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8/8/2019 Global Economics q4
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MacroGlobal Economics
Q4 2010
Emerging elation, Western stagnation
High debts and excessively low inflation...
...point to Western stagnation...
...with the debt-lite emerging nations in the driving seat of global growth
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
By Stephen King, Karen Ward and Madhur Jha
ECONOMICSGlobal
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Emerging boom, western headacheFor those whove turned a blind eye to Japans ongoing difficulties, the challenge now facing western
policymakers may seem unfamiliar. The West is suffering not from recession but, instead, from ongoing
stagnation. All the talk about double-dips misses this crucial point. Despite the massive economic
stimulus in recent years, the level of economic activity remains disturbingly depressed. As a result, there
is no prospect of any monetary tightening in the foreseeable future. Indeed, the debate has now returned
to the prospect of further easing. That, in turn, creates a challenge for the far-more-buoyant emerging
nations, where policymakers will have to work out what to do with the massive capital inflows triggered
by very low interest rates in the West.
HSBC growth and inflation forecasts
GDP ____Wrestling with debt (2 July 2010) ____ ______________ Latest _______________ 2010 2011 2010 2011
World 3.5 3.0 3.5 2.9Developed 2.4 1.9 2.4 1.8Emerging 6.9 6.2 7.2 6.2US 3.1 2.6 2.7 2.5UK 1.2 1.9 1.4 1.4Eurozone 1.2 1.3 1.6 1.3Japan 3.0 1.0 3.0 0.7Brazil 7.2 5.1 7.5 5.1Russia 4.7 3.0 3.8 3.5India 8.8 8.6 8.8 8.6China 10.0 8.9 10.0 8.9
Inflation ____Wrestling with debt (2 July 2010) ____ ______________ Latest _______________2010 2011 2010 2011
World 2.3 2.2 2.3 2.2Developed 1.2 1.2 1.3 1.2Emerging 5.6 5.4 5.6 5.4US 1.4 1.1 1.6 0.9UK 3.0 3.4 3.2 2.9Eurozone 1.5 1.4 1.6 1.6Japan -1.0 -0.4 -1.1 -0.5Brazil 5.3 5.1 4.9 5.4Russia 6.4 9.9 7.0 9.5India 10.2 4.7 10.7 5.4China 3.1 2.5 2.9 2.5
Source: HSBC
Summary
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The lack of any decent economic response in the western world reflects the unusual nature of the economicchallenges facing policymakers. This is proving to be more a nominal rather than real economic crisis. With
interest rates at zero, further declines in inflation will lead to undesirable increases in real interest rates. For
debtors, life threatens to become a lot less comfortable. The rational response to excessively low inflation at
the household or corporate level is to repay debt with even greater urgency. The consequent loss of demand,
however, will increase the risks of outright deflation, making a sustained recovery even less likely.
The absence of inflation is the key reason why policymakers continue to emphasise the fragile nature of economic recovery and why unconventional policies remain at the top of the agenda. Central bankers need
to persuade the public that (i) they have the tools to avoid deflation and (ii) the tools will be used. However,
should the public remain intent on repaying debt, its difficult to see quantitative easing and the othersources of monetary magic achieving a great deal. The western world is falling into a Japan-lite trap.
Let battle commenceIn all the hype about unconventional policies, a crucial part of the deleveraging story is oft-forgotten.
This is ultimately a battle between creditors, debtors and different interest groups within society. In
Europe, the battle is between Mediterranean debtors and Northern European creditors. Globally, theres a
huge gulf between the interests of American debtors (who demand a renminbi appreciation) and Chinese
creditors (who worry about a dollar depreciation). And, within the US, companies have only been able to
cope with debts by slashing costs, thereby shifting the burden of economic adjustment onto households.
The political aspects of this story cannot be underestimated. It may be that high US unemployment stemsfrom the trigger happy hire and fire approach of the US corporate sector, but it is politically convenient toblame the US labour markets difficulties on foreign powers. China is now seen in parts of Washington as
public enemy number one, a perception which can only increase the chances of a protectionist nightmare
unfolding in the coming months. Meanwhile, although US companies are now awash with cash, few seem
intent on converting that cash into productive investment. Surviving is now more important than thriving.
We need to think in levels - it will require much stronger growth than we are forecasting to get the US economy back on its previous path
6000
9000
12000
15000
18000
97 00 03 06 09 12
6000
9000
12000
15000
18000
Nominal GDP Trend
USDbn USDbn
Source: Thomson Reuters Datastream, HSBC calculationsTrend is proxied by the average growth between 1997 and 2007.
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Oh to be debt-freeWhile the western world is struggling to cope with the multi-year hangover stemming from its earlier
excesses, the emerging world remains very buoyant, seemingly able to decouple from the Wests
economic traumas. Having borrowed far too much in the 1990s, most emerging nations have now learnt
their lesson. Absent the need for aggressive deleveraging, emerging nations are revelling in a world of
strong supply-side growth prospects and a very low global cost of capital. Moreover, the spread of
deflation pressures in the western world appears to have limited the rise of inflation pressures in the
emerging world.
Is this too good to be true? In a word, yes. The challenge for emerging nations lies in preventing
economic success from turning into an uncontrollable boom. We examine some of the options availableto emerging nation policymakers, ranging from currency appreciation through to the widening use of capital controls. None of the options is perfect but at least policymakers are aware of the dangers and
keen to avoid a repeat of the errors made in the 1990s.
Betting on the emerging worldWith the West suffering from Japanese-style stagnation, emerging nations appear to offer by far the best
prospects for economic growth in the years ahead, a conclusion very much reflected in our forecasts. But
while we are enthusiastic about emerging nation equities, there are other way to take advantage of the
growing discrepancy between the west and the rest. Chinas dominant position in commodities suggests
energy, metals and food prices are more likely to rise than fall in the years ahead. Pressure on realexchange rates should lead to continued out-performance from emerging currencies. Western companies
either outsourcing to cut costs or investing in emerging consumer demand should also stand to benefit in
the years ahead. All the while, however, the risks cannot be ignored: excessive inflation, asset price
bubbles and western protectionism could all upset the emerging market applecart, even if only on atemporary basis.
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Key forecasts 6
Monetary & fiscal policyassumptions 7
Emerging elation, Westernstagnation 8 Economics upended 8 Bernankes closer to the helicopters but will it help? 11 Sharing the pain 12 The recent US recession in context 13 This isnt making deleveraging easy 15 An emerging inflation problem? 16 Headline inflation has been below expectations in the East 18 Excess liquidity may find its way into asset prices again 19
Conclusions 21
Global economic forecasts 23 GDP 24 Consumer prices 26 Short rates 28Long rates 29Exchange rates vs USD 30 Exchange rate vs EUR & GBP 31 Consumer spending 32 Investment spending 33 Exports 34 Industrial production 35 Wage growth 36 Budget balance 37 Current account 38
Country and territory sectionsUS 40 Canada 42 Mexico 43 Brazil 44 Argentina 46 Chile 47 Eurozone 48 Germany 50 France 52 Italy 54 Spain 56 UK 58 Norway 60 Sweden 61 Switzerland 62 Hungary 63 Poland 64 Romania 65 Russia 66 Turkey 68 Egypt 70 Saudi Arabia 71 UAE 72 South Africa 73 Japan 74 Australia 76 New Zealand 77 China 78 India 80 Hong Kong 82 Indonesia 83 Malaysia 84 Philippines 85 Singapore 86 South Korea 87 Taiwan 88 Thailand 89 Vietnam 90
Disclosure appendix 94 Disclaimer 95
Contents
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Key forecastsKey forecasts
__________________ GDP________________ _______________ Inflation________________2009 2010f 2011f 2012f 2009 2010f 2011f 2012f
World (nominal GDP weights) -2.2 3.5 2.9 3.3 1.0 2.3 2.2 2.2World (PPP weights) -0.5 4.8 4.0 4.2 1.9 3.2 2.8 2.8Developed -3.5 2.4 1.8 2.3 0.0 1.3 1.2 1.2
Emerging 1.9 7.2 6.2 6.2 4.7 5.6 5.4 5.3North America -2.6 2.8 2.4 3.2 -0.3 1.6 1.0 1.1
US -2.6 2.7 2.5 3.2 -0.3 1.6 0.9 1.1Canada -2.5 3.1 2.1 2.3 0.3 1.7 1.6 2.0
Latin America -3.4 6.0 4.5 4.6 6.2 7.7 7.6 6.9Mexico -6.5 4.3 3.8 4.5 5.3 4.2 4.0 3.4Brazil -0.2 7.5 5.1 4.5 4.9 4.9 5.4 4.6Argentina -2.7 7.8 4.5 5.0 14.8 26.5 21.7 18.7Chile -1.5 5.0 5.5 4.5 0.3 1.6 3.3 3.2
Western Europe -4.1 1.6 1.3 1.6 0.6 1.8 1.8 1.7Eurozone -4.0 1.6 1.3 1.6 0.3 1.6 1.6 1.7
Germany -4.7 3.3 1.9 1.8 0.2 1.1 1.2 1.3France -2.5 1.6 1.5 1.8 0.1 1.8 1.8 1.6Italy -5.1 1.0 0.7 1.0 0.8 1.6 1.9 1.7Spain -3.7 -0.4 0.6 1.5 -0.2 1.6 1.5 1.7
Other Western Europe -4.3 1.7 1.5 1.8 1.5 2.4 2.3 1.8UK -4.9 1.4 1.4 1.8 2.2 3.2 2.9 1.8Norway -1.3 0.5 1.4 2.1 2.2 2.3 1.7 2.5Sweden -5.1 4.0 2.9 2.5 -0.3 1.1 2.1 2.5Switzerland -1.9 2.9 1.7 1.8 -0.5 0.7 0.7 1.5
EMEA -3.4 3.8 3.8 3.8 7.4 5.9 6.8 6.7Czech Republic -4.0 2.1 2.7 2.8 1.0 1.5 2.4 2.4Hungary -6.2 1.0 2.7 3.0 4.2 4.8 3.2 3.4Poland 1.8 3.2 3.9 3.4 3.5 2.5 2.9 3.3Russia -7.9 3.8 3.5 3.0 11.7 7.0 9.5 8.5Turkey -4.7 6.8 3.9 4.3 6.3 8.7 7.7 7.0Ukraine -15.1 5.5 4.0 5.1 16.0 8.5 8.4 9.0Romania -7.1 -2.2 0.1 2.2 5.6 6.0 5.5 4.6Egypt* 4.7 5.1 6.0 6.1 10.0 10.7 10.4 11.0Israel 0.7 3.9 3.4 3.6 3.9 2.3 3.0 2.7Saudi Arabia 0.1 3.6 4.4 4.8 5.1 5.5 6.6 7.0UAE -2.9 2.0 3.9 4.5 1.8 1.0 2.7 4.0South Africa -1.8 2.6 3.5 3.1 7.2 4.7 5.5 6.0
Asia-Pacific 0.7 6.1 4.7 5.0 0.8 2.0 1.8 2.0Japan -5.2 3.0 0.7 1.5 -1.3 -1.1 -0.5 -0.4Australia 1.2 3.4 4.1 3.9 1.8 3.0 3.1 2.9New Zealand -0.5 1.4 2.6 3.7 2.1 2.3 4.0 2.3
Asia ex Japan 5.7 8.8 7.6 7.4 2.6 4.6 3.7 3.8China 9.1 10.0 8.9 8.6 -0.7 2.9 2.5 2.2
Asia ex Japan & China 2.4 7.4 6.1 6.1 5.1 5.8 4.4 4.9Hong Kong -2.8 5.4 4.7 4.5 0.6 2.4 2.9 3.3India 6.7 8.8 8.6 8.0 10.9 10.7 5.4 7.1Indonesia 4.5 6.1 6.4 6.3 4.8 5.2 6.0 5.2Malaysia -1.7 7.3 5.2 5.0 0.6 1.9 2.7 2.2Philippines 1.1 5.9 4.6 5.6 3.3 4.2 4.5 4.7Singapore -1.3 13.2 4.6 6.0 0.6 2.2 2.7 2.8South Korea 0.2 6.0 4.0 4.6 2.8 2.7 2.9 3.0
Taiwan -1.9 7.3 4.9 3.8 -0.9 1.2 1.6 1.6Thailand -2.2 7.9 5.3 4.1 -0.8 3.5 3.6 3.0Vietnam 5.3 7.0 7.5 7.8 7.1 8.7 8.5 8.0
Notes: Calendar year; except for * w hich is based upon Egyptian fiscal year (July-June); Global and regional aggregates are calculated using chain n ominal GDP (USD) weightsSource: HSBC
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Monetary policy
Q1 2010 Q2 2010 Q3 2010f Q4 2010f Q1 2011f Q2 2011f Q3 2011f Q4 2011fUSTargeted Fed funds 0.00 to 0.25 0.00 to 0.25 0.00 to 0.25 0.00 to 0.25 0.00 to 0.25 0.00 to 0.25 0.00 to 0.25 0.00 to 0.25JapanOvernight call rate 0.10 0.10 0.10 0.00 0.00 0.00 0.00 0.00EurozoneRepo rate 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00UKBank rate 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50CanadaOvernight rate 0.25 0.50 1.00 1.00 1.25 1.75 2.00 2.00
Source: HSBC.
