North American and Latin American Economic Outlook

Gaining Traction or Losing Ground?

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August 22, 2013

2

Today’s Presenter

Vinnie Aggarwal

Chief Economist

Art RobbinsPresident North America

Roberta GamblePartner Energy & Environment

Sath RaoGlobal Vice President Industrial &Emerging Market Innovation

Aroop ZutshiGlobal President and Managing Partner

Cristiano Zaroni Managing Director Latin America

3

Global Overview

Vinnie Aggarwal Chief Economist

4

Turning the Tide on the Shifting Global Economy

5

World European Union

Emerging market and developing economies

Central and eastern Europe

Developing Asia

Latin America and the

Caribbean

Sub-Saharan Africa

United States China0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2005 to 2007 Average 2013 to 2015 Average

GD

P G

row

th A

vera

ge

(%)

Should we be Worried?Emerging economies’ growth has been subdued, but growth remains positive in a strained global environment

Sources: GET-IT and Frost & Sullivan

Average GDP Growth is Predicted to be Significantly Lower from 2013 to 2015 for Many Regions, With the Exception of the United States

The predicted rising labor costs in China will provide new opportunities for Latin American and North American manufacturers.

6

Monetary Policies of the World’s Largest Economies are Diverging - Where are we headed next?

The United States, China and other major emerging markets may tighten monetary policy, whereas the Euro Zone, Britain and Japan are sustaining quantitative easing.

What influence will this have in H2 2013?

• Strong dollar

• Weak pound, euro and yen

• Weakening of commodity currencies globally

• Outflow of hot money from emerging markets could lead to subdued growth, currency devaluation and widening current account deficits

Brazil real

Mexico peso

Chile peso

Columbia peso

Peru sol

-9.53

1.56

-5.66

-6.32

-8.34

% Change (January to July 2013)

Declining Latin American Currencies in 2013

Sources: GET-IT and Frost & Sullivan

Poll Question

8

Regional Trends: United States

Art RobbinsPresident

North America

9

Growth Prospects Remain Cautiously Optimistic

Sources: GET-IT and Frost & Sullivan

Decreased Energy Costs are Boosting the Chemicals

Sector, 2011 Q1 to 2014 Q2

Note: Values for H2 2013 and H1 2014 are forecast

Energy renaissance

Fiscal policy paralysis

Private sector driving jobs

2011 2012 2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 (2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

Energy Food and Beverages Chemicals

Ind

ex O

f In

du

stri

al P

rod

uct

ion

Gro

wth

(%

)

10

Natural Gas, Innovation and the Private Sector are Driving the Economies of the Fastest-Growing States

3% +

2.5% - 3.0%

2.0% - 2.5%

1.5% - 2.0%

0% - 1.5%

Statewise GDP Growth Expectations for 2013 for the United States

Texas

California

Oregon

WashingtonNorth Dakota Minnesota

Indiana West Virginia

Tennessee

New York

Montana

South Dakota

WyomingIdaho

Nevada

Utah

New Mexico

Kansas

Arkansas

VirginiaKentucky

Maine

Wisconsin

Michigan

Pennsylvania

North Carolina

South Carolina

Georgia

Arizona

Colorado

NebraskaIowa

Missouri

Oklahoma

Louisiana

Mississippi

Florida

Alabama

New Jersey

Maryland

Mass.Conn.R. I.

New Hampshire

Ohio

Vermont

Sources: BEA, GET-IT and Frost & Sullivan

11

Natural Gas, Innovation and the Private Sector are Driving the Economies of the Fastest-Growing States (Continued)

Private Investment is Driving Growth, 2008 Q1 - 2013 Q4

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q40.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

(20.0)

0.0

20.0

40.0

60.0

80.0

100.0 Gross Private Domestic Investment

Gro

ss

Pri

va

te D

om

es

tic

In

ve

stm

en

t ($

Bil

lio

n)

Fo

reig

n D

ire

ct

Inv

es

tme

nt

($ B

illi

on

)

