Economic Outlook: Cyclical Recovery, Structural Challenges GIC Central Banking Series: Abu Dhabi

Economic Outlook: Cyclical Recovery, Structural Challenges GIC Central Banking Series: Abu Dhabi John E. Silvia, Chief Economist March 24-26, 2013

Where Are We Now?

Interest Rates

Inflation

Growth Five benchmarks for good decision making

Profits

Source:

GIC Central Banking Series

2

The Dollar

Wells Fargo vs. Consensus

Expectations for the Future

 Sustained below-trend growth

 Still cautious on consumer segments

How do we differ from consensus?

 Housing improving—multifamily especially

 State and local governments—still restructuring

 Employment—cyclical and structural change

GIC Central Banking Series

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What We Get Versus What We Expect

U.S. Real GDP Bars = CAGR

Line = Yr/Yr Percent Change

10%

10% GDP - CAGR: Q4 @ 0.1%

8%

GDP - Yr/Yr Percent Change: Q4 @ 1.6%

6%

6% Forecast

4%

Sustained recovery in 2013, but still below historical experience

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

-6%

-6%

-8%

-8%

-10% 2000

-10% 2002

2004

2006

2008

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

GIC Central Banking Series

8%

4

2010

2012

2014

Inflation vs. Yields: Negative Real Yields – Three Non-market Buyers

Inflation and the Real Yield Percent 8.0%

8.0% 5-Year Treasury Note Yield: Mar @ 0.8% Median Inflation Expect. for 5-10 Yrs: Feb @ 3.0%

7.0%

Inflation expectations exceed nominal returns

7.0%

6.0%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0% 1996-2009 Average Median Inflation Expectation for 5-10 Years: 2.9%

0.0% 1996

0.0% 1998

2000

2002

2004

2006

2008

Source: Federal Reserve Board, University of Michigan and Wells Fargo Securities, LLC

GIC Central Banking Series

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2010

2012

Fiscal Policy: Difficult Choices/Chronic Imbalance

Federal Budget Balance Percentage of GDP 4.0%

4.0%

2.0%

2.0%

0.0%

0.0%

-2.0%

-2.0%

-4.0%

The nation has entered uncharted waters in fiscal policy

Forecast

-4.0%

-6.0%

-6.0%

-8.0%

-8.0%

-10.0%

-10.0%

-12.0%

-12.0% Budget Balance: Q4 @ -6.8%

-14.0% 2000

-14.0% 2002

2004

2006

2008

2010

2012

2014

Source: U.S. Department of Commerce, U.S. Department of the Treasury and Wells Fargo Securities, LLC

GIC Central Banking Series

6

Federal Debt Held by the Public: Unsustainable

Federal Debt Held by the Public Percentage of GDP, CBO Projection 140%

140% Federal Debt Held by the Public: 2023 @ 77.0%

Federal debt held by the public will likely remain near 80 percent

Projected

120%

120%

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

0% 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20

Source: Congressional Budget Office and Wells Fargo Securities, LLC

GIC Central Banking Series

7

U.S. Government Debt: Who Holds Our Debt?

Top Holders of U.S. Treasuries Billions of Dollars $1,400

$1,400 Dec-10 Dec-11

$1,200

Dec-12

$1,000

Japan and China hold an unprecedented amount of U.S. debt

$1,000

$800

$800

$600

$600

$400

$400

$200

$200

$0

$0 Japan

China

U.K.

OPEC

Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC

GIC Central Banking Series

$1,200

8

Taiwan

Caribbean

Global Competitiveness

Top 10

1. Switzerland 2. Singapore 3. Finland 4. Sweden 5. Netherlands Where do the nations stack up in terms of competitiveness?

