emerging markets quarterly - credit suisse

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Emerging Markets Quarterly

Q2 2012

The EM world’s short-term growth indicators have become more encouraging over the past two months. Most importantly, the forward-looking PMI new orders data for the EM world as a whole have bounced somewhat from their low point in late 2011. However, the backward-looking IP growth numbers for the EM world have yet to show a convincing bounce. When we exclude the volatile figures for India, Thailand and Singapore from our aggregate EM growth measure, we find that sequential worldwide EM IP growth remained largely stable at about 5% between April 2011 and January 2012.

Our measures of three-month headline and core inflation for the EM world as a whole have continued to trend down in recent months. We saw divergent patterns in different EM countries in the second half of 2011 when local food and energy prices rose substantially in some countries in response to currency depreciation, but data for the first two months of 2012 show a tendency for inflation to come back down again in those countries.

14 March 2012Fixed Income Research

http://www.credit-suisse.com/researchandanalytics

Research Analysts

Kasper Bartholdy +44 20 7883 4907

[email protected]

Berna Bayazitoglu +44 20 7883 3431

[email protected]

Alonso Cervera +52 55 5283 3845

[email protected]

Dong Tao +852 2101 7469

[email protected]

See inside cover for full list of analysts

14 March 2012

Emerging Markets Quarterly 2

T h i s p a g e i s i n t e n t i o n a l l y l e f t b l a n k .

14 March 2012


Table of Contents Moderately encouraging EM PMI data alongside stability in EM core inflation 5

Summary 5

PMIs signaling stronger sequential growth mainly in Asia 7

EM inflation generally looking benign 10

EM currencies: responding to a pickup in global risk appetite 15

Latin America 21

Argentina: More interventionism, less growth 22

Brazil: We expect additional Selic interest rate cuts of 125bps in Q2 2012 27

Chile: Shifting focus from rate cuts to inflation 32

Colombia: Overcoming the global headwinds 36

Mexico: A strong start in 2012, but will it last? 40

Panama: Slowing from double-digit growth 45

Peru: No sharp slowdown here 49

Venezuela: Will he or won’t he? 53

Europe, Middle East and Africa 58

Hungary: Waiting for Godot? 60

Israel: Robust economy with geopolitical concerns 65

Poland: Still the growth champion in Europe? 70

Russia: A fresh chance for reform post-elections 75

South Africa: Reasons to be positive 80

Turkey: A temporary soft patch 85

Ukraine: Left to her own devices? 90

Non-Japan Asia 95

China: Improved liquidity, but not demand 96

Hong Kong: Property bounces but not for long 101

India: A cyclical sweet spot 105

14 March 2012


Indonesia: All about inflation 110

Korea: Growth has troughed, rates on hold 115

Malaysia: Outperform till the next election? 120

Philippines: Promising signs emerging 124

Singapore: Higher wage growth ahead? 128

Taiwan: Emerging from a technical recession 132

Thailand: Investment leads the way 137

Long-term sovereign FX debt ratings 141

Key websites 143

Previous publications 149

Key dates 157

Gross financing needs for 2012 162

Balance of payments financing needs 163

Government funding needs 176

Quarterly and annual forecasts for developed countries 186

Summary macroeconomic data for developed countries 187

Summary macroeconomic data 192

14 March 2012


Moderately encouraging EM PMI data alongside stability in EM core inflation Summary Overview: The EM world’s short-term growth indicators have become more encouraging over the past two months. Most importantly, the forward-looking PMI new orders data for the EM world as a whole have bounced somewhat from their low point in late 2011 (Exhibit 1). However, the backward-looking IP growth numbers for the EM world have yet to show a convincing bounce. When we exclude the volatile figures for India, Thailand and Singapore from our aggregate EM growth measure, we find that sequential worldwide EM IP growth remained largely stable at about 5% between April 2011 and January 2012 (Exhibit 2).

Our measures of three-month headline and core inflation for the EM world as a whole have continued to trend down in recent months. We saw divergent patterns in different EM countries in the second half of 2011 when local food and energy prices rose substantially in some countries in response to currency depreciation, but data for the first two months of 2012 show a tendency for inflation to come back down again in those countries.

Exhibit 1: The EM world’s PMI indices for “new orders” have move up from their 2011 lows in the most recent months, especially in non-Japan Asia and Latin America

Exhibit 2: Sequential EM industrial production growth remained stable in January 2012 (on a measure that excludes the volatile figures for India, Thailand and Singapore from the calculation), but the PMIs indicate that EM growth is about to bounce

Seasonally adjusted regional indices for PMI new orders. See the footnote below regarding the GDP-weighting of country-specific observations. PMI new orders indices are lead indicators for sequential industrial production growth.

The dark thick line shows (using the left hand scale) the annualized % change in the seasonally adjusted industrial production level for the EM world as a whole during the last three months. The line with the diamonds shows the same growth concept for the EM world excluding India, Thailand and Singapore. The other two lines show PMI new orders indices (using the right hand scale).

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EM IP, 3m% ann.* (left scale)EM IP ex-IN, SG, TH, 3m% ann.* (left scale)EM new orders** (right scale)Global new orders (right scale)

*Observations for 13 countries were taken into account and weighted by the countries’ 2010 nominal GDP. The countries are listed in footnotes of Exhibits 7-9. Source: PMI Premium, Haver Analytics®, Credit Suisse

*Observations for 20 countries (listed in footnotes below Exhibits 7-9) were weighted by the countries’ 2010 nominal GDP. The figures were seasonally and workday-adjusted. **The index takes into account PMI readings for Brazil, Mexico, Czech Republic, Hungary, Poland, Russia, South Africa, Turkey, China, India, Korea, Singapore and Taiwan.. Source: PMI Premium, Haver Analytics®, Credit Suisse

Growth: The forward-looking PMI new orders index for the EM world rose encouragingly in December and January and remained at the new and moderately higher level in February, suggesting that some strengthening of the sequential IP growth figures should become visible in the forthcoming data releases (Exhibits 1 and 2) – it isn’t truly visible at this stage. While our three-month measure of growth in industrial production (IP) for the EM world as a whole bounced sharply in December 2011 and January 2012 after staying in a narrow range at an unsatisfactory low level for nearly a year (Exhibits 2 and 5), this reflects temporarily extra-ordinarily high month-on-month figures for India, Thailand and Singapore. If we exclude those figures from the aggregates, we find that EM IP growth remained stable in Q4 2011 and in January 2012 (the latest available observation).

Kasper Bartholdy +44 20 7883 4907

[email protected]

Natig Mustafayev +44 20 7888 1065

[email protected]

While backward-looking IP growth for the EM world is yet to

bounce notably, the PMI data suggest

that it will

14 March 2012


The growth trends differ across regions. China has just released revised IP figures for the past year. The updated series shows a gradual decline in China’s three-month annualized rate of IP growth to 8.4% in February 2012 from 12.7% in the middle of 2011 and 19.8% at the end of 2010 (Exhibit 10). In non-Japan Asia outside of China (an area in which India and Korea are the largest economies), the annualized three-month rate of IP growth jumped massively into positive territory in December 2011 and January 2012, under the influence of one-off factors that are discussed below. In the EMEA area, annualized three-month IP growth slowed sharply to about 1% in January 2012 from more than 8% in late 2011. In Latin America, Brazil’s IP growth remains very weak but Mexico’s has bounced.

Inflation: After remaining stable for a few months, our measures of three-month EM headline and core inflation resumed their decline in the three months from December to February, helped by particularly large falls in inflation in China and India (Exhibit 3). Three-month inflation in the rest of the EM world rose notably towards the end of last year but came off again in January and February (Exhibit 4). This reflects in part the temporary impact (on food and energy price inflation) of last year’s EM currency depreciation against the dollar and the euro – an effect that has subsequently been mostly reversed.

Exhibit 3: Our sequential measure of EM headline inflation has been declining since December after remaining stable for a few months

Exhibit 4: : In the EM world outside of China and India, a spike in food inflation drove up headline inflation in late 2011, but headline inflation fell back again in January and February 2012

Annualized % change in the seasonally adjusted CPI indices for the EM world as a whole over the last three months

Annualized % change in the seasonally adjusted CPI indices for the EM world excluding China and India over the last three months

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18Headline CPI*Food CPICore CPI**

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*For headline inflation, 31 countries are taken into account and weighted by their 2010 nominal GDP. These countries are listed in the footnotes for Exhibits 27-29. Argentina is not included. For India, the index used is the WPI. **For core inflation (defined here to be the change in the CPI index excluding food, energy, alcohol and tobacco), 21 countries are taken into account and weighted by their 2010 nominal GDP. These countries are listed in the footnotes for Exhibits 27-29. For India, the index used is the WPI. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse.

* For headline inflation, the same 31 countries are taken into account as in Exhibits 27-29 excluding China, India and Argentina. The countries are listed in footnotes to the latter charts. **For core inflation (defined here to be the change in the CPI index excluding food, energy, alcohol and tobacco), we use the same subset of EM countries as in Exhibit 22, but excluding India and China. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse.

Exchange rates: Most EM currencies have recovered a lot of ground against the dollar and the euro so far this year. At this stage only a short list of EM countries has currencies which – in REER terms – remain more than 3% cheap to the levels that prevailed in mid-2011: Hungary, Brazil, Israel, Mexico, Poland, Romania and India.

Sequential EM inflation continued

to decline in December 2011 and

January 2012

Recovering EM currencies

14 March 2012


PMIs signaling stronger sequential growth mainly in Asia The most recent PMI data (Exhibits 7- 9) suggest better EM output trends in the months ahead, especially in Asia and Latin America. We find it particularly noteworthy that the Chinese PMI new orders data have risen significantly from recent lows (Exhibit 10). Right now the PMI data probably give a more reliable impression of the underlying growth trends than does the figure for annualized three-month IP growth (the “run-rate”) for the EM world.

The IP “run-rate” for the EM world rose from 1.3% in November 2011 to 4.3% in December and 9.3% in January1, as we show in the dark thick line in Exhibit 2. But it was inflated, most significantly in January, by sharp one-off bounces in India, Thailand and Singapore. The Indian figures are simply implausibly erratic, Thailand’s January observation reflects a sharp and quick recovery from a flood-induced slump, and Singapore’s IP figures are rendered very volatile by the special dynamics of the country’s pharma sector.

If we take those three countries out of our EM IP measure (see the thin line in Exhibit 2), we are left with a series that shows sequential IP growth for the EM world remaining stable continuously between April of 2011 and January of 2012. Although no growth bounce is as yet visible in that series. IP growth has risen sufficiently impressively in Korea (Exhibit 11), and Mexico (Exhibit 14) to offset weakening in China (Exhibit 10), Brazil (Exhibit 13), Russia (Exhibit 15) and Turkey (Exhibit 16).

Exhibit 5: While three-month IP growth has continued to weaken in EMEA and China in recent months, it has recovered sharply in other parts of Asia while remaining largely unchanged (at zero) in Latin America

Exhibit 6: Three-month IP growth has recovered to a decently strong rate in the US and but has continued to decline (from very high levels) in China

Annualized % change in the industrial production level (sa) over the last three months preceding each observation point in the chart.

Annualized % change in the industrial production level (sa) over the last three months preceding each observation point in the chart.

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*Observations for 19 countries were taken into account and weighted by the countries’ 2010 nominal GDP. The countries are listed in footnotes of Exhibits 7-9. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

EM output growth is, in our view, likely to be supported in the coming quarters by the already visible positive growth momentum in the US, a policy-induced bottoming out of growth in China, recent central bank policy easing across much of the rest of the EM world, and global commodity price stability. The main risk to this view is probably that the assumed commodity price stability may not materialize. Higher global oil and food prices could be a significant growth impediment.

1 To be exact, we define the “run rate” or the “three-month growth rate” as the annualized three-month moving average of the

month-on-month growth rates in the seasonally adjusted IP series.

Moderately stronger PMI data point to a

pick-up in IP growth in the coming

months

One-off strength in parts of Asia has

pushed up sequential IP growth

for the EM world, but “underlying”

sequential IP growth remained stable through January

2012

We see moderately stronger EM growth

in the coming quarters

14 March 2012


Exhibit 7: Latin America IP, mfg PMI and US ISM new orders

Exhibit 8: EMEA IP, mfg PMI and euro zone new orders

Exhibit 9: NJA ex-China IP, mfg PMI and global new orders

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LatAm PMI**LatAm new orders**US new ordersLatAm IP, 3m% ann.* (rhs)

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NJA ex-China PMI**NJA ex-China new orders**Global new ordersNJA ex-Ch IP, 3m% ann.* (rhs)

*We weight data for five countries by these countries’ 2010 nominal GDP: Argentina, Brazil, Chile, Colombia and Mexico. Seasonally and workday-adjusted; annualized % change over three months. **We weight the PMIs for Brazil and Mexico by their 2010 nominal GDP. Source: Haver Analytics®, Statistics Office, INEGI, PMI Premium, Credit Suisse

*We weight data for eight countries by these countries’ 2010 nominal GDP: Czech Republic, Hungary, Poland, Romania, Russia, South Africa, Turkey and Ukraine. Seasonally and workday-adjusted; annualized % change over three months. **We weight the PMIs for Czech Republic, Hungary, Poland, Russia, South Africa and Turkey by their 2010 nominal GDP.Source: Haver Analytics®, Statistics Office, PMI Premium, Credit Suisse

*We weight data for six countries by these countries’ industrial sector value added in 2010: India, Korea, Malaysia, Singapore, Taiwan and Thailand. Seasonally and workday-adjusted; annualized % change over three months. **We weight the PMIs for China, India, Korea and Singapore by their 2010 nominal GDP. Source: Haver Analytics®, Statistics Office, PMI Premium, Credit Suisse

Exhibit 10: China IP and mfg PMI Exhibit 11: Korea IP and mfg PMI Exhibit 12: India IP and mfg PMI

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China PMI**China new orders**China IP, 3m% ann.* (rhs)

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Korea mfg PMIKorea new ordersKorea IP, 3m% ann.* (rhs)

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India mfg PMIIndia new ordersIndia IP, 3m% ann.* (rhs)

*Seasonally and workday-adjusted; annualized % change over three months. **We use the government’s manufacturing PMI series. Source: Credit Suisse, Haver Analytics®, Statistics Office

*Seasonally and workday-adjusted; annualized % change over three months. Source: Haver Analytics®, Statistics Office, PMI Premium

*FY2004=100, seasonally and workday-adjusted; annualized % change over three months. Source: Haver Analytics®, Statistics Office, PMI Premium

Exhibit 13: Brazil IP and mfg PMI Exhibit 14: Mexico IP and mfg PMI Exhibit 15: Russia IP and mfg PMI

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Brazil mfg PMIBrazil new ordersBrazil IP, 3m% ann.* (rhs)

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Russia PMIRussia new ordersRussia IP, 3m% ann.* (rhs)


*Seasonally and workday-adjusted; annualized % change over three months. **Diffusion index calculated by INEGI based on Opinion Survey of the Mfg Sector. Mfg PMI is also produced by INEGI Source: Haver Analytics®, Statistics Office


14 March 2012


Exhibit 16: Turkey IP and mfg PMI

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Turkey mfg PMITurkey new ordersTurkey IP, 3m% ann.* (rhs)


Exhibit 18: S. Africa mfg output and mfg PMI

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S. Africa mfg PMIS. Africa new ordersS. Africa mfg output, 3m% ann.* (rhs)

*Manufacturing production; seasonally and workday-adjusted; annualized % change over three months. Source: Haver Analytics®, Statistics Office, PMI Premium

Exhibit 17: Industrial production growth by country % year-on-year change

Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Jan 11 Feb 11 Latin America* 11.2 11.2 7.1 4.2 4.5 2.4 2.0 0.4 -0.1 na Argentina(1) 13.1 9.4 6.8 5.9 4.4 5.8 4.5 2.1 -0.9 na Brazil 18.2 14.3 8.0 3.3 2.8 0.6 0.0 -2.0 -3.4 na Chile -5.8 6.1 6.8 5.4 14.5 7.4 4.4 2.0 3.6 na Colombia 3.9 7.6 3.5 4.4 5.5 3.4 6.1 4.4 na na Mexico 4.8 8.2 6.5 5.0 5.4 3.4 3.5 3.2 4.2 na EMEA* 10.1 11.5 8.1 8.4 8.9 5.5 5.4 4.4 3.5 na Czech Republic 6.9 11.5 10.7 11.9 12.3 9.1 3.7 3.1 3.1 na Hungary 5.1 13.5 12.9 10.5 12.6 4.3 2.7 3.0 -0.4 na Poland 10.2 12.5 11.9 9.8 9.0 5.4 5.7 7.5 9.1 na Romania 4.3 6.8 4.5 6.3 11.4 4.0 5.5 2.2 1.2 na Russia 9.5 10.9 6.5 6.7 6.0 4.8 5.0 3.3 3.8 na South Africa 4.1 8.7 4.6 2.8 4.9 0.7 2.6 2.1 2.4 na Turkey 17.3 13.8 10.0 12.1 14.4 8.0 7.6 6.4 1.4 na Ukraine 11.2 13.3 9.0 11.5 10.3 8.5 9.2 3.3 2.0 na Non-Japan Asia* 20.7 16.3 12.1 12.3 12.4 10.8 10.2 7.8 7.0 na NJA excl China 22.4 16.9 9.8 10.6 8.9 5.1 4.0 -0.5 -1.3 na China 19.8 15.9 13.5 13.3 14.4 13.9 13.8 12.8 11.4 11.4 India(2) 14.0 9.6 6.8 8.6 7.9 7.0 3.2 1.1 6.8 na Korea 25.7 18.8 10.9 11.8 10.4 7.1 5.3 5.0 -2.0 na Malaysia 10.7 10.6 4.2 3.7 2.4 -1.6 2.0 2.8 0.3 na Singapore 37.2 45.3 13.7 25.7 19.0 -3.8 8.9 9.3 -8.7 na Taiwan 48.8 29.7 18.8 17.7 15.3 7.1 3.4 -4.0 -16.5 na Thailand 31.2 17.6 9.8 2.6 -2.2 -2.5 1.8 -34.2 -15.2 na EM World* 16.8 14.4 10.3 9.8 10.3 8.2 7.6 5.6 5.1 na (1) Argentinean IP data are privately collected by FIEL. (2) We use the IP series for India with the base year FY2004 = 100. *The regional aggregate is calculated by weighting each country’s IP data by its 2010 nominal GDP. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Exhibit 19: Poland IP and manufacturing PMI

Exhibit 20: Hungary IP and manufacturing PMI

Exhibit 21: Czech Republic IP and manufacturing PMI

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Poland mfg PMIPoland new ordersPoland IP, 3m% ann.* (rhs)

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Hungary mfg PMIHungary new ordersHungary IP, 3m % ann.* (rhs)

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*PMI series from Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM); Seasonally and workday; annualized % change over three months. Source: Haver Analytics®, Statistics Office


14 March 2012


EM inflation generally looking benign Our aggregate measure of three-month inflation for the EM world as a whole remains on a declining trend – this is true both for core and for headline inflation. A number of EM countries saw a bounce in inflation in late 2011 on the back of substantial currency depreciation. But this process was reversed in early 2012. Aggregate EM headline inflation – measured by the three-month annualized “run-rate” 2 – generally fell slowly and continuously between November 2010 and September 2011, stabilized between September and November 2011, and then declined again in December 2011, January and February 2012 (Exhibit 22). An important influence on the decline in the global EM inflation figures has been a sharp fall in inflation in China, driven by stabilization of local pork prices (Exhibit 39).

Core inflation remains notably well-behaved in most countries. Our sequential annualized three-month measure (the “run-rate”) of core inflation for the EM world excluding China and India hovered in a narrow range of about 5.0%-5.5% between April and December 2011, but fell in the first two months of 2012 to reach 3.8% in February (Exhibit 23).

Interestingly, our measure of the run-rate of China’s core inflation fell almost all the way to zero in November and December after having hovered at much higher levels earlier in 2011. This is consistent with the longer-term experience, which suggests that food inflation, which has recently fallen sharply in China, is an important influence on that country’s core inflation. However, the run-rate measure of China’s core inflation picked up moderately to 1.7% in February from its recent low of 0.4% in December 2011.

From a forward-looking perspective, we think it makes sense to expect the impact of currency depreciation on inflation to continue to be reversed in response to the recent strengthening of many EM currencies, and to expect the recent sharp decline in food price inflation in China to be a one-off effect that will depress headline inflation less and less over time.

Exhibit 22: Our sequential measure of EM headlineinflation declined in January and February after remaining stable for a few months

Exhibit 23: In the EM world outside of China and India, a spike in food inflation drove up headline inflation in late 2011, but this effect has been reversed in January and February 2012

Annualized % change in the seasonally adjusted CPI indices for the EM world as a whole over the last three months

Annualized % change in the seasonally adjusted CPI indices for the EM world excluding China and India over the last three months

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*For headline inflation, 31 countries are taken into account and weighted by their 2010 nominal GDP. These countries are listed in the footnotes for Exhibits 27 -29. Argentina is not included. For India, the index used is the WPI. **For core inflation (defined here to be the change in the CPI index excluding food, energy, alcohol and tobacco), 21 countries are taken into account and weighted by their 2010 nominal GDP. These countries are listed in the footnotes for Exhibits 27-29. For India, the index used is the WPI. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse.

* For headline inflation, the same 31 countries are taken into account as in Exhibits 27 - 29 excluding China, India and Argentina. The countries are listed in footnotes to the latter charts. **For core inflation (defined here to be the change in the CPI index excluding food, energy, alcohol and tobacco), we use the same subset of EM countries as in Exhibit 22, but excluding India and China. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse.

2 These statements are based on our estimate of sequential inflation for the EM world as a whole. We refer to our measure of

sequential inflation as "the run-rate of consumer prices" defined as the annualized % change – during the most recent three months – in the GDP-weighted average of seasonally adjusted price indices for the EM countries.

EM headline inflation has

generally continued to fall in recent

months

Core inflation remains well

behaved

14 March 2012


Exhibit 24: World oil prices Exhibit 25: World grain prices Exhibit 26: World metals prices Brent: level and % yoy change in the US$ price Grain price index*: level (2005=100) and % yoy

change in the US$ price LMEX US$ price index for metals: level (2005=100)

and % yoy change

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Source: the BLOOMBERG PROFESSIONAL™ service * Index that attributes equal weight to US wholesale prices for wheat, corn, soy and rice prices measured in US$ Source: the BLOOMBERG PROFESSIONAL™ service

Source: the BLOOMBERG PROFESSIONAL™ service

Exhibit 27: Latin America CPI inflation*

Exhibit 28: Emerging Europe, Middle East and Africa CPI inflation*

Exhibit 29: Non-Japan Asia CPI inflation*

Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa)

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* The aggregates in this chart exclude Argentina. The 8 countries that are taken into account and weighted by 2010 nominal GDP are Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru and Venezuela. ** Core inflation excludes food, energy, alcohol and tobacco; only for a selected subset of four of the eight Latin American countries listed above. These are Brazil, Chile, Mexico and Peru. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

* The 12 countries that are taken into account and weighted by 2010 nominal GDP are Czech Republic, Egypt, Hungary, Israel, Kazakhstan, Nigeria, Poland, Romania, Russia, South Africa, Turkey and Ukraine. ** Core inflation excludes food, energy, alcohol and tobacco; only for nine EMEA countries listed above. These are Czech Republic, Hungary, Israel, Kazakhstan, Poland, Romania, Russia, South Africa and Turkey. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

* The 11 countries that are taken into account and weighted by 2010 nominal GDP are China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam. For India, the price index used is the WPI. ** Core inflation excludes food, energy, alcohol and tobacco; only for eight non-Japan Asian countries listed above. These are China, Hong Kong, India, Korea, Philippines, Singapore, Taiwan and Thailand. Source: Haver Analytics®, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Exhibit 30: Brazil’s CPI inflation Exhibit 31: Mexico’s CPI inflation Exhibit 32: Czech Republic’s CPI inflation

Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa)

-5

0

5

10

15

20


0

10

20

30

40Headline CPI (left axis)Core CPI* (left axis)Food CPI (right axis)

-5

0

5

10

15

20


0

10

20

30


-5

0

5

10

15

20


0

10

20

30


*Index calculated by Credit Suisse: excludes food and beverages, fuels and energy and fuels for personal transport. Source: Haver Analytics®, IBGE, Credit Suisse

*Index calculated by Credit Suisse: excludes food and beverages, tobacco, electricity and fuels. Source: Haver Analytics®, Banxico, Credit Suisse

*Index calculated by Eurostat: excludes food, energy, alcohol and tobacco. Source: Haver Analytics®, Eurostat, Credit Suisse

14 March 2012


Exhibit 33: Hungary’s CPI inflation Exhibit 34: Poland’s CPI inflation Exhibit 35: Russia’s CPI inflation Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa)

-10

-5

0

5

10

15

20


-10

0

10

20

30


-5

0

5

10

15


0

10

20


-5

0

5

10

15

20

25


0

10

20

30

40




*Index calculated by Credit Suisse: excludes food, alcohol, tobacco, gasoline and utilities. Source: Haver Analytics®, Credit Suisse

Exhibit 36: South Africa’s CPI inflation Exhibit 37: Turkey’s CPI inflation Exhibit 38: Israel’s CPI inflation Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa)

-5

0

5

10

15

20

Jan-08 May-09 Sep-10 Jan-12-10

0

10

20

30


-10

-5

0

5

10

15

20

25


-10

0

10

20

30

40

50Headline CPI (left axis)Core CPI* (left axis)*Food CPI (right axis)

-10

-5

0

5

10

15

Jan-08 May-09 Sep-10 Jan-12-20

-10

0

10

20

30Headline CPI (left axis)Core CPI* (left axis)*Food CPI (right axis)

*Index calculated by Credit Suisse: excludes ‘food and non-alcoholic beverages’, ‘electricity and other fuels’, petrol, alcohol and tobacco. Source: Haver Analytics®, Statistics South Africa, Credit Suisse

*Index excluding food, energy, alcohol, tobacco and gold. Source: Haver Analytics®, Turkstat, Credit Suisse

*Index as calculated by Credit Suisse: excludes food, energy, alcohol and tobacco. Source: Haver Analytics®, Central Bureau of Statistics, Credit Suisse

Exhibit 39: China’s CPI inflation Exhibit 40: India’s WPI inflation Exhibit 41: Korea’s CPI inflation Annualized % 3-month change in the WPI (sa) Annualized % 3-month change in the CPI (sa) Annualized % 3-month change in the CPI (sa)

-6

0

6

12

18


0

12

24


-10

0

10

20

30


-5

5

15

25

35

45Headline WPI (left axis)Core WPI* (left axis)Mfg ex-food WPI** (left axis)Food WPI (right axis)

-6

0

6

12

18


0

12

24


*Index as calculated by Credit Suisse: excludes food and energy. Source: Haver Analytics®, National Bureau of Statistics, Credit Suisse

*Index calculated by Credit Suisse: based on the WPI excluding primary food articles, manufactured food products, fuel and power, beverages and tobacco. **Index calculated by Credit Suisse: based on the mfg WPI excluding manufactured food products. Source: Haver Analytics®, Credit Suisse

*Index calculated by Credit Suisse: excludes food and non-alcoholic beverages, alcohol and tobacco, ‘electricity, gas and other fuels’ and fuels for transport equipment. Source: Haver Analytics®, National Statistical Office, Credit Suisse

14 March 2012


Exhibit 42: Emerging markets headline inflation % year-on-year change in the CPI indices (WPI for India).

Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Dec 11 Jan 11 Feb 11

Latin America* 5.7 6.6 7.2 7.1 7.8 7.9 7.9 8.6 8.6 8.7 8.4 8.3

Argentina** 16.1 19.4 21.4 23.0 23.7 21.8 21.4 21.6 20.9 21.2 20.7 21.4

Brazil 4.2 4.9 5.1 4.6 5.6 6.1 6.6 7.1 6.7 6.5 6.2 5.8

Chile -1.9 -0.3 1.2 2.2 2.5 2.9 3.3 3.1 4.0 4.4 4.2 4.4

Colombia 2.4 2.0 2.1 2.3 2.7 3.3 3.0 3.5 3.9 3.7 3.6 3.6

Mexico 4.0 4.8 4.0 3.7 4.2 3.5 3.3 3.4 3.5 3.8 4.0 3.9

Panama 1.3 2.9 2.9 3.7 4.4 5.1 6.4 5.6 6.4 6.3 6.1 6.4

Peru 0.4 0.7 1.1 2.2 2.1 2.4 3.1 3.5 4.5 4.7 4.2 4.2

Venezuela 26.0 25.1 31.0 29.3 27.2 28.2 23.1 25.8 27.4 27.6 26.0 25.3

EMEA* 7.2 7.1 6.2 6.1 6.8 6.9 7.4 6.6 6.6 6.6 5.9 5.8 Czech Republic 0.4 0.7 1.2 1.9 2.1 1.7 1.8 1.8 2.4 2.4 3.5 3.7

Egypt 13.1 12.8 10.3 10.7 10.6 11.3 11.9 9.0 8.5 9.5 8.6 9.2

Hungary 5.2 6.0 5.3 3.8 4.3 4.2 4.0 3.4 4.1 4.1 5.5 5.9

Israel 3.6 3.5 2.9 2.0 2.4 4.0 4.1 3.2 2.5 2.2 2.0 na

Kazakhstan 6.0 7.3 7.0 6.6 7.5 8.5 8.3 8.9 7.8 7.4 5.9 4.7

Nigeria 12.7 14.9 14.0 13.4 12.6 12.0 11.3 9.7 10.5 10.3 12.6 na

Poland 3.3 3.0 2.3 2.2 2.9 3.8 4.6 4.1 4.6 4.6 4.1 4.3

Romania 4.6 4.6 4.4 7.5 7.9 7.6 8.2 4.2 3.4 3.1 2.7 2.6

Russia 9.2 7.2 5.9 6.2 8.1 9.5 9.5 8.1 6.7 6.1 4.2 3.7

South Africa 6.0 5.7 4.5 3.5 3.5 3.8 4.6 5.4 6.1 6.1 6.3 na

Turkey 5.7 9.3 9.2 8.4 7.4 4.3 5.9 6.4 9.2 10.4 10.6 10.4

Ukraine 13.3 11.2 8.3 8.5 9.5 7.7 10.8 8.4 5.0 4.6 3.7 3.0

EM Asia* 1.4 3.4 4.0 4.2 5.0 5.6 6.1 6.4 5.3 4.7 4.7 3.9

EM Asia ex- China and India* 1.6 3.0 3.1 3.4 3.8 4.4 4.7 4.8 4.4 4.3 4.1 3.6 China 0.7 2.2 2.9 3.5 4.7 5.1 5.7 6.3 4.6 4.1 4.5 3.2

Hong Kong 1.6 2.1 2.8 1.6 2.7 3.8 5.2 6.4 5.7 5.7 6.1 na

India 4.5 9.6 10.5 9.3 8.9 9.6 9.6 9.7 8.9 7.5 6.6 7.0

Indonesia 2.6 3.7 4.4 6.2 6.3 6.8 5.9 4.7 4.1 3.8 3.7 3.6

Korea 2.4 3.0 2.6 2.9 3.2 3.8 4.0 4.3 4.0 4.2 3.4 3.1

Malaysia -0.2 1.4 1.7 1.9 2.0 2.8 3.3 3.4 3.2 3.0 2.7 na

Philippines 2.9 4.3 4.3 4.2 3.6 4.5 5.0 4.9 4.7 4.2 4.0 2.7

Singapore -0.8 0.9 3.1 3.4 4.0 5.2 4.7 5.5 5.5 5.5 4.8 na

Taiwan -1.3 1.3 1.1 0.4 1.1 1.3 1.6 1.3 1.4 2.0 2.4 0.3

Thailand 1.9 3.7 3.2 3.3 2.9 3.0 4.1 4.1 4.0 3.5 3.4 3.3

Vietnam 5.2 9.5 9.9 9.4 11.2 12.8 19.4 22.5 19.8 18.1 17.3 16.4

EM* 3.6 4.9 5.2 5.3 6.0 6.4 6.8 7.0 6.3 6.0 5.9 5.4

EM ex- China and India* 5.1 5.8 5.7 5.7 6.3 6.6 6.9 6.8 6.7 6.7 6.3 6.1 *The regional aggregates are calculated by weighting each country’s inflation data by 2010 nominal GDP. **For Argentina we use unofficial headline CPI data supplied by Haver Analytics®. Source: Haver Analytics®, Credit Suisse

14 March 2012


Exhibit 43: Emerging markets core inflation % year-on-year change in the CPI indices (WPI for India) excluding food, energy, alcohol and tobacco.

Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 20101 Dec 11 Jan 12 Feb 12

Latin America* 5.3 5.6 5.7 5.9 5.8 6.0 5.9 6.3 6.7 6.7 6.3 6.0

Brazil 4.6 4.8 4.7 5.0 4.9 5.4 5.6 6.1 6.4 6.4 5.9 5.5

Chile -1.3 -1.3 -0.2 1.6 2.0 2.2 2.4 2.1 2.9 3.3 3.2 3.5

Mexico 3.9 4.3 4.1 3.9 3.8 3.0 2.3 2.2 2.3 2.4 2.4 2.3

Peru 0.7 0.9 0.9 1.1 1.3 1.9 2.1 2.5 2.7 2.7 2.4 2.4

Venezuela 27.6 27.0 27.8 26.3 24.8 25.4 23.6 24.7 25.3 25.4 24.2 22.9

EMEA* 6.4 4.7 3.9 3.4 3.1 3.5 4.0 4.5 5.0 5.1 5.3 5.1

Czech Republic 0.3 -0.2 0.0 0.1 0.0 -0.3 -0.3 -0.2 0.3 0.5 1.5 1.8

Hungary 5.2 5.0 4.0 1.6 1.5 1.4 1.7 1.7 2.2 2.2 3.5 3.9

Israel 4.1 3.5 3.2 2.3 2.1 3.3 3.2 2.9 2.6 2.2 1.9 na

Kazakhstan 9.8 9.1 7.7 6.8 6.5 6.2 5.7 5.9 5.1 5.5 5.0 3.8

Poland 2.7 2.2 1.2 0.9 0.9 1.3 1.9 2.1 2.8 3.2 2.8 2.8

Romania 5.4 2.6 3.0 4.8 4.7 4.6 3.7 2.5 2.6 2.8 2.9 2.9

Russia 10.1 6.2 4.5 4.1 4.1 4.6 5.2 5.8 5.9 5.9 6.1 5.9

South Africa 6.2 5.0 3.8 3.0 3.0 2.7 3.1 3.6 3.6 3.7 4.2 na

Turkey** 4.0 4.4 5.3 4.1 2.7 3.6 4.8 6.2 8.0 8.1 8.4 8.1

EM Asia* 0.1 1.3 2.0 2.1 2.6 3.4 3.5 3.6 3.0 2.7 2.6 2.2

EM Asia ex- China and India* 1.0 1.2 1.5 1.7 1.9 2.2 2.5 2.8 2.7 2.7 2.7 2.3

China*** -0.6 0.3 0.9 1.1 1.5 2.2 2.4 2.4 1.9 1.6 1.6 1.4

Hong Kong 1.0 0.2 0.9 -0.6 1.7 3.0 4.1 6.8 5.6 5.7 6.1 na

India 1.8 5.3 7.2 6.9 8.2 9.4 8.9 8.7 7.4 6.6 5.8 5.0

Indonesia**** 4.4 4.0 3.8 4.1 4.3 4.3 4.6 4.9 4.4 4.3 4.3 4.3

Korea 2.3 2.3 1.9 1.9 1.7 2.2 2.7 2.7 2.8 2.9 2.6 2.5

Philippines*** 2.8 3.5 3.9 4.0 3.4 3.5 3.6 3.5 3.7 3.4 3.4 na

Singapore 0.3 0.5 2.4 3.3 4.7 5.9 4.9 5.8 5.5 5.6 4.6 na

Taiwan -1.2 -0.3 0.0 0.5 0.6 0.6 0.8 0.7 0.7 0.5 1.6 -0.8

Thailand -0.9 -0.3 0.7 1.1 1.0 0.8 0.5 0.5 0.5 0.5 0.5 0.4

EM* 2.6 2.9 3.2 3.2 3.4 4.0 4.1 4.4 4.3 4.1 4.0 3.7

EM ex- China and India* 4.7 4.2 4.0 3.9 3.8 4.1 4.4 4.8 5.1 5.2 5.1 4.8 *The regional aggregates are calculated by weighting each country’s inflation data by 2010 nominal GDP. **Official core excluding energy, food, beverages, tobacco and gold. ***Core inflation measured by CPI exc. food and energy. ****Official core inflation measured by CPI exc. food (volatile good) and energy, fuel, transportation and water supply (administered commodities). Source: Haver Analytics®, National authorities, Credit Suisse

14 March 2012


EM currencies: responding to a pickup in global risk appetite Most EM currencies weakened against the dollar in the second half of last year during the bouts of global stock market weakness. But most have recovered strongly so far this year.

Generalized additional strengthening of the EM currencies against the dollar will probably require continued softening of global market concerns about the fate of the euro zone and comfort that global oil prices do not rocket up from the current levels and hinder the incipient global growth recovery. We think some further EM currency appreciation is likely. But it will be important for currency investors to think carefully about the choice of funding currency for EM FX positions given the risk that the dollar will continue to strengthen against the euro and the yen in response to the (relative) buoyancy of US growth data.

The latest results from our currency valuation model are shown below in Exhibit 44. The model doesn’t necessarily work well as a short-term trading guide, but it takes into account each country’s long-term relationship between the real effective exchange rate and the following variables: productivity growth, terms of trade changes and real interest rate levels (see Valuation of emerging markets currencies, Credit Suisse, 14 January 20113).

The currencies that currently appear particularly cheap relative to the model estimates of “fair value” are those of Ukraine, Poland, Kazakhstan, Chile, Peru and six countries in non-Japan Asia: India, Taiwan, China, Hong Kong, Korea and Malaysia.

The currencies that look expensive relative to the model’s “fair value” estimates are those of Colombia, Brazil and the Czech Republic.

Exhibit 44: Deviation of 12 March 2012 REERs from the fair-value estimates* Number of standard deviations

-3

-2

-1

0

1

2

3

Colom

bia

Czech R

ep.

Brazil

Singapore

Egypt

Philippines

Venezuela

Turkey

Argentina

Indonesia

Russia

Thailand

S. A

frica

Israel

Rom

ania

Mexico

S. A

rabia

Hungary

Chile

Malaysia

Kazakhstan

Korea

Hong K

ong

Taiwan

China

Peru

Poland

Ukraine

India

REER is more than one standard deviation stronger than the "fair value" REER

REER is within (+/-) one standard deviation of the "fair value" REER

REER is more than one standard deviation weaker than the "fair value" REER

* January 2012 REER was used for Israel and Peru. ** Argentina’s REER for the period starting from January 2005 was estimated using unofficial inflation data supplied by Haver Analytics®. Source: Credit Suisse

A simpler and less adequate valuation model is one that focuses exclusively on the real (i.e., inflation-adjusted) effective (i.e., trade-weighted) exchange rate (REER). A possible valuation guide from this model comes from a comparison of the current REER level with the average REER level in the past five years. This comparison is shown in the fourth column of Exhibit 45 below. At this stage only a short list of EM countries has currencies – in REER terms – remain more than 3% cheap to the levels that prevailed in mid-2011, includes Hungary, Brazil, Israel, Mexico, Poland, and India.

3 The model's estimated coefficients were recalibrated in June 2011 by incorporating 2010 data into the sample.

Signs of life in the EM currencies in the early

months of 2012

http://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=868383151&source_id=em&serialid=iXsC4IH%2b7GFcH%2fLMGJs7U2uhJN9ipyNfiCwC%2bYrCvHk%3d�

14 March 2012


Exhibit 45: Percentage change in the real effective exchange rate* Real effective exchange rate appreciation is represented in this table by a positive percentage change

12 March 2012

% chg 12 Mar 2012 over 13

Feb 2012

% chg 12 Mar 2012 over 14

Mar 2011

% chg 12 Mar 2012 over 1yr

average


average


average


average

1 month chg 1 year chg Argentina** 0.5 10.7 -21.6 -10.4 -14.4 -35.9 Brazil -5.0 -4.9 -1.9 13.1 34.7 25.9 Chile 0.2 1.6 2.9 6.2 11.1 9.0 China 0.4 5.9 6.3 12.4 16.2 23.1 Colombia 1.3 8.6 5.1 19.7 32.1 30.8 Czech Republic 1.4 -1.7 0.3 5.5 15.9 38.7 Egypt 0.8 6.7 1.8 20.1 25.1 34.7 Hong Kong 0.8 0.7 -1.8 -6.3 -14.9 -21.4 Hungary -1.1 -7.5 -5.6 -5.4 -1.6 11.8 India -1.0 -5.0 -5.1 6.5 10.6 15.9 Indonesia -0.2 -1.9 -1.8 5.5 14.3 11.2 Kazakhstan 0.4 5.8 4.2 5.8 12.3 32.0 Korea 0.8 1.2 0.5 -9.8 -9.7 -11.8 Malaysia 1.0 0.5 0.9 3.4 3.1 -3.2 Mexico 0.6 -4.2 0.2 -1.1 -5.5 -1.6 Nigeria 1.5 3.7 4.6 10.5 23.3 35.1 Philippines 0.6 3.0 3.1 6.4 16.7 13.3 Poland 1.5 -2.0 -2.2 -3.5 -1.4 9.8 Romania 0.0 -4.1 -1.2 -6.1 2.0 18.5 Russia 1.8 2.4 7.0 15.0 29.8 66.6 Saudi Arabia 1.4 5.5 1.8 6.4 1.8 -2.7 Singapore 0.4 3.0 6.7 12.4 14.1 11.0 South Africa 2.8 -5.3 -2.5 7.2 5.8 -5.0 Taiwan 1.1 -1.4 -0.2 -3.4 -8.8 -18.2 Thailand 1.8 0.0 -0.2 1.6 9.5 5.0 Turkey -1.2 -3.0 -10.7 -5.7 4.0 17.6 Ukraine 0.8 5.3 0.3 -3.9 -3.7 6.3 United Kingdom -0.2 1.6 2.1 -8.0 -13.6 -14.6 United States 0.6 1.7 -3.3 -6.7 -12.9 -12.0 Euro 0.0 -3.6 -3.0 -7.8 -6.0 -8.8 Japan -5.4 -3.4 -3.5 5.0 -1.4 -10.2 *Inflation-adjusted, trade-weighted exchange rate; figures in bold are more than one standard deviation from the average REER change across the included countries ** Argentina’s REER for the period starting from January 2005 was estimated using unofficial inflation data supplied by Haver Analytics® Source: Credit Suisse

14 March 2012


Exhibit 46: Argentina’s REER* Exhibit 47: Brazil’s REER* Exhibit 48: Chile’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

70

90

110

130

150

170

190

210

Feb-97 Feb-02 Feb-07 Feb-1270

90

110

130

150

170

190

210

40

50

60

70

80

90

100

110

12Mar97 12Mar02 12Mar07 12Mar1240

50

60

70

80

90

100

110

90

100

110

120

130

140

12Mar97 12Mar02 12Mar07 12Mar1290

100

110

120

130

140

* Argentina’s REER for the period starting from January 2005 was estimated using unofficial inflation data supplied by Haver Analytics® Source: Haver Analytics®, Credit Suisse

*Inflation-adjusted, trade-weighted data Source: Credit Suisse


Exhibit 49: China’s REER* Exhibit 50: Colombia’s REER* Exhibit 51: Czech REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

80

85

90

95

100

105

110

12Mar97 12Mar02 12Mar07 12Mar1280

85

90

95

100

105

110

85

95

105

115

125

135

145

12Mar97 12Mar02 12Mar07 12Mar1285

95

105

115

125

135

145

100

115

130

145

160

175

190

12Mar97 12Mar02 12Mar07 12Mar12100

115

130

145

160

175

190




Exhibit 52: Egypt’s REER* Exhibit 53: Hong Kong’s REER* Exhibit 54: Hungary’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

708090

100110120130140150

12Mar97 12Mar02 12Mar07 12Mar12708090100110120130140150

90

100

110

120

130

140

150

160

12Mar97 12Mar02 12Mar07 12Mar1290

100

110

120

130

140

150

160

110

125

140

155

170

185

200

12Mar97 12Mar02 12Mar07 12Mar12110

125

140

155

170

185

200




14 March 2012


Exhibit 55: India’s REER* Exhibit 56: Indonesia’s REER* Exhibit 57: Kazakhstan’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

60

70

80

90

100

12Mar97 12Mar02 12Mar07 12Mar1260

70

80

90

100

20

35

50

65

80

95

110

12Mar97 12Mar02 12Mar07 12Mar1220

35

50

65

80

95

110

130

152

174

196

218

240

12Mar97 12Mar02 12Mar07 12Mar12130

152

174

196

218

240




Exhibit 58: Korea’s REER* Exhibit 59: Malaysia’s REER* Exhibit 60: Mexico’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

50

60

70

80

90

100

110

12Mar97 12Mar02 12Mar07 12Mar1250

60

70

80

90

100

110

65

75

85

95

105

12Mar97 12Mar02 12Mar07 12Mar1265

75

85

95

105

85

100

115

130

145

12Mar97 12Mar02 12Mar07 12Mar1285

100

115

130

145




Exhibit 61: Nigeria’s REER* Exhibit 62: Philippines’ REER* Exhibit 63: Poland’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

50

70

90

110

130

12Mar97 12Mar02 12Mar07 12Mar1250

70

90

110

130

85

95

105

115

125

135

12Mar97 12Mar02 12Mar07 12Mar1285

95

105

115

125

135

190

212

234

256

278

300

12Mar97 12Mar02 12Mar07 12Mar12190

212

234

256

278

300




14 March 2012


Exhibit 64: Romania’s REER* Exhibit 65: Russia’s REER* Exhibit 66: Saudi Arabia’s REER*1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

50

70

90

110

130

12Mar97 12Mar02 12Mar07 12Mar1250

70

90

110

130

80

100

120

140

160

180

200

220

12Mar97 12Mar02 12Mar07 12Mar1280

100

120

140

160

180

200

220

75

80

85

90

95

100

105

110

12Mar97 12Mar02 12Mar07 12Mar1275

80

85

90

95

100

105

110




Exhibit 67: Singapore’s REER* Exhibit 68: South Africa’s REER* Exhibit 69: Taiwan’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

96

100

104

108

112

116

120

12Mar97 12Mar02 12Mar07 12Mar1296

100

104

108

112

116

120

50

60

70

80

90

100

110

12Mar97 12Mar02 12Mar07 12Mar1250

60

70

80

90

100

110

64

68

72

76

80

84

88

92

12Mar97 12Mar02 12Mar07 12Mar1264

68

72

76

80

84

88

92




Exhibit 70: Thailand’s REER* Exhibit 71: Turkey’s REER* Exhibit 72: Ukraine’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

60

70

80

90

100

110

120

12Mar97 12Mar02 12Mar07 12Mar1260

70

80

90

100

110

120

80

97

114

131

148

165

12Mar97 12Mar02 12Mar07 12Mar1280

97

114

131

148

165

90

112

134

156

178

200

12Mar97 12Mar02 12Mar07 12Mar1290

112

134

156

178

200




14 March 2012


Exhibit 73: United Kingdom’s REER* Exhibit 74: United States’ REER* Exhibit 75: Euro zone’s REER* 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation 1990=100; an up-move indicates real appreciation

707580859095

100105110

12Mar97 12Mar02 12Mar07 12Mar12707580859095100105110

85

90

95

100

105

110

115

120

12Mar97 12Mar02 12Mar07 12Mar1285

90

95

100

105

110

115

120

68

72

76

80

84

88

92

96

12Mar97 12Mar02 12Mar07 12Mar1268

72

76

80

84

88

92

96




Exhibit 76: Japan’s REER* 1990=100; an up-move indicates real appreciation

78

88

98

108

118

128

138

12Mar97 12Mar02 12Mar07 12Mar1278

88

98

108

118

128

138


14 March 2012


Latin America

14 March 2012


Argentina: More interventionism, less growth • The government’s interventionism in the economy has increased significantly

over the past quarter. Three months ago, when President Cristina Kirchner was sworn in for a new term, she signaled a moderation in policy, referring to a “fine-tuning of the model.” We still think that her government is committed to some of the initiatives that it announced late last year, such as the reduction of the fiscal deficit (by lowering the subsidy bill) and the moderation of wage inflation. However, the government is also implementing a number of less desirable measures, in our view, aimed at fostering domestic production and investment: import controls, quasi-restrictions on the payment of dividends by corporations and banks, and rhetorical attacks and political pressure against the repatriation of profits by foreign-owned companies.

• We think that the government’s efforts to influence domestic economic activity may backfire and, thus, we are now less optimistic about the growth outlook. Unsurprisingly, some of the recent measures are already having negative consequences. For example, there is anecdotal evidence of shortages of and/or higher prices for a number of consumer products (which may also be dampening consumer sentiment) and for intermediate and capital goods imports (which are disrupting the chain of production). Business sentiment likely weakened in the past few weeks on persistent speculation about a takeover by the federal government of one of the foreign-owned oil companies operating in Argentina. Regional political allies of the Kirchner government are also putting pressure on foreign companies to invest more, particularly in the oil and gas sector. The government seems to think that its measures and political pressure will result in higher investment by the private sector. However, we see the risk of the opposite: that all these maneuvers will discourage the large investments that Argentina needs to sustain high GDP growth rates over the medium term.

• We still expect the national accounts to show real GDP growth of 5% in 2012, but the actual expansion of the economy is likely to be lower. Three months ago, we thought that ‘true’ real GDP growth would be in line with the official reading, and we saw upside risk to our growth projection. We now think that ‘true’ real GDP growth in 2012 will be 3%, or at most 4%. We are more pessimistic about the growth outlook not only because of the growing interventionism but also because this year’s cereal and grains harvest will be smaller than expected (because of the late 2011/early 2012 drought) and economic activity in Brazil (Argentina’s main trading partner) will be weaker. However, we do not expect ’true’ GDP growth below 3% because fiscal and, particularly, monetary policy remains expansionary and could be loosened further if needed to stimulate economic activity. In our base case scenario for GDP growth in 2012 as reported in the national accounts, we see consumer spending rising 6% and gross fixed investment expanding 8% (down from 11% and 17%, respectively, in 2011).

• The issues with the Argentine macro data will likely remain unresolved for the foreseeable future. We do not expect the government to deal, in a meaningful way, with the underreporting of inflation because of the high political, financial and legal costs that might arise from formally acknowledging that inflation is much higher than is officially reported. Similarly, we do not think the government will acknowledge a significant slowdown of GDP growth in 2012, even if that could save it from making the payment on the GDP warrant in 2013. In a context where other economies in the region are growing at a relatively decent pace, despite the slowdown in the developed economies, we do not think the Kirchner government would be willing to pay the political price of admitting that, on her watch, Argentina underperformed the region, while the financial benefit of this admission would not materialize until December 2013.

Carola Sandy +1 212 325 2471

[email protected]

14 March 2012


• We still think the government wants to see a moderation of consumer and wage inflation in the months ahead. Last year, we thought that the government would resort to tighter fiscal and monetary policy to drive CPI inflation (as measured by the private sector) down to 15%-20% from the current level of about 20%-25%. However, monetary policy is now as loose as it was in mid-2011, as nominal interest rates have fallen again while inflation has remained stable. Given the proposed changes to the central bank’s charter, which should receive full congressional approval by early April, monetary policy may play an ever larger role in the economy and, thus, we do not envision tighter monetary conditions in the foreseeable future. Tighter fiscal policy and the government’s efforts to cap wage increases at about 20% in the upcoming wage negotiations, along with the expected slowdown in domestic demand, may help prevent inflation from rising further but, at this point, we no longer expect it to decline.

• We still expect the federal government to post a primary fiscal surplus of about 2% of GDP in 2012, consistent with a nearly balanced budget. In 2011, the federal government posted a 1.7% of GDP overall fiscal deficit as the electoral process pressured primary spending. We think that the government wants to maintain the so-called pillars of its model – large fiscal and trade surpluses, the accumulation of international reserves and a relatively weak real exchange rate – and, thus, it is committed to posting a primary surplus in line with the 2.5% of GDP assumption of the 2012 budget bill. The bulk of the fiscal adjustment in 2012 should come from a reduction of the subsidy bill, which exceeded 5% of GDP last year.

• The restrictions on imports will probably be only partially effective in preventing a sharp deterioration of the trade surplus. We project that the merchandise trade surplus, on an FOB/FOB basis, will fall to $10bn in 2012 from about $13.7bn in 2011 (on an FOB/CIF basis, this would be equivalent to $6bn in 2012, down from $10bn in 2011). Our projection assumes that agricultural commodity prices remain flat in 2012 while volumes fall 5%. We think that industrial exports will continue to grow, albeit at a more modest pace, and expect that the dollar value of exports in 2012 will be flat relative to 2011. Due to the restrictions in place and the expected slowdown in domestic activity, import growth should slow to about 6% in dollar terms in 2012, down from 31% in 2011. We project a worsening of the current account to a deficit of 0.2% of GDP in 2012 from an estimated 0.4% of GDP surplus in 2011.

• In the coming months, the government may seek to normalize relations with official and some private creditors. We still think that the government will seek a resolution of the country’s debt arrears with the Paris Club. We expect that the government and its bilateral creditors will manage to narrow the gap between the rescheduling terms proposed by Argentina and the Paris Club (the debt in arrears amounts to about $9bn) and think there is a good chance that an accord will be announced later this year, which may unlock bilateral financing. We also think the government may try to settle the awards granted by the ICSID, as the non-payment of these claims could result in the US suspending trade benefits for Argentina under the Generalized System of Preferences program. We do not expect the government to tap the external bond markets in 2012 or to negotiate with holdout bondholders.

• The government will likely maintain its FX policy of allowing only a gradual nominal depreciation. We believe it will continue to use the nominal exchange rate as a nominal anchor of inflation, even if it is not an very effective one. We think the government believes that a sharp depreciation of the peso in nominal terms would translate into higher inflation, a drop in domestic sentiment and capital flight. As long as the Brazilian Real does not weaken sharply, the government is probably not too concerned about the erosion of competitiveness and growth. We expect the nominal exchange rate to end 2012 at 4.55 pesos per dollar. With the central bank’s FX reserves being used to service a large share of the debt, and as there may no longer be the abundance of dollars in the economy that was generated by the large current account surpluses of previous years, we expect the central bank’s gross stock of FX reserves to remain stable over the next two years, relative to its end-2011 level of $46.5bn.

14 March 2012


Exhibit 77: Agricultural production Exhibit 78: Industrial production Millions of tons; projections as of 9 March 2012 1993 = 100, seasonally adjusted

-10

10

30

50

70

90

110

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1E

11/1

2F

OtherSun-flower seedWheatCornSoy

80

90

100

110

120

130

140

150

160

170

Jan-94 Jan-00 Jan-06 Jan-12

The 2011/2012 harvest will likely be about 5% smaller

than the previous year’s and, thus, the agricultural sector will no longer be one of the

drivers of growth.

In our view, whether industrial production stabilizes at current

levels or declines hinges not only on the outlook for global

growth and domestic demand, but also on whether the

government eases some of the restrictions that are

creating distortions in the economy.

Source: USDA, Credit Suisse Source: Fiel, Credit Suisse

Exhibit 79: Consumer confidence Exhibit 80: Bank lending to the private sector

Increase = more optimism % change yoy in nominal terms, 20-day moving average

20

30

40

50

60

Jun-01 Feb-04 Oct-06 Jun-09 Feb-12

-5

5

15

25

35

45

55

65

75

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

Consumer loansCollateralized consumer loans*Commercial loans

Consumer confidence remains relatively high,

which bodes well for the near-term outlook for

consumer spending. Real interest rates are again very

negative, which keeps consumer loans growing at

a fast pace.

Meanwhile, despite the government’s efforts to

encourage bank lending for “productive activities”, the

growth of commercial loans has collapsed in recent

weeks.

Source: Universidad Torcuato Di Tella, Credit Suisse *Includes mortgage loans Source: Central bank, Credit Suisse

Exhibit 81: Real GDP growth Exhibit 82: Federal government fiscal balance

Contributions to real GDP growth in percentage points % of GDP

-3

0

3

6

9

12

03 04 05 06 07 08 09 10 11F 12F

InvestmentPrivate consumptionGovernment spendingNet exportsGDP growth

-1.5

-0.5

0.5

1.5

2.5

3.5

04 05 06 07 08 09 10 11 12F

Primary fiscal balance

Overall fiscal balance

Domestic demand should continue growing in 2012, but its expansion will likely

be lower than the level reported in the official

statistics.

We expect that the bulk of this year’s projected fiscal

adjustment will come from a reduction in the subsidy bill, which exceeded 5% of GDP

in 2011.

Source: INDEC, Credit Suisse Source: Ministry of Finance, Credit Suisse

14 March 2012


Exhibit 83: Consumer and wage inflation

Exhibit 84: Nominal exchange rate and central bank intervention in the FX market

% change year on year

0

5

10

15

20

25

30

Feb-07 May-08 Aug-09 Nov-10 Feb-12

Privately estimated CPIinflationConsumers' expectations for12 month inflationWage inflation*

-4

-3

-2

-1

0

1

2

Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-122.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

Central bank's monthly net FXpurchases ($bn, left axis)*

Nominal exchange rate (ARSper USD, right axis)

We no longer expect inflation, as measured by

private sources, to decline from its current 20%-25% range in the foreseeable

future.

We expect the government to continue with its policy of

allowing only a gradual depreciation of the peso in

nominal terms. For the past several weeks, the central bank has again been a net

buyer of dollars in the FX market.

*Average of private and public sector wages. Source: Universidad Torcuato Di Tella, Credit Suisse

Source: Central bank, Credit Suisse

Exhibit 85: REER Exhibit 86: Export and import growth Increase = appreciation % change year on year

60

80

100

120

140

160

180

200

220

Oct-01 May-04 Dec-06 Jul-09 Feb-12

REER using the officialinflation data

REER using privatelyestimated inflationdata

-40

-20

0

20

40

Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2012

Export volumeExport pricesImport value

Export and import growth are likely to fall significantly in 2012. The former on the back of a smaller harvest,

stable prices for cereals and grains, and a less

competitive exchange rate, and the latter due to the broad import restrictions

that the government has put in place.

Source: Credit Suisse Source: INDEC, Credit Suisse

Exhibit 87: Foreign exchange cash flows Exhibit 88: Central bank’s stock of international reserves

$ bn $ bn, as of 29 February 2012

-16

-12

-8

-4

0

4

8

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

Current accountNet FDIIFI loans ex. IMFFinancial sector and otherPublic sector ex. IFI loansNon-financial private sector

25

30

35

40

45

50

55

Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12

GrossNet of borrow ing from bilateral lenders

Net of borrow ing from bilateral lenders, net of reserve req. on USD deposits

Capital flight slowed in Q4 2011 and, based on

preliminary data, it has declined further in the year to date. However, domestic

sentiment regarding the peso remains fragile.

Source: Central bank, Credit Suisse Source: Central bank, Credit Suisse

14 March 2012


Argentina: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 9.2 8.5 8.7 6.8 0.9 9.2 9.1 5.0 4.5 Growth in real private consumption (%) 8.9 7.8 9.0 6.5 0.5 9.0 11.0 6.0 4.8 Growth in real fixed investment (%) 22.7 18.2 13.6 9.1 -10.2 21.2 17.4 8.0 8.0 Fixed investment (% of GDP) 19.8 21.6 22.6 23.1 20.6 22.8 24.6 25.3 26.1 Nominal GDP ($bn) 181.8 212.5 260.8 326.5 307.1 368.7 436.5 472.4 512.8 Population (mn) 38.6 39.0 39.4 39.7 40.1 40.5 40.9 41.3 41.7 GDP per capita ($) 4,711 5,452 6,626 8,216 7,653 9,100 10,673 11,438 12,297 Unemployment (% of labor force, end-year) (1) 10.1 8.7 7.5 7.3 8.4 7.3 6.7 6.5 6.5 Prices, interest rates and exchange rates CPI inflation (%, December to December) 12.3 9.9 8.5 7.2 7.7 10.9 9.5 9.1 9.0 CPI inflation (%, average) 9.6 10.9 8.8 8.6 6.3 10.4 9.8 9.3 9.1 Exchange rate (ARS per USD, end-year) 3.03 3.06 3.15 3.45 3.78 3.98 4.30 4.55 4.80 Exchange rate (ARS per USD, average) 2.93 3.08 3.12 3.16 3.73 3.91 4.13 4.45 4.71 REER (% change, December to December) (2) 4.6 0.0 -9.0 6.8 -15.9 -3.6 2.2 0.5 0.0 Nominal wage growth (% year-on-year change, average) (3) 20.3 18.9 22.7 22.4 16.7 26.3 29.5 24.0 20.0 Central bank's 7 day repo rate (%, end-year) 6.00 8.30 10.30 13.00 11.50 11.50 11.50 11.50 11.50 Fiscal data General government fiscal balance (% of GDP) 2.1 1.9 1.1 0.8 -1.6 0.4 -2.1 -0.6 -1.1 General government primary fiscal balance (% of GDP) 4.4 4.0 3.4 2.8 0.8 2.2 0.2 1.8 1.6 General government expenditure (% of GDP) 27.0 27.9 31.4 32.8 36.6 37.7 40.8 40.5 41.0 Federal government primary fiscal balance (% of GDP) 3.7 3.5 3.2 3.2 1.5 1.7 0.3 2.0 1.8 Federal government fiscal balance (% of GDP) 1.8 1.8 1.1 1.4 -0.6 0.2 -1.7 -0.1 -0.6 Gross general government debt (% of GDP, end-year)(4) 88.5 81.6 71.1 57.4 61.7 51.2 44.4 42.8 40.7 Net general government debt (% of GDP, end-year)(4)(5) 84.0 72.5 63.6 51.1 47.9 37.3 30.5 27.7 26.3 Money supply and credit Broad money supply (M2, % of GDP) 20.2 19.5 18.4 17.7 18.3 19.5 20.3 21.3 22.2 Broad money supply (M2, % year-on-year change) 25.1 18.4 17.1 22.6 14.5 34.5 30.0 22.0 20.0 Domestic credit (% of GDP) 30.7 26.6 24.7 22.2 23.5 25.3 27.3 27.7 27.9 Domestic credit (% year on year) 7.8 6.8 15.3 14.1 17.3 35.7 35.0 18.0 16.0 Domestic credit to private sector (% of GDP) 11.7 13.0 14.5 13.7 13.5 14.6 17.2 17.7 18.1 Domestic credit to private sector (% year on year) 32.1 37.4 37.8 20.5 9.5 36.1 46.7 20.0 18.0 Balance of payments Exports (goods and non-factor services, % of GDP) 25.9 25.7 25.4 25.2 21.7 22.0 22.6 21.2 20.7 Imports (goods and non-factor services, % of GDP) 19.2 19.3 20.5 20.8 16.1 18.4 19.8 19.3 19.0 Exports (goods and non-factor services, % change in $ value) 18.0 16.1 21.6 23.9 -18.8 21.8 21.5 1.6 5.6 Imports (goods and non-factor services, % change in $ value) 25.0 17.7 29.9 27.4 -27.4 37.7 27.2 5.5 6.6 Net balance of factor income ($bn) (6) -7.3 -6.1 -5.9 -7.6 -9.0 -9.9 -10.1 -10.0 -10.3 Current account balance ($bn) 5.3 7.8 7.4 6.8 11.1 2.9 1.5 -0.8 -1.5 Current account (% of GDP) 2.9 3.7 2.8 2.1 3.6 0.8 0.4 -0.2 -0.3 Net FDI ($bn) 3.5 2.8 4.7 7.7 2.8 5.5 3.3 2.2 1.7 Scheduled debt amortization ($bn) (7) 4.7 2.4 2.5 2.3 1.7 1.7 1.6 1.7 1.6 Foreign debt and reserves Foreign debt ($bn) (4) 127.7 124.4 139.5 150.6 146.2 140.6 142.9 142.3 140.7

Public ($bn) 79.3 76.6 85.7 90.1 91.6 79.6 81.9 81.3 79.7 Private ($bn) 48.4 47.8 53.8 60.5 54.6 61.0 61.0 61.0 61.0

Foreign debt (% of GDP, end-year) 70.2 58.5 53.5 46.1 47.6 38.1 32.7 30.1 27.4 Foreign debt (% of exports of goods and services) 271.6 227.9 210.3 183.3 219.0 173.0 144.7 141.8 132.7 Central bank gross FX reserves ($bn) 28.1 32.0 46.2 46.4 48.0 52.2 46.4 47.0 47.5 Central bank net FX reserves ($bn) (8) 28.1 32.0 44.6 41.5 44.4 50.9 41.0 44.0 44.0 Central bank gross non-gold FX reserves ($bn) 27.2 30.9 44.7 44.9 46.1 49.7 43.2 43.7 44.2 (1) Starting in 2003, people participating in the “Jefes de Hogar” subsidy program are counted as employed; adjusting the data by Jefes de Hogar, the unemployment rate is 2-4 points higher. (2) Increase indicates appreciation. REER was estimated using the official inflation series. (3) Weighted average of wages in the formal and informal private sector, and the public sector. (4) Debt data assumes that Paris Club debt is rescheduled in 2012. (5) Net of Brady guarantees (through 2003), the Bogar bond, government bonds held by Central Bank and by the social security agency (ANSES), and estimated government cash holdings. (6) For the 2002-2005 period, it includes notional interest paid on defaulted debt. (7) It includes only scheduled amortizations to multilaterals. (8) Net of borrowing from the BIS and other bilateral lenders. Source: INDEC, Central Bank, Ministry of Economy, Credit Suisse

14 March 2012


Brazil: We expect additional Selic interest rate cuts of 125bps in Q2 2012 • We expect real GDP growth of 2.5% in 2012 and 4.0% in 2013. Our forecasts are

lower than the median market expectations of 3.3% for 2012 and 4.2% for 2013. Our projection for 2012 assumes acceleration in economic activity from 0.3% qoq in Q4 2011 to 0.8% qoq in Q1 2012 and 1.0% qoq in H2 2012. If our GDP growth forecast for 1Q 2012 (which already assumes a significant downward bias) is correct, the market consensus forecast for growth in 2012 will be compatible with an average expansion of 1.6% from Q2 2012 to Q4 2012. Such continuous growth was recorded in Brazil only from Q3 2006 to Q3 2008, in a scenario of very strong global growth and a significant expansion in investments and industrial production.

• Low industrial performance and investment expansion explains why growth will resume gradually in 2012. We believe 2012 GDP growth will be lower than the 4.5% average growth from 2004 to 2010. On the supply side, we expect industrial GDP to expand 1.9% in 2012 versus the 3.8% average from 2004 to 2010. We are assuming that industrial expansion will not be strong in 2012. We expect much of the growth in domestic demand to be met by imports expansion. While 55% of the rise in the consumption of goods from 2003 to 2011 was met by local industry, imports accounted for the total rise in consumption in 2011. Local inflation well above of that of Brazil’s trading partners and the significant rise in the cost of labor in manufacturing explain the declining competitiveness of local industry. We expect investments to grow 5.3% in 2012, higher than the 4.7% of 2011 but much less than the 9.2% average expansion from 2004 to 2010. Investments in machinery and equipment, which were responsible for an important part of the strong investment growth in the past several years, should contribute much less to investment expansion in upcoming quarters.

• We keep our expectation of a low unemployment rate in 2012 and 2013. Our projection of GDP growth of 2.5% in 2012 and 4.0% in 2013 is compatible with the decline in the unemployment rate measured by the Monthly Employment Survey (PME), from 6.0% on average for 2011 to 5.8% in 2012 and 5.2% in 2013. We estimate that the GDP growth rate needed to keep unemployment stable has dropped from 3.3% in 2003 to 2.0% in 2011. We project that growth in real wages will increase from 2.7% in 2011 to 3.2% in 2012 due to the continuation of low unemployment and the real increase in the minimum wage of 8.8% in 2012.

• Most of the decline in annual IPCA inflation (benchmark used for inflation targeting) at the beginning of the year resulted from lower food prices. We expect IPCA inflation to decline from 6.5% yoy in December 2011 to 5.3% in April. A high comparison base (inflation of 0.80% on average from January to April 2011), lower commodity price inflation, and a few non-recurring factors (e.g., municipal elections and the change in the weighting structure of the IPCA index) have led to lower CPI inflation. We expect IPCA inflation to decline to 5.0% by the end of 2012 as a result of the favorable prospects for non-services inflation (composed of inflation in food at home, industrial goods, and administered prices) and a decline in services inflation (due to lower inflation in prices linked to past inflation). The main risks to our forecast come from the dynamics of commodity prices (and their direct impact on food prices) and from services inflation, which is quite persistent and reached almost 10% yoy in 2011.

• Despite the favorable outlook for consumer inflation in the short term, median market expectations for IPCA inflation in the next few years increased sharply in Q1 2012. Most market participants believe IPCA inflation will not converge to the center of the target range in the coming years. Median market expectations for IPCA inflation in 2013 increased from 5.0% in December 2011 to 5.5% in March, while the market forecast for 2014 and 2015 rose from 4.6% to 5.00% and from 4.5% to 4.8%, respectively. This jump in inflation forecasts (e.g., breakeven inflation and Market Readout) makes it more difficult for IPCA inflation to converge to the center of the target range in the next few quarters.

Nilson Teixeira +55 11 3841 6288

[email protected]

Iana Ferrao +55 11 3841 6345

[email protected]

Leonardo Fonseca +55 11 3841 6348

[email protected]

Daniel Lavarda +55 11 3841 6352

[email protected]

Tales Rabelo +55 11 3841 6353

[email protected]

14 March 2012


• We expect the current easing cycle to total 400bps, with the Selic interest rate (policy rate) reaching 8.50% at the end of May. The Monetary Policy Committee (Copom) decided to cut the Selic basic interest rate by 75bps on 7 March, from 10.50% to 9.75%, accelerating the pace of cuts in the current easing cycle from 50bps to 75bps. Some market participants explain the acceleration as a way of containing local currency appreciation by reducing the appeal of the local fixed-income market. However, we think the decision to speed up the easing cycle was probably due to lower-than-expected consumer inflation in January and February and, mainly, to the subdued growth in Q4 2011 and early 2012 (e.g., January’s industrial production). These results were much lower than expected by the government and most investors a few months ago. We are now assuming additional cuts of 75bps on 7 April and 50bps on 30 May, with the Selic reaching 8.50% and remaining at this level until the end of 2013. Given that we think growth will surprise the government on the downside, we believe the probability of a stronger easing cycle than we expect is not low.

• Brazil’s external accounts remain sound, despite uncertainty surrounding the global outlook. We expect the current account deficit to edge up from 2.1% of GDP in 2011 to 2.2% of GDP in 2012, largely due to our expectation of a lower trade balance in 2012. The risk of Brazil having problems financing its current account deficit in the medium term seems low in view of the country’s high international reserves, the gradual improvement in solvency indicators, and the favorable prospects for financial inflows. FDI inflows equivalent to 2.2% of GDP should be enough to finance the current account deficit in 2012. Our forecasts for the country’s external accounts point to a decline in the balance-of-payments surplus from $59 billion in 2011 to $21 billion in 2012.

• The government has announced new measures aimed at preventing local currency appreciation. High international liquidity and favorable funding conditions abroad (low interest rates) at the start of 2012 have led to a sharp increase in the volume of private bonds issued and direct loans taken out abroad by Brazilian banks and corporations. This led to substantial BRL appreciation at the beginning of the year. In response, in March the government adopted a set of measures aimed at limiting capital inflows into the country. We believe the announcement of additional measures will be dependent upon the amount of capital inflows into the country as well as the trend followed by the exchange rate in 2012, whose dynamics will depend greatly on the global outlook. We assume that the Real will remain volatile in the coming months and that it will plateau at around R$1.75/US$ in December 2012.

• Cuts in budget spending and higher-than-expected fiscal results in January reinforce our forecast that the primary surplus target will be met in 2012. The central government received almost no extraordinary revenues, and the fiscal result was marked by a combination of favorable tax receipts, lower transfers to local entities, and a sharp decline in discretionary expenditures. This result and the federal government’s announcement of R$55 billion in spending cuts in the 2012 budget reinforced our view, published in December 2011, that the public sector should be able to meet the full primary surplus target in 2012 (R$139.8 billion, equivalent to 3.1% of GDP) without the use of escape clauses for investments made under the Growth Acceleration Program (PAC). We expect net debt to continue to decline in 2012 from 36.5% of GDP in December 2011 to 34.5% in December 2012. We keep the view that the risks on the fiscal side are minor in the short term.

14 March 2012


Exhibit 89: GDP growth %

Supp

lyDe

man

d

IndustryServices

Agriculture

Investments

Household consumption

Exports

Government consumption

Imports

5.73.2

13.60.5

15.4

4.43.1-6.7-9.1-7.6

6.94.221.311.535.8

4.11.94.74.59.7

3.52.05.32.07.5

4.63.28.95.512.8

6.3

4.14.9

-3.1

-5.62.1

6.3

10.45.5

3.9

1.62.7

2.2

1.92.6

2.8

3.73.8

20082009

2010 2011 2012e 2013e

7.55.2

-0.3

2.7 2.5 4.0GDP growth

We expect GDP growth in 2012 to be slightly

lower than in 2011, mainly due to the

unfavorable statistical effect. In our opinion, the

lower growth in comparison to the

average of 4.5% from 2004 to 2010 will be

explained by industry on the supply side and investments on the

demand side.

Source: IBGE, Credit Suisse

Exhibit 90: Scenarios for 2012 GDP growth %, average per quarter

5.4

2.04.2

2.06,3

2.08.3

2.02.8

2.5

0.81.8

1.02.9

1.13.9

0.81.6

3.3

1.12.8

1.13.8

1.14.5

1.12.1

5.4

3.3

1.22.2

1.63.8

1.6

0.81.6

2012

QoQYoY

2Q12

3Q12

4Q12

1Q12

2% per quarterCredit Suisse 3.3% - Scenario 1 3.3% - Scenario 2

QoQYoY

QoQYoY

QoQYoY

Our scenario assumes an increase in quarter-

on-quarter GDP growth, from 0.8% in 1Q12 to nearly 1.0% in 2H12.

Assuming our projection for 1Q12, the market’s

GDP growth forecast of 3.3% in 2012 would

require average GDP growth of 1.5% from 2Q12 to 4Q12. Such

continuous growth was recorded only from Q3 2006 to Q3 2008, in a

scenario of very strong global growth.

Source: IBGE, Credit Suisse

Exhibit 91: Scenario for Selic basic interest rate

Exhibit 92: Selic rate and IPCA inflation

%, pa %, pa

Apr-12 Oct-12 Apr-13 Oct-138.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

Yield curve as of 13 March

Credit Suisse

Selic

0

5

10

15

20

25

IPCA (year-on-year change)

30

Real interest

rate

Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13e

We expect the Copom to make 125bps in

additional cuts in the Selic interest rate, with

cuts of 75bps and 50bps at the next two meetings.

Although our forecast is in line with the yield

curve in the short term, we expect the Selic to remain stable in 2013.

The yield curve is pricing in total tightening of

250bps in 2013, with the policy rate reaching

11.00% at the end of the year.

Source: Central Bank of Brazil, Credit Suisse Source: Central Bank of Brazil, IBGE, Credit Suisse

14 March 2012


Exhibit 93: Inflation in services and ex-services

Exhibit 94: Median market forecast for consumer inflation

%, YoY %, YoY

Feb-08 Feb-09 Feb-10 Feb-11 Feb-12

5.8

9.3

4.1

2

3

4

5

6

7

8

9

10

11

IPCA

Services

Non-services

5.3

5.5

5.0

4.8

4.6

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.62012

2013

2014 2015

2016

5.6

1-Dec-11 25-Dec-11 18-Jan-12 11-Feb-12 6-Mar-12

5.3

5.5

5.0

4.8

4.6

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.62012

2013

2014 2015

2016

5.6

1-Dec-11 25-Dec-11 18-Jan-12 11-Feb-12 6-Mar-12

Consumer inflation has declined in the past few months due to the more

favorable dynamics in the non-services group (food

at home, industrial goods, and administered prices). However, market

participants have increased their forecasts

for IPCA inflation in the medium and long term.

Median market expectations for

consumer inflation in 2013, 2014, 2015, and 2016 are above 4.5%.

Source: IBGE, Credit Suisse Source: Central Bank of Brazil, Credit Suisse

Exhibit 95: Breakdown of balance of payments

Exhibit 96: Breakdown of financial flows

% of GDP US$ bn

Errors and omissionsCapital and financial accountCurrent account

Balance of payments result

2005 2006 2007 2008 2009 2010 2011 2012e

1.61.3 0.1

-1.7 -1.5 -2.3 -2.1 -2.2-1.1

6.5

0.0

0.1

-0.2

0.1

0.0-0.2 0.0 -0.4

1.5 4.5

4.8 4.5

3.21.80.5

2.8

6.4

0.2

2.9

0.6

2.3 2.4

OtherPortfolio investments - EquitiesPortfolio investments - Fixed incomeDirect investments

2005 2006 2007 2008 2009 2010 2011 2012e

13-9

28 25 36 37

7658

78

2637 38

65

7

14

14

10 13

-1-22

23

30

10

-12

11 29

14

-2

28

97

41

7199

111

76

-8

Slower growth in global commodity prices and reduced global growth

will probably cause a reduction in Brazil’s trade surplus. Even with lower

deficits in the main services and income

accounts, Brazil’s current account deficit would rise

in 2012 due to a drop in the trade surplus.

Nevertheless, we expect net financial inflows to

outweigh the current account deficit and keep

international reserves growing.

Source: Central Bank of Brazil, Credit Suisse Source: Central Bank of Brazil, Credit Suisse

Exhibit 97: Public-sector primary surplus

Exhibit 98: Central government revenues and expenditures in 2012

% of GDP R$ billion

2011 2012e 2013e2005 2006 2007 2008 2009 2010

3.83.2 3.3 3.4

2.02.7 3.1 3.1 3.1

2.6

1.0

2.2

0.8

2.2

1.1

2.4

1.0

1.3

0.72.1

0.5

-3.6 -3.6-2.8 -2.0

-3.3 -2.5

0.20.2 0.1

2.3

0.8

2.2

0.8

2.2

0.8

-2.6 -2.3 -2.0

0.10.1

Central government Government-owned corporationsStates and municipalities Nominal deficit

Budget Act Budget Appraisal ReportPrimary surplusNet revenues Expenditures

811

97.071.5

25.5

866938 908

29.5

55.0

We maintain our expectation that the

federal government will meet the primary surplus target of R$139.8 billion

(or 3.1% of GDP) in 2012. In our opinion, cuts in budget spending and a

higher-than-expected fiscal result in January

reinforce our forecast that the fiscal target will be

met in 2012.

Source: Central Bank of Brazil, Credit Suisse Source: Ministry of Planning, Credit Suisse

14 March 2012


Brazil: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011 2012F 2013F

National accounts, population and unemployment Real GDP growth (%) 3.2 4.0 6.1 5.2 -0.3 7.5 2.7 2.5 4.0 Growth in real private consumption (%) 4.5 5.2 6.1 5.7 4.4 6.9 4.1 3.5 4.6 Growth in real fixed investment (%) 3.6 9.8 13.9 13.6 -6.7 21.3 4.7 5.3 8.9 Fixed investment (% of GDP) 15.9 16.4 17.4 19.1 18.1 19.5 19.3 19.8 20.7 Nominal GDP ($bn) 882 1,089 1,367 1,651 1,598 2,090 2,471 2,517 2,788 Population (mn) 184.2 186.0 188.5 190.9 191.5 193.3 194.9 196.5 198.1 GDP per capita, $ 4,783 5,850 7,247 8,649 8,345 10,812 12,678 12,809 14,073 Unemployment (% of labor force, end-year) 9.9 10.0 9.3 7.9 8.1 6.7 6.0 5.8 5.2 Prices, interest rates and exchange rates CPI inflation (%, December to December) 5.7 3.1 4.5 5.9 4.3 5.9 6.5 5.0 4.8 CPI inflation (%, average) 6.9 4.2 3.6 5.7 4.9 5.0 6.6 5.5 4.9 Nominal wage growth (% year-on-year change) 8.5 7.7 7.7 10.5 7.6 9.9 9.8 8.9 8.3 Exchange rate (BRL per USD, end-year) 2.3 2.1 1.8 2.3 1.7 1.7 1.9 1.8 1.8 Exchange rate (BRL per USD, average) 2.4 2.2 2.0 1.8 2.0 1.8 1.7 1.8 1.8 REER (% change, December to December) 25.8 1.3 14.7 -18.1 36.9 7.8 -12.4 2.6 4.8 Selic interest rate (%, end-year) 18.0 13.3 11.3 13.8 8.8 10.8 11.0 8.5 8.5 Fiscal data General government fiscal balance (% of GDP) -3.6 -3.6 -2.8 -2.0 -3.3 -2.5 -2.6 -2.3 -2.0 General government primary balance (% of GDP) 3.8 3.2 3.3 3.4 2.0 2.7 3.1 3.1 3.1 General government expenditure (% of GDP) 37.5 38.0 37.1 36.5 37.7 37.3 38.3 39.1 38.4 Gross general government debt (% of GDP, end-year) 56.7 56.4 58.0 57.4 60.9 53.4 54.3 52.0 51.0 Net general government debt (% of GDP, end-year) 48.2 47.3 45.5 38.6 42.1 39.1 36.5 34.5 32.5 Money supply and credit Broad money supply (M2, % of GDP) 27.0 27.7 28.5 35.7 36.7 37.1 38.9 39.7 41.1 Broad money supply (M2, % year-on-year change) 18.0 13.6 18.1 37.3 8.8 16.7 18.2 13.2 13.2 Domestic credit (% of GDP) 77.6 83.1 87.2 87.1 88.1 86.2 90.7 97.4 103.7 Domestic credit (% year-on-year) 23.3 16.5 19.6 13.8 8.1 13.8 15.4 15.4 16.2 Domestic credit to private sector (% of GDP) 31.3 36.7 42.4 47.8 50.6 52.4 56.7 61.7 66.9 Domestic credit to private sector (% year-on-year) 28.2 29.4 29.7 28.5 13.1 20.6 18.7 17.3 18.4 Balance of payments Exports (goods and non-factor services, % of GDP) 15.3 14.5 13.5 13.9 11.2 10.9 11.9 12.3 13.3 Imports (goods and non-factor services, % of GDP) 11.1 11.1 11.6 13.4 10.7 11.4 12.2 12.8 14.1 Exports (goods and non-factor services, % change in $ value) 23.1 17.1 17.4 23.8 -20.8 29.2 26.0 5.2 19.2 Imports (goods and non-factor services, % change in $ value) 22.2 23.1 30.8 39.7 -20.7 39.9 23.8 6.9 21.8 Current account balance ($bn) 14.0 13.6 1.6 -28.2 -24.3 -47.3 -52.6 -54.2 -69.3 Current account (% of GDP) 1.6 1.3 0.1 -1.7 -1.5 -2.2 -2.1 -2.2 -2.5 Net FDI ($bn) 12.5 -9.4 27.5 24.6 36.0 36.9 76.0 58.4 75.9 FDI ($bn) 15.1 18.8 34.6 45.1 25.9 48.5 66.7 55.0 70.0 Scheduled debt amortization ($bn) -32.8 -44.1 -38.2 -22.4 -30.1 -33.8 -37.7 -46.9 -50.9 Foreign debt and reserves Foreign debt ($bn) 188.0 199.4 240.5 262.9 276.1 349.9 402.7 437.9 485.9 Public ($bn) 87.6 76.3 70.3 67.4 77.2 82.8 77.2 80.0 86.0 Private ($bn) 100.4 123.1 170.2 195.6 198.9 267.1 325.5 358.0 399.9 Foreign debt (% of GDP, end-year) 21.3 18.3 17.6 15.9 17.0 16.3 16.3 17.4 17.4 Foreign debt (% of exports of goods and services) 139.6 126.4 129.9 114.7 152.2 149.3 136.4 141.0 131.2 Central bank gross FX reserves ($bn) 53.8 85.8 180.3 193.8 238.5 288.6 352.0 376.0 430.0 Central bank gross FX reserves, including forward FX transactions ($bn) 60.2 98.1 202.6 192.1 238.5 288.6 352.0 368.3 417.4 Central bank gross non-gold FX reserves ($bn) 53.2 85.2 179.4 192.8 237.3 287.1 350.4 366.7 415.8 (1) Real effective exchange rate. Deflator: CPIs. Increase indicates appreciation; (2) Average annual growth of nominal wage; (3) Total government expenditure. Include interest payment; (4) Net of fiduciary fund assets, central bank holdings of government paper, social security system holdings of government paper; (5) Scheduled amortizations for public and private sectors; (6) Adjusted net reserves due to parity with other assets and it also excludes teh IMF loan (liquidated in Dec.2005). Source: IBGE, IPEA, Central Bank, Trade Ministry and Credit Suisse

14 March 2012


Chile: Shifting focus from rate cuts to inflation • In Chile, signs of a clear economic slowdown are still hard to find almost three

months into 2012. This, combined with much higher than expected inflation in two of the past three months has made us (and the market) revise sharply our expectations for the likely path of the monetary policy rate in upcoming quarters. In short, we think that the central bank will likely keep the monetary policy rate unchanged at 5.0% for the remainder of 2012. Up until last week, we were anticipating three more rate cuts of 25bps each. We think that investor focus should shift to inflation, where we see risks of further disappointments, as current market expectations appear too optimistic.

