1. Nomura | Global Economic Outlook Monthly 15 October 2012
Global Economic Outlook Monthly
Economics Research | North America
Suspending disbelief 15 OCTOBER 2012
Financial markets have positioned for a smooth path to sovereign debt relief in Europe
and deficit reduction in the US. Global Economics
nomura-globalEconomics@nomura.com
Contributor names can be found within the body
of this report and on the back cover
This report can be accessed electronically
COUNTRY AND REGIONAL ECONOMIC OUTLOOKS via: www.nomura.com/research or on
Bloomberg (NOMR)
Australia | Slower growth in H2, but back to trend by 2013 4
Brazil | Inflation storm on the horizon 5
Canada | Steady as she goes; growth around trend in H2 2012 6
China | Leading indicators suggest an economic recovery in Q4 7
Euro area | Deeper and more protracted contraction as consolidation bites 8
Hong Kong | Looming fiscal stimulus 9
Hungary | Little clarity on backstop path, rate cuts could still occur 10
India | Still a lot needs to be done 11
Indonesia | Some improvement 12
Japan | Weaker external demand likely leads to a recession in H2 2012 13
Malaysia | Signalling fiscal responsibility 14
Mexico | Growth supported by domestic demand 15
Philippines | Sticking to an easing bias 16
Poland | NBP dovishness but not ready to cut - growth still outperforming 17
Singapore | Tolerating slower growth 18
South Africa | Structural MPC dovishness in a year of crucial political battles 19
South Korea | Prolonged sub-potential growth 20
Taiwan | Hinges on the global outlook 21
Thailand | New growth engines 22
Turkey | A healthy rebalancing 23
United Kingdom | Inflections 24
United States | US budget in the crosshairs 25
Rest of EEMEA 26
Rest of Latin America 27
Nomura Securities International Inc.
See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures
3. Nomura | Global Economic Outlook Monthly 15 October 2012
Our View in a Nutshell (changes from last month highlighted)
United States
Waning business confidence will continue to dampen hiring and investment.
Ample economic slack should restrain inflation and keep inflation expectations anchored.
We expect the FOMC to continue long-term asset purchases through the third quarter of 2013.
Europe‟s debt crisis and the looming “fiscal cliff” should continue to weigh on growth through the rest of 2012.
Addressing fiscal policy is likely to be contentious, but we ultimately expect agreement on a long-term deficit reduction plan.
Europe
Fiscal tightening, financial deleveraging and sovereign debt market tensions should lead to a deeper-than-expected
recession.
We continue to expect Spain to delay an official call for help, but our baseline remains an ECCL is requested by end-month.
After a phase of relative calm, markets will likely test the backstop and pressure will rebuild in Q1 around weak sovereigns.
GDP contraction, higher non-performing loans and rising debt trajectories remain the key challenges.
Chances of a rate cut in Dec (our baseline) have reduced, though the ECB needs to respond to weaker growth, in our view.
We expect inflation to settle close to target in the UK but in the euro area to remain above 2% for most of 2012.
The BoE extended liquidity and funding support before announcing £50bn QE in July. We expect £25bn more in November.
Japan
Deterioration of external demand is likely to lead to negative growth in Q2 and Q3 2012.
Economic recovery in Asia should help Japan get back on a moderate recovery track from early 2013.
We expect the BOJ to announce a further expansion of its Asset Purchase Program by Q4 2012.
The main risks are yen appreciation, a worsening European debt problem and the US and China slowing.
Asia
The export slump calls for policy stimulus, but raises the risk next year of a build up in debt, inflation and asset price
bubbles.
China: Macro data are mixed, but policy easing is picking up speed, supporting the growth outlook for Q4.
Korea: We expect the BOK to stay on hold at 2.75% through 2013 as growth and inflation should rise modestly from low
base
India: Recent reforms have surprised positively and growth is bottoming out. But a V-shaped recovery is unlikely.
Australia: With indications that growth is slowing due to external factors, the RBA is likely to cut rates in November.