Fiscal policy
Country 2010 2011US The 2010 fiscal year ends in September. The deficit for the year is likely to be USD1.30tn,
only slightly lower than the USD1.42tn recorded in 2009. The deterioration in federalfinances has been split almost evenly between an increase in expenditures and a shortfallin revenues. In 2007, prior to the recession, expenditures were running at about 20% ofGDP while revenues were close to 19%. In the current fiscal year, expenditures are closeto 24% of GDP while revenues have dropped to 15%.
Public resistance to fiscal stimulus programs that might increase the federal budgetdeficit has grown steadily in the past year. Still, there is little political appetite fortaking action to reduce the deficit. Tax increases are widely resisted while programspending cuts are opposed by the parties that would be directly affected. We expecta deficit of about USD1.2tn for fiscal year 2011. That should amount to about 7.8%of GDP, down only modestly from the 9.0% expected for 2010.
Japan The economic policy of the new government will proceed as planned in the ini tialbudget which should raise real GDP growth by 0.3ppt in FY2010. Kan declared thathe intends to make a supplementary budget against the downside risks of theeconomy, but scale and contents are still uncertain.
Given the new strategies for economic growth and fiscal consolidation by Kans newadministration, we expect the impact of these strategies would be almost neutral in2011 as the expected spending would be mainly financed by cutting other spendingor by increasing taxes.
Eurozone Despite the increasingly austere budgets being delivered by countries such asGreece, Spain and Ireland, fiscal policy will be roughly neutral in 2010 as a result ofthe ongoing stimulus in other countries, Germany in particular. Together with theongoing weakness in nominal GDP growth, this implies a further deterioration in thebudget deficit to about 7% of GDP.
Fiscal tightening in the Eurozone as a whole will begin in 2011 with even the lessfiscally-challenged countries such as Germany s tarting to rein in spending.Tightening is currently expected to amount to about 1% of Eurozone GDP in 2011but more aggressive tightening will be required if the debt-to-GDP ratio is to stabilisein the next four years or so.
Germany The fiscal burden arising from the recent recess ion will peak in 2010, driving thedeficit to 3.9% of GDP. The structural defici t of the federal government should bearound 3.5% in 2010 (2011: 2.9%); this development is in line with new establishedGerman debt break rule.
No major tax reform/ tax relief will take place due to the need for a continued fiscalconsolidation. Approved austerity measures and the strength of the upswing shouldscale the budget deficit back to 3.2% of GDP. The economic burden following from theconsolidation measures for 2011 will not exceed 0.5% of GDP.
France Our upward revision to GDP raises our forecast of fiscal revenues, and job creationcould limit the rise in unemployment benefits. Therefore the public deficit could besmaller than expected at 7.7% of GDP ( 8.6% initially forecasted). Public debt couldreach 82.4% of GDP incl. the part of grand loan planned for 2010, ie EUR5bn.
Our upward revision to inflation raises nominal GDP and the government is planningto reduce the tax credit of EUR10bn. As a result, the public deficit could narrow to6.1%. But the public debt should continue to rise to 86% in 2011 after 82.4% in2010. Announcements about a public spending decl ine could not be enough tostabilize the debt-to-GDP ratio before 2013.
Italy A number of micro measures, financed by the revenue delivered by a tax amnesty,are scheduled for 2010, but fiscal policy will be roughly neutral.
Tough new measures amounting to EUR24bn (1.6% of GDP) are planned for 2011-12.These include a three-year public-sector pay freeze, a gradual reduction in publicsector headcount and cuts in local government spending. There are also plans for agradual increase in the retirement age.
UK Taking into account the plans inherited by the new government and those outlined inthe 22 June emergency budget, a fiscal tightening of close to half a percentage pointof GDP will be implemented in the current fiscal year. The most visible measure willbe a hike in the rate of VAT to 20% in January 2011.
The pace of fiscal consolidation will quicken appreciably in FY2012 with an overalltightening of GBP41bn being implemented, helping net borrowing fall to anestimated 7.5% of GDP from the expected 10 per cent in the previous year. Taxincreases are expected to account for more than 40% of this fiscal effort.
Canada Canadas Ministry of Finance is on track for a CAD49.2bn deficit for FY2010/11 inline with projections laid out in the March budget for 2010 and down from theCAD54bn projected for FY2009/10. We expect to see fi scal balance return byFY2014/15.
For FY2011/12, the deficit is expected to have shrunk to just slightly less thanCAD28bn.The MOF expects the debt-to-GDP ratio to peak at slightly more than 35%in FY2011 and decline to 32% by FY2015. Overall, Canadas debt-to-GDP ratio isrunning at half the average of the G7 nations.
Source: HSBC
Monetary & fiscal policyassumptions
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Economics upendedIts not just time for unconventional policies. The
moment has arrived for unconventional thinking.
Standard economic theory suggests changes ineconomic policy lead to changes in real economic
activity employment, retail sales, investment and
so on within the space of a year or so. Then,
after a further 12 months, changes in the real
economy begin to have an impact on inflation.
1. Core inflation is trending lower in the US and Germany
0
1
2
3
4
5
6
90 92 94 96 98 00 02 04 06 08 10
0
1
2
3
4
5
6
US Germany
%Yr Core inflation %Yr
Note:West Germany prior to 1997.Source: Thomson Reuters Datastream
For the Western world, this chain of events is
being turned upside down. With policy rates at
zero, further declines in inflation (Chart 1), by
driving up real interest rates, will have seriousconsequences for real economic activity.
Households and companies will be incentivised torepay debt with even greater enthusiasm.
Accelerated deleveraging will, in turn, constrain
economic activity, thereby pushing inflation down
even more. The process then repeats itself.
In the US and much of Europe, inflation is nowtoo low. Indeed, the Federal Reserve confirmed
as much following the Federal Open Markets
Committee Meeting on 21 September, saying that
Measures of underlying inflation are currently at
levels somewhat below those the Committee
judges most consistent, over the longer run, with
its mandate to promote maximum employment and
price stability.
Admittedly, the UK is an exception to this overall
trend, in our view a reflection of the lagged impact
of sterlings 2008 collapse in pushing up domestic
prices. For the most part, however, central bankers
are confronted with similar challenges. Against a
background of high debts, acute deleveraging and
incipient deflation, how can they help generate asustained economic recovery?
This challenge is remarkably reminiscent of the
problems facing the Japanese economy over the
last twenty years. After years of denial, western
policymakers are finally accepting that their
economies are showing Japanese-style symptoms.
James Bullard, President of the St Louis Federal
Reserve, for example, has admitted that the US is
at risk of settling into a low growth, low inflation
Emerging elation, Western stagnation
High debts and excessively low inflation point to Western stagnation with debt-lite emerging nations in the driving seat of global growth
Stephen KingEconomistHSBC Bank Plc+44 207 991 [email protected]
Karen WardEconomistHSBC Bank Plc +44 207 991 [email protected]
Madhur JhaEconomistHSBC Bank Plc +44 207 991 [email protected]
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and low interest rate steady state akin to Japansmulti-year economic stagnation. 1
This is all the more surprising given the scale of
the policy stimulus on offer over the last three
years. Unlike the Japanese, who were slow to
stimulate their economy at the beginning of their
stagnation, western policymakers have deliveredmassive interest rate cuts, huge increases in
government borrowing and increasingly
unconventional monetary measures. Yet, despiteall their efforts, the outcome has been
disappointing, at least when benchmarked against
post-war economic cycles.
Typically, deep recessions are followed by steep
recoveries while mild recessions are followed by
shallow recoveries. By any standards, the
2008/09 recession was remarkably steep. The
subsequent recovery has, unfortunately, been veryshallow. Put another way, the level of economic
activity in the western world remains very
depressed, despite all the stimulus measures
provided in recent years.
The most obvious explanation for the failure of
western economies to achieve lift-off after the
Great Recession is that debt levels are still too
high. An easy way to demonstrate this is toconsider the much better response of many of the
emerging economies during this crisis. Their
rebounds have been much more dynamic, largelybecause they havent been encumbered by the
debt problems of old. Indeed, its almost as if the
economic world has been turned upside down: the
scourge of excessive borrowing, once considered
to be the preserve of the emerging nations, is now
very much a problem for the western world. This
reversal of fortune is reflected in our forecasts: forthe emerging world, growth is buoyant and
1 Seven Faces of The Peril , James Bullard, Federal
Reserve Bank of St. Louis Review September-October Issue.
inflation a little too high whereas, for thedeveloped world, the rebound is disappointing and
inflation worryingly low.
These divergent trends create varying policy
challenges. Keeping a lid on the effects of
excessive capital inflows will occupy the minds of
policymakers in the emerging world while, in thedeveloped world, policymakers will have to work
out how to engineer a period of deleveraging
without succumbing to deflation. It wont be easy.Well look at the challenges facing emerging
nations a little later. For now, well focus on the
ongoing problems in the developed world. These
are as much political as they are economic,
because both creditors and debtors have reasons to
worry. And it is these concerns which, arguably,
are contributing to heightened risk aversion in
financial markets, reflected most obviously in theextraordinarily-elevated price of gold and the yen.
2. Deficits are extraordinary
-12
-9
-6
-3
0
-12
-9
-6
-3
0
F r a n c e
G e r m a n y
G r e e c e
I r e l a n d
I t a l y
P o r t u g a l
S p a i n
U K
U S
J a p a n
% GDP Gov ernment bala nces in 2010 % GDP
Source: OECD
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3. though for countries in peripheral Europe this reflectsfunding pressures that are forcing extreme fiscal tightening
-10-8
-6-4
-20
2
F r a n c e
G e r m a n y
G
r e e c e
I r e l a n d
I t a l y
P o r t u g a l
S p a i n
J a p a n
U K
-10-8
-6-4
-20
2
% GDP Primary balances in 2010 % GDP
Note: Calculated from underlying primary balance and underlying balance data.Primary balance is deficit excluding interest paymentsSource: OECD
4. Its still yet to be seen whether fiscal cuts do significantlyimprove debt-to-GDP ratios (or simply declines in GDP)
0
2550
75
100
125
F r a n c e
G e r m a n y
G r e e c e
I r e l a n d
I t a l y
P o r t u g a l
S p a i n
U K
U S
J a p a n
0
2550
75
100
125
% GDP Gov ernment net debt in 2010 % GDP
Source: OECD
The pressures vary depending on reserve currency
status and access to a monetary printing press.
For example, both the US and Greece have
terrible fiscal positions but only Greece is underimmediate pressure to deliver swingeing budget
cuts, largely because creditors know that, in the
absence of cuts, the alternative is a default (Charts
2-4). Should Greece deliver the cuts required to
stabilise its government debt/GDP ratio in the
years ahead, the burden of adjustment will mostlyhave fallen on domestic debtors rather than
(mostly foreign) creditors.
And what is true of Greece is also a problem formany other European nations. With funding costs
for parts of the periphery now back above the
levels seen at the height of the sovereign crisisearlier in the year, governments may be forced into
even greater fiscal tightening if only to repay the
now-higher interest on existing government debt.