• We are maintaining our real GDP growth forecast for 2012 at 4.0%, compared to the estimated 6.4% growth rate in 2011. Though this forecast may appear “low” given the resilience of the economy in recent quarters, we prefer to wait for the next release on 19 March of the revised national accounts with 2008 as the base year (2003 at present) to fine-tune our forecasts. Our current forecast compares to a median forecast of 4.4% real GDP growth in 2012 in the latest central bank survey released earlier this week.

• As has been the case in recent quarters, booming imports will likely continue to mask the strength in domestic demand in the GDP figures. For instance, we are forecasting that domestic demand growth will average 6.2% in real terms in 2012, fueled by 10% growth in gross fixed investment and with private consumption expanding by 5.5%. Some of the factors supporting this rosy outlook include the ample credit availability in the economy and the rising consumer confidence levels which, in turn, probably reflect the strength in the labor market.

• Persistently high economic growth and a tight labor market have taken a toll on inflation, despite the strength of the peso. We recently increased our year-end 2012 inflation forecast from 3.0% to 4.1%, as we now project that annual inflation will average 4.4% in 2012, the highest annual average since 2008. Our forecasts are more pessimistic than those captured in the latest central bank survey which show a median inflation forecast of 3.5% for year-end 2012. Therefore, we see risks of further adverse inflation surprises and of a worsening in inflation expectations.

• We are concerned about the speed with which our measure of core inflation has risen in recent months. In year-on-year terms, headline inflation minus food, beverages, tobacco and energy has risen from 0.1% last July to 2.5% in February 2012. This measure, which closed last year at 2.0%, suggests that the recent adverse inflation surprises (December 2011 and February 2012) were driven by more than just a few bad inflation prints for certain items, probably reflecting various bottlenecks in the economy.

• Barring a major economic slowdown in upcoming months, we do not see room for cuts in the monetary policy rate in the foreseeable future. We forecast that the central bank will leave the monetary policy rate unchanged at 5.0% in the balance of 2012. The risk at present is that the central bank may choose to start contemplating rate hikes, which are yet to be priced-in by the market. Ex-post, the prudence we called for in our previous Quarterly report regarding the timing of any rate cuts proved timely, while our criticism of the January 2012 surprise rate cut also seems to have been appropriate.

• Finally, we continue to think that Chile stands out globally with its ability to implement aggressive countercyclical monetary and fiscal policies if needed. On the monetary policy front, the central bank continues to enjoy strong credibility with regards to its commitment to the 3.0% inflation target, despite its premature rate cut in January 2012. On the fiscal front, the government has abundant external savings that are equivalent to 12% of this year’s GDP and has a net creditor position.


[email protected]

Casey Reckman +1 212 325 5570

[email protected]

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14 March 2012


Exhibit 99: Monthly real GDP proxy Exhibit 100: Economic perception index2003 =100, seasonally adjusted

115

120

125

130

135

140

145

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Earthquake and tsunami

20

30

40

50

60

70

80


Economic perception indexPersonal situation at present

There are still no clear signs of an economic slowdown, at a time in which various

measures of consumer confidence are well-off their

recent lows and are approaching multi-year

highs.

Source: Central bank, Credit Suisse Source: Adimark, Credit Suisse

Exhibit 101: Stock of credit to the private sector

Exhibit 102: Retail sales by type of good

Billions of Dec-11 pesos, seasonally adjusted Seasonally adjusted indices in real terms, Dec-07 = 100

60,000

64,000

68,000

72,000

76,000

Dec-08 Dec-09 Dec-10 Dec-118,500

9,000

9,500

10,000

10,500

11,000

11,500Total (lhs)

Consumer (rhs)

80

90100

110120

130140

150160

170

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

TotalDurablesNon durables

Credit availability remains ample across most sectors

of the economy, but particularly so in the case of

consumer loans, which grew by 12.8% last year.

Dynamic credit growth helps explains the vigor of

retail sales (up 11.1% in 2011), particularly in the

durable goods segment (up 20.4% last year).

Source: Central bank, Credit Suisse Source: INE, Credit Suisse

Exhibit 103: Monthly imports of capital and consumer goods Exhibit 104: Labor market indicators $bn, three-month moving avg. of seasonally adjusted data % seasonally adjusted; wage increases are year-on-year

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5


0

2

4

6

8

10

12

14

4Q03 4Q05 4Q07 4Q09 4Q11

Nominal w age increasesNational unemploymentUnemployment rate in Santiago

Imports of capital and consumer goods appear to be re-accelerating in early

2012 after being flat for most of the second half of

2011.

The labor market remains very tight; this continues to be one of the main risks to

inflation.

Source: Central bank, Credit Suisse Source: INE, Universidad de Chile, Credit Suisse

14 March 2012


Exhibit 105: Annual consumer price inflation and the monetary policy rate

Exhibit 106: Annual inflation of non-core components

% %

-2

0

2

4

6


Monetary policy rateHeadline inf lationOur core inf lation measure*

-5

0

5

10

15

20


Alcoholic beverages and tobaccoEnergyFood

The rise in core inflation has been surprisingly fast in

recent months. At the non-core level, higher food

inflation has more than offset the drop in annual

inflation on alcoholic beverages, tobacco and

energy.

Rising gasoline prices abroad are a renewed risk

to non-core inflation.

* Excludes food, alcoholic beverages, tobacco and energy Source: INE, Central bank, Credit Suisse

Source: INE, Credit Suisse

Exhibit 107: Swaps curve (nominal) Exhibit 108: Real exchange rate % 4Q01 = 100; increase denotes appreciation

3.5

4.0

4.5

5.0

5.5

6.0

0 2 4 6 8 10

Early March 2012End 2011

90

95

100

105

110

115

4Q01 4Q03 4Q05 4Q07 4Q09 4Q11

Avg. 2001-2011

The swaps curve is no longer pricing in rate cuts,

after inflation was much higher than expected in two

of the past three months.

The real exchange rate appears to be fairly valued,

relative to its own history, but it is cheap relative to our

fair value estimate.

Source: Credit Suisse Source: Central bank, Credit Suisse

Exhibit 109: Export and import quantities

Exhibit 110: FX reserves and government’s external savings

Indices, 3Q-06 = 100 % of estimated 2012 GDP

80

100

120

140

160

180

200

3Q06 4Q07 1Q09 2Q10 3Q11

Exports

Imports

1.7%

4.5%

5.9%

15.6%

0% 5% 10% 15% 20%

Pensionfund

reserve

Financialassets (FA)

Economicstabilizationfund (FEES)

FXreserves

Rising import and flat export volumes have continued to

mask the strength of domestic demand in the

GDP figures.

The government has continued to build up an

important stock of external savings through various funds, largely by taking

advantage of high copper prices.

Source: Central bank, Credit Suisse Source: DIPRES, Central bank, Credit Suisse

14 March 2012


Chile: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 5.6 4.6 4.6 3.7 -1.7 5.2 6.4 4.0 4.9 Growth in real private consumption (%) 7.4 7.1 7.0 4.5 0.9 10.4 8.9 5.5 5.5 Growth in real fixed investment (%) 23.9 2.3 11.2 19.4 -15.9 18.8 15.3 10.0 10.0 Fixed investment (% of GDP) 24.5 24.0 25.5 29.4 25.1 28.4 30.7 32.5 34.1 Nominal GDP ($bn) 118.3 146.7 164.4 170.4 161.5 203.5 237.7 255.0 265.1 Population (mn) 16.3 16.4 16.6 16.8 16.9 17.1 17.2 17.4 17.6 GDP per capita, $ 7,274 8,928 9,906 10,162 9,537 11,907 13,781 14,653 15,102 Unemployment (% of urban labor force, average year) (1) 9.3 8.0 7.0 7.7 9.6 8.3 7.2 7.0 7.2 Prices, interest rates and exchange rates CPI inflation (%, December to December) 3.7 2.6 7.8 7.1 -1.4 3.0 4.4 4.1 3.0 CPI inflation (%, average) 3.1 3.4 4.4 8.7 1.6 1.4 3.3 4.4 3.0 Exchange rate (CLP per USD, end-year) 514.00 513.55 498.10 638.50 507.45 468.00 521.46 490.00 510.00 Exchange rate (CLP per USD, average) 559.43 530.49 522.12 523.64 558.78 510.00 483.71 490.00 500.00 REER (% year-on-year change, annual average) (2) 4.1 3.6 -2.4 -2.5 0.5 4.9 -0.6 1.0 1.5 Nominal wage growth (% year-on-year change, average) (3) 5.0 5.4 7.3 8.5 6.4 3.6 5.9 7.0 7.0 Monetary policy rate (%, end-year) 4.50 5.25 6.00 8.25 0.50 3.25 5.25 5.00 5.00 Fiscal data General government fiscal balance (% of GDP) 4.5 7.7 8.2 4.3 -4.5 -0.5 1.4 0.5 0.5 Central government primary fiscal balance (% of GDP) 5.4 8.4 8.8 4.8 -4.0 0.1 1.9 1.1 1.1 Central government expenditure (% of GDP) 19.3 18.1 18.7 21.2 24.8 23.5 22.5 23.4 23.8 Gross central government debt (% of GDP, end-year) (4) 7.3 5.3 4.1 5.2 6.2 9.2 11.0 11.3 11.8 Net central government debt (% of GDP, end-year) (5) -0.1 -6.7 -13.7 -20.6 -11.3 -7.5 -10.4 -9.7 -10.8 Money supply and credit Broad money supply (M2, % of GDP) 49.1 49.1 53.6 61.2 57.3 54.4 58.8 61.1 67.1 Broad money supply (M2, % year-on-year change) 21.5 17.5 20.5 18.6 -5.3 9.3 19.6 13.0 16.5 Domestic credit (% of GDP) 68.3 65.8 73.4 82.1 81.2 72.5 68.8 65.2 64.5 Domestic credit (% year-on-year) 16.0 13.2 23.1 16.2 0.0 2.7 5.0 3.0 5.0 Domestic credit to private sector (% of GDP) 52.3 52.0 57.3 63.4 64.5 60.8 61.0 60.6 62.9 Domestic credit to private sector (% year-on-year) 18.1 16.9 21.6 15.0 2.9 8.4 11.1 8.0 10.0 Balance of payments Exports (goods and non-factor services, % of GDP) 40.9 45.3 46.8 45.2 38.8 40.2 40.0 39.5 41.6 Imports (goods and non-factor services, % of GDP) 32.3 30.2 32.8 40.8 30.9 32.9 36.0 36.5 39.9 Exports (goods and non-factor services, % change in $ value) 25.5 37.4 15.7 0.2 -18.7 30.6 16.3 5.9 9.3 Imports (goods and non-factor services, % change in $ value) 28.7 16.0 21.7 28.8 -28.1 34.1 27.7 8.9 13.5 Current account balance ($bn) 1.4 7.2 7.5 -3.3 2.6 3.8 -4.3 -5.0 -9.1 Current account (% of GDP) 1.2 4.9 4.5 -1.9 1.6 1.9 -1.8 -1.9 -3.4 Net FDI ($bn) 4.8 5.1 10.0 7.1 4.8 6.4 10.2 7.0 8.0 Scheduled debt amortization ($bn) (6) 9.1 8.2 11.4 14.0 10.3 13.8 20.7 14.9 16.5 Foreign debt and reserves Foreign debt ($bn) 46.2 49.5 55.7 63.7 73.0 86.7 100.2 108.2 114.2


Foreign debt (% of GDP, end-year) 39.1 33.7 33.9 37.4 45.2 42.6 42.2 42.4 43.1 Foreign debt (% of exports of goods and services) 95.5 74.4 72.4 82.7 116.5 106.0 105.3 107.4 103.6 Central bank gross non-gold FX reserves ($bn) 17.0 19.4 16.9 23.2 25.4 27.9 42.0 43.2 45.4 (1) Adjusted for seasonality (2) Real effective exchange rate, increase indicates appreciation (3) General compensation index (includes fringe benefits). (4) Excludes debt of the central bank (5) Net of dollar assets deposited in the central bank and abroad through various funds and of debt owed by public sector companies to the government (6) Scheduled amortizations for public and private sectors. Source: Central Bank, INE, Budget office, Ministry of Finance, Credit Suisse

14 March 2012


Colombia: Overcoming the global headwinds • We expect real GDP growth to slow down gradually in 2012, to 5.2% from an

estimated 5.9% in 2011. The slowdown in global growth does not seem to have affected the Colombian economy significantly; domestic demand is decelerating gradually while exports are performing better than expected. Both consumer and business remained quite strong through early 2012, while credit growth remained high, which suggests that private spending will continue to drive GDP growth this year. Real GDP rose a strong 7.7% in Q3 2011 (1.7% qoq sa non-annualized); we estimate that real GDP grew 6.1% yoy in Q4 2011 and project a 5.5% yoy expansion for Q1 2012 (1.5% and 1.2% qoq, respectively).

• The tightening of monetary policy is supportive of our view that headline CPI inflation will decline to 3% by the end of 2012. Headline CPI inflation fell to 3.55% in February from a recent peak of 4.0% (in October 2011). Despite our relatively bullish view about the economy and the expected increase in domestic fuel prices going forward (as the government seeks to reduce the fuel subsidy bill), we expect inflation to decline further. Food disinflation should be the main factor driving down headline inflation, as the impact of the La Niña weather phenomenon on local food production appears mild. Meanwhile, the strength of the Colombian peso should contain, if not revert, last year’s increase in tradables inflation. Last, but not least, the central bank’s efforts to revert the deterioration of inflation expectations and reign in credit growth should prevent inflationary pressures from rising. Unless there is evidence of activity and credit growth slowing meaningfully, we expect one more 25bps rate hike, likely in Q2, taking the nominal policy interest rate to 5.5%.

• We project that the current account deficit will widen to $9.4bn (2.4% of GDP) in 2012 from an estimated $8.6bn in 2011. The dollar value of imports rose sharply in 2011, up 35%, in tandem with domestic demand growth. However, export revenues grew at an even faster pace, up 43% in dollar terms, largely on the back of higher oil prices and volumes sold; as a result, the merchandise trade surplus (on an FOB/FOB basis) rose to $6bn in 2011 from $2.2bn in 2010. We think that exports will grow just 10% in dollar terms in 2012, but we do not expect a significant worsening of the external accounts, as import growth is likely to moderate as well. We project a merchandise trade surplus of $5.3bn in 2012.

• Net dollar inflows in 2012 are likely to remain high, which should make it difficult for the government and the central bank to fight the appreciation of the Colombian peso. The main sources of the dollar inflows are FDI (with the bulk of it going to the hydrocarbons sector) and the repatriation of profits by the state-owned oil company, Ecopetrol (to fund its investment program). The central bank resumed its program of daily dollar purchases in February, $20mn per day, and, for now, we think it is not inclined to step up its intervention in the FX market. However, as has been the case in the past, the USDCOP approaching the 1,700 level is likely to prompt additional measures, which may include larger daily dollar purchases (by the central bank and the government) and, possibly, the implementation of capital controls. Our end-2012 USDCOP forecast is 1,740.

• Last year, the central government vastly outperformed its 3.7% of GDP deficit target on the back of higher than expected tax revenues. The tax intake in 2011 was nearly one percentage point of GDP higher than projected due to the strength of the economy and government efforts to reign in tax evasion; as a result, the preliminary estimate for the central government’s deficit in 2011 is 2.9% of GDP. Currently, we expect the central government to post a deficit of about 3% of GDP in 2012, although if it manages to succeed further in its fight against tax evasion, it may be able to post a lower deficit. On the reform front, we expect the government to focus its efforts on obtaining congressional approval for a structural reform of the tax code to make it more simple and more efficient. This tax reform is expected to be revenue neutral.

Carola Sandy +1 212 325 2471

[email protected]

14 March 2012


Exhibit 111: Real GDP growth Exhibit 112: Real GDP growth Contributions to real GDP growth in percentage points

-4

0

4

8

12

02 03 04 05 06 07 08 09 10 11F 12F

Government spendingPrivate consumptionNet exportsInvestmentGDP growth

-2

-1

0

1

2

3

4

5

6

7

8

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

2Q12

4Q12

quarter-on-quarter s.a.non-annualizedyear-on-year

Credit Suisse

forecastsWe recently raised our 2012 real GDP growth projection,

to 5.2%, from 4% previously, as domestic demand appears to be

decelerating more gradually than we had anticipated …

Source: DANE, Credit Suisse Source: DANE, Credit Suisse

Exhibit 113: Consumer confidence Exhibit 114: Industrial sector sentiment

Increase = more optimism Increase = more optimism

-15

-5

5

15

25

35


-25

-20

-15

-10

-5

0

5

10

15

20

25


… and domestic sentiment remains strong.

Source: Fedesarrollo, Credit Suisse Source: Fedesarrollo, Credit Suisse

Exhibit 115: Export growth and terms of trade

Exhibit 116: Destination of non-commodity exports in 2011

% of total in dollar terms

-40

-20

0

20

40

60

80

100


120

140

160

180

200Terms of trade (right axis)Commodity exports (left axis)*Non-commodity exports (left axis)*

Other countries

21%Other Latam10%

Ecuador11%

Venezuela8%

Europe15%

Brazil5%

Mexico3%

US27%

Exports held up relatively well in the second half of

2011, as commodity exports benefited from improving terms of trade while non-

commodity exports continued growing on the

back of sales to the US and to other countries in the

region.

% change year-on-year in dollar terms, three-month moving average. Source: DANE, Credit Suisse

Source: DANE, Credit Suisse

14 March 2012


Exhibit 117: CPI inflation Exhibit 118: Core, tradables and non-tradables inflation

% change year-on-year % change year-on-year

-1

1

3

5

7

9

11

13

Oct-06 Feb-08 Jun-09 Oct-10 Feb-12

Foodinflation

Headlineinflation

Non-foodinflation

-1

0

1

2

3

4

5

6

7

8

Feb-09 Nov-09 Aug-10 May-11 Feb-12

Core inflation*Non-tradables inflation**Tradables inflation**Non-food inflation

The local supply shocks that led to the increase in food prices last year are reversing. Food inflation,

which reached 6.6% yoy in October 2011, fell to 4.7%

in February and should continue declining in the

coming months.

The strength of the Colombian peso should

contain, if not revert, last year’s increase in tradables

inflation.

Source: DANE, Credit Suisse * It excludes goods and services that have the most volatile prices ** It excludes food and regulated goods and services Source: DANE, Credit Suisse

Exhibit 119: Central bank’s policy interest rate Exhibit 120: Credit growth % per annum % change year-on-year in nominal terms

-4

-2

0

2

4

6

8

10


Nominal interest rateReal interest rate (non-food inflation)Real interest rate (headline inflation)

-10

0

10

20

30

40

50


Consumer loansCommercial loansMortgagesTotal

The central bank is in the process of taking the

reference interest rate to a more neutral level (about

2%-2.5% in real terms); we expect one more hike in Q2,

taking the nominal policy interest rate to 5.5%.

The tightening of monetary policy is also aimed at curbing credit growth,

particularly, consumer credit as the central bank is

concerned about households becoming over

leveraged.


Exhibit 121: Nominal exchange rate Exhibit 122: Central government financesPesos per US dollar % of GDP

1,500

1,700

1,900

2,100

2,300

2,500

2,700

Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

-6

-5

-4

-3

-2

-1

0

1

03 04 05 06 07 08 09 10 11E 12F

Primary balance Overall balance

We think that it will be difficult for the government

and the central bank to fight the appreciation of the

Colombian peso; our end-2012 USDCOP forecast is

1,740.

The central government’s deficit in 2011 was much

lower than the 3.7% of GDP target, as tax revenues

were significantly higher than expected.

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: Finance Ministry, Credit Suisse

14 March 2012


Colombia: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 4.7 6.7 6.9 3.5 1.5 4.3 5.9 5.2 4.5 Growth in real private consumption (%) 4.0 6.4 7.3 3.5 0.9 5.1 6.5 5.4 4.5 Growth in real fixed investment (%) 12.7 19.2 13.0 9.2 -3.0 12.5 18.6 12.4 8.2 Fixed investment (% of GDP) 20.2 22.6 23.9 25.2 24.1 26.0 28.7 30.7 31.8 Nominal GDP ($bn) 146.5 191.4 207.6 244.2 235.7 287.7 332.5 386.0 426.6 Population (mn) 42.9 43.4 43.9 44.5 45.0 45.5 46.1 46.7 47.2 GDP per capita, $ 3,416 4,409 4,726 5,493 5,241 6,322 7,213 8,274 9,035 Unemployment (% of labor force, end-year) 12.2 12.8 10.3 10.9 12.3 11.3 10.4 9.5 9.0 Prices, interest rates and exchange rates CPI inflation (%, December to December) 4.9 4.5 5.7 7.7 2.0 3.2 3.7 3.0 3.0 CPI inflation (%, average) 5.0 4.3 5.5 7.0 4.2 2.3 3.4 3.4 3.1 Exchange rate (COP per USD, end-year) 2,285 2,240 2,018 2,250 2,043 1,908 1,938 1,740 1,720 Exchange rate (COP per USD, average) 2,322 2,361 2,077 1,968 2,157 1,906 1,850 1,740 1,707 REER (% change, December to December) (1) 6.3 0.0 6.9 -2.3 3.7 10.8 -0.2 3.0 0.5 Nominal wage growth (% year-on-year change, average) (2) 7.6 8.8 5.1 5.5 4.6 3.6 3.7 4.5 4.0 Reference rate (%, end-year) 6.00 7.50 9.50 9.50 3.50 3.00 4.75 5.50 5.50 Fiscal data Central government's fiscal balance (% of GDP) -4.4 -3.7 -3.0 -2.8 -4.3 -3.9 -2.9 -2.9 -2.7 General government fiscal balance (% of GDP) -2.1 -2.4 -1.7 -0.6 -2.7 -3.1 -2.2 -2.0 -1.9 General government primary fiscal balance (% of GDP) 1.5 2.1 2.1 3.2 0.6 -0.1 0.8 1.1 1.2 Consolidated public sector overall balance (% of GDP) 0.0 -0.7 -0.6 -0.1 -2.7 -3.2 -2.2 -2.2 -2.2 General government expenditure (% of GDP) 26.1 26.4 26.5 25.6 27.5 26.2 26.6 27.3 27.6 Gross public sector debt (% of GDP, end-year) 50.8 47.5 43.8 42.6 44.8 45.8 44.5 44.0 43.8 Net general government debt (% of GDP, end-year) (3) 38.9 36.0 32.3 31.7 34.5 35.3 34.3 33.6 33.2 Money supply and credit Broad money supply (M2, % of GDP) 30.6 31.8 33.4 35.1 35.0 35.7 37.9 38.2 38.7 Broad money supply (M2, % year-on-year change) 17.8 17.4 17.9 17.1 5.4 10.2 18.9 10.0 10.0 Domestic credit (% of GDP) 30.3 31.2 32.1 33.6 34.2 35.8 40.2 41.3 42.6 Domestic credit (% year-on-year) 13.9 16.4 15.4 17.1 7.4 13.0 26.1 12.0 12.0 Domestic credit to private sector (% of GDP) 22.4 26.2 29.6 31.4 30.3 33.0 35.6 37.5 38.7 Domestic credit to private sector (% year-on-year) 14.9 31.8 26.8 18.6 2.0 17.4 20.9 15.0 12.0 Balance of payments Exports (goods and non-factor services, % of GDP) 16.7 14.9 16.5 17.5 16.2 15.7 18.9 17.8 17.2 Imports (goods and non-factor services, % of GDP) 17.0 15.9 18.0 18.3 16.3 16.2 18.4 17.5 17.5 Exports (goods and non-factor services, % change in $ value) 25.2 17.1 19.8 24.7 -10.4 18.3 39.2 9.2 6.7 Imports (goods and non-factor services, % change in $ value) 25.7 21.9 23.4 19.6 -14.0 21.1 31.3 10.4 10.2 Net balance of factor income ($bn) -5.5 -5.9 -8.0 -10.2 -9.3 -11.9 -15.4 -15.4 -15.4 Current account balance ($bn) -1.9 -3.0 -6.0 -6.8 -5.0 -8.9 -8.6 -9.4 -11.5 Net transfers ($bn) 4.1 4.7 5.2 5.5 4.6 4.5 5.0 4.8 5.0 Current account (% of GDP) -1.3 -1.6 -2.9 -2.8 -2.1 -3.1 -2.6 -2.4 -2.7 Net FDI ($bn) (4) 5.6 5.6 8.1 8.3 4.0 0.4 11.0 12.5 11.7 Scheduled debt amortization ($bn) (5) 2.0 2.0 1.6 1.7 1.2 1.7 1.2 1.9 1.7 Foreign debt and reserves Foreign debt ($bn) 38.5 40.1 44.6 46.4 53.7 64.8 68.3 71.2 71.7


Foreign debt (% of GDP, end-year) 26.3 21.0 21.5 19.0 22.8 22.5 20.6 18.5 16.8 Foreign debt (% of exports of goods and services) 157.8 140.4 130.2 108.7 140.5 143.4 108.6 103.6 97.8 Central bank gross non-gold FX reserves ($bn) 14.8 15.3 20.8 23.5 24.8 27.8 31.7 36.7 38.7 (1) Increase indicates appreciation. (2) Wages for manufacturing workers. (3) Non-financial public sector debt net of intergovernmental loans and holdings of public sector bonds by public sector entities. (4) Flows are reported on a cash-basis. Net FDI accounted for on an accrued basis, which takes into account actual flows, may be significantly different; for example, in 2010, net FDI on an accrued basis was $9.1bn. (5) Scheduled amortizations for public sector. Source: DANE, Central Bank, Ministry of Finance and Public Credit, Credit Suisse

14 March 2012


Mexico: A strong start in 2012, but will it last? • Economic activity in Mexico appears to be off to a strong start in 2012, judging

from the latest manufacturing output report. This seems consistent with recent upside surprises out of the US. Still, we are maintaining our real GDP growth forecast for 2012 unchanged at 3.2%, as speed-up scares in the US are not uncommon and since the strength in Mexico’s manufacturing sector is overly dependent on external demand for vehicles, which we project will weaken as the year goes on. Our real GDP growth forecast assumes that industrial output in the US will grow at an average annual rate of 3.8% (4.2% in 2011) and that US real GDP will grow 2.3% on average (1.7% in 2011).

• On the political front, presidential campaigns will be under way at the end of March. We think that Mexican assets, particularly the peso, have room to rally in upcoming weeks if the PRI’s presidential candidate (Enrique Peña Nieto) maintains a strong lead in the polls, and if the candidate from the PRD-led coalition (Andrés M. López Obrador) remains a distant third in the race. Our central scenario continues to be that Peña Nieto will win the presidential elections by a comfortable margin and that the PRI-PVEM coalition will become the largest bloc in the lower house and the senate. These results, in our view, would be conducive to reform progress as early as 2013.

• Sentiment indicators in the manufacturing sector have been a very poor predictor of output in recent months. On one hand, contemporaneous PMI and confidence indicators have moved in opposite directions in nine of the past twelve months. On the other hand, both variables are well below their mid-2011 peak levels, even though manufacturing output has marched higher, almost uninterrupted, during this period.

• The main explanation we find is that all but two of Mexico’s manufacturing industries seem to be struggling, while the other two—vehicles and machinery/equipment—are booming. Specifically, government data show that in 2011, production of machinery and equipment grew 11.4%, while production of transportation equipment grew 17.1%. In contrast, output in all the other 19 industries grew by just 2.5%. In January 2012, a similar picture unfolded. Vehicle output was up 2.3% in monthly terms (non-annualized) and output of machinery and equipment was up 2.6%. In contrast, output in all other manufacturing industries was up 0.5%.

• Strength in selected manufacturing sectors and the steady recovery in other variables, like remittances, credit and confidence, should continue to support domestic demand. We are forecasting that private consumption will grow at an average rate of 4.0% in real terms in 2012, down slightly from the estimated growth rate of 4.4% in 2011. Similarly, we project a slight slowdown in gross fixed investment growth from 8.0% in 2011 to 6.0%, on the back of slightly tighter credit conditions.

• We remain comfortable with the inflation outlook as the labor market remains loose, the peso has rallied and demand-side inflationary pressures are non-existent. We continue to project that annual headline inflation will hover around 4.0% most of the year, while annual core inflation will remain between 3.1% and 3.4% in 2012. Our projections are in line with the central bank’s forecast, as depicted in the center of its inflation fan charts in the latest quarterly inflation report.

• The main risk to higher inflation resides in agricultural prices, in our view, despite the recent favorable surprises on this front. While we think that the adverse impact on several prices from last year’s drought are behind us, we also acknowledge that some key prices are quite low at present, including those of red tomatoes, onions and lemons. Meanwhile, we do not think that energy prices represent a risk to inflation, despite the rise in international oil and gasoline prices, as we think it is unlikely that the government will accelerate sharply the pace at which it increases gasoline prices on a monthly basis (particularly before the July presidential and congressional elections).


[email protected]

14 March 2012


• We are sticking to our out-of-consensus call that the central bank will cut the overnight rate at some point in 2012. We base this view on how we think the central bank’s monetary conditions index will likely continue to tighten if we are right on our call that the Mexican peso will rally ahead of the July elections. Additional arguments supporting our call include the dissipation of the risk of an extreme event in Europe and our belief that, when the time comes, the majority of the central bank’s board members will prefer to start a monetary policy tightening cycle from a level below the current 4.5% for the overnight rate. In our view, the window for the central bank to start cutting the overnight rate is mainly in the first half of the year.

• We remain bullish on the Mexican peso, despite the already sharp appreciation year-to-date. Our year-end 2012 forecast for the exchange rate is 12.30 pesos per dollar; for year-end 2013 our forecast is 12.00 pesos per dollar. Some of the factors supporting the currency are the risk-on mood in international markets, the rise in oil prices (and its positive impact on Mexico’s fiscal and external accounts), the currency’s own valuation and the prospects for sovereign debt ratings upgrades over the next 12 months, particularly from S&P and Fitch.

• In our view, the Mexican authorities could begin to fight the appreciation of the peso in upcoming months. We think that the instruments they would likely use would be interest rate cuts (in the case of the central bank), and/or the re-introduction of the monthly auction of US dollar puts by the foreign exchange commission, that would allow the central bank to accumulate dollars from the market at times of peso strength. Through this option mechanism, the central bank accumulated $9.1bn between March 2010 and November 2011. The bank discontinued these monthly auctions at the end of November 2011, a time of significant peso weakness.

• We continue to project that fiscal and external imbalances will remain modest in 2012. On the fiscal front, we project a fiscal deficit equivalent to 2.5% of GDP, including Pemex’s capital expenditures that are equivalent to 2.0% of GDP. As in previous years, we think that the public sector would likely spend most of the oil-related revenue windfall that may materialize should oil process remain above the government’s budget estimate. Between 2003 and 2011, the revenue surprise was equivalent to $155bn; unfortunately, however, less than the equivalent of $2.0bn is currently saved in the various stabilization funds. On the current account, our forecast is of a modest deficit of $11.9bn or 1.0% of GDP. Our deficit forecast matches our estimate of net FDI inflows this year.

• Presidential and congressional elections will take place on July 1, 2012. Campaigns will begin on March 30 and will end on June 27. The Federal Electoral Institute will organize at least two debates among the four presidential candidates. The first debate will take place in the first week of May, while the second one will take place no later than the second week of June. The format and dates of the debates will be determined once campaigns are under way.

• Polls suggest that the candidate of the PRI-PVEM alliance, Enrique Peña Nieto continues to enjoy a wide lead over the PAN’s candidate (Josefina Vázquez Mota) and the candidate from the PRD-led coalition (Andrés M. López Obrador). A sample of five polls taken in February and March show Peña Nieto with an average lead of 15.4 points over Vázquez Mota, and a lead of 25.9 points over López Obrador. Average effective voter preferences in this sample are 47%-31%-22% for Peña Nieto- Vázquez Mota- López Obrador. In the congressional race, though poll availability is lower, pollster Consulta Mitofsky reports that the PRI-PVEM currently has 44% of effective voter preferences in the lower house race (the PAN is at 31% and the left-of-center parties are at 24%). This type of outcome could translate into the PRI-PVEM winning more than 50% of the seats in the lower house. In our view, an undisputed victory by the PRI-PVEM coalition in the presidential and congressional elections would fuel investor expectations that pending structural reforms could be achieved starting in 2013.

14 March 2012


Exhibit 123: Real GDP growth Exhibit 124: Manufacturing sector data Seasonally adjusted indices

-4%

-2%

0%

2%

4%

6%

8%

10%

4Q09 4Q10 4Q11 4Q12

YoYQoQ annualized CS

Forecasts

42

4446

4850

5254

5658

60


95

100

105

110

115

120

125

Producer confidence (lhs)PMI (lhs)Manufacturing output (rhs)

Quarterly real GDP growth rates remain frustratingly

volatile, preventing us from drawing too strong

conclusions from one or two data points.

Sentiment indicators in the manufacturing sector have been flat to weak in recent

months, while actual output has surprised on the

upside.

Source: INEGI, Credit Suisse Source: INEGI, Credit Suisse

Exhibit 125: Consumer confidence index and the unemployment rate

Exhibit 126: Stock of commercial bank lending to the private sector

Seasonally adjusted; unemployment rate in % Seasonally adjusted index (Jan-08 = 100) in real terms

75

80

85

90

95

Aug-

08

Feb-

09

Aug-

09

Feb-

10

Aug-

10

Feb-

11

Aug-

11

Feb-

12

3.8

4.3

4.8

5.3

5.8

6.3Confidence (lhs)Unemployment (rhs)

85

90

95

100

105

110

115

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Higher consumer confidence levels and

greater credit availability have supported the

expansion in consumption and investment since mid-

2009.

Conditions in the labor market have also improved,

but at a slower pace.

Source: INEGI, Credit Suisse Source: Central bank, INEGI, Credit Suisse

Exhibit 127: Consumer price inflation Exhibit 128: Price of crude oil export mix% Dollars per barrel

0

1

2

3

4

5

6

7


HeadlineCore (Govt. definition)Core (US definition*)

0

20

40

60

80

100

120

140

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Actual Budget

Agricultural prices account for most of the gap between headline and core inflation. Core inflation excluding all

foodstuffs, beverages, tobacco and energy is at

just 2.3%.

High crude oil export prices are a positive for the

external and fiscal accounts, and not a danger

to inflation, based on how gasoline prices are determined by the

government.

* Headline minus all foodstuffs, beverages, tobacco and energy Source: INEGI, Credit Suisse

Source: Ministry of Finance, Ministry of Energy, Credit Suisse

14 March 2012


Exhibit 129: Real exchange rate Exhibit 130: Monetary conditions indexIncrease denotes appreciation Difference versus the level seen in January 2000; increase

(decrease) denotes tighter (looser) conditions

40

5060

7080

90

100110

120

Dec

-91

Dec

-94

Dec

-97

Dec

-00

Dec

-03

Dec

-06

Dec

-09

10 year average

-15

-10

-5

0

5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Loos

er <

----

----

> Ti

ghte

r

The real exchange rate remains cheap relative to its

own historical average.

The central bank’s monetary conditions index has been tightening since

the start of 2012 on the back of the rally in the peso.

A continuation of this trend could lead the central bank

to ease monetary policy.


Exhibit 131: Monetary policy rate forecasts in selected months Exhibit 132: Swaps curve (nominal) % %

4.30

4.50

4.70

4.90

5.10

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

Nov-11Dec-11Jan-12Feb-12

4.04.55.05.56.06.57.07.58.08.5

0 5 10 15 20

End 2010

End 2011

3/12/12

Years

The central bank’s survey of private expectations shows an average forecast of rate hikes starting in early 2013.

The swaps curve is also pricing in some rate hikes

within the next year.

We are not on this camp, as we see room for rate cuts

materializing particularly in the first half of 2012.

Source: Central bank, Credit Suisse Source: Credit Suisse

Exhibit 133: Effective voter preferences Exhibit 134: Lower house preferences%; EPN is Enrique Peña Nieto; JVM is Josefina Vázquez Mota; AMLO is Andrés Manuel López Obrador

% of gross voter preferences in Consulta Mitofsky polls; excludes no responses and undecided voters

47

31

21

0

10

20

30

40

50

60

Mito

fsky

Exce

lsio

r

OEM ISA

Uni

vers

al

Aver

age

EPN (PRI-PVEM)JVM (PAN)AMLO (PRD-PT-MC)

Pollster

05

101520

2530

3540

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

PRI-PVEM

PANPRD-PT-MC

Nueva Alianza

Enrique Peña Nieto continues to enjoy a

comfortable lead in the presidential race. A short campaign (three months)

without negative ads (prohibited by law) suggest

this election is his to lose.

The PRI-PVEM coalition also leads in voter

preferences for the lower house by a wide margin.

Source: Consulta Mitofsky, Credit Suisse Source: Consulta Mitofsky, Credit Suisse

14 March 2012


Mexico: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 3.2 5.2 3.3 1.2 -6.2 5.5 3.9 3.2 4.1 Growth in real private consumption (%) 4.8 5.7 4.0 1.7 -7.2 5.0 4.4 4.0 4.4 Growth in real fixed investment (%) 7.5 9.9 6.9 5.9 -11.9 2.4 8.0 6.0 8.2 Fixed investment (% of GDP) 20.5 21.4 22.2 23.2 21.8 21.1 21.9 22.5 23.4 Nominal GDP ($bn) 848.9 952.3 1,036 1,094 882.5 1,036 1,154 1,230 1,388 Population (mn) 103.5 105.2 107.0 108.9 110.7 112.3 114.2 116.2 118.2 GDP per capita, $ 8,204 9,048 9,679 10,055 7,972 9,222 10,099 10,586 11,743 Unemployment (% of labor force, end-year) 3.6 3.6 3.7 4.0 5.5 5.4 5.2 4.7 4.0 Prices, interest rates and exchange rates CPI inflation (%, December to December) 3.3 4.1 3.8 6.5 3.6 4.4 3.8 3.8 3.5 CPI inflation (%, average) 4.0 3.6 4.0 5.1 5.3 4.2 3.4 3.9 3.7 Exchange rate (MXN per USD, end-year) 10.78 10.88 10.87 13.54 13.08 12.37 13.97 12.30 12.00 Exchange rate (MXN per USD, average) 10.90 10.90 10.93 11.13 13.51 12.63 12.44 12.62 12.25 REER (% change, December to December)(1) 6.3 6.3 -2.1 -13.0 5.4 4.0 -7.7 11.8 1.0 Nominal wage growth (% year-on-year change, average)(2) 4.5 4.3 4.3 4.5 4.5 4.6 4.5 4.7 4.5 Reference rate (%, end-year) 8.25 7.00 7.50 8.25 4.50 4.50 4.50 3.75 4.50 Fiscal data General government fiscal balance (% of GDP)(3) -0.1 0.1 0.0 -0.1 -2.3 -2.9 -2.5 -2.5 -2.4 General government primary fiscal balance (% of GDP) 2.2 2.5 2.1 1.8 -0.1 -0.9 -0.6 -0.6 -0.5 General government expenditure (% of GDP) 21.2 21.7 21.9 23.6 25.9 25.5 25.3 25.2 25.1 Oil-related revenues (% of total public sector revenues) 37.3 38.0 35.4 36.9 31.0 32.9 33.7 34.3 31.3 Gross general government debt (% of GDP, end-year)(4) 33.8 33.6 33.7 38.9 39.7 38.5 39.6 39.2 38.1 Money supply and credit Broad money supply (M2, % of GDP) 47.2 47.9 47.6 51.5 55.9 55.0 56.2 56.7 57.4 Broad money supply (M2, % year-on-year change) 14.9 13.9 8.3 16.4 6.2 8.1 12.0 9.0 11.0 Domestic credit (% of GDP) 32.0 32.9 33.5 31.9 35.9 35.3 35.1 34.8 34.9 Domestic credit (% year-on-year) 3.9 15.4 11.1 2.4 10.2 8.0 9.0 7.0 10.0 Domestic credit to private sector (% of GDP) 19.0 20.2 22.8 23.6 24.4 24.2 25.1 25.0 25.8 Domestic credit to private sector (% year-on-year) 11.2 19.1 23.5 11.1 1.6 8.6 13.7 8.0 13.0 Balance of payments Exports (goods and non-factor services, % of GDP) 27.1 27.9 27.9 28.3 27.7 30.3 31.6 34.1 33.8 Oil exports (% of GDP) 3.8 4.1 4.2 4.6 3.5 4.0 4.9 4.6 4.1 Imports (goods and non-factor services, % of GDP) 28.6 29.2 29.5 30.5 29.2 31.5 33.0 35.5 35.9 Exports (goods and non-factor services, % change in $ value) 14.1 15.6 8.7 6.9 -21.0 28.4 16.4 14.8 12.0 Imports (goods and non-factor services, % change in $ value) 12.6 14.6 10.0 9.2 -22.9 26.8 16.6 14.7 14.0 Current account balance ($bn) -5.9 -4.5 -9.3 -15.7 -5.1 -3.1 -8.8 -11.9 -25.4 Net transfers ($bn) 22.1 25.9 26.4 25.5 21.5 21.5 22.9 24.0 25.2 Current account (% of GDP) -0.7 -0.5 -0.9 -1.4 -0.6 -0.3 -0.8 -1.0 -1.8 Net FDI ($bn) 17.9 14.2 23.1 25.7 8.9 6.6 9.8 12.0 15.0 Scheduled debt amortization ($bn)(5) 18.6 24.4 20.3 34.0 26.3 30.8 29.5 16.4 13.6 Foreign debt and reserves Foreign debt ($bn) 128.2 119.1 127.7 128.9 165.1 196.7 206.5 213.5 221.0

Public ($bn)(6) 71.7 54.8 55.4 56.9 96.4 110.4 113.5 116.5 119.0 Private ($bn) 56.6 64.3 72.3 71.9 68.8 86.3 93.0 97.0 102.0

Foreign debt (% of GDP, end-year) 15.1 12.5 12.3 11.8 18.7 19.0 17.9 17.4 15.9 Foreign debt (% of exports of goods and services) 55.7 44.7 44.1 41.6 67.5 62.7 56.5 50.9 47.1 Central government gross FX reserves ($bn) 74.1 76.3 87.2 95.2 99.9 120.6 149.3 169.3 189.3 Central bank gross non-gold FX reserves ($bn) 74.1 76.2 87.1 95.1 99.6 120.3 144.0 158.5 158.5 (1) Real effective exchange rate, increase indicates appreciation. (2) Contractual wage increases at a national level in the public and private sectors (excludes fringe benefits). (3) Narrow definition that excludes off-balance expenditures. (4) Includes all contingent liabilities associated with IPAB, Pidiregas, FARAC, financial intermediation and other debtor support programs. (5) Scheduled short- and long-term market and non-market amortizations for public and private sectors. (6) Includes the total stock of Pidiregas debt. Source: INEGI, Banco de Mexico, Ministry of Finance, Credit Suisse

14 March 2012


Panama: Slowing from double-digit growth • We maintain our real GDP growth forecast of 6.0% in 2012, a sizeable deceleration

from 10.6% in 2011. This adjustment is milder, though, than the deceleration to 3.2% in 2009 from 10.1% in 2008. Panama’s small, open economy will certainly feel the effects of slower growth in Europe and China. However, robust domestic demand, led by continued execution of the $5.25bn Panama Canal expansion project and the government’s $13.4bn five-year investment program, as well as historically low unemployment levels, should soften the blow. Meanwhile, we expect the external sector’s contribution to growth to remain negative due to the heavy demand for imports required for the public investment projects, which largely focus on infrastructure.

• Inflation will likely remain high relative to historical standards this year. We project 12-month inflation of 5.2% at year end 2012, down from 6.3% in 2011, but compared to an average of 3.7% over the past 10 years. Panama’s inflation is largely driven by international commodity prices, despite temporary fuel subsidies. As an officially dollarized economy, Panama will continue to import loose monetary policy from the US over our forecast horizon. In addition, fiscal policy will likely remain expansive over the course of the government’s investment program.

• Panama’s structural current account deficit will probably remain large at almost 13% of GDP this year, but is driven by investment and should be over 50% financed by FDI. Consumer goods imports and restocking of Colon Free Zone inventories for re-export should also keep the current account wide. Foreign direct investment in Panama reached $2.8bn in 2011 despite turmoil in the international markets; we expect at least $2.4bn in FDI in 2012, mainly driven by reinvested earnings of foreign companies operating in Panama.

• Achieving this year’s non-financial public sector deficit limit under the fiscal responsibility law of 2.0% of GDP looks more challenging than in the past. Using the budget projections from the government’s revised five-year plan and our GDP forecasts, we expect a NFPS deficit of 2.1% of GDP in 2012. However, the government projects real GDP growth of 7.5% this year, which would probably result in a smaller deficit. In either case, the government should easily cover its funding gap with a combination of multilateral and domestic borrowing. We project that NPFS debt will continue declining to 39% of GDP in 2012 from 42% at the end of 2011.

• Popular support for President Martinelli reached an all time low in February. A Dichter and Neira poll showed that 33% of respondents had a positive view of Martinelli, down from 47% in January and 64% one year earlier. Martinelli’s popularity has been trending downward since he took office in 2009, but any natural decline has been exacerbated by last year’s rupture of the government coalition, public confrontations with various sectors and most recently, what was perceived as poor handling of protests by indigenous groups against mining projects and hydroelectric dams in their territory. Unless Martinelli adopts a more conciliatory governing style, we expect his approval ratings to remain low and for policy reversals to continue. In this context, we believe it will probably be difficult for Martinelli to secure any of the unpopular electoral reforms he desires, like adding a second round to presidential elections or amending the constitution to allow consecutive re-election.

• Hopefully the noisy political backdrop will not derail the government’s plan to create a sovereign wealth fund to manage future fiscal transfers from the expanded Panama Canal. The economic authorities aim to present a bill that would establish this fund to the National Assembly in the near term. The authorities estimate that increased capacity and higher tolls will allow the Canal’s fiscal contributions to rise to $3bn by 2018 and $5bn by 2025. The sovereign fund would likely use these transfers to maintain a balanced budget and pay future obligations, including debt service and pension system transition costs. We expect the bill to be approved as long as President Martinelli’s party retains an absolute majority in the Assembly, although smooth passage cannot be guaranteed in the current political environment.


[email protected]

14 March 2012


Exhibit 135: Real GDP growth Exhibit 136: Fixed investment Contribution to real GDP growth, percentage points % of GDP

6.5

12.1 10.1

3.9

7.6 10.6

6.0

-20

-15

-10

-5

0

5

10

15

20

2007 2008 2009 2010 2011 2012F 2013F

Net ExportsGovernmant SpendingInvestmentPrivate ConsumptionReal GDP Growth (% change year-on-year)

0

5

10

15

20

25

30

2003 2005 2007 2009 2011 2013F

We project that real GDP growth will slow to 6.0% in 2012, from 10.6% in 2011,

still a milder deceleration relative to 2009 versus

2008.

According to our forecast,fixed investment will

approach 27% of GDP in this peak year for public

investment projects and the Panama Canal expansion.

Source: INEC, Credit Suisse Source: INEC, Credit Suisse

Exhibit 137: Ports and Panama Canal activity data Exhibit 138: Colon Free Zone activity Thousands of 20-foot equivalent container units, 3-month moving average (lhs); $mn, 3-month moving average (rhs)

$mn, imports plus re-exports, 3-month moving average

100

200

300

400

500

600

700

800

Dec-08 Dec-09 Dec-10 Dec-1150

70

90

110

130

150

170Movements of Containers inPanama Ports (lhs)

Panama Canal TollRevenues (rhs)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Nov-08 Nov-09 Nov-10 Nov-11

Growth in Panama Canal toll revenues and container

movements are likely to soften from the

approximately 18% year-on-year gain both posted in

2011.

Colon Free Zone activity could be slightly better

supported given decent growth prospects in the

leading re-export destinations: Colombia,

Venezuela and Panama itself.

Source: INEC, Credit Suisse Source: INEC, Credit Suisse

Exhibit 139: Loans and deposits in the banking system

Exhibit 140: Value of construction and remodeling permits

$bn $mn, 3-month moving average

20

22

24

26

28

30

32

Dec-08 Sep-09 Jun-10 Mar-11 Dec-11

Deposits

Loans

0

25

50

75

100

125

150

Dec-09 Jun-10 Dec-10 Jun-11 Dec-11

Total Residential Non-residential

We expect loan growth to moderate from 17% year-on-year in 2011, while still

helping to bolster domestic demand this year.

Construction activity will likely continue to trend

gradually downward over the course of 2012, but it

remains a key sector amidst the government’s ongoing

investment program.

Source: Bank superintendence, Credit Suisse Source: INEC, Credit Suisse

14 March 2012


Exhibit 141: Non-financial public sector balance

Exhibit 142: Non-financial public sector debt

% of GDP % of GDP

-6

-4

-2

0

2

4

6

8

2005 2007 2009 2011 2013F

InterestPrimary balanceLimit under FRLOverall balance

0

10

20

30

40

50

60

70

2005 2007 2009 2011 2013F

Last year’s non-financial public sector deficit of 2.3%

of GDP was safely within the 3.0% limit set by the

fiscal responsibility law, but we think the government

could risk non-compliance with the 2.0% limit in 2012

unless economic growth exceeds our expectations.

Nevertheless, non-financial public sector debt should fall below 39% of GDP by

the end of this year.

Source: INEC, Ministry of Economy and Finance, Credit Suisse Source: INEC, Ministry of Economy and Finance, Credit Suisse

Exhibit 143: Public sector external bond debt by maturity

Exhibit 144: Public sector debt amortizations

$bn $bn

2036$1.8

2015$1.5

2020$1.0

Other*$1.1

2026$1.0

2027$1.0

2029$1.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2011 2013 2015 2017 2019 2021

Much of Panama’s external bond debt is long-dated and

the near-term maturity profile is manageable.

The government recently conducted a liability

management exercise that reduced its Global 2015

external bond maturity by $521mn and furthered its

strategy to develop the local capital market and diversify

its financing sources.

*Bonds maturing in 2013, 2021, 2023 and 2034 Source: Ministry of Economy and Finance, Credit Suisse

Source: Ministry of Economy and Finance, Credit Suisse

Exhibit 145: Support for President Martinelli Exhibit 146: Congressional composition% of positive responses Number of seats

0

20

40

60

80

100


Other, 6 Cambio

Democrático (Martinelli's

party), 36

Partido Revolucionario Democrático, 17

Partido Panameñista, 12

President Martinelli’s approval rating fell to a new low of 33%

in February following what was seen as poor handling of

protests by indigenous Panamanians over planned

mining concessions and hydroelectric projects in their

territory.

The ongoing political noise has stalled or reversed progress on Martinelli’s

legislative priorities, though his party retains an absolute

majority in the National Assembly.

Source: Dichter and Neira, Credit Suisse Source: National Assembly, Credit Suisse

14 March 2012


Panama: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 7.2 8.5 12.1 10.1 3.9 7.6 10.6 6.0 6.5 Growth in real private consumption (%) 8.8 4.4 0.9 -2.1 -2.8 24.4 18.0 8.0 8.0 Growth in real fixed investment (%) 6.4 16.6 41.0 25.3 -6.2 11.6 13.0 12.5 8.0 Fixed investment (% of GDP) 17.1 18.3 23.1 26.2 23.7 24.6 25.1 26.6 27.0 Nominal GDP ($bn) 15.5 17.1 19.5 23.0 24.2 26.6 30.7 32.5 34.6 Population (mn) 3.2 3.3 3.3 3.4 3.5 3.5 3.6 3.6 3.7 GDP per capita, $ 4,788 5,209 5,834 6,759 7,004 7,575 8,617 8,986 9,438 Unemployment (% of labor force, end-year) 10.2 9.1 7.3 6.4 6.6 6.5 4.5 5.0 5.2 Prices, interest rates and exchange rates CPI inflation (%, December to December) 3.5 2.2 6.4 6.8 1.9 4.9 6.3 5.2 4.0 CPI inflation (%, average) 2.9 2.5 4.2 8.8 2.4 3.5 5.9 5.6 4.4 Exchange rate (CLP per USD, end-year) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Exchange rate (CLP per USD, average) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 REER (% year-on-year change, annual average) (1) -0.5 -0.7 1.3 5.0 2.7 2.1 3.4 3.6 1.9 Nominal wage growth (% year-on-year change, average) 1.2 5.0 7.9 7.3 0.3 4.3 5.0 5.0 4.4 90 day deposit rate at commercial banks (%, end-year) 2.73 4.14 4.18 2.88 2.54 2.05 1.40 1.50 2.00 Fiscal data Non-financial public sector fiscal balance (% of GDP) -2.5 0.5 3.5 0.4 -1.0 -1.9 -2.3 -2.1 -1.6 Non-financial public sector primary fiscal balance (% of GDP) 2.0 4.9 7.0 3.6 1.9 0.8 0.1 0.6 1.1 Non-financial public sector expenditure (% of GDP) 25.0 24.5 24.7 25.7 27.0 27.8 27.6 30.5 30.2 Gross non-financial public sector debt (% of GDP, end-year) 66.2 61.0 53.7 45.4 45.4 43.7 41.8 38.8 37.2 Money supply and credit Broad money supply (M2, % of GDP) (2) 78.9 87.2 90.0 86.0 90.3 91.1 85.7 85.2 86.0 Broad money supply (M2, % year-on-year change)(2) 8.7 22.5 17.3 12.8 10.3 11.1 8.4 5.5 7.5 Domestic credit (% of GDP) 90.3 86.6 98.9 95.0 90.3 93.0 94.5 94.5 96.3 Domestic credit (% year-on-year) 6.6 6.3 29.7 13.4 -0.1 13.3 17.3 6.0 8.5 Domestic credit to private sector (% of GDP) 87.1 91.6 95.1 92.2 88.9 91.5 91.5 90.6 91.0 Domestic credit to private sector (% year-on-year) 9.9 16.6 17.9 14.5 1.3 13.3 15.3 5.0 7.0 Balance of payments Exports (goods and non-factor services, % of GDP) 68.6 72.8 73.3 70.0 72.7 70.5 78.6 79.4 80.9 Imports (goods and non-factor services, % of GDP) 69.5 69.5 75.2 76.1 68.0 74.8 85.8 88.1 89.8 Exports (goods and non-factor services, % change in $ value) 19.5 17.6 14.6 12.7 9.0 6.8 28.5 7.1 8.6 Imports (goods and non-factor services, % change in $ value) 18.4 10.9 22.9 19.5 -6.2 21.1 32.4 8.9 8.5 Current account balance ($bn) -1.0 -0.4 -1.4 -2.7 -0.2 -2.9 -3.9 -4.2 -4.3 Current account (% of GDP) -6.6 -2.6 -7.2 -11.8 -0.7 -10.8 -12.7 -12.9 -12.4 Net FDI ($bn) 1.0 2.6 1.8 2.2 1.3 2.4 2.8 2.4 2.5 Scheduled debt amortization ($bn) (3) 1.0 2.1 0.2 0.9 0.2 0.2 0.5 0.4 0.8 Foreign debt and reserves (3)(4) Foreign debt ($bn) 7.6 7.8 8.3 8.5 10.2 10.4 10.9 10.5 10.5 Foreign debt (% of GDP, end-year) 49.0 45.4 42.5 36.9 42.0 39.3 35.6 32.2 30.3 Foreign debt (% of exports of goods and services) 71.5 62.4 57.9 52.6 57.8 55.7 45.3 40.6 37.5 (1) Real effective exchange rate, increase indicates appreciation. (2) Estimated by the Central American Monetary Council, cash holdings are assumed to be zero. (3) Non-financial public sector. (4) As an officially dollarized economy with no central bank, Panama does not have formalized FX reserve holdings. Source: INEC, IMF, Ministry of Finance, Banking Superintendence, Central American Monetary Council , Credit Suisse

14 March 2012


Peru: No sharp slowdown here • Early 2012 indicators suggest that economic activity is stabilizing or improving,

after moderating in late 2011. Real GDP rose 5.5% yoy in Q4, after expanding an average 7.4% during the first three quarters of 2011; for the full-year 2011, real GDP growth averaged 6.9%. Last year’s expansion was driven by consumer spending, up 6.4%, on the back of employment growth and strong consumer sentiment. Gross fixed investment, however, grew a disappointing 5.2%. Private investment was up 11%, which is low by Peruvian standards, due to the surge in political risk related to the election of President Humala and concerns about global growth. Meanwhile, public investment plunged 17% last year, despite the government’s efforts late in the year to revert the large spending cuts that it had implemented in early 2011 on concerns about a potential overheating of the economy.

• We project real GDP growth of 5% in 2012. We expect consumer spending growth to remain strong in the near term, building on last year’s momentum. Higher government spending – particularly, in public investment – and the potential for expansive monetary policy also point to domestic demand growing at a decent pace in the quarters ahead; we forecast domestic demand growth of 5.8% in 2012, down from 7.2% in 2011. Risks to our forecast come from private investment. Business sentiment is recovering only gradually as there is uncertainty about global growth and about the government’s ability to resolve the conflicts surrounding the extraction of natural resources. We have penciled in a 5.5% expansion of private investment in 2012 but see upside/downside risk to this forecast. If there is a prompt and satisfactory resolution to the conflicts surrounding key mining projects, private investment growth would probably accelerate in H2; if, instead, the conflicts drag on, private investment growth would likely slow further.

• We expect the general government’s overall fiscal surplus to fall to 1.2% of GDP in 2012 from 1.8% in 2011. Tax collection rose a strong 17% in 2011 and the tax intake reached a record 15.9% of GDP. We expect this year’s tax collection to remain flat as a share of GDP but the government’s revenues should increase on account of the “windfall tax” on mining, about 0.4% of GDP, which is expected to be counted as non-tax revenue. Despite Humala’s campaign promises, primary expenditures increased only 8% yoy in H2. We expect fiscal spending to grow at a faster pace this year, particularly at the regional level, but unless there is a sharp slowdown in activity, the general government will likely post another overall fiscal surplus this year.

• Unless there is sharp drop of mineral prices, we do not expect a significant deterioration of the current account in 2012. We project that the dollar value of exports, mainly minerals, will increase just 6% in 2012 after rising 30% in 2011. Mining production is not expected to increase meaningfully this year and with international mineral prices expected to remain largely flat, revenues from commodity exports are unlikely to grow much. Import growth should moderate as well; we project a 10% increase in dollar terms in 2012, after rising 28% in 2011, which should limit the deterioration of the trade balance. For 2012, we project a current account deficit of $3.1bn (1.6% of GDP), up from a $2.3bn deficit in 2012, mainly because of a narrower trade surplus.

• Our base-case scenario is still that monetary policy will be eased in H2 but upside surprises regarding domestic or global growth could delay the rate cuts or prevent them entirely. We expect the Peruvian central bank to move decisively to counter an economic slowdown and, given the potential that last year’s growth momentum may wear down by mid-year, we expect two 25bps rate cuts in H2, taking the reference rate to 3.75% by the end of 2012. Meanwhile, inflation has been adjusting down gradually, from a peak of 4.74% at the end of 2011, as the supply shocks that affected inflation last year are reversing. We expect headline CPI inflation to fall to 2.8% yoy by the end of 2012, within the bank’s 1%-3% range. The main risk to inflation comes from a surge in international oil prices as Peru is a net fuel importer.

Carola Sandy +1 212 325 2471

[email protected]

14 March 2012


Exhibit 147: Real GDP growth Exhibit 148: Economic indicators Contributions to real GDP growth in percentage points % change year on year

-8

-4

0

4

8

12

16

02 03 04 05 06 07 08 09 10 11 12F

Change in inventoriesPublic investmentGovernment spendingPrivate consumptionPrivate investmentNet exportsGDP

-5

0

5

10

15

20

Jan-

11Fe

b-11

Mar

-11

Apr-1

1M

ay-1

1Ju

n-11

Jul-1

1Au

g-11

Sep-

11O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb-

12

Electricity demand

Imports of industrialinputs (3m ma)Domestic demand forcement

Public investment fell 17% in 2011 and subtracted 1.1

percentage points from headline GDP growth, while private investment rose just 11%, which is low by recent

Peruvian standards.

The latest coincident and leading indicators suggest

that economic activity is stabilizing or, perhaps, even

improving.


Exhibit 149: Private sector investment Exhibit 150: Business sentiment Businesses’ perceptions about the economy, employment,

and purchase orders; increase = more optimism

-50

-35

-20

-5

10

25

40

55

70

2Q09 4Q09 2Q10 4Q10 2Q11 4Q11

Quarter-on-quarter (s.a.)Year-on-year

2530354045505560657075

Nov

-08

Feb-

09

May

-09

Aug

-09

Nov

-09

Feb-

10

May

-10

Aug

-10

Nov

-10

Feb-

11

May

-11

Aug

-11

Nov

-11

Feb-

12

Expectations for the economyin the next 3 monthsExpectations for hiring in thenext 3 monthsPurchase orders over theprevious month

Business sentiment has yet to fully recover from last

year’s lows, which does not bode well for the outlook of private sector investment in

2012.


Exhibit 151: Index of consumer confidence

Exhibit 152: Employment growth in urban areas

Increase = more optimism % change year-on-year

30

35

40

45

50

55

60

65

Oct-03 Nov-05 Dec-07 Jan-10 Feb-12

-1

1

3

5

7

9

Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11

We expect consumer spending to continue

growing at a robust pace in the near term, as consumer

sentiment is strong and employment growth is

holding up relatively well.

Source: Apoyo Consulting, Credit Suisse Source: Central bank, Credit Suisse

14 March 2012


Exhibit 153: CPI inflation Exhibit 154: Nominal exchange rate and the central bank’s monthly FX intervention

% change yoy

-1

1

3

5

7

9

11


Headline inflationFood inflationNon-food inflation

-4

-3

-2

-1

0

1

2

3

4

Mar-08 Mar-09 Mar-10 Mar-11 Mar-122.6

2.7

2.8

2.9

3.0

3.1

3.2

3.3Net purchases of dollars($ bn, left axis)*Soles per dollar (rightaxis)*

We expect inflation to decline gradually in 2012, as the local supply shocks that led to high food prices

in 2011 are reversing.

The prospect of easier monetary policy may

alleviate somewhat the pressure on the Sol, which

has been appreciating steadily despite the central

bank’s intervention in the FX market.

Source: Central bank, Credit Suisse *Data through 9 March 2012 Source: Central bank, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Exhibit 155: Terms of trade Exhibit 156: Export and import performance

Increase = improvement $ bn

70

80

90

100

110

120

130

140

150


0

10

20

30

40

50

2006 2007 2008 2009 2010 2011 2012F

Non-commodity exports

Commodity exportsTotal imports

We do not expect a significant worsening of the

terms of trade and, thus, we do not envision a sizable deterioration of the trade

surplus or the current account over the next year.


Exhibit 157: General government fiscal accounts

Exhibit 158: Presidential approval ratings

% of GDP % of voters

-2

-1

0

1

2

3

4

5

05 06 07 08 09 10 11 12F

Primary balance

Overall balance

0

10

20

30

40

50

60

70

1 6 11 16 21 26 31Months after inauguration

Ollanta HumalaAlan Garcia Alejandro Toledo

The general government accounts should remain in

surplus in 2012 despite the likely increase in primary

spending, particularly at the regional level.

President Humala’s approval ratings have

rebounded but they may come under pressure again as the government seeks a

resolution of the social conflicts surrounding the

extraction of natural resources. Protests are

expected to resume later in March.

Source: Central bank, Credit Suisse Source: Ipsos-Apoyo, Credit Suisse

14 March 2012


Peru: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 6.8 7.7 8.9 9.8 0.9 8.8 6.9 5.0 5.5 Growth in real private consumption (%) 4.6 6.4 8.3 8.7 2.4 6.0 6.4 5.4 5.5 Growth in real fixed investment (%) 12.0 18.9 22.6 28.3 -8.6 23.2 5.2 7.0 7.9 Fixed investment (% of GDP) 18.6 20.6 23.2 27.1 24.5 27.7 27.3 27.8 28.4 Nominal GDP ($bn) 79.4 92.3 107.1 126.9 127.0 153.9 176.9 197.2 215.9 Population (mn) 27.2 27.5 27.7 28.0 28.3 28.6 28.8 29.1 29.4 GDP per capita, $ 2,916 3,359 3,861 4,529 4,486 5,387 6,133 6,772 7,342 Unemployment (% of labor force, end-year) 7.6 7.4 7.5 7.8 7.9 7.2 7.0 6.8 6.5 Prices, interest rates and exchange rates CPI inflation (%, December to December) 1.5 1.1 3.9 6.7 0.2 2.1 4.7 2.8 2.0 CPI inflation (%, average) 1.6 2.0 1.8 5.8 3.0 1.5 3.4 3.5 2.5 Exchange rate (PEN per USD, end-year) 3.43 3.20 3.00 3.14 2.88 2.81 2.70 2.65 2.60 Exchange rate (PEN per USD, average) 3.30 3.27 3.13 2.92 3.01 2.83 2.75 2.66 2.61 REER (% change, December to December) (1) -6.6 2.3 1.6 4.8 -0.9 2.3 4.5 2.1 1.4 Nominal wage growth (% year-on-year change, average) (2) 0.0 8.7 6.0 3.8 0.0 5.5 12.5 11.1 4.0 Reference rate (%, end-year) 3.25 4.50 5.00 6.50 1.25 3.00 4.25 3.75 3.75 Fiscal data General government fiscal balance (% of GDP) -0.5 1.8 3.1 2.4 -1.5 -0.2 1.8 1.2 0.8 General government primary fiscal balance (% of GDP) 1.4 3.7 4.8 4.0 -0.2 1.0 3.0 2.3 1.8 General government expenditure (% of GDP) 18.9 18.2 17.8 18.9 20.5 20.3 19.2 19.8 20.3 Gross public sector debt (% of GDP, end-year) 37.8 33.0 29.8 24.1 27.2 23.4 21.7 20.0 18.2 Net public sector debt (% of GDP, end-year) (3) 35.6 31.2 28.5 23.1 25.2 21.9 19.7 18.1 16.5 Money supply and credit Broad money supply (M2, % of GDP) 10.9 11.1 13.4 15.3 17.1 19.6 20.3 20.8 21.2 Broad money supply (M2, % year-on-year change) 32.2 17.9 33.6 26.5 15.0 30.5 16.0 10.0 10.0 Domestic credit (% of GDP) 15.7 13.7 13.6 16.9 18.0 18.9 19.9 20.7 21.1 Domestic credit (% year-on-year) 20.0 0.9 9.6 38.0 9.6 19.2 17.6 12.0 10.0 Domestic credit to private sector (% of GDP) 21.2 19.9 22.9 27.5 27.9 28.6 31.0 33.4 35.7 Domestic credit to private sector (% year-on-year) 17.1 8.1 28.0 32.7 4.7 16.5 21.0 16.0 15.0 Balance of payments Exports (goods and non-factor services, % of GDP) 24.8 28.7 29.2 27.3 24.1 25.5 28.6 27.3 26.9 Imports (goods and non-factor services, % of GDP) 19.2 19.8 22.3 26.9 20.3 22.7 24.6 24.1 24.5 Exports (goods and non-factor services, % change in $ value) 32.8 34.8 18.0 10.9 -11.7 28.3 29.0 6.5 7.8 Imports (goods and non-factor services, % change in $ value) 21.4 20.0 31.2 42.7 -24.5 35.1 24.7 9.4 11.3 Net balance of factor income ($bn) -5.1 -7.6 -8.4 -8.8 -7.5 -10.1 -12.6 -12.6 -12.6 Net transfers ($bn) 1.8 2.2 2.5 2.9 2.9 3.0 3.2 3.2 3.2 Current account balance ($bn) 1.1 2.9 1.5 -5.3 0.2 -2.6 -2.3 -3.1 -4.3 Current account (% of GDP) 1.4 3.1 1.4 -4.2 0.2 -1.7 -1.3 -1.6 -2.0 Net FDI ($bn) 2.6 3.5 5.4 6.2 5.2 7.1 7.5 7.2 7.2 Scheduled debt amortization ($bn) (4) 2.8 1.1 3.1 1.2 1.8 3.0 0.8 1.2 1.2 Foreign debt and reserves Foreign debt ($bn) 28.7 28.9 32.9 34.8 35.7 40.2 43.2 44.7 45.5


Foreign debt (% of GDP, end-year) 36.1 31.3 30.7 27.5 28.1 26.2 24.4 22.7 21.1 Foreign debt (% of exports of goods and services) 145.8 109.1 105.3 100.5 116.7 102.5 85.2 83.0 78.3 Central bank gross non-gold FX reserves ($bn) 14.1 17.3 27.7 31.2 33.2 43.8 48.9 60.4 64.9 (1) Real effective exchange rate, increase indicates appreciation. (2) Minimum wage. (3) Public sector debt net of intergovernmental loans. (4) Scheduled amortizations for public sector only. Source: Central Bank, INEI, Ministry of Finance, Credit Suisse

14 March 2012


Venezuela: Will he or won’t he? • Political uncertainty is as heightened as ever in Venezuela; the most critical

question is whether President Chavez will stand for re-election this October. Chavez remains the Socialist (PSUV) party’s presidential candidate for now, but in our view, the probability that he will not run has risen since the recurrence of his cancer in late February. There is strong pressure on Chavez to stay in the race, though, as polling data show that the most prominent alternative candidates are less popular than unified opposition nominee Henrique Capriles Radonski. They also represent different factions within Chavismo, presenting the risk that Chavez’s allies would not remain united in his absence. Thus, we think Chavez will stay in the race as long as his health permits.

• Chavez can still win, but the race could be even closer than we expected before his relapse. Beyond his access to substantial financial, institutional and political resources and any sympathy boost, Chavez’s prospects may now swing on his ability to convince independent voters concerned about political stability that he is healthy enough to serve another six-year term. We expect transparency regarding Chavez’s illness to remain limited, though, and for suggestions that his prognosis is grave to continue influencing Venezuela and PDVSA asset prices.

• A PSUV primary election or changes to the date of the presidential election could signal that Chavez is increasingly likely to withdraw from the race, in our view. Holding a primary, which Chavez would likely win, could allow the PSUV to identify a potential successor in the runner-up. Further altering the presidential election date, currently set for 7 October 2012, could indicate a desire to optimize Chavez’s treatment and campaign calendars in a manner inconsistent with claims that he is recovering well. If constitutional procedures are followed, elections should be held by the end of 2012 and the president-elect would take office in January 2013.

• If Chavez does not run, we expect the opposition to remain unified and think Capriles would be well positioned to win an election. Our view is based on the opposition’s successful and decisive primary process, endorsements of Capriles by the other pre-candidates, and weak popular support for Chavista alternatives. For example, head to head against Vice President Jaua, the most popular of Chavez’s allies according to Datanalisis’s February poll, Capriles received 38% support (5% of Chavistas, 42% of independents, and 89% of pro-opposition respondents), while Jaua received 24% (51% of Chavistas, 10% of independents, and 1% pro-opposition respondents). In this case, the main risk could be political violence targeting Capriles and other opposition leaders.

• We do not rule out political instability or elections being canceled if Chavez does not run. A negative scenario for political stability is one in which Chavez is absent, the lack of a clear successor spurs infighting among the Chavista factions, elections are postponed or cancelled and the military eventually steps in to restore order. We think that this remains a lower probability scenario based on recent statements by key stakeholders and that any military intervention would probably be temporary. PSUV unity could depend on how close to elections Chavez were to withdraw and who succeeded him; it may be most vulnerable after an electoral defeat.

• On the economic front, we maintain our forecast that real GDP growth will reach 4.5% in 2012, accelerating slightly from 4.2% in 2011. We expect domestic demand to keep strengthening on the back of higher politically driven public investment and current spending on wages, cash transfers, and subsidies, mainly. Venezuela’s economy could probably grow even faster in the absence of years of elevated inflation, foreign exchange restrictions, electricity supply constraints, and a difficult investment climate; the persistence of these conditions has likely decreased the fiscal multiplier.

• Recent results suggest that the new price control regime has succeeded in slowing inflation, but we expect this to be a temporary phenomenon. Twelve-month headline Caracas CPI fell to 24.8% in February, from 29.0% in December 2011. We project that this figure will rise back towards 29% over the course of this year, though, as strong fiscal and monetary expansion continue ahead of October’s presidential election and businesses attempt to pass on losses from the price controls.


[email protected]

14 March 2012


• We do not anticipate unpopular or inflationary changes to the structure of Venezuela’s FX regime before presidential elections in October. The government and PDVSA will likely continue to sell dollar bonds for bolivares in the domestic market in order to supplement the supply of dollar assets and contain inflationary pressures.

• Still, we are revising our combined Venezuela and PDVSA dollar issuance forecast down to $9bn in 2012, from $12bn previously. The window for USD bond sales is narrower this year, in our view, as government officials, including PDVSA, will likely become more focused on budget execution and campaigning during Q3 2012. We also perceive heightened election-related sensitivity on the part of the economic authorities regarding heavy dollar issuance or requesting an increase in the borrowing limit set by the 2012 debt law (which permits bolivar- and dollar-denominated debt sales up to a combined $14.6bn or 3.4% of GDP) as they did in 2011.

• The public sector probably needs to issue at least $5bn-$6bn before the end of H1 2012, according to our calculations. We estimate that the central bank has enough dollar bonds to supply its SITME market through the end of June at the current monthly average volume of $40mn per day. At the same rate, the central bank would need at least another $5bn of USD bonds to sell in H2 2012.4 We expect the public sector as a whole to sell dollar bonds in excess of what is used to supply SITME, though, because a portion of the new issues could also be allocated directly to private sector participants.

• For now we remain comfortable with Venezuela’s capacity to service its foreign liabilities. The government has only $0.7bn in external amortizations in 2012 and PDVSA has none. The two entities owe a combined $3.3bn in 2013. Meanwhile, in Q4, the sum of the central bank’s international reserves and other public sector liquid foreign assets ($67bn) well exceeded public sector external bond debt ($43bn). If we add the public sector’s external loans to external bond debt, though, the total ($72bn) surpassed the public sector’s liquid assets in Q4. We would grow more concerned about this if the Venezuelan oil mix price fell below $75-$80 per barrel, but that is not our central case. In the absence of significant political instability, we think Venezuela’s sovereign debt ratings (B2 from Moody’s, B+ from Fitch and S&P) are unlikely to be downgraded during 2012 given the stable outlooks assigned to all ratings and supportive oil prices.

• The government continues to pressure PDVSA to boost social and fiscal contributions as well as increase production in the Orinoco belt ahead of elections. PDVSA compensates for the squeeze on its cash flow by issuing debt, running arrears with suppliers, and postponing dividend payments to private partners. Plans to increase oil supplies to China to 1mn bpd by 2015 could further strain PDVSA if tax shields which compensate for non-cash exports under Venezuela’s agreements with China are not reinstated. An opposition victory would likely be more positive for the oil sector’s prospects than a Chavez re-election. However, even if the opposition wins, some of PDVSA’s partners and other potential investors may still be inclined to wait for a new administration to prove that governability will not be a major issue.

• 2013 will likely be a more difficult year regardless of this year’s political developments. Whomever is in power should begin amending unsustainable fiscal and FX policies. Our 2013 projections assume an over 40% devaluation of the bolivar to 6.150 per USD to start. The resulting inflation and a relatively tighter fiscal stance mean that real wage losses are likely to resume and real GDP growth should slow to around 1.5%. In addition, Venezuela could hear about multi-billion dollar arbitration claims next year. The possibility also remains that President Chavez is re-elected but unable to complete a new term due to his illness. According to the constitution, fresh elections would then be called, potentially reinvigorating many of the current political uncertainties.

4 Our figures do not include the central bank’s secondary market purchases to augment its holdings.

14 March 2012


Exhibit 159: President Chavez’s job approval rating Exhibit 160: Political affiliation % of positive responses to “How well do you rate the work of President Chavez for the wellbeing of the country?”

% of responses to “With regards to Venezuelan politics, how would you define yourself?”

30

35

40

45

50

55

60

65

Feb-

10A

pr-1

0M

ay-1

0Ju

n-10

Aug-

10Au

g-10

Sep-

10Se

p-10

Nov

-10

Dec

-10

Feb-

11A

pr-1

1M

ay-1

1Ju

n-11

Jul-1

1Au

g-11

Sep-

11O

ct-1

1N

ov-1

1N

ov-1

1D

ec-1

1Fe

b-12

15

20

25

30

35

40

45

50

Feb-

10A

pr-1

0M

ay-1

0Ju

n-10

Aug

-10

Sep

-10

Sep

-10

Nov

-10

Dec

-10

Feb-

11A

pr-1

1M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1N

ov-1

1D

ec-1

1Fe

b-12

Pro-Opposition NeitherPro-Chavez

Support for President Chavez rose from

November 2011 through early 2012, although 36% of

the population remained independent as of

Datanalisis’s last survey.

Upcoming polls will incorporate the impact of the successful opposition primary won by Henrqiue Capriles Radonski on 12

February and the news of President Chavez’s relapse

later the same month.

Source: Datanalisis, Credit Suisse Source: Datanalisis, Credit Suisse

Exhibit 161: Real GDP level by sector Exhibit 162: Nominal wages and inflation

Seasonally adjusted, Q1 2004 = 100 % change year-on-year

80

90

100

110

120

130

140

150

160

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

GDP Oil Non-oil

0

10

20

30

40

50

60

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

Nominal wagesNominal private sector wagesNominal public sector wagesCaracas CPI

Fiscal expansion has driven economic growth since the

middle of 2011, while the oil sector’s performance has

been mixed recently.

Real wage gains have supported increased private consumption, and probably

President Chavez’s popularity as well.


Exhibit 163: Loan and money growth Exhibit 164: FX approvals by CADIVI (at 4.3 bolivares per USD)

% change year-on-year in nominal terms $mn, daily average

0

10

20

30

40

50

60

70


M2

Loans

0

20

40

60

80

100

120

140

160

180

200

220

Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11

Credit and M2, which expanded by 48% and 51%

year on year, respectively, in 2011, will likely continue

rising rapidly this year.

Meanwhile, the government has increased approved

sales of dollars in CADIVI (to an average of $147mn

per day in Q4 2011), which may help contain inflation

and limit shortages of imported goods ahead of

the elections.

Source: Central bank, Credit Suisse Source: CADIVI, Credit Suisse

14 March 2012


Exhibit 165: FX-denominated bond sales in SITME (at 5.3 bolivares per USD)

Exhibit 166: Total sales of selected bonds in SITME thus far in 2012

$mn, as of 12 March 2012 USDmn, as of 12 March 2012

0

10

20

30

40

50

60

70

Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12

Daily volume30-day rolling average

0

100

200

300

400

500

600

700

PDVSA2021

VENZ2026

VENZ2027

VENZ2022

PDVSA2017N

VENZ2031

Average sales of dollar bonds in the central bank’s SITME market were $40mn

per day over the last 30 days, compared to an

average of $36mn per day since SITME was created in

June 2010.

The PDVSA 2021 bond, issued in November 2011 in a $2.4bn private transaction

with the central bank, should continue to trickle

out to the external market over the coming months.

Source: Central bank, Credit Suisse Source: Central bank, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Exhibit 167: Public and private sector net external asset position

Exhibit 168: Public sector liquid assets and external debt

$bn $bn

-150

153045607590

105120135150165180

4Q01 4Q03 4Q05 4Q07 4Q09 4Q11

Public Private

0

10

20

30

40

50

60

70

80

90

100

4Q07 4Q08 4Q09 4Q10 4Q11

Other public sector liquid FX holdingsGross non-gold FX reserves Gross gold FX reserves Public external bond debtPublic external bond debt and loans

The public sector’s net external asset position

deteriorated slightly in Q4 2011, a trend which may continue in 2012 as the

government spends heavily and continues borrowing

abroad.

The sum of central bank FX reserves and other liquid public sector FX holdings still exceed external bond debt by $24bn in Q4, but was over $5bn shy of the total including the public sector’s external loans.


Exhibit 169: Public sector external debt amortizations

Exhibit 170: Oil prices and external accounts

$bn $bn, twelve month rolling (lhs), $ per barrel (rhs)

0

2

4

6

8

10

12

14

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

+

PDVSA

Government

0102030405060708090

100110120

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-130

25

50

75

100

125

150Oil Exports (lhs)Current account balance (lhs)Trade balance (lhs)Price of Venezuela oil mix (rhs)

CS Forecast

The public sector’s external amortization profile remains

manageable, although the recent rally would have

been a good time for PDVSA to try to extend

maturities of bonds coming due between 2014 and

2017.

We expect Venezuela’s external accounts to remain

in surplus, as a sharp and sustained drop in oil prices

is not our central case.

