Erste Group Research

Erste Group Research Economic Outlook 2012 | Eurozone, US 20.
January 2012
Economic Outlook 2012

Debt crisis outlook: No major breakthrough, no major breakup Eurozone economic outlook: Uncertainty weighs on growth, stagnation in 2012 US economic outlook: Sentiment improves, moderately positive growth
Analysts: Gudrun Egger, CEFA gudrun.egger@erstegroup.com Mildred Hager mildred.hager@erstegroup.com
Debt crisis outlook. For 2012, we expect a continuation of the inherently slow and painful process of solving the debt crisis. Further rounds of escalation, followed by further measures in particular, expansion of financial support seem likely. While we do not expect a major breakthrough, we do not expect a major breakup either, but rather a stumbling through scenario. Eurozone economic outlook. Our debt crisis outlook implies sentiment stabilizing at depressed levels, and economic agents getting used to the situation and returning to business as usual in 2H. Exports have finished the catch-up process, returning to pre-crisis levels, implying slower but still positive growth. In contrast to a classic recovery, firms did not expand capacities significantly so far - and are unlikely to do so soon because of the uncertain outlook, which is burdening investments and the labor market. The latter will also dampen consumption, only a minor stabilizer. Overall, we expect roughly a stagnation of Eurozone GDP in 2012, followed by a return to 1.2% growth in 2013. Correspondingly, the output gap is expected to widen again, which should dampen inflation in the medium term (1.8% for 2012). US economic outlook. The better-than-pre-crisis evolution of exports and investments - which we expect to continue - could not compensate for a lack of demand from households. We think that the fundamental drag from the jobless and homeless recovery is responsible for lower economic growth prospects in the US, which will persist for some years. Nevertheless, a recession seems increasingly unlikely too, as sentiment indicators have improved and short-term dampening factors (higher oil price, Japan supplychain disruptions) fade. Hence, we expect moderately positive growth of the US economy close to 2% in 2012 (and 2013).
Erste Group Research
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Erste Group Research Economic Outlook | Eurozone, US 20. January 2012
Debt crisis outlook 2012