Forecasts

2008 2009 2010 2011 2012 2013

Sources: BEA, GET-IT and Frost & Sullivan

12

Energy Sector Insights

Roberta GamblePartner, Energy & Environment

13

Shifting the Energy Consumption Mix

     Liquid Fuels      Natural Gas      Coal    Nuclear    Biofuels    Renewable Energy0

5

10

15

20

25

30

35

40

2010 2013 2015 2020

En

erg

y C

on

sum

pti

on

(Q

uad

rill

lio

n B

tu)

There is a clear shift toward natural gas and renewable energy, with President Obama’s shift away from coal-fired electricity generation in the Climate Action Plan.

Gains from increased domestic energy production will include lower energy prices and increased revenue from energy exports.

Outlook for the Energy Consumption Mix in the United States, 2010-2020

Sources: EIA and Frost & Sullivan

14

Regional Energy Reform: Being left behind is not an option

Sources: EIA and Frost & Sullivan

2010 2013 2015 20200.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

8.6

8.8

9.0

9.2

9.4

9.6

9.8

10.0

10.2

 Natural Gas Imports  Natural Gas Exports

Electricity Price

Gas

Tra

de

(Tri

llio

n C

ub

ic F

eet)

Ele

ctri

cuty

Pri

ce (

2011

Cen

t p

er K

ilo

wat

tho

ur)

The Influence of Natural Gas will Have a Significant Impact on Electricity Prices in the United States, Which May be

Offset by an Increase in Planned Exports, 2010-2020China’s influence in Latin America

Oil deal between China and Mexico

Large scale energy reforms in Mexico

Energy prices in the United States are expected to decrease

15

Industrial & Manufacturing Sector Insights

Sath RaoGlobal Vice President

Industrial Automation & Process Control

16

2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1.6

15.0

7.6

2.6

9.7

3.9

12.2

2.3

15.1

-0.2

16.5

11.7

State Manufacturing Share of US Total Manufacturing (%)

Man

ufa

ctu

rin

g G

row

th R

ate,

200

9-20

12 A

vera

ge

(%)

The Key Engines of Manufacturing Growth

Top 12 Manufacturing States by Size and their Corresponding Growth Rates, 2009-2012

Louisiana, Michigan & Texas are leading the charge in the resurgence of manufacturing in the United States.

Source: BEA , Frost & Sullivan

The Chemicals Sector is Expanding Rapidly and Attracting Significant Local and International Investment In the United States,

2008-2012

2008 2009 2010 2011 2012(20.0)

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Manufacturing Chemicals Machinery

FD

I G

row

th R

ate

(%)

17

Manufacturing Critical Issues & Monitoring Micro Booms

&

Age of Agility Age of FlexibilityMega Trends to Micro Booms

Shale and tight oil resurgence

Critical infrastructure protection

Energy logistics – Return of rail car?

BYOD and Industrial mobility

Leveraging the GIL-100 Index with a Focus on Emerging Market Opportunities

19

Systematic Approach to Identifying the next rung of promising markets by region and size

• 100 countries ranked based on their sales attractiveness for manufacturers of energy equipment used in energy supply and in energy intensive industries

• The goal is to help EII companies identify promising countries for their products by GDP brackets and by region

• Look at factors other than growth that could impact emerging market strategy

100 Countries

10-20 Emerging Country Opportunities

GIL 100 Index Energy Intensive Industries (EII): Structuring your Emerging Market Strategy

By GDP Bracket By Region

Supply Demand

+

GIL 100 EII Index

20

Emerging Market Focus

Aroop ZutshiGlobal President &

Managing Partner

21

Latin Amer-ica and the Caribbean

Developed Economies

Emerging Economies

Brazil Russia India China0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2012 2013 2014

GD

P G

row

th (

%)

Positive Signs in Emerging Economies Despite Sluggish Growth in Traditional Top Performers

