This report is available on wellsfargo.com/research and on Bloomberg WFEC January 14, 2010 Economics Group Executive Summary: Will the Global Economy Expand in 2010? The seizing of financial markets that followed Lehman Brothers’ failure caused the global economy to fall into its deepest recession in decades. By the spring of 2009 industrial production in the 30 countries that comprise the Organisation for Economic Cooperation and Development (OECD) had plunged more than 15 percent from year-earlier levels (Figure 1). Incredibly, it could have been far worse. The governments of the world’s major countries averted catastrophe at the height of the crisis by taking steps to prevent a wholesale collapse of their financial systems via recapitalization, loan guarantees and increased deposit insurance. In addition, major central banks slashed policy rates to unprecedented levels, and many implemented programs of “quantitative easing” to provide further stimulus. Governments in most major countries opened the fiscal taps. There are signs that the medicine is having its desired effects and that growth is returning to most economies. Industrial production in the OECD nations rose 5 percent from its nadir in March 2009 to September, although it remains 13 percent below its February 2008 peak. Figure 1 OECD Industrial Production Year-over-Year Percent Change -20% -15% -10% -5% 0% 5% 10% 81 85 89 93 97 01 05 09 -20% -15% -10% -5% 0% 5% 10% OECD Industrial Production: Oct @ -8.1% Figure 2 U.S. Trade Weighted Dollar Major Index March 1973=100 65 70 75 80 85 90 95 100 105 110 115 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 65 70 75 80 85 90 95 100 105 110 115 Major Currency Index: Jan @ 74.4 Source: IHS Global Insight, Organisation for Economic Cooperation and Development, Bloomberg LP and Wells Fargo Securities, LLC The global recovery is being led by Asia where growth turned positive again last year. The financial systems of most Asian economies were not nearly as levered as their western counterparts, so banks in the region were able to ramp up lending again. In addition, most Asian governments responded to the crisis with expansionary fiscal policy. The year-over-year GDP growth rate in China rebounded to a strong 9 percent in the third quarter of 2009, but the expansion is not confined to only China. Many other countries in the region, including the large economies of Japan, Korea and Taiwan, are posting positive growth rates again. Special Commentary Global Chartbook: January 2010 Contents Page World ......................... 3 United States ............. 4 Euro-zone .................. 5 Japan.......................... 6 United Kingdom ........ 7 Australia.....................8 Canada ....................... 9 Norway ..................... 10 Singapore ..................11 South Korea ............. 12 Sweden ..................... 13 Switzerland .............. 14 Taiwan ..................... 15 Argentina ................. 16 Brazil ........................ 17 Chile ......................... 18 China ........................ 19 India ........................ 20 Mexico...................... 21 Poland ......................22 Russia....................... 23 South Africa .............24 Turkey ...................... 25 Dollar .......................26 Energy ...................... 27
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Global Chartbook: January 2010 · Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP Major economies appear to be stabilizing as well. The
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This report is available on wellsfargo.com/research and on Bloomberg WFEC
January 14, 2010
Economics Group
Executive Summary: Will the Global Economy Expand in 2010? The seizing of financial markets that followed Lehman Brothers’ failure caused the global economy to fall into its deepest recession in decades. By the spring of 2009 industrial production in the 30 countries that comprise the Organisation for Economic Cooperation and Development (OECD) had plunged more than 15 percent from year-earlier levels (Figure 1).
Incredibly, it could have been far worse. The governments of the world’s major countries averted catastrophe at the height of the crisis by taking steps to prevent a wholesale collapse of their financial systems via recapitalization, loan guarantees and increased deposit insurance. In addition, major central banks slashed policy rates to unprecedented levels, and many implemented programs of “quantitative easing” to provide further stimulus. Governments in most major countries opened the fiscal taps. There are signs that the medicine is having its desired effects and that growth is returning to most economies. Industrial production in the OECD nations rose 5 percent from its nadir in March 2009 to September, although it remains 13 percent below its February 2008 peak.
Source: IHS Global Insight, Organisation for Economic Cooperation and Development, Bloomberg LP and Wells Fargo Securities, LLC
The global recovery is being led by Asia where growth turned positive again last year. The financial systems of most Asian economies were not nearly as levered as their western counterparts, so banks in the region were able to ramp up lending again. In addition, most Asian governments responded to the crisis with expansionary fiscal policy. The year-over-year GDP growth rate in China rebounded to a strong 9 percent in the third quarter of 2009, but the expansion is not confined to only China. Many other countries in the region, including the large economies of Japan, Korea and Taiwan, are posting positive growth rates again.
Special Commentary
Global Chartbook: January 2010
Contents Page World .........................3 United States .............4 Euro-zone ..................5 Japan..........................6 United Kingdom ........7 Australia.....................8 Canada .......................9 Norway.....................10 Singapore ..................11 South Korea ............. 12 Sweden..................... 13 Switzerland .............. 14 Taiwan ..................... 15 Argentina ................. 16 Brazil ........................ 17 Chile ......................... 18 China........................ 19 India........................ 20 Mexico...................... 21 Poland ......................22 Russia.......................23 South Africa .............24 Turkey ......................25 Dollar .......................26 Energy......................27
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
Major economies appear to be stabilizing as well. The U.S. economy expanded at an annualized rate of 2.2 percent in the third quarter, and monthly indicators point to growth in excess of 4 percent in the fourth quarter. The temporary effects of fiscal stimulus certainly played a role in the positive outturn in the third quarter, but recent increases in core measures of retail sales and capital spending indicate that there is more to the story than simply fiscal stimulus. Both the Euro-zone and Japan registered modest increases in real GDP in the third quarter, and growth likely remained positive in the fourth quarter.
Will the global economy slip back into recession again? Probably not. Production was slashed much faster than final demand in most economies, which led to sharp declines in inventories. The unprecedented liquidation of inventories appears to be coming to an end, and producers should continue to boost production to bring output back into alignment with final sales. In that regard, stimulus measures enacted late in 2008 and in 2009 are helping to boost activity. Most western economies should post positive growth rates over the next few quarters. That said, the modest global upturn that appears to be underway remains fragile, and self-sustaining recoveries, especially in the most advanced economies, have not yet been firmly established.
On a purchasing power parity basis, global GDP probably contracted 1 percent or so in 2009. We project that the global economy will grow close to its long-run average of 3.6 percent in 2010 before accelerating to roughly 4 percent in 2011. Relative to 2004-2007, however, when global GDP grew nearly 5 percent per annum, the global recovery that we project over the next few years may seem a bit sluggish. Indeed, we forecast that growth in the United States and in some western European economies will be held back by slow growth in consumer spending as individuals attempt to delever and repair battered balance sheets.
Inflation rates in most countries shot higher in the first half of 2008 and commodity prices went through the roof. On a global basis, CPI inflation rose to 6 percent in 2008, the highest rate in about 10 years. However, the global downturn caused commodity prices to collapse, and global inflation receded significantly last year. Despite unprecedented amounts of monetary stimulus, inflation should not really be an issue until the global economy truly strengthens. Due to the slow recovery that we project, we believe that inflation in most countries will largely remain benign over the next few years.
The Dollar Should Appreciate Modestly versus Major Currencies The dollar strengthened significantly in late 2008/early 2009 as risk aversion spiked. U.S. Treasury securities are considered to be the safest assets in the world, and massive buying of U.S. government bonds by foreign investors contributed to the dollar’s strength. However, the greenback gave up most of its gains over the balance of 2009 as investors turned less risk averse. With stock markets rising in most countries and corporate bonds rallying, the safety of low-yielding U.S. Treasury securities is not as compelling as it was in early 2009 when worst-case scenarios did not seem farfetched.
Looking ahead, the currency strategy team of Wells Fargo projects that the dollar will trend modestly higher against most major currencies. Investors suspect that most major central banks, including the Federal Reserve, the European Central Bank and the Bank of England, will be on hold until the second half of 2010. Therefore, expected changes in short-term interest rates will not have as much of an influence on exchange rates as in the past. As the U.S. recovery gathers steam, foreign investment flows into long-term securities (e.g., corporate bonds and equities) and direct investment inflows should resume, helping to lift the greenback. In addition, the decline in the U.S. current account deficit will exert fewer headwinds on the greenback than it did earlier this decade when the dollar was trending lower. The dollar has already bounced back a bit since early December as U.S. economic data have been stronger than expected on balance.