6. Germany 7. United States 8. United Kingdom 9. Hong Kong 10. Japan Other Rankings

11. Qatar 12. Denmark 18. Saudi Arabia 20. Australia 24. United Arab Emirates

29. China 32. Oman 53. Mexico 59. India

Source: World Economic Forum 2012 and Wells Fargo Securities, LLC

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What We Get Versus What We Expect: Global Growth

Real Global GDP Growth (Wells Fargo) Year-over-Year Percent Change, PPP Weights 7.5%

7.5%

6.0%

6.0% Period Average

Global growth should pick up, although below long-run average

4.5%

4.5%

3.0%

3.0%

1.5%

1.5%

0.0%

0.0%

-1.5%

-1.5% 1970

1975

1980

1985

1990

1995

Source: International Monetary Fund and Wells Fargo Securities, LLC

GIC Central Banking Series

10

2000

2005

2010

Global Growth

GDP Growth Post-Recession Average Annual Percent Change for 2010-2012 United Kingdom Euro area Japan United States

0.7% 1.0% 2.0% 2.1%

South Africa

2.9%

Brazil

The global recovery is being driven by emerging markets

3.9%

Russia

4.1%

Korea

4.2%

Indonesia

6.2%

Turkey

6.9%

Singapore

7.2%

India

7.3%

China 0.0%

9.2%

2.0%

4.0%

Source: International Monetary Fund and Wells Fargo Securities, LLC

GIC Central Banking Series

11

6.0%

8.0%

10.0%

Economic Activity

OECD Industrial Production Index, 2005=100

Factory production in many developed economies has stalled

110

110

100

100

90

90

80

80

OECD Industrial Production: Nov @ 102.9 70 1996

70 1998

2000

2002

2004

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

12

2006

2008

2010

2012

Eurozone: Real GDP

Eurozone Real GDP Bars = Compound Annual Rate

Persistent weakness reflects underlying structural issues

Line = Yr/Yr % Change

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

-6%

-6%

-8%

-8%

-10%

-10% Compound Annual Growth: Q4 @ -2.4%

-12%

-12%

Year-over-Year Percent Change: Q4 @ -0.9% -14%

-14% 2000

2002

2004

2006

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

13

2008

2010

2012

Eurozone: Sentiment

Eurozone Economic Sentiment Index

Weak sentiment supports subpar outlook

120

120

110

110

100

100

90

90

80

80

70

70 Economic Sentiment: Feb @ 91.1

60 2004

60 2006

2008

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

14

2010

2012

Eurozone: Industrial Production

Eurozone Industrial Production Index Year-over-Year Percent Change 12%

Downshift in outlook

12%

8%

8%

4%

4%

0%

0%

-4%

-4%

-8%

-8%

-12%

-12%

-16%

-16%

-20%

IPI: Dec @ -2.3%

-20%

3-Month Moving Average: Dec @ -3.2% -24% 1997

1999

2001

2003

2005

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

15

2007

2009

2011

-24% 2013

Eurozone Industry Sentiment

Eurozone Purchasing Managers' Indices Index

Leading indicator supports subpar outlook

65

65

60

60

55

55

50

50

45

45

40

40

35

35

E.Z. Manufacturing: Feb @ 47.9 E.Z. Services: Feb @ 47.9

30 1998

30 2000

2002

2004

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

16

2006

2008

2010

2012

Exchange Rates: Euro

Exchange Rates Euro Per Foreign Currency €1.40

€0.14 USD/Euro: Mar-07 @ €0.76 (Left Axis)

€1.30

Relative stability

Pound/Euro: Mar-07 @ €1.15 (Left Axis)

€1.20

€0.12

€1.10

€0.11

€1.00

€0.10

€0.90

€0.09

€0.80

€0.08

€0.70

€0.07

€0.60 2009

€0.06 2010

2011

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

€0.13

Yuan/Euro: Mar-07 @ €0.12 (Right Axis)

17

2012

2013

Switzerland: Exchange Rate

Swiss Exchange Rate CHF per EUR

The Swiss National Bank has been able to maintain the exchange rate above its target via large purchases of euros

