Global Chartbook

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This report is available on wellsfargo.com/research and on Bloomb erg WFEC

January 14, 2011

Econ om i cs Grou p

Global Recovery Should Con tinue in 2011, but Risks RemainAfter declining about one percent in 2009, the first contraction in global GDP in decades, theglobal economy grew nearly five percent in 2010. Not only did most central banks respond to theglobal financial crisis in autumn 2008 by slashing policy rates to extraordinarily low levels and

taking other unprecedented monetary policy steps, but governments in many major economiesopened up the fiscal taps to support economic activity. Inventory liquidation in late 2008/early2009 led to inventory building, which also helped boost growth, in late 2009/early 2010. Overallrates of economic growth eased somewhat in mid-2010 as the inventory swing came to an end,but strengthening domestic demand led to acceleration in economic activity at the end of 2010.The global economy enters the new year with a fair amount of momentum.

Figure 1

Real Global GDP GrowthYear-over-Year Percent Change

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

1970 1975 1980 1985 1990 1995 2000 2005 2010

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

Period Average

Figure 2

U.S. Trade Weighted Dollar Major IndexMarch 1973=100

65

70

75

80

85

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

65

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Jan @ 74.0

Source: International Monetary Fund, Federal Reserve Board and W ells Fargo Securities, LLC

Among major regions of the world, economic growth in Asia has been strongest. The financialsystems of most Asian economies were not nearly as leveraged as those of their Westerncounterparts, so banks in the region were able to ramp up lending quickly. Most Asian

governments also responded to the crisis with expansionary fiscal policy. The level of output inmost Asian countries has surpassed pre-downturn peaks. Latin America largely resembles Asia inthe sense that economic growth has generally been strong, albeit not nearly as robust as in Asia.

The economic recovery that started in the United States in the third quarter of 2009 lacked vigorinitially. However, the U.S. economy ended 2010 on a relatively strong note as real GDP appearsto have grown at an annualized rate just short of four percent in the fourth quarter. Indicationsthat the recovery is becoming more self-sustaining are leading some businesses to ramp up hiringagain, although the unemployment rate remains high in a historical context. Most Europeaneconomies have also been in recovery mode for more than a year, but the rate of expansion

Special Commentary

Global Chartbook: Janua ry 2011

C o n t e n t s P a g e

World .....................United States .........Eurozone.................

Japan......................United Kingdom ....Australia.................Canada ...................

Norway...................Singapore................South Korea ...........Sweden...................Switzerland ............Taiwan ...................Argentina ...............Brazil......................

Chile .......................China.......................India........................Mexico....................Poland ....................Russia.....................South Africa ...........Turkey.....................

Dollar .....................Energy.....................Metals ....................


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Global Chartbook: January 2011 WELLS FARGO SECURITIES, LLCJanuar y 14, 2011 ECONOMICS GROUP

generally remains weak. Indeed, real GDP in the euro area has recouped less than half of the fivepercent decline registered during the downturn.

The global expansion that began in mid-2009 should remain intact, although we project that therate of global GDP growth will slow to four percent in 2011 from roughly five percent in 2010. Welook for a GDP growth rate of three percent for the United States this year, roughly in line with

the rate of expansion that was chalked up in 2010. Fiscal tightening in Europe will likely exertheadwinds on economic growth in the euro area, which we project will grow less than two percentagain. Economies in developing Asia and Latin America should also continue to grow at strongrates, albeit not quite as robust as last year due, at least in part, to monetary tightening that hasalready been put in place by many central banks in those regions. That said, the global expansionshould have a more sustainable feel to it this year than in 2010 as the drivers of growth in manyeconomies switch from policy stimulus and inventory rebuilding to domestic demand.

Although we have a rather sanguine outlook for the global economy in 2011, we acknowledgesome uncertainty around our base-case scenario. In our view, the festering European sovereigndebt crisis represents a major downside risk to the global outlook. In a worst-case scenario inwhich the governments of Spain and/or Italy would need to restructure their debt, the Europeanbanking system, which has significant exposure to European sovereign debt, would be forced totake capital losses. Credit markets in Europe could lock up again as they did in the autumn of

2008, which clearly would reverberate back onto U.S. financial markets.Secondly, inflation rates are starting to creep higher in many developing countries. Much of therise in inflation to date reflects sharp increases in food and commodity prices. However, ifinflation were to become more broadly entrenched, central banks in these countries could beginto tighten monetary policy more aggressively, which would increase the risk of economicdownturns in those economies. Finally, a currency war could turn into an outright trade war,which would be in no countrys interest.

Outlook for Dollar Mixed in 2011Speaking of currencies, Wells Fargos Currency Strategy Group has a mixed outlook for the valueof the U.S. dollar vis--vis other currencies in 2011. Trends in U.S. monetary policy and interestrates, which were an important driver of U.S. dollar weakness in the second half of 2010, willcontinue to be influential in 2011. We see the dollar as broadly steady against the core major

currencies the euro, yen and pound in the early part of the year. As the Feds quantitativeeasing nears an end and the U.S. economy continues to gain momentum, the U.S. dollar shouldsee more sizeable gains against the euro and yen over the second half of the year. The poundshould broadly hold its own against the dollar.

For the commodity-based and emerging market currencies, the medium-term outlook is morefavorable. With short-term U.S. interest rates remaining at rock-bottom lows through 2011, theoutlook for commodity and emerging currencies will depend in part on whether rates continue torise in those countries, which will help to attract further capital inflows into those marketsBroadly speaking, we expect central banks in Australia, Canada and New Zealand to keep raisingrates in 2011, along with many emerging market economies. The continuing contrast between theinterest rate outlook in commodity and emerging market economies relative to the United Statesshould keep the greenback on the defensive against that group of currencies. Although furthercapital controls and currency measures are probable in many developing economies, those

measures are unlikely to fully stem capital inflows and appreciation of emerging-marketcurrencies.

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WorldOECD Industrial Production

Index, 2005=100

40

60

80

100

120

1981 1985 1989 1993 1997 2001 2005 2009

40

60

80

100

120

OECD Industrial Production: Sep @ 100.3

10-Year Government Bond SpreadsBasis Points, Spread over German 10-Year Bund

0

100

200

300

400

500

2003 2004 2005 2006 2007 2008 2009 2010

0

100

200

300

400

500Italy: Jan @ 186.5 bps

Spain: Jan @ 264.7 bps

Portugal: Jan @ 432.3 bps

The global economy is bouncing back from itsdeepest downturn in decades as industrialproduction in the OECD nations has retracedabout one-half of the loss suffered during thedownturn. Economic activity in manydeveloping economies has already surpassedpre-recession peaks.

Central banks in many developing economieshave started to tighten monetary policy. Incontrast, the Fed, the ECB and the Bank ofJapan remain firmly on hold due to sluggishrecoveries to date and benign inflation.

We project that global GDP will expand at arate that is close to its long-run average ofnearly four percent in 2011. That said, theoutlook for the global economy is not withoutrisks in 2011. In our view, the biggest downsiderisk to the global economy this year is thesovereign debt crisis that continues to fester inthe Eurozone. Another global financial crisiscould ensue if the governments of some largeeconomies (i.e., Spain and/or Italy) need torestructure debt.

