 1.5 1.5 2.0

Public consumption 0.6 -3.1 -1.7 -1.4 -1.1 -3.0 -0.7 3.9 -6.9 0.7 -2.0 -1.4 -1.4

Residential investment -3.7 -1.4 12.1 14.7 20.2 20.5 8.5 13.5 17.5 10.0 15.0 20.0 22.0

Non-residential investment 0.7 8.6 7.7 5.0 8.1 7.5 3.6 -1.8 9.7 2.4 6.6 7.2 7.9

Stocks (cont. to growth) 0.7 0.2 -0.3 0.3 -0.2 -0.4 -0.5 0.7 -1.3 -0.4 -0.5 0.7 -1.3

Exports 11.1 6.7 3.3 2.4 5.6 4.4 5.3 1.9 -3.9 3.1 4.1 5.2 7.3

Imports 12.5 4.8 2.4 2.1 4.7 3.1 2.8 -0.6 -4.5 4.3 4.7 5.0 5.8

GDP (% y/y) 2.4 1.8 2.2 1.6 2.5 2.4 2.1 2.6 1.6 1.5 1.6 1.3 2.0

Industrial production (% y/y) 5.4 4.1 3.8 3.4 4.7 4.4 4.8 3.4 2.8 2.1 2.7 4.0 4.8

Savings ratio (%) 5.1 4.3 3.9 3.0 3.1 3.6 3.8 3.6 4.6 2.7 2.9 3.1 3.1

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation & labour

CPI 1.6 3.2 2.1 1.9 2.0 2.8 1.9 1.7 1.9 1.8 1.8 2.0 1.9

CPI (Ex F&E) 1.0 1.7 2.1 1.9 2.1 2.2 2.3 2.0 1.9 2.0 1.8 1.9 2.0

Core PCE deflator 1.5 1.4 1.7 1.5 1.9 1.9 1.8 1.6 1.5 1.3 1.3 1.5 1.7

Producer prices 4.2 6.0 1.9 2.5 1.9 3.4 1.1 1.6 1.7 2.1 3.1 2.3 2.6

Monthly wages 1.9 2.0 1.9 2.0 2.1 1.9 1.8 1.9 1.8 1.9 1.9 2.0 2.1

Employment -0.7 1.2 1.7 1.6 1.9 1.8 1.7 1.7 1.6 1.5 1.5 1.6 1.7

Unemployment rate (%) 9.6 8.9 8.1 7.7 7.2 8.3 8.2 8.0 7.8 7.8 7.8 7.7 7.6

10 11 12 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 (1) Q2 (1) Q3 (1) Q4 (1)

External trade

Trade balance (USD bn, sa) -495 -560 -540 -526 -506 -149 -138 -125 -129 -125 -132 -136 -132

Current account (USD bn, sa) -442 -466 -473 -410 -438 -134 -118 -108 -114 -100 -104 -106 -101

Current account (% GDP) -3.0 -3.0 -3.0 -2.5 -2.4 -3.1 -3.1 -3.0 -3.0 -2.7 -2.6 -2.6 -2.5

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Financial variables

Money supply 2.5 7.3 8.6 6.2 5.9 10.2 9.6 7.0 7.6 5.0 5.0 5.0 6.0

Fed. gov. budget (USD bn)(2)

-10 -1297 -1089 -887 -740 -457 -125 -185 -293 -412 -52 -130 -260

Fed. gov. budget (% GDP)(2)

0.0 -8.7 -7.0 -5.5 -4.4 -8.1 -7.9 -6.9 -6.7 -6.4 -5.9 -5.5 -5.2

Fed. gov. primary budget (% GDP)(2)

-8.7 -7.2 -5.6 -4.1 -3.0 -6.6 -6.4 -5.5 -5.3 -4.9 -4.4 -4.1 -3.8

Gross Fed. gov. debt (% GDP)(3)

62.8 67.7 72.5 75.9 77.5 70.1 70.9 71.3 73.2 75.2 74.8 74.9 75.6

10 11 12 13(1)

14(1)

Q1 Q2 Q 3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Interest & FX rates (3)

Fed funds rate (%) 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 0-0.25 0-0.25 0-0.25

3-month rate (%) 0.30 0.58 0.31 0.40 0.50 0.31 0.28 0.36 0.31 0.28 0.40 0.40 0.40

2-year rate (%) 0.61 0.25 0.25 0.25 0.75 0.34 0.31 0.23 0.25 0.25 0.20 0.25 0.25

5-year rate (%) 2.01 0.83 0.72 1.10 1.85 1.04 0.72 0.63 0.72 0.89 0.80 0.95 1.10

10-year rate (%) 3.29 1.88 1.76 2.40 2.80 2.21 1.64 1.63 1.76 2.05 2.00 2.20 2.40

EURUSD 1.34 1.29 1.32 1.33 1.25 1.33 1.27 1.29 1.32 1.33 1.35 1.35 1.33

USDJPY 81 77 87 90 100 83 80 78 87 95 95 90 90

Fi ures are ear-on- ear ercenta e chan es unless otherwise indicatedFootnotes: (1) Forecast (2) Fiscal year (3) End period

2012

2012

Year

Year

2012

2012

2012

Year

Year

Year

2013

2013

2013

2013

2013

Source: BNP Paribas


15/84

Eurozone: Fragile recovery

A marked improvement in financial market conditions following the announcement ofthe OMT framework in summer 2012 has been filtering through to eurozone economicconditions, albeit with considerable variations at national level. However, the rise inuncertainty due to Italian political developments and their potential implications callinto question a return to sustained eurozone growth from Q2.

