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GEGEN DEN STURMWEATHERING THE STORM

Real Estate Investment and Development in Germany

DEUTSCHEGRI

2

Global Growth –How Long to Recovery?

Goldman Sachs InternationalApril 2009

Dirk SchumacherSenior European Economist

3

The Global Economy

4

A sharp decline in our GS Global Leading Indicator- some signs of recovery

-20

-15

-10

-5

0

5

10

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

% yoy

GLI

OECD IndustrialProduction

UpBusiness Confidence AggregateConsumer Confidence AggregateGS Australian Dollar Trade Weighted IndexISM New Orders Less InventoriesKorean ExportsS&P GS Industrial Metals Index

FlatBelgian Manufacturing SurveyJapan IP Inventory/Sales RatioUS Durable Goods Inventory/Shipments Ratio

Down

5

GS GDP and inflation forecasts

Real GDP Growth Forecasts

2010

GS Consensus* GS Consensus* GS

USA 1.1 1.2 -2.9 -2.7 1.2

Japan -0.6 0.0 -6.1 -6.3 0.1

Euroland 0.7 0.9 -3.7 -3.4 0.7

UK 0.7 0.8 -2.6 -3.3 1.5

Europe 0.9 0.0 -3.4 -4.5 0.9

China 9.0 9.2 8.3 7.0 10.9

India 6.4 6.7 5.8 5.1 6.6

BRICs 7.5 7.7 4.8 4.6 8.0

Advanced Econom ies

0.9 1.1 -3.5 -3.3 1.1

World 2.9 3.1 -1.1 -0.9 3.2

* Consensus Economics January 2009

2008% yoy

2009

Inflation Forecasts

2010

GS Consensus* GS Consensus* GS

USA 3.8 3.9 -0.6 -0.9 0.4

Japan 1.4 1.5 -1.8 -1.1 -1.5

Euroland 3.3 3.3 -0.1 0.6 1.2

UK 3.6 3.6 1.0 1.0 2.5

Europe 3.5 0.0 0.3 0.5 1.5

China 5.9 6.0 -0.5 0.2 1.0

India** 8.8 9.1 1.0 5.8 4.5

BRICs 7.5 7.7 2.1 3.5 3.3

Advanced Econom ies

3.4 3.5 -0.2 -0.1 0.8

World 5.5 5.3 1.3 1.6 2.1

* Consensus Economics January 2009. **Wholesale prices.

2008% yoy

2009

6

A deep global recession

-2

-1

0

1

2

3

4

5

6

7

84 86 88 90 92 94 96 98 00 02 04 06 08 10

% yoyGSF'castaverage

since 84

Global real GDP growth

7

The US economy

8

US: House prices are falling and the housing bubble is deflating

50

70

90

110

130

150

170

190

210

230

250

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: S&P

IndexJan-00=100

We expect house prices to decline by another 20%

-28% since peak in June 2006

0

2

4

6

8

10

12

14

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Mortgage Bankers Association

%

Total foreclosures

Sub Primeforeclosures

Foreclosures are rising fast

9

US: A steady increase in debt for the private sector

30

80

130

180

230

280

330

52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Source: Federal Reserve , Departm ent of Com m erce

% of GDP

Private SectorDebt

Trend

10

US: More savings – good for the long-run, bad for the short-term

-2

-1

0

1

2

3

4

5

6

7

8

9

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Haver, GS calculations

%

Savings rate

US depending on foreign savings US households: Savings are rising

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Haver, GS calculations

% of GDP

Current accountbalance

11

US: A sharp correction in the financial balance of the private sector

Private Sector Financial Balance

-7

-5

-3

-1

1

3

5

7

9

11

60 65 70 75 80 85 90 95 00 05 10

-7

-5

-3

-1

1

3

5

7

9

11

Actual Predicted

% %

Source: Department of Commerce. Federal Reserve Board. Our calculations.

12

US: A significant decline in private domestic demand as the private sector repairs its financial balance

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Source: Haver, GS calculations

%, yoy

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Domestic demand

"Private sectorfinancial balance"

Perct.point change, yoy

13

Markets and the Banking Sector

14

Banks are scrambling for cash – only to lend it back to the ECB

ECB deposit facility

0

100

200

300

400

500

600

700

800

900

2007W01 2007W21 2007W41 2008W09 2008W29 2008W49

Source: ECB

bn Euro

Main refinancing operations

Long-term refinancingoperations

ECB refinancing operations

-5

45

95

145

195

245

295

2007W01 2007W21 2007W41 2008W09 2008W29 2008W49

Source: ECB

bn Euro

15

Credit and Money growth is slowing sharply

0

2

4

6

8

10

12

14

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: ECB

%, yoy

Money (M3)

Loans

16

What does a typical banking crisis look like?