Source: PDVSA, Ministry of Finance, Credit Suisse Source: Central bank, Credit Suisse

14 March 2012


Venezuela: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 10.3 9.9 8.8 5.3 -3.2 -1.5 4.2 4.5 1.5 Growth in real private consumption (%) 15.7 15.5 16.9 7.5 -2.9 -1.9 4.0 6.0 3.0 Growth in real fixed investment (%) 38.4 29.3 25.6 2.4 -8.3 -6.3 4.4 3.6 0.9 Fixed investment (% of GDP) 25.5 30.0 34.6 33.7 31.9 30.3 30.4 30.1 29.9 Nominal GDP ($bn) (1) 144.2 183.5 230.4 315.6 329.4 236.5 315.1 420.8 389.5 Population (mn) 26.7 27.0 27.5 27.9 28.4 28.8 29.3 29.8 30.3 GDP per capita, $ (1) 5,400 6,795 8,377 11,312 11,606 8,202 10,766 14,122 12,854 Unemployment (% of labor force, end-year) 13.0 8.4 6.2 6.1 6.6 6.5 6.5 6.1 6.6 Prices, interest rates and exchange rates CPI inflation (%, December to December) 14.4 17.0 22.5 31.9 26.9 27.4 29.0 28.9 30.0 CPI inflation (%, average) 16.0 13.7 18.7 31.5 28.6 29.1 27.1 27.8 30.4 Exchange rate (VEB per USD, end-year) (2) 2.15 2.15 2.15 2.15 2.15 4.30 4.30 4.30 6.15 Exchange rate (VEB per USD, average) (2) 2.11 2.15 2.15 2.15 2.15 4.30 4.30 4.30 6.15 REER (% change, December to December) (3) -0.8 11.4 13.7 36.4 19.1 -38.0 20.0 25.0 -30.0 Nominal wage growth (% change, December to December) (4) 19.1 19.3 20.7 21.3 23.1 20.5 38.3 29.3 9.7 90 day deposit rate at commercial banks (%, end-year) 11.74 10.20 10.89 17.60 15.00 15.00 14.50 14.50 15.00 Fiscal data Consolidated public sector overall balance (% of GDP) (5) 4.1 -1.5 -2.6 -3.5 -8.7 -4.9 -5.5 -8.5 -6.0 Consolidated public sector primary balance (% of GDP) (5) 7.1 0.6 -1.0 -2.0 -7.2 -3.6 -3.8 -6.3 -3.5 Consolidated public sector expenditure (% of GDP) (5) 33.7 39.4 35.5 35.6 33.3 29.2 32.2 35.9 33.0 Central government balance (% of GDP) 1.6 0.0 3.0 -1.2 -5.0 -3.8 -5.2 -7.8 -5.7 General government and PDVSA debt (% of GDP, end-year) (6) 34.9 25.6 26.3 18.8 24.8 35.1 36.2 32.4 36.0 Money supply and credit Broad money supply (M2, % of GDP) 23.3 36.7 35.8 32.2 35.2 29.2 33.0 35.8 31.1 Broad money supply (M2, % year-on-year change) 52.7 104.3 22.3 23.1 14.3 19.1 50.6 45.0 15.0 Domestic credit (% of GDP) 12.6 15.8 21.2 19.5 20.9 17.5 19.4 18.9 16.4 Domestic credit (% year-on-year) 71.9 61.8 68.8 25.8 12.0 20.6 47.5 30.0 15.0 Domestic credit to private sector (% of GDP) 12.7 16.5 22.8 20.8 22.9 18.6 20.4 19.8 16.9 Domestic credit to private sector (% year-on-year) 69.4 67.5 73.5 25.5 14.9 16.4 46.0 30.0 12.5 Balance of payments Exports (goods and non-factor services, % of GDP) 34.3 32.4 28.0 28.9 17.1 27.1 28.6 22.8 24.1 Imports (goods and non-factor services, % of GDP) 19.2 20.4 22.8 18.5 14.2 19.5 17.4 14.3 15.0 Exports (goods and non-factor services, % change in $ value) 45.6 20.3 8.4 41.4 -38.1 13.7 40.5 6.5 -2.5 Imports (goods and non-factor services, % change in $ value) 36.2 34.8 40.5 11.3 -20.1 -1.3 18.7 9.7 -2.6 Current account balance ($bn) 25.4 26.5 17.3 34.3 6.0 12.1 27.2 23.2 20.3 Current account (% of GDP) 17.6 14.4 7.5 10.9 1.8 5.1 8.6 5.5 5.2 Net FDI ($bn) 1.4 -2.0 1.6 0.0 -4.4 -1.5 5.1 -1.5 -0.7 Scheduled debt amortization ($bn) (7) 2.7 5.8 0.7 0.8 1.1 3.2 4.7 0.7 3.3 Foreign debt and reserves Foreign debt ($bn) 44.8 41.8 51.2 65.7 80.3 92.8 107.4 115.7 120.4


Foreign debt (% of GDP, end-year) 31.1 22.8 22.2 20.8 24.4 39.3 34.1 27.5 30.9 Foreign debt (% of exports of goods and services) 90.6 70.3 79.4 72.0 142.3 144.7 119.1 120.5 128.5 Central bank gross FX reserves ($bn) 29.6 36.7 33.5 42.3 35.0 30.3 29.9 33.5 30.9 Central bank gross non-gold FX reserves ($bn) 23.9 29.4 24.2 33.1 21.7 14.0 9.9 13.6 11.0 Gap between public sector's external assets and liabilities ($bn, end-year) 25.8 45.7 52.5 71.7 51.0 34.5 46.1 36.2 29.1 Gap between public sector's external assets and liabilities (% of GDP, end-year) 17.9 24.9 22.8 22.7 15.5 14.6 14.6 8.6 7.5 (1) Based on CS forecasts for the official exchange rate. (2) Expressed in strong bolivares for all years, though the change took place in January 2008. (3) Real effective exchange rate, increase indicates appreciation. (4) Public and private sector wages. (5) Consolidation of Central Government, PDVSA, Non-Financial Public Enterprises, Venezuelan Social Security Institute and Deposit and Guarantee Fund. (6) Central government, regional governments, PDVSA; does not include liabilities of other public institutions such as the Central bank, National Development Bank, Foreign Trade Bank, Industrial Bank of Venezuela and Andean Region Development Bank. (7) Central government only for 2004-2009. Source: Central Bank, INE, Ministry of Finance, PDVSA, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

14 March 2012


T h i s p a g e i s i n t e n t i o n a l l y l e f t b l a n k

14 March 2012


Europe, Middle East and Africa

14 March 2012


Hungary: Waiting for Godot? • Hungary avoided recession in 2011, despite the weak growth in the euro area.

Real GDP rose 0.3% qoq in Q4 2011, which represented only a marginal slowdown following 0.4% qoq in Q3 2011. Net exports continued to drive growth, contributing 1.1pps to quarter-on-quarter real GDP growth, as exports were up 1.0% qoq, and imports contracted 0.1% qoq. On the other hand, domestic demand continued to contract in Q4: household spending was down 0.5% qoq, government spending contracted 0.3% qoq, and investment spending was 1.2% lower in Q4 than in Q3. We believe that the economy continued to operate substantially below its capacity in 2011.

• In our view, Hungary can avoid a recession in 2012, too. Although Hungary's export performance will probably be adversely affected by the slowdown in the euro area, we believe that net exports can still make a positive contribution to real GDP growth in 2012. In our view, household spending will also support growth, recovering gradually by 0.6% in 2012 and 1.7% in 2013, while investment spending will probably remain broadly flat in 2012 and 2013. In keeping with this outlook, we forecast that full-year real GDP growth will reach 1.0% in 2012 and 1.8% in 2013 and that the output gap will remain negative throughout our forecast horizon.

• Hungary’s gross external financing requirements remain large. We estimate that the current account surplus was around 1.4% of GDP in 2011, and that it will probably shrink to around 0.4% of GDP in 2012, dampened by the projected slowdown in exports and the pick-up in imports driven by the recovery in household spending. In the meantime, the forint remains exposed to spillover from the crisis in the euro area, given Hungary’s large stock of gross external debt which reached around €139bn (133% of GDP) at end-September 2011, of which around €25bn (24% of GDP) had an original maturity of one year or less. Furthermore, Hungary’s medium- and long-term external debt amortizations will reach around €12bn (11% of GDP) in 2012, according to our estimates.

• The government shows willingness to reach an agreement with the IMF, but talks were interrupted by contentious amendments to the central bank law. The amendments – approved by parliament in December – stipulated an increase in the maximum number of Monetary Council (MC) members from seven to nine and the maximum number of deputy governors from two to three. The bill also allowed the prime minister (instead of the governor) to nominate the deputy governors. Additionally, an amendment to the constitution allowed the merger of the central bank and the financial supervisory authority to form a new body, which would be headed by a new president, while the central bank's current governor and the financial supervisory authority’s chairman would serve as deputy presidents.

• These legislative changes sparked criticism from the ECB and the European Commission (EC), raising concerns about the independence of the central bank. On 17 January, the EC launched infringement proceedings against Hungary and said that a counter amendment to the central bank law would be a precondition to formal negotiations with the IMF and the EC about financial assistance. The government pledged to comply with the EC's required amendment, but has yet to deliver. To us, this indicates that the government's resolve to reach an agreement is waning. Furthermore, the infringement process also involves measures affecting the judiciary and the data protection authority, and we believe that the government is unlikely to compromise on these issues, which will probably continue to create political noise and may delay the start of talks with the IMF and the EC. Against this backdrop, we maintain our view that Hungary is likely to reach an agreement with the IMF this year, but we note a high risk that this is delayed to H2 2012, if market sentiment towards Hungary remains favorable.

Gergely Hudecz +33 1 7039 0103

[email protected]

14 March 2012


• In the meantime, fiscal consolidation is on track, in our view. The 2012 budget targets a 2.5% of GDP general government budget deficit, containing structural measures in several areas, such as retirement schemes, labor market regulation, and medical subsidies. It also envisages a nominal wage freeze in the public sector and revenue-increasing measures including a hike in indirect taxes and an increase in the social security contribution rate. We believe that the government will be able to carry out most of its reform plans, which would bring Hungary’s general government budget deficit to around 2.7% of GDP in 2012. According to our estimates, such fiscal consolidation can stabilize Hungary’s general government gross debt below 77% of GDP.

• The EU’s Excessive Deficit Procedure (EDP) puts pressure on the government to continue fiscal adjustment. The EC projects that the budget deficit will be 2.8% of GDP in 2012, but it will once again exceed the Maastricht threshold of 3.0% of GDP and reach around 3.25% of GDP in 2013. Consequently, on 22 February, the EC proposed, as a sanction, to suspend €0.5bn in cohesion funds for Hungary from 2013. The amount represents about 0.5% of GDP and around one-third of Hungary's cohesion fund allocations for 2013. The European Council approved the Commission’s proposal on 13 March, and set 22 June as a deadline for Hungary to take effective action to reduce its fiscal deficit to avoid the sanction. We believe that the required fiscal adjustment is relatively modest (around 0.5% of GDP) and that the government is likely to comply with the EU’s expectations.

• Uncertainty about an IMF program led to forint depreciation, which prompted the MC to raise the policy rate by 50bps to 7.00% in December. Subsequently, the MC adopted a “wait-and-see” stance in January, and moved in our view towards a dovish bias in February. CPI inflation rose from a low of 3.1% yoy in July to 5.9% yoy in March, and on 29 February the MC assessed that "the consumer price index is expected to rise significantly, reflecting the effects of increases in VAT and excise duties as well as the depreciation of the forint exchange rate in the second half of 2011," but the MC concluded that "low inflation dynamics due to weak domestic demand will be the main determinant of consumer prices as the effects of the indirect tax increases wane."

• We believe that the forint exchange rate weakness continues to represent an upside risk to inflation. Nevertheless, we believe that the authorities' re-engagement with the IMF could stabilize the exchange rate, and we maintain our end-2012 EURHUF forecast at 280. In our view, such exchange rate stabilization could help to bring CPI inflation closer to the central bank's 3.0% yoy target towards end-2012. Against this backdrop, we maintain our view that if Hungary enters an IMF program, the MC will be able to gradually lower the policy rate by 100bps, and in keeping with this, we maintain our end-2012 policy rate forecast at 6.00%.

• Fitch downgraded Hungary’s long-term foreign-currency sovereign credit rating by one notch to BB+ (below investment grade) on 6 January. Fitch's downgrade reflected “further deterioration in the country's fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal.” This followed S&P’s downgrade on 21 December of Hungary's long-term foreign-currency sovereign credit rating by one notch to BB+ (below investment grade), and its outlook to negative, reflecting S&P’s opinion that “the predictability and credibility of Hungary's policy framework continues to weaken.” Moody's downgraded Hungary's long-term foreign-currency sovereign credit rating by one notch to Ba1 (below investment grade), and kept its outlook negative on 24 November, due to "the rising uncertainty surrounding the country's ability to meet its medium-term targets for fiscal consolidation and public sector debt reduction, particularly given Hungary's increasingly constrained medium-term growth prospects."

14 March 2012


Exhibit 171: Composition of GDP growth Exhibit 172: Level of real GDP Contributions to quarter-on-quarter real GDP growth, pps

-4

-3

-2

-1

0

1

2

3

Q4-09 Q2-10 Q4-10 Q2-11 Q4-11

Net exportsInventoriesInvestment spendingGovernment spendingHousehold spendingGDP, % qoq

8.4

8.5

8.6

8.7

Q4-01 Q4-03 Q4-05 Q4-07 Q4-09 Q4-11

Level of real GDP (in logs)

Long-term linear trend

Following 0.4% qoq growth in Q3, real GDP was up

0.3% qoq in Q4 2011, driven by exports.

In Q4 2011, the seasonally adjusted level of real GDP

was around 4.6% lower than at its peak in Q1 2008, which suggests that there is

still a substantial negative output gap.

Source: KSH Source: KSH, Credit Suisse

Exhibit 173: Industrial output in Germany and Hungary

Exhibit 174: Employment, real wages and retail sales

% year-on-year change

80

90

100

110

120

Jan-10 Jan-11 Jan-12

Industrial production in Germany,sa 2005=100Industrial production in Hungary,sa 2005=100

-10

-8

-6

-4

-2

0

2

4

Dec-09 Dec-10 Dec-11

Retail sales

Real wages, excl. bonuses

Private employment

Hungary’s growth performance depends on the external environment,

and given the slowdown in the euro area, Hungary's

export performance will probably be adversely

affected.

We project that household spending will recover

gradually, but investment spending will remain broadly flat in 2012.

Source: Eurostat, KSH Source: KSH, Credit Suisse

Exhibit 175: Foreign trade Exhibit 176: Current account balance 4-quarter rolling, % of GDP

4

5

6

7

8

9


2

4

6

8

10Foreign trade balance, 12-mrolling % of GDP, right scaleExports, sa € bn

Imports, sa € bn

-10

-5

0

5

10

15

Q3-09 Q3-10 Q3-11

Transfers balanceIncome balanceServices balanceTrade balanceCurrent account balance

We estimate that the current account surplus was

around 1.4% of GDP in 2011, and that it will

probably shrink to around 0.4% of GDP in 2012,

dampened by the projected slowdown in exports and

the pick-up in imports driven by the recovery in

household spending.

Source: KSH, Credit Suisse Source: KSH, MNB, Credit Suisse

14 March 2012


Exhibit 177: Non-resident holdings of forint government securities

Exhibit 178: Exchange rate, CPI inflation and policy rate

HUF bn

2,1002,3002,5002,7002,9003,1003,3003,5003,7003,9004,100

Mar-10 Sep-10 Mar-11 Sep-11 Mar-12

0

1

2

3

4

5

6

7

8


Policy rate, %

CPI, % yoy

EURHUF, right scale

Non-residents’ holdings of forint-denominated

government securities surged from around HUF

3,760bn in mid-December to HUF 4,030bn by March.

Uncertainty about an IMF program led to forint depreciation, which

prompted the MC to raise the policy rate in December.

Subsequently, the MC adopted a “wait-and-see”

stance in January, and moved towards a dovish

bias in February.

Source: AKK Source: KSH, MNB, the BLOOMBERG PROFESSIONAL™ service

Exhibit 179: Year-on-year CPI inflation Exhibit 180: Headline and core inflation pps, with the exception of CPI inflation % year-on-year change

0

1

2

3

4

5

6


EnergyFoodAlcohol and tobaccoCore (CS estimate)CPI, % yoy

0123456789

101112


CPI inflationKSH core inflation*CS measure of core inflation**Run-rate of CS core inflation***

We believe that the forint exchange rate weakness continues to represent an

upside risk to inflation.

CPI inflation rose from a low of 3.1% yoy in July 2011 to

5.9% yoy in March 2012, and core inflation rose from

a low of 1.1% yoy in February 2011 to 3.8% yoy

in March 2012.

Source: Source: Eurostat, KSH, Credit Suisse *excluding unprocessed food, energy and regulated prices; **excluding food, energy, alcohol and tobacco; ***calculated as the annualized three-month moving average of the de-seasonalized month-on-month core inflation. Source: Eurostat, KSH, Credit Suisse

Exhibit 181: Government balance Exhibit 182: Government debt (ESA95)Narrowly defined budget, 12-month rolling, HUF trn General government gross debt, % of GDP

7

8

9

10

11

Aug-10 Feb-11 Aug-11 Feb-12-2

-1

0

1

2Balance, right scaleExpendituresRevenues

70

75

80

85

2008 2010 2012F 2014F

We believe that the government will be able to

carry out most of its reform plans, which would bring

Hungary’s general government budget deficit to around 2.7% of GDP in

2012.

According to our estimates, such fiscal consolidation can stabilize Hungary’s

general government gross debt below 77% of GDP.

Source: Ministry for National Economy, KSH, Credit Suisse Source: Eurostat, Credit Suisse

14 March 2012


Hungary: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 3.5 4.0 1.0 0.6 -6.3 1.2 1.7 1.0 1.8 Growth in real private consumption (%) 3.4 1.9 -1.6 -0.6 -6.7 -2.2 0.0 0.6 1.7 Growth in real fixed investment (%) 5.7 -3.6 1.6 0.4 -6.5 -5.6 -5.4 0.4 0.2 Fixed investment (% of GDP) 25.6 23.8 23.9 23.9 23.8 23.0 21.4 21.2 20.9 Nominal GDP ($bn) 110.3 112.5 136.1 154.2 126.6 128.6 140.6 135.3 141.8 Population (mn) 10.1 10.1 10.1 10.0 10.0 10.0 10.0 10.0 10.0 GDP per capita, $ 10,925 11,167 13,521 15,377 12,628 12,846 14,060 13,578 14,181 Unemployment (% of labor force, end-year) 7.3 7.5 7.7 8.0 10.5 10.8 10.7 9.3 8.1 Prices, interest rates and exchange rates CPI inflation (%, December to December) 3.3 6.5 7.4 3.5 5.6 4.7 4.1 3.0 3.0 CPI inflation (%, average) 3.6 3.9 7.9 6.1 4.2 4.9 3.9 4.4 3.0 Nominal wage growth (% change, December to December) (1) 5.4 8.9 6.5 7.7 2.1 2.2 5.4 5.0 5.0 Exchange rate (HUF per EUR, end-year) 252.3 251.2 252.3 265.6 270.5 279.0 315.0 280.0 280.0 Exchange rate (HUF per EUR, average) 247.9 264.0 251.3 251.8 280.4 275.6 279.0 285.4 280.0 Exchange rate (HUF per USD, average) 199.4 210.1 183.3 171.1 201.8 208.1 201.0 219.6 220.5 REER (% change, December to December) -5.7 3.4 3.9 -3.4 2.1 0.3 -10.3 15.0 1.4 2-week deposit rate (%, end-year) (2) 6.00 8.00 7.50 10.00 6.00 5.75 7.00 6.00 5.00 Fiscal data General government balance, excl. one-ff transfers (% of GDP) (3) -7.9 -9.3 -5.1 -3.7 -4.6 -4.2 -4.5 -2.7 -1.5 Central government balance (% of GDP) (4) -2.5 -8.2 -5.5 -3.2 -2.8 -3.1 -6.2 -4.4 -3.2 General government primary balance, excl. one-ff transfers (% of GDP) (3) -3.8 -5.4 -0.9 0.5 0.1 -0.1 -0.5 1.2 2.3 General government expenditure, ESA95 (% of GDP) (5) 50.1 52.1 50.6 49.2 51.4 49.5 47.9 45.4 44.3 General government debt, ESA95 (% of GDP, end-year) (5) 61.7 65.9 67.0 72.9 79.7 81.3 76.4 76.3 76.5 Money supply and credit Broad money supply (M2, % of GDP) 46.4 48.7 50.9 52.9 57.5 54.3 55.0 55.3 57.0 Broad money supply (M2, % year-on-year change) 13.0 11.8 8.6 9.0 1.8 0.0 7.1 6.0 8.0 Domestic credit (% of GDP) 51.7 57.3 62.0 69.0 71.8 70.4 66.6 64.4 63.8 Domestic credit (% year-on-year change) 16.3 18.5 12.8 18.5 -3.5 4.0 -0.1 2.0 4.0 Domestic credit to the private sector (% of GDP) 48.8 53.6 60.2 67.6 70.2 68.3 64.2 62.1 61.6 Domestic credit to the private sector (% year-on-year change) 18.8 17.3 17.1 19.5 -3.7 3.3 -0.7 2.0 4.0 Balance of payments Exports (goods and non-factor services, % of GDP) 67.6 77.5 81.6 82.7 79.1 87.3 90.8 93.7 95.5 Imports (goods and non-factor services, % of GDP) 69.1 78.8 80.7 82.2 73.8 80.0 83.6 85.2 86.6 Exports (goods and non-factor services, % year-on-year change in $ value) 12.8 16.9 27.5 14.8 -21.5 12.2 13.6 -0.3 6.4 Imports (goods and non-factor services, % year-on-year change in $ value) 9.9 16.3 23.9 15.5 -26.3 10.2 14.2 -1.6 6.1 Current account balance ($bn) -8.3 -8.3 -9.9 -11.3 -0.1 1.4 2.0 0.5 0.0 Current account balance (% of GDP) -7.5 -7.4 -7.3 -7.3 -0.1 1.1 1.4 0.4 0.0 Net FDI inflows ($bn) 5.4 2.8 0.3 3.8 -0.2 0.5 -1.0 1.0 1.0 Scheduled external debt amortization ($bn) (6) 8.8 7.8 9.3 15.1 12.0 12.6 17.9 16.1 15.2 Foreign debt and reserves Foreign debt ($bn) 87.4 104.4 138.8 188.7 178.2 177.1 170.0 165.0 160.0


Foreign debt (% of GDP) 79.3 92.8 102.0 122.4 140.7 137.7 120.9 121.5 112.8 Foreign debt (% of exports of goods and services) 117.3 119.8 124.9 148.0 178.0 157.7 133.2 129.7 118.2 Central bank total international reserves ($bn) 18.6 21.6 24.1 33.9 44.2 45.0 48.8 48.7 50.0 Central bank gross non-gold FX reserves ($bn) 18.6 21.5 24.0 33.8 44.1 44.8 48.6 48.5 49.8 (1) Data from 2005 exclude premiums and bonuses. (2) An increase in the real effective exchange rate (CPI-deflated) indicates appreciation. (3) ESA95 consolidated fiscal accounts of the general government excluding one-off transfers from pension funds to the government budget as revenues. (4) The central government balance has a narrow definition and is reported on a cash basis. (5) ESA95 represents consolidated fiscal accounts of the general government on an accrual basis. (6) Scheduled amortizations of medium- and long-term external debt of both the public and private sector. Sources: AKK, National Bank of Hungary, Ministry for National Economy, KSH, IMF, JEDH, the BLOOMBERG PROFESSIONAL™ service, Haver Analytics, Credit Suisse

14 March 2012


Israel: Robust economy with geopolitical concerns • Real GDP growth has been moderating since Q4 2010 and was 4.7% in 2011. In Q4

2011, real GDP growth slowed further (albeit modestly) to a seasonally adjusted and annualized rate (saar) of 3.2% qoq from 3.4% qoq saar in Q3 2011. This extended the sequential slowdown since the peak of 7.6% qoq saar in Q4 2010 that was driven by a decline in all components’ growth pace except that of government spending. Government spending rose sharply, up 8.5% qoq saar during Q4 2011, contributing 1.9pps to annualized quarter-on-quarter real GDP growth and offsetting the contraction in household spending and in exports. Household spending contracted 0.8% qoq saar, shaving 0.5pp off annualized quarter-on-quarter real GDP growth in Q4 2011. Investment spending, which was a key driver of real GDP growth over the past seven quarters, rose 4.7% qoq saar in Q4 2011, slowing from double-digit growth in each of the quarters since Q1 2010. Net exports shaved 0.8pp off annualized quarter-on-quarter real GDP growth as export volumes declined more sharply than import volumes. Export volumes contracted (7.0% qoq saar in Q4 2011) for the second quarter in a row as the global economic environment remained adverse. Meanwhile, import volumes contracted 5.2% qoq saar in Q4 2011.

• Although we expect real GDP growth to continue to slow, the probability of a sharp decline in economic activity is lower now than it was late last year, in our assessment. Recent frequent indicators, such as the central bank’s State of Economy Index (SEI) suggest that the pace of real GDP growth will likely continue to slow in the coming period. Consequently, since the publication of our previous Emerging Markets Quarterly (7 December 2011), we have revised lower our 2012 real GDP growth forecast to 3.0% (from 3.4% previously) and our household spending growth to 2.0% (from 3.1%). In our view, the contraction in household spending in Q4 2011 is likely to reverse in 2012 driven by the revival in consumer confidence on the back of the improving global sentiment. However, we envisage household spending growth will be slower than the 3.6% in 2011. We are also encouraged by the latest labor market data indicating that the unemployment rate fell to a historical low of 5.4% at end-2011 from 5.6% at the end of Q3 2011.

• A potential war with Iran would pose a risk to Israel’s economic outlook, in our view, but we think a war with Iran (if one materializes) would only have a one-off impact on the economy. In the case of a war between Israel and Iran (which is not our baseline scenario), we think Israel would be affected in a way that would be broadly similar to the five-week war between Israel and Hezbollah in the summer of 2006. (We think that Hezbollah would react on Iran’s behalf. However, somewhat differently from the 2006 war, Iran would probably join by firing medium-range ballistic missiles as well.) Based on the 2006 experience and most of the wars and combats Israel has experienced (directly or indirectly) since the mid-1980s, we project that the impact on Israel’s economy will be limited if our baseline assumptions for the modalities and extent of the conflict with Iran were to materialize. During the 2006 war (in Q3 2006), there was a one-off 1.9% qoq saar contraction in real GDP, driven by a contraction in exports and a slowdown in household spending, but the economy recovered rapidly in the subsequent quarter.

• We expect the shekel to remain weak in the short term. Several factors which, in our view, are currently supporting the weakness of the shekel against the dollar are likely to remain in place. First, we estimate that the four-quarter rolling current account balance reversed from a surplus of 0.8% of GDP in Q3 2011 to a deficit of 0.6% of GDP in Q4 2011. (The balance of payments data for Q4 2011 is due to be released on 14 March.) Furthermore, the 12-month rolling foreign trade deficit (which is the main driver of the current account balance) continued to widen in early 2012 and is likely to deteriorate further, in our view, on the back of unfavorable terms of trade. The foreign trade deficit deteriorated to 7.3% of GDP on a 12-month rolling basis in February 2012 from 6.2% of GDP in December 2011. Second, the non-residents’ Makam sell-off (T-bills issued by the central bank) has intensified over the past months. Non-residents sold around $8.9bn

Nimrod Mevorach +44 20 7888 1257

[email protected]

14 March 2012


worth of Makam from May 2011 to January 2012 due to looser monetary policy and the regulatory measures aimed at reducing non-residents’ activity in short-term instruments. Third, the geopolitical tension with Iran might escalate further. However, we think there is limited scope for the shekel to depreciate further, due to Israel’s relatively strong external position (only around 18% of total outstanding government debt is denominated in foreign currency and FX reserves are considered high by both historical and international standards). Against this backdrop, we project USDILS at 3.85 at end-2012.

• Headline inflation fell to the central bank’s target in January. Headline inflation fell to 2.0% yoy in January from a peak of 4.2% yoy in June 2011, driven by a broad-based slowdown in all major components of CPI inflation. Food inflation declined to -0.2% yoy in January from 6.0% yoy in June and shaved 1.0pp off year-on-year headline inflation. Core inflation (our definition of core inflation excludes energy, food, alcohol, and tobacco) was 1.9% yoy in January compared to 3.0% yoy in June and shaved 0.8pp off year-on-year headline inflation (0.3pp of which is attributable to the slowdown in housing price inflation, which was 5.0% yoy in January 2012 compared to 6.2% yoy in June 2011). During the same period, energy prices shaved 0.2pp off year-on-year headline inflation and tobacco prices contributed a 0.1pp drop.

• We envisage that the base effects for food prices will drive headline inflation higher in H2 2012, toward the 3.0% upper barrier of the inflation target range. We project that headline inflation will decline further towards 1.7%-1.9% yoy in Q1 2012. However, we forecast that year-on-year food price inflation will pick up again in H2 2011 once the base effect of the one-off decline in food prices in H2 2011 fades. (The decline in food prices in H2 2011 was partly due to organized price cuts by large manufacturers and distributors on the back of the “tent protests” last summer.) We also envisage that while housing price inflation should moderate to around 4.0% yoy by end-2012 (from 5.0% yoy in January 2012), the year-on-year non-housing core components should climb higher as the shekel’s weakness passes through to prices. We think that elevated global commodity prices are to a large extent already priced in the current year-on-year energy inflation (mainly via the fuel sub-component). Nonetheless, energy prices pose an upside risk to inflation, especially through their second-round effects.

• We think the Monetary Committee’s (MC) bias is still dovish, but the monetary policy outlook has become more ambiguous recently. The MC cut the policy rate by a cumulative 75bps to 2.50% between September 2011 and January 2012 in three separate 25bps cuts as the growth outlook deteriorated. However, the abating risks in the euro area alongside an increase in inflation expectations in Israel (which rose from January to February by around 0.2pp to the 2.4%-2.6% range, both according to the capital market data and analysts’ survey) have turned the monetary policy outlook more ambiguous recently. However, in our understanding, the MC remains primarily focused on the subdued domestic growth outlook and is still likely to cut the policy rate by an additional 25bps in the coming months. We also base our forecast on recent public statements by Governor Fischer and other MC members which, in our view, point to a still cautious outlook for the euro area. A sharp fall in domestic housing prices might lead to a substantial easing of monetary policy, but recent developments in the housing market somewhat abate these concerns, although such a risk is still not off the table.

• The Ministry of Finance will likely struggle to restrain the budget deficit in the year ahead, in our view. The budget deficit overshot the 2.9% of GDP target by 0.4pp of GDP in 2011, mainly due to weaker-than-projected revenues. In addition, since the publication of our previous Emerging Markets Quarterly (7 December 2011) several unfavorable developments have increased the risk for an elevated budget deficit in 2012. First, the rise in tension with Iran is leading to a looser defense expenditure policy. Second, the higher probability that elections will be brought forward from end-2013 poses an additional risk factor for fiscal policy. Third, tax revenues might weaken further in 2012 as the economy continues to slow. We forecast a budget deficit of 3.3% of GDP in 2012, the same as in 2011 but higher than the original 2.0% of GDP target (in the 2011-2012 budget book released in October 2010).

14 March 2012


Exhibit 183: Contributions to annualized quarter-on-quarter real GDP growth

Exhibit 184: State of the Economy Index (SEI)

pps, with the exception of GDP growth, seasonally adjusted 100=2005 %

-28-24-20-16-12-8-4048

1216

Q4-09 Q2-10 Q4-10 Q2-11 Q4-11

Net exportsChanges in inventoriesInvestment spendingHousehold spendingGovernment spendingReal GDP growth

110

115

120

125

130

135

140

Jan-09 Jan-10 Jan-11 Jan-12-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.7Index (2005=100)

% mom (right)

Real GDP growth has been moderating since Q4 2010,

driven by a decline in all components’ pace of growth

except that of government spending.

The State of the Economy Index (SEI) rose 0.15% mom

in January, slightly lower than the monthly pace of

growth in Q4 2011,suggesting that real GDP

growth is continuing to moderate.

Note: changes in inventories includes statistical discrepancy. Source: Central Bureau of Statistics, Credit Suisse

Source: Bank of Israel, Credit Suisse

Exhibit 185: The unemployment rate and the participation rate

Exhibit 186: Regional breakdown of goods exports

% of total goods exports, 12-month rolling basis and in dollars

50%51%52%53%54%55%56%57%58%59%60%

Q4-99 Q4-02 Q4-05 Q4-08 Q4-110%

2%

4%

6%

8%

10%

12%

14%Participation rateUnemployment (right)

10

15

20

25

30

35

40

Jun-07 Dec-08 Jun-10 Dec-11

EU USAsia Others

Despite the slowdown in economic activity, the labor

market remains robust, indicating, in our view, that

employers are not expecting a sharp contraction in

economic activity.

The fragility in the euro area is posing a downside risk to

Israel’s economic outlook. The share of goods exports

to the euro area is slightly higher than the share of

exports to the US.

Source: Central Bureau of Statistics, Credit Suisse Note: The chart only shows the regional breakdown of goods exports (which account for approximately 70% of total exports), while data on the regional breakdown of services exports (which account for the reminder 30% of total exports) are not available. Source: Central Bureau of Statistics, Credit Suisse

Exhibit 187: USDILS and the shekel’s nominal effective exchange rate

Exhibit 188: Non-residents’ Makam holdings

82

84

86

88

90

92

94

96

98

Feb-09 Feb-10 Feb-11 Feb-123.0

3.2

3.4

3.6

3.8

4.0

4.2

Nominal EffectiveExchange Rate(100=2007)USDILS (right)

0

2

4

6

8

10

12

14

16

18


10

20

30

40

50

60Holdings in $bn

From total outstanding (%) -right

The shekel will probably remain weak in the short

term, partly on the back of investors’ concerns about

the intensifying tension between Israel and Iran.

Non-residents sold around $8.9bn worth of Makam between May 2011 and

January 2012, taking their holdings in Makam to the lowest level since March

2010. We believe this decline was driven by monetary

policy easing and regulated measures aimed at reducing

non-residents’ activity in short-term instruments.

Note: Nominal effective exchange rate is a weight average index composed from 28 currencies reflecting 38 of Israel’s trade partners. Source: Bank of Israel, Credit Suisse

Source: Bank of Israel, Credit Suisse

14 March 2012


Exhibit 189: Current account balance and its components

Exhibit 190: The foreign trade deficit and commodity prices

12-month rolling, % of GDP including our 2011-Q4 estimation

-8-6-4-202468

10121416

Q4-08 Q4-09 Q4-10 Q4-11E

Current transfers accountIncome accountServices accountGoods account (Trade balance)Current account surplus

0

1

2

3

4

5

6

7

8


200

300

400

500

600

700

800

900

12-month rolling foreign trade deficit(% of GDP)

Average commodity price index (right)

On our estimates, the four-quarter rolling current

account balance reversed from a surplus in Q3 2011

into a deficit in Q4 2011.

Furthermore, the 12-month rolling foreign trade deficit

(which is the main driver of the current account balance)

continued to widen in early 2012 and is likely to

deteriorate further, in our view, on the back of

unfavorable terms of trade.

Source: Central Bureau of Statistics, Credit Suisse Source: Central Bureau of Statistics, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Exhibit 191: Consumer prices Exhibit 192: BoI base rate and CPI inflation

pps, with the exception of CPI %

-1

0

1

2

3

4

5

6

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12

Food HousingEnergy OtherCPI

0

1

2

3

4

5

6

7


BoI policy rate, %

BoI policy rate, % (CS forecast)

CPI inflation, % yoy

CPI inflation, % yoy (CS forecast)

We forecast that year-on-year food price inflation will pick up

again in H2 2011, taking the year-on-year headline

inflation higher toward the 3.0% upper barrier of the

inflation target range.

However, in our understanding, the MC

remains primarily focused on the subdued growth outlook for Israel and is still likely to

cut the policy rate by an additional 25bps to 2.25% in

the coming months.

Source: Central Bureau of Statistics, Credit Suisse Source: Bank of Israel, Central Bureau of Statistics, Credit Suisse

Exhibit 193: The Housing Price Index (HPI) and new mortgages taken by households

Exhibit 194: Central government fiscal balance and revenues from tax collection

12-month rolling, % of GDP

-10%

0%

10%

20%

30%


3

4

5

6New mortgages - ILS, billions(right)Annualized 3mma of % momchange in HPI

-6

-5

-4

-3

-2

-1

0

1


23

24

25

26

27

28Budget balanceTax revenues (right)

The housing market has been reviving since

November 2011 as more buyers have returned to the

market and prices have started to rise again.

However, the transaction volumes are still much lower

than in previous years.

Several unfavorable developments have

increased the risk for a larger budget deficit in 2012.

We forecast the budget deficit will reach 3.3% of

GDP in 2012, the same as in 2011 but higher than the

target of 2.0% of GDP.

Source: Bank of Israel, Central Bureau of Statistics, Credit Suisse

Note: The government deficit is excluding net credit. Source: Ministry of Finance, Credit Suisse

14 March 2012


Israel: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 4.9 5.6 5.5 4.0 0.8 4.8 4.7 3.0 3.3 Growth in real private consumption (%) 3.0 4.3 6.4 2.8 1.4 5.4 3.6 2.0 4.6 Growth in real fixed investment (%) 3.7 13.2 14.5 4.9 -4.9 13.6 16.6 6.0 4.0 Fixed investment (% of GDP) 16.5 17.5 18.9 18.4 17.0 17.8 19.6 19.7 19.5 Nominal GDP ($bn) 134.3 146.2 167.1 201.7 194.9 217.8 242.9 239.9 251.5 Population (mn) 7.0 7.1 7.2 7.4 7.6 7.7 7.8 8.0 8.1 GDP per capita, $ 19,163 20,439 23,071 27,349 25,801 28,295 30,999 30,038 30,911 Unemployment (% of labor force, end-year) 9.0 7.8 6.7 6.4 7.2 6.4 5.4 6.0 6.1 Prices, interest rates and exchange rates CPI inflation (%, December to December) 2.4 -0.1 3.4 3.8 3.9 2.7 2.2 2.8 2.1 CPI inflation (%, average) 1.3 2.1 0.5 4.6 3.3 2.7 3.5 2.2 2.2 Nominal wage growth (% change, December to December)(1) 1.5 2.9 4.3 0.1 1.7 4.8 3.3 2.2 2.5 Exchange rate (ILS per USD, end-year) 4.60 4.23 3.85 3.80 3.78 3.55 3.82 3.85 3.80 Exchange rate (ILS per USD, average) 4.49 4.46 4.11 3.59 3.93 3.73 3.58 3.80 3.82 REER (% change, December to December)(2) -0.1 1.0 1.4 9.9 -1.9 7.5 -4.7 -1.0 2.5 Base rate (%, end-year) 4.50 5.00 4.00 2.50 1.00 2.00 2.75 2.25 3.00 Fiscal data Central government's fiscal balance (% of GDP) -1.8 -0.4 0.4 -2.1 -5.1 -3.7 -3.3 -3.3 -2.5 Central government primary fiscal balance (% of GDP) 4.8 6.0 6.4 3.4 0.3 1.5 1.8 1.9 2.4 Central government expenditure (% of GDP) 34.1 33.3 32.5 32.2 31.9 31.2 30.8 30.5 30.4 Gross general government debt (% of GDP, end-year) 91.7 82.8 76.2 75.3 77.8 74.5 73.3 71.3 69.5 Net general government debt (% of GDP, end-year)(3) 70.9 62.8 59.1 54.3 46.7 42.0 40.3 38.1 37.5 Money supply and credit Broad money supply (M2, % of GDP) 47.1 44.4 47.9 51.7 55.5 54.3 56.2 55.9 55.1 Broad money supply (M2, % year-on-year change) 5.3 7.2 14.3 13.7 13.5 3.6 10.6 4.5 4.0 Domestic credit (% of GDP) 95.8 90.6 92.5 94.5 89.4 91.0 91.7 92.0 93.3 Domestic credit (% year-on-year) 2.5 1.9 8.2 7.7 0.1 8.0 7.7 5.3 7.0 Domestic credit to private sector (% of GDP) 56.1 51.7 52.3 53.3 47.1 47.2 46.0 44.5 43.8 Domestic credit to private sector (% year-on-year) 1.5 -0.6 7.2 7.5 -6.5 6.4 4.2 1.4 4.0 Balance of payments Exports (goods and non-factor services, % of GDP) 42.8 43.0 42.7 40.4 34.8 36.9 36.2 38.6 39.4 Imports (goods and non-factor services, % of GDP) 43.0 42.5 44.0 41.8 32.4 34.9 37.7 38.5 38.4 Exports (goods and non-factor services, % change in $ value) 9.2 9.2 14.2 14.1 -16.7 18.3 9.5 5.3 7.1 Imports (goods and non-factor services, % change in $ value) 10.1 7.3 19.0 14.6 -25.1 20.5 20.4 0.8 4.7 Current account balance ($bn) 4.2 7.4 4.9 1.5 7.1 6.3 -1.5 2.5 4.9 Current account (% of GDP) 3.2 5.1 2.9 0.8 3.6 2.9 -0.6 1.0 1.9 Net FDI ($bn) 1.9 -0.2 0.2 3.7 2.7 -2.8 3.2 1.4 1.6 Scheduled debt amortization ($bn)(4) 4.0 5.7 5.6 4.6 5.3 6.0 4.7 5.7 7.2 Foreign debt and reserves Foreign debt ($bn) 78.2 87.5 90.8 88.4 93.3 106.1 101.7 102.4 105.0 Public ($bn) 31.2 33.4 32.0 28.2 31.2 40.3 34.2 32.2 31.9 Private ($bn) 47.0 54.1 58.9 60.2 62.1 65.8 67.5 70.2 73.1 Foreign debt (% of GDP, end-year) 58.4 60.1 54.4 43.8 47.9 48.7 41.9 42.7 41.7 Foreign debt (% of exports of goods and services) 136.5 139.8 127.2 108.5 137.4 132.1 115.7 110.5 105.9 Central bank gross non-gold FX reserves ($bn) 27.9 29.1 28.6 42.5 60.6 70.9 74.9 79.6 80.5 (1) Annual average of monthly average wages in the economy. (2) Real effective exchange rate; increase indicates appreciation. (3) Net of central bank FX reserves. (4) Principal repayments of public and private sector. Source: Central Statistical Bureau, Bank of Israel, Ministry of Finance, Credit Suisse

14 March 2012


Poland: Still the growth champion in Europe? • Poland's annualized quarter-on-quarter real GDP growth rate was stable in a range

of 4%-5% throughout 2011, despite the weakening of growth in the euro area. Real GDP growth remained robust in Q4 2011 at 1.1% qoq, broadly unchanged from 1.0% qoq in Q3 2011. According to our estimates based on the Eurostat data, investment spending contributed the most to quarter-on-quarter real GDP growth, 0.6pp in Q4, unchanged from Q3. The contribution of government spending to quarter-on-quarter real GDP growth rose to +0.2pp in Q4 from -0.1pp in Q3. In the meantime, however, the contribution of household spending declined modestly to 0.2pp in Q4 from 0.3pp in Q3, and the contribution of net exports also declined to 0.1pp in Q4 from 0.9pp in Q3, as export-growth slowed marginally and import-growth picked up. We believe that the economy has been operating over its capacity in 2011.

• There is a decent amount of data evidence that supports the idea that a slowdown is underway. Industrial production growth slowed from 0.9% mom in December to 0.4% mom in January. The manufacturing PMI declined from 52.2 in January to 50.0 in February, and the forward-looking new orders component of the PMI also weakened from 52.7 in January to 48.6 in February. However, given the recent strong IFO readings in Germany, we believe that the slowdown will be relatively mild, and quarter-on-quarter real GDP growth in Poland will probably reach around 0.6% in Q1 and 0.5% in Q2 this year.

• We project that annualized quarter-on-quarter real GDP growth will be in a range of 2%-3% throughout 2012. We believe that the strong growth in investment spending in 2011 was driven by EU-funded public investments, which will probably peak in H1 2012 and will drop markedly in H2 2012, after the Euro 2012 football championship in June. In the meantime, in our view, household spending growth will probably continue to slow in 2012, and the contribution of net exports to overall GDP growth will remain broadly flat. We project that following 3.0% growth in 2011, household spending will grow 1.6% in 2012 and 3.8% in 2013, supported by the ongoing (albeit slowing) increase in personal income on account of rising employment and wages. We believe that employment growth will moderate from 2.3% yoy in 2011 to around 1.0% yoy in 2012, while nominal wage growth will probably remain broadly steady between 4.0% and 5.0% yoy in 2012. In keeping with this outlook, we forecast that full-year real GDP growth will reach 3.0% in 2012, and 3.5% in 2013, while the economy will probably continue to operate marginally over its capacity, which will put upward pressure on wages.

• The current account deficit narrowed to 4.1% of GDP in 2011 from 4.5% of GDP in 2010. On a 12-month rolling basis, the current account deficit reached its peak in July 2011, around 5.0% of GDP, and narrowed in H2 2011. This narrowing in the current account deficit was mainly driven by a narrowing foreign trade deficit, from 2.1% of GDP in the 12 months to July to 1.5% of GDP in the 12 months to December (including both goods and services). This was mainly driven by a pick-up in exports, which may not be sustained in 2012, in our view. Meanwhile, the deficit on the income balance remained around 3.7% of GDP in 2011, broadly unchanged compared to 2010. Against this backdrop, we believe that the current account deficit is likely to widen again in 2012 (to around 5.0% of GDP), as domestic demand growth will probably continue to outperform external demand growth. In the meantime, the deficit due to net errors and omissions (which reached 1.8% of GDP in 2011 from 2.0% of GDP in 2010), is likely to remain large, in our view.

• Stable sources of external financing (EU transfers and net FDI inflows) increased in 2011 and were almost adequate to finance the full current account deficit. The stable sources of external financing amounted to around $19.1bn (3.8% of GDP) in 2011 up from $12.4bn (2.5% of GDP) in 2010, while net portfolio investment inflows moderated to around $16.2bn (3.1% of GDP) in 2011 from $25.5bn (5.4% of GDP) in 2010. Net other investment inflows (including cross-border lending) rose to $21.1bn

Gergely Hudecz +33 1 7039 0103

[email protected]

14 March 2012


(4.3% of GDP) in the 12 months to April from $9.4bn (2.0% of GDP) in 2010, but then saw a marked drop in H2 2011, coming in close to a net figure of zero for full-year 2011. In our view, the decline in cross-border lending towards the end of last year might have been due to the financing stress of the euro area parent banks that have subsidiaries in Poland. We believe that if financial stress in the euro area continues to abate, cross-border lending may rise again later this year, providing some support to the Polish zloty. Against this backdrop our end-2012 EURPLN forecast is 4.10.

• Inflation remains elevated but we expect it to decline towards the 2.5% yoy target by end-2012. CPI inflation reached a peak of 5.0% yoy in May 2011, and moderated to 4.3% yoy in February 2012, mainly due to base effects from a food price shock in 2010 and a VAT hike in January 2011. In the meantime, core inflation (excluding food, energy, alcohol, and tobacco prices) increased from a low of 0.7% yoy in November 2010 to 3.2% yoy in December 2011, driven by the recovery in domestic demand and the zloty weakness, but then moderated to 2.8% yoy in February. We believe that the Monetary Policy Council (MPC) will maintain its hawkish stance as long as CPI inflation is running significantly above its 2.5% yoy target, but it remains unlikely that the MPC would raise the policy rate against the lingering risk of a global economic slowdown. We project that as domestic demand growth moderates and the zloty exchange rate stabilizes, CPI inflation will moderate to close to the inflation target towards the end of 2012, and that the MPC will keep the policy rate on hold at 4.50% through end-2012. Subsequently, in our view, as domestic demand growth will start to accelerate in 2013, the MPC will probably raise the policy rate by 50bps to 5.00%.

• The government embarked on fiscal consolidation in 2011. In 2010, the broadly defined general government budget deficit was recorded around 7.8% of GDP, and the general government gross debt (under the ESA95 definition) was around 55.0% of GDP at the end of the year. We estimate that revenue-enhancing measures (including a VAT hike) improved the 2011 budget balance by about 1.0% of GDP, while spending cuts (including changes in entitlements to pension benefits) saved around 0.5% of GDP. Additionally, lower contributions to privately managed pension funds reduced expenditures by about 0.7% of GDP, on our estimates. In keeping with this, we believe that the government reached its deficit target of 5.6% of GDP in 2011 and that the general government gross debt was around 57.4% of GDP at end-2011, according to the EU’s accounting rules.

• The general government budget deficit is likely to narrow further in 2012. We believe that a continuing public wage freeze, the expenditure rule which limits discretionary spending, a rise in employers' disability contribution, and new taxes on the commodities sector will reduce the general government budget deficit by around 2pps of GDP this year. We forecast that the general government budget deficit is likely to narrow to 3.7% of GDP in 2012 but question the attainability of this year’s general government budget deficit target of 2.9% of GDP. Prime Minister Tusk promised further structural reforms, pledging a gradual increase in the retirement age, as well as reductions in pension privileges for miners, priests and farmers. In our view, these measures should help to reduce the general government deficit to below 3.0% of GDP in 2013, and stabilize the general government gross debt at around 60% of GDP.

• Poland’s long-term foreign currency sovereign debt is currently rated A2 by Moody’s and A- by Fitch and S&P, all with a stable outlook. We believe that the proven resilience of Poland’s economy and its favorable outlook argue for a more positive assessment of the country’s sovereign credit ratings, but an eventual upgrade remains contingent on further fiscal consolidation and on the implementation of the structural reforms.

14 March 2012


Exhibit 195: Contributions to quarter-on-quarter real GDP growth Exhibit 196: Level of real GDP pps, with the exception of GDP

-4

-2

0

2

4

Q4-09 Q2-10 Q4-10 Q2-11 Q4-11

Net exportsInventoriesInvestment spendingGovernment spendingHousehold spendingGDP, % qoq

5.6

5.7

5.8

Q4-09 Q4-11

Level of real GDP in logs

Long-term linear trend

Poland's annualized quarter-on-quarter real GDP

growth rate was stable in a range of 4%-5% throughout

2011, despite the weakening of growth in the

euro area. Real GDP growth remained robust in

Q4 2011 at 1.1% qoq, broadly unchanged from

1.0% qoq in Q3 2011.

In our view, the economy has been operating over its

capacity in 2011.

Source: Eurostat Source: GUS, Credit Suisse

Exhibit 197: Employment, real wages and retail sales

Exhibit 198: Industrial output in Germany and Poland

% year-on-year change

-5

0

5

10

15

20

25


Retail salesReal wages, 3mmaPrivate employment

100

105

110

115

120

125

Jul-10 Jan-11 Jul-11 Jan-12130

135

140

145

150

155Industrial production inGermany, sa 2005=100

Sold industrial output inPoland, sa 2005=100,right scale

Household spending growth will probably continue to

slow in 2012, and the contribution of net exports to overall GDP growth will

remain broadly flat.

We believe that employment growth will

moderate from 2.3% yoy in 2011 to around 1.0% yoy in

2012, while nominal wage growth will probably remain

broadly steady between 4.0% and 5.0% yoy in 2012.

Source: GUS, Credit Suisse Source: Eurostat, GUS

Exhibit 199: Basic balance Exhibit 200: Net capital inflows 12-month rolling, % of GDP 12-month rolling, USD bn

-8

-6

-4

-2

0

2

4

6

8


Basic balance (FDI+EU+C/A+E/O)Net FDI and EU transfersCurrent account and net errors

-10-505

10152025303540


Net portfolio investment inflowsNet other investment inflowsNet direct investment inflowsEU capital transfers

Stable sources of external financing (EU transfers and

net FDI inflows) increased in 2011 and were almost

adequate to finance the full current account deficit.

Net other investment inflows (including cross-border lending) rose to

$21.1bn (4.3% of GDP) in the 12 months to April from

$9.4bn (2.0% of GDP) in 2010, but then saw a

marked drop in H2 2011, coming in close to a net

figure of zero for full-2011.

Source: NBP, GUS, Credit Suisse Source: NBP, GUS, Credit Suisse

14 March 2012


Exhibit 201: Exchange rate, CPI inflation and policy rate

1.01.52.02.53.03.54.04.55.05.56.0

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-123.4

3.6

3.8

4.0

4.2

4.4

4.6

CPI, % yoyNBP policy rate, %EURPLN, right scale

We believe that if financial stress in the euro area

continues to abate, cross-border lending may rise

again later this year, providing some support to

the Polish zloty. Against this backdrop our end-2012

EURPLN forecast is 4.10.

The Monetary Policy Council is likely to maintain its hawkish stance as long as CPI inflation is running significantly above target.

Source: GUS, NBP, the BLOOMBERG PROFESSIONAL™ service

Exhibit 202: Year-on-year CPI inflation Exhibit 203: Headline and core inflation

pps, with the exception of CPI inflation % year-on-year change

0

1

2

3

4

5

6

7


EnergyFoodAlcohol and tobaccoCore (CS measure)CPI, % yoy

0

1

2

3

4

5

6

7


CPI inflationNBP core inflation*CS measure of core inflation**Run-rate of CS core inflation***

CPI inflation reached a peak of 5.0% yoy in May 2011, and moderated to

4.3% yoy in February 2012, mainly due to base effects from a food price shock in

2010 and a VAT hike in January 2011.

Core inflation moderated from 3.2% yoy in December

to 2.8% yoy in February.

Source: Eurostat, GUS, Credit Suisse Source: *excluding food, and energy prices; **excluding food, energy, alcohol and tobacco; ***calculated as the annualized three-month moving average of the de-seasonalized month-on-month core inflation. Source: Eurostat, GUS, Credit Suisse

Exhibit 204: Government balance Exhibit 205: Government debt (ESA95)Narrowly defined state budget, 12-month rolling, % of GDP General government gross debt, % of GDP

16

18

20

22

24

Jan-10 Jan-11 Jan-12-6

-5

-4

-3

-2

-1

0

1

2

Balance, right scaleExpendituresRevenues

30

35

40

45

50

55

60

65

2001 2004 2007 2010 2013F

We believe that a continuing public wage

freeze, the expenditure rule which limits discretionary

spending, a rise in employers' disability

contribution, and new taxes on the commodities sector

will reduce the general government budget deficit

below 3.0% of GDP in 2013, and stabilize the

general government gross debt at 60% of GDP.

Source: Ministry of Finance, GUS, Credit Suisse Source: Eurostat, Credit Suisse

14 March 2012


Poland: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 3.6 6.2 6.8 5.1 1.7 3.8 4.3 3.0 3.5 Growth in real private consumption (%) 2.1 5.0 4.9 5.7 2.0 3.2 3.0 1.6 3.8 Growth in real fixed investment (%) 6.5 14.9 17.6 9.6 -1.2 -0.2 8.5 15.3 3.8 Fixed investment (% of GDP) 19.5 21.1 23.3 24.2 23.6 22.3 22.0 24.0 24.1 Nominal GDP ($bn) 304.1 341.6 425.1 529.4 430.5 469.2 520.1 515.0 536.0 Population (mn) 38.2 38.1 38.1 38.1 38.2 38.2 38.2 38.2 38.2 GDP per capita ($) 7,960 8,966 11,158 13,895 11,269 12,282 13,616 13,478 14,031 Unemployment (% of labor force, end-year) 17.6 14.8 11.2 9.5 12.1 12.4 12.5 11.2 10.0 Prices, interest rates and exchange rates CPI inflation (%, December to December) 0.7 1.4 4.0 3.3 3.5 3.1 4.6 2.5 2.5 CPI inflation (% change in average index for the year) 2.1 1.0 2.5 4.2 3.5 2.6 4.3 2.9 2.5 Nominal wage growth (%change, December to December) 1.5 8.5 7.2 5.6 6.5 5.4 4.3 5.0 5.0 Exchange rate (PLN per EUR, end-year) 3.85 3.83 3.60 4.15 4.11 3.96 4.47 4.10 4.10 Exchange rate (PLN per EUR, average) 4.02 3.90 3.78 3.52 4.33 3.99 4.12 4.12 4.10 Exchange rate (PLN per USD, average) 3.23 3.10 2.76 2.39 3.12 3.02 2.97 3.17 3.23 REER (%change, December to December) (1) 2.2 0.0 6.2 -7.5 -0.2 4.8 -9.8 10.2 0.9 1-week reference rate (%, end year) 4.50 4.00 5.00 5.00 3.50 3.50 4.50 4.50 5.00 Fiscal data (2) General government balance, ESA95 (% of GDP) -4.1 -3.6 -1.9 -3.7 -7.3 -7.8 -5.6 -3.7 -2.9 Central government balance (% of GDP) -2.9 -2.4 -1.4 -1.9 -1.8 -3.2 -1.0 0.9 1.7 General government primary balance, ESA95 (% of GDP) -1.3 -1.0 0.4 -1.5 -4.7 -5.2 -2.7 -1.1 -0.1 General government expenditure, ESA95 (% of GDP) 43.4 43.9 42.2 43.2 44.5 45.4 45.2 44.8 44.0 General government debt, ESA95 (% of GDP, end-year) 47.1 47.7 45.0 47.1 50.9 54.9 57.4 59.4 60.2 Money supply and credit Broad money supply (M2, % of GDP) 42.2 45.4 46.7 51.9 53.2 54.7 55.9 58.3 60.4 Broad money supply (M2, % year-on-year change) 12.6 15.9 14.2 20.2 8.3 8.4 11.5 10.0 10.0 Domestic credit (% of GDP) 30.3 34.6 40.3 50.9 53.1 55.1 57.2 59.6 61.8 Domestic credit (% year-on-year change) 9.2 21.3 22.3 41.4 8.2 9.3 13.3 10.0 10.0 Domestic credit to the private sector (% of GDP) 28.1 32.4 38.5 48.9 49.8 51.5 53.8 56.1 58.1 Domestic credit to the private sector (% year-on-year change) 14.2 24.3 31.9 37.5 7.2 9.1 14.0 10.0 10.0 Balance of payments Exports (goods and non-factor services, % of GDP) 37.0 40.4 41.0 40.4 39.7 42.3 44.0 45.6 45.1 Imports (goods and non-factor services, % of GDP) 37.8 42.4 44.4 45.3 40.4 44.2 45.5 49.1 49.1 Exports (goods and non-factor services, % year-on-year change in $ value) 18.2 22.6 26.2 22.8 -20.1 16.0 15.4 2.5 3.0 Imports (goods and non-factor services, % year-on-year change in $ value) 13.6 25.8 30.3 27.1 -27.4 19.1 14.2 6.9 4.1 Current account balance ($bn) -7.2 -13.2 -26.5 -35.0 -17.2 -21.0 -21.2 -25.8 -26.0 Current account balance (% of GDP) -2.4 -3.9 -6.2 -6.6 -3.9 -4.5 -4.1 -5.0 -4.9 Net FDI inflows ($bn) 7.0 10.8 18.0 10.4 8.7 5.3 7.9 6.0 7.0 Scheduled external debt amortization ($bn) (3) 29.1 30.4 43.8 30.0 12.7 26.2 18.5 33.2 23.5 Foreign debt and reserves Foreign debt ($bn) 132.3 157.1 205.3 289.1 249.7 298.4 330.0 335.0 340.0


Foreign debt (% of GDP) 43.5 46.0 48.3 54.6 58.0 63.6 63.4 65.1 63.4 Foreign debt (% of exports of goods and services) 117.4 113.8 117.8 135.1 145.9 150.4 144.1 142.7 140.7 Central bank official reserve assets ($bn) 42.6 48.5 65.8 62.2 79.6 93.5 97.9 106.0 110.0 Central bank gross non-gold FX reserves ($bn) 40.9 46.4 63.0 59.3 75.9 88.8 92.2 101.0 105.0 (1) Real effective exchange rate (CPI-deflated), increase indicates appreciation. (2) ESA95 budget balances represent the consolidated fiscal balance of the general government on an accrual basis while the central government balance has a narrower definition and reported on a cash basis. (3) Scheduled amortizations of medium- and long-term external debt of both the public and private sector. Sources: GUS, Ministry of Finance, National Bank of Poland, IMF, JEDH, the BLOOMBERG PROFESSIONAL™ service, Haver Analyitcs, Credit Suisse

14 March 2012


Russia: A fresh chance for reform post-elections • Vladimir Putin’s first-round victory in the presidential election on 4 March points

to an early easing of political uncertainty, but investor confidence would be supported only if reforms are resumed. We believe that Putin’s outright victory allows him to claim a strong mandate from the electorate, but investors will be looking for evidence that he is prepared to pursue proactive reforms during his third term in office. The unexpectedly strong challenge by Mikhail Prokhorov, a prominent businessman and a political novice, demonstrates the electorate’s growing appetite for pro-market policies and political liberalization. Dmitry Medvedev still looks set to become the new prime minister (in May), but we expect investors to focus more on actual implementation of the declared policy measures than on the composition of the new government.

• Putin’s campaign agenda contained a broad range of policy proposals that may help Russia to become a more attractive destination for domestic and foreign capital. Among these goals, progress on tackling corruption and enhancing governance would, in the view of many observers including ourselves, represent the key factor for improving the country’s investment climate. Other important issues for the new government should include reform of the political system (initiated in the wake of large-scale protests after the December Duma elections), a transparent privatization process, pension reform (including increases in minimum pension age), streamlining taxation of the energy sector, and a review of the social spending commitments. The high level of Russia’s non-oil budget deficit (over 10% of GDP) means the government needs to consider very carefully any such fresh commitments, including those Putin made during his campaign (of about 1.2%-1.3% of GDP annually during his six-year term).

• Full-year real GDP growth for 2011 was 4.3%, above our own and market projections of 4.1% and 4.0%, respectively. The stronger-than-expected growth was mainly attributed to a further pick-up in output in Q4, supported by robust fixed capital investment growth (of 8.1% yoy in Q4 after 7.5% yoy in Q3). On our estimates, real GDP grew 4.8% yoy in Q4, on par with the previous quarter. We estimate that, in seasonally adjusted terms, real GDP was up 1.3% qoq in Q4, after 1.4% qoq in Q3 and 0.8% qoq in Q2. However, the full-year GDP growth decomposition does not appear particularly encouraging, with fixed investment growth at 6.0% yoy (compared to double-digit growth prior to the 2008 crisis), resulting in a lower investment ratio (21.0% of GDP in 2011). Despite higher oil prices, we expect real GDP growth to decelerate in 2012 to 3.8% due to subdued external demand, a delayed start to the annual investment cycle because of the elections, and a smaller harvest due to less favorable weather conditions this year.

• The latest domestic demand indicators and early official estimates point to only modest growth in Q1 2012. Fixed capital investment growth accelerated to 15.6% yoy in January from 8.9% yoy in December. However, on our estimates, in seasonally adjusted (sa) terms, fixed investment growth was 0.2% mom, after 0.9% mom in December. Retail sales growth moderated in January to 6.8% yoy from 9.5% yoy in December, which was below expectations. Industrial output growth picked up in January to 0.4% mom sa from 0.1% mom sa previously; however, manufacturing PMI remains subdued, having stayed at a four-month trough of 50.7 in February. The government estimates that real GDP fell 0.1% mom sa in January; we now project only a modest increase in economic activity in Q1 2012. Following the broadly market-friendly outcome of the presidential elections, we expect the economic recovery to strengthen, led by higher fixed investment and private consumption growth (on the back of a stronger rouble and higher budget spending growth over the past three months).

• Headline inflation hit a fresh all-time low in February but is expected to rebound in H2 2012, following the delayed increase in utility tariffs in July. CPI inflation fell further in February to 3.7% yoy after 4.2% yoy in January (and 6.1% yoy in December 2011), on the back of a stronger rouble and the impact of the delay in the annual tariff increases. Officially measured core inflation continued to ease to 5.7% yoy from 6.0% yoy in January and a recent peak of 8.4% yoy in July 2011. Our own measure of core

Sergei Voloboev +44 20 7888 3694

[email protected]

Alexey Pogorelov +7 495 967 8772

[email protected]

14 March 2012


inflation (excluding food, alcohol, tobacco, gasoline, and utilities) was down to 5.9% yoy from 6.1% yoy in January. The impact of high inflation last year on core inflation continues to lose momentum: the core inflation run rate (annualized three-month moving averages of the seasonally adjusted series) registered a further drop to 4.6% in February from 5.2% in January(and the recent peak of 7.5% in July).

• Ahead of the anticipated increases in administered and fuel prices, the central bank (CBR) is unlikely to ease policy in the coming months. We think the CBR may adopt a tightening bias even ahead of the anticipated increase in headline inflation, once the election-related commitments for higher social spending are reflected in the government’s spending plans. Higher petrol prices (effectively frozen since the beginning of the year) will represent an additional risk factor. For now, we expect the impact of the stronger rouble to help contain inflationary pressures, allowing the central bank to keep headline inflation near its target for end-2012 of 6%. However, this level may be exceeded in early 2013 due to the impact of higher spending and a likely weakening of the exchange rate (in response to a lower current account surplus). We have revised upward our end-year CPI inflation forecast to 6.1% yoy in 2012 (from 5.4% yoy previously) and to 5.8% yoy for 2013 (from 4.9% yoy previously).

• The rouble has gained 7.6% against the basket so far this year, supported by higher oil prices and the improvement in global risk appetite. The strong current account inflows in the first two months of the year (that we estimate at some $23bn) were accompanied by continuing large net private capital outflows of about $20bn, attributed mainly to political uncertainty ahead of the presidential elections. The CBR was a net buyer of foreign currency, having purchased roughly $2.6bn in the first two months of 2012. Assuming global sentiment improves and domestic political tensions ease, the rouble would appreciate further, helped by higher oil prices and tighter liquidity conditions. We expect the rouble to surpass the 33.0 level in basket terms as early as this month and to appreciate towards the stronger edge of the CBR’s intervention band (RUB 32.2). In Q4 2012, we expect a narrower current account surplus, higher capital outflows, and rising inflation to put downward pressure on the exchange rate.

• Net private capital outflows are set to ease following the orderly outcome of the presidential election and improved global markets sentiment. Net outflows in 2011 were $84.2bn (4.5% of GDP), after $33.6bn (2.3% of GDP) in 2010. The main drivers of outflows have been the uncertain global environment, political tensions, and lower external debt rollover ratios (attributed in part to increased repatriation of capital by European banks). According to the CBR, net private capital outflow totaled $11bn in January. On our estimates, outflows declined only marginally in February to about $9bn. In our view, the relatively high net private capital outflows in early 2012 should be mainly attributed to a seasonal increase in the current account surplus, helped by higher oil prices. Should domestic political tensions continue to ease post-election, the direction of capital flows could reverse as early as May, in our view.

• The federal budget was in deficit in the first two months of 2012 (RUB250bn or 3.0% of GDP), for the first time in more than ten years, according to preliminary estimates by the Finance Ministry. On the 12-month rolling basis, the surplus of the federal budget fell to 0.2% of GDP in February from 0.5% in January and 0.8% in December 2011. The recent deterioration in the fiscal position was mainly on the expenditure side. The most plausible explanation for the abrupt increase in expenditures, in our view, was that expenditure was front loaded ahead of the presidential elections on 4 March, with control over spending likely to be regained soon. We expect the 2012 federal budget to be in a deficit of 0.1% of GDP, assuming an average oil price (Urals) at $119/bbl and extra expenditures this year of 0.5% of GDP. The brunt of the extra spending (and of overall impact on the budget) will take place at the regional government level.

14 March 2012


Exhibit 206: Contributions to real GDP growth

Exhibit 207: Output gap* and unemployment

pps, except for % year-on-year change in real GDP %

-15

-10

-5

0

5

10

Mar-05 Mar-07 Mar-09 Mar-11-15

-10

-5

0

5

10

Agriculture & fishingRetail tradeIndustrial productionTransport & telecomsConstructionServices and other sectorsReal GDP

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5


-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Output gap (right scale)Unemployment rate

Full-year real GDP growth was 4.3% in 2011, implying

that real GDP rose 4.8% yoy in Q4, on our

calculations, on par with Q3. We estimate that real GDP growth in seasonally adjusted terms was 1.3%

qoq in Q4, after 1.4% qoq in Q3 and 0.8% qoq in Q2. We expect the negative

output gap (0.9% currently, on our estimates) to close

by the end of this year.

Source: Rosstat, Economy Ministry, Haver Analytics®, Credit Suisse. * Difference between actual and potential GDP growth. Potential GDP estimates are based on the HP filter. Source: Rosstat, Credit Suisse, PMI premium

Exhibit 208: Real sector indicators Exhibit 209: Key PMI components Three-month moving average, % year-on-year change % yoy

-25-20-15-10-505

1015202530

Sep-06 Jan-08 May-09 Sep-10 Jan-12-25-20-15-10-5051015202530

Retail salesReal wagesFixed investment

28

33

38

43

48

53

58

63

Oct-08 Aug-09 Jun-10 Apr-11 Feb-12-20

-15

-10

-5

0

5

10

15

New ordersPMIEmploymentIP Index (right scale)

Real GDP growth is likely to ease to 0.6% qoq sa in Q1 due to only modest growth

in investment and retail sales in early 2012.

Industrial output growth in January picked up to 0.4%

mom sa, after 0.1% mom sa in December. However,

manufacturing PMI remained subdued, having

slowed to a four-month trough.

Source: Rosstat, Credit Suisse Source: PMI Premium, Rosstat, Credit Suisse

Exhibit 210: Contributions to headline inflation

Exhibit 211: Core inflation (official and CS definition)

pps, except for % year-on-year change in CPI 3mma of seasonally adjusted % mom change, annualized

0

2

4

6

8

10

12

14

16

18

Oct-08 Aug-09 Jun-10 Apr-11 Feb-120

2

4

6

8

10

12

14

16

18ServicesNon-food goodsFoodCPI

0

4

8

12

16

20


4

8

12

16

20

OfficialCredit Suisse

Headline inflation slowed to a new low of 3.7% yoy in

February from 4.2% yoy in January and 6.1% yoy in

December, on the back of lower food and services

prices. Official core inflation continued to ease to 5.7% yoy in February from 6.0%

yoy in January and a recent peak of 8.4% yoy in July. Our own measure of core inflation

was down to 5.9% yoy from 6.1% yoy in January.

Source: Rosstat, Credit Suisse Note: Official core CPI is net of fruit and vegetables, includes most other food items. CS core CPI is net of all food and energy items. Source: Rosstat, Credit Suisse

14 March 2012


Exhibit 212: FX reserves and money Exhibit 213: Interest rates % year-on-year change US$ bn % per annum

-20

-10

0

10

20

30

40

50

60

70

80

May-07 Jul-08 Sep-09 Nov-10 Jan-12200

250

300

350

400

450

500

550

600FX reserves (US$ bn, right scale)M2 (left scale)M0 (left scale)

2

4

6

8

10

12

14

16

May-09 Jan-10 Oct-10 Jun-11 Mar-122

4

6

8

10

12

14

16Fixed tom-next deposit rate3-month NDF1-day direct repoCPI inflation (% yoy)Refinancing rateOvernight fixed deposit rate

The pace of monetary growth aggregates remained

subdued in early 2012. We now expect headline inflation

to pick up to 6.1% yoy by end-2012 on the back of higher

services tariffs and deferred increases in petrol prices. In

order to contain headline inflation to its 6% target for

end-2012, we now expect the central bank to tighten policy

at some point in H2 2012.

Source: Rosstat, Credit Suisse Source: Rosstat, Credit Suisse

Exhibit 214: Rouble and Urals oil price Exhibit 215: Approximate rouble band $/bbl RUB against the basket comprising $0.55 and €0.45

33

34

35

36

37

38

Dec-10 May-11 Oct-11 Mar-12

40

50

60

70

80

90

100

110

120

130

Rouble vs basket (LHS)Oil price (Urals), (RHS, inv)

31.2

32.2

33.2

34.2

35.2

36.2

37.2

38.2

39.2

Oct-10 Mar-11 Aug-11 Feb-1231.2

32.2

33.2

34.2

35.2

36.2

37.2

38.2

39.2Free-float mini-bandBasket

The rouble remains well supported by export flows and

healthy demand from non-resident portfolio investors.

We estimate the rouble is now trading around the RUB 33.7

threshold level against the basket, where the central

bank has increased its daily intervention volumes from approximately $120mn to

about $250mn. Should net private capital outflows ease,

we may see further rouble appreciation towards

RUB32.2 against the basket.

Source: Central Bank, Credit Suisse Note: The $0.55/€0.45 basket is in effect since 8 February 2007. Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse.

Exhibit 216: Merchandise trade Exhibit 217: Federal budget operations $bn % yoy change in dollar values 12-month rolling, % of GDP

50

75

100

125

150

175

200

Oct-08 Nov-09 Dec-10 Jan-12-50-35-20-5102540557085100Balance (12m rolling, left scale)

Imports, % yoy, 3mma Exports, % yoy, 3mma

-8

-6

-4

-2

0

2

4

6

8

10

12

Oct-06 Feb-08 Jun-09 Oct-10 Feb-128

10

12

14

16

18

20

22

24

26

28

Overall balance (left scale)Total revenueNon-interest expenditure

Exchange rate volatility has curbed imports growth in Q4

after a period of extremely strong growth in Q2 and early Q3. Growth in exports values held steady, generating trade

surpluses of about $18bn-$19bn per month. The 12-

month rolling federal budget surplus narrowed in February to 0.2% of GDP from 0.8% of

GDP in December, following a spike in spending ahead of the elections. Assuming an average oil price (Urals) at

$119/bbl, the federal budget should stay roughly balanced

this year.

October 2010 data are Economy Ministry estimates. Source: Central Bank, Credit Suisse

Source: Finance Ministry, Credit Suisse

14 March 2012


Russia: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 6.4 8.2 8.5 5.2 -7.8 4.3 4.3 3.8 4.8 Growth in real private consumption (%) 12.2 12.2 14.3 10.8 -7.7 2.7 6.4 4.7 5.0 Growth in real fixed investment (%) 10.6 18.0 21.0 10.6 -14.1 6.1 6.0 6.0 7.0 Fixed investment (% of GDP) 20.1 21.2 24.2 25.4 18.7 21.8 21.0 20.0 21.3 Nominal GDP ($bn) 764.0 989.9 1,300 1,661 1,223 1,487 1,850 2,051 2,145 Population (mn) 142.8 142.1 141.4 140.7 140.0 139.4 138.7 139.1 139.0 GDP per capita, $ 5,351 6,968 9,193 11,804 8,731 10,670 13,337 14,748 15,431 Unemployment (% of labor force, end-year) 7.6 6.9 6.1 7.8 8.2 7.2 6.1 6.3 6.0 Prices, interest rates and exchange rates CPI inflation (%, December to December) 10.9 9.0 11.9 13.3 8.8 8.8 6.1 6.1 5.8 CPI inflation (%, average) 12.7 9.7 9.0 14.1 11.7 6.9 8.5 4.7 6.1 Nominal wage growth (% change, December to December) 24.9 24.6 30.2 15.3 10.2 15.6 18.2 17.5 16.3 Exchange rate (RUB per USD, end-year) 28.78 26.33 24.55 29.38 30.24 30.48 32.14 31.50 32.20 Exchange rate (RUB against the basket, end-year)(1) 30.91 29.70 29.62 34.66 36.12 35.50 36.50 35.50 36.00 Exchange rate (RUB per USD, average) 28.28 27.19 25.58 24.85 31.74 30.37 29.38 29.70 31.30 REER (% change, December to December)(2) 9.5 9.9 5.5 6.8 -6.9 9.3 3.9 2.8 1.4 Overnight deposit rate (%, end-year) 0.50 2.25 2.75 6.75 3.50 2.75 4.00 4.00 4.25 Refinancing rate 12.00 11.00 10.00 13.00 8.75 7.75 8.00 8.00 7.75 1-day direct repo minimum auction rate (%, end-year) 6.00 6.00 6.00 9.00 6.00 5.00 5.25 5.50 5.25 Fiscal data General government fiscal balance (% of GDP)(3) 9.0 8.4 6.0 4.8 -6.3 -3.5 1.6 -1.2 -2.9 Federal government primary fiscal balance (% of GDP) 8.4 8.1 5.9 4.5 -5.5 -3.4 1.5 0.7 -0.9 General government expenditure (% of GDP)(3) 31.6 31.1 34.2 34.3 41.4 38.3 36.8 36.5 35.9 Federal government fiscal balance (% of GDP)(3) 7.5 7.4 5.4 4.1 -6.0 -4.0 0.8 -0.1 -1.8 Gross general government debt (% of GDP, end-year) 14.1 9.2 7.4 6.1 7.7 8.1 8.5 8.6 10.3 Net general government debt (% of GDP, end-year)(4) 8.3 0.5 -4.2 -9.9 -4.2 0.5 -0.1 -0.5 1.2 Money supply and credit Broad money supply (M2, % of GDP) 27.9 33.3 38.7 31.4 39.3 44.3 45.1 47.2 49.0 Broad money supply (M2, % year-on-year change) 38.5 48.7 43.5 0.8 17.7 31.1 22.5 16.6 14.3 Domestic credit (% of GDP) 20.6 21.5 25.0 26.1 34.1 38.9 36.4 38.5 39.6 Domestic credit (% year-on-year) 5.0 30.0 43.6 29.6 22.7 31.9 13.4 18.4 13.4 Domestic credit to private sector (% of GDP) 25.7 30.9 37.7 41.4 47.5 46.3 46.5 49.1 51.5 Domestic credit to private sector (% year-on-year) 35.2 49.5 50.9 36.4 7.4 12.9 21.5 18.4 15.6 Balance of payments Exports (goods and non-factor services, % of GDP) 35.2 33.8 30.3 31.5 28.2 30.0 31.1 31.4 28.8 Imports (goods and non-factor services, % of GDP) 21.5 21.1 21.7 22.1 20.7 21.7 22.4 23.7 25.0 Exports (goods and non-factor services, % change in $ value) 31.9 24.5 17.6 32.8 -34.0 29.1 29.4 11.9 -4.2 Imports (goods and non-factor services, % change in $ value) 25.6 27.3 34.8 30.4 -31.1 27.6 28.6 17.1 10.3 Current account balance ($bn) 84.6 94.7 77.8 103.5 48.6 70.3 101.1 102.9 40.0 Current account (% of GDP) 11.1 9.6 6.0 6.2 4.0 4.7 5.5 5.0 1.9 Net FDI ($bn) 0.1 6.6 9.2 19.4 -7.2 -9.2 -10.0 -10.0 -5.0 Scheduled debt amortization ($bn)(5) 38.8 27.2 33.8 39.5 63.5 67.1 45.6 56.7 53.1 Foreign debt and reserves Foreign debt ($bn) 257.2 313.2 463.9 480.5 467.2 488.9 538.9 532.3 523.1

Public ($bn)(6) 76.5 52.0 44.9 40.5 37.6 40.0 33.5 34.0 32.7 Private ($bn) 180.7 261.2 419.0 440.0 429.6 448.9 505.4 498.3 490.4

Foreign debt (% of GDP, end-year) 33.7 31.6 35.7 28.9 38.2 32.9 29.1 25.9 24.4 Foreign debt (% of exports of goods and services) 95.7 93.6 117.8 91.9 135.4 109.7 85.4 74.8 76.5 Central bank gross non-gold FX reserves ($bn) 175.9 295.6 466.8 411.8 416.6 443.6 453.6 465.6 468.6 (1) The basket comprises $0.55 and €0.45. Our forecasts for the USDRUB exchange rate are derived from our basket exchange rate forecasts and Credit Suisse's EURUSD forecasts. (2) Real effective exchange rate (deflator: CPI), increase indicates appreciation. (3) Net of bank recapitalization costs. (4) Net of official fiscal reserves (Stabilization Fund assets through 2007, thereafter the sum of the Reserve Fund and the National Welfare Fund). (5) Long- and medium-term amortization of the private and public sectors. (6) Liabilities of the central and regional governments and the central bank. Source: Rosstat, Central Bank of Russia, Finance Ministry of the Russian Federation, Credit Suisse

14 March 2012


South Africa: Reasons to be positive • Macroeconomic developments in South Africa in recent months have been more

positive than what was generally feared at the time of our last Emerging Markets Quarterly (7 December 2011), in our view. First, real GDP growth in Q4 recorded a broad-based acceleration to a higher-than-expected 3.2% qoq annualized, and activity in January and February was on balance more resilient than expected, in our view. Second, consumer price inflation increased to 6.3% yoy in January, but the continued breach of the inflation target (3%-6%) looks likely to be smaller and less extended than feared late last year, in our view. Third, as global risk appetite has recovered so have international portfolio inflows to South Africa. Finally, the rand has recovered more quickly and more strongly than expected, up 7% since the beginning of the year, in nominal trade-weighted terms.

• There are a number of reasons, both external and domestic, to be more optimistic about the prospects for South African economic growth, inflation, capital inflows and the rand. First, our global economists expect a sequential improvement in quarterly global real GDP growth and monthly industrial production throughout 2012. According to their estimates, quarter-on-quarter annualized real GDP growth bottomed in Q4 2011 and should accelerate throughout 2012. Similarly, global industrial production growth bottomed in late 2011, accelerated in the current quarter, and is expected to maintain a relatively solid rate of 5.2% on a 3m/3m annualized basis throughout the rest of 2012.

• Second, our commodity research analysts forecast that prices for most industrial and precious metals will increase throughout the year, as the global economy proves to be more resilient to the European debt crisis than was feared late last year. Our commodity research analysts do not think that there has been a structural decline in investor interest in commodities (see The Demise of Commodities as an Asset Class Much Exaggerated, 5 March 2012). All of this bodes well for South Africa’s mining production volumes (see Better prospects for mining output in 2012, 30 January 2012) and for capital inflows related to the sector. On 1 March 2012, our foreign currency strategists revised their forecast for EURUSD to 1.29 on a three-month horizon and 1.28 on a 12-month horizon, in response to improved global risk appetite. They also revised stronger the forecasts for emerging market currencies, including USDZAR, which is expected to be at 7.80 on a three-month horizon and 7.50 on a 12-month horizon.

• South African monetary policy remains accommodative, in our opinion. We expect that the policy rate of 5.5% will remain unchanged until H2 2013, implying negative real short-term interest rates for most of the current year. We think that the Reserve Bank could lower its forecasts for headline consumer price inflation at the next MPC meeting on 27-29 March. Nevertheless, we expect that it will maintain its preference for a stable interest rate environment, as economic growth surprises on the upside, credit growth accelerates further, the growth rate of unit labor costs increases, and core inflation moves higher, in our view.

• Fiscal policy is set to be less stimulatory, but the prospects for the broader public sector’s infrastructure program have improved. The consolidated government budget deficits have been revised lower for the next three fiscal years. Expenditure as a percentage of GDP was revised marginally lower in the Budget Review on 22 February but remains at historical highs, above 31% over the next three fiscal years, according to the National Treasury’s estimates. The tax burden is budgeted to increase to 27.4% of GDP in FY2012/13 from a previous estimate of 27%. The ratio moves higher in FY2013/14 and FY2014/15. We think that expenditure plans for the next three years are designed with too little margin for error. In our opinion, the risk is that expenditure turns out to be higher than budgeted, either in response to political pressures or in reaction to the fiscal space that upside surprises in economic growth and tax collection could provide.