We have scaled back our profile for quarter-on-quarter GDP growth in H2 2013, with2014s annual forecast also trimmed, consistent with a weaker end to this year.Headwinds to growth from fiscal policy will ease at the aggregate eurozone level thisyear and next, supporting a recovery. However, rising unemployment, still tight creditconditions and uncertainty will continue to hinder domestic demand. Deleveraging inthe banking sector remains a key downside risk, with the small business sector heavilyreliant on credit supplied through this channel. Germany will remain the outperformergrowth-wise, reflecting the countrys more favourable domestic conditions, including itsstrong labour market and comparatively healthy public finances.

The headline rate of eurozone HICP inflation is below 2% and will decelerate further inthe spring. The core inflation rate is well below 2% and with labour markets generallyweak and wage pressures subdued, it should remain so. Downside risks to the ECBs

below but close to 2% definition of price stability are building.

Consequently, pressure on the ECB to loosen policy further will rise, particularly iffinancial and monetary conditions tighten under more volatile market conditions. Withlimited conventional ammunition available, asset purchases are a likely response to apronounced intensification of market stress, though there are political constraints onthe implementation of OMT. Greater emphasis on credit easing is also likely.

Chart 1: Eurozone sentiment and growth

9 6 9 7 98 9 9 0 0 01 02 0 3 0 4 05 0 6 0 7 08 09 1 0 1 1 12 1 350

60

70

80

90

10 0

11 0

12 0

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

G D P (% y / y )

EC economic sent iment (RHS)


Chart 2: Eurozone HICP inflation (% y/y)

9 6 9 7 98 99 0 0 0 1 0 2 0 3 0 4 05 0 6 07 0 8 0 9 1 0 1 1 1 2-1 .0

-0 .5

0. 0

0. 5

1. 0

1. 5

2. 0

2. 5

3. 0

3. 5

4. 0

Ex- food, energy ,a l coho l & tobacco

Head l i ne


Chart 3: Bank lending to corporates

99 00 01 02 03 04 05 06 07 08 09 10 11 12-2.5

-1.5

-0.5

0. 5

1. 5

2. 5

% m/ m

-10.0

-5.0

0. 0

5. 0

10.0

15.0

Private sector bank lendingto non-f inancial corporates

% 6 m a n n .

% y /y


Chart 4: Financial and monetary conditions

94 95 96 97 98 99 00 0 1 02 03 04 05 0 6 07 08 09 10 1 1 1 2

Looser

Tighter

-4

-3

-2

-1

0

1

2

3

4

Excluding Greek yields

(and excluding eurozone credit growth)

Exc lud ing Greek y ie lds


CommentCommentCommentMore scope for ECBeasing

Improved marketconditions benefit theeconomy

but headwinds togrowth persist

Downside risks to pricestability


16/84

Eurozone: Economic and financial forecasts

10 11 12 13

(1)

14

(1)

Q1 Q2 Q3 Q4 Q1

(1)

Q2

(1)

Q3

(1)

Q4

(1)


GDP (% q/q) - - - - - -0.1 -0.2 -0.1 -0.6 -0.1 0.1 0.1 0.2

GDP 2.0 1.5 -0.5 -0.5 0.8 -0.1 -0.5 -0.6 -0.9 -0.9 -0.7 -0.5 0.2

Final domestic demand 0.6 0.3 -1.5 -0.9 0.3 -1.1 -1.4 -1.7 -1.7 -1.5 -1.0 -0.7 -0.2

Private consumption 0.9 0.1 -1.2 -0.7 0.4 -1.1 -1.1 -1.5 -1.2 -1.1 -0.8 -0.6 -0.1

Public consumption 0.7 -0.1 -0.1 -0.4 -0.2 0.1 -0.1 -0.1 -0.2 -0.4 -0.4 -0.4 -0.4

Fixed investment -0.3 1.6 -3.9 -2.0 0.8 -2.5 -3.9 -4.4 -4.9 -4.0 -2.4 -1.4 -0.1

Stocks (cont. to growth, q/q) 0.6 0.2 -0.7 -0.2 0.1 0.0 0.0 -0.3 -0.4 -0.4 -0.4 -0.4 -0.4

Exports(2)

11.0 6.5 2.9 2.0 4.8 2.5 3.6 3.2 2.2 2.1 1.4 1.3 3.2

Imports(2)

9.5 4.3 -0.9 0.8 4.4 -1.1 -0.7 -1.0 -0.6 -0.1 -0.1 0.8 2.6

Industrial production 7.2 3.4 -2.0 -0.1 3.2 -1.6 -2.3 -2.5 -3.2 -1.6 -0.8 -0.6 2.6

10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4(1)

Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation & labour

HICP 1.6 2.7 2.5 1.7 1.3 2.7 2.5 2.5 2.3 1.8 1.8 1.6 1.5

Core HICP 1.0 1.4 1.5 1.3 1.3 1.5 1.6 1.6 1.5 1.3 1.3 1.3 1.3

Producer prices 2.8 5.9 2.6 1.0 0.2 3.7 2.3 2.3 2.3 1.6 1.2 0.7 0.4

Comp. per employee 1.8 2.1 1.8 1.5 1.4 2.0 1.6 1.8 1.8 1.4 1.5 1.5 1.5

Unit labour costs -0.7 0.9 1.6 1.5 0.6 1.6 1.3 1.6 2.1 1.9 1.7 1.6 0.9

Employment -0.5 0.3 -0.6 -0.4 0.0 -0.5 -0.7 -0.7 -0.6 -0.4 -0.5 -0.4 -0.4

Productivity 2.5 1.2 0.1 0.0 0.8 1.6 1.3 1.6 2.1 1.9 1.7 1.6 0.9


10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4(1)

Q1(1)

Q2(1)

Q3(1)

Q4(1)

