1. Hope, headwinds or hurricanes?
Charting a course for
the global
economy
Robert Powell
Senior Editor/Economist
Chicago
October 2010

2. Key points
A recovery is under way …
US: 500,000 new jobs in 1H 2010 beats 4m jobs lost in
1H ’09
◦ But job growth is slow; still 7.5m jobs below the peak
Europe shows signs of life
◦ Germany improving, but the EU periphery is drowning in debt
Does a global double-dip recession lie ahead?
◦ Probably not. Why?
► Emerging markets
• Strong recovery
► Active central banks
► Stimulus still available
► Corporate profits

3. Where are we now?

4. Global: World trade recovers strongly
170
160
150
140
130
120
110
100
90
80
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
World trade volumes. 2000=100. Seasonally adjusted.
Source: CPB Netherlands Bureau for Economic Policy Analysis.

5. Industrial production rebounds…
25%
20%
15%
10%
5%
0%
-5%
-10% US China
-15% Euro India
-20%
-25%
Jan-05
Sep-05
Jan-06
Sep-06
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
May-05
May-06
May-07
May-08
May-09
May-10
% change, year over year in production volumes, Source:
National governments, Haver

6. … and borrowing costs are mostly contained
Post-Lehman Bros panic
5 Spread between the cost of government
4.5 borrowing and private-sector borrowing,
basis points
4 Federal Reserve
intervenes
3.5
3
2.5 Stimulus plans Greece, EU
feed through debt crisis
2
1.5
1
0.5
0
Oct 1 2008
Oct 14 2008
Oct 27 2008
Nov 7 2008
Nov 20 2008
Dec 3 2008
Dec 16 2008
Dec 29 2008
Jan 9 2009
Jan 22 2009
Feb 4 2009
Feb 17 2009
Mar 2 2009
Mar 13 2009
Mar 26 2009
Apr 8 2009
5/29/2009
7/31/2009
10/2/2009
12/4/2009
2/5/2010
4/9/2010
6/11/2010
8/13/2010
3-month US$ LIBOR minus 3-month US Treasuries Source:
Haver

7. Why the bounce-back?
Too fast, too hard
Firms cut back very aggressively in a climate of fear and panic
o Overdid it
o Correcting inventory overhang
International rescue
o Interest rates slashed
o Printing money
o Government spending splurge
o Tax cuts
o Bank bailouts
Emerging market serenity
o Domestic demand
o More trade amongst themselves
o Less banking stress

8. Global outlook: Upswing, but uneven
Developed
10 Emerging
8 World
6
4
2
0 Credit
-2 crunch
starts
-4
-6
99 Q1
99 Q3
00 Q1
00 Q3
01 Q1
01 Q3
02 Q1
02 Q3
03 Q1
03 Q3
04 Q1
04 Q3
05 Q1
05 Q3
06 Q1
06 Q3
07 Q1
07 Q3
08 Q1
08 Q3
09 Q1
09 Q3
10 Q1
10 Q3
11 Q1
11 Q3
GDP growth, % year on year Source:
EIU estimates

9. US, Europe and Japan

10. US: Weakening after strong surge…
… as pent-up demand, stimulus Real GDP growth, % change
fade; growth will average 2.3% 10
for the year 8
6
Inventories tell the tale
Re-stocking contributed 4
around 60% of growth on 2
average in last 3 qtrs
0
But investment spending up -2
Equipment and software rose -4 Recessions
20%-plus in last two qtrs; most
in four years -6
-8
Consumers fading again?
2000q1
2001q2
2002q3
2003q4
2005q1
2006q2
2007q3
2008q4
2010q1
Spending rose by 2% in Q2
% change year on year Source:
Bureau of Economic Analysis

11. Jobs market remains tough
US jobs market
600 12
400
10
200
8
0
-200 6
-400
4
-600 Net new jobs
2
-800 Unemployment rate
-1,000 0
2000 - Nov
2002 - Jul
2005 - Nov
2007 - Jul
2000 - Jan
2005 - Jan
2010 - Jan
2001 - Sep
2006 - Sep
2004 - Mar
2009 - Mar
2003 - May
2008 - May
Jobs in ‘000s; unemployment, %.
Source: Bureau of Labor Statistics.

