Nomura Securities International Inc. See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures Global Economic Outlook Monthly Economics Research | North America Suspending disbelief 15 OCTOBER 2012 Financial markets have positioned for a smooth path to sovereign debt relief in Europe and deficit reduction in the US. COUNTRY AND REGIONAL ECONOMIC OUTLOOKS Australia | Slower growth in H2, but back to trend by 2013 4 Brazil | Inflation storm on the horizon 5 Canada | Steady as she goes; growth around trend in H2 2012 6 China | Leading indicators suggest an economic recovery in Q4 7 Euro area | Deeper and more protracted contraction as consolidation bites 8 Hong Kong | Looming fiscal stimulus 9 Hungary | Little clarity on backstop path, rate cuts could still occur 10 India | Still a lot needs to be done 11 Indonesia | Some improvement 12 Japan | Weaker external demand likely leads to a recession in H2 2012 13 Malaysia | Signalling fiscal responsibility 14 Mexico | Growth supported by domestic demand 15 Philippines | Sticking to an easing bias 16 Poland | NBP dovishness but not ready to cut - growth still outperforming 17 Singapore | Tolerating slower growth 18 South Africa | Structural MPC dovishness in a year of crucial political battles 19 South Korea | Prolonged sub-potential growth 20 Taiwan | Hinges on the global outlook 21 Thailand | New growth engines 22 Turkey | A healthy rebalancing 23 United Kingdom | Inflections 24 United States | US budget in the crosshairs 25 Rest of EEMEA 26 Rest of Latin America 27 Global Economics [email protected]Contributor names can be found within the body of this report and on the back cover This report can be accessed electronically via: www.nomura.com/research or on Bloomberg (NOMR)
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Nomura | Global Economic Outlook Monthly 15 October 2012
Nomura Securities International Inc.
See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures
Global Economic Outlook Monthly
Economics Research | North America
Suspending disbelief 15 OCTOBER 2012
Financial markets have positioned for a smooth path to sovereign debt relief in Europe and deficit reduction in the US.
COUNTRY AND REGIONAL ECONOMIC OUTLOOKS
Australia | Slower growth in H2, but back to trend by 2013 4
Brazil | Inflation storm on the horizon 5
Canada | Steady as she goes; growth around trend in H2 2012 6
China | Leading indicators suggest an economic recovery in Q4 7
Euro area | Deeper and more protracted contraction as consolidation bites 8
Hong Kong | Looming fiscal stimulus 9
Hungary | Little clarity on backstop path, rate cuts could still occur 10
India | Still a lot needs to be done 11
Indonesia | Some improvement 12
Japan | Weaker external demand likely leads to a recession in H2 2012 13
Malaysia | Signalling fiscal responsibility 14
Mexico | Growth supported by domestic demand 15
Philippines | Sticking to an easing bias 16
Poland | NBP dovishness but not ready to cut - growth still outperforming 17
Singapore | Tolerating slower growth 18
South Africa | Structural MPC dovishness in a year of crucial political battles 19
South Africa 2.4 2.9 3.6 5.4 5.0 5.7 5.00 4.50 6.00
Turkey 3.0 4.5 5.0 9.1 6.7 6.3 5.75 5.75 5.75 Note: Aggregates calculated using purchasing power parity (PPP) adjusted shares of world GDP (table covers about 84% of world GDP on a PPP basis); our forecasts incorporate assumptions on the future path of oil prices based on oil price futures, consensus forecasts and Nomura in-house analysis. Currently assumed average Brent oil prices for 2012, 2013 and 2014 are $112, $109 and $104, respectively. *2012, 2013 and 2014 policy rate forecasts are midpoints of 0-0.25% target federal funds rate range. **Inflation refers to wholesale prices. ***For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively. †Policy rate forecasts in 2012, 2013 and 2014 are midpoints of BOJ‟s 0-0.10% target unsecured overnight call rate range. ††CPI forecasts for Latin America are year-on- utlook Monthly. Source: Nomura Global Economics.