External trade

Trade balance (EUR bn, sa) -15 -16 85 117 135 10 20 26 27 25 28 30 34

Current account (EUR bn, sa) 3 12 110 127 140 22 27 30 31 31 32 32 32

Current account (% of GDP) 0.0 0.1 1.2 1.3 1.4 0.9 1.1 1.3 1.3 1.3 1.3 1.3 1.3

10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Financial variables

General gov. budget (EUR bn) -568 -386 -348 -261 -213 - - - - - - - -

General gov. budget (% GDP) -6.2 -4.1 -3.7 -2.7 -2.2 - - - - - - - -

Primary budget (EUR bn) -309 -104 -28 23 84 - - - - - - - -

Primary budget (% GDP) -3.4 -1.1 -0.3 0.2 0.9 - - - - - - - -

Gross gov. debt (% GDP)(3)

85.4 87.3 93.2 95.7 95.6 - - - - - - - -

10 11 12 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 (1) Q2 (1) Q3 (1) Q4 (1)

Interest & FX rates(3)

Refinancing rate (%) 1.00 1.00 0.75 0.50 0.50 1.00 1.00 0.75 0.75 0.75 0.50 0.50 0.50

3-month rate (%) 1.01 1.36 0.19 0.10 0.15 0.78 0.65 0.22 0.19 0.20 0.10 0.10 0.10

2-year rate (%)(4)

0.85 0.14 -0.03 0.10 0.30 0.05 0.18 0.04 -0.03 0.09 0.10 0.10 0.10

5-year rate (%)(4)

1.84 0.75 0.30 0.85 1.30 0.54 0.61 0.41 0.30 0.51 0.50 0.70 0.85

10-year rate (%)(4)

2.96 1.83 1.31 1.30 1.90 1.41 1.60 1.44 1.31 1.52 1.50 1.40 1.30

EURUSD 1.34 1.29 1.32 1.33 1.25 1.33 1.27 1.29 1.32 1.33 1.35 1.35 1.33

EURGBP 0.86 0.83 0.81 0.85 0.76 0.83 0.81 0.80 0.81 0.88 0.88 0.87 0.85

EURJPY 109 100 114 120 125 110 101 100 114 126 128 122 120

Figures are year-on-year percentage changes unless otherwise indicated

2012

Footnotes: (1) Forecast (2) Includes intra-eurozone trade (3) End period (4) Bund yield

2013Year

2012

2012

Year

Year

2012

2012

Year

Year

2013

2013

2013

2013

Source: BNP Paribas


17/84

2013

Japan: Revival or fiscal bust?

The government will probably continue its effectively money-financed fiscal expansionin the next few years. Specifically, we expect the massive fiscal stimulus (about 2% ofGDP) adopted in Q1 2013 to be repeated in Q1 2014. Meanwhile, the BoJ, under itsnew leadership, is likely to buy JGBs aggressively, putting downward pressure onbond yields in the near term. With long-term interest rates being restrained and above-trend growth continuing, asset prices should also climb, leading to bubble-likeconditions in parts of the economy. Bubbles frequently occur when nominal growth isstrong and bond yields are low and stable.

In the next two years or so, the narrowing of the output gap should translate into onlya limited rise in inflation because of an entrenched deflationary mindset. However,with the structural unemployment rate deemed to be around 3.5%, there is actually notmuch slack left in the economy. If above-trend growth continues as we expect, theeconomy should be close to full employment by the end of 2014, after which inflationexpectations should spread.

When inflation starts to accelerate from H2 2015, upward pressure on bond yieldsshould intensify. But the BoJ will probably not be able to tighten policy owing toconcerns that bond prices could crash and thereby destabilise the financial system.When a central bank becomes deeply involved in the governments debt management,price stability tends to be sacrificed for the sake of financial-system stability. Thus, weexpect the 10-year bond yield to rise to about 3% by the end of 2015. Ultimately, thenew governments monetisation policy will probably result in low growth with highinflation and high interest rates that markedly raise the probability of a fiscal crisis.

Continued monetisationto keep economyexpanding above trend

Incorporation into debt-management policy todelay exit from easing

Chart 1: Nominal GDP and cost of capital to government

(FY, %)

-6

-4

-2

0

2

4

6

8

10

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

Nominal GDP

Cost of capital to government

Source: Cabinet Office, BNP Paribas

Chart 2: Proportion of countries where nominal growth

exceeds nominal interest rate (23 OECD countries)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

92 94 96 98 00 02 04 06 08 10

Source: OECD. BNP Paribas

Chart 3: Output gap (%) estimated from Tankan data

-5-4

-3

-2

-1

0

1

2

3

4

92 94 96 98 00 02 04 06 08 10 12 14 16

Extrapolated from Tankans production capacity DI

and employment conditions DI

BNPP

forecast

Source: BoJ, Cabinet Office, BNP Paribas

Chart 4: Core CPI (% y/y)

-3

-2

-1

0

1

2

3

4

06 07 08 09 10 11 12 13 14 15 16

Including

consumption tax

Excluding

consumption tax

BNPP

forecast

Source: MIC, BNP Paribas


18/84

2013

Japan: Economic and financial forecasts

10 11 1213

(1)14

(1)

Q1 Q2 Q3 Q4Q1

(1)Q2

(1)Q3

(1)Q4

(1)


GDP (% q/q) - - - - - 1.5 -0.2 -0.9 0.0 0.5 0.6 0.6 0.6

GDP (% q/q annualised) - - - - - 6.1 -0.9 -3.7 0.2 2.0 2.6 2.3 2.4

GDP (% y/y) 4.7 -0.6 2.0 0.9 1.0 3.4 3.9 0.4 0.5 -0.6 0.2 1.8 2.3

Domestic demand ex-stocks 2.0 0.8 2.8 1.4 1.0 1.0 0.4 -0.5 0.4 0.3 0.5 0.6 0.9

Private consumption 2.8 0.5 2.4 1.0 0.3 1.2 -0.0 -0.5 0.5 0.2 0.3 0.4 1.0

Government expenditure 1.6 -0.2 4.4 2.3 2.4 2.7 1.5 0.8 0.8 -0.1 0.8 0.6 0.4

Residential investment -4.5 5.5 2.9 12.5 -7.2 -1.7 2.2 1.7 3.5 3.0 4.0 3.0 2.0

Private non-residential investment 0.3 3.3 2.1 -1.4 3.1 -2.5 -0.1 -3.3 -1.5 0.5 0.5 0.8 0.8