However, most “commodity” and emerging market currencies should continue to trend higher versus the greenback in the quarters ahead. The global recovery will likely cause most commodity prices to drift higher, which should help to support “commodity” currencies (e.g., the Aussie dollar). In addition, rising levels of risk tolerance will clear the way for capital to flow to “risky” developing countries, which should put upward pressure on many of those currencies.
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Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
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World
OECD Industrial ProductionIndex, 2005=100
40
60
80
100
120
1981 1985 1989 1993 1997 2001 2005 200940
60
80
100
120
OECD Industrial Production: Oct @ 93.9
Global Purchasing Manager IndicesDiffusion Index
30
35
40
45
50
55
60
65
2004 2005 2006 2007 2008 200930
35
40
45
50
55
60
65
Global PMI Manufacturing: Dec @ 55.0Global PMI Services: Dec @ 52.1
Courtesy of J.P. Morgan
The global economy is starting to bounce back from its deepest recession in decades, although industrial production in the OECD nations remains well below the peak that was reached in early 2008. That said, purchasing manager indices generally remained in expansion territory in the fourth quarter, suggesting that the expansion remains intact. Most regions of the world are starting to grow again with Asia clearly in the vanguard.
The major governments of the world averted catastrophe in the fall of 2008 by taking steps to prevent the global financial system from collapsing. In addition, most major governments enacted fiscal stimulus programs to shore up economic activity.
Not only have interest rates been reduced to unprecedented lows, but major central banks have enacted “quantitative easing” programs via unconventional purchases of private sector assets. Central banks in some countries (e.g., Australia and Norway) have started to hike rates again, but the Fed, the ECB and the Bank of Japan remain firmly on hold.
The deep global recession and the collapse in commodity prices caused inflationary pressures to recede significantly. Commodity prices have risen off their lows, but elevated unemployment rates have kept a lid on wage inflation. Although we forecast that CPI inflation rates will trend higher this year, we do not project a return to runaway global inflation à la the 1970s.
8.0%ECB: Jan @ 1.00%Bank of Canada: Jan @ 0.25%US Federal Reserve: Jan @ 0.25%Bank of England: Jan @ 0.50%
Global CPIYear-over-Year Percent Change
0%
2%
4%
6%
8%
10%
12%
14%
16%
1995 1998 2001 2004 2007 20100%
2%
4%
6%
8%
10%
12%
14%
16%
Forecast
Source: Bloomberg LP, Federal Reserve Board, IHS Global Insight,
International Monetary Fund and Wells Fargo Securities, LLC
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
United States
Real GDP Bars = CAGR Line = Yr/Yr Percent Change
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2000 2002 2004 2006 2008 2010-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%GDPR - CAGR: Q3 @ 2.2%
GDPR - Yr/Yr Percent Change: Q3 @ -2.6%
Forecast
Retail Sales Ex. Motor Vehicles3-Month Moving Average
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
96 97 98 99 00 01 02 03 04 05 06 07 08 09-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Year-over-Year Percent Change: Nov @ -2.2%3-Month Annual Rate: Nov @ 6.1%
The United States endured its deepest recession in decades as the economy contracted about 4 percent between the second quarter of 2008 and the second quarter of 2009. However, real GDP rose at an annualized rate of 2.2 percent in the third quarter and monthly indicators point to growth in excess of 5 percent in the fourth quarter.
Some of the lift in the third quarter reflected the temporary effects of government stimulus, such as “Cash for Clunkers” and the first-time home buyer tax credit. However, growth in other areas of private spending shows there is more to the current upturn than simply government stimulus. Retail sales excluding autos have strengthened over the past few months, and core measures of capital spending have also turned positive.
Despite the rise in real GDP in the third quarter, a self-sustaining recovery has not yet truly taken hold. Unemployment has shot up to the highest rate since the early 1980s, and it will likely climb a bit further in the months ahead.
The pace of growth probably will remain very slow for the next year or so. Many consumers need to de-lever further, which will likely constrain growth in consumer spending for the foreseeable future. The Fed has acknowledged that is will be on hold “for an extended period,” and we do not look for it to begin normalizing policy until the second half of 2010, at the earliest.
NonDefense Capital Goods Orders, Ex-AircraftSeries are 3-Month Moving Averages
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
93 95 97 99 01 03 05 07 09-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
3-Month Annual Rate: Nov @ 5.5%
Year-Over-Year Percent Change: Nov @ -12.8%
Unemployment RateSeasonally Adjusted
2%
4%
6%
8%
10%
12%
60 65 70 75 80 85 90 95 00 052%
4%
6%
8%
10%
12%
Unemployment Rate: Dec @ 10.0%
Source: U.S. Department of Commerce, U.S. Department of Labor
and Wells Fargo Securities, LLC
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Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
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Euro-zone
Euro-zone Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
E.Z. Manufacturing: Dec @ 51.6E.Z. Services: Dec @ 53.6
Most continental European economies suffered their worst recession in decades last year. Between Q1 2008 and Q2 2009 real GDP in the Euro-zone plunged 5 percent. However, the economy managed to eke out a modest positive growth rate in the third quarter.
Monthly data suggest that economic growth remained positive in the fourth quarter. For example, the purchasing managers’ indices for both the manufacturing and service sectors remained in expansion territory throughout the fourth quarter. That said, “hard” data show that industrial production in October was flat relative to the third quarter. In other words, the recovery is far from robust at present.
Indeed, we believe that the recovery in the Euro-zone will prove to be frustratingly slow. There are a few important economies in the overall euro area in which consumers became highly geared. In our view, sluggish growth in consumer spending in these economies will restrain the overall GDP growth rate in the Euro-zone. In addition, economic weakness in eastern Europe should constrain growth in exports from many western European economies.
The European Central Bank slashed its main policy rate to 1.00 percent in May, and it has been on hold subsequently. With a fragile recovery and with few inflationary pressures at present, we project that the ECB will refrain from tightening policy until the second half of the year.
Household Liabilitites in the Euro-zoneAs a Percent of GDP
0%
20%
40%
60%
80%
100%
120%
Austria Belgium Finland France Germany Greece Italy Neth. Port. Spain0%
Japanese Consumer Price IndexYear-over-Year Percent Change
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
1997 1999 2001 2003 2005 2007 2009-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
"Core" CPI: Nov @ -1.0%CPI: Nov @ -1.9%
Japan’s economy is gradually emerging from a deep recession. Third quarter GDP rose at a 1.3 percent annualized rate, according to the second preliminary release. This was a sharp downward revision from the initial estimate of a 4.8 percent annualized rate of growth. A large downward revision in non-residential fixed investment and inventory accumulation accounted for the bulk of the revision. Many key components of Japan’s GDP continued to post respectable growth rates, indicating that Japan’s recovery, while less robust than hoped, does appear sustainable over this year.
Consumer spending increased at a healthy 3.8 annualized rate in Q3, and exports rebounded smartly as U.S. and Chinese demand recovered. Consumer spending is not likely sustainable at this pace, but it will not have to be as business investment stabilizes, and export and government spending growth continues.
Deflation remains the biggest threat to the economic recovery. Japan’s consumer price index is on track to decline 1.3 percent in 2009, and we expect deflation to continue in 2010 as the CPI declines another 0.6 percent. If consumers and businesses decide deflation will be prolonged they may begin to delay purchases, waiting for cheaper prices and intensifying the economic malaise.
Japan’s exports to China have surpassed those to the United States consistently since March of last year. This is a huge and perhaps structural shift in Japan’s trading relationships.
Japanese ExportsBillions USD, 3-Month Moving Average
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
1996 1998 2000 2002 2004 2006 2008$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8Exports to United States: Nov @ 0.9B USD
Exports to China: Nov @ 1.0B USD
Volume of Japanese Foreign TradeYear-over-Year Percent Change
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1997 1999 2001 2003 2005 2007 2009-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Export Volume: Nov @ -2.0%
Import Volume: Nov @ -9.3%
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
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Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
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United Kingdom
U.K. Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
2000 2002 2004 2006 2008-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Compound Annual Growth: Q3 @ -1.6%
Year-over-Year Percent Change: Q3 @ -5.2%
United Kingdom Retail SalesYear-over-Year Percent Change
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
1999 2001 2003 2005 2007 2009-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Retail Sales: Nov @ 2.7%
3-Month Moving Average: Nov @ 2.5%
Real GDP in the United Kingdom has declined for six consecutive quarters. Since peaking in the first quarter of 2008 British real GDP has plunged 6 percent, making the current slump as deep as the horrendous downturn in the late 1970s/early 1980s. N0t only have exports tanked, but domestic demand has taken a sizable hit as well.
