Světová Ekonomika, Březen 2013 (Dokument V AJ)

Global Outlook
Summary tables Summary: Balancing act US rates medium-term forecasts Eurozone rates medium-term forecasts US: A country of cross-currents Eurozone: Fragile recovery Japan: Revival or fiscal bust? China: Limited upside Eurozone countries Germany: Growing comfortably France: Downside risks Italy: Political stalemate Spain: Every little helps Netherlands: Fixing the foundations Belgium: Fiscal headwinds Austria: On the mend Portugal: One way or another Finland: A modest improvement Ireland: Outperforming Greece: Sailing in calmer waters Other Europe UK: Better, but not great Sweden: Shallow rebound Norway: Resilient Switzerland: Risks persist CEEMEA Russia: Monetary stimulus ahead 42 35 37 39 41 20 22 24 26 28 29 30 31 32 33 34 2 4 10 11 12 14 16 18 Ukraine: In recession Poland: Wait-and-see at the MPC Hungary: More rate cuts ahead Czech Republic: Disinflation risk Turkey: End of rebalancing Saudi Arabia: Slipping on oil United Arab Emirates: So far so good Qatar: Inflation set to rise Asia Pacific Australia: Temporary relief India: Slow progress South Korea: Low inflation Indonesia: Risky business Taiwan: Forecast table Other Asia: Forecast tables The Americas Canada: Losing altitude Brazil: Enter the (inflation) dragon Mexico: Gearing up for a good year Colombia: In search of growth Chile: Politics increasingly the focus Argentina: Rising inflation Peru: A bump on rapid-growth road Venezuela: Policy paralysis Commodities Long-term economic forecasts Contacts Disclaimer 66 67 69 71 72 73 74 75 76 77 81 Inside back cover 57 59 61 63 64 65 44 46 48 50 52 54 55 56
Published 14 March 2013 Global Outlook
March 2013 www.GlobalMarkets.bnpparibas.com
Summary table 1: Economic and financial forecasts

GDP (% y/y) World (2) US Eurozone Japan China Industrial production (% y/y) US Eurozone Japan China Unemployment rate (%) US Eurozone Japan CPI (% y/y) US Eurozone Japan China 10 5.2 2.4 2.0 4.7 10.4 11 4.0 1.8 1.5 -0.6 9.3 Year 12 (1) 3.1 2.2 -0.5 2.0 7.8 Year 10 5.4 7.2 16.4 15.7 11 4.1 3.4 -2.3 13.9 12 3.8 -2.0 -0.3 10.0 Year 10 9.6 10.1 5.1 11 8.9 10.2 4.6 12 8.1 11.4 4.4 Year 10 1.6 1.6 -0.7 3.3 11 3.2 2.7 -0.3 5.4 12 2.1 2.5 0.0 2.6 Year Interest rates US Fed funds rate (%) 3-month rate (%) 10-year rate (%) Eurozone Refinancing rate 3-month rate (%) 10-year rate (%) (4) Japan O/N call rate 3-month rate (%) 10-year rate (%) China Official interest rate (%) 5.81 6.56 6.00 Year FX rates EURUSD USDJPY USDRMB EURJPY EURGBP GBPUSD Current account (% GDP) US Eurozone Japan China
(3) End period (4) Bund yield
(3) (3)
2012 13 (1) 3.1 1.6 -0.5 0.9 8.3 14 (1) 3.6 2.5 0.8 1.0 7.8 Q1 3.6 2.4 -0.1 3.4 8.1 Q2 3.4 2.1 -0.5 3.9 7.6 2012 13 (1) 3.4 -0.1 1.2 11.0 14 (1) 4.7 3.2 2.5 10.7 Q1 4.4 -1.6 4.8 11.6 Q2 4.8 -2.3 5.3 9.5 2012 13 (1) 7.7 12.7 3.8 14 (1) 7.2 12.9 3.7 Q1 8.3 10.9 4.5 Q2 8.2 11.3 4.4 2012 13 (1) 1.9 1.7 0.0 3.6 14 (1) 2.0 1.3 2.2 3.5 Q1 2.8 2.7 0.3 3.8 Q2 1.9 2.5 0.2 2.9 2012 13 (1) 0-0.25 0.40 2.40 0.50 0.10 1.30 0.10 0.25 0.80 6.00 14 (1) 0-0.25 0.50 2.80 0.50 0.15 1.90 0.10 0.25 1.60 6.25 Q1 0-0.25 0.31 2.21 1.00 0.78 1.41 0.10 0.29 0.99 6.56 Q2 0-0.25 0.28 1.64 1.00 0.65 1.60 0.10 0.26 0.84 6.31 2012 13 (1) 1.33 90 6.05 120 0.85 1.56 14 (1) 1.25 100 6.03 125 0.76 1.64 Q1 1.33 83 6.30 110 0.83 1.60 Q2 1.27 80 6.35 101 0.81 1.57 Q3 1.29 78 6.29 100 0.80 1.62 Q4 1.32 78 6.23 104 0.81 1.63 Q1 (1) 1.33 95 6.20 126 0.88 1.50 Q3 0-0.25 0.36 1.63 0.75 0.22 1.44 0.10 0.33 0.77 6.00 Q4 0-0.25 0.31 1.76 0.75 0.19 1.31 0.10 0.30 0.75 6.00 Q1 (1) 0-0.25 0.28 2.05 0.75 0.20 1.52 0.10 0.30 0.60 6.00 Q3 1.7 2.5 -0.4 1.9 Q4 1.9 2.3 -0.2 2.1 Q1 (1) 1.8 1.8 -0.6 2.8 Q3 8.0 11.5 4.3 Q4 7.8 11.8 4.2 Q1 (1) 7.8 12.2 4.0 Q3 3.4 -2.5 -4.6 9.1 Q4 2.8 -3.2 -5.9 10.0 Q1 (1) 2.1 -1.6 -5.2 10.4 Q3 3.2 2.6 -0.6 0.4 7.4 Q4 (1) 2.9 1.6 -0.9 0.5 7.9 Q1 (1) 2.7 1.5 -0.9 -0.6 8.1
2013 Q2 (1) Q3 (1) 2.7 1.6 -0.7 0.2 8.4 3.0 1.3 -0.5 1.8 8.7
Q4 (1) 3.2 2.0 0.2 2.3 8.0
2013 Q2 (1) Q3 (1) 2.7 -0.8 -1.7 11.4 4.0 -0.6 4.2 12.1
Q4 (1) 4.8 2.6 8.0 10.9
2013 Q2 (1) Q3 (1) 7.8 12.6 3.8 7.7 12.8 3.8
Q4 (1) 7.6 13.1 3.7
2013 Q2 (1) Q3 (1) 1.8 1.8 -0.2 3.4 2.0 1.6 0.4 3.8
Q4 (1) 1.9 1.5 0.5 4.5
10 0-0.25 0.30 3.29 1.00 1.01 2.96 0.10 0.34 1.12
11 0-0.25 0.58 1.88 1.00 1.36 1.83 0.10 0.33 0.99
12 0-0.25 0.31 1.76 0.75 0.19 1.31 0.10 0.30 0.75
2013 Q2 (1) Q3 (1) 0-0.25 0.40 2.00 0.50 0.10 1.50 0.10 0.30 0.40 6.00 0-0.25 0.40 2.20 0.50 0.10 1.40 0.10 0.25 0.60 6.00
Q4 (1) 0-0.25 0.40 2.40 0.50 0.10 1.30 0.10 0.25 0.80 6.00
10 1.34 81 6.59 109 0.86 1.56
11 1.29 77 6.29 100 0.83 1.55
12 1.32 78 6.23 104 0.81 1.63 Year
2013 Q2 (1) Q3 (1) 1.35 95 6.15 128 0.88 1.53 Year 12 (1) -7.0 -3.7 -9.1 -1.5 1.35 90 6.08 122 0.87 1.55
Q4 (1) 1.33 90 6.05 120 0.85 1.56
Budget balance 13 (1) -2.5 1.3 0.6 2.7 14 (1) -2.4 1.4 0.5 2.8 (% GDP) US (5) Eurozone Japan China 10 0.0 -6.2 -8.3 -2.5 11 -8.7 -4.1 -8.7 -1.9
10 -3.0 0.0 3.7 3.9

(5) Fiscal year
11 -3.0 0.1 2.0 2.7
12 -3.0 1.2 1.0 2.6
13 (1) -5.5 -2.7 -8.7 -2.1
14 (1) -4.4 -2.2 -7.6 -2.1
Footnotes: (1) Forecast (2) BNPP estimates based on country weights in the IMF World Economic Outlook Update, October 2012 Figures are y/y percentage change unless otherwise indicated
Source: BNP Paribas
Market Economics Global Outlook
March 2013 2
www.GlobalMarkets.bnpparibas.com
Summary table 2: GDP forecasts (% y/y)

Difference from November 2012 Global Outlook (pp) 2012 2013 2014 0.0 -0.3 -0.2 0.1 -0.2 -0.1 0.1 -0.4 -0.3 -0.1 -0.1 -0.2 -0.1 0.5 -0.4 -0.1 0.0 0.0 -0.3 -0.7 -0.4 0.0 0.2 0.2 0.3 0.7 1.0 0.2 -0.3 0.0 -0.3 -0.5 -0.1 0.3 0.1 -0.4 0.2 0.1 -0.5 -0.2 -0.4 -0.1 -0.2 -0.2 -0.4 -0.4 -0.3 -0.4 0.0 -0.3 0.0 0.1 0.0 0.0 -0.3 -1.4 -0.1 -0.4 -1.0 -0.2 -1.1 -2.5 -0.5 0.1 0.1 0.0
Forecasts Weight 2010 2011 2012 2013 2014 100.0 5.2 4.0 3.1 3.1 3.6 51.1 3.0 1.6 1.3 1.1 1.9 US 19.1 2.4 1.8 2.2 1.6 2.5 Eurozone 14.2 2.0 1.5 -0.5 -0.5 0.8 Germany 3.9 4.0 3.1 0.9 1.0 1.8 France 2.8 1.6 1.7 0.0 0.0 0.9 Italy 2.3 1.7 0.5 -2.4 -1.4 0.3 Spain 1.8 -0.1 0.4 -1.4 -1.6 0.2 Japan 5.6 4.7 -0.6 2.0 0.9 1.0 UK 2.9 1.8 0.9 0.2 0.7 1.6 Canada 1.8 3.2 2.6 1.8 1.4 2.1 Other advanced economies(1) 7.4 5.9 3.2 2.1 2.8 3.2 Advanced Asia ex-Japan(1) 3.9 8.5 4.0 1.8 3.5 3.9 Emerging and developing economies(1) 48.9 7.5 6.3 4.9 5.3 5.5 CEE & Russia(1) 7.8 4.8 4.9 2.4 2.7 3.5 Russia 3.0 4.3 4.3 3.4 2.9 3.6 Developing Asia(1) 25.0 9.5 8.3 6.7 7.2 7.3 China 14.3 10.4 9.3 7.8 8.3 7.8 India 5.6 9.8 7.3 5.1 5.5 7.2 Latin America(1) 8.7 6.3 4.5 2.8 3.5 3.7 Brazil 2.9 7.5 2.7 0.9 3.0 3.5 Mexico 2.1 5.3 3.9 3.9 3.9 4.1 (1) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012 World(1) Advanced economies(1)
Source: BNP Paribas
Forecasts Q4'12 Q4'13 2.7 3.5 0.8 1.6 1.6 2.0 -0.9 0.2 0.4 2.0 -0.3 0.4 -2.8 -0.4 -1.9 -0.8 0.5 2.3 0.2 0.9 1.1 1.8 2.2 3.3 2.4 4.1 4.7 5.5 1.3 3.3 1.8 3.6 6.7 7.2 7.9 8.0 4.5 6.5 2.7 3.9 1.4 3.3 2.7 4.7
Country/region
Summary table 3: CPI forecasts (% y/y)(1)

Difference from November 2012 Global Outlook (pp) 2014 3.4 1.9 2.0 1.3 1.8 1.7 1.3 0.7 2.2 2.7 2.0 2.1 2.3 5.2 5.6 6.3 4.0 3.5 5.8 7.4 6.2 3.6 2012 -0.2 0.0 -0.1 0.0 0.0 0.0 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 -0.1 -0.3 0.0 -0.2 -0.1 -0.2 0.0 0.0 -0.1 2013 -0.3 -0.3 -0.5 -0.1 0.3 -0.4 -0.4 -0.9 0.1 0.6 -0.8 -0.2 -0.3 -0.2 -0.3 -0.6 -0.6 0.0 -2.1 0.4 0.4 -0.8 2014 -0.1 0.0 -0.3 -0.2 0.0 -0.4 -0.4 -0.2 1.2 0.7 -0.3 0.0 0.3 0.1 0.5 0.0 -0.2 0.0 -0.7 0.3 0.2 -0.2
Forecasts Country/Region World US Eurozone Germany France Italy Spain Japan UK Canada Other advanced economies(2) Advanced Asia ex-Japan(2) Emerging and developing economies CEE & Russia(2) Russia Developing Asia(2) China India Latin America(2) Brazil Mexico (1) HICP where available, India WPI (2) BNPP estimates based on weights using PPP valuation of GDP in IMF WEO October 2012
Source: BNP Paribas
(2) (2) (2)
Forecasts Q4'12 Q4'13 3.3 1.8 1.9 2.3 2.0 1.7 2.6 3.2 -0.2 2.7 0.9 1.8 2.3 5.1 6.5 6.5 3.4 2.1 7.2 6.3 5.6 4.1 3.4 1.7 1.9 1.5 2.0 1.5 1.3 0.7 0.5 2.9 1.3 1.9 2.1 5.4 6.0 7.0 4.4 4.5 5.3 7.1 6.7 3.3
Weight 100.0 51.1 19.1 14.2 3.9 2.8 2.3 1.8 5.6 2.9 1.8 7.4 3.9 48.9 7.8 3.0 25.0 14.3 5.6 8.7 2.9 2.1
2010 3.5 1.5 1.6 1.6 1.2 1.7 1.6 2.0 -0.7 3.3 1.8 2.2 2.3 5.7 6.4 6.9 4.9 3.3 9.6 6.3 5.0 4.2
2011 4.6 2.7 3.2 2.7 2.5 2.3 2.9 3.1 -0.3 4.5 2.9 3.0 3.5 6.8 7.9 8.5 6.2 5.4 9.5 6.8 6.6 3.4
2012 3.5 2.0 2.1 2.5 2.1 2.2 3.3 2.4 0.0 2.8 1.5 1.9 2.5 5.3 6.5 5.1 3.8 2.6 7.5 6.2 5.4 4.1
2013 3.3 1.6 1.9 1.7 2.0 1.3 1.7 1.6 0.0 3.1 1.1 1.8 2.1 5.1 6.0 7.1 3.9 3.6 5.5 7.1 6.5 3.4
Advanced economies
Market Economics Global Outlook
Balancing act1
Leading indicators better, hard data worse Developments since our last Global Outlook have been mixed. On the upside, leading indicators have strengthened in a number of countries, particularly Europe, and sentiment surveys have generally improved. The data over the past three months have shown that the recovery in China has gained traction. In addition, Japanese fiscal and monetary policy has changed to a markedly more pro-growth direction. In contrast, the hard real-economy data, such as GDP, surprised to the downside in Q4 in the US, UK, Germany, Japan, France, Italy, Brazil and India, for example. Moreover, leading indicators point to a subdued recovery. The risks that this may be a short mini-cycle have increased. We have lowered our growth forecasts for many countries, with the recovery looking to have even less vigour than we expected. This reflects a number of factors. First, the downturn was not that sharp, particularly in emerging markets. The scope for a bounce is limited if the fall is not great. Second, there are headwinds in a number of countries. In the west, fiscal tightening is impeding growth in the US and in many countries in Europe. We avoided the fiscal cliff in the US, but hit sequestration, and the US medium-term fiscal trajectory is uncertain. Imbalances are still being unwound in the financial and non-financial sectors in highincome countries and financial regulation has tightened. In the eurozone, the gloss has been taken off the post-OMT optimism by uncertainty about what will happen on the political front in Italy. The contraction of credit growth is not a good omen. In emerging markets, the margin of spare capacity is small, limiting how far economies can run above potential and how long they can stave off inflation. China has started to crack down on credit growth and the property market at a comparatively early stage in the upswing. Add to all this the fact that potential growth rates have fallen almost everywhere (demographics, tougher regulation, lower investment rates, increased risk aversion) and it is easy to understand why we forecast global growth of only 3.1% in 2013 and 3.6% in 2014 after 3.0% in 2012. The recovery will build, but at a slower pace than in previous recovery periods. Before talking about growth and inflation, though, lets concentrate on central banks and financial markets. This is the inverse of the usual order. But lets face it, since 2008 it has been the financial markets that have driven the growth cycle more than the other way around. In advanced economies, the failure to build in escape velocity is a concern not just to us, but to central banks. In general, central banks are in a more pro-growth frame of mind for several reasons: output gaps remain wide; inflation has been soft and it is increasingly clear that the issues of the day are how to fire growth and how to facilitate deleveraging by the private and public sectors. Thus, the Feds adoption of
Table 2: BNPP end-period FX forecasts
Spot EURUSD 1.31 126 0.88 1.49 96 6.27 EURJPY EURGBP GBPUSD USDJPY USDRMB
Upturn lacks vigour
Italian uncertainty
Global growth of 3.1% in 2013
Lack of escape velocity prompting more easing
Table 1: BNPP end-period interest-rate forecasts (%)

Spot US Fed Funds 2-year 10-year Eurozone Refi 2-year* 10-year* Japan ODR Call Rate 2-year 10-year 0-0.25 0.26 2.06 0.75 0.07 1.51 0.30 0.10 0.05 0.67 Q2'13 0-0.25 0.20 2.00 0.50 0.10 1.50 0.30 0.10 0.05 0.40 Q3'13 0-0.25 0.25 2.20 0.50 0.10 1.40 0.30 0.10 0.05 0.60 Q4'13 0-0.25 0.25 2.40 0.50 0.10 1.30 0.30 0.10 0.10 0.80 Q1'14 0-0.25 0.25 2.50 0.50 0.15 1.40 0.30 0.10 0.10 1.10 Q2'14 0-0.25 0.30 2.60 0.50 0.20 1.50 0.30 0.10 0.10 1.40 Q3'14 0-0.25 0.50 2.70 0.50 0.25 1.70 0.30 0.10 0.10 1.50
Q2'13
1.35 128 0.88 1.53 95 6.15
Q3'13
1.35 122 0.87 1.55 90 6.08
Q4'13
1.33 120 0.85 1.56 90 6.05
Q1'14
1.33 122 0.82 1.62 92 6.02
Q2'14
1.30 120 0.80 1.63 92 6.08
Q3'14
1.27 121 0.78 1.63 95 6.10
(*) German benchmark. Spot rates as at 12 March 2013 Source: BNP Paribas (Market Economics, Interest Rate Strategy)
1
Spot rates as at 12 March 2013 Source: BNP Paribas (FX Strategy)
Economic and central bank forecasts are by BNP Paribas economists. Market forecasts are jointly produced by BNPP Interest Rate Strategy, FX Strategy and Market Economics.
Paul Mortimer-Lee Global Outlook
thresholds for rate action represents a commitment to be easier for as long as unemployment remains too high. The Bank of England is contemplating a rate cut despite forecasting inflation would be above its target for longer than two years. Japan has seen an even more drastic change, with a 2%-of-GDP fiscal stimulus and a move to monetise this to end deflation. Radical stuff. ECB the old-school central bank The ECB has, in some respects, looked like the last old-school central bank. However, the fact that it forecasts inflation to decline to closer to 1% than 2% in 2014 gives considerable policy flexibility, which is why we expect it to cut rates further, taking the refi rate to 0.5%. If easing by others results in significant upward pressure on the EUR, the impact of this on inflation could lead to further action by the ECB. The easy stance of central banks is clearly one of the factors that have supported risk appetite in recent months. The most important element was the ECBs commitment to do whatever it took to hold the euro together, which reduced tail risk. Easy rates and large-scale asset purchases, actual and prospective, have been important in building on this and in boosting stock markets and narrowing credit premia. A better growth outlook has also helped. We welcome the expansive mood of central banks. However, it is concerning that growth is mediocre despite massive monetary support. Where would we be without it? Isnt this a signal of the fundamentals being fundamentally weak? And what happens when the stimulus is withdrawn? Will the financial markets and global economy suffer cold turkey? This is a risk, but we would argue that central banks are aware of the risks, particularly Bernanke & Co, where the Feds references to avoiding a premature end to easing have been clear. The lessons of 2011, when the Fed talked of exit and the ECB hiked twice (can you credit it?) are clear. We expect a slow recovery in the US and very limited progress in cutting unemployment queues, and with inflation low enough for the Fed to avoid forecasting inflation anywhere near its 2.5% threshold, exit is not on the agenda. The hawks have switched their rhetoric from fretting that QE would cause inflation to its causing bubbles. This will not sway the key players Bernanke, Yellen, Dudley et al from concentrating on the Feds mandate, as they feel that financial excesses are not a risk to the mandate at present. Of course, financial asset prices are distorted thats the whole point of QE. (The word distort is not used when QE is explained, of course, but portfolio balance effects are just a politically correct way of saying the same thing.) Our view is that the Fed will continue to buy USD 85bn a month throughout this year, before tapering off its purchases in 2014. We expect tapering to be discussed by Fed Chairman Ben Bernanke late in Q3 and not before the very earliest, at Jackson Hole. This exit will need very careful handling, as it could lead to a sharp re-pricing of Treasuries and a re-pricing of risk. However, we expect skill and finesse to be shown and so only see a small rise in 10y Treasury yields this year to 2.4% by end year. In Europe, tail risk has been removed by OMTs and the feeling that if an existential crisis threatens, the ECB will do whatever it takes, even if circumstances lock it out of activating its OMT programme. This and the weight of domestic holdings of BTP help to explain why Italian spreads have reacted in a relatively moderate way to the very poor Italian election result. The perception that Italian politics are often messy, but that a government will be formed in the end, has been an important factor, as has the negative net supply of BTPs. Will yields rise or fall from here? We believe the path will be uneven there will be many twists and turns with the possibility of an early election remaining firmly on the table (we assume it will come next March but October is an increasing risk). The lesson of the last election is that austerity and reform are not the path to electoral success (ask Mario Monti). Thus, there will be no reforms, cyclical fiscal slippage will go uncorrected and there is a risk
Central banks the main driver of risk appetite
Is cold turkey the future?
Expect softly, softly from central banks
Fed carry on QEing
What will Italy do for risk appetite?
Uneven path for BTPs likely
of some backsliding (such as the cancellation of the planned VAT hike). Our belief is that spreads, currently narrowing, will eventually re-widen, but not to previous highs, because of the ECB and because the risk of a eurozone break-up is off the agenda. We have assumed a high for yields of around 5.0% (a high for the spread to Bunds of 370bp or so). We doubt the Italian bond market will move in a straight line until the next election. The more the government is stable and able to do the right thing, the lower and more stable yields will be. The question is whether higher yields are a prerequisite to the government doing the right thing. Risks in Italy So, what could cause a sell-off? Events is the answer, with the possibilities a cocktail of adverse political developments, weaker-than-expected growth, worse-thanexpected budgets, negative comments from Germany, back-tracking on progress under Mr Monti, rating downgrades and possible external shocks. As to when a sell-off would come, the timing is uncertain and we expect periods in which things are quiet to see good rallies as people become tempted by the yield. Italys problem when it comes to sustainability is a lack of growth. The primary budget surplus is already about as big a proportion of GDP as is reasonable to expect in the long run, so moving to a more sustainable debt/GDP ratio (which is important, as Bunds will not stay at 1% forever) requires growth. That requires structural reform. This is not going to happen under any conceivable government until after the next election, so downgrades will be difficult to avoid. Spains problem is not only growth, but more immediately, the budget deficit. At just under 7% of GDP in 2012, it remains uncomfortably high. In an economy where many agents are stretched financially and where the banks are troubled, the fiscal multiplier is high. Basically, Spain has to tighten by 2-3% of GDP to achieve a 1%-of-GDP reduction in the deficit. About 1-1% of GDP reduction in the headline deficit is the maximum we believe Spain can achieve. The budget deficit is going to remain a problem for some time and is probably the key risk to Spain losing its investmentgrade rating. However, the agencies are reluctant to move Spain to junk, maybe having already gone too far too fast. A return to growth which we expect late this year will help to stabilise the ratings. We forecast Spains spread to settle above Italys, with Spains fiscal worries continuing after Italian political uncertainties fade. Will Spain avoid the ESM and OMT? That looks increasingly likely and is our basecase scenario in this forecast. We assume that Greece remains on track and that a fudge is found for Cyprus. There, setting adverse precedents by haircutting depositors, for example, is an option, but not one seen to answer the problem of how to recapitalise the banks without burdening the state with too much debt. The fudge will be to keep a lid on the estimate of the cost of rehabilitating the banks, to pencil in high privatisation receipts (including possibly relating to natural gas) and to be too optimistic on growth and the budget. A typical eurozone programme, in other words. The IMF may not be involved in putting up money, but Russia will, though on what terms is uncertain. There are likely to be easier terms for Ireland and Portugal (lower rates, longer maturities for their borrowing), which will reinforce the picture of solidarity in Europe and help to limit any widening of spreads. In terms of German Bund yields, we expect them to stay trapped in a narrow range this year. First, Treasuries remain supported. Second, we see the refi rate settling at 0.5%, with the ECB keeping its options open as regards future policy. Third, we project inflation on a downward track. Fourth, eurozone growth remains weak. Fifth, while we see no blow-out in peripheral spreads, we do continue to see them coming under pressure. In Japan, new BoJ Governor Haruhiko Kuroda and Deputy Governor Kikuo Iwata have made it clear they expect to pursue aggressive policies in pursuit of the 2% inflation target. With the G20 having made clear that buying foreign bonds and FX intervention
Italys real problem is no reform and no growth
Spains problem is the budget
Greece and Cyprus condemned to succeed
Bunds to remain trapped in a narrow range
Could we see 0.3% on the 10-year JGB?
are beyond the pale, super-aggressive domestic balance-sheet expansion by the BoJ is the way to fight currency wars (which the US cannot criticise, because it is employing the same weapon). A longer maturity of stepped-up buying should come in April. We expect the 10-year bond yield to respond quite aggressively, probably dropping to the 0.3-0.4% range. We see a rise back up to 0.8% by end year, partly on better growth, but also in response to higher inflation. If inflation stays stubbornly low, the logic of the new BoJ is that it will step up aggression. Chinese upswing yes, but with financial risks In China, we have seen increasing disintermediation outside the banking system, with a rapid rise in wealth management products and associated lending on the asset side of the balance sheets of trust companies among others. Total credit (in Chinese terms, total social financing, or TSF) has been rising too fast and property prices have started to bubble up. The risk of non-performing loans down the road is very clear. Indeed, some of the rise in TSF may be due to local-authority financing vehicles refinancing previous excessive borrowing from the main banking system. The authorities face a dilemma. Cracking down too hard on the mushrooming shadow banking system would interrupt the now undeniable cyclical upswing the economy is enjoying and may crystallise local-government defaults and broader financial stress. But doing nothing, and allowing bubble dynamics to continue, would only increase the systemic risks to the financial system and the real economy. Our forecast assumes the authorities manage to keep their balance on this fine wire. For the moment, the supply of liquidity to the global economy and the fact that we are in the upswing phase of the cycle, if not a particularly strong one, should maintain the search for yield in the immediate months ahead. Real challenges would come from developments that unhinged the magic formula of better growth and easy policy. Geopolitical events and rising inflation are two such developments, though the spare capacity and weak wage growth in advanced countries limit the latter. So, for now, while the music is playing, many continue to dance. When the music ends, for example, when the Fed starts to exit quantitative easing, things could look much less comfortable. Our macro forecasts predicated on this financial backdrop are not, in broad terms, that different from our forecasts three months ago, though in general, there have been downward revisions to growth for 2013. We now expect the global economy to expand by 3.1% in 2013, down from our forecast of 3.4% three months ago and not much better than 2012 as a whole. Of the major economies, the biggest downward revisions have come in Brazil (our 2013 growth forecast slashed from 5.5% to 3.0%), India (down 1.4pp to 5.5%) and Canada (down 0.5pp in 2013 to a meagre 1.4%). Our US forecast for 2013 as a whole now sees growth of 1.6% from 2.0% last time. The main reason is a weaker-than-expected end to 2012 and a softer start to 2013. Growth should accelerate throughout the year, from 1.6% y/y in Q4 2012 to 2.0% in Q4 2013. With fiscal tightening knocking about 1% points off growth, the underlying picture of private-sector demand is reasonably firm. However, we expect only slow progress to be made on cutting unemployment. Inflation is expected to remain well controlled, freeing up the Fed to deal with the real economy. In the eurozone, there have been competing pressures on our forecast. On the upside, Germany seems to have turned stronger earlier than we had expected as a result of the global recovery, and also due to favourable domestic fundamentals (not much of a downturn, little impact on employment, decent real wage growth, good profitability and cheap readily available financing). On the downside, Q4 last year was weaker than expected. In addition, the Italian election will increase risk aversion, delay investment and be negative for the country and, consequently, its trading partners. We have revised down our previous forecast for Italian growth from a contraction of 0.7% y/y for 2013 as a whole, to a fall of 1.4%.
The music is playing, so risk is dancing
Global growth forecast edged down for 2013
US growth distinctly lacklustre
Eurozone some up, some down
We have revised up our forecast for Spain, reflecting a better start than expected to 2013. We now think Spain could see quarter-on-quarter growth by the end of this year. French indicators have been a bit weaker than expected, especially the PMIs, but other indicators are less threatening, including the Banque de France survey. So, until the uncertainty is resolved, we maintain our forecast of 0% growth in 2013. Overall, we continue to see a fall in GDP in the eurozone of around % in 2013 as a whole. However, a lot of this reflects base effects and the forecast assumes growth returns to the region as a whole in H2 this year. Naturally, the picture differs between countries, with Germany outperforming and the periphery underperforming. Eurozone inflation to undershoot target in 2014 Inflation in the eurozone last year was a bit stickier than expected, but recent numbers have started to improve. Our expectation is that inflation will run below 2% y/y in coming months. For 2014 as whole, inflation will be 1.3%, down from 1.7% this year, which does not seem to us to be consistent with the second leg of the ECBs definition of price stability: below but close to 2%. This inflation profile, driven by subdued or falling wages in a number of countries and little scope for profit margins to widen, is the reason we expect the ECB to be dovish. Our Japanese growth forecasts have seen chunky upward revisions. We now forecast growth of 0.9% in 2013 and 1.0% in 2014, an upward revision of nearly 2pp in the two years put together and compared with potential growth of % or so per annum. This reflects more expansionary money-financed fiscal expansion and a lower yen. Higher inflation is expected to result from the new strategy, to be reflected in lower real interest rates in this forecast than in our last. In terms of inflation, our view is that the Japanese economy has little spare capacity, so upward price pressures should emerge. However, after so many years of deflation, sticky expectations should limit the upward dynamic at first. We believe the BoJ will work hard to raise expectations and, on this basis, we expect the BoJ to achieve sustainable 2% inflation in 2015, though the timing is uncertain (the figure in 2014 will be 2.2%, but this includes a surge following a sales tax hike). At that stage, we may see a real fiscal challenge emerging, as there will be upward pressure on bond yields, which will set in play an adverse fiscal dynamic, including the deficit, the yen and bond yields. But that is beyond the end of our formal forecasts. Chinese growth we have kept at 8.3% in 2013, edging down to 7.8% in 2014, as in our last forecast, with inflation staying under control, registering around 3 % p.a. in 2013 and 2014. Elsewhere in the emerging-market world, Brazilian 2012 GDP growth was even slower than our sub-consensus forecast. The economy has little spare capacity and we now expect real growth of only 3.0% in 2013, down from 5.5% previously. Stronger demand is feeding inflation and inflation expectations, so we expect the next move in Brazilian rates to be a hike. In contrast, in Mexico, where we expect steady growth of around 4% p.a., a recent fall in inflation allowed Banxico to cut rates in March and we now see rates being kept on hold over the forecast period. The new government has made good progress on its reform agenda and we expect capital flows to be supportive. Things look much less favourable in Russia, where growth is slowing due to financial constraints on investment and where inflation exceeds 7%. We expect GDP growth in 2013 to be 2.9%, after 3.4% in 2012, but with a pickup to around 3% in 2014. Slow growth is leading to political pressure for the central bank to cut rates. With a new governor at the helm of the CBR from June, we expect the first rate cut of 25bp as soon
as Q3 2013. High inflation risks should limit the extent of the easing in 2013, however.
Japan stimulatory policy will work
Japanese policy will bring inflation back
Chinese growth forecast unchanged Brazil growth revised down, inflation up
Russia slow growth, fast inflation
Indian growth weaker than before, inflation lower

India is another emerging market where growth surprised to the downside late last year, with growth sinking to 4.5% y/y in Q4 2102, its slowest since the global financial crisis. Growth probably bottomed out around year end, but we expect the pickup to be
slow. A large output gap is helping to subdue inflation, with core WPI inflation down from 7.2% y/y last August to 4.5% y/y in January. However, fuel-subsidy reductions will put pressure on food prices and we expect WPI inflation to be in the 5-5% range in 2013 and 2014 as a whole. This will crimp the ability of the RBI to lower rates, though some small easing is likely to be delivered this year. Turkey to see a strong pickup, but lower inflation Turkey is an emerging market where we expect a sharp pickup in growth this year, from 2.5% y/y in 2012 to 4.5% this year, fuelled by domestic demand. A key reason for this is the CBRTs easy monetary policy, reflected in improved consumer confidence, better PMIs and faster credit growth. We expect the budget deficit to stay low, as better growth boosts tax revenues and privatisation receipts. The deficit on the current account is likely to widen from 5% of GDP in 2012 to 6% of GDP this year. The slowdown in 2012 is helping to subdue inflation and we expect this to continue. After CPI inflation averaged 8.9% in 2012, we expect an average of 7.3% in 2013 and 5.9% in 2014. Globally, we have revised down our inflation forecasts: we now see global inflation averaging 3.3% in 2013 compared with the 3.6% forecast last time, though we expect that by 2014, our previous forecast of 3% inflation will come good. The biggest downward revisions to our inflation estimates have come in India (-2.1pp to 5.5% in 2013), Mexico (-0.8pp to 3.4%) and Canada (-0.8pp to 1.1%). The two countries where we have made significant upward revisions to inflation are the UK (up by 0.6pp in 2013 to 3.1%) and Brazil (up by 0.4pp to 6.5% in 2013). Both are countries in which central bank credibility has come into question and where the enthusiasm to follow inflation targeting has waned. At least Brazil has the excuse of having no output gap. Currency markets are the lakes into which the various national economic and policy rivers flow, creating turbulent and sometimes unpredictable currents. Our FX Strategy team expects the USDs negative correlation with risk appetite to return as the Fed maintains QE3, causing the USD to weaken against the commodity currencies. However, we have made a number of revisions to our FX forecasts over the last three months. We have the yen significantly weaker than before, following the markets increased expectations that Prime Minister Shinzo Abes government will be able to deliver policies to stimulate inflation. In the UK, it is clear that the central bank has changed, even before the new governor arrives, so we have softened our previously bullish sterling forecast. For EURUSD, our target for the peak is 1.35, as it was three months ago. We continue to like emerging-market currencies relative to the currencies of high-income countries.
Chart 1: Chinese manufacturing PMI

5 7 .5 15 10 5 0 -5 -1 0 4 5 .0 -1 5 -2 0 -2 5 4 2 .5 H e a d lin e P M I (R H S ) 04 05 06 07 08 09 10 11 12 13 4 0 .0 N e w o rd e rs le s s s to c k s o f fin is h e d g o o d s
Chart 2: Consumption: A tale of two continents (real values, % y/y)

1 0 .0 7 .5 C o n s u m p tio n , e u ro z o n e 5 .0 2 .5
5 0 .0 5 5 .0
R e ta il s a le s ,
5 2 .5
C o n s u m p tio n , U S 0 .0
4 7 .5
-2 .5 R e ta il s a le s , e u ro z o n e -5 .0 -7 .5 -1 0 .0
05
06
07
08
09
10
11
12
Source: Reuters EcoWin Pro
Source: Reuters EcoWin Pro
US rates: Medium-term forecasts

Chart 1: Fed funds target rate (%)
7 6 N o m in a l 5 4 3 2 1 0 -1 R e a l y ie ld ( d e fla te d b y c o r e C P I) -2 -3 92 1 .5 1 .0 0 .5 0 .0 -0 .5 7 6 5 4 3 2 1 0 92
M ean
Chart 2: 3m rate and Fed funds (%)