No major breakthrough, no major breakup While the Eurozone debt crisis resembled an endless succession of announcements, implementation and market rumors in 2011 a process which is likely to continue in 2012 - the fundamental picture has actually changed only very gradually. In order to assess what the Eurozone might look like at the end of 2012, the small steps and details are, in our opinion, not as important as the most likely overall evolution. To this end, we will present an overview of the broader picture for the most likely way out the Eurozone debt crisis. Even though the way out of overindebtedness has been much written about already, it helps to frame the situation at hand once more. A country has sustainable development of debt if it is expected to be able to repay its debt sometime in the future. A reasonable condition for this is that debt/GDP is peaking within the next ten years (which is roughly the sustainability condition used by the ECB within the Troika framework1). A standard model for debt dynamics (which is only a minor simplification of the ECBs model) can be used to quantify the expected trajectory of debt to GDP. It says that D(t)/Y(t) = (1+r(t-1)) D(t-1)/Y(t-1) + E(t) R(t), where D is general government gross debt, Y is nominal GDP, r is the effective interest rate paid by the government and E and R are government expenditures and revenues (the latter being proportional to nominal GDP). The model looks as follows in the example of Portugal, based on 2011 data and assuming different growth rates and financing costs:
120 100 80 60 40 20 0 2000 2004 2008 2012 2016 2020
Debt/GDP Model - low growth, high yields Debt/GDP model - high growth, low yields
From this it is clear that the number of variables determining debt sustainability is very limited: (1) Expenditures (2) Nominal GDP, i.e., economic growth and inflation (3) Effective financing costs (yields) (4) Starting level of debt.
Ensuring fiscal sustainability in the Euro Area, pp.62-77, ECB monthly Bulletin April 2011, http://www.ecb.int/pub/pdf/mobu/mb201104en.pdf Erste Group Research Page 2
The possibilities to achieve sustainability are thus limited to: (1) Consolidation - the German way. Fiscal discipline will be one of the key ingredients for a way out of the debt crisis, and needs to be enforced further by, e.g., implementation of the fiscal compact, cross-country supervision mechanisms and automatic sanctions. However, they are inherently limited, as tax increases and expenditure cuts dampen growth in the short term, and poltical wllingness might be limited. For example, in Greece, consolidation measures provoked such a deep recession that deficit targets could not be met. (2a) Growth the American way. In our view, improving long-term sustainability (e.g., through pension and health care reforms) while not cutting social expenditures and/or raising taxes too sharply has the appeal of supporting growth if there is time left. Labor market and general structural reforms are very much needed and would raise the medium-term growth perspective. Higher growth is certainly not a realistic short-term solution, but not hampering growth too much is of great importance (however, financing support to buy time may be needed). (2b) Inflation just not a solution. First, higher inflation spreads out the cost even amongst the poorest citizens (thus besides increasing social unfairness also massively dampening domestic demand). Second, ECB credibility would immediately be cast into doubt, which would most likely provoke a currency crisis of some sort, or massive euro depreciation and unwillingness on the part of foreign investors to invest in the Eurozone. Unpredictable and large exchange rate movements have a significant negative impact on the economy independent of the direction of movement. Finally, the expectation of increasing inflation would also increase yields on government bonds and financing costs. Hence, in our view, one of the most valuable assets the credibility of the ECB as an independent central bank maintaining inflation at price stability is very likely to be preserved. (3) Limiting effective financing costs expansion of external support. In order to prevent yield increases early on (which is much less costly than providing support once yields are on an unsustainably high level), and allow for structural reforms instead of immediate consolidation measures, sufficient cross-country financing support has to be put in place. In our view, much progress has to be made in 2012 in this respect, and liquidity support has to be made available very rapidly. We stick to our view that especially IMF support on a preventive basis (such as adapted emergency credit lines) appears to be one of the most effective ways to fight the crisis, and should be expanded sufficiently and rapidly. In contrast, unlimited cross-country support (Eurobonds) would take a longer time to be implemented (treaty changes,) and we do not see the advantage of unlimited as compared to limited support. It is even possible that, with the introduction of Eurobonds, the mean level of yields for the Eurozone would be higher than currently. An important incentive for consolidation market pressure would be missing.
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(4) Reducing the debt level by selling assets and/or restructuring. Asset sales are one important way to rapidly reduce the level of debt. However, it might be difficult to find investors willing to pay a reasonable price for assets within an overindebted country. The option of haircuts/default/PSI is thus the last alternative remaining when everything else didnt work out. Hence, such events can, in extremis (Greece), never be ruled out, and could be one ingredient of debt reduction in 2012.
In our view, out of the options listed above, in 2012 we will see: asset sales for debt reduction, consolidation measures, growth enhancement through structural reforms, extension of cross-country financing support, supplemented in extremis (Greece) by haircuts. The main risk to this scenario is that reforms, as well as cross-country support, are not put in place fast enough (as in 2011), while countries increasingly hit the feasibility limit of consolidation vs. growth, thus facing sharp yield increases. This risk is not negligible, and will lead to ongoing uncertainty and further rounds of escalation - followed by further rounds of announcements and implementation of additional measures. In extremis, we would see a sharper recession in the Eurozone, accompanied by an increasing risk of default. However, this would also seriously dampen inflation perspectives, so that ECB large-scale asset purchases to counter deflationary risks would become more likely, thus easing the situation overall. Finally, as we have argued for a long time, the Monetary Union seems to be in the best economic interest of both peripheral and core countries. For the former, money inflows have permitted it to reach higher living standards and sustain investments. For the latter, the weaker than otherwise euro has supported exports and thus the labor market and savings. It is unclear from an economic perspective why external devaluation (reintroduction of their own weakening currency in peripheral countries) should be preferred to internal devaluation (limiting wage increases). Furthermore, the losses involved on both sides (core and periphery) would likely exceed the ones incurred in the event of a breakup. Summing up, for 2012 we expect a continuation of the inherently slow and painful process of solving the debt crisis. However, we expect more measures to be taken, and a speeding up of political decisions as market pressure is increasing. Depending on the speed of liquidity support and structural reforms implementation, we expect only a mild recession (main scenario) or a deeper recession (not-so-unlikely alternative scenario). However, in the event of a deeper recession, deflationary threats would, in our view, appear, which would be counteracted by the ECB through asset purchases. This would likely ease the situation and keep inflation at price stability in the medium term, so that the longer-term outlook would not be far from our main scenario.
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Eurozone economic outlook