0

2

4

6

8

10

12 Frequency

Histogram -Peak NPL ratio

Source: IMF

Frequency of seize of non-performing loans in 40 banking crisis

In seven out of 40 banking crisiswas the share of non-performing loans at total loans 10%

Brazil ‘94

17

0

2

4

6

8

10

12 Frequency

Histogram - FiscalCost, % GDP

Source: IMF sample (Laevan and Valencia (2008))

What does a typical banking crisis look like?

Frequency of seize of fiscal costs in 40 banking crisis

In ten out of 40 banking crisiswere the fiscal costs less than 5% of GDP

Indonesia ‘97

18

Write-downs of US assets

0.0

0.5

1.0

1.5

2.0

2.5

Total Outside USbanks

Losses Recognized Unrecog.

0.0

0.5

1.0

1.5

2.0

2.5

Residential mortgages

Other loans

Accruing to US banks

Trillions of dollars Trillions of dollars

Source: Goldman Sachs estimates.

19

Euroland: De-leveraging of the banking system has not progressed much – how much is needed?

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

98 99 00 01 02 03 04 05 06 07 08 09

Source: ECB

RatioRatio of bank assetsto capital

44

45

46

47

48

49

50

51

98 99 00 01 02 03 04 05 06 07 08 09Source: ECB

%

Share of bank loans attotal bank assets

20

Little write-downs for Euroland banks outside of US housing and leveraged buy-outs

-7

-6

-5

-4

-3

-2

-1

0

1

2

03 04 05 06 07 08 09Source: ECB

bn Euro

Write-downs of Euroland banksfrom loans to non-financial corporates Write-downs from loans outside Eurozone

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09Source: ECB

bn Euro

Loans to non-EAresidents

21

The European economy

22

European growth forecasts

Quarterly GDP Forecasts

% Change on

Previous Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Euroland 0.7 -0.3 -0.2 -1.5 -2.0 -0.5 -0.1 0.2 0.3 0.3 0.4 0.4Germany 1.5 -0.5 -0.5 -2.1 -3.0 -0.3 -0.2 0.2 0.3 0.4 0.4 0.5France 0.4 -0.3 0.1 -1.2 -1.6 -0.7 0.0 0.2 0.2 0.3 0.3 0.4Italy 0.4 -0.6 -0.6 -1.8 -1.3 -0.5 0.1 0.1 0.2 0.2 0.2 0.2Spain 0.4 0.1 -0.3 -1.0 -1.6 -1.3 -0.4 0.1 0.3 0.2 0.3 0.3Netherlands 0.5 -0.1 -0.3 -0.9 -1.5 -0.4 0.1 0.2 0.2 0.4 0.5 0.5UK 0.4 0.0 -0.7 -1.5 -1.0 -0.2 0.2 0.2 0.5 0.4 0.8 1.0Switzerland 0.1 0.1 -0.1 -0.3 -1.7 -0.1 0.2 0.2 0.1 0.2 0.2 0.2Sweden -0.6 -0.5 -1.0 -2.4 -1.5 0.0 0.2 0.5 0.5 0.6 0.7 0.8Denmark -1.2 0.4 -0.4 -1.0 -0.5 0.0 0.2 0.3 0.2 0.2 0.2 0.3Norway* -0.3 0.5 0.3 -0.2 -1.0 -0.4 0.0 0.3 0.4 0.5 0.5 0.7Poland 0.9 1.0 0.8 0.3 -0.9 -0.8 -0.4 0.1 0.5 0.6 0.7 1.0Czech Republic 0.6 0.7 0.3 -0.9 -1.8 -1.0 -0.3 0.1 0.4 0.6 0.7 1.0Hungary 0.1 -0.1 -0.6 -1.2 -1.8 -1.5 -0.5 0.0 0.2 0.4 0.5 0.6

*Mainland GDP

20102008 2009

23

Eurozone: Our indicators are ‘behind the curve’

Euroland IP and leading indicator (3m/3m)

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

97 98 99 00 01 02 03 04 05 06 07 08 09 10

qoq

IP, 3m/3m

Leading indicator

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

98 99 00 01 02 03 04 05 06 07 08 09 10

%, qoq

Actual GDP

Coincident Indicator

GS Leading indicator for IP(PMI stocks/orders, GLI, ifo export exp.)