2 .5
BN PP fo re c a s t
2 .0
3 m r a te le s s F e d fu n d s
BNPP fo re c a s t
F e d fu n d s ta rg e t ra te 94 96 98 00 02 04 06 08 10 12 14
94
96
98
00
02
04
06
08
10
12
14
Source: Reuters EcoWin Pro, BNP Paribas Market Economics and Interest Rate Strategy
The Fed will keep policy rates unchanged until 2015. Real rates will remain well below zero over the forecast period.
Based on our forecast of a long period of unchanged policy rates, the spread between the three-month and the Fed funds rate should see little change.
Chart 3: 2y and Fed funds rate (%)

2 .5 2 .0 1 .5 1 .0 0 .5 0 .0 - 0 .5 - 1 .0 - 1 .5 6 4 2 0 92 94 -0 .5 F e d fu n d s ta rg e t ra te 96 98 00 02 04 06 08 10 12 14 2 .5 2 .0 1 .5 1 .0 0 .5 U S 2 y le s s F e d f u n d s
BN PP fo re c a s t
Chart 4: 10y/2y spread and Fed policy (%)

4 .0 3 .5 3 .0 1 2 3 4 5 0 .0 6 F e d fu n d s ta r g e t r a te ( In v e rte d , R H S ) 96 98 00 02 04 06 08 10 12 14 7 Percent 1 0 y le s s 2 y
BN PP fo re c a s t
-1 0
-1 .0 94
The spread between two-year Treasury yields and the Fed funds rate should also see little change, with the latter not forecast to start rising until 2015.
The yield curve is unusually flat relative to the policy rate. We expect a steepening over the forecast period as the US and global outlook improves and tail risks fall.
Chart 5: 10-year yield (%)

7
BN PP fo re c a s t
Chart 6: 10-year swap spread (%)

1 .5 0 1 .2 5 1 .0 0 0 .7 5 0 .5 0 0 .2 5 U S 1 0 y , s w a p le s s T r e a s u r y
BN PP fo re c a s t
6 U S 1 0 y y ie ld 5 4 3
0 .0 0 2 1 0 -1 R e a l y ie ld ( d e f la te d b y c o r e C P I) -0 .2 5 7 6 5 4 3 2 1
U S 1 0 y , T re a s u ry
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
We expect longer-term yields to rise over the forecast period as the US growth outlook firms and the Fed starts to taper QE.
We expect little change in the swap spread over the forecast period because of the Feds commitment to maintain loose monetary policy over the medium term.
David Tinsley Global Outlook
10
Eurozone rates: Medium-term forecasts

Chart 1: Policy rates (%)
6
BNPP fo re c a s t
Chart 2: 2y rate & ECB policy (%)
5 N o m in a l r e f i r a t e 4 E O N IA
0 R e a l r e f i r a t e ( d e f la te d b y c o r e H I C P ) -1
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
We forecast the ECB refi rate to be cut to 0.5%. In real terms, the refinancing rate will remain negative.
We forecast German two-year yields to remain very low, in line with our policy forecast. Over time, the spread to the policy rate should widen.
Chart 3: 10y/2y spread & ECB policy (%)

2 .2 5 2 .0 0 1 .7 5 1 .5 0 1 .2 5 1 .0 0 0 .7 5 0 .5 0 0 .2 5 0 .0 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 E C B refi ra te (Inv . R H S ) 1 0y /2 y s pre ad 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
B N P P 4.5 fo re c a st
Chart 4: 10y/3m spread & ECB policy (%)
13
14
5.0
The 10y/2y spread is likely to remain low in relation to the policy rate in coming quarters. Political tensions are likely to push the 10-year Bund yield lower towards the end of 2013, before a rise in 2014.
Uncertainty about the future of the eurozone has diminished. The curve should, therefore, steepen relative to the level of policy rates.
Chart 5: US-German yield & policy spreads (%)

6 5
Chart 6: 10y Bund yields (%)

BN PP forecast
10y B un d
Percent
R e al yie ld (D eflate d b y co re H IC P )
-1
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
The US is moving faster towards normalisation, so the UST-Bund spread will widen.
We expect Bund yields to rise over the forecast period. The real yield should stay close to zero over 2013.
11
US: A country of cross-currents

A stronger pace of fiscal tightening We expect growth in 2013 to be similar to that of the past few years. The overall subdued pace of growth reflects intensifying cross-currents. Because of higher taxes and sequestration spending cuts, fiscal tightening looks set to strengthen this year. Meanwhile, easy monetary policy is finally having more of an impact on the housing and durable goods sectors, and we look for these areas to make stronger contributions to growth. The lack of a cyclical pickup highlights a reality we have been stressing for some time: the US economy is in a phase of structural adjustment, not a traditional business cycle, and it is still right in the middle of this longer-term process. We do think less fiscal tightening will allow an above-trend performance in 2014, although this would require stronger underlying private-sector demand, which we have not seen to date (Chart 1). Fiscal policy developments reflect a deeply divided and contentious policymaking environment. Sequestration spending cuts are expected to take effect with little moderation, and no grand bargain, major tax overhaul or entitlement reform appears likely at this juncture. Rather, we will be cliff hopping making policy in a sub-optimal, piecemeal fashion that keeps uncertainty about government policy at a persistently high level. Extreme business-sector caution has been a key restraint on growth, as companies are generating profits faster than they are investing and hiring. This abnormal business saving behaviour is expected to ease gradually as companies slowly gain confidence in the outlook. The Fed is committed to meeting its mandate, and concerns about financial stability brought about by QE are not expected to hold the FOMC back from expanding its balance sheet throughout 2014. We expect the first rate hike in Q3 2015.
Chart 2: Too much business saving, govt dissaving
Net saving (% of GDP) Domestic business
to be offset by a pickup in investment
leading to a steady, subdued pace of growth
The Fed is committed to QE
Chart 1: Private-sector pickup

6 2
% Q4/Q4 Real GDP
2011 2.0%
2012 1.6%
2013
(1)
2014
(1)
Households
2.0%
2.7%
-2
Fiscal tightening2
-0.8%
-1.0%
-1.3%
-0.9%
-6
Government
-10
Current account balance
Underlying pace2
2.8%
2.6%
3.2%
3.6%
-14 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Reuters EcoWin Pro, BNP Paribas
Source: Reuters EcoWin Pro, BNP Paribas; (1) Forecast (2) Estimate
Chart 3: Stabilising labour force participation
Chart 4: No inflationary pressures
Julia Coronado Global Outlook
12
US: Economic and financial forecasts

Year 10 Components of growth % Q/Q SAAR GDP Dom. demand ex stocks Private consumption Public consumption Residential investment Non-residential investment Stocks (cont. to growth) Exports Imports GDP (% y/y) Industrial production (% y/y) Savings ratio (%) 1.3 1.8 0.6 -3.7 0.7 0.7 11.1 12.5 2.4 5.4 5.1 1.8 2.5 -3.1 -1.4 8.6 0.2 6.7 4.8 1.8 4.1 4.3 1.9 1.9 -1.7 12.1 7.7 -0.3 3.3 2.4 2.2 3.8 3.9 Year 10 Inflation & labour CPI CPI (Ex F&E) Core PCE deflator Producer prices Monthly wages Employment Unemployment rate (%) 1.6 1.0 1.5 4.2 1.9 -0.7 9.6 3.2 1.7 1.4 6.0 2.0 1.2 8.9 2.1 2.1 1.7 1.9 1.9 1.7 8.1 Year 10 External trade Trade balance (USD bn, sa) Current account (USD bn, sa) Current account (% GDP) -495 -442 -3.0 -560 -466 -3.0 -540 -473 -3.0 Year 10 Financial variables Money supply (2) Fed. gov. budget (USD bn) Fed. gov. budget (% GDP)
(2) (2)
2012 13
(1)
11
12
14
(1)
Q1
Q2
Q3
Q4
Q1
(1)
Q2
(1)
2013 (1) Q3
Q4
(1)
1.7 1.6 -1.4 14.7 5.0 0.3 2.4 2.1 1.6 3.4 3.0
2.0 1.8 -1.1 20.2 8.1 -0.2 5.6 4.7 2.5 4.7 3.1
2.0 2.2 2.4 -3.0 20.5 7.5 -0.4 4.4 3.1 2.4 4.4 3.6
1.3 1.4 1.5 -0.7 8.5 3.6 -0.5 5.3 2.8 2.1 4.8 3.8 2012
3.1 1.9 1.6 3.9 13.5 -1.8 0.7 1.9 -0.6 2.6 3.4 3.6
0.1 1.4 2.1 -6.9 17.5 9.7 -1.3 -3.9 -4.5 1.6 2.8 4.6
1.5 1.5 1.2 0.7 10.0 2.4 -0.4 3.1 4.3 1.5 2.1 2.7
1.7 1.7 1.5 -2.0 15.0 6.6 -0.5 4.1 4.7 1.6 2.7 2.9
2.0 2.0 1.5 -1.4 20.0 7.2 0.7 5.2 5.0 1.3 4.0 3.1
2.6 2.6 2.0 -1.4 22.0 7.9 -1.3 7.3 5.8 2.0 4.8 3.1
11
12
13
(1)
14
(1)
Q1 2.8 2.2 1.9 3.4 1.9 1.8 8.3
Q2 1.9 2.3 1.8 1.1 1.8 1.7 8.2 2012
Q3 1.7 2.0 1.6 1.6 1.9 1.7 8.0
Q4 1.9 1.9 1.5 1.7 1.8 1.6 7.8
Q1
(1)
Q2
(1)
2013 (1) Q3 2.0 1.9 1.5 2.3 2.0 1.6 7.7
Q4
(1)
1.9 1.9 1.5 2.5 2.0 1.6 7.7
2.0 2.1 1.9 1.9 2.1 1.9 7.2
1.8 2.0 1.3 2.1 1.9 1.5 7.8
1.8 1.8 1.3 3.1 1.9 1.5 7.8
1.9 2.0 1.7 2.6 2.1 1.7 7.6
11
12
13
(1)
14
(1)
Q1 -149 -134 -3.1
Q2 -138 -118 -3.1 2012
Q3 -125 -108 -3.0
Q4 -129 -114 -3.0
Q1
(1)
Q2
(1)
2013 (1) Q3 -136 -106 -2.6
Q4
(1)
-526 -410 -2.5
-506 -438 -2.4
-125 -100 -2.7
-132 -104 -2.6
-132 -101 -2.5
11 7.3 -1297 -8.7 -7.2 67.7
12 8.6 -1089 -7.0 -5.6 72.5 Year
13
(1)
14
(1)
Q1 10.2 -457 -8.1 -6.6 70.1
Q2 9.6 -125 -7.9 -6.4 70.9 2012
Q3 7.0 -185 -6.9 -5.5 71.3
Q4 7.6 -293 -6.7 -5.3 73.2
Q1
(1)
Q2
(1)
2013 (1) Q3 5.0 -130 -5.5 -4.1 74.9
Q4
(1)
2.5 -10 0.0 -8.7 62.8

(3)
6.2 -887 -5.5 -4.1 75.9
5.9 -740 -4.4 -3.0 77.5
5.0 -412 -6.4 -4.9 75.2
5.0 -52 -5.9 -4.4 74.8
6.0 -260 -5.2 -3.8 75.6
Fed. gov. primary budget (% GDP) Gross Fed. gov. debt (% GDP)
10 Interest & FX rates (3) Fed funds rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) EURUSD USDJPY 0-0.25 0.30 0.61 2.01 3.29 1.34 81
11 0-0.25 0.58 0.25 0.83 1.88 1.29 77
12 0-0.25 0.31 0.25 0.72 1.76 1.32 87
13
(1)
14
(1)
Q1 0-0.25 0.31 0.34 1.04 2.21 1.33 83
Q2 0-0.25 0.28 0.31 0.72 1.64 1.27 80
Q3 0-0.25 0.36 0.23 0.63 1.63 1.29 78
Q4 0-0.25 0.31 0.25 0.72 1.76 1.32 87
Q1
(1)
Q2
(1)
2013 (1) Q3 0-0.25 0.40 0.25 0.95 2.20 1.35 90
Q4
(1)
0-0.25 0.40 0.25 1.10 2.40 1.33 90
0-0.25 0.50 0.75 1.85 2.80 1.25 100
0-0.25 0.28 0.25 0.89 2.05 1.33 95
0-0.25 0.40 0.20 0.80 2.00 1.35 95
0-0.25 0.40 0.25 1.10 2.40 1.33 90
Footnotes: (1) Forecast (2) Fiscal year (3) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
Julia Coronado Global Outlook
13
Eurozone: Fragile recovery

Improved market conditions benefit the economy A marked improvement in financial market conditions following the announcement of the OMT framework in summer 2012 has been filtering through to eurozone economic conditions, albeit with considerable variations at national level. However, the rise in uncertainty due to Italian political developments and their potential implications call into question a return to sustained eurozone growth from Q2. We have scaled back our profile for quarter-on-quarter GDP growth in H2 2013, with 2014s annual forecast also trimmed, consistent with a weaker end to this year. Headwinds to growth from fiscal policy will ease at the aggregate eurozone level this year and next, supporting a recovery. However, rising unemployment, still tight credit conditions and uncertainty will continue to hinder domestic demand. Deleveraging in the banking sector remains a key downside risk, with the small business sector heavily reliant on credit supplied through this channel. Germany will remain the outperformer growth-wise, reflecting the countrys more favourable domestic conditions, including its strong labour market and comparatively healthy public finances. The headline rate of eurozone HICP inflation is below 2% and will decelerate further in the spring. The core inflation rate is well below 2% and with labour markets generally weak and wage pressures subdued, it should remain so. Downside risks to the ECBs below but close to 2% definition of price stability are building. Consequently, pressure on the ECB to loosen policy further will rise, particularly if financial and monetary conditions tighten under more volatile market conditions. With limited conventional ammunition available, asset purchases are a likely response to a pronounced intensification of market stress, though there are political constraints on the implementation of OMT. Greater emphasis on credit easing is also likely.
but headwinds to growth persist
Downside risks to price stability
More scope Comment for ECB easing
Chart 1: Eurozone sentiment and growth

5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 50 G D P (% y /y ) 70 90 E C e c o n o m ic s e n tim e n t (R H S ) 110 3 .0 100 2 .5 2 .0 1 .5 80 1 .0 0 .5 0 .0 60 -0 .5 -1 .0 120 4 .0 3 .5
Chart 2: Eurozone HICP inflation (% y/y)
H e a d lin e
E x -fo o d , e n e rg y , a lc o h o l & to b a c c o
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Chart 3: Bank lending to corporates

4 1 5 .0 3 Tighter 1 0 .0 5 .0 0 .0 -5 .0 -1 0 .0 2 .5 1 .5 0 .5 -0 .5 -1 .5 -2 .5 99 00 01 02 03 04 05 06 07 08 09 10 11 12 -4 94 % m /m % y /y 2 1 0
P riv a te s e c to r b a n k le n d in g to n o n - fin a n c ia l c o r p o r a te s
Chart 4: Financial and monetary conditions

E x c lu d in g G re e k y ie ld s
% 6m ann. -1 Looser -2 -3 E x c lu d in g G re e k y ie ld s (a n d e x c lu d in g e u ro z o n e c re d it g ro w th ) 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Ken Wattret Global Outlook
14
Eurozone: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, q/q) (2) Exports Imports (2) Industrial production 2.0 0.6 0.9 0.7 -0.3 0.6 11.0 9.5 7.2 1.5 0.3 0.1 -0.1 1.6 0.2 6.5 4.3 3.4 -0.5 -1.5 -1.2 -0.1 -3.9 -0.7 2.9 -0.9 -2.0 Year (1) 12 2.5 1.5 2.6 1.8 1.6 -0.6 0.1 11.4 Year 12 (1) 85 110 1.2 Year 12 (1) -348 -3.7 -28 -0.3 93.2 Year 10 Interest & FX rates (3) Refinancing rate (%) 3-month rate (%) (4) 2-year rate (%) 5-year rate (%) (4) 10-year rate (%) EURUSD EURGBP EURJPY
(4)
2012 13
(1)
11
12
14 -
(1)
Q1 -0.1 -0.1 -1.1 -1.1 0.1 -2.5 0.0 2.5 -1.1 -1.6
Q2 -0.2 -0.5 -1.4 -1.1 -0.1 -3.9 0.0 3.6 -0.7 -2.3 2012
Q3 -0.1 -0.6 -1.7 -1.5 -0.1 -4.4 -0.3 3.2 -1.0 -2.5
Q4 -0.6 -0.9 -1.7 -1.2 -0.2 -4.9 -0.4 2.2 -0.6 -3.2
Q1
(1)
Q2
(1)
2013 (1) Q3 0.1 -0.5 -0.7 -0.6 -0.4 -1.4 -0.4 1.3 0.8 -0.6
Q4
(1)
-0.1 -0.9 -1.5 -1.1 -0.4 -4.0 -0.4 2.1 -0.1 -1.6
0.1 -0.7 -1.0 -0.8 -0.4 -2.4 -0.4 1.4 -0.1 -0.8
0.2 0.2 -0.2 -0.1 -0.4 -0.1 -0.4 3.2 2.6 2.6
-0.5 -0.9 -0.7 -0.4 -2.0 -0.2 2.0 0.8 -0.1
0.8 0.3 0.4 -0.2 0.8 0.1 4.8 4.4 3.2
10 Inflation & labour HICP Core HICP Producer prices Comp. per employee Unit labour costs Employment Productivity Unemployment rate (%) 1.6 1.0 2.8 1.8 -0.7 -0.5 2.5 10.1
11 2.7 1.4 5.9 2.1 0.9 0.3 1.2 10.2
13
(1)
14
(1)
Q1 2.7 1.5 3.7 2.0 1.6 -0.5 1.6 10.9
Q2 2.5 1.6 2.3 1.6 1.3 -0.7 1.3 11.3 2012
Q3 2.5 1.6 2.3 1.8 1.6 -0.7 1.6 11.5
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 1.6 1.3 0.7 1.5 1.6 -0.4 1.6 12.8
Q4
(1)
1.7 1.3 1.0 1.5 1.5 -0.4 0.0 12.7
1.3 1.3 0.2 1.4 0.6 0.0 0.8 12.9
2.3 1.5 2.3 1.8 2.1 -0.6 2.1 11.8
1.8 1.3 1.6 1.4 1.9 -0.4 1.9 12.2
1.8 1.3 1.2 1.5 1.7 -0.5 1.7 12.6
1.5 1.3 0.4 1.5 0.9 -0.4 0.9 13.1
10 External trade Trade balance (EUR bn, sa) Current account (EUR bn, sa) Current account (% of GDP) -15 3 0.0
11 -16 12 0.1
13 (1) 117 127 1.3
14 (1) 135 140 1.4
Q1 10 22 0.9
Q2 20 27 1.1 2012
Q3 26 30 1.3
Q4 (1) 27 31 1.3
Q1 (1) 25 31 1.3
2013 Q2 (1) Q3 (1) 28 32 1.3 2013 30 32 1.3
Q4 (1) 34 32 1.3
10 Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP) -568 -6.2 -309 -3.4 85.4
11 -386 -4.1 -104 -1.1 87.3
13 (1) -261 -2.7 23 0.2 95.7
14 (1) -213 -2.2 84 0.9 95.6
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 1.00 1.36 0.14 0.75 1.83 1.29 0.83 100
12 0.75 0.19 -0.03 0.30 1.31 1.32 0.81 114
13 (1) 0.50 0.10 0.10 0.85 1.30 1.33 0.85 120
14 (1) 0.50 0.15 0.30 1.30 1.90 1.25 0.76 125
Q1 1.00 0.78 0.05 0.54 1.41 1.33 0.83 110
Q2 1.00 0.65 0.18 0.61 1.60 1.27 0.81 101
Q3 0.75 0.22 0.04 0.41 1.44 1.29 0.80 100
Q4 0.75 0.19 -0.03 0.30 1.31 1.32 0.81 114
Q1 (1) 0.75 0.20 0.09 0.51 1.52 1.33 0.88 126
2013 Q2 (1) Q3 (1) 0.50 0.10 0.10 0.50 1.50 1.35 0.88 128 0.50 0.10 0.10 0.70 1.40 1.35 0.87 122
Q4 (1) 0.50 0.10 0.10 0.85 1.30 1.33 0.85 120
1.00 1.01 0.85 1.84 2.96 1.34 0.86 109
Footnotes: (1) Forecast (2) Includes intra-eurozone trade (3) End period (4) Bund yield Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
Ken Wattret Global Outlook
15
Japan: Revival or fiscal bust?

Continued monetisation to keep economy expanding above trend The government will probably continue its effectively money-financed fiscal expansion in the next few years. Specifically, we expect the massive fiscal stimulus (about 2% of GDP) adopted in Q1 2013 to be repeated in Q1 2014. Meanwhile, the BoJ, under its new leadership, is likely to buy JGBs aggressively, putting downward pressure on bond yields in the near term. With long-term interest rates being restrained and abovetrend growth continuing, asset prices should also climb, leading to bubble-like conditions in parts of the economy. Bubbles frequently occur when nominal growth is strong and bond yields are low and stable. In the next two years or so, the narrowing of the output gap should translate into only a limited rise in inflation because of an entrenched deflationary mindset. However, with the structural unemployment rate deemed to be around 3.5%, there is actually not much slack left in the economy. If above-trend growth continues as we expect, the economy should be close to full employment by the end of 2014, after which inflation expectations should spread. Incorporation into debtmanagement policy to delay exit from easing When inflation starts to accelerate from H2 2015, upward pressure on bond yields should intensify. But the BoJ will probably not be able to tighten policy owing to concerns that bond prices could crash and thereby destabilise the financial system. When a central bank becomes deeply involved in the governments debt management, price stability tends to be sacrificed for the sake of financial-system stability. Thus, we expect the 10-year bond yield to rise to about 3% by the end of 2015. Ultimately, the new governments monetisation policy will probably result in low growth with high inflation and high interest rates that markedly raise the probability of a fiscal crisis.
Chart 1: Nominal GDP and cost of capital to government (FY, %)

10 8 6 4 2 0 -2 -4 -6 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Nominal GDP
Chart 2: Proportion of countries where nominal growth exceeds nominal interest rate (23 OECD countries)
100% 90% 80%
Cost of capital to government
70% 60% 50% 40% 30% 20% 10% 0% 92 94 96 98 00 02 04 06 08 10
Source: Cabinet Office, BNP Paribas
Source: OECD. BNP Paribas
Chart 3: Output gap (%) estimated from Tankan data

4 3 2 1 0 -1 -2 -3 -4 -5 92 94 96 98 00 02 04 06 08 10 12 14 16 BNPP forecast
2 1 0 -1 -2 -3 06 07 08
Chart 4: Core CPI (% y/y)

4 3 Including consumption tax
Extrapolated from Tankans production capacity DI and employment conditions DI
Excluding consumption tax BNPP forecast 09 10 11 12 13 14 15 16
Source: BoJ, Cabinet Office, BNP Paribas
Source: MIC, BNP Paribas
Ryutaro Kono Global Outlook
16
Japan: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP (% q/q annualised) GDP (% y/y) Domestic demand ex-stocks Private consumption Government expenditure Residential investment Private non-residential investment Stocks (cont. to growth) Exports Imports Industrial production (% q/q) Industrial production (% y/y) Savings ratio (%) 4.7 2.0 2.8 1.6 -4.5 0.3 0.9 24.4 11.1 16.4 2.0 -0.6 0.8 0.5 -0.2 5.5 3.3 -0.5 -0.4 5.9 -2.3 2.3 2.0 2.8 2.4 4.4 2.9 2.1 0.0 -0.3 5.3 -0.3 0.0 Year (% y/y) Inflation & labour GDP deflator Consumption deflator CPI Core CPI ex consumption tax (2) US-like core CPI Monthly wages Employment Unemployment rate (%) -2.2 -1.7 -0.7 -1.0 -1.0 -1.2 0.5 -0.3 5.1 -1.9 -0.8 -0.3 -0.3 -0.3 -0.9 -0.2 -0.1 4.6 -0.9 -0.6 0.0 -0.1 -0.1 -0.6 -0.7 -0.3 4.4 Year 10 External trade Trade balance (JPY trn, sa) Current account (JPY trn, sa) Current account (% GDP) 8.0 17.9 3.7 -1.6 9.6 2.0 -5.8 4.7 1.0 Year 12 (1) 2.5 -42.9 -9.1 -7.4 -5.8 200 Year 10 Interest & FX rates O/N call rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) USDJPY EURJPY
(5)
2012 13
(1)
11
12
14 -
(1)
Q1 1.5 6.1 3.4 1.0 1.2 2.7 -1.7 -2.5 0.3 3.4 2.1 1.3 4.8 -
Q2 -0.2 -0.9 3.9 0.4 -0.0 1.5 2.2 -0.1 -0.4 0.0 1.7 -2.0 5.3 2012
Q3 -0.9 -3.7 0.4 -0.5 -0.5 0.8 1.7 -3.3 0.2 -5.1 -0.5 -4.2 -4.6 -
Q4 0.0 0.2 0.5 0.4 0.5 0.8 3.5 -1.5 -0.2 -3.7 -2.3 -1.9 -5.9 -
Q1
(1)
Q2
(1)
2013 (1) Q3 0.6 2.3 1.8 0.6 0.4 0.6 3.0 0.8 0.0 1.3 1.5 1.7 4.2 -
Q4
(1)
0.5 2.0 -0.6 0.3 0.2 -0.1 3.0 0.5 0.2 0.8 0.4 2.9 -5.2 -
0.6 2.6 0.2 0.5 0.3 0.8 4.0 0.5 0.0 1.3 0.7 1.7 -1.7 -
0.6 2.4 2.3 0.9 1.0 0.4 2.0 0.8 -0.1 1.3 2.3 1.6 8.0 -
0.9 1.4 1.0 2.3 12.5 -1.4 0.1 -2.7 0.7 1.2 -0.6
1.0 1.0 0.3 2.4 -7.2 3.1 0.0 4.5 4.8 2.5 -2.2
10
11
12
13
(1)
14
(1)
Q1 -1.0 -0.4 0.3 0.1 0.1 -0.6 -0.0 -0.6 4.5
Q2 -1.0 -0.5 0.2 -0.0 -0.0 -0.5 -0.5 -0.3 4.4 2012
Q3 -0.8 -0.9 -0.4 -0.2 -0.2 -0.6 -0.7 -0.1 4.3
Q4 -0.7 -0.6 -0.2 -0.1 -0.1 -0.5 -1.1 -0.2 4.2
Q1
(1)
Q2
(1)
2013 (1) Q3 -0.6 -0.1 0.4 0.2 0.2 -0.3 0.0 0.0 3.8
Q4
(1)
-0.6 -0.5 0.0 0.0 0.0 -0.4 0.1 0.0 3.8
1.3 1.7 2.2 2.2 0.7 1.8 1.1 -0.4 3.7
-1.0 -0.9 -0.6 -0.3 -0.3 -0.7 -0.1 -0.2 4.0
-0.6 -0.6 -0.2 -0.1 -0.1 -0.5 0.2 0.0 3.8
-0.4 -0.3 0.5 0.3 0.3 -0.0 0.2 0.3 3.7
11
12
13
(1)
14
(1)
Q1 -4.3 6.4 1.4
Q2 -4.4 6.0 1.3 2012
Q3 -7.0 3.5 0.7
Q4 -7.6 2.5 0.5
Q1
(1)
Q2
(1)
2013 (1) Q3 -7.6 3.1 0.6
Q4
(1)
-7.6 3.0 0.6
-8.5 2.7 0.5
-7.3 3.1 0.6
-7.1 3.4 0.7
-8.5 2.3 0.5
10 Financial variables Money supply (M2, % y/y ) Government budget (JPY trn) (3) Government budget (% GDP) (3) Primary balance (% GDP)
(3)
11 2.7 -41.0 -8.7 -6.8 -5.8 191
13 (1) 2.7 -41.6 -8.7 -7.1 -6.2 206
14 (1) 3.1 -37.2 -7.6 -6.0 -5.6 209
Q1 3.0 -
Q2 2.4 2012
Q3 2.4 -
Q4 2.3 -
Q1 (1) 2.6 -
2013 Q2 (1) Q3 (1) 2.7 2013 Q2 (1) Q3 (1) 0.10 0.30 0.05 0.10 0.40 95 128 0.10 0.25 0.05 0.15 0.60 90 122 2.8 -
Q4 (1) 2.9 -
2.8 -40.0 -8.3 -6.6 -6.6 179
ex reconstruction (% GDP) (3)(4) Gross gov. debt (% GDP) (3)
11 0.10 0.33 0.14 0.35 0.99 77 100
12 0.10 0.30 0.10 0.20 0.75 78 104
13 (1) 0.10 0.25 0.10 0.30 0.80 90 120
14 (1) 0.10 0.25 0.15 0.60 1.60 100 125
Q1 0.10 0.29 0.05 0.12 0.99 83 110
Q2 0.10 0.26 0.11 0.22 0.84 80 101
Q3 0.10 0.33 0.10 0.20 0.77 78 100
Q4 0.10 0.30 0.10 0.20 0.75 78 104
Q1 (1) 0.10 0.30 0.05 0.10 0.60 95 126
Q4 (1) 0.10 0.25 0.10 0.30 0.80 90 120
0.10 0.34 0.18 0.40 1.12 81 109
Footnotes: (1) Forecast (2) US-Like Core CPI: CPI excluding food (but including alcoholic beverages) and energy (3) FY, General government excluding social security funds (4) Excluding spending on earthquake disaster reconstruction and revenues from reconstruction tax (5) End period Figures are quarter-on-quarter percentage changes unless otherwise indicated
Source: BNP Paribas
Ryutaro Kono Global Outlook
17
China: Limited upside

Chinas recovery is facing some challenges The recovery evident in China since last September may be facing some challenges. In January-February, industrial production growth slowed, with a notable drop in the growth of power output and export delivery. Retail sales were hard hit by an antiostentation campaign, while other unrelated sales were also soft. Export growth has accelerated, but production and orders have been much weaker. Investment is the only bright spot, supported by growth in funding, although this puts property and infrastructure back at the forefront of economic growth. The economic targets from the National Peoples Congress (NPC) were largely in line with expectations. Lower money growth and inflation targets suggest more cautious policy ahead, while the larger fiscal-deficit plan provides some support for growth. Major organisational changes are likely to take place, but details on other reforms may take longer for the new leaders to formulate, with a roadmap possible this autumn. We continue to forecast GDP growth to rise to 8.3% this year from 7.8% in 2012. Growth will be supported by restocking, pro-growth policy measures in place since last May, potential new reforms and the new leaders political drive to achieve faster growth in their first year in office. However, the limits to policy accommodation are likely to prevent a bigger rebound. Excess credit growth has increased financial risks. Property market tightening is already under way. The need to sustain the nascent recovery may prevent severe tightening, but the easing environment markets have enjoyed since last autumn is over. We expect monetary policy to be more cautious in its liquidity management and lending guidance, though rate hikes remain unlikely. After the NPC, we expect more regulatory changes to limit financial risks and credit growth. RMB appreciation is likely to continue this year, but may slow or reverse temporarily as risk retreats.
Chart 2: FAI supported by property and state investment
50 45 40 35 30 25
P ower output 10 5 0 97 99 01 03 05 07 09 11 13
NPC targets cautious, reforms under way
We maintain our 8.3% growth forecast
but policy caution would limit the upside
. Chart 1: Export growth rebound looks unsustainable

30 25 20 15 10 5 0 -5 -10
Source: CFLP, Customs, BNP Paribas
%y/y Indus trial produc tion (RHS )
%y/y
25 20 15
50 45 Property Total 40 35 30 25 20 15 10 SOEs 2006 2008 2010 2012 5 0
20 15 10 5 0 2004
Source: CFLP, BNP Paribas
Chart 3: Retail sales growth weakened (% y/y)

25 20 15 10 5 0 2001 Nominal 25 20 15 10 5 0 2003 2005 2007 2009 2011 2013
Chart 4: High total financing invites tightening (RMB bn)

3,000 2,500 2,000 1,500 March 2009 January 2013
Real
1,000 500 0 2008 2009 2010 2011 2012 2013
Source: NBS, BNP Paribas
Source: PBOC, BNP Paribas
Chen Xingdong Global Outlook
18
China: Economic and financial forecasts

Year 10 Components of growth Total GDP Retail sales Fixed asset investment Exports Imports Industrial output (3)
(2)
2012 13 (1) 14 (1) 7.8 14.4 18.0 10.5 11.0 10.7 Q1 8.1 14.8 20.9 7.6 7.1 11.6 Q2 7.6 14.0 20.2 10.5 6.5 9.5 2012 13 (1) 14 (1) 3.5 4.0 Q1 3.8 0.2 Q2 2.9 -1.4 2012 13 (1) 308.1 261.4 2.7 9570 14 (1) 330.5 266.8 2.8 10931 Q1 1.1 59.0 3.4 1715 Q2 68.8 53.7 2.9 1882 2012 13 (1) -2.1 -1.6 3600 14 (1) -2.1 -1.7 3868 Q1 3305 Q2 3240 2012 13 (1) 6.00 6.05 14 (1) 6.25 6.03 Q1 6.56 6.30 Q2 6.31 6.35 Q3 6.00 6.29 Q4 6.00 6.23 Q1(1) 6.00 6.20 Q2(1) Q3 3290 Q4 3312 Q1(1) 3407 Q2(1) Q3 79.5 70.6 3.5 2000 Q4 83.3 30.4 1.1 2657 Q1(1) 61.4 61.4 3.2 1938 Q2(1) Q3 1.9 -3.3 Q4 2.1 -2.3 Q1(1) 2.8 -1.5 Q2(1) Q3 7.4 13.8 20.6 4.5 1.6 9.1 Q4 7.9 14.9 20.6 9.4 2.7 10.0 Q1(1) 8.1 12.8 21.0 20.3 6.3 10.4 Q2(1)
2013 Q3(1) 8.7 13.7 20.5 10.0 12.9 12.1 Q4(1) 8.0 13.3 19.1 11.7 10.4 10.9
11 9.3 17.1 23.8 20.4 25.1 13.9
12 7.8 14.3 20.6 8.0 4.4 10.0 Year
10.4 18.4 23.8 31.4 39.1 15.7
8.3 13.2 20.0 12.5 10.0 11.0
8.4 13.0 19.9 9.5 10.1 11.4 2013
10 Inflation CPI PPI 3.3 5.3
11 5.4 6.0
12 2.6 -1.7 Year
Q3(1) 3.8 3.3
Q4(1) 4.5 4.1
3.6 1.5
3.4 0.1 2013
10 External trade Trade balance (USD bn) (4) Current account (USD bn) Current account (% GDP) 183.1 237.8 3.9 5931
11 157.9 201.7 2.7 7322
12 233.5 213.7 2.6 8253 Year
Q3(1) 74.0 84.0 3.6 2337
Q4(1) 99.2 42.3 1.4 3113
72.7 73.7 3.4 2183 2013
Memo: Nom. GDP (USD bn)
10 Financial variables Gen. gov. budget (% GDP) (5) Primary budget (% GDP) Foreign reserves (USD bn) (6) -2.5 -2.0 2847
11 -1.9 -1.4 3181
12 -1.5 -1.1 3312 Year
Q3(1) 3531
Q4(1) 3600
3465 2013
10 Interest & FX rates USDRMB

(6)
11 6.56 6.29
12 6.00 6.23
Q3(1) 6.00 6.08
Q4(1) 6.00 6.05
Official interest rate (%)
5.81 6.59
6.00 6.15
Footnotes: (1) Forecast (2) Forecasts of GDP and industrial output are in real terms but, in the absence of data, forecasts of consumption, investment, exports and imports are in nominal terms (3) Industrial output for enterprises with annual revenue greater than RMB 5mn (4) Trade balance is customs merchandise trade balance (5) Government budget balance denotes the fiscal balance released by the Ministry of Finance, not the actual budget balance (6) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
Chen Xingdong Global Outlook
19
Germany: Growing comfortably

Net trade driving quick rebound in H1 2013 Sentiment indicators have improved markedly since October, signalling a quicker rebound than we had expected, mostly driven by the faster feed-through of an improvement in the global manufacturing cycle. A less favourable global growth environment than previously expected for 2014, however, has prompted us to moderate our expectations of net exports contribution to GDP growth. Thus, while German growth should continue to outperform the eurozone average considerably over the forecast period, it is unlikely to accelerate much above its potential growth rate of around 1.6% per year heading into 2014. The domestic economy, meanwhile, has remained relatively unscathed by the eurozone turmoil so far and there is little reason to expect this to change. Monetary and financial conditions are very loose, the budget deficit is falling as a result of lower debt-servicing costs and higher income tax revenues, so there is no need for fiscal tightening, while rising property prices are boosting household wealth. With unemployment relatively low, this years wage round for some 12 million employees should lead to real income growth again in 2013. We also expect a decline in the savings rate to maintain relatively fast growth in private consumption. Inflation has remained low, but we expect upward pressure on core inflation in 2014. Labour costs will rise faster than output growth for the third year in a row in 2013, slowly pushing up core prices. With the political debate about the introduction of a national minimum wage intensifying and the country slowly withdrawing from the use of nuclear power, more upward pressure on prices could materialise sooner. There is likely to be a policy vacuum ahead of Septembers general election. However, political uncertainty is unlikely to surge, with a grand coalition under the leadership of the CDU the most likely outcome. Such a grand coalition could show greater tolerance of less austerity, but not of less structural reform in the eurozone.
Chart 2: Ifo business clock
Domestic demand strong
Inflation picking up on higher wage costs
Policy vacuum until Septembers election
Chart 1: Contribution to GDP (pp)
Chart 3: Unit wage costs
Chart 4: Inflation (% y/y)
Evelyn Herrmann Global Outlook
20
Germany: Economic & financial forecasts

