Deflation - The Hidden Threat

MacroGlobal Economics

Q1 2014

Principal contributors

ECONOMICSGlobal

Deflation: the hidden threat

Disclosures and Disclaimer This report must be read with the disclosures and analystcertifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Q1 2014

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By Stephen King, Karen Ward and James Pomeroy

As growth accelerates....

...inflation sinks ever lower...

...paving the way for new economic challenges

Stephen King Chief Economist HSBC Bank Plc+44 20 7991 [email protected]

Stephen is the HSBC Groups Global Head of Economics and Asset Allocation research. He joined the company in 1988, havingpreviously worked as an economic adviser at the UK Treasury. Stephen is a regular economics commentator on television and radioand frequently writes columns for the Financial Times and The Times. Stephens new book, When the Money Runs Out, was publishedby Yale University Press in May 2013. Stephens first book, Losing Control: the Emerging Threats to Western Prosperity, was publishedin 2010 and is also available from Yale.

Karen Ward Senior Global Economist HSBC Bank Plc+44 20 7991 [email protected]

Karen joined HSBC in 2006 as UK economist. In 2010 she was appointed Senior Global Economist with responsibility for monitoringchallenges facing the global economy and their implications for financial markets. Before joining HSBC in 2006 Karen worked at theBank of England where she provided supporting analysis for the Monetary Policy Committee. She has an MSc Economics fromUniversity College London.

James Pomeroy EconomistHSBC Bank Plc+44 20 7991 [email protected]

James is a global economist at HSBC. He joined the team in December 2013, having been an analyst within the Asset Allocation teamsince June 2012. He holds a BSc in economics from the University of Bath.

Macro Global Economics Q1 2014

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The big challenge for 2014

Heading into 2014, there is something strikingly odd about the global economy. Inflation in many parts of the world is surprisingly low. This is particularly true of the developed world. In the US and Europe, in particular, central banks are faced with a troubling dilemma: even as activity has picked up, disinflationary pressures appear to be building. Should central bankers consider a tightening of monetary policy in response to the better real economy data or, instead, should they keep policy loose in response to an increasing threat of deflation?

We examine the possible reasons behind unexpectedly low inflation. Sometimes, disinflation or deflation can be a force for good, reflecting a sudden surge in productivity that lowers prices relative to wages or a sudden increase in energy supply that drives down headline inflation. Although there is a flavour of the latter in recent US inflation numbers, thanks to the impact of the shale revolution, we doubt these factors fully explain why inflation globally is so low: core inflation rates have, in many cases, also surprised on the downside.

Instead, it looks as though low inflation is a reflection of the waning powers of central banks as they have resorted to unconventional monetary stimulus measures. It is already abundantly obvious that unconventional policies have had a bigger impact on financial asset values than on the real economy. In this edition of Global Economics, we examine another distorting effect from unconventional policies channelled through exchange rate movements. It increasingly seems that, rather than removing deflationary trends, monetary stimulus merely allows central banks to export deflation to other parts of the world. Its a monetary version of currency wars.

The international dimension

Initial bouts of quantitative easing whether from the Bank of England, the Federal Reserve or, more recently, the Bank of Japan have been associated with a sizeable exchange rate decline which has lifted inflation temporarily in the host country. Yet, for every exchange rate decline, there has also, inevitably, been an exchange rate rise. And for those who have experienced unwanted exchange rate gains, inflation has ended up lower than expected and, often, lower than desired. The most obvious recent example has been the eurozone experience in the second half of 2013.

Summary As growth accelerates inflation sinks ever lower paving the way for new economic challenges


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In normal circumstances, this wouldnt be a problem. But with domestic transmission mechanisms not working as well as they might and with growing protectionist policies limiting the scope for trade multipliers to kick in, its increasingly apparent that one countrys monetary stimulus is anothers ball and chain. If unconventional policies work primarily through the exchange rate, they serve primarily to export, rather than cure, disinflationary pressures. At the international level, those pressures refuse to subside.

The policy response

Its comforting to argue that, faced with accelerating economic activity, low inflation wont be around for very long. Yet, for all the welcome news on unemployment in both the US and the UK, wage growth is surprisingly weak. And there is a significant danger of confusing cause with effect. In a standard economic cycle, activity leads inflation. In a post-bubble environment, where debts are high and deleveraging is rife, the opposite applies: excessively low inflation increases real debt levels, makes deleveraging more difficult and, eventually, suppresses demand and activity. Japan provides the obvious and sobering example: a modest recovery in the mid-1990s ultimately was undermined through a combination of creeping deflation and premature policy tightening.

This makes the transition from quantitative easing through to forward guidance as tapering takes hold in the US all the more difficult to manage. Forward guidance works on the basis that central banks can gaze into the future and offer a credible promise about the future path for interest rates. But if central banks are unable to decide whether output leads inflation (in the standard cyclical sense) or inflation leads output (in the structural post-bubble sense), providing clear guidance on future monetary policy may prove to be near enough impossible, particularly if policymaking committee members squabble publicly over the appropriate monetary stance.

HSBC growth and inflation forecasts

(Forecasts made last quarter in parentheses)

____________________ GDP _____________________ ___________________ Inflation ___________________ 2013f 2014f 2015f 2013f 2014f 2015f

World 2.0 (2.0) 2.6 (2.6) 2.8 2.4 (2.3) 2.7 (2.7) 2.9 Developed 1.1 (1.1) 1.8 (1.7) 1.9 1.3 (1.4) 1.6 (1.8) 1.7 Emerging 4.5 (4.5) 4.9 (4.9) 5.2 5.5 (5.3) 5.7 (5.6) 6.1 US 1.8 (1.6) 2.3 (2.3) 2.5 1.5 (1.6) 1.7 (1.9) 1.9 China 7.7 (7.7) 7.4 (7.4) 7.7 2.6 (2.6) 2.7 (2.7) 3.1 Japan 1.7 (1.9) 1.3 (1.3) 1.3 0.3 (0.1) 2.3 (1.9) 1.5 India 4.7 (4.2) 5.0 (5.0) 6.2 9.5 (8.7) 7.2 (7.7) 7.8 Eurozone -0.4 (-0.3) 0.8 (0.8) 1.0 1.4 (1.5) 1.0 (1.3) 1.2 UK 1.4 (1.3) 2.6 (2.2) 2.7 2.6 (2.6) 2.4 (2.4) 2.4 Russia 1.5 (1.7) 2.0 (2.0) 2.0 6.8 (6.6) 5.8 (5.2) 4.8 Brazil 2.2 (1.9) 2.2 (2.2) 1.2 6.2 (6.2) 6.0 (6.0) 6.2 Note: World is calculated using nominal GDP weights. Source: HSBC

The forecasts

While the growth outlook improves, we are not forecasting a return to pre-crisis rates of expansion. Our most important innovation this quarter is the introduction of our first published estimates for 2015. We expect global growth to accelerate to 2.8% by then, up from 2.0% in 2012 and 2.6% in 2013. The acceleration reflects a shift from contraction in the eurozone in 2013 to modest expansion alongside a


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more aggressive although unbalanced pick-up in the UK. At around 2.3% in 2014 and 2.5% in 2015, the pace of US economic recovery remains disappointing relative to past experience. The emerging markets shrug off some of their 2013 funk, with a return to growth of above 5% by 2015. Brazil, however, remains notably weak.

Were not forecasting a descent into outright deflation. Instead, were highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years. As Japans 1990s experience clearly demonstrates, a near-term cyclical pick-up is in no sense a guarantee that the deflation genie has been put back in its bottle. We suspect forward guidance may increasingly have to focus on the dangers associated with inflationary undershoots than on growth overshoots in the coming months, implying lower interest rates for longer, particularly in the US and the eurozone.


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Key forecasts 5

Monetary & fiscal policy assumptions 6

Deflation: the hidden threat 8 The deflation threat 8

Drivers of low inflation 9

Not all explanations stack up 9

Global economic forecasts 17 GDP 18

Consumer prices 20

Short rates 22

Long rates 23

Exchange rates vs USD 24

Exchange rate vs EUR & GBP 25

Consumer spending 26

Investment spending 27

Exports 28

Industrial production 29

Wage growth 30

Budget balance 31

Current account 32

Country and Territory sections US 34 Canada 36 China 37 Japan 39 India 41 Hong Kong 43 Indonesia 44 Malaysia 45 Philippines 46 Singapore 47 South Korea 48 Taiwan 49 Thailand 50 Vietnam 51 Australia 52 New Zealand 53 Eurozone 54 Germany 56 France 58 Italy 60 Spain 62 UK 64 Norway 66 Sweden 67 Switzerland 68 Hungary 69 Poland 70 Romania 72 Russia 73 Turkey 75 Egypt 77 Israel 78 Saudi Arabia 79 UAE 80 South Africa 81 Mexico 82 Brazil 83 Argentina 85 Chile 86 Colombia 87

Disclosure appendix 90

Disclaimer 91

Contents


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Key forecasts

___________________ GDP ___________________ _________________ Inflation _________________ 2012 2013f 2014f 2015f 2012 2013f 2014f 2015f

World (nominal GDP weights) 2.2 2.0 2.6 2.8 2.8 2.4 2.7 2.9World (PPP weights) 3.0 2.7 3.2 3.4 3.3 2.9 3.1 3.2 Developed 1.3 1.1 1.8 1.9 1.9 1.3 1.6 1.7 Emerging 4.7 4.5 4.9 5.2 5.4 5.5 5.7 6.1 North America 2.7 1.8 2.3 2.5 2.0 1.4 1.7 1.9 US 2.8 1.8 2.3 2.5 2.1 1.5 1.7 1.9 Canada 1.7 1.7 2.3 2.4 1.4 0.8 1.7 1.9 Asia-Pacific 4.2 4.3 4.2 4.5 2.4 2.6 3.3 3.2 Asia Big Three 4.4 4.5 4.3 4.6 2.2 2.4 3.2 3.1 China 7.7 7.7 7.4 7.7 2.7 2.6 2.7 3.1 Japan 1.4 1.7 1.3 1.3 0.0 0.3 2.3 1.5 India** 5.1 4.7 5.0 6.2 10.2 9.5 7.2 7.8 Asia ex Big Three 3.7 3.8 4.1 4.5 3.4 3.3 3.8 3.9 Hong Kong 1.5 2.9 3.7 4.0 4.1 4.2 4.2 4.2 Indonesia 6.2 5.6 5.0 6.0 4.3 7.0 5.6 4.9 Malaysia 5.6 4.6 5.2 5.0 1.7 2.1 2.4 2.0 Philippines 6.8 6.8 5.9 6.1 3.2 2.9 4.2 4.3 Singapore 1.3 4.0 4.2 4.5 4.6 2.4 3.1 3.1 South Korea 2.0 2.7 3.2 3.4 2.2 1.2 2.6 3.0 Taiwan 1.5 1.7 2.8 3.4 1.9 0.9 1.9 1.6 Thailand 6.5 2.8 4.4 5.2 3.0 2.2 2.6 3.8 Vietnam 5.0 5.2 5.4 5.8 9.3 6.6 7.9 8.2 Australia 3.6 2.4 2.8 3.4 1.8 2.3 2.7 2.8 New Zealand 2.7 3.0 3.4 2.6 1.1 1.2 2.5 2.3 Western Europe -0.3 0.0 1.2 1.4 2.3 1.5 1.3 1.4 Eurozone -0.6 -0.4 0.8 1.0 2.5 1.4 1.0 1.2 Germany 0.9 0.6 1.7 1.5 2.1 1.6 1.7 1.7 France 0.0 0.2 0.6 1.0 2.2 1.0 1.4 1.5 Italy -2.6 -1.8 0.4 0.6 3.3 1.3 0.8 1.1 Spain -1.6 -1.3 0.3 0.9 2.4 1.5 0.7 1.3 Other Western Europe 0.7 1.3 2.3 2.3 1.9 1.8 1.9 2.0 UK 0.2 1.4 2.6 2.7 2.8 2.6 2.4 2.4 Norway 3.3 1.8 2.2 1.5 0.7 2.2 2.3 2.4 Sweden 1.3 0.8 2.5 2.6 0.9 -0.1 0.9 1.5 Switzerland 1.0 1.9 2.1 2.2 -0.7 -0.2 0.4 1.0 EMEA 2.7 2.2 2.8 3.1 5.1 4.8 4.9 5.1 Czech Republic -0.9 -1.4 1.9 1.7 3.3 1.4 1.1 2.4 Hungary -1.7 1.0 2.1 1.6 5.7 1.7 1.3 3.0 Poland 1.9 1.4 3.0 3.3 3.7 1.0 1.8 2.2 Russia 3.4 1.5 2.0 2.0 5.1 6.8 5.8 4.8 Turkey 2.2 3.9 3.1 4.1 8.9 7.5 6.6 6.5 Romania 0.7 2.8 2.4 2.4 3.3 4.0 2.3 2.9 Egypt* 2.2 2.2 3.0 4.5 8.7 6.8 9.9 9.1 Israel 3.4 3.4 3.6 3.7 1.7 1.8 2.1 2.5 Saudi Arabia 5.2 3.6 4.0 4.3 4.5 3.6 4.1 4.3 UAE* 4.4 4.5 5.1 5.2 0.4 1.1 3.5 5.5 South Africa 2.5 1.8 2.6 3.1 5.7 5.8 5.7 5.5 Latin America 2.5 2.0 3.0 2.5 8.0 8.7 10.0 10.5 Mexico 3.9 1.3 4.1 3.8 4.1 3.7 4.0 3.5 Brazil 1.0 2.2 2.2 1.2 5.4 6.2 6.0 6.2 Argentina 1.9 2.5 1.0 1.5 24.0 25.1 27.4 26.6 Chile 5.6 4.3 4.3 4.5 3.0 2.0 2.8 3.0 Colombia 4.2 4.0 4.5 4.5 3.2 2.0 2.4 2.4Notes: Calendar year; except for * which is based upon Egyptian fiscal year (July-June); Global and regional aggregates are calculated using chain nominal GDP (USD) weights Source: HSBC estimates