Stocks (cont. to growth) 0.9 -0.5 0.0 0.1 0.0 0.3 -0.4 0.2 -0.2 0.2 0.0 0.0 -0.1

Exports 24.4 -0.4 -0.3 -2.7 4.5 3.4 0.0 -5.1 -3.7 0.8 1.3 1.3 1.3

Imports 11.1 5.9 5.3 0.7 4.8 2.1 1.7 -0.5 -2.3 0.4 0.7 1.5 2.3

Industrial production (% q/q) - - - - - 1.3 -2.0 -4.2 -1.9 2.9 1.7 1.7 1.6

Industrial production (% y/y) 16.4 -2.3 -0.3 1.2 2.5 4.8 5.3 -4.6 -5.9 -5.2 -1.7 4.2 8.0Savings ratio (%) 2.0 2.3 0.0 -0.6 -2.2 - - - - - - - -

(% y/y) 10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation & labour

GDP deflator -2.2 -1.9 -0.9 -0.6 1.3 -1.0 -1.0 -0.8 -0.7 -1.0 -0.6 -0.6 -0.4

Consumption deflator -1.7 -0.8 -0.6 -0.5 1.7 -0.4 -0.5 -0.9 -0.6 -0.9 -0.6 -0.1 -0.3

CPI -0.7 -0.3 0.0 0.0 2.2 0.3 0.2 -0.4 -0.2 -0.6 -0.2 0.4 0.5

Core CPI -1.0 -0.3 -0.1 0.0 2.2 0.1 -0.0 -0.2 -0.1 -0.3 -0.1 0.2 0.3

ex consumption tax -1.0 -0.3 -0.1 0.0 0.7 0.1 -0.0 -0.2 -0.1 -0.3 -0.1 0.2 0.3

US-like core CPI(2)

-1.2 -0.9 -0.6 -0.4 1.8 -0.6 -0.5 -0.6 -0.5 -0.7 -0.5 -0.3 -0.0

Monthly wages 0.5 -0.2 -0.7 0.1 1.1 -0.0 -0.5 -0.7 -1.1 -0.1 0.2 0.0 0.2

Employment -0.3 -0.1 -0.3 0.0 -0.4 -0.6 -0.3 -0.1 -0.2 -0.2 0.0 0.0 0.3


10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

External trade

Trade balance (JPY trn, sa) 8.0 -1.6 -5.8 -7.6 -8.5 -4.3 -4.4 -7.0 -7.6 -7.3 -7.1 -7.6 -8.5

Current account (JPY trn, sa) 17.9 9.6 4.7 3.0 2.7 6.4 6.0 3.5 2.5 3.1 3.4 3.1 2.3

Current account (% GDP) 3.7 2.0 1.0 0.6 0.5 1.4 1.3 0.7 0.5 0.6 0.7 0.6 0.5

10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Financial variables

Money supply (M2, % y/y ) 2.8 2.7 2.5 2.7 3.1 3.0 2.4 2.4 2.3 2.6 2.7 2.8 2.9

Government budget (JPY trn)(3)

-40.0 -41.0 -42.9 -41.6 -37.2 - - - - - - - -

Government budget (% GDP) (3) -8.3 -8.7 -9.1 -8.7 -7.6 - - - - - - - -

Primary balance (% GDP)(3)

-6.6 -6.8 -7.4 -7.1 -6.0 - - - - - - - -

ex reconstruction (% GDP)(3)(4)

-6.6 -5.8 -5.8 -6.2 -5.6 - - - - - - - -


179 191 200 206 209 - - - - - - - -

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)


O/N call rate (%) 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

3-month rate (%) 0.34 0.33 0.30 0.25 0.25 0.29 0.26 0.33 0.30 0.30 0.30 0.25 0.25

2-year rate (%) 0.18 0.14 0.10 0.10 0.15 0.05 0.11 0.10 0.10 0.05 0.05 0.05 0.10

5-year rate (%) 0.40 0.35 0.20 0.30 0.60 0.12 0.22 0.20 0.20 0.10 0.10 0.15 0.30

10-year rate (%) 1.12 0.99 0.75 0.80 1.60 0.99 0.84 0.77 0.75 0.60 0.40 0.60 0.80

USDJPY 81 77 78 90 100 83 80 78 78 95 95 90 90

EURJPY 109 100 104 120 125 110 101 100 104 126 128 122 120

2012

2012

2012

2012

2012

Footnotes: (1) Forecast (2) US-Like Core CPI: CPI excluding food (but including alcoholic beverages) and energy (3) FY, General government excluding social security funds (4) Excluding spending on

earthquake disaster reconstruction and revenues from reconstruction tax (5) End period Figures are quarter-on-quarter percentage changes unless otherwise indicated

2013Year

Year

Year

Year

Year

2013

2013

2013

2013

Source: BNP Paribas


19/84

2013

China: Limited upside

The recovery evident in China since last September may be facing some challenges.In January-February, industrial production growth slowed, with a notable drop in thegrowth of power output and export delivery. Retail sales were hard hit by an anti-ostentation campaign, while other unrelated sales were also soft. Export growth hasaccelerated, but production and orders have been much weaker. Investment is theonly bright spot, supported by growth in funding, although this puts property andinfrastructure back at the forefront of economic growth.