GS Coincident indicator for GDP (PMI comp., Consumer conf., Eurocoin)

24

Euroland: Exports hit by weaker global demand

0.4

1.4

2.4

3.4

4.4

5.4

6.4

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

%, yoy

-3

-1

1

3

5

7

9

11

13

15%, yoy

Source: Haver Analytics, GS Economic Research

Forecast

Euroland exports (rhs)

Trade weighted global domestic demand

Global demand is much more importantthan the exchange rate for Euroland exporters

25

The downside risk of being export champion

-28.0

-23.0

-18.0

-13.0

-8.0

-3.0

2.0

7.0

12.0

00 01 02 03 04 05 06 07 08 09Source: GS, Bundesbank

%, 3m/3m

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

German foreign manuf.orders (lhs)

GLI

%, 3m/3m

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2002 2003 2004 2005 2006 2007 2008

Germany France Italy

Spain Netherlands

Source: Haver Analytics, GS calculations

Value added of manufacturing in % points

A sharp decline in foreignmanufacturing orders in Germany

Germany hit particular hard by globalrecession in the industrial sector

26

Germany, Japan and Sweden export more capital goods

0

10

20

30

40

50

60

Germ any Sweden Japan UK US

% GDP

Services

Interm ediate Goods

Other Consum er Goods

Consum er Durables

Capital Goods (incl cars )

Source: National statistics agencies

27

ECB: interest rate channel blocked

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

03 04 05 06 07 08 09Source: ECB, GS calculations

%

Weightedlending rate

ECB Refi rate

0

1

2

3

4

5

6

7

8

99 00 01 02 03 04 05 06 07 08 09

Source: Haver, iBoxx

%

Corporate bondyie lds

ECB refi rate

Bank lending rates are not reacting to ECB cuts …

… corporate bond yields neither

28

Private consumption: France holding up well, but the rest …

94

96

98

100

102

104

106

108

110

112

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09Source: Haver (retail sales rebased in 01/1995=100)

Germany

France

Italy

Spain

index

Retail Sales

29

Germany: Consumption still price sensitive – car registrations are rising sharply on the back of the

‘wreckage bonus’

-30

-20

-10

0

10

20

30

40

99 00 01 02 03 04 05 06 07 08 09Source: VDA

%, yoy

Car registrations

30

Investors are differentiating more among EMU countries – not necessarily a bad thing

Credit Default Swaps

0

50

100

150

200

250

300

350

06 07 08 09

Italy France

Spain Greece

Germany

Source: Goldm an Sachs

Credit Default Swapsbp

31

Some Eurozone countries may face severe funding problems

-100

-80

-60

-40

-20

0

20

2003 2004 2005 2006 2007 2008Source: Haver, GS

% of GDP

-21

-16

-11

-6

-1

4

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Haver

% of GDP

CA (3-m onth m ov.average)

Greece net investment position Greece current account

32

Eurozone: we are all in the same boat

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0% German GDP

Source: BIS

German-owned bank assets

-4

-2

0

2

4

6

8

10

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Haver

% of GDP

CA (3-m onth m ov.average)

Still a huge Currant Accountsurplus in Germany

33

Germany: Weakness in consumption mostly home made

98

100

102

104

106

108

110

112

114

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Source: Bundesbank

Index:Q1:00=100

Gross Wages (average wage x number ofemployees)

Real Disposable Income

95

105

115

125

135

145

155

165

175

185

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08Source: Bundesbank

indexQ1:00=100

Exports (real)

Consumption (real)

Consumption stagnating since 2000Consumption weakness a consequence

of sluggish income growth

34

Central European countries more dependent on external credit than Asian Tigers in 1996

External debt as a share of GDPAsia in 1996 compared to E. Europe now

0

20

40

60

80

100

120

140

160

So

uth

Ko

rea

Ru

ssia

Mal

aysi

a

Cze

ch R

ep

Ro

man

ia

Ind

on

esia

Po

lan

d

Ukr

ain

e

Th

aila

nd

Ser

bia

Lit

hu

ania

Slo

vaki

a

Kaz

akh

stan

Cro

atia

Hu

ng

ary

Bu

lgar

ia

Est

on

ia

Lat

via

% of GDP

Source: GS Global ECS Research, Haver Analytics

35

Supply and Yields: Two ‘Extreme’ Examples

0

1

2

3

4

5

6

7

8

9

10

90 92 94 96 98 00 02 04 06 08

%

60

80

100

120

140

160

180

% of GDP

10yr JGB yield (lhs)

Debt-to-GDP (rhs)

Japan's 1990s-2000s: Rising Borrowing Did Not Challenge Bonds

Source: Haver Analytics, GS calculations.