Key forecasts

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Monetary and fiscal policy

Country 2013 2014

US The federal governments budget deficit narrowed sharply in FY2013, dropping from USD1,090bn in FY2012 to USD680bn. As a percentage of GDP the deficit fell to 4.1% from 6.8%. The 2.7pp improvement was almost equally divided between revenue increases (1.5%) and spending reductions (1.2%). Payroll and income taxes were raised in 2013, accounting for most of the revenue increase. Spending reductions were the result of ongoing spending cuts required by the Budget Control Act of 2011. As for monetary policy, Fed officials want to keep the monetary stance accommodative but change the mix of policy, by tapering asset purchases (quantitative easing) and placing more emphasis on forward guidance for the fed funds rate.

The federal deficit should decline in FY2014, dropping to roughly USD560bn. Revenue gains will continue, but at a slower pace than in FY2013 in the absence of any new tax increases. We expect revenues at close to 17.5% of GDP, up from 16.7% in FY2013. Outlays as a percentage of GDP are likely to stabilise at close to 20.8%, putting the deficit at roughly 3.3% of GDP. Federal spending as a share of GDP is likely to stop falling because of increases in spending on Social Security and federal health care programmes. We expect that federal debt relative to GDP will stabilise close to 72%. The FOMC are likely to continue tapering asset purchases, ending the scheme in Q3 2014. The Fed is likely to continue to reinvest the proceeds of its investments and hold its balance sheet constant to mid-2015. In 2015, the Fed may begin to shrink its balance sheet by halting reinvestments from its portfolio of securities. We expect the federal funds rate to remain at 0.0-0.25% until at least Q3 2015.

Canada The federal governments deficit for FY2012/13 of CAD18.9bn was CAD7bn lower than had been projected in the budget. The federal government is thus closer to its fiscal goal of returning to surplus in FY2015/16 than had been anticipated. Success is not yet assured, however. Amid sluggish nominal income growth, firm control of expenditure will determine the success of the federal fiscal plan. With provincial governments also trying to lower budget deficits, we expect little contribution to GDP growth from government expenditure. With inflation set to remain low, but with signs that financial stimulus remains high, the Bank of Canada is expected to remain on hold.

The federal government expects its fiscal deficit to narrow from CAD18.9bn in FY2013/14 to CAD5.5bn in FY2014/15, before returning to surplus in FY2015/16. Hence, the potential for successful achievement of these fiscal goals will depend greatly on developments in 2014. We expect nominal GDP to expand at just over 4% y-o-y, tax revenues will only increase at a moderate pace, including one-off revenue-generating measures. Expenditure controls will remain crucial to a lower budget deficit. Hence, fiscal policy will again make only a small contribution to GDP growth in 2014. We expect the Bank of Canada to leave the overnight target rate unchanged at 1.0% throughout 2014.

Brazil We believe fiscal easing in 2012-13 is damaging credibility. Although the government is trying to send a more consistent message regarding fiscal policy to markets, Brazil will likely deliver a primary fiscal surplus of 1.7% of GDP. This number would have fallen below 1% of GDP had it not been for one-off revenues. After a hesitant start (a 25bp hike in April), the central bank raised the Selic rate to 10% by the end of 2014 (from 7.25% at the beginning of the year). We expect the Central Bank to end the current tightening cycle with a final 25bp move at the January 2014 MPC meeting, bringing the Selic policy rate to 10.25%.

In our view, the political cycle will play a key role in fiscal policy. Although concern about a possible sovereign credit rating downgrade will constrain the pace of fiscal easing in 2014, we only expect a fiscal adjustment after the October 2014 elections. HSBC forecasts a primary fiscal surplus of about 1.2% of GDP in 2014. We believe the central bank will prefer to keep rates on hold in 2014 because there will be elections that year. However, the persistence of inflationary pressure will probably prompt the central bank to resume tightening in 2015, and there is a possibility that this tightening cycle will begin at the end of 2014.

Eurozone Fiscal tightening in 2013 was less than planned, and much less than half that of 2012, but the better activity data should have allowed the eurozone budget deficit to narrow slightly towards the targeted 3% of GDP by year end. With inflation having slowed by more than expected, and medium-term projections being lowered, the ECB reverted to cutting the refi rate (by 25bps to 0.25%) at the November meetings. ECB head, Mario Draghi, has consistently reiterated that the ECB still has plenty of tools at its disposal and that it is technically ready for a negative deposit rate.

With GDP expected to expand by just 0.8%, we do not expect many member states to impose additional austerity measures to those already agreed. The eurozone budget deficit should decline only marginally to 3%. We expect further easing will be required by the ECB in response to the downside risks to price stability and a further rise in money market rates. Another LTRO is most likely, on condition that the funds are used to support the provision of credit to the real economy. If growth and inflation continue to surprise to the downside a small refi rate cut (maybe 10-15bps) and possibly a small negative deposit rate (-0.1%) look likely. If the ECB thinks that inflation will not return to its definition of price stability (below but close to 2%) in 2016, then outright QE looks increasingly likely in 2015.

Germany As in the previous year the government sector is likely to end 2013 with a small budget surplus. This cannot be attributed to a strict savings policy. Rather, gushing tax revenues helped to maintain a surplus. With the economy recovering from weakness in Q1 and employment rising to new highs, tax receipts are likely to surge by more than 3% compared to 2012.

Despite costly changes to the retirement system and a spending package for education, R&D and traffic infrastructure by the new government, we still expect another small surplus (0.1% of GDP). As a consequence of higher spending, the originally planned cut in contribution rates to pension insurance from 18.9% to 18.3% at the start of the year will likely be withdrawn.

France The French public deficit is expected to reach 4.1% of GDP in 2013, close to our forecast of 4.2% of GDP. Real public spending growth was much stronger than forecast in the budget law: 1.7% in 2013 instead of 0.5%. This means that the French government did not change the growth rate in real public spending of 1.75% and may only have narrowed the public deficit from -4.8% of GDP to -4.1% thanks to tax hikes. We forecast public debt at 94.8% of GDP.

Stronger-than-expected public spending growth in 2013 should mean that additional austerity measures are needed to reach the public deficit target of 3.6%. However, the government has only announced EUR15bn in public spending cuts, which will not be enough to slow real public spending growth to 0.4% in 2014 on our calculations. The government has cancelled the green tax, which included a levy on road freight, and a social contribution hike on capital gains. Therefore, without any additional austerity measures, the public deficit could reach 4.1% on our calculations. The debt-to-GDP ratio is likely to rise to 97.7%

Source: HSBC

Monetary & fiscal policy assumptions

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Monetary and fiscal policy

Country 2013 2014 Italy The fiscal contraction planned in the budget for 2013 was less than half of that

implemented in 2012. The government cancelled the housing tax IMU, further decreasing the fiscal tightening for the year. The cancellation (which will cause a EUR4bn reduction in revenues) was however offset by the VAT hike on 1st October. EUR20bn currently owed to public administration providers will be paid in Q4. Putting all this together we expect the 2013 deficit target (3% of GDP) to be slightly missed, with deficit reaching 3.2% of GDP by yearend.

With the Excessive Deficit Procedure closed and the economy still ailing, a coalition government is unlikely to push for any more austerity. Our central scenario is that the Italian authorities will not want to endanger the hesitant recovery in 2014 with further fiscal contraction. Only an improvement in the cycle will provide budgetary support, bringing the 2014 deficit to 2.7% of GDP (vs. a 2.5% target). In line with our view, EU Commissioner Olli Rehns recent calls for further consolidation in Italy were met with less understanding than before by PM Enrico Letta. We believe the combination of the highest primary surplus in the eurozone and the deepest recession since WWII greatly reduces the governments will to embark on further austerity.

UK We forecast GDP growth of 1.4% in 2013, with signs that the economic recovery is finally feeding through to improved public finances. The OBRs December forecasts revised down the budget deficit significantly for fiscal year 2013-14 due to higher tax revenues. Even so, there was little in the way of extra spending, with the government keeping the pace of fiscal tightening more or less unchanged. The first few months following the introduction of forward policy guidance by the Bank of England has seen unemployment falling faster towards the 7% threshold than the MPC had anticipated. That forced the BoE to bring forward its forecast for when the headline rate reaches 7% (based on market rates) to Q3 2015. But BoE governor Mark Carney has repeatedly stressed that this is merely the point at which the MPC begins to consider tightening policy, and is not an automatic trigger for rate hikes. We therefore think rates could be on hold until Q4 2015 at the earliest.

As the government has so far remained committed to its austerity programme, we do not expect it to deviate in 2014 either. However, with an election looming in May 2015, if the recovery is sustained the government may opt to soften the fiscal blow in FY 2014-15. There has been much focus on costs of living, which could mean measures to increase households disposable income. We expect growth to pick up further in 2014 to 2.6%, slightly below the Bank of Englands latest forecasts. The BoEs FPC has highlighted risks to financial stability, especially from the housing market. It has responded by refocusing the BoEs Funding for Lending Scheme away from mortgage lending to business lending exclusively. We think that should actually reduce the need for the MPC to increase the bank rate to combat any housing bubble, leaving its overall monetary policy stance very accommodative in 2014.

Russia The introduction of a fiscal rule from 2013 has effectively put a cap on budget spending. Partially offsetting fiscal stress, some public expenditure is being moved below the line (eg a portion of defence procurement is to be financed by bank loans under government guarantees) some are to be financed from the SWF and the State Pension Fund. Even so, the budget should still show a small deficit in 2013 if the average oil price is below USD110/bbl (Brent). In this respect, the rising trend in the breakeven oil price required to balance the budget has yet to reverse. A change in the CBRs chairmanship in June has made the monetary authorities more hawkish, surprising the markets. The CBRs monetary policy has become more forward looking, with an inflation-targeting policy to be officially put in place from 2015. Introducing its key policy rate at 5.5%, the CBR has effectively committed to maintaining real MM rates positive. Yet, so far its efforts have failed to bring inflation down to the targeted range of 5-6% in 2013, which effectively rules out the possibility of policy rate cuts in the near future.

2014s point inflation target of 5.0% requires extra efforts from the CBR and justifies a relatively hawkish policy, despite the emergence of a negative output gap in mid-2013. Only the modest indexation of communal tariffs in 2014 should help in reaching the inflation target, making it achievable but still ambitious. This requires the key policy rate to stay on hold throughout most of 2014, leaving room for just one policy rate cut of 25bp to 5.25% in late 2014, if inflation credibly falls to 5% by then, we think. Lower-than-expected collections of non-oil revenues in 2013 and lower economic growth expectations for 2014-16 forced the government to scale back its medium-term expenditure programme. Therefore, new expenditure demands (including those stemming from President Putins pre-election pledges) need to be met by a combination of cuts in non-essential budget spending and expansion in the off-balance-sheet operations of the federal government (contingent liabilities). Overall, this should keep the budget deficit at or below 1% of GDP and public debt at a very low level over the medium-term.

China Beijing is likely to increase fiscal spending in the final months of 2013, given that the fiscal surplus for the first 10 months topped RMB848bn, compared with the budget fiscal deficit target of RMB1.2trn for 2013. The expansion of VAT tax reform and tax breaks for SMEs will assist service companies and small businesses. With growth momentum stable and inflation pressures still modest, we expect current monetary policy to remain in place, with neither tightening nor loosening in in sight.