5. Problems in the European periphery have resurfaced
0
2
4
6
Jan-10 Apr-10 Jul-10
0
5
10
15
Ireland SpainPortugal ItalyGreece (RHS)
% %5y r gov ernment bond yields
Source: Reuters
Unfortunately as Janet Henry, our Chief European
Economist, notes in Eurozone periphery: And now
for the hard part (21 September 2010), life is
about to get significantly tougher for Ireland andthe Mediterranean countries. This years big
deficit reductions in Portugal, Greece, Ireland and
Spain have been achieved mostly by cutting
capital spending. The more politically challenging
cuts are those which impinge on public sector
staff. And all of this is yet to come. Moreover, astheir economies weaken, theres a growing chance
that inflation in the periphery will sink to still
lower rates, reducing nominal GDP and, thus,
boosting ratios of deficits and debt to GDP.
Meanwhile, despite the fact that the government
bond yields in parts of the Eurozone periphery are
back near previous peaks, purchases of
government debt by the ECB have dwindled.
It might simply be that the ECB is so fearful of imminent inflation that is does not deem such
intervention consistent with meeting its inflation
target. More likely, however, is that the ECB
recognises the increasingly political nature of
such actions (how can a monetary authority easily
decide how much of each countrys bonds to
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buy?). The European Financial Stability Fund(EFSF) is nearly up and running to support
governments short of funds, allowing the
eurozone politicians to decide who has access and
importantly on what conditions. But this is likely
to involve considerable political wrangling,
adding to uncertainty in financial markets.
Of course the other consequence of the ECBs
unwillingness to utilise the printing press
aggressively is euro strength. By limiting thesupply of euros, the risk of renewed euro
appreciation against a tarnished dollar cannot be
ruled out. Unfortunately, as peripheral bond
yields return to crisis levels, European economies
no longer have the safety valve of a falling
currency to encourage their growth prospects.
The ECB appears reluctant to alter its stance. This
may eventually have to change, following Japansrecent experience. With economic prospects
looking as stagnant as ever; the upward march in
the yen against the dollar has become too much to
bear, forcing the Ministry of Finance to intervene.
In these circumstances, the world is at risk of
descending into a beggar-thy-neighbour
outbreak of currency wars (a risk referred to by
Guido Mantega, Brazils finance minister as
reported by the Financial Times on 28 September).
Bernankes closer to the
helicopters but will it help?But what about the US? Relative to individual
eurozone nations, theres a much wider range of available options.
The minutes from the latest Fed meeting suggest
that certain members of the Federal Reserve are
growing impatient with the lack of vigour so far
demonstrated by the recovery and by the
persistence of disinflationary pressures. Whereas
previously they had indicated that things wouldhave to get materially worse for further action, it
seems now they could be willing to take furtheraction merely if things dont get any better.
As yet it is unclear what form a new dose of QE
will take. But whilst this may provide some short
term support to financial markets, a more worthy
question is whether QE2 will solve the
economys fundamental problems. Our view isthat by pushing treasury and mortgage rates
lower, QE2 would merely ease the burden of
deleveraging, rather than curing the underlyingailment. If your mortgage is a little cheaper each
month, it helps you pay off that debt, but its still
going to take some time.
One way around this discussed in Stephen
Kings recent An Unconventional Truth
(September 2010) is for central banks to shift
away from inflation targeting towards price level
targeting. By doing so, central banks wouldeffectively promise to raise interest rates only
when inflation had moved above target following
a period of excessively low inflation (thereby
implying that real interest rates would fall in the
future, encouraging more longer term borrowing
today). But, as King admits, there are two
problems with this approach. First, most central
bankers are reluctant to make such a step.
Second, the benefits of persistently-low interest
rates have an irritating habit of leaking abroad.
Of course one of the other effects of quantitativeeasing in the US is that by increasing money supply,
the burden of adjustment is shifted from US
domestic debtors to foreign creditors via a much
weaker dollar. While the US is happy to talk about
the need for a stronger renminbi on trade grounds,
its probably more accurate to think instead about a
weaker dollar on quasi-default grounds. 2 A
2 Interested readers should look at Stephen Kings article in the
Financial Times on 20 September 2010, Beijing is right to
ignore the currency pleas along with follow-up letters from
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weaker dollar makes foreign creditors to the USworse off for the simple reason that they will mostly
have lent to the US in dollars and not in their own
currency. If quantitative easing is to work without
raising domestic inflation in the US, it will have to
perform its magic through the currency. Turning on
the printing press is, therefore, an attempt to shift the
burden of adjustment from domestic US debtors to
foreign creditors. It works both by making thecreditors worse off (the renminbi value of assets
denominated in dollars goes down) and byimproving conditions for domestic debtors (a weaker
dollar should lift US nominal GDP and, thus, raise
the denominator in the key deficit and debt ratios.)
The political narrative accompanying this story is
simple enough. Both the Administration and
Congress argue that China and others are unfairlyusing undervalued exchange rates to deliver
mercantilist objectives. This unfair competition, the
US argues, is leading to the loss of American jobs.Thus the US has every right to demand the
revaluation of the renminbi. Should the Chinese not
play ball, the US could then be justified in shifting
relative prices via the imposition of tariffs.
Its a beguiling message, at least from the
perspective of a domestic US electorate, but is it
really accurate? Is it really the case that the loss
of American jobs in recent years which has beenon a truly enormous scale is due to the
manipulation by others of their exchange rates?
Dr John Williamson (22 September) and Stephen King
(24 September)
Sharing the painTaking a closer look at the recent US experience
shows that the rise in unemployment has little to
do with exchange rates and much more to do with
the aggressive behaviour of US companies during
this latest economic downswing. In Japan,
companies bore the brunt of the economicadjustment. Their high debts led to persistent
deleveraging, starving Japan of the investment
that might have triggered a stronger economic
revival. US companies, in contrast, have coped
with their debts relatively easily, largely because
they have used the recession to slash costs and,
thus, boost their margins. Their gains, however,
have been matched by losses for American
households. Like Japan, the US will have to
deliver plenty of deleveraging but, in the yearsahead, the adjustment will come
disproportionately from the household sector,
creating a febrile environment for protectionistsentiment up and down the country.
Charts 6 to 11 compare the recent downturn to
previous US recessions. What is striking about
this recession is not just the scale of the downturn
but, as we have already noted, the lack of asubsequent rebound. The age old rule of the
deeper the drop the greater the rebound simply
hasnt proved true.
Looking at nominal activity the picture is evenmore extraordinary. For the first time in more than
fifty years, nominal GDP contracted and has only
now managed to claw back to the level seen
almost two years ago (Chart 12).
And whilst corporate profits fell sharply in thedownturn they have staged a remarkable recovery
having risen by 65% since the trough in 2008
(Chart 13).
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The recent US recession in context6. GDP has not only fallen by more than a normal recession, the recovery has also been weaker
90
95
100
105
110
115
120
T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T +11 T+12 T +13 T+14 T +15 T+1690
95
100
105
110
115
120
53Q3 57Q3 60Q2 69Q4 73Q4 80Q1 81Q3 90Q301Q1 07Q4
Index , T=100 Index , T=100Real GDP
Source: Thomson Reuters Datastream, ECRI, HSBC
7. In nominal termsthe position is dismal
8090
100110
120130140150
T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T +11 T+12 T +13 T+14 T +15 T +16
8090100110
120130140150
53Q3 57Q3 60Q2 69Q4 73Q4 80Q1 81Q3 90Q301Q1 07Q4
Index , T=100 Index , T=100Nominal GDP
Source: Thomson Reuters Datastream, ECRI, HSBC
8. And yet profits have staged a remarkable recovery
60
80
100
120
140
160
180
T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T+11 T+12 T+13 T+14 T+15 T+16
60
80
100
120
140
160
180
57Q3 60Q2 69Q4 73Q4 80Q1 81Q3 90Q3 01Q1 07Q4
Index , T=100 Index, T=100Real corporate profits
Source: Thomson Reuters Datastream, ECRI, HSBC
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9. But this has been at the expense of household sector jobs
90
95
100
105
110
T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T +11 T+12 T +13 T+14 T +15 T +1690
95
100
105
110
53Q3 57Q3 60Q2 69Q4 73Q4 80Q1 81Q3 90Q301Q1 07Q4
Index , T=100 Index , T=100Employ ment
Source: Thomson Reuters Datastream, ECRI, HSBC
10. and income
80
90
100
110
120
T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T+11 T+12 T+13 T+14 T +15 T +16
80
90
100
110
120
57Q3 60Q2 69Q4 73Q4 80Q1 81Q3 90Q3 01Q1 07Q4
Index, T=100 Index , T=100Real household income
Source: Thomson Reuters Datastream, ECRI, HSBC
11. And firms have been trying to squeeze as much as possible out of their current workforce.
95
100
105
110
115
120
T-4 T-3 T-2 T-1 T T+1 T +2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T +11 T +12 T+13 T+14 T+15 T +16
95
100
105
110
115
120
53Q3 57Q3 60Q2 69Q4 73Q4 80Q1 81Q3 90Q301Q1 07Q4
Index, T=100 Index, T=100Labour productiv ity
Source: Thomson Reuters Datastream, ECRI, HSBC
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The rise in corporate profits has only been achievedby pushing the burden of the downturn onto the
household sector. US corporates have been bearing
down on pay and aggressive in job shedding. With
precious little rehiring, total nominal household
income is still 2% below that seen in 2008. Its no
wonder households are still feeling miserable.
While business confidence has rebounded in 2010,
consumer confidence remains close to rock bottom.Indeed, the gap between the ISM survey and
consumer confidence is the biggest on record,emphasising the extent to which the crisis has had a
much bigger effect on the household sector than on
the corporate sector (Chart 12).
12. An unusual gap has opened between household andcorporate sentiment
20304050
607080
67 71 75 79 83 87 91 95 99 03 07 11
0
4080
120
160
ISM manufacturing (LHS)US consumer confidence (RHS)
Index Index
Source: Thomson Reuters Datastream
13. Corporates have grabbed a larger slice of the piebutarent spending
5
7
9
11
1315
51 55 59 63 67 71 75 79 83 87 91 95 99 03 07 11
10
12
14
16
1820
Profit s hare Inv estm ent s pending
% %
Source: Thomson Reuters Datastream
From an overall growth perspective (if not from apolitical perspective) this doesnt matter so long
as corporates go out and spend. The problem is
that whilst there has been some recovery in
corporate spending, it hasnt been enough to
offset the drag from the consumer. The profit
share of GDP has risen but investment spending
has not (Chart 13). Corporates seem far more
intent on repaying debt. Given the murky outlook for consumer demand, and the failure of fiscal
stimulus to deliver a decent economic recovery,who can blame them? Yet if the marginal
propensity to invest is low, the redistribution of
income from the household to the corporate sector
is not going to help the US economy to rebound.
This isnt making deleveragingeasyDepressed incomes are only hindering households
as they try to repay debt to mend their battered
balance sheets, leaving consumer spending
unusually weak. Its the classic fallacy of
composition: if all corporates try to be cautious
and prudent at once, unless exports fill the gap,
demand will fall making such efforts futile. We
are thus in danger of a vicious cycle developing
whereby household and corporate prudence leadsto a stagnant economy.
14. German workers have done a better job of maintainingtheir share of the pie
38
40
42
44
46
48
00 01 02 03 04 05 06 07 08 09 10
20
22
24
26
28
Labour share Profit share
Germany% %
Source: Thomson Reuters Datastream
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Looking across the Atlantic we see an entirelydifferent picture. In Germany, workers have
managed to claw back their share of GDP to pre-
crisis levels (Chart 14). By contrast, the corporate
sector has lost out. Why have we seen such
contrasting behaviour between corporate
behaviour in the US and Germany? Astrid
Schilos latest piece What drives German jobs?
(29 September 2010) suggests that there are twomain reasons why German corporates have been
hoarding labour. The first is that firms, for anumber of years, had been complaining about
skills shortages making them reluctant to let go of
staff on the basis that should activity pick up, it
might be hard to rehire. The second is that
government support, through what was know as
the short-shift scheme, helped companies to bear
the cost through the downturn. And so in contrast
to the US, we saw a sharp fall in productivity asfirms (on the whole) kept hold of staff. This
protected the household sectors share of income
considerably more than in the US.