1.70

1.70

1.60

1.60

1.50

1.50

1.40

1.40

1.30

1.30

1.20

1.20

1.10

1.10

CHF per EUR: Mar @ 1.23 SNB Target Exchange Rate

1.00 2000

1.00 2002

2004

2006

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

18

2008

2010

2012

Real GDP Growth Rate Comparison

Real GDP Year-over-Year Percent Change

Industrialized West versus Industrializing East

14%

14%

12%

12%

10%

10%

8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

United States: Q4 @ 1.6%

-6%

-6%

United Kingdom: Q4 @ 0.3% Eurozone: Q4 @ -0.9%

-8%

-8%

China: Q4 @ 7.9%

-10%

-10% 00

01

02

03

04

05

06

07

08

09

10

Source: IHS Global Insight, U.S. Department of Commerce and Wells Fargo Securities, LLC

GIC Central Banking Series

19

11

12

13

Eurozone Financial Markets

10-Year Government Bond Yields Percent 8.0%

8.0% Italy: Mar 07 @ 4.6%

7.0%

6.0%

Tensions in European financial markets have subsided, at least for now

Spain: Mar 07 @ 4.9% Germany: Mar 07 @ 1.5%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0% 2003

1.0% 2004

2005

2006

2007

2008

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

7.0%

United States: Mar 07 @ 2.0%

20

2009

2010

2011

2012

2013

Bank Exposure to Peripheral European Countries

Bank Exposure to Peripheral Europe Percent of GDP, Q3 2012

20%

20% Italy Spain Portugal Ireland Greece

15%

Many European countries have significant exposure to sovereign debt in peripheral European countries

10%

10%

5%

5%

0%

0% FR

PT

NE UK GE SZ

BE

SP

AS

IR

Source: Bank for International Settlements and Wells Fargo Securities, LLC

GIC Central Banking Series

15%

21

IT

JP

SW US CA

Bank Exposure to Western European Countries

Bank Exposure to European Countries Percent of GDP, Q3 2012 140%

140% Exposure to Other European Countries Exposure to Peripheral European Countries

120%

100%

The financial linkages within the European banking system are very extensive

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

0% SW SZ NE

IR

FR SP GE UK AS PT

BE

Source: Bank for International Settlements and Wells Fargo Securities, LLC

GIC Central Banking Series

120%

22

IT

GR

JP

CA US

U.S. Bank Exposure to Europe

U.S. Bank Exposure to Select European Countries Billions of U.S. Dollars, As of Q3 2012

Germany

$221

France

$216

Netherlands

$108

Switzerland

U.S. banks have relatively little bank exposure to the European periphery

$90

Spain

$49

Ireland

$45

Italy

$40

Portugal

$5

Greece

$3 $0

Other Areas of U.S. Bank Exposure Billions of USD

Europe $ 1,543 United Kingdom $ 633 Other Developed countries $ 632

$50

$100

$150

Source: Bank for International Settlements and Wells Fargo Securities, LLC

GIC Central Banking Series

23

$200

$250

U.S. Dollar Exchange Rates

USD & Euro/USD Exchange Rate Trade Weighted Index, January 2002 = 100 105

105 Trade Weighted U.S. Dollar: Mar @ 68.3

100

On net, the exchange rate of the dollar remains unchanged since the end of the Great Recession

100

U.S. Dollar per Euro: Mar @ 67.9

95

95

90

90

85

85

80

80

75

75

70

70

65

65

60

60

55

55 02

03

04

05

06

07

08

09

Source: IHS Global Insight, Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

24

10

11

12

13

U.K.: Economic Growth

U.K. Real GDP Bars = Compound Annual Rate

Coming to grips with weaker euro outlook

Line = Yr/Yr % Change

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

-6%

-6%

-8%

-8% Compound Annual Growth: Q4 @ -1.0%

-10%

-10%

Year-over-Year Percent Change: Q4 @ 0.3% -12%

-12% 2000

2002

2004

2006

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

25

2008

2010

2012

Real GDP Growth: U.S. vs. U.K.

