THE GLOBAL OUTLOOK
JUNE 2010
TREVOR WILLIAMS CHIEF ECONOMISTWHOLESALE MARKETS
LLOYDS BANKING GROUP 2
CONSIDERABLE FISCAL SUPPORT HAS BEEN PROVIDED TO HEAD OFF GLOBAL RECESSION …
-10
-8
-6
-4
-2
0
2
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Fiscal balance, % of GDP
World
Emerging and developing economies
Advanced economies
Forecast
LLOYDS BANKING GROUP 3
NOW, PRESSURE TO TACKLE FISCAL DEFICITS IS GROWING
Source: Thomson Datastream, OECD
Germany
US
Netherlands
FrancePORTUGALPoland
SPAIN
GREECEIceland
Belgium ITALY
Slovakia
Australia
Norway
Japan
Sweden
Switzerland
IRELANDUK
-10
-5
0
15
0 20 40 60 80 100 120 140 160 180 200
Public debt % GDP
Pub
lic b
orro
win
g %
GD
P
* OECD 2010 estimates
Manageable, but deteriorating
Cause for concern
Fiscally prudent Path of fiscal rectitude (no one on it!)
Korea
-
-
5
10
LLOYDS BANKING GROUP 4
…WITH SMALL ECONOMIES IN THE EURO FACING HEADWINDS
Source: Lloyds TSB Corporate Markets
Spread over 10yr Bunds
2005 2006 2007 2008 2009 2010-1
0
1
2
3
4
5
6
7
Greece
Spain
Portugal
Ireland
LLOYDS BANKING GROUP 5
EQUITIES ARE UNDER SELLING PRESSURE…
Source: Lloyds TSB Corporate Markets
2007 2008 2009 2010
Global equity indices, Jan 2007 = 100
40
50
60
70
80
90
100
110
120
130
FTSE 100
DOW JONES
DAX 30
NIKKEI 225
LLOYDS BANKING GROUP 6
BONDS ARE ATTRACTING SAFE-HAVEN FLOWS…
Source: Lloyds TSB Corporate Markets
10yr Gov't bond yields, %
2007 2008 2009 20102.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
UK
USGermany
LLOYDS BANKING GROUP 7
BUT MONETARY LOOSENING HAS BEEN AGGRESSIVE…
Source: Thomson Datastream
Official interest rates, %
20042005 20062007200820090
1
2
3
4
5
6UK Bank Rate
US Fed funds rate
ECB repo rate
2010
3m Libor, %
2007 2008 2009 20100
1
2
3
4
5
6
7
UK £
US $
Euro
LLOYDS BANKING GROUP 8
‘UNCONVENTIONAL’ MONETARY MEASURES ADOPTED…
2007 2008 2009 201050
100
150
200
250
300
350
US Federal Reserve ($2.3tn)
Bank of England (£252bn)
ECB (€2.1tn)
Bank of Japan (Y121tn)
Index of Central Bank's balance sheets, Jan 2007 = 100
Source: ltsb corporate markets
LLOYDS BANKING GROUP 9
INFLATION BACKDROP IS BENIGN
Source: OECD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jun-03 Apr-04 Feb-05 Dec-05 Oct-06 Aug-07 Jun-08 Apr-09 Feb-10
Core CPI Inflation, annual rate, %
Advanced economies
Emerging economies
World
LLOYDS BANKING GROUP 10
EMERGING MARKET INFLATION NOT GOING TO BE A CONCERN FOR SOME YEARS
0
2
4
6
8
10
12
14
16
18
2002 2004 2006 2008 2010 2012
% increase in year, CPI inflation
Forecast
Latin America
Eastern Europe
Middle East*
Asia
Africa
* IMF forecast
LLOYDS BANKING GROUP 11
ACCOMMODATIVE SUPPORT CAN REMAIN IN PLACE
Source: Datastream, Lloyds TSB Corporate Markets
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
3.06
9.06
3.07
9.07
3.08
9.08
3.09
9.09
3.10
9.10
3.11
9.11
Short term interest rates, %
US
Euro
Forecasts
UK
12.1
1
LLOYDS BANKING GROUP 12
…SO WE STILL EXPECT GLOBAL RECOVERY TO PICK UP SPEED IN 2010 AND BEYOND…
Source: Lloyds TSB Corporate Markets
GDP %Yr 2008 2009 2010 2011
World 3.1 -0.9 3.9 4.4
Developed economies (G10) 0.4 -3.3 2.2 2.6US 0.5 -2.4 3.4 3.4UK 0.5 -4.9 0.7 2.2Japan -0.7 -5.2 1.5 1.6Eurozone 0.6 -4.0 1.0 1.7
Emerging economies (E10) 6.3 2.7 6.8 7.0- China 8.9 8.7 9.5 8.7- Brazil 5.1 -0.2 5.5 5.3- India 7.5 6.5 7.5 9.1- Russia 5.6 -8.5 4.7 5.2
LLOYDS BANKING GROUP 13
…IN A RANGE OF ECONOMIES…
Source: Lloyds TSB Corporate Markets