For the western economies as a whole, debt
remains a serious problem. At the very least,
deleveraging will rule out interest rate increases
for the foreseeable future. Most of the debt
adjustments seen so far are the equivalent of re-arranging the chairs on the deck of the Titanic: in
the US, companies have benefited at the expense
of households while, in Germany, workers havebenefited at the expense of government and,
hence, taxpayers and recipients of public services.
The re-distributional aspects of the crisis deliver
political problems but in no way do they provide
economic solutions.
An emerging inflation problem?Despite all the signs of deleveraging, the amplified
hum of the printing press has led some to include
that an inflationary disaster awaits some way downthe road. Yet, in the developed world, the opposite
seems true. Putting VAT aside, core inflation rates
are trending ever lower, hardly surprising given
large amounts of spare capacity.
However, attention also needs to be paid to more
buoyant developments in the emerging worldwhere strong rebounds in economic activity
(Charts 15 and 16) suggest that output gaps which
emerged as a result of the 2008 downswing havelargely been closed out. In Decoupling Revisited
(14 September 2010), Frederic Neumann, Pablo
Goldberg, and Song Yi Kim highlight why the
emerging markets have bounced back, and why
they expect activity to remain buoyant.
15. GDP growth in emerging markets... 16. ...has broadly been better than market expectations
-3
-2
-1
0
1
2
-3
-2
-1
0
1
2
Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10
Difference between actual and consensus GDP forecasts
Malaysia% pts % pts
-3-2-101234
-3-2-101234
Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10
Difference between actual and consensus GDP forecasts
Philippines
Source: Bloomberg, HSBC Source: Bloomberg, HSBC
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Despite the closure of output gaps, however,inflation in the emerging markets has been
relatively well behaved certainly when compared
to consensus expectations (see charts 17 to 23).
With a few notable exceptions like India, the
emerging world at present appears to be enjoying
a goldilocks scenario of high growth and
benign inflation.
Much of this reflects the passing of the global
growth baton from the US to China. Strong Chinesedemand for commodities has kept prices relatively
elevated notwithstanding the problems in the
western world. As a consequence, many of the
worlds major commodity producers have,
unusually, emerged relatively unscathed. Whether
its Brazil, South Africa, the Middle East or
Australia, the western recession has done littledamage to their terms of trade, allowing decent
growth rates to be maintained. Meanwhile, despite
remarkably low interest rates, inflation hasnt pickedup as quickly as had been feared, largely because the
Wests problems have limited inflationary pressures
virtually everywhere in the world.
Earlier in the year, it was commonly thought that
loose monetary conditions in the West would lead to
excessive inflation in the emerging world. The
argument was partly based on the idea that, over
time, real exchange rates in the emerging worldshould rise, a reflection of their economic success
and, hence, their enhanced buying power over the
worlds scarce resources. If nominal exchange rates
were fixed against the dollar, the only way in which
real exchange rates would be able to shift was via
relatively high inflation in the emerging world,
which would increase the buying power of emerging
nations over goods and services priced in dollars.
The argument rested on the idea that the West wasable to set its own inflation rate and that inflation
rates in the emerging world would be, as a
consequence, far too high. But, for the emerging
world, this now seems to be too pessimistic a
conclusion. The adjustment in real exchange rates is
taking place less because of excessively elevated
inflation in the emerging world and more because
inflation in the developed world is too low. Therelative adjustment is roughly the same, but more of
the heavy lifting is being done by the deflation-prone western nations.
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Headline inflation has been below expectations in the East17. Inflation has come in weaker than expected in the US 18. and also across some countries in the Latam space
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Difference between actual and consensus forecast
US headline inflation% pts % pts
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10Difference between actual and consensus forecast
Mexico headline inflation% pts % pts
Source: Bloomberg, HSBC Source: Bloomberg, HSBC
19. as well as the main African economies 20. such as South Africa and Egypt
-0.6-0.4-0.2
00.20.40.60.8
-0.6-0.4-0.200.20.40.60.8
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Difference between actual and consensus forecast
South Africa headline inflation% pts % pts
-4-3-2-1012
345
-4-3-2-1012
345
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10
Difference between actual and consensus
Egypt headline inflation% pts % pts
Source: Bloomberg, HSBC Source: Bloomberg, HSBC
21. With the main exception of India, inflation in Asia 22. has also surprised largely to the downside
-0.8-0.6-0.4-0.2
00.20.40.60.8
-0.8-0.6-0.4-0.200.20.40.60.8
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Difference between actual and consensus forecast
South Korea headline inflation% pts % pts
-1
-0.5
0
0.5
1
1.5
-1
-0.5
0
0.5
1
1.5
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Difference between actual and consensus forecast
Philippines headline inflation% pts % pts
Source: Bloomberg, HSBC Source: Bloomberg, HSBC
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Nevertheless, with robust growth, capacityconstraints and labour market shortages, wage
settlements have come in well ahead of the
prevailing inflation rate in many countries (for
example, minimum wage settlements in China are
averaging around 15%, much higher than the
3.0% average inflation). Might this be a
harbinger of higher future inflation?
One reason for faster wage growth is continuedand rapid increases in productivity per employee
in the emerging world. In countries such as China
output per worker is rising rapidly enough to
offset the increase in compensation levels. People
are being paid more because they are producing
more (Chart 24).
24. Productivity gains per employee have been muchstronger in the developing world than in the west
100
150
200
250
300
350
2000 2002 2004 2006 2008100
150
200
250
300
350
China United States
United Kingdom Korea
Index, 2000=100 Index, 2000=100
Source: Thomson Reuters Datastream, HSBC
Excess liquidity may find itsway into asset prices againBut its also possible that traditional inflation
metrics are not fully capturing the underlying
inflation dynamics in emerging nations.
Focussing only on CPI/WPI metrics could be
misleading as inflationary pressures are starting toshow up in other places, in particular asset prices.
25. Stock markets have performed better in the EM world
405060708090
100110120
J a n - 0
8
M a r - 0 8
M a y - 0 8
J u l - 0 8
S e p - 0
8
N o v - 0 8
J a n - 0
9
M a r - 0 9
M a y - 0 9
J u l - 0 9
S e p - 0
9
N o v - 0 9
J a n - 1
0
M a r - 1 0
M a y - 1
0
J u l - 1 0
405060708090100110120
Japan US India Korea
Index, Jan 08=100 Index, Jan 08=100
Source: Thomson Reuters Datastream, HSBC
23. Core inflation remains soft in the emerging world
-2
0
2
4
6
8
10
85 87 89 91 93 95 97 99 01 03 05 07 09-2
0
2
4
6
8
10
South Korea Taiwan Thailand
% Yr % YrCore inflation
Source: Thomson Reuters Datastream, HSBC
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26. As have corporate bonds
70
80
90
100
110
120
05 05 06 06 07 07 08 08 09 09 10 10
70
80
90
100
110
120
EM DM
Corporate Bond IndexesIndex Index
Source: Thomson Reuters Datastream
27. And there are fears of property bubbles in Asia
70
80
90
100
110
120
130
0 5
0 6
0 7
0 8
0 9
1 0
70
80
90
100
110
120
130
USA China Korea
Index, 2005=100 Index, 2005=100House prices
Source: Thomson Reuters Datastream, HSBC
Equity and corporate bond markets and house
prices are still reasonably buoyant to accelerate in
the emerging world (see Charts 25-27). Partly,this can be attributed to growing wealth and
access to credit in the emerging world, on the
back of huge supply-side improvements andlegitimate financial reforms. However, in the face
of near-zero interest rates in the developing
markets, QE-induced excess liquidity has found
its way into the emerging world. While some
emerging market countries such as China are
becoming more concerned about the dangers of
credit driven asset bubbles (restrictions on thehousing sector are already in place in China), the
search for better returns on behalf of fund
managers all over the world continues to have thepotential to fuel further credit expansions in
emerging nations.
In other words, whilst deflationary pressures inthe West are clearly inhibiting consumer prices
across the globe, excess liquidity appears to be
finding its way into asset prices.
In the last edition of Global Economics ( Wrestlingwith debt ) we argued that loose monetary
conditions in the western world might simply fuela credit boom in the emerging world as investors
hunted for yield. While this flow of capital will
certainly help growth prospects in the emergingworld in the near future, we know from yen carry
trade effects over the last 20 years that low
interest rates in one part of the world can fuel
asset and credit booms in other parts of the world.
In the 1990s, cheap capital fuelled the Mexican
boom, the Asian boom and the TMT bubble.
Over the last decade, cheap capital helped fuelhousing bubbles in the US, the UK and Spain.
What should emerging nations do today to stop
them suffering the same fate?
There are five options:
1 Allow currencies to appreciate, thereby
severing the link with the US dollar once
and for all and allowing some independence
in domestic monetary policy. The problem
with this, however, is that currencyappreciation may lead to even greater hot
money inflows, leading to bigger domestic
financial distortion.
2 Tighten fiscal policy to offset the effects of
loose monetary conditions. This is easier said
than done: fiscal policy, being so politically-
charged, has never been a good way of
stabilising cyclical economic pressures.
3 Impose counter-cyclical capital ratios on
financial institutions to stop them lending
too much during periods of low interest rates.
Although promising, its not obvious howsuch policies might work in reality. At what
point should ratios be changed?
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4 Increase collateral terms for domesticborrowers. Even if banks are happy to lend a
lot, these policies will prevent borrowers from
taking full advantage.
5 Impose capital and exchange controls to
prevent excessive capital inflows. In
contrast to the late-1990s, the IMF and otherinternational bodies now accept that controls
are not wholly negative, partly because of the
relative success of China and Malaysia overthe last decade or so.
None of these are ideal but, in an uncertain world,
some mixture of these approaches will increasingly
be adopted as countries seek to prevent another
outbreak of the capital market instability which has
proved so devastating to different parts of the world
over the last twenty years.
ConclusionsDebt, deleveraging and deflation will be therecurrent themes in the western world in the
months ahead. Having borrowed too much,
western nations are in danger of being caught in a
Japan-lite trap. Policy may be loose, but it is not
being very effective. The best that central bankerswill be able to do is to commit to low short-term
interest rates for a very long period of time
probably years rather than months.
Success will ultimately rest not on the occasionaluptick in the real economy but, instead, on the
return to health of the nominal economy. That
means an end to the disinflationary process which
has proved so corrosive to recovery prospects.
Inflation needs to move back up again. In the
meantime, we expect bond yields to decline
further, notwithstanding poor fiscal positions.
The incentive to shift the burden of adjustment
onto other countries is strong, not just because of a
desire to boost exports via currency weakness but
also because of the geographical distribution of
debtors and creditors. One likely casualty of this
process is the US dollar which we expect to softenfurther in the months ahead. The euro will also
come under pressure from time to time, not helped
by the problems in the periphery. Amid all this
uncertainty, the gold price is likely to remain high.
Should the Federal Reserve resort to quantitative
easing later in the year, it is difficult to avoid theconclusion that risky assets would, for a while,
perform relatively well. However, Japans
experience with QE earlier in the decade suggeststhat any benefits might fade as renewed
scepticism about economic recovery returns: with
heavy deleveraging, we expect inflation to remain
too low in the years ahead.
Most of the good news is focused on the emerging
nations. There are plenty of ways of exploiting
this story through currency appreciation,
commodity investments, investments in westerncompanies with heavy or growing emerging
market exposure. But it will be important to keep
a watchful eye on inflation developments, whether
in goods, labour or asset markets, for signs that
capital inflow from abroad might be threatening
economic and financial stability.
And, finally, the relative success of the emerging
world and the failure of the developed world willonly serve to heighten protectionist sentiment.
Many investors focus only on market
developments. Today, more than ever, they willalso need to focus on political reality. Some of
the biggest financial risks come not from market
failures but, instead, from the growing political
pressures between the old and new superpowers.