12. 500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
2,500
1959 - Q1
1961 - Q1
1963 - Q1
1965 - Q1
Source: Bureau of the Census
1967 - Q1
US housing starts, ‘000s, SAAR.
1969 - Q1
1971 - Q1
1973 - Q1
1975 - Q1
1977 - Q1
1979 - Q1
1981 - Q1
1983 - Q1
1985 - Q1
1987 - Q1
1989 - Q1
US: Housing still very weak…
1991 - Q1
1993 - Q1
1995 - Q1
1997 - Q1
1999 - Q1
2001 - Q1
2003 - Q1
2005 - Q1
2007 - Q1
2009 - Q1

13. Home foreclosures still awful
400000
1H 2010 foreclosures: 1,961,000, and
more than 1m in Q3
350000
Worse than last year
300000
1 in 4 mortgage holders with negative
250000 equity
Pent-up listings will keep homes
200000
coming to market, restraining prices
150000
Yes, housing has stabilised
100000
But new home sales are moribund
50000 Prices are largely stagnant
Nationally, 14+% of mortgages
0
delinquent or foreclosed
1/31/2005
7/31/2005
1/31/2006
7/31/2006
1/31/2007
7/31/2007
1/31/2008
7/31/2008
1/31/2009
7/31/2009
1/31/2010
7/31/2010
“Delay and Pray”
Foreclosure rate: % change, year on year
Source: Realty Trac

14. Euro area: Worst crisis ever…but signs of life
150 Germany Spain Debt sinking the periphery
145 Greece Ireland Bailout has helped, but…
140
… only buying time; massive
135 fiscal adjustment required
130 Must improve competitiveness
125
But Germany is rebounding
120
Exports, business investment,
115 stockbuilding
110 But unemployment is high,
105 consumers hesitant
100 Less impressive in rest of EU
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Second quarter 2010? As good
as it will get
Real private consumption, 2000 Q1=100.
Source: Economist Intelligence Unit, CountryData.

15. Euro zone: Acropolis Now?
Liquidity
11
Cut out of capital markets
9 Fixed by the $1trn bailout?
7
Solvency
Greece is almost certainly
5 insolvent
Less clear about the others
3 o Interest costs, growth, fiscal
tightening
1
The outcome
-1 Low growth for years to come
J a n -0 8
M a r-0 8
M a y -0 8
J u l-0 8
S e p -0 8
N o v -0 8
J a n -0 9
M a r-0 9
M a y -0 9
J u l-0 9
S e p -0 9
N o v -0 9
J a n -1 0
M a r-1 0
M a y -1 0
J u l-1 0
S e p -1 0
Structural reform; wage cuts
Default (restructuring)
Italy Portugal Greece Spain Ireland Monetary AND fiscal union??
Euro exit
Spreads of 10-year govt bonds over German bunds.
Percentage points.
Source: Haver.

16. Japan
Foreign demand supports growth
2.5 Output per worker
Helped by fiscal leakage elsewhere
Yen a significant risk
2.0
But firms are profitable and can
take some pain
Structural issues cloud picture 1.5
Declining population
Renewed deflation 1.0
Fiscal woes
Cash cow country? 0.5 Japan
Japan measures up on traditional US
measures of economic efficiency 0.0
◦ But declining workforce means 1990
1993
1996
1999
2002
2005
2008
poor top-line performance
Labour productivity growth, % change

17. Emerging markets

18. Asia: Powering ahead
25 China Hong Kong India
20 Indonesia Malaysia Philippines
Singapore Taiwan Thailand
15
10
5
0
-5
-10
-15
Q1-00
Q4-00
Q3-01
Q2-02
Q1-03
Q4-03
Q3-04
Q2-05
Q1-06
Q4-06
Q3-07
Q2-08
Q1-09
Q4-09
Real GDP, % change on year earlier, Haver

19. But Asian governments are in driver’s seat
Robust recovery in train 7
Expanding fiscal deficits
Only a gentle slowdown 6
next year 5
Policy stimulus is the key 4
Domestic recovery stronger 3
than usual
2
China acting as a boost to
rest of region 1
Asian and trading partner 0
stimulus accounts for half
na
Th re
a
do ia
M sia
nd
of GDP growth
Si ysi
d
o
hi
la
ne
In
ap
a
C
ai
al
ng
In
Change in fiscal deficit as % of
GDP, 2008-10, EIU

