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The contrast between the resilient consumption data in the US and the weaker Q1 GDP data in the eurozone was one of
last week’s main macro themes, as was the slowdown in inflation around the globe.
The contrast between the resilient consumption data in the US and the weaker Q1 GDP data in the eurozone was one of last week’s main macro themes, as was the slowdown in inflation around the globe.
MARKET ECONOMICS | GLOBAL WEEKLY Macro Matters Issue 32, 16 May 2013 Page THE BIG PICTURE 2-3 The contrast between the resilient consumption data in the US and the weaker Q1 GDP data in the eurozone was one of last week’s main macro themes, as was the slowdown in inflation around the globe. THEMES OF THE WEEK 4-16 ECB: Negative vibes 4-5 A negative deposit rate seems an increasing possibility for the ECB. It has disadvantages, but the core countries would probably prefer it to balance-sheet expansion. Germany: The Japan effect 6-7 The JPY’s 3.9% weighting in Germany’s nominal effective exchange rate is relatively small. The yen’s depreciation will only bring the German NEER back to its long-term average. UK and France: In the balance 8-9 The French current account is on a deteriorating trend, but still a bit better than the UK’s. The UK private sector is running a more favourable cashflow than that of France, but the French fiscal position is far stronger than the UK’s. US: Fiscal gain and pain 10-11 The US federal deficit is now projected to be just 4.2% of GDP in FY2013. Bigger revenues and GSE windfall are putting off the day of reckoning on the debt ceiling. Negotiations on the next debt ceiling and FY2014 budget are likely to coincide. Japan: Will there ever be an exit from QE? 12-13 Even if Japan’s 2% inflation target is easily achieved, the BoJ may not be able to end its ZIRP or its JGB purchases out of concern over the impact on the government’s finances. China: From the outside 14-15 Australia, South Korea and Taiwan are heavily exposed to developments in China. Their economic performance contains information about China’s. The overwhelming evidence is that China has slowed sharply since end 2012. Chile: Cutting time cometh 16 We now expect two 25bp cuts in the Chilean policy rate in July and August. Inflation is below the IT band floor and growth is slowing to near-trend pace. The risk of overheating that has kept the central bank on hold has diminished. DATES AND DATA 17-32 One-week calendar 17-19 Economic forecasts 29 Contacts 31 Key data preview 20-25 Recently published research 30 Disclaimer 32 Central bank watch 26-28 www.GlobalMarkets.bnpparibas.com Please refer to important information at the end of the report. The big picture Mixed data on activity … The contrast between the resilient consumption data in the US and the weaker Q1 GDP data in the eurozone was one of last week’s main macro themes. Combined with noise from the press and hawkish remarks by Philadelphia Fed President Charles Plosser, the US data helped revive the debate on the timing of a Fed exit from quantitative easing. Conversely, the eurozone GDP figures fuelled the debate on the need for additional monetary easing by the ECB. … but inflation is trending US manufacturing indicators were less encouraging, however, showing the manufacturing sector lower in modest contraction, while inflation continues to slow; inflation in April fell to 1.1% y/y from 1.5%. In this context, concerns over an imminent tapering of bond purchases by the Fed are overdone, in our opinion, and we are sticking with our view that a slowdown in the pace of bond purchases will be announced only in December, to start next year. Yet, the market reaction to Jon Hilsenrath’s piece in the Wall Street Journal over the weekend, which focused on the Fed’s need to keep flexibility to alter its monthly pace of purchases as it sees fit, highlights how tricky it will be for the Fed to manage the exit and how important an effective communications strategy will be in this phase. Next week will see Fed communications in action, with a Tuesday speech from New York Fed President William Dudley, testimony before the Congressional Joint Economic Committee on the economic outlook from Fed Chairman Ben Bernanke on Wednesday, along with the minutes of the May FOMC meeting. We expect all to emphasise that an eventual tapering is not a tightening of policy, in the Fed’s view, rather a slowing of easing. Any talk of tapering may well spook markets – flows matter. A deposit rate until an Fed to stay putcut is the In the eurozone, GDP data for Q1 came in on the weak side of expectations. Adverse weather end of the year increasing possibility conditions probably played a role, exacerbating the already sluggish underlying trend in domestic demand. The problem, however, is that typically reliable leading indicators point to more of the same in Q2. The flash PMIs and the German Ifo for May next week are unlikely to change this picture; we expect both indicators to be broadly in line with their April reading, consistent with a continued contraction in euro-area GDP. The risk to the already grim 0.5% decline in GDP that we have been forecasting for 2012 as a whole is very much to the downside. Combined with lower-than-expected inflation, these trends will increase the pressure on the ECB to ease monetary conditions. The route of more unconventional monetary-policy measures in the form of ABS-based support for SMEs, hinted at by ECB chief Mario Draghi at the last ECB press conference, may prove challenging. Direct purchases would leave the ECB’s balance sheet vulnerable to credit risk and probably face vetoes by a number of influential members of the board. Other alternatives, like the direct involvement of the EIB, are more likely, but not free of problems. Against this backdrop, we continue to expect another cut in the ECB’s refinancing rate at the July meeting. A negative deposit rate also looks an increasing possibility. While such a course of action would have microeconomic disadvantages for many core countries, it may still be preferable to balance-sheet expansion as a macroeconomic tool. Developments on inflation hold the key to ECB policy. The sharp deceleration of inflation in April was instrumental in the decision to cut rates at the May meeting. We expect inflation to rebound Chart 1: Eurozone HICP (% y/y) Chart 2: Manufacturing PMIs Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Luigi Speranza 16 May 2013 Macro Matters 2 www.GlobalMarkets.bnpparibas.com over the next few months, as some of the temporary effects at play in April related to the timing of Easter, such as the sharp fall in recreation and culture prices in Germany, fade. However, it should resume its downward trend later on in the year, reaching 1% in the autumn. BoJ to front-load JGB In Japan, real GDP expanded a robust 3.5% q/q in Q1, thanks, among other things, to the wealth purchases? effect arising from the surge in stock prices, although a jump in the import bill caused by the sharp depreciation of the yen meant that real national income growth was much more modest. Meanwhile, with the yen breaching the 100 mark against the greenback, volatility in the JGB market has increased. The BoJ’s intervention restored market calm, but it will likely remain jittery amid reduced liquidity. Should bond yields start surging again, the BoJ may decide to significantly front-load its planned JGB purchases. UK: The last King speech In the UK, as one would expect, BoE Governor Mervyn King’s last press conference was a holding operation. The bank revised up its growth forecasts moderately, but lowered its inflation forecasts a little. The former underpins the ‘wait-and-see’ stance adopted by the MPC, while the latter leaves BoE Governor-in-waiting Mark Carney some room for manoeuvre. The decisions the MPC will make on guidance and how to interpret the word “flexible” in “flexible inflation targeting” will be key in shaping the BoE’s monetary policy stance under Mr Carney. Perhaps significantly, the “GDP deflator” was mentioned for the first time in several years at the press conference, indicative perhaps of more weight on this in future analysis under Mr Carney, if not targeting. China: Stronger credit, but Chinese data continue to show measures of activity underperforming while credit growth is slower GDP growth ballooning. Total social financing was RMB 250bn stronger than consensus in April, when the seasonal pattern alone would have suggested some downside risk and activity data were generally below expectations. China’s leadership has highlighted downside risks to growth, but has opted to rely on market liberalisation to boost private-sector activity, which may take longer to bear fruit than traditional stimulus. The upcoming release of the HSBC/Markit manufacturing PMI merits close attention. We expect the headline index to edge down to 50.2 from 50.4. However, the key is the new-orders-less- inventories balance, which leads a number of indicators, not only in China, but elsewhere in the region. This could improve on the month, as inventories are already close to a record low and should soon start to recede. If they rise further, it would be a bearish signal for near-term growth. China weakness affecting Weakness in China is affecting the likes of Australia, Korea and Taiwan, too. Taiwanese GDP fell Australia, Korea, Taiwan 0.8% q/q in Q1. Next week’s expenditure breakdown should show weak exports were partly to blame, in large part due to faltering demand in mainland China; exports there have fallen 14% in USD terms since end 2012. Elsewhere in the region, Indian WPI inflation continues to improve more quickly than expected. Persistently weak growth is dragging down core inflation and, on our measure, is at a 40-month low. However, with CPI inflation still close to the double digits, inflation expectations uncomfortably high and a wide current-account deficit that needs funding, the RBI is likely to be cautious about easing policy at this stage. More rate cuts to come in In CEEMEA, with the notable exception of Hungary, where the rebound in Q1 GDP signalled that CEEMEA the macroeconomic rebalancing is probably over, Q1 activity data were generally on the weak side, underlining the scope for further monetary easing after the recent 50bp rate cut from the CBRT. Brazil: Strong inflationary In Latam, conditions for rate cuts are gradually falling into place in both Mexico and Chile, as pressures weaker US demand for manufactured products weighs on Mexican growth and softer copper prices hurt the Chilean economy. Mexico is likely to report deflation for the first two weeks of May, supporting our view that annual inflation peaked in April and will fall below the 4% tolerance threshold in July. In contrast, strong inflation pressures have forced Brazil to start hiking rates already and we think there is more to come on the back of what we expect to be relatively strong Q1 GDP data. Luigi Speranza 16 May 2013 Macro Matters 3 www.GlobalMarkets.bnpparibas.com ECB: Negative vibes A negative deposit rate seems an increasing possibility for the ECB. It has disadvantages, but the core eurozone countries would probably prefer it to balance-sheet expansion. Lower-than-expected inflation and growth are upping the pressure on the ECB to deliver easier monetary conditions. A mildly negative deposit rate may be preferable to the alternatives. If it comes, the timing will be difficult to predict. The evolution of the bloc’s inflation data will be key, but tactical considerations, such as the German elections, make things tricky. If a negative depo rate were to be delivered, it could come as soon as July (when we see a refi rate cut). An alternative, were it to materialise, would be to wait until near year-end for a two-step cut of 25bp, first in the refi and then the depo rate. Negative ECB deposit rate The subject of a negative ECB deposit rate has come back on the agenda recently. ECB chief back on the agenda Mario Draghi stoked speculation at last week’s press conference that such a move could be made when he said, “on the deposit facility rate, we said it in the past: we are technically ready. There are several unintended consequences that may stem from this measure. We will address and cope with these consequences if we decide to act. We will look at this with an open mind and we stand ready to act if needed.” This is a very different tone to that in March, when he was asked about the possibility of a negative deposit rate. “The unintended consequences of a measure like that can be serious, as similar experiences in other monetary jurisdictions have shown,” he said. “I think in the past I have described this as ‘uncharted waters’, which is all I can say on the matter.” Growth and inflation are Why the change in tone? The main reason, we believe, is that it looks like the ECB will, again lower than expected have to put back its estimate of when the economy will stabilise before embarking on a slow recovery. Secondly, and importantly, inflation has turned out lower than expected, with the 1.2% y/y rise in April a negative shock. While the low number had to do in