Another downside risk to global growth stemsfrom rising rates of inflation in somedeveloping countries that have been spawnedby sharp increases in food and commodityprices. Although runaway inflation la the1970s does not seem likely, further accelerationin prices could lead central banks to tightenexcessively, raising the risk of reneweddownturns in those economies. Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

ECB: Jan @ 1.00%

Bank of Canada: Jan @ 1.00%

US Federal Reserve: Jan @ 0.25%

Bank of England: Jan @ 0.50%

World Consumer Price InflationYear-over-Year Percent Change

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2002 2004 2006 2008 2010

0%

1%

2%

3%

4%

5%

6%

7%

8%

World Consumer Prices: Nov @ 3.5%

Source: Bloomberg LP, IHS Global Insight, IMF, OECD and WellsFargo Securities, LLC

3


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United StatesReal GDP

Bars = CAGR Line = Yr/Yr Percent Change

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2000 2002 2004 2006 2008 2010 2012

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

GDPR - CAGR: Q3 @ 2.6%

GDPR - Yr/Yr Percent Change: Q3 @ 3.2%

Forecast

Unemployment RateSeasonally Adjusted

2%

4%

6%

8%

10%

12%

60 65 70 75 80 85 90 95 00 05 10

2%

4%

6%

8%

10%

12%

Unemployment Rate: Dec @ 9.4%

The U.S. economy has expanded for fiveconsecutive quarters, and when real GDP data

for the fourth quarter print on Jan. 28 theyshould show that GDP has finally surpassed itsprevious peak set in Q4-2007.

The U.S. economy has created 1.1 million jobssince employment bottomed inDecember 2009. However, the unemploymentrate remains painfully high, and it willprobably will take a few years to recoup all ofthe 8.4 million jobs that were lost during theGreat Recession. Although the economyshould continue to expand in 2011, the overallrate of GDP growth may be held backsomewhat by continued consumer

de-leveraging. Prices of many commodities have risen

noticeably in recent months, but servicescomprise more than 60 percent of theconsumer price index. Consequently, overallCPI inflation is quite benign at present, and thecore rate of CPI inflation has not been this lowsince the early 1960s.

Due to sluggish economic growth and the riskof mild deflation, the FOMC has cut the FedFunds rate to essentially zero percent and ithas engaged in two rounds of quantitativeeasing. Although there are increasing signsthat the recovery is starting to become trulyself-sustaining, we expect the Fed to refrainfrom tightening for the foreseeable future. Real Personal Consumption Expenditures

Bars = CAGR Line = Yr/Yr Percent Change

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2000 2002 2004 2006 2008 2010 2012

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

PCE - CAGR: Q3 @ 2.4%

PCE - Yr/Yr Percent Change: Q3 @ 1.8%

Forecast

CPI vs. Core CPIYear-over-Year Percent Change

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

92 94 96 98 00 02 04 06 08 10

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CPI: Nov @ 1.1%

Core CPI: Nov @ 0.8%

Source: U.S. Department of Commerce, U.S. Department of Laborand Wells Fargo Securities, LLC

4


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EurozoneEurozone Real GDP

Bars = Compound Annual Rate Line = Yr/Yr % Change

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2000 2002 2004 2006 2008 2010

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Compound Annual Growth: Q3 @ 1.4%

Year-over-Year Percent Change: Q3 @ 1.9%

Irish Real GDPSeasonally Adjusted

-20%

-10%

0%

10%

20%

30%

2000 2002 2004 2006 2008 2010

-20%

-10%

0%

10%

20%

30%

Compound Annual Growth Rate: Q3 @ 2.2%

Year-over-Year Percent Change: Q3 @ -0.7%

The Eurozone economy contracted more than5 percent between Q1-2008 and Q2-2009, but

it has subsequently grown over the past fivequarters. That said, the level of GDP remainsmore than three percent below its peak inQ1-2008. The expansion started out as anexport-led recovery, but it appears thatdomestic demand is starting to strengthensomewhat as well.

The recovery is uneven across the 17 countriesthat now comprise the euro area. The Germaneconomy, which in Q2-2010 grew at its fastestpace since reunification, has been paced bystrong growth in capital goods exports. Incontrast, economic activity in the Irish

economy, which contracted 14 percent on apeak-to-trough basis, remains very weak.

Available indicators, including the purchasingmanagers indices, suggest that economicgrowth in the overall Eurozone remainedpositive in the fourth quarter. We do not lookfor the Eurozone to slip back into recession,but fiscal consolidation in many countries overthe next few years should exert headwinds onthe overall rate of GDP growth in the euro area.

The European debt crisis may be on thebackburner at present, but it has not goneaway. A challenging debt refinancing scheduleand sluggish economic growth will likely keepconcerns about debt sustainability in theforefront of investors minds for some time. Eurozone Purchasing Managers' Indices

Index

30

35

40

45

50

55

60

65

1998 2000 2002 2004 2006 2008 2010

30

35

40

45

50

55

60

65

E.Z. Manufacturing: Dec @ 57.1

E.Z. Services: Dec @ 54.2

Government Debt Amortization in 2011Billions of Euros

0

25

50

75

100

125

150

Italy Portugal Spain

0

25

50

75

100

125

150

Q1 Q2 Q3 Q4

Source: Bloomberg LP, IHS Global Insight, and Wells FargoSecurities, LLC

5


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JapanJapanese Real GDP


-20%

-15%

-10%

-5%

0%

5%

10%

15%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

15%



Volume of Japanese Foreign TradeYear-over-Year Percent Change

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1998 2000 2002 2004 2006 2008 2010-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Export Volume Index: Nov @ 10.7%

Import Volume Index: Nov @ 9.2%

Japans final revision of third quarter GDPcame in even hotter than the preliminary

estimate, pushing up our estimate of 2010Japanese GDP growth to a stellar 4.4 percentfor the year. The Japanese economy is due fora sharp slowdown in activity, however, in thefourth quarter. The U.S. dollars recentstrength has helped slow the yensappreciation, making outright recession inJapan less likely in 2011. Still, we do expectthe strong currency to have a substantialdampening effect on Japanese growth thisyear. We currently forecast Japanese GDPgrowth of 1.3 percent for 2011, with a gradualimprovement to 1.6 percent growth in 2012.

Robust domestic demand in the form of4.5 percent annualized growth in consumerspending in the third quarter, and 3.3 percentannualized growth in business spending in thethird quarter more than offset a sharp slowingin Japanese export growth. That will not bethe case going forward. We expect consumerand business spending to slow to a crawl in2011, while Japanese exports face anintensifying headwind from the strong yen andslowing demand from China.

Deflation remains firmly entrenched in Japanin contrast to the rest of the region, which is

struggling with rising prices. Slow growth anddeflation in 2011 will keep the Bank of Japanon hold into 2012 as authorities continue tofight the twin problems. Japanese Exchange RateJPY per USD

80

90

100

110

120

130

140

150

1996 1998 2000 2002 2004 2006 2008 2010

80

90

100

110

120

130

140

150

JPY per USD: Jan @ 83.1

Japanese Consumer Price IndexYear-over-Year Percent Change

-4%

-3%

-2%

-1%

0%

1%

2%

3%

2001 2003 2005 2007 2009

-4%

-3%

-2%

-1%

0%

1%

2%

3%

"Core" CPI : Nov @ -1.0%

Year-Over-Year Percentage Change: Nov @ 0.1%

Source: IHS Global Insight and Wells Fargo Securities, LLC

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United KingdomU.K. Real GDP


-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2002 2004 2006 2008 2010

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



U.K. Purchasing Managers' IndicesIndex

30

35

40

45

50

55

60

65

2000 2002 2004 2006 2008 2010

30

35

40

45

50

55

60

65

UK Manufacturing: Dec @ 58.3

UK Services: Dec @ 49.7

The U.K. economy contracted nearlyseven percent between Q1-2008 and Q3-2009.