10 Components of growth GDP (% q/q) GDP Domestic demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, q/q) Exports Imports Industrial production Savings ratio
(2)
11 3.1 2.4 1.7 1.0 6.4 0.2 7.9 7.5 6.9 10.4
Year 12 0.9 0.3 0.6 1.4 -1.9 -0.6 4.3 2.2 0.3 10.3 Year 12 2.1 1.3 2.0 2.8 1.1 6.8 Year
2012 13
(1)
14
(1)
Q1 0.5 1.2 0.8 0.6 1.8 0.4 0.3 2.9 2.7 1.1 -
Q2 0.3 1.0 0.7 1.3 0.9 -1.7 0.2 5.7 2.8 0.2 2012
Q3 0.2 0.9 -0.2 0.0 1.4 -2.4 -0.1 5.1 1.8 -0.7 -
Q4 -0.6 0.4 -0.2 0.4 1.4 -3.9 0.1 3.4 1.5 -2.1 -
Q1
(1)
Q2
(1)
2013 (1) Q3 0.5 0.9 0.8 1.0 0.9 -0.1 0.1 0.5 0.6 0.4 -
Q4
(1)
4.0 1.9 0.8 1.7 5.6 0.6 13.4 10.9 10.1 10.9
1.0 0.6 0.9 1.0 -0.7 0.0 2.1 1.5 0.4 9.0
1.8 1.4 1.5 0.5 2.4 0.0 4.8 4.7 3.9 8.1
0.4 0.3 0.0 0.5 1.1 -3.1 0.1 3.2 2.4 -1.6 -
0.7 0.7 0.6 0.7 1.5 -0.9 0.1 1.1 0.6 -0.8 -
0.4 2.0 1.1 1.2 0.6 1.4 0.1 3.9 2.4 3.6 -
10 Inflation & labour HICP Core HICP PPI Compensation per employee Employment Unemployment rate (%) 1.2 0.6 1.7 2.4 0.6 7.7
11 2.5 1.2 5.7 3.4 1.4 7.1
13
(1)
14
(1)
Q1 2.4 1.3 3.3 2.6 1.4 6.8
Q2 2.1 1.4 2.0 2.8 1.2 6.8 2012
Q3 2.1 1.2 1.4 2.8 1.1 6.8
Q4 2.0 1.3 1.5 2.9 0.8 6.9
Q1
(1)
Q2
(1)
2013 (1) Q3 2.1 1.6 2.8 3.1 0.2 6.7
Q4
(1)
2.0 1.4 2.4 3.0 0.2 6.8
1.8 1.7 2.4 2.9 0.5 6.6
1.8 1.2 1.8 3.0 0.2 6.9
2.1 1.4 2.4 3.1 0.2 6.8
2.0 1.5 2.8 2.9 0.3 6.7
10 External trade Trade balance (EUR bn, sa) Current account (EUR bn, nsa) Current account (% GDP) 151.8 147.8 5.9
11 156.1 146.9 5.7
12 189.4 168.6 6.4 Year (1) 12 -17.4 -3.3 -0.1 45.0 1.7 81.8 Year
13
(1)
14
(1)
Q1 43.1 40.1 -
Q2 48.0 42.6 2012
Q3 51.0 46.5 -
Q4 47.3 39.4 -
Q1
(1)
Q2
(1)
2013 (1) Q3 50.4 45.7 -
Q4
(1)
188.3 167.0 6.2
183.0 161.1 5.8
43.5 40.5 -
48.4 42.9 2013
46.1 37.9 -
10 Financial variables Federal gov. budget (EUR bn) General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP) -82.1 -102.7 -4.1 -51.1 -2.0 82.5
11 -26.4 -19.4 -0.7 29.8 1.2 80.5
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-19.8 -5.9 -0.2 43.7 1.6 80.2
-16.3 -2.4 -0.1 48.0 1.7 77.8
10 Interest rates (3) 3-month rate (%) 10-year rate (%) 0.67 1.80
11 1.36 1.55
12 0.19 1.31
13
(1)
14
(1)
Q1 0.78 1.41
Q2 0.65 1.60
Q3 0.22 1.44
Q4 0.19 1.31
Q1
(1)
Q2
(1)
2013 (1) Q3 0.10 1.40
Q4
(1)
0.10 1.30
0.15 1.90
0.20 1.52
0.10 1.50
0.10 1.30
Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
Evelyn Herrmann Global Outlook
21
France: Downside risks

Comment Net exports the source of French growth
Many French business surveys were poor at the end of 2012 and in early 2013. However, we believe the PMIs overstate the severity of the recession and we put more faith in Bank of France surveys, which signal little change in activity. A forecast improvement in Germany is key to our expectation that French economic activity will rise slightly from Q2 2013. Germany buys 16.2% of French exports, much more than the UK and Italy (France's second and third-most important trading partners) combined. In 2012, the change in net trade made a positive contribution to the change in GDP for the first time in 11 years, and a strong one, at 0.7pp (Chart 2). We expect net trade to make another positive contribution in 2013, although less than last year, as imports are unlikely to continue to fall. Consumption is being held back by a lack of net income growth. We expect a further rise in unemployment to lead to continued downward pressure on wage growth. Tax increases will also continue to reduce households' purchasing power, with income tax hikes this year and a rise in VAT in 2014. The rise in unemployment will maintain pressure on the government to carry out structural reforms. Next on the agenda are new rules for unemployment benefits, another pension reform and measures to support investment in small and medium-sized enterprises and housing. We forecast core inflation to stay low as rising unemployment restrains both demand pressures and wage costs (Chart 3). As growth forecasts have been lowered, fiscal policy has been tightened slightly, with more spending postponed. The aim is to avoid any slippage in government expenditure beyond the effect of automatic stabilisers. The authorities appear to have accepted that the deficit will not fall to 3% of GDP this year, as originally planned, but any further delay in this target beyond 2014 could be a cause of tension among Frances European partners and the markets, so policy will stay tight (Chart 4).
Chart 2: Real foreign trade of goods & services (% GDP)
Comment Rising unemployment to weigh on demand
Comment Core inflation to stay low Comment Fiscal policy remains tight
Chart 1: GDP breakdown (% of total value added)*
Energy, water, waste
*The other 79% is services
Chart 3: Wage and retail price inflation (% y/y)
Chart 4: Budget deficit change vs. GDP growth
Dominique Barbet Global Outlook
22
France: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, q/q) Exports Imports GDP unadjusted (3) Industrial production Savings ratio (%)
(2)
2012 13 (1) 0.0 -0.2 0.3 1.3 -3.0 -0.1 2.3 1.4 -0.1 -1.6 15.6 14 (1) 0.9 0.4 0.4 0.7 -0.1 0.2 6.6 5.1 0.8 1.9 15.3 Q1 -0.1 0.2 0.0 -0.6 0.8 1.0 -0.1 3.3 -2.0 0.6 -1.8 16.0 Q2 -0.1 0.1 0.6 0.1 1.3 1.0 0.2 2.8 0.5 0.1 -1.8 16.4 2012 13 (1) 1.3 1.0 1.9 -0.7 10.9 14 (1) 1.7 1.6 2.2 0.0 11.2 Q1 2.6 1.5 2.2 0.1 10.0 Q2 2.3 1.7 2.1 -0.3 10.2 2012 13 (1) -61 -41 -2.0 14 (1) -53 -31 -1.5 Q1 -18 -12 -2.4 Q2 -18 -14 -2.8 2012 13 (1)
-70 -3.4 -78 -3.8 -26 -1.3 93.0
11 1.7 0.8 0.2 0.2 3.6 0.8 5.5 5.3 1.7 1.7 16.2
12
Q3 0.1 0.0 0.5 0.1 1.6 0.2 -0.3 2.7 0.0 -0.1 -2.0 16.2
Q4 -0.3 -0.3 0.2 0.4 1.8 -2.2 -0.4 0.4 0.2 -0.3 -3.1 15.8
Q1 (1) -0.1 -0.3 0.0 0.1 1.5 -2.3 0.2 0.9 0.6 -0.7 -2.7 15.9
2013 Q2 (1) Q3 (1) 0.1 -0.1 -0.2 0.3 1.4 -3.5 0.1 1.7 0.0 -0.1 -2.3 15.9 0.2 -0.1 -0.3 0.2 1.3 -3.6 0.1 2.2 1.6 0.0 -1.8 15.4
Q4 (1) 0.2 0.4 -0.1 0.4 0.9 -2.8 -0.1 4.3 3.4 0.3 0.6 15.0
1.6 1.5 1.4 1.8 1.1 0.0 9.2 8.5 1.6 4.7 15.9
0.0 0.3 0.0 1.4 0.0 -1.1 2.3 -0.3 0.1 -2.2 16.1 Year
10 Inflation & labour HICP Core HICP Monthly wages Private NF payrolls Unemployment rate (%) 1.7 1.0 1.8 0.2 9.7
11 2.3 1.1 2.2 0.8 9.6
12 2.2 1.5 2.1 -0.2 10.3 Year
Q3 2.3 1.7 2.1 -0.4 10.3
Q4 1.7 1.1 2.0 -0.4 10.5
Q1 (1) 1.3 0.9 1.8 -0.8 10.7
2013 Q2 (1) Q3 (1) 1.2 0.9 1.8 -0.9 10.9 1.4 0.9 1.9 -0.7 11.0
Q4 (1) 1.5 1.1 2.0 -0.6 11.2
10 External trade Trade balance (EUR bn, sa) Current account (EUR bn, sa) Current account (% GDP) -52 -30 -1.6
11 -74 -39 -2.0
12 -66 -49 -2.4 Year 12 (1)

-88 -82 -4.0 -94 -4.6 -42 -2.0 90.2
Q3 -15 -12 -2.3
Q4 -15 -9 -1.8
Q1 (1) -15 -10 -2.0
2013 Q2 (1) Q3 (1) -16 -11 -2.1 2013 -15 -10 -1.9
Q4 (1) -15 -10 -1.9
10 Financial variables Central gov. budget (EUR bn) Central gov. budget (% GDP) General public budget (EUR bn) General public budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (4)
-122 -6.3 -137 -7.1 -90 -4.7 82.1
11
14 (1)
-62 -2.9 -66 -3.1 -13 -0.6 94.2
Q1
-
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-4.4 -103 -5.2 -51 -2.6 86.0
Year 10 Interest rates 3-month (%) 10-year rate (%) Spread over Bund (bp)
(4)
11 1.36 3.15 132
12 0.19 2.13 83
13 (1) 0.10 2.00 70
14 (1) 0.15 2.50 60
Q1 0.78 2.14 73
Q2 0.65 2.19 59
Q3 0.22 2.24 80
Q4 0.19 2.13 83
Q1 (1) 0.20 2.12 60
2013 Q2 (1) Q3 (1) 0.10 2.20 70 0.10 2.10 70
Q4 (1) 0.10 2.00 70
1.01 3.35 39
Footnotes: (1) Forecast (2) Calendar and seasonally adjusted (3) Unadjusted for calendar effects (BNP Paribas estimate) (4) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
Dominique Barbet Global Outlook
23
Italy: Political stalemate

Uncertainty to persist The formation of a new Italian government will reduce, but not remove, the uncertainty created by Februarys general election. The next prime minister is likely to have a limited mandate and is unlikely to embark on aggressive structural reforms. The possibility of a new election soon will remain firmly on the table, which will limit the governments room for manoeuvre. Combined with a renewed tightening of monetary and financial conditions stemming from wider government bond spreads, persistent uncertainty will weigh on business confidence and contribute to a further delay in the recovery in investment spending and consumption. We have, therefore, revised down our growth forecasts and now expect GDP to fall by 1.4% this year and to rise by only 0.3% in 2014. A by-product of our GDP estimates is that we now see the current account moving into surplus by 2014. This is mainly the result of lower imports rather than a rise in exports due to gains in competitiveness. Unlike in other peripheral countries, unit labour costs have remained fairly stable. Still, Italys external imbalances are limited compared with the imbalances faced by the eurozones other peripheral economies. Fiscal tightening to continue Its high primary budget surplus (in 2012, it amounted to 2.5% of GDP) is another of Italys strengths. While some of the consolidation measures approved by the Monti government may be called into question (the VAT hike currently scheduled for July is a prime candidate), the bulk of the adjustment will remain in place. We, therefore, expect the structural fiscal tightening to continue this year and next. With low structural growth, a primary surplus in the order of 4% of GDP (our estimate for 2014) will hardly be sustainable. This highlights the need for structural reforms to boost the economys growth potential. But, as we have said above, these do not appear to be on the agenda, at least for now.
Chart 2: Bank lending survey
Downward revisions to growth forecasts
Structural reforms needed
Chart 1: Industrial orders (index, 2005 = 100)
Chart 3: Unit labour costs (2000=100)

50 25
Chart 4: Net financial assets (% of GDP)

G e rm a n y
0 F ra n c e -2 5 Ita ly
-5 0 S p a in
-7 5 G re e ce
-1 0 0
P o rtu g a l -1 2 5 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Luigi Speranza Global Outlook
24
Italy: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 1.7 0.9 1.5 -0.4 0.5 1.1 11.2 12.3 6.8 0.5 -0.4 0.1 -1.2 -1.4 -0.5 6.6 1.1 0.2 -2.4 -4.7 -4.3 -2.9 -8.0 -0.6 2.2 -7.8 -6.5 Year 10 Inflation & labour HICP Core HICP Monthly wages Employment Unemployment rate (%) 1.6 1.7 2.2 -0.6 8.4 2.9 2.0 1.8 0.3 8.4 3.3 2.0 1.5 -0.2 10.6 Year 10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) -30.1 -54.7 -3.5 -23.6 -48.4 -3.1 19.8 -9.5 -0.6 Year 10 Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (2) -67.3 -4.4 1.8 0.1 119.2 -59.8 -3.8 16.5 1.0 120.7 -47.0 -3.0 39.1 2.5 127.3 Year 10 Interest rates
(2)
2012 13 (1) -1.4 -3.2 -3.0 -2.0 -5.3 -0.4 3.3 -4.1 -3.2 14 (1) 0.3 -0.9 -0.6 -1.7 -1.2 0.1 4.4 1.1 3.0 Q1 -0.9 -1.6 -4.1 -3.5 -3.0 -7.2 -0.6 1.9 -9.0 -5.2 Q2 -0.7 -2.6 -4.9 -4.4 -3.2 -8.6 -0.5 2.5 -7.5 -7.5 2012 13 (1) 1.7 1.4 1.4 -1.0 12.1 14 (1) 1.3 1.4 1.3 0.1 12.6 Q1 3.6 2.2 1.3 0.0 10.0 Q2 3.6 2.3 1.4 -0.1 10.6 2012 13 (1) 35.8 6.5 0.4 14 (1) 43.8 14.5 0.9 Q1 -4.2 -13.1 Q2 6.5 -0.7 2012 13 (1) -40.0 -2.6 47.8 3.0 129.8 14 (1) -34.0 -2.1 60.1 3.8 129.8 Q1 Q2 2012 13 (1) 0.10 5.00 370 14 (1) 0.15 4.20 230 Q1 0.78 5.73 432 Q2 0.65 4.76 316 Q3 0.22 4.86 343 Q4 0.19 4.78 347 Q1 (1) 0.20 4.60 308 Q3 Q4 Q1 Q3 8.6 1.0 Q4 8.8 3.3 Q1 (1) -0.2 -9.1 Q3 3.4 2.1 1.5 -0.2 10.7 Q4 2.6 1.5 1.6 -0.5 11.2 Q1 (1) 2.1 1.5 1.5 -0.9 11.8 Q3 -0.2 -2.6 -5.1 -4.8 -2.9 -8.5 -0.5 2.5 -8.0 -6.3 Q4 -0.9 -2.8 -4.6 -4.4 -2.5 -7.6 -0.6 1.9 -6.6 -6.7 Q1 (1) -0.3 -2.2 -3.7 -3.9 -1.5 -5.5 -0.7 3.2 -4.3 -4.8
11
12
2013 Q2 (1) Q3 (1) -0.2 -1.6 -3.3 -3.3 -1.6 -5.4 -0.6 3.2 -4.7 -4.0 -0.1 -1.5 -3.0 -2.6 -2.2 -5.4 -0.5 3.0 -4.1 -3.2
Q4 (1) 0.2 -0.4 -2.7 -2.1 -2.6 -4.8 0.3 3.8 -3.2 -0.5
11
12
2013 Q2 (1) Q3 (1) 1.6 1.4 1.4 -1.1 12.0 1.6 1.4 1.4 -1.1 12.2
Q4 (1) 1.3 1.3 1.2 -0.8 12.4
11
12
2013 Q2 (1) Q3 (1) 10.5 3.3 2013 Q2 2013 Q2 (1) Q3 (1) 0.10 4.35 285 0.10 4.75 335 Q3 12.6 5.0 -
Q4 (1) 12.8 7.3 -
11
12
Q4 -
11 1.36 7.08 525
12 0.19 4.78 347
Q4 (1) 0.10 5.00 370
3-month rate (%) 10-year rate (%) Spread over Bund (bp)
Footnotes: (1) Forecast (2) End period
1.01 4.87 191
Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
Luigi Speranza Global Outlook
25
Spain: Every little helps

Fiscal headwinds to ease, but remain strong We expect the European Commission to relax Spains budget deficit targets, reducing the fiscal headwinds to growth. Nevertheless, fiscal tightening and the deleveraging of Spains private sector will lead to a further sharp 1.6% fall in GDP in 2013, on our forecasts. As the bulk of this years fiscal tightening has already occurred in Q1, economic activity should stabilise from H2 2013. However, GDP is unlikely to grow much in 2014. Banks need to deleverage further to meet the conditions for recapitalisation funding from the EU. Hence, credit is likely to continue to contract. Moreover, as the Spanish bad bank steps up the disposal of property assets, the housing market is likely to remain under downward pressure. We forecast house prices to have fallen an additional 13% y/y by the end of this year. Meanwhile, unemployment is likely to continue to rise this year, averaging almost 27% in 2013. The only support to activity is likely to continue to come from a gain in net trade. Imports are set to fall further along with domestic demand. Meanwhile, exports will be supported by Spains improvement in competitiveness as labour costs fall. Weakness in demand in other eurozone countries will continue to limit export growth, however. We forecast inflation to fall below 2% as the impact of September 2012s rise in VAT falls out of the year-on-year rate late in 2013 and due to a lack of both demand and wage pressures. We do not think Spain will request an ESM programme to access the OMT facility. As Spain is able to access market funding, neither its government nor its eurozone partners want the country to request a bailout programme. We expect Spain to meet its revised deficit targets, as any significant slippage could lead to a quick reversal of sentiment, forcing Spain to request an ESM programme.
Chart 2: Unit labour costs (2000= 100)
Unemployment to rise further
Net trade the only support
Disinflationary pressures persist Spain likely to avoid an ESM programme
Chart 1: Public balance (% GDP)

2012 -0.5 -1.5 -2.5 -3.5 -4.5 -5.5 -6.5
Total : -6.7% Regional governments (-1.9%) Regional governments (-1.5%) Total : -6.0% Total : -5.0% Regional governments (-1.0%) Central government (-4.8%) Central government (-4.5%) Central government (-4.0 %)
2013
2014
-7.5
Source: Reuters EcoWin Pro, Ministry of Finance, BNP Paribas
Chart 3: Government debt (% GDP)
Chart 4: Credit growth (% y/y)
Ricardo Santos Global Outlook
26
Spain: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment - Construction - Other Stocks (cont. to growth, y/y) Exports Imports Industrial production -0.1 -1.4 0.4 -0.7 -7.6 -11.1 -2.0 0.4 10.3 5.4 0.9 11 0.4 -1.7 -0.9 -0.5 -5.3 -7.1 -1.6 0.2 7.6 -0.9 -1.4 12 -1.4 -3.7 -2.2 -3.7 -9.1 -9.8 -5.0 0.1 3.1 -5.0 -5.4 Year 10 Inflation & labour HICP Core HICP Compensation of employees Employment Unemployment rate (%) 2.0 0.8 -2.3 -2.6 20.1 11 3.1 1.2 -0.8 -1.9 21.6 12 2.4 1.3 -3.6 -3.8 25.4 Year 10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) -52.3 -47.4 -4.5 11 -46.3 -37.5 -3.5 12 -38.4 -34.1 -3.3 Year (1) 12 -114.1 -10.8 -39.1 -3.7 85.9 Year 10 Interest rates
(2)
2012 13
(1)
14 -
(1)
Q1 -0.4 -0.7 -0.3 -0.6 -6.3 -8.2 -5.0 -3.2 0.3 2.2 -7.2 -
Q2 -0.4 -1.4 -4.9 -1.8 -4.8 -9.9 -4.1 -4.0 0.4 2.1 -7.3 2012
Q3 -0.3 -1.6 -5.5 -3.1 -4.1 -10.9 -3.3 -5.0 0.3 -0.6 -9.4 -
Q4 -0.8 -1.9 -4.5 -3.3 -4.5 -7.8 -2.0 -5.5 0.2 2.5 -2.5 -
Q1
(1)
Q2
(1)
2013 (1) Q3 0.0 -1.7 -0.4 -2.3 -3.5 -0.3 -0.8 1.0 0.1 7.4 4.2 -
Q4
(1)
-0.5 -2.0 -3.1 -4.6 -5.2 -4.9 -1.6 -2.8 0.1 5.5 -0.2 -
-0.3 -2.0 -1.6 -3.9 -4.2 -1.8 -1.0 -2.2 0.2 7.0 2.9 -
0.1 -0.8 0.3 -0.8 -2.5 0.7 -0.5 2.0 0.0 7.6 4.7 -
-1.6 -3.8 -2.3 -3.7 -6.2 -6.3 -3.2 0.0 3.1 -4.5 -0.4
0.2 -0.9 -0.7 -2.7 1.2 -2.1 3.1 0.2 3.9 -0.4 0.8
13 (1) 1.6 1.3 -2.1 -2.0 26.9
14 (1) 0.7 0.6 -1.0 0.2 27.5
Q1 1.9 0.8 -3.2 -2.9 24.4
Q2 1.9 0.8 -4.5 -4.6 25.0 2012
Q3 2.8 1.3 -4.5 -3.0 25.5
Q4 3.2 2.2 -3.5 -2.5 26.0
Q1 (1) 2.7 2.0 -1.9 -2.0 26.4
2013 Q2 (1) Q3 (1) 2.2 1.9 -0.8 -1.5 26.7 1.1 1.0 0.1 -0.5 27.1
Q4 (1) 0.7 0.3 0.3 0.0 27.3
13 (1) -20.6 -14.5 -1.4
14 (1) -7.7 -1.3 -0.1
Q1 -10.7 -15.0 -5.8
Q2 -9.3 -7.2 -2.7 2012
Q3 -9.1 -4.5 -1.8
Q4 -9.3 -7.4 -2.7
Q1 (1) -5.1 -8.9 -3.5
2013 Q2 (1) Q3 (1) -4.2 -1.7 -0.7 2013 -5.0 -0.2 -0.1
Q4 (1) -6.3 -3.6 -1.3
10 Financial variables General gov. budget (EUR bn)

General gov. budget (% GDP)
(2)
11 -96.1 -8.9 -66.9 -6.2 71.8
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-98.3 -9.2 -77.8 -7.3 60.1
-62.7 -6.0 -24.0 -2.3 94.2
-52.5 -5.0 -11.6 -1.1 98.3
Primary budget (EUR bn) Primary budget (% GDP) (3) Gross gov. debt (% GDP)
11 1.36 5.11 329
12 0.19 5.31 401
13
(1)
14
(1)
Q1 0.78 5.97 456
Q2 0.65 5.28 368
Q3 0.22 5.11 367
Q4 0.19 5.31 401
Q1
(1)
Q2
(1)
2013 (1) Q3 0.10 5.10 370
Q4
(1)
3-month rate (%) 10-year rate (%) Spread over Bund (bp)
Source: BNP Paribas
1.01 5.46 250
0.10 5.25 395
0.15 4.70 280
0.20 4.77 325
0.10 4.85 335
0.10 5.25 395
Footnotes: (1) Forecast (2) Includes one off transfers (3)End period
27
Netherlands: Fixing the foundations

Recovery initially driven by exports Household spending could pick up once house prices stabilise Inflation to fall The Dutch economy remains weak, mainly due to domestic factors. The 16% fall in house prices since 2007 has made consumers reluctant to spend. In addition, a rise in unemployment and reduced purchasing power (partly related to fiscal tightening) have strained household budgets. In recent months, however, firms have become less negative about their production outlook, following signs of an incipient global economic turnaround. We forecast activity in 2013-14 to be driven mainly by external demand. Consumer confidence should strengthen from H2 2013 on signs that house prices are bottoming out. Following a 2pp VAT hike in October, inflation peaked at 3% y/y in January. Excluding indirect taxes, inflation actually fell to 1.6%. Inflation pressures are likely to ease this year because of lower energy prices and as retailers step up discounting. In the collective labour contracts, wages are set to increase by around 1.6% in 2013-14, while wages have been frozen for 2013 in the government sector. Despite austerity measures, the budget deficit is likely to remain above the 3%-ofGDP target in 2013. The windfall proceeds of the 4G frequency auction 0.6% of GDP have been almost completely offset by the cost of nationalising SNS Reaal, the countrys fourth-largest bank. In 2014, the government will receive EUR 1bn as a oneoff levy from the countrys other banks to help pay for the nationalisation. The government is considering a further EUR 4bn of savings on top of a EUR 16bn package already announced in the coalition agreement. However, this plan may be rejected by the senate, where the Liberal-Labour coalition lacks a majority. The main domestic risk is that the weakening of the labour market leads to a rise in the number of mortgages in arrears and prolongs the downturn in house prices. On the upside, the political risk has diminished, as the coalition government between the Labour Party and liberal VVD is functioning well, despite ideological differences.
Netherlands: Economic forecasts
2010 Components of growth Total GDP 1.6 -1.1 0.3 0.7 -7.2 1.2 11.2 10.2 7.0 3.4 1.0 0.6 -1.0 0.1 5.7 -0.1 3.9 3.6 3.4 5.0 -0.9 -1.5 -1.4 0.7 -4.8 -0.1 3.1 2.8 -0.7 5.2 -0.4 -1.2 -1.3 -0.6 -1.8 -0.8 1.2 0.6 0.8 5.3 0.8 0.6 0.4 0.2 1.9 0.0 4.5 4.8 2.3 5.4 Dom. demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports 2011 2012
(1)
Budget deficit likely to exceed 3%-of-GDP target
Number of mortgages in arrears could rise rapidly
Chart 1: Dissaving households prefer deposits

12 10 8 6 4 2 0 -2 -4 00 01 02 03 04 05 06 07 08 09 10 11 12 Household savings (excluding pension savings) ) Increase in household bank deposits % of disposable incom e
2013
(1)
2014
(1)
Industrial production Savings ratio (%) Inflation & labour CPI HICP Core HICP Contract wages Employment Unemployment rate (%) External trade
1.3 0.9 1.1 1.2 -1.1 4.5
2.3 2.5 1.7 1.3 0.0 4.4
2.5 2.8 2.2 1.5 -1.1 5.4
2.5 2.4 2.3 1.5 -1.4 6.9
1.6 1.6 1.7 1.6 -0.2 7.1
Source: Statistics Netherlands
Chart 2: Producer confidence signals upturn

6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0 -10.0 -12.0 01 02 03 04 05 06 07 08 09 10 11 12 13 Producer confidence (balance of opinion, RHS) Industrial production (% 6m/6m) 15 10 5 0 -5 -10 -15 -20 -25 -30
Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(2) (2)
39.6 45.1 7.7
44.4 58.6 9.7
41.6 56.9 9.3
44.7 61.0 9.9
45.9 65.3 10.3
-30.0 -5.1 -21.9 -3.7 62.8
-27.1 -4.5 -18.3 -3.0 65.5
-23.3 -3.8 -16.7 -2.7 71.3
-20.4 -3.3 -14.5 -2.3 74.4
-20.2 -3.2 -14.9 -2.4 75.4
3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
0.67 3.11 131
1.36 1.75 20
0.19 1.50 19
0.10 1.65 35
0.15 2.20 30
Footnotes: (1) Forecast (2) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: Statistics Netherlands
Source: BNP Paribas
Raymond van der Putten Global Outlook
28
Belgium: Fiscal headwinds

Growth returning, but headwinds persist Thanks to the German engine, a return to growth in Belgium is in the making. However, confidence indicators remain on the low side. Any upturn is likely to be modest because of the headwinds to domestic demand from fiscal consolidation and the need for structural reform. For a small open economy, Belgiums response to improved global economic conditions has been atypically late and modest in the current cycle, indicating a lack of competitiveness. In addition, mass layoffs announced recently will weaken conditions in the labour market. Inflation is on a steep downward path, thanks to government-imposed price freezes and an absence of energy inflation. The government has also imposed a real wage freeze and pushed for more competition in the energy and telecom markets. This brings Belgian inflation back in line with the eurozone average for the first time in four years. Wage growth will moderate significantly as a result. The 2013 budget needs additional tightening measures totalling 0.8% of GDP to meet its 2.15%-of-GDP deficit target. This will not be easy given the broad government coalition and the European Commissions insistence on structural measures. The limited options include a VAT increase and cuts in primary (healthcare) expenditure, directly affecting the economy. Whether Belgium escapes the Commissions excessive deficit procedure for the 2012 deficit depends on Eurostats decision on how to treat the recapitalisation of the bank Dexia (equal to 0.8% of GDP). Risks to the outlook mainly stem from a lack of political cohesion on the fiscal front, a correction of house prices and a restructuring of major companies due to competitive pressures. Renewed stress in the eurozone would also weigh on activity.
Belgium: Economic forecasts
15 B us ine ss c o nfid e nc e (R H S ) 10 5 0 -5 -1 0 G D P (% y/y) -1 5 -2 0 -2 5 -3 0 -3 5 00 01 02 03 04 05 06 07 08 09 10 11 12 13
2010 Com ponents of grow th Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to grow th) Exports Imports Industrial production Savings ratio (%) Inflation & labour HICP Core HICP Wages Employment Unemployment rate (%) Exte rnal trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Inte rest rate s (2) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
Fo o tno tes: (1 Fo recast (2) End perio d )
Inflation on a downward trend
Fiscal stance needs structural improvement
Domestic and external risks to the outlook
Chart 1: GDP growth and business confidence

6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6
2011 1.8 1.2 0.2 0.8 4.1 0.7 5.5 5.7 4.3 14.4
2012
(1)
2013 (1) 0.0 0.0 0.4 0.0 -0.7 -0.3 0.5 0.1 0.2 15.2
2014 (1) 1.0 1.0 1.1 -0.1 2.3 0.0 4.1 4.2 3.0 14.2
2.4 1.4 2.7 0.7 -1.4 0.3 9.4 8.6 8.4 15.4
-0.2 -0.4 -0.6 0.1 -0.5 -0.3 0.4 -0.1 -3.3 15.4
2.3 1.1 1.5 0.8 8.3
3.4 1.7 3.2 1.4 7.2
2.6 1.8 3.2 0.1 7.3
1.3 1.2 1.6 -0.1 7.8
1.3 1.4 0.6 0.8 7.6
Chart 2: Belgian-eurozone inflation difference

2 .0 1 .5 C o re 1 .0 0 .5 0 .0 -0 .5 -1 .0 Jan 11 J ul 1 1 Jan 12 J ul 1 2 Jan 13 E ne rg y Food Infla tio n D i ffe re nc e
13 7 1.9
7 -5 -1.4
9 -3 -0.9
10 -2 -0.5
10 -2 -0.6
-13 -3.8 -1.4 -0.4 96.4
-14 -3.7 -1.6 -0.4 98.5
-11 -3.0 1.8 0.5 101.0
-9 -2.5 4.3 1.2 102.2
-6 -1.6 7.8 2.0 101.6
0.67 4.16 237
1.36 3.27 173
0.19 2.05 74
0.10 2.15 85
0.15 2.65 75
Figures are year-o n-year percentage changes unless o therwise indicated
Source: BNP Paribas Fortis
IMPORTANT DISCLOSURE: This analysis has been produced by Fortis Bank sa/nv and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of Fortis Bank with a 74.93% stake. This analysis does not contain investment research recommendations.
Steven Vanneste Global Outlook
29
Austria: On the mend

Growth to pick up The Austrian economy has performed much better than most other eurozone countries and we forecast it will continue to do so. The well-diversified economy should benefit more than other eurozone countries from a global economic recovery and, in particular, from the pickup in the German economy, which buys a third of Austrias exports. An acceleration in personal consumption growth should also boost the recovery this year, as household confidence and real disposable income increase in response to low unemployment and falling inflation. We also forecast increased business investment to expand capacity gradually to meet the recovery in demand. Inflation on a downward trend Public finances under control Large base effects relating to oil price moves in 2012 will subdue inflation in the early months of 2013 before boosting it in Q2. Overall, though, we expect a downward trend in inflation this year. The government is likely to rein in public finances further in line with the consolidation programme and stability pact between the federal government, states and local governments, both enacted early in 2012. Furthermore, the recapitalisation needs of the banking sector, which is significantly exposed to developments in Central and Eastern European economies, are low and under control. Thus, Austria looks on course to meet its target of a balanced budget by 2016. The grand coalition government made up of the social democrat and conservative parties (typically the case since 1955) is likely to remain in place after Septembers general election. As a result, politics are unlikely to derail the ongoing implementation of structural reforms, focused on liberalising the labour market and on pensions.
Structural reforms to continue after Septembers election
Chart 1: HICP and energy index (% y/y)

5 4 3 2 1 0 -1 2008 HICP Energy index (RHS) 20 15 10 5 0 -5 -0 -1 5 -20 2009 2010 2011 2012
Austria: Economic forecasts

2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation & labour HICP Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) -3.2 9.7 3.4 -7.5 1.7 0.6 -6.4 6.0 1.9 -5.1 7.5 2.3 -4.3 8.5 2.5 1.7 1.3 0.6 4.4 3.6 2.5 1.8 4.2 2.6 2.1 0.6 4.3 2.2 1.7 0.2 4.4 2.4 1.9 0.5 4.2 2.1 1.2 1.7 0.2 0.8 0.7 8.7 8.8 4.5 8.4 2.7 2.0 0.7 0.1 7.3 0.4 7.2 7.2 5.7 7.5 0.7 0.6 0.2 0.5 1.6 -0.2 1.9 1.3 1.7 9.0 0.9 0.8 0.5 0.6 1.7 -0.1 2.4 2.2 1.7 9.5 1.7 1.3 0.8 0.8 3.0 0.0 4.1 3.6 3.9 8.5 2011 2012
(1)
2013
(1)
2014
(1)
Chart 2: Austrian and German PMI manufacturing

65 60 55 50 45 40 35 30 25 08 09 10 11 12 13
Headline index - Germany
Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest rates
(2)
-12.9 -4.5 -5.3 -1.8 72.0
-7.6 -2.5 0.2 0.1 72.4
-9.7 -3.2 -0.4 -0.1 74.7
-8.7 -2.8 -0.6 -0.2 75.8
-6.1 -1.9 2.9 0.9 75.0
New expo rt orders - Austria
1.01 3.49 126
1.36 1.73 18
0.19 1.75 44
0.10 1.65 35
0.15 2.30 40
Source: BNP Paribas
Caroline Newhouse Global Outlook
30
Portugal: One way or another