part with seasonality and the timing of Easter, it looks like inflation is coming in lower than expected. And because of base effects in the second half of the year, the possibility of inflation going below 1% cannot be discounted. This would clearly be in breach of the ECB’s mandate to keep inflation below, but close to, 2%. Thirdly, the refi rate has been cut to 50bp and the economy looks like it needs further stimulus. The ECB has four choices: Don’t cut rates or, indeed, do anything at all. Don’t cut rates, but deliver unconventional easing in the form of, say, a five-year LTRO or a large ABS programme. Cut the refi rate and narrow the corridor between the refi and the depo rates to 25bp. Cut both the refi and depo rates by 25bp each, maintaining the corridor. Increasingly, with a weak economy, political disquiet over the lack of growth and rising unemployment and subdued inflation, doing nothing is not an option. Unconventional easing Unconventional easing would tackle the issue of the transmission mechanism in the south of the could be problematic bloc and would, therefore, probably meet with the favour of several peripheral central banks. It could, however, be subject to heavy criticism in Germany and other core countries. Our perception is that while the ECB might engage in repo activity in ABS, it is not willing to take the first loss on SME debt. Repo activity with, say, the EIB (which has a banking licence) would be more likely, but could be slow to start and grow – the economy needs more than that. Outrights in ABS would be Undertaking outrights in ABS would be difficult for the ECB for two further reasons. First, it lacks difficult for the ECB the expertise to assess the assets wrapped in the ABS; the risk is that banks would give it lemons. Second, ECB outrights in ABS have run into opposition in Germany and the ECB would probably want to avoid stirring this pot when the German Constitutional Court is already about to embark on considering the legality of the OMT bond-buying programme. Paul Mortimer-Lee 16 May 2013 Macro Matters 4 www.GlobalMarkets.bnpparibas.com Narrowing the corridor Narrowing the corridor between the refi rate and the repo rate is, of course, possible, but the could be difficult, too ECB is uncomfortable already with effectively being the central counterparty in the money market. Narrowing the corridor would entrench this and would work against its objective of overcoming the fragmentation of the monetary union in recent years. A negative deposit rate Therefore, while a negative deposit rate would have some adverse consequences, some would may be the least bad option argue that it could be the least bad option from the ECB’s point of view, if further easing were needed. The ECB has implemented many measures in the past that it had not undertaken before and which had adverse side effects (such as the OMT and moral hazard), but it has weighed the pros and cons of the alternatives and has taken steps people would not have thought possible only a short time ago. There are issues with a What are the unintended consequences? We have examined these in depth before (please see negative deposit rate ECB: The negative rates debate, 18 July 2012) and the ECB has also commented, so we will only briefly run through the issues: A negative deposit rate may discourage banks from competing for deposits and may lead to cash leaving bank deposits and heading under the mattress. Credit growth could be worsened. We think this would be a possibility if deposit rates were to become significantly negative, but we doubt that charging banks 25bp on excess deposits would be enough to overcome the convenience and time-saving advantages of holding a bank deposit. Banks’ net interest-rate margins might be hurt, so they might reduce credit availability or raise rates (BoE Governor Sir Mervyn King cited such considerations as being behind his opposition to a negative deposit rate in the UK). The risks of this could be mitigated, e.g. by mopping-up operations or charging -25bp only on excess reserves over a certain size. There would be distributional consequences, hurting most those banks with excess deposits (in Germany, for example) and so stoking political opposition. The perception that savers were being penalised could be a problem politically, too, especially ahead of the German election. A negative deposit rate could be seen as ‘financial repression’. Arguably, this kicks in when interest rates turn negative in real terms, not at zero. Technical difficulties, such as bank software not being able to cope with negative rates, have faded as an objection with time and programme updates. There are also advantages to take into account: lower rates for borrowers and a boost to activity There are also advantages, from the declining incentive to save. The exchange rate would end up softer. There would be an though incentive to put money to work that is currently locked up in banks. There would be an intensification of the search for yield, likely leading to further spread narrowing. Finally, taking such a step would symbolise the ECB’s determination to stick to its inflation target and to stimulate growth. Overall, we think that the advantages exceed the disadvantages. The uncertainty is whether Not clear if the ECB will such an opinion will emerge at the ECB, too. We think the northern eurozone objectors to cut the deposit rate further easing could adopt the view that this is the least bad alternative and that the southerners who might prefer balance-sheet action could come to accept that this is unlikely at this stage. In terms of which way the decision goes, and of the timing, the economic data will be important, We see a 25bp refi rate cut especially inflation data in the next couple of months. A bounce back in inflation to around 1½% in July would reduce the need for a further cut quickly, while failure to bounce would signal increased downside risk to inflation and would accelerate the timetable and increase the chances of a negative deposit rate. Money-market considerations – the need to reintegrate the eurozone – argue for cutting the depo at the same time as the refi. We expect a refi cut in July and will consider our depo-rate view in the light of our upcoming forecast round. However, is riling the German electorate a risk worth taking if the same job can be We think any depo rate cut accomplished in a two-step move? This would argue for cutting the refi in July, but leaving the would be after a refi cut depo unchanged until later in the year. As inflation is probably going to be 1% at that point, and maybe below, ‘selling’ the negative depo rate as a response to low inflation rather than a cause of high inflation would be easier. If a negative deposit rate comes, it will probably not be a unanimous decision. Paul Mortimer-Lee 16 May 2013 Macro Matters 5 www.GlobalMarkets.bnpparibas.com Germany: The Japan effect The JPY’s 3.9% weighting in Germany’s nominal effective exchange rate (NEER) is relatively small. The yen’s depreciation will only bring the German NEER back to its long-term average. The 2002-07 episode of JPY depreciation against the EUR did not lead to German export- market losses. While Japanese exporters squeezed mark-ups, the Germans did not. The two countries’ production specialisation looks similar at an aggregate level. But past experience suggests specialisation has made demand for German exports less elastic. Increases in German unit labour costs and slower global growth, especially in motor-vehicle demand, pose greater risks to German exporters than yen depreciation. How much should German exporters fear JPY depreciation? Potentially less than some commentators assume. They are competitive and well positioned in export growth markets, including the US and China. The risk to their business stems more from structural issues, such as domestic competitive loss and demand growth, than the exchange rate. JPY weighting in German The most direct effect of JPY depreciation will come via Germany’s nominal effective exchange NEER is relatively small rate (NEER), in which the JPY has a weighting of 3.9% (ECB index). Exports to and imports from Japan only account for 1.5% and 2.4% of total German trade, respectively. The EUR, in contrast, has a weighting of 48% of Germany’s NEER, while the weighting of the USD is 8.7%, 6.7% for the GBP and 9.7% for the RMB. According to our FX forecasts, JPY depreciation will bring EURJPY from its current level of around 130 to a peak of EURJPY 141 in Q1 2014. This means that the JPY will remain relatively expensive and that EURJPY will stay well below pre- financial-crisis levels, when the JPY was so cheap that EURJPY hovered around 170. And even at that time, German exporters recorded slightly stronger growth than their Japanese peers. JPY depreciation will not The JPY is only one of 20 currencies in the German NEER and taking all of our FX forecasts bring it back to 2007 levels into account, the bulk of NEER appreciation from a German perspective has already happened. Since last August, it has appreciated 3.2% and there is only another 1% to come. Overall, then, we do not only expect the bilateral EURJPY rate to remain below previous levels, but it will also leave the NEER very close to its long-term average, rather than fuel hefty appreciation. Based on our export elasticity estimate of 0.2, the effect on German export growth in excess of what we have already included in our 2.1% annual export growth forecast this year should be limited. German export shares not Japan has similar export elasticity to its exchange rate, but is still less successful in holding onto JPY sensitive export market share. Even during the JPY depreciation of 2002-07, Japan’s share of world exports fell from some 7½% to 5% (and 4½% now), although in addition to the depreciation, unit labour costs were cut by some 14%. Its terms of trade, a comparison of export to import prices, deteriorated by more than 25% over the same period. Meanwhile, Germany increased its export market share from 8½% in 2000 to 9½% in 2007 (7½% now), while the NEER appreciated and unit labour costs were only cut by a cumulative 3%. It benefited from broadly unchanged terms Chart 1: Exchange-rate developments Chart 2: Shares of world exports (%) Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Evelyn Herrmann 16 May 2013 Macro Matters 6 www.GlobalMarkets.bnpparibas.com of trade, giving German exporters the luxury of passing on import price changes to their export prices without affecting mark-ups. Chinese and US market shares tell the same story. In 2000, 12% of US imports came from Japan. By 2012, that share had fallen to 6.4%. Germany’s share of US imports, meanwhile, hovered around a stable 4.7%. Japan also failed to hold onto its market share in booming China. Japan had tripled the share of its exports to China from 2000, but still lost nearly 50% of its share of Chinese imports to now just under 10%. German products, meanwhile, now account for 5.1% of all Chinese imports, up from 1.6% in 2000. German share of Asia Put another way, Germany, as a regional outsider, successfully managed to integrate its Asian bigger than Japan’s of EU trading markets, while Japan never really made its way into Germany’s geographic neighbours. Even if Japanese exporters now stand ready to compete for German export market share with a weaker currency, German exporters are also prepared with ‘real hedges’. They have increased production in the US and China, allowing them to ‘price to market’ and thereby exchange-rate fluctuations. FX moves will only affect German profits once they are repatriated into EUR. So far, however, Germany’s balance-of-payments income account has remained very resilient to exchange-rate fluctuations, growing steadily to EUR 6.2bn in February 2012, around EUR 1.5bn more than in 2013. Export mixes similar, but Can price competition make the difference, then, or is the product mix different? The export mix differences in the detail looks fairly similar from a macro perspective. Motor vehicles account for 17.3% of German exports compared with 19.5% in Japan. Machinery accounts for 14.9% of German exports compared with 17.9% in Japan. Chemical products account for 9.5% of German exports and for 10% of Japan’s, while electrical machinery in the broader sense makes up some 14% of German exports and 18% of Japan’s. In both countries, these four product classes, alone, account for well over half of total exports. However, macro-level similarities are often quite different at the very micro-level. When Japanese production suffered a shut-down after the Fukushima disaster, German exporters did not benefit from any more export growth than others. This suggests that that Germany’s export products are, indeed, different to Japan’s and not easily substitutable from a consumer perspective. Motor vehicles one of the Can we conclude the same for demand for cars, which are a key product to German domestic most important markets and international trade growth? More than 50% of the total German trade surplus (7% of GDP) is generated by its automobile industry. Japan runs a trade deficit