Although it has subsequently grown for fourconsecutive quarters, real GDP remains fourpercent below its pre-recession peak and theunemployment rate has not receded muchfrom the 14-year high of 8.3 percent it reachedin early 2010.

Available monthly indicators, including themanufacturing and service sector PMIs,suggest that the recovery continued in thefourth quarter of 2010, although the pace ofgrowth may have slowed somewhat.

In our view, the rate of real GDP growth will besluggish in 2011 as fiscal consolidation gets

underway. The government plans to make amassive fiscal correction worth about eightpercent of GDP through 2015. Spending cuts

will account for the bulk of the deficitreduction, but the 2.5 percentage increase inthe value-added tax (VAT) that took effect onJan. 4 should take a dent out of consumerspending in the first few months of 2011.

The overall rate of CPI inflation is well abovethe Bank of Englands target of two percent atpresent, and the increase in the VAT that willgo into effect in January should keep inflationelevated into early 2011. However, sluggishgrowth will likely cause inflation to recedesubsequently, which should preclude anytightening measures by the Bank of Englandfor the foreseeable future.

U.K. Deficit ReductionCumulative Contribution, Billions of Pounds

0

20

40

60

80

100

120

140

2011 2012 2013 2014 2015 2016

0

20

40

60

80

100

120

140

Due to Tax Increases

Due to Spending Reductions

Fiscal Year

U.K. Consumer Price IndexYear-over-Year Percent Change

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1997 1999 2001 2003 2005 2007 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CPI: Nov @ 3.2%

Source: Bloomberg, LP, IHS Global Insight, HM Treasury and WellsFargo Securities, LLC

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AustraliaAustralian Real GDP


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%



Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%US Federal Reserve: Jan @ 0.25%Bank of England: Jan @ 0.50%ECB: Jan @ 1.00%

Reserve Bank of Australia: Jan @ 4.75%

Horrendous flooding in northeast Australiamay shut down mining operations and ruin

this seasons agricultural crops. Three-fourthsof the state of Queensland has been declared adisaster zone. According to a statement fromQueensland Premier Anna Bligh, 22 townshave been inundated with flood waters,affecting roughly 200,000 people. It is toosoon to tally the impact on Australiaseconomy, but a preliminary estimate from aReserve Bank of Australia (RBA) boardmember suggest the flooding could cut GDP by1 percent or A$13 billion.

The Australian economy was slowing beforethe floodwaters began to rise. GDP growth

slowed to only a 0.8 percent annual rate in thethird quarter as consumer spending slowedand exports were a drag on growth.

The RBA has been at the forefront of theworlds central banks in terms of tighteningduring this cycle taking the key lending ratefrom 3.0 percent to 4.75 percent in the span ofroughly a year. Given the slower growth in thethird quarter and the still unknown flooddamage, the RBA is likely on hold for the nextseveral months. The drop in exports in thethird quarter was partly a function ofAustralian dollar strength. Another reason why

the RBA may stay on hold is that the inflationrate in Australia remains in check. In the thirdquarter, the year-to-year change in consumerprices was 2.8 percent. Australian GDP ContributionsYear-over-Year Percent Change

-6%

-4%

-2%

0%

2%

4%

6%

8%

1998 2000 2002 2004 2006 2008 2010

-6%

-4%

-2%

0%

2%

4%

6%

8%

GDP: Q3 @ 2.7%

Contribution from Domestic Demand: Q3 @ 3.1%

Contribution from Net Exports: Q3 @ -1.8%

Australian Unemployment RateSeasonally Adjusted

3%

4%

5%

6%

7%

8%

9%

1998 2000 2002 2004 2006 2008 2010

3%

4%

5%

6%

7%

8%

9%

Unemployment Rate: Nov @ 5.2%

Source: Bloomberg LP, IHS Global Insight and Wells FargoSecurities, LLC

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CanadaCanadian Real GDP


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2000 2002 2004 2006 2008 2010

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%



Canadian Merchandise Trade BalanceMillions of Canadian Dollars, Seasonally Adjusted

-C$4,000

-C$2,000

C$0

C$2,000

C$4,000

C$6,000

C$8,000

C$10,000

1997 1999 2001 2003 2005 2007 2009

-C$4,000

-C$2,000

C$0

C$2,000

C$4,000

C$6,000

C$8,000

C$10,000

Merchandise Trade Balance: Nov @ -80M CAD

Despite a faster pace of growth in consumerspending and flat growth in business spending,

real GDP growth slowed to a 1.0 percentannualized rate in the third quarter. There wasa smaller boost to growth from inventories andgovernment spending but the major factorholding back growth was trade.

Trade has been a drag on growth in Canada forsix straight quarters as import growthgenerally exceeded export growth over thatperiod. Imports surged in the first half of 2010,driving the Canadian trade balance to thelargest deficit on record in July. Lookingforward however, net exports should exert lessdrag on the economy as exports benefit from

the stronger U.S. recovery. Consumer spending remains a steady

contributor to Canadian economic growth.While the year-to-year changes in retail salesare no longer benefitting from low base-effects,growth remains steady on a sequential basis.The 0.8 percent jump in October sales markedthe largest monthly increase since March.

The Canadian consumer price index rose just0.1 of a percent in November, slowing the year-over-year growth rate to only 2.0 percentright in the middle of the Bank of Canadastarget range. We expect the BoC to leave itspolicy rate at the present level until its meetingin July 2011. If inflation concerns remainessentially a non-issue, we could see the BoCremaining on hold even longer.

Canadian Retail SalesYear-over-Year Percent Change, 6-Month Moving Average

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

2004 2005 2006 2007 2008 2009 2010

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

Retail Sales: Oct @ 3.3%

6-Month Moving Average: Oct @ 3.8%

Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

US Federal Reserve: Jan @ 0.25%

Bank of Canada: Jan @ 1.00%


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NorwayNorwegian Real GDP


-8%

-4%

0%

4%

8%

12%

16%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-8%

-4%

0%

4%

8%

12%

16%

Compound Annual Growth Rate: Q3 @ -6.1%

Overall: Q3 @ -1.4%

Norwegian Real GDPYear-over-Year Percent Change

-3.0%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

2000 2002 2004 2006 2008 2010-3.0%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

Mainland GDP : Q3 @ 2.9%

Overall: Q3 @ -1.4%

After experiencing a modest downturn in2008/2009, overall GDP in Norway has barely

begun to recover. However, weakness inoverall GDP is due largely to continueddeclines in output in the important oil and gassector, which accounts for roughly one-quarterof value-added in the economy. In the firsteleven months of 2010, output in the oil andgas sector was down 9 percent relative to thesame period in 2009.

Outside of the oil and gas sector, the economyis recovering. Mainland GDP in the thirdquarter of 2010 was up 2.9 percent on a year-ago basis. Consumer spending is growing at asolid rate, and non-oil exports are also rising.

However, economic growth has not beenstrong enough yet to make much of a dent inthe unemployment rate, which remainselevated, at least by Norwegian standards.

