societe generale - scenarioeco sept 2014 - en

N°16 SEPTEMBER 2014

SCENARIOECO Societe Generale

Economic and sectoral studies department

Ended the 30th of September 2014

Next issue: December 2014

WAITING FOR 2015…

The global economy disappointed in the first-half of 2014. Instead of gathering momentum as initially expected, GDP growth stalled in most countries and even recorded one or two quarters of decline in some of them (such as the US, Japan and Germany, but also Brazil, Russia and Romania). Nevertheless, the trend is still leaning toward a slow pick-up in global growth. On the whole, major central banks remain inclined to maintain highly accommodative monetary policies, especially since inflation remains low. However, in 2015, their policies would take different paths, with the ECB easing further while the Fed and the BoE are set to begin very gradually raising their key interest rates. Rising geopolitical tensions add to uncertainty.

A SERIES OF DISAPPOINTMENTS IN H1….

On the growth front, H1-14 was disappointing. These

disappointments impacted advanced and large

emerging economies alike.

For example, the US economy stumbled in Q1. As a

result, despite a strong bounce back in Q2, the

prospect of US annual growth returning to 3% was

pushed back to 2015, though originally it was hoped to

happen in 2014. As expected, the Japanese economy

buckled under the weight of the consumption tax hike,

but investment spending also weakened. And while

growth was initially expected to gradually improve in the

euro area, instead it only slightly picked up in Q1 before

stagnating in Q2. Namely, real GDP contracted in Q2 in

Germany, beyond the fallback expected after the boost

to construction activity in Q1 which had resulted from

unusually favourable weather conditions; meanwhile,

France has stagnated during the entire H1 and Italy

failed to exit recession. Spain and the UK were the only

economies where the recovery momentum was

confirmed.

Emerging market economies also brought their share of

disappointments: Romania fell into recession, Brazil saw

a contraction in activity and Russia's economy ground

to a halt. On a more positive note, the slowdown in

China proved moderate and India confirmed its pickup

following a phase of very weak growth.

THE SPECTRE OF DEFLATION CASTS ITS SHADOW

ON THE EURO AREA

In the euro area, disappointing H1 GDP data reports are

accompanied by a deterioration in forward-looking

indicators from business surveys. For example,

Germany's IFO business climate index has been falling

since May. Similarly, France's INSEE index has been

sliding since April, which does not foresee any

improvement in economic activity in the H2.

What's more, euro area inflation is drawing dangerously

close to 0%. However, this threshold should not

necessarily be seen as the frontier with deflation.

Indeed, the euro area experienced negative inflation

data from June to October 2009, without falling into a

deflationary spiral.

-2

-1

0

1

2

3

4

5

Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14

YoY, as %REAL GDP GROWTH

US Euro area UK Japan Brazil RussiaSource: datastream

70

75

80

85

90

95

100

105

110

115

120

2007 2008 2009 2010 2011 2012 2013 2014

BUSINESS CLIMATE INDICATORS

Germany (IFO) France (INSEE)Source datastream

SCENARIOECO | N°16 – SEPTEMBER 2014

2

Deflation is, in fact, more than just a decrease in the

general price level of goods and services. It is also

characterised by expectations of a long-term decline in

prices and income, causing investment and

consumption spending decisions to be postponed. This,

in turn, weighs on production and drags prices down

further. By this definition, the euro area is not currently

subject to deflation: CPI inflation is still positive (+0.3%

in August); investment spending is up slightly year-on-

year, though it did dip in Q2; and last but not least

wages are still moderately rising.

Having said that, deflation risk has increased in the euro

area. In order to prevent the risk of inflation staying too

low for too long, the ECB announced new measures in

September, less than two months after its June

package and before some components of this package

had even been implemented (such as the new TLTROs).

The ECB cut its interest rates again, with the deposit

facility rate edging a little further into negative territory. It

also announced new ABS and covered bond purchase

programmes, whose detailed modalities will be released

in October.

RATE HIKES ON THE HORIZON IN THE US AND UK

Conversely, the Fed and the Bank of England are

preparing to start raising their interest rates. In both

countries, inflation is higher than in the euro zone (1.5%

in the UK and 2.0% in the US), economic activity more

solid and the labour market situation has significantly

improved.

Even so, these interest rate hikes are likely to be very

gradual in order to avoid causing long term rates to

climb too quickly, which would jeopardise the fledgling

recovery. As a result, monetary policy in both countries

would remain very accommodative on the forecast

horizon. Furthermore, in both cases there is no question

for the time being of the central banks starting to sell

the securities they have purchased under their

quantitative easing policy, thus keeping large balance

sheets.

OVERALL, THE GLOBAL ECONOMY WOULD

GRADUALLY PICK UP… IN 2015

Outlooks are also expected to be mixed among the

world's largest emerging economies. On the one hand,

Chinese growth would moderate very gradually, thus

keeping some momentum. And India's economic

recovery is expected to firm. On the other hand, in Brazil

and especially Russia, economic activity would struggle

to take off. Overall growth in emerging economies

would therefore decline in 2014 compared to 2013,

before improving slightly in 2015.

All in all, global growth is not expected to pick up in

2014, and would instead remain on the same subpar

trend recorded during the past two years. It is forecast

to slightly pick up speed in 2015, thus returning to a rate

comparable to that of 2011, the year when - after the

initial hopes raised by 2010 - it finally started to appear

that the crisis was not over...

AND, IN THE MEANTIME, ON FINANCIAL MARKETS…

The persistent weakness of the global economy and the

nearer prospect of Fed's interest rate hikes did not alter

financial market optimism. Stock market prices have

continued to rally, while risk premiums and volatility

have fallen to new lows. This apparent disconnection

only enhances the risk of market turbulence when the

Fed eventually begins raising its key interest rates. The

recent increase in geopolitical tensions also adds

downward risks to the global outlook in 2015.

0

100

200

300

400

500

600

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Jan.2007=100CENTRAL BANKS' TOTAL ASSETS

United States Euro area Japan United Kingdom

Source : datastream

0

1

2

3

4

5

6

7

2011 2012 2013 2014 2015

In %GROWTH OF GDP

Industrial countries Emerging countries World

Sources : Datastream, SG forecasts


3

MACROECONOMIC FORECASTS

2011 2012 2013 2014 (f) 2015 (f)GDP - 2012

USDbn

Purchasing

power

parities2

Current

prices rates

Current

prices rates

Industrialised countries 1.4 1.2 1.3 1.7 2.1 48.6 62.8 40,957United States 1.6 2.3 2.2 2.1 3.0 20.3 22.3 15,557

Japan -0.4 1.5 1.5 1.1 1.0 5.9 8.2 5,566

Euro area 1.6 -0.6 -0.4 0.7 1.0 14.6 18.5 12,529

Germany 3.7 0.6 0.2 1.5 1.6 4.0 5.1 3,553France 2.1 0.4 0.4 0.3 0.7 2.9 3.9 2,713

Italy 0.6 -2.4 -1.8 -0.2 0.6 2.4 3.1 2,018

Spain 0.1 -1.6 -1.2 1.0 1.4 1.8 2.1 1,364

United Kingdom 1.1 0.3 1.7 3.0 2.2 3.0 3.4 2,329

Emerging countries 6.0 4.6 4.5 4.3 4.9 51.4 37.2 26,117Asia 7.3 6.1 6.1 6.0 6.2 28.0 17.0 12,953