Nomura | Global Economic Outlook Monthly 15 October 2012
3
Our View in a Nutshell (changes from last month highlighted)
United States
Waning business confidence will continue to dampen hiring and investment.
Ample economic slack should restrain inflation and keep inflation expectations anchored.
We expect the FOMC to continue long-term asset purchases through the third quarter of 2013.
Europe‟s debt crisis and the looming “fiscal cliff” should continue to weigh on growth through the rest of 2012.
Addressing fiscal policy is likely to be contentious, but we ultimately expect agreement on a long-term deficit reduction plan.
Europe
Fiscal tightening, financial deleveraging and sovereign debt market tensions should lead to a deeper-than-expected
recession.
We continue to expect Spain to delay an official call for help, but our baseline remains an ECCL is requested by end-month.
After a phase of relative calm, markets will likely test the backstop and pressure will rebuild in Q1 around weak sovereigns.
GDP contraction, higher non-performing loans and rising debt trajectories remain the key challenges.
Chances of a rate cut in Dec (our baseline) have reduced, though the ECB needs to respond to weaker growth, in our view.
We expect inflation to settle close to target in the UK but in the euro area to remain above 2% for most of 2012.
The BoE extended liquidity and funding support before announcing £50bn QE in July. We expect £25bn more in November.
Japan
Deterioration of external demand is likely to lead to negative growth in Q2 and Q3 2012.
Economic recovery in Asia should help Japan get back on a moderate recovery track from early 2013.
We expect the BOJ to announce a further expansion of its Asset Purchase Program by Q4 2012.
The main risks are yen appreciation, a worsening European debt problem and the US and China slowing.
Asia
The export slump calls for policy stimulus, but raises the risk next year of a build up in debt, inflation and asset price
bubbles.
China: Macro data are mixed, but policy easing is picking up speed, supporting the growth outlook for Q4.
Korea: We expect the BOK to stay on hold at 2.75% through 2013 as growth and inflation should rise modestly from low
base
India: Recent reforms have surprised positively and growth is bottoming out. But a V-shaped recovery is unlikely.
Australia: With indications that growth is slowing due to external factors, the RBA is likely to cut rates in November.
Indonesia: An increasingly uncertain policy environment could lead to delays in reforms and sustained current account
deficits.
EEMEA (Emerging Europe, Middle East and Africa) and Latin America
South Africa: With inflation now falling fast into target and growth slowing, the SARB may cut rates further.
Hungary: In a difficult spot having rejected the IMF aid conditions over policy concerns, market pressure should force a deal
in 2013.
Poland continues to outperform strongly , a recession is difficult to envisage, as such we don‟t see cuts occurring this year.
Turkey: Rebalancing continues and is likely to pave the way for an upgrade to investment grade.
Economic growth in Brazil will likely be well below 2% in 2012, despite the Selic policy rate falling to 7.50%.
Mexico: Inflation will likely remain above the target and growth will likely moderate in H2 2012.
Argentina‟s growth looks set to slow down in 2012, but inflation to stay high. ARS real appreciation should continue.
Nomura | Global Economic Outlook Monthly 15 October 2012
3-month bank bill 4.30 3.54 3.36 3.05 3.00 3.00 3.30 3.60 4.50 3.05 3.60 4.00
2-year government bond 3.47 2.46 2.49 2.50 2.50 2.55 2.65 2.70 3.16 2.50 2.70 3.10
5-year government bond 3.58 2.58 2.56 2.55 2.50 2.50 2.55 2.60 3.29 2.55 2.60 3.20
10-year government bond 4.08 3.04 2.94 2.75 2.95 3.00 3.10 3.20 3.67 2.75 3.20 3.60
AUD/USD 1.04 1.02 1.05 1.03 1.00 0.99 1.00 1.00 1.02 1.03 1.00 1.00 Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. CPI inflation includes the impact from, the carbon tax, but not the underlying measures. Interest rate
and exchange rate forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Australian Bureau of Statistics, Reserve Bank
The combination of a record low policy rate and a “dirty band” preventing BRL from
appreciating will likely lead to soaring inflation in 2013
Activity: The Brazilian economy had a fairly poor start to the year, with H1 GDP growing merely
0.6% y-o-y, and investment falling 2.9% y-o-y. Policymakers have rolled out a series of
monetary and fiscal stimuli this year in an attempt to revive growth. However, given the
structural issues on the supply side, ongoing drags from credit markets and a still troubled
international environment, GDP growth will likely remain sluggish at 1.3% in 2012. Given the
gradually improving global growth profile and the lagged effects of domestic stimuli, we should
see more robust growth in 2013, reaching 4.1%.