of nearly 1½% of GDP, but the auto trade still posts a 1.7%-of-GDP surplus (see Chart 2). The German Automotive Industry Association (VDA) says that German car exporters do not need to fear exchange-rate movements or loss of market share in the US or China, its two key growth markets, because vehicle production, again, is already half-relocated abroad and demand is inelastic. More risk from labour Competitiveness losses through the exchange rate should, therefore, remain limited for German costs and global demand exporters. Other export growth determinants are more of a concern at this stage. Domestic unit labour costs are currently rising quite rapidly (and the metal labour union just settled on a 3.4% pay rise for 3.4 million employees from 1 July), affecting export competitiveness, potentially by more than the exchange rate. The other is demand. Slow global growth is limiting the scope for German export growth and, so far, the global manufacturing cycle is failing to show the rebound we were hoping for. Table 1: German and Japanese export markets (%) Chart 3: German and Japan trade balance (% of GDP) Share of Share of German Japanese 2012 data German Japanese import share import share exports exports of total of total France 9.5 0.8 0.2 0.0 US 7.9 17.6 4.7 6.4 UK 6.6 1.7 12.5 1.7 Netherlands 6.5 2.0 13.9 2.5 China 6.1 18.1 5.1 9.8 Austria 5.2 0.1 42.1 0.6 Italy 5.1 0.5 15.7 0.9 Switzerland 4.4 0.5 29.7 2.2 Belgium 4.1 0.8 14.2 1.9 Poland 3.8 0.2 27.3 0.6 Total 59.3 42.3 Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Evelyn Herrmann 16 May 2013 Macro Matters 7 www.GlobalMarkets.bnpparibas.com UK and France: In the balance The French current account is on a deteriorating trend, but is still a bit better than in the UK. The UK private sector is running a more favourable cashflow than that of France, reflecting greater retrenchment after earlier excesses. The French fiscal position is far stronger than the UK’s. OECD figures challenge the popular view that the UK is relatively more austere than France. This is an abbreviated version of a report of the same name, also published 16 May 2013. Comparing balances We are often asked to make comparisons between the UK and France. In UK and France: A tale of two labour markets on 25 April, we looked at how their GDP growth and labour-market performance compared. In this article, we look at how the various sectoral balances compare. First, let’s look at the public-sector balances. Here, France has clearly performed better than the UK in recent years. Prior to the great financial crisis, their public-sector balances were very similar. In 2007, the French deficit was 2.7% of GDP, while the UK the deficit was 2.8% of GDP. The UK has more to do on The UK suffered a worse recession than France. Between 2007 and the worst year, 2009, the its deficit than France French deficit expanded by some 5pp of GDP, the UK’s by over 8pp. 2010 saw the deficits edge down in both countries, to 7.1% of GDP in France and to 10.1% of GDP in the UK. In 2011, the deficits in both countries improved by about 2pp to 5.2% of GDP in France and 8.3% of GDP in the UK. 2012 was an election year in France and the deficit came down from 5.2% to 4.5% of GDP, less than half the improvement seen in the UK, where the deficit shrank to 6.6% of GDP. UK structural deficit is big While the UK underwent a sharper recession than France (Chart 1), its structural budget deficit is also larger. This was not at all the case in 2005, when the UK had a structural primary deficit Chart 1: UK vs. French GDP Chart 2: UK vs. French budget deficit Source: Reuters Ecowin Pro, OECD Source: Reuters Ecowin Pro, OECD Chart 3: UK vs. French government debt Chart 4: UK vs. French debt issuance (% of GDP) Ma tu rin g d eb t 20 Bu d g et D e ficit 18 Tota l fin a n cin g n e e d 16 14 12 10 8 6 4 2 0 UK Fra nce UK Fra n ce UK Fran ce Source: Reuters Ecowin Pro Source: Reuters Ecowin Pro Paul Mortimer-Lee 16 May 2013 Macro Matters 8 www.GlobalMarkets.bnpparibas.com of 1.1% of GDP, according to the OECD, compared with a structural gap of 1.7% of GDP in France. Prior to the financial crisis, there was a loosening in the UK relative to France. By 2007, the UK‘s primary structural deficit was 2.6% of GDP, while France’s stayed flat at 1.7%. Financial crisis hit UK From 2007 to 2009, the UK’s structural primary deficit ratio rose by 4.7pp to 7.3% of GDP. The harder than France increase in France was 2pp less, going from 1.7% of GDP in 2007 to 4.4% of GDP in 2009. Compared with the high points in 2009, by 2012, the French structural primary deficit ratio had shrunk by 3.7pp to 0.7% of GDP in 2012. The UK had trimmed its figure by 2.7% of GDP and in 2012 had a structural primary deficit of 4.6% of GDP, that is, worse than France at its worst. UK gross funding need The UK’s steeper recession and poorer underlying fiscal performance have both contributed to lower than France its inferior headline deficit. The consequence has been a very sharp worsening of the debt-to- GDP ratio in the UK relative to France (Chart 3). In 2007, OECD figures show that the ratio of government gross financial liabilities to GDP was 73% in France compared with 47% in the UK. By 2012, both were registering ratios of 105% of GDP. Despite its bigger budget deficit (and larger net funding need), the UK’s gross funding need, as a percentage of GDP, is lower than France’s, due to its much lower volume of maturing debt (Chart 4). This results from a lower level of debt in 2007 and a longer average maturity. UK public-sector losing is France has been deficit The UK traditionally has posted a worse current-account position than France (Chart 5). At the competitiveness larger start of the millennium, France’s current account-to-GDP ratio was about 5pp better than that of the UK. However, while the UK’s deficit is showing no real trend, the same cannot be said of France; its deficit has been deteriorating. By 2012, the gap was only 1pp. French private-sector In any economy, all the various sectoral financial surpluses and deficits should sum to zero. It surplus has declined follows that if we know the budget deficit and the current account position, we can work out the private sector’s surplus or deficit. Chart 6 shows the private-sector financial surpluses and deficits in the UK and France. The French private-sector surplus shrank prior to the global financial crisis and then rose sharply. The surplus has declined in the last three years. UK private-sector balance The private-sector balance of the UK has been more variable. In the run-up to the financial more variable crisis, it was far lower than in France. This shows greater financial excesses in the UK. When the crisis came, the retrenchment in the UK was, therefore, much sharper than in France, leading to a deeper recession in the UK and a bigger deterioration in the budget. In terms of debt-to-GDP, In terms of surpluses and deficits, which country is in the best position? In public debt-to-GDP there is little between them terms, there is not a lot between them. In terms of the current account, the adverse trend in France is of concern, but its present position is still better. If we look at the private sector’s net cashflow, it is almost the same in France and the UK, though the UK just edges it. France scores higher on So, in the UK, the private sector and the overseas sector both have slightly bigger surpluses the fiscal front than in France. One is good (bigger private-sector surplus), the other bad (bigger current- account deficit), so they net out. Where France scores is fiscally. It is clear that France, with its much lower primary structural deficit, is in the better position of the two countries. Chart 5: UK vs. French current account Chart 6: UK vs. French private-sector balance Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Paul Mortimer-Lee 16 May 2013 Macro Matters 9 www.GlobalMarkets.bnpparibas.com US: Fiscal gain and pain The Federal deficit is now projected to be just 4.2% of GDP in FY 2013. Stronger revenues and GSE windfall push off the day of reckoning on the debt ceiling. Negotiations over the next debt ceiling and FY 2014 budget are likely to coincide. Lower deficits The CBO released a bombshell of an update to its budget projections on Tuesday. Their FY 2013 budget forecast was revised to reflect stronger revenues and nearly a USD 100bn transfer from the government-owned mortgage giants Fannie Mae and Freddie Mac. The CBO’s projected deficit dropped USD 203bn to just USD 642bn, or 4.0% of GDP for FY 2013, with the federal government’s debt-to-GDP ratio ending the CBO’s 10yr window at 73.6% -- 3.4pp lower than the CBO’s February estimate. Some of the revenue pop is a pull forward of taxes as households realize taxable events in the 2012 tax year in order to avoid higher, marginal tax rates effective beginning in 2013. We are less optimistic that the strength will persist and look for lower revenues than the CBO projects this fiscal year. Thus, we expect a slightly larger deficit of 4.2% in FY 2013, still a massive 2.8pp improvement from the FY 2012 deficit, and noticeably better than our previous estimate of 5.5%. Beyond the budgetary outlook, we will hit the expiration of the debt ceiling suspension this weekend, and the Treasury is expected to implement its extraordinary cash management measures and bide some time for Congress to pass a new limit. In the midst of ongoing budget and debt ceiling negotiations, the political infighting is only getting Damage control… worse. The mishandling of the Benghazi attack, the IRS discrimination against conservative groups and the Justice Department’s seizure of Associated Press telephone records have all shifted the president’s priorities to damage control. We interpret this to mean that Republicans will …not budget control be less willing to compromise if they see that their chances of gaining seats is improving. We expect more of the same: no grand bargain, no tax overhaul, no entitlement reform and very few tweaks to current law as we ride out the current spending resolution until the end of the fiscal year. The details of the CBO’s latest projections for revenues include a USD 105bn increase in FY 2013 Revenues and GSEs reduce FY 2013 deficit and another USD 95bn over the following 10 years. The 2013 increase was a result of some high- income taxpayers locking in 2012 tax rates in anticipation higher, future tax rates as well as “reasons not related to changes in tax provisions.” On the outlays side, FY 2013 savings came from a USD 95bn transfer from Fannie Mae and Freddie Mac. For the 2014-23 period, the CBO reduced expected entitlement spending across the board with Social Security outlays cut by USD 86bn, Medicare cut by USD 85bn and Medicaid cut by USD 77bn, the result of a reduction in the number of expected beneficiaries and lower medical costs. In addition, the CBO cut its projection for net interest costs by USD 193bn during 2013-23, as a result of the smaller deficits. Table 1: Federal budget outlooks (% of GDP) Chart 2: Revenues vs expenditures (% of GDP) 2011 2012 2013(1) 2014(1) 2015(1) BNP Paribas 26 Forecast --> Surplus(+)/Deficit(-) -8.7 -7.0 -4.2 -4.2 -3.7 24 Primary Surplus(+)/Deficit(-) -7.2 -5.6 -2.8 -2.8 -2.2 Revenues 15.4 15.8 17.4 17.9 19.0 22 Spending 24.1 22.8 21.6 22.1 22.7 Expenditures Nominal GDP (FY Growth) 4.0 4.1 3.4 3.9 4.0 20 Debt to GDP 67.8 72.5 74.6 76.0 76.8 18 CBO Baseline Surplus(+)/Deficit(-) -8.7 -7.0 -4.0 -3.4 -2.2 16 Primary Surplus(+)/Deficit(-) -7.2 -5.6 -2.6 -1.9 -0.7 Revenues 14 Revenues 15.4 15.8 17.5 18.2 19.6 Spending 24.1 22.8 21.5 21.6 21.7 12 Nominal GDP (FY Growth) 4.0 4.1 3.1 3.8 5.9 Q2 1992 Q2 1995 Q2 1998 Q2 2001 Q2 2004 Q2 2007 Q2 2010 Q2 2013 Debt to GDP 67.8 72.5 74.9 75.9 75.7 Source: Haver Analytics, CBO, BNP Paribas; (1) forecast Source: Reuters Ecowin Pro, BNP Paribas Bricklin Dwyer 16 May 2013 Macro Matters 10 www.GlobalMarkets.bnpparibas.com 4.2% FY 2013 deficit Our expectations for the federal government’s deficit are a little less sanguine than the CBO’s. As noted above, we anticipate a slightly weaker pace of revenues in the remainder of the year. The CBO assumes current law, which means that it expects the full impact of the next tranches of Sequester budget cuts that will come into effect after 2013, whereas we assume some of the impact will be dialled back as was the case this year. Similarly the CBO does not include the extension of the Medicare fix that Congress has repeatedly extended. On the other hand, the CBO does not factor in the planned reduction of troops in Iraq and Afghanistan, which will lead to a lower path of defence spending. On balance, we look for somewhat more spending and larger deficits than the CBO projects. Over the forecast horizon, a structural imbalance remains between revenues and expenditures Structrual imbalances remain that illustrates why entitlement spending, which now accounts for 58.2% of government spending, will have to be dealt with in order to balance the budget. Not much room exists for reducing deficits when defence spending (which is already being reduced by the Sequester) and net interest payments (which