There are not many inflationary pressures inthe Norwegian economy at present with theunderlying rate of CPI inflation at a four-yearlow of one percent.

Norges Bank, the countrys central bank, hasslowly raised its main policy rate to2.00 percent from 1.25 percent inOctober 2009. Although the Bank willprobably hike rates further in the quartersahead, the pace of monetary tightening willlikely remain quite slow if economic growthdoes not strengthen and inflation remainsbenign.

Norwegian Unemployment RateNon-Seasonally Adjusted

0%

1%

2%

3%

4%

5%

2000 2002 2004 2006 2008 2010

0%

1%

2%

3%

4%

5%


12-M Moving Average: Dec @ 2.9%

Norwegian Central Bank Policy RateNorges Bank Deposit Rate

0%

2%

4%

6%

8%

2000 2002 2004 2006 2008 2010

0%

2%

4%

6%

8%

Sight Deposit Rate: Jan @ 2.00%


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SingaporeSingapore Real GDPYear-over-Year Percent Change

-15%

-10%

-5%

0%

5%

10%

15%

20%

2000 2002 2004 2006 2008 2010

-15%

-10%

-5%

0%

5%

10%

15%

20%


Singapore Manufacturing PMIIndex

40

45

50

55

60

65

70

2000 2002 2004 2006 2008 201040

45

50

55

60

65

70

Singapore Manufacturing PMI: Dec @ 50.7

Singapore knocked it out of the park in 2010with an official record-breaking GDP growth

rate of 14.7 percent for the year. A repeatperformance in 2011 is not expected. Signs arealready evident that growth is slowing.Fourth-quarter growth in services,manufacturing (ex-bio-medical), andconstruction was already quite weak.

Fading domestic stimulus and a stagnation oftrade growth in Southeast Asia will beformidable headwinds for the economy in2011. High rates of capacity utilization andworries about higher commodity prices andinflation could prompt further monetarytightening through accelerated exchange rate

appreciation. November CPI inflation jumped to 3.8 percent

largely due to rising prices in transportationand accommodation. So far, there is little signof upward pressure on wages, though this is arisk given Singapores low unemployment rateand high vacancy to job-seeker ratio.

Singapores manufacturing PMI index slumpedin December to 50.7, just above the 50.0threshold that separates expansion fromcontraction. Slower growth in manufacturingand exports appears imminent. Thethree-month moving average of both exportand import growth has already peaked. As theMonetary Authority of Singapore continues topush the exchange rate higher, export growthshould slow visibly in 2011.

Singapore Unemployment RateSeasonally Adjusted

1%

2%

3%

4%

5%

6%

2000 2002 2004 2006 2008 2010

1%

2%

3%

4%

5%

6%

Unemployment rate: Q3 @ 2.1%

Singapore Consumer Price IndexYear-over-Year Percent Change

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1998 2000 2002 2004 2006 2008 2010

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

CPI: Sep @ 3.7%

Source: Bloomberg LP, IHS Global Insight and Wells Fargo

Securities, LLC

11


12/30


South KoreaSouth Korean Real GDP


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



South Korean Industrial Production IndexYear-over-Year Percent Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

1998 2000 2002 2004 2006 2008 2010-30%

-20%

-10%

0%

10%

20%

30%

40%

IPI: Nov @ 9.0%

3-Month Moving Average: Nov @ 9.8%

Revised third quarter GDP was little changedfrom the initial release, indicating a

deceleration in economic activity over the pasttwo quarters centered on slower growth inconsumer and government spending. Theexternal sector remained relatively strong,however, bolstered by better-than-expectedexport growth. GDP growth will likely exceedsix percent in 2010, but should slow to arounda four percent growth rate in 2011.

South Koreas LEI index has dropped sharplyover the past two months through Novemberwith broad-based weakness coming from eightout of ten sectors.

South Koreas CPI inflation remains a problemthat is expected to prompt further interest ratehikes from the Korean central bank this year.Consumer price inflation jumped to 3.5percent from a year ago in December. Thecentral bank has a ceiling on inflation of 4.0percent. The government has already indicatedthat it will announce measures aimed atstabilizing living costs this month, whilePresident Lee Myung Bak called for a waragainst inflation. Given the price pressuresemerging both domestically and externally, wehave bumped up our estimate of South Koreaninflation in 2011 to average 3.5 percent. More

interest rate hikes and slower GDP growth in2011 should allow inflation to fall back toward3.0 percent by 2012.

South Korean Export & Import VolumesYear-over-Year Precent Change, 3-Month Moving Average

-20%

-10%

0%

10%

20%

30%

40%

2000 2002 2004 2006 2008 2010

-20%

-10%

0%

10%

20%

30%

40%

Volume of Exports: Oct @ 11.2%

Volume of Imports: Oct @ 11.7%

South Korean Unemployment RatePercent and 12-Month Moving Average

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%


12-Month Moving Average: Dec @ 3.7%


12


13/30


SwedenSwedish Real GDP


-20%

-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%



Swedish Manufacturing PMI

30

35

40

45

50

55

60

65

70

2002 2003 2004 2005 2006 2007 2008 2009 2010 201130

35

40

45

50

55

60

65

70

Swedish Manufacturing PMI: Dec @ 60.2%

Sweden endured a painful recession as realGDP tumbled nearly eight percent between

Q4 2007 and Q1 2009. However, the recoverykicked into high gear in 2010 with real GDP inthe third quarter up 6.8 on a year-ago basis.Monthly indicators, including industrialproduction and the manufacturing PMIsuggest that the economy continued to grow ata solid pace in the fourth quarter.

The rebound in global trade helped to liftSwedish exports, but the recovery hasbroadened to include domestic demand overthe past few quarters. The value of retail salesrose 5.3 percent in November, the strongestyear-over-year growth rate since late 2007.

The deep recession caused the unemploymentrate to rise sharply. However, the labor marketis strengthening againemployment has risenmore than 2 percent over the past 12 monthsand the unemployment rate is starting torecede from the 12-year high it hit last year.

CPI inflation largely remains in check,although it is starting to trend a bit higher.Acknowledging that the economy no longerneeds the stimulus from extraordinarily lowinterest rates, the Riksbank (the countryscentral bank) has raised its main policy ratefrom 0.25 percent in July to 1.25 percentpresently. Further tightening seems likely inthe months ahead.

Swedish Unemployment RateNot Seasonally Adjusted

4%

6%

8%

10%

12%

1997 1999 2001 2003 2005 2007 2009

4%

6%

8%

10%

12%


Unemployment Rate: Nov @ 7.8%

Swedish Consumer Price InflationYear-over-Year Percent Change

-2%

-1%

0%

1%

2%

3%

4%

5%

2000 2002 2004 2006 2008 2010

-2%

-1%

0%

1%

2%

3%

4%

5%

Overall CPI: Dec @ 2.3%

Underlying CPI: Dec @ 2.0%


13


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SwitzerlandSwiss Real GDP


-6%

-4%

-2%

0%

2%

4%

6%

2000 2002 2004 2006 2008 2010

-6%

-4%

-2%

0%

2%

4%

6%



Swiss Manufacturing PMIDiffusion Index

30

35

40

45

50

55

60

65

70

1997 1999 2001 2003 2005 2007 2009 2011

30

35

40

45

50

55

60

65

70

Swiss Manufacturing PMI: Dec @ 59.6

Switzerland experienced a fairly deeprecessionthe economy contracted more thanthree percent between Q2-2008 and Q2-2009but the level of real GDP hassubsequently surpassed its pre-downturn peakafter five consecutive quarters of stronggrowth. Moreover, the high reading on themanufacturing PMI suggests that growthremained solid in the fourth quarter.