Fiscal tightening continues to weigh We expect Portugal to remain in recession in 2013 as fiscal austerity and tight credit conditions lead to a further sharp fall in domestic demand. In particular, this years increase in personal income tax is likely to result in a 3.2% fall in private consumption in 2013 following last years 5.3% drop. As activity declines further, the unemployment rate will continue to climb. Despite a possible relaxation of the deficit targets, GDP is unlikely to recover in 2014, as planned spending cuts of up to 2.5% of GDP take their toll. Net trade will continue to provide a partial offset to the plunge in domestic demand as imports fall further. While the ongoing improvement in Portuguese competitiveness from a decline in wages will provide a support, export growth will be limited by the weakness of demand in Portugals main trading partners in the eurozone. The inflation rate slumped close to zero early in the year as the impact of January 2012s large VAT hike fell out of the year-on-year comparison. In the absence of demand pressure, we expect headline inflation to average around 0% in 2013. As Portugals recession will be more severe than the government forecasts, we expect the deficit target to be missed in 2013. The Troika is likely to relax the fiscal objectives, but the adjustment to the target is likely to be modest, as government debt looks set to reach 130% of GDP in 2014. Portugal is unlikely to need a new full bailout programme after the end of the current one in Q2 2014. We expect a lengthening of its European loans to help Portugal regain some access to the market, increasing the possibility that it will benefit from the ECBs OMTs. However, as its growth outlook will remain poor and its fiscal position dire, Portugal will probably need to request at least an ESM precautionary line after the end of the current programme.
Portugal: Economic forecasts
2010 Components of growth Total GDP Dom. demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation & labour HICP Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(4) (3) (2)
Exports should provide some support
Inflation to fall
Fiscal targets are likely to be revised
ESM precautionary line will probably be needed
Chart 1: Imports and domestic demand (% y/y)
2011 -1.5 -5.0 -3.7 -2.6 -12.0 0.1 7.1 -4.2 -2.1 9.0
2012
(1)
2013
(1)
2014
(1)
1.3 0.6 2.3 1.2 -5.3 -0.1 8.8 5.1 1.7 10.8
-3.2 -6.8 -5.6 -4.4 -13.7 -0.2 3.3 -6.9 -4.3 9.6
-2.6 -4.6 -4.3 -5.7 -4.4 -0.1 1.7 -3.9 -2.8 10.6
-0.2 -2.4 -1.9 -6.3 0.4 0.1 5.3 -0.2 -0.6 11.3
1.4 0.3 -1.5 10.8
3.6 2.0 -1.8 12.7
2.8 1.2 -4.2 15.6
0.1 -0.5 -2.4 17.5
-0.1 -0.6 -0.3 17.2
Chart 2: Debt-to-GDP (%)
-18.1 -16.9 -10.0
-13.3 -10.9 -6.4
-4.5 -4.0 -2.4
-2.5 -2.0 -1.3
-1.3 -0.8 -0.5
-15.7 -9.1 -10.5 -7.0 93.0
-7.2 -4.2 -0.7 -0.4 107.8
-10.9 -6.5 -3.0 -1.8 120.1
-8.2 -5.0 -0.5 -0.3 127.5
-5.8 -3.5 1.8 1.1 130.5
0.67 11.00 920
1.36 9.24 769
0.10 9.00 770
0.10 5.80 450
0.15 5.15 325
Footnotes: (1) Forecast (2) Includes one-off transfers (3) End period Figures are year-on-year percentage changes unless otherwise indicated
Source: BNP Paribas
31
Finland: A modest improvement

Gradual recovery Weakness in economic conditions abroad is continuing to weigh on Finnish exports (Chart 1) and surveys from the European Commission and OECD suggest growth remains slow. The lacklustre growth prospects and persistently low capacity utilisation rate are likely to prompt companies to postpone some of their investment plans (Chart 2), so after falling by 0.2% in 2012, GDP is likely to pick up only slowly in 2013. Unemployment rose in the second half of last year and is likely to increase further in coming months in a lagged response to past economic weakness. The rise in unemployment is moderating wage rises, which, together with increases in VAT and personal income tax that came into effect at the beginning of 2013, will weigh on growth in real personal income and consumption. In addition, households are likely to have brought forward some purchases from 2013 ahead of the VAT increase. Despite Januarys 1pp increase in VAT, inflation should fall in 2013 as energy inflation moderates. Moreover, the weakness of domestic demand and the labour market should restrain prices pressures, particularly in terms of core inflation. Public finances hit by weak activity Weak activity is weighing on public finances. However, the government has passed some tax changes which, together with the impact of better growth and low interest rates in 2013, should result in a fall in the budget deficit. We forecast the budget deficit to narrow from 2.0% of GDP in 2012 to 1.7% in 2013. Finnish economic activity is very much dependent on exports and, consequently, on the international economic environment. The eurozone is Finlands main trading partner and if growth there fails to pick up as forecast, Finland would also be unlikely to see any improvement.
Consumption to remain weak
Recovery dependent on pickup elsewhere in the eurozone
Chart 1: Exports and activity remain weak (EUR mn)

44,000 42,000 40,000 38,000 36,000 34,000 32,000 30,000 Q1 00 Q3 01 Q1 03 Q3 04 Q1 06 Q3 07 Q1 09 Q3 10 Q1 12 Exports GDP 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000
Total GDP
Finland: Economic forecasts

2010 Components of growth 3.3 1.2 3.3 -0.3 1.9 0.9 7.5 6.9 5.0 3.3 2.8 2.0 2.3 0.4 7.1 2.0 2.8 6.0 1.3 1.1 -0.2 0.5 1.6 0.8 -2.9 -2.3 -1.4 -3.7 -1.5 1.7 0.3 -0.5 0.1 -0.1 -2.8 0.0 0.1 0.0 1.1 1.6 1.6 1.4 1.4 0.8 2.0 0.0 2.9 2.6 2.8 1.4 Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation & labour CPI HICP Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(2) (2)
2011
2012
(1)
2013
(1)
2014
(1)
1.2 1.7 1.7 -0.4 8.4
3.5 3.3 1.8 1.1 7.8
2.8 3.2 2.1 0.4 7.7
2.4 2.4 2.0 -0.3 8.1
2.2 2.2 1.6 0.3 8.0
Source: Statistics Finland
Chart 2: Excess capacity is weighing on investment

95 90 85 80 75 70 65 60 Q1 2000 GFCF (% y/y, RHS) Capacity utlisation rate (%) 20 15 10 5 0 -5 -10 -15 -20 -25 Q1 2003 Q1 2006 Q1 2009 Q1 2012
2.6 2.7 1.5
-1.4 -3.1 -1.6
0.2 -3.3 -1.7
0.8 -1.8 -0.9
0.6 -1.6 -0.8
-5.0 -2.8 -2.5 -1.4 48.6
-2.0 -0.9 0.9 0.3 49.0
-3.8 -2.0 -1.2 -0.6 53.0
-3.3 -1.7 -0.9 -0.5 56.2
-2.4 -1.2 -0.2 -0.1 57.3
0.67 3.15 139
1.36 1.50 -5
0.10 1.60 30
0.10 1.50 20
0.15 2.10 20
Footnotes: (1) Forecast (2) End Period Figures are year-on-year percentage changes unless otherwise indicated
Source: Statistics Finland, DG ECFIN
Source: BNP Paribas
Catherine Stephan Global Outlook
32
Ireland: Outperforming
GDP growth is slowly recovering Ireland is a relatively strong eurozone economy. The bailout target was for GDP to rise 0.4% in 2012, but we estimate it grew 0.7%, one of the strongest performances in the bloc. Meanwhile, both the manufacturing and the services PMI remain in expansionary territory (Chart 1). However, we expect the recovery in GDP growth in 2013 and 2014 to be slow. Irelands unemployment rate has started to fall. However, it remains high, with many out of work for a long time. The combination of a weak labour market and continued fiscal tightening suggests domestic demand will continue to decline. As last year, we expect this years rise in GDP to be driven by an improvement in net trade. Ireland is an exceptionally open economy and currently benefits from the fact that some of its main trading partners lie outside the eurozone. In addition, the countrys competitiveness has improved as wage costs have fallen steeply (Chart 2). Hence, we expect export growth to continue to offset the fall in domestic demand. Heading for an exit from Net trade to remain the the bailout programme main driver of growth On the fiscal side, the government comfortably met its fiscal targets last year and aims to reduce the deficit to 3% of GDP in 2015. A deal in February to refinance the promissory notes issued to bail out Anglo Irish Bank reduced Irelands future debtservicing costs. Furthermore, discussions continue at the eurozone level on how best to support Ireland after its return to the markets, potentially via an extension of the maturities of its EFSF/EFSM loans. All of these adjustments mean the country is likely to exit its rescue programme successfully when it ends at the end of this year, in our view. Whether Ireland will ask for a precautionary programme at that time will depend on market conditions for Irish government bonds, we believe. Challenges remain, however. Irelands sensitivity to external developments, still high budget deficit and public debt and its ongoing efforts to repair the weak financial sector continue to pose some downside risks to our view.
Ireland: Economic forecasts
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Inflation & labour CPI HICP Core HICP Employment -0.9 -1.6 -2.4 -4.0 13.9 2.6 1.2 -0.2 -1.8 14.3 1.7 1.9 0.7 -0.6 14.7 0.9 1.1 0.9 0.3 14.6 1.2 1.2 1.0 1.0 14.2 -0.8 -4.9 1.0 -6.5 -22.6 0.3 6.2 3.6 7.6 1.4 -4.3 -2.4 -4.3 -12.8 -0.4 5.0 -0.3 0.0 0.7 -2.0 -1.4 -3.8 -1.9 -0.4 2.8 0.4 -1.7 1.0 -1.0 -0.4 -3.0 -1.0 0.0 3.0 1.7 1.6 2.2 0.5 1.0 -2.4 2.8 0.0 4.4 3.7 2.8 2011 2012
(1)
Challenges remain
Chart 1: Manufacturing and services PMIs
2013
(1)
2014
(1)
Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Ref: Excluding banks (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rates
(2) (2)
Chart 2: ECBs harmonised competitiveness indicator (real ULC basis)
44.0 1.8 1.1
42.7 1.8 1.1
43.1 3.5 2.2
45.0 5.2 3.1
47.3 6.5 3.8
-48.4 -30.9 -10.7 -11.9 -7.6 92.2
-21.3 -13.4 -9.1 -9.4 -5.9 106.4
-12.9 -7.9 -7.9 -6.5 -4.0 117.5
-12.5 -7.5 -7.5 -4.5 -2.7 123.2
-7.8 -4.5 -4.5 0.7 0.4 121.8
Footnotes: (1) Forecast (2) End Period
0.67 4.86 306
1.36 8.57 702
0.19 4.53 323
0.10 3.70 240
0.15 3.90 200
Figures are year-on-year percentage changes unless otherwise indicated.
Source: BNP Paribas
Gizem Kara Global Outlook
33
Greece: Sailing in calmer waters

Fall in GDP to slow The removal of Greeces exit risk, ending a period of extreme uncertainty, and the continued disbursement of its rescue loan have left Greece sailing in calmer waters. Helped by a renewed rise in exports, we expect GDP to fall less in 2013 than in each of the past two years, a view supported by the recent improvement in leading indicators, such as sentiment in the manufacturing and services sectors. Nevertheless, domestic demand and personal consumption, in particular, will continue to be hard hit by fiscal austerity measures, including tax hikes and public sector wage cuts. With bank credit to the private sector also continuing to fall and the full repatriation of deposits moved abroad on euro exit risk yet to be seen, we do not expect GDP to post quarter-on-quarter growth before 2014. With the fall in wages reducing both cost and demand pressure, Greeces competitiveness is being improved by a fall in domestic prices. The core HICP, which is already down around 1.5% y/y, is likely to continue to fall and we expect the headline HICP to fall nearly 1% on average, both this year and next. On the fiscal front, the primary budget deficit looks likely to have been slightly lower than the target of 1.5% of GDP in 2012, providing a good starting point for this year. However, to date, the impact of fiscal consolidation on growth has been underestimated, which poses risks to public finances. As long as any slippage is beyond the governments control, its European partners are likely to give Greece further leeway on meeting the targets of its current bailout programme. However, significant risks persist. Adverse developments in the domestic political and social arena, which could threaten the implementation of the countrys programme, or, less likely, Greeces official creditors refusal to help the country further, cannot be ruled out.
Chart 1: Retail sales and private consumption (% y/y) Greece: Economic forecasts
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Inflation & labour HICP 4.7 2.6 -2.7 12.5 3.1 1.1 -6.8 17.7 1.0 -0.3 -7.3 24.1 -0.7 -2.1 -3.0 26.9 -0.7 -1.4 0.3 27.2 -4.8 -4.1 -6.2 -8.2 -15.0 1.4 5.5 -6.2 -5.8 -7.1 -11.0 -7.6 -5.2 -19.5 0.7 0.0 -7.3 -7.8 -6.4 -9.0 -9.1 -4.1 -19.0 0.3 -2.0 -13.6 -3.1 -4.8 -8.2 -7.3 -5.1 -5.3 -0.1 2.9 -5.9 -0.8 -0.5 -4.8 -3.2 -2.8 4.1 0.1 4.2 -2.1 1.6 2011 2012
(1)
Fiscal austerity will continue to weigh on demand
Prices are falling
Political and social risks persist
2013
(1)
2014
(1)
Core HICP Employment Unemployment rate (%) External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% GDP) Financial variables General gov. budget (EUR bn) General gov. budget (% GDP) Primary budget (EUR bn) Primary budget (% GDP) Gross gov. debt (% GDP)
(2)
Chart 2: Real exports (index, cycle peak = 100)
-22.0 -22.5 -10.2
-15.9 -20.6 -9.9
-13.1 -14.5 -7.5
-8.7 -9.7 -5.4
-2.9 -5.7 -3.2
-23.8 -10.7 -10.7 -4.8 147.9
-19.6 -9.4 -4.8 -2.3 170.6
-12.9 -6.6 -2.7 -1.4 158.3
-8.3 -4.6 0.0 0.0 180.8
-6.7 -3.7 2.3 1.3 179.6
Source: BNP Paribas
Gizem Kara Global Outlook
34
UK: Better, but not great

Activity remains flat The UK activity picture remains fairly flat. Annual average growth was 0.2% in 2012. The hosting of the Olympics clearly helped with Q3s rise in GDP, offsetting small declines in the other three quarters. However, the underlying picture is slightly better than the headline figures suggest: service sector growth in 2012 was 1.2%, as in 2011, and final domestic demand increased by 1.5%. A firmer global picture should support activity in 2013. In addition, financial conditions have eased further and there are signs that the housing market is improving. With final demand having some momentum, we expect GDP to grow by around 0.7%. However, the risks lie to the downside and are largely driven by external factors. Inflation is, once again, coming out on the high side. Recent rises in energy and tuition fees suggest little near-term relief. Moreover, sterlings effective exchange rate has fallen more than 5% since January and this will be reflected in higher import prices and, subsequently, in inflation. We have revised up our forecast for inflation significantly and now expect it to finish this year and next well above target. The fall in the exchange rate in part reflects the Bank of Englands ever more flexible interpretation of inflation targeting. This will continue in the coming months with a change of governor at the BoE in July, and we expect monetary policy to be put on a significantly looser track. We expect the Bank to announce GBP 100bn of additional quantitative easing (QE), more credit easing measures and rate guidance. The QE is likely to be announced no later than the August MPC meeting. The UK fiscal position remains precarious. A further overshoot of the Office for Budget Responsibilitys forecasts is likely, mainly due to weak nominal GDP growth, and the government will be tempted to loosen policy in the March budget to boost its support. Against this backdrop, more agencies are likely to strip the UK of its AAA rating.
Chart 2: FMCI
2.5 2.0 GDP (% q/q, RHS) 1.5 1.0 0.5 0.0 Looser -0.5 Composite PMI: Output -1.0 -1.5 -2.0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -2.5 Tighter 2 1 0 -1 -2 -3 -4 UK 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 4 3
Growth should strengthen this year
Inflation has risen, again
Significantly more easing to come
Fiscal position is precarious
Chart 1: GDP (% q/q) and PMI survey

65.0 62.5 60.0 57.5 55.0 52.5 50.0 47.5 45.0 42.5 40.0 37.5 35.0
Chart 3: CPI (% y/y)

5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 70 00 01 02 03 04 05 06 07 08 09 10 11 12 Core (% y/y) 80 75 Target Open letter thresholds 95 90 85 Headline CPI (% y/y) 110 105 100
Chart 4: GBP nominal effective exchange rate
00
01
02
03
04
05
06
07
08
09
10
11
12
35
UK: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Investment Stocks (cont to growth, q/q) Exports Imports Services output Manufacturing production 1.8 1.4 1.3 0.4 3.5 0.9 6.4 8.0 1.1 3.9 0.9 -1.2 -1.0 -0.1 -2.9 0.3 4.6 0.5 1.2 2.0 0.2 1.5 1.0 2.6 1.4 -0.2 -0.3 2.0 1.0 -2.3 Year 10 Inflation & labour RPI RPIX CPI Core CPI Employment Unemployment rate (ILO, %) Headline avg. earnings Avg. earnings ex-bonuses 4.6 4.8 3.3 2.9 0.2 7.8 2.4 1.9 5.2 5.3 4.5 3.2 0.5 8.1 2.5 2.0 3.2 3.2 2.8 2.4 1.1 8.0 1.4 1.7 Year External trade Trade balance (GBP bn, sa) Current account (GBP bn, sa) Current account (% GDP) 10 -98.5 -37.3 -2.5 11 -100.2 -20.4 -1.3 12 -106.6 -54.4 -3.5 Year 12 (1) -83 -5.3 -3.4 90.8 Year 10 Interest & FX rates Bank rate (%) 3-month rate (%) 10-year rate (%) Spread over Bund (bp) EURGBP GBPUSD
(2)
2012 13 (1) 0.7 0.7 0.8 -0.3 1.4 0.0 1.3 1.0 0.9 -0.6 14 (1) 1.6 1.3 1.5 -1.2 4.3 0.0 4.2 3.2 1.8 0.8 Q1 -0.1 0.3 1.0 0.2 3.7 0.0 -0.4 -0.6 1.5 0.0 -1.2 Q2 -0.4 -0.2 1.4 1.0 1.7 2.5 0.2 0.1 3.0 0.0 -2.3 2012 13
(1)
11
12
Q3 1.0 0.2 1.6 1.4 2.1 1.6 0.5 1.8 3.2 1.1 -2.9
Q4 -0.3 0.2 1.8 1.3 2.9 1.7 -0.4 -2.5 0.4 1.2 -2.9
Q1 (1) 0.2 0.5 0.7 1.1 -0.6 1.4 0.0 -0.4 0.7 0.0 -2.1
2013 Q2 (1) Q3 (1) 0.1 1.0 0.6 0.5 0.7 0.0 0.0 1.6 0.1 1.2 -1.1 0.3 0.3 0.6 0.7 -0.2 1.5 0.0 0.8 0.6 0.4 -0.2
Q4 (1) 0.3 0.9 0.7 0.9 -1.1 2.7 0.0 3.2 2.6 0.9 0.9
11
12
14
(1)
Q1 5.3 3.8 3.5 2.5 0.1 8.2 0.6 1.6
Q2 5.1 2.9 2.8 2.2 0.9 8.0 1.8 1.9 2012
Q3 2.9 2.9 2.4 2.2 1.7 7.8 1.9 1.9
Q4 3.1 3.0 2.7 2.6 1.7 7.8 1.4 1.3
Q1
(1)
Q2
(1)
2013 (1) Q3 4.0 3.9 3.3 2.1 0.6 7.9 1.9 1.7
Q4
(1)
3.8 3.7 3.1 2.1 0.9 7.8 1.8 1.6
3.6 3.4 2.7 1.8 0.9 7.7 2.1 1.9
3.4 3.3 2.8 2.2 1.4 7.8 1.7 1.5
4.0 3.9 3.3 2.2 0.8 7.9 1.7 1.5
3.6 3.5 2.9 1.8 0.7 7.8 2.0 1.8
13 (1) -106.1 -44.3 -2.8
14 (1) -101.0 -36.3 -2.2
Q1 -25.6 -
Q2 -27.6 2012
Q3 -26.1 -
Q4 -27.3 -
Q1 (1) -27.0 -
2013 Q2 (1) Q3 (1) -26.7 2013 -26.4 -
Q4 (1) -26.0 -
10 Financial variables PSNB (GBP bn, FY) PSNB (% GDP, FY) Primary budget (% GDP, FY) Gross gov. debt (% GDP) (2) -142 -9.6 -6.5 76.2
11 -122 -8.0 -4.9 83.6
13 (1) -105 -6.6 -4.7 95.0
14 (1) -99.2 -6.0 -3.9 97.9
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 0.50 1.08 1.98 15 0.83 1.55
12 0.50 0.52 1.84 53 0.81 1.63
13 (1) 0.50 0.50 1.80 50 0.85 1.56
14 (1) 0.50 0.50 2.60 70 0.76 1.64
Q1 0.50 0.52 1.92 51 0.83 1.60
Q2 0.50 0.51 1.88 28 0.81 1.57
Q3 0.50 0.51 1.74 30 0.80 1.62
Q4 0.50 0.52 1.84 53 0.81 1.63
Q1 (1) 0.50 0.50 2.00 50 0.88 1.50
2013 Q2 (1) Q3 (1) 0.50 0.50 2.20 70 0.88 1.53 0.50 0.50 2.00 60 0.87 1.55
Q4 (1) 0.50 0.50 1.80 50 0.85 1.56
0.50 0.76 3.40 44 0.86 1.56
Source: BNP Paribas
36
Sweden: Shallow rebound

Rebounding slightly
After a flat outturn in quarter-on-quarter terms in Q4 2012, the economic environment for Sweden has improved of late. The main restraint on the Swedish economy has been the external environment. While the economy is not overly exposed to weakness in the eurozone periphery, the general recession in Europe in H2 2012 hit the Swedish economy hard. An improvement in economic conditions in its trading partners in 2013 should also be reflected in a pickup in Swedish growth to 1.8% somewhat below trend growth. The domestic side of the Swedish economy has shown more resilience than total GDP. With wages growing by 2.5-3.0% y/y, well above inflation, and employment continuing to rise, the rise in real personal income will continue to support consumption growth. Government spending is also a support to growth. A debt-to-GDP level around 50pp below the EU average leaves the economy in the enviable position of having the capacity to absorb shocks. While the outlook is for a pickup in growth, a key concern for Sweden is the strength of the krona. The effective exchange rate has risen by more than 4% since the start of the year, building on the currencys gains in 2012. The currencys strength raises the risk that exports will lose market share as global demand picks up. The strength of the currency also means that inflationary pressure is very limited. We expect inflation to remain well below the Riksbanks target of 2.0% throughout 2013. By continuing to signal a relatively hawkish line, the Riksbank runs the risk of being one of the losers in the currency wars. We think the bank will have to refine its policy line and start to sound more dovish.
Some domestic strength
and no austerity
The kronas strength presents a downside risk
The Riksbank needs to sound more dovish
Chart 1: Swedish FMCI

4 3 5.0 Tighter 2 1 0 -1 Looser -2.5 -2 -3 Sweden -4 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 -7.5 01 02 -5.0 2.5 7.5
Chart 2: Swedish GDP (% y/y and % q/q)

3 % y/y 2 1 0 0.0 -1 % q/q (RHS) -2 -3 -4
03
04
05
06
07
08
09
10
11
12
Chart 3: Swedish inflation (% y/y)

5 4 3 2 50 1 0 -1 CPI -2 30 00 01 02 03 04 05 06 07 08 09 10 11 12 98 CPIF Core HICP 70 65 60 55
Chart 4: Swedish, eurozone and US PMIs
US
Eurozone 45 40 35 Sweden
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
37
Sweden: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment Exports Imports Industrial production 6.3 3.8 3.9 1.8 6.7 10.0 11.5 8.7 11 3.8 2.8 2.2 1.2 6.7 7.4 6.3 6.8 12 1.2 2.0 1.7 1.2 4.0 1.3 0.5 -3.2 Year 10 Inflation & labour CPI CPIF Wages & salaries/hour Employment Unemployment rate (nsa, %) 1.2 2.0 1.1 0.5 8.1 11 3.0 1.4 3.3 2.3 7.0 12 0.9 0.7 3.5 0.6 7.5 Year 10 External trade Trade balance (SEK bn) Current account (SEK bn) Current account (% of GDP) 69.0 228.4 6.8 11 64.4 245.9 7.0 12 68.5 254.5 7.2 Year (1) 12 0.4 1.3 38.4 -0.3 0.8 38.1 Year 10 Interest & FX rates Repo rate (%) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp) EURSEK USDSEK
(2)
2012 13 (1) 1.8 1.8 2.1 0.8 2.5 3.7 3.8 -0.2 14 (1) 2.5 2.2 2.0 0.7 4.8 4.2 3.9 3.9 Q1 0.4 1.2 2.9 1.4 0.7 10.5 1.2 1.0 -4.2 Q2 0.8 1.4 1.3 0.9 0.9 2.9 2.8 0.8 -3.1 2012 13
(1)
Q3 0.3 0.6 1.4 2.0 1.4 -0.3 -0.6 0.0 -1.6
Q4 0.0 1.5 2.4 2.4 1.7 3.4 1.6 0.3 -3.8
Q1 (1) 0.3 1.4 1.3 1.6 1.3 0.5 1.6 1.0 -2.2
2013 Q2 (1) Q3 (1) 0.7 1.3 1.7 2.2 1.1 1.3 2.8 3.3 -2.4 0.8 1.8 2.3 2.5 0.5 4.3 5.7 6.8 -0.3
Q4 (1) 0.8 2.6 2.0 2.2 0.2 3.8 4.7 4.3 4.1
14
(1)
Q1 1.8 1.0 3.1 0.7 8.0
Q2 1.1 1.0 4.0 0.7 7.6 2012
Q3 0.6 0.9 3.0 0.6 7.1
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 0.4 0.9 3.1 0.5 7.6
Q4
(1)
0.3 0.9 3.1 0.5 7.7
0.9 1.8 3.3 0.7 7.7
0.0 0.0 4.3 0.6 7.3
-0.1 0.8 3.7 0.5 7.9
-0.2 0.5 3.1 0.6 7.6
1.1 1.2 2.6 0.4 7.8
13
(1)
14
(1)
Q1 19.0 68.2 8.0
Q2 22.7 61.0 6.7 2012
Q3 13.9 63.3 7.3
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 11.0 52.2 5.9
Q4
(1)
83.8 257.3 7.1
84.9 233.0 6.1
12.9 62.0 6.7
34.6 88.6 10.2
21.0 66.9 7.2 2013
17.2 49.5 5.2
10 Financial variables General gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) 0.3 1.1 39.5
11
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-0.6 0.5 37.9
-0.2 0.9 36.3
11 1.50 1.20 1.49 -6 8.91 6.89
12 1.00 1.29 1.53 23 8.58 6.50
13
(1)
14
(1)
Q1 1.50 1.23 1.88 46 8.82 6.60
Q2 1.25 2.14 1.60 0 8.77 6.92
Q3 1.00 1.59 1.47 4 8.44 6.56
Q4 1.00 1.29 1.53 23 8.58 6.50
Q1
(1)
Q2
(1)
2013 (1) Q3 1.00 1.20 1.70 30 8.80 6.52
Q4
(1)
1.25 1.95 3.28 32 8.98 6.71
1.00 1.30 1.60 30 8.90 6.69
2.00 2.40 2.50 60 8.60 6.88
1.00 1.26 2.02 50 8.40 6.32
1.00 1.20 1.90 40 8.60 6.37
1.00 1.30 1.60 30 8.90 6.69
Source: BNP Paribas
38
Norway: Resilient
Shrugging off impact of external weakness The Norwegian economy has shown an impressive ability to shrug off the worst of the slowdown in its trading partners. Although growth has slowed over the past year, mainland GDP continued to rise throughout 2012. A modest improvement in the global environment and firm oil prices should result in annual growth in 2013 and 2014 of around 2% per year. Domestic demand, particularly consumption, has been the main driver of growth over the last few years and we expect this to continue in 2013. Consumer confidence is close to its 2010 highs, while the rate of unemployment remains very low. Government consumption and total investment are also rising. Headline inflation is likely to remain low near term due to the lagged impact of past strength in the NOK. However, underlying price pressures are rising. With the labour market tight, wage growth is around 4%. The rise in unit labour costs implies inflation will pick up later in 2013 and in 2014, but we expect it to remain below the 2.5% Norges Bank target. Norways fiscal position is no hindrance to its growth outlook. While the general government has gross liabilities of around 40% of GDP, the net government asset position is a very healthy 165% of GDP. Norges Banks job is being complicated by macro-prudential considerations rather than the inflation outlook. Low interest rates and the solid labour market have helped raise the risk of asset bubbles developing, with house prices having risen sharply in recent years and credit growth buoyant. Against this backdrop, we continue to expect the Norges Bank to deliver its first rate hike this year, but now look for it to come slightly later in the year in Q4 rather than in Q3, as we had expected previously.
Chart 2: House prices (index, Q1 2000 = 100)
Domestic demand remains strong
Inflation to remain below target
Fiscal issues, no problem Macro-prudential issues complicating Norges Banks job
Chart 1: Real GDP (% y/y)
Chart 3: Unemployment rate (%)
Chart 4: CPI and CPI-ATE (% y/y)
39
Norway: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) Mainland GDP (% q/q) GDP Mainland GDP Domestic demand ex stocks Private consumption Public consumption Fixed investment Exports Imports Manufacturing production 0.2 1.5 0.1 3.6 1.2 -8.1 -0.7 9.1 2.8 1.3 2.6 3.5 2.5 1.9 7.5 -1.8 3.9 0.9 3.0 3.3 4.0 3.0 1.9 8.3 2.2 3.2 2.8 Year 10 Inflation & labour CPI CPI-ATE Wages & salaries Unemployment rate (sa, %) 2.4 1.4 3.3 3.6 1.3 1.0 3.4 3.3 0.7 1.2 3.6 3.2 Year 10 External trade Trade balance (NOK bn) - Ex-oil (NOK bn) Current account (NOK bn) Current account (% of GDP) 321 -134 303 11.9 11 383.7 -148.7 374.0 13.6 12 423 -146 390 13.4 Year 12 (1) 13.2 11.2 27.6 Year 10 Interest and FX rates Repo rate (%) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp) EURNOK USDNOK
(2)
2012 13 (1) 14 (1) Q1 1.3 1.0 2.0 2.9 3.1 3.1 1.8 4.4 -0.4 2.8 2.6 2.2 3.0 3.2 2.6 2.0 5.6 2.3 4.8 3.0 4.1 4.1 3.3 2.8 2.4 5.3 4.6 -2.5 0.6 Q2 0.8 0.7 4.4 3.2 4.7 3.0 2.1 11.3 5.1 7.1 2.8 2012 13 (1) 1.7 1.5 4.3 3.6 14 (1) 2.3 1.8 4.2 3.7 Q1 0.8 1.4 3.9 3.2 Q2 0.4 1.1 4.3 3.0 2012 13 (1) 388.8 -193.0 367.8 12.2 14 (1) 376 -226 339 10.8 Q1 136.5 -29.2 133.6 18.0 Q2 103 -37 86 12 2012 13 (1) 12.6 10.4 29.3 14 (1) 12.4 10.2 31.6 Q1 Q2 2012 13 (1) 1.75 2.60 2.55 125 7.35 5.53 14 (1) 2.75 3.70 3.35 145 7.40 5.92 Q1 1.50 1.86 2.44 103 7.59 5.69 Q2 1.50 2.30 2.08 48 7.55 5.96 Q3 1.50 1.97 2.14 71 7.36 5.72 Q4 1.50 1.83 2.14 83 7.34 5.56 Q1 (1) 1.50 1.90 2.36 83 7.40 5.56 Q3 Q4 Q1 Q3 85.2 -38.6 96.4 9.8 Q4 98 -42 74 10 Q1 (1) 125.5 -42.2 129.9 17.2 Q3 0.4 1.2 2.0 3.1 Q4 1.0 1.2 4.2 3.5 Q1 (1) 0.7 1.2 4.2 3.6 Q3 -0.6 0.8 1.7 3.2 3.9 3.4 1.5 7.5 -2.4 5.5 5.1 Q4 0.4 0.3 1.9 2.8 4.0 2.7 1.7 9.3 1.7 3.2 2.7 Q1 (1) 0.7 0.7 1.3 2.6 3.3 2.7 2.2 5.5 -2.7 2.8 3.0
11
12
2013 Q2 (1) Q3 (1) 0.8 0.8 1.3 2.7 3.0 2.8 1.3 5.0 -2.7 1.6 2.3 0.6 0.9 2.6 2.8 2.8 3.1 1.6 3.5 1.5 3.4 1.7
Q4 (1) 0.6 0.9 2.7 3.4 3.3 3.6 2.0 3.8 2.4 3.5 3.4
11
12
2013 Q2 (1) Q3 (1) 1.5 1.4 4.3 3.6 2.4 1.6 4.3 3.6
Q4 (1) 2.1 1.7 4.3 3.5
2013 Q2 (1) Q3 (1) 93 -49 68 9 2013 Q2 2013 Q2 (1) Q3 (1) 1.50 1.95 2.50 100 7.40 5.48 1.50 2.25 2.50 110 7.35 5.44 Q3 80.8 -48.0 80.8 11.0
Q4 (1) 90 -53 89 11
10 Financial variables General gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) 11.2 9.0 42.8
11 13.6 11.6 37.8
Q4 -
11 1.75 2.89 2.44 61 7.74 5.98
12 1.50 1.83 2.14 83 7.34 5.56
Q4 (1) 1.75 2.60 2.55 125 7.35 5.53
2.00 2.60 3.55 59 7.79 5.82
Source: BNP Paribas
40
Switzerland: Risks persist

Chill winds from the eurozone An open economy with a high reliance on European trade, Switzerland has been adversely affected by the eurozone crisis. The rise in GDP slowed in 2012, with export growth weak. Nevertheless, the Swiss economy has a number of strengths that have helped it perform better than other European economies. Growth in Swiss consumption has remained robust, supported by a firm labour market and the boost to real incomes from low inflation. In addition, domestic financial conditions are loose, with broad money growing close to 10% y/y. In 2013, some improvement in the global economic situation should underpin better growth. Swiss exports high exposure to German demand will also be helpful. However, the possibility that the recovery in the eurozone will take longer to gain traction than we have forecast presents a real risk to the Swiss economy. Domestic demand has some momentum, but the strength of both residential house prices and domestic credit expansion has led the SNB and Federal Council to announce the activation of countercyclical capital buffers, targeted at mortgages. The impact of this move is more likely to be felt in 2014 than in 2013 and should lead to a cooling of consumer spending. Deflation should ease The headline rate of inflation remains close to zero. The low level reflects a fall in import prices as a result of the Swiss francs earlier appreciation. Pressure on the SNBs CHF exchange-rate cap of 1.20 to the EUR has faded further in 2013, as the flight-to-quality has eased on better sentiment. Developments in the eurozone will be key to determining how far the pressure on the Swiss currency continues to wane, and how far the economy can pull away from deflation.
But consumer spending is robust Exports to pick up in 2013
Chart 1: Swiss GDP and the KOF

30 20 10 0 -10 -20 -30 -40 -50 -60 80 GDP (% y/y, RHS) KOF business barometer 8 7 6 5 4 3 2 1 0 -1 -2 -3 06 08 10 12 -4
Switzerland: Economic forecasts

2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation CPI CPI (ex-petrol) Nominal wages Unemployment rate (%) Financial variables 0.7 0.2 0.8 3.5 0.2 -0.1 1.0 2.8 -0.7 -0.9 1.3 2.9 0.0 0.1 1.5 2.9 1.0 0.6 1.6 2.7 3.0 2.2 1.6 0.7 4.8 0.1 7.8 7.4 6.3 11.8 1.9 2.0 1.2 2.0 4.0 -0.1 3.8 4.2 2.7 12.9 1.0 1.7 2.5 0.7 0.1 -0.2 1.1 2.3 3.3 12.5 1.8 2.1 2.4 1.1 1.7 -0.2 2.8 3.2 2.6 11.9 2.3 1.9 1.4 0.4 4.0 0.3 3.1 3.3 3.5 12.2 2011 2012 (1) 2013 (1) 2014 (1)
82
84
86
88
90
92
94
96
98
00
02
04
Chart 2: Swiss inflation (% y/y)

7.5
5.0
Total Domestic (73% weight)
Current account (CHF bn) Current account (% GDP) General gov. balance (CHF bn) General gov. balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest & FX rates (2) 3-month rate (%) 10-year bond yield (%) Spread over Bund (bp)
(2)
82.0 14.3 1.1 0.2 0.6 36.3
49.2 8.4 2.3 0.3 0.7 35.5
54.2 8.2 2.9 0.5 0.8 36.0
52.8 5.8 3.0 0.5 0.8 35.5
56.1 6.1 3.7 0.6 0.9 34.1
2.5
0.0
-2.5
0.01 1.69 -11 1.25
0.05 0.57 -98 1.25
0.25 0.35 -95 1.21
0.25 0.35 -95 1.30
0.25 0.90 -100 1.35
-5.0 Foreign (27% weight) -7.5 01 02 03 04 05 06 07 08 09 10 11 12
EURCHF
Source: BNP Paribas
41
Russia: Monetary stimulus ahead