Congress has no control of) account for another 25.7% of the budget. To balance the budget over 10 years without touching entitlements or defence spending (again), the remaining 16.1% of the budget, or 3.9% of GDP in discretionary spending that remains, would have to be reduced by a staggering 95%. The smaller projected deficit for 2013 is likely to change little this year in terms of the impact from Still 1.2pp in fiscal tightening in 2013 fiscal tightening on GDP. We currently expect around 1.2pp in fiscal tightening; the profit transfer from Fannie and Freddie and the bringing forward of tax revenues do not imply less of a drag on growth. Scheduled budget cuts will still take effect and tax arbitrage still reflects a higher tax burden, which will weigh on growth. On 18 May, the suspension of the debt ceiling will expire and it will be reset to reflect the level of Debt ceiling will reset on 18 May debt outstanding on that day. In order to not breech the new limit, the Treasury has already begun to implement its “extraordinary” cash management measures in order to avoid a potential default. With the help from the one-off profits from the GSEs and higher tax revenues mentioned above, fiscal coffers will be larger than usual and the Treasury will be able to avoid default for a longer period than usual. Default day in Combined with the roughly USD 230-250bn in traditional extraordinary measures, the roughly October/November USD 100bn from Fannie and Freddie (by October) and the USD 60bn in starting cash, the Treasury will have close to USD 400bn in additional cash room that is likely to push the potential default date to October or November, nicely coinciding with a new fiscal year. Less risk of a downgrade It almost goes without saying that the rapid improvement in the US fiscal position pushes back, if not eliminates the possibility of a further downgrade this year. Moody’s released a note saying that it is maintaining its negative outlook, but we think it much less likely they will follow through with a downgrade this year as the real fiscal issues confronting the US are three to five years down the road. Chart 3: Spending share of budget (% of total) Chart 4: Entitlement spending (as % of GDP) 100 Forecast --> 17.0 9.5 Forecast --> 90 Other 16.5 9.0 Population Aged 65 and Over (% of Total) 80 Net Interest 16.0 8.5 70 Defense 15.5 15.0 8.0 60 50 14.5 Social Security and Medicare Outlays 7.5 (as % of GDP, RHS) 40 14.0 7.0 30 13.5 Entitlements 6.5 20 13.0 10 12.5 6.0 0 12.0 5.5 2012 2013 2014 2015 1987 1992 1997 2002 2007 2012 2017 Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Bricklin Dwyer 16 May 2013 Macro Matters 11 www.GlobalMarkets.bnpparibas.com Japan: Will there ever be an exit from QE? If Japan achieves 2% inflation, the debt-to-GDP ratio may grow at a somewhat slower pace. The budget deficit, however, will grow at a faster clip, as debt-servicing costs surge on rising interest rates, resulting in increased JGB issuance to cover the shortfall. Even if the 2% inflation target is easily achieved, the BoJ may not be able to end its ZIRP or its JGB purchases out of concern over the impact on the government’s finances. Whether Japanese monetary policy has succumbed to fiscal dominance, whereby fiscal conditions dictate any policy exit, will be clear once the 2% inflation target is achieved. Can there be a smooth exit As we have argued before, we are concerned that the BoJ’s aggressive easing could lead to an at 2% inflation? asset bubble or uncontrollable yen depreciation. But even if these risks do not materialise, there is another worry: the BoJ could be prevented from smoothly unwinding its policy once the target of 2% inflation is achieved, due to concerns that the nation’s fiscal condition could be aggravated by lifting the zero interest-rate policy (ZIRP) and ending the massive JGB purchases. Policy rate should climb to Whether Japan’s fiscal condition is sustainable or not when 2% inflation is achieved will greatly 3% when inflation hits 2% depend on the level of interest rates. When deflation ends, the economy will likely be overheating (the current deflationary gap will be replaced by a widening inflationary gap). Assuming monetary policy is being conducted with price stability as the primary aim, the Taylor rule dictates that the policy rate should be raised before long to around 3% to reflect inflation (2%) and the equilibrium real interest rate (roughly 1%). After factoring this in, the long-term rate should climb above the 3% level on the inclusion of some sort of risk premium. If the interest rate rises If the BoJ were to start tightening, it might pull the plug on the overheated economy and trigger with inflation, the debt a recession. However, for illustrative purposes, we have conducted a simulation based on an ratio could improve a bit optimistic assumption, under which a recession is averted and the long-term rate rises roughly on a par with inflation. If this were to happen, the debt-to-GDP ratio would improve over a baseline scenario of continued ZIRP and deflation, as (a) tax receipts would increase as a result of the bracket creep-induced inflation tax, (b) budgetary outlays would not initially keep pace with inflation owing to institutional factors like the “macro-slide” mechanism for pensions, and (c) that government would not immediately roll over all of its debt, so even if the long-term interest rate were to rise, there would be a time lag before debt-servicing costs were fully impacted. BoJ’s JGB purchases Point (c) needs to be treated with caution, though. If we view the government and the BoJ as shorten the duration of one entity, the ‘consolidated government’, it is clear that the more government debt the central state-sector liabilities bank holds, the smaller the benefit gradual debt refinancing has on curbing the interest burden becomes. When the BoJ exits its current policy, it is expected to hike the interest rate paid on excess reserves alongside the policy rate to siphon off liquidity and the result will be an instant rise in BoJ interest payments. Put differently, when the BoJ purchases huge amounts of long- term JGBs, the liabilities of the consolidated government are shortened, as long-term JGBs are converted into reserves with the BoJ, which are short-term liabilities. As a result, when the BoJ starts to normalise interest rates, the interest-payment burden for the consolidated government sector rises rapidly. Meanwhile, because the BoJ’s holdings of JGBs were purchased at high prices and, thus, have low yields, the result is a negative spread that could result in the BoJ making losses for an extended period. Theoretically, a central bank can operate in capital deficit, but the BoJ will be unable to make payments to the state as long as these losses continue. Inflation will not change As for factors (a) and (b), the impact on reducing the debt ratio will be limited as long as inflation the path of public debt remains mild. Moreover, as both represent fiscal tightening in real terms, doubts remains as to whether they will be tolerated politically in the long run. In any event, the main reason Japan’s fiscal conditions continue to deteriorate is because the social-welfare systems and the tax structure have not been overhauled in line with Japan’s changing demographics. So, even if the long-term rate rises on a par with inflation, improvements in Japan’s fiscal metrics will be limited and it will be impossible to hide the fact that public debt is on track to explode. Ryutaro Kono / Hiroshi Shiraishi 16 May 2013 Macro Matters 12 www.GlobalMarkets.bnpparibas.com Japan has been able to Even so, Japan has so far been able to avert fiscal crisis. And, as indicated above, theoretically, avert a fiscal crisis, but … as long as the long-term rate rises commensurate with inflation, the path of the debt-to-GDP ratio could improve slightly. Therefore, one could argue that the BoJ, if it handles its dialogue with the market correctly, should be able to unwind its policy without causing any turbulence. When the nominal interest However, the reason the severity of Japan’s fiscal plight is not readily apparent today is rate rises, nominal debt- because the nominal interest rate is steady at a very low level, with the result that nominal debt- servicing costs will soar serving costs are constrained, allowing the authorities to maintain their cap on new JGB issuance. When the nominal interest rate starts to rise alongside inflation, even if the real interest rate remains largely unchanged, the resulting rise in annual nominal debt-serving costs will make the deteriorating fiscal conditions clear for all to see. Even without any increase in discretionary spending, escalating interest payments will still cause the budget deficit to snowball. In the bond market, the government will have to automatically increase new JGB issuance each year to cover the ballooning interest burden. Of course, if those earning this interest continue to reinvest in JGBs, long-term rates will not spike. But with the situation looking more and more like a Ponzi scheme and the peace of mind of the BoJ’s regular purchases no longer in place, funds may stop flowing smoothly into the JGB market. The collapse of some There also is the risk that fall in bond prices triggered by the BoJ’s exit could damage the financial institutions could capitalisation of financial institutions and that this, in turn, could destabilise the bond market. trigger a chain reaction Our analysis shows that most city and regional banks would not be capital deficient if the long- term rate climbed to only 3%, but that some financial institutions, which are effectively forced to maintain huge JGB holdings for regulatory reasons, could face solvency issues. If the government were to rescue these institutions by injecting capital raised by issuing yet more JGBs, the result could be a chain reaction linking financial-sector turmoil to a fiscal meltdown. Fiscal factors will dictate Even if the target of 2% inflation is realised smoothly, for the BoJ to move to a policy exit, it the BoJ’s exit strategy must first be convinced that these risks on the fiscal front will not materialise. This will require the government to devise a credible plan for fiscal restructuring. Unfortunately, from a political- economic perspective, it will probably take a crisis to get politicians moving in this regard. To prevent the long-term rate from climbing, the government is likely to first pressure the BoJ to maintain ZIRP and its JGB purchasing operations. The BoJ will have to accede to this to stave off turmoil in the financial sector. In other words, when the inflation target is achieved, the BoJ will probably face fiscal dominance. At that juncture, the BoJ will effectively have to abandon inflation targeting. There is, however, a limit on a central bank’s ability to control bond yields when inflation is on the rise. So, the government will probably have to resort to outright financial repression, namely, enacting various rules and/or incentives to semi-compel financial institutions to continue to buy and hold low-yielding government bonds. Policy off-ramp will not While merely stoking inflation has only a limited effect on curbing the growth of public debt, the come, as financial impact can be large if the long-term rate can be held down and a negative real interest rate is repression is likely realised. This is something the authorities will soon come to realise. In short, because debt management will be the most pressing issue, the timing of the BoJ’s policy exit will likely be determined by progress on lowering the public debt. Even if inflation tops 2%, the policy off- ramp will probably not come for a considerable period of time. Chart 1: Fiscal deficits (% of GDP, FY) Chart 2: Public debt (% of GDP, FY) 0 340 320 Inflation : 2%, interest rate : 5.3% -2 300 Case1: -4 280 Inflation : -0.3%, interest rate : 1% Inflation : 2%, interest rate : 3.3% 260 -6 240 -8 220 200 -10 180 Inflation : 2%, interest rate : 1% Case2: 160 -12 Inflation : 2%, interest rate : 3.3% 140 -14 120 00 05 10 15 20 25 30 00 05 10 15 20 25 30 Source: Cabinet office, MoF, BNP Paribas Source: Cabinet office, MoF, BNP Paribas Ryutaro Kono / Hiroshi Shiraishi 16 May 2013 Macro Matters 13 www.GlobalMarkets.bnpparibas.com China: From the outside Australia, South Korea and Taiwan are heavily exposed to developments in China. Their economic performance, therefore, contains information about China’s. Korea and Taiwan have both seen exports to China fall in recent months. The BoK cited weakness in China as reason for its surprise rate cut. Prices of commodities often thought to reflect growth conditions in China have also been falling. The overwhelming evidence is that China has slowed sharply since end 2012. The BoK cited China in its Chinese data have been volatile since the start of the year, with the variable timing of Chinese decision to ease policy New Year, the over-invoicing of exports and more working days this April than last all having affected various measures of growth. We have, therefore, looked at data from three other countries tied to China