The expansion to date has been fairly broadbased. Exports were growing at a double-digitrate earlier in the year, although recent datashow some deceleration, and consumerspending has held up fairly well. Indeed, realretail sales were up 3.0 percent in the first twomonths of the fourth quarter relative to thesame period in 2009, and the unemploymentrate has receded from more than 4 percent latelast year to 3.6 percent at present.

Inflation is nowhere to be seen, with both theoverall and the core rates of inflation close tozero percent. The strength of the Swiss franchas helped to keep a lid on inflationarypressures.

With the Swiss franc at or near all-time highsversus both the U.S. dollar and the euro andwith benign inflation, it seems likely that theSwiss National Bank will keep its target forthree-month Swiss LIBOR at 0.25 percent,where it has been maintained sinceMarch 2009, for the foreseeable future.

Swiss Consumer Price IndexYear-over-Year Percent Change

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1997 1999 2001 2003 2005 2007 2009 2011

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

CPI: Dec @ 0.5%

Swiss Exchange RateEUR per CHF

0.55

0.60

0.65

0.70

0.75

0.80

0.85

2001 2003 2005 2007 2009 2011

0.55

0.60

0.65

0.70

0.75

0.80

0.85

EUR per CHF: Jan @ 0.80


14


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TaiwanTaiwanese Real GDPYear-over-Year Percent Change

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%


Taiwanese RatesOvernight Rate, 10-Yr Government Bonds

0%

1%

2%

3%

4%

5%

6%

2000 2002 2004 2006 2008 2010

0%

1%

2%

3%

4%

5%

6%

Overnight Rate: Dec @ 0.25%

Taiwan 10-Yr Government: Jan @ 4.78%

Economic growth in Taiwan continues tosurprise on the upside. The government expectsGDP growth in 2010 to come in at around tenpercent. Both industrial production and exportswere stronger than expected in November.Growth is expected to slow into the 4.5 percentrange in 2011 as exports to China decelerate andthe currency appreciates.

There are also preliminary indications that thespurt of consumer spending growth that helpedbolster Taiwans growth rate over the past yearis beginning to lose some steam. Retail salesgrowth slowed to 5.5 percent in December, wellbelow the 6.9 percent average pace over the pastsix months.

The Taiwanese dollar continues to rise rapidlyagainst the U.S. dollar, which will be more of adrag on exports and production in 2011.Appreciating currencies often affect export andimport growth with a considerable lag.

Inflation came in at 1.3 percent in Decemberfrom a year ago, about double the six-monthmoving average. Inflation could rise a bitfurther in 2011, but the appreciating currencyshould help to temper the price increases. Therecent spike in inflation has been prompted, tosome extent, by the summer typhoon.

One of the most obvious indications thatTaiwans economy has bounced back to normalis the fact that Taiwans unemployment rateimproved to 4.7 percent in December, thelowest reading on this measure since 2004. Taiwanese Merchandise Trade Balance

Billions of New Taiwan Dollars, Not Seasonally Adjusted

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

1998 2000 2002 2004 2006 2008 2010

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Merchandise Trade Balance: Dec @ 46,230.0 TWD

12-Month Moving Average: Dec @ 59,245.8 TWD

Taiwanese Exchange RateTWD per USD

29.00

30.00

31.00

32.00

33.00

34.00

35.00

36.00

2000 2002 2004 2006 2008 2010

29.00

30.00

31.00

32.00

33.00

34.00

35.00

36.00

TWD per USD: Jan @ 29.3


15


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ArgentinaArgentine Real GDP


-24%

-16%

-8%

0%

8%

16%

24%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-24%

-16%

-8%

0%

8%

16%

24%



Argentine Consumer Price IndexYear-over-Year Percent Change

-10%

0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-10%

0%

10%

20%

30%

40%

50%

Consumer Price Index: Oct @ 11.1%

The Argentine economy continued to slowdown from the break-neck pace it posted

during the first half of 2010. The index ofeconomic activity, a monthly index that is aproxy for GDP increased by 7.1 percent on ayear-earlier basis in October while increasingby 0.3 percent on a seasonally adjusted basiscompared to September. We expect theArgentine economy to have grown by8.6 percent during the whole of 2010.

The Central Bank president, Marco del Pont, isunder fire due to the shortage of bills that isaffecting the economy during its Summermonth season. According to the government,the situation will get better in the next several

weeks but banks have had to limit the amountof bills they give per customer because of thissituation. According to some, the real culpritfor this situation is the Kirchneradministration as it tries to limit the number ofbills to, they say, limit or reduce inflationaryexpectations.

After dropping by 20.5 percent during 2009due to the worldwide financial crisis, Argentineexports rebounded handsomely during 2010,growing by more than 24 percent. However,imports have kept on surging and are expectedto have grown by more than 44.0 percent

during 2010 after plunging by 32.5 percentduring the previous year. The consequence ofthis is that Argentinas large trade surplus isslowly disappearing. Argentine Retail SalesYear-over-Year Percent Change

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Retail Sales: Oct @ 13.9%


Argentine Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

1998 2000 2002 2004 2006 2008 2010

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

Merchandise Trade Balance: Nov @ USD $390M


16


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BrazilBrazilian Real GDP


-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%



Brazilian Exports of Goods and ServicesBillions of U.S. Dollars

$0B

$4B

$8B

$12B

$16B

$20B

$24B

2003 2005 2007 2009

$0B

$4B

$8B

$12B

$16B

$20B

$24B

Exports: Dec @ $20.9 B

6-M Moving Average: Dec @ $18.8 B

Although the Brazilian economy has sloweddown somewhat compared to earlier in 2010,

growth remains relatively strong with theeconomy benefiting from a still strongcommodity sector and global growth. Thebiggest problem faced by the Brazilianeconomy right now has been the continuedstrengthening of the currency, which addspressure on export manufacturers and onprofit margins. Thus, the issue of the currencywill remain as one of the most contested issuesin the country and internationally as Brazilmakes itself heard in the new world economy.

The Brazilian trade sector ended last year witha bang, with exports surging by 52.5 percent

during the last month of the year while importsincreased by only 26.6 percent, year on year.This monthly result took the monthly surplusto $5.4 billion, a much needed boost to thetrade surplus for the year and for a countrythat saw its current account deficit deteriorateconsiderably in 2010. The trade surplus ended2010 at $20.3 billion with the December tradesurplus contributing more than a quarter to theyears total result.

The inflation rate in 2010 was 5.04 percent, abit higher than the 4.89 percent rate recordedin 2009. However, the 2010 inflation rate is a

very good rate if we consider that the Brazilianeconomy dropped by 0.6 percent during 2009and it is expected to post a 7.7 percent rate ofgrowth in 2010. Brazilian Retail Sales IndexYear-over-Year Percent Change

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

Retail Sales: Nov @ 9.9%

6-M Moving Average: Nov @ 10.6%

Brazilian Consumer Price IndexYear-over-Year Percent Change

0%

3%

6%

9%

12%

15%

18%

1998 2000 2002 2004 2006 2008 2010

0%

3%

6%

9%

12%

15%

18%

CPI: Dec @ 5.9%


17


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ChileChilean Real GDP


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



Chilean Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

1998 2000 2002 2004 2006 2008 2010

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

Merchandise Trade Balance: Dec @ $2,393

Chilean economic growth moderated a bitduring the third quarter of 2010 by growing at

an 8.1 percent compound annual rate afterrecord growth of almost 20 percent during thesecond quarter of the year. Nevertheless, weexpect growth to have remained very highduring the last quarter of the year as thecountry experienced almost record copperprices.