Recent indicators suggest that growth resumed again in the fourth quarter. Although industrial production remains depressed, retail spending has strengthened over the past few months. In addition, the purchasing managers’ index suggests that activity in the nation’s service sector is expanding again. Most indices of house prices have risen from their lows of earlier in 2009.
In our view, the U.K. economy will expand throughout 2010. However, continued deleveraging by the household sector likely will restrain the pace of recovery.
The Bank of England reduced its policy rate to only 0.50 percent and it took other steps, such as purchasing assets directly from the banking system, to support the economy. Although CPI inflation has bounced up recently, the modest pace of recovery and high unemployment should keep inflationary forces largely at bay. Therefore, we expect the Monetary Policy Committee to refrain from raising rates until the second half of 2010.
UK Purchasing Manager IndicesIndex
30
35
40
45
50
55
60
65
2000 2002 2004 2006 200830
35
40
45
50
55
60
65
UK Manufacturing: Dec @ 54.1UK Services: Dec @ 56.8
The downturn in Australia was relatively mild compared to what was experienced in many other foreign economies. Following only one quarter of contraction in economic activity in the fourth quarter of 2008, real GDP posted its third consecutive quarter of expansion in the third quarter led by gains in government spending and consumer spending.
Public infrastructure spending is helping to jumpstart the economy and three consecutive months of payroll growth has started to spark domestic demand. Retail sales have posted two straight months of gains, and the 1.4 percent jump in November was much stronger than the 0.3 percent gain that the consensus had expected.
In mid-December, the deputy governor of the Reserve Bank of Australia (RBA) indicated that monetary policy has moved into a "neutral" range, which has led some investors to question whether the RBA would hike rates again at its next policy meeting on Feb 2. We maintain that a 25-bp hike may still be on the table. The Australian economy continues to show signs of growth. Home-building approvals shot up 5.9 percent in November. This may have been driven to some extent by the looming year-end deadline for first-time homebuyer grants. Still, given the strength in retail sales and relative improvements in residential construction, the RBA could make a case for another hike.
Australian Retail Sales and HousingYear-over-Year Percent Change, 3-Month Moving Average
0.0%
1.5%
3.0%
4.5%
6.0%
7.5%
9.0%
10.5%
12.0%
1998 2000 2002 2004 2006 2008-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%Retail Sales: Nov @ 6.4% (Left Axis)Housing Approvals: Nov @ 20.8% (Right Axis)
Canadian EmploymentMonth-over-Month Change in Employment, In Thousands
-150
-125
-100
-75
-50
-25
0
25
50
75
100
125
2000 2002 2004 2006 2008-150
-125
-100
-75
-50
-25
0
25
50
75
100
125
Change in Employment: Dec @ -2.6K
6-Month Moving Average: Dec @ 7.8K
After contracting for three straight quarters, real GDP in Canada managed to grow 0.4 percent at an annualized rate in the third quarter as Canada emerged from the deepest downturn since the early 1980s.
The recovery in the third quarter was fueled by a 3.1 percent annualized increase in consumer spending. Recent developments in the labor market may be helping to support consumer spending. The Canadian economy reportedly created 79,000 jobs in November, before giving back 2,600 jobs in December. Monthly payroll changes can be volatile in any given month but employment has clearly stabilized and less dire prospects in the labor market may be encouraging consumers to open their wallets again.
The strength of the Canadian consumer is propelling real imports, which surged 36 percent in the third quarter. Although gross exports rose at a solid rate of 15 percent, the big jump in gross imports caused net exports to slice more than seven percentage points off of the overall growth rate, suggesting growth in Canada is actually stronger than the headline GDP number might suggest.
Currently, the core rate of inflation is near the bottom of the Bank of Canada’s target range of 1 to 3 percent. We do not look for the bank to start tightening policy anytime soon. However as the recovery gains some traction next year, the bank will likely begin to tighten policy as early as late summer.
Canadian Merchandise Trade BalanceMillions of Canadian Dollars, Seasonally Adjusted
-C$4,000
-C$2,000
C$0
C$2,000
C$4,000
C$6,000
C$8,000
C$10,000
1997 1999 2001 2003 2005 2007 2009-C$4,000
-C$2,000
C$0
C$2,000
C$4,000
C$6,000
C$8,000
C$10,000
Merchandise Trade Balance: Nov @ -344M CAD
Canadian Consumer Price IndexYear-over-Year Percent Change
Volume of Norwegian Retail SalesYear-over-Year Percent Change
-2%
0%
2%
4%
6%
8%
10%
2001 2003 2005 2007 2009-2%
0%
2%
4%
6%
8%
10%
3-Month Moving Average: Nov @ 3.1%
After contracting more than 2 percent on a peak-to-trough basis, which was mild compared to the 5 percent slump suffered in the Euro-zone, real GDP in Norway rose 0.9 percent (not annualized) in the third quarter. A rebound in the country’s non-oil exports helped to boost growth in the third quarter. Growth in consumer spending was also strong, although capital expenditures continued to decline.
Real GDP growth likely remained positive in the fourth quarter due, at least in part, to continued solid growth in consumer spending. Although production in the nation’s petroleum sector remained sluggish, the value of non-oil exports continued to climb.
CPI inflation in Norway is beginning to trend higher. Not only has the overall rate turned higher, but the core rate of inflation currently is 2.4 percent, which is slightly above the central bank’s target. With the unemployment rate remaining relatively low (2.7 percent at present) wage inflation could pick up as the economy strengthens.
Norges Bank, the country’s central bank, slashed its main policy rate from 5.75 percent in the autumn of 2008 to only 1.25 percent in June. The relative resilience of the economy, however, has led Norges Bank to conclude that extremely low interest rates are no longer appropriate. It has hiked its main policy rate by 50 bps since October, and further tightening seems likely in the months ahead.
Norwegian Industrial Production IndexYear-over-Year Percent Change
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1997 1999 2001 2003 2005 2007 2009-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
IPI: Nov @ -0.8%3-Month Moving Average: Nov @ 0.2%
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
11
Singapore
Singapore Real GDPYear-over-Year Percent Change
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
2000 2002 2004 2006 2008-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Year-over-Year Percent Change: Q4 @ 3.5%
Singaporean Industrial Production IndexManufacturing Production, Year-over-Year Percent Change
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
1997 1999 2001 2003 2005 2007 2009-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
6-Month Moving Average: Nov @ 2.3%
Singapore’s economy took a stutter step back in the fourth quarter coming off of two strong consecutive quarters of growth. GDP contracted at a 6.8 percent annualized rate in the fourth quarter, but year-on-year growth advanced to 3.5 percent. The fourth-quarter decline was lead by biomedical manufacturing, which tends to be volatile month to month. Services continued to expand at a robust clip, rising 7.2 percent at an annualized rate in the fourth quarter, suggesting the economy will continue to recover at a moderate pace in 2010. GDP dropped 2.1 percent in 2009, and is expected to grow 5.0 percent to 6.0 percent in 2010.
Singapore industrial production has clearly hit a rough patch, however. November industrial production unexpectedly slipped 3.6 percent in November after dropping 7.2 percent in October. Biomedical production dropped 48.8 percent year over year. Excluding this category, production rose 2.4 percent in November. Singapore’s manufacturing PMI currently hovers well above expansion territory at 53.3.
Rebounding vehicle sales pushed October retail sales up 6 percent from the month before and narrowed the year-on-year decline to 4.4 percent. Outside of vehicles, sales remained sluggish.
November non-petroleum exports continued to build on recent gains, jumping 19.8 percent on the month and higher than a year ago by 8.7 percent. Pharmaceutical exports held up well in 2009 after a disappointing 2008.