to gauge the underlying trend in Chinese growth at present. These are Australia, South Korea and Taiwan, all of which have high export exposures to China (Chart 1), timely data and, in the case of Australia and South Korea, have delivered surprise rate cuts in the past couple of weeks. The Bank of Korea explicitly cited disappointing Chinese growth as a factor in its decision. Taiwanese exports to Taiwan has the highest trade exposure to China in the region, with 27% going directly to the mainland China are down mainland and 13% to Hong Kong (some of which are also destined for the mainland). Taiwanese data are also affected by the timing of Chinese New Year, although the statistical authorities do provide some seasonally adjusted data, for which the effects of New Year are largely removed. For the purposes of assessing developments on the mainland, the most useful series are exports and industrial production. In USD terms, exports have fallen for three of the four months published thus far this year, down a total of 4.6%. In part, this reflects a weakening of the TWD, with exports in TWD terms down only 2.1%. Still, this is a poor performance and, as best we can tell when we seasonally adjust the data ourselves, has much to do with demand in mainland China. Exports there in USD terms have fallen by 14% since the end of 2012. Taiwanese industrial The weakness in exports to China correlates well with a renewed slowdown in Taiwanese production is falling industrial production volumes, which fell by 3.8% annualised in Q1 (Chart 2). Moreover, exports to mainland China rose smartly late in 2012 before turning down again this year. The pattern is similar to that seen in the likes of the Chinese Markit PMI and the NBS leading indicator. Korean exports to China In its May statement, the BoK noted that “the trends of improvement in economic indicators in are giving up prior gains emerging market countries such as China have been weaker than initially anticipated”. Although the 3mma for y/y growth in exports to China and Hong Kong looked solid at 7.2% in March, up from c. -5% six months earlier, it belies a more recent slowdown. Once seasonally adjusted, exports to China and Hong Kong show clear signs of weakening since November. We estimate that they have fallen 9%, largely unwinding the gains from July to November (Chart 3). Exports to the US were weak in March, but the trend since October last year has been more positive. Chart 1: Exposed to China Chart 2: Taiwan turning down 45 Export shares (2012, %) 40 Hong Kong China 35 30 25 20 15 10 5 0 South Korea Australia Taiwan Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Dominic Bryant 16 May 2013 Macro Matters 14 www.GlobalMarkets.bnpparibas.com Korea is likely to slow Some Korean data have remained more positive in recent months. Q1 GDP and business again through mid-year surveys have led the way. However, increasingly, this looks likely to be the result of lags. Since the global financial crisis, there has been a strong link between the Markit manufacturing PMIs for China and Korea with a lag of 2-3 months (Chart 4). On this basis, the Korean PMI looks set to weaken in the coming months. Industrial production, which has been particularly weak of late, may catch up, masking the impact of softening confidence in the manufacturing sector, but Korea will probably see overall growth slow in Q2 and Q3, in part because of weaker demand from China. This is an important factor behind our forecast that the BoK will cut the repo rate by a further 25bp late in Q3 or early in Q4. Commodity prices have The RBA’s 25bp cut also took the market by surprise. It did not explicitly cite China as a reason fallen … for easing policy, although weaker Chinese data were a key reason we had forecast the move. It is difficult to believe concerns about China did not weigh on the RBA’s decision given the clear role China plays in driving Australian commodity and export prices (Charts 5). The Australian local commodities price index has, until recently, been supported by a strong rebound in iron ore prices since their low in September last year. However, other commodity prices that are often viewed as tied to China have fared less well: copper, coal and steel prices are all back at those levels seen at their weakest in 2012. In fact, depending on the measure used, steel prices are in free fall (Chart 6). Weakness in steel prices may reflect significant over- capacity in the sector in China, rather than solely demand trends. However, this does not make the story more positive, as at some point, steel production will have to slow sharply. … confirming that China Despite loose monetary policy globally, commodity prices that had previously been thought to has slowed sharply reflect growth developments in China in recent years are now back at the levels seen when markets were worried about the potential for a hard landing of the Chinese economy. Overall, therefore, combined with the drop in China’s leading indicators, such as the PMI, and evidence that exports to China from the likes of Taiwan and Korea are now falling, commodity prices confirm that Chinese growth has slowed sharply since the start of the year. The government is likely to roll out some modest expansionary measures, such as supporting infrastructure projects, which may prop up growth in H2, but run contrary to rebalancing the economy. Chart 3: Korean exports to China falling Chart 4: Delayed reaction 200 South Korean exports (Index 2009=100) 180 US 160 140 120 100 EU 80 China & Hong Kong 60 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Chart 5: Price setter Chart 6: Down, down, down Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Dominic Bryant 16 May 2013 Macro Matters 15 www.GlobalMarkets.bnpparibas.com Chile: Cutting time cometh We now expect two, 25bp cuts in the policy rate in July and August. Inflation is below the IT band floor, and growth is slowing to a near-trend pace. The risk of overheating that has kept the central bank on hold has diminished substantially. We have changed our consensus-matching call of no policy rate changes this year and now forecast that the central bank of Chile (BCCh) will reduce its policy rate by 50bp, with one 25bp cut in July and another in August. Consensus still believes that the next move will be a hike in March 2015. Our new call sees earlier rate cuts than what the market has priced in. Chile’s real interest rate is April deflation of 0.5% m/m reduced annual inflation to 1% y/y -- the lowest in three years. the highest in the region Adding a policy rate of 5.0% would make Chile’s real interest rate the highest in the region (Chart 1). In the coming months, inflation will be revised up, due to methodological issues related to the CPI basket. Despite the proposed corrections in CPI methodology, inflation will remain close to the floor of the 3%±1pp target band for most of the year. As central banks around the world have eased, BCCh has been sidelined by above-trend growth and a widening current account deficit. These two constraints to rate cuts are becoming less binding and could soon turn supportive of lower rates, in our view. Signs of a slowdown exist On the growth front, signs of a slowdown exist beyond the calendar effect that adversely beyond the calendar effect affected Q1. Growth decelerated to 3.1% y/y in March, the slowest pace since July 2011. A rebound should occur in April and Q2, but 2013 growth will be about 1pp below last year’s 5.6% pace. Private consumption remains buoyant on the back of a solid labour market and strong sentiment, but credit conditions are tightening and the real estate market is softening. The boom in copper prices may be ending, which would increase downside risks to growth. Copper prices have fallen 11% year to date, not including a partial recovery in May. Falling copper prices and rising production costs, in part due to higher energy and labour costs, will likely lower the pace of investment in the sector, dampening growth as a result. Narrowing the interest rate The CLP’s strength amidst a significant correction in copper prices is contributing to the current differential could help account deficit (Chart 2). Portfolio reshufflings away from USD-denominated assets may have reduce CLP appreciation played a role, but the CLP’s strength is rooted in Chile’s triple-A credit, its 5% policy rate and ample global liquidity. Narrowing the interest rate differential with advanced economies could reduce appreciation pressure on the CLP. This would help lower Chile’s current account deficit in the short run as the price effect (due to the exchange rate) will outweigh the income effect (through the interest rate) near term. The longer-term impact is ambiguous, but the cooling of demand now underway could partially offset the stimulative impact of lower rates on imports. Faster-than-expected growth may remove the rate-cutting option, but we see risks skewed towards more cuts, given the CLP strength and Chile’s high real interest rate. Chart 1: Policy rate vs headline inflation Chart 2: CA Balance (4Q acc) vs Chilean Peso 10 10 Current Acc. Bal. (USDbn) 400 8 8 CLP inverted, rhs 6 450 6 4 4 2 500 0 2 -2 550 0 -4 Policy Rate -6 600 -2 CPI y/y -8 -4 -10 650 Jan 01 Jan 03 Jan 05 Jan 07 Jan 09 Jan 11 Jan 13 Q2 2005 Q4 2006 Q2 2008 Q4 2009 Q2 2011 Q4 2012 Source: Reuters Ecowin Pro, BNP Paribas Source: Reuters Ecowin Pro, BNP Paribas Nader Nazmi 16 May 2013 Macro Matters 16 www.GlobalMarkets.bnpparibas.com Economic calendar: 17 – 24 May HIGH-INCOME ECONOMIES GMT Local Previous Forecast Consensus Fri 17/05 Norway Public holiday 23:50 08:50 Japan Core machinery orders m/m: Mar 7.5% 3.5% 3.5% (16/05) 09:15 11:15 Eurozone ECB's Coeuré speaks in Orleans 09:30 11:30 ECB's Asmussen speaks in Berlin 10:15 12:15 ECB's Praet speaks in Brussels 10:30 11:30 ECB's Mersch speaks in London 12:30 08:30 Canada CPI m/m: Apr 0.2% 0.4% 0.0% 12:30 08:30 CPI y/y: Apr 1.0% 1.0% 0.6% 12:30 08:30 BoC core CPI m/m: Apr 0.2% 0.1% 0.2% 12:30 08:30 BoC core CPI y/y: Apr 1.4% 1.1% 1.2% 13:55 09:55 US Michigan sentiment (prel): May 76.4 77.0 78.0 14:00 10:00 Leading indicators: Apr -0.1% 0.2% 17:45 12:45 Minneapolis Fed’s Kocherlakota speaks on panel in Chicago, IL Sat 18/05 15:00 11:00 US Fed Chairman Bernanke delivers commencement speech at Bard College at Simon’s Rock, MA Mon 20/05 Holiday Germany, France, Netherlands, Belgium, Norway, Switzerland, Canada 17:00 12:00 US Chicago Fed’s Evans speaks on economy in Chicago, IL Tue 21/05 01:30 11:30 Australia RBA MPC minutes 07:25 09:25 Eurozone ECB's Liikanen speaks in Helsinki 08:30 09:30 UK CPI m/m: Apr 0.3% 0.4% 0.5% 08:30 09:30 CPI y/y: Apr 2.8% 2.6% 2.7% 08:30 09:30 RPI m/m: Apr 0.4% 0.6% 0.7% 08:30 09:30 RPI y/y: Apr 3.3% 3.2% 3.3% 08:30 09:30 Output PPI (nsa) m/m: Apr 0.3% 0.4% 08:30 09:30 Output PPI (nsa) y/y: Apr 2.0% 1.6% 08:30 09:30 Output PPI core (nsa) y/y: Apr 1.3% n/a 16:30 12:30 BoE Governor-designate Mark Carney speaks in Montreal 16:30 17:30 US St. Louis Fed’s Bullard speaks on monetary policy in Frankfurt 17:00 13:00 New York Fed’s Dudley speaks in New York Wed 22/05 23:50 08:50 Japan Trade balance (nsa) : Apr JPY -362.4bn JPY -684.5bn JPY -684.5bn (21/05) 03:30 12:30 BoJ rate announcement 07:30 09:30 Netherlands Consumer confidence: May -35 -32 n/a 08:00 10:00 Eurozone Current account: Mar EUR 16.3bn EUR 22.0bn n/a 16:30 12:30 ECB's Praet speaks on monetary policy in Washington 08:30 09:30 UK BoE MPC minutes 10:00 11:00 CBI monthly industrial trends: May -25 -18 12:30 08:30 Canada Retail sales m/m: Mar 0.8% 0.3% 0.2% 12:30 08:30 Retail sales m/m: Mar 0.7% 0.2% 0.2% 14:00 10:00 US Existing home sales: Apr 4.92mn 5.00mn 4.97mn 14:00 10:00 Fed Chairman Bernanke testifies on the economic outlook 18:00 14:00 FOMC minutes Thu 23/05 07:00 09:00 Eurozone ECB's Noyer speaks in Paris 07:30 08:30 ECB's Draghi speaks in London 08:00 10:00 PMI manufacturing (flash): May 46.7 46.8 47.0 08:00 10:00 PMI services (flash): May 47.0 47.1 47.2 08:00 10:00 PMI composite (flash): May 46.9 47.0 n/a 09:15 11:15 ECB's Nowotny at Austrian central bank press conference 11:05 13;05 ECB's Liikanen speaks in Copenhagen 12:50 14:50 ECB's Coeuré speaks in Copenhagen 14:00 16:00 Consumer confidence (flash): May -22.3 -21.5 -22.0 Market Economics 16 May 2013 Macro Matters 17 www.GlobalMarkets.bnpparibas.com Economic calendar: 17 – 24 May (cont) HIGH-INCOME ECONOMIES GMT Local Previous Forecast Consensus Thu 23/05 08:30 09:30 UK GDP (rev) q/q: Q1 0.3% (p) 0.3% 0.3% cont 08:30 09:30 GDP (rev) y/y: Q1 0.6% (p) 0.6% 0.6% 08:30 09:30 Retail sales inc autos m/m: Apr -0.7% -0.6% 0.1% 08:30 09:30 Retail sales incl. autos y/y: Apr -0.5% 1.4% 2.0% 12:30 08:30 US Initial claims 360k 345k n/a 10:05 11:05 St. Louis Fed’s Bullard speaks on monetary policy in London 14:00 10:00 New home sales: Apr 417k 430k 425k Fri 24/05 06:00 08:00 Germany GDP (final) q/q: Q1 0.1% (p) 0.1% 0.1% 06:00 08:00 GDP (final) y/y: Q1 -0.2% (p) -0.2% -0.2% 08:00 10:00 Ifo business climate: May 104.4 104.4 104.5 08:00 10:00 Ifo current conditions: May 107.2 107.5 107.2 08:00 10:00 Ifo expectations: May 101.6 101.5 101.6 06:45 08:45 France Industry survey: May 88 89 n/a 08:00 10:00 Italy ISAE consumer confidence: May 86.3 87.0 n/a 10:00 12:00 Eurozone ECB's Weidmann speaks in Paris 11:30 13:30 UK BoE Governor Mervyn King participates in debate on the crisis hosted by the Bank of Finland 12:30 14:30 ECB's Constancio speaks on financial regulation in Brussels 12:30 08:30 US Durable goods orders m/m: Apr -5.9% -1.7% 1.8% 12:30 08:30 Durable goods orders ex transports m/m: Apr -1.5% 0.1% 0.8% 12:30 08:30 Core capital goods shipment: Apr 0.5% -0.9% n/a 13:00 15:00 Belgium Business confidence: May -14.7 -13.7 n/a Release dates and forecasts as at c.o.b. prior to the date of publication; see Global Daily Spotlight for any revisions; (p) preliminary Source: BNP Paribas ASIA GMT Local Previous Forecast Consensus Mon 20/05 02:30 10:30 Thailand GDP q/q: Q1 3.6% -0.7% -1.6% 02:30 10:30 GDP y/y: Q1 18.9% 6.5% 5.3% 08:30 16:30 Hong Kong Unemployment rate: Apr 3.5% 3.5% 3.5% Wed 22/05 09:00 17:00 Malaysia CPI y/y: Apr 1.6% 1.7% 1.7% Thu 23/05 01:45 09:45 China HSBC PMI manufacturing (flash): May 50.4 50.2 n/a 05:00 13:00 Singapore CPI y/y: Apr 3.5% 2.9% n/a 08:00 16:00 Taiwan Industrial production m/m: Apr -2.6% 1.5 n/a 08:00 16:00 Industrial production y/y: Apr -3.3% -0.1 -0.3% Fri 24/05 Vietnam CPI y/y: May 6.6% 6.6% n/a 09:00 17:00 Taiwan GDP (final) q/q: Q1 -0.8% (p) -0.8% n/a 09:00 17:00 GDP (final) y/y: Q1 1.5% (p) 1.5% 1.5% During 20-24/05 Singapore GDP (final) q/q annualised: Q1 -1.4% (p) -1.4% -1.4% week GDP (final) y/y: Q1 -0.6% (p) -0.6% -0.5% Release dates and forecasts as at c.o.b. prior to the date of publication Source: BNP Paribas For our four-week calendar, please click here Market Economics 16 May 2013 Macro Matters 18 www.GlobalMarkets.bnpparibas.com Economic calendar: 17 – 24 May (cont) CEEMEA GMT Local Previous Forecast Consensus Fri 17/05 Russia GDP y/y: Q1 2.1% 1.1% 1.2% Mon 20/05 12:00 14:00 Poland Corporate employment y/y: Apr -0.9% -0.9% -0.9% 12:00 14:00 Corporate wages y/y: Apr 1.6% 2.0% 2.2% Tue 21/05 07:00 09:00 South Africa Leading Indicator y/y: Mar 133.3 135.0 n/a 12:00 14:00 Poland Industrial production y/y: Apr -2.9% 4.2% 3.0% PPI y/y: Apr -0.6% -1.3% -1.5% Wed 22/05 Russia Industrial production y/y: Apr 2.6% 2.7% 1.9% 07:00 09:00 Hungary Gross wages y/y: Mar 2.7% 3.0% 3.1% 08:00 10:00 South Africa CPI y/y: Apr 5.9% 5.7% 5.7% Thu 23/05 South Africa SARB MPC repo rate announcement 5.0% 5.0% 5.0% 11:00 14:00 Turkey MPC minutes Fri 24/05 Russia Retail sales y/y: Apr 4.4% 4.4% 4.5% Unemployment rate: Apr 5.7% 5.6% 5.5% Release dates and forecasts as at c.o.b. prior to the date of publication Source: BNP Paribas LATIN AMERICA GMT Local Previous Forecast Consensus Fri 17/05 19:00 16:00 Argentina Economic activity index y/y: Mar 2.3% 2.5% 2.7% 20:00 18:00 Colombia Retail sales y/y: Mar 0.6% -1.2% -0.1% 20:00 18:00 Industrial production y/y: Mar -4.5% -5.4% -3.5% 16:00 10:00 Mexico GDP y/y: Q1 3.2% 0.8% 1.1% 16:00 10:00 Global economic indicator IGAE: Mar 0.4% -1.2% -0.7% Mon 20/05 12:30 9:30 Chile GDP y/y: Q1 5.7% 4.4% n/a 19:00 16:00 Argentina Unemployment rate: Q1 6.9% 7.4% n/a Wed 22/05 19:00 16:00 Argentina Trade balance: Apr USD0.5bn USD 1.6bn n/a 11:00 9:00 Brazil IBGE CPI IPCA-15 m/m: May 0.51% 0.49% n/a 11:00 9:00 IBGE CPI IPCA-15 y/y: May n/a 6.51% n/a 12:30 10:30 Current account: Apr USD -6.9bn 12:30 10:30 FDI: Apr USD 5.7bn 16:00 10:00 Mexico Retail sales y/y: Mar -2.6% 1.8% n/a Thu 23/05 Peru GDP y/y: Q1 5.9% 4.7% 5.1% Fri 24/05 19:00 16:00 Argentina Industrial production y/y: Apr 0.2% 2.1% n/a 12:30 10:30 Brazil Credit report: Apr During Venezuela GDP y/y: Q1 5.5% Week Release dates and forecasts as at c.o.b. prior to the date of publication; see Daily Latam Spotlight for any revisions Source: BNP Paribas For our four-week calendar, please click here Market Economics 16 May 2013 Macro Matters 19 www.GlobalMarkets.bnpparibas.com Key data preview: Europe UK: Consumer prices (April) BNP Paribas forecast: Down Apr (f) Mar Feb Jan 6 (% y/y) R P IX CPI (% m/m) 0.4 0.3 0.7 -0.5 5 CPI (% y/y) 2.6 2.8 2.8 2.7 4 RPI (% m/m) 0.6 0.4 0.73 -0.41 R PI 3 RPI (% y/y) 3.2 3.3 3.2 3.3 2 RELEASE DATE: Tuesday 21 May CPI UK consumer prices rose 0.4% in March, meaning annual inflation 1 remained at 2.8%. Core inflation picked up, to 2.4% in March from 2.3% 0 in February. Upside pressure on inflation on the month came from recreation and cultural goods, clothing and footwear, and housing and -1 household services. -2 April is likely to have seen downward pressure from an Easter timing 02 03 04 05 06 07 08 09 10 11 12 effect, as well as lower petrol prices. The April BRC Shop Price Index fell sharply, suggesting some core weakening as well. Source: Reuters EcoWin Pro UK: Retail sales (April) BNP Paribas forecast: Weak 10 .0 11 Apr (f) Mar Feb Jan R etail S ale s (% y/y) 10 9 Ret sales ex fuel (% m/m) -0.6 -0.8 2.1 -0.4 7 .5 8 Ret sales ex fuel (% y/y) 1.2 0.4 3.2 0.4 5 .0 7 Ret sales (% m/m) -0.6 -0.7 2.1 -0.7 6 Ret sales (% y/y) 1.4 -0.5 2.5 -0.5 Percent 5 2 .5 4 RELEASE DATE: Thursday 23 May 3 0 .0 2 After a sharp drop in March, there ought to have been limited 1 downside to retail sales in April. However, survey evidence from the -2 .5 B R C T otal S ales (% y/y, R H S ) 0 BRC and CBI, as well as the timing of Easter, suggest the data could -1 once again be fairly soft. -5 .0 -2 We look for a 0.6% decline in retail sales, taking the year-on-year rate 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 of growth to 1.2%. Source: Reuters EcoWin Pro Eurozone: ‘Flash’ PMI (May) BNP Paribas forecast: Disappointingly flat May (f) Apr Mar Feb Manufacturing 46.8 46.7 46.8 47.9 Services 47.1 47.0 46.4 47.9 Composite 47.0 46.9 46.5 47.9 RELEASE DATE: Thursday 23 May Eurozone PMIs are converging. Peripheral indicators are improving, while the core countries’ indicators are deteriorating. Both combined should leave the eurozone aggregate figures broadly unchanged. Growth-wise, the implication of the weak PMIs is disappointing. Instead of a slowing contraction or even moderate growth, we should now be prepared ourselves for a contraction in Q2 similar to that of Q1. Source: Reuters EcoWin Pro Germany: Ifo business climate (May) BNP Paribas forecast: Approaching zero growth levels May (f) Apr Mar Feb Business climate 104.4 104.4 106.7 107.4 Expectations 101.5 101.6 103.6 104.7 Current conditions 107.5 107.2 109.9 110.2 RELEASE DATE: Friday 24 May German economic sentiment has deteriorated quite rapidly since February, but should stabilise going forward. The Ifo business climate index improved too much in Q1 and has fallen back to more fundamental levels. Current levels, which we expect to remain broadly unchanged, suggest slow, but just-above-zero growth in the economy in Q2. Source: Reuters EcoWin Pro Market Economics 16 May 2013 Macro Matters 20 www.GlobalMarkets.bnpparibas.com Key data preview: North America Canada: CPI (April) BNP Paribas forecast: Just below target m/m% Apr (f) Mar Feb Jan Headline CPI 0.4 0.2 1.2 0.1 Bank of Canada Core 0.1 0.2 0.8 0.1 RELEASE DATE: Friday 17 May Inflation is expected to pick up to 0.4% m/m after last month’s soft 0.2% print. Gasoline prices rose in both March and April, and are expected to feed through to higher headline prices as core prices slow to just 0.1% m/m – more consistent with the tempered economic activity. The y/y pace of total inflation is expected to remain just below the BoC’s lower-bound target of 1.0%, while the core measure drops to 1.1%. Wages are weak, economic activity is modest and the persistent strength of the Canadian dollar will keep underlying inflation limited. Source: Reuters EcoWin Pro US: U of Mich. consumer sentiment (May, preliminary) BNP Paribas forecast: Small increase May (f) H2 Apr Apr (p) Apr Michigan sentiment 77.0 80.5 72.3 76.4 RELEASE DATE: Friday 17 May The University of Michigan index of consumer confidence jumped to 80.5 in the second half of April from 72.3 in the preliminary reading. We anticipate some payback to consumer optimism, and expect the University of Michigan index to ease to 77.0 in the beginning of May, a level still slightly above the 76.4 average for April. Stock prices continued to rise. However, economic data were mixed in the beginning of May, which should limit the expected increase in consumer confidence in the month. Source: Reuters EcoWin Pro US: Existing and new home sales (April) BNP Paribas forecast: Up Apr (f) Mar Feb Jan Existing HS (millions saar) 5.00 4.92 4.95 4.94 New HS (thousands saar) 430 417 411 445 RELEASE DATE: Wednesday 22 & 23 Thursday May We expect existing home sales to increase by 1.6% m/m to 5.00mn saar in April. Pending home sales rose 1.5% m/m in March. We expect a modest increase in resales on the back of past strength in contract signings. New home sales should see a solid increase in April after a subdued increase in March, as the colder-than-usual weather likely dampened sales in the beginning of the spring buying season. We expect new home sales to rise to 430k in April from 417k in March. Source: Reuters EcoWin Pro US: Durable goods (April) BNP Paribas forecast: Sequester drag % m/m Apr (f) Mar Feb Jan 40 Core Capital Goods Orders Durable Goods -1.7 -5.9 4.3 -3.7 % 3m/3m ar Ex-Transport 0.1 -1.5 -1.8 3.0 20 Core Cap Goods Ship -0.9 0.5 1.8 -0.7 0 RELEASE DATE: Friday 24 May The trend in durable goods orders is likely to be near flat in April, due -20 to weak aircraft and government orders. Core Shipments Ex-transport orders are expected to post a 0.1% m/m increase for the -40 month, after the previous two month’s staggering 1.5% m/m and 1.8% m/m declines. -60 Feb 01 Feb 03 Feb 05 Feb 07 Feb 09 Feb 11 Feb 13 Capital goods shipments are expected to decline by 0.9% m/m – a slightly above-average increase for the first month of a quarter. Source: Reuters EcoWin Pro Market Economics 16 May 2013 Macro Matters 21 www.GlobalMarkets.bnpparibas.com Key data preview: Asia Thailand: GDP (Q1) BNP Paribas forecast: Payback 30 % y/y Q1 (f) Q4 Q3 Q2 Private Investment Index PII (% y/y 3MMA) 25 GDP growth 6.5 18.9 3.1 4.4 20 RELEASE DATE: Monday 20 May 15 Flood-linked base effects should flatter Q1 headline GDP growth, though 10 less than it has in the past, as the capital stock replacement/upgrading 5 cycle is nearing completion. Public- and private-sector components are 0 expected to be key supports. Net exports could drag on headline growth. -5 A degree of technical payback from a very strong Q4 2012, coupled -10 PII (% 3mth avg/3mth avg, sa) with a weak external environment, indicate the economy will shrink on a -15 sequential basis (we forecast -0.7% q/q sa). -20 Fiscal authorities may use a weak quarterly figure to put more pressure 06 07 08 09 10 11 12 13 on the BoT for policy easing ahead of the May 29 policy meeting. Source: CEIC, BNP Paribas Japan: Trade balance (April) BNP Paribas forecast: Smaller seasonally-adjusted gap (sa, JPY billion ) JPY bn Apr (f) Mar Feb Jan 1500 Trade balance (nsa) -684.5 -362.4 -779.5 -1633.5 Trade balance (sa) -728.4 -922.0 -1092.5 -731.8 1000 RELEASE DATE: Wednesday 22 May 500 In April, we expect the seasonally-adjusted trade deficit to have 0 shrunk, but the unadjusted deficit to have expanded. Based on data through mid-month, seasonally adjusted nominal -500 exports are likely to have been generally flat, while nominal imports probably declined from March. -1000 Although nominal exports were bolstered by higher prices as a result of the weak yen, real exports are projected to have contracted. -1500 Real exports are proving slow to recover because the upturn in the 05 06 07 08 09 10 11 12 13 Chinese economy, Japan’s largest export market, remains weak. Source: MoF, BNP Paribas Taiwan: Industrial production (April) BNP Paribas forecast: Rebounding Apr (f) Mar Feb Jan Ind. production (% m/m) 1.5 -2.6 -0.5 0.7 Ind. production (% y/y) -0.1 -3.3 -11.6 19.0 RELEASE DATE: Thursday 22 May In April, we expect Taiwanese industrial production to have rebounded by 1.5% m/m, consistent with the monthly export data already in hand. However, this would follow a cumulative 3.1% in the previous two months and pull the 3m/3m rate down to -6.2% annualised, consistent with renewed weakness in the main Chinese indicators. However, with the unfavourable base effect reversing, the annual pace of contraction in industrial production is likely to have slowed to -0.1% in April from -3.3% in March. Source: Reuters EcoWin Pro, BNP Paribas Market Economics 16 May 2013 Macro Matters 22 www.GlobalMarkets.bnpparibas.com Key data preview: CEEMEA Russia: GDP (Q1) BNP Paribas forecast: Sharp slowdown % y/y Q1 13 (f) Q4 12 Q3 12 Q2 12 GDP 1.1 2.1 2.9 4.0 RELEASE DATE: Friday 17 May We share the MinEcon’s expectation of a sharp slowdown in growth and expect it to have decelerated sharply to 1.1% y/y in Q1 2013 (below Bloomberg’s consensus of 1.3%). Oil prices USD100-110/bbl (Urals) are at a comfortably high level, but unable to fuel a strong economic rebound due to weak investment demand, sluggish exports and a negative base effect. We expect economic growth to decelerate to 2.6% this year as the ability of personal consumption to drive growth is gradually waning. Source: FSSS, Reuters EcoWin Pro, BNP Paribas Poland: Industrial production (April) BNP Paribas forecast: Stronger on working-days effect % y/y Apr f Mar Feb Jan Industrial production 4.2 -2.9 -2.1 0.4 RELEASE DATE: Tuesday 21 May We expect industrial production to have risen by 4.2% y/y in April, mostly due to a supportive working-days effect. However, in seasonally adjusted terms, we see much softer output growth, reflecting the absence of domestic demand and very weak external demand. At the same time, we expect construction output to have continued to fall at a double-digit pace suggesting a weak start to total GDP growth in Q2 2013. Source: Reuters EcoWin Pro Russia: Industrial production (April) BNP Paribas forecast: Stable growth % y/y Apr (f) Mar Feb Jan Industrial production 2.7 2.6 -2.1 -0.8 RELEASE DATE: Wednesday 22 May We expect growth in industrial production to accelerate slightly to 2.7% y/y in April (above Bloomberg’s consensus of 1.9%) on the back of a calendar effect. Investment demand remains poor affecting industrial growth. Consumer spending is more robust. We continue to expect IP to grow 2.0% in 2013 as a whole but do not expect a substantial rebound before H2 2013. Source: FSSS, Reuters EcoWin Pro, South Africa: CPI inflation (Apr) BNP Paribas forecast: Slower CRY Index (ZAR) vs. CPI Apr (f) Mar Feb Jan 80 12 % y/y 5.7 5.9 5.9 5.4 60 10 8 RELEASE DATE: Wednesday 22 May 40 6 Although the petrol price rose 10c in April, the petrol price inflation rate 20 slowed from 16.5% y/y in March to 10.2% y/y in April and will contribute % y/y 4 0 0.36pp less to inflation this month. 