Sharp slowdown as investment demand sours Although oil prices remain supportive, Russian economic growth is slowing mainly because financial constraints have lead to a sharp weakening of investment growth. Base effects will keep the year-on-year growth rate low in H1 2013. We forecast GDP to grow just 2.9% in 2013. A rebound in growth to 3.6% in 2014, boosted by Russias hosting of the Winter Olympics, is likely to be short-lived. Inflation is accelerating in Q1 2013 and remains above 7% with much of the rise in prices reflecting government policy and food inflation. Although the inflation rate could fall below 6.9% by the end of Q2 2013, the drop is likely to be temporary and we forecast inflation will rise back above 7% in H2 2013. Political pressure on the central bank to cut rates is increasing, although inflation exceeds the official target of 5-6% y/y. In addition, the new CBR governor, who takes office in June, is likely to increase the importance of economic growth in the CBRs decision making. Hence, we now expect the first rate cut of 25bp as soon as Q3 2013. High inflation risks should limit the extent of the easing in 2013, however. Public finances are being supported by high oil prices. The budget is likely to be balanced in 2013 (with a surplus in Q2), lowering the demand for financing. However, we expect sovereign eurobond placements (probably in Q2-Q3 2013) to improve debt management and set a benchmark for the corporate sector. We expect the rouble to remain robust in Q2 2013, supported by capital inflows associated with Euroclears and Clearstreams new clearing and settlement of Russian bonds. The main short-term risks to Russias economic performance are that the global economy fails to pick up as expected and the Urals oil price drops below USD 90/bbl.
High inflation driven by government policy and food inflation Nevertheless, the CBR is likely to cut rates in Q3
Eurobond placements to test the market
Main risks associated with external shocks
Chart 1: Economic growth, oil price and retail sales
Chart 2: Payment schedule of external debt (USD mn)

30000 USDRUB(RHS) 25000 20000 15000 10000 5000 0 Oct Nov 2012 Dec Jan Feb Mar Apr May 2013 Jun Jul Aug Sep 32 31.5 31
Principal payment
Interest payment
30.5 30 29.5 29
Source: Reuters EcoWin Pro, FSSS, BNP Paribas
Source: CBR, BNP Paribas
Chart 3: Inflation and policy rates
Chart 4: Budget deficit and oil price
Source: Reuters EcoWin Pro, FSSS, BNP Paribas
Source: Reuters EcoWin Pro, CBR, BNP Paribas
Julia Tsepliaeva / Kirill Mavrin Global Outlook
42
Russia: Economic and financial forecasts

10 Components of growth GDP (% y/y) GDP (USD bn) Private consumption Public consumption Fixed investment Exports (% y/y) Imports (% y/y) Industrial production 4.3 1465 5.2 -1.4 5.8 7.0 25.8 8.2 4.3 1849 6.8 1.5 8.0 0.4 20.3 4.7 3.4 2007 5.7 0.5 6.5 1.1 9.0 2.9 Year 10 Inflation & labour CPI (2) CPI Unemployment rate (%) 6.9 8.8 7.5 8.5 6.1 6.7 5.1 6.6 5.7 Year External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Net FDI (USD bn) Net FDI (% GDP) 10 151.4 71.1 4.9 -10.5 -0.7 11 198.2 98.8 5.3 -14.4 -0.8 12 186.0 87.0 4.3 0.0 0.0 Year 10 Financial variables General gov. budget (% GDP) Primary gov. budget (% GDP) (2) Gross gov. debt (% GDP) -3.9 -3.4 7.9 0.8 1.3 7.8 0.0 0.5 9.7 Year 10 Interest & FX rates 3-month rate (%) USDRUB
(2)
11
Year (1) 12
2012 13
(1)
14
(1)
Q1 4.9 447.5 7.2 -0.5 15.0 4.4 10.2 4.0
Q2 4.0 469.1 6.6 0.0 7.9 -1.4 2.9 2.3 2012
Q3 2.9 543.0 5.0 0.8 1.5 0.5 9.7 2.5
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 3.2 580.0 3.8 0.0 2.0 0.5 7.0 2.2
Q4
(1)
2.9 2195 3.8 -0.2 1.6 0.0 8.0 2.0
3.6 2515 4.0 0.8 3.0 1.0 9.0 2.8
1.8 547.4 4.0 1.5 1.6 1.0 13.1 2.7
1.9 460.0 3.2 -1.5 0.0 -0.5 6.5 1.0
2.7 540.0 3.6 -0.2 1.0 0.0 11.0 1.7
3.6 615.0 4.5 1.0 3.2 0.0 7.5 2.9
11
12
13 (1) 7.1 7.0 5.4
14 (1) 6.3 5.7 5.4
Q1 3.9 3.7 6.5
Q2 3.8 4.3 5.4 2012
Q3 6.0 6.6 5.2
Q4 6.5 6.6 5.8
Q1 (1) 7.2 7.2 5.4
2013 Q2 (1) Q3 (1) 7.2 6.9 5.3 7.1 7.0 5.3
Q4 (1) 7.0 7.0 5.5
13 (1) 150.0 60.0 2.7 2.5 0.1
14 (1) 110.0 20.0 0.8 4.0 0.2
Q1 59.2 40.4 9.0 -1.0 -0.2
Q2 50.1 21.2 4.5 0.0 0.5 2012
Q3 41.2 13.0 2.4 1.0 0.7
Q4 35.5 12.4 2.3 0.0 0.6
Q1 (1) 50.0 23.0 5.0 0.5 0.6
2013 Q2 (1) Q3 (1) 50.0 17.0 3.1 0.0 0.5 2013 30.0 13.0 2.2 0.5 0.7
Q4 (1) 20.0 7.0 1.1 1.5 0.8
11
12
13 (1) 0.0 0.6 9.6
14 (1) -1.5 -0.5 10.1
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 8.00 7.22 32.19
12 8.25 7.47 30.37
13 (1) 8.00 7.40 30.47
14 (1) 7.75 7.00 32.54
Q1 8.00 6.73 29.30
Q2 8.00 7.22 32.94
Q3 8.25 7.17 30.75
Q4 8.25 7.47 30.37
Q1 (1) 8.25 7.50 30.43
2013 Q2 (1) Q3 (1) 8.25 7.20 30.89 8.00 7.20 30.45
Q4 (1) 8.00 7.40 30.47
7.75 4.10 30.40
Source: BNP Paribas
43
Ukraine: In recession
Economy continues to suffer In H2 2012 the Ukrainian economy fell into a deep recession primarily due to a slump in the steel market, a poor harvest and high prices for imported natural gas. With a marked pickup unlikely, low steel prices suggest activity will stay weak in H1 2013. The current delay in reaching an agreement with the IMF on a new loan also bodes poorly for the economy. As a result, we have lowered our GDP growth forecast for 2013 from 2.0% to 1.5%, but expect a stronger rebound in growth to 3.5% in 2014. The inflation rate has slumped into negative territory as demand has weakened and as growth in the money supply has slowed. However, the devaluation of the hyrvnya that we expect in coming months and a hike in utility tariffs should cause inflation to reaccelerate from Q2 2013. We forecast it to jump to 2.5% on average in 2013 and to reach 5.0% by the end of the year. Despite the expected rise in inflation this year, the NBUs policy rates look too high; although they have eased somewhat, money market rates are still at 12-13%. The combination of deflation and an economic recession calls for monetary easing. Although the NBU has repeatedly put off rate cuts to support the currency, it has commented it intends to ease monetary policy and we believe an IMF agreement will allow the NBU to cut rates in Q2 2013. An IMF agreement would also reduce default risks and we believe a sovereign debt default is unlikely in 2013, despite Ukraines high refinancing needs. A drop in steel prices below USD 550/t would cause a sharper devaluation of the UAH and a deeper recession, while failure to agree a new IMF programme would sour sentiment towards the country also leading to more serious economic problems.
Inflation to rebound
Policy easing needed
Default is unlikely
Lower steel prices and no IMF deal the main risks
Chart 1: Economic growth and steel prices
Chart 2: Government debt payments in 2013 (USD mn)

16 00 14 00 12 00 10 00 8 00 6 00 4 00 2 00 0 Ma r Apr May Ju n Jul Au g Sep O ct No v De c
Corpora te Gove rnm e nt Eurobonds
Gove rnm e nt fore igncurre ncy bonds
Loa ns
Source: Reuters EcoWin Pro, Bloomberg, BNP Paribas
Source: MoF, BNP Paribas
Chart 3: CPI and policy rate
Chart 4: Foreign exchange rates
Source: UkrStat, Reuters EcoWin Pro, BNP Paribas
Source: UkrStat, MoF, BNP Paribas
44
Ukraine: Economic and financial forecasts

10 Components of growth GDP (% y/y) GDP (USD bn) GDP per capita (USD) 4.2 137.7 3060 5.2 164.0 3644 0.2 172.8 3840 Year 10 Inflation & labour CPI (2) CPI PPI (2) Unemployment rate (%) 9.4 9.1 18.7 9.1 8.0 4.6 14.2 8.8 0.6 -0.2 7.8 8.2 Year External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Net FDI (USD bn) International reserves (USD bn) (2) External debt (USD bn) External debt (% GDP) 10 -8.4 -2.7 -2.0 5.7 34.6 117.3 85.2 11 -13.8 -9.0 -5.6 7.0 31.8 126.2 77.0 12 -20.4 -14.4 -8.3 6.9 24.5 134.0 77.5 Year 10 Financial variables General gov. budget (% GDP) Primary budget balance (% GDP) (2) Gross gov. debt (% GDP) -6.0 -4.6 31.1 -4.0 -2.5 36.1 -3.5 -2.1 37.3 Year 10 Interest & FX rates 3-month rate (%) USDUAH
(2)
11
Year 12 (1)
2012 13 (1) 1.5 180.0 4000 14 (1) 3.5 194.0 4311 Q1 2.0 37.1 Q2 3.0 43.7 2012 13 (1) 2.5 5.0 13.1 8.2 14 (1) 4.2 4.0 8.0 7.7 Q1 2.9 1.9 8.6 Q2 -0.4 -1.2 7.8 2012 13 (1) -16.0 -9.5 -5.3 3.8 27.0 150.0 83.3 14 (1) -16.5 -9.0 -4.6 6.5 30.0 160.0 82.5 Q1 -3.9 -2.4 -4.6 1.7 31.1 126.9 Q2 -5.6 -3.8 -4.5 1.1 29.3 129.0 2012 13
(1)
Q3 -1.3 48.4 -
Q4 (1) -2.7 43.6 -
Q1 (1) -0.3 37.0 -
2013 Q2 (1) Q3 (1) 0.4 44.0 2013 Q2 (1) Q3 (1) 1.6 2.7 8.3 3.8 4.0 8.0 2.5 48.0 -
Q4 (1) 3.3 51.0 -
11
12
Q3 0.0 0.0 8.0
Q4 -0.1 -0.2 8.4
Q1 (1) -0.1 0.1 8.5
Q4 (1) 4.7 5.0 8.0
Q3 -5.3 -4.1 -4.8 2.2 29.3 132.4 -
Q4 -5.7 -4.0 -5.1 2.0 24.5 134.0 -
Q1 (1) -4.0 -2.0 -4.8 0.5 26.0 136.0 -
2013 Q2 (1) Q3 (1) -4.2 -2.2 -4.5 0.5 27.0 140.0 2013 -3.8 -2.3 -4.3 1.3 27.0 146.0 -
Q4 (1) -4.0 -3.0 -5.4 1.5 27.0 150.0 -
11
12
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-3.8 -2.1 43.0
-3.0 -1.0 45.0
11 7.75 20.80 8.03
12 7.50 24.00 8.20
13 (1) 7.00 10.00 9.00
14 (1) 7.00 10.00 9.00
Q1 7.50 14.00 8.00
Q2 7.50 21.00 8.08
Q3 7.50 23.80 8.00
Q4 7.50 24.00 8.20
Q1 (1) 7.50 12.00 9.00
2013 Q2 (1) Q3 (1) 7.25 12.00 9.00 7.00 10.00 9.00
Q4 (1) 7.00 10.00 9.00
7.75 11.83 7.93
Source: BNP Paribas
45
Poland: Wait-and-see at the MPC

Crisis feeling is justified Poland managed to stay out of a recession in late 2012, but the current crisis feeling in the country is certainly justified. In Q4 2012 consumption fell 1.0% y/y the first fall since Q1 1995. We expect growth to remain sluggish in the first half of 2013 and the subsequent recovery we forecast is solely dependent on a pickup in demand. The near-term outlook for the domestic economy remains very soft, given rising unemployment, tighter fiscal policy and much weaker (if any) credit growth. Hence, domestic demand will continue to contract in coming months. Towards late 2013 and next year we expect more quasi-fiscal investment spending through the governments new special purpose vehicle and via higher State Treasury guarantees to support a broader-based rebound in economic growth. Falling consumption and the recent strength in the exchange rate suggest further disinflation lies ahead. Inflation is also being driven down by this years 10% cut in retail gas prices and a freeze of electricity tariffs. We expect headline inflation to slow to 1% y/y in June 2013 well below the central banks target of 2.5%. Thereafter, much will depend on the evolution of food prices after the harvest, but we do not expect any substantial demand-driven inflation pressure to emerge before late 2014. Since November 2012, the Polish MPC has delivered 150bp in monetary easing, reducing the main policy rate to 3.25% by March. While policymakers have switched to a wait-and-see mode, we still see scope for another small cut later this year. Given our forecast that CPI inflation will slow more than central banks projections, we expect one more fine-tuning interest rate cut by end-Q3 2013. On the fiscal front, weak nominal growth will reduce budget revenues and keep the deficit above 3.5% of GDP, even though the government will keep discretionary spending under tight control.
Chart 2: Rising savings reduce household spending
Domestic demand will continue to fall in 2013
More disinflation ahead
Monetary easing cycle broadly finished
Chart 1: First fall in consumption since the mid-1990s
Chart 3: More and faster disinflation ahead
Chart 4: MPC finally catching up with reality
Michal Dybula Global Outlook
46
Poland: Economic and financial forecasts

10 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 3.8 2.5 3.1 4.2 -1.6 2.0 12.2 13.9 11.1 11 4.3 3.1 2.6 -1.7 8.6 0.5 7.8 5.7 6.8 Year 12 2.1 0.3 0.5 0.0 1.4 -0.3 2.4 -1.8 1.4 Year 12 3.7 2.2 0.2 3.7 -1.0 12.8 Year 12 -5.55 -13.49 -3.6 Year (1) 12 -62 -3.9 -0.7 56.1 Year 12 4.25 4.11 3.11 3.21 3.73 243 3.37 3.38 3.59 4.07 3.08 2012 13
(1)
14
(1)
Q1 0.4 3.6 1.7 1.7 -0.8 6.0 0.8 3.9 1.6 4.7
Q2 0.1 2.3 1.1 1.2 0.5 1.3 -1.5 2.6 -3.1 2.6 2012
Q3 0.3 1.4 -0.3 0.1 0.2 -1.5 -0.5 0.7 -3.7 0.2
Q4 0.2 1.1 -1.3 -1.0 0.2 -0.3 -0.2 2.5 -2.0 -1.8
Q1
(1)
Q2
(1)
2013 (1) Q3 0.6 1.4 0.4 0.5 1.0 -1.0 -0.3 3.3 0.1 4.3
Q4
(1)
1.4 0.2 0.4 0.7 -0.9 -0.2 3.5 0.2 3.9
3.0 2.3 1.9 2.0 4.2 0.3 7.3 6.2 6.3
0.3 0.9 -0.2 0.1 -0.2 -1.6 -0.4 2.4 -1.4 1.1
0.3 1.2 -0.1 0.1 0.9 -1.4 -0.4 2.9 -0.6 2.7
0.7 2.0 0.9 0.8 1.0 0.4 0.2 5.3 2.8 7.3
10 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 2.6 1.6 0.0 4.2 -1.1 12.1
11 4.3 2.4 0.6 5.2 -1.7 12.4
13
(1)
14
(1)
Q1 4.1 2.5 0.3 5.2 -0.9 13.3
Q2 4.0 2.5 0.2 3.9 -1.2 12.6 2012
Q3 3.9 2.1 0.2 2.8 -1.5 12.4
Q4 2.9 1.7 0.1 2.9 -0.3 12.9
Q1
(1)
Q2
(1)
2013 (1) Q3 1.2 0.9 -0.4 1.2 -1.7 13.1
Q4
(1)
1.3 1.0 -0.3 1.5 -1.3 13.5
2.0 1.0 0.3 2.7 -1.9 13.6
1.5 1.3 -0.1 2.1 -0.2 14.1
1.1 1.1 -0.3 1.4 -1.1 13.4
1.4 0.7 -0.3 1.4 -2.1 13.6
10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) -8.90 -18.13 -5.0
11 -10.09 -18.00 -4.9
13
(1)
14
(1)
Q1 -2.11 -4.49 -5.1
Q2 -1.64 -2.20 -2.4 2012
Q3 -0.42 -3.36 -3.5
Q4 -1.37 -3.44 -3.2
Q1
(1)
Q2
(1)
2013 (1) Q3 0.60 -1.42 -1.5
Q4
(1)
-1.40 -8.73 -2.3
0.93 -7.28 -1.7
-1.46 -3.07 -3.4
-0.50 -2.30 -2.5 2013
-0.04 -1.93 -1.8
10 Financial variables General gov. budget (PLN bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -111 -7.9 -5.2 54.8
11 -77 -5.0 -2.3 56.4
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-61 -3.7 -1.1 57.2
-64 -3.7 -0.9 57.1
10 Interest rates & bonds Policy rate (%) 3-month rate (%) 2-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) (2) Interest rate swaps 2-year swap (%) 5-year swap (%) 10-year swap (%) (2) FX rates EURPLN USDPLN
(2)
11 4.50 4.99 4.87 5.34 5.91 408 4.76 4.82 4.97 4.46 3.44
13
(1)
14
(1)
Q1 4.50 4.94 4.60 4.94 5.54 373 4.84 4.88 4.96 4.15 3.10
Q2 4.75 5.13 4.67 4.73 5.15 355 4.73 4.65 4.75 4.22 3.35
Q3 4.75 4.92 4.05 4.19 4.68 325 4.25 4.24 4.38 4.11 3.20
Q4 4.25 4.11 3.11 3.21 3.73 243 3.37 3.38 3.59 4.07 3.08
Q1
(1)
Q2
(1)
2013 (1) Q3 3.00 3.30 3.60 3.80 4.30 290 3.80 3.95 4.05 4.20 3.11
Q4
(1)
3.50 3.95 4.80 5.52 6.07 311 4.88 5.48 5.64 3.96 2.96
3.00 3.30 3.70 4.10 4.40 310 3.90 4.10 4.15 4.07 3.06
3.00 3.30 3.90 4.25 4.55 265 4.00 4.40 4.55 4.10 3.28
3.25 3.60 3.40 3.65 4.12 260 3.50 3.65 3.80 4.10 3.08
3.25 3.50 3.50 3.70 4.20 270 3.60 3.70 3.85 4.17 3.09
3.00 3.30 3.70 4.10 4.40 310 3.90 4.10 4.15 4.07 3.06
Source: BNP Paribas
47
Hungary: More rate cuts ahead

No need for an IMF/EU financial aid deal Hungarys successful USD bond issue in February 2013 confirms there is no need for an IMF/EU financial aid deal. The absence of a precautionary backstop facility does not seem to bother financial markets. However, it may put off investors in the real economy, preventing a faster rebound in capital spending and, in turn, keeping Hungarys growth potential very low. In 2012, GDP fell 1.6% and we expect a further fall of 0.4% this year. Nevertheless, we forecast a gradual recovery in activity from Q2. We forecast stronger external demand to lead the rebound, but we also expect a rise in household real disposable income to support a pickup in personal consumption by H2 2013. The increase in real incomes will primarily be driven by lower inflation, mainly thanks to Januarys 10% cut in energy prices. As a result of business uncertainty about the medium-term economic outlook, we forecast investment to remain weak this year. Inflation has already fallen sharply after Januarys cut in energy prices. While policymakers claim that a widening of the negative output gap will support a decline in underlying inflation, too, we remain sceptical. In our view, the collapse in potential growth since 2008 means that the negative output gap is small and thus inflation remains a risk. However, as the government is considering further cuts in administered prices in 2013 and 2014 (an election year), inflation is likely to remain around the central banks 3% target over the forecast period. As inflation is falling, we expect the NBH, under the leadership of Gyrgy Matolcsy (former Economy Minister) from March, to deliver further monetary easing. We forecast the main policy rate to be cut to 4.00% by the summer. However, we doubt this will provide a strong boost to the economy, as the credit crunch continues.
Rise in real incomes to help consumption
Lower administered prices to cut inflation
NBH will continue the easing cycle
Chart 1: Pickup in sentiment yet to be reflected in activity
Chart 2: Consumers are retrenching sharply
Chart 3: Inflation slowing on cuts in energy price
Chart 4: More rate cuts ahead
48
Hungary: Economic and financial forecasts

Year
10 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 1.3 -3.9 -3.3 4.0 -9.1 3.3 14.2 12.7 10.6 1.7 -0.5 0.4 -0.2 -3.5 0.7 6.5 5.3 5.9 -1.7 -2.1 -2.0 0.5 -3.7 -1.5 2.0 0.2 -1.7 Year 10 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 4.9 3.0 0.0 1.5 -2.3 11.2 3.9 2.7 0.8 5.2 1.2 10.9 5.7 5.1 1.7 4.7 4.3 10.9 Year (1) 12 6.24 1.60 1.6 Year (1) 12 -784 -2.8 1.7 77.7 Year 10 Interest rates & bonds (2) Policy rate (%) 3-month rate (%) 3-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) Interest rate swaps (2) 3-year swap (%) 5-year swap (%) 10-year swap (%) FX rates (2) EURHUF USDHUF 5.75 5.85 7.85 7.99 8.09 513 6.80 7.05 7.28 278 208 7.00 7.24 9.21 9.79 9.90 807 7.37 7.40 7.55 315 243 5.75 5.75 5.73 6.01 6.23 493 5.11 5.16 5.49 291 220 4.00 4.10 4.75 5.50 6.15 485 5.00 5.25 5.40 285 214 4.00 4.10 5.10 6.10 6.65 510 6.30 6.80 6.80 275 220 7.00 7.25 8.87 9.08 9.21 740 7.21 7.14 7.36 294 220 7.00 7.20 7.67 7.92 8.02 642 6.61 6.53 6.71 286 226 11 12 13
(1)
2012
13
(1)
11
12
14 -
(1)
Q1 -1.0
Q2 -0.6 -1.7 -1.6 -1.6 0.8 -3.0 -2.9 4.6 1.7 -0.6 2012
Q3 -0.4 -1.7 -3.2 -4.1 -0.1 -1.7 -1.2 2.4 -0.3 -0.8
Q4 -0.9 -2.7 -2.1 -1.4 1.7 -5.6 -0.8 -1.1 -1.0 -5.4
Q1
(1)
Q2
(1)
2013 (1) Q3 0.3 -0.2 0.3 0.8 0.0 -1.3 -0.4 2.7 1.9 -0.6
Q4
(1)
-0.1 -1.5 -0.9 -0.6 0.3 -2.6 -1.1 0.3 -1.4 -1.8
0.2 -0.8 -0.7 -0.2 -0.1 -2.4 -0.3 0.9 0.1 -1.3
0.4 0.8 0.9 0.7 -0.5 2.2 -0.6 6.4 4.7 2.4
-0.4 -0.1 0.2 -0.1 -1.0 -0.6 2.6 1.3 -0.3
1.4 1.0 0.7 0.0 2.8 0.0 7.1 6.3 2.0
-0.6 -1.4 -0.8 -0.6 -4.6 -1.0 2.2 0.2 0.1
11
12
13
(1)
14
(1)
Q1 5.6 5.1 1.6 4.4 3.9 11.7
Q2 5.5 4.9 1.8 4.3 4.8 10.9 2012
Q3 6.1 5.2 2.1 4.9 4.9 10.4
Q4 5.4 5.0 1.5 5.0 3.8 10.7
Q1
(1)
Q2
(1)
2013 (1) Q3 2.8 3.1 -0.1 7.3 3.7 10.5
Q4
(1)
3.0 3.3 -0.2 5.4 1.7 11.1
3.3 3.4 0.3 5.2 0.4 11.0
3.6 3.8 -0.6 4.2 0.4 12.2
3.0 3.2 -0.2 5.3 1.9 11.1
2.6 2.9 0.0 5.0 0.9 10.7
10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) 3.21 1.03 1.1
11 3.36 0.91 0.9
13
(1)
14
(1)
Q1 1.75 -0.02 -0.1
Q2 1.91 0.48 2.0 2012
Q3 1.77 0.78 3.0
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 1.78 1.15 4.3
Q4
(1)
6.41 3.51 3.5
6.37 2.84 2.7
0.81 0.36 1.3
1.77 0.90 4.0
1.86 1.46 5.8 2013
1.01 0.00 0.0
10 Financial variables General gov. budget (HUF bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -1185 -4.5 -0.3 81.8
11 1546 5.5 9.8 81.4
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-778 -2.6 1.0 76.7
-822 -2.7 0.6 75.2
14
(1)
Q1
Q2
Q3
Q4 5.75 5.75 5.73 6.01 6.23 493 5.11 5.16 5.49 291 220
Q1
(1)
Q2
(1)
2013 (1) Q3 4.00 4.10 4.80 5.55 6.30 490 5.00 5.30 5.55 299 221
Q4
(1)
6.50 6.61 6.71 6.84 7.36 593 6.15 6.18 6.58 285 221
5.00 5.10 5.20 5.60 6.40 525 4.75 4.90 5.65 305 229
4.50 4.60 5.00 5.70 6.25 475 5.05 5.20 5.50 295 219
4.00 4.10 4.75 5.50 6.15 485 5.00 5.25 5.40 285 214
Source: BNP Paribas
49
Czech Republic: Disinflation risk

Economy is bottoming out at a very low level Domestic demand will continue to shrink Leading indicators suggest the Czech economy has been bottoming out in Q1 2013. However, the economy will continue to contract in year-on-year terms for much of the year and, after the 1.1% drop in 2012, we expect GDP to fall by 0.4% in 2013. The recovery hopes, as in most other Central European economies, are premised on stronger growth in Germany later this year. The outlook for domestic demand is extremely poor. As the labour market will continue to weaken for most of the year and fiscal policy remains tight, we are particularly concerned about the outlook for personal consumption for the next two to three quarters, at least. In Q1 2013, headline inflation has slowed below 2% y/y, while monetary-policy relevant inflation (which excludes indirect tax changes) is hovering around 1.0% y/y well below the CNBs target of 2%. Despite another round of tax hikes in 2013, we do not expect inflation to pick up this year. The absence of demand points to a further decline in underlying inflation, while lower food and fuel inflation will also help to limit the rise in prices this year. In fact, the weakness in personal consumption points to the re-emergence of deflationary risks if not for headline inflation then certainly for the core (or monetary-policy relevant) inflation measures. FX intervention will remain on policymakers agenda in coming months, especially if the koruna remains firm, supported by rising trade surpluses. On our estimates, the EURCZK needs to rise to be around 26.00 for inflation to rise towards the CNB target over the medium term.
More disinflation ahead, despite higher taxes
FX intervention remains on the policy agenda
Chart 1: GDP is falling, pulled by domestic demand
Chart 2: Contributions to GDP (pp y/y)
Chart 3: Deflation risk re-emerging
Chart 4: FX rate not helping to reduce deflation risk
50
Czech Republic: Economic and financial forecasts

10 Components of growth GDP (% q/q) GDP Final domestic demand Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 2.3 0.7 0.9 0.5 0.7 1.2 15.1 15.3 10.2 11 1.9 -0.4 0.7 -2.5 -0.7 0.3 9.7 7.0 6.7 Year 12 -1.2 -2.4 -3.5 -0.9 -1.5 -0.4 4.1 2.1 -1.0 Year 12 3.3 0.8 -1.1 2.7 1.5 6.8 Year 12 5.81 -3.72 -2.4 Year (1) 12 -127 -3.3 -1.9 44.4 Year 12 0.05 0.50 0.52 0.81 1.86 55 0.70 0.96 1.51 25.05 18.99 2012 13
(1)
14
(1)
Q1 -0.5 -0.4 -1.7 -2.7 -2.3 0.9 -0.8 6.4 3.7 3.0
Q2 -0.6 -1.1 -1.8 -3.3 -1.9 1.1 -0.2 4.2 3.1 -1.4 2012
Q3 -0.4 -1.5 -2.9 -3.9 -0.4 -3.0 -1.7 4.3 0.3 -1.7
Q4 -0.2 -1.7 -3.3 -4.0 0.8 -5.0 1.2 1.4 1.2 -4.1
Q1
(1)
Q2
(1)
2013 (1) Q3 0.4 0.5 -1.0 -0.8 0.3 -2.3 -0.1 2.8 1.6 -0.1
Q4
(1)
0.0 -1.0 -1.0 0.4 -1.9 -0.1 3.0 1.6 0.0
1.9 1.2 1.3 -0.1 1.9 0.3 5.8 5.1 3.6
0.0 -1.2 -1.1 -1.1 0.6 -2.6 -0.3 1.3 0.2 -1.3
0.3 -0.3 -1.1 -1.0 0.6 -2.4 -0.2 2.7 1.3 -0.5
0.5 1.2 -0.7 -1.2 -0.1 -0.5 0.2 5.0 3.5 2.1
10 Inflation & labour CPI Core CPI Employment Wages ULC Unemployment rate (%) 1.5 0.0 -0.8 2.2 0.4 7.0
11 1.9 0.9 0.2 2.4 1.5 6.7
13 (1) 1.6 0.0 -1.6 2.0 -0.3 7.0
14 (1) 1.6 0.1 0.0 2.1 -1.0 6.7
Q1 3.8 1.1 -0.5 3.4 1.0 7.1
Q2 3.5 1.0 -1.0 2.3 1.3 6.5 2012
Q3 3.4 1.0 -1.1 1.5 1.0 6.6
Q4 2.4 0.1 -1.7 3.7 2.8 7.0
Q1 (1) 1.7 0.1 -2.2 2.5 0.1 7.4
2013 Q2 (1) Q3 (1) 1.7 0.1 -1.4 1.9 0.0 6.7 1.4 0.0 -0.9 1.7 0.3 6.7
Q4 (1) 1.5 -0.1 -1.7 1.7 -1.4 7.1
10 External trade Trade balance (EUR bn) Current account (EUR bn) Current account (% of GDP) 2.11 -5.92 -3.9
11 3.65 -4.24 -2.7
13
(1)
14
(1)
Q1 2.09 0.69 1.7
Q2 1.34 -1.02 -2.8 2012
Q3 1.36 -1.93 -5.1
Q4 1.02 -1.45 -3.8
Q1
(1)
Q2
(1)
2013 (1) Q3 1.67 -0.88 -2.4
Q4
(1)
6.60 -2.43 -1.6
8.11 -1.58 -0.9
1.86 0.43 1.1
1.72 -0.81 -2.3 2013
1.35 -1.17 -3.1
10 Financial variables General gov. budget (CZK bn) General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -181 -4.8 -3.4 37.8
11 -125 -3.3 -1.9 40.8
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-107 -2.8 -1.4 46.5
-100 -2.5 -1.0 47.4
10 Interest rates & bonds Policy rate (%) 3-month rate (%) 2-year bond (%) 5-year bond (%) 10-year bond (%) Spread over Bund (bp) (2) Interest rate swaps 2-year swap (%) 5-year swap (%) 10-year swap (%) (2) FX rates EURCZK USDCZK
(2)
11 0.75 1.17 1.76 2.50 3.59 176 1.40 1.79 2.29 25.55 19.73
13
(1)
14
(1)
Q1 0.75 1.24 1.72 2.54 3.55 174 1.45 1.72 2.20 24.79 18.56
Q2 0.50 1.08 0.94 1.86 3.04 144 1.37 1.58 2.01 25.52 20.12
Q3 0.50 0.82 0.50 1.21 2.38 95 1.01 1.20 1.71 25.12 19.51
Q4 0.05 0.50 0.52 0.81 1.86 55 0.70 0.96 1.51 25.05 18.99
Q1
(1)
Q2
(1)
2013 (1) Q3 0.05 0.25 0.40 1.10 2.05 65 0.85 1.15 1.75 26.00 19.26
Q4
(1)
0.75 1.22 1.82 3.18 3.95 99 1.95 2.43 2.90 25.00 18.67
0.05 0.25 0.50 1.25 1.80 50 0.90 1.35 1.90 26.20 19.70
0.05 0.25 1.00 1.50 2.80 90 0.95 1.25 1.95 25.00 20.00
0.05 0.25 0.20 0.65 2.07 55 0.60 0.80 1.40 25.60 19.25
0.05 0.25 0.25 0.80 2.10 60 0.70 0.90 1.55 25.25 18.70
0.05 0.25 0.50 1.25 1.80 50 0.90 1.35 1.90 26.20 19.70
Source: BNP Paribas
51
Turkey: End of rebalancing

Domestic demand to strengthen due to loose policy Growth is set to pick up markedly in 2013 from Q4 2012s low level. The CBRTs loose monetary stance has started to be reflected in domestic activity with an improvement in consumer confidence, PMIs and credit growth. Overall, we expect GDP growth to accelerate from 2.5% in 2012 to 4.5% in 2013. After narrowing to 5.9% of GDP in 2012 as a result of last years slowdown in economic activity, we expect the current account deficit to rewiden to 6.8% of GDP this year on the back of a recovery in domestic demand, rising energy prices and a decline in net gold exports. Public finances are likely to remain strong as faster growth boosts tax revenues and because of the governments privatisation programme. We forecast the budget deficit to stay close to 2% of GDP this year and expect the public debt-to-GDP ratio to remain on a declining trend. Inflation target is unlikely to be met Tax hikes on tobacco added 0.8pp to headline inflation in January and food inflation is likely to rise back towards a more normal level in 2013. In addition, the possibility of additional administered price increases and their second-round effects, accompanied by a loose policy stance, suggest that it will remain difficult for the CBRT to meet its inflation target of 5% in 2013. We expect the inflation rate still to be close to 7% y/y at the end of the year with risks tilted to the upside. The CBRT is keeping a close eye on the real effective exchange rate and if it rises further due to Turkeys persistent inflation differential the CBRT may step in to restrain the currency. The bank is likely to continue to keep rates low as long as capital inflows remain strong. Nevertheless, rising inflationary pressures and the current account deficit could cast doubt on the effectiveness of the CBRTs policies later in the year.
Chart 2: Credit growth and money market rates (%)
60 12 ISE o/n rate (RHS) 10 8 6 Consumer credit growth (wk/wk, 13 wk annualised) Jan Mar May 11 11 11 Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar 11 11 11 12 12 12 12 12 12 13 13 4 2 0
Playing the currency wars game
Chart 1: PMI
65 60 55 50 45 40 35 30 25 20
Jun 05 Jan 06 Aug Mar Oct May Dec 06 07 07 08 08 Jul 09 Feb Sep Apr 10 10 11 Nov Jun 11 12 Jan 13
New export orders PMI
50 40 30 20 10
New orders
Source: Markit
Source: CBRT, ISE, TEB Research
Chart 3: Core inflation (saar, 3-MMA)

12% C ore-H 10% 8% 6% 4% 2% 0% Jan 10 May 10 S ep 10 Jan 11 May 11 S ep 11 Jan 12 May 12 S ep 12 Jan 13 C ore-I
Chart 4: Real effective exchange rate (2003=100)

140 130 120 110 100 90 80 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Ja n 09 Ja n 10 Ja n 11 Ja n 12 Ja n 13 1 .5 % a p p re cia tio n tre n d p e r annum 2% a p p re cia tio n tre n d
Source: CBRT, TEB Research
Source: CBRT, TEB Research
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akr / Emre Tekmen Global Outlook
52
Turkey: Economic and financial forecasts