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
South Korea
South Korean Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2001 2002 2003 2004 2005 2006 2007 2008 2009-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Compound Annual Growth: Q3 @ 12.3%
Year-over-Year Percent Change: Q3 @ 0.4%
South Korean Rates3-M Bill, 10-Yr Government
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
2004 2005 2006 2007 2008 20091.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
3-Month Government: Jan @ 2.28%
South Korean 10-Yr Government: Jan @ 5.54%
South Korea’s economy continues to rebound at a blistering pace from 2008’s stunning declines, leading to another round of forecast upgrades. Third-quarter GDP shot up at an annualized rate of 12.3 percent, which was much stronger than expected. These gains built on the 11.0 percent pace of growth in the second quarter. South Korea’s GDP growth is now positive on a year-over-year basis. Broad-based gains are occurring in exports, domestic consumption and business investment.
South Korea’s export gains are outpacing the region as global and regional trade recovers from depression-like levels. Key product markets, such as electronics and vehicle production, have bounced back smartly, and shipbuilding backlogs remain supportive.
Korean industrial production (IP) continues to outperform expectations. Not only has the year-over-year growth rate in production returned to positive territory, but the level of IP is now more than 30 percent above the January low.
Korea’s labor market is visibly improved with unemployment easing to 3.4 percent in October from 4.0 percent in June, the highest level in eight years. Employment is up 0.4 percent from a year ago, but monthly job gains remain sluggish.
The Bank of Korea kept its repo rate at 2.00 percent at the October policy meeting. It is possible that Korea will start raising rates if the current pace of expansion continues.
South Korean Consumer PricesYear-over-Year Percent Change
-2%
0%
2%
4%
6%
8%
10%
1997 1999 2001 2003 2005 2007 2009-2%
0%
2%
4%
6%
8%
10%CPI: Dec @ 2.8%Core CPI: Dec @ 2.2%
South Korean Exchange RateKRW per USD
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1999 2001 2003 2005 2007 2009900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
KRW per USD: Jan @ 1,166.2
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
12
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
13
Sweden
Swedish Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
The Swedish economy tanked last year as real GDP plunged more than 6 percent between the first quarter of 2008 and the first quarter of 2009, a deep recession by any measure. Growth was positive in the second and third quarters, but the upturn can hardly be characterized as vigorous thus far. Continued declines in exports and business fixed investment spending are restraining overall GDP growth.
Overall GDP growth may have remained positive in the fourth quarter, but it appears that the upturn continues to lack vigor. On one hand, the manufacturing PMI has returned to expansion territory. However, the values of exports and retail sales were more or less flat through November and industrial production has yet to exhibit a convincing recovery. In addition, the labor market remains very weak.
Due to the rise in energy prices over the past year the overall inflation rate returned to positive territory in December, and it should soon rise above the core rate of inflation (currently around 2 percent), at least on a temporary basis.
The policy objective of the Swedish Riksbank (the country’s central bank) is to keep the overall rate of inflation close to 2 percent per annum. Due to ongoing economic weakness, the Riksbank does not expect inflation to become a problem. Therefore, the Riksbank has publicly stated its intention to maintain its main policy rate at only 0.25 percent until autumn, 2010.
Swedish Unemployment RateNot Seasonally Adjusted
4%
6%
8%
10%
12%
1997 1999 2001 2003 2005 20074%
6%
8%
10%
12%12-Month Moving Average: Nov @ 8.1%
Unemployment Rate: Nov @ 8.9%
Swedish Consumer Price IndexYear-over-Year Percent Change
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
1997 1999 2001 2003 2005 2007 2009-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%CPI: Dec @ 0.9%
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
Switzerland
Swiss Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
Like most major economies, Switzerland has suffered through a deep recession over the past year or so. However, real GDP growth turned positive again as the economy grew at an annualized rate of 1.2 percent in the third quarter. Real exports, which had tumbled more than 11 percent from their peak in early 2008, rebounded nearly three percentage points. Consumer spending and business fixed investment spending also grew at solid rates in the third quarter.
Available indicators suggest that growth remained positive in the fourth quarter. For example, the manufacturing PMI remained in expansion territory through December, and the value of exports jumped nearly 3 percent in October relative to the previous month. Although the unemployment rate has risen to an 11-year high of 4.2 percent, it appears to be in the process of leveling out.
CPI inflation has returned to positive territory again as energy prices have rebounded. However, the core rate of inflation continues to trend lower due to economic weakness.
The Swiss National Bank (SNB) cut its target for the Swiss franc LIBOR rate to only 25 bps last March, and it probably will remain on hold for at least the next few months due to benign inflation. In addition, the strength of the Swiss franc, especially vis-à-vis the euro, also should induce the SNB to refrain from raising rates in the near term.
Taiwanese Industrial Production IndexYear-over-Year Percent Change
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
1997 1999 2001 2003 2005 2007 2009-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
IPI: Nov @ 31.5%
6-Month Moving Average: Nov @ 13.4%
Taiwan’s economy continued to improve on its second quarter performance, expanding at a 8.25 percent annualized rate in the third quarter, while the GDP decline from a year ago narrowed to -1.29 percent. The improvement exceeded analyst expectations. Private consumption is growing again, up 2.2 percent from a year ago, while declines in business investment and exports continue to narrow. Based in part on these improving trends, the government revised up its forecast for Taiwan growth in 2009 and 2010 to -2.5 percent and 4.8 percent, respectively.
Taiwan’s industrial production and export orders stood 31.5 percent and 37.1 percent, respectively, above the previous year’s level in November, boosted by base effects coming off of the steep declines registered at the same time in 2008.
Retail sales have rebounded into positive territory year on year, indicating that Taiwan’s recovery isn’t only being driven by manufacturing and export growth. Strong car sales, in particular, have been an important factor in the retail sales recovery.
Taiwan’s exports have jumped 46.9 percent from a year ago, and have risen for seven of the past eight months. Japan, South Korea and China have seen similar rebounds in exports. Electronic shipments have been especially strong, rising 71.9 percent from a year ago, indicating a V-shaped recovery in this sector.
The standoff between Argentine President Cristina Fernandez de Kirchner and central bank President Martín Redrado has exacerbated political tensions and added uncertainty to the nation’s already-shaky financial markets. The donnybrook stems over the central bank president’s opposition to using more than $6 billion of central bank reserves.
November’s consumer prices increased by 0.8 percent, taking the year-over-year rate of inflation to 7.1 percent. Meanwhile, wholesale prices increased by 0.9 percent to take the year-over-year rate to 8.5 percent in November compared to 7.2 percent during the year ended in October.
The Argentine currency is one of the few currencies of the region that continues to depreciate versus the U.S. dollar. This trend may accelerate if economic and political conditions deteriorate further. The crisis between the executive branch and the central bank could be a sign of further depreciation of the currency in the near term.
On a year-over-year basis, Argentine exports eked out a modest gain in November 2009, after falling more than 20 percent in the prior month. Meanwhile, imports dropped 12.1 percent during the same period after posting a drop of 28.7 percent in October. This put the monthly trade balance at $1.28 billion and the year-to-date surplus at $16.59 billion.
Argentine Exchange RateBRL per USD
2.50
2.70
2.90
3.10
3.30
3.50
3.70
3.90
03 04 04 05 06 07 082.50
2.70
2.90
3.10
3.30
3.50
3.70
3.90ARS per USD: Jan @ 3.801
Argentine Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted
-$2,000
-$1,000
$0
$1,000
$2,000
$3,000
1997 1999 2001 2003 2005 2007 2009-$2,000
-$1,000
$0
$1,000
$2,000
$3,000
Merchandise Trade Balance: Nov @ $1,288
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
16
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
17
Brazil
Brazilian Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
Retail Sales: Oct @ 8.4%6-Month Moving Average: Oct @ 5.5%
Brazilian industrial production posted its first year-over-year increase in November, expanding by 5.1 percent. However, industrial production dropped by 0.2 percent compared to October on a seasonally adjusted basis, the first such drop since December 2008. The November increase in industrial production was fueled by a 22.9 percent year-over-year increase in the production of automobiles. We expect the auto sector to continue to drive industrial production in the coming months.
Brazilian exports dropped by only 0.7 percent in December 2009 compared to a year earlier. This was the smallest year-over-year decline in 12 months and could be signaling a slow recovery in the country’s exports during this year. Meanwhile, imports increased by 6.7 percent, taking the monthly surplus to $1.4 billion and the annual surplus to $24.6 billion.
Brazilian retail sales surged by 8.4 percent during October 2009 compared to the same month a year earlier. This is likely a signal that the government’s efforts to reinvigorate domestic consumption have been successful.