China 9.3 7.7 7.7 7.3 7.0 13.6 8.9 6,996India 6.6 4.7 5.0 6.0 7.0 5.6 2.3 1,694

Africa 4.3 3.9 3.9 4.0 4.5 2.5 1.9 1,401

Latin America 4.3 2.6 2.7 1.2 2.3 8.5 7.2 5,192

Brazil 2.7 1.0 2.5 0.5 1.3 2.9 3.2 2,228Eastern Europe (incl. Turkey, ex. Russia) 5.3 1.5 2.6 2.3 3.1 4.7 3.5 2,476

Russia 4.3 3.4 1.3 0.0 0.8 3.0 2.3 1,643

Middle East 3.7 3.9 2.6 3.0 4.6 4.6 3.4 2,451

World - Purchasing power parities ponderation 3.8 3.0 3.0 3.1 3.6 100

World - Current prices rates ponderation 3.0 2.4 2.5 2.6 3.1 100 67,074

Oil price (Brent USD/Barrel) 111 112 109 105 100

United States 3.1 2.1 1.5 1.9 2.0

Japan (CPI national) -0.3 0.0 0.4 2.8 1.6Euro area 2.7 2.5 1.3 0.4 0.9

Germany (HICP) 2.1 2.0 1.5 0.9 1.3

France (CPI) 2.1 2.0 0.9 0.7 1.2

Italy (HICP) 2.9 3.3 1.3 0.1 0.7Spain (HICP) 3.2 2.4 1.4 -0.1 0.3

United Kingdom (HICP) 4.5 2.8 2.6 1.6 1.9

Share of world GDP

2012 (As %)

Real GDP (growth rate, as %)1

Consumer prices index (growth rate, as %)

1 The annual numbers are seasonnaly and working-day adjusted and hence may differ from the basis used for official projections.

2 Purchasing Power Parity (PPP) is the monetary exchange rate that equalises the cost of a standardised basket of goods between different countries. The GDP

weighting of different countries as a share of world GDP expressed in PPP is based on the latest estimates by the World Bank

26/09/2014 Dec 2014 Jun 2015 Dec 2015 2013 2014 (f) 2015 (f)

Interest rates

United States

Fed Funds target rate 0.25 0.25 0.50 1.00 0.25 0.25 0.55

10 year Gvt Bonds 2.5 2.8 3.3 3.8 2.3 2.7 3.3

Japan

Intervention rate 0.07 0.10 0.10 0.10 0.08 0.10 0.1010 year Gvt Bonds 0.5 0.6 0.8 1.0 0.7 0.6 0.8

United Kingdom

Bank rate 0.50 0.50 1.00 1.25 0.50 0.50 0.9510 year Gvt Bonds 2.5 2.8 3.3 3.5 2.4 2.7 3.2

Euro area

Refinancing rate 0.05 0.05 0.05 0.05 0.55 0.15 0.05

10 year Gvt BondsGermany 0.9 1.0 1.3 1.6 1.6 1.3 1.4

France 1.3 1.4 1.7 2.0 2.2 1.8 1.7

Italy 2.4 2.5 2.8 3.1 4.3 3.0 2.9

Spain 2.2 2.3 2.6 2.9 4.6 2.8 2.7

Exchange rates

EUR / USD 1.27 1.30 1.25 1.25 1.33 1.34 1.26

EUR / GBP 0.78 0.80 0.80 0.80 0.85 0.81 0.80

EUR / JPY 139 137 131 131 130 139 132GBP / USD 1.63 1.63 1.56 1.56 1.56 1.66 1.57

USD / JPY 109 105 105 105 98 103 105


4

Macroeconomic Forecasts ........................................................................................................................................ 3

Euro area: On the skids… .......................................................................................................................................... 5

Germany: More than a correction? ............................................................................................................................. 6

France: No momentum .............................................................................................................................................. 7

Italy: A third year of recession.................................................................................................................................... 8

Spain: Rising real GDP but declining prices .............................................................................................................. 9

United Kingdom: An unbalanced recovery .............................................................................................................. 10

United States: Towards a shift in monetary policy .................................................................................................. 11

Japan: Growth hard hit by the consumption tax hike .............................................................................................. 12

China: Under control ................................................................................................................................................ 13

India: Consolidating stabilization gains .................................................................................................................... 14

Brazil: Stagflation ..................................................................................................................................................... 15

Russia: Waiting for supportive policies? .................................................................................................................. 16

Euro area forecasts .................................................................................................................................................. 17

Out side euro area forecasts .................................................................................................................................... 20


5

EURO AREA: ON THE SKIDS…

After disappointing in Q1-14, euro area growth has stalled in Q2, thus confirming that the recession exit will be even slower than initially expected. The ECB was forced to step in once again in September, less than two months after its previous measures, as inflation crept dangerously closer to zero.

The euro area has further disappointed in Q2: real GDP stalled

(0,0%), after growing only +0,2% in Q1. And, unlike the previous

quarter, it is difficult to blame one-off factors for this paltry

performance. Furthermore, business confidence, as reflected by

surveys, is again turning down, arguing against any improvement

in the second half. Among the major euro area countries, Spain

was the only one to show renewed momentum.

The euro area would struggle to gain speed in the run-up to 2015,

with growth projected to reach just 1% next year. Companies are

still facing adverse credit conditions in peripheral countries, and

the necessary public and private-sector deleveraging process

would continue to hinder the recovery against a backdrop of

persistently low inflation.

Against this outlook of weak demand and low inflation,(0.3% in

August), the ECB announced a new package of measures in

September, less than two months after those of June. It cut further

its key interest rates, with the deposit facility rate edging a little bit

further into negative territory (-0.2%). It also announced new ABS

and covered bond purchase programmes, whose amounts and

terms of which have yet to be determined.

In spite of these measures, inflation is expected to turn-up only

slowly and to remain below the ECB's target (2%) in 2015.

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2010 2011 2012 2013 2014

In %

EURO AREA INFLATION

Source: eurostat

-0,8

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

2010 2011 2012 2013 2014

Q/Q, in % REAL GDP GROWTH

Source:eurostat

70

75

80

85

90

95

100

105

110

115

120

2007 2008 2009 2010 2011 2012 2013 2014

BUSINESS CLIMATE INDICATORS

Germany (IFO) France (INSEE)Source datastream

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 1.6 -0.6 -0.4 0.7 1.0

Household consumption 0.3 -1.4 -0.6 0.8 1.2

Total investment 1.7 -3.8 -2.8 1.2 2.0

Exports 6.7 2.8 1.5 2.7 4.0

Imports 4.7 -0.8 0.4 3.2 4.4

Contribution of inventories to growth 0.3 -0.5 0.0 0.0 -0.1

Households

Purchasing power of disposable income -0.3 -1.7 -0.6 0.8 1.1

Unemployment rate 10.1 11.3 12.0 11.5 11.2

Saving rate 13.3 13.0 13.0 13.3 13.1

Inflation rate 2.7 2.5 1.3 0.4 0.9

Public sector balance (as % of GDP) -4.1 -3.7 -3.1 -2.7 -2.5

Current account balance (as % of GDP) 0.1 1.5 2.4 2.4 2.5


6

GERMANY: MORE THAN A CORRECTION?

The real GDP decline recorded by Germany in Q2-14 went beyond the expected fallback after a solid first quarter driven in part by one-off factors. Combined with the downturn in economic surveys, this points to a weakened German recovery with growth of about 1.5% per year.

In the wake of dynamic growth in Q1, buoyed by one-off factors

(such as good weather, which particularly benefited the

construction sector), a fallback was expected in Q2. However, the

correction that took place, which saw a contraction in German real

GDP, went beyond a mere fallback. For example, investment in

construction fell as expected, but unexpectedly household

consumption stagnated and capital goods investment contracted.