10 Components of growth GDP Private consumption Fixed investment Exports Imports 9.2 6.7 30.5 3.4 20.7 8.5 7.8 18.5 6.4 10.9 2.5 -0.2 -4.1 12.6 -3.0 Year 10 Inflation & labour CPI CPI (2) Core CPI
(2) (3)
11
Year 12 (1)
2012 13 (1) 4.5 3.8 7.2 2.7 5.6 14 (1) 4.0 4.1 6.5 2.8 5.7 Q1 3.4 -0.1 1.4 12.3 -6.1 Q2 3.0 -1.0 -7.2 20.9 -3.7 2012 13
(1)
Q3 1.6 -0.5 -7.6 11.9 -2.4
Q4 (1) 2.0 0.6 -2.5 6.3 0.0
Q1 (1) 4.4 3.9 9.5 1.6 6.4
2013 Q2 (1) Q3 (1) 4.0 3.7 6.6 2.2 5.8 4.8 4.2 6.9 3.7 5.7
Q4 (1) 4.6 3.6 6.1 3.0 4.5
11 6.5 10.4 8.1 9.9
12 8.9 6.2 5.8 9.2 Year
14
(1)
Q1 10.5 10.4 7.9 9.1
Q2 9.4 8.9 7.4 8.9 2012
Q3 9.0 9.2 6.7 9.4
Q4 6.8 6.2 5.8 9.5
Q1
(1)
Q2
(1)
2013 (1) Q3 7.6 7.2 6.0 9.0
Q4
(1)
8.6 6.4 3.0 11.9
7.3 7.0 6.0 9.1
5.9 6.0 5.8 8.8
7.2 7.1 6.0 9.4
7.4 7.8 5.9 9.2
6.8 7.0 6.0 9.0
Unemployment rate (%)
10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) -71.7 -45.4 -6.2
11 -105.9 -75.1 -9.7
12 -84.0 -46.9 -5.9 Year
13
(1)
14
(1)
Q1 -20.6 -16.4 -
Q2 -22.5 -14.5 2012
Q3 -21.0 -8.1 -
Q4 -20.0 -7.9 -
Q1
(1)
Q2
(1)
2013 (1) Q3 -25.8 -11.9 -
Q4
(1)
99.0 -60.6 -6.8
108.6 -67.2 -7.0
-23.3 -18.6 -
-25.4 -16.2 2013
-24.5 -14.0 -
10 Financial variables General gov. budget (% GDP) Primary budget (% GDP) General gov. debt (% GDP) -3.6 0.8 42.9
11 -1.4 1.9 39.9
12 -2.0 1.4 37.2 Year 12 5.50 5.55 5.94 6.16 6.64 1.78 2.35
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-2.2 1.1 35.9
-2.8 0.3 35.4
10 Interest rates and bonds (2) Policy rate (%) CBRT's average cost of funding 3-month rate (%) 2-year bond (%) 10-year bond (%) FX rates (2) USDTRY EURTRY 6.50 6.50 6.34 7.13 8.61 1.54 2.14
11 5.75 7.87 10.60 11.04 10.02 1.89 2.44
13 (1) 5.50 6.00 6.00 6.00 6.80 1.80 2.40
14 (1) 5.50 7.00 7.25 6.60 7.10 1.88 2.36
Q1 5.75 8.14 9.53 9.43 9.69 1.77 2.37
Q2 5.75 9.14 9.49 8.86 8.80 1.81 2.27
Q3 5.75 6.14 6.19 7.56 8.26 1.78 2.31
Q4 5.50 5.55 5.94 6.16 6.64 1.78 2.35
Q1 (1) 5.50 5.50 5.10 5.68 6.86 1.79 2.38
2013 Q2 (1) Q3 (1) 5.50 5.50 5.30 5.50 7.00 1.78 2.40 5.50 5.50 5.50 5.70 6.80 1.79 2.41
Q4 (1) 5.50 6.00 6.00 6.00 6.80 1.80 2.40
Footnotes: (1) Forecast (2) End period (3) Seasonally adjusted Figures are year-on-year percentage changes unless otherwise indicated
Source: TEB Research
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akr / Emre Tekmen Global Outlook
53
Saudi Arabia: Slipping on oil

Lower oil output will be a drag on growth Oil output fell markedly towards the end of 2012 from a historical high of 10 mbbl/day in mid-2012 and remained at around 9 mbbl/day early in 2013. We expect Saudi oil production to remain around its current level during the remainder of the year. Nevertheless, the strong base effect could result in a 3-4% contraction in oil output, on average, from 2012, pulling down total GDP growth from last years 6.8% pace. However, the current acceleration in credit growth, strong PMI readings and a rise in government spending suggest non-oil GDP is likely to remain strong at around 6%. As a result, we forecast GDP growth will reach 4.0% in 2013. CPI inflation has been hovering around 4% since mid-2012, restrained by a fall in rent and food inflation. Rent inflation has been on a declining path since June 2012 and fell to 5.1% y/y in January. The completion of new houses is likely to keep housing inflation in check and we expect CPI inflation still to be around 4% at the end of 2013. Saudi Arabia has regained its position as a swing oil producer and aims to support global prices. Lower production is weighing on oil revenues. Nevertheless, despite a forecast decline of around 5% of GDP for both the fiscal and the current account surplus, we forecast that they will remain high at around 9% and 20% of GDP, respectively, this year. If non-OPEC oil supply increases further, Saudi Arabia may see additional production cuts as necessary to maintain stability in the oil market. Nevertheless, Saudi Arabia will continue to deliver fiscal surpluses even if oil production falls to 7 mbbl/day, assuming the Brent oil price stays around its current level.
Inflation to remain in check
Delivering surpluses despite lower oil output
Counterbalancing the rise in non-OPEC oil supply
Chart 1: Oil production (y/y)

20% 15% 10% 5% 0% Non-OP E C -5% -10% Jan 12 Mar 12 M ay 12 Jul 12 S ep 12 Nov 12 Jan 13 Total supply S audi A rabia
Saudi Arabia: Economic forecasts

2010
Real GDP (% y/y) CPI (% y/y) CPI (% y/y) (2) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest rate (%) (2) USDSAR (2)
(1) Forecast (2) End period
2011
8.5 5.0 5.3 23.7 11.6 11.9 5.4 2.00 3.75
2012
(1)
2013
(1)
2014
(1)
4.7 5.3 5.4 12.7 4.4 5.0 8.5 2.00 3.75
6.8 4.5 3.9 25.3 13.5 13.8 5.0 2.00 3.75
4.0 4.0 4.0 20.3 8.5 8.7 4.7 2.00 3.75
4.8 4.1 4.1 16.3 6.4 6.6 4.6 2.00 3.75
Source: IEA, TEB Researc
Chart 2: PMI
65
Chart 3: Credit and deposit growth (y/y, 3mma)

40% 30% P riva te s e c to r c re d it
60
20% T o ta l d e p o s i ts 10% 0% -1 0 % -2 0 % Jan 07
55
50 Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Nov 07
Sep 08
J ul 0 9
M ay 10
Mar 11
Jan 12
Nov 12
Source: Markit, TEB Research
Source: Haver, TEB Research
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akir / Emre Tekmen Global Outlook March 2013 www.GlobalMarkets.bnpparibas.com
54
UAE: So far so good

Non-oil activity Comment remains strong Credit growth remains subdued in the United Arab Emirates, possibly held back by the high level of banks non-performing loans. Moreover, recently proposed regulations to tighten local bank lending could further restrain credit growth in 2013. However, the PMI remains above the 50 expansion threshold on the back of new orders and export growth, and non-oil GDP will be supported by growth in trade, retail sales and tourism. Accordingly, we forecast non-oil GDP growth to rise from 3.0% in 2012 to 4.0% in 2013. However, as the increase in oil output will be limited, we expect total GDP growth to slow from 3.9% in 2012 to 3.0% y/y in 2013. While annual food inflation remains on a downward trend on a three-month moving average basis, rent deflation eased at the end of last year due to base effects. In fact, on a monthly basis, rent inflation returned to positive territory in January showing that the property market has bottomed out. We see inflation ending this year around 1.8% y/y as rents recover. Despite an expansionary fiscal stance, high oil prices will ensure that the UAE will continue to deliver surpluses on its fiscal account in 2013 of around 7% of GDP. The breakeven oil price for the fiscal balance is around USD 89/bbl. A forecast current account surplus of around 8.5% of GDP (USD 32bn) this year will result in a further build-up of external assets. In 2012, Dubais government-related entities (GREs) met their obligations and were successful in their restructuring. In addition, issuance of USD 1.25bn of sukuk (debt structured to comply with Islamic law) in January has lengthened the maturity profile of the governments debt. However, a significant volume of GRE debt maturing remains a risk for the outlook.
UAE: Economic forecasts
2010 Real GDP (% y/y)
Abu Dhabi
Deflationary pressures persist
Surpluses everywhere
GRE debt remains a threat
Chart 1: Rent CPI (% 3m/3m annualised)

10 5 0 -5 -10 -15 -20 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13
2011 4.2 0.9 0.4 9.1 8.0 8.8 18.0 1.00 3.67
2012 (1) 3.9 0.7 0.6 9.4 6.6 7.3 16.8 1.00 3.67
2013 (1) 3.0 1.2 1.8 8.5 6.5 7.2 16.5 1.00 3.67
2014 (1) 3.1 1.9 1.9 6.4 4.8 5.5 16.6 1.00 3.67
1.3 0.9 1.7 2.6 -1.3 -0.4 22.3 1.00 3.67
CPI (% y/y) CPI (% y/y) (2) Current account (% GDP)
UAE
Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2)
Dubai
Interest rate (%) (2) USDAED (2)

Chart 2: GRE debt (USD bn)

1 4 0 .0 1 2 0 .0 1 0 0 .0 8 0 .0 6 0 .0 4 0 .0 2 0 .0 0 .0 2013 2014 2015 L a te r T o ta l T o ta l Ab u D h ab i T o ta l D ubai
Chart 3: 5-year CDS spreads

1000 900 800 700 600 500 400 300 200 100 0 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 A bu Dhabi Dubai
Source: IMF
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akir / Nazli Karamollaoglu Global Outlook
55
Qatar: Inflation set to rise

Non-hydrocarbon sector to support growth The governments substantial investment projects and accommodative monetary conditions are boosting the non-hydrocarbon sector and keeping the domestic economy strong. Robust credit growth is being driven by increased loans to the public sector. Overall, we expect the non-oil sector, supported by government spending, to drive economic growth in 2013. However, due to a slowdown in hydrocarbon output, GDP growth is likely to ease to around 4.0% in 2013 from 6.3% in 2012. Nevertheless, fiscal and external balances are expected to remain strong on the back of hydrocarbon revenues. After declining for about three years in annual terms, rental prices have been putting upward pressure on inflation since October 2012. This, combined with robust domestic demand and increased fiscal spending, is likely to increase inflationary pressures further. We expect inflation to maintain its upward trend and reach 5.5% at the end of 2013. Qatar has made significant progress towards developing its local debt market despite large fiscal surpluses. Outstanding corporate and sovereign bond issuances amount to USD 47bn and the government reportedly has plans to issue three and five-year domestic bonds in 2013. Efforts to improve the debt market will make liquidity management easier and reduce exposure to foreign market instability. Although we believe the exchange rate peg to the USD will remain intact during our forecast period, the current loose monetary policy stance endangers price stability as the slack in the housing sector seems to have been taken up. In addition, Australias expansion of its LNG projects may present a threat to Qatars LNG-related revenues in the long run.
Qatar: Economic forecasts
2010 Real GDP (% y/y)
Oil
Rents pushing up inflation
Financial markets deepening
Risks to price stability
Chart 1: Real GDP growth (%)

16 14 12 10 8 6 4 2 0 2000-10 average 2011 2012 BNPP forecast Real GDP Non-oil
2011 13.0 1.9 2.1 30.0 8.6 10.1 34.0 4.50 3.64
2012
(1)
2013
(1)
2014
(1)
16.7 -2.4 0.4 18.4 2.9 4.1 33.8 5.55 3.64
6.3 1.9 2.6 28.7 5.1 5.9 36.0 4.50 3.64
4.0 4.1 5.5 26.2 3.6 5.3 34.3 4.50 3.64
4.3 5.2 5.0 21.0 1.9 3.5 32.4 4.50 3.64
CPI (% y/y) CPI (% y/y) (2) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Interest rate (%) (2) USDQAR (2)
Source: Haver, TEB Research
Chart 2: Inflation (% y/y)

10 5 0 -5 -10 -15
5% 45%
Chart 3: Credit growth (% y/y)

Food CPI
35%
25%
Rent
15%
-20 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Source: Haver
Source: Haver
IMPORTANT DISCLOSURE: This analysis has been produced by Turk Ekonomi Bank A.S. (TEB) and has been reviewed, but not amended, by BNP Paribas. BNP Paribas is an indirect shareholder of TEB. This analysis does not contain investment research recommendations. Selim akir / Tuba Talinli Global Outlook
56
Australia: Temporary relief

Emerging from domestic stagnation The Australian domestic economy remains weak. Mining and other forms of business investment are set to contract in the near term. However, the effects of stronger conditions in China and previous RBA rate cuts should start to have a positive impact on the Australian economy from the middle of the year. Australian commodity prices have already reacted to the pickup in China, which should stabilise mining investment spending, although this is likely to be temporary. Housing investment has already begun to respond to lower interest rates, which should provide some offset to the weakness of business investment in early 2013. However, dwelling approvals have edged down recently suggesting the housing revival will run out of steam in the second half of the year. A recent rise in consumer confidence implies consumer spending will also recover from a soft patch in late 2012. Export volume growth should remain robust through much of the year on the back of Chinas recovery. However, by the end of the year China is likely to be slowing again and the risks to the Chinese economy in 2014 are skewed to the downside. This will probably pull commodity prices down again and, with them, Australian growth. Weak domestic growth has hurt the labour market. The growth in employment and number of hours worked has been lacklustre and the degree of spare capacity is likely to be greater than implied by the unemployment rate. A marked slowdown in wage and unit labour cost growth supports this assessment and also highlights the lack of inflationary pressure in the economy. Underlying inflation is in the lower half of the RBAs 2-3% target range and should remain there for some time. Low inflation, a strong AUD and the current weakness of domestic demand should prompt a final 25bp rate cut from the RBA in the near term. Policy is then likely to remain on hold for the rest of the year.
Chart 2: Weak business investment
Upturn from mid-2013 to be short-lived
Spare capacity will keep inflation low
One more rate cut to come
Chart 1: Mining investment decline
Chart 3: Commodity bounce
Chart 4: Muted wage pressures
Dominic Bryant Global Outlook
57
Australia: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q) GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) 2.6 3.5 3.0 3.6 4.4 0.7 5.7 14.2 4.4 9.8 2.4 4.2 3.3 2.5 7.2 0.4 -0.8 10.8 -1.0 11.0 3.6 4.6 3.2 3.2 8.4 0.0 6.3 6.8 3.2 10.3 Year 10 Inflation & labour CPI Underlying CPI Employment Unemployment rate (%) 2.9 2.8 2.2 5.2 3.3 2.7 1.8 5.1 1.8 2.3 1.0 5.2 Year 10 External trade Trade balance (AUD bn) Current account (AUD bn) Current account (% GDP) 14.0 -40.2 -3.0 18.7 -32.8 -2.3 -15.9 -54.4 -3.7 Year 10 Financial variables General gov. budget (AUD bn) General gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP)
(2)
2012 13
(1)
2013 Q3 0.6 3.1 3.7 3.0 2.9 5.7 0.5 4.7 3.8 4.3 10.3 Q4 0.6 3.1 3.5 2.8 1.6 5.9 -0.3 6.2 3.2 1.6 10.1 Q1
(1)
11
12
14 -
(1)
Q1 1.2 4.4 5.5 3.6 4.0 10.4 0.4 7.2 11.5 4.7 9.9
Q2 0.6 3.7 5.9 3.5 4.4 11.9 -0.7 7.2 9.2 2.3 10.7 2012
Q2
(1)
Q3
(1)
Q4
(1)
0.5 2.4 1.4 1.8 1.0 1.0 -0.4 7.7 0.8 1.1 10.3
0.6 2.3 0.7 1.9 0.2 -1.3 -0.1 7.8 1.4 2.0 10.5 2013
0.7 2.4 1.3 2.6 1.8 -1.4 -0.5 8.3 3.2 -0.2 10.2
1.0 2.7 2.0 3.2 2.6 -0.7 -0.1 6.3 4.9 2.5 10.1
2.5 1.3 2.4 1.4 -0.6 -0.3 7.5 2.6 1.3 10.3
2.7 2.7 3.1 2.2 2.4 -0.1 4.8 6.6 2.5 9.3
11
12
13
(1)
14
(1)
Q1 1.6 2.3 0.8 5.2
Q2 1.2 2.1 1.1 5.1 2012
Q3 2.0 2.4 1.0 5.3
Q4 2.2 2.3 1.1 5.3
Q1
(1)
Q2
(1)
Q3
(1)
Q4
(1)
2.4 2.2 0.9 5.6
2.4 2.6 1.7 5.5
2.8 2.3 0.9 5.5
2.7 2.3 0.7 5.7 2013
2.0 2.1 1.0 5.7
2.2 2.2 1.2 5.7
11
12
13 (1) -2.0 -32.4 -2.1
14 (1) -24.3 -49.1 -3.1
Q1 -2.7 -13.5 -3.7
Q2 -2.2 -11.2 -3.0 2012
Q3 -5.4 -15.0 -4.0
Q4 -5.6 -14.7 -3.9
Q1 (1) -2.2 -10.2 -2.7
Q2 (1) -0.3 -8.1 -2.1
Q3 (1) 0.6 -6.3 -1.6
Q4 (1) -0.2 -7.8 -2.0
2013 Q3 Q4 Q1 Q2 2013 Q3 3.25 3.87 2.51 2.63 3.05 1.04 Q4 3.00 3.24 2.65 2.84 3.29 1.04 Q1 (1) 3.00 3.25 2.95 3.15 3.60 1.04 Q2 (1) 2.75 3.00 2.75 3.00 3.55 1.06 Q3 (1) 2.75 3.00 2.85 3.15 3.70 1.08 Q4 (1) 2.75 3.00 2.95 3.35 3.95 1.10 Q3 Q4 -
11 -63.8 -4.4 -4.0 24.2
12
(1)
13
(1)
14
(1)
Q1 -
Q2 2012
-64.6 -4.8 -4.6 20.5
-35.4 -2.4 -2.0 26.7 Year
-23.8 -1.5 -1.0 27.3
-12.1 -0.8 -0.3 26.8
10 Interest & FX rates Cash rate (%) 3-month rate (%) 2-year rate (%) 5-year rate (%) 10-year rate (%) AUDUSD
(2)
11 4.25 4.65 3.17 3.32 3.79 1.02
12 3.00 3.24 2.65 2.84 3.29 1.04
13 (1) 2.75 3.00 2.95 3.35 3.95 1.10
14 (1) 3.25 3.50 3.55 3.90 4.45 0.95
Q1 4.25 3.24 3.47 3.56 4.08 1.03
Q2 3.50 3.17 2.46 2.60 3.06 1.02
4.75 4.95 5.11 5.34 5.52 1.02
Source: BNP Paribas
Dominic Bryant Global Outlook
58
India: Slow progress

FY2013 GDP growth on course to be sub-5%... under 5% GDP growth continued to surprise to the downside in late 2012, sliding to 4.5% y/y in Q3 FY2013, its slowest since the depths of the global financial crisis. Viewed by output, the slowdown was broad-based with the sub-par monsoon crimping agricultural output (up just 1.1% y/y), industrial production up a lacklustre 3.7% and services output growth fading to 6.1%, its slowest in more than a decade. Viewed by expenditure, falling exports and muted government spending were the culprits. PMI surveys and other high-frequency indicators, such as railway traffic and non-food credit, suggest growth bottomed out around the turn of the year but progress will be slow-going. Little improvement in year-on-year growth should be seen in Q4 FY2013 leaving GDP growth for FY2013 as a whole on course to be just 4.9%. Modest rate cuts by the RBI, a lower real INR and firmer export markets should coalesce to produce a pickup to 6.1% in FY2014. The governments re-commitment to fiscal consolidation since P. Chidambaram was reappointed Finance Minister may also lift spirits and result in a recovery of depressed private capex, previously crowded out. With potential growth still close to 7% by our estimates, GDP growth below 5% is producing a sizeable negative output gap. Core inflation pressures are subsiding rapidly as a result. Core WPI inflation has tumbled from 7.2% y/y last August to 4.5% y/y in January. As slack persists, core inflation should continue sliding next year, falling to around 3%. However, there is structural pressure on food prices allied to a reduction of fuel subsidies. This means the fall in the headline WPI and CPI, which give more weight to food, will be less impressive. The current account deficit is still wide and question marks hang over the tax and spending assumptions underpinning the governments FY2014 4.8%-of-GDP budget deficit target. Thus, the RBIs room for rate cuts will remain relatively modest despite tumbling core inflation. We target a 25bp rate cut at Marchs policy review with just one further 25bp move in Q1 FY2014.
Chart 2: Well below trend
FY2014 should be better, but still sub-par
RBIs room for rate cuts remains cramped
Chart 1: Plumbing the depths
Source: BNP Paribas
Chart 3: Slacking off

10 B N P P f 'c a s t 8 N o n - fo o d m a n u f a c tu r e d W P I ( % y /y ) 1 .8 2 .7
Chart 4: External constraints

3 2 1 C urre nt a c c ou nt a s a % of G D P , F Y B NP P f'c as t
0 .9
0
4 0
-1 -2 -3
- 0 .9
- 1 .8
-4
-2 N o n - a g r ic u ltu ra l o u tp u t g a p ( % , la g g e d 2 q u a r te r s , R H S ) 05 06 07 08 09 10 11 12 13 14 15 - 2 .7
-5 -6 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-4
- 3 .6
Source: BNP Paribas
Richard Iley Global Outlook
59
India: Economic and financial forecasts

Fiscal Year 10 Components of growth GDP Agriculture & allied activities - Agriculture & forestry & fishing - Mining & quarrying Industry - Manufacturing - Electricity, gas & water supply - Construction Services - Trade, hotel, transport & comm. - FIRE & business - Community, social & personal Industrial production Private consumption Public consumption Fixed investment Exports Imports Memo: Non-agricultural GDP Nominal GDP Nominal GDP (INR trn) 9.8 14.7 64.6 9.5 20.3 77.7 6.7 15.1 89.4 5.4 11.7 99.9 6.3 13.1 113.0 5.9 12.2 24.5 5.9 12.3 23.2 2012 14
(1)
2012 13
(1)
11 9.3 7.3 7.7 4.8 9.6 10.3 4.6 9.3 9.7 12.1 10.4 4.2 9.1 8.4 6.2 13.0 22.7 17.1
12 6.3 3.0 3.6 -0.8 3.8 2.6 6.9 5.5 8.4 7.6 11.3 6.1 2.6 7.1 7.6 4.7 16.7 15.6
14
(1)
Q1 5.3 2.0 1.7 4.3 1.7 -0.3 4.9 4.8 7.9 7.0 10.0 7.1 0.7 6.1 4.1 3.6 18.1 2.0
Q2 5.5 2.5 2.9 0.1 3.9 0.2 6.3 10.9 7.0 4.0 10.8 7.9 0.8 2.0 8.3 -4.6 7.2 3.9
Q3 5.3 1.3 1.2 1.9 2.8 0.8 3.4 6.7 7.2 5.5 9.4 7.5 1.1 2.0 8.0 -1.0 5.2 13.8 5.8 11.3 23.1
Q4 4.5 0.8 1.1 -1.4 3.7 2.5 4.5 5.8 6.1 5.1 7.9 5.4 2.3 4.6 1.9 6.0 -2.1 -0.3 5.2 12.3 26.3
Q1
(1)
Q2
(1)
2013 (1) Q3 5.8 4.7 5.3 1.7 6.2 5.7 7.9 6.7 5.8 6.6 6.5 3.2 5.5 7.9 -1.9 9.0 7.4 6.4 5.8 13.5 26.3
Q4
(1)
8.4 1.7 1.0 6.3 8.6 9.7 6.3 7.0 10.5 10.3 9.4 12.0 8.9 7.2 14.3 6.8 -4.8 -2.2
4.9 1.6 2.0 -1.2 3.8 1.7 5.4 7.6 6.3 4.6 9.3 5.8 1.7 3.5 4.8 1.9 0.1 7.7
6.1 4.8 5.1 3.0 6.0 5.7 6.7 6.2 6.5 7.1 7.2 4.4 5.5 7.1 2.4 6.9 12.0 12.8
4.6 1.9 2.9 -4.7 4.7 3.1 7.3 7.0 5.2 3.9 9.0 3.0 2.6 5.5 2.3 7.1 -7.3 14.4 4.8 11.2 27.2
5.0 3.1 3.6 -0.3 4.4 4.0 5.7 4.7 5.8 6.8 6.1 3.1 3.7 8.1 -2.1 6.7 3.9 12.5 5.3 12.4 26.1
6.5 5.5 5.6 4.6 6.5 6.2 7.4 6.7 6.8 7.2 7.7 4.6 6.2 5.7 4.4 5.4 17.5 16.0 6.6 13.0 29.8
10 GDP 9.8
11
Calendar Year (1) 13 12 5.1 5.5
Q1 5.3
Q2 5.5 2012
Q3 5.3
Q4 4.5
Q1
(1)
Q2
(1)
2013 (1) Q3 5.8
Q4
(1)
7.3
7.2
4.6
5.0
6.5
Calendar Year 10 Inflation WPI WPI (food) WPI (ex. food & energy) CPI - industrial workers 9.6 13.9 7.0 12.0 9.5 7.9 9.2 8.9 7.5 8.2 6.1 9.3 5.5 7.1 3.6 9.0 5.8 8.8 3.5 8.5 7.5 5.3 6.6 7.2 11 12 13
(1)
14
(1)
Q1
Q2 7.5 9.1 5.5 10.1 2012
Q3 7.9 9.1 6.7 9.8
Q4 7.2 9.0 5.5 10.1
Q1
(1)
Q2
(1)
2013 (1) Q3 5.0 6.0 3.2 8.4
Q4
(1)
6.1 8.9 4.2 10.7
5.5 6.0 3.9 9.1 2013
5.3 7.5 3.3 8.0
Fiscal Year 10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) -118.4 -38.4 -2.8 -127.3 -48.1 -2.8 -189.8 -78.2 -4.2 -198.9 -86.8 -4.7 -217.2 -88.1 -4.2 11 12 13
(1)
14
(1)
Q1
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 2013
Q3 -
Q4 -
Fiscal Year 10 Financial variables Central gov. budget (INR trn) Central gov. budget (% GDP) Primary budget (% GDP) (2) Gross central gov. debt (% GDP) -4.2 -6.5 -3.2 49.2 -3.7 -4.8 -1.8 45.7 -5.2 -5.7 -2.7 46.5 -5.2 -5.2 -2.0 47.3 -5.7 -5.0 -1.9 47.3 11 12 13
(1)
14
(1)
Q1
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
Calendar Year 10 Interest and FX rates Repo rate (%) 3-month rate (%) USDINR
(2)
11 8.50 9.55 53.07
12 8.00 8.70 55.00
13
(1)
14
(1)
Q1 8.50 10.71 50.00
Q2 8.00 9.21 55.80
Q3 8.00 8.59 52.86
Q4 8.00 8.70 55.00
Q1
(1)
Q2
(1)
2013 (1) Q3 7.25 7.75 53.50
Q4
(1)
6.25 8.59 44.70
7.25 7.75 53.00
7.25 7.75 55.50
7.50 8.70 55.00
7.25 8.00 54.00
7.25 7.75 53.00
Source: BNP Paribas
Richard Iley Global Outlook
60
South Korea: Low inflation

The upturn in 2013 will be modest South Korean growth was below trend in four of the last five quarters while domestic demand actually fell in H2 2012. While we expect an upturn during 2013, growth will remain lacklustre relative to the 4-5% pace regularly seen prior to the global financial crisis. In part, this reflects the downward trend in Koreas potential growth rate, which we peg at 3% currently. However, our forecast for 2013 growth of only 2.7% also reflects a weak end to 2012, the limited recovery in export markets, the stronger KRW and tighter monetary conditions than the 2.75% policy rate suggests. Korean exports should pick up, but continued weakness in Europe and a stronger KRW will keep the export growth rate well below its 2002-11 average of 11%. This will cap the recovery in machinery and equipment investment, which tends to track exports. Consumer spending has held up better than other components of domestic demand, despite some recent softening in employment. Better conditions in financial markets are probably a factor, with consumer confidence closely correlated with moves in the KOSPI. Hence, spending should stay solid given our forecast for some improvement in global economic conditions. Following the election of President Park Geun-hye in December 2012, fiscal policy may add to the domestic upturn. Inflation remains well below the BoKs 2.5-3.5% target range. Spare capacity in the economy and the KRWs rise since mid-2012 will keep core inflation subdued over the forecast period. In the absence of a strong trend in commodity prices, headline inflation is likely to remain below the BoKs 3.0% target for the foreseeable future. The BoK has resisted easing policy significantly despite slow growth and low inflation, cutting only twice in the past year. Recent comments suggest it will remain on hold for the foreseeable future. However, the risk remains for rates to head lower later this year or in 2014, given continued problems in Europe and the Chinese credit bubble.
Chart 2: Export recovery hindered
30.0 South Korean exports (% y/y)
Soft demand and rise in Comment KRW will crimp exports
Inflation below target for foreseeable future
but the BoK remains resistant to rate cuts
Chart 1: Domestic weakness
20.0
10.0
0.0 BNPP forecast REER -20.0 Export market growth Actual Model estimate -30.0 Q100 Q102 Q104 Q106 Q108 Q110 Q112 Q114
-10.0
Chart 3: Big miss
Chart 4: Not as low as it looks
Dominic Bryant / Mole Hau Global Outlook
61
South Korea: Economic and financial forecasts

10 Components of growth GDP (% q/q) GDP Domestic demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Net trade (cont. to growth, y/y) Industrial production Memo: Nominal GDP (KRW trn) Nominal GDP 1173 10.2 1237 5.4 1271 2.7 Year 10 Inflation & labour CPI Core CPI (ex. food & energy) Employment Unemployment rate (%) (2) 2.9 1.7 1.4 3.4 4.0 2.2 1.7 3.1 2.2 1.7 1.8 3.0 Year 10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) 40.1 29.3 2.9 31.0 26.2 2.4 39.4 43.8 3.8 Year 12 (1) 14.7 1.2 0.7 34.5 Year 10 Interest and FX rates 7-day repo rate (%) 3-month rate (%) 10-year rate (%) USDKRW
(2)
11 3.6 1.4 2.3 2.1 -0.8 0.7 9.5 6.5 1.9 6.9
Year (1) 12 2.1 1.3 1.8 3.6 -0.9 -0.1 3.7 2.3 0.9 2.0
2012 13
(1)
14 -
(1)
Q1 0.9 2.9 3.0 1.6 4.7 5.0 -0.2 4.6 4.4 0.5 2.8 318 4.4
Q2 0.3 2.3 0.6 1.1 3.6 -2.0 0.1 3.2 0.5 1.4 2.3 317 3.4 2012
Q3 0.1 1.5 0.5 1.6 3.1 -3.1 -0.3 2.8 1.1 1.0 -0.1 317 2.4
Q4 0.4 1.6 1.1 2.9 3.1 -3.6 -0.1 4.0 3.1 0.7 3.0 319 0.9
Q1
(1)
Q2
(1)
2013 (1) Q3 1.1 3.2 2.4 3.3 3.3 0.0 0.3 5.7 5.9 0.5 7.0 335 5.6
Q4
(1)
0.9 1.6 0.0 2.6 2.7 -6.7 0.0 3.8 1.5 1.3 0.9 325 2.2
0.8 2.1 1.5 3.0 4.0 -3.1 0.0 5.8 5.2 0.8 2.6 329 4.0
1.0 3.8 3.6 3.5 4.3 3.3 0.0 8.9 9.4 0.6 5.7 339 6.3
6.3 4.7 4.4 2.9 6.2 1.4 14.7 17.3 0.1 16.6
2.7 1.9 3.1 3.6 -1.7 0.1 6.0 5.5 0.8 4.0 1328 4.5
3.8 3.1 2.8 3.2 3.7 0.2 8.6 8.6 0.8 8.0 1407 5.9
11
12
13 (1) 1.9 1.9 0.7 3.2
14 (1) 2.1 1.8 0.5 3.6
Q1 3.0 2.1 2.0 3.5
Q2 2.4 1.6 1.8 3.3 2012
Q3 1.6 1.4 2.1 3.1
Q4 1.7 1.5 1.4 3.0
Q1 (1) 1.6 1.6 1.0 3.2
2013 Q2 (1) Q3 (1) 1.9 2.0 0.7 3.3 2.0 2.0 0.4 3.2
Q4 (1) 2.0 1.9 0.7 3.2
11
12
13
(1)
14
(1)
Q1 7.7 8.7 3.1
Q2 5.8 8.4 3.1 2012
Q3 12.3 12.6 4.5
Q4 13.7 14.1 4.7
Q1
(1)
Q2
(1)
2013 (1) Q3 11.5 12.3 3.9
Q4
(1)
45.8 50.0 4.0
33.2 37.3 2.9
12.5 13.6 4.6
11.4 12.6 4.1 2013
10.4 11.3 3.5
10 Financial variables General gov. budget (KRW trn) General gov. budget (% of GDP) General gov. primary budget (% of GDP) (2) Gross gov. debt (% of GDP) 19.8 1.7 0.7 34.3
11 22.5 1.8 1.0 36.1
13 (1) 11.3 0.9 0.0 33.0
14 (1) 19.1 1.4 0.5 30.7
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
11 3.25 3.71 3.77 1,152
12 2.75 3.00 3.16 1,064
13 (1) 2.75 3.05 3.30 1,050
14 (1) 2.75 3.05 3.75 1,120
Q1 3.25 3.69 3.94 1,120
Q2 3.25 3.56 3.63 1,145
Q3 3.00 3.20 3.00 1,111
Q4 2.75 3.00 3.15 1,064
Q1 (1) 2.75 3.00 2.95 1,100
2013 Q2 (1) Q3 (1) 2.75 3.05 3.10 1,080 2.75 3.05 3.20 1,060
Q4 (1) 2.75 3.05 3.30 1,050
2.50 3.03 4.47 1,126
Source: BNP Paribas
62
Indonesia: Risky business

Key export Comment prices stabilising at low levels Indonesia has been hit by an adverse terms-of-trade shock. Prices of coal and palm oil, its two key primary exports, have fallen sharply from their 2011 highs. The negative impact on the terms of trade led to almost a 3%-of-GDP deterioration in the current account in 2012. Lags in export contracts mean the improvement that the current cyclical upswing of the Chinese economy is producing may not be visible until around the middle of the year. Investment growth moderated in H2 2012 as the commodity boom tapered off and the weakness of capital goods suggest it is unlikely to have picked up significantly since then. The high level of inventories is also a downside risk to growth. But robust consumption growth, supported by recent minimum wage rises, leads us to forecast that domestic demand will remain firm. As the year progresses, the strength of the Chinese upturn should filter through into exports and investment in H2 2013, before moderating somewhat again in 2014 as Chinese economy softens. The worst for Indonesias trade performance is probably over. But still-low commodity prices globally, solid domestic demand and substantial domestic fuel subsidies are among the factors that will probably keep the current account in deficit and Indonesia unusually reliant on hot-money inflows. Thus, the IDR remains vulnerable to swings in global risk appetite. Inflation remains within BIs target of 4.51%, which is probably a key reason why the central bank has not raised interest rates thus far. The impact of recent floods should prove temporary, but wage rises, hikes in power tariffs and a weak IDR are a recipe for headline inflation running towards the upper end of BIs target by the end of the year. But, with an adjustment of subsidised fuel prices unlikely before next years parliamentary election, Indonesias overly slack monetary policy will be normalised only slowly, if at all, with hikes in the deposit facility rate the favoured tool.
Indonesia: Economic forecasts
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Inflation CPI Core CPI 5.1 4.0 5.4 4.6 4.3 4.3 5.3 4.6 4.6 4.8 6.2 5.3 4.7 0.3 8.5 0.1 15.3 17.3 6.5 5.7 4.7 3.2 8.8 0.4 13.6 13.3 6.2 6.2 5.3 1.2 9.8 1.8 2.0 6.6 6.0 5.4 5.1 2.1 7.0 -0.4 7.0 7.8 5.9 5.7 5.0 4.0 7.8 0.0 8.3 8.0 2011 2012 2013
(1)
Pickup in growth in H2 2013 is likely to be short-lived
IDR at risk of weakening further
Normalisation of monetary policy to proceed slowly
Chart 1: Export prices stabilising
2014
(1)
Chart 2: Investment boom tapering off
External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Financial variables Gen. gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest & FX rates Interest rate (%) Official benchmark rate (%) USDIDR
(2) (2)
30.6 5.1 0.7
34.8 1.7 0.2
8.4 -24.2 -2.7
10.9 -21.8 -2.4
18.7 -17.1 -1.6
-0.7 0.6 26.0
-1.1 0.1 24.4
-1.8 -0.6 23.8
-1.7 -0.5 22.9
-1.6 -0.3 21.7
6.64 6.50 8,991
5.27 6.00 9,069
5.02 5.75 9,700
5.90 5.75 9,750
6.30 5.75 9,700
Source: BNP Paribas
Richard Iley / Mole Hau Global Outlook
63
Taiwan
Taiwan: Economic and financial forecasts
Year 10 Components of growth GDP (% q/q) GDP Domestic demand ex. stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth, y/y) Exports Imports Industrial production 10.8 6.8 4.0 0.4 21.5 2.2 25.6 27.7 26.9 4.1 1.8 3.1 2.2 -2.7 -0.9 4.4 -0.5 5.0 1.7 0.1 1.5 0.4 -4.7 0.0 0.1 -1.9 -0.1 Year 10 Inflation CPI Core CPI (ex. food & energy) Employment Unemployment rate (%) 1.0 0.5 2.1 5.2 1.4 0.8 2.1 4.4 1.8 0.6 1.4 4.2 Year 10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% of GDP) 28.7 42.0 9.6 27.6 40.9 8.9 30.8 49.7 10.4 Year (1) 12 -2.5 -1.8 41.7 Year 10 Interest and FX rates Discount rate (%) 3-month rate (%) 10-year bond yield (%) USDTWD
(2)
2012 13
(1)
11
12
14 -
(1)
Q1 1.2 0.2 -0.9 1.8 1.7 -10.5 -0.7 -3.5 -7.5 -5.8
Q2 0.6 0.5 -0.4 1.6 2.0 -8.0 -0.3 -2.3 -3.9 -0.9 2012
Q3 1.0 1.6 0.4 0.9 -0.6 -0.8 -0.1 2.6 1.9 2.5
Q4 1.8 4.6 1.2 1.6 -1.5 1.6 1.2 4.0 2.4 4.5
Q1
(1)
Q2
(1)
2013 (1) Q3 1.6 5.2 4.0 3.4 2.1 7.3 -0.1 8.6 7.8 8.1
Q4
(1)
0.0 3.3 2.0 1.8 -0.3 4.0 0.7 5.8 7.0 4.0
1.8 4.6 2.5 2.5 0.4 4.3 0.1 8.3 6.7 6.7
1.3 4.7 4.7 3.5 2.3 10.4 -0.4 9.9 11.3 8.7
4.5 3.3 2.8 1.1 6.5 0.1 8.2 8.2 6.9
4.0 3.5 3.1 2.0 5.7 -0.1 8.6 9.3 5.8
11
12
13
(1)
14
(1)
Q1 1.3 0.4 1.7 4.2
Q2 1.5 0.6 1.5 4.2 2012
Q3 2.7 0.6 1.2 4.3
Q4 1.7 0.8 1.2 4.2
Q1
(1)
Q2
(1)
2013 (1) Q3 0.1 0.6 1.4 4.1
Q4
(1)
1.0 0.7 1.3 4.1
1.2 0.8 1.4 4.1
1.8 0.9 1.2 4.1
1.1 0.7 1.2 4.1 2013
1.0 0.7 1.6 4.0
11
12
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 2013
Q3 -
Q4 -
30.1 44.5 8.9
21.8 37.0 6.9
10 Financial variables Central gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP) -3.3 -2.5 38.3
11 -2.2 -1.5 40.1
13
(1)
14
(1)
Q1 -
Q2 2012
Q3 -
Q4 -
Q1 -
Q2 -
Q3 -
Q4 -
-1.6 -0.7 40.2
-0.8 0.2 38.2
11 1.88 0.80 1.29 30.3
12 1.88 0.86 1.17 29.0
13
(1)
14
(1)
Q1 1.88 0.81 1.28 29.5
Q2 1.88 0.82 1.24 29.9
Q3 1.88 0.84 1.19 29.3
Q4 1.88 0.86 1.17 29.0
Q1
(1)
Q2
(1)
2013 (1) Q3 2.13 1.01 1.40 29.0
Q4
(1)
1.63 0.63 1.55 29.2
2.25 1.08 1.55 29.0
2.38 1.16 1.90 28.5
1.88 0.86 1.30 29.8
2.00 0.93 1.30 29.5
2.25 1.08 1.55 29.0
Source: BNP Paribas
64
Other Asia
Thailand: Economic forecasts
2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDTHB
(2)
Malaysia: Economic forecasts