Real GDP Year-over-Year Percent Change

The growth patterns of the two economies have diverged

8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4% United States: Q4 @ 1.6%

-6%

-6%

United Kingdom: Q4 @ 0.3% -8%

-8% 00

01

02

03

04

05

06

07

08

09

10

Source: IHS Global Insight, U.S. Department of Commerce and Wells Fargo Securities, LLC

GIC Central Banking Series

26

11

12

13

U.K.: Consumer Prices

U.K. Consumer Price Index Year-over-Year Percent Change 6%

6% CPI: Jan @ 2.7%

Inflation uptrend since 2003 above BoE target

5%

5%

4%

4%

3%

3%

2%

2%

1%

1%

0% 1997

1999

2001

2003

2005

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

27

2007

2009

2011

0% 2013

Exchange Rates: Pound

Exchange Rates Pounds Per Foreign Currency £0.75

£0.13 USD/Pound: Mar-07 @ £0.66 (Left Axis) Yuan/Pound: Mar-07 @ £0.11 (Right Axis)

A recent break in the pound

£0.70

£0.12

£0.65

£0.11

£0.60

£0.10

£0.55

£0.09

£0.50 2009

£0.08 2010

2011

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

28

2012

2013

U.K.: Monetary Policy

Bank of England's Asset Purchase Program Billions of GBP £400

£400 Asset Purchases: Mar @ £375 Billion

Continued supply of BoE credit

£350

£350

£300

£300

£250

£250

£200

£200

£150

£150

£100

£100

£50

£50

£0

£0 2009

2010

2011

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

29

2012

2013

Japan: Industrial Production

Japanese Industrial Production Index Year-over-Year Percent Change, Seasonally Adjusted

Volatility around one percent growth

40%

40%

30%

30%

20%

20%

10%

10%

0%

0%

-10%

-10%

-20%

-20%

-30%

-30%

IPI: Jan @ -6.1% 3-Month Moving Average: Jan @ -6.3%

-40% 1998

-40% 2000

2002

2004

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

30

2006

2008

2010

2012

Japan: Real GDP Growth

Japanese Real GDP Bars = Compound Annual Rate

Line = Yr/Yr % Change

12%

Increasingly volatile pattern around very slow growth

12%

8%

8%

4%

4%

0%

0%

-4%

-4%

-8%

-8%

-12%

-12%

-16%

-16%

Compound Annual Growth: Q4 @ -0.4% Year-over-Year Percent Change: Q4 @ 0.1%

-20%

-20% 00

01

02

03

04

05

06

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

31

07

08

09

10

11

12

Real GDP Growth Rate Comparison

Real GDP Year-over-Year Percent Change

Economic growth in the United States appears consistent relative to weakness in Japan and the Eurozone

14%

14%

12%

12%

10%

10%

8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

United States: Q4 @ 1.6%

-6%

-6%

Japan: Q4 @ 0.2% Eurozone: Q4 @ -0.9%

-8%

-8%

China: Q4 @ 7.9%

-10%

-10% 00

01

02

03

04

05

06

07

08

09

10

Source: IHS Global Insight, U.S. Department of Commerce and Wells Fargo Securities, LLC

GIC Central Banking Series

32

11

12

13

Japan: Manufacturing

Japanese "Core" Machinery Orders Index January 1996=100, 3-Month Moving Average

Structural change?

115

115

105

105

95

95

85

85

75

75

65

65 "Core" Machinery Orders: Dec @ 73.5

55 1996

55 1998

2000

2002

2004

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

33

2006

2008

2010

2012

Japan: Retail Sales

Japanese Retail Sales Year-over-Year Percent Change 12%

Flat growth after 2011 gain

12%

9%

9%

6%

6%

3%

3%

0%

0%

-3%

-3%

-6%

-6%

-9%

-9% Year-over-Year Percentage Change: Jan @ -0.8%

-12%

-12%

6-Month Moving Average: Jan @ 0.1% -15% 1998

-15% 2000

2002

2004

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

34

2006

2008

2010

2012

Japan: Consumer Prices

Japanese Consumer Price Index Year-over-Year Percent Change

Uptrend to zero: next phase inflation?