Inflation: Consumer prices are currently around 5.3% and we expect inflation pressures to
accelerate, given the ongoing commodity price shock and the very accommodative monetary
policies in Brazil. Tradable goods prices are low at around 3.0%, yet several factors – inclement
weather in Brazil and the US, the recent surge in world food prices and BRL above 2.0 – are
already pushing up domestic food prices and we expect this to continue, with inflation ending
2012 at 5.3%. As a result of faster growth, a low base of comparison, the lagged effects of a
weaker currency and a lower policy rate, inflation will likely accelerate in 2013, ending the year
at 5.7%.
Policy: The Central Bank of Brazil (BCB) has slashed its policy rate, Selic, by 525bp since
August 2011, and stated in the October communiqué that “stability of monetary conditions for a
sufficiently long period is the best strategy.” We believe the “stability for long period” language
offers a strong signal that the easing cycle is coming to an end, and the key question now is
how long the BCB will stay put, even in the face of rising inflation.
Risks: The biggest risk, we believe, is the likelihood of a persistent supply shock as a result of
the recent run-up in commodity prices, further amplified by monetary easing from major central
banks. Such a shock should push up inflation rapidly and force the BCB to hike Selic in 2013,
despite still slow GDP growth, leading to a state of lower growth, higher inflation and still higher
rates (see “Inflation storm on the horizon”, August 15 2012). We now expect the new hiking
cycle to start in Q2 2013, as rising consumer prices threaten to go above 6%, and we think Selic
will likely finish 2013 at 9%.
Details of the forecast
Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-on-year changes for Q4. Trade data are a 12-month sum. Interest rate and currency forecasts are end of period. Contributions to GDP growth do not include taxes. Numbers in bold are actual values, others forecast. Table reflects data available as of 12 October 2012. Source: Nomura Global Economics.
Financial markets have positioned for a smooth path to sovereign debt relief in Europe and deficit reduction in the US.
Activity: Growth in Q2 was around potential, supported by business investment and inventory
accumulation. Net exports were the major drag to growth, as production disruptions in the oil
industry have resulted in anemic exports gains, while strong domestic demand, led by business
investment, has boosted imports. For the rest of 2012, we expect growth of around 2%. We
expect personal spending growth to remain modest as households gradually reduce their debt
burdens and income growth remains slow. Business investment in machinery and equipment is
likely to slow, after a strong Q2, but should remain strong. Below-trend global growth and the
strong Canadian dollar will likely mean that net exports are not a significant source of growth.
However, the impact from the strong currency is partly reversed by weaker funding costs, owing
to strong foreign inflows into Canadian securities.
Inflation: With some spare capacity and the output gap likely to close in 2013, we think
inflationary pressures are likely to remain contained. We expect headline inflation to fall
gradually to 1.6%, as the impact from high food and energy prices gradually disappears, and
end the year close to the central bank‟s 2% target. Core inflation should follow a similar pattern,
reaching a low of 1.7%.
Policy: With considerable monetary stimulus in place, and a narrowing of the output gap, we
expect the BoC to remain on hold in 2012, waiting for some clarity on the US fiscal cliff and the
eurozone crisis before reducing the amount of stimulus and taking any further action. We expect
the BoC to be cautious about tightening monetary policy and to bring rates to 1.75% by end-
2013. The latest budgets show that the various levels of government are in consolidation mode,
causing a small drag on the economy.
Risks: A disorderly resolution of the euro-area debt crisis remains an immediate risk to the
Canadian economy, However, we think the threat from the US „fiscal cliff‟ is much bigger and
would have a much larger impact on the Canadian economy, given the strong economic links
between the two countries. On the upside, domestic demand may be more resilient than
expected, and the US economy may perform better than expected. Moreover, QE3 in the US
could be positive for Canada by boosting commodity prices and the terms of trade.