With exports recovering from last year’s slump and domestic consumption accelerating, the risks for higher inflation in the coming months will likely increase. Consumer prices increased by 0.41 percent in November to 4.22 percent year over year. On the positive side, wholesale prices dropped again, by 0.29 percent in December and by 4.1 percent year over year.
Brazilian Industrial Production IndexYear-over-Year Percent Change
-20%
-15%
-10%
-5%
0%
5%
10%
15%
1997 1999 2001 2003 2005 2007 2009-20%
-15%
-10%
-5%
0%
5%
10%
15%
IPI: Nov @ 4.0%3-Month Moving Average: Nov @ -2.2%
Brazilian Exchange RateBRL per USD
1.00
1.50
2.00
2.50
3.00
3.50
4.00
99 00 01 02 03 04 05 06 07 08 09 101.00
1.50
2.00
2.50
3.00
3.50
4.00
BRL per USD: Jan @ 1.744
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
Chile
Chilean Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
The IMACEC index, which measures economic activity in the country, increased in November 2009 for the first time in 12 months. The index increased by 3.1 percent year over year and was complemented by a 1.2 percent increase compared to October on a seasonally adjusted basis. This suggests that the Chilean economy has started its recovery.
Consumer prices dropped again in December, this time by 0.3 percent to take the year-over-year inflation rate to -1.4 percent, up from a -2.3 percent rate recorded for the 12 months ended in November. The strong appreciation of the Chilean peso is probably one of the reasons for this result even as the economy enters a recovery path.
The Chilean peso ended 2009 at 506.4 pesos per U.S. dollar, an appreciation of 26 percent compared to December 2008 when the peso stood at 638 pesos per dollar. However, on average, the peso actually depreciated by 4.4 percent during 2009 compared to the previous year. The difference between these measures gives an account of the severity of the drop of the peso and the rapid recovery afterwards.
Chilean exports continued to accelerate on a year-over-year basis. Exports surged by 51.9 percent in December. Meanwhile, imports increased by 2.2 percent during the same period. The country achieved a trade surplus of $13.3 billion during 2009, a 50.5 percent improvement from the $8.8 billion surplus recorded in 2008.
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
19
China
China Real GDPYear-over-Year Percent Change
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2000 2002 2004 2006 20080.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Year-over-Year Percent Change: Q3 @ 8.9%
Chinese Industrial Production IndexYear-over-Year Percent Change of 3-Month Moving Average
0%
5%
10%
15%
20%
25%
1999 2001 2003 2005 2007 20090%
5%
10%
15%
20%
25%
Year-over-Year Industrial Production: Nov @ 19.2%
3-Month Moving Average: Nov @ 16.4%
The year-over-year rate of real GDP growth slowed to only 6 percent in the first quarter of 2009, but it subsequently rebounded to about 9 percent in the third quarter. Available monthly indicators (e.g., industrial production) point to further acceleration in economic activity in the fourth quarter.
Unlike most western countries, China’s financial system was not overly leveraged in the years leading up to the global credit meltdown. Therefore, Chinese banks had the ability to continue lending. The Chinese government removed most lending restrictions that were put in place when inflation was raging two years ago. In addition, the government stimulated the economy via acceleration of planned infrastructure spending.
Will China soon crash due to excessively strong lending growth? Although a number of loans that have been made over the past year will undoubtedly go bad, we do not look for a bursting of a credit market bubble in the next year or two because the Chinese financial system is not overly levered at present.
The overall rate of CPI inflation is very low at present—only 0.6 percent in November—and the core rate of inflation is still slightly negative. Although Chinese authorities are in no hurry to slam on the brakes, the economy no longer needs excessive stimulus. The Chinese government probably will start to tighten policy over the next few months.
Chinese Loan GrowthYear-over-Year Percent Change
0%
5%
10%
15%
20%
25%
30%
35%
99 01 03 05 07 090%
5%
10%
15%
20%
25%
30%
35%
Chinese Loan Growth: Nov @ 33.9%
Chinese CPI InflationYear-over-Year Percent Change
-4%
-2%
0%
2%
4%
6%
8%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009-4%
-2%
0%
2%
4%
6%
8%
10%Overall CPI: Nov @ 0.6%
Non-food CPI: Nov @ -0.7%
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
India
Indian Real GDPYear-over-Year Percent Change
0%
3%
6%
9%
12%
2000 2002 2004 2006 20080%
3%
6%
9%
12%
Year-over-Year Percent Change: Q3 @ 7.9%
Indian Industrial Production IndexYear-over-Year Percent Change
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
1997 1999 2001 2003 2005 2007 2009-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%3-Month Moving Average: Nov @ 10.6%
The Indian economy felt the effects of the global recession early in 2009 as economic growth slowed noticeably. However, the overall rate of real GDP growth bounced back to 7.9 percent in the third quarter, and recent data suggest that the expansion continued into the fourth quarter. Growth in industrial production returned to double-digit territory in November, and the manufacturing PMI remained strong through December.
A rebound in exports is playing a role in the acceleration in the Indian economy as exports have trended higher since their nadir in early 2009. However, domestic demand is doing its part as well. For example, auto sales, were up nearly 15 percent in 2009 relative to their selling rate during the previous year.
Wholesale price inflation, which is the benchmark inflation gauge in India, has moved back into positive territory. With recovery taking hold and inflation starting to trend higher, the RBI will probably start to take back some of its rate cuts in the near term.
Agricultural output, which accounts for nearly 20 percent of Indian GDP, has been depressed by the drier-than-normal monsoon in 2009. Although the bad monsoon will not derail the entire economy, the year-over-year GDP growth rate could be restrained a bit over the next quarter or two. Moreover, food price inflation has risen sharply over the past few months.
Indian Wholesale Price InflationYear-over-Year Percent Change
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
21
Mexico
Mexican Real GDPYear-over-Year Percent Change
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2004 2005 2006 2007 2008 2009-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Year-over-Year Percent Change: Q3 @ -6.2%
Industrial Production IndicesYear-over-Year Percent Change
-15%
-10%
-5%
0%
5%
10%
1999 2001 2003 2005 2007 2009-15%
-10%
-5%
0%
5%
10%
Mexico, 3-Month Moving Average: Oct @ -6.2%U.S.: Nov @ -5.1%
The Mexican economy improved its performance during the third quarter of 2009 even though the country’s GDP still posted a large drop of 6.2 percent versus a year ago. However, this compares positively with the drop of 10.1 percent recorded during the second quarter. While we are envisioning a gradual recovery in economic activity, we still expect a negative reading for the last quarter of the year.
Mexican exports increased for the first time in 13 months, posting a 10.0 percent year-over-year increase in November 2009. Meanwhile, imports dropped by 3.2 percent during the same period. The year-to-date trade deficit stood at $6.58 billion, down from $9.35 billion at the end of October. We expect exports to continue to recover but for the recovery to be slow.
In 2009, the Mexican peso increased in value versus the U.S. dollar in terms of where it ended in 2008 and where it ended in 2009. However, the peso actually depreciated versus the dollar when considered by comparing average trading value between the two years. We expect the peso to remain strong in 2010 as the economy continues to recover.
While Mexican consumer price growth is finally within the Central Bank’s target, the “core” inflation rate has remained stubbornly high and could threaten overall prices in the coming months. Furthermore, the government has decided to increase gasoline prices, and this could further pressure on inflation.
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
Poland
Polish Real GDP Year-over-Year Percent Change
0.0%
3.0%
6.0%
9.0%
1995 1997 1999 2001 2003 2005 2007 20090.0%
3.0%
6.0%
9.0%
Year-over-Year Percent Change: Q3 @ 1.7%
Polish Industrial Production IndexYear-over-Year Percent Change
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Jan 2008 Jul 2008 Jan 2009 Jul 2009-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
IPI: Nov @ 9.8%
Poland remains the diamond in the rough in the central European region. Real GDP rose 1.7 percent year-over-year in the third quarter, and never saw negative year-over-year growth during the global slowdown. Third-quarter growth was driven by a 0.8 percent quarter-over-quarter increase in private consumption. The contribution from trade moderated as exports rose 2.3 percent, while imports rose a stronger 4.8 percent. The sharp depreciation of the zloty at the beginning of the year helped to shore up the trade balance and support growth, but its appreciation over the last several months is now starting to have an adverse impact on trade. Gross investment was a drag on growth, falling 3.2 percent.