Fiscal policy should stay accommodative to support the recovery in growth, with the 2014 budget deficit likely to remain the same as in 2013. Fiscal reforms will expand the VAT reform and local government bond issuance while expenditure will be increased for social welfare areas. Inflation pressures should remain modest in the coming quarters due to a negative output gap. Current monetary policy should stay in place with no changes to interest rates. The launch of interbank CDs implies a faster rate of interest rate liberalisation.

Japan The BoJ remains comfortably in wait-and-see mode as headline inflation continues to climb on the back of elevated import prices. At 1.3% and 1.9%, respectively, the policy boards FY2014 and FY2015 core inflation forecasts are still ambitious and may warrant further action after the April 2014 policy meeting.

The government will raise the consumption tax from 5% to 8% in April 2014. It intends to counteract the effect with an emergency spending package totalling JPY5.5trn. The government has also promised tax incentives for investment but we have not incorporated the impact of the governments so-called third arrow in our forecasts. The early FY2014 repeal of the special Tohoku reconstruction tax has been tabled. We expect the BoJ to ease monetary policy further, as early as Q3 2014, in conjunction with a likely downgrade to its FY2014 and FY2015 Japan-style core inflation forecasts. A sharp deceleration in Q2 2014 growth (caused by the tax hike) will add to pressure on the BoJ to support the economy. We look for the board to announce further increases in risk asset purchases (ETFs) and longer-dated JGBs.

India The government is targeting a central government deficit of 4.8% of GDP. To achieve this, it is relying on increases in indirect taxes and efforts to strengthen tax administration. It also expects higher privatisation receipts and spectrum sales. The government is hoping to make savings on fuel subsidies, which will help pave the way for further outlays on infrastructure and other more productive spending. However, it will be difficult to achieve the deficit target (likely to be around 5.1% of GDP) as the non-tax revenues will fall short of expectations and the subsidy bill could turn out higher due to the depreciation of the currency. Despite the slowdown in growth, inflation concerns remain, keeping the RBI in tightening mode.

Although this is an election year, the government is expected to stick to its medium-term fiscal consolidation plan and target a central government deficit of 4.2% of GDP. It is likely to assume that a cyclical upswing in growth will allow both tax and non-tax revenue to rise. There will probably be some populist handouts as the government continues its efforts to contain the subsidy bill. This would, therefore, imply a need for broader spending restraint on more discretionary items, including capital outlays. We expect some slippage and a deficit of 4.7% of GDP. Another rate hike may be needed at the beginning of the year, if there are pressures on the INR during Fed tapering. Coupled with supply side improvements, this would help slowly ease inflation, keeping the RBI on hold.

Source: HSBC


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The deflation threat Perhaps the biggest surprise following a period of unprecedented monetary experimentation is the broad absence of inflation. For all the money printing, quantitative easing and forward guidance now on offer, inflation has mostly ended up lower than expected. Chart 1 shows HSBCs surprise indicators for inflation in the major developed markets. With the exception of Japan where Abenomics has led to a shift from deflation to very modest inflation inflation has been consistently surprising on the downside. Indeed, central banks are now confronting a problem once thought to be uniquely Japanese. Inflation is in danger of persistently undershooting central bank targets.

Table 2 shows recent performance relative to those targets, focusing on both headline and,

where available, core rates of inflation. Headline inflation is strikingly low, core less so. Other than Japan, however, the direction of change has been consistently downward. How should these inflationary surprises be interpreted?

1. With the exception of Japan, inflation has been surprisingly weak

Source: HSBC FX quantitative research

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Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13

IndexIndex

US EurozoneUK JapanCanada Asia ex Japan

Deflation: the hidden threat Inflation is remarkably low providing a structural economic challenge even as, cyclically, growth improves

Stephen King EconomistHSBC Bank Plc+44 20 7991 [email protected]

Karen Ward EconomistHSBC Bank Plc+44 20 7991 [email protected]

James Pomeroy EconomistHSBC Bank Plc+44 20 7991 [email protected]

2. Inflation is stuck below target

______ Headline (%) ________ _________ Core (%) _________ Target End 2011 End 2012 Latest End 2011 End 2012 Latest

US Federal Reserve 2.0% PCE 2.4 1.5 0.7 1.9 1.6 1.1 Eurozone ECB Close to but below 2% HICP 2.7 2.2 0.9 1.6 1.5 0.9 UK Bank of England 2.0% CPI 4.2 2.7 2.1 3.4 2.6 2.0 Japan Bank of Japan 2.0% CPI -0.2 -0.1 1.1 -1.0 -0.6 0.3 Brazil Banco Central do Brasil 4.5% CPI 6.5 5.8 5.8 6.7 5.9 5.8 Mexico Banxico 3.0% CPI 3.8 3.6 3.6 3.4 2.9 2.6 Poland National Bank of Poland 2.5% CPI 4.6 2.4 0.6 3.1 1.4 1.1 Czech Rep. Czech National Bank 2.0% CPI 2.4 2.4 1.1 2.4 1.1 0.0 Canada Bank of Canada 2.0% CPI 2.3 0.9 0.7 1.9 1.2 1.2 Chile Banco Central de Chile 3.0% CPI 4.4 1.5 2.4 3.3 1.3 2.2 Switzerland Swiss National Bank


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Drivers of low inflation Unusually low inflation can stem from a variety of different factors, some good, others bad:

Low inflation may result from rapid productivity gains, whereby unit labour costs decline and prices rise more slowly than wages. In that sense, low inflation can be a reward for productive endeavour, leading to a rise in real incomes.

Low inflation might reflect a positive terms-of-trade effect. A big drop in energy prices, for example, will benefit energy-consuming nations even as energy-producing nations lose out. For the energy consumers, a big drop in energy prices would feel like a major cut in indirect taxes: prices would fall relative to wages.

Low inflation might simply reflect a large output gap, a result of years of below-trend economic growth. If so, it may be a lagging indicator of earlier demand shortfalls. Under those circumstances, inflation would remain persistently too low until and unless the output gap closed.

Low inflation could reflect shifts in relative prices and wages around the world. For example, in the absence of full nominal exchange rate adjustment, the arrival of a low-cost producer China, for example on the international scene would place downward pressure on both prices and wages in existing higher-cost countries.

Low inflation might reflect a disconnect between central bank attempts to kick-start economic activity and overall financial and monetary conditions. Put another way, even if the central bank wanted to create inflation, weaknesses within the financial system might prevent the central banks message from getting through. Of course, the zero lower bound on interest rates doesnt help.

Not all explanations stack up In other words, the fact that inflation is low in itself says very little. What matters is why?

Weak or stable commodity prices have certainly helped headline inflation rates edge down. The shale energy story has certainly had an impact in the US. But the disinflation is broader based, affecting core prices as well. The idea of a financial disconnect has its attractions not least because the credit crunch has been a defining feature of the post-financial crisis era but it doesnt help to explain similar disinflationary experiences on both sides of the Atlantic. While credit conditions remain tight in the eurozone, they have considerably eased in the US: despite these differences, however, all regions have recently experienced unexpected inflationary declines.

3. Credit conditions have loosened in the US and UK so money growth alone cant explain inflation weakness

Source: HSBC, Bank of England, ECB, Federal Reserve

In Asia and other parts of the emerging world, inflation has been lower than expected recently (Chart 4) even though financial conditions have mostly remained very loose, and concerns have mainly centred on monetary excesses.

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4. Core inflation has also been nudging down in the emerging world

Source: Thomson Reuters Datastream

Another explanation which doesnt stack up so well to international scrutiny is the pressure on wage costs associated with the increased integration into the international economy of low-cost producers such as China. Certainly, wage growth in the developed world has been very low and, doubtless, the lack of wage pressure has contributed to low inflation. Across Asia, however, labour costs have been a lot more elevated (Chart 5) a reflection of excessively easy financial conditions rather than rapid productivity gains yet inflation there has also been considerably lower than expected. The absence of inflation worldwide cannot be fully explained by low wages alone.

5. despite the strength of wage growth

Source: OECD

Meanwhile, there is little evidence to suggest that low inflation has stemmed from a positive supply-side productivity revolution. At a pinch, it might be possible to explain low headline inflation in the US through the impact on oil and gas prices of the shale energy revolution. Real incomes in the US, however, remain very weak, suggesting that, to date, the shale revolution has done little to raise productivity growth. More generally, productivity growth across the developed world remains depressed by past standards, suggesting that low inflation cannot be explained by enhanced productive endeavour (Chart 6).

6. Weak productivity in this recovery would point to higher inflation

Source: Thomson Reuters Datastream

The international angle A more accurate explanation for low inflation might, perversely, stem partly from the unintended international consequences of unconventional monetary stimulus. Monetary easing notably of the unconventional sort works through two main channels. The first, which central banks are mostly keen to highlight, is the impact via asset prices. The second, which at best will only be politely murmured, is the impact via the exchange rate. It is this second effect which, unintentionally, may have led to lower-than-expected inflation not so much in the country pursuing the monetary stimulus but, instead, in those which have opted not to. For the most part, those countries have experienced rising

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nominal exchange rates, leading to lower import prices, squeezed margins for exporters and some domestic producers and, in some cases, lower domestic wages.

In normal circumstances, these low inflation effects would not materialise. Exchange rate movements are merely relative. Imagine, for example, that one country loosens monetary policy while the other leaves conditions unchanged. Inflation on average should then be higher, even though the second countrys exchange rate would now be stronger bilaterally than it was before. Imagine, instead, that one country tightens monetary policy while the other leaves conditions unchanged. Inflation on average should then be lower, even though the second countrys exchange rate will now be weaker bilaterally than it was before.

Close to the zero rate bound, however, its just possible that changes in monetary policy fail to deliver the usual effects. If, for example, financial systems are not working particularly well, monetary stimulus may only lift the value of asset prices without triggering faster economic growth. If companies, households and governments are busily deleveraging, monetary stimulus may fall on deaf economic ears. If there is uncertainty about the longer-term fiscal arithmetic, increases in government borrowing may only prompt others to save more or, alternatively, repay debt more

aggressively. Under these circumstances, whatever any individual central bank chooses to do, it may be powerless to prevent a global deflationary bias.

Currency wars revisited Indeed, under these circumstances, the danger is that monetary loosening merely deflects deflationary pressures to countries elsewhere in the world via movements in exchange rates. Charts 7 and 8 provide evidence to support this view. They show movements in sterling and the Japanese yen around the times that the Bank of England and Bank of Japan adopted quantitative easing. The US experience (not shown) is similar.

They also show inflation surprises using HSBCs proprietary approach both for the country adopting quantitative easing and the other major industrialised nations. The country adopting QE tends to end up with inflation initially surprising on the upside while others experience downward surprises. In the case of the US and, much more recently, the UK, however, the initial upward inflationary surprises have not lasted: monetary stimulus has led to only a temporary increase in price inflation, which has singularly failed to feed through to wage inflation. This, in turn, presents an interesting challenge for Japan. For Abenomics to succeed, the Bank of Japan has to deliver an inflation rate of around 2 per cent to be sustained over the indefinite future. This may

7. UK QE helped it export its deflationary problems 8. as has Japan

Source: HSBC FX quantitative research, Thomson Reuters Datastream Source: HSBC FX quantitative research, Thomson Reuters Datastream

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prove difficult to do unless the yen persistently falls, in which case Japan would merely be exporting its deflationary problems to countries elsewhere in the world.

These observations offer a new take on the currency wars debate. This has typically been couched either in real terms one countrys export gain is anothers export loss or in asset price terms monetary stimulus in one country encourages hot money to inflate asset markets elsewhere. It may just be, however, that the currency war story is more about the shift of disinflationary or deflationary risk from one part of the world to another. The most obvious recent casualty is the eurozone where, through the second half of 2013, the euro went from strength to strength even as inflation dropped lower and lower, in part a reflection of the ECBs reluctance to engage in quantitative easing within the eurozones fragile bank-financed credit system. Persistent inflationary undershoots could further enfeeble eurozone banks by increasing non-performing loans and, at the same time, make fiscal consolidation a lot less digestible.

Officially, none of this is a problem. Table 9 shows the latest official forecasts for inflation in the developed world over the next couple of years alongside the most recent monthly readings.

In the vast majority of cases, inflation is forecast to drift higher over the next couple of years,

suggesting that the declines seen through 2013 should be regarded as no more than a peculiar aberration. Yet policymakers can offer no real explanation for why inflation has ended up so low: it certainly wasnt what they expected a year ago. Its just possible that inflation is no longer so easy to control. Such was the Japanese experience as its two lost decades took hold. Chart 10 shows how the trade-off in Japan between inflation and the output gap shifted from the mid-1990s onwards.