Fig. 1: Details of the forecast
Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates (saar). Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate
forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Bank of Canada, Statistics Canada, Nomura Global Economics.
Exchange rate (CNY/USD) 6.29 6.35 6.28 6.28 6.27 6.25 6.24 6.22 6.28 6.22 6.22 Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 15 October 2012. Source: CEIC and Nomura Global Economics.
$/euro 1.32 1.25 1.29 1.28 1.25 1.20 1.18 1.18 1.28 1.15 tbc Notes: Quarterly real GDP and its contributions are seasonally adjusted annualised rates. Unemployment rate is a quarterly average as a percentage of the labour force. Compensation per employee, labour productivity, unit labour costs and inflation are y-o-y percent changes. Interest rate and exchange rate forecasts are end of period levels. Numbers in bold are actual values, others forecast. Table reflects data available as of 10 September 2012. Source: Eurostat, ECB, DataStream, Nomura Global Economics.
Exchange rate (HKD/USD) 7.76 7.76 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 Source: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. CPI is for industrial workers. Fiscal deficit is for the central government and for fiscal year, e.g, 2012 is for the year ending March 2013. Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
JPY/USD 82.9 79.8 78.0 82.0 83.0 85.0 86.0 88.0 82.0 88.0 90.0 Note: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. Unemployment rate is as a percentage of the labor force. Inflation measures and CY GDP are y-o-y percent changes. Interest rate forecasts are end of period. Fiscal balances are for fiscal year and based on general account. Table reflects data available as of 15 October. All forecasts are modal forecasts (i.e., the single most likely outcome). Numbers in bold are actual values, others forecast. Source: Cabinet Office, Ministry of Finance, Statistics Bureau, BOJ, and Nomura Global Economics.
Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as 11 October 2012. Source: CEIC and Nomura Global Economics.
USD/MXN 13.90 13.94 12.81 13.36 12.86 12.70 12.70 12.50 13.94 12.70 12.00 Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-over-year changes for Q4. Trade data are period sums. Interest rate and currency forecasts are end of period. Contributions to GDP do not include taxes. Numbers in bold are actual values, others forecast. Table reflects data available as of 15 October 2012. Source: Nomura Global Economics.
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data as of 11 October 2012. Source: Bank of Korea, CEIC and Nomura Global Economics.
Exchange rate (NTD/USD) 29.5 29.8 29.3 29.8 29.7 29.6 29.5 29.4 29.8 29.4 29.0 Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
£ per euro 0.83 0.81 0.80 0.78 0.77 0.75 0.75 0.75 0.78 0.75 tbc
$ per £ 1.60 1.56 1.60 1.64 1.62 1.60 1.57 1.53 1.64 1.53 tbc Notes: Quarterly figures are % q-o-q changes. Annual figures are % y-o-y changes. Inventories include statistical discrepancy. Inflation is % y-o-y. Interest rates and currencies are end-of-period levels. Numbers in bold are actual values; others forecast. Table reflects data available as of 27 September 2012. Source: ONS, Bank of England, Bloomberg, DataStream, Nomura Global Economics.
30-year mortgage 3.99 3.66 3.50 3.50 3.40 3.40 3.60 3.70 3.70 3.80 3.95 3.50 3.70 4.10 *The medium term forecast range for the TSY 10-year note is as follows: 1.30-2.30. Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. The unemployment rate is a quarterly average as a percentage of the labor force. Nonfarm payrolls are average monthly changes during the period. Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate forecasts are end of period. Housing starts are period averages. Numbers in bold are actual values. Table reflects data available as of 19 October 2012. Source: Nomura
An ongoing recession in H1 may be inevitable for this most open economy. Politics
remain a key risk under a new coalition with only a marginal majority.