The manufacturing sector is reflecting Poland’s relative economic strength. Industrial production jumped 9.8 percent year-over-year in November, the biggest increase since April 2008. Meanwhile, the manufacturing PMI jumped to 52.4 in November, posting the largest monthly gain since January 2008 and the first expansionary reading since April 2008, and held that mark in December. The survey’s employment index also showed expansion for the first time since April 2008.
Inflation remains above target, coming in at 3.3 percent year-over-year in November. However, the zloty’s recent appreciation, falling real wages and weak lending have allowed the central bank to keep interest rates at record lows since June. A neutral stance is expected for most of 2010.
Polish Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
23
Russia
Russian Real GDPYear-over-Year Percent Change
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Year-over-Year Percent Change: Q3 @ -8.9%
Russian Merchandise Trade BalanceBillions of USD, Seasonally Adjusted
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
1999 2001 2003 2005 2007 2009$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20Merchandise Trade Balance: Oct @ $11.1B
Russian real GDP was down 8.9 percent year 0ver year in the third quarter. This was an improvement over the 10.9 percent drop in the previous quarter. The decline was led by a sharp 11.6 percent plunge in household consumption as consumers continue to grapple with high unemployment, and falling real wages and tight credit conditions. Tight credit also curbed gross capital formation, which was down 33.1 percent. Trade contributed to growth as exports were down only 2.1 percent compared to an 18.9 percent drop in the second quarter, while imports were still down 30.1 percent. Higher oil prices have fueled export growth, while lackluster fixed investment has held down imports of machinery and equipment.
More recent data on the production front have been mixed. Industrial production rose 2.0 percent in November from October, and the 1.5 percent growth from a year earlier was the first such positive figure in 13 months. While a low basis for comparison was certainly a factor, the increase is a welcome sign nonetheless. However, a drop in the December PMI to 48.8 shows that the recovery remains fragile.
Continued slack in the economy led to a further decline in inflation in December, coming in at 8.9 percent year over year, the lowest in more than two years. This has allowed the central bank to continue its accommodative monetary policy, and the rate was cut for the 10th time in 2009 to a record-low 8.75 percent in December.
Russian Industrial Production IndexYear-over-Year Percent Change
South African Merchandise Trade BalanceBillions of Rand, Not Seasonally Adjusted
-20,000
-15,000
-10,000
-5,000
0
5,000
10,000
1997 1999 2001 2003 2005 2007 2009-20,000
-15,000
-10,000
-5,000
0
5,000
10,000
Merchandise Trade Balance: Nov @ -24,745.7
Positive economic growth returned to South Africa in the third quarter as GDP grew at an annualized rate of 0.9 percent. The budding recovery was led by gains in manufacturing and government infrastructure as Africa’s biggest economy prepares to host soccer’s World Cup later this year.
South Africa’s trade gap narrowed more than the consensus had expected in November as imports reflected weak domestic demand. Exports—particularly exports of precious minerals and stones—increased. While trade figures have a tendency to be choppy, we do not expect imports to begin to strengthen until the recovery builds momentum and the South African consumer begins spending in earnest.
Despite the strength in exports, the rest of the economy remains rather weak. Wholesale and retail trade both weighed on third quarter GDP growth. Year-over-year retail sales numbers have been in negative territory since February of 2009. A recovery outside of government subsidies and exports has yet to materialize in a substantial way.
South Africa’s inflation rate remained within the Reserve Bank’s 3 percent to 6 percent target band for a second month in November, further adding to expectations that the Reserve Bank will leave the repurchase rate unchanged at 7.00 percent. With unemployment still north of 20 percent in South Africa, the bank remains under a fair amount of pressure to keep policy accommodative.
Real South African Retail SalesYear-over-Year Percent Change
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
2003 2004 2005 2006 2007 2008 2009-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
Wholesale & Retail Sales: Oct @ -6.5%
South African Consumer Price IndexYear-over-Year Percent Change
0%
3%
6%
9%
12%
15%
2003 2005 2007 20090%
3%
6%
9%
12%
15%
CPI: Nov @ 5.8%
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
24
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
Turkish Industrial Production IndexYear-over-Year Percent Change
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1997 1999 2001 2003 2005 2007 2009-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
IPI: Nov @ -2.2%3-Month Moving Average: Nov @ -1.6%
The year-over-year contraction in Turkish GDP slowed to just 3.3 percent in the third quarter of 2009. Inventory replenishment had a positive contribution to GDP. Both exports and imports saw smaller year-over-year declines as global trade recovers. Government spending also provided a boost, rising 5.2 percent.
Without an IMF agreement in place, the government had more flexibility to expand fiscal and monetary policy to support the economy. This may have provided some positive offset to falling household consumption, which was down only 0.2 percent from the prior year.
Turkish industrial production rose 6.5 percent year over year in October, before giving back 2.2 percent in November, leaving the three-month moving average at -1.6 percent. The relative improvement has largely been driven by external demand as domestic demand remains constrained by high unemployment and tight credit conditions.
Inflation has started to accelerate, rising 6.5 percent year-over-year in December, but some of this can be attributed to lower than average prices a year ago, which creates a low basis for comparison. Still, prices did rise 1.3 percent month-over-month. Combined with the budding recovery this may have been what caused the central bank to end its rate easing cycle in December.
Market rates could rise if heavy domestic government borrowing continues.
The weighted-average value of the dollar fell about 5 percent last year. Although the greenback rose sharply in late 2008/early 2009 as risk aversion spiked, it gave up its gains over the remainder of the year as investors became less risk averse.
Net capital inflows weakened throughout most of 2009 as extremely low rates of return reduced the attractiveness of U.S. fixed income securities. Foreign investors also eschewed exposure to the U.S. housing market through net redemptions of agency securities and securitized fixed income products. In addition, U.S. purchases of foreign securities strengthened in 2009 as American investors sought higher rates of return abroad.
The U.S current account deficit has narrowed considerably from its peak in 2006. Not only did petroleum imports decline sharply, but non-oil imports also weakened because of the deep recession. Exports also declined, but by less than imports.
Wells Fargo projects that the dollar will appreciate modestly over the next few quarters versus most major currencies as the U.S. economic recovery prompts foreign buying of higher yielding U.S. assets. However, “commodity” and emerging market currencies likely will appreciate further on a trend basis as commodity prices continue to grind higher and as increasing levels of risk tolerance causes capital to flow to those countries.
U.S. Purchases of Foreign SecuritiesBillions of Dollars
-$45
-$30
-$15
$0
$15
$30
$45
$60
2004 2005 2006 2007 2008 2009-$45
-$30
-$15
$0
$15
$30
$45
$60
Purchases of Foreign Securities: Oct @ $23B
3-Month Moving Average: Oct @ $14B
Current Account DeficitQuarterly in Billions of Dollars, Seasonally Adjusted
-$240
-$200
-$160
-$120
-$80
-$40
$0
$40
92 94 96 98 00 02 04 06 08-$240
-$200
-$160
-$120
-$80
-$40
$0
$40
Balance on Current Account: Q3 @ $-108.0 B
Source: Bloomberg LP, Federal Reserve Board, IHS Global Insight,
Intl. Monetary Fund and Wells Fargo Securities, LLC
26
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
27
Energy
Crude OilNYMEX Front-Month Contract, Dollars per Barrel
After collapsing from their all-time high in July 2008, oil prices have trended higher over the past year. The recent upturn in global economic activity is helping to spur a modest recovery in petroleum demand. More recently, colder-than-usual weather in North America has helped to boost demand.
Global supply has declined a bit, which is also helping to support prices. The combination of slightly higher demand and the marginal reduction in supply has caused stocks of petroleum products to drop. Although crude oil inventories are still a bit higher than they were last year at this time, excess stocks have been pared back significantly over the past few months. Distillate inventories, which rose significantly in the second half of last year, are starting to retreat. Stocks of gasoline remain well contained.
We project that oil prices will grind slowly higher in the quarters ahead. Oil demand should rise further as the global economy continues to recover.
Natural gas prices are beginning to rise again after hitting a seven-year low in September. The modest increase in U.S. industrial production since summer is helping to lift demand from very depressed levels, and the recent cold snap in the United States has also helped to boost prices. Natural gas in storage is ample at present, but storage is not as excessive currently as it was in early 2009.