Uncertainty weighs on growth, stagnation in 2012 With the ongoing uncertainty surrounding the Eurozone debt crisis, sentiment indicators declined significantly in 2H11. With our outlook of only slow and painful progress made in the debt crisis and neither a major breakthrough nor a major breakup we expect sentiment to remain on rather depressed levels in 2012. However, economic agents may gradually get used to the prevailing debt crisis and very slowly start to get back to business as usual, implying a stabilization of sentiment and the real economy at low levels. Furthermore, the US economy, which usually leads the Eurozone in terms of growth dynamics is in the process of recovering and is expected to post moderately positive growth in 2012 (at 1.8%; see US outlook). This is one more argument for a very moderate recovery at low levels in the Eurozone in 2H12, after a mild recession in 1H12. US GDP growth leading EZ growth by one quarter improvement soon US vs. EZ real GDP growth q/q
1.00% 0.50% 0.00% -0.50% -1.00% -1.50% Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012
US
Source: Datastream, Erste Group Research
Eurozone
So far, the drastic decline of sentiment has only partly been reflected in real economic data. In order to illustrate the expected spillover from sentiment (debt crisis) to the real economy, we have juxtaposed in the following our growth expectations for GDP components of the three big Eurozone economies throughout 2012 and 2013 with the latest values of the best leading sentiment indicators we could find.
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Exports: Post-crisis catch-up process finished. In almost all Eurozone countries, exports have been the main driver of the recovery, even though of course German export growth has outperformed the other economies. However, the catch-up process after the crisis seems to be finished by now (with pre-crisis levels reached again in many countries), and the global economy is slowing down. A potential slow-down in Asia - the region has surpassed America as the main export region for Germany - could hit especially hard. Beyond that, economies within Europe posting stronger growth (NL, AT, SW, FR) could compensate for the lack of demand from peripheral countries. If the situation gets more pronounced due to consolidation measures, however, this might additionally dampen export activity within the Eurozone. Hence, exports should continue to contribute to growth overall (+2.1% y/y), but less than in 2011. Furthermore, we still expect Germany to benefit from stronger export growth than peripheral countries, which is one major factor for higher German GDP growth in 2012 (we expect 0.7%). For France, exports seem likely to stagnate throughout the next year, while shrinking is likely in Italy.
German order intake abroad slows down

20% 15% 10% 5% 0% -5% -10% -15% -20% Q1 2000 Q1 2003 Q1 2006 Q1 2009 Q1 2012 -0.1 -0.2 -0.3 -0.4 0.3 0.2 0.1 0
German exports by destination

16000 14000 12000 10000 8000 6000 4000 2000 0 Mr.91
Level of 10% of Exports
Mr.93
Mr.95
Mr.97
Mr.99
Mr.01
Mr.03
Mr.05
Mr.07
Mr.09 nl be ir
DE Exp y/y
Order intake abroad
asia at uk
america ch es
fr it pt
Italy: shrinking expected

20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Q1 2000 Q1 2003 Q1 2006 Q1 2009 Q1 2012 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80
France: survey points to zero export growth

20% 15% 10% 5% 0% -5% -10% -15% -20% Q1 2000 Q1 2003 FR Exp y/y Q1 2006 Q1 2009 Q1 2012 40 30 20 10 0 -10 -20 -30 -40
IT Exp y/y
Italy orders abroad
BdF Business survey - foreign demand
Source: Bloomberg, Erste Group Research
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Mr.11
Investments: Not started so far, and now is not the time. The relatively strong export recovery did not lead to firms expanding capacities so far. Capacity utilization has reached mean levels in many countries, but the uncertain outlook continues to weigh on the propensity to invest beyond depreciation. This is visible in the German IFO closely leading investment growth which is declining again, while growth has so far not even compensated for the decrease throughout the crisis. The main positive aspect of this evolution is that replacement investments can now not be postponed much longer, which should in turn also keep investment activity from contracting stronger (we expect -1.2% y/y). German IFO point to decreasing investment growth
15% 10% 5% 0% -5% 92 -10% -15% Q1 2000 Q1 2003 Q1 2006 DE Inv y/y Q1 2009 IFO Q1 2012 87 82 117 112 107
Eurozone: capacity utilization declining again

10% 5% 0% 91 86 81 76 71 66 Q4 2004 Investments y/y Q4 2007 Q4 2010
102 97
-5% -10% -15% Q4 2001
Capacity Utilisation
Italy: significant shrinking expected