Meanwhile, economic surveys also deteriorated, underscoring

more than a mere accident of circumstance. This shows that the

German is losing steam: after reaching +2.2% year-on-year in

Q1-14, GDP growth would remain around +1.5%/year.

Though already very low, the unemployment rate would drop

slightly more, thus driving wage momentum. Against a backdrop

of low inflation, gains in household purchasing power would

increase and support consumption.

Despite the hiccup in Q2, the rebound in business investment

should continue, driven in large part by the solid financial position

of German companies and favourable financing conditions. But

the rebound in exports would remain hampered by the weak

demand from its main European partners.

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

2010 2011 2012 2013 2014

Q/Q, in %REAL GDP GROWTH

Source: destatis

80

85

90

95

100

105

110

115

120

2007 2008 2009 2010 2011 2012 2013 2014

IFO BUSINESS CLIMATE INDICATOR

Source: IFO

6

7

8

9

10

11

12

13

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

In %UNEMPLOYMENT RATE

Source: Destatis

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 3.7 0.6 0.2 1.5 1.6

Household consumption 2.3 0.6 0.9 1.1 1.5

Capital goods investment 6.1 -2.1 -2.5 4.6 4.0

Construction investment 8.6 1.6 0.1 4.0 3.7

Exports 8.2 3.5 1.7 3.4 5.4

Imports 7.3 0.4 3.2 4.6 6.7

Contribution of inventories to growth 0.1 -1.4 0.2 0.2 0.1

Households

Purchasing power of disposable income 1.9 0.0 0.3 1.1 1.5


Saving rate 9.6 9.4 8.9 9.1 9.0

Inflation rate 2.1 2.0 1.5 0.9 1.3

Public sector balance (as % of GDP) -0.8 0.1 0.0 0.1 0.1



7

FRANCE: NO MOMENTUM

French growth disappointed in first-half of 2014, coming out nil in the first two quarters. And there is no sign of improvement for the coming quarters. Consequently, economic activity would stay at the same sluggish pace in 2014 as it has had in the past two years, and growth would barely accelerate in 2015. Against this backdrop, the public deficit ratio is not likely to be reduced in 2014-2015.

The French economy stagnated in H1 2014 (+0.0% in both Q1 and

Q2). While the paltry performance in Q1 could be partially

attributed to one-off factors such as the impact of the VAT hike on

1 January and mild winter temperatures weighing on household

energy consumption, the rebound expected in the second quarter

failed to take place.

What's more, the business confidence index has turned

continuously worse since May, slipping a little further below its

long-term average,; this does not pave the way for a turnaround in

activity in the second half of the year. As a result, economic

growth would be just as low in 2014 as it was in 2012 and 2013.

In 2015, economic growth would barely pick-up, with no growth

engine seemingly able to jump-start the recovery. After sliding in

H1-14, business investment would continue to be undermined by

weak and uncertain demand as well as the deteriorated financial

condition of corporations. The persistently dire situation in the

labour market is likely to drag household income down and

encourage a cautious approach to consumption as well as

housing investment. The improvement of the economic situation in

other euro zone countries is expected to be slow; and public

spending would remain tight.

Against lower-than-expected growth and inflation, the government

has put off its public deficit reduction targets. As a result, the

deficit as a percentage of GDP will not be reduced in 2014-2015,

and the 3% target has been pushed back from 2015 to 2017.

70

75

80

85

90

95

100

105

110

115

120

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

BUSINESS CLIMATE INDEX

Sources: INSEE

34

36

38

40

42

44

46

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014

PROFIT SHARE OF NON FINANCIAL CORPORATIONS

Source: INSEE

As % of value added

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14

In %INFLATION

Source: INSEE

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 2.1 0.4 0.4 0.3 0.7

Household consumption 0.3 -0.5 0.3 0.2 1.2

Corporate investment 4.0 0.3 -0.6 -0.6 1.0

Household investment 1.0 -2.2 -3.1 -8.2 -4.1

Exports 7.1 1.2 2.4 3.0 3.9

Imports 6.5 -1.2 1.9 3.0 3.8

Contribution of inventories to growth 1.1 -0.6 -0.2 0.3 0.0

Households

Purchasing power of disposable income 0.2 -0.9 0.0 1.2 1.1


Saving rate 15.7 15.3 15.1 15.9 15.8

Inflation rate 2.1 2.0 0.9 0.7 1.2



8

ITALY: A THIRD YEAR OF RECESSION

GDP growth disappointed in Q2 and Italy would remain in recession this year. Domestic demand is flagging: the business investment rate is at an all-time low, still subject to adverse financing conditions, while household consumption is simply not getting off the ground despite tax cuts in favour of modest-income households.

Like the rest of the euro zone, Italy's growth was very poor in Q2.

Household consumption stagnated despite the targeted tax cuts

for modest-income households: the €80 per household paid out in

June were not spent. Households have preferred to save their

money, in the face of falling property prices and a persistently

deteriorated economic outlook.

Furthermore, business investment is still adversely affected by

difficult financing conditions. The banking sector was again hit

with losses in 2013, due to a high provisioning requirement, which

in turn put a squeeze on credit supply. And while loans to the

nonfinancial business sector fell 4% year-on-year, the profit

margin ratio of Italian companies continued to decline, thus

curbing self-financing possibilities.

Relief cannot be sought from the export sector to relaunch growth:

Italy is losing market share owing to insufficient competitiveness

and a lack of wage flexibility, as wages are indexed to inflation.

Adding the impact of international sanctions on Russia, weighing

directly and indirectly on Italian exports, the net export

contribution to growth is expected to be nil in 2014 and 2015 alike.

These paltry economic performances are taking a hard toll on

Italy's public finances. The public deficit is estimated to be around

3.2% of GDP this year, i.e. 0.6pp higher than the initial target

(2.6%) and also up compared to 2013. The public debt ratio is

forecast to be up nearly 5pp to 137% of GDP in 2014 and is

unlikely to stabilise before 2016. Low inflation (-0.2% in August)

coupled with a poor medium-term outlook make it complicated to

consolidate public finances.

14

16

18

20

22

24

26

28

1980 1985 1990 1995 2000 2005 2010

As % of PIBItaly: Corporate investment rate

Source : ISTAT

70

80

90

100

110

120

1999 2001 2003 2005 2007 2009 2011 2013

1999-Q1 = 100 Relative export market shares (at current prices)

France Germany Spain Italy Euro zone (100)Source : Eurostat

0

200

400

600

800

1,000

1980 1985 1990 1995 2000 2005 2010

Index 1980=100Italy: Housing prices

Source : Oxford Economics

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 0.6 -2.4 -1.8 -0.2 0.6

Household consumption -0.3 -4.0 -2.6 0.1 0.6

Capital goods investment 0.6 -9.5 -5.4 -1.7 2.8

Construction investment -3.4 -6.2 -6.7 -2.0 1.5

Exports 6.9 2.0 0.0 1.7 1.7

Imports 1.4 -7.1 -2.9 1.5 2.0

Contribution of inventories to growth -0.1 -0.6 -0.1 -0.2 0.0

Households



Savings rate 12.0 11.7 13.3 13.4 14.3

Inflation rate 2.9 3.3 1.3 0.1 0.7


Current account balance (as % of GDP) -3.0 -0.3 1.0 1.5 1.6


9

SPAIN: RISING REAL GDP BUT DECLINING PRICES

Spanish growth accelerated in Q2 while the euro area stagnated. Domestic demand has been strengthening, with household consumption turning around and construction appears bottoming out. The recovery is buoyed by employment gains, while the average wage is declining. However, inflation has fallen into negative territory, which complicates both public and private-sector deleveraging by raising real interest rates.