2 ‐20 In May, petrol price inflation has slowed to 1.5% y/y and will contribute 0 0.5pp less than it did in April. ‐40 ‐2 Our expectation that strikes will reoccur in 2013 seems to be playing ‐60 ‐4 out. This will subject the ZAR to bouts of weakness. Concerns about another ratings downgrade will also mount. CRY (ZAR) Index lagged 2 months CPI %Y/Y Risks to inflation should be countered by weak domestic demand. Source: Statistics South Africa Market Economics 16 May 2013 Macro Matters 23 www.GlobalMarkets.bnpparibas.com Key data preview: CEEMEA (cont) Russia: Unemployment (April) BNP Paribas forecast: Decline % Apr (f) Mar Feb Jan Unemployment 5.6 5.7 5.8 6.0 RELEASE DATE: Friday 24 May The unemployment rate is likely to have continued to decline to 5.6% in April mainly driven by seasonal factors, in particular the higher number of economically active agents typical for Q2. The labour market generally remains strong and we do not expect the unemployment rate to exceed 5.5%, on average, in 2013. The regional composition is less favourable – with highs in the unemployment rate of 40-50% in the depressed Caucasus regions. Source: FSSS, Reuters EcoWin Pro, BNP Paribas Russia: Retail sales (April) BNP Paribas forecast: Stable growth % y/y Apr (f) Mar Feb Jan Retail Sales 4.4 4.4 3.0 4.2 RELEASE DATE: Friday 24 May We expect retail sales growth to have been unchanged at 4.4% y/y in April (slightly below Bloomberg’s consensus of 4.5%). An acceleration is unlikely as credit growth is slowing. We expect robust retail sales growth of around 4% in 2013 as a whole. Consumption will remain the main locomotive of economic growth in 2013. Source: FSSS, Reuters EcoWin Pro, BNP Paribas Market Economics 16 May 2013 Macro Matters 24 www.GlobalMarkets.bnpparibas.com Key data preview: Latam Colombia: IP and retail sales (March) BNP Paribas forecast: Weak Mar (f) Feb Jan Dec IP (% y/y) -5.4 -4.5 -1.6 -3.0 RS (% y/y) -1.2 0.6 1.3 3.6 RELEASE DATE: Friday 17 May We expect another large y/y contraction in industrial output in March, reflecting both a calendar effect and continued weakness in activity. If our projections are correct, this would be the fifth straight month of annual contraction in IP. We also project a contraction in retail sales in March, due to a calendar effect and still-weak consumer sentiment. Source: DANE and BNP Paribas. Chile: Real GDP (Q1) BNP Paribas forecast: Decelerating Q1 (f) Q4 Q3 Q2 20 q/q, saar GDP (% y/y) 4.4% 5.7% 5.8% 5.7% 15 RELEASE DATE: Monday 20 May y/y 10 We expect GDP growth to decelerate in Q1, following weak activity, due to the calendar effect in March and February. 5 This will likely correspond to a 1.8% q/q saar growth in Q1, 0 substantially below Chile’s potential growth of 5.0%. -5 Net exports were likely a major drag on Q1 growth, as weaker external -10 demand, reflected in a large drop in copper prices, lowered exports by Q4 2004 Q4 2006 Q4 2008 Q4 2010 Q4 2012 0.6% over a year ago, while imports rose 6.2% y/y in Q1 on strong domestic demand. Source: DANE and BNP Paribas. Mexico: Retail Sales (March) BNP Paribas forecast: Bottoming 20% Consumer 10.0% Mar (f) Feb Jan Dec Confidence % y/y 1.80% -2.60% 1.80% -1.80% 15% 8.0% 10% 6.0% RELEASE DATE: Wednesday 22 May 5% 4.0% We expect retail sales growth to rebound 1.8% y/y in March, following 0% 2.0% a 2.6% y/y drop in February. -5% 0.0% On the positive side, sales at Walmex stores (+5.4% y/y) and Antad -10% -2.0% affiliates (+5.9% y/y) were strong in the month. However, domestic auto -15% -4.0% sales contracted 1.0% y/y in March. -20% Retail Sales (sa) -6.0% Higher wages, more jobs and better confidence will likely underpin -25% -8.0% improved retail sales going forward. Oct-05 Apr-07 Oct-08 Apr-10 Oct-11 Apr-13 Source: Reuters EcoWin Pro Peru: Real GDP (Q1) BNP Paribas forecast: Decelerating 30 12 Q1 (f) Q4 Q3 Q2 Investment (%, y/y) GDP (% y/y) 4.7% 5.9% 6.8% 6.5% 25 10 20 RELEASE DATE: Thursday 23 May 15 8 We expect GDP growth to have decelerated in Q1. However some 10 of the decline will be due to calendar effects. 6 5 If our forecast is right it will likely correspond to a 2.4% q/q, saar, 0 4 growth in Q1, a significant drop from the rate of growth posted in -5 previous quarters. 2 -10 GDP (%, y/y) Net exports were possibly a major obstacle during Q1, on the back -15 0 of feeble external demand which impacted negatively both metal Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 prices and terms of trade. Exports dropped by 17.1% year-on-year 2005 2006 2007 2008 2009 2010 2011 2012 while imports rose 6.2% y/y in Q1 on strong domestic demand. Source: DANE and BNP Paribas. Market Economics 16 May 2013 Macro Matters 25 www.GlobalMarkets.bnpparibas.com Central bank watch EUROPE Current Date Next change Interest rate rate of last in coming Comments (%) change six months EUROZONE The comments at the 2 May press conference left the door open for lower policy -25bp -25bp Refinancing rate 0.50 rates. Given the weak economy and low inflation, we expect the refi rate to be cut (2/5/13) (4/7/13) to a new low of 0.25%, with July the most likely timing. UK QE was increased by GBP 75bn in October 2011, GBP 50bn in February -50bp 2012 and GBP 50bn in July 2012. We expect another GBP 100bn of QE Bank rate 0.5 No change (5/3/09) over the year from August this year. Further credit-easing measures will also be announced. SWEDEN Tentative signs of an improvement in leading indicators globally, which Repo rate -25bp No change should benefit Sweden via greater confidence and the trade channel, 1.00 (18/12/12) suggest the probability of further rate cuts has waned. NORWAY The solid pace of growth and strong fundamentals suggest Norges Bank will Sight deposit rate -25bp 1.50 No change embark on a hiking cycle next year, unlike most other high-income economies. (14/3/12) We expect the first rate hike to come in Q4. SWITZERLAND The SNB maintains a minimum exchange rate of 1.20 to the euro. We do not 3m LIBOR target -50bp 0-0.25 No change expect a shift in the policy stance, but emphasis on rising imbalances in the range (3/8/11) real estate market is likely to increase in upcoming statements. NORTH AMERICA Date of Next change Current Interest rate last in coming Comments rate (%) change six months US -75bp The FOMC will continue its USD 85bn per month pace of QE purchases through Fed funds rate 0-0.25 No change (16/12/08) the end of 2013 and then taper gradually throughout 2014 for a total of USD 1.6trn in net balance-sheet expansion. We expect the Fed to hold the +25bp Discount rate 0.75 No change balance sheet steady in H1 2015 and then allow maturing securities to shrink the (18/2/10) balance sheet as it raises the Fed funds target in H2 2015. CANADA +25bp Inflation has fallen sharply, as wage pressures remain subdued and growth has Overnight rate 1.00 No change (8/9/10) disappointed. Still, the BoC has maintained a hiking bias, as high household debt +25bp and risks in the domestic housing market remain key vulnerabilities. Bank rate 1.25 No change (8/9/10) Nevertheless, we expect the BoC to keep its policy rate on hold until mid-2014. ASIA Current Date Next change Interest rate rate of last in coming Comments (%) change six months JAPAN -10bp The BoJ took very bold easing measures at its first meeting under new Call rate 0-0.10 No change leadership, expanding the size, maturity and type of paper it plans to buy. (5/10/10) While the Bank seems set to take a wait-and-see approach for the time Basic loan rate -20bp 0.30 No change being, it will likely act aggressively again should downside risks arise. (19/12/08) AUSTRALIA Low inflation and a persistently strong AUD prompted the RBA to cut in May. It -25bp -25bp Cash rate 2.75 will likely have to cut again due to disappointing Chinese growth and weak (7/5/12) (3/9/13) business investment, in part reflecting the peaking of the mining boom. Market Economics 16 May 2013 Macro Matters 26 www.GlobalMarkets.bnpparibas.com Central bank watch (contd) ASIA (cont) Current Date Next change Interest rate rate of last in coming Comments (%) change six months CHINA PBOC chief Zhou Xiaochuan said China’s monetary policy stance was shifting to neutral. Financial conditions to January were unduly loose and were tightened in -31bp 1y bank lending rate 6.00 No change February. We expect no hikes in the RRR or interest rates this year, but lending (5/7/12) and broader credit growth are likely to slow as a result of this guidance. It could present challenges for investment, limiting the upside for growth. HONG KONG The HKMA base rate moves in step with the US Fed funds rate given the -100bp HKMA base rate 0.50 No change currency board. We do not expect the Fed to raise rates for the next couple of (17/12/08) years, implying no change in Hong Kong rates. INDIA With industrial spare capacity widening sharply and household inflation -25bp -25bp expectations pulling back, inflation risks should continue to retreat, allowing Repo rate 7.25 (3/5/13) (30/7/13) space for at least one further 25bp rate cut. Any further easing beyond this would likely require an acceleration of the government’s delivery of structural reforms. INDONESIA Tighter monetary conditions are key to minimising pressure on the balance of -25bp payments and upside risks to inflation. With short-term market rates well below 1m BI rate 5.75 No change (9/2/12) the BI rate, tightening will be in the form of hikes in the deposit facility rate. We expect a cumulative 75bp of hikes in the deposit facility rate in 2013. MALAYSIA Overnight policy +25bp The BNM has cited heightened downside risks to global growth and slowing 3.00 No change rate (5/5/11) external demand as reasons for keeping rates on hold. PHILIPPINES The BSP cut rates for the fourth time this year in October to new lows. Overnight borrowing -25bp Increased risks due to weaker external demand were a key factor in the move. 3.50 No change rate (25/10/12) However, unless these risks crystallise, solid domestic demand, record low rates and pending power-rate adjustments mean further easing is unlikely. SINGAPORE The MAS maintained the SGD NEER policy settings at its meeting on 12 – (13/4/12) No change October, citing inflationary pressures and a reduction of external risks. We do not expect any move for the time being. SOUTH KOREA Korean inflation remains well below target and is unlikely to rise for some time. Seven-day repo -25bp -25bp 2.50 Growth has picked up, but the recovery faces headwinds from soft conditions rate (9/5/13) (12/9/13) in major export markets. The BoK is likely to ease again later in the year. TAIWAN Taiwanese growth is recovering from a weak patch and should rise to an Discount rate on 10- +12.5bp 1.875 No change above-trend rate in 2013. However, there is some spare capacity, and inflation day loans (30/6/11) will remain contained, as the recent spike in food prices will unwind. THAILAND Domestic demand growth remains solid while credit and wage growth is strong -25bp One-day repo rate 2.75 No change and inflation is within the target range. As the decision to cut rates in October (18/10/12) was a split one, we do not expect any further policy easing. CENTRAL AND EASTERN EUROPE, MIDDLE EAST Current Date Next change Interest rate rate of last in coming Comments (%) change six months CZECH REPUBLIC The CNB cut its repo rate to 0.05% and its Lombard rate to 0.25% in -20bp Repo rate 0.05 No change November. The scope for further conventional monetary easing has been (1/11/12) exhausted and we expect the CNB to now focus on the exchange rate. Market Economics 16 May 2013 Macro Matters 27 www.GlobalMarkets.bnpparibas.com