-4
-2
0
2
4
6
8
10
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
World
Emerging and developing economies
Advanced economies
% increase in year
F'cast
LLOYDS BANKING GROUP 14
…SO GLOBAL ECONOMY TO FACE LONG TERM SHIFT…
Countries 2007 Rank 2010 Rank 2015 Rank 2025 Rank 2035 RankUS 13.827 1 14.019 1 16.280 1 21.976 2 29.551 2China 7.151 2 9.285 2 14.205 2 30.168 1 53.680 1Japan 4.440 3 4.224 3 4.614 4 5.089 4 5.406 5India 3.083 4 3.798 4 5.729 3 11.421 3 21.111 3Germany 2.858 5 2.786 5 3.084 5 3.557 6 3.837 7France 2.089 6 2.063 7 2.278 9 2.700 9 3.169 12UK 2.064 7 1.994 8 2.308 8 2.878 8 3.524 10Russia 2.037 8 2.081 6 2.627 6 3.845 5 5.502 4Italy 1.793 9 1.695 10 1.823 10 2.019 14 2.092 15Brazil 1.776 10 1.965 9 2.451 7 3.334 7 4.616 6Mexico 1.464 11 1.451 11 1.810 11 2.575 10 3.704 9Spain 1.380 12 1.329 12 1.428 13 1.643 16 1.748 17South Korea 1.204 13 1.297 13 1.605 12 2.283 11 2.992 13Canada 1.171 14 1.179 14 1.426 14 1.855 15 2.293 14Turkey 0.947 15 0.963 15 1.315 15 2.216 12 3.464 11Indonesia 0.805 16 0.943 16 1.268 16 2.132 13 3.705 8Australia 0.702 17 0.751 17 0.893 17 1.171 18 1.446 18Netherlands 0.647 18 0.641 19 0.718 19 0.860 20 0.994 20Poland 0.591 19 0.650 18 0.815 18 1.230 17 1.848 16South Africa 0.452 20 0.473 20 0.586 20 0.908 19 1.391 19
Global GDP trends, to 2035 Trillions $
PPP
LLOYDS BANKING GROUP 15
GLOBAL CURRENT ACCOUNT IMBALANCES TO DIMINISH
-3
-2
-1
0
1
2
3
2001 2003 2005 2007 2009 2012
Oil exporters German & Japan Other Asia USEuropean excludingGermany
% share of global GDPF'cast
Source: IFSL
LLOYDS BANKING GROUP 16
BIG FLOWS OF CASH ARE BEING GENERATED, A LOT FINDS ITS WAY TO EUROPE
Official foreign exchange reserves held in SWFs
SWF investment into EU countries
Total: $7,520bnSource: IFSL
UK49%
Germany
15%France
12%
Netherlands 6%
Italy
4%
Others
14%
% share, completed investment transactions by SWFs, 1995 - Jun 2009, total $187bn
Asian reserves not in Sovereign
Wealth Funds
Rest of world
Sovereign Wealth Funds
% share, end-2009
17%
47%
36%
LLOYDS BANKING GROUP 17
ASSETS UNDER MANAGEMENT TO GROW
0 5 10 15 20 25 30
Pension funds
Mutual Funds
Insurance funds
Sovereign wealthfunds
Private equity
Hedge funds
$ trillion, end-2009Source: IFSL
LLOYDS BANKING GROUP 18
SWF ASSETS UNDER MANAGEMENT BY CATEGORY
-
1,000
2,000
3,000
4,000
5,000
6,000
1999 2001 2003 2005 2007 2009 2012
Commodity Non-commodity
$bn Forecast
Source: IFSL
LLOYDS BANKING GROUP 19
SWFS MARKET SHARE BY COUNTRY AND REGION
Source: IFSL
end-2009
By country $bn stake (%)China 928.0 24.0United Arab Emirates 677.0 18.0Norway 445.0 12.0Saudi Arabia 436.0 11.0Singapore 370.0 10.0Kuwait 203.0 5.0Russia 168.0 4.0Others 573.0 15.0By regionMiddle East 1,620 43Asia 1,350 36Europe 670 18Americas 90 2Other 70 2Total 3,800
LLOYDS BANKING GROUP 20
Disorderly reversal of unprecedented policy measures- Leave it too late: inflationary risk, asset price bubble- Move too early: threaten the incipient recovery
Credit conditions fail to improve sufficiently
Rise in oil commodity prices squeezes western real incomes
Major economies fail to rebalance (particularly China and the US)
Rising tide of protectionism
Spread of contagion from Greece to other sovereigns
SUBSTANTIAL MID-TERM RISKS REMAIN BUT WE REMAIN CONFIDENT THE CORNER HAS BEEN TURNED
LLOYDS BANKING GROUP 21
IMPORTANT NOTICE
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