Keynote - GRI European Summit 2011

Global Economic Outlook 2012GRI Europe Summit 2011Paris, 8 September 2011

Dr. Jürgen Pfister, Chief Economist and Head of Research

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Agenda

» World economy under stress: Two-speed recovery, rising commodity prices, ongoing tensions in the financial sector, eroding confidence in public finances, shift in market sentiment from inflation fear to recession panic

» US economy: Structural rather than cyclical weaknesses

» Europe: Slow recovery, but upswing continues

» Sovereign debt crisis in the euro area: Politics vs. markets

» Interest rate outlook: Low rates for quite a while

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Global economy: Two-speed recovery (1)Inflation and seasonally-adjusted GDP vs. trend, quarterly figures, first quarter 2000=100

90

120

150

180

210

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Advanced economies Emerging markets

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US: Slow recoveryInflation and seasonally-adjusted GDP, change on previous period in percent, annualized

-6

-4

-2

0

2

4

6

H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012

Forecast

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US: Adjustment to losses in wealth completedPrivate household saving rate in percent and change in net worth in trillions of dollars

1)

1) Saving rate: H1 2011; net worth: Q1 2011

-15

-10

-5

0

5

10

2005 2006 2007 2008 2009 2010 2011

0

2

4

6

8

10

Net worth (rs) Saving rate (ls)

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US: Widening gapShare of government outlays and revenues in percent of GDP

25

30

35

40

2003 2004 2005 2006 2007 2008 2009 2010 2011

Outlays Revenues

Deficit

Gross-government debt as percentage of GDP

99% End-2011:

61% End-2006:

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Euro area: Slow recoveryInflation-adjusted GDP, change on previous period in percent

-6.0

-4.0

-2.0

0.0

2.0

4.0

2009 2010 2011 2012

UK ER FR DE

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Euro area: Two-speed recovery (2)Inflation and seasonally-adjusted GDP, first quarter 2008=100

94

96

98

100

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Euro area (ex. GR, IE, PT, ES, IT) GR, IE, PT, ES, IT

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Euro area: Slow progress towards sustainable public financesGeneral government deficit and gross debt as percent of GDP

0

3

6

9

12

15

18

GR IE PT ES IT FR DE

2009 2011

[112][158]

[102][68]

[120]

[85]

[82]

[Debt level]

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Sovereign debt crisis: Still unresolved

• Politicians are “behind the curve“ compared to market participants since the beginning of the crisis.

• The often-repeated official statement: “We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States“ (21 July 2011) is still not trusted by market participants.

• In the short term, intervention by official institutions (EFSF, ECB) is unavoidable. In the medium to long term, institutional changes (EU treaty) are needed which incorporate a shift of sovereignty in fiscal policy to EU/EMU level.

• The euro will survive as a stable currency (internally and externally).

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US/Euro area: ECB ahead of the Fed In percent p.a.

0

1

2

3

4

5

6

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Fed Funds Target Rate ECB Main Refinancing Rate Forecast

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Bond markets: Low bond yields for a whileYields on ten-year government bonds, monthly averages in percent

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Sep2008

Dec2008

Mar2009

Jun2009

Sep2009

Dec2009

Mar2010

Jun2010

Sep2010

Dec2010

Mar2011

Jun2011

Sep2011

Dec2011

Mar2012

Jun2012

Sep2012

Bunds Treasuries Forecast

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Summary

• The global upswing will continue despite new challenges. But the upswing will continue to be two-speed, with global imbalances, fiscal tightening, a weakened banking system and high commodity prices.

• The US will continue its (very) risky course in fiscal and monetary policies. The dollar will remain under downward pressure.

• The European economy will continue to be marked by divergence in 2011. The sovereign debt crisis will be manageable if the political will exists at both national and EU level.

• Inflation in 2011 and 2012 in the US and euro area will be low. The ECB will continue to raise rates cautiously (year-end: 1.75%).

• In the euro area yield spreads on government bonds will be wide unless a convincing and lasting solution to the sovereign debt crisis is agreed.

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General Note

This publication constitutes research of a non-binding nature on the market situation and

the investment instruments cited here at the time of the publication of this information on

9 April 2023. This research is, to the best of our knowledge, based on generally accessible

sources which are reliable and accurate. However, no liability can be accepted for any

errors or inaccuracies in information derived from these sources. The information used in

this publication has not been checked for accuracy, completeness or relevance to current

events. Consequently, no guarantee can be assumed for the completeness and accuracy

of this report. This publication is for information only. It is not intended as a substitute for

individual professional advice on investments and assets. Our investment consultants are

at your disposal should you wish to procure additional up-to-date information.

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Dr. Jürgen Pfister Chief Economist and Head of Research

Phone: +49 (0)89.2171.21750Email: [email protected]

Thank you for your attention!