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Global economicforecasts
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Annual
% Year 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f
World (Nominal GDP weights) 2.5 3.7 3.2 3.7 3.6 1.3 -2.2 3.5 2.9 3.3World (PPP weights) 3.9 5.0 4.6 5.3 5.4 2.9 -0.5 4.8 4.0 4.2Developed 1.8 2.9 2.4 2.7 2.3 0.0 -3.5 2.4 1.8 2.3Emerging 5.7 7.0 6.5 7.6 7.9 5.6 1.9 7.2 6.2 6.2
North America 2.4 3.5 3.1 2.7 2.0 0.0 -2.6 2.8 2.4 3.2
US 2.5 3.6 3.1 2.7 1.9 0.0 -2.6 2.7 2.5 3.2Canada 1.9 3.1 3.0 2.8 2.2 0.5 -2.5 3.1 2.1 2.3Latin America 2.1 5.2 3.9 5.0 5.0 3.4 -3.4 6.0 4.5 4.6
Mexico 1.4 4.0 3.2 5.1 3.2 1.5 -6.5 4.3 3.8 4.5Brazil 1.1 5.7 3.2 4.0 6.1 5.1 -0.2 7.5 5.1 4.5Argentina 8.8 9.0 9.2 8.5 8.7 4.9 -2.7 7.8 4.5 5.0Chile 3.9 6.0 5.6 4.6 4.7 3.7 -1.5 5.0 5.5 4.5
Western Europe 1.1 2.1 1.9 2.9 2.7 0.3 -4.1 1.6 1.3 1.6Eurozone 0.8 1.8 1.7 2.9 2.6 0.3 -4.0 1.6 1.3 1.6
Germany -0.2 0.7 0.9 3.6 2.8 0.7 -4.7 3.3 1.9 1.8France 1.1 2.3 2.0 2.4 2.3 0.1 -2.5 1.6 1.5 1.8Italy 0.1 1.4 0.8 2.1 1.4 -1.3 -5.1 1.0 0.7 1.0Spain 3.1 3.3 3.6 4.0 3.6 0.9 -3.7 -0.4 0.6 1.5
Other Western Europe 2.1 3.0 2.3 3.0 2.8 0.1 -4.3 1.7 1.5 1.8UK 2.8 3.0 2.2 2.8 2.7 -0.1 -4.9 1.4 1.4 1.8
Norway 0.8 3.3 1.8 1.7 2.7 0.6 -1.3 0.5 1.4 2.1Sweden 2.5 3.7 3.1 4.6 3.4 -0.6 -5.1 4.0 2.9 2.5Switzerland -0.2 2.5 2.6 3.6 3.6 1.9 -1.9 2.9 1.7 1.8
EMEA 5.6 6.4 5.9 6.3 5.9 4.1 -3.4 3.8 3.8 3.8Czech Republic 3.6 4.3 6.4 7.0 6.1 2.3 -4.0 2.1 2.7 2.8Hungary 4.2 4.6 4.1 3.8 1.0 0.4 -6.2 1.0 2.7 3.0Poland 3.8 5.4 3.4 6.2 6.8 5.0 1.8 3.2 3.9 3.4Russia 7.3 7.2 6.4 7.7 8.1 5.6 -7.9 3.8 3.5 3.0Turkey 5.3 9.4 8.4 6.9 4.7 0.7 -4.7 6.8 3.9 4.3Ukraine 9.6 12.1 2.6 7.1 7.9 2.1 -15.1 5.5 4.0 5.1Romania 5.3 8.5 4.1 7.9 6.2 7.1 -7.1 -2.2 0.1 2.2
Non-European EMEA 4.7 4.9 5.6 5.5 5.3 4.9 0.2 3.5 4.3 4.3Egypt* 3.2 4.1 4.5 6.8 7.1 7.2 4.7 5.1 6.0 6.1Israel 2.3 5.2 5.1 5.3 5.2 4.0 0.7 3.9 3.4 3.6Saudi Arabia 7.7 5.3 5.6 3.1 3.4 4.4 0.1 3.6 4.4 4.8UAE 11.9 7.4 10.5 9.4 5.2 7.0 -2.9 2.0 3.9 4.5
South Africa 3.0 4.6 5.3 5.6 5.5 3.7 -1.8 2.6 3.5 3.1Asia/Pacific 4.0 5.0 4.6 5.3 6.0 3.0 0.7 6.1 4.7 5.0
Japan 1.5 2.7 1.9 2.0 2.3 -1.2 -5.2 3.0 0.7 1.5Australia 3.2 3.6 3.2 2.6 4.8 2.2 1.2 3.4 4.1 3.9New Zealand 4.4 4.0 3.2 2.3 3.3 -0.6 -0.5 1.4 2.6 3.7
Asia-ex-Japan 7.2 7.9 7.7 9.1 9.9 7.0 5.7 8.8 7.6 7.4China 10.0 10.1 10.4 11.6 13.0 9.6 9.1 10.0 8.9 8.6
Asia ex-Japan & China 5.0 6.2 5.5 7.0 7.0 4.5 2.4 7.4 6.1 6.1Hong Kong 3.0 8.5 7.1 7.0 6.4 2.2 -2.8 5.4 4.7 4.5India** 7.3 6.7 6.2 9.8 9.5 7.5 6.7 8.8 8.6 8.0Indonesia 4.8 5.0 5.7 5.5 6.3 6.0 4.5 6.1 6.4 6.3Malaysia 5.4 7.3 5.3 5.8 6.5 4.7 -1.7 7.3 5.2 5.0Philippines 4.9 6.4 5.0 5.3 7.1 3.7 1.1 5.9 4.6 5.6Singapore 4.6 9.2 7.4 8.6 8.5 1.8 -1.3 13.2 4.6 6.0South Korea 2.8 4.6 4.0 5.2 5.1 2.3 0.2 6.0 4.0 4.6
Taiwan 3.7 6.2 4.7 5.4 6.0 0.7 -1.9 7.3 4.9 3.8Thailand 7.0 6.4 4.7 5.1 4.9 2.5 -2.2 7.9 5.3 4.1Vietnam 7.3 7.8 8.4 8.2 8.5 6.3 5.3 7.0 7.5 7.8
Notes: * = based upon Egyptian fiscal year (July-June); ** = calendar year. We now calculate the weighting system using chain nominal GDP (USD) weightsSource: HSBC
GDP
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Quarterly
% Quarter & % Year Q3 09 Q4 09 Q1 10 Q2 10f Q3 10f Q4 10f Q1 11f Q2 11f Q3 11f Q4 11f
North AmericaUS* % Quarter 1.6 5.0 3.7 1.6 2.5 1.8 2.5 2.7 3.2 2.9
% Year -2.7 0.2 2.4 3.0 3.2 2.4 2.1 2.4 2.5 2.8Canada* % Quarter 0.9 4.9 5.8 2.0 2.2 1.9 2.6 1.9 1.7 2.0
% Year -3.1 -1.1 2.2 3.4 3.7 3.0 2.2 2.2 2.0 2.1Latin America
Mexico % Quarter 2.5 2.4 -0.6 3.2 -1.6 1.0 1.8 2.0 -0.8 1.0 %Year -6.1 -2.3 4.3 7.6 3.0 2.4 4.2 3.6 4.0 3.5
Brazil % Quarter 2.1 2.4 2.7 1.2 0.3 1.4 2.1 1.7 0.3 1.9 % Year -1.2 4.3 9.0 8.8 6.8 5.8 4.2 4.7 5.3 6.1
Argentina % Quarter 2.2 1.7 2.5 2.1 1.3 1.1 0.9 0.9 1.1 1.2 % Year -2.5 1.4 7.5 9.9 6.8 7.1 5.4 4.1 4.2 4.2
Chile % Quarter 1.8 1.6 -1.5 4.3 1.9 1.4 1.4 1.3 1.3 1.5 % Year -1.4 2.1 1.5 6.5 5.8 6.2 9.6 4.4 4.1 4.2Western Europe
Eurozone % Quarter 0.4 0.2 0.3 1.0 0.4 0.2 0.2 0.3 0.4 0.4 % Year -4.0 -2.0 0.8 1.9 1.9 1.9 1.8 1.1 1.0 1.3
Germany % Quarter 0.7 0.3 0.5 2.2 1.0 0.1 0.2 0.4 0.4 0.4 % Year -4.4 -2.0 2.0 3.7 4.0 3.7 3.5 1.6 1.1 1.4
France % Quarter 0.3 0.6 0.2 0.6 0.4 0.4 0.2 0.3 0.5 0.5 % Year -2.7 -0.5 1.2 1.7 1.9 1.7 1.7 1.3 1.5 1.5
Italy % Quarter 0.4 -0.1 0.4 0.5 0.3 0.1 0.1 0.2 0.2 0.2 % Year -4.7 -2.8 0.5 1.3 1.1 1.3 0.9 0.6 0.5 0.6
Spain % Quarter -0.3 -0.2 0.1 0.2 -0.2 -0.2 0.1 0.4 0.5 0.6 % Year -3.9 -3.0 -1.3 -0.1 0.0 -0.1 -0.2 0.1 0.7 1.6Other Western Europe
UK % Quarter -0.3 0.4 0.3 1.2 0.2 0.1 0.3 0.4 0.4 0.5 % Year -5.3 -2.9 -0.2 1.7 2.2 2.0 1.8 1.0 1.2 1.6
Norway % Year -1.1 -1.1 -0.4 0.9 0.7 0.9 1.0 1.4 1.6 1.8Sweden % Year -5.9 -1.5 2.8 4.5 4.6 4.2 3.4 2.2 2.5 3.4Switzerland % Year -1.9 -0.1 1.9 3.4 3.2 3.0 2.2 1.7 1.5 1.5
EMEACzech Republic % Year -5.0 -2.9 1.0 3.0 2.8 1.7 1.9 2.4 2.9 3.5Hungary % Year -7.1 -4.0 0.1 1.0 1.7 1.2 1.4 2.2 3.2 3.7Poland % Year 1.8 3.3 3.0 3.5 3.2 3.0 3.2 3.6 4.0 4.7Russia % Year -8.6 -2.9 3.1 5.2 4.0 3.0 3.5 3.0 3.5 2.5Turkey % Year -2.9 6.0 11.7 10.3 4.2 2.5 2.5 2.4 4.0 6.5Ukraine % Year -16.0 -6.8 4.8 7.0 7.0 4.1 4.0 4.0 4.0 4.0Romania % Year -6.5 -2.6 -0.5 -3.1 -2.5 -3.1 -2.0 1.6 2.2 3.0Israel % Year 0.1 1.6 3.2 4.1 4.0 3.7 3.5 3.2 3.2 3.4South Africa %Year -2.2 -1.4 1.6 3.0 3.1 2.7 3.5 3.6 3.4 3.5
Asia/Pacific
Japan % Quarter -0.1 0.9 1.2 0.4 0.5 -0.2 0.3 0.1 0.2 0.2 % Year -5.2 -1.0 4.7 2.4 3.0 1.9 1.0 0.7 0.4 0.9
Australia % Quarter 0.3 1.1 0.5 0.3 0.9 0.8 1.1 1.2 0.9 1.0% Year 0.9 2.8 2.7 2.2 3.9 3.7 4.1 4.1 4.0 4.2
New Zealand % Year -0.5 1.1 2.5 2.1 1.9 1.3 0.4 0.6 1.7 3.5China % Year 9.1 10.7 11.9 10.5 9.5 8.9 8.2 8.8 9.0 9.3Hong Kong % Year -2.4 2.5 8.0 6.5 4.1 3.3 5.0 2.3 7.0 4.5India % Year 8.6 6.5 8.6 8.8 8.2 9.7 8.9 9.0 8.5 8.1Indonesia % Year 4.2 5.4 5.7 6.2 6.0 6.5 6.2 6.2 6.3 6.8Malaysia % Year -1.2 4.4 10.1 8.9 6.2 4.6 3.5 5.6 6.2 5.3Philippines % Year 0.2 2.1 7.8 7.9 5.1 3.2 3.9 4.0 5.2 5.1Singapore % Year 1.8 3.8 16.9 18.8 8.2 9.4 7.4 2.2 5.2 3.8South Korea % Year 1.0 6.0 8.1 7.2 4.6 4.6 3.7 3.3 3.8 5.2Taiwan % Year -1.0 9.1 13.7 12.5 4.0 0.8 2.0 2.5 6.7 8.1Thailand % Year -2.7 5.9 12.0 9.1 7.1 3.8 2.5 6.0 6.5 6.2
Note: * = quarter-on-quarter data has been annualised; ** = based up[on Egyptian fiscal year (July June)Source: HSBC