The economic targets from the National Peoples Congress (NPC) were largely in linewith expectations. Lower money growth and inflation targets suggest more cautiouspolicy ahead, while the larger fiscal-deficit plan provides some support for growth.Major organisational changes are likely to take place, but details on other reforms maytake longer for the new leaders to formulate, with a roadmap possible this autumn.

We continue to forecast GDP growth to rise to 8.3% this year from 7.8% in 2012.Growth will be supported by restocking, pro-growth policy measures in place since lastMay, potential new reforms and the new leaders political drive to achieve fastergrowth in their first year in office.

However, the limits to policy accommodation are likely to prevent a bigger rebound.Excess credit growth has increased financial risks. Property market tightening isalready under way. The need to sustain the nascent recovery may prevent severetightening, but the easing environment markets have enjoyed since last autumn isover. We expect monetary policy to be more cautious in its liquidity management andlending guidance, though rate hikes remain unlikely. After the NPC, we expect moreregulatory changes to limit financial risks and credit growth. RMB appreciation is likelyto continue this year, but may slow or reverse temporarily as risk retreats.

.

Chart 1: Export growth rebound looks unsustainable

-10

-5

0

5

10

15

20

25

30

97 99 01 03 05 07 09 11 13

0

5

10

15

20

25%y/y % y/y

Power output

Industrial production (RHS)

Source: CFLP, Customs, BNP Paribas

Chart 2: FAI supported by property and state investment

0

5

10

15

20

25

30

35

40

45

50

2004 2006 2008 2010 2012

0

5

10

15

20

25

30

35

40

45

50

Total

SOEs

Property

Source: CFLP, BNP Paribas

Chart 3: Retail sales growth weakened (% y/y)

0

5

10

15

20

25

2001 2003 2005 2007 2009 2011 2013

0

5

10

15

20

25

Nominal

Real

Source: NBS, BNP Paribas

Chart 4: High total financing invites tightening (RMB bn)

0

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012 2013

March 2009

January 2013

Source: PBOC, BNP Paribas

Chinas recovery is

facing some challenges

but policy cautionwould limit the upside

We maintain our 8.3%growth forecast

NPC targets cautious,reforms under way


20/84

C 2013

China: Economic and financial forecasts

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Components of growth(2)

Total GDP 10.4 9.3 7.8 8.3 7.8 8.1 7.6 7.4 7.9 8.1 8.4 8.7 8.0

Retail sales 18.4 17.1 14.3 13.2 14.4 14.8 14.0 13.8 14.9 12.8 13.0 13.7 13.3

Fixed asset investment 23.8 23.8 20.6 20.0 18.0 20.9 20.2 20.6 20.6 21.0 19.9 20.5 19.1

Exports 31.4 20.4 8.0 12.5 10.5 7.6 10.5 4.5 9.4 20.3 9.5 10.0 11.7

Imports 39.1 25.1 4.4 10.0 11.0 7.1 6.5 1.6 2.7 6.3 10.1 12.9 10.4

Industrial output(3)

15.7 13.9 10.0 11.0 10.7 11.6 9.5 9.1 10.0 10.4 11.4 12.1 10.9

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation

CPI 3.3 5.4 2.6 3.6 3.5 3.8 2.9 1.9 2.1 2.8 3.4 3.8 4.5

PPI 5.3 6.0 -1.7 1.5 4.0 0.2 -1.4 -3.3 -2.3 -1.5 0.1 3.3 4.1

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

External trade

Trade balance (USD bn)(4)

183.1 157.9 233.5 308.1 330.5 1.1 68.8 79.5 83.3 61.4 72.7 74.0 99.2

Current account (USD bn) 237.8 201.7 213.7 261.4 266.8 59.0 53.7 70.6 30.4 61.4 73.7 84.0 42.3

Current account (% GDP) 3.9 2.7 2.6 2.7 2.8 3.4 2.9 3.5 1.1 3.2 3.4 3.6 1.4

Memo: Nom. GDP (USD bn) 5931 7322 8253 9570 10931 1715 1882 2000 2657 1938 2183 2337 3113

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Financial variables

Gen. gov. budget (% GDP)(5)

-2.5 -1.9 -1.5 -2.1 -2.1 - - - - - - - -

Primary budget (% GDP) -2.0 -1.4 -1.1 -1.6 -1.7 - - - - - - - -

Foreign reserves (USD bn)(6)

2847 3181 3312 3600 3868 3305 3240 3290 3312 3407 3465 3531 3600

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)


Official interest rate (%) 5.81 6.56 6.00 6.00 6.25 6.56 6.31 6.00 6.00 6.00 6.00 6.00 6.00

USDRMB 6.59 6.29 6.23 6.05 6.03 6.30 6.35 6.29 6.23 6.20 6.15 6.08 6.05

Footnotes: (1) Forecast (2) Forecasts of GDP and industrial output are in real terms but, in the absence of data, forecasts of consumption, investment, exports and imports are in nominal terms

(3) Industrial output for enterprises with annual revenue greater than RMB 5mn (4) Trade balance is customs merchandise trade balance

(5) Government budget balance denotes the fiscal balance released by the Ministry of Finance, not the actual budget balance (6) End period


2012 2013Year

Year 2012 2013

Year

2012 2013

2012 2013Year

Year

2012 2013

Source: BNP Paribas


21/84

2013

Germany: Growing comfortably

Sentiment indicators have improved markedly since October, signalling a quickerrebound than we had expected, mostly driven by the faster feed-through of animprovement in the global manufacturing cycle. A less favourable global growthenvironment than previously expected for 2014, however, has prompted us tomoderate our expectations of net exports contribution to GDP growth. Thus, whileGerman growth should continue to outperform the eurozone average considerablyover the forecast period, it is unlikely to accelerate much above its potential growthrate of around 1.6% per year heading into 2014.