The trade sector is booming once again withthe help of the Chilean copper complex as thecountry benefits from record breaking copperprices. This is also benefiting thereplenishment of the petroleum rainy dayfund as well as the Chilean military, which

takes a direct piece of the copper revenues pie. The Chilean central bank has continued to

increase interest rates as pressures build oninflation due to very strong economic growth.While the appreciation of the Chilean peso ishelping considerably to keep prices under tabs,the central bank does not want to allowexpectations to change if it can prevent it fromhappening.

Consumer prices have continued to increase ona year-on-year basis after hitting -3.4 percentduring the worst of the worldwide financialcrisis. CPI inflation was 3.0 percent inDecember and could continue to rise ifcommodity prices remain at current levels oreven continue to increase. Chilean Consumer Price Index

Year-over-Year Percent Change

-4%

0%

4%

8%

12%

1998 2000 2002 2004 2006 2008 2010

-4%

0%

4%

8%

12%

CPI: Dec @ 3.0%

Chilean Policy Rate

0%

2%

4%

6%

8%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0%

2%

4%

6%

8%

10%

Policy Rate: Jan @ 3.25%

Source: Bloomberg LP, IHS Global Insight and Wells Fargo

Securities, LLC

18


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ChinaChinese Real GDP


3%

6%

9%

12%

15%

2000 2002 2004 2006 2008 2010

3%

6%

9%

12%

15%


Chinese Loan GrowthYear-over-Year Percent Change

0%

5%

10%

15%

20%

25%

30%

35%

99 00 01 02 03 04 05 06 07 08 09 10

0%

5%

10%

15%

20%

25%

30%

35%

Chinese Loan Growth: Dec @ 19.9%

Real GDP growth in China came rocketingback from the sharp slowdown that occurred inlate 2008/early 2009. However, the rate ofGDP growth has slowed recently due to sometightening measures by the government earlierin 2010. In addition, the year-over-year growthcomparisons have become less favorable.

Available indicators, including themanufacturing PMI and the rate of loangrowth, suggest that the pace of real GDPgrowth is beginning to stabilize at a high level.Indeed, we look for GDP growth in China todownshift only modestly from the 10 percentrate that looks to have been notched in 2010.

The overall rate of CPI inflation recentlybreeched five percent, the highest rate in morethan two years. Although most of the rise isdue to the sharp jump in food prices, theupward creep in non-food prices inflationincreases the risk that authorities slam on themonetary policy brakes.

The central bank has increased its benchmarklending rate by 50 bps since mid-October, andthe government has allowed the renminbi toappreciate modestly since last summer. Thatsaid, Chinese authorities generally do notchange economic policies in a dramaticfashion, making runaway currencyappreciation seem unlikely.

Chinese CPI InflationYear-over-Year Percent Change

-4%

-2%

0%

2%

4%

6%

8%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-4%

-2%

0%

2%

4%

6%

8%

10%

Overall CPI: Nov @ 5.1%

Non-food CPI: Nov @ 1.8%

Chinese Exchange RateCNY per USD

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

8.50

2005 2006 2007 2008 2009 2010 2010

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

8.50

CNY per USD: Jan @ 6.60

Source: Bloomberg LP, CEIC, IHS Global Insight and Wells Fargo

Securities, LLC

19


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IndiaIndian Real GDP


5%

6%

7%

8%

9%

10%

11%

12%

2004 2005 2006 2007 2008 2009 2010

5%

6%

7%

8%

9%

10%

11%

12%


Indian Wholesale Price InflationYear-over-Year Percent Change

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2000 2002 2004 2006 2008 2010

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Wholesale Price Inflation: Nov @ 7.5%

Following the marked slowdown in 2008-2009, the Indian economy is growing at a

rapid rate again. That said, the overall rate ofGDP growth is not quite as robust today as itwas in the super-charged days of a few yearsago. Available indicators from the fourthquarter suggest that growth remained strong.

The biggest economic risk facing India atpresent is unacceptably high inflation.Wholesale price inflation, which is thebenchmark gauge in India, breached doubledigits in mid-2010 and it remains elevated atpresent. Although much of the increase in theoverall rate of inflation is due to the sharpincrease in food prices, there is a risk that

inflation could become more entrenched in theIndian economy.

The trade deficit is starting to widensomewhat. Although the deficit is not yet atlevels that would lead to a balance-of-payments crisis, increasing amounts of red inkin the trade accounts is another sign ofdeterioration of economic fundamentals at themargin.

The Reserve Bank of India (RBI) has raised itsmain policy rate by 150 bps since mid-March.With unacceptably high inflation, rather thaninsufficient economic growth, as the biggestrisk facing the Indian economy at present, itseems likely that the RBI will continue totighten policy in the months ahead. Indian Merchandise Trade Balance

Billions of Rupees, Not Seasonally Adjusted

-700

-600

-500

-400

-300

-200

-100

0

100

2002 2004 2006 2008 2010

-700

-600

-500

-400

-300

-200

-100

0

100

Merchandise Trade Balance: Nov @ -400.7B Rupees

Reserve Bank of India Repo RatePercent

0

2

4

6

8

10

2007 2008 2009 2010 2010

0

2

4

6

8

10

Repo Rate: Dec @ 6.25%


20


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MexicoMexican Real GDP


-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1994 1996 1998 2000 2002 2004 2006 2008 2010

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%



Mexican Industrial Production IndexYear-over-Year Percent Change

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2004 2005 2006 2007 2008 2009 2010

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Mexican Industrial Production: Oct @ 3.7%

Motorized by U.S. demand, the Mexicanautomobile sector is booming once again after

a very strong drop during the worst of theworldwide financial crisis. Mexico is slowlybecoming the hub for companies from theUnited States, Italy, Germany, and othercountries to serve the needs of the U.S. automarket. The biggest difference today is theshift on the production side is for Mexico tobecome a small auto producer rather than alarge SUV producer as was the case before thecrisis, especially for U.S. auto manufacturers.

Mexican CPI inflation has remained wellcontain and we are not expecting the centralbank to move in terms of interest rate during

the first quarter of the year. Todays 4.4percent rate of inflation is within the allowedband of 3.0 percent plus or minus 2 percentthat the Mexican central bank has as its targetso we dont expect major events just yet.

While the Mexican economy continued to slowdown during the last quarter of 2010 we areexpecting a relatively strong rebound for thefirst half of this year as the recent events in theU.S. regarding fiscal policy improves theeconomy north of the border.

Investments in productive capacity in theMexican economy improved a bit during thelast months of 2010 but remains well belowwhat it is necessary to allow the economy topost strong rates of growth on a sustainedbasis.