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Consumer pricesAnnual
% Year 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f
World 2.3 2.5 2.7 2.8 2.8 4.3 1.0 2.3 2.2 2.2
Developed 1.8 1.9 2.3 2.3 2.1 3.3 0.0 1.3 1.2 1.2Emerging 4.6 4.6 4.5 4.5 5.4 8.1 4.7 5.6 5.4 5.3
North America 2.3 2.6 3.3 3.1 2.8 3.7 -0.3 1.6 1.0 1.1
US 2.3 2.7 3.4 3.2 2.9 3.8 -0.3 1.6 0.9 1.1Canada 2.7 1.9 2.2 2.0 2.1 2.4 0.3 1.7 1.6 2.0
Latin America 7.8 5.3 5.8 4.5 5.6 7.6 6.2 7.7 7.6 6.9Mexico 4.5 4.7 4.0 3.6 4.0 5.1 5.3 4.2 4.0 3.4Brazil 14.7 6.6 6.9 4.2 3.6 5.7 4.9 4.9 5.4 4.6Argentina* 3.7 6.1 12.3 9.8 20.1 22.9 14.8 26.5 21.7 18.7Chile 1.1 1.1 3.2 3.4 4.4 7.8 0.3 1.6 3.3 3.2
Western Europe 2.0 1.9 2.1 2.1 2.1 3.3 0.6 1.8 1.8 1.7Eurozone 2.1 2.2 2.2 2.2 2.1 3.3 0.3 1.6 1.6 1.7Germany 1.0 1.8 1.9 1.8 2.3 2.7 0.2 1.1 1.2 1.3France 2.2 2.3 1.9 1.9 1.6 3.2 0.1 1.8 1.8 1.6Italy 2.8 2.3 2.2 2.2 2.0 3.5 0.8 1.6 1.9 1.7Spain 3.1 3.1 3.4 3.6 2.8 4.1 -0.2 1.6 1.5 1.7
Other Western Europe 1.5 1.1 1.7 2.0 2.0 3.5 1.5 2.4 2.3 1.8UK 1.4 1.3 2.0 2.3 2.3 3.6 2.2 3.2 2.9 1.8
Norway 2.5 0.5 1.5 2.3 0.7 3.8 2.2 2.3 1.7 2.5Sweden 1.9 0.4 0.5 1.4 2.2 3.5 -0.3 1.1 2.1 2.5Switzerland 0.6 0.8 1.2 1.1 0.7 2.4 -0.5 0.7 0.7 1.5
EMEA 7.4 6.0 6.4 6.2 7.2 11.2 7.4 5.9 6.8 6.7Czech Republic 0.0 2.8 1.9 2.6 2.8 6.4 1.0 1.5 2.4 2.4Hungary 4.7 6.8 3.6 3.9 7.9 6.1 4.2 4.8 3.2 3.4Poland 0.8 3.5 2.1 1.0 2.5 4.2 3.5 2.5 2.9 3.3Russia 13.7 10.9 12.7 9.7 9.0 14.1 11.7 7.0 9.5 8.5Turkey 25.3 8.6 8.2 9.6 8.8 10.4 6.3 8.7 7.7 7.0Ukraine* 5.2 9.0 10.3 9.1 12.8 25.2 16.0 8.5 8.4 9.0Romania 15.3 11.9 9.0 6.6 4.8 7.9 5.6 6.0 5.5 4.6
Non-European EMEA 2.1 2.9 3.2 4.4 6.4 11.3 5.7 5.0 5.9 6.4Egypt** 4.0 10.6 4.7 7.3 8.5 20.2 10.0 10.7 10.4 11.0Israel* -1.9 1.2 2.4 -0.1 3.4 3.8 3.9 2.3 3.0 2.7Saudi Arabia 0.6 0.3 0.4 2.3 4.1 9.9 5.1 5.5 6.6 7.0UAE 3.1 7.0 9.0 10.5 11.1 13.5 1.8 1.0 2.7 4.0South Africa 5.4 1.4 3.4 4.6 7.1 11.0 7.2 4.7 5.5 6.0
Asia/Pacific 1.0 1.8 1.4 2.0 2.2 4.1 0.8 2.0 1.8 2.0Japan -0.2 0.0 -0.3 0.2 0.0 1.5 -1.3 -1.1 -0.5 -0.4Australia 2.8 2.3 2.7 3.5 2.3 4.3 1.8 3.0 3.1 2.9New Zealand 1.8 2.3 3.0 3.4 2.4 4.0 2.1 2.3 4.0 2.3
Asia-ex-Japan 2.2 3.7 3.1 3.6 4.5 6.7 2.6 4.6 3.7 3.8China 1.2 3.9 1.8 1.5 4.8 5.9 -0.7 2.9 2.5 2.2
Asia ex-Japan & China 3.0 3.6 4.2 5.2 4.2 7.3 5.1 5.8 4.4 4.9Hong Kong -2.5 -0.4 0.9 2.0 2.1 4.3 0.6 2.4 2.9 3.3India* 3.7 3.9 4.0 6.3 6.4 8.3 10.9 10.7 5.4 7.1Indonesia 6.7 6.1 10.5 13.1 6.4 10.2 4.8 5.2 6.0 5.2Malaysia 1.1 1.5 3.0 3.6 2.0 5.4 0.6 1.9 2.7 2.2Philippines 3.5 6.0 7.7 6.3 2.8 9.3 3.3 4.2 4.5 4.7Singapore 0.5 1.7 0.5 1.0 2.1 6.6 0.6 2.2 2.7 2.8South Korea 3.4 3.6 2.8 2.2 2.5 4.7 2.8 2.7 2.9 3.0
Taiwan -0.3 1.6 2.3 0.6 1.8 3.5 -0.9 1.2 1.6 1.6Thailand 1.8 2.8 4.5 4.6 2.2 5.5 -0.8 3.5 3.6 3.0Vietnam 3.1 7.8 8.3 7.5 8.3 23.0 7.1 8.7 8.5 8.0
Note: * = end-year values. We now calculate the weighting system using chain nominal GDP (USD) weightsSource: HSBC
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Quarterly
% Year Q3 09 Q4 09 Q1 10 Q2 10 Q3 10f Q4 10f Q1 11f Q2 11f Q3 11f Q4 11f
North AmericaUS -1.6 1.4 2.4 1.8 1.2 0.8 0.7 1.1 1.0 1.0Canada -0.9 0.8 1.6 1.4 1.8 1.9 1.8 1.6 1.5 1.7
Latin AmericaMexico -3.6 -0.4 4.8 4.0 3.7 4.3 3.5 4.1 4.4 3.8Brazil 4.3 4.3 5.2 4.8 4.7 5.3 5.0 5.5 5.8 5.0Argentina 13.5 14.8 20.0 22.5 24.4 26.5 23.8 23.5 23.4 21.7Chile -2.3 -2.6 0.3 1.2 2.2 3.8 3.7 3.8 3.3 3.4
Western EuropeEurozone -0.4 0.4 1.1 1.5 1.7 2.0 1.9 1.6 1.6 1.4Germany -0.5 0.4 0.8 1.0 1.2 1.3 1.4 1.3 1.2 1.1France -0.5 0.4 1.5 1.8 1.8 2.0 1.8 1.7 2.1 1.8
Italy 0.1 0.7 1.3 1.6 1.8 1.9 2.2 1.9 1.8 1.7Spain -1.0 0.2 1.2 1.6 1.8 1.6 1.7 1.5 1.2 1.5Other Western Europe
UK 1.5 2.1 3.2 3.4 3.1 3.0 3.3 3.0 2.8 2.5Norway 1.7 1.4 2.9 2.6 1.9 1.9 1.6 1.6 1.7 2.0Sweden -1.2 -0.4 1.0 1.0 1.1 1.3 1.5 2.0 2.3 2.5Switzerland -1.0 -0.2 1.1 1.0 0.4 0.2 -0.1 0.5 1.1 1.3
EMEACzech Republic 0.1 0.4 0.6 1.1 2.0 2.2 2.1 2.3 2.6 2.8Hungary 5.0 5.1 6.0 5.4 4.0 4.0 3.2 2.9 3.2 3.5Poland 3.5 3.3 3.0 2.3 2.1 2.4 2.7 2.7 3.0 3.3Russia 11.4 9.2 7.2 5.9 6.4 8.0 9.1 9.9 9.9 9.4Turkey 5.3 6.5 9.6 8.4 9.5 8.1 6.4 8.1 8.1 7.4Ukraine 15.3 13.3 11.2 9.0 6.9 6.9 7.0 7.9 9.1 9.8Romania 4.6 4.6 4.4 7.5 7.6 6.5 6.8 4.2 4.4 4.3Egypt 12.1 9.9 10.8 13.2 12.2 10.7 9.3 10.9 10.5 10.4Israel 2.8 3.9 3.2 3.0 2.2 2.3 3.3 3.4 3.2 3.0South Africa 6.1 6.3 5.1 4.5 4.5 4.7 5.5 6.0 6.0 5.5
Asia/PacificJapan -2.3 -1.7 -1.2 -1.2 -1.0 -0.8 -0.5 -0.4 -0.7 -0.6Australia 1.3 2.1 2.9 3.0 3.0 3.2 3.1 3.2 3.1 3.1New Zealand 1.7 2.0 2.0 1.9 1.8 1.4 3.9 4.1 4.9 4.5China -1.3 0.7 2.2 2.8 3.3 3.2 2.9 2.8 2.4 2.1Hong Kong 2.6 1.3 1.9 2.6 2.1 3.0 2.5 3.0 3.0 3.0India 11.8 13.3 15.3 13.7 8.7 5.8 3.7 5.0 6.0 7.0Indonesia 2.8 2.6 3.7 4.4 6.3 6.3 6.4 6.1 5.7 5.7Malaysia -2.3 -0.2 1.3 1.6 2.2 2.4 2.7 2.8 2.6 2.6Philippines 0.3 2.9 4.3 4.2 4.0 4.2 4.4 4.6 4.6 4.5Singapore -0.3 -0.8 0.9 3.1 2.2 2.8 2.8 2.3 3.0 2.8South Korea 2.0 2.4 2.7 2.6 2.5 2.9 2.8 2.9 3.0 2.9Taiwan -1.3 -1.3 1.3 1.1 0.9 1.6 1.4 1.8 1.6 1.6Thailand -2.2 1.9 3.7 3.2 3.5 3.6 3.6 3.7 3.7 3.5Vietnam 3.2 4.5 8.0 9.1 8.7 8.8 8.7 8.5 8.4 8.3
Source: HSBC
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3 month money
End period 2006 2007 2008 2009 ____________ 2010______________ _____________2011 _____________Q4 Q4 Q4 Q4 Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f
North AmericaUS (USD) 5.3 4.7 1.4 0.3 0.3 0.5 0.3 0.3 0.3 0.3 0.3 0.4Canada (CAD) 4.2 4.5 1.9 0.5 0.4 0.8 1.2 1.3 1.9 2.2 2.2 2.5
Latin America
Mexico (MXN) 7.2 7.3 8.2 4.6 4.6 4.5 4.6 4.6 4.8 4.8 5.0 5.2Brazil (BRL) 12.8 11.2 13.0 8.7 9.1 10.8 10.7 10.8 11.9 12.8 12.7 12.7Argentina (ARS)* 7.1 10.0 17.1 10.4 9.1 9.1 9.2 9.5 9.6 9.7 9.7 9.6Chile (CLP)* 5.0 7.1 8.5 1.8 1.2 1.9 4.0 5.0 5.8 6.5 7.0 7.0
Western EuropeEurozone 3.7 4.6 2.9 0.7 0.6 0.7 0.8 1.0 1.0 1.0 1.0 1.2Other Western Europe
UK (GBP) 5.3 5.9 2.8 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.9Sweden (SEK) 3.3 4.7 2.5 0.5 0.5 0.6 1.0 1.4 1.6 1.9 2.1 2.4Switzerland (CHF) 2.1 2.6 0.6 0.3 0.2 0.1 0.2 0.3 0.3 0.4 0.8 0.8Norway (NOK) 3.9 5.9 4.0 2.2 2.3 2.8 2.6 2.7 2.8 2.9 3.2 3.4
EMEAHungary (HUF) 8.1 7.6 10.0 6.2 5.5 5.3 5.4 5.4 5.4 5.4 5.6 6.2Poland (PLN) 4.2 5.1 5.8 4.2 4.0 3.8 3.7 3.7 4.3 4.2 4.8 4.7Russia (RUB)* 6.5 6.3 20.6 6.6 4.2 3.4 4.0 7.0 7.5 8.0 8.0 7.8Turkey (TRY) 17.6 16.0 15.5 7.5 7.6 7.7 7.5 7.5 7.8 8.1 8.5 9.0Ukraine (UAH) 7.6 6.6 20.0 16.1 8.0 5.6 5.5 9.0 8.0 7.0 7.0 9.0South Africa (ZAR) 9.2 11.3 11.4 7.1 6.5 6.6 6.6 6.6 6.6 6.6 6.6 6.6