3%

3%

2%

2%

1%

1%

0%

0%

-1%

-1%

-2%

-2%

-3%

-3%

"Core" CPI: Jan @ -0.7% Year-Over-Year Percentage Change: Jan @ -0.3%

-4% 2001

-4% 2003

2005

2007

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

35

2009

2011

2013

Japan: International Trade

Japanese Merchandise Trade Balance Billions of Yen, Seasonally Adjusted

¥ 1,250

¥ 1,250

¥ 1,000

From surplus to deficit: secular change?

¥ 1,000

¥ 750

¥ 750

¥ 500

¥ 500

¥ 250

¥ 250

¥0

¥0

-¥ 250

-¥ 250

-¥ 500

-¥ 500

-¥ 750

-¥ 750 Merchandise Trade Balance: Jan @ -¥678.9B

-¥ 1,000 2002

-¥ 1,000 2004

2006

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

36

2008

2010

2012

Japan: Exchange Rate

Japanese Exchange Rate JPY per USD

Appreciation since 2006

150

150

140

140

130

130

120

120

110

110

100

100

90

90

80

80 JPY per USD: Jan @ 90.1

70 1996

70 1998

2000

2002

2004

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

37

2006

2008

2010

2012

Exchange Rates: Yen

Exchange Rates Yen Per Foreign Currency

But, recent weakening

¥150

¥16

¥140

¥15

¥130

¥14

¥120

¥13

¥110

¥12

¥100

¥11

¥90

¥10

¥80

¥9 USD/Yen: Mar-07 @ ¥94.8 (Left Axis)

¥70

¥8

Euro/Yen: Mar-07 @ ¥124.3 (Left Axis) Yuan/Yen: Mar-07 @ ¥15.2 (Right Axis)

¥60 2009

¥7 2010

2011

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

38

2012

2013

Central Bank Policy Rates

Central Bank Policy Rates 7.5%

7.5% US Federal Reserve: Mar - 1 @ 0.25% ECB: Mar - 1 @ 0.75% Bank of Japan: Mar - 1 @ 0.10% Bank of England: Mar - 1 @ 0.50%

6.0%

Uniform rates at zero: global easing

6.0%

4.5%

4.5%

3.0%

3.0%

1.5%

1.5%

0.0%

0.0% 00

01

02

03

04

05

06

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

39

07

08

09

10

11

12

13

Global Inflation

World Consumer Price Inflation Year-over-Year Percent Change

Prices remain well contained as growth is sluggish

8%

8%

7%

7%

6%

6%

5%

5%

4%

4%

3%

3%

2%

2%

1%

1% World Consumer Prices: Dec @ 3.5%

0% 2000

0% 2002

2004

2006

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

40

2008

2010

2012

Commodity Prices

Crude Oil NYMEX Front-Month Contract, Dollars per Barrel

Crude oil prices remain relatively contained

$160

$160

$140

$140

$120

$120

$100

$100

$80

$80

$60

$60

$40

$40

$20

$20 Crude Oil: Mar 01 @ $90.68

$0

$0 00

01

02

03

04

05

06

Source: IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

41

07

08

09

10

11

12

13

Commodity Prices

Copper Price Dollars per Pound

Industrial commodity prices strengthened as world economies appeared stronger

$5.00

$5.00

$4.00

$4.00

$3.00

$3.00

$2.00

$2.00

$1.00

$1.00

Copper: Mar-1 @ $3.51 $0.00 2002

$0.00 2004

2006

Source: Bloomberg LP and Wells Fargo Securities, LLC

GIC Central Banking Series

42

2008

2010

2012

Global Economies: A Strong Dollar Policy?

