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
3
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
5
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
GIC Central Banking Series
9
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
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