Natural GasHenry Hub Spot, Dollars per MMBTU
$0
$2
$4
$6
$8
$10
$12
$14
$16
2005 2006 2007 2008 2009 2010$0
$2
$4
$6
$8
$10
$12
$14
$16
Natural Gas: Jan @ $6.05
Natural Gas StorageYear-over-Year Percent Change
-30%
-15%
0%
15%
30%
45%
2005 2006 2007 2008 2009 2010-30%
-15%
0%
15%
30%
45%
Natural Gas Storage: Dec @ 13.9%
Source: Bloomberg LP, IHS Global Insight and
Wells Fargo Securities, LLC
Global Chartbook: January 2010 WELLS FARGO SECURITIES, LLC January 14, 2010 ECONOMICS GROUP
28
We
lls
Fa
rg
o I
nte
rna
tio
na
l In
tere
st R
ate
Fo
rec
ast
(End
of
Qua
rter
Rate
s)3-M
onth
LIB
OR
10-
Year
Bon
d20
1020
1120
10
201
1Q1
Q2
Q3
Q4
Q1
Q2
Q1
Q2
Q3
Q4
Q1
Q2
U.S
.0.3
0%0.
35%
0.55
%0.
80%
1.50
%2.
35%
3.8
0%4
.00%
4.2
0%4.
40%
4.50
%4.
60%
Japan
0.3
0%0.
30%
0.30
%0.
30%
0.30
%0.
30%
1.3
0%1
.35%
1.4
5%1.
55%
1.60
%1.
70%
Eur
ola
nd0.7
0%0.
80%
1.00
%1.
50%
2.00
%2.
75%
3.3
0%3
.50%
3.9
0%4.
25%
4.40
%4.
45%
U.K
.0.6
0%0.
65%
0.90
%1.
45%
2.20
%3.
20%
3.8
0%3
.90%
4.2
0%4.
50%
4.60
%4.
75%
Can
ada
0.5
0%0.
60%
1.00
%2.
00%
3.00
%3.
75%
3.5
0%3
.60%
4.0
0%4.
30%
4.40
%4.
45%
Fore
cast
as
of:
Jan
uary
13,
201
0
We
lls
Fa
rgo
In
tern
ati
on
al
Ec
on
om
ic F
ore
ca
st(Y
ear-
ove
r-Y
ear
Perc
ent
Ch
ang
e)
GDP
CPI
2009
2010
2011
2009
2010
201
1
Glo
bal (P
PP
weig
hts
)-0.7
%4.0
%4
.2%
2.7
%4.1
%4.1
%G
lobal (M
ark
et
Exc
hange R
ate
s)
-1.9
%2.8
%3
.0%
n/a
n/a
n/a
Advanced E
conom
ies1
-3.3
%2.4
%2
.6%
-0.3
%1.7
%1.8
%U
nit
ed S
tate
s-2.4
%2.7
%2
.5%
-0.3
%2.3
%2.1
%Eu
rozo
ne
-3.9
%1.6
%2
.6%
0.3
%1.5
%1.5
%U
nit
ed K
ingdom
-4.8
%1.7
%2
.5%
2.1
%2.5
%2.0
%Ja
pan
-5.2
%2.2
%1
.6%
-1.3
%-0
.6%
0.5
%Ko
rea
0.4
%5.2
%3
.6%
2.8
%2.7
%2.9
%C
anada
-2.6
%2.2
%2
.8%
0.3
%2.3
%1.9
%
Develo
pin
g E
conom
ies1
2.4
%5.9
%6
.0%
6.4
%6.9
%6.9
%C
hin
a8.5
%9.4
%9
.0%
-0.7
%2.3
%2.8
%In
dia
7.0
%8.1
%8
.3%
11.1
%10.3
%7.7
%M
exic
o-6.9
%2.8
%3
.1%
5.3
%4.0
%4.2
%Bra
zil
-0.9
%2.9
%3
.5%
4.9
%4.8
%4.8
%Ru
ssia
-7.3
%3.0
%4
.1%
11.8
%7.0
%9.0
%
Fore
cast
as
of:
Jan
uary
13
, 20
10
1A
ggre
gat
ed U
sing
PP
P W
eig
hts
We
lls
Fa
rgo
Ba
nk
Cu
rre
ncy
Str
ate
gy G
rou
p F
ore
ca
st(E
nd
of
Quart
er
Rate
s)
2010
2011
Q1
Q2
Q3
Q4
Q1
Q2
Ma
jor
Curr
enc
ies
Euro
($/€
)1.4
41.4
31.3
91.3
41.3
11.3
0U
.K.
($/£
)1.6
21.6
11.5
81.5
61.5
51.5
6U
.K.
(£/€
)0.8
90.8
90.8
80.8
60.8
40.8
4Ja
pan (
¥/$
)92
94
97
101
105
109
Canada
(C$
/US
$)
1.0
31.0
41.0
61.0
91.1
11.1
2S
wit
zerla
nd (
CH
F/$
)1.0
21.0
41.0
71.1
21.1
51.1
7
Oth
er
Curr
encie
sA
ust
ralia
(U
S$/A
$)
0.9
30.9
40.9
30.9
10.8
90.8
7C
hin
a (
CN
Y/$
)6.8
26.8
26.7
96.7
16.6
16.5
1S
outh
Ko
rea (
$/K
RW
)1109
1083
1058
1067
1092
1100
Sin
gapore
($/S
GD
)1.3
81.3
81.3
91.4
11.4
31.4
5T
aiw
an (
$/T
WD
)3
1.7
73
1.5
83
1.6
73
1.7
53
1.9
23
2.1
7M
exic
o (
$/M
XN
)1
2.7
61
2.7
51
2.5
81
2.3
31
2.0
81
2.0
0N
orw
ay
(NO
K/$
)5.6
35.5
85.6
55.7
95.9
46.0
5S
weden (
SEK
/$)
7.0
27.0
37.1
27.2
87.4
27.5
1
Fore
cast
as
of:
Jan
uary
14,
201
0
Sou
rce:
Wel
ls F
argo
Sec
uri
ties
, LL
C a
nd
Wel
ls F
arg
o B
ank,
NA
We
lls
Fa
rg
o I
nte
rna
tio
na
l In
tere
st R
ate
Fo
rec
ast
(End
of
Qua
rter
Rate
s)3-M
onth
LIB
OR
10-
Year
Bon
d20
1020
1120
10
201
1Q1
Q2
Q3
Q4
Q1
Q2
Q1
Q2
Q3
Q4
Q1
Q2
U.S
.0.3
0%0.
35%
0.55
%0.
80%
1.50
%2.
35%
3.8
0%4
.00%
4.2
0%4.
40%
4.50
%4.
60%
Japan
0.3
0%0.
30%
0.30
%0.
30%
0.30
%0.
30%
1.3
0%1
.35%
1.4
5%1.
55%
1.60
%1.
70%
Eur
ola
nd0.7
0%0.
80%
1.00
%1.
50%
2.00
%2.
75%
3.3
0%3
.50%
3.9
0%4.
25%
4.40
%4.
45%
U.K
.0.6
0%0.
65%
0.90
%1.
45%
2.20
%3.
20%
3.8
0%3
.90%
4.2
0%4.
50%
4.60
%4.
75%
Can
ada
0.5
0%0.
60%
1.00
%2.
00%
3.00
%3.
75%
3.5
0%3
.60%
4.0
0%4.
30%
4.40
%4.