Trade Weighted Dollar January 1997 =100 150

150 Revaluation of Chinese Renminbi

Economic fundamentals and risks abroad will drive the dollar

140

140

130

130

120

120

110

110

100

100 TWD OITP Index: Feb @ 126.7 TWD Broad Index: Feb @ 99.8

90 2003

90 2004

2005

2006

2007

2008

Source: Federal Reserve Board and Wells Fargo Securities, LLC

GIC Central Banking Series

43

2009

2010

2011

2012

2013

U.S. Forecast

Wells Fargo International Economic Forecast

Wells Fargo Bank Currency Strategy Group Forecast

(Year-over-Year Percent C hange)

(End of Quarter Rates)

GDP

CPI

2013

2012

2013

2014

2012

2013

2014

Global (PPP weights) Global (Market Exchange Rates)

2.7% 1.5%

2.8% 1.6%

3.5% 2.2%

4.2% n/a

4.1% n/a

4.1% n/a

Advanced Economies1 United States Eurozone United Kingdom Japan Korea Canada

1.3% 2.2% -0.5% 0.0% 2.0% 2.1% 2.0%

1.1% 1.7% 0.2% 1.0% 0.4% 2.3% 1.7%

2.3% 2.1% 1.8% 2.0% 2.4% 4.1% 2.7%

2.1% 2.1% 2.5% 2.8% 0.0% 2.2% 1.5%

1.5% 1.7% 1.5% 2.3% 0.0% 2.6% 1.3%

1.9% 2.1% 1.9% 2.0% 0.1% 3.1% 2.0%

Developing Economies1 China India Mexico Brazil Russia

4.5% 7.7% 5.4% 4.1% 0.8% 3.4%

4.9% 8.1% 6.3% 3.3% 2.2% 3.1%

5.4% 8.4% 6.8% 3.4% 4.2% 3.7%

6.7% 2.7% 9.3% 4.1% 5.4% 5.1%

7.0% 3.2% 8.7% 4.1% 6.3% 6.0%

7.2% 3.5% 8.9% 4.8% 6.1% 5.5%

Forecast as of: February 6, 2013

Q1

Q2

2014 Q3

Q4

Q1

Q2

Major Currencies Euro ($/€) U.K. ($/£) U.K. (£/€) Japan (¥/$) Canada (US$/C$) Australia (US$/A$) Switzerland (CHF/$)

1.33 1.55 0.86 93 1.00 1.04 0.92

1.32 1.54 0.86 94 0.99 1.04 0.93

1.30 1.53 0.85 95 0.97 1.04 0.95

1.27 1.52 0.84 96 0.96 1.05 0.97

1.26 1.51 0.83 97 0.95 1.05 0.99

1.25 1.50 0.83 98 0.95 1.04 1.00

Other Currencies China (CNY/$) South Korea ($/KRW) Singapore ($/SGD) Taiwan ($/TWD) Mexico ($/MXN) Norway (NOK/$) Sweden (SEK/$)

6.23 1083 1.23 29.68 12.70 5.55 6.33

6.21 1073 1.23 29.67 12.67 5.58 6.32

6.18 1057 1.22 29.42 12.57 5.64 6.36

6.15 1047 1.21 29.17 12.43 5.72 6.44

6.12 1037 1.20 28.92 12.27 5.77 6.51

6.10 1030 1.20 28.75 12.20 5.81 6.52

2014 Q1 2.30% 1.10% 2.40% 2.80% 3.20%

Q2 2.50% 1.15% 2.70% 3.20% 3.30%

Forecast as of: February 15, 2013

1

Aggregated Using PPP Weights

Wells Fargo International Interest Rate Forecast (End of Quarter Rates)

3-Month LIBOR

U.S. Japan Euroland* U.K. Canada

Q1 0.30% 0.15% 0.15% 0.50% 1.20%

Q2 0.30% 0.15% 0.20% 0.50% 1.20%

10-Year Bond 2014

2013 Q3 0.30% 0.15% 0.30% 0.50% 1.20%

Q4 0.30% 0.15% 0.40% 0.50% 1.40%

Q1 0.30% 0.15% 0.60% 0.60% 1.50%

Forecast as of: February 6, 2013 *10-year German Government Bond Yield

Source: U.S. Department of Commerce, IHS Global Insight and Wells Fargo Securities, LLC