10% 5% 0% -5% -10% -15% Q1 2000 Q1 2003 Q1 2006 IT Inv y/y Q1 2009 Italy bus conf Q1 2012 115 110 105 100 95 90 85 80 75 70
France: surveys point to declining activity

122 8% 112 4% 102 0% -4% -8% -12% Q1 2000 Q1 2003 Q1 2006 Q1 2009 Q1 2012 92 82 72 62
FR Inv y/y
BdF Business survey
Finally, the unwillingness of firms to expand capacities in the current environment also burdens the labor market. In most peripheral countries, the unemployment rate is again on the rise, and we expect the overall measure for the Eurozone to peak only in 2013 at 10.5% (see our focus on the Labor Markets included in our Eurozone Interest rate outlook). This in turn will burden private consumption and wages.
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Regional growth perspectives reflected in unemployment rate Unemployment rate in %

25 20 15 10 5 0 Jn.05 Jn.06 Jn.07 Jn.08 Jn.09 Jn.10 Jn.11 Jn.12 Jn.13 Jn.14 Jn.15
Forecast
EM
FR
DE
ES
IT
Sources: Datastream, Erste Group Research
Consumption: Labor market and uncertainty weigh on outlook In addition to the labor market situation, the subdued consumer confidence resulting from uncertainty is burdening the outlook for consumption. However, we expect consumption to remain a moderate stabilizer of GDP (+0.1% y/y), as the sentiment spillover seen so far has been limited. While private consumption in Germany has been robust in recent months, it should slow down. In Italy we expect a slight decline in view of the rising unemployment rate. German consumption to support marginally
4% 3% 2% 1% 0% -1% -2% Q1 2000 Q1 2003 Q1 2006 Q1 2009 Q1 2012 25 15 5 -5 -15 -25 -35
Eurozone consumption to recover in 2H12

4% 3% 2% 1% 0% -1% -2% Q1 1996 Q1 1999 Q1 2002 Q1 2005 Q1 2008 Q1 2011 5 0 -5 -10 -15 -20 -25 -30 -35
DE Consumption y/y
Confidence (rhs)
EZ Consumption y/y
EZ Consumer sentiment
Italy: consumption to decrease only slightly

4% 3% 2% 1% 0% -1% -2% -3% Q1 2000 Q1 2003 Q1 2006 IT Kons y/y Q1 2009 Italy cons conf Q1 2012 160 140 120 100 80 60 40 20
France: beware of base effects