Mexican Consumer Price IndexYear-over-Year Percent Change

2%

4%

6%

8%

10%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2%

4%

6%

8%

10%

12%

CPI: Dec @ 4.4%

Mexican Gross Fixed InvestmentYear-over-Year Percent Change

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2004 2005 2006 2007 2008 2009 2010

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Fixed Capital Formation: Q3 @ 3.8%

4-Q Moving Average: Q3 @ -1.8%


21


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PolandPolish Real GDP


0%

3%

6%

9%

1996 1998 2000 2002 2004 2006 2008 2010

0%

3%

6%

9%


Polish Industrial Production IndexYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010 Jul 2010-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

IPI: Nov @ 10.1%

Polands economic growth strengthened in thethird quarter to 4.2 percent year over year, up

from 3.5 percent in the second quarter.Quarterly growth of 1.3 percent was also betterthan the second quarters 1.2 percent. Growthwas driven by acceleration in personalconsumption, which rose 3.5 percent year overyear, and a turnaround in gross fixed capitalinvestment, which rose 0.4 percent versus adrop of 1.7 percent in the second quarter.Trades contribution was zero compared to-0.4 percentage points in the second quarter.

Industrial production rose to 10.1 percent yearover year in November from 8.0 percent inOctober. Production is being supported by

robust external demand, from Germany inparticular, and strong domestic demand as thelabor market has improved. The PMImanufacturing index also rose in November tothe third highest reading on record as neworders rose the most since May 2004.

As the labor market has improved, so too haveretail sales, which were up 8.3 percent yearover year in November. Still, with so muchslack left in the economy, inflation remainscontained at just 2.7 percent as of November.

Continued concerns about the European debtcrisis and about attracting hot money led thecentral bank to keep the main policy rateunchanged at 3.5 percent in November. Bankreserve requirements will likely be raisedbefore interest rates to combat rising inflation.

Polish Employment GrowthYear-over-Year Percent Change

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2005 2006 2007 2008 2009 2010

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Employment Growth: Nov @ 2.2%

Polish Consumer Price IndexYear-over-Year Percent Change

0%

2%

4%

6%

8%

10%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0%

2%

4%

6%

8%

10%

12%

CPI: Nov @ 2.7%

Source: Bloomberg LP, IHS Global Insight andWells Fargo Securities, LLC

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RussiaRussian Real GDP


-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


Russian Wheat ExportsMillions of USD

$0

$200

$400

$600

$800

1900 2007 2008 2009 2010$0

$200

$400

$600

$800Wheat Exports: Oct @ $0.7

Russias economy grew just 2.7 percent yearover year in the third quarter, half the

5.2 percent growth seen in the second quarter.The deceleration was led by a 16.6 percentplunge in agricultural output as drought andfires ripped through the countryside during thesummer. Trade was a drag on growth asexports rose just 9.5 percent year over year,while imports surged 34.8 percent. Personalconsumption supported growth, rising6.7 percent year over year compared to 4.6percent in the second quarter.

The impact of the grain export ban was notfully felt in the third quarter as wheat exportsheld strong through August. In September,

however, wheat exports plunged to basicallynothing. Thus, we expect a much bigger impacton the trade balance in the fourth quarter.However, with oil prices on the rise lately, theshortfall in wheat exports may be compensatedby strong crude oil exports.

Industrial production growth has slowed lately.Less favorable bases of comparison and aslowdown in production during the droughtand fires are largely to blame.

Inflation has jumped from a low of 5.5 percentin July to 8.7 percent in December on soaringfood costs. Although nominal retail salesremain strong, rising inflation has slowed realwage growth as well as real retail sales growth.The central banks concerns about inflationhave risen, but it has yet to raise rates.

Russian Industrial Production IndexYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

IPI: Nov @ 6.7%

3-Month Moving Average: Nov @ 6.5%Russian Consumer Price IndexYear-over-Year Percent Change

0%

5%

10%

15%

20%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0%

5%

10%

15%

20%

CPI: Dec @ 8.7%


23


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South AfricaSouth African Real GDP


-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%



Real South African Retail SalesYear-over-Year Percent Change

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

2003 2004 2005 2006 2007 2008 2009 2010

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

Wholesale & Retail Sales: Oct @ 6.1%

Third quarter economic growth in South Africaslowed slightly in the third quarter to a

2.6 percent annual rate, but the underlyingdetails were encouraging. Business spendingcontracted by the smallest measure in the pastfive quarters, and consumer spending grew at a2.6 percent annualized pace in the quarterafaster growth rate than in the previous quarter.The increase in consumer spending came witha jump in imports which contributed to a dragon third quarter growth from trade.

It would appear that growth in consumerspending is carrying over into the fourthquarter as retail sales increased 0.7 percent inOctober, relative to the previous month.

Business spending may be poised to add toGDP for the first time since the second quarterof 2009. Manufacturing production picked upin both October and November, and theBusiness Confidence Index rose in Decemberfor the second month in a row.

In line with our expectations, the South AfricanReserve Bank (SARB) eased rates further at itsmeeting on Nov. 17 and 18, bringing the reporate to 5.5 percent. The lower rates have beensupportive of the recovery in consumerspending. But with rates at the lowest level in30 years, we suspect the SARB will pause at thepresent level and assess the impact of its recentrate cutting campaign before making anyfurther adjustments. South African Industrial Production Index

Manufacturing, Year-over-Year Percent Change

-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

1999 2001 2003 2005 2007 2009

-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

IPI: Oct @ 1.9%


South African Central Bank Rate

5%

7%

9%

11%

13%

15%

2000 2002 2004 2006 2008 2010

5%

7%

9%

11%

13%

15%

South African Repo Rate: Jan @ 5.50%


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TurkeyTurkish Real GDP

Year-over-Year Percentage Change

-15.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-15.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%


Turkish Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$10,000

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

2002 2004 2006 2008 2010-$10,000

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

Merchandise Trade Balance: Nov @ -7,682.7 USD

Turkeys economic growth slowed to5.5 percent year over year in the third quarter,

down from 10.2 percent in the second quarter.Quarterly growth also slowed from 3.7 percentto just 1.1 percent. Still, that is a decent rate ofgrowth, which is being driven by strongdomestic demand, which rose 7.6 percent andresilient investment, which jumped 31.3percent. Trade remained a drag on growth.

The trade deficit continued to widen in thefourth quarter, reaching -$7.7 billion inNovember. Improving consumer confidenceand a falling unemployment rate are fuelingconsumer spending, while record-low interestrates are supporting domestic investment, both

of which are driving very strong importgrowth. Meanwhile, continued weakness inmajor European markets is hindering exports.

Industrial production growth has slowed a bit,coming in at 9.1 percent year over year inNovember, largely due to a less favorable baseof comparison. Adjusted for seasonality andcalendar days, production fell 1.3 percent inNovember from October, when the productionlevel actually surpassed the pre-crisis peak.

Inflation declined 6.4 percent year over year inDecember as food prices fell. Low inflation hasallowed the central bank to cut its benchmarkinterest rate to 6.5 percent to stem capitalinflows. Restraining lira appreciation is vital toretaining export competitiveness and reducingthe growing current account deficit.