After several years of structural reforms and fiscal efforts, the

Spanish economy is back on the growth track and its

performances are well-received by markets. The 10-year

government bond yield is now at a record low, and has been on

average 20bp below the UST 10-yr yield since mid-August. The

news flow has turned positive: property prices recorded their first

increase since 2008 in Q2-14, the ratio of non-performing loans

turned around in Q1 thanks to a decline for non-financial

companies, the unemployment rate continued to decline to 24.5%

versus 26.3% last year, and new industry orders are on the rise,

which should support business investment in the coming months.

However, the Spanish economy's efforts in terms of

competitiveness have driven wages down, in turn weighing down

on prices. Inflation fell to -0.5% in August and the core inflation

index (excluding energy and fresh products) stood at 0%. More

worrying is that if we adjust the core inflation index for the VAT

hikes that took place in 2010 and 2012 and have artificially inflated

prices, inflation has actually been negative for over a year now.

Such low inflation is weighing on monetary conditions. For

example, despite low nominal bond yields, the cost of funding in

real terms is now 300-bp higher than it was before the crisis. If

current real interest rate levels persisted, and assuming growth

potential of about 1% per year, Spain would have to make an

additional fiscal effort of 5.6% of GDP in order to record a primary

surplus allowing it to stabilise the public debt-to-GDP ratio.

-2

-1

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Year-on-year growth, in %

Spain: consumer prices

Global index Core index corrected for taxationSource : Eurostat, SG calculation

-2

0

2

4

6

8

10

12

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

in % Spain: 10-years government bond yields

Real Nominal Source : Datastream and SG calculation

0

5

10

15

20

25

30

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

As % of active population

Spain: unemployment rate

Source : Minis try of the economy and Finance, Spain

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 0.1 -1.6 -1.2 1.0 1.4

Household consumption -1.2 -2.8 -2.1 1.9 1.2

Total investment -5.4 -7.0 -5.1 0.6 3.3

Exports 7.6 2.1 4.9 3.0 3.6

Imports -0.1 -5.7 0.4 4.6 3.0

Contribution of inventories to growth -0.1 0.0 0.0 0.0 0.0

Households



Savings rate 12.7 10.4 10.4 10.0 10.3

Inflation rate 3.2 2.4 1.4 -0.1 0.3


Current account balance (as % of GDP) -3.7 -1.2 0.8 0.1 0.5


10

UNITED KINGDOM: AN UNBALANCED RECOVERY

The UK economy has maintained its momentum in the first half of 2014 and is not expected to weaken in the second half. Nevertheless, this rapid growth is coming with imbalances and a new reduction in the household savings rate. This points to a slowdown as soon as 2015.

UK growth stayed the course in first-half 2014, maintaining an

annualized pace of more than 3% per year. In its wake, the

unemployment rate declined further to 6.4% in May 2014

compared to a peak at 8.4% in November 2011. The

unemployment rate has thus erased two-thirds of the increase it

had recorded during the crisis years. Against this backdrop, the

Bank of England is expected to raise its interest rates as early as

H1-15, even ahead of the Fed.

However, this recovery has come at a cost of imbalances.

Employment may be on the mend, but at the expense of a drop in

productivity. Furthermore, the stabilization in bank credit to the

private nonfinancial sector credit masks a continuous decrease in

loans to the business sector. Property prices have kept right on

climbing (+12% over the past 12 months) and are now 10% higher

than their peak during the property bubble in the 2000s. And t the

rebound in consumption has been at the expense of a sharp drop

in the household savings ratio.

Given this imbalanced growth pattern and the expected monetary

policy tightening, economic activity is expected to slow in 2015. In

particular, investment spending by businesses and households

alike would slow down following the steep rises recorded in 2014.

This slowdown may even be more severe if, despite low

unemployment, wage increases were not sufficient to sustain

household income and, in turn, household consumption.

5,0

5,5

6,0

6,5

7,0

7,5

8,0

8,5

9,0

2008 2009 2010 2011 2012 2013 2014

As %ILO UNEMPLOYMENT RATE

Source: ONS

75

80

85

90

95

100

105

110

115

120

2008 2009 2010 2011 2012 2013 2014

2008Q1 = 100

AMOUNTS OUTSTANDING OF BANKS' LOANS TO NON BANKING PRIVATE SECTOR

Total To non financial corporations To households

Source: Bank of England

100

120

140

160

180

200

220

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Jan 2002=100HOUSE PRICE INDEX

Source: ONS

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 1.1 0.3 1.7 3.0 2.2

Household consumption -0.4 1.4 2.2 2.3 2.1

Non residential fixed investment -1.3 3.9 -1.0 11.8 5.4

Residential investment 0.4 -3.6 4.4 8.9 6.3

Exports 4.5 1.7 0.5 1.4 3.9

Imports 0.3 3.4 0.2 0.2 3.1

Contribution of inventories to growth 0.5 -0.2 0.4 -0.1 0.0

Households

Purchasing power of disposable income -1.2 2.5 -0.3 1.1 2.4


Saving rate 6.7 7.3 5.2 4.8 4.9

Inflation rate (HICP) 4.5 2.8 2.6 1.6 1.9


Current account balance (as % of GDP) -1.5 -3.9 -4.5 -4.3 -3.9


11

UNITED STATES: TOWARDS A SHIFT IN MONETARY POLICY

After disappointing at the beginning of the year, the US economic recovery was back on track in the second quarter. However, growth is expected to continue at a relatively moderate pace, leading the Fed to only gradually alter its policy. Fed’s asset purchase programme would end in October, and the rate hikes would start from mid-2015.

The two forces weighing on the recovery – household

deleveraging and a restrictive fiscal policy – would diminish in the

coming quarters, allowing growth to take a more permanent hold.

Companies would be more prove to increase capital expenditures,

given rising capacity utilization rates and the ageing capital stock.

They would also benefit from the still extremely accommodative

monetary and financial conditions.

At the same time, the labour market would improve, supporting

household consumption. Even so, the employment rate would

remain poor, thus preventing a significant rise in wages. Plus, even

if US households have deleveraged since the housing market

bubble burst, they still have a low savings rate that limits how

much consumption can improve beyond gain in real income.

Against this backdrop, the housing market would continue to

recover, owing to stronger demand.

The Fed is expected to end its asset purchase programme

(“QE 3”) in October and to raise the fed funds rate from mid-2015.

Inflation is seen to remain subdued, allowing monetary policy to be

tightened at a very gradual pace.