10. Japans challenge is to dislodge deflation expectations

Source: HSBC, Thomson Reuters Datastream, Bank of Japan

For any given output gap, inflation ended up a lot lower than in earlier years, suggesting that deflation can creep up unannounced: in that sense, it is a silent killer. Chart 11 offers confirmation: although Japans lost decades began following the 1990 collapse in equity prices, it wasnt until the mid-1990s that earlier weakness in goods inflation was reflected in much lower services inflation.

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Forecast for 2013 Latest Value 2014 forecast 2015 forecast made Dec 2012 made Nov 2013

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European Commission 1.9 1.6 1.7 1.6

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Japan Bank of Japan -0.1 to +0.6

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11. Japanese goods deflation passed through to services eventually

Source: HSBC, Thomson Reuters Datastream

Trade dries up The international drivers of unexpectedly low inflation can also be seen in other ways. Globalisation has doubtless played a role. Chart 12, for example, shows how patterns of production have changed over the last two decades.

12. Trade is consistently shifting to lower-cost producers

Source: HSBC, IMF DOTS

The proportion of the worlds exports accounted for by countries with low production costs has risen rapidly, sending disinflationary pressures to the four corners of the earth. If anything, this process has only accelerated since the financial crisis. Table 13, for example, shows annualised export growth for China and those countries poorer than China but, like China, with relatively large populations. Most of them have enjoyed gains well ahead of the more sedentary experiences of major developed economies.

13. The low-cost, large population countries are seeing rapid export growth

Annualised growth in exports 2009-2013

US 7.5% Germany 8.8% UK 6.9% Japan 5.8% China 15.2% India 15.2% Indonesia 10.1% Pakistan 3.6% Nigeria 4.5% Bangladesh 20.8% Philippines 9.9% Ethiopia 10.0% Vietnam 23.8% Egypt 5.9% Democratic Rep. Congo 35.1% Source: HSBC, IMF DOTS

Post-crisis, however, the international disinflationary bias extends well beyond the impact of globalisation. As we noted in the fourth quarter 2013 edition of Global Economics (Pass the Parcel, 26 September 2013), hopes that countries would be able to enjoy export-led recoveries were, in many cases, dashed, in part because of increased protectionist pressures. For all the talk of WTO deals, new opportunities for the trans-Pacific Partnership (see A pretty big deal, 18 December 2013, Izumi Devalier) and hopes of a transatlantic trade deal, there has been a worrying trend in favour of more protectionist measures in recent years (Chart 14).

14. Protectionist measures have become more commonplace

Source: HSBC, World Trade Alert. Note: Shows number of new protectionist measures worldwide which the World Trade Alert classify as harmful to trade.

As a result, movements in exchange rates may have had less of an impact on trade and more on relative

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inflation rates. Chart 15 shows how remarkably soft world trade growth has been in the post-crisis era, partly a reflection of a reduction in cross-border financial flows (Chart 16).

15. World trade growth has been remarkably weak

Source: HSBC, IMF

16. Home-bias and blockages in the financial system may be limiting cross-border financing

Source: BIS

Policy implications Unexpectedly low inflation creates an awkward dilemma for central banks. With evidence of modest economic recovery building in many parts of the developed world noticeably so in the UK and Japan in 2013 the standard cyclical approach to monetary policy suggests inflationary pressures will, in time, build and interest rates should rise sooner rather than later.

Yet, with excessively low inflation, its not so obvious that the usual cyclical arguments apply. It may well be that low inflation becomes a leading,

rather than a lagging, indicator. Other things being equal, excessively low inflation will raise real interest rates, increase debt service costs, delay deleveraging and increase default risk. Without expectations of rising wages or prices, households and corporates may continue to delay spending, preventing the recovery from moving into a higher gear. Escape velocity will remain elusive.

For Japan, the answer is straight forward: given Shinzo Abes strictures, quantitative easing will continue until inflation is held sustainably at around 2% without resorting to indirect tax increases. Its easy to see why. In the mid-1990s, the Japanese economy appeared to be on the verge of modest recovery, yet following the 1997 consumption tax increase and the Thai baht crisis later that year, Japan succumbed to both recession and sustained deflation (Chart 17). For the Japanese, raising inflation sustainably is a necessary if not sufficient condition of delivering a higher trajectory for economic growth.

17. In Japan the relationship between growth and inflation broke down

Source: HSBC, World Bank

For the eurozone, the outlook is not so easy. In the first quarter 2014 edition of European Economics (Treading water, 17 December 2013), Janet Henry lists some of the policy options for a European Central Bank that may have to come to terms with a historic failure to deliver its inflation objective historic because inflation is in danger of being too low, not too high. Apart from the

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serious cross-country challenges is it possible to nudge eurozone inflation back up to target without leaving Germany facing an intolerably high domestic inflation rate? the biggest problem lies in delivering a coherent monetary response in a region of the world with a severe absence of credit growth. Perhaps the best the ECB will be able to do is to help reverse the euros renewed and unwarranted ascent in the second half of 2013.

From a signalling perspective, however, the Federal Reserve and the Bank of England face perhaps the biggest challenges in 2014. Having effectively said hello to forward guidance and waved goodbye to quantitative easing, they now face a potentially awkward problem: falling unemployment rates might point to an earlier rate increase, while lower inflation might suggest a delay. It might seem a nice problem to have but a premature tightening of policy while inflation was still too low might only lock in a nasty deflationary trend for the long term. Managing market expectations in such circumstances will be no easy task: success will depend not only on what central bankers say but on whether the public take them at their word. We suspect it may not be too long before central bankers abandon unemployment rate targeting altogether (see Taking up the slack, 21 October 2013, Karen Ward).

Not all countries around the world will be worrying about excessively low inflation. Monetary policy will remain relatively tight in India and Brazil, two countries which, following massive currency depreciation in the summer, spent 2013 grappling with excessive inflationary pressures. Turkey is likely to tighten policy aggressively in the first quarter of 2014 in response to currency depreciation and deterioration of inflation expectations. All three will struggle with sizeable balance of payments current account deficits through much of the coming year. These, though, are mostly

exceptions, victims of financial spillovers and poor domestic supply-side responses. For the most part, the risk is that inflation will be too low, not too high.

The key forecasts Our most important innovation this quarter is the introduction of our first published estimates for 2015. We expect global growth to accelerate to 2.8% by then, up from 2.0% in 2013 and 2.6% in 2014. The turnaround reflects a shift from contraction in the eurozone in 2013 to modest expansion alongside a more aggressive although unbalanced pick-up in the UK. At around 2.3% in 2014 and 2.5% in 2015, the pace of US economic recovery remains disappointing relative to past experience. The emerging markets shrug off some of their 2013 funk, with a return to growth of above 5% by 2015.

Were not forecasting a descent into outright deflation. Instead, were highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years. As Japans 1990s experience clearly demonstrates, a near-term cyclical pick-up is in no sense a guarantee that the deflation genie has been put back in its bottle. We suspect forward guidance may increasingly have to focus on the dangers associated with inflationary undershoots than on growth overshoots in the coming months. That should provide a novel challenge for central bankers who, with forward guidance, are in danger of focusing too much on the real recovery as opposed to the growing signs of nominal weakness.


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Global economic forecasts


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Annual

% Year 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

World (Nominal GDP weights) 3.8 3.7 1.2 -2.4 3.9 2.7 2.2 2.0 2.6 2.8 World (PPP Weights) 5.4 5.7 2.9 -0.6 5.2 3.8 3.0 2.7 3.2 3.4 Developed 2.8 2.5 -0.2 -3.9 2.6 1.4 1.3 1.1 1.8 1.9 Emerging 7.6 8.2 5.7 2.1 7.7 6.3 4.7 4.5 4.9 5.2 North America 2.7 1.9 -0.2 -3.0 2.5 1.9 2.7 1.8 2.3 2.5 US 2.7 1.9 -0.3 -3.1 2.4 1.8 2.8 1.8 2.3 2.5 Canada 2.6 2.0 1.2 -2.7 3.4 2.5 1.7 1.7 2.3 2.4 Asia-Pacific 5.1 6.3 3.2 0.7 7.0 4.1 4.2 4.3 4.2 4.5 Asia Big Three 5.2 6.5 3.3 0.8 7.3 4.1 4.4 4.5 4.3 4.6 China 11.6 14.2 9.6 9.2 10.4 9.3 7.7 7.7 7.4 7.7 Japan 1.7 2.2 -1.0 -5.5 4.7 -0.5 1.4 1.7 1.3 1.3 India** 9.6 9.7 8.2 6.6 9.7 7.5 5.1 4.7 5.0 6.2 Asia ex Big Three 5.8 6.0 3.3 0.5 7.2 4.2 3.7 3.8 4.1 4.5 Hong Kong 7.0 6.5 2.1 -2.5 6.8 4.9 1.5 2.9 3.7 4.0 Indonesia 5.5 6.3 6.0 4.6 6.2 6.5 6.2 5.6 5.0 6.0 Malaysia 5.6 6.3 4.8 -1.5 7.4 5.1 5.6 4.6 5.2 5.0 Philippines 5.2 6.6 4.2 1.1 7.6 3.6 6.8 6.8 5.9 6.1 Singapore 8.6 9.0 1.7 -0.8 14.8 5.3 1.3 4.0 4.2 4.5 South Korea 5.2 5.1 2.3 0.3 6.3 3.7 2.0 2.7 3.2 3.4 Taiwan 5.4 6.0 0.7 -1.8 10.8 4.2 1.5 1.7 2.8 3.4 Thailand 5.1 5.0 2.5 -2.3 7.8 0.1 6.5 2.8 4.4 5.2 Vietnam 8.2 8.5 6.3 5.3 6.8 6.0 5.0 5.2 5.4 5.8 Australia 2.7 4.5 2.7 1.5 2.3 2.6 3.6 2.4 2.8 3.4 New Zealand 2.9 3.5 -0.8 -1.5 1.9 1.4 2.7 3.0 3.4 2.6 Western Europe 3.3 3.1 0.1 -4.4 2.0 1.6 -0.3 0.0 1.2 1.4 Eurozone 3.4 3.0 0.3 -4.4 1.9 1.6 -0.6 -0.4 0.8 1.0 Germany 3.9 3.4 0.8 -5.1 3.9 3.4 0.9 0.6 1.7 1.5 France 2.7 2.2 -0.2 -3.1 1.6 2.0 0.0 0.2 0.6 1.0 Italy 2.3 1.5 -1.2 -5.5 1.7 0.6 -2.6 -1.8 0.4 0.6 Spain 4.1 3.6 0.9 -3.8 -0.2 0.1 -1.6 -1.3 0.3 0.9 Other Western Europe 3.3 3.5 -0.3 -4.5 2.2 1.4 0.7 1.3 2.3 2.3 UK 2.8 3.4 -0.8 -5.2 1.7 1.1 0.2 1.4 2.6 2.7 Norway*** 4.8 5.3 1.5 -1.4 1.7 2.5 3.3 1.8 2.2 1.5 Sweden 4.6 3.4 -0.8 -5.0 6.3 3.0 1.3 0.8 2.5 2.6 Switzerland 3.8 3.8 2.2 -1.9 3.0 1.8 1.0 1.9 2.1 2.2 EMEA 6.6 5.7 3.8 -3.5 4.7 4.9 2.7 2.2 2.8 3.1 Czech Republic 7.2 5.7 2.9 -4.4 2.3 1.8 -0.9 -1.4 1.9 1.7 Hungary 3.9 0.1 0.9 -6.8 1.1 1.6 -1.7 1.0 2.1 1.6 Poland 6.2 6.8 5.1 1.6 3.9 4.5 1.9 1.4 3.0 3.3 Russia 8.2 8.5 5.2 -7.8 4.5 4.3 3.4 1.5 2.0 2.0 Turkey 6.9 4.7 0.7 -4.8 9.2 8.8 2.2 3.9 3.1 4.1 Ukraine 7.4 7.6 2.3 -14.8 4.2 5.2 0.2 -1.0 0.0 -3.5 Romania 7.9 6.3 7.3 -6.6 -1.1 2.2 0.7 2.8 2.4 2.4 Egypt* 6.8 7.1 7.2 4.7 5.1 1.8 2.2 2.2 3.0 4.5 Israel 5.8 5.9 4.1 1.1 5.7 4.6 3.4 3.4 3.6 3.7 Saudi Arabia 3.1 2.0 4.2 0.1 5.1 7.1 5.2 3.6 4.0 4.3 UAE* 9.8 3.2 3.2 -4.8 1.3 4.3 4.4 4.5 5.1 5.2 South Africa 5.6 5.6 3.6 -1.5 2.9 3.5 2.5 1.8 2.6 3.1 Latin America 5.0 5.0 3.6 -2.1 6.6 4.1 2.5 2.0 3.0 2.5 Mexico 5.0 3.1 1.4 -4.7 5.1 4.0 3.9 1.3 4.1 3.8 Brazil 4.0 6.1 5.2 -0.3 7.5 2.7 1.0 2.2 2.2 1.2 Argentina 8.5 8.7 6.8 0.9 9.2 8.9 1.9 2.5 1.0 1.5 Chile 5.7 5.2 3.3 -1.0 5.8 5.9 5.6 4.3 4.3 4.5 Colombia 6.7 6.9 3.5 1.7 4.0 6.6 4.2 4.0 4.5 4.5Notes: *Fiscal year; **Calendar year; ***Mainland. We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates

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Quarterly

% Quarter & % Year Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13f Q1 14f Q2 14f Q3 14f Q4 14f

North America US* % Quarter 2.8 0.1 1.1 2.5 3.6 1.9 2.0 2.2 2.2 2.7 % Year 3.1 2.0 1.3 1.6 1.8 2.3 2.5 2.4 2.1 2.3 Canada* % Quarter 0.8 0.9 2.3 1.6 2.7 2.0 2.3 2.3 2.5 2.2 % Year 1.2 1.0 1.4 1.4 1.9 2.2 2.7 2.7 2.7 2.3 Asia-Pacific Japan % Quarter -0.8 0.1 1.1 0.9 0.3 1.0 0.9 -1.3 0.4 0.4 % Year -0.2 -0.3 0.1 1.2 2.4 3.3 3.1 0.9 1.0 0.4 Australia % Quarter 0.7 0.5 0.5 0.7 0.6 0.8 0.6 0.6 0.8 0.8 % Year 3.2 2.8 2.1 2.4 2.3 2.7 2.8 2.6 2.9 2.8 New Zealand % Year 2.0 3.4 2.7 2.5 3.5 3.2 3.5 4.0 3.4 2.6 China % Year 7.4 7.9 7.7 7.5 7.8 7.6 7.5 7.6 7.3 7.4 Hong Kong % Year 1.5 2.8 2.9 3.2 2.9 2.7 3.6 3.7 3.6 3.8 India % Year 5.2 4.7 4.8 4.4 4.8 4.7 4.6 4.9 5.0 5.4 Indonesia % Year 6.2 6.1 6.1 5.8 5.6 5.0 4.8 4.7 5.0 5.5 Malaysia % Year 5.3 6.5 4.1 4.4 5.0 4.7 6.3 5.9 5.0 3.8 Philippines % Year 7.3 7.1 7.7 7.6 7.0 5.1 5.0 5.8 6.0 6.7 Singapore % Year 0.0 1.5 0.3 4.4 5.8 5.6 6.1 3.0 3.7 4.1 South Korea % Year 1.5 1.4 1.5 2.3 3.3 3.6 3.6 3.3 2.9 3.0 Taiwan % Year 1.3 3.8 1.4 2.7 1.7 1.5 2.0 3.0 3.2 3.4 Thailand % Year 3.1 19.1 5.4 2.9 2.7 0.5 3.3 4.6 4.7 5.0 Vietnam % Year 5.4 5.5 4.9 5.0 5.5 5.5 5.2 5.3 5.4 5.4 Western Europe Eurozone % Quarter -0.1 -0.5 -0.2 0.3 0.1 0.2 0.2 0.2 0.2 0.3 % Year -0.7 -1.0 -1.2 -0.6 -0.4 0.4 0.8 0.7 0.9 0.9 Germany % Quarter 0.2 -0.5 0.0 0.7 0.3 0.5 0.4 0.4 0.4 0.4 % Year 0.9 0.3 -0.3 0.5 0.6 1.5 1.9 1.6 1.6 1.5 France % Quarter 0.2 -0.2 -0.1 0.5 -0.1 0.3 -0.1 0.2 0.2 0.2 % Year 0.0 -0.3 -0.4 0.5 0.2 0.6 0.6 0.3 0.7 0.6 Italy % Quarter -0.5 -0.9 -0.6 -0.3 0.0 0.2 0.1 0.2 0.1 0.1 % Year -2.8 -3.0 -2.5 -2.2 -1.8 -0.7 0.0 0.5 0.6 0.6 Spain % Quarter -0.4 -0.8 -0.4 -0.1 0.1 0.0 0.0 0.2 0.1 0.1 % Year -1.7 -2.1 -2.0 -1.6 -1.1 -0.4 0.1 0.4 0.4 0.5 Other Western Europe UK % Quarter 0.7 -0.2 0.4 0.7 0.8 0.8 0.6 0.6 0.6 0.7 % Year 0.1 0.0 0.2 1.3 1.5 2.6 2.8 2.7 2.5 2.4 Norway % Year 3.4 3.0 2.3 1.9 1.5 1.5 1.8 2.0 2.3 2.5 Sweden % Year 0.6 1.8 1.6 0.6 0.3 0.7 1.1 2.2 3.0 3.8 Switzerland % Year 1.4 1.4 1.5 2.1 1.9 2.1 2.1 2.0 2.1 2.1 EMEA Czech Republic % Year -1.2 -1.4 -2.4 -1.5 -1.3 -0.4 1.6 1.7 2.2 2.0 Hungary % Year -1.7 -2.7 -0.8 0.5 1.8 2.4 2.3 2.1 1.9 2.0 Poland % Year 1.3 0.7 0.5 0.8 1.9 2.3 2.9 2.8 3.1 3.2 Russia % Year 2.9 2.1 1.6 1.2 1.2 1.8 2.0 2.0 2.0 2.0 Turkey % Year 1.6 1.4 3.0 4.5 4.4 3.7 3.6 3.0 2.8 3.1 Ukraine % Year -1.3 -2.5 -1.1 -1.3 -1.5 -0.2 -0.5 -0.5 0.5 0.5 Romania % Year -0.5 1.1 2.2 1.5 4.1 2.8 2.5 2.5 1.9 3.2 Israel % Year 2.8 3.2 3.2 3.7 3.2 3.7 3.5 3.5 3.6 3.6 South Africa % Year 2.3 2.1 1.6 2.3 1.8 1.9 2.3 2.4 2.7 2.9 Latin America Mexico % Quarter 0.1 0.8 0.2 -0.5 0.8 1.4 1.5 0.6 0.2 2.0 % Year 3.1 3.3 0.6 1.6 1.3 1.7 4.5 4.0 3.9 4.0 Brazil % Quarter 0.4 0.5 0.7 1.5 -0.5 0.4 0.5 1.6 0.2 -0.5 % Year 0.9 1.8 1.8 3.3 2.2 1.7 2.2 2.1 2.8 1.8 Argentina % Quarter 0.6 1.9 3.7 7.1 1.0 -0.3 -0.7 0.2 0.5 0.8 % Year 0.7 2.1 3.0 8.3 -3.3 1.9 -2.2 -1.3 7.1 1.0 Chile % Quarter 0.7 2.0 0.8 0.5 1.1 1.0 1.3 1.2 1.1 1.2 % Year 5.8 5.7 4.7 4.0 4.7 3.8 2.0 4.9 5.9 4.2 Colombia % Quarter 0.0 1.7 0.3 2.2 -0.5 2.5 0.3 2.2 -0.5 2.5 % Year 2.9 3.3 2.7 4.2 4.5 4.5 4.5 4.5 4.5 4.5Note: *Quarter-on-quarter data has been annualised Source: HSBC estimates


20

abc

Annual

% Year 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

World 2.8 2.8 4.1 1.1 2.4 3.5 2.8 2.4 2.7 2.9 Developed 2.3 2.1 3.1 0.0 1.5 2.6 1.9 1.3 1.6 1.7Emerging 4.5 5.3 8.0 5.0 5.5 6.4 5.4 5.5 5.7 6.1 North America 3.1 2.8 3.3 -0.2 1.8 3.1 2.0 1.4 1.7 1.9 US 3.2 2.9 3.8 -0.4 1.6 3.2 2.1 1.5 1.7 1.9 Canada 1.1 2.8 -3.9 2.6 4.1 2.6 1.4 0.8 1.7 1.9 Asia-Pacific 2.0 2.2 4.1 0.9 2.2 3.1 2.4 2.6 3.3 3.2 Asia Big Three 1.2 1.9 3.4 0.4 1.8 2.6 2.2 2.4 3.2 3.1 China 1.5 4.8 5.9 -0.7 3.3 5.4 2.7 2.6 2.7 3.1 Japan 0.2 0.1 1.4 -1.3 -0.7 -0.3 0.0 0.3 2.3 1.5 India*** 7.1 6.2 9.1 12.4 10.2 9.0 10.2 9.5 7.2 7.8 Asia ex Big Three 4.7 3.4 6.7 2.6 3.6 5.0 3.4 3.3 3.8 3.9 Hong Kong 2.0 2.0 4.3 0.5 2.4 5.3 4.1 4.2 4.2 4.2 Indonesia 13.1 6.7 9.8 4.8 5.1 5.4 4.3 7.0 5.6 4.9 Malaysia 3.6 2.0 5.4 0.6 1.7 3.2 1.7 2.1 2.4 2.0 Philippines 5.5 2.9 8.2 4.3 3.8 4.7 3.2 2.9 4.2 4.3 Singapore 1.0 2.1 6.6 0.6 2.8 5.2 4.6 2.4 3.1 3.1 South Korea 2.2 2.5 4.7 2.8 2.9 4.0 2.2 1.2 2.6 3.0 Taiwan 0.6 1.8 3.5 -0.9 1.0 1.4 1.9 0.9 1.9 1.6 Thailand 4.6 2.2 5.5 -0.9 3.3 3.8 3.0 2.2 2.6 3.8 Vietnam 7.4 8.3 23.1 7.0 9.2 18.6 9.3 6.6 7.9 8.2 Australia 3.6 2.3 4.4 1.8 2.9 3.3 1.8 2.3 2.7 2.8 New Zealand 3.4 2.4 4.0 2.1 2.3 4.0 1.1 1.2 2.5 2.3 Western Europe 2.2 2.1 3.3 0.6 1.8 2.9 2.3 1.5 1.3 1.4 Eurozone 2.2 2.1 3.3 0.3 1.6 2.7 2.5 1.4 1.0 1.2 Germany 1.8 2.3 2.7 0.2 1.2 2.5 2.1 1.6 1.7 1.7 France 1.9 1.6 3.2 0.1 1.7 2.3 2.2 1.0 1.4 1.5 Italy 2.2 2.0 3.5 0.8 1.6 2.9 3.3 1.3 0.8 1.1 Spain 3.6 2.8 4.1 -0.2 2.0 3.1 2.4 1.5 0.7 1.3 Other Western Europe 2.1 2.0 3.5 1.4 2.5 3.3 1.9 1.8 1.9 2.0 UK 2.3 2.3 3.6 2.2 3.3 4.5 2.8 2.6 2.4 2.4 Norway 2.3 0.7 3.8 2.2 2.4 1.3 0.7 2.2 2.3 2.4 Sweden 1.4 2.2 3.4 -0.5 1.2 3.0 0.9 -0.1 0.9 1.5 Switzerland 1.1 0.7 2.4 -0.5 0.7 0.2 -0.7 -0.2 0.4 1.0 EMEA 6.1 7.0 10.8 7.7 5.9 6.3 5.1 4.8 4.9 5.1 Czech Republic 2.5 2.8 6.3 1.0 1.5 1.9 3.3 1.4 1.1 2.4 Hungary 3.9 8.0 6.1 4.2 4.9 3.9 5.7 1.7 1.3 3.0 Poland 1.0 2.5 4.2 3.5 2.6 4.3 3.7 1.0 1.8 2.2 Russia 9.7 9.0 14.1 11.7 6.8 8.5 5.1 6.8 5.8 4.8 Turkey 9.6 8.8 10.4 6.3 8.6 6.5 8.9 7.5 6.6 6.5 Ukraine* 9.1 12.8 25.2 16.0 9.4 8.0 0.6 -0.4 2.0 9.2 Romania 6.6 4.8 7.9 5.6 6.1 5.8 3.3 4.0 2.3 2.9 Egypt** 4.2 11.0 11.6 15.5 11.7 11.0 8.7 6.8 9.9 9.1 Israel* 2.1 0.5 4.6 3.3 2.7 3.5 1.7 1.8 2.1 2.5 Saudi Arabia 2.3 4.2 9.9 5.1 5.3 5.0 4.5 3.6 4.1 4.3 UAE 10.0 9.0 12.0 1.3 1.1 1.0 0.4 1.1 3.5 5.5 South Africa 4.6 7.1 11.0 7.2 4.3 5.0 5.7 5.8 5.7 5.5 Latin America 4.5 5.1 7.6 6.7 6.6 7.4 8.0 8.7 10.0 10.5 Mexico 3.6 4.0 5.1 5.3 4.2 3.4 4.1 3.7 4.0 3.5 Brazil 4.2 3.6 5.7 4.9 5.0 6.6 5.4 6.2 6.0 6.2 Argentina* 10.9 15.7 23.8 15.6 21.6 22.2 24.0 25.1 27.4 26.6 Chile 3.4 4.4 8.7 11.2 1.4 3.3 3.0 2.0 2.8 3.0 Colombia 4.3 5.5 7.0 4.2 2.3 3.4 3.2 2.0 2.4 2.4Note: * Period end values; **Based on Egyptian fiscal year (July-June);***Based on Indian fiscal year (April March). We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates

Consumer prices


21

abc

Quarterly

% Year Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13f Q1 14f Q2 14f Q3 14f Q4 14f

North America US 1.7 1.9 1.7 1.4 1.6 1.2 1.4 1.9 1.7 1.9 Canada 0.1 1.4 1.6 0.0 1.5 0.8 2.3 1.1 1.5 1.7 Asia-Pacific Japan -0.4 -0.2 -0.6 -0.3 0.9 1.1 1.0 2.5 2.8 2.7 Australia 2.0 2.2 2.5 2.4 2.2 2.2 2.4 2.8 2.4 3.0 New Zealand 0.8 0.9 0.9 0.7 1.4 1.7 2.1 2.6 2.5 2.8 China 1.9 2.1 2.4 2.5 2.8 3.1 3.1 2.8 2.4 2.5 India 9.9 10.1 10.7 9.5 9.7 10.0 8.9 8.2 7.5 6.6 Hong Kong 3.1 3.8 3.7 4.0 5.3 3.9 4.0 4.0 4.5 4.3 Indonesia 4.5 4.4 5.3 5.6 8.6 8.4 7.1 6.9 3.6 4.7 Malaysia 1.4 1.3 1.5 1.8 2.2 2.8 2.6 2.7 2.5 2.0 Philippines 3.6 3.0 3.2 2.6 2.4 3.5 4.1 4.1 4.5 4.1 Singapore 4.2 4.0 4.0 1.6 1.8 2.2 1.9 3.8 3.6 3.0 South Korea 1.6 1.7 1.4 1.1 1.2 0.9 1.5 2.5 3.0 3.3 Taiwan 2.9 1.8 1.8 0.8 0.0 1.1 1.3 2.1 2.3 2.0 Thailand 2.9 3.2 3.1 2.3 1.7 1.6 1.7 2.1 2.8 3.6 Vietnam 5.6 7.0 6.9 6.6 7.0 5.8 6.7 7.6 7.7 7.9 Western Europe Eurozone 2.5 2.3 1.9 1.4 1.3 0.8 0.8 1.1 0.9 1.3 Germany 2.1 2.0 1.9 1.5 1.7 1.4 1.5 1.8 1.6 1.8 France 2.3 1.7 1.2 0.9 1.1 0.7 1.1 1.4 1.5 1.7 Italy 3.4 2.6 2.1 1.3 1.1 0.8 0.7 0.8 0.8 1.1 Spain 2.8 3.2 2.8 1.8 1.3 0.2 0.6 0.8 0.4 1.1 Other Western Europe UK 2.4 2.7 2.8 2.7 2.7 2.1 2.0 2.4 2.5 2.7 Norway 0.4 1.2 1.2 2.0 2.5 2.5 2.3 2.3 2.2 2.3 Sweden 0.6 0.1 -0.1 -0.3 0.1 0.0 0.3 0.8 0.9 1.5 Switzerland -0.5 -0.4 -0.4 -0.4 0.0 0.0 0.1 0.4 0.4 0.8 EMEA Czech Republic 3.3 2.8 1.8 1.5 1.2 1.1 0.3 0.7 1.4 1.8 Hungary 6.1 5.4 2.9 1.8 1.5 0.6 0.3 1.1 1.5 2.5 Poland 3.9 2.9 1.3 0.5 1.1 0.9 1.5 2.0 1.7 2.1 Russia 6.0 6.6 7.2 7.2 6.4 6.4 6.3 6.0 5.6 5.2 Turkey 9.0 6.8 7.2 7.0 8.3 7.5 6.3 7.1 6.2 6.5 Ukraine 0.0 -0.1 -0.5 -0.4 -0.3 -0.2 0.6 1.5 2.5 3.5 Romania 4.1 4.8 5.6 5.3 3.3 1.9 1.7 1.7 2.6 3.4 Egypt 6.7 4.7 7.6 10.3 9.5 12.2 9.3 8.6 9.4 9.2 Israel 1.8 1.5 1.3 2.1 1.3 1.8 1.8 1.9 1.9 2.1 South Africa 5.1 5.7 5.7 5.7 6.2 5.5 5.7 5.8 5.6 5.5 Latin America Mexico 4.6 4.1 3.7 4.5 3.4 3.5 3.8 3.6 4.2 4.0 Brazil 5.2 5.6 6.4 6.6 6.1 5.8 5.8 5.9 6.1 6.3 Argentina 24.1 24.9 25.4 23.8 25.2 25.9 26.7 27.5 27.8 27.5 Chile 2.6 2.2 1.5 1.3 2.1 2.2 2.6 3.1 2.9 2.9 Colombia 3.1 2.8 1.9 2.1 2.3 1.8 2.1 2.3 2.3 2.8 Source: HSBC estimates


22

abc

3 month money

End period 2009 2010 2011 2012 _____ 2013 _______ ________________ 2014 ________________ Q4 Q4 Q4 Q4 Q3 Q4f Q1f Q2f Q3f Q4f

North America US (USD) 0.3 0.3 0.5 0.4 0.2 0.2 0.3 0.3 0.3 0.3 Canada (CAD) 0.5 1.2 1.4 1.3 1.2 1.2 1.2 1.2 1.2 1.2Asia-Pacific Japan (JPY) 0.3 0.2 0.2 0.2 0.2 0.1 0.2 0.2 0.2 0.2 Australia (AUD) 4.0 5.0 4.5 3.0 2.6 2.6 2.6 2.6 2.9 3.1 New Zealand (NZD) 2.8 3.2 2.7 2.6 2.7 2.7 3.0 3.2 3.3 3.4 China (CNY) 1.7 2.3 3.1 2.6 2.6 2.6 2.6 2.6 2.6 2.6 India (INR) 4.6 9.0 9.8 8.2 9.7 9.2 8.7 9.5 8.0 7.7 Hong Kong (HKD) 0.5 0.3 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 Indonesia (IDR) 7.1 6.6 5.3 5.0 7.2 7.6 7.7 7.8 7.8 7.8 Malaysia (MYR) 2.2 3.0 3.2 3.2 3.2 3.2 3.3 3.4 3.5 3.7 Philippines (PHP) 3.9 0.8 1.6 0.6 0.5 0.5 0.6 0.6 0.6 0.6 Singapore (SGD) 0.7 0.4 0.4 0.4 0.4 0.2 0.3 0.3 0.3 0.3 South Korea (KRW) 2.8 2.8 3.6 2.9 2.7 2.7 2.7 2.7 2.8 3.0 Taiwan (TWD) 0.5 0.7 0.9 0.9 0.9 1.1 1.1 1.5 1.1 1.5 Thailand (THB) 1.4 2.2 3.2 2.9 2.6 2.4 2.3 2.4 2.5 2.6Western Europe Eurozone 0.7 0.9 1.3 0.1 0.1 0.3 0.2 0.2 0.2 0.2Other Western Europe UK (GBP) 0.6 0.8 1.1 0.5 0.5 0.5 0.6 0.6 0.6 0.7 Norway (NOK) 2.2 2.6 2.9 1.9 1.7 1.7 1.7 1.7 1.8 1.8 Sweden (SEK) 0.5 1.8 2.7 1.6 1.2 1.0 1.0 1.0 1.0 1.1 Switzerland (CHF) 0.3 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0EMEA Hungary (HUF) 6.0 5.9 7.2 5.8 3.6 3.0 2.8 2.8 2.8 2.9 Poland (PLN) 4.2 4.0 5.0 4.1 2.7 2.7 2.7 2.7 2.7 2.7 Russia (RUB) 6.6 4.1 6.4 7.5 6.8 6.9 6.7 6.8 6.6 6.4 Turkey (TRY) 7.5 6.7 10.1 5.5 6.9 7.8 9.5 9.5 9.5 9.5 Ukraine (UAH) 16.1 9.1 21.5 18.3 10.2 12.0 12.0 12.0 12.0 12.0 South Africa (ZAR) 7.1 5.5 5.5 5.2 5.4 5.2 5.2 5.1 5.1 5.1Latin America Mexico (MXN) 5.5 4.6 4.4 4.4 3.7 3.9 3.9 3.9 4.0 4.2 Brazil (BRL) 8.7 11.1 10.4 7.1 9.4 10.3 10.5 10.5 10.5 11.0 Chile (CLP) 0.5 3.3 5.1 4.9 4.8 4.3 4.1 4.1 4.1 4.1Source: HSBC estimates

Short rates


23

abc

10-year bond yields

End period 2009 2010 2011 2012 _______ 2013 _______ _________________ 2014 __________________ Q4 Q4 Q4 Q4 Q3 Q4f Q1f Q2f Q3 Q4f

Americas US 3.8 3.3 1.8 1.8 2.6 2.7 2.6 2.5 2.3 2.1 Canada 3.6 3.2 1.9 1.8 2.6 2.6 2.5 2.4 2.3 2.2 Chile 5.9 6.2 5.2 5.5 5.4 5.4 5.4 5.5 5.5 5.6Asia-Pacific Japan 1.3 1.2 1.0 0.8 0.7 0.6 0.5 0.5 0.6 0.7 Australia 5.7 5.6 3.7 3.3 3.9 4.3 4.2 3.9 4.0 4.2 New Zealand 6.0 5.8 3.8 3.5 4.7 4.8 4.5 4.6 4.7 4.8 India 7.7 8.0 8.5 8.2 8.8 8.7 8.8 9.0 8.5 8.2 Hong Kong 2.6 2.9 1.5 0.6 2.1 2.0 2.2 2.1 2.1 2.3 Indonesia 10.1 7.9 6.2 5.4 8.4 8.6 8.8 8.6 8.5 8.4 Philippines 7.9 5.9 5.1 4.4 3.7 3.6 3.8 3.7 3.9 4.1 Singapore 2.7 1.8 1.4 1.3 2.4 2.3 2.5 2.5 2.6 2.9 Western Europe Eurozone* 3.6 3.8 3.7 2.7 2.9 2.9 2.9 2.8 2.7 2.7 Germany 3.4 3.0 1.9 1.3 1.8 1.9 2.0 1.9 1.8 1.8 France 3.6 3.4 3.1 2.0 2.3 2.5 2.5 2.4 2.4 2.3 Italy 4.0 4.5 6.4 4.5 4.4 4.1 4.2 4.1 4.1 4.0 Spain 3.9 5.5 5.5 5.6 4.4 4.1 4.2 4.0 3.9 3.8Other Western Europe UK 4.1 3.7 2.1 1.8 2.9 2.7 2.6 2.7 2.7 2.8 Norway 4.4 3.7 2.2 2.1 2.9 2.9 2.8 2.9 2.9 3.0 Sweden 3.3 3.3 1.5 1.5 2.4 2.3 2.2 2.3 2.4 2.5 Switzerland 1.9 1.8 0.7 0.5 1.0 1.0 0.9 1.0 1.1 1.2EMEA Hungary 7.7 8.0 9.8 6.1 5.9 5.9 6.1 5.9 5.9 5.9 Poland 6.3 6.1 5.9 3.7 4.4 4.4 4.0 3.9 3.6 3.6 Russia 8.7 7.7 8.3 6.7 7.3 7.5 7.0 7.4 7.3 7.5 South Africa 9.0 8.9 8.1 6.8 7.7 7.9 7.8 7.6 7.4 7.4Note: *Weighted average of big four eurozone economies. Source: HSBC estimates

Long rates


24

abc

Exchange rates vs USD

End period 2009 2010 2011 2012 ____________ 2013 ______________ ____________ 2014 ______________ Q4 Q4 Q4 Q4 Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f