Indonesia: An increasingly uncertain policy environment could lead to delays in reforms and sustained current account
deficits.
EEMEA (Emerging Europe, Middle East and Africa) and Latin America
South Africa: With inflation now falling fast into target and growth slowing, the SARB may cut rates further.
Hungary: In a difficult spot having rejected the IMF aid conditions over policy concerns, market pressure should force a deal
in 2013.
Poland continues to outperform strongly , a recession is difficult to envisage, as such we don‟t see cuts occurring this year.
Turkey: Rebalancing continues and is likely to pave the way for an upgrade to investment grade.
Economic growth in Brazil will likely be well below 2% in 2012, despite the Selic policy rate falling to 7.50%.
Mexico: Inflation will likely remain above the target and growth will likely moderate in H2 2012.
Argentina‟s growth looks set to slow down in 2012, but inflation to stay high. ARS real appreciation should continue.
3
4. Nomura | Global Economic Outlook Monthly 15 October 2012
Australia | Economic Outlook
Slower growth in H2, but back to trend in 2013
Growth is likely to slow in H2, due to the impact on exports and the terms-of-trade of
slower Asian growth. We believe the RBA will cut rates by another 25bp in Q4.
Activity: After a strong start to the year, the Australian economy grew at trend in Q2. Charles St-Arnaud
+1 212 667 1986
Household spending was resilient, likely supported by the previous cuts in the policy rate, while charles.starnaud@nomura.com
investment slowed markedly, especially in the housing sector. Net exports contributed positively
Martin Whetton
to growth as exports remained strong while imports slowed. However, net exports should act as +61 2 8062 8611
a small drag on the economy later this year, as imports should remain strong owing to robust martin.whetton@nomura.com
business investment expectations but exports should still be affected by slowing growth in Asia
and the impact of the recent currency strength. Moreover, the decline in commodity prices will
also impact the terms-of-trade, likely leading to a decline in gross national income. We also
expect fiscal policy to continue to act as a small drag on the economy.
Inflation: CPI inflation dropped sharply in H1 and likely bottomed in Q2. We expect inflation to
rise in H2, owing to the impact from the carbon tax and a reduction in the deflationary pressures
from the past appreciation of the Australian dollar. Underlying inflation has also moderated in
recent quarters, and we expect it to remain close to the 2-3% RBA target over the forecast
horizon.
Policy: The RBA cut its policy rates by 25bp at the October meeting and signaled that it is likely
to cut again. We expect a further 25bp reduction in the official rate before the end of the year
but this depends more on external factors, such as continued weakness in Asia and the
eurozone crisis, than on domestic factors. Moreover, the latest budget shows that fiscal policy
will be restrictive this year, leaving the burden of stimulating the economy to the RBA.
Risks: A disorderly resolution to the European debt crisis, a strong currency and a sharp
slowdown in Chinese growth remain the main downside risks to the outlook. On the flip side, an
improvement in risk sentiment, increased global trade and renewed increases in commodity
prices represent upside risks to growth and inflation.