2.3

2.8

3.3

3.8

4.3

30 31 32 33 34 35 36 37

%

0

5

10

15

20

25

30% of GDP

US bond yield (lhs)

Cumulative deficit-to-GDPsince Jan-1930 (rhs)

And Debt Spikes Put No Pressure on Bonds in the Great Depression

Source: Haver Analytics, GS calculations.

36

Interest rate forecasts

3-month horizon 6-month horizon 12-month horizon

Current* Forward Forecast Forward Forecast Forward Forecast

US 3M 1.1 1.1 1.0 1.1 1.0 1.3 1.0

10Y 2.8 3.0 2.7 3.1 2.8 3.3 3.0

Canada 3M 0.6 0.5 0.7 0.5 0.6 0.8 0.6

10Y 2.8 2.9 2.9 3.0 3.0 3.3 3.3

Australia 3M 3.1 2.9 3.6 2.8 3.1 3.4 3.6

10Y 4.6 4.7 4.1 4.8 4.2 5.0 4.3

Japan 3M 0.6 0.6 0.6 0.5 0.5 0.6 0.5

10Y 1.5 1.5 1.0 1.6 1.1 1.7 1.5

Euroland 3M 1.4 1.3 1.6 1.3 1.1 1.6 1.1

10Y 3.3 3.3 2.7 3.4 2.9 3.5 3.1

UK 3M 1.6 1.3 1.2 1.3 1.2 1.8 2.1

10Y 3.3 3.4 3.0 3.5 3.2 3.8 3.8

Sweden 3M 1.1 0.7 1.1 0.7 1.1 1.2 1.6

10Y 3.2 3.3 2.6 3.4 2.7 3.7 3.0

Switzerland 3M 0.4 0.4 0.3 0.4 0.3 0.5 0.3

10Y 2.2 2.3 1.8 2.3 1.9 2.5 2.1Close 13 April 09

37

Foreign exchange forecastsMajor FX Forecasts

Current* Forward Forecast Forward Forecast Forward Forecast

EUR/$ 1.34 1.34 1.40 1.34 1.45 1.34 1.45

$/¥ 100.1 99.9 105.0 99.7 100.0 99.2 100.0

EUR/¥ 133.7 133.5 147.0 133.2 145.0 132.5 145.0

EUR/CHF 1.52 1.51 1.60 1.51 1.58 1.50 1.58

CHF/¥ 88.2 88.2 91.9 88.2 91.8 88.2 91.8

$/CHF 1.13 1.13 1.14 1.13 1.09 1.13 1.09

EUR/£ 0.90 0.90 0.88 0.90 0.84 0.90 0.78

£/$ 1.48 1.48 1.60 1.48 1.73 1.49 1.86

£/¥ 148.4 148.2 168.0 148.0 173.0 147.3 186.0

£/CHF 1.68 1.68 1.83 1.68 1.89 1.67 2.03

EUR/NOK 8.79 8.82 8.70 8.84 8.40 8.87 8.00

EUR/SEK 10.91 10.90 10.30 10.88 9.80 10.86 9.50

A$/$ 0.73 0.73 0.71 0.72 0.71 0.72 0.71

NZ$/$ 0.59 0.59 0.52 0.59 0.50 0.58 0.48

$/C$ 1.22 1.22 1.25 1.22 1.25 1.21 1.15

$/CNY 6.84 6.82 6.83 6.79 6.83 6.74 6.83

3-Month Horizon 6-Month Horizon 12-Month Horizon

38

The Largest Economies in 2050

The World in 2050

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

GDP 2006 US$ bn

Source: GS

39

Copyright © 2007 by Goldman, Sachs & Co.

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GEGEN DEN STURMWEATHERING THE STORM

Real Estate Investment and Development in Germany

DEUTSCHEGRI