65

70

75

80

85

2000 2003 2006 2009 2012

As %INDUSTRY : CAPACITY UTILIZATION RATE

Source: Fed

57

58

59

60

61

62

63

64

65 3

4

5

6

7

8

9

10

11

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

LABOUR MARKET

Unemployment rate (unemployed / labour force) (LHS)

Employment ratio (employed / population>16ans) (RHS, reversed)Source: BLS

As % As %

0

1

2

3

4

5

6

2003 2005 2007 2009 2011 2013 2015

FEDERAL FUND RATE

Source : Fed, SG

(F)

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 1.6 2.3 2.2 2.1 3.0

Household consumption 2.3 1.8 2.4 2.3 2.7

Non residential fixed investment 7.7 7.2 3.0 6.3 7.5

Residential fixed investment 0.5 13.5 11.9 1.6 5.1

Exports 6.9 3.3 3.0 2.6 4.4

Imports 5.5 2.3 1.1 4.0 4.4

Contribution of inventories to growth -0.1 0.1 0.0 0.1 0.1

Households

Purchasing power of disposable income 2.5 3.0 -0.2 2.6 2.6


Saving rate 6.0 7.2 4.9 5.2 5.3

Inflation rate 3.1 2.1 1.5 1.9 2.0




12

JAPAN: GROWTH HARD HIT BY THE CONSUMPTION TAX HIKE

Following the plunge in economic activity recorded in Q2, real GDP growth is projected to slow to 1.1% in 2014 and to 1.0% 2015. Inflation is expected to jump to 2.8% in 2014 and 1.8% in 2015 due to higher consumption tax rates and import prices, as well as improved conditions in the labor market.

Real GDP fell by 1.8% QoQ (2% YoY) in Q2-14 following the

consumption tax (CT) hike in April. Private consumption, which

accounts for 60% of the economy, contracted by 5% QoQ along

with residential and non residential investment (- 10.4% QoQ and

-5% QoQ respectively). The latest indicators (retail sales,

consumers’ confidence) suggest that a strong rebound in

consumer spending is unlikely.

CPI inflation has averaged 3.5% YoY since April, reflecting the full

pass-through of the CT hike to consumers. The rise in import

prices of food and energy resulting from renewed depreciation of

the JPY (-4% against USD since mid-August) has also contributed

to the CPI rise. Improvement in labor market conditions (as

suggested by rising nominal average monthly cash earnings in

August) if sustained would be key in raising inflationary

expectations. Inflation is expected to average 2.8% in 2014. It

would then recede to 1.8% in 2015 as base effects would fade out

and as the second CT hike if implemented as initially scheduled

would be smaller (from 8% to 10%) and later in the year (October

2015).

Economic growth would slow to 1.1% in 2014 due to the

contraction in household consumption. It is projected to stabilize

at 1% in 2015 as the improvement in private consumption and

investment would be largely offset by the contraction in public

investment. Nonetheless, further policy easing could not be ruled

out if weak recovery persisted.

60

70

80

90

100

110

120

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

EXCHANGE RATE JPY/USD

Source : DATASTREAM

-2

-1

0

1

2

3

4

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14

As %, YoYCONSUMER PRICE INDEX (CPI)

Headline CPI Core CPI Sources : DATASTREAM, SG

-4

-3

-2

-1

0

1

2

3

4

5


As %, YoY

AVERAGE MONTHLY CASH EARNINGSALL INDUSTRIES

Regular Part-time Total Sources : DATASTREAM, SG

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP -0.4 1.5 1.5 1.1 1.0

Household consumption 0.3 2.1 2.0 -0.5 0.4

Non residential fixed investment 4.1 3.6 -1.4 5.3 4.6

Residential investment 5.1 2.9 8.8 -3.9 -0.9

Exports -0.4 -0.1 1.5 7.2 4.7

Imports 5.9 5.3 3.3 5.2 4.2

Contribution of inventories to growth -0.2 0.1 -0.3 0.4 0.3

Households

Purchasing power of disposable income 0.7 0.7 1.6 0.2 1.5


Saving rate 2.7 1.3 0.8 1.7 2.8

Inflation rate (CPI) -0.3 0.0 0.4 2.8 1.6




13

CHINA: UNDER CONTROL

Real GDP would gradually slow to 7.3% in 2014 and 7.0% in 2015. Low inflation provides the authorities with an opportunity for monetary relaxation. However, rising leverage of the economy is likely to limit the scope of monetary support.

Real GDP growth remained sustained at 7.5% YoY in Q2 thanks to

stronger public investment in the aftermath of the mini fiscal

stimulus implemented in April. In July, exports continued to

improve, especially toward the European Union and the United

States which account for 1/3 of total exports and the PMI reached

its highest level since April 2012. However, property prices

continue to rapidly slide and financing sources of the economy

(bank credit and non bank credit) decelerated notably.

Inflation remained stable at 2.3% YoY in August 2014. Core

inflation (excluding food and energy prices) remained low

(1.7% YoY) suggesting the absence of inflationary pressures.

Wages growth moderated to 10% YoY in Q2-14 (from 15% in

Q2-11). Inflation is likely to remain subdued, averaging 2.5-3% in

the next two years.

Low inflation provides the authorities with an opportunity for

monetary policy relaxation to support the economy. In July, the

People’s Bank of China reduced the reserve requirement ratio by

50bps to 19.5% of deposits for commercial banks that focus on

lending to small business and the agricultural sector. However, a

massive easing of the monetary policy stance is unlikely given the

rising indebtedness of corporate and local governments (150% of

GDP and 33% respectively).

Against this backdrop, growth is expected to decline to 7.3% in

2014 and to 7.0% in 2015. The biggest risk to economic growth is

a further deterioration in the housing market as the

property/construction sector represents nearly 20% of GDP. Yet,

the risk seems manageable as many cities have now eased

restrictions limiting the number of properties purchases per

resident. Up to now, the central government has refrained from a

nationwide relaxation, reflecting its concerns on affordability

deterioration in the biggest cities.

-60

-40

-20

0

20

40

60

80

100

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

YoY, as %

EXPORTS BY COUNTRY

European Union United States Total Hong Kong

Source : General Administration of Customs

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0


RMB trn BANK AND NON BANK FINANCING

Loans Banker's Acceptance Bill

Bond and Equity Trust Loan and Entrusted Loan

Source : CEIC

0

10

20

30

40

50

60

70

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Nb. of cities

MONTHLY PROPERTY PRICES CHANGES IN 70 CITIES

Up Stable Down

Source : National Bureau of Statisctics

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 9.3 7.7 7.7 7.3 7.0

Consumption (contrib. to growth, pp) 5.5 4.2 4.1 3.8 3.8

Investment (contrib. to growth, pp) 4.3 3.5 3.7 3.4 3.2

External trade (contrib. to growth, pp) -0.9 0.4 -0.2 0.0 0.0

Inflation rate 5.4 2.6 2.6 2.5 2.9

General Government Balance (as % of GDP) 0.6 0.2 -0.9 -1.0 -0.8

General Government Debt (as % of GDP) 36.5 37.4 39.4 40.8 41.9

External Debt (as % of GDP) 9.5 8.8 9.1 9.7 10.2

Current Account Balance (as % of GDP) 1.9 2.6 1.9 1.8 2.0


14

INDIA: CONSOLIDATING STABILIZATION GAINS

After two consecutive years below 5%, economic growth is expected to rebound to 6% in 2014 and to 7% in 2015. Private consumption would remain the main driver while private investment would be boosted by regained investors’ confidence in structural reforms.

Real GDP growth stabilized at 5.8% YoY (5.7% at factor costs) in

Q2-14, mainly supported by private consumption. Latest

indicators (RBI’s quarterly industrial outlook survey, retail sales,

and imports) paint an improvement in the economic outlook.

The consumer price index continued to decline to 7.8% YoY in

August 2014, led by lower food and energy prices which weigh for

43% and 10% in the index respectively. Despite a weak monsoon

which is likely to drive up food prices, inflation is expected to ease

later this year due to base effects. Inflation would average 7.5% in

2014 and 2015, reflecting structural supply side constraints.

Declining current account deficit, lower inflation, and investors’

perceptions of a revival of structural reforms have induced large

capital inflows since June. The authorities have limited upward

pressures on the INR (which has appreciated by 13% against the

USD since September 2013) by building up forex reserves.