2010 2011 2012 2013
Real GDP % y-o-y 2.7 1.7 -0.7 0.9
Nominal GDP USD bn 197.8 215.5 220.1 221.0
Current account % GDP -3.8 -2.9 -2.5 -2.8
Fiscal balance % GDP -5.0 -4.0 -4.5 -4.0
CPI % y-o-y * 2.3 2.4 2.3 1.6
CPI % y-o-y ** 1.5 1.9 3.2 1.9
Core CPI ex VAT % y-o-y ** 1.3 0.8 0.2 1.0
Population mn 10.5 10.5 10.4 10.4
Unemployment rate % 9.6 8.6 9.0 8.5
Reserves EUR bn ** 31.8 31.1 29.6 29.2
External debt % GDP 46.7 50.8 49.2 47.8
Public debt % GDP 41.3 43.8 45.2 47.0
CNB policy rate %* 0.75 0.75 0.25 0.50
EURCZK* 25.0 25.59 25.20 24.20
*End of period, **Period average, Bold is actual data
GDP will likely contract in 2012 thanks to contamination from the eurozone, owing to the openness of the economy. However, a strong banking system, where deleveraging should only have a small effect, and the lessening of the fiscal drag vs. 2011 are two positives.
We expect the government to make small additional measures to keep fiscal consolidation on track, but with a potentially unstable coalition we believe any stronger action or structural reforms are unlikely. The ruling coalition‟s reduced majority leaves little margin for error, and we doubt deficit targets will be met. However, with steady access to domestic funding and low debt, little additional fiscal consolidation may be needed for the medium-run path to remain credible.
Underlying CPI inflation should stay at the bottom of the target in 2012 before falling in 2013. We think the CNB will stay on hold after October‟s cut until Q3 2013 as we think inflation is under control and fiscal austerity should lead to lower growth.
Source: CSO, CNB, Nomura Global Economics
Romania: Markets should concentrate on fiscal not politics
Twin deficits leave little room for supporting growth in a challenging external demand environment with domestic political and constitutional uncertainties not helping.
2010 2011 2012 2013
Real GDP % y-o-y -1.6 2.5 0.2 0.8
Current account % GDP -4.2 -4.2 -4.0 -5.0
Fiscal balance % GDP -6.5 -4.5 -3.5 -4.0
CPI % y-o-y * 8.0 3.1 4.7 3.4
CPI % y-o-y ** 6.1 5.8 3.3 4.5
External debt % GDP 73.0 72.3 70.0 72.0
Public debt % GDP 30.5 33.3 35.0 33.3
BNR policy rate %* 6.25 6.00 5.00 6.00
EURRON* 4.28 4.33 4.25 4.00
*End of period; **Period average; Bold is actual data
Markets are becoming concerned about Romania due to Moody‟s ratings outlook downgrade to negative, IMF concerns that November elections mean targets are not met and asset fire sales to support higher public sector wages.
We think the external slowdown and minimal credit growth will mean a sluggish recovery in H2, although stronger than others in the region. Romania is also vulnerable to deleveraging, which could pose a serious risk for the balance of payments. While the BNR has a contingency plan that may involve capital controls, tapping the IMF‟s precautionary SBA may be necessary if the situation deteriorates.
Fears of losing the next election may mean the new Victor Ponta-led coalition will not stick to the IMF-backed austerity programme. We see much political risk this year, although the real policy risk is next year.
Source: Ministry of Statistics, Nomura Global Economics
Israel: Slower exports, slower growth, but no recession
An increasingly weak currency and looser monetary policy should help Israel.
2010 2011 2012 2013
Real GDP % y-o-y 4.5 4.8 2.8 3.3
CPI % y-o-y * 2.7 2.2 3.4 3.3
CPI % y-o-y ** 2.7 3.5 2.1 2.6
Budget balance % GDP -3.0 -2.7 -3.0 -3.5
Current account % GDP 3.0 0.3 -0.3 1.0
Policy rate %* 2.00 2.75 2.25 3.00
USDILS* 3.52 3.81 3.80 3.60
*End of period, **Period average, Bold is actual data
Israel‟s export-driven economy outperformed the region in the post-crisis environment thanks to an aggressive monetary policy response resulting in healthy domestic demand. The economy is currently slowing in line with the global backdrop.