The domestic economy, meanwhile, has remained relatively unscathed by theeurozone turmoil so far and there is little reason to expect this to change. Monetaryand financial conditions are very loose, the budget deficit is falling as a result of lowerdebt-servicing costs and higher income tax revenues, so there is no need for fiscaltightening, while rising property prices are boosting household wealth. Withunemployment relatively low, this years wage round for some 12 million employeesshould lead to real income growth again in 2013. We also expect a decline in thesavings rate to maintain relatively fast growth in private consumption.

Inflation has remained low, but we expect upward pressure on core inflation in 2014.Labour costs will rise faster than output growth for the third year in a row in 2013,slowly pushing up core prices. With the political debate about the introduction of anational minimum wage intensifying and the country slowly withdrawing from the useof nuclear power, more upward pressure on prices could materialise sooner.

There is likely to be a policy vacuum ahead of Septembers general election. However,political uncertainty is unlikely to surge, with a grand coalition under the leadership ofthe CDU the most likely outcome. Such a grand coalition could show greater toleranceof less austerity, but not of less structural reform in the eurozone.

Chart 1: Contribution to GDP (pp)


Chart 3: Unit wage costs


Chart 2: Ifo business clock


Chart 4: Inflation (% y/y)


Net trade driving quickrebound in H1 2013

Policy vacuum untilSeptembers election

Inflation picking up onhigher wage costs

Domestic demandstrong


22/84

2013

Germany: Economic & financial forecasts

10 11 12 13

(1)

14

(1)

Q1 Q2 Q3 Q4 Q1

(1)

Q2

(1)

Q3

(1)

Q4

(1)


GDP (% q/q) - - - - - 0.5 0.3 0.2 -0.6 0.4 0.7 0.5 0.4

GDP 4.0 3.1 0.9 1.0 1.8 1.2 1.0 0.9 0.4 0.3 0.7 0.9 2.0

Domestic demand ex. stocks 1.9 2.4 0.3 0.6 1.4 0.8 0.7 -0.2 -0.2 0.0 0.6 0.8 1.1

Private consumption 0.8 1.7 0.6 0.9 1.5 0.6 1.3 0.0 0.4 0.5 0.7 1.0 1.2

Public consumption 1.7 1.0 1.4 1.0 0.5 1.8 0.9 1.4 1.4 1.1 1.5 0.9 0.6

Fixed investment 5.6 6.4 -1.9 -0.7 2.4 0.4 -1.7 -2.4 -3.9 -3.1 -0.9 -0.1 1.4

Stocks (cont. to growth, q/q) 0.6 0.2 -0.6 0.0 0.0 0.3 0.2 -0.1 0.1 0.1 0.1 0.1 0.1

Exports 13.4 7.9 4.3 2.1 4.8 2.9 5.7 5.1 3.4 3.2 1.1 0.5 3.9

Imports 10.9 7.5 2.2 1.5 4.7 2.7 2.8 1.8 1.5 2.4 0.6 0.6 2.4

Industrial production 10.1 6.9 0.3 0.4 3.9 1.1 0.2 -0.7 -2.1 -1.6 -0.8 0.4 3.6

Savings ratio 10.9 10.4 10.3 9.0 8.1 - - - - - - - -

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation & labour

HICP 1.2 2.5 2.1 2.0 1.8 2.4 2.1 2.1 2.0 1.8 2.1 2.1 2.0

Core HICP 0.6 1.2 1.3 1.4 1.7 1.3 1.4 1.2 1.3 1.2 1.4 1.6 1.5

PPI 1.7 5.7 2.0 2.4 2.4 3.3 2.0 1.4 1.5 1.8 2.4 2.8 2.8

Compensation per employee 2.4 3.4 2.8 3.0 2.9 2.6 2.8 2.8 2.9 3.0 3.1 3.1 2.9

Employment 0.6 1.4 1.1 0.2 0.5 1.4 1.2 1.1 0.8 0.2 0.2 0.2 0.3


10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

External trade

Trade balance (EUR bn, sa) 151.8 156.1 189.4 188.3 183.0 43.1 48.0 51.0 47.3 43.5 48.4 50.4 46.1

Current account (EUR bn, nsa) 147.8 146.9 168.6 167.0 161.1 40.1 42.6 46.5 39.4 40.5 42.9 45.7 37.9

Current account (% GDP) 5.9 5.7 6.4 6.2 5.8 - - - - - - - -

10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Financial variables

Federal gov. budget (EUR bn) -82.1 -26.4 -17.4 -19.8 -16.3 - - - - - - - -

General gov. budget (EUR bn) -102.7 -19.4 -3.3 -5.9 -2.4 - - - - - - - -

General gov. budget (% GDP) -4.1 -0.7 -0.1 -0.2 -0.1 - - - - - - - -

Primary budget (EUR bn) -51.1 29.8 45.0 43.7 48.0 - - - - - - - -

Primary budget (% GDP) -2.0 1.2 1.7 1.6 1.7 - - - - - - - -


82.5 80.5 81.8 80.2 77.8 - - - - - - - -

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Interest rates (3)

3-month rate (%) 0.67 1.36 0.19 0.10 0.15 0.78 0.65 0.22 0.19 0.20 0.10 0.10 0.10

10-year rate (%) 1.80 1.55 1.31 1.30 1.90 1.41 1.60 1.44 1.31 1.52 1.50 1.40 1.30

Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) End period


2012

2012

Year

Year

2012

2012

2012

Year

Year

Year

2013

2013

2013

2013

2013

Source: BNP Paribas


23/84

France: Downside risks

Many French business surveys were poor at the end of 2012 and in early 2013.However, we believe the PMIs overstate the severity of the recession and we putmore faith in Bank of France surveys, which signal little change in activity. A forecastimprovement in Germany is key to our expectation that French economic activity willrise slightly from Q2 2013. Germany buys 16.2% of French exports, much more thanthe UK and Italy (France's second and third-most important trading partners)combined. In 2012, the change in net trade made a positive contribution to the changein GDP for the first time in 11 years, and a strong one, at 0.7pp (Chart 2). We expectnet trade to make another positive contribution in 2013, although less than last year,as imports are unlikely to continue to fall.