Economic growth is expected to recover to 6% in 2014 and to 7%

in 2015. The main risk would be that reviving domestic demand

translates into widening current account deficit and rising inflation

if tight policy mix is not kept in check. The challenge would be

especially difficult if the global environment becomes more

adverse with: (i) renewed market volatility stemming from the Fed’s

policy normalization and (ii) higher world oil prices due to

geopolitical risks in the Middle East and Russia/Ukraine as oil

imports represents 40% of total imports.

0

2

4

6

8

10

12

14

Mar-09 Dec-09 Sep-10 Jun-11 Mar-12 Dec-12 Sep-13 Jun-14

YoY, as %REAL GDP GROWTH

Source : CEIC

0

2

4

6

8

10

12


YoY, as % INFLATION

Consumer Price Index Wholesale Price IndexSource : CEIC

200

210

220

230

240

250

260

270

280

290

300

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

In USD bn FOREIGN EXCHANGE RESERVES

Source : Reserve Bank of India

As % 2011 2012 2013 2014 (f) 2015 (f)

Gross Value Added (at factor cost) 6.7 4.5 4.7 6.0 7.0

Real GDP (at market prices) 6.6 4.7 5.0 6.0 7.0

Private consumption 9.3 5.0 4.8 4.6 7.1

Gross Fixed Capital Formation 12.3 0.8 -0.1 6.6 10.4

Exports 15.6 5.0 8.4 10.0 10.4

Imports 21.1 6.6 -2.5 8.2 11.6

Inflation rate 8.4 10.2 9.5 8.0 7.0

Public Sector Balance (as % of GDP) -8.0 -7.1 -6.7 -6.6 -6.4

Public Debt (as % of GDP) 66.8 66.6 66.7 65.3 64.0

External Debt (as % of GDP) 18.9 21.5 23.1 22.1 21.3

Current Account Balance (as % of GDP) -4.2 -4.7 -1.7 -1.5 -2.0


15

BRAZIL: STAGFLATION

The October presidential election will take place amid a deteriorated economic environment. In fact, with a negative first-half year 2014, GDP is projected to be sluggish for full-year 2014 while inflation will remain high. The BCB could hike its key rate after the elections if inflationary pressure persists.

In the first six months of 2014, the economic situation continued

to deteriorate. GDP dropped another 0.6% QoQ (-0.9% YoY) after

the slide of -0.1% QoQ in Q1-14. This poor performance was

mainly due to the sharp contraction in investment (-5% QoQ) hurt

by the public holidays resulting from the World Cup and the drop

in business sentiment. Growth will remain very low over the course

of the next two years, where the only positive factor will be private

consumption. Making matters worse, inflation, at around 6.5%,

will continue to be at the upper limit set by the monetary

authorities.

This stagflation has put the monetary authorities in a

growth/inflation quandary. The Central Bank stopped its rate hike

cycle, which had gone from 7.25% in April 2013 to 11% in April

2014, due to soft economic activity and the recent easing of

inflationary pressure. However, upwards tension on inflation could

continue in the next few quarters due to the increase in

administered prices and the weakness of the currency. Against

this backdrop, the BCB could resume its tightening cycle once the

general elections are over.

The sluggishness of the economic activity has drawn attention to

the flagging demand-driven growth model and the economy's loss

of competitiveness, which is weighing on investment and exports.

The marked increase in real wages was not based on

commensurate productivity gains, eroding hence Brazilian

competitiveness. This trend has worsened since 2010: while real

wages have increased an average of 3% per year, productivity in

the industrial sector has stagnated.

-1

0

1

2

3

4

-1

-0,5

0

0,5

1

1,5

2

2,5

Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14

In %GDP GROWTH

Q/Q Y/Y (RHS) Sources: IBGE, SG

4

5

6

7

8

9

10

11

12

13

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

MONETARY POLICY RATE AND INFLATION

SELIC Headline inflation Core inflation

Sources : BCB, IBGE, SG

In %

85

90

95

100

105

110

115

120

125

130

2007 2008 2009 2010 2011 2012 2013 2014

100=2007

PRODUCTIVITY AND REAL WAGES OF THE INDUSTRIAL SECTOR

Productivity (per capita) Real wages Sources :IBGE, SG

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 2.7 1.0 2.5 0.5 1.3

Households consumption 4.1 3.2 2.3 2.0 1.6

Government consumption 1.9 3.3 2.0 2.5 0.4

Investment 4.7 -4.0 6.3 -6.0 1.0

Exports 4.5 0.5 2.5 2.0 4.0

Imports 9.7 0.2 8.4 3.0 3.0

Inflation rate (CPIA) 6.6 5.4 6.2 6.4 6.0

Public balance (as % of GDP) -2.6 -2.5 -3.3 -3.6 -3.3



16

RUSSIA: WAITING FOR SUPPORTIVE POLICIES?

The impact of the Ukrainian crisis and tensions with the EU and the United States has exacerbated an already bleak macroeconomic situation. Public spending is the only factor that could support growth in the next few quarters. On the upside, the combined effect of trade sanctions and the depreciation of the ruble could facilitate a partial recovery in the manufacturing sector.

The country's macroeconomic situation deteriorated amid a

climate of growing uncertainty. Economic activity is stagnating

and has become increasingly reliant on public spending while

private investment is contracting and consumption slowing. GDP

growth is expected to be close to zero this year and is forecast to

be a paltry 1% in 2015. GDP in the first two quarters of 2014

recorded low growth of 0.9% and 0.8% at an annualised pace. At

a quarterly rate, GDP contracted 0.3% in Q1 but grew 0.5% in Q2

on the back of, notably, a positive contribution from external trade

and an increase in public spending. The public spending

component risks being the primary growth driver in future quarters

or even years. Manufacturing activity inched higher, due to 1)

imports being substituted by domestic goods, a movement which

has ramped up since this summer and 2) public sector orders.

Restrictions on imports and the depreciation of the ruble have

resulted in fresh inflationary pressure. However, such pressure has

yet to materialise on the weekly inflation index. This could be due

to the delay in price hikes on regulated prices (notably in

transportation and utilities). Inflationary pressure could be partially

offset by the freeze in regulated prices, which will have a negative

impact on either investment in the relevant sectors or on the

budget.

The budget is expected to be leveraged in the next two years to

support growth in certain sectors, such as the defence industry.

Moreover, pension increases and other transfers are also under

consideration.