GIC Central Banking Series

44

2013 Q2 0.30% 0.15% 0.80% 0.70% 1.70%

Q1 1.90% 0.85% 1.60% 2.15% 2.00%

Q2 2.00% 0.90% 1.70% 2.25% 2.20%

Q3 2.10% 0.95% 1.90% 2.40% 2.40%

Q4 2.20% 1.05% 2.10% 2.60% 2.80%

Outlook Risks

Potential Challenges to the Outlook

 Easier monetary policy brings questions for the dollar, inflation and interest rate outlook

 Fiscal policy: tax increases and/or spending cuts  Housing: unable to sustain growth on its own if rates What are the primary risks to the outlook?

rise

 European debt crisis weighs on global growth  A rise in oil and gasoline prices helps to lower real consumption

 Weak employment growth means less-than-expected real income and spending growth

GIC Central Banking Series

45

U.S. Forecast

Wells Fargo U.S. Economic Outlook Actual 2012

Real Gross Domestic Product Personal Consumption Inflation Indicators PCE Deflator

1

2010

Actual 2011

2012

Forecast 2013 2014

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

2.0

1.3

3.1

0.1

2.8

2.2

2.3

2.2

2.4

1.8

2.2

2.0

2.3

2.4

1.5

1.6

2.1

2.1

1.5

1.6

1.6

1.8

2.5

1.9

1.8

1.7

2.4

1.6

1.5

1.6

1.0

1.2

1.2

1.3

1.9

2.4

1.8

1.2

1.9

2.8

1.9

1.7

1.9

1.5

1.7

1.7

1.7

1.6

3.1

2.1

1.6

2.1

2

Consumer Price Index Industrial Production

1

Corporate Profits Before Taxes Trade Weighted Dollar Index Unemployment Rate Housing Starts

Forecast 2013

2

3

4

Quarter-End Interest Rates 5 Federal Funds Target Rate

5.9

2.4

0.5

2.6

3.5

3.5

4.1

4.1

5.4

4.1

3.8

3.0

3.8

10.3

6.7

7.5

5.0

4.8

5.2

5.3

5.7

26.8

7.3

7.3

5.3

6.4

72.7

74.5

72.7

73.4

73.0

74.0

75.0

76.0

75.4

70.9

73.5

74.5

76.8

8.3

8.2

8.0

7.8

7.8

7.6

7.5

7.4

9.6

8.9

8.1

7.6

7.2

0.71

0.74

0.77

0.90

0.90

0.96

1.02

1.08

0.59

0.61

0.78

0.97

1.17

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

0.25

Conventional Mortgage Rate

3.95

3.68

3.50

3.35

3.50

3.60

3.70

3.80

4.69

4.46

3.66

3.65

4.20

10 Year Note

2.23

1.67

1.65

1.78

1.90

2.00

2.10

2.20

3.22

2.78

1.80

2.05

2.60

Forecast as of: March 1, 2013 1 C ompound Annual Growth Rate Quarter-over-Quarter 2

Year-over-Year Percentage C hange

3

Federal Reserve Major C urrency Index, 1973=100 - Quarter End

4

Millions of Units

5

Annual Numbers Represent Averages

Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, Freddie Mac and Wells Fargo Securities, LLC

GIC Central Banking Series

46

Appendix

Wells Fargo Economics Group Publications

Recent Special Commentary Date February-25 February-20 February-18 February-15 February-11 February-11 February-11 February-07 February-05 February-04 February-04

To join any of our research distribution lists please visit our website: http://www.wellsfargo.com/ economics

Authors Silvia & Brown Silvia Vitner & Brown Bryson Silvia & Watt Aleman Vitner, Khan & Silverman Bryson Vitner & Silverman Silvia, Iqbal, Watt & Swankoski Aleman

Bank of Japan Joins Other Central Banks British Economy Remains Quite Weak Is Commercial Real Estate Still an Inflation Hedge?