5% 4% 3% 2% 1% 0% -1% -2% Q1 2000 Q1 2003 Q1 2006 Q1 2009 Q1 2012 130 120 110 100 90 80 70 60
FR Consumption y/y
Confidence (rhs)
Source: Bloomberg, Erste Group Research Erste Group Research Page 8
GDP: 2012 Stagnation, 2013 recovery to 1.2% Overall, we therefore expect GDP to stagnate in 2012 (+0.2% y/y). The implementation of the measures agreed on and further steps aimed at solving the government debt crisis, as well as moderate improvement in the US should support a return to business as usual throughout the second half of 2012. However, there is the risk of the Eurozone debt crisis intensifying further. In this case, a quick and significant economic slump could not be ruled out due to self-reinforcing dynamics. Extrapolating the slow recovery dynamics of the year-end, we obtain GDP growth at +1.2% in 2013. The underlying assumption is very moderate growth in investments (+1.2%) following higher exports (+4.4%). Nonetheless, as investment activity should not be very pronounced, we expect no significant improvement on labor markets, implying only low growth contribution from private consumption (+0.3%). All in all, domestic demand should remain moderate.
Inflation: downwards pressure from economy This in turn causes downward pressure on inflation. Depending on the specific measure of the potential, the output gap widens in line with our GDP projections. The inflation pressure caused by the development of the domestic economy would suggest an inflation rate of 0.8% to 1.8%. However, commodity prices and the increase in value-added taxes might create upward pressure, which makes an inflation rate of close to the ECB staff projections 0.8% to 2.2% in 2013) plausible overall. Decreasing capacity utilization (output gap) dampens inflation Inflation and output gap
10.00% 6.5 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% Q1 1995 Q1 1996 Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 -3.5 -1.5 0.5 2.5 4.5
Outgap HP Filter
Out gap linear (scale adjusted)
Inflation (rhs)
Sources: Bloomberg, Erste Group Research
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Analyst Mildred Hager mildred.hager@erstegroup.com
US economic outlook:
Sentiment improves, moderately positive growth Almost all sentiment indicators have improved significantly from September lows, and point to a continuation of moderately positive growth in the US. US sentiment substantially improved (ISM, NFIB, U. of Michigan)
120 100 80 60 40 20 0 Jn.90 Jn.92 Jn.94 Jn.96 Jn.98 Jn.00 Jn.02 Jn.04 Jn.06 Jn.08 Jn.10 NFIB Jn.12
ISM Index
U. of Michigan Consumer confidence
Sources: Bloomberg, Erste Group Research
However, sentiment still differs significantly between large companies (ISM) and SMEs (NFIB) and consumers (U. of Michigan). While the former continue to benefit from relatively strong global demand, the latter and thus domestic demand is lagging behind in terms of growth. Exports supported the US recovery, while at the same time the trade balance deficit was reduced. Furthermore, non-residential investments have become a growth driver, which is a positive sign in terms of growth rebalancing. We expect exports and investments to support economic growth throughout the next year too. Only the inventory cycle seems to be largely over by now (the transparent inventory contribution on the chart below is expected to fade in 2012). However, the better-than-pre-crisis evolution of exports and investments could not compensate for a lack of demand from households. Hence, medium-term growth of the US has declined (as visible on the following chart), based on which we expect below-consensus GDP growth of 1.8% for 2012. Growth perspectives change lower consumption, more investments
4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 -0.50 -1.00 MV 1980-89 MV 1990-99 MV 2000-06 MV 2007-11 MV 2009-11 Cons Non-res Invest Res Invest Net exp Govt Invent
Sources: Bloomberg, Erste Group Research Erste Group Research Page 10
The dampened domestic demand is driven by an important negative feedback loop between housing market/labor market/consumption. Jobless recovery While large companies dominate GDP dynamics (correlation between ISM and GDP on chart below) the SME sector is dominant for job creation and the labor market (correlation between NFIB and Non-farm payrolls). The different dynamics provide an explanation for the jobless recovery seen in the US so far. Persistently high unemployment should continue to dampen wages, which in turn are the single most important factor controlling consumption expenditure by households. Indeed, in the chart below, household expenditures closely follow household income. Large firms support GDP growth
8% 6% 4% 2% 0% -2% -4% -6% -8% Q1 1990 Q1 1994 Q1 1998 Q1 2002 ISM Q1 2006 Q1 2010 70 65 60 55 50 45 40 35 30 25 20
Small firms dampen labor market

40 30 20 10 0 -10 -20 -30 -40 Feb.86 Feb.91 Feb.96 Feb.01 Feb.06 Feb.11 1000 800 600 400 200 0 -200 -400 -600 -800 -1000
GDP yoy
NFIB employment
Change in NFP, 3M movav
Slower income growth dampens expenditures

12000 11000 10000 9000
Savings rate increases due to confidence decrease

7 6 5 4 3 50 55 60 65 70 75 80 85 90 95 100 Q1 2008 Savings rate U.of Michigan (rhs inv.) Q1 2011
8000 7000 6000 Q2 1999 Q2 2002 Q2 2005 Q2 2008 Personal outlays Q2 2011
2 1 0 Q1 2005
Disposable Income
On top of that, since the crisis, the savings rate has also increased substantially (shown in the discrepancy between income and expenditures). This seems to be accounted for by a decrease in confidence (U. of Michigan, inverted on the previous chart on the rhs), further dampening the immediate prospects for consumption but improving again the perspectives in terms of growth rebalancing and deleveraging. The last increase of the U. of Michigan confidence has thus also significantly reduced downside risks coming from a possible sudden increase of savings rate due to sentiment deterioration.
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and homeless recovery Hence, consumption growth should remain positive but subdued, ultimately also with a view to a further important dampening factor: the housing market. While house prices (e.g., the Case Shiller Index) have returned to their pre-bubble trend and do thus not seem to be massively overvalued anymore (see chart), a recovery of the housing sector seems far away too. Indeed, initial purchase prices are still much higher than market prices which might hinder households from refinancing (and benefitting from decreasing financing costs) as well as dampening their own financial outlook and consumption propensity. Furthermore, the construction sector has been one of the most important drags on the labor market (in contrast to previous recoveries), one more aspect of the jobless recovery (indeed, construction firms are usually domestically-oriented and small firms, confirming the above once more). The sector has shed close to 2200K jobs since the onset of the crisis, a decrease followed only by the manufacturing sector. Sold house prices at long term trend
350 300 250 200 150000 150 100 50 0 100000 50000
5000
Construction sector main drag on labor market