Fig. 1: Details of the forecast
% q-o-q ar. 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2011 2012 2013 2014
Real GDP (% y-o-y) 4.4 3.7 3.1 3.0 2.3 2.3 2.5 2.7 2.1 3.6 2.4 2.8
Real GDP 5.6 2.6 2.1 1.9 2.5 2.8 2.7 2.8 2.1 3.6 2.4 2.8
Personal consumption 7.5 2.3 2.1 2.1 2.3 2.5 2.5 2.6 3.3 3.8 2.3 2.6
Private investment 15.8 2.3 6.6 7.1 8.5 8.5 8.6 8.7 11.4 9.9 7.6 8.4
Business investment 23.0 4.7 8.0 8.5 10.1 10.0 9.9 9.9 14.8 14.4 9.2 9.7
Dw elling investment -7.9 -6.7 1.1 1.4 2.0 2.4 2.9 3.3 1.3 -5.4 1.5 3.2
Government expenditures 4.3 7.8 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 0.1 2.5 0.3 -0.2
Exports -3.5 10.2 6.0 6.0 7.5 8.0 8.0 8.0 -1.3 5.7 7.4 8.0
Imports 4.4 3.7 6.0 8.0 7.6 7.5 7.5 8.0 11.5 7.5 7.2 8.0
Contributions to q-o-q GDP:
Domestic final sales 8.8 3.6 2.1 2.2 2.6 2.7 2.7 2.8 3.5 4.1 2.6 3.0
Inventories -1.2 -2.2 0.0 0.1 0.0 0.1 0.0 0.0 0.8 -0.2 -0.1 -0.1
Net trade -2.0 1.2 0.0 -0.4 -0.1 0.0 0.0 -0.1 -2.1 -0.3 0.0 -0.1
Unemployment rate 5.2 5.2 5.2 5.3 5.4 5.5 5.5 5.5 5.1 5.2 5.4 5.3
Employment, 000 25 40 1 12 12 23 46 58 11 19 35 71
Consumer prices 1.6 1.2 1.6 2.1 2.7 2.8 2.4 2.5 3.4 1.6 2.6 2.5
Trimmed mean 2.1 1.9 2.3 2.4 2.6 2.6 2.5 2.5 2.7 2.2 2.6 2.5
Weighted median 2.2 2.0 2.3 2.2 2.5 2.6 2.5 2.5 2.5 2.2 2.5 2.5
Fiscal balance (% GDP) -3.4 -1.8 -0.2 0.1
Current account balance (% GDP) -2.3 -2.6 -3.0 -3.0
RBA cash rate target 4.25 3.50 3.50 3.00 3.00 3.00 3.25 3.50 4.25 3.00 3.50 4.00
3-month bank bill 4.30 3.54 3.36 3.05 3.00 3.00 3.30 3.60 4.50 3.05 3.60 4.00
2-year government bond 3.47 2.46 2.49 2.50 2.50 2.55 2.65 2.70 3.16 2.50 2.70 3.10
5-year government bond 3.58 2.58 2.56 2.55 2.50 2.50 2.55 2.60 3.29 2.55 2.60 3.20
10-year government bond 4.08 3.04 2.94 2.75 2.95 3.00 3.10 3.20 3.67 2.75 3.20 3.60
AUD/USD 1.04 1.02 1.05 1.03 1.00 0.99 1.00 1.00 1.02 1.03 1.00 1.00
Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. CPI inflation includes the impact from, the carbon tax, but not the underlying measures. Interest rate
and exchange rate forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Australian Bureau of Statistics, Reserve Bank
of Australia, Nomura Global Economics
4
5. Nomura | Global Economic Outlook Monthly 15 October 2012
Brazil | Economic Outlook
Inflation storm on the horizon
The combination of a record low policy rate and a “dirty band” preventing BRL from
appreciating will likely lead to soaring inflation in 2013
Tony Volpon
Activity: The Brazilian economy had a fairly poor start to the year, with H1 GDP growing merely +1 212 667 2182
tony.volpon@nomura.com
0.6% y-o-y, and investment falling 2.9% y-o-y. Policymakers have rolled out a series of
monetary and fiscal stimuli this year in an attempt to revive growth. However, given the
structural issues on the supply side, ongoing drags from credit markets and a still troubled
international environment, GDP growth will likely remain sluggish at 1.3% in 2012. Given the
gradually improving global growth profile and the lagged effects of domestic stimuli, we should
see more robust growth in 2013, reaching 4.1%.
Inflation: Consumer prices are currently around 5.3% and we expect inflation pressures to
accelerate, given the ongoing commodity price shock and the very accommodative monetary
policies in Brazil. Tradable goods prices are low at around 3.0%, yet several factors – inclement
weather in Brazil and the US, the recent surge in world food prices and BRL above 2.0 – are
already pushing up domestic food prices and we expect this to continue, with inflation ending
2012 at 5.3%. As a result of faster growth, a low base of comparison, the lagged effects of a
weaker currency and a lower policy rate, inflation will likely accelerate in 2013, ending the year
at 5.7%.