-10

-5

0

5

10

15

20

2011 2012 2013 2014

YoY, as %CONSUMPTION AND INVESTMENT

Retail sales Investment Source: ROSSTAT

0

2

4

6

8

10

12

14

16

18

2009 2010 2011 2012 2013 2014

YoY, As % INFLATION

Série1 Série2 Série3 Série4

Sources : ROSSTAT

-20

-10

0

10

20

30

40

50

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14

YoY, as %FEDERAL BUDGET

Revenues Expenditures Source: Datastream

As % 2011 2012 2013 2014 (f) 2015 (f)

Real GDP 4.3 3.4 1.3 0.0 0.8


Public spending 2.5 -0.2 1.0 1.0 2.0

Gross Fixed Capital Formation 7.0 6.0 0.0 -3.0 1.0

Exports of goods and services 0.3 1.4 2.5 0.0 1.0

Imports of goods and services 20.3 8.8 5.0 -1.0 3.0

Consumer prices (CPI) 8.4 5.0 6.5 7.0 7.0

Foreign debt (as % of GDP) 31.0 32.0 32.0 32.0 32.0

Budget balance (as % of GDP) 0.8 0.0 -0.1 -0.5 -0.8

Public debt (as % of GDP) 11.0 12.0 13.0 13.0 14.0


17

EURO AREA FORECASTS

EURO AREA

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Gross Domestic Product (GDP) 1.6 -0.6 -0.4 0.7 1.0

Total domestic demand 0.7 -2.2 -0.9 0.9 1.1

Private consumption 0.3 -1.4 -0.6 0.8 1.2

Public consumption -0.1 -0.6 0.1 0.8 0.4

Total investment 1.7 -3.8 -2.8 1.2 2.0

Contrib. of inventories to GDP growth 0.3 -0.5 0.0 0.0 -0.1

External trade contribution 0.9 1.5 0.5 -0.1 0.0


Imports of goods and services 4.7 -0.8 0.4 3.2 4.4

Consumer prices 2.7 2.5 1.3 0.4 0.9

% Change year-on-year, end of period 2.7 2.2 0.8 0.5 1.1

Real Disposable income (% Change) -0.3 -1.7 -0.6 0.8 1.1

Unemployment rate (% average) 10.1 11.3 12.0 11.5 11.2

(National accounts adjusted for seasonal and calendar effects)

GROSS DOMESTIC PRODUCT

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Germany 3.7 0.6 0.2 1.5 1.6

Austria 2.9 0.7 0.4 1.5 1.8

Belgium 1.8 -0.1 0.2 1.0 1.2

Cyprus 0.4 -2.4 -5.4 -4.2 0.4

Spain 0.1 -1.6 -1.2 1.0 1.4

Finland 2.8 -1.0 -1.3 -0.1 1.4

France 2.1 0.4 0.4 0.3 0.7

Greece -7.1 -7.0 -3.9 0.5 2.0

Ireland 2.8 -0.3 0.2 5.0 2.6

Italy 0.6 -2.4 -1.8 -0.2 0.6

Luxembourg 1.9 -0.2 2.1 2.7 2.1

Malta 1.5 0.8 2.6 1.8 2.0

Netherlands 1.7 -1.6 -0.7 0.6 0.6

Portugal -1.3 -3.2 -1.4 1.0 1.5

Slovakia 3.0 1.8 0.9 2.7 3.3

Slovenia 1.0 -2.4 -0.9 1.1 1.5


18

FRANCE

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Gross Domestic Product (GDP) 2.1 0.4 0.4 0.3 0.7

Domestic demand (incl. inventories) 2.0 -0.3 0.3 0.4 0.7

Private consumption 0.3 -0.5 0.3 0.2 1.2

General gov. consumption expenditure 1.0 1.7 2.0 1.8 0.4

GFCF of non financial enterprises 4.0 0.3 -0.6 -0.6 1.0

GFCF of households 1.0 -2.2 -3.1 -8.2 -4.1

GFCF of general government -4.4 1.6 1.1 -0.4 -0.2

Contrib. of inventories to GDP growth 1.1 -0.6 -0.2 0.3 0.0

External trade contribution 0.0 0.7 0.1 0.0 0.0


Imports of goods and services 6.5 -1.2 1.9 3.0 3.8


% change year-on-year, end of period 2.5 1.3 0.7 0.9 1.3

Employment 0.9 0.1 -0.6 -0.3 -0.3

Unemployment rate (ILO) 8.8 9.4 9.9 9.8 9.9

Real Disposable income 0.2 -0.9 0.0 1.2 1.1

Household saving rate 15.7 15.3 15.1 15.9 15.8

GERMANY

Annual % change 2011 2012 2013 2014 (f) 2015 (f)


Domestic demand (incl. inventories) 3.1 -0.8 0.8 1.9 2.0


Public consumption 0.7 1.2 0.7 0.8 1.0

GFCF of capital goods 6.1 -2.1 -2.5 4.6 4.0

GFCF of construction 8.6 1.6 0.1 4.0 3.7

GFCF of general government 4.9 -5.2 4.0 9.0 6.0

Contrib. of inventories to GDP growth 0.1 -1.4 0.2 0.2 0.1

External trade contribution 0.7 1.4 -0.5 -0.3 -0.2


Imports of goods and services 7.3 0.4 3.2 4.6 6.7



Employment 1.3 1.1 0.6 0.8 0.8



Real Disposable income 1.9 0.0 0.3 1.1 1.5



19

ITALY

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Gross Domestic Product (GDP) 0.6 -2.4 -1.8 -0.2 0.6

Domestic demand (incl. inventories) -0.8 -5.1 -2.7 -0.3 0.7

Private consumption -0.3 -4.0 -2.6 0.1 0.6

Public consumption -1.3 -2.6 -0.8 0.3 -0.4

Expenditure on capital goods 0.6 -9.5 -5.4 -1.7 2.8

Expenditure on construction -3.4 -6.2 -6.7 -2.0 1.5

Total investment -1.6 -8.1 -4.6 -1.4 2.0

Contrib. of inventories to GDP growth -0.1 -0.6 -0.1 -0.2 0.0

External trade contribution 1.4 2.7 0.8 0.1 0.0


Imports of goods and services 1.4 -7.1 -2.9 1.5 2.0



Employment 0.3 -0.3 -2.0 -0.3 0.2


Real Disposable income -0.7 -4.4 -0.8 0.2 1.7


SPAIN

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Gross Domestic Product (GDP) 0.1 -1.6 -1.2 1.0 1.4

Domestic demand (incl. inventories) -2.0 -4.1 -2.7 1.5 1.2

Private consumption -1.2 -2.8 -2.1 1.9 1.2

Public consumption -0.5 -4.8 -2.3 1.2 -0.8

Total investment -5.4 -7.0 -5.1 0.6 3.3

Contrib. of inventories to GDP growth -0.1 0.0 0.0 0.0 0.0

External trade contribution 2.1 2.5 1.5 -0.5 0.3


Imports of goods and services -0.1 -5.7 0.4 4.6 3.0

Consumer prices (CPI) 3.2 2.4 1.4 -0.1 0.3

% change year-on-year, end of period 2.4 2.9 0.2 -0.6 0.8

Employment -1.6 -4.3 -2.8 1.0 1.5


Real Disposable income -2.5 -5.2 -2.0 1.3 1.5


(National accounts adjusted for seasonal and calendar effects)


20

OUT SIDE EURO AREA FORECASTS

UNITED STATES

Annual % change 2011 2012 2013 2014 (f) 2015 (f)


Domestic demand (incl. inventories) 1.6 2.2 1.9 2.3 3.0

Personal consumption 2.3 1.8 2.4 2.3 2.7

Public consumption -3.0 -1.4 -2.0 -0.6 0.1

Residential fixed investment 0.5 13.5 11.9 1.6 5.1

Nonresidential fixed investment 7.7 7.2 3.0 6.3 7.5

Contrib. of inventories to GDP growth -0.1 0.1 0.0 0.1 0.1

External trade contribution 0.0 0.0 0.2 -0.3 -0.1



Consumer prices, excl. fresh food (CPI) 3.1 2.1 1.5 1.9 2.0


Employment 1.2 1.7 1.7 1.8 2.0


Real disposable income 2.5 3.0 -0.2 2.6 2.6


UNITED KINGDOM

Annual % change 2011 2012 2013 2014 (f) 2015 (f)