Central bank watch (contd) CENTRAL AND EASTERN EUROPE, MIDDLE EAST Current Date Next change Interest rate rate of last in coming Comments (%) change six months HUNGARY We expect the NBH to continue its salami-slicing approach to interest-rate cuts -25bp -25bp Base rate 4.75 and deliver the next 25bp move at its meeting on 28 May. We see the trough (23/4/13) (28/5/13) for the main policy rate at 4.00% by the summer. POLAND The MPC resumed its easing cycle in May, cutting interest rates by 25bp. -25bp -25bp Repo rate 3.00 Stagnation and disinflation support the case for further rate cuts. We see the next (8/5/13) (5/6/13) move of 25bp in June and expect a main policy rate of 2.00% by year end. RUSSIA The CBR is likely to keep rates unchanged in the coming months as inflation substantially exceeds the targeted range. We expect the rate-easing cycle to +25bp -25bp Refinancing rate 8.25 start in Q3 2013, however, as the economic slowdown is significant, the (13/9/12) (July 2013) government is trying to rein in energy price growth and the new CBR governor is likely to prioritise economic growth. UKRAINE The Ukraine’s deflation scenario has materialised and recession has become -25bp -25bp Refinancing rate 7.5 evident. Deflation is a strong argument for the NBU to restart monetary easing (22/3/12) (May 2013) with another 25bp rate cut in Q2 2013, when the IMF deal is expected. SOUTH AFRICA -50bp We expect the MPC to cut rates by 50bp in July or September, although there is -50bp Repo rate 5.00 (July or a chance it could cut next week. Financial conditions are tight relative to the repo (19/7/12) September) rate and the output gap is still negative, giving the MPC some room to cut. TURKEY -50bp -25bp One-week repo rate 4.50% (16/05/13) (18/06/13) The CBRT cut its key rates by another 50bp in line with market expectations Overnight lending -50bp -25bp and left the door open for further rate cuts. The CBRT seems keen to use any 6.00% policy room provided by the decline in global commodity prices and is likely to rate to PD (16/05/13) (18/06/13) Overnight borrowing -50bp -25bp cut rates further as long as the TRY remains stable. 3.50% rate (16/05/13) (18/06/13) Sources: BNP Paribas, Cadiz, TEB, UkrSibbank LATIN AMERICA Current Date Next change Interest rate rate of last in coming Comments (%) change six months BRAZIL The BCB cut rates by 525bp from mid-2011 until October 2012. It then +25bp +25bp Selic overnight rate 7.50 planned to stay on hold for a while. However, inflation forced central bank to (17/4/13) (29/5/13) hike rated in April, although timidly. There is more to come. CHILE Growth is softening to around trend, while inflation is stuck below the floor of -25bp -25bp Overnight rate 5.00 the IT band. We expect the BCCh to reduce its policy rate by 50bp, with one (12/1/12) (11/7/13) 25bp cut in July and another in August. COLOMBIA Although activity remains weak, monetary policy has been accommodative for -50bp Overnight rate 3.50 No change some time, with the real interest rate hovering near zero. While another 25bp (22/3/13) cut cannot be ruled out, a long pause is the most likely outcome, in our view. MEXICO Banxico lowered its policy rate by 50bp in March. We expect another 50bp cut -50bp -25bp Overnight rate 4.00 in two instalments of 25bp each in September and October on concerns about (8/3/13) (06/09/13) weaker growth and wide interest-rate differentials to advanced countries. PERU +25bp With near-trend growth and on-target inflation, the central bank is set to remain Overnight rate 4.25 No change (12/5/11) on hold over the forecast period. Source: BNP Paribas Market Economics 16 May 2013 Macro Matters 28 www.GlobalMarkets.bnpparibas.com Economic forecasts (GDP & CPI) Table 1: GDP forecasts (% y/y) Table 2: CPI forecasts (% y/y) (1) (1) (1) (2) (2) 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 (2) (3) World 5.2 4.0 3.1 3.1 3.7 World 3.5 4.6 3.5 3.1 3.4 (2) (3) Advanced 3.0 1.6 1.3 1.1 1.9 Advanced 1.5 2.7 2.0 1.5 1.9 (2) (3) Emerging & developing 7.5 6.5 5.0 5.1 5.6 Emerging & developing 5.5 6.7 5.1 4.9 5.0 (2) (3) G7 2.8 1.5 1.4 1.2 1.9 G7 1.4 2.6 1.9 1.5 2.0 (2) (3) Asia ex Japan 9.4 7.6 6.0 6.4 6.9 Asia ex Japan 4.5 5.8 3.6 3.5 3.8 (2) (3) CEE and Russia 4.8 5.0 2.2 2.3 3.3 CEE and Russia 6.4 7.9 6.5 5.6 5.1 (2) (3) Latam 6.3 4.5 2.9 3.5 3.7 Latam 6.3 6.8 6.2 7.2 7.5 US 2.4 1.8 2.2 1.8 2.5 US 1.6 3.2 2.1 1.6 2.1 Eurozone 2.0 1.5 -0.5 -0.5 0.8 Eurozone 1.6 2.7 2.5 1.7 1.3 Japan 4.7 -0.6 2.0 0.9 1.0 Japan -0.7 -0.3 0.0 0.0 2.2 China 10.4 9.3 7.8 7.9 8.1 China 3.3 5.4 2.6 3.2 3.5 Eurozone countries Eurozone Countries Germany 4.0 3.1 0.9 1.0 1.8 Germany 1.2 2.5 2.1 2.0 1.8 France 1.6 1.7 0.0 0.0 0.9 France 1.7 2.3 2.2 1.3 1.7 Italy 1.7 0.5 -2.4 -1.4 0.3 Italy 1.6 2.9 3.3 1.7 1.3 Spain -0.1 0.4 -1.4 -1.6 0.2 Spain 2.0 3.1 2.4 1.6 0.7 Netherlands 1.6 1.0 -1.0 -0.8 0.8 Netherlands 0.9 2.5 2.8 2.5 1.6 Belgium 2.4 1.8 -0.2 0.0 1.0 Belgium 2.3 3.4 2.6 1.3 1.3 Austria 2.1 2.7 0.7 0.9 1.7 Austria 1.7 3.6 2.6 2.2 2.4 Portugal 1.3 -1.5 -3.2 -2.9 -0.5 Portugal 1.4 3.6 2.8 0.3 0.1 Finland 3.3 2.8 -0.2 0.3 1.6 Finland 1.7 3.3 3.2 2.4 2.2 Ireland -0.8 1.4 0.7 1.0 2.2 Ireland -1.6 1.2 1.9 1.1 1.2 Greece -4.8 -7.1 -6.4 -4.8 -0.5 Greece 4.7 3.1 1.0 -0.7 -0.7 Other Europe Other Europe UK 1.8 1.0 0.3 0.9 1.6 UK 3.3 4.5 2.8 2.8 2.5 Sweden 6.3 3.8 1.2 1.8 2.5 Sweden 1.2 3.0 0.9 0.3 0.9 Norway 0.2 1.3 3.0 2.0 2.2 Norway 2.4 1.3 0.7 1.7 2.3 Switzerland 3.0 1.9 1.0 1.8 2.3 Switzerland 0.7 0.2 -0.7 0.0 1.0 CEEMEA CEEMEA Russia 4.3 4.3 3.4 2.6 3.6 Russia 6.9 8.5 5.1 7.0 6.2 Ukraine 4.2 5.2 0.2 1.5 3.5 Ukraine 9.4 8.0 0.6 2.5 4.2 Poland 3.8 4.5 2.0 0.7 2.3 Poland 2.6 4.3 3.7 0.8 1.5 Hungary 1.3 1.7 -1.7 0.6 2.2 Hungary 4.9 3.9 5.7 2.0 2.8 Czech Republic 2.3 1.8 -1.2 -0.9 1.5 Czech Republic 1.5 1.9 3.3 1.5 1.4 Turkey 9.2 8.8 2.2 3.5 4.0 Turkey 8.6 6.5 8.9 7.0 5.9 South Africa 3.1 3.5 2.5 2.8 2.9 South Africa 4.3 5.0 5.6 6.2 5.8 Saudi Arabia 4.7 8.5 6.8 4.0 4.8 Saudi Arabia 5.3 4.9 4.5 4.0 4.1 United Arab Emirates 1.3 4.2 3.9 3.0 3.1 United Arab Emirates 0.9 0.9 0.7 1.2 1.9 Qatar 16.7 13.0 6.2 4.0 4.3 Qatar -2.4 1.9 1.9 4.1 5.2 Asia Pacific Asia Pacific Australia 2.6 2.4 3.6 2.5 2.7 Australia 2.9 3.3 1.8 2.4 2.4 India 9.8 7.3 5.1 5.5 7.2 India 9.6 9.5 7.5 5.5 5.8 South Korea 6.3 3.6 2.1 2.7 3.8 South Korea 2.9 4.0 2.2 1.9 2.1 Indonesia 6.2 6.5 6.2 6.0 5.9 Indonesia 5.1 5.4 4.3 5.3 4.6 Taiwan 10.8 4.1 1.7 4.5 4.0 Taiwan 1.0 1.4 1.8 1.0 1.2 Thailand 7.8 0.1 6.4 5.9 4.8 Thailand 3.3 3.8 3.0 4.1 4.2 Malaysia 7.2 5.1 5.6 5.7 5.0 Malaysia 1.6 3.2 1.7 1.8 2.8 Hong Kong 6.8 4.9 1.4 4.4 3.3 Hong Kong 2.3 5.3 4.1 4.1 4.8 Singapore 14.8 5.2 1.4 3.3 4.4 Singapore 2.8 5.2 4.6 3.7 3.6 Philippines 7.6 3.9 6.6 5.9 5.2 Philippines 4.1 4.7 3.1 4.0 3.9 Vietnam 6.8 6.0 5.0 6.0 6.2 Vietnam 9.2 18.7 9.1 7.5 7.2 Americas Americas Canada 3.2 2.6 1.8 1.4 2.1 Canada 1.8 2.9 1.5 1.1 1.9 Brazil 7.5 2.7 0.9 3.0 3.5 Brazil 5.0 6.6 5.4 6.6 6.3 Mexico 5.3 3.9 3.9 3.8 4.1 Mexico 4.2 3.4 4.1 3.8 3.6 Colombia 4.3 6.6 3.9 4.8 5.2 Colombia 2.3 3.4 3.2 3.4 3.0 Chile 6.1 6.0 5.6 5.2 5.0 Chile 1.4 3.3 3.0 2.4 3.2 Argentina 9.2 8.9 2.0 3.0 2.0 Argentina 10.5 9.8 10.0 12.0 14.0 Peru 8.8 6.9 6.3 6.8 6.7 Peru 1.7 3.5 3.7 2.6 2.9 Venezuela -1.5 4.2 5.5 1.0 1.0 Venezuela 28.7 26.1 21.1 29.0 32.0 (1) Forecast (2) BNPP estimates based on weights calculated using PPP valuation (1) HICP where available, India WPI (2) Forecast (3) BNPP estimates based on of GDP in IMF WEO April 2013 weights calculated using PPP valuation of GDP in IMF WEO April 2013 Source: BNP Paribas Source: BNP Paribas Market Economics 16 May 2013 Macro Matters 29 www.GlobalMarkets.bnpparibas.com Recently published research Hungary and Poland: Trading places Michal Dybula 15 May 2013 Russia: Creating room for monetary manoeuvre Julia Tsepliaeva, Kirill Mavrin 15 May 2013 Russia: Rouble to become more volatile Julia Tsepliaeva, Kirill Mavrin 15 May 2013 Ukraine: New Tobin tax on FX purchases? Serhii Yahnych 15 May 2013 South Africa: Repo rate vs. the ZAR & power outages Kim Silbermann 15 May 2013 UK: Holding operation Paul Mortimer-Lee 15 May 2013 France: The reformation Dominique Barbet 15 May 2013 Australia: A dose of reality Dominic Bryant 15 May 2013 India: Trade balance upset by gold buying spree Mole Hau 14 May 2013 Mexico policy rate: More cuts this year Nader Nazmi 13 May 2013 Thailand: Careful what you wish for Philip McNicholas 13 May 2013 US FOMC: Timing is everything Laura Rosner 9 May 2013 US FOMC: An inconvenient truth Julia Coronado 9 May 2013 Mexico throws a fiesta, Brazil suffers a hangover Marcelo Carvalho, Nader Nazmi 9 May 2013 Japan: BoJ banking on a shift in the Phillips curve Ryutaro Kono, Makoto Watanabe 9 May 2013 Asia: Q2 flu Richard Iley 9 May 2012 Eurozone: The next (baby) step Ken Wattret 9 May 2013 Poland: Bond rally continues Michal Dybula 8 May 2013 GCC: Diversification pays off Selim Çakir, Nazli Karamollaoglu 8 May 2013 Russia: Political liberalisation, Moscow style Julia Tsepliaeva, Kirill Mavrin 8 May 2013 Turkey: Another cut on the way Selim Çakir, Emre Tekmen 8 May 2013 Malaysia: The fake sound of progress Philip McNicholas 6 May 2013 Financial and Monetary Conditions Index Michelle Lam, Mole Hau, Gustavo Arruda 3 May 2013 ECB: Door left open Ken Wattret 2 May 2013 Eurozone inflation: Gone in a flash Gizem Kara, Evelyn Herrmann 2 May 2013 France: Recession? What recession? Dominique Barbet 2 May 2013 Sweden: Midsummer Mildness David Tinsley 2 May 2013 US FOMC: Steady for now Julia Coronado 2 May 2013 Australia: Primed for a surprise Dominic Bryant 2 May 2013 Brazil: That sinking feeling Marcelo Carvalho 2 May 2013 Eurozone money matters: May 2013 Ricardo Santos, Michelle Lam 2 May 2013 For further research, please see: Economic research CEEMEAnomics Latam sniper FX weekly Global outlook: Balancing act CEEMEA sniper Global rates plus Market Economics 16 May 2013 Macro Matters 30 www.GlobalMarkets.bnpparibas.com Market Coverage Market Economics Paul Mortimer-Lee Global Head of Market Economics London 44 20 7595 8551 email@example.com Ken Wattret Co-Head of European & CEEMEA Market Economics London 44 20 7595 8657 firstname.lastname@example.org Luigi Speranza Co-Head of European & CEEMEA Market Economics London 44 20 7595 8322 email@example.com David Tinsley UK, Sweden, Switzerland, Non-Eurozone London 4420 7595 8150 firstname.lastname@example.org Gizem Kara Eurozone, Greece, Ireland London 44 20 7595 8783 email@example.com Evelyn Herrmann Germany, Austria, Eurozone London 44 20 7595 8476 firstname.lastname@example.org Ricardo Santos Spain, Portugal London 44 20 7595 8369 email@example.com Dominique Barbet Eurozone, France Paris 33 1 4298 1567 firstname.lastname@example.org Michelle Lam Proprietary indicators and indices London 44 20 7595 8226 email@example.com Julia Coronado Head of Economics North America New York 1 212 841 2281 firstname.lastname@example.org Laura Rosner US New York 1 212 471 8180 email@example.com Yelena Shulyatyeva US New York 1 212 841 2258 firstname.lastname@example.org Bricklin Dwyer US, Canada New York 1 212 471-7996 email@example.com Ryutaro Kono Head of Economics Japan Tokyo 81 3 6377 1601 firstname.lastname@example.org Hiroshi Shiraishi Japan Tokyo 81 3 6377 1602 email@example.com Azusa Kato Japan Tokyo 81 3 6377 1603 firstname.lastname@example.org Makoto Watanabe Japan Tokyo 81 3 6377 1605 email@example.com Richard Iley Head of Economics Asia Hong Kong 852 2108 5104 firstname.lastname@example.org Dominic Bryant Asia, Australia Hong Kong 852 2108 5105 email@example.com Philip McNicholas SE Asia Hong Kong 852 2108 5077 firstname.lastname@example.org Mole Hau Asia Hong Kong 852 2108 5620 email@example.com Xingdong Chen Chief Economist China Beijing 86 10 6535 3327 firstname.lastname@example.org Ken Peng China Beijing 86 10 6535 3380 email@example.com Jacqueline Rong China Beijing 86 10 6535 3363 firstname.lastname@example.org Marcelo Carvalho Head of Economics Latin America São Paulo 55 11 3841 3418 email@example.com Gustavo Arruda Brazil São Paulo 55 11 3841 3466 firstname.lastname@example.org Nader Nazmi Mexico, Colombia, Peru New York 1 212 471 8216 email@example.com Oscar Munoz Mexico, Colombia, Peru New York 1 212 471 6599 firstname.lastname@example.org Florencia Vazquez Chile, Argentina, Venezuela Buenos Aires 54 11 4875 4363 email@example.com Michal Dybula Chief Economist Central & Eastern Europe Warsaw 48 22 697 2354 firstname.lastname@example.org Marcin Kujawski Poland Warsaw 48 22 697 2355 email@example.com Julia Tsepliaeva Chief Economist Russia & CIS Moscow 74 95 785 6022 firstname.lastname@example.org Kirill Mavrin Russia, CIS Moscow 74 95 785 6000 email@example.com Selim Cakir Chief Economist Turkey, GCC Istanbul 90 216 635 2972 firstname.lastname@example.org Emre Tekmen Turkey, GCC Istanbul 90 216 635 2975 email@example.com Nazli Toraganli Turkey, GCC Istanbul 90 216 635 2986 firstname.lastname@example.org Tugba Talınlı Turkey, GCC Istanbul 90 216 635 2973 Tugba.email@example.com Kim Silberman Chief Economist South Africa Johannesburg 27 11 088 2171 firstname.lastname@example.org For production and distribution, please contact: Ann Aston, London. 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