Carlos Teixeira +27 11 012 8054

[email protected]

14 March 2012


• There appears to be renewed vigor in the public sector’s infrastructure program. Infrastructure expenditure is budgeted to increase by 5.3% to ZAR845bn over the next three years. The program will be monitored by a newly formed presidential infrastructure coordinating committee. The public sector accounts for 36% of total fixed investment in the economy, therefore an implementation of the program in line with what has been budgeted would support the construction sector and the recovery in fixed investment more generally, in our view (see Construction awaits vigor in infrastructure investment, 23 February 2012).

• Against this backdrop, our core macroeconomic forecasts are as follows. First, we maintain our above-consensus forecast for real GDP growth for 2012 and 2013 at 3.3% and 4.0%, respectively. We expect that real household consumption expenditure will grow at a more moderate pace of 3.4% in 2012 compared to an estimated 4.9% in 2011. We now expect fixed investment to pick up some of the slack with estimated growth at 4.4% in 2012 compared to an estimated 4.2% in 2011. This would help lift South Africa’s fixed investment ratio to an estimated 20.2% of GDP. We expect that government consumption growth will slow to 3.4% in 2012 from an estimated 4.3% in 2011. In summary, we estimate that the growth rate of gross domestic expenditure will slow to 3.7% in 2011 compared an estimated 4.3% in 2011. Consequently, the growth rate of import volumes will also decelerate based on our estimates.

• Second, despite weaker growth in imports we expect that the current account deficit will widen marginally. An expected increase in income and service payments will likely push the current account deficit to 4.0% of GDP in 2012 from an estimated 3.6% in 2011. According to our estimates, South Africa’s total balance of payments funding needs increase to $44.6bn in 2012 from an estimated $38.5bn in 2011. Aside from the higher current account deficit, a large increase in private sector debt amortization in 2012 pushes up the country’s external financing needs, which is expected to be equivalent to 10.8% of GDP.

• Third, we revise higher our estimates for foreign direct investment inflows and portfolio inflows, in line with our more constructive view on global growth, commodity prices and general risk appetite. We pencil in $3.1bn of foreign direct investment inflows for 2012 and $6.3bn of international portfolio inflows. We assume short-term financing of $20.6bn, similar to the amount borrowed in 2011. We also assume that other investment inflows and resident repatriations will again be high, similar to what was experienced in 2011. Lastly, we expect that the Reserve Bank will react to appreciation pressure on the rand by building foreign exchange reserves. We estimate that the real effective rand exchange rate will have appreciated by 8% by the end of 2012 compared to the depreciation of 14% in 2011.

• Finally, we lower our estimates marginally for inflation as a result of our stronger forecast for the rand. The recent appreciation in the rand looks likely to temper the rise in inflation expected in the months ahead, in our view. Furthermore, the announcement that electricity tariffs will only be raised by 16% this year compared to a previously announced 25.9%, also leads us to revise lower our year-end forecast for consumer price inflation to 5.5% from 5.7%. Our forecast for inflation was not cut more aggressively because we have concerns about the renewed increase in domestic maize prices, the growth rate of unit labor costs and rising core inflation.

• Reserve Bank Governor Marcus has said that the renewed increase in unit labor costs poses upside risk to the inflation outlook. The growth rate of nominal unit labor costs accelerated to 8.3% in Q3 2011, having fallen to 5.2% in mid-2011 from 10.5% in early 2010. Trade unions look likely to take advantage of the ruling ANC’s policy and elective conferences this year (in June and December, respectively) to push for higher wage adjustments and increased regulation of the labor market. We continue to think that monetary and fiscal policies will remain orthodox, despite the likely increased political rhetoric this year.

14 March 2012


Exhibit 218: Contribution to quarter-on-quarter annualized real GDP growth

Exhibit 219: Net international portfolio inflows

supply-side – pps, with the exception of real GDP $bn $bn

-7

-5

-3

-1

1

3

5

08 09 10 11

ConstructionFinanceTradeGovernmentManufacturingMiningGDP (% qoq ann)

-4

-3

-2

-1

0

1

2

3

4


-12

-8

-4

0

4

8

12

16

MonthlyRolling 12-month sum (right)

Preliminary activity data for January and February suggest that economic

output expanded in Q1, following the broad-based

recovery in GDP in Q4. We maintain our above-

consensus real GDP growth forecast of 3.3% for 2012. Net international portfolio inflows have improved in

line with the improvement in global risk appetite.

Source: Reserve Bank, Credit Suisse Source: I-Net, Credit Suisse

Exhibit 220: Total mining volumes Exhibit 221: Total mining volumes % quarter-on-quarter, seasonally adjusted annualized % quarter-on-quarter, seasonally adjusted annualized

-7

-5

-3

-1

1

3

5

7

05 06 07 08 09 10 11 12 13 1460

65

70

75

80

85

90

95

100

105Global GDP growthTotal mining volumes (right)

-14-12-10-8-6-4-202468

101214

05 06 07 08 09 10 11 12 13 14-12-10-8-6-4-2024681012Global industrial prod.

Mining volumes (sa) (right)

We expect that mining volumes will rebound this

year, following their collapse in 2011. A

sequential improvement in external demand, higher international commodity prices and higher fixed

investment in the sector should all boost production

volumes.

Source: Statistics South Africa, Credit Suisse Source: Statistics South Africa, Credit Suisse

Exhibit 222: Real interest rate Exhibit 223: National budget %, average of 3-month real rate and 10-year real yield 3mma, % yoy change 12-month rolling, % of GDP

-4

-2

0

2

4

6

8

10

12

14

91 94 97 00 03 06 09 12

-35-30-25-20-15-10-505

101520253035

07 08 09 10 11 12-8

-6

-4

-2

0

2

4

6

8

Budget balance (right)RevenueNon-interest expenditure

We expect that monetary conditions will ease in the

quarters ahead, helped by lower real short interest

rates, as the Reserve Bank holds the policy rate steady. In contrast, the fiscal stance is set to be less stimulatory

at a consolidated government level, although

expenditure as a percentage of GDP does

remain at historical highs.

Source: I-Net, Statistics South Africa, Credit Suisse Source: National Treasury, Reserve Bank, Credit Suisse

14 March 2012


Exhibit 224: Public economic infrastructure

Exhibit 225: Contributions to quarter-on-quarter annualized real gross fixed investment

1960 = 100 pps, with the exception of total fixed investment

0

100

200

300

400

500

600

700

800

60 65 70 75 80 85 90 95 00 05 10 15

Stock of public economicinfrastructure

Total construction output

-25-20-15-10-505

10152025

00 01 02 03 04 05 06 07 08 09 10 11 12

Private businessPublic corporationsGovernmentTotal fixed investment (% qoq)

There are positive indications that the public

sector’s infrastructure program could be

implemented with greater vigor over the next 18

months. This would help support the recovery in fixed investment, which

over the past seven quarters has been led by

the private sector’s investment in machinery

and equipment, whilst investment in construction-related assets has lagged.

Source: Reserve Bank, Credit Suisse Source: Reserve Bank, Credit Suisse

Exhibit 226: The rand’s nominal trade-weighted exchange rate

Exhibit 227: Current account components

Index 12-month rolling, % of GDP

60

65

70

75

80

85


-8

-6

-4

-2

0

2

4

6

00 01 02 03 04 05 06 07 08 09 10

Transfers balanceIncome balanceServices balanceTrade balanceCurrent account

The nominal trade-weighted rand has recovered by 14% since late November 2011.

In real effective terms we expect that the rand will end this year 8.3% stronger than

at the end of 2011. This is based on the expectation

that capital inflows will increase this year, which

should help fund an expected wider current

account deficit.

Source: the BLOOMBERG PROFESSIONALTM service Source: Reserve Bank, Credit Suisse

Exhibit 228: Unit labor costs Exhibit 229: Consumer price inflation % year-on-year change % year-on-year change

0

2

4

6

8

10

12

14

16

07 08 09 10 11 12

ProductivityUnit labour costsRemuneration

-6

-3

0

3

6

9

12

03 04 05 06 07 08 09 10 11 12

Headline CPI inflationCore CPI inflation

The inflation outlook has improved as a result of the

stronger-than-expected appreciation in the rand, but

other risks remain for inflation, including an

acceleration in the growth rate of unit labor costs.

Source: Reserve Bank, Credit Suisse Source: Statistics South Africa, Credit Suisse

14 March 2012


South Africa: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 5.3 5.6 5.5 3.6 -1.5 2.9 3.1 3.3 4.0 Growth in real private consumption (%) 6.1 8.3 5.5 2.2 -1.6 3.7 4.9 3.4 4.2 Growth in real fixed investment (%) 11.0 12.1 14.0 13.3 -3.2 -1.6 4.2 4.4 4.8 Fixed investment (% of GDP) 16.8 17.8 19.2 21.0 20.7 19.8 20.0 20.2 20.4 Nominal GDP ($bn) 246.9 261.2 285.8 274.2 284.5 364.3 397.2 411.2 450.8 Population (mn) 48.2 48.6 49.0 48.6 49.3 50.0 50.6 51.1 51.6 GDP per capita, $ 5,125 5,376 5,837 5,636 5,768 7,287 7,851 8,048 8,734 Unemployment (% of labor force, end-year) 23.5 22.1 21.0 21.9 24.2 24.0 23.9 23.0 22.5 Prices, interest rates and exchange rates CPI inflation (%, December to December) 2.0 4.7 7.4 9.0 6.3 3.5 6.1 5.5 5.5 CPI inflation (%, average) 2.0 3.1 6.0 9.9 7.1 4.3 5.0 6.0 5.3 Nominal wage growth (% change, December to December)(1) 4.3 13.8 7.4 12.2 15.5 10.1 7.5 8.0 8.0 Exchange rate (ZAR per USD, end-year) 6.32 6.97 6.81 9.53 7.38 6.63 8.09 7.50 7.80 Exchange rate (ZAR per USD, average) 6.36 6.77 7.05 8.25 8.43 7.31 7.25 7.67 7.66 REER (% change, December to December)(2) 0.0 -9.4 0.1 -16.5 22.5 10.0 -13.8 8.3 -1.5 Repo rate (%, end-year) 7.00 9.00 11.00 11.50 7.00 5.50 5.50 5.50 6.50 Fiscal data(3) General government fiscal balance (% of GDP) -0.3 0.7 0.9 -1.1 -6.5 -4.2 -4.8 -4.6 -4.0 General government primary balance (% of GDP) 2.8 3.5 3.4 1.3 -4.2 -1.8 -2.2 -1.9 -1.2 General government expenditure (% of GDP) 25.8 25.7 26.1 30.8 33.7 31.7 32.5 33.4 32.0 Gross general government debt (% of GDP, end-year) 32.8 30.1 27.6 27.2 33.0 36.0 39.4 40.8 41.9 Net general government debt (% of GDP, year-end) 29.1 26.0 23.0 22.8 27.6 29.7 33.0 35.8 37.6 Money supply and credit Broad money supply (M2, % of GDP) 61.3 65.5 69.3 69.0 66.2 63.0 62.4 62.2 63.5 Broad money supply (M2, % year-on-year change) 17.7 20.1 20.7 11.8 1.7 5.6 7.2 9.1 11.8 Domestic credit (% of GDP) 79.4 87.5 92.3 95.5 91.8 87.9 87.3 88.4 90.2 Domestic credit (% year-on-year) 16.6 24.0 20.2 16.1 1.9 6.2 7.5 10.8 11.8 Domestic credit to private sector (% of GDP) 72.6 81.2 86.5 87.6 82.5 78.4 76.9 77.8 79.4 Domestic credit to private sector (% year-on-year) 19.5 25.8 21.5 13.6 -0.1 5.5 6.1 10.7 11.8 Balance of payments Exports (goods and non-factor services, % of GDP) 27.4 30.0 31.5 35.8 27.4 26.9 29.4 32.8 35.6 Imports (goods and non-factor services, % of GDP) 27.9 32.5 34.2 38.8 28.3 27.5 30.4 32.2 34.7 Exports (goods and non-factor services, % change in $ value) 16.6 15.9 14.8 9.1 -20.5 25.6 19.3 15.7 18.8 Imports (goods and non-factor services, % change in $ value) 17.3 23.2 15.4 8.9 -24.4 24.7 20.2 9.8 18.1 Current account balance ($bn) -8.6 -13.9 -19.9 -19.6 -11.5 -10.3 -14.3 -16.6 -19.1 Current account (% of GDP) -3.5 -5.3 -7.0 -7.2 -4.0 -2.8 -3.6 -4.0 -4.2 Net FDI ($bn) 5.7 -6.6 2.7 12.2 4.2 1.3 3.4 3.1 3.7 Scheduled debt amortization ($bn)(4) 2.6 2.0 1.8 2.0 2.1 1.8 2.3 7.3 4.4 Foreign debt and reserves Foreign debt ($bn)(5) 48.6 59.4 75.3 72.9 78.6 99.0 111.0 118.5 126.9


Foreign debt (% of GDP, end-year) 19.7 22.7 26.4 26.6 27.6 27.2 27.9 28.8 28.2 Foreign debt (% of exports of goods and services) 71.9 75.8 83.7 74.3 100.8 101.1 95.0 87.7 79.1 Central bank gross FX reserves, including forward FX transactions ($bn) 20.7 25.6 33.0 34.1 39.7 43.8 48.9 53.9 54.9 Central bank net FX reserves ($bn) 17.2 23.0 31.3 33.5 39.0 43.4 47.9 51.6 52.6 Central bank gross non-gold FX reserves ($bn) 18.6 23.1 29.6 30.6 35.3 38.2 42.6 47.0 47.8 (1) Based on remuneration per worker, index 2000=100. (2) Real effective exchange rate, increase indicates appreciation. (3) Data for fiscal years starting 1 April. Selected data refer to the government’s consolidated fiscal balances from 2009. (4) Of medium- and long-term debt only. (5) Including rand-denominated debt held by non-residents. Source: South African Reserve Bank, Statistics South Africa, National Treasury, Credit Suisse

14 March 2012


Turkey: A temporary soft patch • Economic activity is moderating after a slight pick-up in Q4 2011, on our estimates.

(GDP data for Q4 2011 will be released on 2 April.) Industrial output was up 3.1% qoq in Q4 2011 on a seasonally and workday adjusted (swda) basis, accelerating sharply from 0.9% qoq swda in Q3 2011. Since early 2012, however, signs of moderation have emerged in both demand- and supply-side indicators, which were driven by various factors, in our view, including the increase in banks’ lending rates (in response to tighter lira liquidity since late October) and supply-chain disruptions caused by adverse weather conditions. The run-rate of consumer loan growth (the annualized four-week moving average of the week-on-week growth rate) was nil at end-January compared to about 15.0% at end-December. Meanwhile, industrial output was down 1.9% mom swda in January, the manufacturing sector’s capacity utilization rate declined to 75.8% in February from 76.6% in December, and the manufacturing PMI dipped below 50 in February for the first time since April 2009.

• However, this moderation is likely to be temporary, in our view. Credit growth has started to pick up since late January as the central bank – encouraged by the stronger lira and global risk appetite – has been easing lira liquidity. Banks’ lending rates have been declining since late January (mortgage rates by about 110bps to 13.45%), and the run-rate of consumer loan growth increased to about 8.0% in early March. The central bank’s monthly business survey also showed a surge in three-month-ahead orders in February. In view of the central bank’s growth-supportive policy stance (which became even more clear, in our view, in the context of the 31 January inflation report) and recent signs of a pick-up in economic activity compared to early 2012, we revised higher our 2012 real GDP growth forecast to 4.2% from 2.1% previously. (We also revised our 2011 real GDP growth forecast to 8.8% from 7.5%.)

• The demand side of the economy is continuing to rebalance away from domestic demand, but the pace of this rebalancing is slowing. The available volume data for goods exports and imports suggest that the rebalancing (which started in Q2 2011) has continued through Q4 2011, albeit at a slower rate. Similarly, the current account deficit (in seasonally adjusted dollar terms) declined on average to $5.8bn in Q4 2011 from $6.2bn in Q3 2011and $7.0bn in Q2 2011, on our estimates. The seasonally adjusted current account deficit was broadly unchanged in January compared to the Q4 2011 average, but this was partly due to high oil prices. The run-rate of the current account deficit (currently at about $70bn) might dip below our 2012 current account deficit forecast of $61.4bn (7.7% of GDP) in February or March, but the central bank’s growth-supportive policies, its lira-based disinflation strategy and high oil prices imply that any near-term improvement in the current account deficit would be temporary. (Our average global oil price assumption for 2012 is $120/bbl and an increase of $10/bbl adds about $5bn to Turkey’s full-year current account deficit, all else being equal.) We believe the large (albeit narrowing) current account deficit will keep the lira vulnerable to swings in global risk sentiment and the exchange-rate-dependent monetary policy outlook highly uncertain. Additionally, the longer it takes for the external imbalances to improve, the higher the pressure on Turkey’s credit ratings and outlook will be, in our view.

• The inflation outlook remains contingent on the exchange rate as ever. Headline inflation increased to 10.4% yoy in February 2012 from 6.2% yoy in September 2011, as a result of administered price/tax hikes, unfavorable base effects and the pass-through from the weak lira. The run-rate of core inflation (annualized three-month moving average of the central bank’s core inflation indicator I) remained within 8.0%-8.5% after September but declined modestly to 7.6% in February on account of the lira’s recent strength. In the absence of another exchange rate shock, we expect the run-rate of core inflation to continue to slow but forecast that headline inflation will hover around 10.0% through May (and possibly through July) and fall gradually to 6.5% by end-2012. Since another exchange rate shock would push headline inflation firmly into double-digit territory, the MPC will continue to monitor the exchange rate as a key (but not the only) input into its policy decisions. We do not expect the MPC to respond to the first-round impact of higher global oil prices.

Berna Bayazitoglu +44 20 7883 3431

[email protected]

14 March 2012


• Since August 2011, the central bank has tried to contain the impact on the lira of moderating cross-border capital inflows with sizable FX sales. Twelve-month rolling net other investments (which primarily comprise cross-border loans and the repatriation of residents’ off-shore deposits, and constitute the main source of financing for the current account deficit) declined to $24.5bn in January 2012 from $39.5bn in August 2011. Concurrently, the central bank’s FX reserves declined by $16.3bn, with declines of $7.5bn recorded in August-October and $8.1bn in December-January. These FX sales, however, had to be combined with sharply higher short-term interest rates (and stronger global risk appetite) in order for the depreciation pressure on the lira to be contained.

• The MPC’s focus on the exchange rate since August 2011 – combined with its reluctance for an outright repo rate hike – led to frequent changes in the monetary policy framework. The central bank relied solely on FX sales in August-October to contain the depreciation pressure on the lira, but this proved inadequate. The depreciation in the lira’s nominal basket exchange rate (BASKTRY) to as weak as 2.22 on 19 October triggered a sharp 350bps hike in the central bank’s overnight lending rate (i.e., the upper end of the short-term interest rate corridor) to 12.50%. While the central bank continued to provide one-week lira funding at the unchanged policy rate of 5.75%, the interbank overnight rate moved higher by about 460bps to 10.78% on average (between 20 October and 28 December). Nevertheless, the increase in the effective yield support for the lira was not adequate on its own either to stabilize the lira (as the central bank limited its FX sales in November). As BASKTRY weakened to 2.22 again in late December, the central bank started to implement a new and even more complicated monetary policy framework from 29 December, combining high short-term interest rates and aggressive FX sales through 9 January which succeeded in reversing the depreciation pressure on the lira (albeit with the help of improving global risk appetite).

• The new monetary policy framework is primarily specified with respect to global risk appetite, in our view, continuing to damage the credibility of the inflation targeting regime. Under the new framework that has been in effect since 29 December, the central bank provides one-week lira funding at the policy rate (the one-week repo rate which still stands at 5.75%) on “normal” days and at the auction-clearing rate on “exceptional” days. The central bank’s definition of “normal” and “exceptional” days is not clear, but the eight “exceptional” trading days between 29 December and 9 January were characterized by low global risk appetite and limited capital inflows into Turkey. On those “exceptional” days, the central bank provided one-week funding at an average interest rate of 11.73% (rather than at 5.75%) and sold FX aggressively both through direct interventions and regular daily FX auctions. Since 10 January, stronger global risk appetite has allowed all trading days to be classified as “normal” days and the central bank has been providing one-week funding at the policy rate of 5.75%. The central bank has also been providing one-month lira funding (at the auction-clearing rate) since late December, keeping the average cost of lira funding above the policy rate of 5.75%, albeit on a declining path.

• The monetary policy outlook remains contingent on BASKTRY and credit growth, but is biased for further easing, in our view. Since November, the MPC has been underscoring the importance of credit growth and inflation expectations (i.e., BASKTRY, in our reading) in its policy decisions. In its 31 January inflation report, the central bank revised higher its end-2012 inflation forecast to 6.5% under the baseline assumptions for BASKTRY of about 2.05 and credit growth of 15.0%. (In the same report, the central bank pushed the timing for the attainability of the 5% inflation target to mid-2013 in view of the “potential output costs” that would be associated with further monetary policy tightening, underscoring real GDP growth as a priority.) As BASKTRY traded around 2.02 and the run-rate of credit growth was only 1.5% for consumer loans ahead of its February meeting, the MPC eased monetary policy on 21 February by lowering the central bank’s overnight lending rate by to 11.50% and adopted a “cautious” stance for the coming period. Our best guess regarding this “cautious” stance is that the MPC will ease monetary policy (by lowering the central bank’s overnight lending rate) as long as the two key variables – BASKTRY and the credit growth rate – provide the room for it.

14 March 2012


Exhibit 230: Gross domestic product and industrial production

Exhibit 231: Manufacturing sector’s output and capacity utilization rate

% quarter-on-quarter change

-12.0

-8.0

-4.0

0.0

4.0

8.0

Q4-05 Q4-07 Q4-09 Q4-11

IP

GDP

70

80

90

100

110

120

130

140


55

60

65

70

75

80

85

Manufacturing output(2005=100, seasonally andworkday adjusted)Capacity utilization rate (%,seasonally adjusted, right)

Available indicators suggest that real GDP growth might have accelerated modestly

in Q4 2011. Industrial output growth in Q4 2011

was recorded as 3.1% qoq in seasonally and workday-adjusted terms, up sharply from 0.9% qoq in Q3 2011.

Manufacturing activity indicators from early 2012,

however, are showing signs of moderation, which might

have been due to supply-chain disruptions caused by adverse weather conditions.

Source: Statistics Office, Credit Suisse Source: Statistics Office, Credit Suisse

Exhibit 232: Consumer loan growth Exhibit 233: Interbank lending rates % week-on-week change %

-10

0

10

20

30

40

50

60

6-Jul 24-Sep 13-Dec 2-Mar

% annualized, 4-weekmoving average

% annualized, 13-weekmoving average

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Sep-10 Mar-11 Sep-11 Mar-12

The run-rate of consumer loan growth (which we

calculate as the annualized four-week moving average

of the week-on-week growth rate) was nil at end-January

compared to about 15.0% at end-December. This was

possibly driven by the increase in banks’ lending

rates that followed the central bank’s tightening of

lira liquidity from late October.

Source: Central Bank, Credit Suisse Source: Istanbul Stock Exchange, Central Bank

Exhibit 234: Banks’ lending rates Exhibit 235: New orders* % Three-month ahead

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0


Cash

Housing

-60

-40

-20

0

20

40

60


However, the moderation in economic activity in early

2012 is likely to be temporary, in our view.

Lending rates have been declining since late

January and the run-rate of consumer loan growth

increased to about 8.0% in early March as the central bank has been easing lira liquidity. There was also a

surge in the manufacturing sector’s three-month ahead

orders in February.

Source: Central Bank * Based on the central bank’s monthly business survey and calculated as the difference between the share of companies that see an increase in their orders and those that see a decline. Source: Central Bank, Credit Suisse

14 March 2012


Exhibit 236: Export and import volumes (for goods only)

Exhibit 237: Foreign trade and current account deficit

2003 = 100, seasonally adjusted $bn, seasonally adjusted

120.0

140.0

160.0

180.0

200.0

Q4-09 Q2-10 Q4-10 Q2-11 Q4-11

Export volumesImport volumes

0.0

2.0

4.0

6.0

8.0

10.0

12.0


Current account deficit

Foreign trade deficit

The demand side of the economy is continuing to

rebalance away from domestic demand, but the pace of this rebalancing is

slowing as evidenced by the available volume data for

goods exports and imports and the current account

deficit (in seasonally adjusted dollar terms).

Source: Statistics Office, Credit Suisse Source: Statistics Office, Central Bank, Credit Suisse

Exhibit 238: Lira’s basket exchange rate

Exhibit 239: Weighted average cost of central bank’s lira funding

Average of USDTRY and EURTRY Cumulative since 29 December 2011

1.65

1.75

1.85

1.95

2.05

2.15

2.25

Mar-11 Jul-11 Nov-11 Mar-12

6.00

7.00

8.00

9.00

10.00

11.00

12.00

29-Dec

3-Jan8-Jan13-Jan18-Jan23-Jan28-Jan2-Feb7-Feb12-Feb17-Feb22-Feb27-Feb3-M

ar8-M

ar13-M

ar

The large (albeit narrowing) current account deficit will keep the lira vulnerable to

swings in global risk sentiment, and the

exchange-rate-dependent monetary policy outlook highly uncertain, in our

view. The central bank’s complicated monetary

policy framework allows for lira liquidity to be eased if

the exchange rate remains well-behaved.

Source: Central Bank, Credit Suisse Source: Central Bank, Credit Suisse

Exhibit 240: Contributions to headline inflation Exhibit 241: Core inflation pps, with the exception of CPI %, annual

-2

0

2

4

6

8

10

12

Feb-11 Aug-11 Feb-12

Core itemsTobaccoEnergyFoodCPI (% yoy)

-2

0

2

4

6

8

10

12

14


Core index I*

Run-rate of core index I**

The inflation outlook remains contingent on the

exchange rate as ever. Under a baseline forecast of

BASKTRY at 2.10 at end-2012, we forecast that

headline inflation will hover around 10.0% through May (and possibly through July)

and fall gradually to 6.5% by end-2012, exceeding the

end-2012 central inflation target of 5.0%.

Note: The energy component of CPI is not released officially. We simulate it using the officially released core indicator excluding energy. Source: Statistics Office, Credit Suisse

*Core index I excludes food, energy, tobacco products, alcoholic beverages and gold from the CPI basket. **Calculated as the annualized three-month moving average of the month-on-month changes in the seasonally adjusted core index I. Source: Statistics Office, Credit Suisse

14 March 2012


Turkey: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 8.4 6.9 4.7 0.7 -4.8 9.0 8.8 4.2 3.8 Growth in real private consumption (%) 7.9 4.6 5.5 -0.3 -2.3 6.7 7.8 4.0 4.0 Growth in real fixed investment (%) 17.4 13.3 3.1 -6.2 -19.0 29.9 17.9 8.0 11.0 Fixed investment (% of GDP) 21.0 22.3 21.4 19.9 16.9 18.7 22.7 23.0 22.5 Nominal GDP ($bn) 484.0 529.9 647.8 735.2 615.7 735.7 765.8 801.7 853.5 Population (mn) 69.8 70.2 70.6 71.0 71.4 71.8 72.2 72.6 73.0 GDP per capita ($) 6,934 7,549 9,176 10,355 8,624 10,246 10,606 11,040 11,688 Unemployment (% of labor force, end-year) 10.6 10.4 10.3 11.0 14.0 12.0 9.8 8.2 8.0 Prices, interest rates and exchange rates CPI inflation (%, December to December) 7.7 9.7 8.4 10.1 6.5 6.4 10.4 6.5 6.5 CPI inflation (%, average) 8.2 9.6 8.8 10.4 6.3 8.6 6.5 9.5 6.2 Nominal wage growth (% change, December to December)(1) 11.9 13.2 14.7 12.4 9.0 8.7 8.0 8.0 8.0 Exchange rate (TRY per USD, end-year) 1.34 1.41 1.16 1.51 1.51 1.55 1.91 1.84 1.95 Exchange rate (TRY against the basket, end-year)(2) 1.47 1.64 1.44 1.83 1.83 1.80 2.18 2.10 2.20 Exchange rate (TRY per USD, average) 1.34 1.43 1.30 1.29 1.55 1.50 1.67 1.81 1.88 REER (% change, December to December)(3) 16.9 -7.6 17.5 -12.7 1.6 7.6 -9.0 10.8 1.7 1-week repo rate (%, end-year)(4) 15.35 18.38 16.73 15.64 7.11 6.50 5.75 5.75 5.75 Fiscal data Central government's fiscal balance (% of GDP) -1.8 -0.9 -2.5 -2.8 -6.4 -4.2 -1.5 -1.2 -1.1 General government fiscal balance (% of GDP)(5) -0.6 0.0 -1.2 -1.9 -4.9 -3.2 -0.7 -0.4 -0.3 Central government primary fiscal balance (% of GDP) 3.8 4.5 2.6 1.9 -1.5 -0.4 1.4 1.9 1.8 General government primary balance (% of GDP)(5) 4.5 4.9 3.5 2.2 -0.6 0.2 1.9 2.6 2.5 Central government expenditure (% of GDP) 22.3 23.2 24.2 23.8 28.2 26.7 24.0 24.4 24.5 General government expenditure (% of GDP)(5) 31.8 32.7 33.3 33.8 37.3 34.8 32.1 32.5 32.6 Gross central government debt (% of GDP, end-year) 51.1 45.6 39.6 40.0 46.3 42.9 39.9 36.4 34.1 Net general government debt (% of GDP, end-year)(6) 41.6 34.0 29.5 28.2 32.5 28.8 25.7 22.2 20.0 Money supply and credit Broad money supply (M2, % of GDP)(7) 23.6 39.2 40.9 45.7 51.5 53.3 52.0 52.7 54.8 Broad money supply (M2, % year-on-year change) 41.1 25.0 16.0 25.8 13.0 19.8 13.2 15.0 15.0 Domestic credit (% of GDP) 47.6 46.6 49.7 51.7 61.9 67.7 67.6 68.0 69.7 Domestic credit (% year-on-year) 33.5 14.3 18.6 17.3 20.1 26.6 15.7 14.3 13.3 Domestic credit to private sector (% of GDP) 21.9 25.5 29.3 31.8 36.0 43.7 50.0 50.6 52.3 Domestic credit to private sector (% year on year) 67.1 36.1 27.8 22.4 13.4 40.4 32.8 14.9 14.3 Balance of payments Exports (goods and non-factor services, % of GDP) 21.7 22.5 22.3 24.0 23.3 21.2 23.8 24.8 25.8 Imports (goods and non-factor services, % of GDP) 25.4 27.7 27.5 28.8 24.5 26.7 33.1 31.7 31.7 Exports (goods and non-factor services, % change in $ value) 14.9 13.3 21.1 22.2 -18.6 8.4 17.2 9.0 10.6 Imports (goods and non-factor services, % change in $ value) 21.2 19.3 21.3 19.0 -28.6 30.1 29.0 0.2 6.6 Current account balance ($bn) -22.2 -32.2 -38.4 -41.5 -13.4 -46.6 -77.2 -61.4 -56.9 Current account (% of GDP) -4.6 -6.1 -5.9 -5.6 -2.2 -6.3 -10.1 -7.7 -6.7 Net FDI ($bn) 9.0 19.3 19.9 17.0 6.9 7.6 13.4 15.0 17.0 Scheduled debt amortization ($bn)(8) 27.7 30.2 37.5 41.0 47.2 45.9 39.8 41.8 26.1 Foreign debt and reserves Foreign debt ($bn) 169.9 207.7 249.6 280.4 268.8 290.0 307.6 325.2 342.7


Foreign debt (% of GDP, end-year) 35.1 39.2 38.5 38.1 43.7 39.4 40.2 40.6 40.2 Foreign debt (% of exports of goods and services) 161.6 174.3 173.0 159.0 187.2 186.3 168.6 163.4 155.7 Central bank gross FX reserves ($bn) 52.4 63.3 76.4 74.2 74.8 86.0 88.2 84.9 88.7 Central bank gross non-gold FX reserves ($bn) 50.5 60.9 73.3 71.0 70.7 80.7 78.3 75.0 78.8 (1) For the private manufacturing sector for 2004 and 2005, for the overall manufacturing sector for 2006 and 2007, and the overall hourly earnings index thereafter. (2) The basket exchange rate is the average of USDTRY and EURTRY exchange rates. Our forecasts for USDTRY are derived from our basket exchange rate forecasts and Credit Suisse's EURUSD forecasts. (3) Real effective exchange rate, increase indicates appreciation. (4) The monetary policy committee changed the definition of the policy rate on 18 May 2010 to the one-week repo rate from central bank’s overnight borrowing rate previously. (5) The definition of the consolidated government comprises the central government, extra-budgetary funds, state-owned enterprises, social security institutions and the Unemployment Insurance Fund. The data for government spending and gross debt are for the central government. (6) Gross general government debt minus the central bank's net assets, public sector's deposits/securities and the assets of the Unemployment Insurance Fund. (7) Central bank’s old definition of M2 is used for both 2004 and 2005 due to lack of data on the new definition. (8) Of medium- and long-term debt, including repayments to the IMF. Source: Statistics Office, Central Bank, Treasury, IMF, Credit Suisse

14 March 2012


Ukraine: Left to her own devices? • Ukraine’s ability to successfully cope with its large financing needs over the next

couple of years seems in doubt. This is due primarily to the increasing focus of the country’s political leaders on the forthcoming parliamentary elections scheduled for October 2012. This overriding need to secure public support ahead of the elections has prevented the government from meeting its earlier commitment to the IMF on raising gas tariffs and has likely contributed to the decision by the president to increase social spending by some 1.2pps of GDP this year, over and above the approved budget targets. With scope for cooperation with the IMF and other multilateral lenders prior to the elections all but closed, Ukraine is now facing the need to repay some $3.2bn to IFIs (after the $0.6bn paid last month) and a further $2.5bn to private sector creditors this year, without recourse to fresh IMF or World Bank financing or ready access to capital markets. In the meantime, Ukraine’s negotiations with Russia on a potentially large discount off the natural gas price, in return for a stake in its pipeline network, have been hampered by election-related political sensitivities in both countries this year.

• After the strong growth in 2011 (5.2%, primarily due to a sharp rebound in agriculture on the back of a record-high harvest), real GDP is unlikely to expand by more than 3% this year, on our estimates. The beginning of the year was characterized by exceptionally harsh weather conditions throughout the country, boosting demand for the output of the utilities sector (to 3.4% yoy in January, reversing the decline in late 2011), but keeping growth in metals output below last year’s level (by 1.6% yoy). The severe weather in February forced several manufacturing plants to suspend production and many farmers in the south to re-plant their wheat crops. From the demand side, growth has been consumption-led most recently, while the performance of fixed investment has been uneven. GDP growth in January was estimated by the central bank at just 2% yoy, putting in further doubt the attainability of the budgeted growth assumption for this year, of 3.9%.

• Inflation fell to a nine-year low of 3.0% yoy in February, compared with 3.7% yoy in January 2012 and 4.6% yoy in December 2011, thanks mainly to the continuing declines in food price inflation after last year’s bumper harvest. However, inflation is very likely to rebound later in the year, in view of unfavorable base effects, a likely decline in agricultural output and spending pressures ahead of the elections in October. The recent sharp decline in inflation was due, in part, to new CPI basket weights that reduced the share of food products and also increased the weight of imported goods in the CPI. This should lead to a higher pass-through effect from changes in the exchange rate, increasing the impact on inflation of potential currency depreciation.

• Last year’s steep deterioration in the current account deficit, from 2.1% of GDP in 2010 to 5.6% of GDP in 2011, was due mainly to increases in the value of energy imports. The foreign trade deficit was recorded at 8.4% of GDP in 2011. The deterioration in the current account is set to slow in Q1 2012, in our view, due to sharply lower volumes of imported gas compared to Q1 2011 (when Naftogaz had to buy an additional quantity of gas worth $3.2bn to settle a lawsuit with RosUkrEnergo). External data for December 2011 and January 2012 painted a slightly less negative picture compared to the previous several months, thanks mainly to a further slowdown in import growth, as well as lower household purchases of FX. However, we expect that the bill for oil and gas energy imports will rise in H1 2012 compared to H1 2011, while export values will likely be curbed due to stagnant metal prices and export volumes. Accordingly, the deterioration of the current account is very likely to continue in 2012, aggravating a key credit vulnerability, unless an agreement with Russia is reached soon.

• The current price terms for Ukraine’s gas imports from Russia are highly unfavorable. Ukraine’s price for Russian gas is $416/tcm in Q1 2012, after a $100/tcm reduction off a formula-base price agreed upon in 2009. While it corresponds to this year’s assumed gas price in the budget, Ukraine has been pushing for a much larger additional discount, of at least 150/tcm, due to its status as the largest transit country for Gazprom and the much lower prices for those European gas consumers that have access to the spot market. To

Sergei Voloboev +44 20 7888 3694

[email protected]

Alexey Pogorelov +7 495 967 8772

[email protected]

14 March 2012


date, the only concession offered to Naftogaz by Gazprom was a 10% discount off the formula price (i.e. some $40/tcm). Gazprom has also failed to amend the terms of its “take-or-pay” contract, prompting Ukraine to threaten a cut in import volumes this year by a third unilaterally, to just 27bcm.

• The decision by the government and central bank to maintain the hryvnia’s peg intact despite the persisting balance of payments deficits has been arguably the most controversial element of Ukraine’s policy mix recently. The stock of gross FX reserves has been falling steadily since August (when it was $38.2bn) through end- February, to $31.0bn. Cumulative FX interventions over this period totaled $6.2bn (central bank data), slightly less that than the nominal decline in the stock of reserves ($7.2bn). The non-gold part of the reserves ($29.4bn) represents just over three months of imports.

• In the approved budget for 2012, revenues have been calculated on a real GDP growth assumption of 3.9%. The slowdown in external demand since late 2011 has affected Ukraine’s growth prospects for this year. Accordingly, it is unlikely that the budgeted growth level will be overshot, in our view, while a shortfall is an acute risk. The very low inflation level has further adverse implications for the government’s ability to meet nominal budget targets for the year as a whole.

• On 7 March, President Yanukovich announced additional social spending allocations in this year’s budget, in excess of 1.2% of this year’s GDP. The package of measures includes an increase in pensions to the nine million people who retired before 2008, with an estimated cost of UAH7.2bn ($0.9bn), pension increases to various other categories of retirees, resumption of compensation payments to six million depositors of the Soviet-era savings bank (UAH6.0bn, $0.86bn), and mortgage and medicine subsidies. Senior government officials claimed that the government has already secured the funds to cover the extra spending but little evidence is available to back this up. As of end-February, the balance on the government’s hryvnia accounts with the central bank was a mere UAH4.7bn ($0.6bn). The government’s reserves in FX were reportedly around $1.5bn in January, clearly not sufficient to cover all forthcoming payments to both private and multilateral creditors.

• In view of the constraints on the government’s ability to strengthen revenue performance materially this year, the focus should be on the availability of financing sources. On our estimates, the government would be able to finance even a relatively modest state budget deficit this year (2.7% of GDP) without IFI financing only if it was able to secure a significant subsidy from Russia on imported gas prices, allowing a significant part of Naftogaz’s operational deficit to be covered. The delay in the agreement with Russia and the decision to de facto give up on the IMF program ahead of the elections have combined to create an acute risk that the government will have to resort to exceptional financing means, such as monetary financing or debt restructuring.

• Ukraine’s government funding needs in 2012 look challenging, given the lack of progress in the talks with the IMF. Besides the $1bn due to the IFIs from the government and $2.6bn from the central bank, Ukraine is also facing the need to refinance the $2bn VTB loan maturing in June 2012 (probably, the least onerous task) and the $0.5bn Eurobond (also in June). Despite the recent tightening of spreads, the likelihood of a new issue of some $1.7bn of Eurobonds in Q1 2012 (targeted by the government) appears low to us at the moment, without support from either of Ukraine’s largest counterparties (the IMF or Russia). Accordingly, the government would have to rely primarily on domestic borrowing and Russia-related financing sources.

• According to recent opinion polls, the political opposition has being steadily gaining ground against the coalition parties. According to a poll by Razumkov Centre, support for the Regions Party fell to an all-time low of 13.9% in December, below that for Yulia Tymoshenko’ bloc (15.8%). The Front of Change party led by Yatsenyuk was running third with 9.6% followed by the UDAR party led by Klitchko (7.5%). Results of these polls point to a likely formation of a majority by opposition groups in the next Rada, putting strong pressure on the Regions Party leaders to prevent such a scenario.

14 March 2012


Exhibit 242: Output indicators Exhibit 243: Contribution to GDP growth% year-on-year change Index (2007=100) Real terms, pps, except for % yoy change in real GDP

60

70

80

90

100

110

120

-40

-30

-20

-10

0

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20


Industrial outputKey sectors outputIP, SA (2007=100), right scale

-25

-20

-15

-10

-5

0

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-15

-10

-5

0

5

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15

Mar-07 Sep-08 Mar-10 Sep-11

AgricultureRetail tradeInd. ProductionTransp., telecomsConstructionServices, otherReal GDP

Real GDP growth slowed in Q4 2011 to 4.7% yoy (0.5% qoq in seasonally adjusted

terms), after 6.6% yoy (2.2% qoq sa) in Q3 2011 and 3.8% yoy (0.5% qoq

sa) in Q2 2011, due mainly to sharply weaker external

demand. Agriculture contributed 2.3pps to Q3

2011 growth. Prospects for 2012 are highly uncertain

because of an unusual concentration of various risk

factors, both domestic and external.

Note: The NBU’s key sectors indicator covers 72% of GDP. Source: State Statistics Agency, NBU, Credit Suisse

Source: State Statistics Agency, Credit Suisse

Exhibit 244: Contributions to headline year-on-year CPI inflation

Exhibit 245: Consumer and producer prices and core inflation

pps, except for % yoy change in CPI % year-on-year change

0

10

20

30

40

Jun-07 Aug-08 Oct-09 Dec-10 Feb-120

10

20

30

40ServicesTransport & telecomsHousing & utilitiesNon-foodFoodHeadline CPI inflation

-5

0

5

10

15

20

25

30

May-09 Apr-10 Mar-11 Feb-12-5

0

5

10

15

20

25

30CPICore inflation (Ukrstat)PPI

Inflation continued to decline sharply in 2012, to a nine-year low of 3.0% yoy in

February, almost entirely due to lower food prices.

The possibility of tariff increases in Q4 2012, a

weaker currency and spending pressures ahead

of Rada elections next October are likely to cause

inflation to rebound to about 6% by year-end, on our

estimates.

Source: State Statistics Agency, Credit Suisse Source: State Statistics Agency, Credit Suisse

Exhibit 246: Merchandise trade Exhibit 247: Current and capital account12m rolling, $bn % yoy change in USD values % of GDP, 12m rolling

-25

-20

-15

-10

-5

0

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10

Jun-07 Dec-08 Jun-10 Dec-11-65

-45

-25

-5

15

35

55

75

95Trade balance (left scale)ExportsImports

-7

-4

-1

2

5

8

11

14

Q1-04 Q3-05 Q1-07 Q3-08 Q1-10 Q3-11-20

-10

0

10

20

30

40Current accountCapital and financial accountFX reserves (right sca le)

The sharp deterioration in the current account deficit from 2.1% of GDP in 2010

to 5.6% of GDP in 2011 was due mainly to

increases in the value of energy imports. This

deterioration is likely to slow in Q1 2012, in our

view, thanks to lower volumes of imported gas,

but will likely resume as investment-related imports

persist in H1 2012.

Source: State Statistics Agency, Credit Suisse Source: National Bank of Ukraine, Credit Suisse

14 March 2012


Exhibit 248: Hryvnia’s exchange rates Exhibit 249: Interest rates UAH REER* (2001 = 100) UAH per USD, spot % p. a.

4

5

6

7

8

9

1090

95

100

105

110

115

120

125

130

135

May-06 Oct-07 Mar-09 Aug-10 Feb-12

UAH REER

UAH (right scale, reverse order)

0

5

10

15

20

25

Apr-08 Jul-09 Oct-10 Jan-120

5

10

15

20

25

NBU Discount rateT-bill yields, primary, up to 12 monthsInterbank lending rate 7-30 day

Exchange rate volatility has subsided since the

beginning of 2011. The central bank’s determination

to maintain the currency peg in the face of weaker

prices for key export products risks a prolonged spell of declining reserves.

Since the beginning of 2012, the central bank has cut some of its policy rates (but not the discount rate)

by 50bps, the first such moves since 2009.

*Real effective exchange rate, an increase denotes appreciation. Source: BLOOMBERG PROFESSIONALTM service, Credit Suisse.

Source: National Bank of Ukraine, Credit Suisse.

Exhibit 250: FX reserves, interventions Exhibit 251: Monetary aggregates $bn % year-on-year change

18

21

24

27

30

33

36

39

42

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0


Net FX purchases (left scale)Stock of gross FX reserves

-5

5

15

25

35

45

55

-5

5

15

25

35

45

55

Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12

M0

M2

Ukraine’s overall balance of payments situation has worsened considerably

since August 2011, with the central bank selling some

$6.2bn in FX reserves over the past six months in order

to keep the currency close to its target of UAH8.0 per

USD.

The central bank has reported that its monetary

policy conduct has won support from the IMF.

Source: National Bank of Ukraine, Credit Suisse Source: National Bank of Ukraine, Credit Suisse

Exhibit 252: Credit to the private sector Exhibit 253: State budget operations % year-on-year change % of GDP, 12-month rolling

-30

-15

0

15

30

45

60

75

90

105

-30

-15

0

15

30

45

60

75

90

105

Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12

Total (UAH equivalents)in local currencyin FX (US$ equivalents)

-5

-4

-3

-2

-1

0

1

2

3

4

Apr-07 Jun-08 Aug-09 Oct-10 Dec-1121

22

23

24

25

26

27

28

29

30Overall balance (left scale)RevenueExpenditure

The state budget performance in late 2011 was appropriate, with the

officially reported deficit of the state budget (net of

Naftogaz subsidies) at just 1.8% of GDP. The

operational deficit of Naftogaz, which we

estimate was 1.7% of GDP in 2011, cannot be cut

without higher tariffs or lower gas prices. Reaching

a new gas supply agreement with Russia has

proven difficult thus far.

Source: National Bank of Ukraine, Credit Suisse * H2 2009 revenues are net of 1.8% of GDP SDR conversions; August 2010 data are net of 1.5% of VAT arrears. Source: Economy Ministry, Credit Suisse

14 March 2012


Ukraine: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 2.7 7.3 7.6 2.3 -14.8 4.2 5.2 3.0 3.6 Growth in real private consumption (%) 8.5 15.9 17.2 13.3 -14.9 6.9 12.0 4.2 4.0 Growth in real fixed investment (%) 3.9 21.2 23.9 0.7 -50.5 4.8 9.4 4.2 4.5 Fixed investment (% of GDP) 21.6 24.7 28.2 27.9 17.4 20.8 24.2 18.4 20.3 Nominal GDP ($bn) 81.9 106.4 143.1 179.4 113.7 128.4 164.5 172.2 172.4 Population (mn) 46.9 46.7 46.4 46.1 46.0 45.8 45.6 45.5 45.3 GDP per capita ($) 1,745 2,281 3,085 3,888 2,473 2,804 3,607 3,787 3,804 Unemployment (% of labor force, end-year) 7.2 6.8 6.4 6.4 8.8 9.0 7.9 7.4 7.1 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 10.3 11.6 16.6 22.3 12.3 9.1 4.6 6.0 7.4 CPI inflation (% change in average index for the year) 13.5 9.1 12.8 25.2 15.9 9.4 8.0 2.9 8.2 Exchange rate (UAH per USD, end-year) 44.9 25.2 31.2 19.5 11.6 18.6 16.9 15.3 15.3 Exchange rate (UAH per USD, average) 5.03 5.06 5.05 7.82 8.05 7.94 8.04 8.70 9.06 REER (% year-on-year change, December over December) (1) 5.1 5.04 5.04 5.28 8.06 7.95 7.98 8.14 8.85 Nominal wage growth (% year-on-year change, December over December) 16.8 -2.3 -0.4 -17.3 3.7 8.3 6.2 -4.0 -1.6 NBU’s discount rate (% p.a., end-year) 9.50 9.00 8.00 12.00 10.25 7.75 7.75 7.50 7.50 Fiscal data General government fiscal balance (% of GDP) (2) -2.4 -1.4 -2.0 -3.2 -6.2 -5.5 -1.8 -2.7 -2.1 General government primary balance (% of GDP) (2) -1.6 -0.7 -1.5 -2.6 -5.1 -3.9 0.0 -0.9 -0.5 General government expenditure (% of GDP) 46.5 45.3 43.8 47.4 48.4 51.1 41.7 43.0 40.3 Consolidated government debt (% of GDP, end-year) 21.0 16.0 13.2 15.5 31.6 41.1 37.7 38.5 40.5 Money supply and credit Broad money supply (M2, % of GDP) 46.1 48.4 54.3 54.1 52.9 58.5 52.9 57.5 60.1 Broad money supply (M2, % year-on-year change) 53.9 34.3 50.8 31.0 -5.4 23.1 16.3 16.0 13.7 Domestic credit (% of GDP) 35.1 46.4 61.1 82.1 88.3 85.6 73.4 79.0 84.3 Domestic credit (% year-on-year change) 34.3 69.4 77.0 76.9 3.9 7.9 10.5 14.7 16.2 Domestic credit to the private sector (% of GDP) 34.3 45.8 58.2 73.9 78.0 77.6 66.5 68.8 72.0 Domestic credit to the private sector (% year-on-year change) 61.9 71.0 71.0 67.1 2.0 10.8 10.3 10.3 14.1 Balance of payments Exports (goods and non-factor services, % of GDP) 54.2 47.2 44.7 47.7 47.7 54.0 53.9 59.3 67.8 Imports (goods and non-factor services, % of GDP) 53.4 50.1 50.2 55.7 49.4 57.0 59.5 65.8 75.1 Exports (goods and non-factor services, % year-on-year change in $ value) 11.7 13.2 27.4 33.8 -36.6 27.7 28.1 14.9 14.5 Imports (goods and non-factor services, % year-on-year change in $ value) 25.4 22.0 34.8 39.1 -43.8 30.1 34.0 15.6 14.4 Current account balance ($bn) 2.5 -1.6 -5.9 -12.8 -1.7 -2.9 -9.3 -11.1 -12.4 Current account balance (% of GDP) 3.1 -1.5 -4.1 -7.1 -1.5 -2.2 -5.6 -6.5 -7.2 Net FDI inflows ($bn) 5.3 5.7 9.2 10.4 4.5 4.9 6.6 7.0 9.0 Scheduled debt amortization ($bn) (3) 5.0 6.5 9.3 9.7 17.4 19.2 18.3 21.3 29.7 Foreign debt and reserves Foreign debt ($bn) 39.6 54.5 82.2 103.2 103.4 112.1 117.3 121.5 128.7 Public ($bn) 13.5 13.8 15.1 19.3 24.1 30.6 33.5 33.0 34.2 Private ($bn) 26.2 40.7 67.1 83.9 79.3 81.5 83.8 88.5 94.5 Private debt net of trade credits and inter-company loans ($bn) 17.1 29.1 53.1 68.4 70.6 71.9 74.0 79.0 84.5 Foreign debt (% of GDP) 48.4 51.2 57.5 57.5 90.9 87.3 71.3 70.6 74.7 Foreign debt (% of exports of goods and services) 89.3 108.5 128.5 120.6 190.5 161.8 132.2 119.1 110.2 Central bank gross FX reserves ($bn) 19.4 22.3 32.4 31.2 26.0 34.6 31.9 21.7 23.6 Central bank non-gold FX reserves ($bn) 19.1 21.9 32.0 30.8 25.6 33.3 30.4 20.2 22.1 (1) Real effective exchange rate, increase indicates appreciation. (2) Excluding impact of bank recapitalization and transfers to Naftogaz. (3) Scheduled amortization of the private and the public sectors. Source: National Bank of Ukraine, Ministry of Finance, Economy Ministry, State Statistics Office, IMF, Credit Suisse

14 March 2012


Non-Japan Asia

14 March 2012


China: Improved liquidity, but not demand • China’s liquidity situation has visibly improved since the beginning of the year,

reducing significantly the risk of a hard landing, in our view. In the first two months of 2012, banks lent out RMB 1.45tn, lower than the average for same period in the previous three years, but still a remarkable improvement in lending attitude compared to the final four months last year. Not only do SOEs have access to credit, but local government financial vehicles and SMEs have also regained access. Banks are also more active in making mortgage loans to first time home buyers. The improvement in liquidity is the biggest change in the economy relative to three months ago.

• However, demand remains muted and growth may surprise on the downside. Despite banks’ willingness to lend, organic demand for loans outside of the property sector seems to have weakened. Banks are now chasing after quality borrowers, in sharp contrast to last year. We think that there is a sea-change, as the constraint to lending has shifted from policy restrictions to demand limitation. Anecdotally, heavy industries are in pain, more so than in 2008-09. Retail sales, especially for automobiles and white goods, are also unimpressive. In our judgment, 1Q12 growth and corporate earnings may well surprise on the downside, despite an easier lending environment. We project 7.5% GDP growth for 1Q on an annualized QoQ basis.

• Industrial production grew 11.4% yoy during the first two months this year, compared to 12.8% yoy last December and a 13.7% average growth in 2011. This is the weakest production growth since July 2009, underscoring the lack of growth momentum. Inventory correction is occurring everywhere, and in the machinery and raw material sectors in particular. Fixed asset investment grew at 21.5% in same period, which was slightly better than expected. Apparently, local governments have resumed some stalled infrastructure projects following easier bank lending, but this is expected to be weak and may not even last, as we expect the local governments to repair their balance sheets. Industrial investment has been muted, as production costs have surged, fuelled by rising salaries.

• Retail sales were soft during the Chinese New Year holiday. The dip in housing transactions has reduced the need for electronics products and interior decoration. Restrictions on car sales in an attempt to curb traffic jams in some cities have also hurt auto sales. While retail sales have softened, they are still more robust than the manufacturing sector. Manufacturing PMI has been struggling at around 50, and the sector appears to be in a recession. But non-manufacturing PMI stays brisk at around 58 – the reason being China’s consumption story, which is fuelled by urbanization and wage hikes. Strong non-manufacturing PMI is the pillar supporting our confidence that the economy is unlikely to slip into a hard landing (growth below 6%), assuming that housing prices do not collapse.

• We do not expect large-scale stimulus in the coming months, although more required reserves ratio cuts are likely. To the PBoC’s governor and to us, cutting the RRR is a technical adjustment. Regulators are asking banks to bring their off-balance sheet activities back to book, and that increases the base that is subject to reserve charges. Maintaining the status quo in RRR means that banks must hand over more liquidity to the central bank’s reserves account. We expect two more cuts in RRR. However, the economy is growing at a pace of 7.5% to 8.5%, with about 4% inflation. This is a good result, and the economy is not slipping into deflation. The fact that Premier Wen Jiabao set this year’s growth target at 7.5%, instead of the usual 8%, has sent a strong message that Beijing does not mind a slower growth pace during the period of economic transformation, provided that social stability is not threatened.

Dong Tao +852 2101 7469

[email protected]

14 March 2012


• During our meetings with senior officials, we sense strong confidence in their ability to manage the economy, in contrast to the lack of such confidence in Q4 2008 before a huge stimulus program was launched. There is consensus among key decision makers that the RMB 4trn stimulus at that time did more harm than good to the long-term sustainability of growth. Unless the economy shows signs of a hard landing and social stability appears to be in danger, we do not expect large-scale stimulus to be launched. China’s labor market has moved from very tight to tight. The most troubled heavy industries are not labor intensive. The export sector is laying off workers, but they have been absorbed by the services sector. Further, as more jobs become available in the inland provinces, fewer migrant workers are willing to come to the coastal areas. A solid labor market makes Beijing feel more relaxed about the growth slowdown. Indeed, we think that growth at 7% or 5% would make a difference to the labor market and hence could lead to a different policy response from the government.

• The trade balance in February turned to a $31.5bn deficit compared to a $13.1bn average monthly surplus last year. This has raised concerns about whether RMB appreciation against the USD is running out of steam. We do not think so. First, export orders seems to have improved, lifted by the acceleration in the US recovery and better sentiment regarding the European debt crisis. Second, we think the worst of the capital account outflow is over. Third, the RMB exchange rate is a political call instead of a balance of payments call. With the US in an election year, we think Chinese leaders will maintain the RMB’s gradual appreciation trend. We look for 3% RMB appreciation against the USD in 2012 and 2013, respectively. RMB internationalization is a much bigger story. It involves interest rate de-regulation, the build-up of an off-shore financial center, liberalization of the capital account, etc. We expect to see the RMB achieving over 90% convertibility under the current and capital accounts by 2016.

• We expect inflation to stay moderate in the coming months but to rebound toward year-end. Inflation may hover around 3.5% in the coming months, trending lower from 3.9% yoy in January-February, helped by weakened domestic demand and a favorable base effect. For the full year, we project inflation to average 3.7% in 2012, below the policy target of 4%. But that said, we think inflation should rebound and reach 4.4% yoy by year-end, when the favorable base effect fades away. In our view, the drivers of price hikes have not disappeared. Salary increases are continuing, while food prices are still on the rise, fuelled by rising production and transportation costs. The government is also prepared to launch more price de-regulation.

• The housing sector is the biggest swing factor for the Chinese economy this year. Residential property transaction volumes were down from a year ago, but sales improved in February. While those large developers that have access to international capital market are fine with liquidity, smaller developers are having cash flow problems. Unless transactions continue to grow in the next few months, we still expect to see a large number of bankruptcies among the smaller developers. However, we think local governments are likely to use their own property arms to take over weak developers. We do not expect to see a reverse in housing policy, which is engineered by Vice Premier Li Keqiang, until he becomes the next premier in March 2013.

• There are a few possible initiatives on structural reforms that may become the focal points this year. Tax code reshuffling, combining corporate tax and VAT, and lowering individual tax but with widened spread may draw attention. De-regulating the price-setting rules for fuel and power, while inflation softens briefly, is also possible. Interest rate deregulation is an issue for 2013, but this topic may get attention later this year – it has major implications for banking sector profitability, in our view.

• China has entered a period of power succession, and we expect policy continuity. The key successors were brought on board four years ago, and they played major roles when policies were set in December 2011. Party officials are scheduled to change guard in October 2012; government officials will do the same in March 2013.

• We do not anticipate a ratings change for China over the next six months. China’s rating is Aa3 (positive) at Moody’s, AA- (stable) at S&P, and A+ (stable) at Fitch.

14 March 2012


Exhibit 254: Real GDP growth Exhibit 255: New loan growth

5

7

9

11

13

3Q09 2010 3Q10 1Q11 3Q11 1Q12 3Q12

China real GDP (%QoQ, saar)

Forecast

New bank loans (RMB bn)

4,170

9,629

7,9516,875

0

2,000

4,000

6,000

8,000

10,000

12,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

The peak of monetary expansion

1Q12 growth and corporate earnings may well surprise

on the downside, despite an easier lending environment.

Source: NBS, Credit Suisse Source: PBoC, Credit Suisse

Exhibit 256: Industrial production Exhibit 257: Retail sales

12.2

0

5

10

15

20

25

May

-07

Aug

-07

Nov

-07

Feb-

08M

ay-0

8A

ug-0

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ov-0

8Fe

b-09

May

-09

Aug

-09

Nov

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Feb-

10M

ay-1

0A

ug-1

0N

ov-1

0Fe

b-11

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Aug

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Feb-

12

China: Industrial production(%yoy, 3m mav)

15.8

12

14

16

18

20

22

24

May

-07

Aug

-07

Nov

-07

Feb-

08M

ay-0

8A

ug-0

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b-09

May

-09

Aug

-09

Nov

-09

Feb-

10M

ay-1

0A

ug-1

0N

ov-1

0Fe

b-11

May

-11

Aug

-11

Nov

-11

Feb-

12

China: Retail sales (% yoy, 3m mav)

Industrial production grew 11.4% yoy during the first two months this year, the weakest since July 2009, underscoring the lack of

growth momentum.

Retail sales were soft during the Chinese New

Year holiday.

Source: NBS, CEIC, Credit Suisse Source: NBS, CEIC, Credit Suisse

Exhibit 258: PMI Exhibit 259: Manufacturing vs. Services

35

40

45

50

55

60

65

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2005 2006 20072008 2009 20102011 2012

China headline PMI

PMI improved, but could reflect seasonality

51.0

58.2

35

40

45

50

55

60

65

70

Feb-

08M

ay-0

8A

ug-0

8N

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-09

Aug

-09

Nov

-09

Feb-

10M

ay-1

0A

ug-1

0N

ov-1

0Fe

b-11

May

-11

Aug

-11

Nov

-11

Feb-

12

China manufacturing PMI (sa)

China non-manufacturing PMI (sa)

Manufacturing PMI has been struggling at around

50, and the sector appears to be in a recession.

But non-manufacturing PMI stays brisk at around 58 – the reason being China’s

consumption story, which is fuelled by urbanization and

wage hikes.

Source: NBS, CLIC, Credit Suisse Source: NBS, CLIC, Credit Suisse

14 March 2012


Exhibit 260: External trade Exhibit 261: CPI inflation

-202060

100140180220260300340

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

-40

-20

0

20

40

60

80

Trade balance ($ bn, 12m roll sum)Exports (% yoy, RHS)Imports (% yoy, RHS)

Headline inflation: CPI (% yoy)

2

3

4

5

6

7

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2S

ep-1

2N

ov-1

2

forecast

The trade balance in February turned to a

$31.5bn deficit, compared to a $13.1bn average

monthly surplus last year.

We expect inflation to stay moderate in the coming months but to rebound

toward year-end.

Source: Custom Administration, Credit Suisse Source: NBS, CEIC, Credit Suisse

Exhibit 262: Required reserves ratio Exhibit 263: Interest rates

20.5

0

5

10

15

20

25

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Reserve requirement ratio (%)

6.56

3.50

0123456789

10

2008 2009 2010 2011 2012

China: One-year lending rate (%)

China: One-year deposit rate (%)

We do not expect large- scale stimulus in the coming

months, although more required reserves ratio cuts

are likely.

Interest rate deregulation is an issue for 2013, but this

topic may get attention later this year – it has major

implications for banking sector profitability, in our

view.

Source: PBoC, Credit Suisse Source: PBoC, Credit Suisse

Exhibit 264: Property sales Exhibit 265: USDRMB

0

2000

4000

6000

8000

10000

12000

14000

May

-09

Aug

-09

Nov

-09

Feb-

10M

ay-1

0A

ug-1

0N

ov-1

0Fe

b-11

May

-11

Aug

-11

Nov

-11

Feb-

12

Beijing ShenzhenUnits sold per week, 3w mav

USDRMB

6

6.5

7

7.5

8

8.5

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Residential property transaction volumes were

down from a year ago, but sales improved in February.

With the US in an election year, we think the Chinese

leaders will maintain the RMB’s gradual appreciation

trend.

Source: Soufun.com, Credit Suisse Source: the BLOOMBERG PROFESSIONAL™ service,

14 March 2012


China: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F

National accounts, population and unemployment Real GDP growth (%) 10.4 12.7 14.2 9.6 9.1 10.3 9.2 8.0 8.2 Growth in real private consumption (%) (1) 6.7 9.8 10.4 8.7 9.0 7.9 10.0 9.0 9.0 Growth in real gross fixed capital formation (%) (2) 11.0 12.7 11.4 10.2 19.4 11.9 10.4 8.0 8.1 Fixed investment (% of GDP) 41.0 40.7 39.1 40.7 45.2 46.7 46.4 46.3 45.8 Nominal GDP ($bn) 2,303 2,780 3,495 4,526 5,073 5,862 7,028 8,203 9,600 Population (mn) 1,308 1,314 1,321 1,328 1,335 1,342 1,349 1,355 1,362 GDP per capita ($) 1,761 2,115 2,645 3,408 3,801 4,369 5,212 6,052 7,047 Unemployment (% of urban labor force, average year) 4.2 4.1 4.0 4.2 4.3 4.1 4.1 4.1 4.1 Prices, interest rates and exchange rates CPI inflation (%, December over December) 1.6 2.8 6.5 1.2 1.9 4.6 4.1 4.4 4.9 CPI inflation (% change in average index for the year) 1.8 1.5 4.8 5.9 -0.7 3.3 5.4 3.7 4.5 Exchange rate (RMB per USD, end-year) 8.07 7.80 7.29 6.82 6.83 6.62 6.35 6.18 6.00 Exchange rate (RMB per USD, average) 8.19 7.97 7.61 6.96 6.83 6.73 6.49 6.26 6.09 REER (% year-on-year change December to December) (3) 6.0 -0.1 5.6 10.1 -2.9 2.9 6.9 5.3 6.2 Nominal wage growth (% year-on-year change, average) 14.3 14.6 18.5 16.9 11.6 13.3 17.0 17.8 18.7 1-year lending rate (%) 5.58 6.12 7.47 5.31 5.31 5.81 6.56 6.81 7.06 3-month interbank rate (%, end-year) 3.6 2.8 4.4 1.9 1.8 4.6 5.5 5.4 5.7 Fiscal data General government fiscal balance (% of GDP) -1.2 -0.8 0.6 -0.4 -2.2 -1.6 -1.1 -1.6 -1.4 General government primary fiscal balance (% of GDP) -0.5 -0.1 1.0 0.0 -1.5 -0.9 -0.4 -0.9 -0.9 General government expenditure (% of GDP) 18.0 18.2 18.7 19.9 22.0 22.7 19.0 19.5 19.5 Gross general government debt (% of GDP, end-year) (4) 29.8 31.6 35.3 32.5 40.5 44.8 42.1 41.1 39.5 Money supply and credit Broad money supply (M2, % of GDP) 156.6 155.9 151.8 150.9 175.0 184.1 185.0 188.8 166.0 Broad money supply (M2, % year-on-year change) 17.6 16.9 16.7 17.8 27.7 19.7 13.6 14.0 14.0 Domestic credit (% of GDP) 131.6 130.3 127.8 120.5 139.6 149.0 150.9 147.5 143.4 Domestic credit (% year-on-year change) 10.7 16.3 17.6 11.7 27.5 21.5 17.1 10.2 10.6 Domestic credit to the private sector (% of GDP) 111.0 108.1 107.5 103.4 125.2 132.3 131.8 128.6 126.7 Domestic credit to the private sector (% year-on-year change) 9.1 14.3 19.3 14.0 33.2 20.3 15.1 10.0 12.1 Balance of payments Exports (goods and non-factor services, % of GDP) 36.3 38.2 38.4 34.9 26.3 29.9 29.7 27.1 25.0 Imports (goods and non-factor services, % of GDP) 30.9 30.7 29.6 27.2 21.9 25.9 27.0 25.2 23.5 Exports (goods and non-factor services, % increase in $ value) 27.6 26.9 26.4 17.8 -15.7 31.4 19.0 6.7 8.0 Imports (goods and non-factor services, % increase in $ value) 17.4 19.8 21.3 19.1 -9.7 36.6 24.8 8.8 9.3 Current account balance ($bn) 160.8 249.9 353.9 412.4 261.1 305.4 201.1 170.7 156.4 Current account (% of GDP) 7.0 9.0 10.1 9.1 5.1 5.2 2.9 2.1 1.6 Net FDI ($bn) 67.8 60.3 143.1 121.7 70.3 124.9 73.9 56.9 48.9 Scheduled external debt amortization ($bn) (5) 21.9 22.1 24.1 27.3 30.6 34.3 33.0 31.7 30.4 Foreign debt and reserves Foreign debt ($bn, end-year) 296.5 338.6 389.2 390.2 428.6 548.9 715.3 764.1 815.5

Public ($bn) (6) 98.7 108.2 119.9 120.6 121.2 121.9 122.6 123.3 124.0 Private ($bn) 197.9 230.4 269.3 269.6 307.4 427.0 592.7 640.8 691.5

Foreign debt (% of GDP, end-year) 12.2 11.6 11.1 8.6 8.4 9.4 10.2 9.3 8.5 Foreign debt (% of exports of goods and services) 33.6 30.4 29.0 24.7 32.1 31.3 34.3 34.3 33.9 Central bank gross FX reserves ($bn) 818.9 1,066 1,528 1,946 2,399 2,847 3,181 3,521 3,838 Central bank gross non-gold FX reserves ($bn) 814.7 1,062 1,524 1,942 2,389 2,830 3,159 3,495 3,838 (1) Calculated based on annual GDP data released by the NBS. (2) Calculated based on annual GDP data released by the NBS. (3) Real effective exchange rate: increase indicates appreciation. (4) Include Treasury bond and foreign state debt owed by the State Council only. 2010F level is estimated to be 50.3%, including local governments’ affiliated debt. (5) Scheduled and estimated amortizations for medium- and long-term public and private sector debt. (6) Public debt defined as direct loans by government, state banks and SOEs, excluding trade credit. Source: National Bureau of Statistics, People’s Bank of China, CEIC, Credit Suisse

14 March 2012


Hong Kong: Property bounces but not for long • Hong Kong’s growth should remain slow, but the trough could have been

reached. A better-than-expected US recovery and improved stability in the European sovereign debt situation have made us less concerned about Hong Kong’s external demand condition. 4Q11 GDP growth was weaker than expected at 3% yoy, or 0.3% on a quarterly seasonally adjusted basis (1.2% annualized). We think that growth momentum should improve but remain weak in 1H12, supported by better developed market growth and the gradual moderation in China’s growth. We have kept our 2012 GDP growth forecast unchanged at 3%, vis-à-vis the government’s 1%-3% estimate.

• The breakdown of the 4Q11 GDP report showed that external trade flows slowed more than domestic demand. Real export and import growth slowed to a low-single-digit level in 4Q, but private consumption and fixed investment growth were more resilient, at 6.4% yoy and 9% yoy, respectively. We think that this reflects the relative resilience of domestic demand, supported by China’s growth and a low-interest-rate environment locally. In our view, Hong Kong’s wealth and financial system have not been severely affected by the global credit crisis. The purchasing power of the domestic residents have remained intact, cushioning the moderation in consumption and employment.

• Property transactions have rebounded, pushing up prices again, but we think that the uptrend could be temporary. We think that the latest bounce in property transactions was driven by (1) a return of risk appetite, driven by an improved outlook on the developed economies; (2) a low-interest-rate environment, which is supportive of leverage; and (3) better funding condition for banks and their refocus on the mortgage business. These have helped release the pent-up demand of end users, which was on hold over the past six months. Although we think that the risk of home prices is tilted to the upside in the near term, higher offer prices are expected to taper market activity progressively. In our view, the eventual normalization of US interest rates would reverse the current drivers of rising property prices.

• We think that inflationary pressure will remain persistent in the economy. Headline inflation accelerated to 6.1% yoy in January, higher than the consensus expectation. We had expected weaker growth momentum, as prices were supported by elevated food prices in China, the appreciating RMB, resilient consumption demand, and the upswing of the private housing rent adjustment cycle. We expect inflation to remain resilient around 5% in 2012, keeping the real interest rate level negative.

• Trade growth is expected to rebound in February, but the January-February growth pace should remain moderate. January trade growth disappointed, falling more than anticipated from a year ago as a result of the Chinese New Year effect. We think that February data is important to take into account to get a clearer view of the latest trade trend. Although the external environment should remain weak, the latest indicators from the developed world and China suggest some improvement. Further recovery, however, would depend on the sustainability of the global economic recovery.

• The chief executive election will be held on 25 March. There will be three candidates in the election: (1) Former Chief Secretary Henry Tang; (2) Former Convenor of the Executive Council Leung Chun Ying; and (3) Chairman of the Democratic Party Albert Ho. The newly elected chief executive will assume office on 1 July this year, taking over from the incumbent Donald Tsang, who is stepping down after two terms in office. The latest public poll shows that Leung is leading, but as there are only 1,200 election committee members who are eligible to vote, the final result may still be uncertain.

• The outlook for Hong Kong’s ratings appears stable. Adjustment remains unlikely over the next six months, in our view. Hong Kong is currently rated Aa1 (Moody’s), AAA (S&P), and AA+ (Fitch).

Christiaan Tuntono +852 2101 7409

[email protected]

14 March 2012


Exhibit 266: Real GDP growth Exhibit 267: Retail sales

-20-15-10

-505

101520

2Q05

4Q05

2Q06

4Q06

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

Real GDP (% yoy)Private consumption (% yoy)Gross fixed capital formation (% yoy)

-15-10

-505

101520253035

2006 2007 2008 2009 2010 2011 2012

Retail sales by value (% yoy)Retail sales by volume (% yoy)

Hong Kong’s growth should remain slow, but the trough

could have been reached.

The purchasing power of Hong Kong’s residents

remains intact, cushioning the moderation in consumption and

employment.

Source: Census and Statistics Dept., Credit Suisse Source: Census and Statistics Dept., Credit Suisse

Exhibit 268: Property prices Exhibit 269: Property transactions

2030405060708090

100110120

1996 1999 2002 2005 2008 2011

Centaline property price index (July1997 = 100)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan-

08

May

-08

Sep

-08

Jan-

09

May

-09

Sep

-09

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

Secondary property transactionsPrimary property transactions

Property transactions have rebounded, pushing up

prices again, but we think that the uptrend could be

temporary.

We think that the latest bounce in property

transactions was driven by (1) a return of risk appetite;

(2) a low-interest-rate environment; and (3) better funding condition for banks.

Source: Centaline Property Agency Ltd., Credit Suisse Source: Midland Realty, Credit Suisse

Exhibit 270: CPI inflation Exhibit 271: Excess liquidity

-3

-1

1

3

5

7

9

2006 2007 2008 2009 2010 2011 2012

CPI (%yoy)

CPI: Netted out one-off factors (% yoy)

0

1

2

3

4

5

6

7

8

2001 2003 2005 2007 2009 20110

50

100

150

200

250

300

350

Aggregate Balance (HKD bn, RHS)3M HIBOR (%)3M USD LIBOR (%)Fed fund target rate (%)

We think that inflationary pressure will remain

persistent in the economy, fuelled by the continuation

of excess liquidity.

Source: Census and Statistics Dept., CEIC, Credit Suisse Source: HKMA, Credit Suisse

14 March 2012


Exhibit 272: Food inflation Exhibit 273: CPI private rents

-5

0

5

10

15

20

25

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

% yoy

-202468101214

% yoyChina: Food CPIHong Kong: Food CPI (RHS)

CPI: private housing rent (% yoy)

-2

0

2

4

6

8

10

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12

Prices were supported by the elevated food prices in

China, the appreciating RMB, resilient consumption

demand, and the upswing of the private housing rent

adjustment cycle.

Source: Census and Statistics Dept., CEIC, Credit Suisse Source: Census and Statistics Dept., Credit Suisse

Exhibit 274: External trade Exhibit 275: US ISM

400

500

600

700

800

900

1000

1100

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

0

10

20

30

40

50

60

70

HK Total Exports (HKD bn)HK Total Imports (HKD bn)HK Total Trade Balance (HKD bn, RHS)

20

30

40

50

60

70

80

2003 2005 2007 2009 2011

US manufacturing ISM indexUS manufacturing ISM New Orders

Although the external environment should remain

weak, the latest indicators from the developed world and China suggest some

improvement.

Further recovery, however, would depend on the

sustainability of the global economic recovery.

Source: Census and Statistics Department, Credit Suisse Source: US ISM, Credit Suisse

Exhibit 276: USDHKD Exhibit 277: Chief Executive election If you were to elect the Chief Executive tomorrow, who

would you choose?

USDHKD

7.74

7.75

7.76

7.77

7.78

7.79

7.8

7.81

7.82

Jan-

09

May

-09

Sep

-09

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

Public poll on

HK Chief Executive Election

Henry Tang19%

Leung Chun-Ying45%

Albert Ho11%

No oneabove16%

Don't know9%

HKD has strengthened toward the strong side

again, as foreign capital returns to the asset

markets.

Leung is leading in the polls, but the final outcome

of the chief executive election remains uncertain.

Source: the BLOOMBERG PROFESSIONALTM service, CEIC, Credit Suisse

Note: Survey done between 6 and 11 March 2012. Source: Public Opinion Program – University of Hong Kong, Credit Suisse

14 March 2012


Hong Kong: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 7.1 7.0 6.4 2.3 -2.6 7.0 5.0 3.0 3.9 Growth in real private consumption (%) 3.0 6.0 7.8 2.4 0.7 6.7 8.6 4.0 4.2 Growth in real fixed investment (%) 4.1 7.0 4.2 1.0 -3.9 7.7 7.2 3.8 5.2 Fixed investment (% of GDP) 20.9 21.5 20.4 20.2 19.9 20.0 20.4 20.6 20.9 Nominal GDP ($bn) 177.8 189.2 207.2 215.0 208.0 223.3 242.8 258.3 276.1 Population (mn) 6.8 6.9 6.9 7.0 7.0 7.1 7.1 7.1 7.1 GDP per capita ($) 26,007 27,504 29,828 30,727 29,606 31,650 34,276 36,318 38,662 Unemployment (% of labor force, end-year) 5.3 4.4 3.4 3.8 5.5 4.0 3.2 4.0 4.0 Prices, interest rates and exchange rates CPI inflation (%, December over December) 1.4 2.3 3.8 2.1 1.3 3.0 5.7 5.0 4.9 CPI inflation (% change in average index for the year) 0.9 2.0 2.0 4.3 0.5 2.4 5.3 4.9 4.9 Exchange rate (HKD per USD, end-year) 7.75 7.78 7.78 7.75 7.76 7.77 7.78 7.80 7.80 Exchange rate (HKD per USD, average) 7.78 7.77 7.78 7.78 7.75 7.77 7.78 7.80 7.80 REER (% year-on-year change December to December) (1) 1.3 -4.0 -5.9 0.6 -1.9 -4.4 0.6 2.7 2.9 Nominal wage growth (% year-on-year change, average) 0.8 1.5 2.6 3.4 -1.0 2.5 6.0 2.0 2.0 3-month HIBOR (%, end-year) 4.2 3.9 3.5 1.0 0.1 0.3 0.3 0.3 0.3 Fiscal data General government fiscal balance (% of GDP) 1.0 4.0 7.7 0.1 1.6 4.3 3.5 -0.2 -0.2 General government primary fiscal balance (% of GDP) 1.1 4.0 7.7 0.1 1.6 4.3 3.6 -0.1 -0.1 General government expenditure (% of GDP) 16.9 15.5 14.6 18.8 18.0 17.3 19.3 19.5 18.3 Gross general government debt (% of GDP, end-year) (2) 1.8 1.5 1.2 1.0 0.7 0.6 1.1 1.3 1.3 Money supply and credit Broad money supply (HKD M2, % of GDP) 168.5 188.3 203.1 193.2 221.1 222.0 213.6 205.0 204.0 Broad money supply (HKD M2, % year-on-year change) 5.5 19.2 18.1 -1.3 10.3 8.0 4.8 2.3 6.4 Domestic credit (% of GDP) 142.7 135.0 125.7 124.9 168.8 200.1 218.0 226.8 237.7 Domestic credit (% year-on-year change) 4.2 0.5 2.1 3.2 30.3 27.5 18.7 10.9 12.0 Domestic credit to the private sector (% of GDP) 146.1 139.9 140.0 143.2 158.3 196.0 211.6 218.4 232.1 Domestic credit to the private sector (% year-on-year change) 6.0 1.8 9.7 6.2 6.5 33.2 17.6 10.0 13.6 Balance of payments Exports (goods and non-factor services, % of GDP) 198.7 205.5 207.3 212.4 195.0 223.1 229.7 231.8 230.3 Imports (goods and non-factor services, % of GDP) 186.2 194.1 196.4 202.2 187.6 217.7 226.0 228.8 228.2 Exports (goods and non-factor services, % increase in $ value) 12.0 10.0 10.8 6.0 -11.2 22.8 12.0 7.4 6.2 Imports (goods and non-factor services, % increase in $ value) 10.1 10.7 11.2 6.5 -10.2 24.6 12.9 7.7 6.6 Current account balance ($bn) 20.2 22.9 25.6 30.6 12.0 11.0 7.8 4.8 2.5 Current account (% of GDP) 11.3 12.1 12.4 14.3 5.8 4.9 3.2 1.9 0.9 Net FDI ($bn) 6.4 0.1 -6.8 3.1 5.0 5.0 5.9 5.8 5.6 Scheduled external debt amortization ($ bn) (3) 8.5 14.2 18.6 13.3 10.3 11.4 11.8 11.9 12.2 Foreign debt and reserves Foreign debt ($bn, end-year) (4) 44.9 54.0 85.6 50.1 40.0 55.2 54.8 54.4 54.2


Foreign debt (% of GDP, end-year) 25.2 28.5 41.3 23.3 19.2 24.7 22.6 21.1 19.6 Foreign debt (% of exports of goods and services) 12.7 13.9 19.9 11.0 9.9 11.1 9.8 9.1 8.5 Central bank gross FX reserves ($bn) 124.3 133.2 152.7 182.5 255.8 268.7 285.4 309.0 330.5 Central bank gross non-gold FX reserves ($bn) 124.2 133.2 152.7 182.5 255.8 268.7 285.4 309.0 330.5 (1) Real effective exchange rate, increase indicates appreciation. (2) Also includes debt issued under the Government Bond Program. Excludes debt guaranteed by the government. (3) Scheduled and estimated amortizations for total medium- and long-term public and private sector debt. (4) Non-bank foreign debt to Hong Kong entities. Source: Census and Statistics Department, Hong Kong Monetary Authority, CEIC, Credit Suisse

14 March 2012


India: A cyclical sweet spot • From our macroeconomic perspective, India looks to have entered a sweet spot in

the economic cycle, helping justify and hopefully extend the rally we have seen in markets so far this calendar year. If we are right, the coming months will witness a confluence of positive factors as GDP growth begins to pick up, inflation continues to fall and interest rates (both short and long term) drop with a thump. To be clear, this is not to suggest that the country’s various structural weaknesses have been resolved (far from it), but rather to indicate that shorter-term cyclical drivers are likely to dominate sentiment for much of the current calendar year. The light at the end of the tunnel that we referred to in the previous edition of this publication is not an on-coming train or, at least, not this time.

• Our main non-consensus call is for a repo rate cut totaling 175bps by early 2013. As far as we know, this is more than any economic analyst is looking for and mainly reflects our relative optimism regarding the outlook for wholesale price inflation, India’s key price measure. We would also emphasis that the potential reduction should be seen in the context of the 500bps of effective tightening that the Reserve Bank of India (RBI) delivered during 2010-11, while it would only take the repo rate 25bps below its long-term average.

• If we are right, WPI inflation will fall below 6% in the next few months, averaging 5.8% in the 2012/13 fiscal year as a whole. The headline or all-items rate of inflation has already dropped from close to 10% in October last year to less than 7%, albeit largely on the back of a collapse in food price inflation. It is hard to see food price inflation, which is already negative in year-on-year terms and close to a record low, declining further from here, while likely energy price rises would keep a floor under the fuel component as well (note that we also do not expect a strong rise in fuel price inflation as petrol, diesel, LPG and kerosene prices were all hiked reasonably aggressively in mid-2011, making for a helpful base effect). As such, any further fall in the headline WPI rate will almost certainly need to come via lower price increases in manufactured products. This component accounts for nearly two-thirds of the total index.