Asia/PacificJapan (JPY) 0.4 0.6 0.6 0.3 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3Australia (AUD) 6.5 7.3 4.1 4.1 4.4 4.9 4.9 5.1 5.4 5.6 5.9 6.0New Zealand (NZD) 7.7 8.9 6.0 3.0 2.8 3.3 3.3 3.5 3.5 3.6 3.9 4.1
Asia-ex-JapanChina (CNY) 1.8 3.3 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
Asia ex-Japan & ChinaHong Kong (HKD) 3.9 3.5 1.0 0.1 0.1 0.6 0.3 0.3 0.3 0.3 0.3 0.5India (INR) 7.0 8.3 9.2 5.1 4.6 5.5 6.3 6.2 6.0 6.4 6.8 7.0Indonesia (IDR) 9.5 7.8 12.0 6.6 6.6 6.6 7.0 7.6 7.1 7.3 7.3 7.3Malaysia (MYR) 3.7 3.6 3.4 2.3 2.6 2.8 2.9 2.9 2.9 2.9 2.9 2.9Philippines (PHP) 4.8 3.7 6.1 3.9 3.9 3.9 4.5 5.0 5.3 5.3 5.3 5.3Singapore (SGD) 3.4 2.5 1.4 0.7 0.7 0.6 0.4 0.7 0.8 0.8 0.9 1.0South Korea (KRW) 4.8 5.7 4.7 2.8 2.8 2.5 3.1 3.3 3.6 3.8 3.8 4.1Taiwan (TWD) 1.8 2.2 1.0 0.5 0.5 0.7 0.7 0.7 0.7 0.7 0.9 1.0Thailand (THB) 5.3 3.7 3.6 1.4 1.4 1.4 1.7 2.2 2.3 2.3 2.3 2.3
Note: * = 1-month moneySource: HSBC
Short rates
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10-year bond yields
End period Q4 06 Q4 07 Q4 08 Q4 09 Q1 10 Q2 10 Q3 10f Q4 10f Q1 11f Q2 11f Q3 11f Q4 11f
AmericasUS 2.7 3.5 3.3 3.8 3.8 2.9 2.6 2.3 2.0 2.0 2.2 2.5Canada 2.7 3.4 3.3 3.6 3.6 3.1 2.8 2.7 2.5 2.5 2.7 3.0Chile 5.9 6.3 7.4 5.9 6.4 6.4 6.1 6.5 6.8 6.9 7.0 7.0
Western Europe
Eurozone 3.6 3.8 3.5 3.6 3.5 3.3 3.0 2.9 2.7 2.6 2.7 2.9Germany 3.0 3.4 3.2 3.4 3.1 2.6 2.3 2.1 1.9 1.8 2.0 2.2France 3.6 3.7 3.5 3.6 3.4 3.1 2.7 2.5 2.4 2.4 2.5 2.6Italy 4.4 4.3 4.0 4.0 3.9 4.1 3.9 3.7 3.6 3.5 3.6 3.7Spain 3.8 4.0 3.7 3.9 3.8 4.6 4.2 4.2 3.8 3.7 3.8 3.9
Other Western EuropeUK 3.2 3.7 3.7 4.1 3.9 3.3 3.2 2.7 2.5 2.3 2.5 2.8Sweden 3.0 3.5 3.3 3.3 3.1 2.6 2.4 2.4 2.3 2.4 2.7 3.0Switzerland 1.9 2.3 2.0 1.9 1.8 1.5 1.4 1.4 1.5 1.7 1.8 2.0Norway 3.8 4.2 4.1 4.1 3.7 3.2 3.1 3.2 3.4 3.5 3.7 3.8
EMEAHungary 8.1 7.6 10.0 7.9 6.9 7.7 7.0 6.8 6.6 6.5 6.6 7.0Poland 5.2 5.7 5.4 6.3 5.5 5.9 5.5 5.4 5.8 5.7 6.1 5.8
Russia 6.5 6.3 11.3 8.7 6.9 7.0 7.3 7.4 7.9 8.2 7.7 7.7South Africa 7.7 8.4 7.3 9.0 8.3 8.3 8.3 8.4 8.5 8.5 8.6 8.6
Asia/Pacific Japan 1.3 1.4 1.3 1.3 1.4 1.1 1.0 1.0 0.9 0.9 0.9 1.0 Australia 4.4 5.5 5.4 5.7 5.8 5.1 5.1 5.2 5.3 5.5 5.6 5.7
New Zealand 4.8 6.0 5.6 6.0 5.9 5.5 6.1 6.1 6.1 6.1 6.1 6.2Asia-ex-Japan
Hong Kong 4.4 2.9 2.4 2.6 2.8 2.3 2.0 1.7 1.4 1.6 1.8 1.8India 7.6 7.8 5.3 7.7 7.8 7.8 8.0 8.1 8.3 8.4 8.5 8.4Indonesia* 9.4 9.2 11.8 8.9 8.3 7.7 7.4 7.7 8.0 8.2 8.4 8.4Philippines 6.4 6.4 7.3 7.9 7.9 7.6 6.4 6.5 6.7 6.9 7.0 7.0Singapore* 3.0 2.3 1.4 1.3 1.3 0.8 0.6 0.7 0.7 0.7 0.7 0.7
Note: * = 5-year bond yieldSource: HSBC
Long rates
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Exchange rates vs USD
End period 2006 2007 2008 2009 ____________ 2010______________ _____________2011 _____________Q4 Q4 Q4 Q4 Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f
AmericasCanada (CAD) 1.16 0.99 1.23 1.05 1.01 1.06 1.05 1.10 1.10 1.10 1.10 1.10
Mexico (MXN) 10.80 10.92 13.69 13.10 12.36 12.94 12.45 12.25 12.25 12.25 12.50 12.50Brazil (BRL) 2.14 1.77 2.31 1.74 1.78 1.80 1.70 1.74 1.78 1.82 1.85 1.90Argentina (ARS) 3.06 3.15 3.45 3.80 3.88 3.93 3.97 4.10 4.15 4.20 4.25 4.30Chile (CLP) 532 498 637 533 533 546 520 505 495 480 480 480
Western EuropeEurozone (EUR) 1.32 1.46 1.39 1.43 1.35 1.22 1.27 1.35 1.35 1.35 1.35 1.35
Other Western EuropeUK (GBP) 1.96 1.99 1.44 1.61 1.52 1.50 1.53 1.62 1.65 1.65 1.65 1.65Sweden (SEK) 6.84 6.46 7.91 7.14 7.20 7.78 7.48 6.96 6.96 6.96 6.96 6.96Norway (NOK) 6.23 5.43 7.00 5.78 5.94 6.50 6.06 5.63 5.56 5.56 5.56 5.56Switzerland (CHF) 1.22 1.13 1.06 1.03 1.05 1.08 1.02 0.96 0.98 0.99 1.01 1.02
EMEACzech Republic (CZK) 20.87 18.19 19.31 18.40 18.78 20.97 19.69 18.37 18.33 18.15 17.96 17.78Hungary (HUF) 190.6 172.9 191.3 188.3 196.4 232.7 224.4 203.7 200.0 200.0 196.3 196.3Poland (PLN) 2.90 2.46 2.96 2.86 2.85 3.38 3.15 2.89 2.85 2.81 2.78 2.74Russia (RUB) 26.4 24.5 29.4 30.2 29.4 30.1 30.7 30.8 29.7 30.8 31.2 33.4Turkey (TRY) 1.42 1.17 1.54 1.50 1.52 1.58 1.54 1.52 1.55 1.58 1.53 1.54Ukraine (UAH) 5.1 5.1 7.8 8.0 7.9 7.9 8.2 8.5 8.2 8.0 8.2 8.5Israel (ILS) 4.17 3.95 3.78 3.75 3.80 3.85 3.75 3.68 3.62 3.58 3.55 3.52Egypt (EGP) 5.71 5.52 5.52 5.48 5.50 5.55 5.55 5.60 5.60 5.60 5.55 5.50
South Africa (ZAR) 7.05 6.83 9.25 7.36 7.34 7.67 7.50 7.45 7.45 7.40 7.50 7.50Asia/Pacific
Japan (JPY) 119 112 91 93 93 88 85 90 95 95 95 95Australia (AUD) 0.79 0.88 0.70 0.90 0.92 0.84 0.89 0.85 0.85 0.85 0.85 0.85New Zealand (NZD) 0.71 0.77 0.58 0.73 0.71 0.69 0.69 0.72 0.72 0.72 0.72 0.72China (CNY) 7.81 7.31 6.82 6.83 6.83 6.80 6.72 6.67 6.63 6.60 6.57 6.54Hong Kong (HKD) 7.77 7.80 7.75 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80India (INR) 44.2 39.4 48.6 46.4 44.8 47.0 46.0 45.5 45.0 44.5 44.0 43.5Indonesia (IDR) 8996 9393 11027 9425 9090 9200 8900 8800 8750 8700 8700 8700Malaysia (MYR) 3.53 3.31 3.46 3.42 3.26 3.30 3.10 3.05 3.00 2.99 2.98 2.97Philippines (PHP) 49.05 41.28 47.47 46.50 45.18 46.50 44.00 43.00 42.50 42.00 41.50 41.00
Singapore (SGD) 1.53 1.44 1.43 1.41 1.40 1.41 1.34 1.32 1.30 1.29 1.28 1.27South Korea (KRW) 930 936 1263 1166 1133 1250 1150 1130 1110 1090 1080 1080Taiwan (TWD) 32.6 32.4 32.9 32.1 31.8 32.0 31.5 31.0 30.5 30.0 30.0 29.5Thailand (THB) 36.05 33.72 34.90 33.33 32.32 32.50 31.50 31.00 31.00 30.50 30.50 30.00Vietnam (VND) 16050 16217 16900 18200 19050 19000 19600 19800 19800 19800 19800 19800
Note: Turkish currency (until then coded TRL) shed 6 zeros of its exchange rate in January 2005Source: HSBC
Exchange rates vs USD
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Exchange rate vs EUR & GBP
End period 2006 2007 2008 2009 ____________ 2010______________ _____________2011 _____________Q4 Q4 Q4 Q4 Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f
vs EURAmericas
US (USD) 1.32 1.46 1.39 1.43 1.35 1.22 1.27 1.35 1.35 1.35 1.35 1.35Canada (CAD) 1.53 1.44 1.72 1.50 1.37 1.30 1.33 1.49 1.49 1.49 1.49 1.49