Sources: GET-IT and Frost & Sullivan

“If you lift your people out of extreme poverty, it’s not like they’re going to say ‘Great, now we’re all set, we don’t want anything else,’” Jim Yong Kim, president of the World Bank

Growth potential in emerging economies has shifted

The end of the commodity boom hit extractive economies hard

Financial outflows will place emerging economies under pressure

Financial sector boom expected in emerging markets

The Growth Patterns of Larger Emerging Economies are Diverging, 2012-2014

Poll Question

23

Regional Trends: Latin America

Cristiano ZaroniDirector, Latin America

Operations

24

Latin America is Highly Dependent on Extractive Industries

There is a strong policy focus to move away from this dependence and invest in beneficiation activities and to improve infrastructure and technology to increase competitiveness.

Sources: GET-IT and Frost & Sullivan

Exports from Latin America, 2001 and 2012

Mineral Fuel and Oil

Vehicles

Electrical, electronic equipment

Ores, slag and ash

Machinery

Metals and Precious Stones

Copper

Oil, Seed, Fruits & Grain

0.00 50.00 100.00 150.00 200.00 250.00

2012 2001

Exports ($ Billion)

The greatest growth in exports has been

for petroleum, mineral and metal products,

with China as the fastest-growing trading partner

Economic growth tied to Chinese demand

Infrastructure spending increase

Economic growth potential has shifted to new markets in the region

25

Lessons from 2013: Reliance on Extractive Industries and Local Demand is no Longer Enough to Sustain Growth

Mexico

Colombia

Peru

Chile

Argentina

Uruguay

Paraguay

Bolivia

Venezuela

Brazil

PanamaCosta Rica

NicaraguaHondurasGuatemala

Dominican Republic

Mercosur

Free Trade Agreement with the US and EU

Pacific Alliance & Free Trade Agreement with the US and EU

The Pacific Alliance has taken a more pragmatic approach to foreign relations and investments

The Pacific Alliance is seen as a more dynamic rival to Mercosur

26

Brazil has a large consumer market and has the 4th largest ICT market globally, growth in new technologies like cloud, big data analysis and BPO present a great opportunity in Latin America as a whole.

The Ever-Shifting Knowledge Economy

Percent Forecast of Lines by Technology, Latin America, 2017

Smartphone Shipments (Million Units), Latin America, 2012-2017

415.6 million lines

Mobile penetration in Latin America has reached 125%, and is likely to be over 163% by 2017 as users migrate from 2G to data-heavy 3G and 4G services

Smartphone sales in Latin America will more than double by 2017

3G coverage is expected to reach 100% of Brazilian cities in 2019

27

Macro

Micro

EMI’s ‘Macro to Micro’ Insight into Emerging Markets will help you Look at Unexplored Markets

Emerging Market Growth Monitor (EMGM)

Global Economic Tracker- Insights and Trends (GET-

IT)

Workshops

Integrated emerging market country industry forecasts

Economic insights

Quarterly updates on economic trends and industry indicators

Specific insights from emerging market experts. Economic and industry correlations

On site or virtual workshops customized to business needs

Facilitates development of a country pipeline

28

Regional Economic Growth Briefings – Schedule for 2013

Region Live Date of Session

Global Economic Outlook 2013 24 January 2013

Europe & Africa 17 June 2013

North America & Latin America 22 August 2013

Emerging Asia Pacific November 2013

29

Growth Innovation and Leadership: Upcoming Events

GIL 2013: France

17 October 2013

GIL 2013: Germany

19 November 2013

GIL 2014: Latin America

January 2014

30

Growth Innovation and Leadership Congress, September 8-11, 2013, Silicon Valley

EMI Track at GIL 2013: Silicon Valley - Emerging Market Innovation: A Best Practices Approach to developing your Emerging Markets Strategy

GIL 2013: Silicon Valley

8-11 September 2013

gil-events.gilcommunity.com

31

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Q & A

34

For Additional Information

Francesca ValenteMarketing & Corporate Communications Executive,Latin Americafrancesca.valente@frost.com

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