Americas Canada (CAD) 1.05 0.99 1.02 1.00 1.02 1.05 1.03 1.05 1.07 1.09 1.10 1.10 Mexico (MXN) 13.08 12.36 13.97 12.87 12.33 12.98 13.17 13.00 12.90 12.80 12.70 12.60 Brazil (BRL) 1.74 1.67 1.88 2.04 2.01 2.22 2.23 2.35 2.35 2.40 2.45 2.50 Argentina (ARS) 3.80 3.97 4.30 4.92 5.12 5.39 5.79 6.50 7.00 7.50 8.00 8.50 Chile (CLP) 507 468 520 479 472 508 505 530 530 535 540 545Asia/Pacific Japan (JPY) 93 81 77 86 94 99 98 102 106 103 103 101 Australia (AUD) 0.90 1.03 1.03 1.04 1.04 0.92 0.94 0.90 0.89 0.88 0.87 0.86 New Zealand (NZD) 0.73 0.78 0.78 0.83 0.84 0.77 0.83 0.83 0.84 0.85 0.86 0.87 China (CNY) 6.83 6.59 6.29 6.23 6.21 6.14 6.12 6.08 6.04 6.02 6.00 5.98 Hong Kong (HKD) 7.75 7.77 7.77 7.75 7.76 7.76 7.76 7.80 7.80 7.80 7.80 7.80 India (INR) 46.4 44.7 53.0 55.0 54.3 59.5 62.6 61.0 59.0 60.0 61.0 62.0 Indonesia (IDR) 9425 9010 9068 9638 9718 9925 11580 11700 11750 12000 12250 12500 Malaysia (MYR) 3.42 3.08 3.17 3.06 3.09 3.16 3.26 3.20 3.18 3.21 3.24 3.27 Philippines (PHP) 46.5 43.6 43.8 41.1 40.9 43.1 43.5 43.8 43.5 43.7 43.9 44.1 Singapore (SGD) 1.41 1.28 1.30 1.22 1.24 1.27 1.26 1.24 1.23 1.24 1.24 1.25 South Korea (KRW) 1166 1121 1159 1064 1111 1142 1075 1050 1040 1035 1030 1025 Taiwan (TWD) 32.1 30.4 30.3 29.0 29.8 30.0 29.6 29.5 29.4 29.3 29.2 29.1 Thailand (THB) 33.3 30.1 31.6 30.6 29.3 31.1 31.3 32.0 31.5 31.9 32.2 32.5 Vietnam (VND) 18200 19498 21037 20835 20930 21170 21119 21250 21100 21100 21100 21100Western Europe Eurozone (EUR) 1.43 1.34 1.30 1.32 1.28 1.30 1.35 1.37 1.35 1.33 1.30 1.28Other Western Europe UK (GBP) 1.61 1.57 1.55 1.63 1.52 1.52 1.62 1.64 1.65 1.61 1.55 1.50 Sweden (SEK) 7.14 6.72 6.86 6.51 6.50 6.75 6.42 6.57 6.52 6.47 6.46 6.48 Norway (NOK) 5.78 5.81 5.97 5.57 5.83 6.11 6.01 6.13 6.15 6.09 6.00 5.94 Switzerland (CHF) 1.03 0.93 0.94 0.92 0.95 0.95 0.90 0.91 0.93 0.94 0.96 0.98EMEA Czech Republic (CZK) 18.4 18.7 19.6 19.0 20.1 20.0 19.0 19.7 20.0 20.3 20.8 21.1 Hungary (HUF) 188 207 242 221 237 227 220 219 219 222 223 227 Poland (PLN) 2.86 2.95 3.43 3.09 3.25 3.33 3.12 3.07 3.04 3.01 3.08 3.05 Russia (RUB) 30.2 30.5 32.0 30.5 31.0 32.9 32.3 32.9 33.5 34.7 34.8 35.2 Turkey (TRY) 1.50 1.54 1.89 1.78 1.81 1.93 2.02 2.00 1.95 1.95 1.95 1.90 Ukraine (UAH) 8.00 7.97 8.03 8.04 8.10 8.20 8.20 8.60 8.60 8.60 8.80 8.90 Israel (ILS) 3.75 3.68 3.80 3.85 3.64 3.70 3.55 3.60 3.60 3.55 3.55 3.50 Egypt (EGP) 5.48 5.70 6.00 6.10 6.80 7.00 7.00 6.90 6.80 6.80 6.80 6.80 South Africa (ZAR) 7.36 6.62 8.07 8.48 9.17 9.93 10.06 10.00 10.00 10.00 9.80 9.60Source: HSBC estimates

Exchange rates vs USD


25

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Exchange rate vs EUR & GBP

End period 2009 2010 2011 2012 ____________ 2013 ______________ ____________ 2014 ______________ Q4 Q4 Q4 Q4 Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f

vs EUR Americas US (USD) 1.43 1.34 1.30 1.32 1.28 1.30 1.35 1.37 1.35 1.33 1.30 1.28 Canada (CAD) 1.50 1.33 1.32 1.31 1.30 1.37 1.39 1.44 1.44 1.45 1.43 1.41 Asia/Pacific Japan (JPY) 134 109 100 114 121 129 133 140 143 137 134 129 Australia (AUD) 1.60 1.31 1.27 1.27 1.23 1.42 1.45 1.52 1.52 1.51 1.49 1.49 New Zealand (NZD) 1.97 1.72 1.66 1.60 1.53 1.68 1.63 1.65 1.61 1.56 1.51 1.47Europe UK (GBP) 0.89 0.86 0.84 0.81 0.85 0.86 0.84 0.84 0.82 0.83 0.84 0.85 Sweden (SEK) 10.24 9.02 8.90 8.58 8.35 8.77 8.69 9.00 8.80 8.60 8.40 8.30 Switzerland (CHF) 1.48 1.25 1.21 1.21 1.22 1.23 1.22 1.24 1.25 1.25 1.25 1.25 Norway (NOK) 8.29 7.80 7.75 7.34 7.49 7.94 8.14 8.40 8.30 8.10 7.80 7.60 Czech Republic (CZK) 26.40 25.09 25.50 25.10 25.76 25.97 25.74 27.00 27.00 27.00 27.00 27.00 Hungary (HUF) 270 278 315 291 304 295 297 300 295 295 290 290 Poland (PLN) 4.11 3.96 4.46 4.08 4.18 4.33 4.23 4.20 4.10 4.00 4.00 3.90 Russia (RUB) 43.4 40.9 41.6 40.2 39.8 42.7 43.8 45.1 45.2 46.2 45.2 45.1Africa South Africa (ZAR) 10.56 8.88 10.48 11.19 11.78 12.90 13.62 13.70 13.50 13.30 12.74 12.29

vs GBP Americas US (USD) 1.61 1.57 1.55 1.63 1.52 1.52 1.62 1.64 1.65 1.61 1.55 1.50 Canada (CAD) 1.69 1.56 1.58 1.62 1.54 1.60 1.66 1.72 1.77 1.76 1.70 1.65Asia/Pacific Japan (JPY) 150 127 120 141 143 151 159 167 175 166 160 151 Australia (AUD) 1.80 1.53 1.52 1.57 1.46 1.66 1.73 1.82 1.85 1.83 1.78 1.74

New Zealand (NZD) 2.22 2.00 1.99 1.97 1.81 1.96 1.94 1.97 1.96 1.90 1.80 1.72Europe Eurozone (EUR) 0.89 0.86 0.84 0.81 0.85 0.86 0.84 0.84 0.82 0.83 0.84 0.85 Sweden (SEK) 11.53 10.53 10.65 10.57 9.87 10.24 10.40 10.77 10.75 10.42 10.01 9.72 Norway (NOK) 9.33 9.10 9.27 9.05 8.86 9.26 9.74 10.05 10.14 9.82 9.29 8.90 Switzerland (CHF) 1.67 1.46 1.45 1.49 1.44 1.44 1.46 1.48 1.53 1.51 1.49 1.46Africa South Africa (ZAR) 11.14 10.84 12.26 13.93 15.06 16.30 16.39 16.50 16.12 15.18 14.39 13.98Source: HSBC estimates

Exchange rate vs EUR & GBP


26

abc

Consumer spending

% Year 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

World 3.2 3.2 0.9 -0.8 2.8 2.4 2.0 2.0 2.2 2.3 Developed 2.4 2.1 -0.2 -1.4 1.8 1.4 1.1 1.3 1.4 1.6 Emerging 6.9 7.8 5.3 1.3 6.7 6.1 4.9 4.3 4.5 4.5 North America 2.9 2.4 -0.3 -1.8 1.9 2.5 2.2 1.9 2.0 2.2 US 2.9 2.3 -0.6 -1.9 1.8 2.5 2.2 1.9 2.0 2.2 Canada 4.1 4.3 2.8 0.3 3.5 2.3 1.9 2.2 2.1 1.9 Asia-Pacific 3.7 4.5 2.4 1.9 5.3 3.6 3.8 3.6 3.2 3.5 Asia Big Three 3.5 4.1 2.3 2.5 5.6 3.6 4.1 3.9 3.3 3.6 China 8.7 11.0 8.9 8.0 10.9 8.8 8.5 8.3 8.1 8.3 Japan 1.1 0.9 -0.9 -0.7 2.8 0.3 2.0 2.0 0.5 0.3 India 8.5 9.4 7.2 7.4 8.6 8.0 4.0 2.4 4.1 5.2 Asia ex Big Three 4.6 5.7 2.7 0.3 5.1 3.6 3.3 2.8 3.2 3.8 Hong Kong 6.1 8.6 1.9 0.2 6.1 8.4 3.0 3.9 4.3 3.2 Indonesia 3.2 5.0 5.3 4.9 4.7 4.7 5.3 5.3 4.7 4.7 Malaysia 6.6 10.4 8.7 0.6 6.9 6.8 7.7 8.4 6.7 5.1 Philippines 4.2 4.6 3.7 2.3 3.4 5.7 6.6 5.5 5.3 5.4 Singapore 4.5 6.7 2.9 -0.5 6.2 4.6 2.2 2.4 3.0 3.8 South Korea 4.7 5.1 1.3 0.0 4.4 2.4 1.7 1.8 2.6 3.0 Taiwan 1.5 2.1 -0.9 0.8 4.0 3.1 1.6 1.4 1.4 1.7 Thailand 3.2 1.8 2.9 -1.1 4.8 1.3 6.7 0.1 0.7 4.5 Vietnam 8.3 10.8 9.3 3.1 10.0 4.4 2.7 3.4 3.6 4.3 Australia 3.7 5.7 1.9 0.8 3.2 3.1 2.5 1.8 2.6 2.8 New Zealand 2.9 3.7 0.2 -1.4 2.6 2.0 2.4 3.7 3.3 2.2 Western Europe 2.1 2.0 0.2 -1.3 1.1 0.2 -0.6 0.2 0.9 1.1 Eurozone 2.2 1.7 0.4 -0.9 1.0 0.3 -1.4 -0.5 0.5 0.7 Germany 1.6 -0.2 0.7 0.3 1.0 2.3 0.7 1.1 1.3 1.2 France 2.4 2.3 0.2 0.4 1.5 0.5 -0.3 0.4 0.6 0.6 Italy 1.3 1.1 -0.8 -1.6 1.5 -0.3 -4.2 -2.5 -0.2 0.4 Spain 4.0 3.6 -0.6 -3.7 0.2 -1.2 -2.8 -2.5 0.3 0.6 Other Western Europe 1.9 2.8 -0.4 -2.3 1.5 0.2 1.4 1.9 2.0 2.4 UK 1.8 2.7 -1.0 -3.6 1.0 -0.4 1.2 1.9 2.4 2.8 Norway 5.1 5.4 2.0 -0.1 3.7 2.6 3.0 2.2 1.2 1.9 Sweden 2.8 3.8 -0.1 -0.2 3.9 1.7 1.7 1.7 1.0 1.6 Switzerland 1.6 2.2 1.2 1.8 1.7 1.1 2.4 2.2 2.1 2.1 EMEA 8.0 9.0 5.4 -2.5 4.1 5.5 3.9 3.9 3.2 3.1 Czech Republic 4.4 4.2 2.8 0.3 0.8 0.5 -2.1 -0.4 0.5 0.9 Hungary 1.7 -1.0 -0.2 -6.6 -3.0 0.4 -1.6 -0.1 1.1 1.3 Poland 5.0 4.9 5.7 2.1 3.2 2.6 1.2 0.6 2.5 3.2 Russia 12.2 14.3 10.6 -5.1 5.5 6.4 6.8 5.6 3.8 3.0 Turkey 4.6 5.5 -0.3 -2.3 6.7 7.7 -0.7 4.3 2.5 4.0 Ukraine 15.9 17.2 13.1 -14.9 7.0 15.0 11.7 5.5 2.5 -2.8 Romania 11.6 10.3 8.9 -9.1 0.2 1.1 1.1 0.5 1.8 1.5 Egypt* 6.4 4.2 5.7 5.7 4.1 5.5 5.9 3.5 3.9 4.4 Israel 5.1 8.4 1.6 1.9 5.0 3.8 3.2 4.0 2.7 3.5 Saudi Arabia** 10.2 17.7 3.5 6.7 3.2 5.0 5.5 5.0 4.5 4.5 UAE** 14.0 13.2 9.6 -19.5 -5.2 7.6 9.4 7.0 6.0 5.0 South Africa 8.3 5.5 2.2 -1.6 4.4 4.9 3.5 2.5 2.7 3.2 Latin America 5.8 5.0 3.8 -1.6 6.7 5.5 4.3 3.0 3.6 2.0 Mexico 5.5 3.0 1.9 -6.5 5.7 4.8 4.8 2.6 5.3 2.0 Brazil 5.2 6.1 5.7 4.4 6.9 4.1 3.2 2.2 2.0 1.3 Argentina 7.8 9.0 6.5 0.5 9.0 10.7 4.4 5.2 0.9 1.3 Chile 7.8 7.6 5.2 -0.8 10.8 8.9 6.1 5.6 4.7 4.9 Colombia 6.4 7.3 3.5 0.6 5.0 5.9 4.7 4.1 4.5 4.5Note: *Fiscal year; **Nominal growth We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates

Consumer spending


27

abc

Investment spending

% Year 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

World 7.5 7.0 2.9 -3.3 8.9 10.4 9.2 8.9 10.5 11.7 Developed 3.8 2.0 -3.9 -14.4 0.5 3.5 2.7 0.9 3.5 3.6 Emerging 16.5 17.9 15.7 14.1 18.9 17.4 14.9 15.1 15.4 16.6 North America 2.7 -1.5 -6.3 -18.3 1.0 6.3 7.8 4.1 5.5 5.9 US 2.4 -1.9 -7.1 -19.0 -0.2 6.6 8.3 4.5 5.7 6.1 Canada 6.3 3.4 1.4 -11.5 11.5 4.2 4.4 0.8 3.4 3.9 Asia-Pacific 11.7 13.0 11.9 13.5 16.7 16.1 15.3 15.0 15.1 16.2 Asia Big Three 13.5 14.3 13.7 16.7 18.2 18.2 16.6 16.5 16.3 17.3 China 24.5 25.8 26.1 30.5 24.5 23.8 20.6 20.1 19.0 20.0 Japan 1.5 0.3 -4.1 -10.6 -0.2 1.4 3.4 2.1 3.1 0.6 India* 13.8 9.6 3.5 7.7 14.0 4.4 1.7 1.4 4.7 6.6 Asia ex Big Three 4.8 6.7 2.5 -2.7 8.8 0.8 4.7 3.5 5.0 4.9 Hong Kong 7.1 3.2 1.4 -3.5 7.7 10.2 9.4 3.6 5.8 2.8 Indonesia 2.6 9.3 11.9 3.3 8.5 8.8 9.8 4.6 5.6 7.7 Malaysia 6.3 10.4 2.4 -2.7 11.9 6.2 19.9 9.4 7.9 6.2 Philippines 5.4 5.2 3.2 -1.7 19.1 -2.0 10.4 11.8 7.4 12.0 Singapore 13.9 17.2 13.7 -3.2 6.1 6.3 6.6 -0.6 5.3 5.1 South Korea 3.4 4.2 -1.9 -1.0 5.8 -1.0 -1.7 3.5 3.5 1.7 Taiwan 0.5 -0.7 -7.9 -21.2 36.8 -6.8 -4.6 2.2 1.8 2.9 Thailand 3.9 1.5 1.2 -9.2 9.4 3.3 13.2 -0.2 3.5 5.8 Vietnam 9.9 24.2 3.8 8.7 10.9 -10.4 4.1 5.0 9.0 9.0 Australia 4.8 9.1 8.3 -2.3 4.3 7.7 8.4 -1.6 0.4 2.4 New Zealand -2.1 7.0 -3.7 -13.6 -0.4 3.3 6.4 9.0 11.1 7.7 Western Europe 6.0 5.7 -2.2 -13.0 0.2 1.6 -2.6 -2.6 1.8 2.4 Eurozone 5.9 5.1 -1.6 -12.7 -0.6 1.7 -3.9 -3.2 0.6 1.5 Germany 8.9 5.0 0.6 -11.6 5.2 7.1 -1.3 -0.8 2.8 2.2 France 4.3 6.4 0.1 -10.4 1.2 3.0 -1.2 -2.3 -0.6 1.2 Italy 3.7 1.3 -3.8 -11.8 0.5 -1.6 -8.4 -5.4 -0.2 1.3 Spain 8.0 4.3 -3.9 -18.3 -4.2 -5.6 -6.9 -5.9 -1.4 1.6 Other Western Europe 6.2 7.5 -4.0 -14.1 2.6 1.1 1.5 -0.6 5.4 4.6 UK 5.9 7.7 -6.8 -16.9 2.8 -2.0 1.3 -1.6 7.8 5.5 Norway*** 10.5 13.4 -1.1 -13.4 -4.7 6.3 4.5 2.4 3.2 4.7 Sweden 9.5 9.1 1.1 -15.5 6.7 8.3 3.8 -1.2 3.2 5.1 Switzerland 5.3 5.4 0.7 -8.0 4.8 4.5 -0.4 1.3 2.7 3.1 EMEA 13.9 16.5 6.5 -10.8 7.3 7.8 2.9 2.4 5.0 6.1 Czech Republic 5.9 13.3 4.0 -10.7 0.7 0.4 -4.3 -5.2 -0.8 1.0 Hungary -2.8 3.8 2.9 -11.1 -8.5 -5.9 -3.7 5.6 6.4 5.0 Poland 14.9 17.6 9.6 -1.2 -0.4 8.5 -1.7 -0.5 5.0 7.4 Russia 18.0 21.0 10.6 -14.4 5.8 10.2 6.0 0.1 3.0 3.0 Turkey 13.3 3.1 -6.2 -19.0 30.5 18.0 -2.5 4.2 5.5 8.0 Ukraine 20.9 24.4 -1.2 -50.5 4.9 10.1 0.9 -15.6 -7.0 -11.3 Romania 19.9 30.3 15.6 -28.1 -1.8 7.3 4.9 -2.6 4.6 5.5 Egypt* 13.3 31.8 15.5 -9.1 8.0 -2.1 8.0 1.5 3.8 5.8 Israel 11.7 12.6 4.6 -3.1 9.6 15.7 3.5 -0.6 3.0 4.0 Saudi Arabia** 17.0 18.8 12.6 -4.6 3.6 7.5 5.0 10.0 8.0 8.0 UAE** 14.9 39.7 3.0 -1.3 13.0 -7.6 12.5 7.0 12.0 15.0 South Africa 12.1 14.0 13.0 -4.3 -2.1 4.2 4.4 3.2 4.6 5.2 Latin America 10.2 10.0 9.2 -8.2 11.0 8.9 1.5 3.0 4.4 4.2 Mexico 8.7 6.0 5.0 -9.3 1.3 7.8 5.5 -0.7 7.5 5.4 Brazil 9.8 13.9 13.6 -6.7 21.3 4.7 -4.0 5.7 1.8 2.6 Argentina 18.2 13.6 9.1 -10.2 21.2 16.6 -4.9 4.4 0.1 -0.4 Chile 4.3 10.8 17.9 -12.1 12.2 14.7 12.3 5.6 3.5 6.5 Colombia 18.1 14.4 9.9 -1.3 4.9 18.7 7.6 6.6 8.0 8.5Note: *Fiscal year;**Nominal growth; ***Mainland We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates

Investment spending


28

abc

Export volume growth (GDP basis)

% Year 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

World 11.3 9.0 5.1 -12.4 14.9 9.1 3.4 2.6 4.9 5.6 Developed 8.9 6.4 2.1 -11.1 11.1 5.3 2.5 1.6 3.8 4.0 Emerging 15.5 13.5 9.8 -14.4 20.7 14.4 4.4 3.8 6.3 7.5 North America 8.0 8.2 5.8 -6.2 9.6 6.2 3.8 3.0 5.2 4.3 US 9.0 9.3 6.1 -9.1 11.1 6.7 3.5 2.5 5.4 4.2 Canada 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 Asia-Pacific 14.3 13.1 6.3 -13.5 22.1 9.4 4.3 4.7 7.4 8.6 Asia Big Three 18.6 16.7 8.1 -18.9 26.9 12.5 4.0 5.4 7.7 9.4 China 25.0 23.8 11.2 -17.9 29.4 18.3 5.9 6.0 8.0 10.0 Japan 9.9 8.7 1.4 -24.2 24.4 -0.4 -0.1 1.8 5.4 6.9 India* 20.4 5.9 14.6 -4.7 19.7 15.3 3.0 11.2 11.1 10.8 Asia ex Big Three 10.3 9.3 4.1 -7.1 17.5 6.0 4.5 3.6 7.1 7.5 Hong Kong 9.4 8.3 2.5 -10.0 16.8 3.9 1.9 6.0 8.0 6.2 Indonesia 9.4 8.5 9.5 -9.7 15.3 13.6 2.0 4.5 5.1 8.2 Malaysia 6.7 3.8 1.6 -10.9 11.1 4.6 -0.1 -0.6 5.6 6.1 Philippines 12.6 6.7 -2.7 -7.8 21.0 -2.8 8.9 0.1 4.8 4.3 Singapore 10.8 9.0 5.0 -7.6 18.6 3.5 0.3 3.0 5.8 6.3 South Korea 11.4 12.6 6.6 -1.2 14.7 9.1 4.2 4.5 7.5 9.6 Taiwan 11.4 9.6 0.9 -8.7 25.6 4.5 0.1 3.1 2.8 5.3 Thailand 9.1 7.8 5.1 -12.5 14.7 9.5 3.1 4.4 7.8 7.3 Vietnam 22.7 21.9 29.1 -8.9 26.5 34.2 18.2 18.2 19.9 13.7 Australia 3.1 3.1 3.6 2.3 5.7 -0.4 5.8 6.6 6.2 9.0 New Zealand 2.0 4.2 -1.1 2.4 3.6 2.7 2.6 0.4 3.0 3.3 Western Europe 9.2 5.4 0.9 -11.3 10.2 6.0 2.3 0.9 2.9 3.4 Eurozone 9.2 6.6 0.8 -12.3 11.4 6.6 2.7 1.1 3.0 3.4 Germany 13.6 8.3 2.3 -13.0 14.8 8.1 3.8 0.3 3.0 3.1 France 5.5 2.3 -0.6 -11.9 9.0 5.6 2.5 0.2 1.3 3.3 Italy 8.8 5.6 -2.8 -17.7 11.2 6.9 1.9 0.1 2.8 2.8 Spain 6.7 6.6 -1.0 -10.0 11.7 7.6 2.1 5.4 6.7 6.6 Other Western Europe 9.2 1.8 1.2 -8.0 6.3 3.8 1.2 0.5 2.5 3.2 UK 12.0 -2.1 1.1 -8.7 6.7 4.5 1.0 1.2 2.4 2.8 Norway*** 1.0 2.6 1.7 -4.8 1.9 -0.8 1.0 -1.8 2.3 3.3 Sweden 9.4 6.2 0.4 -12.5 10.0 6.5 1.1 -1.5 3.2 5.9 Switzerland 10.1 9.9 2.5 -7.3 7.4 3.8 2.0 1.2 3.0 3.4 EMEA 12.1 10.5 13.5 -17.9 11.7 17.4 5.2 1.5 3.6 4.1 Czech Republic 14.2 11.2 3.6 -10.5 15.0 9.6 4.7 -0.1 7.6 6.1 Hungary 19.1 15.0 5.7 -10.2 11.3 8.4 1.7 5.0 4.6 4.3 Poland 14.6 9.1 7.1 -6.8 12.1 7.7 2.8 4.1 6.8 6.5 Russia 7.3 6.3 0.6 -4.7 7.0 0.3 1.4 1.3 1.0 1.5 Turkey 6.6 7.3 2.7 -5.0 3.4 7.9 17.2 1.1 6.1 6.8 Ukraine 11.1 28.1 35.7 -40.3 29.2 33.0 1.2 -9.1 0.0 4.6 Romania 10.4 7.8 8.3 -6.4 13.2 10.3 -3.0 15.4 6.8 5.0 Egypt* 21.3 23.3 28.8 -14.5 -3.0 1.2 -2.3 1.0 4.7 6.7 Israel 5.5 9.2 7.1 -12.3 14.2 14.2 0.9 -0.7 3.5 4.0 Saudi Arabia** 16.9 10.5 34.4 -38.7 23.1 48.3 7.8 2.1 2.0 2.5 UAE** 11.6 8.8 12.8 -6.5 3.4 18.7 10.0 3.0 3.5 4.0 South Africa 7.5 6.6 1.8 -19.5 9.0 6.8 0.4 4.5 5.0 6.2 Latin America 19.1 13.4 12.7 -20.2 28.9 21.9 0.4 1.5 4.

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