EuropeUK (GBP) 0.67 0.73 0.97 0.89 0.89 0.82 0.83 0.83 0.82 0.82 0.82 0.82Sweden (SEK) 9.02 9.45 10.99 10.24 9.74 9.53 9.50 9.40 9.40 9.40 9.40 9.40Switzerland (CHF) 1.61 1.66 1.48 1.48 1.42 1.32 1.30 1.30 1.32 1.34 1.36 1.38Norway (NOK) 8.21 7.94 9.73 8.29 8.03 7.97 7.70 7.60 7.50 7.50 7.50 7.50Czech Republic (CZK) 27.5 26.6 26.8 26.4 25.4 25.7 25.0 24.8 24.8 24.5 24.3 24.0Hungary (HUF) 251 253 266 270 266 285 285 275 270 270 265 265Poland (PLN) 3.83 3.60 4.12 4.11 3.86 4.14 4.00 3.90 3.85 3.80 3.75 3.70Russia (RUB) 34.78 35.88 40.84 43.39 39.73 36.87 38.99 41.58 40.10 41.58 42.12 45.09
Asia/PacificJapan (JPY) 157.1 163.3 126.0 133.6 126.4 108.4 108.0 121.5 128.3 128.3 128.3 128.3Australia (AUD) 1.67 1.67 1.99 1.60 1.47 1.45 1.43 1.59 1.59 1.59 1.59 1.59New Zealand (NZD) 1.87 1.90 2.38 1.97 1.91 1.78 1.84 1.88 1.88 1.88 1.88 1.88
AfricaSouth Africa (ZAR) 9.30 9.99 12.85 10.56 9.94 9.39 9.53 10.06 10.06 9.99 10.13 10.13
vs GBPAmericas
US (USD) 1.96 1.99 1.44 1.61 1.52 1.50 1.53 1.62 1.65 1.65 1.65 1.65Canada (CAD) 2.28 1.96 1.77 1.69 1.54 1.59 1.60 1.78 1.81 1.81 1.81 1.81
EuropeEurozone (EUR) 0.67 0.73 0.97 0.89 0.89 0.82 0.83 0.83 0.82 0.82 0.82 0.82
Sweden (SEK) 13.39 12.86 11.37 11.53 10.92 11.64 11.41 11.29 11.49 11.49 11.49 11.49Norway (NOK) 12.19 10.81 10.07 9.33 9.00 9.73 9.25 9.13 9.16 9.16 9.16 9.16Switzerland (CHF) 2.39 2.25 1.53 1.67 1.60 1.61 1.56 1.56 1.61 1.64 1.66 1.69
Asia/PacificJapan (JPY) 233 222 130 150 142 132 130 146 157 157 157 157Australia (AUD) 2.48 2.27 2.06 1.80 1.65 1.77 1.71 1.91 1.94 1.94 1.94 1.94New Zealand (NZD) 2.78 2.59 2.46 2.22 2.14 2.18 2.21 2.25 2.29 2.29 2.29 2.29
AfricaSouth Africa (ZAR) 13.80 13.60 13.29 11.89 11.14 11.47 11.44 12.08 12.29 12.21 12.37 12.37
Source: HSBC
Exchange rate vs EUR & GBP
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Consumer spending
% Year 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f
World 2.4 3.2 3.3 3.3 3.2 1.2 -0.7 2.4 2.4 2.8Developed 2.1 2.7 2.5 2.4 2.2 0.1 -1.2 1.4 1.4 1.9Emerging 4.4 5.8 6.8 7.1 7.5 6.0 1.2 6.0 5.7 6.2
North America 2.8 3.4 3.4 3.0 2.5 -0.1 -1.1 1.6 2.2 2.5US 2.8 3.5 3.4 2.9 2.4 -0.3 -1.2 1.5 2.2 2.5Canada 3.0 3.3 3.7 4.2 4.6 2.9 0.4 3.4 2.5 2.3
Latin America 1.8 5.5 5.2 5.8 5.4 4.2 -1.5 5.7 4.1 5.4Mexico 2.2 5.6 4.8 5.6 4.0 1.9 -6.1 3.7 2.8 6.3Brazil -0.8 3.8 4.5 5.2 6.1 7.0 4.1 6.7 5.2 4.4Argentina 8.2 9.5 8.9 7.8 9.0 6.5 0.5 8.7 4.6 5.0Chile 4.7 7.2 7.4 7.1 7.0 4.6 0.9 9.9 7.1 5.8
Western Europe 1.6 1.9 1.8 1.9 1.8 0.4 -1.4 0.9 1.0 1.3Eurozone 1.2 1.5 1.6 1.8 1.5 0.4 -1.1 0.7 0.8 1.1Germany 0.1 -0.2 0.4 1.5 -0.2 0.6 -0.1 -0.1 0.7 0.9France 2.1 2.4 2.5 2.6 2.5 0.5 0.6 1.3 1.4 2.0Italy 1.0 0.8 1.2 1.3 1.1 -0.8 -1.7 0.5 0.4 0.8Spain 2.9 4.2 4.2 3.8 3.7 -0.6 -4.2 1.5 0.7 0.9
Other Western Europe 2.5 3.1 2.4 2.2 2.5 0.5 -2.5 1.4 1.5 1.9UK 3.0 3.1 2.2 1.8 2.2 0.4 -3.3 1.1 1.5 1.9Norway 2.5 5.1 3.9 4.8 5.3 1.4 0.3 2.4 2.4 2.6
Sweden 2.3 2.6 2.8 2.8 3.8 -0.2 -0.8 3.2 2.4 2.3Switzerland 0.9 1.6 1.7 1.6 2.3 1.3 1.0 1.6 1.1 1.5EMEA 5.9 8.4 8.1 8.6 8.8 7.6 -2.0 4.2 4.4 4.8
Czech Republic 6.0 2.9 2.5 5.0 4.8 3.6 -0.3 0.9 1.3 1.9Hungary 8.0 3.1 3.4 1.9 -1.6 -0.6 -6.7 -2.5 1.8 2.6Poland 2.6 4.0 2.7 5.0 4.9 5.9 2.3 2.3 3.3 2.8Russia 7.5 12.1 11.8 11.3 13.7 10.8 -7.7 5.0 4.3 3.8Turkey 10.2 11.0 7.9 4.6 5.5 -0.3 -2.2 5.9 3.5 3.7Ukraine 12.6 12.2 16.6 14.4 17.1 11.8 -14.2 3.0 2.0 5.0Romania 8.3 15.9 10.0 12.8 11.6 9.1 -10.8 -3.3 0.0 2.0
Non-European EMEA 3.5 8.1 8.6 11.0 9.4 10.3 2.5 4.7 6.0 7.0Egypt* 2.3 2.1 4.8 6.4 4.2 5.7 4.5 4.6 4.8 5.0Israel 1.3 5.0 3.5 4.3 6.3 3.6 1.5 4.5 4.1 4.3Saudi Arabia** 3.7 5.8 9.5 13.4 18.7 18.0 8.1 9.0 11.0 12.0UAE** 10.5 29.1 22.5 24.0 12.0 21.4 2.0 3.0 5.2 8.7South Africa 2.8 6.2 6.1 8.3 5.5 2.4 -3.1 1.7 2.9 2.0
Asia/Pacific 2.4 3.1 3.7 3.8 4.5 2.4 1.6 4.5 3.5 4.1Japan 0.4 1.6 1.3 1.5 1.6 -0.6 -1.0 1.9 -0.4 0.7Australia 3.7 5.4 3.7 3.0 5.1 1.9 1.6 3.5 4.1 3.7New Zealand 5.9 5.4 4.7 2.2 3.9 -0.3 -0.6 1.8 1.3 3.0
Asia-ex-Japan 4.7 4.5 6.9 6.8 7.8 5.9 4.3 7.2 7.0 7.2China 6.5 7.2 8.5 8.7 9.0 8.9 8.0 9.5 9.4 9.3
Asia ex-Japan & China 3.8 3.1 6.0 5.7 7.1 4.1 2.0 5.7 5.4 5.7Hong Kong -1.3 7.0 3.0 5.9 8.5 2.4 -0.4 5.0 4.0 4.1India 8.1 1.3 9.0 8.2 9.8 6.8 4.3 7.0 6.5 6.5Indonesia 3.9 5.0 4.0 3.2 5.0 5.3 4.9 4.7 5.0 5.0Malaysia 6.6 10.5 9.1 6.8 10.5 8.5 0.7 6.8 6.7 5.7Philippines 5.3 5.9 4.8 5.5 5.8 4.7 4.1 5.1 5.3 5.6Singapore 1.6 6.1 3.6 3.1 6.5 2.7 0.4 6.1 6.0 5.9South Korea -0.4 0.3 4.6 4.7 5.1 1.3 0.2 4.1 3.5 4.5Taiwan 2.9 5.2 2.9 1.5 2.1 -0.6 1.4 2.5 4.9 5.0
Thailand 6.4 6.1 4.9 3.2 1.7 2.7 -1.1 5.0 3.6 3.8Vietnam 8.0 7.1 7.3 8.3 9.6 7.6 3.4 5.7 6.6 7.8
Note: * = based upon Egyptian financial year (July-June). We now calculate the weighting system using chain nominal GDP (USD) weightsSource: HSBC
Consumer spending
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Investment spending
% Year 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f
World 4.3 7.5 7.9 7.4 7.1 3.6 -3.2 9.9 10.1 10.2Developed 1.9 4.5 4.8 3.6 1.5 -3.1 -14.0 1.9 4.5 4.7Emerging 12.4 16.8 16.4 16.8 19.5 16.1 13.8 19.5 15.9 15.2
North America 3.5 7.4 6.7 2.7 -1.3 -5.7 -17.7 4.6 7.5 7.8US 3.2 7.3 6.5 2.3 -1.8 -6.4 -18.3 4.3 7.5 8.3Canada 6.2 7.8 9.3 7.1 3.5 1.4 -11.8 7.3 7.2 3.9
Latin America 1.1 10.6 8.6 10.2 10.2 8.7 -10.4 11.8 9.6 9.5Mexico 0.4 8.0 7.5 9.9 6.9 4.4 -10.1 3.5 7.5 7.9Brazil -4.6 9.1 3.6 9.8 13.9 13.4 -9.9 22.0 13.0 10.0Argentina 38.2 34.4 22.7 18.2 13.6 9.1 -10.2 11.8 1.9 10.5Chile 5.7 10.0 23.9 2.3 11.2 18.6 -15.3 18.7 18.1 15.0
Western Europe 1.2 2.8 3.4 5.8 5.0 -1.5 -11.5 0.2 3.2 2.8Eurozone 1.3 2.0 3.1 5.3 4.1 -1.1 -11.3 -0.1 3.6 2.8Germany -0.3 -1.3 1.1 8.7 4.9 1.8 -10.0 5.7 5.1 2.6France 2.2 3.3 4.5 4.5 5.9 0.3 -7.0 -1.6 4.4 4.2Italy -0.9 1.5 1.4 3.1 1.3 -4.0 -12.2 2.1 1.8 2.9Spain 5.2 5.2 6.5 8.3 4.2 -4.3 -15.8 -6.2 0.0 2.4
Other Western Europe 0.7 5.3 4.2 7.6 7.6 -2.9 -12.0 1.3 1.9 2.9UK 1.1 5.1 2.4 6.4 7.8 -5.0 -15.0 1.3 0.2 3.1Norway 0.7 10.1 12.7 11.7 12.5 2.0 -9.1 -3.0 6.6 3.4
Sweden 1.8 5.0 8.0 9.7 9.1 1.3 -15.9 4.0 6.6 4.1Switzerland -1.2 4.5 3.8 4.7 5.1 0.5 -4.9 3.1 2.9 2.3EMEA 7.6 11.0 11.6 14.9 22.2 8.7 -10.4 5.4 7.3 8.2
Czech Republic 0.4 3.9 1.8 6.0 10.8 -1.5 -9.2 -2.7 4.2 4.6Hungary 2.1 7.9 5.7 -3.6 1.6 0.4 -6.5 -1.5 2.8 4.1Poland -0.1 6.4 6.3 14.9 17.6 8.2 -0.8 -1.2 7.3 4.2Russia 12.8 12.6 10.6 18.0 21.1 10.6 -15.7 3.0 5.5 7.0Turkey 14.2 28.4 17.4 13.3 3.1 -6.2 -19.1 13.6 4.7 3.0Ukraine 12.2 -2.2 -0.3 18.7 24.8 1.6 -46.2 0.0 6.0 6.0Romania 8.7 11.0 15.3 19.9 28.9 19.3 -25