• Manufacturing WPI inflation has proved surprisingly stubborn, but the omens for a fall are encouraging. The weakness of primary food prices, referred to above, bodes well for a deceleration in manufactured food price growth, while the drop in international metal commodity price inflation, from 40% to zero in rupee terms, should herald a drop in the RBI’s preferred measure of core inflation. The fact that this has yet to materialize in a meaningful fashion, so far, is probably the consequence of India’s positive output gap (the level of output is above trend). This is now changing, however, as economic growth is running at a rate we judge to be well below the increase in the country’s productive potential. History suggests that it can take six months or so before a period of sub-trend growth has a meaningful impact on prices.

• Most argue that inflation is almost certain to head higher from around mid-2012. We disagree. Unless one takes a reasonably aggressive view regarding the likely development of international commodity price inflation and/or the rupee it seems to us that headline WPI inflation will probably flatten out later this year, rather than shooting higher (or lower). This is certainly the message of the middle chart on the next but one page, where we have assumed that the level of the Brent oil price is stable at USD125/barrel, the rupee is at 50 against the US dollar and the Commodity Research Bureau (CRB) food and metal indices remain at their current level. Of course, if oil and other commodity prices were to shoot higher from here then our inflation and interest rate views are likely to be wrong.

Robert Prior-Wandesforde +65 6212 3707

[email protected]

14 March 2012


• We believe the importance of WPI inflation as a driver of RBI interest rate policy has increased significantly. Since the current governor took charge of the central bank in September 2008 it is noticeable how the repo rate looks to have become a coincident or slightly lagging indicator of price developments. This is a very different approach from that taken by Dr. Subbarao’s predecessors and, in our view, runs a greater risk of policy mistakes. After all, WPI inflation, which is largely a function of international commodity developments, is probably driven more by growth in the likes of China than it is in India itself.

• India’s GDP growth is at, or close to, the bottom, in our view. Having fallen to just 6.1% in the December quarter of 2011, close to the 5.8% low experienced during the global financial crisis, we believe year-on-year GDP growth will improve during the course of 2012. The main reason for optimism stems from the sharp improvement seen in India’s manufacturing and service sector PMIs over recent months. As the charts on the next page reveal, the former looks to be consistent with roughly 10% industrial growth, with the latter pointing to slightly more than that in services. While reality is unlikely to prove quite as rosy as this, there are other, more fundamental, reasons for believing that a recovery is close at hand.

• We expect net exports and private consumption to drive the initial recovery phase. The combination of a pick up in the world trade cycle, as evidenced by the improvement in business confidence surveys throughout the world, and the fall in India’s real trade weighted exchange rate bodes well for the country’s exports. At the same time, import growth is likely to slow given the weakness of domestic demand. This combination not only bodes well for real GDP growth, but should also help stabilize the trade deficit, which continues to deteriorate. Meanwhile, our modeling work suggests that private consumption will benefit from the sizeable boost to real incomes stemming from the recent drop in food prices. Despite the importance of the rural sector, it seems to us that very few people in India actually benefit from rising food prices.

• Capital spending is likely to remain a brake on growth during 2012. Unfortunately, the lagged effects of the RBI’s rate increases during 2011, coupled with on-going high levels of international and domestic uncertainty will continue to cap investment growth for the time being, in our view. The best we can say is that capital spending should stop contracting, but a strong pick up is unlikely to materialize until the benefits of the anticipated rate reductions are felt in 2013. Partly for this reason, it is not until next year that overall GDP growth is likely to exceed its trend rate, which we put at 7.5%.

• We remain skeptical about the government’s ability to engineer sizeable structural improvements in the economy. It remains to be seen whether the ‘postponed’ plan to allow multi-brand retailers to set up shop in India eventually comes to fruition, but we are certainly not holding our breath. The poor showing of the governing Congress party in this year’s state elections could even encourage a more populist stance from the government. In particular, it will no doubt be keener than ever to push through the food security bill, designed to provide subsidized food grains to 75% of the rural population and 50% of urban-dwellers. The total cost of the plan is currently pegged at around 1% of GDP – enough to put a sizeable dent in the government’s already fragile public finances. It is unclear how this will be financed, although there is, in our view, legitimate hope that the introduction of the Direct Tax Code (DTC) and GST will help somewhat.

• Risks of a sovereign downgrade? It is important to stress that India is a long way from experiencing the sort of unsustainable rise in its public debt that is becoming all too familiar in the developed world (thanks mainly to the country’s strong money GDP growth). But it is clear that the rating agencies will be paying close attention to the 16 March budget. In the absence of a credible tightening of the fiscal purse strings, India could well be placed on watch for a downgrade back to non-investment grade.

14 March 2012


Exhibit 278: Fuel prices raised in 2011 Exhibit 279: Metal price inflation may fall

90

110

130

150

170

190

05 06 07 08 09 10 11 12

LPGPetrolKeroseneDiesel

Index

-40

-20

0

20

40

60

80

100

05 06 07 08 09 10 11 12-12

-7

-2

3

8

13

18

23

Metal CRB index*

Metals WPI (RHS)

% y-o-y % y-o-yGovernment is highly likely

to raise subsidized fuel prices given the renewed

increase in the price of oil. But this will not lead to a pick up in the energy component

of the WPI if prices are, as we suspect, raised by a

similar amount to last year. Meanwhile, manufacturing ex. food inflation has yet to

reflect the drop in international metal

commodity price inflation. We expect it to do so shortly.

Source: CEIC In rupee terms Source: CEIC, Credit Reserve

Exhibit 280: WPI inflation to fall further and stay down?

0

2

4

6

8

10

12

05 06 07 08 09 10 11 12 13-30-20-100102030405060

Headline WPI (LHS)INR-denominated CRB index* (RHS)% y-o-y % y-o-y

F'cst**

In our view, WPI inflation, India’s key price measure,

will average 5.8% in 2012/13 – comfortably below the

Bloomberg consensus forecast of 6.6%.

The fact that rupee-denominated international commodity price inflation

has dropped so sharply and leads the headline rate bodes well for a further decline in WPI inflation.

Unlike many, we are not convinced it will show a

meaningful rise in the second half of the year.

Average of CRB food & metal price index as well as Brent oil. ** Assumes level of INR denominated CRB index is unchanged and Brent oil price of USD125/barrel Source: CEIC, Credit Suisse forecast

Exhibit 281: Rise in manufacturing… Exhibit 282: ..and service sector PMI

45474951535557596163

05 06 07 08 09 10 11 12-10

-5

0

5

10

15

20Manufacturing PMI

Industrial Production*Index % y-o-y

40

45

50

55

60

65

70

06 07 08 09 10 11 1267891011121314

Service Sector PMI

Services GDP*

Index % y-o-y

Year-on-year GDP growth probably bottomed in the December quarter of last

year at 6.1% – close to the low hit during the global

financial crisis.

The key reason for optimism is the strong improvement

seen in both the manufacturing and service

sector PMIs.

Source: Credit Suisse, CEIC, Markit Excludes government services Source: Credit Suisse, CEIC, Markit

14 March 2012


Exhibit 283: Investment likely to remain weak

Exhibit 284: Consumption set to bounce

-10

-5

0

5

10

15

20

25

00 02 04 06 08 10 12

'Actual'

Model

Fixed Investment% y-o-y Model based f 'cst

23456789

101112

02 04 06 08 10 12

'Actual'

Model

Private consumption% y-o-y

Model based f 'cst

In practice, we find it harder to be so optimistic when

looking at the prospects for the expenditure breakdown

of GDP. In particular, our model suggests that capital spending growth is likely to

remain muted in 2012.

Nevertheless, the fall in food prices bodes well for private

consumption growth, while we also expect some

improvement in net exports. Our GDP growth forecast for

2012/13 remains at 7.3%.

Source: CEIC, Credit Suisse forecasts Source: CEIC, Credit Suisse forecasts

Exhibit 285: We expect RBI to deliver 175bps of repo rate cuts

3

4

5

6

7

8

9

01 02 03 04 05 06 07 08 09 10 11 12 13

Repo rate CRR Reverse repo rate%F'cst

With WPI inflation set to fall below 6%, in our view, and

GDP growth unlikely to move above trend (which we

put at 7.5%) until 2013, there is plenty of room for

the RBI to cut policy rates.

We are looking for a consensus-busting 175bps

of repo rate cuts by January 2013, taking the rate down

to 6.75%, with the CRR falling another 75bps to

4.0%.

Source: CEIC, Credit Suisse forecasts

Exhibit 286: The high fiscal deficit… Exhibit 287: …has not meant rising debt

0123456789

10

05/06

06/07

07/08

08/09

09/10

10/11

11/12 F

12/13 F

State Gov

Central Gov

% Fiscal Deficit

50

55

60

65

70

75

80

85/86

88/89

91/92

94/95

97/98

00/01

03/04

06/07

09/10

% GDPGeneral government

gross debt

While it is tempting to believe that India’s public finances are in a parlous

state, the situation is probably best described as

bad but not that bad.

In particular, double-digit money GDP growth means

that even an 8% of GDP general government deficit is

consistent with a falling debt/GDP ratio.

Source: Credit Suisse, CEIC, Markit Source: Credit Suisse, CEIC,

14 March 2012


India: Selected economic indicators (Fiscal year beginning April) (1) 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%)(2) 9.5 9.6 9.3 6.8 8.5 8.0 6.8 7.3 8.2 Growth in agricultural GDP (%) 5.1 4.2 5.8 -0.1 0.4 5.4 3.7 3.1 2.5 Growth in industrial GDP (%) 9.7 12.2 9.7 4.4 8.0 8.1 3.2 6.3 7.5 Growth in services GDP (%) 11.0 10.1 10.3 10.1 10.1 9.6 9.3 8.8 9.9 Growth in real private consumption (%) 8.5 8.3 9.3 7.7 7.7 8.4 5.0 6.5 7.0 Growth in real fixed investment (%) 16.2 13.8 16.2 1.5 11.0 6.4 0.9 5.3 11.2 Fixed investment (% of GDP) 30.5 31.8 33.6 32.5 33.4 32.6 30.8 30.2 31.1 Nominal GDP ($bn) 834 950 1,242 1,202 1,383 1,595 1,812 2,118 2,496 Population (mn) 1,106 1,122 1,138 1,154 1,170 1,186 1,203 1,219 1,237 GDP per capita ($) 754 846 1,092 1,041 1,182 1,457 1,506 1,737 2,019 Prices, interest rates and exchange rates WPI inflation (% year-on-year change, fiscal year – March over March) 4.2 6.7 7.7 1.6 10.4 9.7 6.5 6.0 7.5 WPI inflation (% change in average index for the year) 4.4 5.4 4.7 8.4 3.8 9.6 8.7 5.8 6.8 Exchange rate (INR per USD, end-year) 44.6 43.6 40.0 51.0 45.1 44.7 49.0 47.0 46.0 Exchange rate (INR per USD, average) 44.3 45.2 40.1 46.5 47.4 45.6 49.0 47.4 46.3 REER (% year-on-year change, March over March) (3) 3.2 -0.3 2.5 -10.6 14.0 2.8 -7.5 5.0 3.0 Repo rate (%, end-year) (4) 6.50 7.50 7.75 5.00 5.00 6.75 8.25 6.75 6.75 Reverse repo rate (%, end-year) (4) 5.50 6.00 6.00 3.50 3.50 5.8 7.25 5.75 5.75 Fiscal data General government fiscal balance (% of GDP) (5) -6.5 -5.4 -5.0 -8.7 -9.5 -7.4 -8.2 -8.3 -7.8 General government budget balance (% of GDP) excl. disinvestment receipts -6.5 -5.4 -5.0 -8.5 -9.7 -8.0 -8.2 -8.7 -8.1 Central government fiscal balance (% of GDP) (5) -4.0 -3.3 -2.5 -6.0 -6.4 -4.7 -5.6 -5.8 -5.3 Central government budget balance (% of GDP) excl. disinvestment receipts -4.6 -3.6 -4.3 -6.3 -7.4 -5.6 -5.6 -6.2 -5.6 Central government primary fiscal balance (% of GDP) -0.4 0.2 0.9 -2.6 -3.1 -1.7 -2.4 -2.3 -1.8 Central government expenditure (% of GDP) 13.7 13.6 14.3 15.8 15.6 15.2 15.9 16.1 16.2 Central government revenue (% of GDP) 9.7 10.3 11.7 9.8 9.3 10.5 10.4 10.3 10.9 Gross general government debt (% of GDP, end-year) 80.9 78.5 75.4 74.7 74.2 67.3 65.0 63.5 62.0 Money supply and credit Broad money supply (M3, % of GDP) 73.9 77.1 80.6 85.9 85.5 82.5 83.5 84.9 87.1 Broad money supply (M3, % year-on-year change) 21.2 21.3 21.4 19.3 16.8 16.0 14.0 15.0 18.0 Domestic credit (% of GDP) 70.3 72.1 73.0 80.1 81.6 81.3 84.8 88.5 92.3 Domestic credit (% year-on-year change) 18.8 19.4 17.5 22.9 19.5 19.9 17.5 18.0 20.0 Domestic credit to the private sector (% of GDP) 38.9 42.8 45.6 49.1 48.9 46.9 47.9 49.1 50.4 Domestic credit to the private sector (% year-on-year change) 22.3 28.1 23.6 20.8 16.7 15.3 15.0 16.0 18.0 Balance of payments Exports (goods and non-factor services, % of GDP) 19.5 21.3 20.6 24.2 20.0 22.1 25.7 25.2 25.7 Imports (goods and non-factor services, % of GDP) 23.0 24.7 24.9 30.0 26.1 26.8 32.0 30.7 31.7 Exports (goods and non-factor services, % year-on-year change in $ value) 26.7 24.5 26.6 13.3 -5.1 38.1 22.0 15.0 20.0 Imports (goods and non-factor services, % year-on-year change in $ value) 30.5 22.7 31.6 16.6 0.0 28.6 25.0 12.0 22.0 Current account balance ($bn) -9.9 -9.6 -15.7 -27.9 -38.4 -44.3 -58.0 -53.0 -69.9 Current account balance (% of GDP) -1.2 -1.0 -1.3 -2.3 -2.8 -2.6 -3.2 -2.5 -2.8 Net FDI inflows ($bn) 3.0 7.7 15.9 19.8 18.8 7.1 15.0 10.0 12.0 Foreign debt and reserves Foreign debt ($bn) 139 172 224 224 261 306 340 370 400 Foreign debt (% of GDP) 16.7 18.2 18.1 18.7 18.9 17.7 18.8 17.5 16.0 Foreign debt (% of exports of goods and services) 85.4 85.0 87.5 77.2 94.6 80.4 73.1 69.2 62.4 Central bank gross FX reserves ($bn) 151.6 199.2 309.7 252.0 279.1 305.5 300.0 310.0 325.0 Central bank gross non-gold FX reserves ($bn) 145.9 192.4 299.7 242.4 261.1 282.5 275.0 285.0 300.0 (1) The years above are fiscal years beginning in April and ending in March, i.e., 2010 refers to the period of April 2010-March 2011, also written as FY2010/11. (2) Revised GDP series with base 2004-05. All historical ratios expressed as % of GDP may appear smaller since the revised GDP values in the new series (with base year of 2004) are higher. (3) Real effective exchange rate: an increase indicates appreciation. (4) The RBI uses a mix of instruments such as the repo rate, reverse repo rate, CRR (Cash Reserve Ratio), etc. (5) Note, effective from 2010, the central government includes proceeds from disinvestments as revenue in calculating the fiscal deficit. Source: Ministry of Finance, Reserve Bank of India, CSO, CEIC, Credit Suisse

14 March 2012


Indonesia: All about inflation • Inflation down, rates cut. In the previous edition of this publication, we pointed to the

risks of the central bank keeping monetary policy too loose for too long, eventually leading to an overheating economy. Since then, Bank Indonesia has cut the policy rate another 25bps to a new record low of 5.75%, while the bottom end of the interest rate corridor has come down to just 3.75%. At the same time, however, the headline rate of inflation has eased further, falling to 3.6% in the latest number for February – the lowest figure since March 2010. This weakness was mainly the result of a softening in food price inflation, although even the core rate moved a fraction lower to 4.3%. So does the inflation trajectory support the rate-cutting case? Not in our view.

• Fuel effects. With the crude oil price taking another leg up, the government looks to have decided to make one its periodic adjustments to subsidized fuel prices, apparently dropping the plan to shift private sector four-wheel vehicles from subsidized to unsubsidized fuel. The suggested IDR1,500 a liter (33%) increase, which is still subject to parliamentary approval at the time of writing, is expected to add roughly two percentage points directly to the headline rate of inflation and another 0.5pp-1pp as a second-round effect. As such, and assuming the measure is implemented at the beginning of April, inflation could be running close to 7% by mid-year. It is worth noting that if the government chooses not to increase subsidized fuel prices then the risk is that the budget deficit would exceed the implicit 3% of GDP limit. In any event, the authorities may choose to spend some of the money generated in the form of welfare support.

• Underlying inflation concerns. On top of what should be a temporary effect of the fuel price hike, we remain concerned about the longer-term prospects for core inflation. While the good news is that we can find statistically robust evidence of a structural improvement in underlying inflation (see Indonesia’s great rate gamble, 22 November 2011), this does not mean that core price pressures will always remain muted.

• Growing above trend. We believe the trend rate of economic growth in Indonesia is no more than 6%, below the current GDP growth rate of 6.5%, let alone the president’s 7%+ growth target that he aims to achieve by end of his second and final term in 2014. Our view is more pessimistic than that of many, including the central bank, which pegs trend growth at 6.5%-7%. In part, this likely reflects contrasting calculations regarding the investment share in GDP. Strangely, while the nominal gross fixed investment share is 34%, it is ‘only’ 26% in real terms. Exactly why the price of capital goods should have risen so much more than goods in the economy as a whole (220% versus 140% since the beginning of 2003) is not entirely clear. However, it seems to us that when thinking about real trend growth we should pay more attention to the share of real investment in real GDP.

• Signs of overheating? If we are right, then the economy should be eating into spare capacity and showing more and more signs of overheating. Although few, if any, indicators are flashing red right now, this process does indeed seem to be under way. The country’s jobless rate, for example, has all but halved over the last five years, while this year’s minimum wage hikes look set to be higher than normal in real terms. Property prices are surging (in Jakarta at least), the current account is deteriorating (it moved into deficit for the first time in two years in Q4 2011), and money and credit growth are rising strongly. It is also noticeable that retailers’ price expectations have moved sharply higher over the last few months – hitting their strongest level for two years in January (the latest available figure) this year. At the same time, consumer price expectations (for six months ahead) are currently at their second highest level since the series started in 2006. Admittedly, as we have pointed out, inflation has yet to show any signs of picking up, but it is important to bear in mind that consumer prices are often the last indicator to turn.

Robert Prior-Wandesforde +65 6212 3707

[email protected]

14 March 2012


• Central bank rate reaction. Bank Indonesia has indicated that the upper limit of its 3.5%-5.5% target range for headline CPI inflation is likely to be breached if the government does raise fuel prices by the suggested amount. The question is, however, will the central bank choose to see through the resulting uptick or react to the move by raising rates? History at least suggests the latter is the more likely outcome, although we very much doubt any rate action would be aggressive for fear of undermining the country’s growth prospects. It may not even involve a hike in the BI rate, but rather a move up in the politically less contentious FASBI rate and/or an increase in reserve requirements to mop up excess liquidity.

• Lending growth. Bank Indonesia appears to be particularly keen not to affect lending growth, partly on the grounds that the economy is ‘underleveraged’. But while it is true to say that the Indonesia’s bank credit/GDP ratio, at 27%, is the lowest in the region, lending can still expand at too rapid a rate. Indeed, our fear is that some loans are being made on the basis of unrealistic assumptions about interest rates and/or economic growth, for example. Within total loan growth, it is at least reasonably reassuring that credit for ‘investment’ purposes is expanding at more than 30%, compared with 24% for consumption.

• Bond and currency market risks. With this in mind and despite the recent move higher in yields, it is hard to be optimistic about the country’s sovereign bonds. The rupiah is also at risk, with our foreign exchange team expecting the currency to be amongst the weakest performers in the region over coming months.

• Revising up our inflation and growth forecasts. Not only are we moving our 2012 inflation forecasts higher (from 5.9% at year-end to 7.3%) to reflect the likely impact of the fuel price hike, we are also upping our year average GDP growth forecasts for both this year and next to 6.4% and 6.6% respectively (from 5.9% and 6.5%). The growth revisions may seem a little odd given the prospect of higher energy prices, but, as mentioned, real incomes are unlikely to take that much of a hit as the government boosts welfare spending in return. In addition, we have been extremely impressed by the seemingly ‘bullet-proof’ nature of the economy. Year-on-year GDP growth moved in a tiny 6bps range during the course of 2011, with the central bank forecasting a fourth consecutive quarter of 6.5% growth in Q1 2012. We cannot think of another economy in the world that has shown such extraordinary stability and resilience in recent times.

• Signs of protectionism? The government’s recent decision to reduce the limit on foreign ownership of local mines to 49% from 80% (companies will have 10 years to comply with the president’s decree) has caused some concerns amongst existing and potential investors based abroad. Many are asking whether this represents an isolated incident or the tip of a protectionist iceberg. To our minds, the Indonesian authorities were never going to give foreign companies unlimited access to the domestic market, not least in the commodities space, and hence this development should not have come as a massive surprise. As we see it, while Indonesia is a vastly different country to the one that entered the Asian crisis in the late-1990s, there are some things that have not changed that much.

14 March 2012


Exhibit 288: Spot the difference … Exhibit 289: Huge capex price rises

1517192123252729313335

93 95 97 99 01 03 05 07 09 11

RealNominal

Investment share in GDP% GDP

0

5

10

15

20

25

30

35

01 03 05 07 09 11

Investment deflatorGDP deflator

% y-o-y

A huge and strange gap has opened up between the nominal and real investment

shares of GDP. This has important implications for

estimates of trend GDP growth in the country.

Since the beginning of 2003, while prices in the

economy as a whole have risen 140%, they have risen 220% for investment goods.

It is hard to explain the full extent of the gap.

Source: Credit Suisse, CEIC Source: Credit Suisse, CEIC

Exhibit 290: Indonesian GDP growth has probably been running above trend

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11

Indonesia GDPAsia ex. Japan & China GDP

% y-o-y

The good news is that even the real investment share in

GDP has been rising, although we suspect it is consistent with no more

than 6% trend growth.

The economy has, however, been growing at

more than this rate for a while now, reducing spare

capacity.

The remarkable stability of Indonesian GDP growth

compared with many of its Asian neighbors is also

worth noting.

Source: Credit Suisse, CEIC

Exhibit 291: Rising consumer and … Exhibit 292: … now retailers’ price expectations

145

155

165

175

185

195

06 07 08 09 10 11 12024681012141618

Consumer price expecs

Headline CPI inf (RHS)

Index %

100

110

120

130

140

150

160

170

03 05 07 09 1102468101214161820

Retailers price expecs

Headline CPI inf (RHS)

Index Index

While consumer price expectations have been

rising pretty much continuously since 1999,

reaching very high levels, retailers have been more

circumspect. But even this now looks to be changing,

with the right-hand chart showing a strong rise in the

last three months.

Source: CEIC Source: CEIC

14 March 2012


Exhibit 293: First deficit for three years Exhibit 294: Tightening labor market

Current account

-2

-1

0

1

2

3

4

05 06 08 09 11

USD bn

Unemployment rate

0

2

4

6

8

10

12

85 88 91 94 97 00 03 06 09

%

Further evidence that the economy is growing above trend is given by the trend deterioration in the current

(and trade) account balance.

Meanwhile, the country’s unemployment rate has all

but halved over the last five years and, although it is still

quite high by past standards, there is a

concern that the structural rate of joblessness has

increased.

Source: CEIC Source: CEIC

Exhibit 295: We expect modest BI tightening in response to rising inflation

2468

101214161820

03 04 05 06 07 08 09 10 11 12 13567891011121314

Headline CPI (LHS)

BI policy rate (RHS)

% y-o-y

F'cst

%Bank Indonesia has lowered the policy rate by 100bps to 5.75% and the bottom end of its interest

rate band to just 3.75% in recent months. We believe

this is overdoing the stimulus, taking risks with

inflation.

The most imminent threat to inflation stems from a likely increase in subsidized fuel

prices.

Source: Credit Suisse estimates, CEIC

Exhibit 296: Heading for a subsidized fuel price rise

Exhibit 297: Money and credit are growing strongly again

0

200

400

600

800

1000

1200

1400

95 97 99 01 03 05 07 09 110

1

2

3

4

5

6

7Crude oil price (LHS)

Subsidised fuel price(RHS)

IDR/barrel ('000s) IDR/litre ('000s)

5

10

15

20

25

30

35

40

05 06 07 08 09 10 11 129

11

13

15

17

19

21Bank lending (LHS)M2*

% y-o-y % y-o-y

The government has signaled its intention to

raise subsidized fuel prices by IDR1,500/litre (33%).

This is most likely to happen in April and we

estimate it will add around 2-3pps to inflation when one

includes both direct and indirect effects.

The renewed strength of money and lending growth,

which tend to lead underlying inflation,

presents further, medium-term, upside risks to

inflation.

Source: Credit Suisse, CEIC Source: Credit Suisse, CEIC

14 March 2012


Indonesia: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 5.7 5.5 6.3 6.0 4.6 6.1 6.5 6.4 6.6 Growth in real private consumption (%) 4.0 3.2 5.0 5.3 4.9 4.6 4.7 5.0 5.0 Growth in real fixed investment (%) 10.9 2.6 9.3 11.9 3.3 8.5 8.8 9.3 10.0 Fixed investment (% of GDP) 23.6 24.1 24.9 27.7 31.1 32.2 31.7 32.5 33.3 Nominal GDP ($bn) 284.5 365.3 431.1 507.2 541.2 707.5 844.1 923.5 1018.1 Population (mn) 219.9 222.7 225.6 228.5 231.4 237.6 240.5 243.4 246.3 GDP per capita ($) 1,294 1,640 1,911 2,219 2,339 2,977 3,510 3,795 4,134 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 17.1 6.6 6.6 10.2 2.8 7.0 3.9 7.3 6.1 CPI inflation (% change in average index for the year) 10.5 13.1 6.4 9.8 4.8 5.1 5.4 6.2 6.3 Exchange rate (IDR per USD, end-year) 9,830 9,020 9,419 10,950 9,400 8,991 9,068 9,050 9,500 Exchange rate (IDR per USD, average) 9,751 9,141 9,164 9,757 10,354 9,078 8,799 9,059 9,275 REER (% year-on-year change, December over December) (1) 12.1 7.2 -6.5 -8.1 15.3 6.3 -2.0 3.0 -3.0 Nominal wage growth (% year-on-year change) (2) 8.5 6.2 4.9 7.6 5.2 12.3 6.0 7.5 9.0 Overnight rate (%, end-year) (3) 12.75 9.75 8.00 9.25 6.50 6.50 6.00 6.25 6.50 Fiscal data (4) General government fiscal balance (% of GDP) -0.5 -0.9 -1.3 -0.1 -1.6 -0.7 -1.2 -2.0 -1.8 General government primary fiscal balance (% of GDP) 1.6 1.5 0.8 1.7 0.1 0.6 -0.2 -0.5 -0.4 General government expenditure (% of GDP) 18.4 20.0 19.2 19.9 16.7 16.2 17.0 18.0 19.0 General government revenue (% of GDP) 17.9 19.1 17.9 19.8 15.1 15.5 15.8 16.0 17.2 Gross general government debt (% of GDP, end-year) (5) 47.0 39.5 34.2 29.5 31.3 26.4 24.0 21.0 20.0 Money supply and credit Broad money supply (M2, % of GDP) 43.4 41.4 41.8 38.3 38.2 38.5 38.7 40.2 42.1 Broad money supply (M2, % year-on-year change) 16.3 14.9 19.3 14.9 13.0 15.4 16.4 17.0 18.0 Domestic credit (% of GDP) 32.5 29.4 28.8 26.3 26.1 25.0 26.5 27.2 28.2 Domestic credit (% year on year change) 15.5 8.8 16.2 14.3 12.2 9.9 22.4 16.0 17.0 Domestic credit to the private sector (% of GDP) 26.4 24.6 25.5 26.6 25.0 26.2 28.5 32.4 36.5 Domestic credit to the private sector (% year-on-year change) 21.0 12.1 22.4 30.7 6.8 20.0 25.8 28.0 27.0 Balance of payments (6) Exports (goods and non-factor services, % of GDP) 35.1 31.5 30.3 30.5 24.5 24.7 26.3 26.7 28.1 Imports (goods and non-factor services, % of GDP) 32.2 26.1 25.4 28.6 20.6 21.7 23.5 24.7 27.4 Exports (goods and non-factor services, % year-on-year change in $ value) 20.7 15.1 13.4 18.7 -14.2 31.7 27.0 11.0 16.0 Imports (goods and non-factor services, % year-on-year change in $ value) 28.0 4.1 15.0 32.3 -23.0 37.6 29.3 15.0 22.0 Current account balance ($bn) 0.3 10.9 10.5 0.1 10.6 5.1 2.1 -6.5 -15.3 Current account balance (% of GDP) 0.1 3.0 2.4 0.0 2.0 0.7 0.2 -0.7 -1.5 Net FDI inflows ($bn) 5.3 2.2 2.3 3.4 2.6 11.1 10.4 12.0 10.0 Scheduled external debt amortization ($bn) 13.5 14.3 15.4 17.1 18.7 22.2 25.0 28.0 30.0 Foreign debt and reserves Foreign debt ($bn) 130.7 128.7 136.6 149.1 172.9 200.1 210.0 220.0 230.0


Foreign debt (% of GDP) 45.9 35.2 31.7 29.4 31.9 28.3 24.9 23.8 22.6 Foreign debt (% of exports of goods and services) 130.8 111.9 104.7 96.3 130.2 114.4 94.6 89.3 80.5 Central bank gross FX reserves ($bn) 34.7 42.6 56.9 51.6 66.1 96.2 112.0 100.0 90.0 Central bank net non-gold FX reserves ($bn) 33.1 41.1 55.0 49.6 63.6 92.9 109.0 97.0 87.0 (1) Real effective exchange rate, increase indicates appreciation. (2) Nominal wage: manufacturing. (3) BI changed its policy target from 1m SBI rate to overnight rate in 2008. (4) Refers to central government. The government assumed an oil price of $61 per barrel for 2009 in its revised budget announced in June 2009. (5) Excludes SOE and BI debt. (6) BoP numbers from 2004 onwards have been revised; exports & imports include credits & debits on net income, respectively, in 2000-03. Source: Bank Indonesia, Ministry of Finance, Central Bureau Statistics, CEIC, World Bank, Credit Suisse

14 March 2012


Korea: Growth has troughed, rates on hold • We think growth may have troughed, but it is likely to remain slow amidst an

uncertain global growth environment. On a quarter-on-quarter sequential basis, Korea’s GDP growth has slowed from 0.8% in Q3 2011 to 0.4% in Q4 2011. We expect to see some improvement in the sequential growth trend going forward, though on a year-on-year basis GDP growth is still likely to remain modest at nearly 3% yoy in Q1 2012. An improved outlook on the US economy and better stability in the European sovereign debt situation have provided support to the weakness in the global economy. Korea’s leading indicators, such as the manufacturing PMI and composite leading indicator index, have also demonstrated a pick-up from their trough in Q4 2011.

• With the external economy seemingly stabilized, we expect export growth to improve gradually in the months to come. Merchandise exports grew 8.2% yoy in December 2011 and moderated further to 6.7% yoy in January-February this year. We do not think the growth pace will fall much further in the near term. Better demand for technology exports coming from the developed world is expected to be the driver behind the improvement. But having said that, a slowing Chinese economy and its weakened demand for machinery and raw material imports are likely to create headwinds on Korea’s non-tech export growth, in our view.

• Consumption growth is likely to remain moderate. (1) As an export-led economy, weakened external demand and facility investments in Korea are expected to limit employment and wage growth. (2) A high household debt level would limit the momentum for consumption and further appetite for loans. (3) A sluggish real estate market and volatile stock market are capping the wealth effect’s strength on the economy. We expect private consumption growth to remain modest at 3% yoy in 2012 versus 2.3% yoy in 2011.

• Fixed investment growth is likely to remain weak as well. (1) A moderate outlook on the external economy would likely limit the amount of facility investments carried out by corporations. (2) The reduction in Social Overhead Capital (SOC) budget in 2012 is likely to weaken public infrastructure investments. (3) A still sluggish real estate market may continue to put a cap on housing construction activities this year. We expect gross fixed capital formation growth to be at 3.2% in 2012, albeit improved from the very weak 2.1% contraction in 2011.

• 2012’s growth is likely to be below-trend, but we do not think the government has the intention to provide strong stimulus support at this stage. We have maintained our 2012 GDP growth forecast at 3.4%, which is slower than the 4% trend growth seen over the past ten years. Although we think there is room for the government to provide stimulus to the economy, we do not think it is prepared to do so, unless the economy sees severe downside risk. Currently, the government is aiming to balance the managed fiscal account (exclude social security funds) by 2013 and to bring down gradually the public-debt-to-GDP ratio in the coming years.

• We now expect the Bank of Korea to keep the policy base rate unchanged at 3.25% through the end of 2012, in view of the tilt in inflation and growth risk balance in the economy. Growth is likely to remain slow, but we do not think it is likely to deteriorate much further at this juncture. In fact, the BoK has expressed its optimism about Korea’s growth in the March monetary policy statement, saying that the domestic economy is not likely to weaken further. Meanwhile, rising global crude oil prices are causing heightened concern about inflation. According to the BoK, a $10 rise in the price for Dubai Fateh Crude oil is likely to add 0.2pp to the headline inflation rate. Inflation expectations remain high, with over 50% of the respondents expecting the headline inflation to pierce over 4% again in 12 months’ time.


[email protected]

14 March 2012


• We expect the trade surplus to narrow in 2012, led by the moderation in exports, providing less support to the current account surplus. We expect merchandise exports to rise 14% yoy in 2012, slowed from the 19% yoy seen in 2011. Weak exports of electronics and cars are likely to be the driver, while the exports of final and intermediate products to China are likely to see a slowdown as well. We expect merchandise imports to grow 16% yoy this year, led by the slowdown in imports of raw materials and intermediate products for the export sector, and final products for domestic demand, though higher crude oil prices should inflate the import bill. We expect Korea’s current account surplus to narrow to $21.5bn (1.8% of GDP) in 2012, still sizable to provide support to the balance of payment.

• The upside risk on USDKRW seems to have lessened, as the sovereign debt problem in Europe appears to have stabilized in the meantime. We maintain our expectation for USDKRW to be traded lower to around 1,030 by end-2012. This is under the assumption that the European condition would remain contained towards year-end and that the undervaluation of the KRW and continued current account surplus would increasingly compel KRW strength over H2 2012. A weakened JPY against the KRW is likely to erode the cost advantage Korean companies have over their Japanese competitors, but more visible impact on trade is not likely to be seen in the near term.

• We think the government will maintain a tightened fiscal stance, barring the need to respond to a severe growth shock, in preparation for rising challenges from a rapidly aging population. In the 2012 fiscal budget, the government projected a 9.4% increase in revenue (to KRW 344trn), but only a 5.5% increase in expenditure (to KRW 326trn). On the expenditure side, allocation to education, public administration, healthcare, welfare and other items saw increments, but allocation to infrastructure investments, also known as the Social Overhead Capital budget, was cut by 7.4%. The government has expressed its intention to balance the managed budget account next year and gradually reduce the ratio of its national debt to GDP to below 30% over the medium term.

• Household credit reached another record high to KRW 913trn by end-2011, over 150% of disposable income. The government has responded by introducing a series of policy measures in June last year to curtail the rapid rise of household debt, and the recent data suggest that its growth pace has slowed. However, we think the policies may only help to stabilize the household debt level; more stringent measures aiming to lower household leverages would negatively impact consumption demand. We are concerned that the continued sluggishness in the real estate market and resumption of the BoK’s interest rate normalization process would aggravate the debt-servicing burden of the household sector.

• The voters’ choice for a conservative or liberal legislature and president this year would be important for Korea’s politics in the years to come. The National Assembly election will be held on 11 April, while the presidential election will be held on 19 December. We believe domestic issues like a widening income gap, social welfare, and the balance between the big and small businesses will be the focus of this year’s elections There is a chance that the incumbent New World Party (formerly known as the Grand National Party) may narrow or even lose its majority in the National Assembly, as voters’ sentiment has been increasingly against the stance of the current administration. These elections may tilt the balance of government’s policy towards the big businesses and social issues, in our view.

• Outlook for Korea’s sovereign ratings appears stable. Adjustment remains unlikely over the next six months, in our view. Korea is currently rated A1 (Moody’s), A (S&P) and A+ (Fitch), with a stable outlook.

14 March 2012


Exhibit 298: Real GDP growth Exhibit 299: US ISM and Korea PMI

-6-5-4-3-2-101234

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

2Q12

Real GDP (% QoQ, sa)Forecasts

35

40

45

50

55

60

65

Jan-

07M

ay-0

7S

ep-0

7Ja

n-08

May

-08

Sep

-08

Jan-

09M

ay-0

9S

ep-0

9Ja

n-10

May

-10

Sep

-10

Jan-

11M

ay-1

1S

ep-1

1Ja

n-12

20

30

40

50

60

70

80KR: HSBC PMI US: ISM New orders

Growth could have troughed, but is likely to remain slow amidst an

uncertain global growth environment.

Korea’s leading indicators have demonstrated a pick-

up from their trough in 4Q11.

Source: CEIC, Credit Suisse Source: ISM, Markit Economics, Credit Suisse

Exhibit 300: Industrial production Exhibit 301: Domestic demand

-30

-20

-10

0

10

20

30

40

2003 2006 2009 2012-20

-15

-10

-5

0

5

10

15

20

Manufacturing production (% yoy)

Leading indicator index (% yoy, RHS)

-10

-5

0

5

10

15

2Q06

4Q06

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

Real GDP (% yoy)Gross fixed capital formation (% yoy)Private consumption (%yoy)

Industrial production has been weak, but may have

reached its trough.

Consumption and fixed investments are expected to

stay weak in 2012.

Source: KOSTAT, Credit Suisse Source: BoK, Credit Suisse

Exhibit 302: Unemployment rate Exhibit 303: Policy base rate

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2005 2006 2007 2008 2009 2010 2011 2012

Unemployment rate (%, unadjusted)

Seasonally-adjusted (%)

-3

-2

-1

0

1

2

3

4

5

6

2002 2004 2006 2008 2010 2012

Korea base rate (%)Korea real base rate (%)

Projection

Employment condition stayed resilient, but is likely

to weaken this year.

We now expect the BoK to remain on pause, in view of

the tilt in inflation and growth risk balance.

Source: BoK, Credit Suisse Source: BoK, Credit Suisse

14 March 2012


Exhibit 304: CPI inflation Exhibit 305: External trade

1

2

3

4

5

6

7

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-20

-10

0

10

20

30

40

50

60Consumer price index (% yoy)Import prices (% yoy, RHS)

-30

-20

-10

0

10

20

30

40

50

04 05 06 07 08 09 10 11 12-40-30-20-100102030405060

Trade balance (USD mn, 12-month rolling sumExports (% yoy, RHS)Imports (% yoy, RHS)

Rising oil prices pose upside risk to CPI inflation.

External trade remains weak, but should stabilize

soon upon improved global condition.

Source: NSO, CEIC, Credit Suisse Source: BoK, Credit Suisse

Exhibit 306: Balance of payments Exhibit 307: KRW

BoP (USD bn, 12m roll sum)

-60

-40

-20

0

20

40

60

80

04 05 06 07 08 09 10 11 12

Current accountFinancial accountOverall balance

60

70

80

90

100

110

120

130

00 01 02 03 04 05 06 07 08 09 10 11

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

KRW REER indexUSDKRW (inverted RHS)

Appreciation

We expect the trade surplus to narrow in 2012, led by

the moderation in exports, providing less support to the

current account surplus.

The upside risk on USDKRW seems to have

lessened, as the sovereign debt problem in Europe

appears to have stabilized in the meantime.

Source: BoK, Credit Suisse Source: CEIC, Credit Suisse

Exhibit 308: Fiscal balance Exhibit 309: Household debt

-4-3-2-1012345

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E20

12F

15

20

25

30

35

40

45Fiscal balance (% of GDP)Public debt (% of GDP, RHS)

Forecast

155

85

110

120

130

140

150

160

2002 2003 2004 2005 2006 2007 2008 2009 201070

75

80

85

90

95Household Debt/Disposable Income (%)

Household debt/GDP (%, RHS)

The government has expressed its intention to

gradually reduce the ratio of its national debt to GDP.

We think more stringent measures aiming to lower household leverage would

negatively affect consumption demand.

Source: MoFE, Credit Suisse Source: Kookmin Bank CEIC, BoK, Credit Suisse

14 March 2012


Korea: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 4.0 5.2 5.1 2.3 0.3 6.2 3.6 3.4 3.9 Growth in real private consumption (%) 4.6 4.7 5.1 1.3 0.0 4.1 2.3 3.0 3.4 Growth in real fixed investment (%) 1.9 3.4 4.2 -1.9 -1.0 7.0 -2.1 3.2 4.0 Fixed investment (% of GDP) 28.9 28.7 28.5 29.3 29.1 28.6 27.1 27.0 27.0 Nominal GDP ($bn) 844.8 951.2 1,049.1 929.1 829.6 1,011.6 1,133.8 1,214.3 1,363.6 Population (million) 48.1 48.3 48.5 48.6 48.7 48.9 49.0 49.2 49.3 GDP per capita ($) 17,550 19,695 21,650 19,115 17,018 20,696 23,128 24,696 27,649 Unemployment (% of labor force, end-year) 3.5 3.3 3.1 3.3 3.4 3.4 3.1 3.5 3.5 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 2.6 2.1 3.6 4.1 2.8 3.0 4.2 3.2 3.2 CPI inflation (% change in average index for the year) 2.8 2.2 2.5 4.7 2.8 2.9 4.0 3.1 3.1 Exchange rate (KRW per USD, end-year) 1,013 929.6 938.2 1,258 1,168 1,139 1,153 1,030 1,030 Exchange rate (KRW per USD, average) 1,024 955.3 929.4 1,105 1,281 1,159 1,108 1,092 1,030 REER (% year-on-year change) (1) 6.2 4.4 -6.6 -24.5 7.0 0.5 -2.7 15.1 3.2 Nominal wage growth (% year-on-year change) 6.4 5.6 5.9 3.1 -0.7 6.1 0.9 1.4 2.8 Overnight base rate (%, end year) 3.75 4.50 5.00 3.00 2.00 2.50 3.25 3.25 3.25 Fiscal data Consolidated government fiscal balance, (% of GDP) (2) 1.6 1.5 1.9 -0.3 -2.7 -0.5 0.6 0.9 1.1 Consolidated government primary balance, (% of GDP) 2.7 2.8 3.3 1.1 -1.2 1.1 2.1 2.2 2.2 Consolidated government expenditure, (% of GDP) 28.4 29.2 28.0 29.6 31.0 27.7 26.3 25.5 24.8 Consolidated government debt, (% of GDP, end-year) 29.8 33.8 36.3 36.2 39.4 37.8 35.6 32.7 29.4 Money supply and credit Broad money supply (M2, % of GDP) 118.1 126.5 130.6 138.9 147.4 141.6 139.4 140.1 143.8 Broad money supply (M2, % year-on-year change) 7.0 12.5 10.8 12.0 9.9 6.0 5.5 6.0 8.8 Domestic credit (% of GDP) 91.4 99.9 101.8 112.3 112.4 103.2 101.9 102.4 105.1 Domestic credit (% year-on-year change) 9.4 14.8 9.4 16.1 3.6 1.3 5.8 6.0 8.8 Domestic credit to the private sector (% of GDP) 87.1 95.1 99.6 108.8 107.6 100.8 100.0 102.4 107.0 Domestic credit to the private sector (% year-on-year change) 7.4 14.7 12.4 14.9 2.4 3.4 6.2 8.0 10.8 Balance of payments Exports (goods and non-factor services, % of GDP) 40.2 41.4 44.1 56.5 52.0 54.2 57.2 62.0 64.4 Imports (goods and non-factor services, % of GDP) 37.5 39.4 41.7 56.6 48.3 51.1 54.8 60.2 62.8 Exports (goods and non-factor services, % year-on-year change in $ value) 11.5 15.8 17.6 13.6 -17.8 27.1 18.2 16.0 16.7 Imports (goods and non-factor services, % year-on-year change in $ value) 16.9 18.5 16.6 20.2 -23.8 29.1 20.1 17.7 17.1 Current account balance ($bn) 18.6 14.1 21.8 3.2 32.8 29.4 27.7 21.5 23.1 Current account balance (% of GDP) 2.2 1.5 2.1 0.3 4.0 2.9 2.4 1.8 1.7 Net FDI inflows ($bn) -0.1 -7.6 -17.9 -16.9 -14.9 -22.2 -15.7 -14.7 -13.7 Scheduled debt amortization ($bn) (3) 20.5 17.9 35.4 39.1 30.5 33.7 34.3 35.2 35.2 Foreign debt and reserves Foreign debt ($bn) (4) 161.4 225.2 333.4 317.4 345.4 360.0 398.4 392.7 387.1


Foreign debt (% of GDP) 19.1 23.7 31.8 34.2 41.6 35.6 35.1 32.3 28.4 Foreign debt (% of exports of goods and services) 47.5 57.3 72.1 60.4 80.0 65.6 61.4 52.2 44.1 Central bank gross FX reserves ($bn) 210.4 239.0 262.2 201.2 270.0 291.6 306.4 312.9 318.9 Central bank gross non-gold FX reserves ($bn) (6) 210.3 238.9 262.1 201.1 269.9 291.5 306.3 312.8 318.8 (1) Real effective exchange rate (CPI-deflated); increase indicates appreciation. (2) Include social security funds. (3) Scheduled amortizations of medium- and long-term external debt of both the public and private sectors. (4) Liabilities vis-à-vis non-residents (i.e., includes FX-denominated and local-currency debt). (5) Includes government and central bank. (6) Central bank forex reserves minus monetary authorities’ other liabilities. Source: Bank of Korea, National Statistical Office, Ministry of Strategy and Finance, CEIC, Credit Suisse

14 March 2012


Malaysia: Outperform till the next election? • We maintain our above consensus real GDP growth forecast of 4.8% for 2012

(consensus as of February: 3.9%). Real GDP growth surprised on the upside for the second consecutive quarter at the end of last year. The strong performance is in line with our view that Malaysia’s GDP growth will continue to outperform that of the other export-oriented economies in the region. High crude and palm oil prices, a further fiscal boost from the government (cash transfers to the poor and civil servant pay rises of 7%-13% in Q1), and higher investment from the Economic Transformation Programme should keep domestic demand strong, in our view. The recent improvement in US economic activity also bodes well for Malaysia’s exports.

• We expect the government’s fiscal deficit to GDP ratio to remain stable at around 5.0% in 2012. The government’s 2012 fiscal deficit projection of RM44bn (4.7% of GDP) was based on a real GDP growth forecast of 5.5% and oil price of $110/barrel. We think the government’s growth forecast is optimistic. That said, we do not think the fiscal deficit will be a big issue under our assumption that Dubai oil prices remain at about $120/barrel in 2012. We estimate that every $10 rise in oil prices boosts the government’s revenues by about RM3bn (0.3% of GDP). Total oil-related revenues, at around RM70bn (8.4% of GDP), remain well above the government’s spending on oil subsidies of about RM16bn (1.7% of GDP) in 2011. We do not expect any change in subsidized fuel prices before the next general election, which must be held by March 2013.

• We expect Bank Negara Malaysia (BNM) to keep the policy rate on hold for the rest of 2012. With inflation likely to fall to as low as 2% by mid-2012, BNM has room to cut the policy rate if needed. However, the pickup in global PMIs in recent months, still high crude oil and palm oil prices, and strong domestic credit growth support our view that BNM will keep the policy rate unchanged at 3% for the rest of 2012, barring a euro zone financial crisis or other major adverse growth shocks.

• BNM might increase its intervention to keep the ringgit from further outperformance. The ringgit has outperformed most Asian currencies so far this year. We noted in Malaysia’s Economy and Markets in 2012 (12 January 2012) that BNM might allow more ringgit appreciation in 2012, given that the current account surplus remains strong, domestic demand is resilient, and there are signs of a pickup in US economic activity. Malaysia also benefits from the positive terms of trade shocks from higher oil prices. In particular, we think demand for oil and gas from Japan is likely to remain high in the next few months as it is still uncertain when most of Japan’s nuclear reactors will restart. But, given that the MYR trade-weighted exchange rate is now nearly back to its recent peak in early 2010, BNM might intervene more to keep the ringgit from outperforming the other regional currencies much further in a risk-on environment.

• We think introduction of the minimum wage could have a significant effect on the economy. According to local news reports, the government approved the introduction of a national minimum wage for the first time at RM800-900 per month. This is about 12% higher than the government’s survey of the poverty income line at RM760 ringgit per month and above the average gross pay that workers in the trade-reliant manufacturing sector receive, and about 34% of workers in the private sector earn less than RM700 per month. Although this measure might raise the government’s popularity from lower income households who manage to keep their jobs, it would be negative for low value-added companies, while some workers are likely to lose their jobs unless they quickly manage to raise their productivity.

• Market uncertainty will likely rise ahead of the next election. The populist measures implemented in recent weeks suggest that the next general election might be near. Our base case remains that Prime Minister Najib’s UMNO party will perform better than in the 2008 election but will fail to get back the two-thirds majority. Such an outcome should be mildly positive for the stock market. A recent survey by the Merdeka Center suggests that Najbi’s approval rating rose to 69% in February 2012 from 59% in August 2011. The prospects for further reforms will hinge crucially on the election outcome, in our view.

Kun Lung Wu +65 6212 3418

[email protected]

14 March 2012


Exhibit 310: Real GDP growth Exhibit 311: GDP ex government consumption

-5

0

5

10

ID MA PH KR HK TW SG

Q3 real GDP growth* (% qoq, sa annualised)Q4 real GDP growth* (% qoq, sa annualised)

-8

-4

0

4

8

12


GDP (% yoy)

GDP ex governmentconsumption (% yoy)

Malaysia’s real GDP growth in H2 2011 outperformed

that of the other small open economies in the region.

The strong growth performance was partly

exaggerated by the timing of government spending,

which was backloaded toward the second half of

2011.

Source: CEIC, Credit Suisse. *Malaysia and Indonesia’s GDP based on our own seasonally-adjusted data.

Source: CEIC, Credit Suisse

Exhibit 312: Strong domestic demand Exhibit 313: Tech cycle likely troughed

85

95

105

115

125

135


Real private consumption and fixedinvestment sa (Index, Jun-07=100)Real exports of goods and services sa(Index, Jun-07=100)

0.4

0.6

0.8

1.0

1.2

1.4

Jan-02 Jul-04 Jan-07 Jul-09 Jan-12-30-20-10010203040

SEMI book-to-bill ratio

Electrical & electronics exports(% yoy, 3mma, RHS)

Domestic demand remains robust and has been the

main driver of growth since the global financial crisis.

The recent improvement in the global PMIs and the US semiconductor book-to-bill

ratio bodes well for Malaysia’s non-commodity exports in coming months.

Source: CEIC, Credit Suisse Source: CEIC, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

Exhibit 314: Export composition Exhibit 315: Trade balance

6

11

16

21

26


Electrical and electronics exports (RM bn)Palm oil, LNG, and oil exports (RM bn)

-5

0

5

10

15

20


Major commodities trade balance(12m rolling sum, % of GDP)Trade balance ex major commodities(12m rolling sum, % of GDP)

Commodities have been the main driver of export growth

since the global financial crisis and have kept the

trade balance in surplus.

Source: CEIC, Credit Suisse Source: CEIC, Credit Suisse

14 March 2012


Exhibit 316: Balance of payments flows Exhibit 317: Direct investment flows 4q rolling sum, % of GDP 4q rolling sum, % of GDP

-30-25-20-15-10

-505

101520

Dec-02 Mar-05 Jun-07 Sep-09 Dec-11

Change in reserve assetsCurrent accountNet FDINon-FDI capital flows

-8

-6-4-20

24

6


Net direct investment flows Direct investment in MalaysiaDirect investment abroad

The improvement in non-FDI capital flows more than

offset a smaller current account surplus, keeping

the overall balance of payments flows in surplus.

Net FDI inflows were broad-based and should pick up further if the government

continues to implement its reform program.


Exhibit 318: Capital flows Exhibit 319: Oil revenue vs. production 4q rolling sum, % of GDP

-40

-30

-20

-10

0

10

20

30


Portfolio investmentOther investmentErrors and omissions

0

20

40

60

80

100


Production value: oil prices at $110(Index)Oil revenue ex dividends (4q rollingsum, RM bn, RHS)

Capital flows have improved in recent quarters, but

Malaysia remains exposed to a surge in capital

outflows if the global growth outlook deteriorates or

domestic political uncertainty heightens.

Higher oil prices are positive in general for

government finances and Malaysia’s terms of trade.


Exhibit 320: CPI vs. policy rate Exhibit 321: MYR trade-weighted exchange rate (NEER)

-4

-2

0

2

4

6


CPI inflation (% yoy)Policy rate (%)

CS forecast

90

92

94

96

98

100

102

104

Mar-05 Dec-06 Sep-08 Jun-10 Mar-12

MYR NEER index (up indicatesappreciation)

CPI inflation is likely to fall toward 2% yoy in the

coming months, providing room for BNM to cut the

policy rate if needed.

But with domestic demand remaining strong and the

global growth outlook improving, we expect BNM

to keep the policy rate on hold at 3% for the rest of

2012. BNM may, however, intervene more to keep the

MYR from outperforming much further, as the MYR trade-weighted exchange

rate is nearly back to its recent peak.

Source: CEIC, Credit Suisse Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

14 March 2012


Malaysia: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) (1) 5.3 5.8 6.3 4.6 -1.6 7.2 5.1 4.8 5.4 Growth in real private consumption (%) 9.1 6.5 10.8 8.5 0.7 6.5 6.9 5.6 5.5 Growth in real fixed investment (%) 5.0 7.9 9.2 0.8 -5.6 9.8 6.0 9.5 9.0 Fixed investment (% of GDP) 20.5 20.8 21.6 19.5 20.1 20.0 19.6 20.0 20.3 Nominal GDP ($bn) 138.0 156.6 186.8 222.3 193.0 238.6 278.9 322.4 358.0 Population (mn) 26.5 26.8 27.2 27.5 27.89 28.3 28.8 29.4 30.0 GDP per capita ($) 5,252 5,876 6,889 8,022 6,920 8,446 9,676 10,957 11,923 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 3.3 3.1 2.4 4.5 1.0 2.1 3.0 2.8 2.5 CPI inflation (% change in average index for the year) 3.1 3.6 2.0 5.4 0.7 1.7 3.2 2.3 2.7 Exchange rate (MYR per USD, end-year) 3.78 3.53 3.31 3.46 3.42 3.06 3.17 2.92 2.85 Exchange rate (MYR per USD, average) 3.79 3.67 3.44 3.33 3.52 3.21 3.06 2.91 2.88 REER (% year-on-year change, December over December) (2) 0.0 1.5 1.6 5.5 -1.9 5.7 -2.0 5.0 3.0 Nominal wage growth (% year-on-year change) (3) 7.1 9.5 7.3 2.9 -4.3 11.8 7.8 7.8 7.0 Overnight policy rate (%, end-year) (4) 3.00 3.50 3.50 2.50 2.00 2.75 3.00 3.00 3.00 Fiscal data (5) General government budget balance (% of GDP) -4.2 -3.5 -3.7 -4.8 -7.0 -5.8 -5.0 -5.0 -4.5 General government primary fiscal balance (% of GDP) -2.0 -1.3 -1.7 -3.1 -4.9 -3.8 -2.8 -2.8 -2.3 General government expenditure (% of GDP) 24.7 25.0 25.4 26.4 30.3 26.7 26.9 24.6 23.1 General government revenue (% of GDP) 20.5 21.5 21.7 21.6 23.3 20.8 21.9 19.6 18.6 Gross general government debt (% of GDP, end-year) 43.8 42.2 41.5 41.4 53.3 55.3 55.8 56.0 55.6 Money supply and credit Broad money supply (M2, % of GDP) 129.5 132.8 129.7 125.8 149.6 141.8 145.7 147.3 150.0 Broad money supply (M2, % year-on-year change) 8.3 13.0 9.5 11.9 9.1 6.8 14.3 11.2 12.0 Domestic credit (% of GDP) 122.4 119.0 113.4 115.3 137.0 131.6 130.5 124.5 122.8 Domestic credit (% year-on-year change) 5.8 6.9 6.5 17.4 9.0 8.2 10.4 5.0 8.5 Domestic credit to the private sector (% of GDP) 110.8 107.7 105.3 100.7 118.3 118.4 120.8 117.0 116.5 Domestic credit to the private sector (% year-on-year change) 9.1 6.8 9.2 10.4 7.8 12.7 13.6 6.5 9.5 Balance of payments Exports (goods and non-factor services, % of GDP) 117.6 116.5 110.4 103.3 96.7 96.5 94.2 92.0 90.7 Imports (goods and non-factor services, % of GDP) 95.2 94.3 90.1 80.1 75.1 78.9 77.7 77.1 77.0 Exports (goods and non-factor services, % year-on-year change in $ value) 12.1 12.7 13.0 11.4 -18.8 23.4 14.1 12.9 9.5 Imports (goods and non-factor services, % year-on-year change in $ value) 10.2 13.2 13.9 5.9 -18.7 29.9 15.1 14.7 10.9 Current account balance ($bn) 20.7 26.2 29.7 39.4 31.8 27.1 32.0 33.2 32.4 Current account balance (% of GDP) 15.0 16.7 15.9 17.7 16.5 11.4 11.5 10.3 9.0 Net FDI inflows ($bn) 1.0 0.0 -2.7 -7.8 -6.6 -4.4 -4.0 -1.4 0.0 Scheduled external debt amortization ($bn) 4.6 4.3 5.2 6.2 6.2 6.8 7.4 7.7 7.8 Foreign debt and reserves Foreign debt ($bn) 52.3 52.3 56.7 68.1 68.0 74.1 81.1 83.6 84.6


Foreign debt (% of GDP) 37.9 33.4 30.4 30.6 35.2 31.1 29.1 25.9 23.6 Foreign debt (% of exports of goods and services) 32.4 27.5 27.4 29.7 36.4 32.2 30.8 28.2 26.0 Central bank gross FX reserves ($bn) 70.2 82.5 101.1 91.4 96.7 106.5 133.6 150.0 180.0 Central bank gross FX reserves, including forward FX transactions ($bn) 70.2 85.1 115.1 91.4 96.7 114.3 140.2 160.0 190.0 Central bank gross non-gold FX reserves ($bn) (6) 69.9 82.2 101.1 91.2 95.4 104.9 132.0 148.4 178.4 (1) Real GDP from 2001 has been rebased to 2000 = 100. (2) Real effective exchange rate, increase indicates appreciation. (3) Salaries and wages in the manufacturing sector. (4) BNM changed the policy rate from the intervention rate to the overnight rate in May 2004. (5) Refers to the federal government’s financial position. The government assumed an oil price of $110 per barrel in its 2012 budget. (6) Not including forward FX purchases. Source: Bank Negara Malaysia, CEIC, Credit Suisse

14 March 2012


Philippines: Promising signs emerging • We are increasing our 2012 real GDP growth forecast to 3.5% from 3% earlier. The

two key factors holding back growth last year – exports and government spending – have shown signs of turning around. Japanese PMI new order indicators, as well as semiconductor book to bill ratios, our preferred lead indicators for the Philippine’s exports, suggest that year-on-year export growth will bottom in 1Q. Assuming no full-blown European crisis, we expect export growth to pick up from 2Q onwards, supporting both GDP and the current account balance.

• We see improvements in the government’s budget disbursement. We think the key tool for boosting growth is fiscal policy as the government is looking to put USD16bn (about 7% of GDP) in rail and airport projects. These planned expenditures form part of the government’s spending plan, which it expects will produce a fiscal deficit of 2.6% of GDP this year (versus 2% last year). While we remain cautious about the execution of policy, we have seen some promising signs that the government can deliver the promised spending when it really wants to. Fiscal spending disbursements rose 43.2% year on year in December.

• Growth is still likely to be sub trend this year. The positive developments explained above have not removed all of the headwinds to GDP this year, in our view. The export recovery is likely to be slow, with sub trend growth in the Western world, and structural issues in the Philippines’ electronic exports (see Philippines: Growth fears, rate hopes, 12 January 2012). In terms of government spending, we are not expecting a large fiscal stimulus (after all, the primary balance is still likely to remain in surplus). The administrative bottlenecks in PPP projects have not gone away and the recent debate around changing the rules governing the mining sector will not help investors’ sentiment. As a result, our growth projection is still below consensus5.

• We are cutting our 2012 headline Inflation forecast to 3.2% yoy from 3.7% yoy earlier. The collapse in February inflation, which fell to the lowest rate since 2009, implies that 2012 average inflation is likely to be even lower than our below-consensus call. This development also bodes well for household real spending, as we have argued previously. While year-on-year inflation is likely to pick up in 2H, the speed of increase will depend largely on global oil prices as the government will not subsidize fuel prices. We think a Dubai oil price of around USD120 is still manageable for the BSP.

• The BSP is likely to stay put for the rest of this year. We maintain our expectation that the BSP will keep the policy rate at 4% going forward. The policy rate is already at its lowest level (the same as during the GFC) and the BSP governor’s recent statements sound more balanced, highlighting the upside risk to inflation from the higher oil price.

• We think the key tool for boosting growth is fiscal policy. The banking sector has plenty of liquidity in the system, as reflected by the PHP1.6trn in the central bank’s special deposit account (36% of broad money). We think what is needed to kick-start private investment is not cheaper credits, but a catalyst such as government investment.

• An upgrade to investment grade this year? The Philippines is rated two notches below investment grade by S&P and Moody’s, and one step below by Fitch. The government expects its bonds to be upgraded to investment grade this year, and bonds rallied along with their Indonesian equivalents late last year. We think it quite possible that the country’s rating could be boosted, especially given that S&P put the country on positive outlook in December. However, we are more cautious about the prospect of achieving an investment grade rating this year. We think the country still needs to show that it can grow robustly while maintaining low inflation and fiscal discipline – the improvement in the fiscal position that was achieved in 2011 was done so through under-spending at the expense of growth, rather than enhancing the ability to generate revenue, in our view.

5 See the February Issue of Consensus Economics

Santitarn Sathirathai +65 6212 5675

[email protected]

https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=939297271&source_id=em&serialid=6aXp7JRnAZKV4l4VEgQsD2obdOMw4m8YJIymQ0kh0Yg%3d�

14 March 2012


Exhibit 322: Credit Suisse and consensus forecasts Exhibit 323: Exports and Japan’s PMI

33.23.43.63.8

44.24.44.6

Nov Dec Jan Feb CS

4.5%

4.1%

3.8% 3.8%

CS: 3.5%

Consensus GDP

-15-10-505

1015202530

2004

2005

2006

2007

2008

2009

2010

2011

2012

40

45

50

55

60

65

Real exports (% yoy, 2 QTR advance)Japan PMI new orders (RHS)

forecast

Consensus GDP estimates have been coming down

since November 2011.

Recent developments in the Japanese PMI new

order index point to a pick up in real exports growth

after 1Q.

Source: Consensus Economics, Credit Suisse Source: PMI premium, CEIC, Credit Suisse forecasts

Exhibit 324: Monthly fiscal balance Exhibit 325: Annual budget deficit fiscal balance (12m rolling, PHP bn)

-400-350-300-250-200-150-100

-50-50

2000

2002

2004

2006

2008

2010

Govt accelerated the spending plan after underspending for the most part of 2011

-6%

-4%

-2%

0%

2%

4%

6%

2005

2006

2007

2008

2009

2010

2011

F

2012

F

-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%

Primary fiscal balanceinterest paymentsFiscal balance (RHS)

The government’s accelerated spending plan has enabled it to increase the budget deficit to 2% of

GDP.

The government expects the budget deficit to reach

2.6% of GDP this year, but with the primary balance

still in surplus.

Source: CEIC, Credit Suisse Source: CEIC, Credit Suisse forecasts

Exhibit 326: Oil and CPI inflation Exhibit 327: Inflation and policy rate Assuming the Dubai oil price and USDPHP remain at their current levels going forward

0

2

4

6

8

10

12

2005

2006

2007

2008

2009

2010

2011

2012

2013

-30

-10

10

30

50

70

90

110

CPI inflation (% yoy)Dubai oil price in peso terms (% yoy, RHS)

f'cast

0

2

4

6

8

10

12

2005

2006

2007

2008

2009

2010

2011

2012

2013

33.544.555.566.577.58

CPI inflation (% yoy)Reverse repo rate (%, RHS)

f'cast

Assuming a Dubai oil price of USD120/bbl and that

PHP remains at its current level, we think the pick up in

inflation in 2H will be manageable.

We maintain our view that the BSP will keep the policy

rate at 4% for the rest of this year.

Source: BLOOMBERG PROFESSIONAL™ service, Credit Suisse forecasts

Source: CEIC, Credit Suisse forecasts

14 March 2012


Exhibit 328: Policy and market rates Exhibit 329: Special Deposit Account

02468

101214161820

2000

2002

2004

2006

2008

2010

2012

PH 91-day T-bill ratePolicy rate (%)

SDA account/M2

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2005

2006

2007

2008

2009

2010

2011

1.6trn pesos

Excess liquidity in the system has pushed the

market interest rate significantly below the

policy rate.

This is also reflected by the value of funds accumulating in the BSP’s special deposit

account reaching 35% of aggregate broad money.

Source: BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: CEIC, Credit Suisse

Exhibit 330: Remittance flows Exhibit 331: Basic balance

Remittance flows (% yoy)

0

5

10

15

20

25

30

35

2008

2009

2010

2011

2012

f'cast

-2

0

2

4

6

8

10

12

2005

2006

2007

2008

2009

2010

2011

F

2012

F

Current account (USD bn) Net FDI

We expect growth in remittances to remain

strong on the back of the better global growth

outlook.

Improvement in exports and robust remittance growth should result in a higher

current account surplus this year.

Source: CEIC, Credit Suisse forecasts Source: CEIC, Credit Suisse forecasts

Exhibit 332: REER comparisons Exhibit 333: 10-year bond yields Real Effective Exchange Rate (REER) index 2005=100 ID= Indonesia, PH= Philippines

90

100

110

120

130

140

150

2005

2006

2007

2008

2009

2010

2011

2012

PH SGTH MYID

4

6

8

10

12

14

16

18

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

4

5

6

7

8

9

10

11

ID 10-year bond yieldPH 10 year bond yield (RHS)

In trade-weighted inflation adjusted terms, the PHP

has appreciated more than its ASEAN peers over the

years – possibly one of the reasons behind loss of

export competitiveness, in our view.

The Philippines’ 10-year bond has rallied significantly

since late last year, much like Indonesia, which

achieved a rating upgrade to investment grade last

year.

Source: BIS, Credit Suisse Source: Credit Suisse

14 March 2012


Philippines: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F

National accounts, population and unemployment Real GDP growth (%) 4.8 5.2 6.6 4.2 1.1 7.6 3.7 3.5 4.3 Growth in real private consumption (%) 4.4 4.2 4.6 3.7 2.3 3.4 6.1 4.3 4.2 Growth in real fixed investment (%) 2.5 5.3 5.5 3.4 -2.0 19.1 2.7 5.1 6.0 Fixed investment (% of GDP) 19.9 20.1 19.9 19.3 18.7 20.7 20.5 20.8 21.2 Nominal GDP ($bn) 103.2 122.3 150.1 172.8 167.9 199.9 224.5 241.1 271.0 Population (mn) 85.3 87.0 88.7 90.5 92.1 93.7 95.4 97.1 98.9 GDP per capita, $ 1,211 1,406 1,692 1,910 1,824 2,132 2,353 2,482 2,740 Prices, interest rates and exchange rates CPI inflation (%, December to December) 6.7 4.3 3.9 8.0 4.3 3.1 4.0 3.6 4.6 CPI inflation (%, average) 7.7 6.3 2.8 9.3 3.2 3.8 4.4 3.2 4.3 Nominal wage growth (% year-on-year change) (1) 53.1 49.1 41.4 47.5 46.4 43.9 43.9 42.3 41.0 Exchange rate (PHP per USD, end-year) 55.0 51.3 45.9 44.6 47.8 45.1 43.4 43.1 41.7 Exchange rate (PHP per USD, average) 14.7 5.8 14.5 -6.7 1.8 4.0 0.6 3.0 4.0 REER (% change, December to December) (2) 8.5 7.9 4.5 5.3 2.2 3.4 5.9 5.5 5.5 Overnight borrowing rate (%, end-year) 7.50 7.50 5.45 5.86 4.00 4.00 4.25 4.00 4.25 Fiscal data Central government budget balance (% of GDP) -2.6 -1.1 -1.5 -1.3 -3.7 -3.5 -2.0 -2.5 -1.8 Central government budget balance including privatization receipts (% of GDP) -2.6 -1.0 -0.2 -0.9 -3.7 -3.5 -2.0 -2.5 -2.0 Central government primary fiscal balance (% of GDP) 2.7 3.8 2.4 2.2 -0.2 -0.2 1.6 0.8 1.2 Central government expenditure (% of GDP) 17.0 16.7 16.7 16.5 17.7 16.9 15.7 16.5 15.6 Central government revenue (% of GDP) 14.3 15.5 15.2 15.2 14.0 13.4 13.6 13.8 13.8 Gross government debt (% of GDP) 68.5 66.4 53.9 54.7 54.8 52.3 0.5 49.0 48.0 Net central government debt (% of GDP) 60.4 58.4 45.9 47.7 48.3 45.8 43.9 42.5 41.5 Money supply and credit Broad money supply (M2, % of GDP) 40.8 45.1 45.4 46.8 48.5 47.8 47.1 49.1 49.3 Broad money supply (M2, % year-on-year change) 9.8 22.1 10.7 15.4 7.7 10.7 6.5 11.7 9 Domestic credit (% of GDP) 51.5 49.9 47.6 49.8 51.6 50.6 47.2 47.0 45.9 Domestic credit (% year-on-year) -4.2 4.8 3.6 14 7.4 8 6.5 6.8 6 Domestic credit to private sector (% of GDP) 33.9 32.6 32.1 33.6 35.1 34.4 32.8 33.2 33.2 Domestic credit to private sector (% year-on-year) -2.2 7.4 4.8 13 8.1 8.9 9 8.5 8.5 Balance of payments Exports (goods and non-factor services, % of GDP) 43.4 43.3 39.5 33.5 29.0 32.0 28.0 26.3 25.6 Imports (goods and non-factor services, % of GDP) 52.2 48.7 43.6 40.3 33.0 36.2 32.6 29.6 30.7 Exports (goods and non-factor services, % change in $ value) 4.6 18.3 11.9 -2.2 -16.1 31.5 -1.4 3.6 4.5 Imports (goods and non-factor services, % change in $ value) 7.2 10.5 9.8 6.5 -20.6 30.7 6.5 3.1 4.0 Current account balance ($bn) 2.0 5.3 7.1 3.6 9.4 8.5 4.7 6.4 7.8 Current account (% of GDP) 1.9 4.4 4.7 2.1 5.6 4.2 2.1 2.7 2.9 Net FDI ($bn) (3) 1.7 2.8 -0.6 -0.6 1.6 1.2 1.0 1.2 1.5 Foreign debt and reserves Foreign debt ($bn) 54.2 53.4 54.9 54.3 54.9 60.0 62.4 54.2 53.4


Foreign debt (% of GDP, end-year) 52.5 43.6 36.6 31.4 32.7 30.0 27.8 52.5 43.6 Foreign debt (% of exports of goods and services) 121.0 100.7 92.7 93.7 112.8 93.9 97.2 121.0 100.7 Central bank gross FX reserves ($bn) 18.5 23.0 33.8 37.1 44.3 62.3 75.3 18.5 23.0 Central bank gross FX reserves, including forward FX purchases ($bn) 18.9 29.1 44.5 39.4 57.8 80.1 83.3 18.9 29.1 Central bank gross non-gold FX reserves ($bn) (4) 15.9 20.0 30.2 32.7 38.8 55.3 66.4 15.9 20.0 (1) Nominal minimum wage in non-agricultural sector. Figures from 2005 onwards also include cost of living allowance and daily equivalent of 13th month pay. (2) Real effective exchange rate, increase indicates appreciation. (3) 2007 number includes a large direct investment abroad in the amount of $2.7bn. (4) Not including forward FX purchases. Source: CEIC, Bangko Sentral Ng Pilipinas, Ministry of Finance, Credit Suisse

14 March 2012


Singapore: Higher wage growth ahead? • We expect real GDP to expand 3.5% in 2012, higher than the government’s forecast

range of 1%-3%. Real GDP contracted 2.5% qoq annualized in Q4 (+3.6% yoy). Given that Singapore is highly leveraged to the global trade cycle, the recent improvement in PMIs in many parts of the world bodes well for Singapore’s growth. Similarly, the rise in the US semiconductor book-to-bill ratio suggests that electronic output should pick up in the coming months. Assuming the euro zone situation stabilizes, we think quarter-on-quarter real GDP growth, excluding the volatile biomedical sector, has already troughed, while year-on-year growth will bottom in Q1. The performance of the biomedical sector remains a key swing factor for Q1’s sequential GDP. If biomedical production remains flat (i.e., no sequential growth or contraction) in February and March, it would rise 1% qoq in Q1 and contribute positively to Q1’s real GDP growth.

• CPI inflation is likely to exceed the government’s forecast range. CPI inflation remained high at 4.8% yoy in January. Moreover, the MAS’ core inflation measure, which excludes accommodation and private road transport, rose to 3.5% yoy, its highest since January 2009. Transport inflation is likely to rebound in coming months as COE (car license) prices hit a new high in the current cycle. Assuming COE and oil prices remain unchanged at current levels, we expect headline inflation to stay at around 5% in the rest of Q1 before falling below 4% yoy only in the second half of 2012. Our year-average inflation forecasts of 4.0% for headline and 3.0% for core are higher than the government’s forecast of 2.5%-3.5% and 1.5%-2%, respectively, for 2012.

• Government spending should rise gradually as a share of GDP in coming years. The government expects the overall fiscal surplus to narrow modestly from an upwardly revised SGD2.3bn (0.7% of GDP) in FY2011 to SGD1.3bn (0.4% of GDP) in FY2012. This suggests that fiscal policy will be broadly neutral for the economy in 2012. The budget is focused more on medium-term issues, namely boosting labor productivity growth, improving infrastructure supply, and building an inclusive society, with particular focus on helping older people, lower-income families, and the disabled, through higher subsidies and work incentives. This suggests that the government is targeting a better balance between real GDP growth and the quality of living standards for the majority of Singaporeans.

• The labor market is likely to remain tight. The unemployment rate remained low at 2% in Q4, despite the weakness in growth in the second half of 2011. This supports the view that the tightness in the labor market is partly structural. High job vacancy levels, especially in the services sector, suggest that firms are having trouble meeting their labor demand. This is in line with recent surveys indicating that manpower shortages are among the top concerns for small and medium-sized enterprises, while the construction sector is facing the pinch of lower foreign worker inflows. In addition to the hikes in foreign worker levies that are in place, the government announced in its recent budget that it plans to reduce the dependency ratio ceilings (maximum proportion of foreign workers that companies can hire) for the manufacturing sector and services sector, as well as the entitlement quota for the construction sector. This should keep the labor market tight and should create wage pressure on the upside whenever global demand picks up.

• We expect the SGD trade-weighted exchange rate to remain on an appreciation trend. With both headline and core inflation likely to remain well above their historical averages in April (assuming no further supply-side shocks) and the labor market remaining tight (see Singapore’s Budget 2012: Lower potential growth near term? 17 February 2012), we think the most likely scenario remains that the MAS will keep the SGD NEER (trade-weighted exchange rate) on a mild appreciation trend of about 1%-2% per annum.

Kun Lung Wu +65 6212 3418

[email protected]

14 March 2012


Exhibit 334: Industrial production Exhibit 335: Biomedical production

70

80

90

100

110

120

130


IP ex biomedical output (Index,seasonally-adjusted)

-80

-40

0

40

80

120

Mar-07 Jun-08 Sep-09 Dec-10 Mar-12

Business expectations forbiomedical output (1q lead)Biomedical production (% qoq)

Industrial production excluding the volatile

biomedical sector rose for the second consecutive

month in January.

Businesses expect biomedical output to

rebound modestly in Q1.

Source: CEIC, Credit Suisse. Source: CEIC, Credit Suisse.

Exhibit 336: Singapore GDP vs. world trade volume

-15

-10

-5

0

5

10

15

20

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Singapore real GDP (% yoy)

World trade volume (% yoy)

Forecasts*

Singapore is among the most open economies in the

world and is highly leveraged to the global

trade cycle. The improvement in the global growth indicators in recent

months bodes well for Singapore’s growth.

Source: CEIC, IMF, Credit Suisse. *World trade volume based on the IMF’s latest forecast; Singapore’s real GDP growth based on our forecast.

Exhibit 337: Growth stagnated in H2 2011 …

Exhibit 338: … but unemployment rate remains low

80

90

100

110

120

130

140

150


Real GDP (Index, Dec-06=100. sa)

Industrial production (Index, Dec-06=100, sa)

1

2

3

4

5


Unemployment rate (%, sa)

Even though growth has stagnated since Q1 2011,

unemployment remains low at around 2%. This

suggests that the economy continues to operate near

full capacity.


14 March 2012


Exhibit 339: Population and employment Exhibit 340: Hiring vs. job vacancy

-4

-2

02

4

6

8

10

12

2001 2003 2005 2007 2009 2011-2

0

2

4

6Employment growth (% yoy)Population growth (RHS, % yoy)

-40

-20

0

20

40

60

80


Employment change (person, inthousands)Job vacancy (person, in thousands)

Population and employment growth have slowed

significantly in recent years, reflecting the tightening of

immigration policies.

As a result, employers, especially those in the

services sector, are having difficulty in meeting their

labor demand.


Exhibit 341: Car license costs Exhibit 342: Core inflation

0

20000

40000

60000

80000


CoE price: cars<1600cc (SGD)CoE price cars>1600cc (SGD)CoE price open (SGD)

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

Feb-04 Feb-06 Feb-08 Feb-10 Feb-12-2

0

2

4

6

8MAS core inflation* (3mma, % mom, sa)MAS core inflation* (% yoy, RHS)

The rise in COE (car license) prices should keep

headline inflation high in the next few months.

Core inflation rose to 3.5% yoy in January, and inflation

momentum remained high on a seasonally adjusted

month-on-month basis.

Source: CEIC, Credit Suisse. Source: CEIC, Credit Suisse. *Excludes accommodation and private road transport.

Exhibit 343: Inflation forecasts

-2

0

2

4

6

8

Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12

CPI inflation (% yoy)MAS core inflation (% yoy)*

CS forecast

We expect inflation to slow in the second half of 2012 as the surge in car prices drops out from the base.

But both headline and core inflation are likely to remain

above their historical averages and exceed the

government’s forecast range.

Source: CEIC, Credit Suisse. *Excludes accommodation and private road transport.

14 March 2012


Singapore: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population, and unemployment Real GDP growth (%) 7.4 8.8 8.9 1.7 -1.0 14.8 4.9 3.5 5.0 Growth in real private consumption (%) 3.6 5.0 6.8 3.3 0.1 6.5 4.1 4.0 5.0 Growth in real fixed investment (%) 0.4 13.6 17.4 13.0 -2.9 7.0 3.3 4.0 5.6 Fixed investment (as % of GDP) 21.1 21.9 23.7 28.4 28.5 27.6 27.8 28.3 28.1 Nominal GDP ($bn) 125.4 145.1 176.8 193.3 182.3 222.8 260.6 284.6 315.2 Population (mn) 4.4 4.6 4.8 5.0 5.0 5.1 5.2 5.3 5.3 GDP per-capita ($) 28,481 31,626 36,539 38,759 36,544 43,891 50,258 54,005 58,961 Unemployment (% of labor force, end-year) 2.7 2.8 1.8 2.7 2.3 2.2 2.0 2.3 2.2 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 1.3 0.8 3.7 5.5 -0.5 4.6 5.5 2.9 2.0 CPI inflation (% change in average index for the year) 0.5 1.0 2.1 6.6 0.6 2.8 5.2 4.0 2.4 Exchange rate (SGD per USD, end-year) 1.66 1.53 1.44 1.44 1.40 1.28 1.30 1.23 1.18 Exchange rate (SGD per USD, average) 1.67 1.59 1.51 1.41 1.45 1.36 1.25 1.22 1.20 REER (% year-on-year change, December to December) (1) 0.0 1.5 1.6 5.5 -1.9 5.7 2.6 4.0 3.0 Nominal wage growth (% year-on-year change) 3.5 3.2 6.2 5.4 -2.6 5.6 6.0 2.0 5.0 3-month SIBOR (%, end-year) 3.3 3.4 2.4 1.0 0.7 0.4 0.4 0.4 0.4 Fiscal data Central government fiscal balance (% of GDP) 0.7 0.0 2.8 -0.3 -0.3 0.5 0.7 0.4 -0.2 Central government primary fiscal balance (% of GDP) (2) -0.2 0.6 2.7 1.1 -0.9 0.3 0.9 0.9 0.0 Central government expenditure (% of GDP) 13.4 12.6 12.1 14.3 15.3 16.5 14.5 15.4 13.7 Central government revenue (% of GDP) 13.2 13.2 14.8 15.4 14.4 16.8 15.5 16.2 13.7 Money supply and credit Broad money supply (M2, % of GDP) 108.1 116.4 114.8 127.8 142.0 135.1 138.2 140.6 144.5 Broad money supply (M2, % year-on-year change) 6.4 19.1 14.1 11.6 10.6 8.3 10.1 8.3 12.0 Domestic credit (% of GDP) 62.1 62.6 69.6 77.2 90.7 85.7 93.6 91.7 92.6 Domestic credit (% year-on-year change) -5.9 11.5 28.7 11.2 16.9 7.6 17.5 4.3 10.0 Domestic credit to the private sector (% of GDP) 90.9 86.2 87.1 100.1 102.6 102.1 112.6 109.6 111.6 Domestic credit to the private sector (% year-on-year change) 2.0 4.9 16.9 15.2 2.0 13.4 18.6 3.7 11.0 Balance of payments Exports (goods and non-factor services, % of GDP) 229.7 234.1 218.0 233.9 201.1 211.5 209.0 208.8 206.5 Imports (goods and non-factor services, % of GDP) 200.3 204.6 187.3 213.3 177.0 182.5 182.3 183.8 182.2 Exports (goods and non-factor services, % year-on-year change in $ value) 16.5 18.2 13.6 14.5 -16.8 27.8 15.5 9.2 9.5 Imports (goods and non-factor services, % year-on-year change in $ value) 15.1 18.5 11.7 21.6 -19.6 25.3 16.8 10.1 9.8 Current account balance ($bn) (3) 26.9 35.7 45.9 26.3 30.1 55.5 57.2 57.8 62.0 Current account balance (% of GDP) 21.4 24.6 25.9 13.6 16.5 24.9 21.9 20.3 19.7 Net FDI inflows ($bn) 6.5 18.1 10.0 5.0 6.7 27.4 38.9 18.8 20.4 Foreign debt and reserves Central bank gross FX reserves ($bn) 115.3 137.2 163.6 177.5 187.4 222.7 237.7 274.5 289.5 Central bank gross FX reserves, including forward FX transactions ($bn) na 196.0 227.2 214.6 244.3 302.9 354.5 404.5 459.5 Central bank gross non-gold FX reserves ($bn) (4) 115.0 137.0 163.4 177.3 187.2 222.5 237.5 274.3 289.3 (1) Real effective exchange rate, increase indicates appreciation. (2) Operating revenue minus total expenditure. (3) Current account data were revised in early 2008, leading to a downward revision of around 6pp of GDP in the 2007 current account balance. The adjustment mostly reflected revisions to the income balance. (4) Not including forward FX purchases. Source: Monetary Authority of Singapore, CEIC, Credit Suisse

14 March 2012


Taiwan: Emerging from a technical recession • Taiwan entered into a technical recession in 2H 2011. 4Q11 GDP growth was 1.89%

yoy, much weaker than consensus and our estimate. On a quarter-on-quarter seasonally adjusted basis, GDP contracted 0.59% on an annualized basis, following the 0.2% contraction in 3Q11. This marked a technical recession for Taiwan, amid a sluggish global demand environment. Domestic demand was weak, deducting 2.88 percentage points (pp) from headline year-on-year growth. Net trade contributed 4.77pp, but it was led by a sharp decline in imports, which reflected weakened domestic demand. We have maintained our forecast for Taiwan’s GDP growth at 2.8% to reflect the slow global growth momentum anticipated for this year, but we reckon the upside risk to our projection posed by a stronger-than-expected US recovery.