Domestic demand (incl. inventories) -0.1 1.2 1.8 2.6 2.0

Private consumption -0.4 1.4 2.2 2.3 2.1

Public spending -1.0 1.5 -0.2 -0.3 -0.3

Housing investment 0.4 -3.6 4.4 8.9 6.3

Business investment -1.3 3.9 -1.0 11.8 5.4

Total investment -2.4 0.8 -0.8 8.3 4.7

Contrib. of inventories to GDP growth 0.5 -0.2 0.4 -0.1 0.0

External trade contribution 1.2 -0.5 0.1 0.4 0.2



Consumer prices (HCPI) 4.5 2.8 2.6 1.6 1.9


Employment 0.2 0.8 1.3 1.9 2.1


Real disposable income -1.2 2.5 -0.3 1.1 2.4



21

JAPAN

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Gross Domestic Product (GDP) -0.4 1.5 1.5 1.1 1.0

Domestic demand (incl. inventories) 0.5 2.3 1.8 0.9 0.8

Private consumption 0.3 2.1 2.0 -0.5 0.4

Public spending -0.4 1.8 3.6 0.9 -1.6

Residential investment 5.1 2.9 8.8 -3.9 -0.9

Business investment 4.1 3.6 -1.4 5.3 4.6

Contrib. of inventories to GDP growth -0.2 0.1 -0.3 0.4 0.3

External trade contribution -0.8 -0.7 -0.2 0.4 0.2

Exports of goods and services -0.4 -0.1 1.5 7.2 4.7


Consumer prices -0.3 0.0 0.4 2.8 1.6

% change year-on-year, end of period -0.2 -0.1 1.6 2.6 0.5

Employment -0.1 -0.3 0.7 0.7 0.3


Real disposable income 0.7 0.7 1.6 0.2 1.5


CHINA

Annual % change 2011 2012 2013 2014 (f) 2015 (f)


Final consumption (contrib. ppt of GDP) 5.5 4.2 4.1 3.8 3.8

Gross fixed capital formation (contrib. ppt of GDP) 4.3 3.5 3.7 3.4 3.2

Foreign trade (contrib. ppt of GDP) -0.9 0.4 -0.2 0.0 0.0

Consumer prices 5.4 2.6 2.6 2.5 2.9

General Government Balance (as % of GDP) 0.6 0.2 -0.9 -1.0 -0.8

General Government Debt (as % of GDP) 36.5 37.4 39.4 40.8 41.9

External debt (as % of GDP) 9.5 8.8 9.1 9.7 10.2


INDIA

Annual % change 2011 2012 2013 2014 (f) 2015 (f)

Gross Value Added (at factor cost) 6.7 4.5 4.7 6.0 7.0

Real GDP (at market prices) 6.6 4.7 5.0 6.0 7.0


Gross Fixed Capital Formation 12.3 0.8 -0.1 6.6 10.4

Exports 15.6 5.0 8.4 10.0 10.4

Imports 21.1 6.6 -2.5 8.2 11.6

Consumer prices 8.4 10.2 9.5 8.0 7.0

Public Sector Balance (as % of GDP) -8.0 -7.1 -6.7 -6.6 -6.4

Public Debt (as % of GDP) 66.8 66.6 66.7 65.3 64.0External Debt (as % of GDP) 18.9 21.5 23.1 22.1 21.3Current Account Balance (as % of GDP) -4.2 -4.7 -1.7 -1.5 -2.0(Fiscal year start 1st April)


22

BRAZIL

Annual % change 2011 2012 2013 2014 (f) 2015 (f)



Government consumption 1.9 3.3 2.0 2.5 0.4

Gross Fixed Capital Formation 4.7 -4.0 6.3 -6.0 1.0




Public balance (as % of GDP) -2.6 -2.5 -3.3 -3.6 -3.3

Current account (as % of GDP) -2.1 -2.4 -3.7 -3.3 -3.0

RUSSIA

Annual % change 2011 2012 2013 2014 (f) 2015 (f)



Public spending 2.5 -0.2 1.0 1.0 2.0

Gross Fixed Capital Formation 7.0 6.0 0.0 -3.0 1.0


Imports of goods and services 20.3 8.8 5.0 -1.0 3.0


Foreign debt (as % of GDP) 31.0 32.0 32.0 32.0 32.0

Budget balance (as % of GDP) 0.8 0.0 -0.1 -0.5 -0.8

Public debt (as % of GDP) 11.0 12.0 13.0 13.0 14.0


23

ECONOMIC STUDIES CONTACTS

Olivier GARNIER Group Chief Economist +33 1 42 14 88 16 [email protected] Olivier de BOYSSON Emerging Markets Chief Economist +33 1 42 14 41 46 [email protected] Marie-Hélène DUPRAT Senior Advisor to the Chief Economist +33 1 42 14 16 04 [email protected] Ariel EMIRIAN Macroeconomic & Country Risk Analysis / CEI Country +33 1 42 13 08 49 [email protected] Benoît HEITZ Macroeconomic & Country Risk Analysis / Euro zone and Europe +33 1 58 98 74 26 [email protected] Clémentine GALLÈS Macro-sectorial Analysis / United States +33 1 57 29 57 75 [email protected] Françoise BLAREZ Macro-sectorial Analysis +33 1 58 98 82 18 [email protected]

Constance BOUBLIL-GROH Central and Eastern Europe +33 1 42 13 08 29 [email protected] Juan Carlos DIAZ MENDOZA Latin America +33 1 57 29 61 77 [email protected] Marc FRISO Euro zone, Northern Europe & Sub-Saharan Africa +33 1 42 14 74 49 [email protected] Régis GALLAND Middle East, North Africa & Central Asia +33 1 58 98 72 37 [email protected] Emmanuel PERRAY Macro-sectorial analysis +33 1 42 14 09 95 [email protected] Nikolina NOPHAL BANKOVA Macro-sectorial analysis +33 1 42 14 97 04 [email protected] Sopanha SA Asia +33 1 58 98 76 31 [email protected] Danielle SCHWEISGUTH Western Europe +33 1 57 29 63 99 [email protected]

Isabelle AIT EL HOCINE Assistant +33 1 42 14 55 56 [email protected] Valérie TOSCAS Assistant +33 1 42 13 18 88 [email protected] Sigrid MILLEREUX-BEZIAUD Information specialist +33 1 42 14 46 45 [email protected] Tiphaine CAPPE de BAILLON Statistic studies & Publishing +33 1 42 14 00 25 [email protected]

Société Générale | Economic studies | 75886 PARIS CEDEX 18 http://www.societegenerale.com/en/Our-businesses/economic-studies Tel: +33 1 42 14 55 56 — Tel: +33 1 42 13 18 88 – Fax: +33 1 42 14 83 29 All opinions and estimations included in the report represent the judgment of the sole Economics Department of Societe Generale and do not necessary reflect the opinion of the Societe Generale itself or any of its subsidiaries and affiliates. These opinions are subject to change without notice. It does not constitute a commercial solicitation, a personnal recommendation or take into account the particular investment objectives, financial situations. Although the information in this report has been obtained from sources which are known to be reliable, we do not guarantee its accuracy or completeness. Neither Societe Generale nor its subsidiaries/affiliates accept any responsibility for liability arising from the use of all or any part of this document. Societe Generale may both act as a market maker or a broker, and may trade securities issued by issuers mentioned in this report, as well as derivatives based thereon, for its own account. Societe Generale, including its officers and employees may serve or have served as an officer, director or in an advisory capacity for any issuer mentioned in this report. Additional note to readers outside France: The securities that may be discussed in this report, as well as the material itself, may not be available in every country or to every category of investors.

societe generale - scenarioeco sept 2014 - en

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