300000 250000 200000
30000 25000 20000 15000 10000
0
0 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Q1 1968 Q1 1975 Q1 1982 Q1 1989 Q1 1996 Q1 2003 Q1 2010 S&P CS 20c Home price House mean purchase priceLinear trend 1968-1990 S&P CS natnl Home price House prices sold homes
Construction Bus. serv.
Manufacturing Edu&health
Trade transp. Leisure
Fin. Government
To sum up, we think that the fundamental drag from the jobless and homeless recovery is responsible for lower economic growth perspectives in the US, which will persist for some years. Nevertheless, a recession seems increasingly unlikely too, as shortterm factors such as the higher oil price dampening purchasing power and supply-chain disruptions from Japan fade, and large companies seem to be in a robust situation. Hence, we expect moderately positive growth of the US economy in 2012 (and 13). Similar to the situation in the Eurozone, we also expect the US output gap (remaining in negative territory) to dampen inflationary pressures, and expect a return to inflation rates close to 1.5% in the medium term.
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Forecasts
GDP growth
GDP y/y Austria Germ any France Italy Eurozone US
EZ Com ponents y/y Consumption Investments Exports Im ports
GDP q/q Eurozone
2009 -3.8 -4.6 -2.5 -5.2 -4.1 -3.5

2009 -1.1 -12.0 -12.8 -11.6
2010 2.3 3.5 1.5 1.2 1.7 3.0

2010 0.9 -0.9 10.9 9.1
2011 3.3 2.8 1.5 0.7 1.5 1.6

2011 0.4 1.9 6.3 4.5
2012 0.9 0.7 0.4 -0.4 0.2 1.8

2012 0.1 -1.2 2.1 0.8
2013 2.0 1.5 1.2 0.8 1.2 2.0

2013 0.3 1.2 4.4 2.6
Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 -0.5 0.0 0.3 0.3 0.3 0.3 0.3 0.5 0.5
Inflation
2009 Eurozone US Austria 0.3 -0.3 0.5
2010 1.6 1.6 1.9
2011 2.7 3.2 3.3
2012 1.8 1.8 2.4
2013 1.6 1.7 1.9
Interest Rates
Interest rates ECB MRR 3M Euribor Germ any 2Y Germ any 5Y Germ any 10Y
current 1.00 1.18 0.21 0.88 1.91
Mar 12 0.75 1.00 0.30 0.90 2.00
Jun.12 0.50 0.70 0.35 1.00 2.10
Sep.12 0.50 0.70 0.40 1.10 2.20
Dec 12 0.50 0.70 0.45 1.25 2.30
current Fed Funds Target Rate 3M Libor Yield 10Y 0.25 0.56 1.98
Mar 12 0.25 0.50 2.10
Jun.12 0.25 0.40 2.20
Sep.12 0.25 0.40 2.40
Dec 12 0.25 0.40 2.50
Exchange rates
current EURUSD 1.29 Source: Bloomberg, Erste Group Research
Mar 12 1.27
Jun.12 1.25
Sep.12 1.25
Dec 12 1.25
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Contacts
Group Research
Head of Group Research Friedrich Mostbck, CEFA Macro/Fixed Income Research Head: Gudrun Egger, CEFA (Euroland) Adrian Beck (AT, SW) Mildred Hager (US, JP, Euroland) Alihan Karadagoglu (Corporates) Peter Kaufmann (Corporates) Carmen Riefler-Kowarsch (Covered Bonds) Elena Statelov, CIIA (Corporates) Macro/Fixed Income Research CEE Co-Head CEE: Juraj Kotian (Macro/FI) Birgit Niessner (Macro/FI) CEE Equity Research Co-Head: Gnther Artner, CFA Co-Head: Henning Ekuchen Gnter Hohberger (Banks) Franz Hrl, CFA (Steel, Construction) Daniel Lion, CIIA (IT) Christoph Schultes, CIIA (Insurance, Utility) Thomas Unger; CFA (Oil&Gas) Vera Sutedja, CFA (Telecom) Vladimira Urbankova, MBA (Pharma) Martina Valenta, MBA (Real Estate) Gerald Walek, CFA (Machinery) International Equities Hans Engel (Market strategist) Stephan Lingnau (Europe) Ronald Stferle (Asia) Editor Research CEE Brett Aarons Research, Croatia/Serbia Head: Mladen Dodig (Equity) Head: Alen Kovac (Fixed income) Anto Augustinovic (Equity) Ivana Rogic (Fixed income) Davor Spoljar, CFA (Equity) Research, Czech Republic Head: David Navratil (Fixed income) Petr Bittner (Fixed income) Petr Bartek (Equity) Vaclav Kminek (Media) Jana Krajcova (Fixed income) Martin Krajhanzl (Equity) Martin Lobotka (Fixed income) Lubos Mokras (Fixed income) Research, Hungary Head: Jzsef Mir (Equity) Bernadett Papp (Equity) Gergely Gabler (Equity) Zoltan Arokszallasi (Fixed income) Research, Poland Tomasz Kasowicz (Equity) Piotr Lopaciuk (Equity) Marek Czachor (Equity) Research, Romania Head: Lucian Claudiu Anghel Head Equity: Mihai Caruntu (Equity) Dorina Cobiscan (Fixed Income) Dumitru Dulgheru (Fixed income) Eugen Sinca (Fixed income) Raluca Ungureanu (Equity) Research Turkey Head: Erkin Sahinoz (Fixed Income) Sevda Sarp (Equity) Evrim Dairecioglu (Equity) Ozlem Derici (Fixed Income) Mehmet Emin Zumrut (Equity) +43 (0)5 0100 - 11902 +43 (0)5 0100 - 11909 +43 (0)5 0100 - 11957 +43 (0)5 0100 - 17331 +43 (0)5 0100 - 19633 +43 (0)5 0100 - 11183 +43 (0)5 0100 - 19632 +43 (0)5 0100 - 19641 +43 (0)5 0100 - 17357 +43 (0)5 0100 - 18781 +43 (0)5 0100 - 11523 +43 (0)5 0100 - 19634 +43 (0)5 0100 - 17354 +43 (0)5 0100 - 18506 +43 (0)5 0100 - 17420 +43 (0)5 0100 - 16314 +43 (0)5 0100 - 17344 +43 (0)5 0100 - 11905 +43 (0)5 0100 - 17343 +43 (0)5 0100 - 11913 +43 (0)5 0100 - 16360 +43 (0)5 0100 - 19835 +43 (0)5 0100 - 16574 +43 (0)5 0100 - 11723 +420 956 711 014 +381 11 22 09 178 +385 62 37 1383 +385 62 37 2833 +385 62 37 2419 +385 62 37 2825 +420 224 995 439 +420 224 995 172 +420 224 995 227 +420 224 995 289 +420 224 995 232 +420 224 995 434 +420 224 995 192 +420 224 995 456 +361 235-5131 +361 235-5135 +361 253-5133 +361 373-2830 +48 22 330 6251 +48 22 330 6252 +48 22 330 6254 +40 37226 1021 +40 21 311 2754 +40 37226 1028 +40 37226 1029 +40 37226 1026 +40 21311 2754 +90 212 371 2540 +90 212 371 2537 +90 212 371 2535 +90 212 371 2536 +90 212 371 2539 Research, Slovakia Head: Juraj Barta, CFA (Fixed income) Sona Muzikarova (Fixed income) Maria Valachyova (Fixed income) Research, Ukraine Head: Maryan Zablotskyy (Fixed income) Ivan Ulitko (Equity) Igor Zholonkivskyi (Equity) +421 2 4862 4166 +421 2 4862 4762 +421 2 4862 4185 +38 044 593 - 9188 +38 044 593 - 0003 +38 044 593 - 1784
Treasury - Erste Bank Vienna