• Signs of better growth in the US and stability in the European sovereign debt situation have prompted us to think that the trough for growth could have been reached. Recent US economic data have been surprising on the upside, posing upside surprise to the strength of its recovery. In Europe, the long-term refinancing operation (LTRO) conducted by the European Central Bank has helped to reduce the risk of a banking crisis. We draw comfort from the rapid improvement of Taiwan’s PMI, which rose to 52.7 in February, signifying the bottoming of this cyclical slowdown.

• Private consumption is expected to stay moderate in the coming quarters. In 4Q11, private consumption rose a mere 0.98% yoy, suppressed by a weak wealth effect, a sluggish external environment, and a higher base effect. Looking forward, a still resilient employment market is likely to be the support behind consumption, but as an export-led economy, moderate external demand and facility investments are still expected to limit consumer confidence and demand. Continued weakness in Taiwan’s commercial sales, which contracted 7.2% yoy and 2.1% mom, sa in January, supported our cautiousness on consumption momentum. We expect private consumption to grow 2.2% in 2012, compared to 2.95% in 2011.

• Fixed investment growth is likely to be limited in 2012, affected by the moderate external demand and slow government infrastructure projects. In 4Q11, private investments contracted 12.68% yoy, dragged down by contraction in machinery, construction, and transportation equipment investments. Public investments contracted as well, dragged down by slow progress on government projects. In 2012, we think moderate external demand should still limit the strength of facility investments, although investments into Taiwan’s tourism-related industry and ECFA benefited sectors are still expected to provide support. We expect fixed investments to grow 0.5% yoy in 2012, compared to a 3.8% yoy contraction in 2011.

• January export orders and industrial production contracted sharply yoy due to the Lunar New Year distortion, but rebounded visibly on a monthly sequential basis, suggesting that underlying momentum may not be that weak. Assuming that the government’s seasonalized figures are reliable, Taiwan’s external demand and production activities could be turning the corner, in our view, emerging from the technical recession in 2H 2011. In the semiconductor sector, we think the utilization rates for foundry and back-end production are likely to bottom out in 1Q12. Prospects for better demand for tech products in the US may help to support order flows and production activities among Taiwanese manufacturers.


[email protected]

14 March 2012


• Exports and imports contracted 4.5% yoy and 5.8% yoy in January-February, respectively, but we suspect the trough is about to be reached. The details showed that electronic exports, which represented 26.7% of January-February export flows, contracted 9% yoy, while information and communication equipment (-20.8% yoy) and plastics (-3.4% yoy) also dropped from a year ago. Geographically, exports to China/Hong Kong (about 37.8% of exports) fell 11.3% yoy, while exports to the US, Europe, and Japan contracted 6.5% yoy, 3.8% yoy, and 8.2% yoy, respectively. For imports, only mineral imports (+14.9% yoy), especially crude oil (+10.5% yoy), saw a yearly gain, while other items saw continued yearly contraction. The persistent weakness in machinery and intermediate goods imports reflects the sluggishness in manufacturing production and facility investments, in our view.

• Taiwan’s inflationary pressure remained muted, as evidenced by the moderate 1.3% yoy headline inflation rate in January-February. Core-CPI was up 0.9% YoY in January-February, also milder than December’s. Rising global crude oil prices is an upside risk to Taiwan’s inflation, but we expect most of the direct pressure to be absorbed by the state-owned petroleum and power companies before being transmitted to the general public. Looking forward, we think weak domestic demand should keep inflationary pressure contained, although any adverse weather condition may cause spikes in fresh vegetable prices, given the mild statistical base in 2011.

• We now expect the Central Bank of China (CBC) to keep its policy rediscount rate unchanged through 2012, in view of the expected stabilization in the external and domestic economies. We believe the CBC may have become less concerned on growth and opted to remain on hold in the March monetary policy meeting. This is despite the muted inflationary pressure, as the central bank thinks that rates are at a very low level and that any further lowering might spur speculative pressure and encourage the build-up of leverage. Prospects for resumption of the rate normalization process remain unlikely in the near term, in our view, given the weakness in growth momentum and the lack of price and speculative pressure.

• Despite slower exports and a higher import bill for oil and fuel products, we expect Taiwan’s current account surplus to remain supported at $38.2bn (8% of GDP) in 2012. Taiwan’s concentration in high-technology exports exposes its trade flows to the cyclicality of world demand. But given the softness of its domestic demand strength, the economy has been able to maintain a sizable current account surplus, averaging 7.9% of GDP over the past ten years. We expect Taiwan’s current account surplus to narrow but to remain resilient in 2012, providing the fundamental support to the TWD.

• With external demand stabilizing but remaining slow, we think the CBC’s FX policy will be geared to preventing excessive strengthening of the TWD. The expectation of a more stabilized European sovereign debt situation may reignite the appetite for risky assets in Asia, attracting capital inflows into the region – Taiwan included. We maintain our view that the TWD will appreciate mildly to 29.2 by end-2012, upon an improved global and domestic economic outlook.

• We think the victory of President Ma Ying-Jeou and the KMT in the presidential and legislative elections in January has helped to maintain the consistency of existing government policies over the next four years. We think Taipei will continue to facilitate a rapprochement with Mainland China, maintaining stability in the cross-strait relationship. Pragmatically, we think the SEF and ARATS should negotiate further tariff reductions for each other’s imports, so that the items benefited would be expanded beyond those covered under the Early Harvest List. Furthermore, we think President Ma should also more forcefully push for FTAs with Taiwan’s key trading partners, such as the ASEAN bloc, the US, and the EU. These are very important steps for Taiwan to take to prevent marginalization under the rapid rise of FTAs among its competitors and trading partners, in our view.

• We do not expect changes in Taiwan’s ratings over the next six months. Taiwan is currently rated at Aa3 (Moody’s), AA- (S&P) and A+ (Fitch), with a stable outlook.

14 March 2012


Exhibit 344: Real GDP growth Exhibit 345: Domestic demand

Taiwan Real GDP (%qoq, sa)

-2

-1

0

1

2

3

4

5

6

2009

2Q09

3Q09

4Q09

2010

2Q10

3Q10

4Q10

2011

2Q11

3Q11

4Q11

-4

-2

0

2

4

6

8

10

2003

2004

2005

2006

2007

2008

2009

2010

2011

-40

-20

0

20

40

TW: Private consumption (% yoy)

TW: Gross fixed capital formation (% yoy,

Taiwan entered into a technical recession in 2H 2011. Domestic demand

was weak, deducting 2.88 percentage points from headline year-on-year

growth.

Source: DGBAS, Credit Suisse Source: DGBAS, Credit Suisse

Exhibit 346: Exports Exhibit 347: PMI

-60

-40

-20

0

20

40

60

80

1996

1998

2000

2002

2004

2006

2008

2010

2012

20

30

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50

60

70

80TW exports (% yoy, 3m mav)

US ISM new orders (forward 2m, RHS)

0

10

20

30

40

50

60

70

80

90

Aug-

04Fe

b-05

Aug-

05Fe

b-06

Aug-

06Fe

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07Fe

b-08

Aug-

08Fe

b-09

Aug-

09Fe

b-10

Aug-

10Fe

b-11

Aug-

11Fe

b-12

Taiwan HSBC PMI indexHSBC PMI new orders index

Signs of better growth in the US have prompted us to think that the trough for

growth could have been reached.

We draw comfort from the rapid improvement of Taiwan’s PMI, which

signifies the bottoming of this cyclical slowdown.

Source: CEIC, ISM, Credit Suisse Source: Markit Economics, Credit Suisse

Exhibit 348: Export orders, Production Exhibit 349: External trade

-40-30-20-10

0102030405060

1998 2000 2002 2004 2006 2008 2010 2012

Export orders (% yoy)

Industrial production (% yoy)

-20

-10

0

10

20

30

05 06 07 08 09 10 11 12-60

-40

-20

0

20

40

60

80

100

Trade balance ($ bn, 12 roll sum, LHS)Exports (% yoy)Imports (% yoy)

Taiwan’s external demand condition and production

activities could be turning the corner, in our view,

emerging from the technical recession in 2H 2011.

Source: MoEA, Credit Suisse Source: MoF, Credit Suisse

14 March 2012


Exhibit 350: CPI inflation Exhibit 351: Policy discount rate

-3-2-10123456

05 06 07 08 09 10 11 12-20

-10

0

10

20

30

Consumer price index (% yoy)Core CPI (% yoy)Import price inflation (% yoy, RHS)

0

1

2

3

4

5

6

2001 2003 2005 2007 2009 2011

Taiwan rediscount rate (%)

Taiwan ov ernight rate (%)

US Federal Funds rate (%)

ProjectionTaiwan’s inflationary pressure remained muted,

as evidenced by the moderate 1.3% yoy

headline inflation rate in January-February.

We now expect the CBC to keep its policy rediscount rate unchanged through

2012.

Source: DGBAS, Credit Suisse Source: CBC, Credit Suisse forecasts

Exhibit 352: USDTWD Exhibit 353: Balance of payments

28

29

30

31

32

33

34

35

36

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

USDTWD

TWD strength

-10

-5

0

5

10

15

20

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Current account balanceFinancial accountOverall balance

With external demand stabilizing but remaining

slow, we think the CBC’s FX policy will be maintained

to prevent excessive strengthening of the TWD.

We expect Taiwan’s current account surplus to narrow

but to remain resilient in 2012, providing

fundamental support to the TWD.

Source: CEIC, Credit Suisse Source: MoF, CEIC, Credit Suisse

Exhibit 354: FTAs with Taiwan Exhibit 355: FTAs with Korea

Taiwan needs to catch up on reaching FTAs to

maintain its external trade competitiveness.

This is to prevent Taiwan from becoming

marginalized under the rapid rise of FTAs among its

competitors and trading partners.

Note: Red – Signatory of FTA with selected country/territory; Green – Non-signatory of FTA, but WTO member; Grey – Non-signatory of FTA and non WTO member. Source: WTO, Credit Suisse

Note: Red – Signatory of FTA with selected country/territory; Green – Non-signatory of FTA, but WTO member; Grey – Non-signatory of FTA and non WTO member. Source: WTO, Credit Suisse

14 March 2012


Taiwan: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 4.7 5.4 6.0 0.7 -1.8 10.7 4.0 2.8 3.8 Growth in real private consumption (%) 2.9 1.5 2.1 -0.9 0.8 3.7 3.0 2.2 2.7 Growth in real fixed investment (%) 2.7 0.1 0.6 -12.4 -11.2 24.0 -3.8 0.5 1.5 Fixed investment (% of GDP) 22.4 22.3 22.0 21.1 18.9 21.7 21.0 20.5 20.1 Nominal GDP ($bn) 365.4 376.7 393.1 400.2 377.6 430.2 466.3 479.1 510.9 Population (mn) 22.8 22.9 23.0 23.0 23.1 23.2 23.2 23.3 23.4 GDP per capita ($) 16,047 16,465 17,122 17,372 16,331 18,573 20,070 20,555 21,847 Unemployment (% of labor force, end-year) 3.9 3.8 3.8 5.0 5.8 4.7 4.3 4.7 4.7 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 2.2 0.7 3.3 1.3 -0.2 1.0 2.1 1.7 2.2 CPI inflation (% change in average index for the year) 2.3 0.6 1.8 3.5 -0.9 1.0 1.4 1.9 2.0 Exchange rate (TWD per USD, end-year) 32.8 32.6 32.4 33.1 32.3 30.5 30.3 29.2 29.2 Exchange rate (TWD per USD, average) 32.1 32.5 32.8 31.5 33.1 31.6 29.5 29.8 29.2 REER (% year-on-year change) (1) 1.0 -2.6 -4.1 -2.2 2.5 6.7 2.9 5.5 2.2 Nominal wage growth (% year-on-year change) 1.0 1.2 1.8 -6.6 -6.5 2.3 -0.6 -1.1 0.8 Rediscount rate (end-year, %) 2.25 2.75 3.38 2.00 1.25 1.63 1.88 1.88 1.88 Overnight rate (%, end year) 1.5 1.7 2.1 0.9 0.1 0.3 0.4 0.4 0.4 Fiscal data Consolidated government fiscal balance, (% of GDP) (2) -0.6 -0.3 -0.4 -0.9 -4.5 -3.3 -3.1 -2.3 -2.1 Consolidated government primary balance, (% of GDP) (2) 0.1 0.6 0.5 0.0 -3.8 -3.0 -2.9 -2.4 -2.4 Consolidated government expenditure, (% of GDP) (2) 19.5 18.1 17.7 18.6 21.4 18.9 18.9 18.5 18.8 Consolidated government debt, (% of GDP, end-year) (2) 50.6 47.9 43.4 46.2 49.8 49.1 52.1 53.0 55.7 Money supply and credit Broad money supply (M2, % of GDP) 207.9 209.6 200.5 219.9 235.2 227.4 235.9 241.3 244.4 Broad money supply (M2, % year-on-year change) 6.6 5.8 1.4 6.4 5.8 5.4 4.8 6.0 6.0 Domestic credit (% of GDP) 146.0 143.4 139.4 146.3 149.1 145.9 152.4 155.9 157.9 Domestic credit (% year-on-year change) 8.1 2.5 2.5 2.6 0.8 6.8 5.6 6.0 6.0 Domestic credit to the private sector (% of GDP) 126.0 126.0 124.1 130.1 131.1 128.9 135.1 139.6 142.7 Domestic credit to the private sector (% year-on-year change) 9.7 4.2 3.9 2.5 -0.4 7.2 6.0 7.0 7.0 Balance of payments Exports (goods and non-factor services, % of GDP) 61.4 67.2 71.2 72.9 62.3 73.0 75.7 80.4 88.8 Imports (goods and non-factor services, % of GDP) 57.9 61.7 63.8 67.8 53.7 66.3 68.9 74.4 83.1 Exports (goods and non-factor services, % year-on-year change in $ value) 7.8 12.8 10.6 4.3 -19.4 33.6 12.4 9.1 17.7 Imports (goods and non-factor services, % year-on-year change in $ value) 8.0 9.9 8.0 8.1 -25.3 40.7 12.7 10.9 19.1 Current account balance ($bn) 17.6 26.3 35.2 27.5 42.9 39.9 41.3 38.2 36.8 Current account balance (% of GDP) 4.8 7.0 8.9 6.9 11.4 9.3 8.8 8.0 7.2 Net FDI inflows ($bn) -4.4 0.0 -3.3 -4.9 -3.1 -9.1 -14.8 -13.8 -12.8 Scheduled debt amortization ($bn) (3) 0.9 1.7 3.7 6.2 -0.5 4.8 9.7 2.0 2.0 Foreign debt and reserves Foreign debt ($bn) (4) 86.7 85.8 94.5 90.4 81.9 101.6 95.7 98.4 102.1


Foreign debt (% of GDP) 23.7 22.8 24.0 22.6 21.7 23.6 20.5 20.5 20.0 Foreign debt (% of exports of goods and services) 38.7 33.9 33.8 31.0 34.8 32.3 27.1 25.5 22.5 Central bank gross FX reserves ($bn) 253.3 266.1 270.3 291.7 348.2 382.0 388.2 393.4 402.1 Central bank gross non-gold FX reserves ($bn) (6) 248.6 261.5 265.6 287.0 343.4 376.8 383.0 388.2 396.9 (1) Real effective exchange rate (CPI-deflated), increase indicates appreciation. (2) General government statistics as interpreted by the Taiwan government. (3) Scheduled amortizations of medium- and long-term external debt of both the public and private sectors. (4) Liabilities vis-à-vis non-residents (i.e., includes FX-denominated and local-currency debt). (5) Includes government and central bank. (6) Central bank forex reserves minus monetary authorities’ other liabilities. Source: Directorate-general of Budget, Accounting and Statistics, Central Bank of China, Ministry of Finance, CEIC, Credit Suisse

14 March 2012


Thailand: Investment leads the way • We are adjusting our 2012 real GDP growth forecast up to 4.5% from 3.8%, albeit

purely for technical reasons and taking into account the Q4 2011 disappointment. Our projected level of GDP remains the same. The 2011 full-year GDP growth of 0.1% was significantly below virtually everyone’s estimate of around 1%. Assuming the same path of recovery, with the flood-related fall in the level of output being fully restored by end Q2, this implies that the year-on-year growth rate has to be higher this year to account for the lower base. The BoT has said it will increase its forecast (from 4.9%) for the same reason.

• The underlying story remains the same. We maintain our view that, despite a brief initial rebound, private consumption will be the main laggard in H1 due to the significant damage to wealth, incomes, and confidence from the floods. This is one of the key reasons why we are still more cautious than the government and the market on GDP.

• The floods have pushed infrastructure investment higher up the government’s agenda. The government’s planned capital expenditure (including the THB300bn water management investment) implies a doubling of investment expenditure this fiscal year to 4%-5% of GDP. This means that the effective budget deficit that includes the off-budget items will likely increase to 4%-5% (from the official figure of 3.6%). This, together with our view that households will be spending more on residential investment, underpins our above-consensus investment growth forecast6.

• We expect better GDP growth prints in H2 and 2013. We remain cautious on the speed of implementing this infrastructure spending both due to the nature of the plans and the government’s track record (see Thailand's post flood recovery: Turning the tide, 13 February 2012). This is why we expect healthy GDP prints to come later in H2 2012 and 2013. As a result, we are also revising up our 2013 GDP forecast to 5% from 4.6%.

• Oil prices remain a key risk to growth and inflation. Thailand is one of the most oil-intensive economies and the largest net oil importer in the region (as a percentage of GDP). For now, year-on-year oil price inflation is still contained due to the high base last year and excise duty cuts that have kept the diesel price 20% lower than it would have been. Our assumptions are that 1) the Dubai oil price will fluctuate around USD120bbl; and 2) the government will do everything in its power to keep the diesel price contained. We estimate that, at current global oil prices, the extension of excise duty exemption on diesel until the end of September (the end of the fiscal year) will cost the government around 0.5pp of GDP, roughly equal to the savings it made from transferring the interest burden on the debt legacy from the Asian financial crisis to the BoT.

• We maintain our 2012 average inflation forecast at 3.3%. Assuming that the government continues to contain the diesel price and the Dubai oil price stays at its current level, we think that inflation will fall sharply by April and the pick-up in H2 will be relatively modest, thanks to the slack in the economy. Inflation will become more of an issue in 2013, and we are raising our 2013 average inflation forecast to 3.7% from 3.2%.

• We still see a good chance that the BoT will cut another 25bps. Given our assumptions above, we think the likely fall in core inflation and potential growth disappointment should prompt the BoT to cut rates further to 2.75% in Q2. The central bank will probably then shift to rate rises early next year to contain inflation pressure.

• Our strategists are still moderately bearish on the baht and expect more steepening in the yield curve. Disruptions to exports and higher import demand from investment spending should squeeze the current account surplus, while data on approved FDI do not point to a major pick-up in direct investment flows. For bonds, the pressure on the government to support growth will likely add to fiscal risks and lead to increased issuance. The prospect of fiscal slippage should also keep long bonds weak.

6 11.9% yoy versus the market expectation of 6.7% as per the February issue of Consensus Economics.

Santitarn Sathirathai +65 6212 5675

[email protected]

https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=804818550&source_id=em&serialid=%2fuPFdB3n5KRuP7HWRGJetxYWrNJETP4p9yMKQXENObY%3d�

14 March 2012


Exhibit 356: Consumption and investment

Exhibit 357: Business and consumer sentiment

-8

-6

-4

-2

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12

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25

30Private consumption index (% yoy)Private investment index (%yoy, RHS)

30

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55

60

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2006

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2008

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2010

2011

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60

65

70

75

80

85

90

95Business sentiment index (LHS)Consumer confidence in the econ

Private consumption has led the bounce back from

the floods as expected, but going forward we think

investment growth momentum will be stronger

than consumption.

Survey-based indicators suggest business sentiment is back to its pre-flood level while consumer confidence in the economy is still near

its all-time low.


Exhibit 358: Real exports and US PMI Exhibit 359: Projected level of GDP In THB billions; trend GDP is obtained by HP filter

30354045505560657075

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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20US PMI new order (index)Real exports (% qoq sa, RHS)

1000

1050

1100

1150

1200

1250

1300

2009

2010

2011

2012

CS forecast Real GDP trendBoT forecast

We expect real exports to bounce back strongly,

restoring the lost output by Q2 and benefiting from a

pick-up in US growth.

BoT’s GDP forecast factors in a large infrastructure investment in H2 2012,

while we are more cautious about the magnitude of the

boost.

Source: Markit PMI premium, CEIC, Credit Suisse Source: Bank of Thailand, CEIC, Credit Suisse

Exhibit 360:WEF rankings and budget disbursement

Exhibit 361: Fiscal position and projections

50%

55%

60%

65%

70%

75%

80%

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

252729313335373941

Actual/budgeted investment (%)WEF competitiveness rankings (RHS)

-7-6-5-4-3-2-101

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

F

2012

F

0

10

20

30

40

50

60Fiscal balance/ GDP (%)Public debt/GDP (%, RHS)

-3.6% (4-5%) with off budget

The budget disbursement rate for capital spending

has declined over the years, in line with the fall in

Thailand’s WEF competitiveness ranking.

After including off budget items – water management

projects – the fiscal deficit to GDP ratio should reach

4%-5%.

Source: World Economic Forum, Ministry of Finance, Credit Suisse Source: Ministry of Finance, Credit Suisse

14 March 2012


Exhibit 362: Growth in value of approved FDI Exhibit 363: Basic balance Contribution to % yoy growth (USD)

-80-60-40-20

020406080

100120

2006 2007 2008 2009 2010 2011

ceramic metal machine electronicchemical service Other

97%

-60%-30%

90%

0%-18%

-10

-5

0

5

10

15

20

25

30

2003

2004

2005

2006

2007

2008

2009

2010

2011

F

2012

F

Current Account (USD bn) FDI (USD bn)

Overall approved FDI value was flat in 2011 as the

decline in electronics FDI offset the increase in the

metal and machinery (including automobiles)

category.

We expect a smaller current account surplus this year on

increased import demand.

Source: Board of Investment, Credit Suisse Source: CEIC, Credit Suisse

Exhibit 364: Asian countries’ exposure to oil price shocks 2010 data; oil consumption = USD price per barrel*oil consumption (barrels); dotted lines are regional averages

-12-10

-8-6-4-2024

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Oil consumption (% GDP)

Net

oil

expo

rts

TH

HK

TW

KR

PHIN

CN

MY

ID

More exposed

The Thai economy is the most exposed NJA

economy to the rise in oil prices since it is an oil-

intensive economy and a large net importer of oil.

Source: British Petroleum, World Bank, Credit Suisse

Exhibit 365: Headline and global oil inflation

Exhibit 366: Core inflation and policy rate

-80-60-40-20

020406080

100120

2001

2003

2005

2007

2009

2011

2013

-4

-2

0

2

4

6

8

10Dubai oil (% yoy)CPI headline (% yoy, RHS)

f'cast

-2

-1

0

1

2

3

4

5

6

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Core CPI (% yoy)Policy rate (%)

forecast

Assuming that the government continues to

contain the diesel price and the Dubai oil price stays at

its current level, we think overall inflation will be

relatively manageable.

Under this assumption, the likely fall in core inflation

and GDP growth disappointment should

trigger another 25bps cut in the policy rate.

Source: BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: CEIC, Credit Suisse

14 March 2012


Thailand: Selected economic indicators 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F National accounts, population and unemployment Real GDP growth (%) 4.6 5.1 4.9 2.5 -2.2 7.8 0.1 4.5 5.0 Growth in real private consumption (%) 4.6 3.2 1.7 2.7 -1.1 4.8 1.3 3.5 3.3 Growth in real fixed investment (%) 10.5 3.9 1.5 1.2 -9.0 9.4 3.2 11.9 10.1 Fixed investment (% of GDP) 23.4 23.1 22.3 22.1 20.5 20.8 21.5 22.9 24.0 Nominal GDP ($bn) 176.2 207.1 264.7 275.4 263.8 318.8 340.7 382.8 439.5 Population (mn) 62.4 62.8 63.0 63.4 63.5 63.9 64.2 64.5 64.9 GDP per capita ($) 2,824 3,297 4,198 4,345 4,153 4,990 5,307 5,931 6,774 Prices, interest rates and exchange rates CPI inflation (% year-on-year change, December over December) 5.8 3.5 3.2 0.4 3.5 3.0 3.5 3.5 3.8 CPI inflation (% change in average index for the year) 4.5 4.7 2.2 5.5 -0.8 3.3 3.8 3.3 3.7 Exchange rate (THB per USD, end-year) 41.1 35.7 29.6 34.7 33.2 30.1 31.0 30.5 29.5 Exchange rate (THB per USD, average) 40.2 37.9 32.2 33.0 34.3 31.7 30.8 30.8 30.0 REER (% year-on-year change, December over December) (1) 3.5 11.3 1.3 -3.2 2.5 8.0 0.2 0.5 1.5 Nominal wage growth (% year-on-year change) (2) 6.9 6.2 3.0 10.2 -2.5 6.5 7.5 9.1 10.0 Overnight policy rate (%, end-year) (3) 4.00 5.00 3.25 2.75 1.25 2.00 3.25 2.75 3.25 Fiscal data (4) General government budget balance (% of GDP) 0.3 -0.7 -1.6 -1.0 -5.7 -0.9 -2.7 -3.5 -2.5 General government primary fiscal balance (% of GDP) 1.6 0.9 -0.3 0.2 -4.4 0.3 -1.2 -2.6 -1.0 General government expenditure (% of GDP) 18.0 18.1 19.0 17.9 21.7 18.0 20.7 20.9 20.0 General government revenue (% of GDP) 18.3 17.4 17.4 16.9 15.9 17.1 18.0 17.4 17.5 Gross general government debt (% of GDP, end-year) (5) 47.3 42.0 38.3 37.3 45.2 42.6 42.3 43.1 41.6 Money supply and credit Broad money supply (M2, % of GDP) 111.8 109.3 106.9 109.6 117.3 116.5 125.9 124.1 120.7 Broad money supply (M2, % year-on-year change) 6.1 8.2 6.3 9.2 6.8 10.9 12.3 10.5 9.0 Domestic credit (% of GDP) 119.2 109.0 104.2 105.4 110.6 109.0 123.0 122.8 119.5 Domestic credit (% year-on-year change) 4.6 1.1 3.9 7.7 4.7 10.0 10.6 12.0 9.0 Domestic credit to the private sector (% of GDP) 100.7 95.2 91.8 93.8 96.4 97.0 104.6 105.4 103.5 Domestic credit to the private sector (% year-on-year change) 8.0 4.5 4.8 8.8 2.5 12.3 12.0 13.0 10.0 Balance of payments Exports (goods and non-factor services, % of GDP) 73.5 73.8 68.6 75.8 68.5 71.4 78.7 80.1 80.6 Imports (goods and non-factor services, % of GDP) 75.5 71.0 61.6 74.1 59.1 65.0 75.5 79.6 78.0 Exports (goods and non-factor services, % year-on-year change in $ value) 13.6 17.9 18.9 14.9 -13.4 26.0 17.5 14.6 15.5 Imports (goods and non-factor services, % year-on-year change in $ value) 24.0 10.6 10.7 25.3 -23.7 33.0 24.0 18.6 12.5 Current account balance ($bn) -7.6 2.3 15.7 1.6 21.9 14.8 11.9 2.0 8.9 Current account balance (% of GDP) -4.3 1.1 5.9 0.6 8.3 4.6 3.5 0.5 2.0 Net FDI inflows ($bn) 7.5 8.5 8.3 4.4 0.7 4.2 -2.4 2.0 3.0 Scheduled external debt amortization ($bn) 12.6 15.4 19.5 13.2 11.0 11.0 11.5 12.0 12.0 Foreign debt and reserves Foreign debt ($bn) 61.1 70.0 74.4 76.1 75.3 100.5 106.6 112.0 115.0


Foreign debt (% of GDP) 34.7 33.8 28.1 27.6 28.5 30.4 31.3 29.3 26.2 Foreign debt (% of exports of goods and services) 47.2 45.8 41.0 36.5 41.7 42.6 39.8 36.5 32.5 Central bank gross FX reserves ($bn) 52.1 67.0 87.6 111.0 138.4 172.1 178.6 190.0 200.0 Central bank gross FX reserves, including forward FX transactions ($bn) 55.9 73.9 106.7 117.8 154.1 191.7 198.2 209.6 219.6 Central bank gross non-gold FX reserves ($bn) (6) 50.7 65.3 85.2 108.7 135.5 167.5 174.0 185.4 195.4 (1) Real effective exchange rate, increase indicates appreciation. (2) From Labor Force Survey: Average Monthly Wage in the private sector. (3) Through 2006, the policy rate was the 14-day repo rate. (4) Data for central government, based on cash basis prior to 2004, based on fiscal year ending September. (5) Includes central government, non-financial SOEs and financial institution development fund. (6) Not including forward FX purchases. Source: Bank of Thailand, National Economic & Social Development Board, CEIC, Credit Suisse

14 March 2012


Long-term sovereign FX debt ratings (pos) Outlook positive (neg) Outlook negative No sign indicates stable outlook

Moody's S&P Fitch LATIN AMERICA Argentina B3 B (u) (1) B Brazil Baa2 (pos) BBB BBB Chile Aa3 A+ (pos) A+ Colombia Baa3 BBB- BBB- Mexico Baa1 BBB BBB Panama Baa3 (pos) BBB- (pos) BBB Peru Baa3 (pos) BBB BBB Venezuela B2 B+ B+ EASTERN EUROPE, MIDDLE EAST & AFRICA Czech Republic A1 AA- A+ Hungary Ba1 (neg) BB+ (neg) BBB+ (neg) Israel A1 A+ A Kazakhstan(2) Baa1 BBB+ BBB (pos) Poland A2 A- A- Russia Baa1 BBB BBB Saudi Arabia Aa3 AA- AA- South Africa A3 (neg) BBB+ BBB+ (neg) Turkey Ba2 (pos) BB (pos) BB+ Ukraine B2 (neg) B+ B United Arab Emirates Aa2 EMERGING ASIA China Aa3 (pos) AA- A+ Hong Kong Aa1 (pos) AAA AA+ India Baa3 BBB- BBB- Indonesia Baa3 BB+ (pos) BBB- Korea A1 A A+ (pos) Malaysia A3 A- A- Philippines Ba2 BB (pos) BB+ Singapore Aaa AAA AAA Taiwan Aa3 AA- A+ Thailand Baa1 BBB+ BBB

Moody's rating scale S&P rating scale Fitch rating scale

Investment

grade

Sub-investment

grade Investment

grade

Sub-investment

grade Investment

grade

Sub- investment

grade Aa1 Ba1 AAA BB+ AAA BB+ Aa2 Ba2 AA BB AA BB Aa3 Ba3 AA- BB- AA- BB- A1 B1 A+ B+ A+ B+ A2 B2 A B A B A3 B3 A- B- A- B- Baa1 Caa1 BBB+ CCC+ BBB+ CCC+ Baa2 BBB BBB Baa3 BBB- BBB- (1) “u” denotes “unsolicited”. (2) The Moody’s rating in the table refers to the country ceiling. Moody’s foreign currency issuer rating is one notch lower. Source: Standard & Poor’s, Moody’s and Fitch

14 March 2012

Em

erging Markets Q

uarterly

142

Long-term sovereign FX debt ratings Investment Grade

Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Moody’s Kuwait

Qatar United Arab Emirates

Chile China +

Saudi Arabia

Taiwan

Czech Republic Estonia

Israel Korea Oman

Botswana Poland

Slovakia – Slovenia –

Malaysia South Africa –

Bahrain – Kazakhstan(1)

Lithuania Mexico Russia

Thailand

Brazil + Bulgaria

Colombia Croatia

India Indonesia

Latvia + Panama +

Peru + Romania Tunisia –

AA AA- A+ A A- BBB+ BBB BBB- S&P Kuwait

Qatar

China Czech Republic

Estonia – Saudi Arabia

Taiwan

Chile + Israel

Slovenia –

Korea Oman –

Slovakia –

Botswana Malaysia

Poland

Kazakhstan South Africa

Thailand

Bahrain – Brazil

Bulgaria Lithuania

Mexico Peru

Russia

Azerbaijan Colombia

Croatia – India

Morocco Panama + Tunisia – Uruguay

Fitch Kuwait Saudi Arabia China Chile

Czech Republic Estonia Korea + Slovakia

Taiwan

Israel Slovenia –

Malaysia Poland

South Africa – Bahrain Brazil

Kazakhstan + Lithuania

Mexico Panama

Peru Russia

Thailand

Azerbaijan + Bulgaria

Colombia Croatia – Cyprus –

India Indonesia

Latvia Morocco Romania Tunisia –

Sub-Investment Grade Ba1 Ba2 Ba3 B1 B2 B3 Caa1 and below Moody’s Azerbaijan +

Cyprus – Hungary –

Morocco Uruguay +

El Salvador Philippines

Turkey +

Lebanon Sri Lanka +

Vietnam –

Egypt – Ukraine –

Venezuela

Argentina Belarus – Pakistan

Ecuador Greece

BB+ BB BB- B+ B B- CCC+ and below S&P Cyprus –

Hungary – Indonesia +

Latvia + Romania

Philippines + Serbia

Turkey +

El Salvador Gabon

Vietnam –

Nigeria + Sri Lanka

Ukraine Venezuela

Argentina Egypt – Ghana

Lebanon

Belarus – Ecuador +

Pakistan

Greece

Fitch Hungary – Philippines

Turkey Uruguay

El Salvador Egypt – Gabon Nigeria Serbia

Sri Lanka

Ghana Venezuela

Vietnam

Argentina Lebanon Ukraine

Greece Ecuador

(1) The Moody’s rating in the table refers to the country ceiling. Moody’s foreign currency issuer rating is one notch lower. (2) The S&P rating in the table refers to the rating for the foreign currency sovereign bonds. S&P’s foreign currency rating is one notch lower. Source: Standard & Poor’s, Moody’s & Fitch + Outlook positive – Outlook negative No sign indicates stable outlook

14 March 2012


Key websites GENERAL WEBSITES Central bank websites www.zagury.com/cbanks.htm Central bank websites www.centralbanking.co.uk/links National statistical offices unstats.un.org Finance ministry websites www.centralbanking.co.uk/links/mof.htm Global election calendar www.electionguide.org LATIN AMERICA

ARGENTINA Central Bank www.bcra.gov.ar Ministry of Economy www.mecon.gob.ar Statistical Office www.indec.mecon.ar Di Tella University www.utdt.edu News sources www.ambito.com – www.cronista.com – www.clarin.com – www.lanacion.com.ar – www.infobae.com

BRAZIL Central Bank www.bcb.gov.br Statistics Office www.ibge.gov.br Ministry of Finance www.fazenda.gov.br National Treasury www.tesouro.fazenda.gov.br Brazilian Federal Revenue Service www.receita.fazenda.gov.br Development, Industry and Trade Ministry www.mdic.gov.br Planning Ministry www.planejamento.gov.br Economic Research Official Bureau www.ipea.gov.br News sources www.valoronline.com.br – www.estadao.com.br – www.folha.com.br – www.oglobo.com – www.ibre.fgv.br

CHILE Central Bank www.bcentral.cl Office of the President www.gobiernodechile.cl Ministry of Finance and Office of the Budget www.hacienda.cl – www.dipres.cl Statistical Office www.ine.cl Pension Fund Regulator www.safp.cl News sources www.latercera.cl – www.emol.com – www.elmercurio.cl – www.df.cl National Emergencies Office / Ministry of the Interior www.onemi.cl

COLOMBIA Central Bank www.banrep.gov.co Ministry of Finance www.minhacienda.gov.co Statistical Office www.dane.gov.co News sources www.elpais.com.co – www.elespectador.com – www.eltiempo.com www.larepublica.com.co – www.portafolio.com.co

ECUADOR Central Bank www.bce.fin.ec Ministry of Finance www.mef.gov.ec Statistical Office www.inec.gob.ec News sources www.eluniverso.com – www.elcomercio.com – www.lahora.com.ec – www.vistazo.com – www.hoy.com.ec www.diario-expreso.com – www.elmercurio.com.ec Source: Credit Suisse

14 March 2012


Key websites LATIN AMERICA (cont’d)

EL SALVADOR Central Bank www.bcr.gob.sv Finance Ministry www.mh.gob.sv Legislative Assembly www.asamblea.gob.sv Bank Superintendence www.ssf.gob.sv News Sources www.elsalvador.com – www.laprensagrafica.com – www.elmundo.com.sv – www.elfaro.net

MEXICO Central Bank www.banxico.org.mx Office of the President www.presidencia.gob.mx Ministry of Finance www.shcp.gob.mx Federal Electoral Institute www.ife.org.mx Ministry of Energy www.energia.gob.mx Statistical Office www.inegi.org.mx Pension Fund Regulator www.consar.gob.mx Pemex www.pemex.com Pollsters www.consulta.mx – www.parametria.com.mx – www.buendiaylaredo.com – www.ipsos-bimsa.com.mx News sources www.elfinanciero.com.mx – www.eluniversal.com.mx – www.reforma.com – www.milenio.com www.economista.com.mx – www.cronica.com.mx – www.excelsior.com.mx www.jornada.unam.mx – www.radioformula.com.mx

PANAMA Ministry of Finance www.mef.gob.pa Statistical Office www.contraloria.gob.pa/inec Bank Superintendence www.superbancos.gob.pa National Assembly www.asamblea.gob.pa/main Pollster www.dichter-neira.com/encuesta_opinion.php News sources www.prensa.com – www.laestrella.com.pa

PERU Central Bank www.bcrp.gob.pe Ministry of Finance www.mef.gob.pe Statistical Office www.inei.gob.pe New sources www.elcomercioperu.pe – www.gestion.pe – www.larepublica.pe – www. diariocorreo.pe

URUGUAY Central Bank www.bcu.gub.uy Office of the President www.presidencia.gub.uy Ministry of Finance www.dgi.gub.uy Statistical Office www.ine.gub.uy News sources www.observador.com.uy – www.lr21.com.uy – www.brecha.com.uy – www.espectador.com

VENEZUELA Central Bank www.bcv.org.ve Ministry of Finance www.mf.gov.ve Statistical Office www.ine.gov.ve Budget Office www.ocepre.gov.ve National Electoral Commission www.cne.gov.ve National Foreign Exchange Administration www.cadivi.gob.ve National Tax and Customs Administration www.seniat.gob.ve National Public Credit Office www.oncp.gob.ve PDVSA www.pdvsa.com News sources www.el-nacional.com – www.eluniversal.com – www.unionradio.net – www.avn.info.ve Source: Credit Suisse

http://www.elsalvador.com/�

http://www.laprensagrafica.com/�

http://www.elmundo.com.sv/�

http://www.buendiaylaredo.com/�

14 March 2012


Key websites EASTERN EUROPE, MIDDLE EAST & AFRICA

CZECH REPUBLIC Czech National Bank www.cnb.cz Czech Statistical Office www.czso.cz Ministry of Finance www.mfcr.cz Parliament www.psp.cz News sources www.radio.cz – www.praguepost.com

EGYPT Central Bank of Egypt www.cbe.org.eg Finance Ministry www.mof.gov.eg Statistics Office www.capmas.gov.eg News sources www.businesstodayegypt.com – english.ahram.org.eg – www.almasryalyoum.com/en

GCC Central Bank of Kuwait www.cbk.gov.kw Ministry of Finance Kuwait www.mof.gov.kw Qatar Central Bank www.qcb.gov.qa Ministry of Finance Qatar www.mof.gov.qa Saudi Arabian Monetary Agency www.sama.gov.sa Ministry of Finance Saudi Arabia www.mof.gov.sa/en Central Bank of the UAE www.centralbank.ae Ministry of Finance and Industry UAE www.mofi.gov.ae News sources GCC www.arabianbusiness.com

HUNGARY National Bank of Hungary www.mnb.hu Website of the Hungarian Government www.kormany.hu Ministry for National Economy www.ngm.gov.hu Debt Management Agency www.allampapir.hu Central Statistical Office www.ksh.hu Parliament www.parlament.hu Hungarian Financial Supervisory Authority www.pszaf.hu News sources www.budapesttimes.hu – www.portfolio.hu

ISRAEL Central Bank of Israel www.bankisrael.gov.il Central Bureau of Statistics www.cbs.gov.il Ministry of Finance govx.mof.gov.il Israel Securities Authority www.isa.gov.il News sources www.haaretz.com – www.globes.co.il

KAZAKHSTAN National Bank of Kazakhstan www.nationalbank.kz Ministry of Finance mf.minfin.kz Statistical Agency www.stat.kz Ministry of Economy and Budget Planning www.minplan.kz Financial Services Supervisory Agency www.afn.kz Official site of the president www.akorda.kz News sources www.kt.kz Source: Credit Suisse

14 March 2012


Key websites EASTERN EUROPE, MIDDLE EAST & AFRICA (cont’d)

NIGERIA Central Bank of Nigeria www.cenbank.org Ministry of Finance www.fmf.gov.ng Debt Management Office www.dmo.gov.ng Nigerian National Petroleum Corporation www.nnpcgroup.com News sources www.thisdayonline.com – www.allafrica.com

POLAND National Bank of Poland www.nbp.pl Ministry of Finance www.mf.gov.pl Central Statistical Office www.stat.gov.pl Polish Financial Supervision Authority www.knf.gov.pl Parliament www.sejm.gov.pl News sources www thenews.pl – www.polandmonthly.pl – www.warsawvoice.pl

ROMANIA Central Bank www.bnr.ro Statistics Office www.insse.ro Ministry of Finance www.mfinante.ro

RUSSIA Central Bank of Russia www.cbr.ru Finance Ministry www.minfin.ru State Statistics Agency www.gks.ru Economic Expert Group www.eeg.ru The State Duma www.duma.ru News sources www.themoscowtimes.com

SOUTH AFRICA South African Reserve Bank www.reservebank.co.za National Treasury www.treasury.gov.za Statistics South Africa www.statssa.gov.za South Africa Revenue Services www.sars.gov.za Bureau for Economic Research www.ber.sun.ac.za Bond Exchange of South Africa www.bondexchange.co.za Johannesburg Stock Exchange www.jse.co.za News sources www.businessday.co.za – www.mg.co.za – www.financialmail.co.za – www.thestar.co.za

TURKEY Central Bank www.tcmb.gov.tr Treasury www.treasury.gov.tr Ministry of Finance www.maliye.gov.tr State Planning Organization www.dpt.gov.tr State Institute of Statistics www.tuik.gov.tr News sources www.ntvmsnbc.com.tr – www.turkishdailynews.com.tr

UKRAINE National Bank of Ukraine www.bank.gov.ua Finance Ministry www.minfin.gov.ua Economy Ministry www.me.gov.ua State Statistics Agency www.ukrstat.gov.ua News sources www.kyivpost.com Source: Credit Suisse

14 March 2012


Key websites EMERGING ASIA

CHINA Central Bank www.pbc.gov.cn/english Statistics Office www.stats.gov.cn Ministry of Finance www.mof.gov.cn News sources www.chinadaily.com – english.peopledaily.com.cn – www.xinhuanet.com

HONG KONG Central Bank www.info.gov.hk/hkma Statistics Office www.info.gov.hk/censtatd Treasury Department www.try.gov.hk News sources www.scmp.com – www.thestandard.com.hk – www.feer.com

INDIA Central Bank www.rbi.org.in Ministry of Finance finmin.nic.in Government press releases www.pib.nic.in Ministry of Statistics www.mospi.nic.in Ministry of Commerce & Industry www.commerce.nic.in

INDONESIA Central Bank www.bi.go.id Investment Coordinating Board www.bkpm.go.id News sources www.thejakartapost.com – www.antara.co.id

KOREA Central Bank www.bok.or.kr Statistics Office www.nso.go.kr/eng – www.mocie.go.kr Ministry of Finance english.mofe.go.kr News sources times.hankooki.com – english.chosun.com – www.koreaherald.co.kr – www.koreapost.com www.theseoultimes.com – english.yna.co.kr – joongangdaily.joins.com english.donga.com – english.yna.co.kr

MALAYSIA Central Bank www.bnm.gov.my Ministry of Finance www.treasury.gov.my/englishversionbaru Department of Statistics www.statistics.gov.my News sources thestar.com.my – www.nst.com.my – www.bernama.com – www.theedgedaily.com

PHILIPPINES Central Bank www.bsp.gov.ph National Statistics Office www.census.gov.ph Department of Finance www.dof.gov.ph Department of Budget and Management www.dbm.gov.ph News sources www.bworld.com.ph – www.inq7.net – www.gmanews.tv/business

SINGAPORE Central Bank www.mas.gov.sg Department of Statistics www.singstat.gov.sg Department of Finance www.mof.gov.sg News sources www.asiaone.com.sg – www.channelnewsasia.com Source: Credit Suisse

14 March 2012


Key websites EMERGING ASIA (cont’d)

TAIWAN Central Bank www.cbc.gov.tw Statistics Offices eng.dgbas.gov.tw – eng.stat.gov.tw – www.moea.gov.tw – www.cepd.gov.tw Ministry of Finance www.mof.gov.tw News sources www.taipeitimes.com – www.chinapost.com.tw – www.taiwanheadlines.com www.etaiwannews.com – news.cens.com – www.cna.com.tw – taiwansnews.net

THAILAND Central Bank www.bot.or.th National Statistical Office www.nso.go.th Ministry of Finance www2.mof.go.th News sources www.nationmultimedia.com – www.bangkokpost.net

VIETNAM Vietnam Economic News www.ven.org.vn Ministry of Finance www.mof.gov.vn World Bank in Vietnam web.worldbank.org.vn Vietnam Economic Portal www.vnep.org.vn Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly GLOBAL EMERGING MARKETS Weekly EM Fixed Income Views, A. Agrawal, I. Arsenin, D. Chodos, N. Mevorach, S. Siddiqui 29 Feb 2012 Emerging Markets Debt Trading Monthly – Feb 2012, A. Agrawal, I. Arsenin, K. Bartholdy, D. Chodos, N. Mevorach, S. Siddiqui 06 Feb 2012 EM sovereign dollar debt: Poised to outperform, I. Arsenin, D. Chodos, N. Mevorach, S. Siddiqui 02 Feb 2012 EM: More upside, I. Arsenin 25 Jan 2012 Emerging Markets Debt Trading Monthly – Jan 2012, A. Agrawal, I. Arsenin, K. Bartholdy, D. Chodos, N. Mevorach, S. Siddiqui 20 Jan 2012 Analysis of EM Monthly Macro-data: EM growth and inflation data still offer little cause for joy, K. Bartholdy, N. Mustafayev 13 Dec 2011 Emerging Markets Debt Trading Monthly – Jan 2012, A. Agrawal, I. Arsenin, K. Bartholdy, D. Chodos, N. Mevorach, S. Siddiqui

LATIN AMERICA

ARGENTINA 08 Mar 2012 Argentina: Reforming the central bank, C. Sandy

06 Mar 2012 Argentina: Long Bonar ’17 versus Global ‘17, D. Chodos 29 Feb 2012 Argentina’s industrial production: Small rebound in January after a decline in December, C. Sandy 28 Feb 2012 Argentina: Voters’ confidence in the government fell in February, but it is still near record highs, C. Sandy

27 Feb 2012 Argentina: Consumer confidence struggling to resume the uptrend, C. Sandy 23 Feb 2012 Argentina’s January trade data: We are growing more worried about the import restrictions than about the heat wave, C. Sandy 10 Feb 2012 Argentina: January CPI 0.9%, an above consensus reading that is likely a one-off, C. Sandy 07 Feb 2012 Argentina: Keep 2s5s Flatteners in CDS, I. Arsenin, D. Chodos, C. Sandy 07 Feb 2012 Argentina: Long EUR Discount and 10Y CDS, I. Arsenin, D. Chodos, C. Sandy 02 Feb 2012 Argentina: The USDA cut further its 2011/2012 soy production forecast, C. Sandy 31 Jan 2012 Argentina: The central bank projects some moderation in GDP growth and inflation in 2012, according to its latest Inflation Report, C. Sandy 31 Jan 2012 Argentina: Trade surplus was $10.3 in 2011, better than expected, C. Sandy 31 Jan 2012 Argentina: November’s GDP proxy rose 7.6% yoy; improved prospects for rain bode well for 2012 GDP growth, C. Sandy 18 Jan 2012 Argentina: 5s-2s bullish flattener in CDS, I. Arsenin, D. Chodos, C. Sandy 12 Jan 2012 Argentina: Revisions to harvest forecasts are, thus far, relatively limited, C. Sandy 11 Jan 2012 Argentina: Red tape on imports will probably not help maintain the trade surplus, instead it will likely increase the inefficiencies in the economy, C. Sandy 10 Jan 2012 Argentina: It is raining now! Hallelujah!, C. Sandy 04 Jan 2012 Argentina: Economic and political update, C. Sandy 08 Dec 2011 Argentina: Fine-tuning the model?, C. Sandy

BRAZIL 08 Mar 2012 Brazil: We stick with the flattener, I. Arsenin 07 Mar 2012 Brazil: We now expect the Selic rate to reach 8.5% at the end of May , N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 06 Mar 2012 Brazil: We maintain our forecast for GDP growth of 2.5% in 2012 , N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 29 Feb 2012 Brazil: Brazil's vulnerability increased only slightly with rise in external debt, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 22 Feb 2012 Brazil: Put on Jan '14 to Jan '17 PRE-CDI flattener, I. Arsenin 15 Feb 2012 Brazil: We maintain our forecast of a reduction in the unemployment rate in 2012 and 2013, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 07 Feb 2012 Brazil: We project GDP growth of 0.2% qoq in 4Q11, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 03 Feb 2012 Brazil: Budget cuts of R$60bn would greatly increase the probability of our scenario of a primary surplus of 3.1% of GDP in 2012, N. Teixeira, I. Ferrao, L. et. al 01 Feb 2012 Brazil: Rise in the weight of services under the new IPCA classification, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T.Rabelo 31 Jan 2012 Brazil: Extend duration on NTNB curve, I. Arsenin 26 Jan 2012 Brazil: We still expect 150bps in additional rate cuts in 2012, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 22 Dec 2011 Brazil: We still expect an aggregate interest rate cut of 200bps in 2012, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo 01 Dec 2011 Brazil 2012/13: Slowdown in activity and above-target inflation in an uncertain global environment, N. Teixeira, I. Ferrao, L. Fonseca, D. Lavarda, T. Rabelo Source: Credit Suisse

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14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly

CHILE 09 Mar 2012 Chile: Long CLP versus COP in six-month NDF, A. Cervera, D. Chodos, I. Arsenin, C. Sandy 08 Mar 2012 Chile & Mexico: Our take on today’s inflation reports, A. Cervera 29 Feb 2012 Chile: Room for an extended pause in the easing cycle, A. Cervera, C. Reckman 23 Feb 2012 Chile: Pension fund snapshot as of January 2012, A. Cervera, C. Reckman 31 Jan 2012 Chile: Where is the slowdown?, A. Cervera, C. Reckman 12 Jan 2012 Chile: Easing too soon?, A. Cervera, C. Reckman 11 Jan 2012 Chile: Pension fund snapshot as of end-2011, A. Cervera, C. Reckman 10 Jan 2012 Chile: Unwind long breakeven inflation trade , A. Cervera, D. Chodos, I. Arsenin, C. Reckman 10 Jan 2012 Chile: Monetary policy preview, A. Cervera, C. Reckman 09 Jan 2012: Chile: What drove inflation in 2011?, A. Cervera, C. Reckman 03 Jan 2012 Chile: Holiday recap, A. Cervera, C. Reckman 08 Dec 2011 Chile: Not a worrisome slowdown until now, A. Cervera

COLOMBIA 27 Feb 2012 Colombia’s central bank: Up another 25bps, C. Sandy

23 Feb 2012 Colombia monetary policy preview: Another hike is likely, C. Sandy

23 Feb 2012 Colombia: Keep 2s10s IBR flattener positions, I. Arsenin, D. Chodos, C. Sandy 22 Feb 2012 Colombia: Growth still robust; peso likely to strengthen further, C. Sandy 07 Feb 2012 Colombia: Waiting for better entry levels to short the COP, I. Arsenin, D. Chodos, C. Sandy 06 Feb 2012 Colombia - Central bank will resume its daily dollar purchases; January CPI up 0.73% mom, C. Sandy

31 Jan 2012 Colombia’s central bank: an unexpected rate hike, C. Sandy 27 Jan 2012 Colombia: Monetary policy preview, C. Sandy 18 Jan 2012 Colombia: Unwind receiver in 1-year IBR swap rates, D. Chodos, C. Sandy 04 Jan 2012 Colombia: An update of our views about the economy, C. Sandy 08 Dec 2011 Colombia: Growth may hit speed bump, C. Sandy

MEXICO 13 Mar 2012 Mexico: Long FX carry and 2s-10s steepeners, A. Cervera, I. Arsenin 08 Mar 2012 Mexico and Chile: Our take on today’s inflation reports, A. Cervera 06 Mar 2012 Mexico: Steepeners remain our top trade, A. Cervera, I. Arsenin 02 Mar 2012 Mexico: Afores are “stronger hands” for Bonos in 2012, A. Cervera, I. Arsenin 01 Mar 2012 Mexico: Highlights from the central bank’s survey, A. Cervera

23 Feb 2012 Mexico: Inflation in early February was below market estimates, A. Cervera

17 Feb 2012 Mexico: What’s the front-runner thinking?, A. Cervera, I. Arsenin

15 Feb 2012 Mexico: Our take on Banxico’s inflation report, A. Cervera

10 Feb 2012 Mexico: The week ahead, A. Cervera

10 Feb 2012 Mexico: How do voter preferences look right now, A. Cervera, I. Arsenin

09 Feb 2012 Mexico: January inflation slightly higher than expected, A. Cervera

08 Feb 2012 Mexico: Inflation preview, A. Cervera 03 Feb 2012 Mexico: More doves than hawks? You decide, A. Cervera, I. Arsenin 31 Jan 2012 Mexico: Put on 2s-10s TIIE steepener, A. Cervera, I. Arsenin 30 Jan 2012 Mexico: What to do in the local market? A. Cervera, I. Arsenin 25 Jan 2012 Mexico: Our take on Tuesday’s data releases, A. Cervera 20 Jan 2012 Mexico: Next step, adopt an easing bias, A. Cervera, I. Arsenin Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly 20 Jan 2012 Mexico: A neutral bias, that’s not so neutral to us, A. Cervera 19 Jan 2012 Mexico: Monetary policy preview and inflation estimates, A. Cervera 18 Jan 2012 Mexico: Receive 2-year TIIE, A. Cervera, I. Arsenin 17 Jan 2012 Mexico: Pension fund snapshot – December 2011, A. Cervera 13 Jan 2012 Mexico: What to expect from Banxico next Friday?, A. Cervera, I. Arsenin 12 Jan 2012 Mexico: Local markets snapshot as of December 2011, A. Cervera 11 Jan 2012 Mexico: Weak IP and vehicle output data to close 2011, A. Cervera 10 Jan 2012 Mexico: Earn the carry in 3-month Cetes funded in FX forwards. A. Cervera, I. Arsenin 10 Jan 2012 Mexico: Election update, A. Cervera 09 Jan 2012 Mexico: Inflation was higher than expected in December, A. Cervera 09 Jan 2012 Mexico: 2011 inflation under the microscope, A. Cervera 06 Jan 2012 Mexico: A roadmap to the presidential elections, A. Cervera 03 Jan 2012 Mexico: Holiday recap. A. Cervera 16 Dec 2011 Mexico: Hawks versus doves, A. Cervera, I. Arsenin 08 Dec 2011 Mexico: So far, not so bad, A. Cervera

PERU 09 Mar 2012 Peru’s central bank: No need for rate cuts yet (or, perhaps, at all), C. Sandy

06 Mar 2012 Peru: Monetary policy preview, C. Sandy 01 Mar 2012 Peru: CPI up 0.32% mom in February, C. Sandy 16 Feb 2012 Peru: GDP proxy 6% yoy in December; 6.9% for full-year 2011, C. Sandy 09 Feb 2012 Peru’s central bank: No change in the policy stance yet, C. Sandy 08 Feb 2012 Peru: Central bank likely to leave policy rate unchanged at 4.25%, C. Sandy 01 Feb 2012 Peru: CPI down 0.1% mom in January, C. Sandy 18 Jan 2012 Peru: Go long short-dated Soberanos bonds, D. Chodos, C. Sandy 12 Jan 2012 Peru’s central bank: Still on hold, as expected, C. Sandy 11 Jan 2012 Peru’s central bank: Unlikely to change its policy stance yet, C. Sandy 04 Jan 2012 Peru: Economic and political update, C. Sandy 08 Dec 2011 Peru: A challenging socio-political environment, C. Sandy

VENEZUELA 22 Feb 2012 Venezuela: Keep long positions on Venezuelan bonds; I. Arsenin. D. Chodos, C. Reckman

21 Feb 2012 Venezuela: President Chavez to undergo another operation, C. Reckman 13 Feb 2012 Venezuela: Landslide Capriles victory in primary should boost opposition campaign, C. Reckman 09 Feb 2012 Venezuela: Trip notes, I. Arsenin, C. Reckman

08 Feb 2012 Venezuela: Opposition primary outlook, C. Reckman 01 Feb 2012 Venezuela: SITME Snapshot, I .Arsenin, C. Reckman 02 Jan 2012 Venezuela: Holiday recap, C. Reckman 08 Dec 2011 Venezuela: Re-election or bust, C. Reckman Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly EASTERN EUROPE, MIDDLE EAST & AFRICA 01 Mar 2012 EMEA: Manufacturing growth momentum still resilient, B. Bayazitoglu, N. Mustafayev 29 Feb 2012 EMEA: Better core inflation dynamics in Poland, B. Bayazitoglu, N. Mustafayev 15 Feb 2012 EMEA: IP growth momentum still surprisingly strong, B. Bayazitoglu, N. Mustafayev

01 Feb 2012 EMEA: PMI above 50 again in January, as the gap with the euro area narrows, B. Bayazitoglu, N. Mustafayev 18 Jan 2012 EMEA: The run-rate of core inflation still rising only in Poland, B. Bayazitoglu, N. Mustafayev

03 Jan 2012 EMEA: Russia and Turkey kept the region’s PMI in expansionary territory in December, B. Bayazitoglu, N. Mustafayev 20 Dec 2011 EMEA: Core inflation still subdued except in Poland and Turkey, B. Bayazitoglu, N. Mustafayev

CZECH REPUBLIC 16 Feb 2012 Czech Republic: VAT hike pushed inflation up in January, G. Hudecz 13 Feb 2012 Czech Republic: FDI inflows resilient, G. Hudecz 09 Jan 2012 Czech Republic: Weak koruna remains an upside risk to inflation, G. Hudecz 21 Dec 2011 Czech Republic: CNB board turning hawkish?, G. Hudecz

EGYPT 16 Feb 2012 Egypt: In need of IMF support, N. Mustafayev

HUNGARY 13 Mar 2012 Hungary: Headline inflation moved higher in February but the run-rate of core inflation moderated, G. Hudecz 09 Mar 2012 Hungary vs. European Commission: The saga continues, G. Hudecz 28 Feb 2012 Hungary: Time of the doves approaching?, G. Hudecz 22 Feb 2012 Hungary: European Commission proponed to suspend €0.5bn in cohesión funds from 2013, G. Hudecz 17 Feb 2012 Hungary: Take profits on long positions against SovX CEEMEA, S. Siddiqui, G. Hudecz 14 Feb 2012 Hungary: Pick-up in inflation driven by VAT hike in January, G. Hudecz 06 Feb 2012 Hungary: Government willing to compromise on economic policy, G. Hudecz 25 Jan 2012 Hungary: The IMF recommends that the government identify contingency measures, G. Hudecz 24 Jan 2012 Hungary: Policy rate on hold, waiting for an IMF program, G. Hudecz 17 Jan 2012 Hungary: The EC launched infringement proceedings, G. Hudecz 13 Jan 2012 Hungary: December inflation surprised on the downside, G. Hudecz 05 Jan 2012 Hungary: Waiting for the European Commission’s view on the central bank law, G. Hudecz 20 Dec 2011 Hungary: Policy rate hike amidst uncertainty about central bank law and IMF talks, G. Hudecz 13 Dec 2011 Hungary: Inflation continued to rise in November, G. Hudecz

ISRAEL 27 Feb 2012 Israel: MC still dovish, but the policy rate outlook is more ambiguous now, N. Mevorach 16 Feb 2012 Israel: Real GDP growth slowed moderately in Q4 while strong government spending offset a sharp contraction in household spending and exports, N. Mevorach 15 Feb 2012 Israel: CPI inflation slowed in January to the central bank's target rate, N. Mevorach 23 Jan 2012 Israel: Monetary Committee cut the policy rate by 25bps to 2.50%, continuing the monetary policy easing cycle on the back of eurozone concerns, N. Mevorach 16 Jan 2012 Israel: CPI inflation slowed more than expected in December, but we expect the Monetary Committee to remain on hold again on 23 January, N. Mevorach 28 Dec 2011 Israel: Monetary Committee on hold but dovish, N. Mevorach 15 Dec 2011 Israel: An unexpected fall in inflation in November, driven by housing and transportation prices, N. Mevorach Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly POLAND 13 Mar 2012 Poland: Run-rate of core inflation continued to moderate in February, G. Hudecz 07 Mar 2012 Poland: MPC maintained its hawkish stance today, G. Hudecz 13 Feb 2012 Poland: Stable sources of external financing came close to financing the current account deficit in 2011, G. Hudecz 08 Feb 2012 Poland: MPC believes that the risk of elevated inflation in the coming months remain high, G. Hudecz 18 Jan 2012 Poland: Time to pay rates, S. Siddiqui, G. Hudecz 13 Jan 2012 Poland: CPI inflation moderated in December, but our measure of core inflation continued to rise, G. Hudecz 11 Jan 2012 Poland: MPC sees increased risk of elevated inflation in the coming months, G. Hudecz 13 Dec 2011 Poland: Another month of broad-based increase in CPI inflation, G. Hudecz 12 Dec 2011 Poland: Life with a weaker zloty, G. Hudecz 07 Dec 2011 Poland: MPC sticking to its hawkish line, G. Hudecz

RUSSIA 13 Mar 2012 Russia: All policy rates kept unchanged amid uncertain external and domestic environment, S. Voloboev, A. Pogorelov 09 Mar 2012 Russia: A new era for the local bond market, S. Siddiqui, I. Arsenin, S. Voloboev, A. Pogorelov 05 Mar 2012 Russia: Putin wins election with 64% support but will need to act to back his claim of a strong mandate, S. Voloboev, A. Pogorelov 05 Mar 2012 Russian Local Markets Monitor (Can the recent fiscal easing be sustained?), S. Voloboev, A. Pogorelov, S. Siddiqui 16 Feb 2012 Russia: Stronger than expected industrial output data support neutral policy stance, S. Voloboev, A. Pogorelov 14 Feb 2012 Russia: January’s federal budget deficit surprise: a pre-election spending splurge or a change in policy?, S. Voloboev, A. Pogorelov 06 Feb 2012 Russian Local Markets Monitor (After two 4.3% years, growth is set to slow in 2012), S. Voloboev, A. Pogorelov, S. Siddiqui 03 Feb 2012 Russia: CBR left policy rates unchanged in line with expectations, likely to extend the pause, S. Voloboev, A. Pogorelov 25 Jan 2012 Russia: The rouble surges to a 5-month high against basket, has further potential for appreciation, S. Voloboev, A. Pogorelov 24 Jan 2012 Russia: Weak December industrial output data strengthens the case for near-term policy easing, S. Voloboev, A. Pogorelov 20 Jan 2012 Russian Local Markets Monitor (Tighter liquidity, large trade surplus in sight), S. Voloboev, A. Pogorelov, S. Siddiqui 16 Jan 2012 Russia: Fitch drops positive rating outlook on political uncertainty, S. Voloboev, A. Pogorelov 13 Jan 2012 Russia: Higher current account surplus should offset large outflows and support the rouble in the near term, S. Voloboev, A. Pogorelov 10 Jan 2012 Russia: Sharply lower headline inflation paves way for further policy easing in Q1, S. Voloboev, A. Pogorelov 29 Dec 2011 Russia: Intervention band widening, soft PMI and inflation data add to the downward pressure on the rouble ahead of holidays, S. Voloboev, A. Pogorelov 29 Dec 2011 Russia: Close out payer positions on 1-year xccy swaps, S. Siddiqui, S. Voloboev 23 Dec 2011 Russia: CBR starts easing policy early, narrows rates corridor further, S. Voloboev, A. Pogorelov 19 Dec 2011 Russian Local Markets Monitor (March presidential elections no longer a formality), S. Voloboev, A. Pogorelov, S. Siddiqui 12 Dec 2011 Russia: Pay on 1-year xccy swaps, buy 1-month USDRUB RKO Calls, S. Siddiqui, A. Bagaria, S. Voloboev, A. Pogorelov 08 Dec 2011 Russia: CBR continues to limit REPO volumes, allowing liquidity conditions to worsen, S. Voloboev, A. Pogorelov

SOUTH AFRICA 14 Mar 2012 South Africa: Retail sales declined in January, after strong growth in December, C. Teixeira 12 Mar 2012 South Africa: Manufacturing production increased in January, led by the motor sector, C. Teixeira 29 Feb 2012 South Africa: Budget deficit widens to 4.6% of GDP on a 12-month rolling sum, C. Teixeira 29 Feb 2012 South Africa: Export growth slows further, while import growth sustained, C. Teixeira 28 Feb 2012 South Africa: Broad-based acceleration in Q4 GDP growth, led by the trade sector, C. Teixeira 23 Feb 2012 South Africa: Construction awaits vigor in infrastructure investment, C. Teixeira 22 Feb 2012 South Africa: Budget deficits cut on the expectation that revenue growth will outpace GDP and that expenditure growth will not, C. Teixeira 22 Feb 2012 South Africa: Core consumer price inflation jumps to 4.3% yoy in January, C. Teixeira 15 Feb 2012 South Africa: Retail sales increased to an historical high in December, C. Teixeira 14 Feb 2012 South Africa and Turkey: Take profits on TR30s basis trade, S. Siddiqui 09 Feb 2012 South Africa: Manufacturing production declined in December in line with the PMI, C. Teixeira 09 Feb 2012 South Africa: Mining production continued to expand in December, C. Teixeira 07 Feb 2012 South Africa and Turkey: We like the basis on sovereign dollar debt, S. Siddiqui Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly 30 Jan 2012 South Africa: Better prospects for mining output in 2012, C. Teixeira 30 Jan 2012 South Africa: Higher tax revenues helped push the 12-month rolling budget deficit lower, C. Teixeira 19 Jan 2012 South Africa: Reserve Bank seeking stable interest rate environment, C. Teixeira 18 Jan 2012 South Africa: Retail sales declined in November, ending a five month run higher, C. Teixeira 18 Jan 2012 South Africa: Consumer price inflation stabilizes at 6.1% year-on-year; core at 3.9%, C. Teixeira 17 Jan 2012 South Africa: Mining production recorded a broad-based bounce in November, C. Teixeira 17 Jan 2012 South Africa: Take profit on receiver trades in South Africa, S. Siddiqui, C. Teixeira 12 Jan 2012 South Africa: Manufacturing production bounces in November, C. Teixeira 08 Dec 2011 South Africa: Manufacturing production volumes resume decline, C. Teixeira 08 Dec 2011 South Africa: Mining volumes continue to decline; PGMs down, C. Teixeira 08 Dec 2011 South Africa: Current account deficit widens as dividend payments surge in Q3, C. Teixeira 08 Dec 2011 South Africa: Retail sales rise to historical high, C. Teixeira

TURKEY 12 Mar 2012 Turkey: Flat non-oil current account balance in Q1 2012?, B. Bayazitoglu 05 Mar 2012 Turkey: A modest improvement in core inflation dynamics in February, B. Bayazitoglu 22 Feb 2012 Turkey: Put on 2s5s xccy curve steepener, S. Siddiqui, B. Bayazitoglu 21 Feb 2012 Turkey: MPC – Now, you know the answer to ”how much longer?”, B. Bayazitoglu 13 Feb 2012 Turkey: Where is the current account deficit heading to?, B. Bayazitoglu 03 Feb 2012 Turkey: There is a “core” problem, B. Bayazitoglu 31 Jan 2012 Turkey: How tight and how much longer?, B. Bayazitoglu

24 Jan 2012 Turkey: MPC – Less concerned about the lira but still not confident in the repo rate of 5.75%, B. Bayazitoglu

11 Jan 2012 Turkey: Central bank content with BoP dynamics for now?, B. Bayazitoglu 05 Jan 2012 Turkey: Roll 5Y payers into 2s5s steepeners, I. Arsenin, B. Bayazitoglu, S. Siddiqui 03 Jan 2012 Turkey: Pay 5Y cross-currency swap rates, I. Arsenin, B. Bayazitoglu 03 Jan 2012 Turkey: Double-digit inflation triggers additional monetary tightening, B. Bayazitoglu

28 Dec 2011 Turkey: In the name of predictability, B. Bayazitoglu

28 Dec 2011 Turkey: The central bank introduced term-financing for both lira and FX, B. Bayazitoglu 22 Dec 2011 Turkey: Lira liquidity to remain tight, as long as credit growth holds up, B. Bayazitoglu

12 Dec 2011 Turkey: Impressions from the central bank’s investor meeting in London, B. Bayazitoglu 12 Dec 2011 Turkey: Household spending drove the economy stronger in Q3 but the rebalancing continued, B. Bayazitoglu

UKRAINE 24 Feb 2012 Ukraine: Reshuffle is unlikely to bring early policy changes, S. Voloboev, A. Pogorelov 18 Jan 2012 Ukraine: Khoroshkovsky's appointment as finance minister tightens presidential control over budget flows, S. Voloboev, A. Pogorelov 10 Jan 2012 Ukraine and Hungary: Where would you rather be – Kiev or Budapest? I. Arsenin, K. Bartholdy, G. Hudecz, N. Mustafayev, S. Voloboev Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly EMERGING ASIA 05 Mar 2012 Oil & Asia: Charting the effects, R. Prior-Wandesforde

01 Feb 2012 Asian Daily: Asia PMIs: Turning for the better 20 Feb 2012 Asia rates: Monday musings, A. Agrawal 13 Feb 2012 Asia rates: Monday musings, A. Agrawal 12 Jan 2012 Asia 2012: Our top ten non-consensus economic calls, R. Prior-Wandesforde, D. Tao, S. Sathirathai, C. Tuntono, K. L. Wu 04 Jan 2012 Asian Daily: Regional - Asian Exports & PMIs, R. Prior-Wandesforde 13 Dec 2011 Focus Asia (Q1 2012) - Better times?, R. Prior-Wandesforde, D. Tao, S. Sathirathai, C. Tuntono, K. L. Wu

CHINA 05 Mar 2012 China: Is the commodity supercycle behind us? , D. Tao 01 Mar 2012 China: PMI improved, but distorted by seasonality, D. Tao 01 Mar 2012 China: Assessing the state of the economy - Hard landing risk is gone, but rebound is weak, D. Tao 28 Feb 2012 Asia rates – China: Markets to consolidate, A. Agrawal 20 Feb 2012 China: Regulators are planning large scale debt roll-over for LGFV, D. Tao 20 Feb 2012 China: More fine-tuning of monetary conditions: PBoC cuts required reserves ratio by 50bps, D .Tao 16 Feb 2012 China: PBoC said downward pressure on growth and upward pressure on inflation coexist, suggesting policy neutrality, D. Tao, C. Tuntono 01 Feb 2012 China: PMI remained above 50 in January, D. Tao 31 Jan 2012 China: Pay 2y IRS, target 3.25%, stop 2.5%, A. Agrawal 25 Jan 2012 Asia rates – China: Biased to pay IRS, A. Agrawal 13 Jan 2012 China: New QFII quota may emerge on the horizon, D. Tao 17 Jan 2012 China: Growth slowed, but surprised on the upside: 4Q11 GDP growth at 8.9% yoy, D. Tao, C. Tuntono 03 Jan 2012 China: PMI rebounded: But risk is still to the downside, D. Tao, C. Tuntono 15 Dec 2011 China: Cyclical stability, structural break-through, D. Tao, C. Tuntono 14 Dec 2011 China: National Economic Working Conference: Cyclical stability, structural breakthrough, D. Tao, C. Tuntono

HONG KONG 01 Feb 2012 Hong Kong: Budget speech generally in line, but our concern about FY12-13 performance looms, C. Tuntono

INDIA 06 Mar 2012 India: Reiterate long 2017 bonds, pay 5y OIS, A. Agrawal 28 Feb 2012 India: A fiscal horror show?, R. Prior-Wandesforde, S. Sathirathai, A. Agrawal 15 Feb 2012 Asia rates – India: Initiate 2s5s OIS steepeners, A. Agrawal

INDONESIA 23 Feb 2012 Indonesia: Implications of a potential fuel price hike, K. L. Wu, R. Prior-Wandesforde 10 Feb 2012 Asia rates – Indonesia: Volatility likely to rise, A. Agrawal 18 Jan 2012 Asia rates – Indonesia: BI actions fuel rally again, A. Agrawal 09 Dec 2011 Asia rates – Indonesia: Turning more cautious, A. Agrawal

KOREA 09 Mar 2012 Asia rates – Korea: Pay 5y IRS, A. Agrawal 08 Mar 2012 Korea: BoK stays on pause again in March, showing greater ease over growth, C. Tuntono 29 Feb 2012 Korea: January production was better than expected, giving support for policy inaction, C. Tuntono 09 Feb 2012 Korea: BoK stayed on pause again in February, and has turned a bit more concerned about inflation, C. Tuntono Source: Credit Suisse

14 March 2012


Previous publications From Credit Suisse’s Economics Team since the last Emerging Markets Quarterly 09 Feb 2012 Korea: Inventory surged; production to remain soft, C. Tuntono 09 Feb 2012 Asia rates – Korea: Range gets wider, A. Agrawal 31 Jan 2012 Korea: December production weakens further, though the leading indices show some stability, C. Tuntono 26 Jan 2012 Korea: Domestic demand weakened visibly in the preliminary 4Q11 GDP report, C. Tuntono 20 Jan 2012 Asia rates – Korea: Trapped in a range, A. Agrawal

MALAYSIA 25 Jan 2012 Asia rates – Malaysia: Retain tactical bearish bias, A. Agrawal

12 Jan 2012 Malaysia’s Economy and Markets in 2012, K. L. Wu

PHILIPPINES 12 Jan 2012 Philippines: Growth fears, rate hopes, S. Sathirathai

SINGAPORE 17 Feb 2012 Singapore's Budget 2012: Lower potential growth near term?, K. L. Wu

TAIWAN 23 Feb 2012 Taiwan: Industrial production fell 16.64% YoY in January, but sequential growth suggests resilience, C. Tuntono

20 Feb 2012 Taiwan: January export orders fell sharply by 8.63% YoY, distorted by the lunar new year effect, C. Tuntono 31 Jan 2012 Taiwan: A technical recession; 4Q11 GDP disappointed, forecast downgraded, C. Tuntono 06 Jan 2012 Taiwan: The threat of marginalization still looms, C. Tuntono

THAILAND 29 Feb 2012 Asia rates – Thailand: Position for bear steepening, A. Agrawal 13 Feb 2012 Thailand’s post-flood recovery: Turning the tide, S. Sathirathai Source: Credit Suisse

14 March 2012


Key dates LATIN AMERICA

ARGENTINA Submission of 2013 budget proposal to Congress Mid September 2012 End of Congressional ordinary sessions 30 November 2012

BRAZIL Monetary policy decision 18 April 2012 Monetary policy decision 30 May 2012 Monetary policy decision 11 July 2012 Monetary policy decision 29 August 2012 Monetary policy decision 10 October 2012 Monetary policy decision 28 November 2012

CHILE Monetary policy decision 15 March 2012 Monetary policy minutes 30 March 2012 Monetary policy decision 17 April 2012 Monetary policy minutes 3 May 2012 Monetary policy decision 17 May 2012 Monetary policy minutes 4 June 2012 Monetary policy decision 14 June 2012 Monetary policy minutes 29 June 2012 Monetary policy decision 12 July 2012 Monetary policy minutes 30 July 2012 Monetary policy decision 16 August 2012

COLOMBIA Start of Congress’ second ordinary sessions 16 March 2012 Monetary policy decision 23 March 2012 Monetary policy decision 30 April 2012 Monetary policy decision 25 May 2012 End of Congress’ second ordinary sessions 20 June 2012 Monetary policy decision 29 June 2012 Start of Congress’ first ordinary sessions 20 July 2012 Monetary policy decision 27 July 2012 Submission of 2013 budget proposal to Congress End-July 2012 Monetary policy decision 24 August 2012 Monetary policy decision 28 September 2012 Monetary policy decision 26 October 2012 Monetary policy decision 23 November 2012 Monetary policy decision 14 December 2012 End of Congress’ first ordinary sessions 16 December 2012

MEXICO Monetary policy decision 16 March 2012 Monetary policy minutes 30 March 2012 Start of the presidential campaigns 30 March 2012 Monetary policy decision 27 April 2012 End of the ordinary period in congress 30 April 2012 Monetary policy minutes 11 May 2012 Quarterly inflation report 16 May 2012 Monetary policy decision 8 June 2012 Monetary policy minutes 22 June 2012 End of the presidential campaigns 27 June 2012 Source: Credit Suisse

14 March 2012


Key dates LATIN AMERICA (cont’d)

MEXICO (cont’d) Presidential and congressional elections; governor elections in the states of Guanajuato, Jalisco, Morelos, Tabasco, Yucatan, Chiapas and DF 1 July 2012 Monetary policy decision 20 July 2012 Monetary policy minutes 3 August 2012 Quarterly inflation report 15 August 2012 Start of the ordinary session in congress 1 September 2012 Monetary policy decision 7 September 2012 Monetary policy minutes 21 September 2012 Monetary policy decision 26 October 2012 Quarterly inflation report 7 November 2012 Monetary policy minutes 9 November 2012 Monetary policy decision 30 November 2012 Inauguration ceremony for the new President 1 December 2012 Monetary policy decision 14 December 2012 End of the ordinary session in congress 15 December 2012

PANAMA End of Congress’ first ordinary sessions 30 April 2012 Start of Congress’ second ordinary sessions 2 July 2012 End of Congress’ second ordinary sessions 31 October 2012

PERU Monetary policy decision 12 April 2012 Monetary policy decision 10 May 2012 Monetary policy decision 7 June 2012 End of Congressional second ordinary sessions 15 June 2012 Monetary policy decision 12 July 2012 Start of Congressional first ordinary sessions 27 July 2012 Monetary policy decision 9 August 2012 Submission of 2013 budget proposal to Congress Mid-August 2012 Monetary policy decision 6 September 2012 Monetary policy decision 11 October 2012 Monetary policy decision 8 November 2012 Monetary policy decision 6 December 2012 End of Congressional first ordinary sessions 15 December 2012

VENEZUELA Presidential election 7 October 2012 Gubernatorial elections 16 December 2012 Presidential inauguration 10 January 2013 Source: Credit Suisse

14 March 2012


Key dates EASTERN EUROPE, MIDDLE EAST & AFRICA

CZECH REPUBLIC Czech National Bank Board policy rate decision 29 March 2012 Czech National Bank Board policy rate decision 3 May 2012 Czech National Bank Board policy rate decision 28 June 2012 Czech National Bank Board policy rate decision 2 Aug 2012 Czech National Bank Board policy rate decision 27 Sep 2012 Czech National Bank Board policy rate decision 1 Nov 2012 Czech National Bank Board policy rate decision 19 Dec 2012

HUNGARY Monetary Council meeting 27 March 2012 Monetary Council meeting 24 April 2012 Monetary Council meeting 29 May 2012 Deadline for fiscal adjustment to avoid EU sanctions from 2013 22 June 2012 Monetary Council meeting 26 June 2012

ISRAEL Q4 2011 Balance of payments data 14 March 2012 Monetary Committee rate-setting meeting 26 March 2012 Monetary Committee rate-setting meeting 23 April 2012 Q1 2012 GDP data 16 May 2012 Monetary Committee rate-setting meeting 28 May 2012 Monetary Committee rate-setting meeting 25 June 2012

POLAND Monetary Policy Council meeting 3-4 April 2012 Monetary Policy Council meeting 8-9 May 2012 Monetary Policy Council meeting 5-6 June 2012 Monetary Policy Council meeting 3-4 July 2012 Monetary Policy Council meeting 4-5 September 2012 Monetary Policy Council meeting 2-3 October 2012 Monetary Policy Council meeting 6-7 November 2012 Monetary Policy Council meeting 4-5 December 2012

RUSSIA Excise taxes, payments to off-budget funds are due 15 March 2012 Corporate profit tax payable 16 March 2012 VAT payable 20 March 2012 Excise, mineral extraction taxes are due 26 March 2012 Corporate profit tax payable 28 March 2012 Corporate profit tax payable 13 April 2012 Excise taxes, payments to off-budget funds are due 16 April 2012 VAT payable 20 April 2012 Excise, mineral extraction taxes are due 25 April 2012 Corporate profit tax payable 28 April 2012 Inauguration of the newly elected president 7 May 2012

SOUTH AFRICA Reserve Bank Quarterly Bulletin Q4 19 March 2012 Monetary Policy Committee meeting 27 - 29 March 2012 Monetary Policy Committee meeting 22 – 24 May 2012 Statistics South Africa supply-side Q1 2012 GDP data 29 May 2012 Source: Credit Suisse

14 March 2012


Key dates EASTERN EUROPE, MIDDLE EAST & AFRICA (cont’d.)