Turkish Industrial Production IndexYear-over-Year Percent Change

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1998 2000 2002 2004 2006 2008 2010

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

IPI: Nov @ 9.1%


Turkish Consumer Price IndexYear-over-Year Percent Change

0%

20%

40%

60%

80%

100%

120%

1998 2000 2002 2004 2006 2008 2010

0%

20%

40%

60%

80%

100%

120%

CPI: Dec @ 6.4%


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Dollar Exchange RatesU.S. Trade Weighted Dollar Major Index

March 1973=100

65

70

75

80

85

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

65

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Jan @ 74.0

Euro-zone Exchange RateUSD per EUR

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1999 2001 2003 2005 2007 2009

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

USD per EUR: Jan @ 1.336

After falling in November to its lowest level in2010, the weighted-average value of the dollar

has trended a bit higher in the subsequent twomonths. Much of the dollars gains have comeagainst the euro, which has been weigheddown by concerns about debt sustainability insome Eurozone economies. That said, thegreenback has strengthened against most othermajor currencies since early November due, atleast in part, to signs of stronger U.S. economicgrowth.

The U.S. dollar is essentially unchanged onbalance versus the currencies of manydeveloping countries over the past two months.Increased risk appetite, attractive rates of

return and rising commodity prices havehelped to underpin the value of emergingcurrencies vis--vis the greenback.

The U.S. current account deficit has narrowedconsiderably over the past few years, whichexerts fewer headwinds on the dollar. At thesame time, foreign purchases of U.S. securitieshave remained solid, which has helped tosupport the dollar.

Wells Fargo projects that the dollar will remainbroadly steady versus most major currencies inthe early part of 2011 before strengtheningsomewhat in the second half of the year. Stronggrowth in the developing world shouldcontinue to support commodity-based andemerging market currencies. US Trade Weighted Emerging Currency Index

March 1973=100

120

125

130

135

140

145

150

2000 2002 2004 2006 2008 2010

120

125

130

135

140

145

150

"Other Important Trading Partners" Index: Jan @ 127.17

Current Account DeficitQuarterly in Billions of Dollars, Seasonally Adjusted

-$240

-$200

-$160

-$120

-$80

-$40

$0

$40

92 94 96 98 00 02 04 06 08 10

-$240

-$200

-$160

-$120

-$80

-$40

$0

$40

Balance on Current Account: Q3 @ $-127.2 B

Source: Bloomberg LP, IHS Global, Federal Reserve Board, U.S.Department of Commerce and Wells Fargo Securities, LLC

26


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EnergyCrude Oil

NYMEX Front-Month Contract, Dollars per Barrel

$0

$20

$40

$60

$80

$100

$120

$140

$160

00 01 02 03 04 05 06 07 08 09 10 11

$0

$20

$40

$60

$80

$100

$120

$140

$160

Crude Oil: Jan @ $88.03

Crude Oil & Gasoline PricesDollars per Barrel, Dollars per Gallon

$0

$25

$50

$75

$100

$125

$150

2005 2006 2007 2008 2009 2010 2010

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Crude Oil: Jan @ $88.03 (Left Axis)

Retail Gasoline: Jan @ $3.08 (Right Axis)

Energy prices are once again, on a wild ride asthe U.S. economy continues its path to

recovery and the rest of the developed worldfollows through. However, the real storybehind energy prices remains thedevelopments in the emerging market withBrazil, China, and India leading the way in thenew world economic order.

While much of the push in energy prices isdriven by the good prospects of emergingmarket growth, monetary expansion aroundthe world, including China, has a lot to do withthe current levels of energy prices, especiallypetroleum. If this environment continues weshould see petroleum prices remaining high

but with an increasing risk on the downside. While natural gas prices are a bit higher than

several months ago they have continued tomiss the market rally on energy prices. Whileexcess investment and production in the sectorin the U.S. is probably to blame for thissituation the fact that the U.S. economy is alsostruggling has not helped as it did in theprevious worldwide energy price cycle.

Gasoline prices are following behind oil pricesbut margins remain under pressure as theincrease in oil prices has been higher than theincrease in gasoline prices. However, we expectgasoline prices in the United States to improveas the summer driving season approaches.

Natural GasHenry Hub Spot, Dollars per MMBTU

$0

$2

$4

$6

$8

$10

$12

$14

$16

2005 2006 2007 2008 2009 2010 2010

$0

$2

$4

$6

$8

$10

$12

$14

$16

Natural Gas: Jan @ $4.49

Gasoline Inventory4-Week Moving Average, Millions of Barrels

180

190

200

210

220

230

240

2005 2006 2007 2008 2009 2010 2010

180

190

200

210

220

230

240

Gasoline Inventories: Dec @ 216.2 Million Barrels


27


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MetalsCRB Metals Index

Index

0

200

400

600

800

1,000

1,200

2002 2004 2006 2008 2010

0

200

400

600

800

1,000

1,200

CRB Metals Index: Jan-7 @ 995.78

Copper PriceDollars per Pound

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

2002 2004 2006 2008 2010

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

Copper: Jan-7 @ $4.33

Metal prices are booming once again. Althoughmany argue that current monetary policy is

behind the latest surge in metals, industrialmetals are way ahead of non-industrial metals.While there may be some froth building insome of these markets some of the increase inprice are real.

The cases of copper and silver prices have beenparticularly impressive during this cycle withboth, but particularly silver prices, way aheadof its pre-crisis heights. Silver prices reached$30.9 per troy ounce in December of last year,way ahead of the pre-crisis peak of $20.7 pertroy ounce while copper prices increased to ahigh of $4.48 dollars per pound.

Having said this, and indirectly supportingthose that argue that this is just speculation,some of the growth around the world is due tostill very strong expansions in monetary policy.Fiscal policy in the rest of the world has startedto fade away with probably the exception of theU.S. economy, which has recently put outanother round of fiscal expansion to aid it stillstruggling economy.

The jury is still out on the issue of whether thisincrease in metals prices is real or just theconsequence of worldwide expansionarymonetary policy. What is clear, however, is thatthe industrial metals complex is leading andthere may be a good reason for current pricelevels. Gold Price

Dollars per Troy Ounce

$0

$400

$800

$1,200

$1,600

2002 2004 2006 2008 2010

$0

$400

$800

$1,200

$1,600

Gold: Jan-7 @ $1369.57

Silver PriceDollars per Troy Ounce

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

2002 2004 2006 2008 2010

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

Silver: Jan-7 @ $28.67


28


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30/30

W ells Fargo Securities, LLC Econom ics Group

Diane Schumaker-Krieg Global Head of Research& Economics

(704) 715-8437(212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]

Mark Vitner Senior Economist (704) 383-5635 [email protected]

Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]

Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]

Eugenio Aleman, Ph.D. Senior Economist (704) 713-0314 [email protected]

Sam Bullard Senior Economist (704) 383-7372 [email protected]

Anika Khan Economist (704) 715-0575 [email protected]

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Ed Kashmarek Economist (612) 667-0479 [email protected]

Tim Quinlan Economist (704) 374-4407 [email protected]

Michael A. Brown Economist (704) 715-0569 [email protected]

Tyler B. Kruse Economic Analyst (704) 715 -1030 [email protected]

Joe Seydl Economic Analyst (704) 715-1488 [email protected]

Sarah Watt Economic Analyst (704) 374-7142 [email protected]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealerregistered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC,and Wells Fargo Securities International Limited. The information and opinions herein are for general information useonly. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities,LLC assume any liability for any loss that may result from the reliance by any person upon any such information oropinions. Such information and opinions are subject to change without notice, are for general information only and arenot intended as an offer or solicitation with respect to the purchase or sales of any security or as personalizedinvestment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is awholly owned subsidiary of Wells Fargo & Company 2011 Wells Fargo Securities, LLC.

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