Consumption is being held back by a lack of net income growth. We expect a furtherrise in unemployment to lead to continued downward pressure on wage growth. Taxincreases will also continue to reduce households' purchasing power, with income taxhikes this year and a rise in VAT in 2014. The rise in unemployment will maintainpressure on the government to carry out structural reforms. Next on the agenda arenew rules for unemployment benefits, another pension reform and measures tosupport investment in small and medium-sized enterprises and housing.

We forecast core inflation to stay low as rising unemployment restrains both demandpressures and wage costs (Chart 3).

As growth forecasts have been lowered, fiscal policy has been tightened slightly, withmore spending postponed. The aim is to avoid any slippage in governmentexpenditure beyond the effect of automatic stabilisers. The authorities appear to haveaccepted that the deficit will not fall to 3% of GDP this year, as originally planned, butany further delay in this target beyond 2014 could be a cause of tension amongFrances European partners and the markets, so policy will stay tight (Chart 4).

CommentFiscal policy remainstight

CommentNet exports the sourceof French growth

CommentRising unemploymentto weigh on demand

CommentCore inflation to staylow

Chart 1: GDP breakdown (% of total value added)*

Source: Reuters EcoWin Pro, BNP Paribas *The other 79% is services

Chart 3: Wage and retail price inflation (% y/y)


Energy, water, waste

Chart 2: Real foreign trade of goods & services (% GDP)


Chart 4: Budget deficit change vs. GDP growth



24/84

France: Economic and financial forecasts

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)


GDP (% q/q) - - - - - -0.1 -0.1 0.1 -0.3 -0.1 0.1 0.2 0.2

GDP 1.6 1.7 0.0 0.0 0.9 0.2 0.1 0.0 -0.3 -0.3 -0.1 -0.1 0.4

Domestic demand ex stocks 1.5 0.8 0.3 -0.2 0.4 0.0 0.6 0.5 0.2 0.0 -0.2 -0.3 -0.1

Private consumption 1.4 0.2 0.0 0.3 0.4 -0.6 0.1 0.1 0.4 0.1 0.3 0.2 0.4

Public consumption 1.8 0.2 1.4 1.3 0.7 0.8 1.3 1.6 1.8 1.5 1.4 1.3 0.9

Fixed investment 1.1 3.6 0.0 -3.0 -0.1 1.0 1.0 0.2 -2.2 -2.3 -3.5 -3.6 -2.8

Stocks (cont. to growth, q/q) 0.0 0.8 -1.1 -0.1 0.2 -0.1 0.2 -0.3 -0.4 0.2 0.1 0.1 -0.1

Exports 9.2 5.5 2.3 2.3 6.6 3.3 2.8 2.7 0.4 0.9 1.7 2.2 4.3

Imports 8.5 5.3 -0.3 1.4 5.1 -2.0 0.5 0.0 0.2 0.6 0.0 1.6 3.4

GDP unadjusted(3)

1.6 1.7 0.1 -0.1 0.8 0.6 0.1 -0.1 -0.3 -0.7 -0.1 0.0 0.3

Industrial production 4.7 1.7 -2.2 -1.6 1.9 -1.8 -1.8 -2.0 -3.1 -2.7 -2.3 -1.8 0.6

Savings ratio (%) 15.9 16.2 16.1 15.6 15.3 16.0 16.4 16.2 15.8 15.9 15.9 15.4 15.0

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation & labour

HICP 1.7 2.3 2.2 1.3 1.7 2.6 2.3 2.3 1.7 1.3 1.2 1.4 1.5

Core HICP 1.0 1.1 1.5 1.0 1.6 1.5 1.7 1.7 1.1 0.9 0.9 0.9 1.1

Monthly wages 1.8 2.2 2.1 1.9 2.2 2.2 2.1 2.1 2.0 1.8 1.8 1.9 2.0

Private NF payrolls 0.2 0.8 -0.2 -0.7 0.0 0.1 -0.3 -0.4 -0.4 -0.8 -0.9 -0.7 -0.6


10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

External trade

Trade balance (EUR bn, sa) -52 -74 -66 -61 -53 -18 -18 -15 -15 -15 -16 -15 -15Current account (EUR bn, sa) -30 -39 -49 -41 -31 -12 -14 -12 -9 -10 -11 -10 -10

Current account (% GDP) -1.6 -2.0 -2.4 -2.0 -1.5 -2.4 -2.8 -2.3 -1.8 -2.0 -2.1 -1.9 -1.9

10 11 12(1)

13(1)

14(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Financial variables

Central gov. budget (EUR bn) -122 -88 -82 -70 -62 - - - - - - - -

Central gov. budget (% GDP) -6.3 -4.4 -4.0 -3.4 -2.9 - - - - - - - -

General public budget (EUR bn) -137 -103 -94 -78 -66 - - - - - - - -

General public budget (% GDP) -7.1 -5.2 -4.6 -3.8 -3.1 - - - - - - - -

Primary budget (EUR bn) -90 -51 -42 -26 -13 - - - - - - - -

Primary budget (% GDP) -4.7 -2.6 -2.0 -1.3 -0.6 - - - - - - - -


82.1 86.0 90.2 93.0 94.2 - - - - - - - -

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

Interest rates(4)