TURKEY Monetary Policy Committee meeting 27 March 2012 Monetary Policy Committee meeting 18 April 2012 Release of the quarterly inflation report 26 April 2012 Monetary Policy Committee meeting 29 May 2012 Monetary Policy Committee meeting 21 June 2012 Monetary Policy Committee meeting 19 July 2012 Release of the quarterly inflation report 26 July 2012 Monetary Policy Committee meeting 16 August 2012 Announcement of medium-term fiscal program September-October 2012 Monetary Policy Committee meeting 18 September 2012 Deadline for the submission of the draft 2013 budget to parliament 17 October 2012 Monetary Policy Committee meeting 18 October 2012 Release of the quarterly inflation report 24 October 2012 Monetary Policy Committee meeting 20 November 2012 Monetary Policy Committee meeting 18 December 2012 Deadline for the parliamentary approval of the 2013 budget 31 December 2012

UKRAINE Maturity of the $2.0bn loan originally granted to the government of Ukraine by Russia’s VTB bank in June 2010 4 June 2012 Ukraine to host the European football championship (jointly with Poland) 9 June – 1 July 2012 Maturity of the $500mn Eurobond 26 June 2012 Scheduled parliamentary elections by October 2012 Source: Credit Suisse

14 March 2012


Key dates EMERGING ASIA

CHINA Communist Party Congress October 2012

HONG KONG Chief Executive Election 25 March 2012

INDIA RBI policy review 17 April 2012

INDONESIA Bank Indonesia Meeting 12 April 2012 Bank Indonesia Meeting 10 May 2012 Bank Indonesia Meeting 12 June 2012

KOREA Bank of Korea Monetary Policy Meeting 13 April 2012

National Assembly election April 2012

Bank of Korea Monetary Policy Meeting 10 May 2012

Bank of Korea Monetary Policy Meeting 08 June 2012

Presidential election December 2012

MALAYSIA Bank Negara Monetary Policy Meeting 3 May 2012 Bank Negara Monetary Policy Meeting 5 July 2012 Bank Negara Monetary Policy Meeting 6 Sep 2012

PHILIPPINES Banko Sentral ng Pilipinas Monetary Policy Meeting 19 April 2012 Banko Sentral ng Pilipinas Monetary Policy Meeting 14 June 2012

SINGAPORE Monetary Policy Meeting Mid-April 2012

TAIWAN Central Bank of China quarterly Monetary Policy Meeting 29 March 2012

Central Bank of China quarterly Monetary Policy Meeting 28 June 2012

THAILAND Bank of Thailand Monetary Policy Committee Meeting 21 March 2012 Bank of Thailand Monetary Policy Committee Meeting 2 May 2012 Source: Credit Suisse

14 March 2012


Gross financing needs for 2012 Balance of Payments Financing Need for 2012

(% of GDP) Government Financing Need for

2012 (% of GDP) inc. short-term

debt amortization exc. short-term

debt amortization

LATIN AMERICA 4.9 3.0 8.5

Argentina 5.6 2.6 3.6 Brazil 5.4 3.9 11.8 Chile 17.3 9.4 -0.1 Colombia 5.4 4.3 5.2 Mexico 3.8 2.2 7.8 Panama na na 4.3 Peru 5.9 2.8 0.2 Venezuela -4.6 -4.6 8.9

EMEA 13.5 5.9 5.6

Czech Republic 17.8 5.8 10.1 Hungary 34.5 12.2 15.1 Israel 26.7 3.9 11.2 Kazakhstan 5.2 2.6 -0.7 Poland 27.5 12.6 11.6 Russia 2.6 0.4 0.8 South Africa 10.9 6.0 10.7 Turkey 23.3 12.9 8.1 Ukraine 31.1 19.1 7.7

NON-JAPAN ASIA 12.5 1.2 6.6

China 5.3 -1.1 6.6 Hong Kong 274.0 24.5 0.7 India 9.9 6.4 10.5 Indonesia 6.3 3.5 3.6 Korea 14.2 3.0 3.0 Malaysia 3.9 1.2 9.9 Philippines 6.1 2.4 na Taiwan 13.7 -4.7 3.5 Thailand 14.9 -0.8 na

Emerging Markets 11.0 2.5 6.8 Source: Credit Suisse

14 March 2012


Balance of payments financing needs LATIN AMERICA ARGENTINA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 15.2 15.2 10.6 25.3 28.2 26.4 Funding need (excluding short-term debt amortization) 3.2 0.9 -5.7 14.2 8.7 12.4 Current account deficit -7.1 -6.8 -11.1 -2.9 -1.5 0.8 FDI outflows 1.5 1.4 0.6 1.2 1.6 0.8 Medium- and long-term debt amortization 8.8 6.3 4.7 16.0 8.6 10.8 Public sector debt amortization 4.7 4.4 2.8 9.6 4.0 6.1 Amortization of debt to IFIs 2.6 2.2 1.7 1.7 1.6 1.7 Amortization of debt to other creditors (1) 2.2 2.1 1.2 7.9 2.4 1.4 Expected payment to Paris Club 3.0 Private sector debt amortization 4.1 1.9 1.9 6.3 4.6 4.7 Non-financial private sector 3.7 1.4 1.4 5.4 4.3 4.3 Financial private sector 0.4 0.5 0.5 0.9 0.4 0.4 Short-term debt (2) 12.0 14.2 16.3 11.1 19.5 14.0 Funding sources (including gross short-term borrowing) 15.2 15.2 10.6 25.3 28.2 26.4 FDI inflows 6.2 9.1 3.4 6.7 4.9 3.0 Net portfolio investments, excl. foreigners’ purchase of government bonds 2.4 -6.6 -0.8 2.2 0.8 0.0 Government borrowing from IFIs, excluding the IMF and the BIS 2.4 1.9 3.2 2.4 2.0 2.0 Government borrowing excl. IFI lending (3) 4.3 2.4 0.2 7.5 0.0 0.0 Government borrowing from the IMF 0.0 0.0 0.0 0.0 0.0 0.0 Central bank borrowing from BIS and bilateral lenders 1.5 3.3 -1.3 -2.3 5.4 -2.4 Medium-term private sector borrowing 4.0 1.3 0.7 4.3 3.4 3.4 Short-term private sector borrowing 14.2 16.3 11.1 19.5 14.0 14.0 Other capital flows, including capital flight (4) -7.2 -15.6 -3.0 -8.6 -12.3 9.4 Change in FX reserves net of borrowing from the BIS and bilateral lenders (- indicates increase) -12.6 3.1 -2.9 -6.5 9.9 -3.0 (1) Including payments to foreign holdings of local law federal government bonds; the data for 2010 include flows related restructuring of defaulted government bonds. (2) The IMF’s data dissemination system reports that Argentina has a larger stock of short-term debt, but our understanding is that the IMF number includes debt that has been in arrears since 2001 and is not being serviced. (3) This includes foreigners' purchases of local law federal government bonds. For 2008 and 2009, it includes the sale of Boden 2015 to Venezuela. (4) This includes accumulation of new arrears and capital flight. Source: Central Bank, Ministry of Finance, Credit Suisse

BRAZIL $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 64.0 109.9 80.8 122.2 136.3 136.4 Funding need (excluding short-term debt amortization) 43.7 71.0 44.3 92.8 81.0 97.4 Current account deficit -1.6 28.2 24.3 47.3 52.6 54.2 FDI outflows 7.1 20.5 -10.1 11.6 -9.3 -3.4 Medium- and long-term debt amortization 38.2 22.4 30.1 33.8 37.7 46.6 Public 11.4 4.2 5.0 8.1 7.7 4.2 Private 26.8 18.1 25.1 25.8 30.0 42.5 Short-term debt amortization 20.3 38.9 36.4 29.5 55.3 39.0 Funding sources (including gross short-term borrowing) 64.0 109.9 80.8 122.2 136.3 136.4 FDI inflows 34.6 45.1 25.9 48.4 66.7 55.0 Portfolio investments 42.6 6.8 50.9 53.9 7.7 5.2 Stocks 26.2 -7.6 37.1 37.7 6.2 4.9 Fixed income 13.5 13.8 9.7 13.4 -0.2 -1.0 Government bonds 2.9 0.5 4.2 2.8 1.7 1.3 Borrowing by the government (from other sources than the IMF) 0.8 1.9 4.6 5.6 2.8 3.0 Medium- and long-term borrowing by the private sector 32.3 29.2 27.1 54.1 79.7 71.6 Short-term debt contracted from abroad (gross) 38.9 36.4 29.5 55.3 39.0 42.4 Other capital inflows/errors and omissions 2.3 -6.5 -10.5 -46.0 -1.0 -19.8 Change in international net reserves (- indicates increase) -87.5 -3.0 -46.7 -49.1 -58.6 -21.0 Source: Central Bank, Ministry of Finance, Credit Suisse

14 March 2012


Balance of payments financing needs CHILE $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 17.5 40.1 33.7 38.5 54.8 44.1 Funding need (excluding short-term debt amortization) 6.5 25.3 15.8 18.7 32.3 23.9 Current account deficit -7.5 3.3 -2.6 -3.8 4.3 5.0 FDI outflows 2.6 8.0 8.1 8.7 7.3 4.0 Medium- and long-term debt amortization 11.4 14.0 10.3 13.8 20.7 14.9 Short-term debt amortization 11.0 14.7 17.9 19.8 22.5 20.2 Funding sources (including gross short-term borrowing) 17.5 40.1 33.7 38.5 54.8 44.1 FDI inflows 12.5 15.2 12.9 15.1 17.5 12.0 Net portfolio flows -16.5 -7.6 -11.8 -7.1 8.4 2.0 Portfolio outflows 16.0 10.3 13.7 16.5 2.3 5.0 Portfolio inflows -0.5 2.6 1.9 9.4 10.7 7.0 External debt issuance 0.2 4.0 5.1 9.5 12.0 6.0 Other loans 13.8 22.4 19.7 17.0 23.4 25.4 Residual 4.9 12.5 10.0 6.5 7.6 0.0 Change in gross reserves (- indicates increase) 2.5 -6.3 -2.2 -2.5 -14.1 -1.3 Memo items: Nominal GDP ($ bn) 164 170 161 204 238 255 Source: Central Bank, Credit Suisse

COLOMBIA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 19.8 15.2 17.4 24.5 23.0 20.9 Funding need (excluding short-term debt amortization) 12.0 12.9 12.3 20.4 17.2 16.4 Current account deficit 6.0 6.8 5.0 8.9 8.6 9.4 FDI outflows 0.9 2.3 3.1 6.5 4.1 2.4 Medium- and long-term debt amortization 5.1 3.8 4.2 5.0 4.4 4.6 Public sector 2.8 1.7 1.1 1.7 1.2 1.9 IFIs 1.4 0.5 0.5 0.7 0.8 0.7 Non-IFIs 1.4 1.2 0.6 1.0 0.5 1.2 Private sector 2.3 2.1 3.1 3.3 3.2 2.7 Non-financial private sector 2.1 1.9 2.8 3.2 3.0 2.5 Financial private sector 0.1 0.3 0.3 0.1 0.2 0.2 Short-term debt amortization 7.8 2.3 5.1 4.2 5.8 4.5 Funding sources (including gross short-term borrowing) 19.8 15.2 17.4 24.5 23.0 20.9 FDI inflows 9.0 10.6 7.1 6.9 15.1 14.9 IMF lending 0.0 0.0 0.0 0.0 0.0 0.0 IFI lending excluding IMF 1.9 1.4 2.1 2.1 1.1 1.1 Public sector borrowing (excluding IFI lending)* 3.0 1.0 3.5 3.3 1.9 3.0 Net portfolio investments 0.4 -0.2 -0.1 1.0 1.0 1.0 Medium-term non-financial private sector borrowing 3.1 2.3 3.5 6.6 4.5 3.5 Medium-term financial private sector borrowing 0.8 0.1 0.0 1.8 0.8 0.5 Short-term financing 7.4 2.8 4.4 5.8 4.5 4.0 Other capital flows/errors and omissions -0.4 0.2 -1.8 0.3 -2.2 -2.1 Change in FX reserves (- indicates increase) -5.5 -3.1 -1.3 -3.1 -3.8 -5.0 * Including pre-financing

Source: Central Bank, Ministry of Finance, Credit Suisse

14 March 2012


Balance of payments financing needs MEXICO $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 37.9 50.9 38.4 47.5 48.6 47.3 Funding need (excluding non-market debt amortization) 26.4 30.4 23.2 27.6 28.0 27.3 Current account deficit 9.3 15.7 5.1 3.1 8.8 11.9 FDI outflows 8.3 1.2 7.0 13.6 9.6 8.0 Medium- and long-term market debt amortization 3.2 5.9 5.8 7.1 6.0 2.8 Public 2.0 3.7 3.7 5.4 5.4 1.7 Private 1.2 2.2 2.1 1.7 0.6 1.1 Public sector non-market debt payments 5.6 7.6 5.3 3.8 3.6 4.6 Private sector non-market debt amortization* 11.5 20.5 15.2 19.9 20.6 20.0 Funding sources (including gross short-term borrowing) 37.9 50.9 38.4 47.4 48.6 47.3 FDI inflows 31.3 26.9 16.0 20.2 19.4 20.0 Portfolio investments 7.3 2.4 7.6 23.8 25.4 21.0 Medium- and long-term borrowing 15.1 8.0 14.0 16.0 20.0 10.0 Short-term loans 25.1 19.5 16.2 8.2 12.4 11.0 Other -27.5 6.0 -2.0 0.0 0.0 5.3 Error and omissions -2.5 -3.9 -8.8 0.0 0.0 0.0 Change in net international reserves (- indicates increase) -10.9 -8.0 -4.6 -20.8 -28.6 -20.0 Memo items: Nominal GDP ($ bn) 1,036 1,094 882 1,036 1,154 1,230 * Reflects credit lines from suppliers, commercial bank loans and external trade loans. We do not have data on the exact original maturity of these loans, but we assume that they were typically less than one year, so that it fits with the “short-term” debt definition. Source: Central Bank, Ministry of Finance, Credit Suisse

PERU $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 6.8 15.7 9.3 11.8 10.6 11.7 Funding need (excluding short-term debt amortization) 3.4 9.4 2.9 7.0 4.3 5.5 Current account deficit -1.5 5.3 -0.2 2.6 2.3 3.1 FDI outflows 0.1 0.7 0.4 0.2 0.1 0.4 Medium- and long-term debt amortization 4.8 3.3 2.8 4.2 1.9 2.1 Public sector 3.3 2.6 1.8 3.0 0.8 1.2 IFIs (1) 1.0 1.0 0.7 1.9 0.6 0.7 Paris Club (2) 2.1 0.3 1.2 1.1 0.2 0.2 External market debt amortization (3) 0.2 1.3 0.0 0.0 0.0 0.3 Private sector 1.5 0.8 0.9 1.2 1.1 0.9 Short-term debt amortization 3.4 6.3 6.4 4.8 6.3 6.2 Funding sources (including gross short-term borrowing) 6.8 15.7 9.3 11.8 10.6 11.7 FDI inflows 5.5 6.9 5.6 7.3 7.7 7.5 Net portfolio investments 0.5 0.7 -3.6 2.5 -0.3 2.5 IFI lending (excluding IMF) 0.7 1.1 1.1 1.3 1.1 1.2 Paris Club lending to Peru’s government sector 0.1 0.1 0.2 0.3 0.1 0.1 Public sector external bond issuance (4) 2.4 0.0 2.0 2.3 0.0 1.0 Medium-term private-sector borrowing 4.4 3.4 2.1 5.0 3.8 4.5 Short-term financing 6.3 6.4 4.8 6.3 6.2 6.5 Other -2.7 0.6 -0.8 -2.2 -3.2 -0.1 Change in FX reserves (- indicates increase) -10.4 -3.5 -1.9 -11.0 -4.7 -11.5 (1) In 2010, it includes prepayments to the Inter-American Development Bank and the CAF (2) It includes prepayments to the Paris Club. (3) In 2008, it includes an $816mn prepayment of the Brady bonds. (4) It includes issuance to prepay Paris Club debt. Source: Central Bank, Ministry of Finance, Credit Suisse

14 March 2012


Balance of payments financing needs VENEZUELA $bn 2007 2008 2009 2010 2011E 2012F Funding need (excluding short-term debt amortization) -16.6 -30.9 -3.1 -6.2 -22.3 -19.2 Current account deficit -17.3 -34.3 -6.0 -12.1 -27.2 -23.2 FDI outflows 0.0 1.2 1.8 2.7 0.2 3.3 Medium- and long-term debt amortization 0.7 2.2 1.1 3.2 4.7 0.7 Funding sources (including net short-term borrowing) -16.6 -30.9 -3.1 -6.2 -22.3 -19.2 FDI inflows 1.6 1.2 -2.5 1.2 5.3 1.9 Net portfolio investments 2.5 2.6 9.7 2.4 2.5 11.8 Other investment -26.3 -26.8 -18.1 -18.7 -35.2 -26.9 Trade credits -1.3 -0.4 -4.0 -4.6 -11.0 -7.8 Loans 2.6 -0.8 2.9 7.1 11.0 9.1 Currency and deposits -23.3 -17.6 -16.0 -18.7 -31.7 -25.2 Other assets -4.2 -8.0 -0.9 -2.5 -3.5 -2.9 Other, including errors and omissions -0.2 1.4 -2.4 0.8 1.1 -2.3 Change in gross reserves (- indicates increase) 5.7 -9.3 10.3 8.1 4.0 -3.6 Source: Central Bank, Ministry of Finance, Credit Suisse

EASTERN EUROPE, MIDDLE EAST AND AFRICA CZECH REPUBLIC $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 26.3 33.1 33.9 35.2 35.5 36.9 Funding need (excluding short-term debt amortization) 10.9 10.5 7.8 12.5 10.6 12.0 Current account deficit 5.8 1.2 2.1 6.0 4.8 5.0 of which: Income deficit 11.0 17.0 13.1 13.3 15.1 14.0 FDI outflows 1.6 4.3 1.3 1.8 0.8 2.0 Medium- and long-term external debt amortization 3.5 5.0 4.4 4.7 5.0 5.0 Short-term external debt amortization 15.4 22.6 26.1 22.7 24.9 24.9 Funding sources (including gross short-term borrowing) 26.3 33.1 33.9 35.2 35.5 36.9 FDI inflows 10.6 6.6 2.7 6.7 5.2 4.0 Net portfolio equity inflows -3.5 -1.9 -1.8 0.3 -0.2 0.0 Net portfolio debt inflows 0.8 1.9 7.8 7.8 0.2 0.0 Medium- and long-term borrowing 2.7 3.5 6.0 2.2 5.0 5.5 Short-term borrowing 22.6 26.1 22.7 24.9 24.9 27.4 Net capital account inflows (including EU funds) 1.0 1.8 2.2 1.8 0.8 1.0 Financial derivatives 0.0 -0.8 -0.4 -0.2 0.0 0.0 Other items (net errors and omissions) -4.5 -2.0 -0.7 -7.4 -2.6 0.0 Change in reserves (- indicates increase) -3.4 -2.1 -4.6 -0.9 2.2 -1.0 Roll-over ratios: Assumptions Medium- and long-term debt 0.8 0.7 1.4 0.5 1.0 1.1 Short-term debt 1.5 1.2 0.9 1.1 1.0 1.1 Source: IMF, Central Bank, Credit Suisse

14 March 2012


Balance of payments financing needs HUNGARY $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 45.5 61.3 41.8 41.2 50.4 46.7 Funding need (excluding short-term debt amortization) 22.9 28.4 14.0 12.6 16.9 16.6 Current account deficit 9.9 11.3 0.1 -1.4 -2.0 -0.5 of which: Income deficit 10.2 10.9 6.7 6.8 8.5 9.0 FDI outflows 3.7 2.0 1.9 1.4 1.0 1.0 Medium- and long-term external debt amortization 9.3 15.1 12.0 12.6 17.9 16.1 Short-term external debt amortization 22.6 32.9 27.8 28.6 33.5 30.2 Funding sources (including gross short-term borrowing) 45.5 61.3 41.8 41.2 50.4 46.7 FDI inflows 4.0 5.8 1.7 1.9 0.0 2.0 Net portfolio equity inflows -7.6 -3.5 -0.3 -1.2 0.0 0.0 Net portfolio debt inflows 5.2 0.5 -4.7 0.9 8.0 0.0 Medium- and long-term borrowing 12.8 25.3 13.6 9.7 14.3 14.5 Short-term borrowing 32.9 27.8 28.6 33.5 30.2 27.1 Net capital account inflows (including EU funds) 1.0 1.6 1.5 2.2 2.8 3.0 Financial derivatives 1.1 -1.1 1.0 0.8 0.0 0.0 Other items (incl. net errors and omissions) -1.4 5.6 0.7 -5.8 -1.1 0.0 IMF-EU-WB funding 9.1 10.0 0.0 0.0 0.0 Change in reserves (- indicates increase) -2.5 -9.8 -10.3 -0.8 -3.8 0.1 Roll-over ratios: Assumptions Medium- and long-term debt 1.4 1.7 1.1 0.8 0.8 0.9 Short-term debt 1.5 0.8 1.0 1.2 0.9 0.9 Source: National Bank of Hungary, Ministry for National Economy, IMF, JEDH, Credit Suisse

ISRAEL $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 46.3 50.5 40.2 49.8 65.3 64.0 Funding need (excluding short-term debt amortization) 9.4 10.3 -0.1 7.6 11.0 9.3 Current account deficit -4.9 -1.5 -7.1 -6.3 1.5 -2.5 FDI outflows 8.6 7.2 1.7 8.0 4.7 6.0 Medium and long-term debt amortization 5.6 4.6 5.3 6.0 4.7 5.7 Public sector 3.1 2.9 2.0 3.4 1.4 2.3 Private sector 2.5 1.7 3.3 2.6 3.3 3.5 Short-term debt amortizations 37.0 40.2 40.3 42.2 54.3 54.7 Funding sources (including gross short-term borrowing) 46.3 50.5 40.2 49.8 65.3 64.0 FDI inflows 8.8 10.9 4.4 5.2 7.9 7.4 Portfolio investments, net -1.5 -0.6 -5.9 0.1 -0.8 -1.4 Medium and long-term borrowing 8.7 2.8 7.4 7.4 6.3 5.8 Public sector 1.3 1.3 3.2 3.3 1.5 2.4 Private sector 7.5 1.6 4.2 4.1 4.8 3.5 Short-term debt financing 40.2 40.3 42.2 54.3 54.7 54.7 Errors and omissions -10.4 11.1 10.1 -6.9 1.2 2.2 Change in reserves (- indicates increase) 0.5 -14.0 -18.1 -10.3 -4.0 -4.7 Rollover ratios: Medium- and long-term debt Public sector 0.4 0.4 1.6 1.0 1.0 1.0 Private sector 3.0 0.9 1.3 1.6 1.5 1.0 Short-term debt 1.1 1.0 1.0 1.3 1.0 1.0 Source: IMF, Central Bank, Credit Suisse

14 March 2012


Balance of payments financing needs KAZAKHSTAN $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 35.2 25.3 38.4 20.5 14.7 10.7 Funding need (excluding short-term debt amortization) 22.6 13.3 27.8 9.1 7.9 5.4 Current account deficit 7.2 -6.3 4.2 -4.3 -12.9 -9.3 FDI outflows 4.0 3.7 4.1 3.7 4.2 3.4 Medium and long-term debt amortization 11.4 15.9 19.4 9.7 16.6 11.3 Public sector 0.1 0.2 0.1 1.0 3.1 0.5 Banks 8.3 10.1 14.8 2.5 3.1 3.2 Other sectors 3.0 5.5 4.5 6.2 10.4 7.7 Short-term debt amortizations 12.7 12.0 10.6 11.4 6.8 5.3 Funding sources (including gross short-term borrowing) 35.2 25.3 38.4 20.5 14.7 10.7 FDI inflows 11.9 16.8 14.3 6.5 8.9 7.5 Portfolio investments, net -4.6 -9.3 3.0 8.7 -7.3 -2.7 Medium and long-term borrowing 27.2 21.7 14.4 10.8 19.0 13.9 Banks 20.5 7.4 4.9 1.5 3.5 3.2 Other sectors 6.7 14.3 9.5 9.4 15.5 10.7 Short-term debt financing 12.0 10.6 11.4 6.8 5.3 5.0 Other investments -11.1 -6.4 -5.8 -6.8 -1.7 -5.6 Errors and omissions -3.2 -6.0 -1.3 1.4 0.0 0.0 Change in reserves (- indicates increase) 3.0 -2.2 2.5 -7.0 -9.5 -7.4 Roll-over ratios: Assumptions Medium and long-term debt Banks 2.5 0.7 0.3 0.6 1.1 1.0 Other sectors 2.3 2.6 2.1 1.5 1.5 1.4 Short-term debt 0.9 0.9 1.1 1.0 1.0 1.0 Source: Central Bank, Credit Suisse

POLAND $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 110.6 130.5 100.9 122.2 122.0 141.5 Funding need (excluding short-term debt amortization) 76.0 69.6 35.0 52.2 45.5 65.0 Current account deficit 26.5 35.0 17.2 21.0 21.2 25.8 of which: Income deficit 16.4 12.8 16.6 16.7 19.4 20.0 FDI outflows 5.7 4.6 5.1 5.0 5.8 6.0 Medium- and long-term external debt amortization 43.8 30.0 12.7 26.2 18.5 33.2 Short-term external debt amortization 34.6 60.9 65.9 70.0 76.5 76.5 Funding sources (including gross short-term borrowing) 110.6 130.5 100.9 122.2 122.0 141.5 FDI inflows 23.7 15.0 13.8 10.3 13.7 12.0 Net portfolio equity inflows -6.4 2.0 -0.2 6.8 3.5 2.0 Net portfolio debt inflows 0.9 -4.1 15.2 21.1 12.7 10.0 Medium- and long-term borrowing 55.3 48.4 18.5 31.7 20.4 36.5 Short-term borrowing 60.9 65.9 70.0 76.5 76.5 84.2 Net capital account inflows (including EU funds) 4.7 6.1 7.0 9.0 11.1 10.0 Financial derivatives -2.0 -1.0 -1.6 -0.5 -0.6 0.0 Other items (incl. net errors and omissions) -9.2 -5.4 -4.4 -18.8 -10.9 -5.0 Change in reserves (- indicates increase) -17.3 3.6 -17.4 -13.9 -4.4 -8.1 Roll-over ratios: Assumptions Medium- and long-term debt 1.3 1.6 1.5 1.2 1.1 1.1 Short-term debt 1.8 1.1 1.2 1.1 1.0 1.1 Source: National Bank of Poland, Ministry of Finance, IMF, JEDH, Credit Suisse

14 March 2012


Balance of payments financing needs RUSSIA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 58.6 91.2 132.1 101.2 48.6 53.8 Funding need (excluding short-term debt amortization) 1.9 -8.4 58.6 48.5 -5.5 8.8 Current account deficit -77.8 -103.5 -48.6 -70.3 -101.1 -102.9 FDI outflows 45.9 55.6 43.7 51.7 50.0 55.0 Medium- and long-term debt amortization 33.8 39.5 63.5 67.1 45.6 56.7 Public 7.1 4.4 2.9 3.2 4.8 2.8 Private 26.7 35.1 60.6 63.9 40.8 53.9 Short-term debt amortization 56.7 99.7 73.5 52.7 54.1 45.0 Funding sources (including gross short-term borrowing) 58.6 91.2 132.1 101.2 48.6 53.8 FDI inflows 55.1 75.0 36.5 41.2 40.0 45.0 Portfolio investments 5.6 -35.4 -2.2 -1.6 -15.0 14.0 Medium- and long-term borrowing -19.4 66.3 72.7 66.8 50.6 46.8 Short-term loans 99.7 73.5 52.7 54.1 45.0 30.0 Other flows, including errors and omissions 66.7 -127.1 -24.3 -22.5 -62.0 -70.0 Change in net international reserves (- indicates increase) -148.9 38.9 -3.4 -36.8 -10.0 -12.0 Memo items: Nominal GDP ($ bn) 1,300.0 1,661.0 1,223.0 1,487.0 1,850.0 2,051.0 Source : IMF, IIF, Central Bank of Russia, Credit Suisse

SOUTH AFRICA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 45.2 42.5 40.3 33.2 38.5 44.6 Funding need (excluding short-term debt amortization) 24.7 18.5 14.8 12.0 16.8 24.5 Current account deficit 19.9 19.6 11.5 10.3 14.3 16.6 FDI outflows 3.0 -3.1 1.2 -0.1 0.2 0.5 Medium- and long-term debt amortization 1.8 2.0 2.1 1.8 2.3 7.3 Public 1.3 1.4 1.2 0.7 0.7 1.8 Private 0.5 0.6 0.9 1.1 1.6 5.6 Short-term debt amortization (1) 20.6 24.0 25.5 21.3 21.7 20.1 Funding sources (including gross short-term borrowing) 45.2 42.5 40.3 33.2 38.5 44.6 FDI inflows 5.7 9.0 5.4 1.2 3.6 3.7 Portfolio investments 10.4 -16.3 11.1 10.0 -1.2 6.3 Medium- and long-term borrowing by public sector (2) -0.8 -1.2 6.0 15.5 9.7 4.5 Medium- and long-term borrowing by private sector (2) 13.2 -2.6 3.9 4.5 2.2 3.0 Short-term loans 24.0 25.5 21.3 21.7 20.1 20.6 Other (3) 0.0 31.4 -5.3 -15.6 8.3 10.0 Change in net reserves owing to BOPs (- indicates increase) -7.4 -3.2 -2.1 -4.2 -4.3 -3.5 Roll-over ratios: Medium- and long-term debt 7.1 -1.9 4.7 11.3 5.1 1.0 Short-term debt 1.2 1.1 0.8 1.0 0.9 1.0 (1) Includes non-residents' deposits. (2) Estimates based on stock data. (3) Includes residents' portfolio and other investments, transfers and net errors and omissions. Repatriation of $8.6bn from abroad and net errors and omissions of $10.6bn are behind the unusually large figure in 2008. Source: Reserve Bank, Credit Suisse

14 March 2012


Balance of payments financing needs TURKEY $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 115.7 126.3 114.0 140.9 194.1 186.9 Funding need (excluding short-term debt amortization) 72.9 83.1 61.5 91.8 116.6 103.1 Current account deficit 38.4 41.5 13.4 46.6 77.2 61.4 External debt amortization 32.3 39.1 46.6 43.7 37.0 39.7 Public (excluding scheduled payments to the IMF) 7.0 6.9 5.2 5.8 4.6 5.6 Of which: Eurobonds 3.7 3.4 1.9 2.6 1.8 2.4 Of which: Medium-term loans 3.3 3.5 3.2 3.2 2.9 3.2 Private 25.3 32.2 41.4 37.9 32.4 34.1 Banks 3.1 7.2 7.6 6.7 6.9 7.8 Non-bank corporates 22.2 25.0 33.8 31.2 25.5 26.3 FDI outflows 2.1 2.5 1.6 1.5 2.5 2.0 Short-term debt amortization (1) 42.9 43.2 52.5 49.0 77.5 83.8 Funding sources (including gross short-term borrowing) 115.7 126.3 114.0 140.9 194.1 186.9 FDI inflows 22.0 19.5 8.4 9.0 15.9 17.0 Portfolio investments 6.5 -0.4 4.9 22.2 21.3 16.5 Equity 5.1 0.7 2.8 3.5 -1.0 1.0 Local bonds -3.3 -5.1 -1.7 10.7 14.8 8.0 Eurobonds (government) 4.6 4.0 3.8 6.7 4.3 4.5 Eurobonds (banks and non-banks) 0.0 0.0 0.0 1.4 3.2 3.0 Loans to public sector (non-IMF) 3.4 5.2 4.8 6.7 4.9 5.0 Medium and long-term borrowing by private sector 59.0 56.0 30.4 32.8 41.9 40.0 Banks 10.4 8.1 6.0 7.6 12.3 9.8 Non-bank corporates 48.6 47.8 24.4 25.1 29.7 30.2 Short-term loans 43.2 52.5 49.0 77.5 83.8 92.2 Other (2) -6.3 -9.4 17.3 7.6 27.3 15.0 Change in net reserves (- indicates increase) -12.0 2.8 -0.8 -15.0 -1.0 1.2 Change in gross reserves (- indicates increase) -8.0 1.1 -0.1 -12.8 1.8 3.3 IMF (net) -4.0 1.7 -0.7 -2.2 -2.8 -2.1 Principal payments to the IMF -5.1 -1.9 -0.7 -2.2 -2.8 -2.1 Loans from the IMF 1.1 3.6 0.0 0.0 0.0 0.0 Roll-over ratios: Assumptions Medium- and long-term debt – Banks 3.35 1.13 0.78 1.13 1.77 1.25 Medium- and long-term debt – Non-bank corporates 2.19 1.92 0.72 0.81 1.17 1.15 Short-term debt 1.01 1.22 0.93 1.58 1.08 1.10 (1) Includes non-residents' deposits. (2) Estimates based on stock data. (3) Includes residents' portfolio and other investments, transfers and net errors and omissions. Repatriation of $8.6bn from abroad and net errors and omissions of $10.6bn are behind the unusually large figure in 2008. Source: Central Bank, Credit Suisse

14 March 2012


Balance of payments financing needs UKRAINE $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 30.1 46.0 40.6 41.2 48.0 53.6 Funding need (excluding short-term debt amortization) 15.3 22.9 19.3 22.8 27.9 32.9 Current account deficit 5.3 12.8 1.7 2.9 9.3 11.1 External debt amortization 9.3 9.7 17.4 19.2 18.3 21.3 Public 1.7 0.9 3.0 3.3 3.8 6.3 Private 7.6 8.8 14.4 15.9 14.5 15.0 FDI outflows 0.7 0.4 0.2 0.7 0.3 0.5 Short-term debt 14.8 23.1 21.3 18.4 20.2 20.7 Funding sources (including gross short-term borrowing) 30.1 46.0 40.6 41.2 48.0 53.6 FDI inflows 9.9 10.4 3.6 6.8 6.9 7.5 Portfolio investments 5.8 0.3 0.3 0.3 0.5 0.5 Medium- and long-term borrowing 13.1 10.1 4.5 14.9 17.5 15.5 Short-term borrowing and other flows 23.1 21.3 18.4 20.2 20.7 21.2 Other (including multilateral financing) -12.8 5.0 8.1 7.5 0.0 0.0 Change in net international reserves (- indicates increase) -9.0 -1.1 5.7 -8.5 2.4 8.9 Memo items: Nominal GDP ($ bn) 143.1 179.4 113.7 128.4 164.5 172.2 Source: Central Bank, Central Bank

EMERGING ASIA CHINA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) -134.1 -112.2 27.2 49.4 251.8 436.9 Funding need (excluding short-term debt amortization) -330.7 -345.3 -186.6 -210.9 -125.9 -90.8 Current account deficit -371.8 -426.1 -261.1 -305.4 -201.1 -170.7 FDI outflows 17.0 53.5 43.9 60.2 42.1 48.1 Medium- and long-term debt amortization 24.1 27.3 30.6 34.3 33.0 31.7 Short-term debt amortization 196.6 233.1 213.8 260.3 377.7 527.7 Funding sources (including gross short-term borrowing) -134.1 -112.2 27.2 49.4 251.8 436.9 FDI inflows 138.4 175.1 114.2 185.1 116.0 105.0 Net portfolio inflows 18.7 42.7 38.7 24.0 35.9 35.2 Short term debt borrowing 220.1 210.8 259.3 375.7 525.7 555.7 Medium- and long-term borrowings 38.3 37.6 36.1 38.2 49.4 50.6 Other capital flows / errors and omissions -87.8 -159.5 -22.6 -102.0 -87.4 30.1 Changes in reserves (- indicates increase) -461.7 -419.0 -398.5 -471.6 -387.8 -339.7 Source: People’s Bank of China, Credit Suisse

HONG KONG $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 420.6 551.9 519.8 549.1 691.6 707.9 Funding need (excluding short-term debt amortization) 54.3 42.6 48.8 55.5 60.0 63.4 Current account deficit -25.6 -30.6 -18.4 -12.5 -7.8 -4.8 FDI outflows 61.3 60.0 57.0 56.6 56.0 56.4 Medium- and long-term debt amortization 18.7 13.3 10.3 11.4 11.8 11.9 Short-term debt amortization 366.3 509.3 470.9 493.6 631.7 644.5 Funding sources (including gross short-term borrowing) 420.6 551.9 519.8 549.1 691.6 707.9 FDI inflows 54.5 63.0 62.0 61.6 61.9 62.1 Net portfolio inflows -2.8 -37.6 -14.5 -22.1 -21.7 -21.4 Short-term loans 507.9 469.0 496.7 631.7 644.5 657.3 Medium- and long-term borrowings 32.9 7.1 2.1 11.8 10.2 10.5 Other capital flows / errors & omissions -157.1 84.2 47.1 -104.1 23.0 22.9 Changes in reserves (- indicates increase) -14.7 -33.9 -73.7 -29.7 -26.2 -23.6 Source: Census and Statistics Department, Credit Suisse

14 March 2012


Balance of payments financing needs INDIA* $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 106.7 143.8 152.2 180.3 206.0 209.0 Funding need (excluding short-term debt amortization) 75.0 100.0 106.3 115.6 136.0 136.0 Current account deficit 17.0 28.7 38.4 44.3 58.0 53.0 FDI outflows 18.8 17.9 14.4 16.2 18.0 20.0 Medium- and long-term debt amortization 39.1 42.6 53.5 55.1 60.0 63.0 Short-term debt at beginning of period 31.7 43.8 45.9 64.7 70.0 73.0 Funding sources (including gross short-term borrowing) 106.7 143.8 152.2 180.3 206.0 209.0 FDI inflows 34.7 37.7 33.1 23.3 33.0 30.0 Portfolio inflows 29.5 -14.0 32.4 32.0 15.0 28.0 Medium- and long-term debt disbursements 64.0 57.4 61.0 67.6 69.5 78.0 Short-term borrowing 48.9 41.8 53.6 75.7 84.0 88.0 Other capital inflows 20.9 -9.2 -4.0 -9.0 -5.0 0.0 Errors and omissions 1.1 9.1 1.0 -1.2 4.5 -5.0 Change in reserves (- indicates increase) -92.4 21.0 -24.9 -8.1 5.0 -10.0 Memo items: Short-term external debt 44.8 46.0 43.0 52.5 60.0 70.0 * Years are fiscal years beginning April. For instance 2010 is April 2010 to March 2011. Source: Reserve Bank of India, Credit Suisse

INDONESIA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 22.4 45.7 41.3 42.6 48.0 58.0 Funding need (excluding short-term debt amortization) 10.2 27.0 20.8 20.6 24.0 32.0 Current account deficit -10.4 -0.1 -10.7 -5.1 -2.1 6.5 Medium- and long-term debt amortization 14.4 15.5 17.1 17.6 21.0 24.0 FDI outflows 4.7 5.9 2.2 2.7 7.7 4.0 Short-term debt (original maturity) at beginning of period 12.2 18.7 20.5 22.0 24.0 26.0 Unclassified capital outflows and E&O 1.5 5.7 12.2 5.4 -2.6 -2.5 Funding sources (including gross short-term borrowing) 22.4 45.7 41.3 42.6 48.0 58.0 FDI inflows 6.9 9.3 4.9 13.4 18.2 16.0 Portfolio inflows 5.6 1.7 10.5 15.7 5.6 2.0 Portfolio equity inflows 3.3 0.0 0.8 2.1 -0.3 1.0 Portfolio debt inflows 2.2 1.7 9.7 13.6 5.9 1.0 Loan disbursements 13.2 18.3 19.0 17.9 18.0 19.0 Short-term debt inflows 18.7 20.5 21.0 25.4 27.0 24.0 Other inflows -13.2 -11.2 -10.0 -15.4 -10.6 -17.0 Change in reserves (- indicates increase) -14.3 5.3 -14.5 -30.1 -15.8 12.0 Memo items: BI FX reserves, including valuation changes 56.9 51.6 66.1 96.2 112.0 100.0 ST external debt (remaining maturity) 26.6 34.2 37.6 39.6 45.0 50.0 Central bank FX reserves-to-ST external debt (%) 187.8 145.0 171.1 223.7 243.5 212.8 Rollover ratios (MLT debt, times)* 0.9 1.2 1.1 1.0 0.9 0.8 Rollover ratios (ST debt, times)* 1.5 1.1 1.0 1.2 1.1 0.9 *1998-2003 BOP data were based on old classification. Short-term debt figures came from IMF 2008 Article IV Consultation report published September 2008 on Indonesia. Source: Bank Indonesia, CEIC.

14 March 2012


Balance of payments financing needs KOREA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 147.1 216.4 164.8 176.8 166.4 172.1 Funding need (excluding short-term debt amortization) 33.3 56.2 14.9 27.6 27.0 36.0 Current account deficit -21.8 -3.2 -32.8 -29.4 -27.7 -21.5 FDI outflows 19.7 20.3 17.2 23.3 20.4 22.4 Medium- and long-term debt amortization 35.4 39.1 30.5 33.7 34.3 35.2 Short-term debt amortization 113.7 160.2 149.9 149.2 139.4 136.1 Funding sources (including gross short-term borrowing) 147.1 216.4 164.8 176.8 166.4 172.1 FDI inflows 1.8 3.3 2.2 1.1 4.7 7.7 Net portfolio inflows -26.1 -2.4 49.7 42.5 10.3 9.3 Short-term loans 146.4 154.4 153.3 159.2 154.4 146.1 Medium- and long-term borrowings 44.2 0.0 1.3 5.4 10.5 8.5 Other capital flows / errors and omissions -4.0 4.7 26.9 -4.5 0.4 7.0 Changes in reserves (- indicates increase) -15.1 56.4 -68.7 -27.0 -13.9 -6.5 Source: Bank of Korea, Credit Suisse

MALAYSIA $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 17.2 10.1 20.3 51.0 27.0 47.0 Funding need (excluding short-term debt amortization) 5.1 -6.4 -2.7 28.4 1.0 14.0 Current account deficit -29.8 -39.5 -31.8 -27.1 -32.0 -33.2 FDI outflows -11.3 -15.0 -7.9 -13.4 -14.9 -14.7 Other investment outflows 14.0 2.4 16.5 16.8 -0.8 15.0 Short-term external debt (beginning of period) 12.1 16.5 23.0 22.6 25.9 33.0 Other and unclassified items 20.9 30.8 12.6 38.7 33.9 32.2 Funding sources (including gross short-term borrowing) 17.2 10.1 20.3 51.0 27.0 47.0 FDI inflows 8.6 7.2 1.4 9.1 10.9 13.4 Net portfolio inflows 5.4 -25.6 0.2 15.1 10.2 10.0 Short-term external borrowing 16.5 23.0 22.6 25.9 33.0 40.0 Change in net reserves (- indicates increase) -13.2 5.5 -3.9 0.8 -27.1 -16.4 Memo items: BNM FX reserves, including forward purchases 101.1 91.4 96.7 106.5 133.6 150.0 Short-term external debt (end of period) 16.5 23.0 22.6 25.9 33.0 40.0 Medium- and long-term external debt 40.2 45.3 45.4 48.2 48.0 50.0 Actual and assumed debt rollover ratios (short-term debt, times) 1.4 1.4 1.0 1.1 1.3 1.2 Source: Bank Negara Malaysia, CEIC, Credit Suisse

14 March 2012


Balance of payments financing needs PHILIPPINES $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 13.9 10.2 7.2 10.3 14.4 14.6 Funding need (excluding short-term debt amortization) 6.2 0.3 -1.7 1.9 5.6 5.9 Current account deficit -7.1 -3.6 -9.4 -8.5 -4.7 -6.4 FDI outflows 3.5 0.3 0.4 0.5 0.5 0.2 Medium and long-term external debt amortization* 4.2 6.2 4.1 3.8 4.7 5.5 Public sector 3.2 1.3 1.7 2.7 3.0 Private sector 2.7 2.9 2.1 2.0 2.5 Resident lending abroad 1.3 -3.2 1.6 1.4 1.2 1.5 Currency and deposit outflows 3.2 3.8 -3.9 2.7 2.0 3.0 Trade credits and unclassified items 1.2 -3.0 5.4 2.0 2.0 2.1 Funding sources (including net short-term borrowing) 2.7 0.3 -1.7 1.9 5.6 5.9 FDI inflows 2.9 1.5 2.0 1.7 1.5 1.4 Portfolio inflows 4.6 -3.8 0.3 4.6 4.9 4.5 Equity 3.1 -1.2 -1.1 2.6 0.3 1.5 Debt 1.5 -2.6 1.4 2.0 4.6 3.0 Medium- and long-term external borrowing 7.3 4.0 3.8 5.0 10.0 4.5 of which: government 1.6 1.3 2.1 2.5 2.0 4.0 Net short-term borrowing (including by the BSP) 0.2 -1.2 -0.5 0.4 0.0 0.0 Change in reserves (- indicates increase) 0.0 -1.6 -8.7 -11.0 -10.3 -4.3 Memo items: BSP FX spot reserves 33.8 37.1 44.2 62.3 75.3 89.6 Short-term external debt (original maturity, eop) 9.9 8.9 8.4 8.8 8.8 8.8 Central bank FX reserves-to-short-term external debt (%) 340.9 416.4 529.4 711.5 860.0 1023.4 *Including external debt pre-payments. Source: BSP, CEIC, IIF

TAIWAN $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 67.6 72.3 41.3 44.7 64.9 65.6 Funding need (excluding short-term debt amortization) -20.4 -11.0 -37.5 -23.5 -18.8 -22.4 Current account deficit -35.2 -27.5 -42.9 -39.9 -41.3 -38.2 FDI outflows 11.1 10.3 5.9 11.6 12.8 13.8 Medium- and long-term debt amortization 3.7 6.2 -0.5 4.8 9.7 2.0 Short-term debt amortization 88.0 83.3 78.8 68.2 83.7 87.9 Funding sources (including gross short-term borrowing) 67.6 72.3 41.3 44.7 64.9 65.6 FDI inflows 7.8 5.4 2.8 2.5 -2.0 0.0 Net portfolio inflows -40.1 -12.3 -10.3 -20.7 -35.7 -33.7 Short-term loans 82.4 85.2 84.2 84.2 87.9 92.8 Medium- and long-term borrowings 4.0 2.3 5.4 -0.2 -5.1 -0.2 Other capital flows / errors and omissions 9.4 17.9 13.4 19.0 26.0 11.7 Changes in reserves (- indicates increase) 4.0 -26.3 -54.1 -40.2 -6.2 -5.1 Source: Central Bank of China, Credit Suisse

14 March 2012


Balance of payments financing needs THAILAND $bn 2007 2008 2009 2010 2011E 2012F Funding need (including short-term debt amortization) 29.5 22.5 29.5 30.2 39.9 57.0 Funding need (excluding short-term debt amortization) 10.5 0.9 5.2 -2.9 -10.7 -3.0 Current account deficit -15.7 -1.6 -20.3 -14.8 -11.9 -2.0 FDI outflows 3.0 4.1 4.2 5.5 10.8 6.0 Medium- and long-term debt amortization 19.5 13.2 11.0 9.4 11.5 10.7 Government 1.6 1.0 0.9 1.2 1.5 1.2 SOEs and private sector 18.0 12.1 10.2 8.2 10.0 9.5 Short-term external debt (beginning of period) 19.1 21.6 24.2 33.1 50.6 60.0 Resident lending abroad 4.4 -12.3 -2.3 5.9 0.7 1.5 Currency and deposit outflows 0.0 -0.2 -0.2 -0.6 -5.0 -5.0 Trade credits, unclassified items, residual -0.8 -2.3 12.8 -8.4 -16.8 -14.2 Funding sources (including gross short-term borrowing) 29.5 22.5 29.5 30.2 39.9 57.0 FDI inflows 11.3 8.5 4.9 9.7 8.4 9.5 Portfolio inflows -6.7 -2.1 -5.5 9.2 3.4 2.5 Asset (resident flows) -9.6 0.4 -8.2 0.7 -0.5 -2.5 Equity (nonresident flows) 4.3 -3.8 1.7 2.6 0.4 3.0 Debt (nonresident flows) -1.4 1.3 1.0 5.9 3.5 2.0 External borrowing (excluding short-term borrowing) 20.4 16.5 21.1 25.2 19.9 27.0 Government -0.9 1.6 3.4 6.7 -2.6 3.0 SOEs and private sector 21.3 14.9 17.7 18.5 22.5 24.0 Short-term external borrowing 21.6 24.2 33.1 17.5 9.4 30.0 Change in net reserves (- indicates increase) -17.1 -24.7 -24.1 -31.3 -1.2 -12.0 Memo items: BoT FX reserves, including forward purchases 87.6 111.0 138.4 172.1 175.1 190.0 Short-term external debt (end of period) 21.6 24.2 33.1 50.6 60.0 90.0 Total external debt 61.9 65.2 75.3 100.5 106.6 112.0 Government debt 2.8 3.4 5.9 12.7 10.1 16.5 SOEs and private sector 59.1 61.8 69.4 84.3 96.8 111.3 Actual and assumed rollover ratios (medium- and long-term debt) 1.0 1.3 1.9 2.7 1.7 2.5 Actual and assumed rollover ratios (short-term debt) 1.1 1.1 1.4 0.5 0.2 1.0 Source: Bank of Thailand, Credit Suisse

14 March 2012


Government funding needs LATIN AMERICA

ARGENTINA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 13.6 4.4 9.7 2.6 21.4 4.9 17.0 3.6 Overall fiscal deficit* 1.9 0.6 -0.7 -0.2 7.4 1.7 0.5 0.1 Primary fiscal deficit -4.7 -1.5 -6.3 -1.7 -1.3 -0.3 -9.5 -2.0 Interest payments 6.6 2.2 5.5 1.5 8.7 2.0 9.9 2.1 Total amortization payments on medium- and long-term debt 8.3 2.7 7.2 1.9 10.0 2.3 11.8 2.5 Domestic debt 6.6 2.2 5.5 1.5 8.4 1.9 7.0 1.5 External debt 1.7 0.6 1.7 0.5 1.6 0.4 4.7 1.0 Amortization of debt to IFIs 1.7 0.6 1.7 0.5 1.6 0.4 1.7 0.4 Expected payment to Paris Club 3.0 0.6 Other (lending to provinces and debt buybacks) 3.3 1.1 3.3 0.9 4.0 0.9 4.8 1.0 Funding sources 13.6 4.4 9.7 2.6 21.4 4.9 17.0 3.6 IFIs 1.7 0.6 2.4 0.7 2.0 0.5 2.0 0.4 Withholding of provincial transfers (Bogar) 0.7 0.2 0.9 0.3 0.9 0.2 0.9 0.2 Rollover of debt service due to public sector 1.7 0.6 2.1 0.6 2.8 0.6 2.9 0.6 Other debt operations with social security agency 1.3 0.4 2.5 0.6 3.3 0.7 Central bank FX reserves 6.6 1.8 7.5 1.7 5.7 1.2 Debt placed w/public sector entities 8.2 2.7 -2.3 -0.6 5.7 1.3 Unidentified financing 2.2 0.5 *Federal government

BRAZIL 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 214.3 13.4 262.4 12.6 293.2 11.9 298.5 11.8 Overall fiscal deficit 54.6 3.4 52.7 2.5 64.3 2.6 58.0 2.3 Primary fiscal deficit -32.6 -2.0 -58.5 -2.8 -76.7 -3.1 -78.2 -3.1 Interest payments 87.2 5.4 111.2 5.3 141.0 5.7 136.1 5.4 Debt amortization 159.7 10.0 209.7 10.0 228.9 9.3 240.5 9.5 Domestic debt 152.5 9.5 197.1 9.4 221.5 9.0 233.5 9.3 External debt 7.2 0.5 12.6 0.6 7.4 0.3 7.0 0.3 Funding sources 214.3 13.4 262.4 12.6 293.2 11.9 298.5 11.8 New privatization proceeds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Transfer of privatization proceeds from previous year 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 External bonds 4.2 0.3 2.8 0.1 1.7 0.1 1.7 0.1 IFIs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Project finance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Domestic debt issuance 210.1 13.2 259.6 12.4 291.5 11.8 296.8 11.8

CHILE 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 12.1 7.5 1.6 0.8 -3.3 -1.4 -0.3 -0.1 Overall fiscal deficit 7.3 4.5 1.0 0.5 -3.3 -1.4 -1.3 -0.5 Primary fiscal deficit 6.5 4.0 -0.2 -0.1 -4.5 -1.9 -2.8 -1.1 Interest payments 0.8 0.5 1.2 0.6 1.2 0.5 1.5 0.6 Debt amortization 2.7 1.7 0.6 0.3 0.0 0.0 1.0 0.4 Domestic debt 2.3 1.4 0.2 0.1 0.0 0.0 0.5 0.2 External debt 0.5 0.3 0.4 0.2 0.0 0.0 0.5 0.2 Capitalization of state-owned companies 2.1 1.3 0.0 0.0 Funding sources 12.1 7.5 1.6 0.8 -3.4 -1.4 -0.3 -0.1 Domestic 2.4 1.5 0.4 0.2 -5.2 -2.2 -0.3 -0.1 External* 9.7 6.0 1.2 0.6 1.8 0.8 0.0 0.0 *Includes resources from the Economic and Social Stabilization Fund and debt placements.

14 March 2012


Government funding needs COLOMBIA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 17.2 7.3 19.7 6.8 18.4 5.5 20.1 5.2 Overall fiscal deficit* 10.1 4.3 11.2 3.9 9.6 2.9 11.2 2.9 Primary fiscal deficit 2.6 1.1 2.9 1.0 0.3 0.1 0.0 0.0 Interest payments 7.5 3.2 8.3 2.9 9.3 2.8 11.2 2.9 Debt amortization 7.0 3.0 8.5 2.9 8.8 2.6 8.9 2.3 Domestic debt 5.8 2.5 6.8 2.4 7.5 2.3 7.0 1.8 External debt 1.2 0.5 1.7 0.6 1.2 0.4 1.9 0.5 Funding sources 17.2 7.3 19.7 6.8 18.4 5.5 20.1 5.2 IFIs 2.1 0.9 2.1 0.7 1.1 0.3 1.1 0.3 External bonds 1.5 0.6 3.3 1.2 2.0 0.6 3.0 0.8 Domestic financing 13.6 5.8 13.2 4.6 15.3 4.6 16.0 4.2 Privatizations and other 1.1 0.4 *Central government

MEXICO 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 73.2 8.3 92.2 8.9 87.7 7.6 95.9 7.8 Overall fiscal deficit 20.3 2.3 30.0 2.9 28.8 2.5 30.7 2.5 Primary fiscal deficit 0.9 0.1 9.3 0.9 6.9 0.6 7.4 0.6 Interest payments 19.4 2.2 20.7 2.0 21.9 1.9 23.4 1.9 Debt amortization 53.8 6.1 62.2 6.0 58.8 5.1 65.2 5.3 Domestic debt 50.3 5.7 59.1 5.7 56.5 4.9 64.0 5.2 External debt 3.5 0.4 3.1 0.3 2.3 0.2 1.2 0.1 Funding sources 73.2 8.3 92.2 8.9 87.7 7.6 95.9 7.8 Domestic 64.4 7.3 80.8 7.8 83.1 7.2 88.6 7.2 External 8.8 1.0 11.4 1.1 4.6 0.4 7.4 0.6

PANAMA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 2.9 12.0 1.4 5.2 1.2 3.9 1.4 4.3 Overall fiscal deficit* 0.3 1.0 0.5 1.9 0.7 2.3 0.7 2.1 Primary fiscal deficit -0.5 -1.9 -0.2 -0.8 0.0 -0.1 -0.2 -0.6 Interest payments 0.7 3.0 0.7 2.7 0.7 2.4 0.9 2.7 Debt amortization 1.6 6.8 0.9 3.3 0.5 1.6 0.7 2.2 Domestic debt 1.4 5.9 0.7 2.6 0.0 -0.1 0.3 0.8 External debt 0.2 0.9 0.2 0.7 0.5 1.7 0.4 1.3 Buyback of domestic debt 1.0 4.1 0.0 0.0 0.0 0.0 0.0 0.0 Funding sources 2.9 12.0 1.4 5.2 1.2 3.9 1.4 4.3 Issuance of foreign debt 1.0 4.1 0.0 0.0 0.2 0.8 0.0 0.0 IFIs + bilateral debt 0.8 3.4 0.2 0.8 0.2 0.5 0.3 0.9 Issuance of domestic debt 1.1 4.5 1.2 4.4 0.8 2.6 1.1 3.4 *Non-financial public sector

14 March 2012


Government funding needs PERU 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 3.2 2.6 2.3 1.5 -1.8 -1.0 0.3 0.2 Overall fiscal deficit* 2.0 1.6 0.8 0.5 -3.2 -1.8 -1.4 -0.7 Primary fiscal deficit 0.4 0.3 -0.9 -0.6 -5.1 -2.9 -3.5 -1.8 Interest payments 1.7 1.3 1.7 1.1 1.9 1.1 2.2 1.1 Total amortization payments 1.2 1.0 1.5 1.0 1.4 0.8 1.7 0.9 Domestic debt 0.3 0.2 0.5 0.4 0.5 0.3 0.5 0.3 External debt 1.0 0.7 1.0 0.6 0.8 0.5 1.2 0.6 Funding sources 3.2 2.6 2.3 1.5 -1.8 -1.0 0.3 0.2 Domestic debt 0.9 0.7 -0.5 -0.3 -2.8 -1.6 -1.9 -0.9 External Bonds 1.2 0.9 1.4 0.9 0.0 0.0 1.0 0.5 IFIs & Paris Club 1.1 0.9 1.3 0.9 0.9 0.5 1.2 0.6 *Non-financial public sector

VENEZUELA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 32.3 9.8 13.8 5.8 22.5 7.1 37.6 8.9 Overall fiscal deficit* 28.6 8.7 11.7 4.9 17.4 5.5 35.6 8.5 Primary fiscal deficit 23.8 7.2 8.5 3.6 11.9 3.8 26.3 6.3 Interest payments 4.8 1.5 3.2 1.3 5.5 1.7 9.3 2.2 Debt amortization 3.7 1.1 2.1 0.9 5.1 1.6 2.0 0.5 External 2.6 0.8 1.6 0.7 4.7 1.5 0.7 0.2 Domestic 1.1 0.3 0.5 0.2 0.4 0.1 1.3 0.3 Funding sources 32.3 9.8 13.8 5.8 22.5 7.1 37.6 8.9 Dollar denominated debt-placements 9.8 3.0 6.0 2.5 17.6 5.6 9.0 2.1 Bolivar denominated debt placements 10.6 3.2 8.6 3.7 15.8 5.0 15.0 3.6 Public sector external assets 11.9 3.6 -0.9 -0.4 -10.9 -3.5 13.6 3.2 *Consolidation of Central Government, PDVSA, Non-Financial Public Enterprises, Venezuelan Social Security Institute and Deposit and Guarantee Fund. Source: National authorities, Credit Suisse

EASTERN EUROPE, MIDDLE EAST & AFRICA

CZECH REPUBLIC 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 20.5 10.7 18.1 9.4 21.4 9.9 20.8 10.1 General government deficit ESA95 11.1 5.8 9.0 4.7 9.1 4.2 6.6 3.2 Primary deficit 8.8 4.6 6.3 3.3 6.1 2.8 3.7 1.8 Interest payments 2.3 1.2 2.7 1.4 3.0 1.4 2.9 1.4 Principal payments on maturing bonds 5.2 2.7 4.3 2.2 6.3 2.9 6.2 3.0 Domestic 5.2 2.7 4.3 2.2 6.3 2.9 6.2 3.0 External 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Stock of T-bills at the beginning of the period 4.2 2.2 4.8 2.5 6.0 2.8 8.0 3.9 Funding sources 20.5 10.7 18.1 9.4 21.4 9.9 20.8 10.1 Bond issuance 13.5 7.0 11.2 5.8 7.0 3.2 12.0 5.8 Domestic 10.6 5.5 8.7 4.5 7.0 3.2 10.0 4.8 External 2.9 1.5 2.5 1.3 0.0 0.0 2.0 1.0 Stock of T-bills at the end of the period 4.8 2.5 6.0 3.1 8.0 3.7 8.0 3.9 Other international financing 0.6 0.3 0.5 0.3 0.4 0.2 0.3 0.1 Change in cash reserves (- indicates increase) 3.8 2.0 -0.8 -0.4 5.5 2.5 0.0 0.0 Other domestic sources (- indicates repayment) -2.2 -1.1 1.2 0.6 0.5 0.2 0.5 0.2 Memo item: GDP ($bn) 191.7 192.4 217.5 207.3

14 March 2012


Government funding needs HUNGARY 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements* 25.8 20.4 24.6 19.1 25.7 18.3 20.5 15.1 General government deficit** 5.8 4.6 5.4 4.2 6.3 4.5 3.7 2.7 Primary deficit (- indicates surplus) -0.1 -0.1 0.1 0.1 0.7 0.5 -1.6 -1.2 Interest payments 6.0 4.7 5.3 4.1 5.6 4.0 5.3 3.9 Redemptions and repurchases of bonds 11.7 9.2 10.0 7.8 11.4 8.1 10.1 7.5 Domestic 10.3 8.1 8.1 6.3 5.9 4.2 4.0 3.0 External (incl. EU/IMF repayment) 1.4 1.1 1.9 1.5 5.5 3.9 6.1 4.5 Stock of T-bills at the beginning of the period 8.3 6.6 9.2 7.2 8.0 5.7 6.7 5.0 Funds used for asset purchases na na na na 2.6 1.8 na na Funds used for additional debt repayment na na na na 11.2 8.0 2.7 2.0 Funding sources 25.8 20.4 24.6 19.1 39.6 28.1 23.2 17.1 Gross bond issuance 6.5 5.1 12.2 9.5 16.1 11.5 11.0 8.1 Domestic 5.1 4.0 10.2 8.0 10.3 7.3 8.0 5.9 External 1.4 1.1 2.0 1.6 5.8 4.1 3.0 2.2 Stock of T-bills at the end of the period 9.2 7.3 8.0 6.2 6.7 4.8 7.0 5.2 Other international financing (incl. EU/IMF loans) 10.0 7.9 0.0 0.0 0.0 0.0 0.0 0.0 Change in cash reserves (- indicates increase) 3.5 2.8 0.1 0.1 -0.6 -0.4 5.0 3.7 Change in other government assets (- indicates increase) -3.4 -2.7 4.3 3.3 1.5 1.0 0.2 0.1 Transfers from private pension funds na na na na 15.9 11.3 na na Memo item: GDP ($bn) 126.6 128.6 140.6 135.3 *Excluding asset purchases and additional debt repayment from pension fund assets, **Excluding asset purchases and one-off transfers from pension funds to the government budget.

ISRAEL 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 24.7 12.7 27.0 12.4 30.1 12.4 26.9 11.2 Overall fiscal deficit 10.0 5.1 8.1 3.7 8.0 3.3 8.0 3.3 Primary fiscal deficit -0.5 -0.3 -3.3 -1.5 -4.5 -1.8 -4.6 -1.9 Interest payments* 10.5 5.4 11.4 5.2 12.5 5.1 12.5 5.2 Debt amortization 14.7 7.5 18.9 8.7 22.1 9.1 19.0 7.9 Domestic 12.7 6.5 15.5 7.1 20.7 8.5 16.7 7.0 External 2.0 1.0 3.4 1.6 1.4 0.6 2.3 0.9 Funding sources 24.7 12.7 27.0 12.4 30.1 12.4 26.9 11.2 Bond issuance 26.1 13.4 22.2 10.2 25.6 10.5 24.4 10.2 Domestic 22.9 11.8 18.9 8.7 24.1 9.9 22.1 9.2 External 3.2 1.6 3.3 1.5 1.5 0.6 2.4 1.0 Privatization 0.6 0.3 1.2 0.5 2.0 0.8 0.5 0.2 Other domestic financing 0.6 0.3 1.4 0.6 1.4 0.6 2.0 0.8 Change in cash reserves** (- indicates increase) -2.7 -1.4 2.3 1.1 1.1 0.4 0.0 0.0 Memo item: GDP ($bn) 194.9 217.8 242.9 239.9 *Including repayment of loans to National Insurance Institute.**Positive/negative number indicates a decline/increase in the government’s cash reserves.

14 March 2012


Government funding needs KAZAKHSTAN 2009 2010 2011E 2012F $bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 4.6 4.0 0.4 0.3 -1.0 -0.6 -1.5 -0.7 Overall fiscal deficit 1.6 1.4 -2.5 -1.7 -4.3 -2.5 -4.8 -2.4 Primary fiscal deficit 1.1 1.0 -3.2 -2.2 -5.2 -3.0 -6.0 -3.0 Interest payments 0.5 0.4 0.6 0.4 0.9 0.5 1.2 0.6 Debt amortization 2.0 1.7 1.9 1.3 2.4 1.4 2.6 1.3 Domestic 1.7 1.5 1.9 1.3 2.4 1.4 2.6 1.3 External 0.3 0.2 0.0 0.0 0.0 0.0 0.0 0.0 Stock of T-bills at the beginning of the period 1.0 0.9 1.0 0.7 0.9 0.5 0.7 0.3 Funding sources 4.6 4.0 0.4 0.3 -1.0 -0.6 -1.5 -0.7 Bond issuance 5.4 4.7 5.6 3.8 7.5 4.3 5.7 2.8 Domestic 4.9 4.2 4.6 3.1 7.5 4.3 5.7 2.8 External 0.5 0.4 1.0 0.7 0.0 0.0 0.0 0.0 T-bill issuance 1.0 0.9 0.9 0.6 0.7 0.4 0.8 0.4 Other domestic financing 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 Change in National Fund assets (- indicates increase) -2.0 -1.7 -6.2 -4.2 -9.3 -5.3 -8.0 -4.0 Memo item: GDP ($bn) 109.2 136.2 161.8 186.5

POLAND 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 65.5 15.2 75.5 16.1 65.5 12.6 59.6 11.6 General government deficit ESA95 31.4 7.3 36.6 7.8 29.1 5.6 19.0 3.7 Primary deficit 20.2 4.7 24.4 5.2 14.0 2.7 5.7 1.1 Interest payments 11.2 2.6 12.2 2.6 15.1 2.9 13.3 2.6 Principal payments 17.1 4.0 22.3 4.8 27.0 5.2 37.1 7.2 Domestic bonds 12.8 3.0 19.4 4.1 25.0 4.8 32.2 6.3 External bonds and loans on foreign markets 4.3 1.0 2.9 0.6 2.0 0.4 4.9 1.0 Stock of T-bills at the beginning of the period 17.0 3.9 16.6 3.5 9.4 1.8 3.5 0.7 Funding sources 65.5 15.2 75.5 16.1 65.5 12.6 59.6 11.6 Bond issuance 29.8 6.9 52.6 11.2 43.2 8.3 46.0 8.9 Domestic 21.5 5.0 43.2 9.2 36.3 7.0 40.0 7.8 External 8.3 1.9 9.4 2.0 6.9 1.3 6.0 1.2 Stock of T-bills at the end of the period 16.6 3.9 9.4 2.0 3.5 0.7 4.0 0.8 Other international financing 2.0 0.5 2.5 0.5 3.1 0.6 0.0 0.0 Change in funds held by MoF (- indicates increase) -0.4 -0.1 2.3 0.5 -5.6 -1.1 -0.4 -0.1 Other domestic financing (including loans and privatization proceeds) 17.5 4.1 8.7 1.9 21.3 4.1 10.0 1.9 Memo item: GDP ($bn) 430.5 469.2 520.1 515.0

14 March 2012


Government funding needs RUSSIA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 79.3 6.5 71 4.8 -2.3 -0.1 16.4 0.8 Overall fiscal deficit* 72.1 5.9 61.9 4.2 -14.7 -0.8 1.8 0.1 Primary fiscal deficit 66.6 5.4 52.7 3.6 -23.7 -1.3 -11.3 -0.6 Interest payments 5.5 0.5 9.3 0.6 9 0.5 13.1 0.6 Debt amortization 7.2 0.6 9.1 0.6 12.4 0.7 14.6 0.7 Domestic 3.1 0.3 7.8 0.5 10.9 0.6 13.5 0.7 External 4.1 0.3 1.3 0.1 1.5 0.1 1.1 0.1 Funding sources 79.3 6.5 71 4.8 -2.3 -0.1 16.4 0.8 Bond issuance 16.2 1.3 33.6 2.3 47.1 2.5 41 2.0 Domestic 16.2 1.3 28.3 1.9 47.1 2.5 37.6 1.8 External 0 0 5.3 0.4 0.0 0.0 3.4 0.2 Privatization 0 0 0.5 0 4.3 0.2 0 0.0 Other domestic financing 0.2 0 -20.7 -1.4 -9.9 -0.5 6.6 0.3 Other international financing 0.1 0 -0.1 0 -3.6 -0.2 -0.7 0.0 Change in cash reserves 62.9 5.1 57.7 3.9 -40.2 -2.2 -30.5 -1.5 Including change in Reserve fund 62.9 5.1 31.9 2.2 -39.9 -2.1 -30.5 -1.5 Memo item: GDP ($bn) 1,231.9 1,465.1 1,850.4 2,051.5 *Excluding bank recapitalization

SOUTH AFRICA* 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Consolidated budget borrowing requirements 29.7 9.5 34.0 8.9 42.1 10.2 46.5 10.7 Overall fiscal deficit 20.4 6.5 16.2 4.2 19.8 4.8 20.1 4.6 Primary fiscal deficit 13.1 4.2 7.0 1.8 9.5 2.3 8.3 1.9 Interest payments 7.3 2.3 9.2 2.4 10.3 2.5 11.7 2.7 Debt amortizations 9.3 3.0 17.8 4.6 22.3 5.4 26.5 6.1 Domestic debt 1.7 0.6 1.9 0.5 2.1 0.5 4.1 0.9 T-bill stock at the end of the previous year 6.5 2.1 15.5 4.0 19.7 4.8 20.8 4.8 External debt 1.1 0.3 0.4 0.1 0.5 0.1 1.5 0.4 Funding sources 29.7 9.5 34.0 8.9 42.1 10.2 46.5 10.7 External 4.1 1.3 0.7 0.2 1.6 0.4 0.5 0.1 Domestic debt 16.9 5.4 17.8 4.6 20.8 5.0 25.2 5.8 T-bills 11.8 3.8 20.9 5.5 21.9 5.3 16.3 3.7 Net extraordinary receipts 0.7 0.2 0.3 0.1 0.2 0.0 0.0 0.0 Change in cash reserves (- indicates increase) -3.9 -1.2 -5.8 -1.5 -2.4 -0.6 4.5 1.0 Memo item: GDP ($bn), fiscal year* 312.3 383.6 412.5 436.1 *Fiscal year starting on 1 April of the year specified in the column heading.

14 March 2012


Government funding needs TURKEY 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 106.0 17.2 133.9 18.2 80.8 10.6 64.9 8.1 Overall fiscal deficit* 43.7 7.1 36.0 4.9 15.8 2.1 14.3 1.8 Primary fiscal deficit 9.3 1.5 3.6 0.4 -10.0 -1.4 -15.0 -1.9 Interest payments 34.4 5.6 32.5 4.4 25.7 3.4 29.3 3.7 Debt amortization 53.3 8.7 88.6 12.0 55.9 7.3 41.6 5.2 Government bonds 47.9 7.8 81.4 11.1 49.0 6.4 36.0 4.5 External debt 5.4 0.9 7.1 1.0 6.9 0.9 5.6 0.7 Stock of T-bills at the beginning of the period 9.0 1.5 9.4 1.3 9.1 1.2 9.0 1.1 Funding sources 106.0 17.2 133.9 18.2 80.8 10.6 64.9 8.1 Bond issuance 84.5 13.7 102.8 14.0 61.8 8.1 52.2 6.5 Domestic 80.7 13.1 96.1 13.1 57.5 7.5 47.7 5.9 External 3.8 0.6 6.7 0.9 4.3 0.6 4.5 0.6 T-bill issuance 9.0 1.5 10.1 1.4 9.8 1.3 9.0 1.1 Other domestic financing 12.8 2.1 14.9 2.0 9.7 1.3 2.8 0.3 Other international financing 3.5 0.6 3.2 0.4 1.3 0.2 1.0 0.1 Change in cash reserves (- indicates increase) -3.9 -0.6 2.9 0.4 -1.8 -0.2 0.0 0.0 Memo item: GDP ($bn) 615.7 735.7 765.8 801.7 * The difference between the overall fiscal deficit figures here and the central government budget deficit figures presented in the Selected Economic Indicators table for Turkey is due to interest revenues. The government's interest revenues are included in other financing in this presentation.

UKRAINE 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 14.4 12.7 13.2 10.3 11.4 6.9 13.2 7.7 Overall fiscal deficit* 5.6 4.9 7.0 5.5 2.9 1.8 4.7 2.7 Primary fiscal deficit 3.8 3.3 5.0 3.9 0.0 0.0 0.9 0.5 Interest payments 1.7 1.5 2.0 1.6 2.9 1.8 3.8 2.2 Total amortization payments 5.8 5.1 4.3 3.4 5.7 3.5 7.6 4.4 Domestic debt 3.3 2.9 3.5 2.7 4.0 2.4 3.8 2.2 External debt 2.5 2.2 0.8 0.6 1.7 1.0 3.8 2.2 Naftogaz operational deficit 3.0 2.6 1.9 1.5 2.8 1.7 0.9 0.5 Funding sources 14.4 12.7 13.2 10.3 11.4 6.9 13.2 7.7 External 6.2 5.5 5.5 4.3 3.4 2.1 3.5 2.0 Domestic financing sources, of which 8.0 7.0 7.3 5.7 6.5 4.0 8.3 4.8 Gross domestic borrowing 2.1 1.8 5.4 4.2 6.7 4.1 7.5 4.4 Drawdowns on fiscal deposits 5.7 5.0 -1.9 -1.5 -0.2 -0.1 0.8 0.5 Privatization 0.2 0.2 0.4 0.3 1.4 0.9 1.4 0.8 Memo item: GDP ($bn) 113.7 128.4 164.5 172.2 *Excluding bank recapitalization costs. Source: National authorities, Credit Suisse

14 March 2012


Government funding needs NON-JAPAN ASIA

CHINA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 191.8 3.8 179.3 3.1 478.0 6.8 543.9 6.6 Overall fiscal deficit 114.0 2.2 96.6 1.6 80.0 1.1 127.7 1.6 Primary fiscal deficit 76.8 1.5 53.7 0.9 28.6 0.4 70.9 0.9 Interest payments 37.2 0.7 42.8 0.7 51.4 0.7 56.8 0.7 Debt amortization 77.8 1.5 82.7 1.4 398.0 5.7 416.2 5.1 Domestic 77.6 1.5 82.4 1.4 397.7 5.7 415.9 5.1 External 0.2 0.0 0.3 0.0 0.3 0.0 0.3 0.0 Funding sources 191.8 3.8 179.3 3.1 478.0 6.8 543.9 6.6 Domestic 191.8 3.8 179.3 3.1 478.0 6.8 543.9 6.6 Memo items: GDP ($bn) 5,073.3 5,862.1 7,028.3 8,202.8 Average exchange rate (USDCNY) 6.8 6.7 6.5 6.3

HONG KONG 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement -3.0 -1.4 -8.1 -3.6 -6.7 -2.8 1.7 0.7 Overall fiscal deficit -3.3 -1.6 -9.6 -4.3 -8.6 -3.5 0.4 0.2 Primary fiscal deficit -3.4 -1.6 -9.7 -4.3 -8.6 -3.6 0.4 0.1 Interest payments 0.1 0.0 0.1 0.0 0.1 0.0 0.1 0.0 Debt amortization 0.3 0.2 0.5 0.2 -0.1 0.0 0.0 0.0 Domestic 0.2 0.1 0.2 0.1 0.0 0.0 0.0 0.0 External 0.2 0.1 0.3 0.1 -0.1 0.0 0.0 0.0 Government bond program 0.0 0.0 1.0 0.5 1.9 0.8 1.3 0.5 Funding sources -3.0 -1.4 -8.1 -3.6 -6.7 -2.8 1.7 0.7 Drawdown on fiscal reserves -3.0 -1.4 -9.1 -4.1 -8.7 -3.6 0.4 0.2 Domestic debt issuance 0.0 0.0 1.0 0.5 1.9 0.8 1.3 0.5 Memo items: Fiscal reserves (year-end, $bn) 66.8 75.5 84.1 83.7 GDP ($bn) 209.3 223.3 242.8 258.3 Average exchange rate (USDHKD) 7.8 7.8 7.8 7.8 INDIA* 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 146.6 10.6 157.7 9.1 207.0 11.4 222.0 10.5 General Government fiscal deficit (incl. disinvestment proceeds) 131.9 9.5 127.9 7.4 148.0 8.2 175.0 8.3 o/w Central government fiscal deficit (incl. disinvestment proceeds) 87.2 6.3 85.1 4.9 102.0 5.6 123.0 5.8 Primary fiscal balance 42.4 3.1 32.3 1.9 43.0 2.4 48.0 2.3 Interest payments 44.8 3.2 52.8 3.1 59.0 3.3 75.0 3.5 Debt amortization 14.7 1.1 29.7 1.7 59.0 3.3 47.0 2.2 Funding sources 146.6 10.6 157.7 9.1 207.0 8.9 222.0 8.9 Domestic 143.1 10.3 152.7 8.8 197.0 10.9 207.0 9.8 Debt issuance 130.3 9.4 133.3 7.7 172.0 9.5 179.0 8.5 Others (1) 12.9 0.9 19.5 1.1 25.0 1.4 28.0 1.3 Foreign Borrowings (2) 3.5 0.3 4.9 0.3 10.0 0.6 15.0 0.7 Memo items: GDP ($bn) 1,383.1 1,595.4 1,811.6 2,118.3 Average exchange rate (USDINR) 47.4 45.6 49.0 47.0 Disinvestment proceeds (3) 5.5 0.4 5.0 0.3 0.7 0.0 8.5 0.4 * Fiscal year beginning April. For instance, 2010 is April 2010 to March 2011. (1) 'Others' includes small savings, state provident funds and changes in cash. (2) Foreign borrowings are net of repayments. (3) The central government has decided to include proceeds from disinvestments as revenue in calculating the fiscal deficit. Proceeds are to be used to fund certain social sector schemes that lead to capital formation. This is effective from 2009.