20. Asian bubbles?
Asia is importing monetary
stimulus from US
Consequence of active exchange-
rate management
Economic conditions are much
stronger in Asia
Monetary policy is too loose for Asian
circumstances
Fiscal stimulus was very large
Food commodity prices are again
a concern
El Niño, bad monsoon in India
Fears of inflation/asset bubbles
in Asia

21. Should we worry about China?
2000 14 Why are investors worried?
New loans 12
Inflationary asset price bubble
US-style property crisis
1500
House 10 Government inspired crash
prices
8 Government also worried about:
1000 Poor allocation of capital
6
Inflation causing social ills
4 Government has reacted
500
Have the brakes have gone on
2
too hard?
0 ◦ Government can step in
0
again if necessary
11/30/2000
8/31/2001
5/31/2002
2/28/2003
11/30/2003
8/31/2004
5/31/2005
2/28/2006
11/30/2006
8/31/2007
5/31/2008
2/28/2009
11/30/2009
-2
Will all the lending of 2009 turn
sour?
-500 -4
New loans, m RMB; House prices,% change YoY. Source China Economic
Info Net, Natl Reform and Development Commission

22. India: Outperforming China—one day
Strong prospects 190
Population India
Median age: 24 years (1990=100)
170
India will have world’s largest
population in 2030s, overtaking
China 150
India will be growing more
rapidly than China by 2018 130
China
Labour-force growth to remain
strong while China, others see 110
decline
Challenges 90
Absorbing labour force growth Russia
will be challenge in absence of 70
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
sufficient education, structural
change
Fiscal consolidation is needed
Source: Economist Intelligence Unit.

23. Latin America has shown resilience
16,000 GDP/head PPP 7 Region will grow by 4-5% in 2010
GDP growth Brazil: outsized performance
6
14,000
5
12,000 Countries linked to the US are doing
4
better than expected
10,000
3
Mexico will grow 4.7% this year
8,000 2 ◦ Will feel the effects of US
slowdown in 2011
1
6,000
Regionally, not back to boom years
0
4,000 But better fiscal positions
-1 Flexible exchange rates
2,000
-2 Better trade performance
0 -3 Countries with Asian exposure
further ahead
2001
2003
2005
2007
2009
2011
2013
◦ Commodities help growth; China!
Real GDP growth, % change. GDP per head in US $.
Source: Economist Intelligence Unit.

24. Medium to long-term
perspectives

25. Currencies: It’s still the ugly sisters
US$/€ strongly correlated with risk
perception
Euro zone structural concerns to
dominate over medium term
2010: Av: US$1.30: €1
2011: Av: US$1.40: €1
2012: Av: US$1.15: €1
• Pity the yen
Racing up against the € and keeping up
with the US$. Bad news for Japan’s
exporters and for its deflation
Emerging markets
RMB “wobbly peg” to US$
EMs to depend on risk tolerance

26. Oil price outlook: Long term
120 Weaker demand will restrain prices in the medium term; they will
rise thereafter as broad-based growth returns, and EMs accelerate
100
80
60
40
20
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Oil price: Brent dated, US$/barrel; % change, year on year.
Source: Economist Intelligence Unit

27. Where’s the growth?
2009 2010 2011
8
6
4
2
0
-2
-4
-6
-8
st
N
IS
na
S
a
K
a
a
n
pe
e
ic
di
ic
U
n
A
pa
U
Ea
C
hi
ro
zo
er
SE
In
fr
Ja
C
A
Eu
m
le
ro
A
d
A
Eu
E
id
tin
M
La
Real GDP growth; % change, year on year. ASEAN = Assoc of South East
Asian Nations. CIS = Russia, Ukraine etc. Source: EIU, CountryData.

28. Overtaken by events: China takes the lead
40,000 GDP; nominal; US$ bn
CHINA
35,000 GERMANY
INDIA
30,000
JAPAN
25,000 UNITED STATES
20,000
15,000
10,000
5,000
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Economist Intelligence Unit, Country Data

29. More Information?
Data and analysis from today’s presentation
were taken from the Economist Intelligence
Unit’s country analysis and forecasting
services. For more information on these
services and other EIU capabilities, including
risk assessment, industry trends, and
economic data, please contact:
Holly Donahue
Market Development Manager
Economist Intelligence Unit
hollydonahue@economist.com
1 (212) 541 - 0596