A Decision Maker's View of Fiscal Policy California's Broadening Economic Recovery Peruvian Economy: Still Going Strong National Health Spending: Secular Growth Cyclical Slowdown Employment: So, Is This It? A Fiscal Cliff Resolution? Not Really

Quinlan Bryson Khan Silvia Vitner Aleman Silvia & Swankoski Silvia & Watt Silvia & Brown

December-19 December-19 December-18 December-17 December-13 December-11 December-03

Texas: Growth in a Weakening World Environment Canada: Economic Rock Star Faces Big Challenges Fiscal Cliff and True Reform Housing Chartbook: November 2012 2013 Economic Outlook Commercial Real Estate Chartbook: Quarter 3 Industrial Production and Business Spending Outlook

Aleman & Griffiths Quinlan Silvia Vitner, Khan & Silverman Vitner, Khan & Silverman Quinlan & Watt

November-27 November-19 November-16 November-13 November-09 November-07 November-01

Georgia Economic Outlook: November 2012 The Economic Impact of the Fiscal Cliff: An Update California's Economic Recovery Rolled On In October Income Tax Analysis: Who Pays?

Global Chartbook: November 2012 The Fiscal Cliff Debate In A Post-Election World North Carolina Economic Outlook

Vitner & Silverman Silvia, Brown & Swankoski Vitner Silvia & Brown Bryson, Aleman & Quinlan Silvia & Brown Vitner, Brown & Watt

Housing Data Wrap-Up: October 2012 2012 Holiday Sales Outlook U.S. Fiscal Primer III: Federal Revenues Retirement in America: Extending the Finish Line The Great Unemployment Rate Debate

Vitner & Khan Aleman, Iqubal & Brown Silvia, Bryson & Brown Bryson, Iqbal & Watt Silvia, Watt & Swankoski

January-25 January-25 January-24 January-15 January-15 January-14 January-09 January-04 January-02

October-29 October-24 October-18 October-18 October-12

GIC Central Banking Series

Title Economic Impact of Budget Sequestration Economic Outlook and the Banking Sector Sequestration: Which States Are Most Vulnerable?

The Chinese Financial System: Year of the Turtoise?

Student Loans: A Different Financial Market Strong Contraction in Mexican Industrial Production Housing Chartbook: January 2013 European Debt Dynamics: An Update Alabama's Big Wheels Keep on Turning When Is This Time Different?

The Brazilian Economy Continues to Struggle

48

Wells Fargo Securities, LLC Economics Group Global Head of Research and Economics

Economists Azhar Iqbal, Econometrician………………………………azhar.iqbal@wellsfargo.com

Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com Global Head of Research & Economics ……

Tim Quinlan, Economist …………………………………..tim.quinlan@wellsfargo.com

Chief Economist John E. Silvia …

Michael A. Brown, Economist ………………… michael.a.brown@wellsfargo.com

...................... …

Sarah Watt, Economist

john.silvia@wellsfargo.com

.

…………………………… .sarah.watt@wellsfargo.com Economic Analysts

Senior Economists

Kaylyn Swankoski, Economic Analyst Mark Vitner, Senior Economist……………....………. .

Jay Bryson, Global Economist

Anika Khan, Senior Economist

mark.vitner@wellsfargo.com

Zachary Griffiths, Economic Analyst

…………………....……….jay.bryson@wellsfargo.com

Eugenio Aleman, Senior Economist Sam Bullard, Senior Economist

.

Sara Silverman, Economic Analyst

…………….eugenio.j.aleman@wellsfargo.com

zachary.griffiths@wellsfargo.com sara.silverman@wellsfargo.com

Administrative Assistants Peg Gavin, Executive Assistant.

………………………….sam.bullard@wellsfargo.com .…

kaylyn.swankoski@wellsfargo.com

Cyndi Flowe, Senior Administrative Assistant

. anika.khan@wellsfargo.com

peg.gavin@wellsfargo.com cyndi.h.flowe@wellsfargo.com

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. (“WFS”) is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. (“WFBNA”) is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2013 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the “Materials”) are provided for general informational purposes only.

Client/Prospect Name

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