14 March 2012


Government funding needs INDONESIA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 19.0 3.5 18.2 2.6 22.1 2.6 33.4 3.6 Overall fiscal deficit 8.4 1.6 5.2 0.7 10.1 1.2 18.4 2.0 Primary fiscal deficit -0.6 -0.1 -5.3 -0.6 1.7 0.2 4.6 0.5 Interest payments 9.0 1.7 10.5 1.4 8.4 1.0 13.8 1.5 Amortization 10.6 2.0 13.0 1.8 12.0 1.4 15.0 1.6 Loans 6.6 1.2 5.9 0.8 7.0 0.8 7.0 0.8 Securities 4.1 0.7 7.1 1.0 5.0 0.6 8.0 0.9 Funding sources 19.0 3.5 18.2 2.6 22.1 2.6 33.4 3.6 Loans 4.5 0.8 5.7 0.8 8.1 1.0 10.0 1.1 Program loans 2.5 0.5 2.4 0.3 3.0 0.4 3.5 0.4 Project loans 2.0 0.4 3.3 0.5 5.1 0.6 6.5 0.7 Bond Issuances 12.0 2.2 15.5 2.2 16.0 1.9 25.0 2.7 Of which: foreign 3.7 0.7 5.4 0.8 3.0 0.4 2.5 0.3 Standby loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Change in other assets (-indicates increase) 2.5 0.5 -3.0 -0.4 -2.0 -0.2 -1.6 -0.2 Memo items: GDP ($bn) 542.2 707.5 844.1 922.5 Average exchange rate (USDIDR) 10,353.9 9,078.3 8,799.3 9,059.0 KOREA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 61.7 7.4 52.9 5.2 42.6 3.8 37.0 3.0 Overall fiscal deficit 22.3 2.7 5.4 0.5 -6.7 -0.6 -11.2 -0.9 Primary deficit 9.8 1.2 -10.9 -1.1 -23.3 -2.1 -26.3 -2.2 Interest payments 12.5 1.5 16.2 1.6 16.6 1.5 15.1 1.2 Debt amortization 39.4 4.8 47.5 4.7 49.3 4.4 48.2 4.0 Domestic 37.2 4.5 43.4 4.3 44.5 3.9 43.7 3.6 External 2.2 0.3 4.1 0.4 4.8 0.4 4.5 0.4 Funding sources 61.7 7.4 52.9 5.2 42.6 3.8 37.0 3.0 Domestic 59.3 7.1 48.6 4.8 37.6 3.3 32.2 2.7 External 2.4 0.3 4.3 0.4 5.0 0.4 4.8 0.4 Memo items: GDP ($bn) 829.6 1011.6 1,133.8 1,214.3 Average exchange rate (USDKRW) 1,281.4 1,159.4 1,108.0 1,091.5

MALAYSIA 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 25.6 13.3 21.7 9.1 30.7 11.0 31.8 9.9 Overall fiscal deficit 13.5 7.0 13.9 5.8 14.0 5.0 16.1 5.0 Primary fiscal deficit 9.4 4.9 9.1 3.8 7.9 2.8 9.1 2.8 Interest payments 4.0 2.1 4.9 2.0 6.1 2.2 7.0 2.2 Debt amortization 12.2 6.3 7.7 3.2 16.7 6.0 15.7 4.9 Domestic 10.3 5.3 7.5 3.1 14.8 5.3 15.7 4.9 External 1.9 1.0 0.3 0.1 1.9 0.7 0.0 0.0 Funding sources 25.6 13.3 21.7 9.1 30.7 11.0 31.8 9.9 Domestic bonds issuance 26.5 13.8 18.8 7.9 29.5 10.6 32.7 10.1 External loans 0.1 0.1 1.3 0.5 2.1 0.8 0.2 0.1 Change in cash (- indicates increase) -1.1 -0.5 1.6 0.7 -1.0 -0.3 -1.0 -0.3 Memo items: GDP ($bn) 193.0 238.6 278.9 322.4 Average exchange rate (USDMYR) 3.5 3.2 3.1 2.9

14 March 2012


Government funding needs PHILIPPINES 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 13.4 8.0 15.8 7.9 13.8 6.2 17.0 7.1 Overall fiscal deficit 6.2 3.7 7.0 3.5 4.5 2.0 6.0 2.5 Primary fiscal deficit 0.4 0.2 0.5 0.2 -3.6 -1.6 -1.9 -0.8 Interest payments 5.8 3.5 6.5 3.3 8.1 3.6 8.0 3.3 Debt amortization 7.2 4.3 8.8 4.4 9.4 4.2 11.0 4.6 Domestic 5.1 3.0 6.0 3.0 6.7 3.0 8.0 3.3 External 2.1 1.2 2.8 1.4 2.7 1.2 3.0 1.2 Funding sources 13.4 8.0 15.8 7.9 13.8 6.2 17.0 7.1 External borrowing 5.3 3.1 5.7 2.9 3.9 1.7 4.5 1.9 Program and project loans 2.0 1.2 1.3 0.7 1.1 0.5 1.5 0.6 Bonds and other inflows 3.2 1.9 4.4 2.2 2.8 1.2 3.0 1.2 Domestic borrowing 6.7 4.0 10.9 5.4 8.3 3.7 12.8 5.3 Privatization receipts 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1 Change in cash (- indicates increase) 1.4 0.8 -0.8 -0.4 1.5 0.7 -0.4 0.0 Memo items: GDP ($bn) 167.9 199.9 224.5 241.1 Average exchange rate (USDPHP) 47.8 45.0 43.4 43.1

TAIWAN 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirement 9.5 2.5 14.4 3.4 19.9 4.3 16.6 3.5 Overall fiscal deficit 16.9 4.5 14.3 3.3 14.5 3.1 11.2 2.3 Primary fiscal deficit 14.3 3.8 12.8 3.0 13.6 2.9 11.4 2.4 Interest payments 2.5 0.7 1.5 0.3 0.9 0.2 -0.2 0.0 Debt amortization 6.1 1.6 6.5 1.5 5.4 1.2 5.4 1.1 Domestic 6.1 1.6 6.5 1.5 5.4 1.2 5.4 1.1 External 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Funding sources 9.5 2.5 14.4 3.4 19.9 4.3 16.6 3.5 Domestic 9.5 2.5 14.4 3.4 19.9 4.3 16.6 3.5 External 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Memo items: GDP ($bn) 377.6 430.2 466.3 479.1 Average exchange rate (USDTWD) 33.1 31.6 29.5 29.8

THAILAND* 2009 2010 2011E 2012F $ bn % of GDP $ bn % of GDP $ bn % of GDP $ bn % of GDP Total borrowing requirements 14.7 5.7 2.7 0.9 9.3 2.7 13.5 3.5 Overall fiscal deficit** 14.7 5.7 2.7 0.9 9.3 2.7 13.5 3.5 Primary fiscal deficit 11.5 4.4 -1.0 -0.3 4.1 1.2 10.0 2.6 Interest payments 3.3 1.3 3.7 1.2 5.1 1.5 3.4 0.9 Funding sources 14.7 5.7 2.7 0.9 9.3 2.7 13.5 3.5 Net domestic borrowing 14.5 5.6 11.2 3.6 8.9 2.6 16.0 4.2 Net foreign borrowing -0.3 -0.1 -0.1 0.0 0.0 0.0 0.3 0.1 Change in cash (- indicates increase) 0.6 0.2 -8.5 -2.7 0.4 0.1 -2.9 -0.7 Memo items: GDP ($bn) 257.9 310.8 342.2 382.8 Average exchange rate (USDTHB) 34.3 31.7 30.8 30.8 *Fiscal year ending September; **Including the principal payments on outstanding debts Source: National authorities, Credit Suisse

14 March 2012


Quarterly and annual forecasts for developed countries As of 8 Mar 2012 2011 2012F Annual average Q1 Q2 Q3 Q4E Q1 Q2 Q3 Q4 10 11E 12F 13F Global Real GDP (y/y) 4.5 3.9 3.7 3.4 3.3 3.4 3.4 3.7 5.1 3.8 3.4 4.2 IP (y/y) 6.6 4.9 5.2 4.3 4.0 4.6 4.6 5.3 9.6 5.3 4.6 ... Inflation (y/y) 4.5 4.9 5.0 4.6 3.9 3.6 3.6 3.6 4.4 4.7 3.7 3.6 US Real GDP (q/q ann) 0.4 1.3 1.8 3.1 2.2 2.2 2.3 2.3 3.0 1.7 2.3 2.0 IP (y/y) 5.5 3.8 3.4 3.5 3.1 4.1 3.6 3.5 5.3 4.2 3.5 3.0 Inflation (y/y) 2.2 3.3 3.8 3.3 2.5 1.5 1.3 1.4 1.6 3.1 1.7 1.7 Policy rate (end of period) 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 Japan Real GDP (q/q ann) -6.6 -2.0 5.6 -0.5 1.6 1.3 1.5 1.7 4.4 -0.8 1.4 1.6 IP (y/y) -13.1 -1.7 -3.3 -1.4 2.2 8.4 5.5 6.4 16.8 -4.9 5.6 5.6 Inflation ex. fresh food (y/y) -0.8 -0.3 0.2 -0.2 -0.3 -0.4 -0.4 -0.2 -1.0 -0.3 -0.3 -0.1 Policy rate (end of period) 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 USDJPY 82.8 80.6 77.0 77.0 74.3 74.2 74.9 75.0 ... ... ... 0.0 Euro-16 Real GDP (q/q ann) 3.1 0.7 0.6 -2.2 -1.7 0.1 0.8 1.5 1.8 1.5 -0.5 1.7 IP (y/y) 6.6 4.2 4.2 0.5 -2.2 -3.8 -2.5 1.0 7.5 3.9 -1.9 3.4 Inflation (y/y) 2.5 2.8 2.7 3.1 2.5 1.9 1.9 1.5 1.6 2.8 1.9 1.6 Policy rate (end of period) 1.00 1.25 1.50 1.00 0.75 0.75 0.75 0.75 ... ... ... ... EURUSD 1.42 1.45 1.34 1.30 1.23 1.22 1.24 1.24 ... ... ... ... UK Real GDP (q/q ann) 1.6 0.4 1.9 -1.2 -0.1 1.7 1.9 2.6 1.8 0.8 0.7 2.5 IP (y/y) 2.0 -0.8 -0.8 -1.9 -2.3 -0.7 -0.4 1.0 2.1 -0.4 -0.6 2.0 Inflation (y/y) 4.2 4.5 4.7 4.6 3.4 3.0 2.9 2.6 3.3 4.5 3.0 2.5 Policy rate (end of period) 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.5 0.5 0.5 0.5 GBPUSD 1.60 1.61 1.56 1.55 1.46 1.45 1.46 1.46 ... ... ... 0.0 Switzerland Real GDP (q/q ann) 2.6 1.4 0.2 0.2 2.1 2.8 4.6 3.6 2.7 1.9 2.0 ... Inflation (y/y) 0.6 0.4 0.4 -0.2 -0.4 -0.2 0.8 1.3 0.7 0.3 0.4 ... Policy rate (end of period) 0.25 0.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0.3 0-.25 0-.25 ... USDCHF 0.92 0.84 0.90 0.94 1.00 1.01 0.99 0.99 ... ... ... ... Source: Thomson Reuters DataStream, Credit Suisse

14 March 2012


Summary macroeconomic data for developed countries: Real GDP

2006 2007 2008 2009 2010 2011E 2012F 2013F Nominal GDP ($bn) (1) 2011E 2012F 2013F

Real GDP growth (% year on year)

US 15,064.8 15,495.4 15,990.8 2.7 1.9 -0.3 -3.5 3.0 1.7 2.3 2.0 Canada 1,758.7 1,826.2 1,894.9 2.8 2.2 0.7 -2.8 3.2 2.5 2.4 3.0 Euro area 13,348.4 13,673.4 13,967.7 3.3 2.9 0.2 -4.2 1.8 1.5 0.0 1.7 Austria 425.1 440.8 454.5 3.6 3.7 1.2 -3.7 2.4 3.2 0.7 2.3 Belgium 529.0 549.7 567.2 2.7 2.8 0.9 -2.7 2.3 1.9 0.0 1.7 Finland 270.6 285.3 295.8 4.4 5.3 1.0 -8.2 3.6 2.6 1.0 1.8 France 2,808.3 2,888.9 2,970.3 2.7 2.2 -0.2 -2.6 1.4 1.7 0.5 1.8 Germany 3,628.6 3,707.8 3,758.6 3.9 3.4 0.8 -5.1 3.6 3.1 1.0 2.5 Greece 312.0 306.4 309.6 5.2 4.3 1.0 -2.3 -4.4 -6.8 -4.5 -0.5 Ireland 222.3 227.4 233.7 5.3 5.2 -3.0 -7.0 -0.4 1.0 0.3 1.9 Italy 2,245.7 2,287.7 2,322.4 2.3 1.6 -1.2 -5.1 1.4 0.4 -1.5 0.8 Luxembourg 62.9 66.1 68.0 5.0 6.6 0.8 -5.3 2.7 1.0 0.3 2.3 Netherlands 858.3 881.8 900.6 3.5 3.9 1.8 -3.5 1.6 1.2 -0.5 1.8 Portugal 241.9 240.6 244.8 1.4 2.4 0.0 -2.9 1.4 -1.5 -3.5 0.0 Spain 1,536.5 1,575.1 1,615.9 4.1 3.5 0.9 -3.7 -0.1 0.7 -1.2 0.5 Norway 479.3 495.6 508.9 4.6 6.8 1.4 -1.6 1.8 2.7 2.3 2.5 Sweden 571.6 629.7 671.2 4.6 3.4 -0.8 -5.1 5.3 4.5 1.8 2.5 United Kingdom 2,481.0 2,603.9 2,742.9 2.6 3.5 -1.1 -4.4 2.1 0.9 0.7 2.3 Switzerland 665.9 726.5 735.9 3.6 3.6 1.9 -1.9 2.6 1.9 0.5 -- Japan 5,855.4 6,125.8 6,248.8 2.0 2.4 -1.2 -6.3 4.4 -0.7 1.5 1.6 Australia (2) 1,507.4 1,572.3 1,635.4 2.6 4.8 2.2 1.2 2.7 2.0 3.4 3.3 New Zealand 168.8 182.7 191.4 1.0 2.9 -0.1 -2.0 1.3 1.6 2.6 2.9 Emerging Markets (3) 23,212.8 25,717.0 28,761.7 8.7 9.0 5.9 2.6 7.6 6.4 5.5 6.0 Latin America (3) 5,154.1 5,510.9 6,020.1 5.3 5.9 4.4 -1.6 6.4 4.2 3.3 4.1 EMEA (3) 5,426.9 5,778.8 6,092.8 7.0 6.0 3.7 -4.0 4.7 5.2 3.6 4.2 Emerging Asia (3) 12,631.7 14,427.3 16,648.8 10.1 10.9 7.2 6.3 9.2 7.3 6.7 7.1 (1) IMF World Economic Outlook projections as of September 2011. (2) Consensus estimates from Consensus Economics. (3) Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures.

Source: Thomson Reuters DataStream, Consensus Economics, European Commission, IMF, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data for developed countries: Inflation


HICP/CPI inflation (% year on year, annual average)

US 15,064.8 15,495.4 15,990.8 3.2 2.9 3.8 -0.3 1.6 3.1 2.2 1.5 Canada 1,758.7 1,826.2 1,894.9 2.0 2.1 2.4 0.3 1.8 2.9 2.2 2.2 Euro area 13,348.4 13,673.4 13,967.7 2.2 2.1 3.3 0.3 1.6 2.7 1.9 1.6 Austria 425.1 440.8 454.5 1.7 2.2 3.2 0.4 1.7 3.6 2.4 2.1 Belgium 529.0 549.7 567.2 2.3 1.8 4.5 0.0 2.3 3.5 2.2 1.9 Finland 270.6 285.3 295.8 1.3 1.6 3.9 1.6 1.7 3.3 2.8 1.8 France 2,808.3 2,888.9 2,970.3 1.9 1.6 3.2 0.1 1.7 2.3 1.7 1.4 Germany 3,628.6 3,707.8 3,758.6 1.8 2.3 2.7 0.2 1.2 2.5 1.9 1.8 Greece 312.0 306.4 309.6 3.3 3.0 4.2 1.3 4.7 3.1 1.0 0.8 Ireland 222.3 227.4 233.7 2.7 2.9 3.1 -1.7 -1.6 1.2 0.9 1.2 Italy 2,245.7 2,287.7 2,322.4 2.2 2.0 3.5 0.8 1.6 2.9 2.2 1.9 Luxembourg 62.9 66.1 68.0 3.0 2.7 4.1 0.0 2.8 3.7 2.3 2.5 Netherlands 858.3 881.8 900.6 1.7 1.6 2.2 1.0 0.9 2.5 2.1 1.3 Portugal 241.9 240.6 244.8 3.0 2.4 2.7 -0.9 1.4 3.6 3.2 1.5 Spain 1,536.5 1,575.1 1,615.9 3.6 2.8 4.1 -0.2 2.0 3.1 1.3 1.3 Norway 479.3 495.6 508.9 2.3 0.7 3.8 2.2 2.4 1.3 0.9 1.9 Sweden 571.6 629.7 671.2 1.4 2.2 3.5 -0.3 1.3 3.0 1.7 2.0 United Kingdom 2,481.0 2,603.9 2,742.9 2.3 2.3 3.6 2.2 3.3 4.5 2.8 2.5 Switzerland 665.9 726.5 735.9 1.1 0.7 2.4 -0.5 0.7 0.3 0.4 -- Japan (2) 5,855.4 6,125.8 6,248.8 0.1 0.0 1.5 -1.3 -1.0 -0.3 0.0 -0.1 Australia (3) 1,507.4 1,572.3 1,635.4 3.5 2.3 4.4 1.8 2.8 3.5 2.8 3.1 New Zealand 168.8 182.7 191.4 3.4 2.4 4.0 2.1 2.3 4.0 1.6 2.5 Emerging Markets (4) 23,212.8 25,717.0 28,761.7 4.3 5.1 7.7 3.1 4.8 5.8 4.6 4.9 Latin America (4) 5,154.1 5,510.9 6,020.1 5.0 5.0 7.4 6.1 6.1 6.7 6.4 6.0 EMEA (4) 5,426.9 5,778.8 6,092.8 6.7 7.2 11.1 7.2 5.6 6.0 5.0 5.1 Emerging Asia (4) 12,631.7 14,427.3 16,648.8 3.1 4.3 6.3 0.8 4.2 5.5 4.0 4.6 (1) IMF World Economic Outlook projections as of September 2011. (2) Inflation ex. fresh food. (3) Consensus estimates from Consensus Economics. (4) Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures.

Source: Thomson Reuters DataStream, Consensus Economics, European Commission, IMF, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data for developed countries: Current account balance


Current account balance (% of GDP)

US 15,064.8 15,495.4 15,990.8 -6.0 -5.1 -4.7 -2.7 -3.2 -3.3 -3.6 -3.7 Canada 1,758.7 1,826.2 1,894.9 1.4 0.8 0.3 -3.0 -3.1 -2.9 -2.7 -2.6 Euro area 13,348.4 13,673.4 13,967.7 0.5 0.4 -0.7 -0.1 0.1 -0.1 0.0 0.2 Austria 425.1 440.8 454.5 3.3 4.0 4.9 3.0 3.2 2.7 2.8 2.9 Belgium 529.0 549.7 567.2 3.4 3.9 1.1 0.7 3.2 2.4 2.1 2.4 Finland 270.6 285.3 295.8 4.6 4.2 3.2 2.7 2.8 -0.1 0.0 0.1 France 2,808.3 2,888.9 2,970.3 -0.8 -1.4 -1.9 -2.1 -2.2 -3.2 -3.3 -3.0 Germany 3,628.6 3,707.8 3,758.6 6.5 7.5 6.2 5.8 5.8 5.1 4.4 4.2 Greece 312.0 306.4 309.6 -13.0 -16.9 -17.9 -14.3 -12.3 -9.9 -7.9 -6.9 Ireland 222.3 227.4 233.7 -3.7 -5.5 -5.6 -2.9 0.5 0.7 1.5 1.8 Italy 2,245.7 2,287.7 2,322.4 -1.5 -1.3 -2.9 -2.0 -3.5 -3.6 -3.0 -2.3 Luxembourg 62.9 66.1 68.0 10.4 10.1 5.3 7.0 8.1 5.3 3.4 2.9 Netherlands 858.3 881.8 900.6 9.0 8.4 4.7 2.9 5.1 5.5 7.0 6.9 Portugal 241.9 240.6 244.8 -10.8 -10.2 -12.6 -10.8 -9.7 -7.6 -5.0 -3.8 Spain 1,536.5 1,575.1 1,615.9 -9.0 -10.0 -9.6 -5.1 -4.5 -3.4 -3.0 -3.0 Norway 479.3 495.6 508.9 17.2 14.1 17.7 11.8 12.4 9.3 8.9 8.3 Sweden 571.6 629.7 671.2 7.9 8.6 8.8 6.8 6.3 6.4 6.3 6.4 United Kingdom 2,481.0 2,603.9 2,742.9 -3.3 -2.6 -1.8 -1.4 -2.5 -2.5 -0.9 -0.2 Switzerland 665.9 726.5 735.9 15.1 9.0 2.0 8.3 14.6 15.0 11.8 -- Japan 5,855.4 6,125.8 6,248.8 3.9 4.8 3.2 2.8 3.6 2.1 1.4 1.2 Australia (2) 1,507.4 1,572.3 1,635.4 -5.3 -6.2 -4.5 -4.3 -2.7 -1.6 -1.4 -1.9 New Zealand 168.8 182.7 191.4 -8.3 -8.2 -8.9 -2.5 -3.5 -4.3 -5.4 -5.9 Emerging Markets (3) 23,212.8 25,717.0 28,761.7 5.5 5.2 4.3 2.9 2.9 2.2 1.8 1.0 Latin America (3) 5,154.1 5,510.9 6,020.1 1.8 0.5 -0.9 -0.5 -1.0 -1.1 -1.4 -1.8 EMEA (3) 5,426.9 5,778.8 6,092.8 4.9 2.1 2.8 0.9 1.6 2.8 2.9 1.1 Emerging Asia (3) 12,631.7 14,427.3 16,648.8 6.6 7.4 5.9 4.5 4.2 2.6 1.9 1.6 (1) IMF World Economic Outlook projections as of September 2011. (2) OECD estimates. (3) Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. Source: Thomson Reuters DataStream, ECB, Eurostat, OECD, IMF, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data for developed countries: Fiscal balance


Fiscal balance (% of GDP)

US 15,064.8 15,495.4 15,990.8 -1.5 -0.5 -3.7 -10.7 -9.2 -8.8 -7.9 -6.3 Canada 1,758.7 1,826.2 1,894.9 1.0 0.9 0.6 -0.4 -3.6 -2.1 -1.9 -1.6 Euro area 13,348.4 13,673.4 13,967.7 -1.3 -0.7 -2.1 -6.4 -5.6 -4.1 -3.2 -2.4 Austria 425.1 440.8 454.5 -1.5 -0.9 -0.9 -4.1 -4.4 -3.6 -3.6 -3.0 Belgium 529.0 549.7 567.2 0.1 -0.3 -1.3 -5.8 -4.1 -3.8 -3.0 -2.3 Finland 270.6 285.3 295.8 4.1 5.3 4.3 -2.5 -2.5 -2.0 -1.5 -0.5 France 2,808.3 2,888.9 2,970.3 -2.3 -2.7 -3.3 -7.5 -7.1 -5.5 -4.9 -4.0 Germany 3,628.6 3,707.8 3,758.6 -1.6 0.2 -0.1 -3.2 -3.3 -1.0 -1.2 -1.0 Greece 312.0 306.4 309.6 -5.7 -6.5 -9.8 -15.8 -10.6 -9.2 -6.5 -4.0 Ireland (2) 222.3 227.4 233.7 2.9 0.1 -7.3 -11.8 -11.6 -10.1 -8.6 -7.5 Italy 2,245.7 2,287.7 2,322.4 -3.4 -1.6 -2.7 -5.4 -4.6 -3.8 -1.8 -0.5 Luxembourg (2) 62.9 66.1 68.0 1.4 3.7 3.0 -0.9 -1.1 0.5* 0* -0.2* Netherlands 858.3 881.8 900.6 0.5 0.2 0.5 -5.6 -5.1 -4.5 -3.8 -3.0 Portugal 241.9 240.6 244.8 -4.1 -3.1 -3.6 -10.1 -9.8 -4.7 -4.5 -3.0 Spain 1,536.5 1,575.1 1,615.9 2.4 1.9 -4.5 -11.2 -9.3 -8.0 -5.4 -4.8 Norway 479.3 495.6 508.9 18.5 17.5 19.1 10.5 10.6 -- -- -- Sweden (2) 571.6 629.7 671.2 2.3 3.6 2.2 -0.7 0.2 0.9* 0.9* 1.0* United Kingdom 2,481.0 2,603.9 2,742.9 -2.7 -2.7 -5.0 -11.5 -10.3 -9.4 -7.8 -5.8 Switzerland 665.9 726.5 735.9 1.7 1.8 2.0 0.4 0.2 0.8 0.6 -- Japan (3) 5,855.4 6,125.8 6,248.8 -3.5 -3.0 -3.2 -9.5 -8.6 -10.9 -11.4 -11.9 Australia (4) 1,507.4 1,572.3 1,635.4 2.1 2.1 0.5 -4.1 -4.8 -3.3 -1.5 -0.3 New Zealand 168.8 182.7 191.4 4.4 3.4 3.1 -2.1 -3.3 -9.2 -5.2 -2.7 Emerging Markets (5) 23,212.8 25,717.0 28,761.7 0.4 0.5 0.0 -4.3 -2.6 -1.4 -1.8 -1.8 Latin America (5) 5,154.1 5,510.9 6,020.1 -1.4 -1.0 -0.9 -3.2 -2.3 -2.3 -2.3 -2.0 EMEA (5) 5,426.9 5,778.8 6,092.8 4.8 3.2 4.5 -6.6 -3.2 0.7 0.0 -0.9 Emerging Asia (5) 12,631.7 14,427.3 16,648.8 -1.2 -0.3 -1.7 -3.5 -2.3 -2.1 -2.5 -2.2 (1) IMF World Economic Outlook projections as of September 2011. (2) European Commission estimates; for 2010-2012 for Luxembourg and Sweden; for 2009-2012 for Ireland. (3) Fiscal year, general government (central + local + social security), special factors adjusted. (4) OECD estimates. (5) Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures.

Source: Thomson Reuters DataStream, European Commission, OECD, IMF, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data for developed countries: Government debt


Gross government debt (% of GDP)

US (2) 15,064.8 15,495.4 15,990.8 57.2 57.0 60.6 75.7 84.2 88.0 92.9 96.1 Canada 1,758.7 1,826.2 1,894.9 35.0 32.2 29.9 28.9 34.0 33.9 34.7 35.0 Euro area 13,348.4 13,673.4 13,967.7 68.5 66.3 70.1 79.8 85.3 85.8 88.3 88.9 Austria 425.1 440.8 454.5 62.3 60.2 63.8 69.5 71.8 72.2 73.3 73.7 Belgium 529.0 549.7 567.2 88.0 84.1 89.3 95.9 96.2 97.2 99.2 100.3 Finland 270.6 285.3 295.8 39.6 35.2 33.9 43.3 48.3 49.1 51.8 53.5 France 2,808.3 2,888.9 2,970.3 63.7 64.2 68.2 79.0 82.3 85.4 89.2 91.7 Germany 3,628.6 3,707.8 3,758.6 68.1 65.2 66.7 74.4 83.2 81.7 81.2 79.9 Greece 312.0 306.4 309.6 106.1 107.4 113.0 129.3 144.9 162.8 198.3 198.5 Ireland 222.3 227.4 233.7 24.7 24.8 44.2 65.2 92.5 108.1 117.5 121.1 Italy 2,245.7 2,287.7 2,322.4 106.1 103.1 105.8 115.5 118.4 120.5 120.5 118.7 Luxembourg 62.9 66.1 68.0 6.7 6.7 13.7 14.8 19.1 19.5 20.2 20.3 Netherlands 858.3 881.8 900.6 47.4 45.3 58.5 60.8 62.9 64.2 64.9 66.0 Portugal 241.9 240.6 244.8 63.9 68.3 71.6 83.0 93.3 101.6 111.0 112.1 Spain 1,536.5 1,575.1 1,615.9 39.6 36.2 40.1 53.8 61.0 69.6 73.8 78.0 Norway 479.3 495.6 508.9 55.4 51.5 49.1 43.1 44.0 -- -- -- Sweden 571.6 629.7 671.2 45.0 40.2 38.8 42.7 39.7 36.3 34.6 32.4 United Kingdom 2,481.0 2,603.9 2,742.9 43.4 44.4 54.8 69.6 79.9 83.8 85.0 84.6 Switzerland 665.9 726.5 735.9 47.2 43.4 40.9 38.8 38.2 36.7 36.3 -- Japan (3) 5,855.4 6,125.8 6,248.8 187.6 188.1 196.7 216.1 216.1 231.8 242.8 258.9 Australia (4) 1,507.4 1,572.3 1,635.4 15.5 14.4 13.7 19.4 23.6 26.8 27.9 27.9 New Zealand 168.8 182.7 191.4 21.0 17.9 17.1 23.4 28.3 36.2 37.7 36.1 Emerging Markets (5) 23,212.8 25,717.0 28,761.7 38.3 37.9 36.6 41.4 41.3 39.3 38.9 38.0 Latin America (5) 5,154.1 5,510.9 6,020.1 47.8 47.2 46.4 49.2 45.1 45.2 43.6 42.8 EMEA (5) 5,426.9 5,778.8 6,092.8 28.5 25.1 25.0 29.3 29.2 28.7 28.5 28.5 Emerging Asia (5) 12,631.7 14,427.3 16,648.8 40.6 41.6 39.7 45.1 45.9 42.8 42.5 41.1 (1) IMF World Economic Outlook projections as of September 2011. (2) Fiscal year, general government. (3) Fiscal year, general government (central + local + social security), special factors adjusted. (4) OECD estimates. (5) Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures.

Source: Thomson Reuters DataStream, European Commission, OECD, IMF, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data: GDP growth

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Nominal GDP ($bn)

2011E 2012F 2013F Real GDP growth (% year on year)

LATIN AMERICA 5,154.1 5,510.9 6,020.1 4.4 5.3 5.9 4.4 -1.6 6.4 4.2 3.3 4.1 Argentina 436.5 472.4 512.8 9.2 8.5 8.7 6.8 0.9 9.2 9.1 5.0 4.5 Brazil 2,471.0 2,517.0 2,788.0 3.2 4.0 6.1 5.2 -0.3 7.5 2.7 2.5 4.0 Chile 237.7 255.0 265.1 5.6 4.6 4.6 3.7 -1.7 5.2 6.4 4.0 4.9 Colombia 332.5 386.0 426.6 4.7 6.7 6.9 3.5 1.5 4.3 5.9 5.2 4.5 Mexico 1,153.8 1,229.9 1,387.6 3.2 5.2 3.3 1.2 -6.2 5.5 3.9 3.2 4.1 Panama 30.7 32.5 34.6 7.2 8.5 12.1 10.1 3.9 7.6 10.6 6.0 6.5 Peru 176.9 197.2 215.9 6.8 7.7 8.9 9.8 0.9 8.8 6.9 5.0 5.5 Venezuela 315.1 420.8 389.5 10.3 9.9 8.8 5.3 -3.2 -1.5 4.2 4.5 1.5

EMEA 5,426.9 5,778.8 6,092.8 6.0 7.0 6.0 3.7 -4.0 4.7 5.2 3.6 4.2 Czech Republic 217.5 207.3 214.3 6.3 6.8 6.1 2.5 -4.1 2.3 1.7 0.3 2.6 Hungary 140.6 135.3 141.8 3.5 4.0 1.0 0.6 -6.3 1.2 1.7 1.0 1.8 Israel 242.9 239.9 251.5 4.9 5.6 5.5 4.0 0.8 4.8 4.7 3.0 3.3 Kazakhstan 177.9 206.9 221.2 9.7 10.7 8.7 3.3 1.2 7.3 7.5 6.5 6.7 Poland 520.1 515.0 536.0 3.6 6.2 6.8 5.1 1.7 3.8 4.3 3.0 3.5 Russia 1,850.4 2,051.5 2,144.9 6.4 8.2 8.5 5.2 -7.8 4.3 4.3 3.8 4.8 Saudi Arabia 576.8 627.7 678.6 5.6 3.2 2.0 4.2 0.1 4.6 6.8 4.3 4.5 South Africa 397.2 411.2 450.8 5.3 5.6 5.5 3.6 -1.5 2.9 3.1 3.3 4.0 Turkey 765.8 801.7 853.5 8.4 6.9 4.7 0.7 -4.8 9.0 8.8 4.2 3.8 Ukraine 164.5 172.2 172.4 2.7 7.3 7.6 2.3 -14.8 4.2 5.2 3.0 3.6 United Arab Emirates 373.1 410.2 427.8 4.9 9.9 3.2 3.3 -1.6 1.4 5.4 4.0 4.1

EMERGING ASIA 12,631.7 14,427.3 16,648.8 8.6 10.1 10.9 7.2 6.3 9.2 7.3 6.7 7.1 China 7,028.3 8,202.8 9,600.5 10.4 12.7 14.2 9.6 9.1 10.3 9.2 8.0 8.2 Hong Kong 242.8 258.3 276.1 7.1 7.0 6.4 2.3 -2.6 7.0 5.0 3.0 3.9 India (1) 1,811.6 2,118.3 2,496.0 9.5 9.6 9.3 6.8 8.5 8.0 6.8 7.3 8.2 Indonesia 844.1 923.5 1,018.1 5.7 5.5 6.3 6.0 4.6 6.1 6.5 6.4 6.6 Korea 1,133.8 1,214.3 1,363.6 4.0 5.2 5.1 2.3 0.3 6.2 3.6 3.4 3.9 Malaysia (2) 278.9 322.4 358.0 5.3 5.8 6.3 4.6 -1.6 7.2 5.1 4.8 5.4 Philippines 224.5 241.1 271.0 4.8 5.2 6.6 4.2 1.1 7.6 3.7 3.5 4.3 Singapore 260.6 284.6 315.2 7.4 8.8 8.9 1.7 -1.0 14.8 4.9 3.5 5.0 Taiwan 466.3 479.1 510.9 4.7 5.4 6.0 0.7 -1.8 10.7 4.0 2.8 3.8 Thailand 340.7 382.8 439.5 4.6 5.1 4.9 2.5 -2.2 7.8 0.1 4.5 5.0

Emerging Markets 23,212.8 25,717.0 28,761.7 7.4 8.7 9.0 5.9 2.6 7.6 6.4 5.5 6.0 EM nominal GDP according to the IMF ($bn) (3) 11,742.0 13,793.9 16,829.6 20,228.8 19,119.0 22,033.1 24,115.1 26,276.0 28,623.0 EM nominal GDP as a share of global nominal GDP (%)(3) 25.8 28.0 30.3 33.1 33.1 35.6 36.9 38.0 39.1 EM PPP GDP according to the IMF ($bn) (3) 24,823.7 27,689.0 30,928.1 33,415.2 34,397.2 37,161.3 40,004.1 43,124.2 46,585.9 EM PPP GDP as a share of global PPP GDP (%)(3) 43.8 45.0 46.4 47.8 49.1 50.2 51.2 52.1 53.1 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Revised GDP series with base 2004-05. All historical ratios expressed as % of GDP may appear smaller since the revised GDP values in the new series (with base year of 2004) are higher. (2) Real GDP from 2001 has been rebased to 2000 = 100. (3) Based on GDP data (historical and forecast) from the IMF’s latest World Economic Outlook. We have amended the group of countries that the IMF classifies as emerging markets to include the Czech Republic, Hong Kong, Israel, Korea, Singapore and Taiwan; note that the IMF’s group of emerging markets countries includes many (typically small) economies that are not included in the table above. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IMF World Economic Outlook, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: GDP growth

Q4 10 Q1 11 Q2 11 Q3 11 Q4 11E Q1 12F Q2 12F Q3 12F Q4 12F Nominal GDP ($bn)

2011E 2012F 2013F Real GDP growth (% quarter on quarter, seasonally adjusted annual rate)

LATIN AMERICA 5,123.4 5,478.3 5,985.5 5.4 4.5 3.2 3.2 2.7 3.8 3.5 3.9 4.0 Argentina 436.5 472.4 512.8 12.6 13.4 10.0 4.5 10.0 6.1 5.3 3.2 4.1 Brazil 2,471.0 2,517.0 2,788.0 4.5 2.4 2.0 -0.4 1.2 3.2 3.2 4.1 4.5 Chile 237.7 255.0 265.1 4.5 5.7 5.3 2.4 4.1 2.8 4.5 4.9 4.9 Colombia 332.5 386.0 426.6 12.2 4.4 7.3 7.1 6.1 4.9 4.1 3.2 3.2 Mexico 1,153.8 1,229.9 1,387.6 3.9 2.5 3.3 8.1 1.0 3.3 2.2 3.2 3.3 Peru 176.9 197.2 215.9 6.1 6.6 3.6 6.6 7.0 5.7 4.9 3.6 3.6 Venezuela 315.1 420.8 389.5 0.8 13.9 -3.6 6.6 3.6 4.9 6.1 5.7 2.8

EMEA 4,477.0 4,740.9 4,986.4 7.4 5.1 3.4 4.7 4.9 2.6 3.0 3.4 4.4 Czech Republic 217.5 207.3 214.3 2.3 2.0 1.2 -0.4 -0.5 0.0 0.8 1.2 1.6 Hungary 140.6 135.3 141.8 1.2 2.8 0.4 1.6 1.2 0.8 0.8 0.8 0.8 Israel 242.9 239.9 251.5 7.6 4.7 3.7 3.4 3.2 3.0 3.0 3.0 3.1 Kazakhstan 177.9 206.9 221.2 9.5 6.1 7.4 4.1 5.3 5.7 5.7 5.7 5.3 Poland 520.1 515.0 536.0 3.6 4.1 4.9 4.1 4.5 2.4 2.0 2.0 2.4 Russia 1,850.4 2,051.5 2,144.9 6.9 4.7 3.2 5.6 5.2 2.9 3.5 4.0 5.9 South Africa 397.6 411.2 450.8 4.5 4.6 1.0 1.7 3.2 3.9 3.9 3.8 3.8 Turkey 765.8 801.7 853.5 15.3 7.7 4.3 6.8 8.6 2.0 2.0 3.2 4.1 Ukraine 164.5 172.2 172.4 5.7 8.2 1.8 6.4 2.2 1.6 4.0 3.3 3.5

NON-JAPAN ASIA 12,631.7 14,427.3 16,648.8 6.6 8.8 6.8 6.8 4.7 7.9 7.1 6.8 6.0 China 7,028.3 8,202.8 9,600.5 10.0 8.9 8.8 8.9 8.6 7.2 7.8 7.8 7.6 Hong Kong 242.8 258.3 276.1 6.9 12.4 -2.1 0.5 1.4 2.4 1.3 5.4 3.7 India 1,811.6 2,118.3 2,496.0 -2.2 9.8 7.7 6.4 0.6 11.5 8.6 7.6 2.5 Indonesia 844.1 923.5 1,018.1 6.9 6.0 6.5 6.4 7.0 6.0 6.4 6.2 7.3 Korea 1,133.8 1,214.3 1,363.6 2.0 5.4 3.6 3.2 2.8 2.0 2.9 3.4 3.6 Malaysia 278.9 322.4 358.0 9.8 8.4 2.3 4.8 5.4 4.9 4.9 4.9 4.9 Philippines 224.5 241.1 271.0 2.0 8.1 1.7 1.3 3.7 3.8 4.5 3.7 4.7 Singapore 260.6 284.6 315.2 3.9 19.7 -3.0 2.0 -2.5 2.0 12.6 6.1 6.1 Taiwan 466.3 479.1 510.9 2.3 9.8 2.4 -0.6 -1.0 2.0 2.4 2.4 2.8 Thailand 340.7 382.8 439.5 5.3 8.2 -0.8 3.2 -38.0 47.0 11.7 7.5 3.6

NJA ex-China 5,603.4 6,224.5 7,152.1 2.3 8.7 4.3 4.3 -0.2 8.6 6.3 5.7 4.0

NJA ex-China and India 3,791.8 4,106.2 4,598.3 3.6 6.5 3.0 3.1 -0.8 7.0 5.0 4.0 4.2

Emerging Markets 22,232.2 24,646.6 27,620.7 6.5 7.1 5.3 5.6 4.3 5.9 5.5 5.5 5.2

EM ex-China 15,203.8 16,443.8 18,020.3 4.9 6.2 3.7 4.0 2.3 5.2 4.4 4.4 4.1

EM ex-China and India 13,392.2 14,325.4 15,524.3 5.5 5.3 3.2 3.7 2.5 4.3 3.8 3.8 4.2 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data: Inflation

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F CPI inflation (% change, December over December)

LATIN AMERICA 5.9 4.6 5.8 7.8 5.1 6.7 7.0 6.1 5.9 Argentina 12.3 9.9 8.5 7.2 7.7 10.9 9.5 9.1 9.0 Brazil 5.7 3.1 4.5 5.9 4.3 5.9 6.5 5.0 4.8 Chile 3.7 2.6 7.8 7.1 -1.4 3.0 4.4 4.1 3.0 Colombia 4.9 4.5 5.7 7.7 2.0 3.2 3.7 3.0 3.0 Mexico 3.3 4.1 3.8 6.5 3.6 4.4 3.8 3.8 3.5 Panama 3.5 2.2 6.4 6.8 1.9 4.9 6.3 5.2 4.0 Peru 1.5 1.1 3.9 6.7 0.2 2.1 4.7 2.8 2.0 Venezuela 14.4 17.0 22.5 31.9 26.9 27.4 29.0 28.9 30.0

EMEA 6.3 6.5 9.0 9.8 6.0 5.9 5.8 5.0 5.1 Czech Republic 2.2 1.7 5.4 3.6 1.0 2.3 2.4 1.9 1.9 Hungary 3.3 6.5 7.4 3.5 5.6 4.7 4.1 3.0 3.0 Israel 2.4 -0.1 3.4 3.8 3.9 2.7 2.2 2.8 2.1 Kazakhstan 7.6 8.4 18.8 9.5 6.2 8.0 7.4 6.9 7.3 Poland 0.7 1.4 4.0 3.3 3.5 3.1 4.6 2.5 2.5 Russia 10.9 9.0 11.9 13.3 8.8 8.8 6.1 6.1 5.8 Saudi Arabia 1.2 2.9 6.5 9.0 4.2 5.5 5.3 4.2 5.2 South Africa 2.0 4.7 7.4 9.0 6.3 3.5 6.1 5.5 5.5 Turkey 7.7 9.7 8.4 10.1 6.5 6.4 10.4 6.5 6.5 Ukraine 10.3 11.6 16.6 22.3 12.3 9.1 4.6 6.0 7.4 United Arab Emirates na na na na -0.3 1.7 0.2 3.6 4.3

EMERGING ASIA 3.4 3.5 5.9 2.4 3.2 5.0 4.4 4.5 4.9 China 1.6 2.8 6.5 1.2 1.9 4.6 4.1 4.4 4.9 Hong Kong 1.4 2.3 3.8 2.1 1.3 3.0 5.7 5.0 4.9 India 4.2 6.7 7.7 1.6 10.4 9.7 6.5 6.0 7.5 Indonesia 17.1 6.6 6.6 10.2 2.8 7.0 3.9 7.3 6.1 Korea 2.6 2.1 3.6 4.1 2.8 3.0 4.2 3.2 3.2 Malaysia 3.3 3.1 2.4 4.5 1.0 2.1 3.0 2.8 2.5 Philippines 6.7 4.3 3.9 8.0 4.3 3.1 4.0 3.6 4.6 Singapore 1.3 0.8 3.7 5.5 -0.5 4.6 5.5 2.9 2.0 Taiwan 2.2 0.7 3.3 1.3 -0.2 1.0 2.1 1.7 2.2 Thailand 5.8 3.5 3.2 0.4 3.5 3.0 3.5 3.5 3.8

Emerging Markets 4.4 4.4 6.7 5.0 4.2 5.5 5.1 4.8 5.1 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Current account balance

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Current account balance (% of GDP)

LATIN AMERICA 1.8 1.8 0.5 -0.9 -0.5 -1.0 -1.1 -1.4 -1.8 Argentina 2.9 3.7 2.8 2.1 3.6 0.8 0.4 -0.2 -0.3 Brazil 1.6 1.3 0.1 -1.7 -1.5 -2.2 -2.1 -2.2 -2.5 Chile 1.2 4.9 4.5 -1.9 1.6 1.9 -1.8 -1.9 -3.4 Colombia -1.3 -1.6 -2.9 -2.8 -2.1 -3.1 -2.6 -2.4 -2.7 Mexico -0.7 -0.5 -0.9 -1.4 -0.6 -0.3 -0.8 -1.0 -1.8 Panama -5.1 -2.6 -7.2 -11.8 -0.7 -10.8 -12.7 -12.9 -12.4 Peru 1.4 3.1 1.4 -4.2 0.2 -1.7 -1.3 -1.6 -2.0 Venezuela 17.6 14.4 7.5 10.9 1.8 5.1 8.6 5.5 5.2

EMEA 5.9 4.9 2.1 2.8 0.9 1.6 2.8 2.9 1.1 Czech Republic -1.3 -2.5 -3.3 -0.6 -1.1 -3.1 -2.2 -2.4 -2.3 Hungary -7.5 -7.4 -7.3 -7.3 -0.1 1.1 1.4 0.4 0.0 Israel 3.2 5.1 2.9 0.8 3.6 2.9 -0.6 1.0 1.9 Kazakhstan -1.8 -2.4 -6.9 4.7 -3.7 2.9 5.1 7.8 3.9 Poland -2.4 -3.9 -6.2 -6.6 -3.9 -4.5 -4.1 -5.0 -4.9 Russia 11.1 9.6 6.0 6.2 4.0 4.7 5.5 5.0 1.9 Saudi Arabia 28.5 27.8 24.3 27.8 5.6 14.8 26.3 26.1 19.0 South Africa -3.5 -5.3 -7.0 -7.2 -4.0 -2.8 -3.6 -4.0 -4.2 Turkey -4.6 -6.1 -5.9 -5.6 -2.2 -6.3 -10.1 -7.7 -6.7 Ukraine 3.1 -1.5 -4.1 -7.1 -1.5 -2.2 -5.6 -6.5 -7.2 United Arab Emirates 13.5 16.2 7.6 7.1 2.9 3.8 13.6 12.1 9.2

EMERGING ASIA 4.9 6.6 7.4 5.9 4.5 4.2 2.6 1.9 1.6 China 7.0 9.0 10.1 9.1 5.1 5.2 2.9 2.1 1.6 Hong Kong 11.3 12.1 12.4 14.3 5.8 4.9 3.2 1.9 0.9 India -1.2 -1.0 -1.3 -2.3 -2.8 -2.6 -3.2 -2.5 -2.8 Indonesia (1) 0.1 3.0 2.4 0.0 2.0 0.7 0.2 -0.7 -1.5 Korea 2.2 1.5 2.1 0.3 4.0 2.9 2.4 1.8 1.7 Malaysia 15.0 16.7 15.9 17.7 16.5 11.4 11.5 10.3 9.0 Philippines 1.9 4.4 4.7 2.1 5.6 4.2 2.1 2.7 2.9 Singapore 21.4 24.6 25.9 13.6 16.5 24.9 21.9 20.3 19.7 Taiwan 4.8 7.0 8.9 6.9 11.4 9.3 8.8 8.0 7.2 Thailand -4.3 1.1 5.9 0.6 8.3 4.6 3.5 0.5 2.0

Emerging Markets 4.8 5.5 5.2 4.3 2.9 2.9 2.2 1.8 1.0 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Balance of payments numbers from 2004 onwards have been revised; exports & imports include credits & debits on net income, respectively, in 2000-03. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Exports

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Exports of goods and services (% of GDP)

LATIN AMERICA 21.9 21.9 21.3 21.5 18.7 19.8 21.1 21.3 21.8 Argentina 25.9 25.7 25.4 25.2 21.7 22.0 22.6 21.2 20.7 Brazil 15.3 14.5 13.5 13.9 11.2 10.9 11.9 12.3 13.3 Chile 40.9 45.3 46.8 45.2 38.8 40.2 40.0 39.5 41.6 Colombia 16.7 14.9 16.5 17.5 16.2 15.7 18.9 17.8 17.2 Mexico 27.1 27.9 27.9 28.3 27.7 30.3 31.6 34.1 33.8 Panama 68.6 72.8 73.3 70.0 72.7 70.5 78.6 79.4 80.9 Peru 24.8 28.7 29.2 27.3 24.1 25.5 28.6 27.3 26.9 Venezuela 34.3 32.4 28.0 28.9 17.1 27.1 28.6 22.8 24.1

EMEA 40.9 41.6 41.2 42.9 38.1 40.2 42.7 43.7 43.2 Czech Republic 66.1 70.6 74.9 72.0 61.3 76.9 74.5 74.4 74.0 Hungary 67.6 77.5 81.6 82.7 79.1 87.3 90.8 93.7 95.5 Israel 42.8 43.0 42.7 40.4 34.8 36.9 36.2 38.6 39.4 Kazakhstan 53.5 51.1 49.4 57.2 42.0 44.0 44.4 44.9 48.0 Poland 37.0 40.4 41.0 40.4 39.7 42.3 44.0 45.6 45.1 Russia 35.2 33.8 30.3 31.5 28.2 30.0 31.1 31.4 28.8 Saudi Arabia 60.9 63.2 64.8 67.8 53.6 58.1 66.5 67.1 61.7 South Africa 27.4 30.0 31.5 35.8 27.4 26.9 29.4 32.8 35.6 Turkey 21.7 22.5 22.3 24.0 23.3 21.2 23.8 24.8 25.8 Ukraine 54.2 47.2 44.7 47.7 47.7 54.0 53.9 59.3 67.8 United Arab Emirates 67.6 68.6 72.3 79.0 74.7 75.3 82.7 81.9 84.5

EMERGING ASIA 45.5 47.1 46.8 47.1 39.0 42.9 43.9 43.2 42.6 China 36.3 38.2 38.4 34.9 26.3 29.9 29.7 27.1 25.0 Hong Kong 198.7 205.5 207.3 212.4 195.0 223.1 229.7 231.8 230.3 India 19.5 21.3 20.6 24.2 20.0 22.1 25.7 25.2 25.7 Indonesia (1) 35.1 31.5 30.3 30.5 24.5 24.7 26.3 26.7 28.1 Korea 40.2 41.4 44.1 56.5 52.0 54.2 57.2 62.0 64.4 Malaysia 117.6 116.5 110.4 103.3 96.7 96.5 94.2 92.0 90.7 Philippines 43.4 43.3 39.5 33.5 29.0 32.0 28.0 26.3 25.6 Singapore 229.7 234.1 218.0 233.9 201.1 211.5 209.0 208.8 206.5 Taiwan 61.4 67.2 71.2 72.9 62.3 73.0 75.7 80.4 88.8 Thailand 73.5 73.8 68.6 75.8 68.5 71.4 78.7 80.1 80.6

Emerging Markets 41.3 42.5 42.1 42.8 36.2 39.3 40.8 40.6 40.2 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Balance of payments numbers from 2004 onwards have been revised; exports & imports include credits & debits on net income, respectively, in 2000-03. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Fiscal balance

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F General government fiscal balance (% of GDP)

LATIN AMERICA -1.3 -1.4 -1.0 -0.9 -3.2 -2.3 -2.3 -2.3 -2.0 Argentina 2.1 1.9 1.1 0.8 -1.6 0.4 -2.1 -0.6 -1.1 Brazil -3.6 -3.6 -2.8 -2.0 -3.3 -2.5 -2.6 -2.3 -2.0 Chile 4.5 7.7 8.2 4.3 -4.5 -0.5 1.4 0.5 0.5 Colombia -2.1 -2.4 -1.7 -0.6 -2.7 -3.1 -2.2 -2.0 -1.9 Mexico (1) -0.1 0.1 0.0 -0.1 -2.3 -2.9 -2.5 -2.5 -2.4 Panama -2.5 0.5 3.5 0.4 -1.0 -1.9 -2.3 -2.1 -1.6 Peru -0.5 1.8 3.1 2.4 -1.5 -0.2 1.8 1.2 0.8 Venezuela (2) 4.1 -1.5 -2.6 -3.5 -8.7 -4.9 -5.5 -8.5 -6.0

EMEA 4.2 4.8 3.2 4.5 -6.6 -3.2 0.7 0.0 -0.9 Czech Republic (3) -3.6 -2.6 -0.7 -2.7 -5.8 -4.8 -4.2 -3.2 -2.9 Hungary (4) -7.9 -9.3 -5.1 -3.7 -4.6 -4.2 -4.5 -2.7 -1.5 Israel -1.8 -0.4 0.4 -2.1 -5.1 -3.7 -3.3 -3.3 -2.5 Kazakhstan (5) 5.1 7.4 4.4 1.8 -1.4 2.6 3.3 2.8 2.7 Poland (3) -4.1 -3.6 -1.9 -3.7 -7.3 -7.8 -5.6 -3.7 -2.9 Russia (6) 9.0 8.4 6.0 4.8 -6.3 -3.5 1.6 -1.2 -2.9 Saudi Arabia 18.4 21.0 12.2 32.5 -6.1 5.2 14.1 12.2 7.2 South Africa (7) -0.3 0.7 0.9 -1.1 -6.5 -4.2 -4.8 -4.6 -4.0 Turkey (8) -0.6 0.0 -1.2 -1.9 -4.9 -3.2 -0.7 -0.4 -0.3 Ukraine (9) -2.4 -1.4 -2.0 -3.2 -6.2 -5.5 -1.8 -2.7 -2.1 United Arab Emirates 6.0 9.2 7.3 13.5 -17.0 -5.9 4.8 5.7 3.6

EMERGING ASIA -1.6 -1.2 -0.3 -1.7 -3.5 -2.3 -2.1 -2.5 -2.2 China -1.2 -0.8 0.6 -0.4 -2.2 -1.6 -1.1 -1.6 -1.4 Hong Kong 1.0 4.0 7.7 0.1 1.6 4.3 3.5 -0.2 -0.2 India (10) -6.5 -5.4 -5.0 -8.7 -9.5 -7.4 -8.2 -8.3 -7.8 Indonesia (11) -0.5 -0.9 -1.3 -0.1 -1.6 -0.7 -1.2 -2.0 -1.8 Korea (12) 1.6 1.5 1.9 -0.3 -2.7 -0.5 0.6 0.9 1.1 Malaysia (13) -4.2 -3.5 -3.7 -4.8 -7.0 -5.8 -5.0 -5.0 -4.5 Philippines -2.6 -1.1 -1.5 -1.3 -3.7 -3.5 -2.0 -2.5 -1.8 Singapore 0.7 0.0 2.8 -0.3 -0.3 0.5 0.7 0.4 -0.2 Taiwan (14) -0.6 -0.3 -0.4 -0.9 -4.5 -3.3 -3.1 -2.3 -2.1 Thailand (15) 0.3 -0.7 -1.6 -1.0 -5.7 -0.9 -2.7 -3.5 -2.5

Emerging Markets -0.1 0.4 0.5 0.0 -4.3 -2.6 -1.4 -1.8 -1.8 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Narrow definition that excludes off-balance expenditures. (2) Consolidation of Central Government, PDVSA, Non-Financial Public Enterprises, Venezuelan Social Security Institute and Deposit and Guarantee Fund. (3) ESA95 represents consolidated fiscal accounts of the general government on an accrual basis, while the central government balance has a narrower definition and is reported on a cash basis. (4) ESA95 consolidated fiscal accounts of the general government excluding one-off transfers from pension funds to the government budget as revenues. (5) Consists of the state budget and the National Oil Fund. (6) Net of bank recapitalization costs. (7) Data for fiscal years starting 1 April. Selected data refer to the government’s consolidated fiscal balances from 2009. (8) The definition of the consolidated government comprises the central government, extra-budgetary funds, state-owned enterprises, social security institutions and the Unemployment Insurance Fund. The data for government spending and gross debt are for the central government. (9) Excluding impact of bank recapitalization and transfers to Naftogaz. Estimate for 2011 expenditure includes 0.8% of GDP of additional allocations for settlement of VAT arrears accumulated in 2010. (10) Prior to 2006 and again effective from 2009, these estimates include revenue from disinvestments (in line with government methodology). (11) Refers to central government. (12) General government statistics as interpreted by the Korea government (13) Refers to the federal government’s financial position. The government assumed an average oil price of $85 per barrel for 2011 in its 2011 budget. (14) General government statistics as interpreted by the Taiwan government. (15) Data for central government, based on cash basis prior to 2004, based on fiscal year ending September. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Government expenditure

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F General government expenditure (% of GDP)

LATIN AMERICA 30.3 30.9 30.7 31.0 32.7 32.1 32.9 33.6 33.1 Argentina 27.0 27.9 31.4 32.8 36.6 37.7 40.8 40.5 41.0 Brazil (1) 37.5 38.0 37.1 36.5 37.7 37.3 38.3 39.1 38.4 Chile 19.3 18.1 18.7 21.2 24.8 23.5 22.5 23.4 23.8 Colombia 26.1 26.4 26.5 25.6 27.5 26.2 26.6 27.3 27.6 Mexico 21.2 21.7 21.9 23.6 25.9 25.5 25.3 25.2 25.1 Panama 25.0 24.5 24.7 25.7 27.0 27.8 27.6 30.5 30.2 Peru 18.9 18.2 17.8 18.9 20.5 20.3 19.2 19.8 20.3 Venezuela (2) 33.7 39.4 35.5 35.6 33.3 29.2 32.2 35.9 33.0

EMEA 32.5 32.3 33.6 34.6 40.3 38.0 36.4 36.6 35.9 Czech Republic (3) 43.0 42.0 41.0 41.1 44.9 44.1 44.4 43.4 43.0 Hungary (4) 50.1 52.1 50.6 49.2 51.4 49.5 47.9 45.4 44.3 Israel 34.1 33.3 32.5 32.2 31.9 31.2 30.8 30.5 30.4 Kazakhstan (5) 27.4 22.3 26.4 33.9 31.7 30.5 30.0 29.1 22.5 Poland (3) 43.4 43.9 42.2 43.2 44.5 45.4 45.2 44.8 44.0 Russia (6) 31.6 31.1 34.2 34.3 41.4 38.3 36.8 36.5 35.9 Saudi Arabia 29.3 29.4 32.3 29.1 42.2 38.7 37.2 40.2 40.3 South Africa (7) 25.8 25.7 26.1 30.8 33.7 31.7 32.5 33.4 32.0 Turkey (8) 31.8 32.7 33.3 33.8 37.3 34.8 32.1 32.5 32.6 Ukraine 46.5 45.3 43.8 47.4 48.4 51.1 41.7 43.0 40.3 United Arab Emirates 15.7 15.4 16.8 23.8 40.8 33.2 29.6 29.4 29.3

EMERGING ASIA 18.4 18.6 18.8 20.0 21.4 21.1 19.2 19.4 19.3 China 18.0 18.2 18.7 19.9 22.0 22.7 19.0 19.5 19.5 Hong Kong 16.9 15.5 14.6 18.8 18.0 17.3 19.3 19.5 18.3 India 13.7 13.6 14.3 15.8 15.6 15.2 15.9 16.1 16.2 Indonesia (9) 18.4 20.0 19.2 19.9 16.7 16.2 17.0 18.0 19.0 Korea (10) 28.4 29.2 28.0 29.6 31.0 27.7 26.3 25.5 24.8 Malaysia (11) 24.7 25.0 25.4 26.4 30.3 26.7 26.9 24.6 23.1 Philippines 17.0 16.7 16.7 16.5 17.7 16.9 15.7 16.5 15.6 Singapore 13.4 12.6 12.1 14.3 15.3 16.5 14.5 15.4 13.7 Taiwan (12) 19.5 18.1 17.7 18.6 21.4 18.9 18.9 18.5 18.8 Thailand (13) 18.0 18.1 19.0 17.9 21.7 18.0 20.7 20.9 20.0

Emerging Markets 23.6 23.8 24.2 25.2 27.8 26.9 25.4 25.7 25.4 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Total government expenditures; includes interest payments. (2) Consolidation of Central Government, PDVSA, Non-Financial Public Enterprises, Venezuelan Social Security Institute and Deposit and Guarantee Fund. (3) ESA95 represents consolidated fiscal accounts of the general government on an accrual basis, while the central government balance has a narrower definition and is reported on a cash basis. (4) ESA95 represents consolidated fiscal accounts of the general government on an accrual basis. (5) Consists of the state budget and the National Oil Fund. (6) Net of bank recapitalization costs. (7) Data for fiscal years starting 1 April. Selected data refer to the government’s consolidated fiscal balances from 2009. (8) The definition of the consolidated government comprises the central government, extra-budgetary funds, state-owned enterprises, social security institutions and the Unemployment Insurance Fund. The data for government spending and gross debt are for the central government. (9) Refers to central government. (10) General government statistics as interpreted by the Korea government (11) Refers to the federal government’s financial position. The government assumed an average oil price of $85 per barrel for 2011 in its 2011 budget. (12) General government statistics as interpreted by the Taiwan government. (13) Data for central government, based on cash basis prior to 2004, based on fiscal year ending September. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Government debt

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Consolidated gross government debt (% of GDP)

LATIN AMERICA 49.5 47.8 47.2 46.4 49.2 45.1 45.2 43.6 42.8 Argentina (1) 88.5 81.6 71.1 57.4 61.7 51.2 44.4 42.8 40.7 Brazil (2) 56.7 56.4 58.0 57.4 60.9 53.4 54.3 52.0 51.0 Chile (3) 7.3 5.3 4.1 5.2 6.2 9.2 11.0 11.3 11.8 Colombia 50.8 47.5 43.8 42.6 44.8 45.8 44.5 44.0 43.8 Mexico (4) 33.8 33.6 33.7 38.9 39.7 38.5 39.6 39.2 38.1 Panama 66.2 61.0 53.7 45.4 45.4 43.7 41.8 38.8 37.2 Peru 37.8 33.0 29.8 24.1 27.2 23.4 21.7 20.0 18.2 Venezuela (5) 34.9 25.6 26.3 18.8 24.8 35.1 36.2 32.4 36.0

EMEA 32.7 28.5 25.1 25.0 29.3 29.2 28.7 28.5 28.5 Czech Republic 28.4 28.3 27.9 28.7 34.4 37.6 40.9 43.0 43.9 Hungary (6) 61.7 65.9 67.0 72.9 79.7 81.3 76.4 76.3 76.5 Israel 91.7 82.8 76.2 75.3 77.8 74.5 73.3 71.3 69.5 Kazakhstan 10.3 11.9 7.7 8.8 13.7 15.7 18.1 19.6 12.7 Poland (7) 47.1 47.7 45.0 47.1 50.9 54.9 57.4 59.4 60.2 Russia 14.1 9.2 7.4 6.1 7.7 8.1 8.5 8.6 10.3 Saudi Arabia 40.2 27.4 18.5 13.3 16.1 10.2 6.7 6.9 6.2 South Africa (8) 32.8 30.1 27.6 27.2 33.0 36.0 39.4 40.8 41.9 Turkey 51.1 45.6 39.6 40.0 46.3 42.9 39.9 36.4 34.1 Ukraine 21.0 16.0 13.2 15.5 31.6 41.1 37.7 38.5 40.5 United Arab Emirates 9.2 10.1 9.7 15.1 22.2 20.5 16.8 16.2 15.4

EMERGING ASIA 40.5 40.6 41.6 39.7 45.1 45.9 42.8 42.5 41.1 China (9) 29.8 31.6 35.3 32.5 40.5 44.8 42.1 41.1 39.5 Hong Kong (10) 1.8 1.5 1.2 1.0 0.7 0.6 1.1 1.3 1.3 India 80.9 78.5 75.4 74.7 74.2 67.3 65.0 63.5 62.0 Indonesia (11) 47.0 39.5 34.2 29.5 31.3 26.4 24.0 21.0 20.0 Korea (12) 29.8 33.8 36.3 36.2 39.4 37.8 35.6 32.7 29.4 Malaysia (13) 43.8 42.2 41.5 41.4 53.3 55.3 55.8 56.0 55.6 Philippines 68.5 66.4 53.9 54.7 54.8 52.3 0.5 49.0 48.0 Taiwan (14) 50.6 47.9 43.4 46.2 49.8 49.1 52.1 53.0 55.7 Thailand (15)( 16) 47.3 42.0 38.3 37.3 45.2 42.6 42.3 43.1 41.6

Emerging Markets 39.6 38.3 37.9 36.6 41.4 41.3 39.3 38.9 38.0 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Debt data assumes that Paris Club debt is rescheduled in 2012. (2) Figures related to the Central Bank's new methodology. (3) Excludes debt of the central bank (4) Includes all contingent liabilities associated with IPAB, Pidiregas, FARAC, financial intermediation and other debtor support programs. (5) Central government, regional governments, PDVSA; does not include liabilities of other public institutions such as the Central bank, National Development Bank, Foreign Trade Bank, Industrial Bank of Venezuela and Andean Region Development Bank. (6) ESA95 represents consolidated fiscal accounts of the general government on an accrual basis. (7) ESA95 represents consolidated fiscal accounts of the general government on an accrual basis, while the central government balance has a narrower definition and is reported on a cash basis. (8) Data for fiscal years starting 1 April. Selected data refer to the government’s consolidated fiscal balances from 2009. (9) Include Treasury bond, foreign state debt owed by the State Council, and local government bonds. (10) Also includes debt issued under the Government Bond Program. Excludes debt guaranteed by the government. (11) Refers to central government. (12) General government statistics as interpreted by the Korea government (13) Refers to the federal government’s financial position. The government assumed an average oil price of $85 per barrel for 2011 in its 2011 budget. (14) General government statistics as interpreted by the Taiwan government. (15) Data for central government, based on cash basis prior to 2004, based on fiscal year ending September. (16) Includes central government, non-financial SOEs and financial institution development fund. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Foreign debt

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Total foreign debt (% of GDP)

LATIN AMERICA 26.3 22.1 21.2 19.4 22.6 22.1 20.9 20.5 20.0 Argentina 70.2 58.5 53.5 46.1 47.6 38.1 32.7 30.1 27.4 Brazil 21.3 18.3 17.6 15.9 17.0 16.3 16.3 17.4 17.4 Chile 39.1 33.7 33.9 37.4 45.2 42.6 42.2 42.4 43.1 Colombia 26.3 21.0 21.5 19.0 22.8 22.5 20.6 18.5 16.8 Mexico 15.1 12.5 12.3 11.8 18.7 19.0 17.9 17.4 15.9 Panama (1) 49.0 45.4 42.5 36.9 42.0 39.3 35.6 32.2 30.3 Peru 36.1 31.3 30.7 27.5 28.1 26.2 24.4 22.7 21.1 Venezuela 31.1 22.8 22.2 20.8 24.4 39.3 34.1 27.5 30.9


EMERGING ASIA 18.6 17.9 18.1 16.3 17.2 16.8 16.9 15.7 14.3 China 12.2 11.6 11.1 8.6 8.4 9.4 10.2 9.3 8.5 Hong Kong 25.2 28.5 41.3 23.3 19.2 24.7 22.6 21.1 19.6 India 16.7 18.2 18.1 18.7 18.9 17.7 18.8 17.5 16.0 Indonesia 45.9 35.2 31.7 29.4 31.9 28.3 24.9 23.8 22.6 Korea 19.1 23.7 31.8 34.2 41.6 35.6 35.1 32.3 28.4 Malaysia 37.9 33.4 30.4 30.6 35.2 31.1 29.1 25.9 23.6 Philippines 52.5 43.6 36.6 31.4 32.7 30.0 27.8 26.5 24.5 Taiwan 23.7 22.8 24.0 22.6 21.7 23.6 20.5 20.5 20.0 Thailand 34.7 33.8 28.1 27.6 28.5 30.4 31.3 29.3 26.2

Emerging Markets 23.9 23.7 24.7 22.8 25.7 24.6 23.6 22.6 21.4 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Non-financial public sector. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Exchange rates

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Exchange rate (end-year)

LATIN AMERICA Argentina (per USD) 3.03 3.06 3.15 3.45 3.78 3.98 4.30 4.55 4.80 Brazil (per USD) 2.34 2.14 1.77 2.34 1.74 1.67 1.88 1.75 1.75 Chile (per USD) 514.00 513.55 498.10 638.50 507.45 468.00 521.46 490.00 510.00 Colombia (per USD) 2,285 2,240 2,018 2,250 2,043 1,908 1,938 1,740 1,720 Mexico (per USD) 10.78 10.88 10.87 13.54 13.08 12.37 13.97 12.30 12.00 Panama (per USD) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Peru (per USD) 3.43 3.20 3.00 3.14 2.88 2.81 2.70 2.65 2.60 Venezuela (per USD) (1) 2.15 2.15 2.15 2.15 2.15 4.30 4.30 4.30 6.15

EMEA Czech Republic (per EUR) 29.07 27.49 26.52 26.85 26.40 25.00 25.60 24.20 24.20 Hungary (per EUR) 252.32 251.18 252.26 265.60 270.51 279.00 315.00 280.00 280.00 Israel (per USD) 4.60 4.23 3.85 3.80 3.78 3.55 3.82 3.85 3.80 Kazakhstan (per USD) 133.77 127.00 120.30 120.77 148.46 147.50 146.50 145.50 145.70 Poland (per EUR) 3.85 3.83 3.60 4.15 4.11 3.96 4.47 4.10 4.10 Russia (against basket) (2) 30.91 29.70 29.62 34.66 36.12 35.50 36.50 35.50 36.00 Saudi Arabia (per USD) 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 South Africa (per USD) 6.32 6.97 6.81 9.53 7.38 6.63 8.09 7.50 7.80 Turkey (against basket) (3) 1.47 1.64 1.44 1.83 1.83 1.80 2.18 2.10 2.20 Ukraine (per USD) 5.03 5.06 5.05 7.82 8.05 7.94 8.04 8.70 9.06 United Arab Emirates (per USD) 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67

EMERGING ASIA China (per USD) 8.07 7.80 7.29 6.82 6.83 6.62 6.35 6.18 6.00 Hong Kong (per USD) 7.75 7.78 7.78 7.75 7.76 7.77 7.78 7.80 7.80 India (per USD) 44.61 43.59 39.97 50.95 45.14 44.65 49.00 47.00 46.00 Indonesia (per USD) 9,830 9,020 9,419 10,950 9,400 8,991 9,068 9,050 9,500 Korea (per USD) 1,013 929.60 938.20 1,258 1,168 1,139 1,153 1,030 1,030 Malaysia (per USD) 3.78 3.53 3.31 3.46 3.42 3.06 3.17 2.92 2.85 Philippines (per USD) 53.07 49.13 41.40 47.49 46.36 43.89 43.93 42.30 41.00 Singapore (per USD) 1.66 1.53 1.44 1.44 1.40 1.28 1.30 1.23 1.18 Taiwan (per USD) 32.80 32.59 32.42 33.15 32.28 30.55 30.30 29.20 29.20 Thailand (per USD) 41.06 35.73 29.58 34.68 33.20 30.09 31.00 30.50 29.50 (1) Expressed in strong bolivares for all years, though the change took place in January 2008. (2) The basket comprises $0.55 and €0.45. Our forecasts for the USDRUB exchange rate are derived from our basket exchange rate forecasts and Credit Suisse's EURUSD forecasts. (3) The basket exchange rate is the average of USDTRY and EURTRY exchange rates. Our forecasts for USDTRY are derived from our basket exchange rate forecasts and Credit Suisse's EURUSD forecasts. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Interest rates

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Interest rate (end-year, %)

LATIN AMERICA 12.35 10.09 9.65 11.75 7.29 8.39 8.73 7.39 7.60 Argentina - Central bank's 7 day repo rate 6.00 8.30 10.30 13.00 11.50 11.50 11.50 11.50 11.50 Brazil - Selic interest rate 18.00 13.25 11.25 13.75 8.75 10.75 11.00 8.50 8.50 Chile - Monetary policy rate 4.50 5.25 6.00 8.25 0.50 3.25 5.25 5.00 5.00 Colombia - Reference rate 6.00 7.50 9.50 9.50 3.50 3.00 4.75 5.50 5.50 Mexico - Reference rate 8.25 7.00 7.50 8.25 4.50 4.50 4.50 3.75 4.50 Panama - 90 day deposit rate at comm banks 2.73 4.14 4.18 2.88 2.54 2.05 1.40 1.50 2.00 Peru - Reference rate 3.25 4.50 5.00 6.50 1.25 3.00 4.25 3.75 3.75 Venezuela - 90 day deposit rate at comm banks 11.74 10.20 10.89 17.60 15.00 15.00 14.50 14.50 15.00

EMEA 5.19 6.70 6.84 7.70 4.22 3.65 4.08 4.02 4.26 Czech Republic - Two-week repo rate 2.00 2.75 3.50 2.25 1.00 0.75 0.75 1.00 1.50 Hungary - Two-week deposit rate 6.00 8.00 7.50 10.00 6.00 5.75 7.00 6.00 5.00 Israel - Base rate 4.50 5.00 4.00 2.50 1.00 2.00 2.75 2.25 3.00 Kazakhstan - Refinancing rate (1) 8.00 9.00 11.00 10.50 7.00 7.00 7.50 7.00 7.00 Poland – One-week reference rate 4.50 4.00 5.00 5.00 3.50 3.50 4.50 4.50 5.00 Russia - Overnight deposit rate 0.50 2.25 2.75 6.75 3.50 2.75 4.00 4.00 4.25 Saudi Arabia - Three-month deposit rate 3.75 5.02 4.79 2.89 1.33 0.74 0.69 0.82 0.81 South Africa - Repo rate 7.00 9.00 11.00 11.50 7.00 5.50 5.50 5.50 6.50 Turkey - One-week repo rate (2) 15.35 18.38 16.73 15.64 7.11 6.50 5.75 5.75 5.75 Ukraine - Discount rate 9.50 9.00 8.00 12.00 10.25 7.75 7.75 7.50 7.50 United Arab Emirates - Three-month deposit rate 3.58 5.21 5.14 2.82 2.40 2.22 1.72 1.56 1.53

EMERGING ASIA 4.49 4.05 4.76 2.75 2.30 4.23 5.00 4.75 4.92 China - 3-month interbank rate 3.60 2.81 4.43 1.90 1.83 4.62 5.47 5.42 5.67 Hong Kong - 3-month HIBOR 4.23 3.90 3.45 0.95 0.13 0.30 0.30 0.30 0.30 India - Reverse repo rate (3) 5.50 6.00 6.00 3.50 3.50 5.75 7.25 5.75 5.75 Indonesia - Overnight rate (4) 12.75 9.75 8.00 9.25 6.50 6.50 6.00 6.25 6.50 Korea - Overnight base rate (%, end year) 3.75 4.50 5.00 3.00 2.00 2.50 3.25 3.25 3.25 Malaysia - Overnight policy rate (5) 3.00 3.50 3.50 2.50 2.00 2.75 3.00 3.00 3.00 Philippines - Overnight borrowing rate 7.50 7.50 5.45 5.86 4.00 4.00 4.25 4.00 4.25 Singapore - 3-month SIBOR 3.25 3.44 2.38 0.96 0.70 0.44 0.38 0.38 0.38 Taiwan - Overnight rate 1.47 1.69 2.08 0.87 0.11 0.25 0.40 0.40 0.40 Thailand - Overnight repo rate (6) 4.00 5.00 3.25 2.75 1.25 2.00 3.25 2.75 3.25 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years.(1) The central bank 1-month deposit rate equals half of the refinancing rate and until the banking crisis in the summer of 2007 represented a more effective policy instrument. (2) The monetary policy committee changed the definition of the policy rate on 18 May 2010 to the one-week repo rate from central bank’s overnight borrowing rate previously. (3) The RBI uses a mix of instruments, such as the repo rate, reverse repo rate, CRR (cash reserve ratio), etc. (4) BI changed its policy target from 1m SBI rate to overnight rate in 2008. (5) BNM changed the policy rate from the intervention rate to the overnight rate in May 2004. (6) Through 2006, the policy rate was the 14-day repo rate. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Domestic credit

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Domestic credit (% of GDP)



EMERGING ASIA 109.6 109.1 107.5 106.0 118.5 122.8 125.5 124.4 123.3 China 131.6 130.3 127.8 120.5 139.6 149.0 150.9 147.5 143.4 Hong Kong 142.7 135.0 125.7 124.9 168.8 200.1 218.0 226.8 237.7 India 70.3 72.1 73.0 80.1 81.6 81.3 84.8 88.5 92.3 Indonesia 32.5 29.4 28.8 26.3 26.1 25.0 26.5 27.2 28.2 Korea 91.4 99.9 101.8 112.3 112.4 103.2 101.9 102.4 105.1 Malaysia 122.4 119.0 113.4 115.3 137.0 131.6 130.5 124.5 122.8 Philippines 51.5 49.9 47.6 49.8 51.6 50.6 47.2 47.0 45.9 Singapore 62.1 62.6 69.6 77.2 90.7 85.7 93.6 91.7 92.6 Taiwan 146.0 143.4 139.4 146.3 149.1 145.9 152.4 155.9 157.9 Thailand 119.2 109.0 104.2 105.4 110.6 109.0 123.0 122.8 119.5

Emerging Markets 84.5 85.0 85.6 85.8 95.4 98.1 99.4 99.5 99.6 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. Source: IMF International Financial Statistics, the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Domestic credit to the private sector

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Domestic credit to the private sector (% of GDP)

LATIN AMERICA 26.1 29.5 33.9 37.0 38.6 39.3 42.1 44.7 47.5 Argentina 11.7 13.0 14.5 13.7 13.5 14.6 17.2 17.7 18.1 Brazil (1) 31.3 36.7 42.4 47.8 50.6 52.4 56.7 61.7 66.9 Chile 52.3 52.0 57.3 63.4 64.5 60.8 61.0 60.6 62.9 Colombia 22.4 26.2 29.6 31.4 30.3 33.0 35.6 37.5 38.7 Mexico 19.0 20.2 22.8 23.6 24.4 24.2 25.1 25.0 25.8 Panama 87.1 91.6 95.1 92.2 88.9 91.5 91.5 90.6 91.0 Peru 21.2 19.9 22.9 27.5 27.9 28.6 31.0 33.4 35.7 Venezuela 12.7 16.5 22.8 20.8 22.9 18.6 20.4 19.8 16.9



Emerging Markets 68.5 69.6 71.8 73.1 82.0 84.2 84.9 85.1 86.1 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. (1) Includes bank lending to individuals and private corporate debt (debentures and bank loans to the sector). Source: IMF International Financial Statistics, the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: Fixed investment

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Fixed investment (% of GDP)




Emerging Markets 28.6 29.0 29.3 30.1 30.9 31.8 31.6 31.5 31.7 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, IHS Global Insight, Credit Suisse

14 March 2012


Summary macroeconomic data: FX reserves

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Central bank gross non-gold FX reserves ($bn)

LATIN AMERICA 223.7 273.2 400.0 442.8 486.8 568.9 668.4 720.8 776.5 Argentina 27.2 30.9 44.7 44.9 46.1 49.7 43.2 43.7 44.2 Brazil 53.2 85.2 179.4 192.8 237.3 287.1 350.4 366.7 415.8 Chile 17.0 19.4 16.9 23.2 25.4 27.9 42.0 43.2 45.4 Colombia 14.8 15.3 20.8 23.5 24.8 27.8 31.7 36.7 38.7 Mexico 74.1 76.2 87.1 95.1 99.6 120.3 144.0 158.5 158.5 Peru 13.6 16.7 26.9 30.3 32.0 42.2 47.1 58.5 63.0 Venezuela 23.9 29.4 24.2 33.1 21.7 14.0 9.9 13.6 11.0

EMEA 558.2 796.1 1,146 1,204 1,232 1,351 1,489 1,555 1,650 Czech Republic 29.3 31.2 34.6 36.7 41.2 42.2 42.2 44.2 44.7 Hungary 18.6 21.5 24.0 33.8 44.1 44.8 48.6 48.5 49.8 Israel 27.9 29.1 28.6 42.5 60.6 70.9 74.9 79.6 80.5 Kazakhstan 6.1 17.8 15.8 17.9 20.6 25.6 35.1 42.5 54.1 Poland 40.9 46.4 63.0 59.3 75.9 88.8 92.2 101.0 105.0 Russia 175.9 295.6 466.8 411.8 416.6 443.6 453.6 465.6 468.6 Saudi Arabia (1) 150.3 221.1 300.9 437.9 405.3 440.4 535.2 572.9 622.4 South Africa 18.6 23.1 29.6 30.6 35.3 38.2 42.6 47.0 47.8 Turkey 50.5 60.9 73.3 71.0 70.7 80.7 78.3 75.0 78.8 Ukraine 19.1 21.9 32.0 30.8 25.6 33.3 30.4 20.2 22.1 United Arab Emirates 21.0 27.6 77.2 31.7 36.1 42.8 55.9 58.9 75.8

EMERGING ASIA 1,828 2,234 2,939 3,314 4,040 4,693 5,128 5,575 6,028 China 814.7 1,062 1,524 1,942 2,389 2,830 3,159 3,495 3,838 Hong Kong 124.2 133.2 152.7 182.5 255.8 268.7 285.4 309.0 330.5 India 145.9 192.4 299.7 242.4 261.1 282.5 275.0 285.0 300.0 Indonesia 33.1 41.1 55.0 49.6 63.6 92.9 109.0 97.0 87.0 Korea (2) 210.3 238.9 262.1 201.1 269.9 291.5 306.3 312.8 318.8 Malaysia (3) 69.9 82.2 101.1 91.2 95.4 104.9 132.0 148.4 178.4 Philippines (3) 15.9 20.0 30.2 32.7 38.8 55.3 66.4 80.6 94.0 Singapore (3) 115.0 137.0 163.4 177.3 187.2 222.5 237.5 274.3 289.3 Taiwan (2) 248.6 261.5 265.6 287.0 343.4 376.8 383.0 388.2 396.9 Thailand (3) 50.7 65.3 85.2 108.7 135.5 167.5 174.0 185.4 195.4

Emerging Markets 2,610 3,303 4,485 4,961 5,759 6,613 7,285 7,851 8,454 Aggregates for regions and total emerging markets represent the sums of individual country data. The data for India are for the fiscal years. (1) Net foreign assets of the Saudi Arabian Monetary Authority. (2) Central bank forex reserves minus monetary authorities’ other liabilities. (3) Not including forward FX purchases. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, Credit Suisse

14 March 2012


Summary macroeconomic data: FX reserves

2005 2006 2007 2008 2009 2010 2011E 2012F 2013F Central bank gross non-gold FX reserves (% of GDP)

LATIN AMERICA 9.3 9.5 11.8 11.2 13.3 12.9 13.0 13.1 12.9 Argentina 15.0 14.5 17.1 13.8 15.0 13.5 9.9 9.3 8.6 Brazil 6.0 7.8 13.1 11.7 14.8 13.7 14.2 14.6 14.9 Chile 14.3 13.2 10.3 13.6 15.7 13.7 17.7 17.0 17.1 Colombia 10.1 8.0 10.0 9.6 10.5 9.7 9.5 9.5 9.1 Mexico 8.7 8.0 8.4 8.7 11.3 11.6 12.5 12.9 11.4 Peru 17.1 18.1 25.1 23.9 25.2 27.4 26.7 29.6 29.2 Venezuela 16.6 16.0 10.5 10.5 6.6 5.9 3.2 3.2 2.8



EMERGING MARKETS 24.7 26.6 29.9 28.4 34.2 33.3 31.4 30.5 29.4 Aggregates for regions and total emerging markets are weighted by 2011 nominal GDP ($bn) figures. The data for India are for the fiscal years. Source: the BLOOMBERG PROFESSIONAL™ service, National Statistical Offices, Credit Suisse

..

EMERGING MARKETS ECONOMICS AND FIXED INCOME STRATEGY Kasper Bartholdy

Head of Strategy and Economics +44 20 7883 4907

[email protected]

Eric Miller, Managing Director Global Head of Fixed Income and Economic Research

+1 212 538 6480 [email protected]

LATIN AMERICA ECONOMICS Alonso Cervera Head of Non-Brazil Latin America Economics +52 55 5283 3845 [email protected] Mexico, Chile

Carola Sandy +1 212 325 2471 [email protected] Argentina, Peru, Colombia

Casey Reckman +1 212 325 5570 [email protected] Chile, Venezuela, Panama

Nilson Teixeira Head of Brazil Economics +55 11 3841 6288 [email protected]

Iana Ferrao +55 11 3841 6345 [email protected] Brazil

Leonardo Fonseca +55 11 3841 6348 [email protected] Brazil

Daniel Lavarda +55 11 3841 6352 [email protected] Brazil

Tales Rabelo +55 11 3841 6353 [email protected] Brazil

EASTERN EUROPE, MIDDLE EAST & AFRICA ECONOMICS Berna Bayazitoglu Head of EEMEA Economics +44 20 7883 3431 [email protected] Turkey

Sergei Voloboev +44 20 7888 3694 [email protected] Russia, Ukraine, Kazakhstan

Carlos Teixeira +27 11 012 8054 [email protected] South Africa

Gergely Hudecz +33 1 7039 0103 [email protected] Czech Republic, Hungary, Poland

Alexey Pogorelov +7 495 967 8772 [email protected] Russia, Ukraine, Kazakhstan

Natig Mustafayev +44 20 7888 1065 [email protected]

NON-JAPAN ASIA ECONOMICS Dong Tao Head of Non-Japan Asia Economics +852 2101 7469 [email protected] China, Korea

Christiaan Tuntono +852 2101 7409 [email protected] Hong Kong, Taiwan

Robert Prior-Wandesforde +65 6212 3707 [email protected] Regional, India, Indonesia

Santitarn Sathirathai +65 6212 5675 [email protected] Philippines, Thailand, Vietnam

Kun Lung Wu +65 6212 3418 [email protected] Malaysia, Singapore

STRATEGY

Igor Arsenin Head of Latin America Strategy +1 212 325 6437 [email protected]

Saad Siddiqui EEMEA Strategy +44 20 7888 9464 [email protected]

Ashish Agrawal Asia Strategy +65 6212 3405 [email protected]

Daniel Chodos Latin America Strategy +1 212 325 7708 [email protected]

Nimrod Mevorach EEMEA Strategy +44 20 7888 1257 [email protected]

Chris Balster, CFA Locus Analytics Specialist +1 212 538 5889 [email protected]

Ray Farris Chief Asia Strategist +65 6212 3412 [email protected]

Daniel Katzive FX Strategy +1 212 538 2163 [email protected]

mailto:[email protected]�





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Investors in securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS’s website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority (“FSA”). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Securities Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's market professional and institutional clients. Recipients who are not market professional or institutional investor clients of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as “advice” within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm’s length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. Copyright © 2012 CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay purchase price only.

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