2013
(1)
2011 0.1 3.8 3.4 -1.6 -0.1 41.7 3.25 31.52
2012 6.4 3.0 -0.2 -3.1 -2.6 44.2 2.75 30.58
2014
(1)
2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDMYR (2)
(1) Forecast (2) End Period
2011 5.1 3.2 11.0 -6.9 -5.3 52.9 3.00 3.17
2012 5.6 1.7 7.5 -3.8 -2.3 53.0 3.00 3.06
2013
(1)
2014
(1)
7.8 3.3 4.1 -0.8 0.1 42.6 2.00 30.01
5.9 4.1 0.1 -3.8 -3.2 46.2 3.50 29.00
4.8 4.2 0.9 -4.1 -3.4 48.8 3.75 30.50
7.2 1.6 11.1 -3.6 -2.2 51.0 2.75 3.08
5.7 1.8 7.1 -4.1 -2.5 53.3 3.00 3.00
5.0 2.8 6.6 -4.2 -2.6 53.5 3.00 3.15
(1) Forecast
(2) End Period
Source: BNP Paribas
Source: BNP Paribas
Singapore: Economic forecasts

2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) USDSGD
(2) (2)
Philippines: Economic forecasts

2013
(1)
2011 5.2 5.2 21.9 7.3 5.8 107.6 1.30
2012 1.4 4.6 21.0 5.2 3.7 106.2 1.22
2014
(1)
2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) Official benchmark rate (%) (2) USDPHP (2)
2011 3.9 4.7 3.1 -0.8 2.1 41.9 4.50 43.79
2012 6.6 3.1 3.0 -1.9 0.2 41.5 3.50 41.01
2013 (1) 2014 (1) 5.9 4.0 2.8 -1.0 1.2 39.5 3.75 39.00 5.2 3.9 2.7 -1.0 1.5 37.7 4.00 38.00
14.8 2.8 24.4 7.3 5.8 101.2 1.28
3.3 3.7 20.8 5.2 3.7 103.3 1.22
4.4 3.6 19.9 4.9 3.6 100.6 1.28
7.6 4.1 4.5 -2.2 1.0 43.5 4.00 43.63
(1) Forecast
(2) End Period
Source: BNP Paribas
Source: BNP Paribas
Vietnam: Economic forecasts

2010 GDP (% y/y) CPI (% y/y) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) (2) USDVND (2)
Hong Kong: Economic forecasts

2013
(1)
2011 6.0 18.7 0.2 -3.2 -1.8 50.4 21,031
2012 5.0 9.1 0.3 -4.6 -3.0 50.4 20,820
2014
(1)
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Net Trade (cont. to growth) Inflation & labour CPI Core CPI Employment Unemployment rate (%) External trade
(1)
2011 4.9 8.6 9.0 2.5 10.1 -1.1 3.7 4.6 -1.0
2012 1.4 5.2 4.0 3.7 9.2 -0.8 1.3 2.5 -2.5
2013
(1)
2014
(1)
6.8 9.2 -4.1 -3.1 -1.8 54.0 19,495
6.0 7.5 -0.9 -3.4 -2.0 50.6
6.2 7.2 -1.1 -3.2 -2.0 50.8
6.8 6.3 6.3 3.4 7.8 2.1 16.8 17.4 0.5
4.4 5.0 4.6 3.4 6.6 0.2 8.2 8.4 0.2
3.3 4.4 3.6 3.9 6.4 0.8 5.4 6.3 -1.2
21,000 21,000
Source: BNP Paribas
2.3 1.1 0.0 4.4
5.3 4.6 2.8 3.5
4.1 4.0 2.5 3.3
4.1 3.9 0.7 3.3
4.8 4.7 1.0 3.4
Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Financial variables
(1)
12.4 15.0 6.6
7.7 12.0 4.8
0.7 4.1 1.6
2.8 7.7 2.7
-1.1 6.7 2.2
Gen. gov. budget (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest & FX rates Interest rate (%) Official benchmark rate (%) USDHKD
(2) (2)
4.5 4.3 34.6
4.1 3.9 33.9
3.2 3.0 33.9
2.4 2.3 29.9
2.0 1.8 30.6
0.28 0.50 7.80
0.38 0.50 7.80
0.40 0.50 7.75
0.40 0.50 7.75
0.50 0.50 7.80
Source: BNP Paribas
Richard Iley / Dominic Bryant / Mole Hau Global Outlook
65
Canada: Losing altitude

Slowing momentum Economic momentum has slowed and unmasked some of the potential vulnerabilities resulting from froth in the housing market and high levels of household debt. Growth in domestic demand has ebbed and, factoring in some additional moderation in external demand and business investment, the economy is expected to decelerate in 2013. Inflation has fallen below the lower bound of the BoCs 2%1pp target. With a persistent output gap, little wage pressure and lacklustre economic growth, there are more downside than upside risks to inflation and we have revised down our forecast for 2013 from 1.9% to just 1.1%. However, we expect a pickup in growth to drive inflation back up to the 2% target in 2014. The governments macroprudential measures implemented over the past few years are working as intended and taking some steam out of housing. Slowing credit growth suggests a risk that household consumption will slow more markedly, although we project only a modest deceleration. Reliance on investment and exports The government is committed to reducing its budget deficit, which means, in the absence of buoyant consumption, the economy will rely heavily on investment and exports for growth. We expect a modest slowing in business investment and net exports in 2013, as factors including the persistent strength of the Canadian dollar and relatively high unit labour costs challenge Canadas global competitiveness. The Bank of Canada has backed away from its tightening bias by stating that rate hikes are now less imminent. Given the recent spate of disappointing data, we expect the BoC to go even further with their rhetoric, but stop short of a rate cut. Indeed, the bar for a rate cut is high, as it would add fuel to the fire they have been trying to cool in the housing market. A sharp correction in the housing market would be required to put rate cuts on the table. We expect the BoC to remain on hold until mid-2014, with risks skewed to a weaker economy and more accommodative policy.
Canada: Economic forecasts
2010 Components of growth Total GDP Dom. demand ex stocks Private consumption Public consumption Fixed investment Stocks (cont. to growth) Exports Imports Industrial production Savings ratio (%) Inflation 3.2 4.9 3.5 4.1 10.8 0.0 6.5 13.6 6.3 4.5 2.6 2.7 2.4 0.3 7.1 0.0 4.6 5.8 3.8 3.8 1.8 1.9 1.9 -0.6 5.3 0.1 1.6 2.9 1.0 4.2 1.4 1.7 2.0 0.5 2.5 0.0 4.0 4.0 2.2 4.1 2.1 1.9 1.9 0.1 4.4 -0.1 8.1 6.4 3.4 3.9 2011 2012
(1)
Soft inflation
BoC is on hold
Chart 1: Domestic demand (% q/q saar)

8 6 4 2 0 -2 -4 -6 -8 -10 Q1 1998 Q1 2001 Q1 2004 Q1 2007 Q1 2010
2013
(1)
2014
(1)
CPI Core CPI Unemployment rate (%) External trade Trade balance (CAD bn)
1.8 1.7 8.0
2.9 1.7 7.5
1.5 1.7 7.3
1.1 1.2 7.2
2.0 2.0 6.9
Chart 2: Housing permits vs starts (thou units)

350 300 250 200 150 100 Jan 00 Permits Starts
-10.8 -50.9 -3.1
0.9 -48.4 -2.8
-12.0 -50.4 -2.8
-13.6 -49.6 -2.6
-14.0 -51.2 -2.5
Current account (CAD bn) Current account (% GDP) Financial variables Fed. gov. budget (CAD bn) Fed. gov. budget (% GDP) Fed. gov. primary budget (% GDP) Gross Fed. gov. debt (% GDP) Interest & FX rates Call rate (%) 10-year bond yield (%) USDCAD
(2) (2)
-34.4 -2.0 -0.2 31.3
-21.7 -1.2 0.5 31.4
-14.4 -0.8 0.8 31.5
-14.3 -0.7 0.9 30.4
-13.3 -0.8 1.0 29.1
1.00 3.13 1.00
1.00 2.13 1.02
1.00 1.69 0.99
1.00 2.45 0.94
1.75 3.00 1.05
Jan 03
Jan 06
Jan 09
Jan 12
Source: BNP Paribas
Bricklin Dwyer Global Outlook
66
Brazil: Enter the (inflation) dragon

Strong, out-ofconsensus view on inflation Looking for an out-of-consensus call? Search no further. We have long warned that inflation will be much higher than people seem to expect. Concerns are shifting from growth drag last year to inflation dragon this year. While fiscal policy is being eased further, the central bank will need to shift from rate cutting in 2012 to monetary policy tightening in 2013, if it really cares about containing inflation. Growth has disappointed. While the consensus first expected 2012 GDP growth to exceed 4%, we had long expected readings closer to 2%. We were wrong. GDP rose by only around 1% last year. Compared to such a poor expansion, growth should do better in 2013, but will remain far from spectacular. Brazil faces supply constraints, amid full employment and infrastructure bottlenecks. Like an old car, Brazil needs a better (supply) engine, not just more (demand) fuel. In these conditions, the economys speed limit has fallen and demand stimulus produces more inflation than growth. The growth-inflation trade-off has worsened. Inflation is a much worse headache than people seem to realise. We see inflation threatening the 6.5% tolerance ceiling, way above the official target of 4.5%. Our inflation forecast has long been the highest on the Street. Rapidly rising wages, stubbornly high services inflation, unanchored expectations none is good for inflation. Tax breaks and the restraint of regulated prices can temporarily lessen headline inflation, but they do not remove underlying pressures. Fiscal policy is turning decisively looser, accounting tricks aside, as the authorities hope tax breaks can curb prices and boost growth. This is raising debt levels with implications for sovereign ratings long term. Credit policies are also expansionary. Thus, monetary policy needs to tighten. We have long argued that inflation will force the central bank to hike rates this year the consensus view is moving our way.
Chart 2: 2013 IPCA inflation forecasts (% Dec/Dec)
7.0
Supply constraints worsen the growthinflation trade-off
Inflation is a worse headache than people think
Ahead: fiscal easing, monetary tightening
Chart 1: Growth-inflation trade-off (%)

6.0 5.5 5.0 4.5 4.0 3.5 3.0 Jan 1 1 Jul 1 1 Jan 1 2 Jul 1 2 Jan 1 3
Co nsensus 201 inflatio n 3
6.5 6.0 5.5 5.0 4.5 4.0 J an 11 M ay 1 1
B N P P fo rec as t
Co nsensus 201 gro wth 3
C o ns ens us fo rec as t (+/- o ne s tandard dev iatio n)
Sep 11
J an 1 2
M ay 12
Sep 1 2
J an 13
Chart 3: IPCA inflation (% y/y)

8.5 7.5 6.5 5.5 4.5 3.5 2.5 1 .5 05 06 07 08 09 1 0 1 1 1 2 1 3 Target flo o r 5 Jan 01 Target centre 1 0 1 5 Target ceiling 20 30 25
Chart 4: Policy interest rate (%)

B NP P fo recast
Jan 03
Jan 05
Jan 07
Jan 09
Jan 1 1
Jan 1 3
Marcelo Carvalho Global Outlook
67
Brazil: Economic and financial forecasts

Components of growth GDP (% q/q SAAR) GDP Demand side Private consumption Public consumption Fixed investment Exports Imports Net exports (cont. to growth) Stocks (cont. to growth) Supply Side Agricultural Industrial Services Industrial production IP (% q/q SAAR) 10 7.5 6.9 4.2 21.3 11.5 35.8 -3.1 1.7 6.3 10.4 5.5 10.5 11 2.7 4.1 1.9 4.7 4.5 9.7 -0.6 -0.4 3.9 1.6 2.7 0.4 Year Inflation & labour IPCA (2) IPCA IPCA Core IGP-M
(2) (2)
Year (1) 12 0.9 3.1 3.2 -4.0 0.5 0.2 0.0 -0.9 -2.3 -0.8 1.7 -2.7 -
2012 13
(1)
14 -
(1)
Q1 0.6 0.8 2.5 3.4 -2.1 6.6 6.3 -0.1 -1.2 -8.5 0.1 1.6 -3.5 -3.3
Q2 1.3 0.5 2.4 3.1 -3.7 -2.5 1.6 -0.6 -0.3 1.7 -2.4 1.5 -4.4 -3.3 2012
Q3 1.5 0.9 3.4 3.2 -5.6 -3.2 -6.4 0.5 -1.1 3.6 -0.9 1.4 -2.3 4.1
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 2.4 3.2 3.8 3.8 3.0 6.2 10.9 -0.7 -
Q4
(1)
2.2 1.4 3.9 3.1 -4.5 2.1 0.4 0.2 -1.0 -7.5 0.1 2.2 -1.0 -1.3
5.2 2.6 3.6 3.5 -0.5 4.9 6.4 -0.3 8.0 1.7 2.8 2.0 8.4 -
2.8 3.0 3.6 3.3 1.4 5.9 5.5 0.0
2.8 3.3 3.6 3.5 3.8 5.8 5.7 -0.1 -
3.0 3.7 3.5 1.9 5.7 7.1 -0.1 5.1 3.1 2.9 4.1 -
3.5 4.6 2.6 4.1 6.3 8.4 -0.2 5.2 3.8 3.2 3.7 -
1.4 3.3 2.9 4.3 6.0
2.4 3.3 3.1 4.4 4.3
11.1 3.7 2.6 5.4 2.7
10 5.0 5.9 5.5 11.3 3.5 6.7 9.1
11 6.6 6.5 6.6 5.1 2.1 6.0 9.4
12 5.4 5.8 5.8 7.8 2.2 5.5 9.9 Year
13
(1)
14
(1)
Q1 5.8 5.2 6.2 3.2 1.8 5.8 10.0
Q2 5.0 4.9 5.8 5.1 2.1 5.9 10.6 2012
Q3 5.2 5.3 5.7 8.1 1.7 5.4 8.2
Q4 5.6 5.8 5.8 7.8 3.0 4.9 10.6
Q1
(1)
Q2
(1)
2013 (1) Q3 6.7 6.8 7.0 5.3 2.6 5.8 11.0
Q4
(1)
6.5 6.7 7.1 5.9 2.2 5.7 10.6
6.2 6.5 6.4 5.9 1.6 5.6 9.8
6.2 6.4 6.6 8.4 2.7 5.7 9.7
6.4 6.7 6.9 7.3 2.1 6.0 10.5
6.7 6.7 7.1 5.9 1.6 5.2 11.1
Employment Unemployment rate (%) Wages
External trade (USD bn) Trade balance Current account Current account (% GDP) FDI (% GDP)
10 20.1 -47.3 -2.2 2.3
11 29.8 -52.5 -2.1 2.7
12 19.4 -54.2 -2.6 3.1 Year 12 -2.5 2.4 58.6 Year
13
(1)
14
(1)
Q1 2.4 -12.1 -2.3 2.8
Q2 4.6 -13.2 -2.5 2.8 2012
Q3 8.6 -8.9 -1.7 3.4
Q4 3.7 -20.1 -3.8 3.3
Q1
(1)
Q2
(1)
2013 (1) Q3 4.1 -16.2 -2.9 2.7
Q4
(1)
12.0 -76.3 -3.4 2.7
5.0 -90.4 -3.7 2.2
-1.9 -19.9 -3.5 2.7
5.4 -18.1 -3.2 2.7
4.4 -22.1 -3.9 2.6
Financial variables General gov. budget (% GDP) Primary budget (% GDP) (2) Gross gov. debt (% GDP)
10 -2.5 2.8 54.7
11 -2.6 3.1 54.2
13
(1)
14
(1)
Q1 56.2
Q2 57.3 2012
Q3 58.5
Q4 58.6
Q1
(1)
Q2 -
(1)
2013 (1) Q3 61.0
Q4
(1)
-4.3 0.0 61.7
-4.3 0.0 62.7
61.7
59.5
60.3
Interest rates & FX rates SELIC rate (%) 1-year swap rate (%) USDBRL EURBRL
(2)
10 10.75 12.00 1.66 2.28
11 11.00 10.00 1.87 2.31
12 7.25 7.10 2.05 2.71
13
(1)
14
(1)
Q1 9.75 9.00 1.83 2.44
Q2 8.50 7.60 2.01 2.54
Q3 7.50 7.50 2.03 2.61
Q4 7.25 7.10 2.05 2.71
Q1
(1)
Q2
(1)
2013 (1) Q3 9.00 9.50 2.02 2.73
Q4
(1)
9.00 9.60 2.05 2.73
9.00 10.20 2.15 2.69
7.25 7.10 1.95 2.59
8.25 8.80 1.98 2.67
9.00 9.60 2.05 2.73
Source: BNP Paribas
Marcelo Carvalho Global Outlook
68
Mexico: Gearing up for a good year

Growth to be modest in H1 2013 before accelerating in H2 Domestic demand to be the main growth driver Despite a weak finish to 2012, the economy expanded 3.9% last year, in line with our long-held forecast. We maintain our growth projections of 3.9% and 4.1% for 2013 and 2014, respectively. We believe the growth dynamics this year will be a mirror image of last years. We expect weaker growth in H1 to be followed by an acceleration in H2 because of stronger growth in the US. Domestic demand will become a more powerful catalyst for growth, thanks to buoyant consumption and investment supported by ample credit availability and a more accommodative monetary policy. Inflation fell rapidly from 4.8% y/y in September to 3.6% in February, on a sharp fall in food prices and collapse in telecommunication tariffs, and is likely to drop to the 3.0% target in Q3. The central bank sees the decline in inflation as a vindication of its monetary policy and in March cut the policy rate for the first time since 2009 by 50bp to 4.0%. However, we expect inflation to remain above the 3.0% target in 2013-2014 and to end this year at 3.6%. The central bank has never achieved the target. The government is set to comply with its zero-deficit requirement (excluding investment in state-owned oil company Pemex). This follows some deviation and small deficits temporarily allowed because of the global financial crisis. The new administration has made significant headway in driving its ambitious reform agenda. A successful implementation of deep fiscal and energy sector reforms, which are still the governments focus this year, would have a significantly positive impact on Mexican growth and foreign capital inflows. Weaker US growth than we forecast and a large drop in oil prices represent the main downside risks to growth.
Chart 2: Manufacturing surveys, US and Mexico (3mma)
65 60 55 50 45 MX IMEF manuf ac turing
Banxico used its window of opportunity to cut 50bp
Reforms could have substantial positive effects
Chart 1: Domestic demand growth (% y/y)

10 5 0 -5 Priv ate c ons umption -10 -15 Q1 2004 Domes tic demand Inv es tment
40 35 30 Jan 06 Jan 07 Jan 08 Jan 09 US PMI manuf ac turing Jan 10 Jan 11 Jan 12 Jan 13
Q1 2006
Q1 2008
Q1 2010
Q1 2012
Source: INEGI, BNP Paribas
Chart 3: Headline and core inflation (% y/y)

7.0 6.0 5.0 4.0 3.0 2.0 1.0 H1 Jan 2004 H1 Jul 2005 H1 Jan 2007 H1 Jul 2008 H1 Jan 2010 H1 Jul 2011 H1 Jan 2013 Core Headline
Chart 4: Capital account portfolio inflows (USD bn)

20 15 Fix ed inc ome 10 5 0 -5 -10 Q1 2004 Equity
Q1 2006
Q1 2008
Q1 2010
Q1 2012
Source: INEGI, BNP Paribas
Source: Banxico, BNP Paribas
Nader Nazmi Global Outlook
69
Mexico: Economic and financial forecasts

Year 10 Components of growth GDP (% q/q SAAR) GDP (% y/y) Demand side Private consumption Public consumption Fixed investment Exports Imports Supply side Agriculture Industry Services Industrial production (% y/y) Industrial production (% q/q SAAR) 5.3 4.9 2.3 0.3 21.6 19.6 2.9 6.1 5.0 6.1 11 3.9 4.5 0.6 8.9 6.7 6.7 -3.0 4.0 4.3 4.0 Year 12 3.4 3.8 3.4 4.3 5.2 4.1 3.6 2.9 4.6 5.0 Year 12 0.2 -9.2 -0.7 Year (1) 12 -2.6 -1.2 31.9 Year 12 4.50 4.28 12.85 16.94 12 3.9 3.8 1.5 5.9 6.7 6.0 3.8 3.6 4.0 3.6 13
(1)
2012 14
(1)
Q1 5.4 4.9 4.2 3.2 8.6 5.1 6.7 6.4 4.9 4.8 4.9 5.8
Q2 3.3 4.4 3.4 2.2 6.2 6.4 4.8 11.0 4.1 4.3 4.1 1.8 2012
Q3 1.8 3.3 3.6 1.0 3.9 9.8 4.5 1.6 3.6 3.2 3.6 2.2
Q4 1.1 2.7 3.9 0.9 4.8 6.3 8.3 1.5 2.7 4.6 2.7 -2.9
Q1
(1)
Q2
(1)
2013 (1) Q3 4.0 3.9 4.1 0.9 4.8 6.6 6.0 -9.7 3.9 3.9 3.9 4.4
Q4
(1)
3.9 4.3 1.3 5.1 8.4 6.8 3.0 4.3 3.4 4.3 -
4.1 3.9 1.4 6.4 9.7 5.0 1.9 4.8 3.7 4.8 -
6.4 3.0 4.2 1.8 4.7 9.5 6.3 6.1 2.5 3.6 2.5 0.2
4.5 3.9 4.9 1.2 5.2 8.6 7.1 -1.7 5.2 4.1 5.2 3.4
3.6 4.7 4.2 1.3 5.8 9.2 5.4 9.4 3.7 3.8 3.7 4.4
10 Inflation & labour CPI (% y/y) (2) CPI (% y/y) CPI core (% y/y)
(2)
11 4.2 4.4 3.6 3.8 5.3
13
(1)
14
(1)
Q1 3.9 3.7 3.3 4.5 5.0
Q2 3.9 4.3 3.5 4.6 4.8 2012
Q3 4.6 4.8 3.6 4.7 5.1
Q4 4.1 3.6 2.9 4.7 4.9
Q1
(1)
Q2
(1)
2013 (1) Q3 3.1 3.0 2.7 4.8 5.5
Q4
(1)
3.4 3.7 3.3 4.7 5.2
3.6 3.8 3.5 4.6 5.3
3.5 3.8 3.0 4.6 5.2
3.7 3.4 2.9 4.7 5.1
3.3 3.5 3.0 4.8 5.0
Employment (% y/y) Unemployment rate (%)
10 External trade Trade balance (USD bn) Current account (USD bn) Current account (% GDP) -3.0 -1.9 -0.1
11 -1.5 -9.7 -0.7
13
(1)
14
(1)
Q1 1.8 -1.4 -0.7
Q2 1.5 -0.5 -0.8 2012
Q3 -1.2 -0.9 -0.4
Q4 -2.0 -6.5 -0.7
Q1
(1)
Q2
(1)
2013 (1) Q3 0.8 1.1 -0.7
Q4
(1)
1.0 -8.3 -0.8
-0.9 -4.9 -0.3
-2.8 -5.9 -1.0
2.2 0.1 -0.9
0.8 -3.7 -0.5
10 Financial variables
(2)
11 -1.8 -0.7 30.6
13
(1)
14
(1)
Q1 -2.4 -1.1 32.2
Q2 -2.7 -1.7 32.1 2012
Q3 -1.8 -0.6 32.0
Q4
(1)
Q1
(1)
Q2
(1)
2013 (1) Q3 -2.0 -1.0 30.9
Q4
(1)
Public balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP)
-2.5 -1.3 29.8
-1.9 -0.9 30.5
-2.2 -1.0 29.7
-2.5 -1.2 31.9
-1.9 -0.9 31.5
0.5 1.5 31.2
-1.9 -0.9 30.5
10 Interest & FX rates (2) Benchmark overnight rate (%) Cetes 1m USDMXN EURMXN
(1) Forecasts (2) End period
11 4.50 4.32 13.95 15.34
13
(1)
14
(1)
Q1 4.50 4.38 12.81 17.09
Q2 4.50 4.39 13.35 16.94
Q3 4.50 4.25 12.86 16.53
Q4 4.50 4.28 12.85 16.94
Q1
(1)
Q2
(1)
2013 (1) Q3 4.00 3.77 12.30 16.61
Q4
(1)
4.50 4.46 12.36 13.35
4.00 3.77 12.10 16.09
4.00 4.98 12.60 15.75
4.00 3.76 12.60 16.76
4.00 3.77 12.50 16.88
4.00 3.77 12.10 16.09
Source: BNP Paribas
70
Colombia: In search of growth

Growth has been much weaker than expected Growth has been disappointing for several reasons: a lagged impact of a 225bp increase in the policy rate in 2011 to mid-2012; the time the government is taking to meet its spending plans and weaker consumer and business confidence, partly due to deteriorating security conditions. Supply shocks related to guerrilla attacks, work stoppages and protests in the hydrocarbon sector have also had an adverse impact. The full-year data are not yet available but industrial production, retail sales and other high-frequency data suggest that GDP growth slowed sharply to 3.9% or below in 2012. We expect a rebound in growth this year to a near-trend pace of 4.8%, as government spending and supply conditions normalise. Inflation has been benign, falling to the 2.0% floor of the target band in January. The past years substantial decline in inflation reflects the economys spare capacity, lower administered price rises and a favourable base effect. Inflation expectations are anchored to the 3.0% mid-point of the target range. At-bay inflation gives the central bank room to cut the policy rate Emboldened by favourable inflation dynamics, the central bank has lowered the policy rate by 150bp since mid-2012. This has turned monetary policy accommodative with the real policy rate (based on inflation expectations) falling towards zero with plenty more monetary accommodation in the pipeline. A new fiscal policy replaces payroll taxes with corporate income taxes and lowers nonwage labour costs in an effort to encourage a shift from informal to formal employment and improve the fairness and efficiency of taxation. The government and the central bank are trying to reduce appreciation pressure on the COP through the CBs daily purchases of foreign exchange and the finance ministrys USD purchases as part of its asset management strategy.
Chart 1: IP and retail sales (3mma, % y/y)
25 20 15 10 5 0 -5 -10 Industrial produc tion Retail sales
Colombia: Economic forecasts

2010 Real GDP (% y/y) CPI (% y/y) CPI (% y/y)
(2)
2011 5.9 3.4 3.7 5.5 -10.1 -3.0 -3.2 -0.5 37.1 4.75 1,939
2012 (1) 3.9 3.2 3.0 4.8 -12.1 -3.2 -2.2 0.4 36.4 4.25 1,767
2013 (1) 4.8 3.4 3.5 5.3 -13.9 -3.4 -2.6 -0.2 35.3 4.00 1,850
2014 (1) 5.2 3.0 2.9 6.5 -16.1 -3.7 -2.4 -0.2 34.8 4.50 1,790
4.3 2.3 3.2 2.0 -8.9 -3.1 -3.6 0.3

(2)
Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDCOP
(2) (2)
36.5 3.00 1,915
-15 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
(1) Forecast
(2) End period
Source: DANE, BNP Paribas
Source: BNP Paribas
Chart 2: Trade balance, exports and imports

100 % y /y 80 60 40 20 0 -20 -40 Dec 07 Ex ports Dec 08 Dec 09 Dec 10 Dec 11 -500 -1000 Dec 12 Imports Trade balanc e (RHS) 1000 500 0 USDmn 1500
9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1 .0 0.0
Chart 3: Inflation and the target band (% y/y)

H eadline inflatio n
C B target range
C P I ex-fo o d
J an 08
J an 09
J an 10
J an 11
J an 12
J an 13
Source: DANE, BNP Paribas
Source: DANE and BNP Paribas
71
Chile: Politics increasingly the focus

We expect abovepotential growth in H2 2013 Growth has remained exceedingly strong in recent months and real GDP looks to have risen 5.6% in 2012, in line with our forecast. However, as we had expected, the three-monthly (annualised) average growth rate has recently slowed below Chiles 5% potential rate (Chart 1). We continue to expect GDP to rise 4.5% this year with growth likely to return to an above-potential rate in quarter-on-quarter terms in H2 2013 as the global outlook continues to improve. Despite robust growth, inflation has remained very low and ended last year at 1.5% y/y, well below the lower bound of BCChs 2-4% tolerance range (Chart 2). In particular, CLP strength has kept tradable inflation low lately (Chart 3). Inflation rose modestly in January but base effects should keep it subdued in coming months in year-on-year terms until record-tight conditions in the labour market (the unemployment rate is a historical low at 6.1%) and above-potential growth lift core CPI inflation later this year. We expect the inflation rate to rise toward the top of the tolerance range to 3.5% by the end of 2013. Against the backdrop of accelerating inflation, we continue to expect BCCh to start a gradual tightening cycle in H2 2013. We forecast a total of 50bp of rate hikes this year. Politics will increasingly attract attention as Q2 progresses. In advance of Novembers presidential election, candidates for the two major political alliances (centre-left Concertacin and the ruling, centre-right Alianza) will, for the first time, be elected through simultaneous, open primaries on 30 June. However, the political calendar is unlikely to affect the policy mix markedly. Risks for inflation remain skewed to the upside due to record-low jobless rates and strong activity growth. Hence, BCCH could start to hike rates sooner than forecast.
Chile: Economic forecasts
2010 2011 6.0 3.3 4.4 10.8 -3.2 -1.4 1.3 1.8 11.6 5.25 520 2012 (1) 5.6 3.0 1.5 4.2 -9.6 -3.7 0.5 1.0 10.0 5.00 479 2013 (1) 4.5 2.7 3.5 2.0 -15.0 -5.0 -0.4 0.0 9.0 5.50 490 2014 (1) 5.0 3.2 3.0 -2.0 -17.0 -5.0 0.0 0.5 8.5 6.00 505 Real GDP (% y/y) CPI (% y/y) CPI (% y/y) (2) Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDCLP
(2) (2) (2)
Inflation will accelerate later in the year
And BCCh will respond with rate hikes Politics unlikely to influence policy
Inflation risks remain biased to the upside
Chart 1: Monthly GDP proxy (%)

25 20 15 10 5 0 -5 -10 Jan 09 P o tential GDP gro wth rate 3m/3m (saar) 3mma (y/y)
6.1 1.4 3.0 15.8 3.8 2.0 -0.4 0.0 9.0 3.25 468
Jan 10
Jan 11
Jan 12
Jan 13
(1) Forecast
(2) End period
Source: BCCh, Reuters EcoWin Pro, BNP Paribas
Source: BNP Paribas
Chart 2: Headline and core CPI (% y/y)

10 8 6 4 2 0 -2 -4 Jan 00 Headline IP CX1 IP CX B CCh's to lerance range
Chart 3: Tradable and non-tradable prices (% y/y)

12 8 4 0 Tradable -4 -8 Jan 08
Non-tradable
Jan 02
Jan 04
Jan 06
Jan 08
Jan 10
Jan 12
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Source: Ine, Reuters EcoWin Pro, BNP Paribas
Source: Ine, Reuters EcoWin Pro, BNP Paribas
Florence Vazquez Global Outlook
72
Argentina: Rising inflation

Lift from external drivers reduced We still expect real GDP growth to accelerate modestly in 2013 although external drivers have turned less supportive recently. In particular, we have cut our forecast for Brazilian GDP growth in 2013 key for Argentinas industrial sector from 5.5% three months ago to 3.5%. In addition, dry weather has led to the consensus forecast for the 2013s harvest to be lowered. We had not shared the general optimism on the agricultural sectors prospects, so we still expect the economy to grow 3% this year as measured by official GDP figures from Indec. The lift to growth from the expected 15% jump in agricultural ouput will mostly be felt in Q2, when the harvest takes place. As we have cut our commodity price forecasts, we now expect only a modest improvement in the trade surplus and have lowered our forecast for the current account. Nevertheless, the USD supply to the economy will remain ample. Despite a sharp slowdown in growth over the past year, inflation remains a pressing concern. According to private estimates, CPI inflation has risen further in the 25-30% y/y range after having trended up in 2012. The governments policy mix is likely to remain expansionary in advance of Q4s mid-term elections. Hence, price pressures will persist, hardening unions demands in forthcoming wage negotiations. Among the external challenges that Argentina faces, its relationship with the IMF has worsened recently, following the IMFs censure motion on Argentinas failure to provide accurate statistics. The authorities have announced the creation of a new national CPI but it will not be published until 2015. Moreover, we remain sceptical as to the likely accuracy of the new index as the current under-reporting of inflation reflects incorrect inputs rather than the methodology used.
Argentina: Economic forecasts
2010 2011 8.9 9.8 9.5 10.0 -0.3 -0.1 -1.7 0.3 40.2 17.2 4.30 2012 (1) 2.0 10.0 10.8 12.7 2.6 0.4 -2.4 -0.1 41.5 15.4 4.92 2013 (1) 3.0 12.0 12.5 13.7 4.0 1.3 -1.7 -0.7 41.5 20.0 5.55 2014 (1) 2.0 14.0 15.0 9.0 -4.5 -0.9 -2.3 -1.4 41.0 22.0 6.25
We still forecast GDP to grow 3% this year
Supply of USDs will remain ample Wage negotiations are expected to be tough
We remain sceptical about the likely accuracy of a new CPI
Chart 1: Real GDP and forecasts

16 12 8 4 0 -4 -8 -12 -16 -20 -24 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013
Source: Indec, Reuters EcoWin Pro, BNP Paribas
% q/q (saar)
BNPP forecast
Real GDP (% y/y) CPI (% y/y) CPI (% y/y)

(2) (2)(3)
(2)
9.2 10.5 10.9 11.8 3.0 0.8 0.2 1.7

(3)
Trade balance (USD bn)
% y/y
Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDARS
(3) (3)
44.8 11.3 3.98
(1) Forecast (2) Official data (3) End period
Source: BNP Paribas
Chart 2: Economic activity and private CPI index (% y/y)

30 25 20 15 10 5 0 -5 Jan 07 EMAE (Indec)
0 -5 -10 -15 Jan 06
Chart 3: Real wage growth (% y/y)

15 10 5 Private registered
(1)
Private CPI estimate
Total
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 08
Jan 10
Jan 12
Source: Indec, Reuters EcoWin Pro, BNP Paribas
Source: Indec, BNP Paribas
(1) Deflated by private CPI inflation estimate
Florencia Vazquez Global Outlook
73
Peru: A bump on rapid-growth road