3-month (%) 1.01 1.36 0.19 0.10 0.15 0.78 0.65 0.22 0.19 0.20 0.10 0.10 0.10

10-year rate (%) 3.35 3.15 2.13 2.00 2.50 2.14 2.19 2.24 2.13 2.12 2.20 2.10 2.00

Spread over Bund (bp) 39 132 83 70 60 73 59 80 83 60 70 70 70

Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) Unadjusted for calendar effects (BNP Paribas estimate) (4) End period

Year

Year


2012

2012

Year

Year

Year

2012

2012

2012

2013

2013

2013

2013

2013

Source: BNP Paribas


25/84

S 2013

Italy: Political stalemate

The formation of a new Italian government will reduce, but not remove, the uncertaintycreated by Februarys general election. The next prime minister is likely to have alimited mandate and is unlikely to embark on aggressive structural reforms. Thepossibility of a new election soon will remain firmly on the table, which will limit thegovernments room for manoeuvre.

Combined with a renewed tightening of monetary and financial conditions stemmingfrom wider government bond spreads, persistent uncertainty will weigh on businessconfidence and contribute to a further delay in the recovery in investment spendingand consumption. We have, therefore, revised down our growth forecasts and nowexpect GDP to fall by 1.4% this year and to rise by only 0.3% in 2014.

A by-product of our GDP estimates is that we now see the current account moving intosurplus by 2014. This is mainly the result of lower imports rather than a rise in exportsdue to gains in competitiveness. Unlike in other peripheral countries, unit labour costshave remained fairly stable. Still, Italys external imbalances are limited compared with

the imbalances faced by the eurozones other peripheral economies.

Its high primary budget surplus (in 2012, it amounted to 2.5% of GDP) is another ofItalys strengths. While some of the consolidation measures approved by the Montigovernment may be called into question (the VAT hike currently scheduled for July isa prime candidate), the bulk of the adjustment will remain in place. We, therefore,expect the structural fiscal tightening to continue this year and next.

With low structural growth, a primary surplus in the order of 4% of GDP (our estimatefor 2014) will hardly be sustainable. This highlights the need for structural reforms toboost the economys growth potential. But, as we have said above, these do notappear to be on the agenda, at least for now.

Chart 1: Industrial orders (index, 2005 = 100)


Chart 3: Unit labour costs (2000=100)


Chart 2: Bank lending survey


Chart 4: Net financial assets (% of GDP)

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11-125

-100

-7 5

-5 0

-2 5

0

25

50

Spa in

Greece

Portugal

France

Germany

Italy


Uncertainty to persist

Downward revisionsto growth forecasts

Structural reforms

needed

Fiscal tightening tocontinue


26/84

S 2013

Italy: Economic and financial forecasts

10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)


GDP (% q/q) - - - - - -0.9 -0.7 -0.2 -0.9 -0.3 -0.2 -0.1 0.2

GDP 1.7 0.5 -2.4 -1.4 0.3 -1.6 -2.6 -2.6 -2.8 -2.2 -1.6 -1.5 -0.4

Domestic demand ex. stocks 0.9 -0.4 -4.7 -3.2 -0.9 -4.1 -4.9 -5.1 -4.6 -3.7 -3.3 -3.0 -2.7

Private consumption 1.5 0.1 -4.3 -3.0 -0.6 -3.5 -4.4 -4.8 -4.4 -3.9 -3.3 -2.6 -2.1

Public consumption -0.4 -1.2 -2.9 -2.0 -1.7 -3.0 -3.2 -2.9 -2.5 -1.5 -1.6 -2.2 -2.6

Fixed investment 0.5 -1.4 -8.0 -5.3 -1.2 -7.2 -8.6 -8.5 -7.6 -5.5 -5.4 -5.4 -4.8

Stocks (cont. to growth, y/y) 1.1 -0.5 -0.6 -0.4 0.1 -0.6 -0.5 -0.5 -0.6 -0.7 -0.6 -0.5 0.3

Exports 11.2 6.6 2.2 3.3 4.4 1.9 2.5 2.5 1.9 3.2 3.2 3.0 3.8

Imports 12.3 1.1 -7.8 -4.1 1.1 -9.0 -7.5 -8.0 -6.6 -4.3 -4.7 -4.1 -3.2

Industrial production 6.8 0.2 -6.5 -3.2 3.0 -5.2 -7.5 -6.3 -6.7 -4.8 -4.0 -3.2 -0.5

10 11 12 13 (1) 14 (1) Q1 Q2 Q3 Q4 Q1 (1) Q2 (1) Q3 (1) Q4 (1)

Inflation & labour

HICP 1.6 2.9 3.3 1.7 1.3 3.6 3.6 3.4 2.6 2.1 1.6 1.6 1.3

Core HICP 1.7 2.0 2.0 1.4 1.4 2.2 2.3 2.1 1.5 1.5 1.4 1.4 1.3

Monthly wages 2.2 1.8 1.5 1.4 1.3 1.3 1.4 1.5 1.6 1.5 1.4 1.4 1.2

Employment -0.6 0.3 -0.2 -1.0 0.1 0.0 -0.1 -0.2 -0.5 -0.9 -1.1 -1.1 -0.8


10 11 12 13(1)

14(1)

Q1 Q2 Q3 Q4 Q1(1)

Q2(1)

Q3(1)

Q4(1)

External trade

Trade balance (EUR bn) -30.1 -23.6 19.8 35.8 43.8 -4.2 6.5 8.6 8.8 -0.2 10.5 12.6 12.8

Current account (EUR bn) -54.7 -48.4 -9.5 6.5 14.5 -13.1 -0.7 1.0 3.3 -9.1 3.3 5.0 7.3

Current account (% of GDP) -3.5 -3.1 -0.6 0.4 0.9 - - - - - - - -

10

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Světová ekonomika, Březen 2013 (dokument v AJ)

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