Inflationary pressures appear to have subsided and inflation expectations are well anchored. This year‟s electricity price hikes however, may limit the extent of policy easing. With the policy rate at 2.25%, we see no further cuts unless the global economy deteriorates further.
Underlying final demand should not weaken greatly and the recovery in H2 should result in measured rate hikes (75bp to 3.00% by Q3 2013).
Policy moves after the presidential elections damage economic performance
2010 2011 2012 2013
Real GDP % y-o-y 9.2 8.9 2.0 4.0
Consumption % y-o-y 9.4 10.7 4.3 4.2
Gross Investment % y-o-y 21.2 16.6 -7.1 7.3
Exports % y-o-y 14.6 4.3 -5.7 6.7
Imports % y-o-y 34.0 17.8 -5.2 10.8
CPI % y-o-y * 10.9 9.5 9.9 9.7
CPI % y-o-y ** 25.2 21.8 24.7 30.2
Budget balance % GDP *** 1.7 0.3 -0.9 -2.7
Current account % GDP 0.8 0.0 1.8 1.9
Policy Rate % 9.7 14.6 15.0 12.0
USDARS 3.98 4.29 4.90 5.65
* Official data, ** Private estimate, ***Primary budget balance, Bold is actual data
The authorities continue to pursue expansionary fiscal and monetary policies.
Exchange controls are effectively segmenting the FX market, with heavy damage to economic activity and microeconomic efficiency.
Locals are rushing to purchase USDs, as high inflation, policy missteps and other mixed signals sap domestic confidence in the ARS.
We expect faster ARS depreciation, but without a supportive macroeconomic framework we fear that a necessary real depreciation of the currency will be difficult to achieve.
Source: CSO, CNB, Nomura Global Economics.
Colombia: Growth moderating
After a strong half, the growth will likely lose momentum.
We have revised our 2012 GDP growth forecast to 4.5% y-o-y after a strong first half supported by strong domestic consumption and resilient exports.
Inflation and inflation expectations will remain well anchored around 3.0%.
We expect an additional 25bp interest rate cut to 4.50% during the remainder of the year and for the authorities to continue intervening in the FX market to curb COP appreciation.
Source: CSO, CNB, Nomura Global Economics.
Chile: Between rock and a hard place
Domestic demand remains strong in Chile, while inflation has moderated. We expect the central
bank to keep its policy rate on hold in the near term.
Chile‟s economy has shown strong resilience in a turbulent year, as robust consumption and investment continue to support growth. We revise up our 2012 GDP growth forecast to 5.1%, slightly above potential.
Both headline and core inflation are now below target (3%) and the currency‟s recent appreciation should help soften the global commodity price shock. We expect end-2012 CPI inflation of around 3%, with expectations well anchored.
Given around-trend growth, below-target inflation and improving external scenarios, we expect the central bank (BCCh) to remain in “wait-and-see” mode and keep the policy rate on hold at 5%.
Strong imports, driven by domestic demand, and a slightly weaker export profile, are pushing the trade balance lower and current account in negative territory, potentially increasing Chile‟s external vulnerability in the medium term.
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Nomura | Global Economic Outlook Monthly 15 October 2012
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Disclosure Appendix A-1
ANALYST CERTIFICATIONS
Each research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately reflect his or her personal views about the subject securities and issuers. In addition, each research analyst identified on the cover page hereof hereby certifies that no part of his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expressed in this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura Group Companies involved in the production of Research are detailed in the disclaimer below.
Issuer name Disclosures
UNITED MEXICAN STATES A4,A5,A6,A13
PEOPLE'S REPUBLIC OF CHINA A13
COMMONWEALTH OF AUSTRALIA A13
A4 A Nomura Group Company had an investment banking services client relationship with the issuer during the past 12 months.
A5 A Nomura Group Company has received compensation for investment banking services from the issuer in the past 12 months.
A6 A Nomura Group Company expects to receive or intends to seek compensation for investment banking services from the issuer in the next three months.
A13 A Nomura Group Company has a significant financial interest (non-equity) in the issuer.
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