45%
Fore
cast
as
of:
Jan
uary
13,
201
0
We
lls
Fa
rgo
In
tern
ati
on
al
Ec
on
om
ic F
ore
ca
st(Y
ear-
ove
r-Y
ear
Perc
ent
Ch
ang
e)
GDP
CPI
2009
2010
2011
2009
2010
201
1
Glo
bal (P
PP
weig
hts
)-0.7
%4.0
%4
.2%
2.7
%4.1
%4.1
%G
lobal (M
ark
et
Exc
hange R
ate
s)
-1.9
%2.8
%3
.0%
n/a
n/a
n/a
Advanced E
conom
ies1
-3.3
%2.4
%2
.6%
-0.3
%1.7
%1.8
%U
nit
ed S
tate
s-2.4
%2.7
%2
.5%
-0.3
%2.3
%2.1
%Eu
rozo
ne
-3.9
%1.6
%2
.6%
0.3
%1.5
%1.5
%U
nit
ed K
ingdom
-4.8
%1.7
%2
.5%
2.1
%2.5
%2.0
%Ja
pan
-5.2
%2.2
%1
.6%
-1.3
%-0
.6%
0.5
%Ko
rea
0.4
%5.2
%3
.6%
2.8
%2.7
%2.9
%C
anada
-2.6
%2.2
%2
.8%
0.3
%2.3
%1.9
%
Develo
pin
g E
conom
ies1
2.4
%5.9
%6
.0%
6.4
%6.9
%6.9
%C
hin
a8.5
%9.4
%9
.0%
-0.7
%2.3
%2.8
%In
dia
7.0
%8.1
%8
.3%
11.1
%10.3
%7.7
%M
exic
o-6.9
%2.8
%3
.1%
5.3
%4.0
%4.2
%Bra
zil
-0.9
%2.9
%3
.5%
4.9
%4.8
%4.8
%Ru
ssia
-7.3
%3.0
%4
.1%
11.8
%7.0
%9.0
%
Fore
cast
as
of:
Jan
uary
13
, 20
10
1A
ggre
gat
ed U
sing
PP
P W
eig
hts
We
lls
Fa
rgo
Ba
nk
Cu
rre
ncy
Str
ate
gy G
rou
p F
ore
ca
st(E
nd
of
Quart
er
Rate
s)
2010
2011
Q1
Q2
Q3
Q4
Q1
Q2
Ma
jor
Curr
enc
ies
Euro
($/€
)1.4
41.4
31.3
91.3
41.3
11.3
0U
.K.
($/£
)1.6
21.6
11.5
81.5
61.5
51.5
6U
.K.
(£/€
)0.8
90.8
90.8
80.8
60.8
40.8
4Ja
pan (
¥/$
)92
94
97
101
105
109
Canada
(C$
/US
$)
1.0
31.0
41.0
61.0
91.1
11.1
2S
wit
zerla
nd (
CH
F/$
)1.0
21.0
41.0
71.1
21.1
51.1
7
Oth
er
Curr
encie
sA
ust
ralia
(U
S$/A
$)
0.9
30.9
40.9
30.9
10.8
90.8
7C
hin
a (
CN
Y/$
)6.8
26.8
26.7
96.7
16.6
16.5
1S
outh
Ko
rea (
$/K
RW
)1109
1083
1058
1067
1092
1100
Sin
gapore
($/S
GD
)1.3
81.3
81.3
91.4
11.4
31.4
5T
aiw
an (
$/T
WD
)3
1.7
73
1.5
83
1.6
73
1.7
53
1.9
23
2.1
7M
exic
o (
$/M
XN
)1
2.7
61
2.7
51
2.5
81
2.3
31
2.0
81
2.0
0N
orw
ay
(NO
K/$
)5.6
35.5
85.6
55.7
95.9
46.0
5S
weden (
SEK
/$)
7.0
27.0
37.1
27.2
87.4
27.5
1
Fore
cast
as
of:
Jan
uary
14,
201
0
We
lls
Fa
rg
o I
nte
rna
tio
na
l In
tere
st R
ate
Fo
rec
ast
(End
of
Qua
rter
Rate
s)3-M
onth
LIB
OR
10-
Year
Bon
d20
1020
1120
10
201
1Q1
Q2
Q3
Q4
Q1
Q2
Q1
Q2
Q3
Q4
Q1
Q2
U.S
.0.3
0%0.
35%
0.55
%0.
80%
1.50
%2.
35%
3.8
0%4
.00%
4.2
0%4.
40%
4.50
%4.
60%
Japan
0.3
0%0.
30%
0.30
%0.
30%
0.30
%0.
30%
1.3
0%1
.35%
1.4
5%1.
55%
1.60
%1.
70%
Eur
ola
nd0.7
0%0.
80%
1.00
%1.
50%
2.00
%2.
75%
3.3
0%3
.50%
3.9
0%4.
25%
4.40
%4.
45%
U.K
.0.6
0%0.
65%
0.90
%1.
45%
2.20
%3.
20%
3.8
0%3
.90%
4.2
0%4.
50%
4.60
%4.
75%
Can
ada
0.5
0%0.
60%
1.00
%2.
00%
3.00
%3.
75%
3.5
0%3
.60%
4.0
0%4.
30%
4.40
%4.
45%
Fore
cast
as
of:
Jan
uary
13,
201
0
We
lls
Fa
rgo
In
tern
ati
on
al
Ec
on
om
ic F
ore
ca
st(Y
ear-
ove
r-Y
ear
Perc
ent
Ch
ang
e)
GDP
CPI
2009
2010
2011
2009
2010
201
1
Glo
bal (P
PP
weig
hts
)-0.7
%4.0
%4
.2%
2.7
%4.1
%4.1
%G
lobal (M
ark
et
Exc
hange R
ate
s)
-1.9
%2.8
%3
.0%
n/a
n/a
n/a
Advanced E
conom
ies1
-3.3
%2.4
%2
.6%
-0.3
%1.7
%1.8
%U
nit
ed S
tate
s-2.4
%2.7
%2
.5%
-0.3
%2.3
%2.1
%Eu
rozo
ne
-3.9
%1.6
%2
.6%
0.3
%1.5
%1.5
%U
nit
ed K
ingdom
-4.8
%1.7
%2
.5%
2.1
%2.5
%2.0
%Ja
pan
-5.2
%2.2
%1
.6%
-1.3
%-0
.6%
0.5
%Ko
rea
0.4
%5.2
%3
.6%
2.8
%2.7
%2.9
%C
anada
-2.6
%2.2
%2
.8%
0.3
%2.3
%1.9
%
Develo
pin
g E
conom
ies1
2.4
%5.9
%6
.0%
6.4
%6.9
%6.9
%C
hin
a8.5
%9.4
%9
.0%
-0.7
%2.3
%2.8
%In
dia
7.0
%8.1
%8
.3%
11.1
%10.3
%7.7
%M
exic
o-6.9
%2.8
%3
.1%
5.3
%4.0
%4.2
%Bra
zil
-0.9
%2.9
%3
.5%
4.9
%4.8
%4.8
%Ru
ssia
-7.3
%3.0
%4
.1%
11.8
%7.0
%9.0
%
Fore
cast
as
of:
Jan
uary
13
, 20
10
1A
ggre
gat
ed U
sing
PP
P W
eig
hts
We
lls
Fa
rgo
Ba
nk
Cu
rre
ncy
Str
ate
gy G
rou
p F
ore
ca
st(E
nd
of
Quart
er
Rate
s)
2010
2011
Q1
Q2
Q3
Q4
Q1
Q2
Ma
jor
Curr
enc
ies
Euro
($/€
)1.4
41.4
31.3
91.3
41.3
11.3
0U
.K.
($/£
)1.6
21.6
11.5
81.5
61.5
51.5
6U
.K.
(£/€
)0.8
90.8
90.8
80.8
60.8
40.8
4Ja
pan (
¥/$
)92
94
97
101
105
109
Canada
(C$
/US
$)
1.0
31.0
41.0
61.0
91.1
11.1
2S
wit
zerla
nd (
CH
F/$
)1.0
21.0
41.0
71.1
21.1
51.1
7
Oth
er
Curr
encie
sA
ust
ralia
(U
S$/A
$)
0.9
30.9
40.9
30.9
10.8
90.8
7C
hin
a (
CN
Y/$
)6.8
26.8
26.7
96.7
16.6
16.5
1S
outh
Ko
rea (
$/K
RW
)1109
1083
1058
1067
1092
1100
Sin
gapore
($/S
GD
)1.3
81.3
81.3
91.4
11.4
31.4
5T
aiw
an (
$/T
WD
)3
1.7
73
1.5
83
1.6
73
1.7
53
1.9
23
2.1
7M
exic
o (
$/M
XN
)1
2.7
61
2.7
51
2.5
81
2.3
31
2.0
81
2.0
0N
orw
ay
(NO
K/$
)5.6
35.5
85.6
55.7
95.9
46.0
5S
weden (
SEK
/$)
7.0
27.0
37.1
27.2
87.4
27.5
1
Fore
cast
as
of:
Jan
uary
14,
201
0
Sou
rce:
Wel
ls F
argo
Sec
uri
ties
, LL
C a
nd
Wel
ls F
arg
o B
ank,
NA
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg Global Head of Research & Economics