Growth has slowed sharply The economy expanded at a near-trend 6.3% pace in 2012, in line with our long-held 6.4% forecast. However, owing to falls in output in the mining and manufacturing sectors, growth was weak in December (2.5% y/y) and Q4 (4.4% q/q, saar). Mining output has been depressed by environmental and social protests that have caused mine closures and project delays, most notably the Conga mining project. In addition, strong domestic demand, declining exports (-1.6% in 2012) and a fall in the terms of trade (-0.6% in 2012) resulted in a near halving of the trade surplus in 2012. The weak end to 2012 lowers the statistical carryover for this years growth. However, rapid rises in private and public consumption and in investment will keep domestic demand buoyant. The external sector will provide an additional impetus to rapid growth. We project 2013 and 2014 growth of 6.8% and 6.7%, respectively. Despite government efforts to ramp up capital and social expenditure, revenue growth (10.5% in 2012) has outpaced spending growth (8.8%). As a result, the governments overall and primary balances widened to 1.3% and 2.3% of GDP in 2012, respectively. As the impact of supply shocks faded, inflation ended 2012 at 2.6% y/y, down from 4.7% in 2011. We forecast inflation to remain within the 2.0%1pp target range and to end 2013 at 2.6% as well. On-target inflation gives the CB room to continue its pause The central banks continued long pause on monetary policy reflects on-target inflation and concerns about external demand conditions and the strength of the PEN. To control credit growth and reduce pressure on the currency, the CB has increased reserve requirements three times this year. However, we suspect this will prove insufficient to cool the economy and that the CB will increase the policy rate in Q4 as growth reaccelerates.
Peru: Economic forecasts
2010
4 3 2 1 0 -1 Output gap -2 -3 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 0 -2 GD P (% y/y, R H S) 12 10 8 6 4 2
Growth to reaccelerate in 2013 and 2014
Rapid revenue growth is keeping the fiscal balance strong
Chart 1: GDP growth and the output gap

Real GDP (% y/y) CPI (% y/y) CPI (% y/y) (2) Trade balance (USD bn)
2011 6.9 3.5 4.7 9.3 -0.8 -0.4 0.9 2.0 21.8 4.25 2.70
2012 6.3 3.7 2.6 5.4 -4.9 -2.4 1.3 2.3 20.4 4.25 2.55
2013 (1) 6.8 2.6 2.6 7.2 -2.8 -1.3 0.4 1.4 18.6 4.75 2.57
2014 (1) 6.7 2.9 3.4 7.2 -2.8 -1.3 -0.2 0.8 17.5 5.25 2.60
8.8 1.7 2.1 6.7 -2.3 -2.5 0.0 1.1

(2)
Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) USDPEN
(2) (2)
23.5 3.00 2.81
(1) Forecast
(2) End period
Source: BNP Paribas
Chart 2: Exports and terms of trade

50 45 40 35 30 25 20 Ja n 0 8 150
Chart 3: Inflation headline, core and target (% y/y)

8 7
140 130 120 110
Te rm s o f t ra d e (R H S )
6 5 4 3 2 1 0 -1 Jan 07 Se p 07 Ma y 08 Ja n 09 Se p 09 Ma y 10 Ja n 11 Co r e
Hea d lin e
Ta r g e t ra n g e
E x p o rt s (1 2 m , U S D m n )
100 90
Ja n 0 9
Ja n 1 0
Ja n 1 1
Ja n 1 2
S ep 11
Ma y 12
Ja n 13
74
Venezuela: Policy paralysis

Political uncertainty is weighing on growth prospects A period of heightened uncertainty lies ahead for a deeply divided Venezuela following President Hugo Chvez's death in early March. Chavistas and Vice-President Nicols Maduro seem likely to maintain power in elections that will be held soon, possibly at the beginning of April. The policy paralysis of recent months that was the result of the Presidents ill health looks set to continue due to the presidential transition. Tough decisions will continue to be postponed. Hence, we have lowered our 2013 real GDP growth forecast from 2% to 1%. Februarys devaluation looks insufficient One decision that was surprising for its early timing was Februarys devaluation of the VEF when USDVEF was raised from 4.30 to 6.30. The modest adjustment is unlikely to be enough to address growing macroeconomic imbalances although the decision is positive for the fiscal accounts because of the countrys high USD-denominated oil revenues. Importantly, uncertainty remains about how the government will supply US dollars to the private sector as previous mechanisms have been abolished. FX market tensions are likely to remain firmly in place. 2012s fall in inflation has already started to reverse sharply. Consumer prices have risen by more than 3% m/m for two straight months and the inflation rate accelerated to 22% y/y in early 2013. We have raised our end-year 2013 and 2014 CPI inflation forecasts to 33% and 31%, respectively. The spike in inflation probably reflects the scarcity of goods against the backdrop of insufficient policy adjustments that have left growing macroeconomic imbalances largely unaddressed. The devaluation will further fuel price pressures. Hence, risks to inflation are skewed to the upside.
Venezuela: Economic forecasts
2010 Real GDP (% y/y) CPI (% y/y) CPI (% y/y) (2) Trade balance (USD bn) Current account (USD bn) Current account (% GDP) Budget balance (% GDP) Primary budget (% GDP) Gross gov. debt (% GDP) Interest rate (%) (2) USDVEF
(2)
Inflation will re-accelerate markedly this year Risks for inflation are biased to the upside
Chart 1: Real GDP (% y/y)

40 30 20 10 0 -10 -20 -30 Q11999
2011 4.2 26.1 27.6 46.0 27.2 7.8 -7.6 -6.0 23.9 14.5 4.29
2012 (1) 5.5 21.1 20.1 37.7 20.0 3.1 -10.0 -7.0 24.0 14.5 4.29
2013 (1) 1.0 29.0 33.0 38.0 18.0 3.6 -8.0 -5.0 27.0 14.5 6.30
2014 (1) 1.0 32.0 31.0 34.0 11.0 0.9 -5.0 -2.0 28.0 14.5 7.50
-1.5 28.7 27.2 27.1 12.1 5.1 -2.8 -0.5 18.4 15.0 4.29
Q2 2001 Q3 2003
Q4 2005
Q12008
Q2 201 0
Q3 2012
Source: BNP Paribas
Chart 2: Real GDP by economic sector (% y/y)

15 10 5 0 -5 Oil -10 -15 Q1 2006 Non-oil
Chart 3: Headline and core CPI (% y/y)

40 35 30 25 20 15 10 5 Headline Core
Q1 2008
Q1 2010
Q1 2012
0 Jan 05
Jan 07
Jan 09
Jan 11
Jan 13
Florencia Vazquez Global Outlook
75
This publication is classified as non-objective research
Commodities
Oil and US natural gas We continue to expect oil prices to have an upward bias in 2013, with a peak in Q1 followed by a retracement in Q2 and then a rally over the balance of the year. The financial environment is supportive, as the Fed is commited to QE3. On the fundamental side, supply changes rather than demand will drive prices. OPEC has reduced production significantly from its Q2 2012 peak and will probably cut output further to counter strong growth in the US supply of shale oil. Moreover, geopolitical tensions could easily flare up as US- and EU-led sanctions on Iranian oil and negotiations on the countrys nuclear capability continue. The US natural gas market is showing some vulnerability, due to still high inventories and the potential for shortfalls in utility demand as coal recaptures market share and renewables make inroads into electricity generation. Yet, the supply-and-demand balance should tighten this summer, causing prices to rise this year from their spring lows. Base-metal prices look set to rise by around 5% on average in Q1 2013, with the smaller metals far outperforming the two largest, aluminium and copper. We expect base-metal prices to be supported through the rest of 2013 by much stronger demand growth (around 5-6%) than in 2012, the highly accommodative monetary policy and the associated USD weakness. Some metals will also be boosted by severe or emerging supply constraints and/or production cost pressures. Copper, however, may be left behind for once, due to a sharp increase in production. Sentiment towards gold has turned increasingly negative, as recently illustrated by ETF outflows. Golds safe-haven appeal has diminished alongside reduced tail risks in the eurozone. The market also seems to be pricing in an earlier normalisation of US monetary policy than our forecast of the end of 2014. We expect the US dollar to depreciate eventually and inflation expectations to rebound as a result of the Feds asset purchases, supporting the gold price in H2 2013. Platinum remains hampered by a poor European auto sector. Palladium fundamentals are strong, but the price is particularly sensitive to episodes of risk aversion. Agriculture The agricultural sector has trended lower for longer than expected, reaching its seasonal autumn low only in early December 2012, due to a poor performance in the grains and oilseed sector. Fundamentals weakened for grains in the winter as the USDA revised up its estimate of global ending stocks. US corn is also suffering from poor export sales. In livestock, persisting pressures on supplies and steady export demand support a longterm rise in meat prices. While a leg-up is possible in grains, oilseed and soft commodities by May or June 2013, higher global supplies and negative risks to consumption growth may drive up ending stocks, pushing down prices in H2 2013.
Table 1: BNP Paribas commodity price forecasts, period averages
Issue date (25/02/13) (25/02/13) (25/02/13) (11/03/13) (11/03/13) (11/03/13) (11/03/13) (11/03/13) (11/03/13) (28/02/12) (13/03/13) (13/03/13) (13/03/13) (07/02/13) (07/02/13) (07/02/13) (07/02/13) (07/02/13) (07/02/13) 2012 (actual) 94.18 111.68 2.80 2,018 7,950 17,526 1,946 2,061 21,093 1,669 31.15 1,547 641 698 81 750 1,465 122 22 2013 (forecast) 100.00 115.00 3.50 2,110 7,825 17,825 2,175 2,460 26,050 1,670 31.35 1,660 800 733 90 751 1,520 140 21 Q4 2012 (actual) 88.23 110.13 3.40 1,997 7,909 16,967 1,947 2,199 21,560 1,718 32.68 1,593 650 737 73 846 1,484 126 20 Q1 2013 (forecast) 97.00 115.00 3.30 2,015 7,975 17,350 2,055 2,315 24,350 1,640 30.10 1,640 740 730 85 775 1,480 130 20 Q2 2013 (forecast) 98.00 114.00 3.20 2,065 8,100 17,500 2,100 2,360 25,550 1,615 27.95 1,595 745 795 100 854 1,585 135 23 Q3 2013 (forecast) 100.00 114.00 3.55 2,140 7,725 17,800 2,195 2,495 26,800 1,680 31.25 1,650 810 730 90 720 1,520 135 21 Q4 2013 (forecast) 104.00 115.00 3.85 2,220 7,500 18,650 2,350 2,670 27,500 1,740 36.10 1,745 895 675 85 665 1,495 140 20
Metals
NYMEX WTI 1m (USD/bbl) ICE Brent 1m (USD/bbl) NYMEX Henry Hub (USD/MBTU) Aluminium cash (USD/t) Copper cash (USD/t) Nickel cash (USD/t) Zinc cash (USD/t) Lead cash (USD/t) Tin cash (USD/t) Gold spot (USD/oz) Silver spot (USD/oz) Platinum spot (USD/oz) Palladium spot (USD/oz) Corn (USD/bu) Cotton (USD/lb) Wheat (USD/bu) Soybeans (USD/bu) Live cattle (USD/lb) Sugar (USD/lb)
Source: BNP Paribas
Commodity Markets Strategy Global Outlook
76
Long-term economic forecasts

Global growth to gather pace from 2014 Global view From 2014, with the situation in the eurozone gradually improving, we expect global economic growth to gather pace, boosted by demand from emerging economies. As developing markets employ policies to stimulate domestic demand, they will also underpin the rebalancing of the global economy. The resulting export-driven recovery in developed countries will initially be accompanied by very loose financial and monetary conditions. The expected peak in global growth in 2016, however, is likely to be lower than prefinancial-crisis highs. First, the transmission mechanism of monetary policy in developed economies will remain impaired and credit growth will stay weak. Second, fiscal policies will have been tightened sharply in many major economies to reduce public debt. Inflation to rise quickly mid-decade Faster economic growth in 2014-18 will push up commodity prices and raise inflation pressure by the mid-2010s, while the glut of money pumped into economies since 2008 will pose additional upside risks. To prevent high inflation becoming entrenched, monetary policies will be tightened more sharply by 2016, once developed-country output gaps are closed. As result of rate hikes and faster currency appreciation in emerging markets, global growth will slow by the end of the decade. Global inflation will also slow. However, the steady rise in higher-inflation emerging economies' share of world GDP will limit the fall. Prudent policies, such as reduced budget deficits in developed countries, should encourage more sustainable growth by 2020. However, adverse demographic trends will become a significant restraint on potential and actual growth rates in the second half of the decade, with the average age of the population in most developed economies and China set to rise. Emerging markets becoming more important Over the coming decade, developments in emerging markets will become even more important to the global big picture than they are now. We think the BRIC share of world GDP will increase from 15% in 2008 to around 35% in USD terms by 2020, exceeding that of the G4 economies. US We forecast US economic growth to accelerate to nearly 3% a year in 2015-16, supported by loose monetary policy and stronger emerging-market demand. This will boost US exports and corporate investment and help the labour market. Above-trend growth should cut joblessness more quickly at this point, removing the need for extreme monetary accommodation. High inflation should lead to hikes The closure of the US output and unemployment gaps, along with higher commodity prices, will push headline inflation above 3.0%. In order to prevent inflation expectations becoming unanchored, the Fed funds rate is likely to be raised to 4.50% by 2017. But the peak in rates will be lower than in the previous cycle, as fiscal austerity continues to weigh on growth. We expect the rise in rates to cool growth and lower inflation in 2018-20, before it settles at the Feds implicit target of around 2%. Eurozone The sovereign debt crisis in the peripheral eurozone economies should be much calmer by 2015, with sizeable and sufficient safety nets in place. Tougher budgetary rules should enforce governments long-term commitment to prudent policies and eventually support a gradual transformation of the eurozone into a fiscal union. But the consolidation of public finances means the eurozones recovery after 2013 will be relatively slow. Even when trend growth is achieved, it is likely to be weaker than in the US, for instance, with worse demographic trends holding back European growth. Nevertheless, with the blocs biggest economy, Germany, outperforming and with inflation pressures rising, we expect the ECB to raise its refinancing rate to 3.50% by 2017. Tighter monetary policy should lower inflation towards the ECBs target of close to, but below, 2% and reduce economic growth to its potential rate of less than 1% later in the decade.
Eurozone recovery in growth slow
77
Japans aging weighs on growth
Japan Despite a stronger global backdrop, we expect Japans growth rate to fall below 1% as early as 2013, as reconstruction demand, following the 2011 earthquake, fades. Long term, the rapid rise in the average age of the workforce will limit the potential growth rate to just 0.5%. We assume that the Japanese government will gradually tighten fiscal policy from 2014 to achieve a primary budget surplus by 2020. Failure to implement the necessary reform measures would risk a fiscal crisis in the early 2020s. UK The UK will benefit from the upturn in the global economy after 2013, with further gains in net trade raising GDP growth above 2.5% y/y in 2016-17. Domestic demand will lag, as private-sector deleveraging continues and fiscal policy remains tight. The closure of the output gap and resurfacing of inflation are likely to trigger more aggressive tightening by the Bank of England in the second half of the decade. Consequently, growth will decline towards its trend rate in 2019-21. China Over the next 10 years, we expect Chinas potential growth rate to slow as the working-age population declines and the savings rate falls, reining in future investment. Because of a weaker contribution from exports, rising environmental costs and an already high loan-to-GDP ratio, the economy will become increasingly dependent on consumption. We expect annual GDP growth to slow to around 7.0% on average in 2014-18, and to just above 5.0% in 2019-22. Despite weaker growth rates, Chinas contribution to global GDP will continue to rise and we forecast the country will become the worlds largest economy before 2020. Higher costs for labour, land, natural resources and environmental protection, as well as the shift in the growth pattern, will boost inflation pressures. This will require relatively tight monetary policy, especially in 2015-16. We expect the exchange rate to follow the growth path, with the RMB weakening against the USD in 2016-18 and strengthening again to around 6.00 in the long run.
BoE to tighten policy more aggressively from 2016, slowing growth
China 2020: Worlds biggest economy
India 2020: Worlds fastest-growing economy
India Strong demographics, with the working-age population rising until 2035, and higher investment rates are the main factors behind Indias positive long-term growth outlook. By mid-decade, it should be the fastest-growing major world economy. Increased investment in agriculture should boost productivity and facilitate a slowing of food and headline inflation. This will also support the growth outlook for both manufacturing and services. However, Indias structural problems suggest that long-term trend growth could be less than 7.0%, while the disinflation process will be slow. Brazil Rising global demand for commodities and favourable demographics will sustain strong economic growth, but also relatively high inflation after 2013, requiring tighter monetary policy. Higher interest rates and a stronger currency in 2015-17 should lead to slower growth and a more sustainable, although gradual, reduction in inflation. Over time, nominal and real interest rates should continue to trend down, converging on levels comparable to those in other emerging markets. Russia Rising oil prices should support Russias GDP growth in the coming years. However, the country will face increasing demographic challenges from the rapid rise in the average age of the workforce and a fall in the population. While diversification away from the oil and gas sectors should increase the productivity of the Russian economy, GDP growth in 2015-22 is unlikely to average more than 3.5-4.0%. Prudent monetary policy should help slow inflation over the medium term, but it is unlikely to drop much below 5.5% before the end of the decade, as domestic oil and gas prices will increase.
Brazil to see a reduction in inflation rates only in the second half of this decade
Russian GDP growth is unlikely to average more than 3.5-4.0% in 2015-22
78

Table 1: Long- term economic forecasts
10 US GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) Fed. gov. deficit (%) Gross Fed. gov. debt (% GDP) Fed funds rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURUSD (2) (2) USDJPY 2.4 1.6 1.0 9.6 0.0 62.8 0-0.25 0.30 0.61 2.01 3.29 1.34 81
10 Eurozone GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) General gov. budget (% GDP) Gross gov. debt (% GDP) (2) ECB refinancing rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURJPY (2) 2.0 1.6 1.0 10.1 -6.2 85.4 1.00 1.01 0.85 1.84 2.96 109
11 1.8 3.2 1.7 8.9 -8.7 67.7 0-0.25 0.58 0.25 0.83 1.88 1.29 77
11 1.5 2.7 1.4 10.2 -4.1 87.3 1.00 1.36 0.14 0.75 1.83 100
12 2.2 2.1 2.1 8.1 -7.0 72.5 0-0.25 0.31 0.25 0.72 1.76 1.32 87
12 -0.5 2.5 1.5 11.4 -3.7 93.2 0.75 0.19 -0.03 0.30 1.31 114
13
(1)
14
(1)
15
(1)
16
(1)
17
(1)
18
(1)
19
(1)
20
(1)
21
(1)
22
(1)
1.6 1.9 1.9 7.7 -5.5 75.9 0-0.25 0.40 0.25 1.10 2.40 1.33 90
13 (1) -0.5 1.7 1.3 12.7 -2.7 95.7 0.50 0.10 0.10 0.85 1.30 120
2.5 2.0 2.1 7.2 -4.4 77.5 0-0.25 0.50 0.75 1.85 2.80 1.25 100
14 (1) 0.8 1.3 1.3 12.9 -2.2 95.6 0.50 0.15 0.30 1.30 1.90 125
2.9 2.5 2.3 6.7 -4.1 78.4 1.00 1.20 2.20 3.30 3.90 1.30 105
15 (1) 1.4 1.8 1.5 10.5 -1.8 88.8 0.50 0.40 1.80 2.50 2.80 137
2.9 3.1 2.5 6.2 -3.7 77.5 3.00 3.20 3.60 4.20 4.50 1.32 105
16 (1) 1.8 2.3 1.7 10.0 -1.6 86.7 2.50 2.70 3.20 3.60 3.80 138
2.7 3.0 2.6 5.7 -3.4 76.6 4.50 4.80 5.00 5.00 5.10 1.29 110
17 (1) 1.8 2.4 1.8 9.4 -1.4 85.0 3.50 3.70 3.90 4.10 4.20 142
2.3 2.7 2.4 5.4 -3.2 75.9 4.50 4.80 5.00 5.00 5.10 1.29 115
18 (1) 1.4 2.2 1.9 8.9 -1.2 83.8 3.50 3.70 3.90 4.10 4.20 148
1.8 2.4 2.2 5.7 -2.9 75.7 4.00 4.25 4.50 4.65 4.90 1.29 115
19 (1) 0.7 2.0 1.8 8.6 -1.0 82.6 3.00 3.20 3.50 3.90 4.10 148
1.8 2.1 2.0 5.9 -2.7 75.4 4.00 4.25 4.50 4.65 4.90 1.29 115
20 (1) 0.7 1.9 1.8 8.6 -1.0 81.5 3.00 3.20 3.50 3.85 4.00 148
1.8 2.0 2.0 5.9 -2.4 74.9 4.00 4.25 4.50 4.65 4.90 1.29 115
21 (1) 0.7 1.8 1.8 8.5 -1.0 80.4 3.00 3.20 3.50 3.85 4.00 148
1.8 2.0 2.0 5.9 -2.4 74.5 4.00 4.25 4.50 4.65 4.90 1.29 115
22 (1) 0.7 1.8 1.8 8.5 -1.0 81.4 3.00 3.20 3.50 3.85 4.00 148
10 Japan GDP (% y/y) CPI (% y/y) Core CPI (% y/y) Unemployment rate (%) (2) Gov. budget (% GDP) (2) Gross gov. debt (% GDP) (2) O/N call rate (%) (2) 3-month rate (%) (2) 2-year tate (%) (2) 5-year rate (%) (2) 10-year rate (%) 4.7 -0.7 -1.0 5.1 -8.3 179.5 0.10 0.34 0.18 0.40 1.12
11 -0.6 -0.3 -0.3 4.6 -8.7 190.8 0.10 0.33 0.14 0.35 0.99
12 2.0 0.0 -0.1 4.4 -9.1 199.7 0.10 0.30 0.10 0.20 0.75
13
(1)
14
(1)
15
(1)
16
(1)
17
(1)
18
(1)
19
(1)
20
(1)
21
(1)
22
(1)
0.9 0.0 0.0 3.8 -8.7 205.9 0.10 0.25 0.10 0.30 0.80
1.0 2.2 2.2 3.7 -7.6 208.8 0.10 0.25 0.15 0.60 1.60
0.5 1.4 1.4 4.2 -5.7 -213.2 0.25 0.35 0.30 1.10 2.10
0.5 1.6 1.6 4.2 -5.7 -217.9 0.50 0.70 0.60 1.25 2.05
0.5 0.8 0.8 4.1 -6.0 -224.0 1.00 1.40 1.25 1.60 2.00
0.5 0.5 0.5 4.2 -6.4 -230.3 1.00 1.40 1.25 1.55 1.90
0.5 0.5 0.4 4.3 -6.7 -237.1 0.50 0.70 0.80 1.30 1.70
0.5 0.5 0.2 4.4 -7.1 -244.2 0.50 0.70 0.80 1.30 1.70
0.5 0.5 0.2 4.5 -7.5 -251.6 0.50 0.70 0.80 1.30 1.70
0.5 0.5 0.2 4.5 -7.8 -259.4 0.50 0.70 0.80 1.30 1.70
10 UK GDP (% y/y) CPI (% y/y) Core CPI (% y/y) RPI (% y/y) Unemployment rate (%) PSNB (% GDP, FY) Gross gov. debt (% GDP) (2) (2) Bank rate (%) (2) 3-month rate (%) (2) 2-year rate (%) (2) 5-year rate (%) (2) 10-year rate (%) (2) EURGBP GBPUSD (2)
11 0.9 4.5 3.2 5.2 8.1 -8.0 83.6 0.50 1.08 0.33 1.06 1.98 0.83 1.55
12 0.2 2.8 2.4 3.2 8.0 -5.3 90.8 0.50 0.52 0.25 0.64 1.84 0.81 1.63
13
(1)
14
(1)
15
(1)
16
(1)
17
(1)
18
(1)
19
(1)
20
(1)
21
(1)
22
(1)
1.8 3.3 2.9 4.6 7.8 -9.6 76.2 0.50 0.76 0.62 1.38 3.40 0.86 1.56
0.7 3.1 2.1 3.8 7.8 -6.6 95.0 0.50 0.50 0.50 1.20 1.80 0.85 1.56
1.6 2.7 1.8 3.6 7.7 -6.0 97.9 0.50 0.50 0.90 1.40 2.60 0.76 1.64
2.1 2.5 1.4 2.6 7.7 -4.6 96.5 1.00 1.25 1.20 2.40 3.40 0.75 1.73
2.5 2.6 2.2 3.5 7.2 -3.6 95.7 3.00 3.25 3.10 3.65 4.10 0.76 1.73
2.6 2.7 2.3 3.3 6.7 -3.1 93.7 4.00 4.30 4.05 4.30 4.45 0.77 1.67
2.2 2.5 2.2 3.2 6.3 -2.8 92.4 4.00 4.30 4.05 4.35 4.50 0.79 1.63
1.8 2.3 2.0 2.6 6.2 -2.6 91.5 3.50 3.75 3.55 3.95 4.25 0.79 1.63
1.3 1.7 1.8 2.1 6.2 -2.3 90.7 3.50 3.75 3.55 3.95 4.25 0.79 1.63
1.3 1.7 1.7 2.1 6.3 -2.1 90.1 3.50 3.75 3.55 3.95 4.25 0.79 1.63
1.3 1.7 1.7 2.1 6.3 -1.8 89.3 3.50 3.75 3.55 3.95 4.25 0.79 1.63
79

Table 2: Long- term economic forecasts
10 China GDP (% y/y) CPI (% y/y) Gen. gov. budget (% GDP) Policy rate (%) (2) 10-year rate (%) (2) USDRMB (2) 10.4 3.3 -2.5 5.81 3.83 6.59
10 Brazil GDP (% y/y) CPI (% y/y) General gov. budget (% GDP) (2) Gross gov. debt (% GDP) (2) Policy rate (%) (2) USDBRL 7.5 5.0 -2.5 54.7 10.75 1.66
11 9.3 5.4 -1.9 6.56 4.00 6.29

11 2.7 6.6 -2.6 54.2 11.00 1.87
12 7.8 2.6 -1.5 6.00 3.60 6.23

12 0.9 5.4 -2.5 58.6 7.25 2.05
13 (1) 8.3 3.6 -2.1 6.00 4.40 6.05

13
(1)
14 (1) 7.8 3.5 -2.1 6.25 5.40 6.03

14
(1)
15 (1) 7.5 3.9 -2.5 6.25 4.30 6.05

15
(1)
16 (1) 7.2 4.2 -2.5 6.25 4.30 6.15

16
(1)
17 (1) 6.5 4.1 -2.5 6.25 4.30 6.20

17
(1)
18 (1) 5.8 4.0 -2.5 6.00 4.35 6.25

18
(1)
19 (1) 5.1 3.8 -2.5 5.75 4.25 6.20

19
(1)
20 (1) 5.1 3.6 -2.5 5.50 4.15 6.15

20
(1)
21 (1) 5.1 3.4 -2.5 5.50 4.10 6.05

21
(1)
22 (1)
5.1 3.4 -2.5 5.50 4.10 6.00
22
(1)
3.0 6.5 -4.3 61.7 9.00 2.05
3.5 6.2 -4.3 62.7 9.00 2.15
4.0 6.3 -4.0 61.0 10.50 2.10
4.2 6.5 -3.5 58.8 11.00 2.05
3.8 6.0 -3.0 56.7 11.00 2.10
3.6 5.8 -2.5 54.5 10.00 2.15
3.1 5.5 -2.5 52.8 9.50 2.20
3.1 5.0 -2.5 51.3 9.00 2.30
3.1 5.0 -2.5 50.0 8.00 2.35
3.0 5.0 -2.5 48.8 8.00 2.40
10 India GDP (% y/y) WPI (% y/y) Central gov. budget (% GDP) (2) Gross cen. gov. debt (% GDP) Policy rate (%) (2) (2) 10-year rate (%) USDINR (2) 9.8 9.6 -6.5 49.2 6.25 7.91 44.7
11 7.3 9.5 -4.8 45.7 8.50 8.40 53.1
12 5.1 7.5 -5.7 46.5 8.00 8.20 55.0
13 (1) 5.5 5.5 -5.2 47.3 7.25 8.00 53.0
14 (1) 7.2 5.8 -5.0 47.3 7.25 7.25 55.5
15 (1) 7.6 6.0 -4.7 46.4 7.75 8.00 53.0
16 (1) 8.0 6.5 -4.5 45.0 7.75 9.00 51.0
17 (1) 7.7 6.3 -4.3 43.7 8.75 10.15 50.0
18 (1) 7.0 6.0 -4.3 43.0 8.50 9.90 50.0
19 (1) 6.7 5.8 -4.2 42.4 8.00 9.30 50.0
20 (1) 6.7 5.8 -4.0 41.7 7.75 9.00 50.0
21 (1) 6.7 5.8 -3.8 40.9 7.75 9.00 50.0
22 (1) 6.7 5.8 -3.6 40.0 7.8 9.0 50.0
10 Russia GDP (% y/y) CPI (% y/y) General gov. budget (% GDP) Gross gov. debt (% GDP) (2) Policy rate (%) (2) (2) 10-year rate (%) (2) USDRUB
Footnotes: (1) Forecast (2) End period Source: BNP Paribas
11 4.3 8.5 0.8 7.8 8.00 8.50 32.2
12 3.4 5.1 0.0 9.7 8.25 7.30 30.4
13 (1) 2.9 7.1 0.0 9.6 8.00 7.50 30.5
14 (1) 3.6 6.3 -1.5 10.1 7.75 7.00 32.5
15 (1) 4.5 6.7 -2.0 10.3 8.25 7.25 32.0
16 (1) 5.0 6.9 -2.0 11.0 8.25 7.00 32.0
17 (1) 4.3 6.7 -2.0 11.6 7.75 6.50 32.0
18 (1) 3.6 6.5 -2.0 12.3 7.25 6.20 32.0
19 (1) 3.1 5.9 -2.0 13.1 6.50 6.10 32.0
20 (1) 3.1 5.3 -2.0 13.9 6.00 6.10 32.0
21 (1) 3.1 5.3 -2.0 14.6 6.00 6.10 32.0
22 (1) 3.1 5.3 -2.0 15.3 6.00 6.10 32.0
4.3 6.9 -3.9 7.9 7.75 7.00 30.4
80
Global Outlook team

International Paul Mortimer-Lee Europe Ken Wattret Luigi Speranza Gizem Kara Evelyn Herrmann Dominique Barbet Ricardo Santos Raymond van der Putten Steven Vanneste Catherine Stephan Caroline Newhouse Thibault Mercier David Tinsley Michelle Lam US Julia Coronado Laura Rosner Yelena Shulyatyeva Bricklin Dwyer Japan Ryutaro Kono Hiroshi Shiraishi Azusa Kato Makoto Watanabe Emerging Markets Richard Iley Dominic Bryant Mole Hau XingDong Chen Ken Peng Jacqueline Rong Michal Dybula Marcin Kujawski Julia Tsepliaeva Kirill Mavrin Selim Cakir Emre Tekmen Nazli Karamollaolu Tugba Kebapcioglu Kim Silberman Kruger Pretorius Marcelo Carvalho Gustavo Arruda Nader Nazmi Florencia Vazquez Commodities Strategy Harry Tchilinguirian Gareth Lewis-Davies Teri Viswanath Stephen Briggs Anne-Laure Tremblay Philippe dArvisenet Franois Faure Robert McAdie Steven Saywell
Contacts Global Outlook
Global Head of Market Economics Eurozone Eurozone, Italy Eurozone, Fiscal, Inflation, Greece, Ireland Germany France Spain, Portugal Netherlands Belgium Austria Finland Greece UK, Sweden, Norway, Switzerland, MT rate forecasts BNP Paribas surprise indicator, FMCI US, Canada US US US, Canada Japan Japan Japan Japan Asia Asia, Australia Asia China China China CEE CEE Russia, CIS Russia, CIS Turkey, GCC Turkey, GCC Turkey, GCC Turkey, GCC South Africa South Africa Latin America, Brazil Brazil Mexico, Colombia, Peru Chile, Argentina, Venezuela Oil Oil Natural Gas Base Metals Precious Metals Group Chief Economist Head of Country Risk Global Head of Fixed Income Strategy & Credit Research Global Head of FX Strategy
London London London London London Paris London Paris Brussels Paris Paris Paris London London New York New York New York New York Tokyo Tokyo Tokyo Tokyo Hong Kong Hong Kong Hong Kong Beijing Beijing Beijing Warsaw Warsaw Moscow Moscow Istanbul Istanbul Istanbul Istanbul Johannesburg Johannesburg So Paulo So Paulo New York Buenos Aires London London Houston London London Paris Paris London London
44 20 7595 8551 44 20 7595 8657 44 20 7595 8322 44 20 7595 8783 44 20 7595 8476 33 1 4298 1567 44 20 7595 8369 33 1 4298 5399 32 2 312 1210 33 1 5577 7189 33 1 4316 9550 33 1 5743 0291 44 20 7595 8150 44 20 7595 8226 1 212 841 2281 1 212 471 8180 1 212 841 2258 1 212 471 7996 81 3 6377 1601 81 3 6377 1602 81 3 6377 1603 81 3 6377 1605 852 2108 5104 852 2108 5105 852 2108 5620 86 10 6535 3327 86 10 6535 3380 86 10 6535 3363 48 22 697 2354 48 22 697 2355 7 495 785 6022 7 495 785 6000 90 216 635 2972 90 216 635 2975 90 216 635 2986 90 216 635 2973 27 11 088 2171 27 11 088 2180 55 11 3841 3418 55 11 3481 3466 1 212 417 8216 54 11 4875 4363 44 20 7595 8779 44 20 7595 8775 1 713 393 3137 44 20 7595 8774 44 20 7595 8775 33 1 4316 9558 33 1 4298 7982 44 20 7595 8885 44 20 7595 8487
81
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Global Outlook

Světová Ekonomika, Březen 2013 (Dokument V AJ)

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Global Outlook

Published 14 March 2013 Global Outlook

March 2013 www.GlobalMarkets.bnpparibas.com

Summary table 1: Economic and financial forecasts

Q4 (1) 3.2 2.0 0.2 2.3 8.0

Q4 (1) 4.8 2.6 8.0 10.9

2013 Q2 (1) Q3 (1) 7.8 12.6 3.8 7.7 12.8 3.8

Q4 (1) 7.6 13.1 3.7

Q4 (1) 1.9 1.5 0.5 4.5

10 0-0.25 0.30 3.29 1.00 1.01 2.96 0.10 0.34 1.12

11 0-0.25 0.58 1.88 1.00 1.36 1.83 0.10 0.33 0.99

12 0-0.25 0.31 1.76 0.75 0.19 1.31 0.10 0.30 0.75

10 1.34 81 6.59 109 0.86 1.56

11 1.29 77 6.29 100 0.83 1.55

12 1.32 78 6.23 104 0.81 1.63 Year

Q4 (1) 1.33 90 6.05 120 0.85 1.56

10 -3.0 0.0 3.7 3.9

11 -3.0 0.1 2.0 2.7

12 -3.0 1.2 1.0 2.6

13 (1) -5.5 -2.7 -8.7 -2.1

14 (1) -4.4 -2.2 -7.6 -2.1

Source: BNP Paribas

Market Economics Global Outlook

Summary table 2: GDP forecasts (% y/y)

Summary table 3: CPI forecasts (% y/y)(1)

Market Economics Global Outlook

March 2013 www.GlobalMarkets.bnpparibas.com

Upturn lacks vigour

Global growth of 3.1% in 2013

Lack of escape velocity prompting more easing

Table 1: BNPP end-period interest-rate forecasts (%)

Spot rates as at 12 March 2013 Source: BNP Paribas (FX Strategy)

Paul Mortimer-Lee Global Outlook

March 2013 www.GlobalMarkets.bnpparibas.com

Central banks the main driver of risk appetite

Is cold turkey the future?

Expect softly, softly from central banks

Fed carry on QEing

What will Italy do for risk appetite?

Uneven path for BTPs likely

Paul Mortimer-Lee Global Outlook

Italys real problem is no reform and no growth

Spains problem is the budget

Greece and Cyprus condemned to succeed

Bunds to remain trapped in a narrow range

Could we see 0.3% on the 10-year JGB?

Paul Mortimer-Lee Global Outlook

The music is playing, so risk is dancing

Global growth forecast edged down for 2013

US growth distinctly lacklustre

Eurozone some up, some down

Paul Mortimer-Lee Global Outlook

March 2013 www.GlobalMarkets.bnpparibas.com

Japan stimulatory policy will work

Japanese policy will bring inflation back

Chinese growth forecast unchanged Brazil growth revised down, inflation up

Russia slow growth, fast inflation

Indian growth weaker than before, inflation lower

Chart 1: Chinese manufacturing PMI

Chart 2: Consumption: A tale of two continents (real values, % y/y)

Source: Reuters EcoWin Pro

Source: Reuters EcoWin Pro

Paul Mortimer-Lee Global Outlook