Saving Banks & Sales Retail Head: Thomas Schaufler Equity Retail Sales Head: Kurt Gerhold Fixed Income & Certificate Sales Head: Uwe Kolar Treasury Domestic Sales Head: Markus Kaller Corporate Sales AT Head: Christian Skopek Institutional Sales International Head: Christoph Kampitsch Institutional Sales Austria Head: Thomas Almen Martina Fux Michael Konczer Marc Pichler Institutional Solutions Head: Zachary Carvell Brigitte Mayr Mikhail Roshal Institutional & High End Sales Head: Patrick Lehnert Antony Brown Abdalla Bachu Lukash Beeharry Ulrich Inhofner Margit Hraschek Institutional Sales Germany Head: Jrgen Niemeier Marc Friebertshuser Sven Kienzle Michael Schmotz Sabine Loris Carsten Demmler Jrg Moritzen Rene Klasen Klaus Vosseler Milosz Chrustek Andreas Goll Mathias Gindele Institutional Sales CEE Head: Jaromir Malak Sales CEE Pawel Kielek Piotr Zagan Ciprian Mitu Institutional Sales Slovakia Head: Peter Kniz Sarlota Sipulova Institutional Sales Czech Republic Head: Ondrej Cech Pavel Zdichynec Milan Bartos Radek Chupik Institutional Sales Croatia Head: Darko Horvatin Natalija Zujic Institutional Sales Hungary Norbert Siklosi Institutional Sales Romania Head: Valentin Popovici Ruxandra Carlan +43 (0)5 0100 - 84225 +43 (0)5 0100 - 84232 +43 (0)5 0100 - 83214 +43 (0)5 0100 - 84239 +43 (0)5 0100 - 84146
Fixed Income & Credit Institutional Sales

+43 (0)5 0100 - 84979 +43 (0)50100 - 84323 +43 (0)50100 - 84113 +43 (0)50100 - 84121 +43 (0)50100 - 84118 +43 (0)50100 - 83308 +43 (0)50100 87481 +43 (0)50100 87487 +43 (0)5 0100 - 84259 +44 20 7623 - 4159 +44 20 7623 - 4159 +43 (0)50100 - 84125 +43 (0)50100 - 84324 +43 (0)50100 - 84117 +43 (0)50100 - 85503 +43 (0)50100 - 85540 +43 (0)50100 - 85541 +43 (0)50100 - 85542 +43 (0)50100 - 85543 +43 (0)50100 - 85580 +43 (0)50100 - 85581 +43 (0)50100 - 85521 +43 (0)50100 - 85560 +43 (0)50100 - 85522 +43 (0)50100 - 85561 +43 (0)50100 - 85562 +43 (0)50100 - 84254 +48 22 538 62 23 +43 (0)50100 - 84256 +43 (0)50100 - 84253 +421 2 4862-5624 +421 2 4862-5629 +420 2 2499 - 5577 +420 2 2499 - 5590 +420 2 2499 - 5562 +420 2 2499 - 5565 +385 (0)6237 - 1788 +385 (0)6237 - 1638 +36 1 235 - 5842 +40 21 310-4449 - 59 +40 21 310-4449 - 612
Page 14
Published by Erste Group Bank AG, Neutorgasse 17, 1010 Vienna, Austria. Phone +43 (0)5 0100 - ext. Erste Group Homepage: www.erstegroup.com On Bloomberg please type: EBS AV and then F8 GO
This research report was prepared by Erste Group Bank AG (Erste Group) or its affiliate named herein. The individual(s) involved in the preparation of the report were at the relevant time employed in Erste Group or any of its affiliates. The report was prepared for Erste Group clients. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions, forecasts and estimates herein reflect our judgment on the date of this report and are subject to change without notice. The report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may from time to time provide investment banking or consulting services to or serve as a director of a company being reported on herein. Further information on the securities referred to herein may be obtained from Erste Group upon request. Past performance is not necessarily indicative for future results and transactions in securities, options or futures can be considered risky. Not all transactions are suitable for every investor. Investors should consult their advisor, to make sure that the planned investment fits into their needs and preferences and that the involved risks are fully understood. This document may not be reproduced, distributed or published without the prior consent of Erste Group. Erste Group Bank AG confirms that it has approved any investment advertisements contained in this material. Erste Group Bank AG is regulated by the Financial Market Authority (FMA) Otto-Wagner-Platz 5,1090 Vienna, and for the conduct of investment business in the UK by the Financial Services Authority (FSA) and for the conduct of investment activities in Croatia by the Croatian Financial Services Supervisory Agency (CFSSA). . Please refer to www.erstegroup.com for the current list of specific disclosures and the breakdown of Erste Groups investment recommendations.
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Erste Group Research - Economic Outlook 2012

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Erste Group Research Economic Outlook 2012 | Eurozone, US 20.

Economic Outlook 2012

Analysts: Gudrun Egger, CEFA gudrun.egger@erstegroup.com Mildred Hager mildred.hager@erstegroup.com