Policy: The Central Bank of Brazil (BCB) has slashed its policy rate, Selic, by 525bp since
August 2011, and stated in the October communiqué that “stability of monetary conditions for a
sufficiently long period is the best strategy.” We believe the “stability for long period” language
offers a strong signal that the easing cycle is coming to an end, and the key question now is
how long the BCB will stay put, even in the face of rising inflation.
Risks: The biggest risk, we believe, is the likelihood of a persistent supply shock as a result of
the recent run-up in commodity prices, further amplified by monetary easing from major central
banks. Such a shock should push up inflation rapidly and force the BCB to hike Selic in 2013,
despite still slow GDP growth, leading to a state of lower growth, higher inflation and still higher
rates (see “Inflation storm on the horizon”, August 15 2012). We now expect the new hiking
cycle to start in Q2 2013, as rising consumer prices threaten to go above 6%, and we think Selic
will likely finish 2013 at 9%.
Details of the forecast
% y-o-y change unless noted 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2012 2013
Real GDP 2.1 1.8 0.8 0.5 1.8 2.1 3.3 4.4 1.3 4.1
Personal consumption 2.8 2.8 2.5 2.4 4.2 4.1 4.4 5.7 3.3 5.0
Fixed investment 2.5 2.0 -2.1 -3.7 -1.5 -1.1 4.5 8.1 -2.1 6.2
Government expenditure 1.2 1.3 3.4 3.1 3.8 3.5 4.0 1.2 4.0 3.6
Exports 4.1 3.7 6.6 -2.5 -1.7 -2.3 -0.5 5.5 1.4 4.5
Imports 5.8 6.4 6.3 1.6 5.2 2.7 7.5 11.3 5.1 9.8
Contributions to GDP growth (pp)
Industry 0.5 0.4 -0.4 0.1 0.4 0.5 0.8 1.1 0.3 1.0
Agriculture 0.1 0.1 0.0 0.0 0.1 0.1 0.2 0.2 0.1 0.2
Services 1.2 1.0 0.9 0.3 1.0 1.2 1.9 2.5 0.7 2.3
IPCA (consumer prices) 7.3 6.5 5.2 4.9 5.3 5.4 5.7 5.8 5.4 5.7
IGPM (wholesale prices) 7.5 5.1 3.2 5.1 8.1 7.5 7.0 6.4 6.0 5.6
Trade balance (US$ billion) 5 30 29 24 22 20 18 21 20 25
Current account (% GDP) -3.0 -3.0
Fiscal balance (% GDP) -2.0 -2.0
Net public debt (% GDP) 36.0 35.0
Selic % 12.00 11.00 9.75 8.50 7.50 7.25 7.25 8.25 7.25 9.00
BRL/USD 1.88 1.86 1.83 2.01 2.03 1.98 1.92 1.88 1.98 1.85
Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-on-year changes for Q4. Trade data
are a 12-month sum. Interest rate and currency forecasts are end of period. Contributions to GDP growth do not include taxes. Numbers in bold are actual values,
others forecast. Table reflects data available as of 12 October 2012.
Source: Nomura Global Economics.
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6. Nomura | Global Economic Outlook Monthly 15 October 2012
Canada | Economic Outlook
Suspending disbelief
Financial markets have positioned for a smooth path to sovereign debt relief in Europe
and deficit reduction in the US.
Activity: Growth in Q2 was around potential, supported by business investment and inventory Charles St-Arnaud
accumulation. Net exports were the major drag to growth, as production disruptions in the oil +1 212 667 1986
charles.starnaud@nomura.com
industry have resulted in anemic exports gains, while strong domestic demand, led by business
investment, has boosted imports. For the rest of 2012, we expect growth of around 2%. We
expect personal spending growth to remain modest as households gradually reduce their debt
burdens and income growth remains slow. Business investment in machinery and equipment is
likely to slow, after a strong Q2, but should remain strong. Below-trend global growth and the
strong Canadian dollar will likely mean that net exports are not a significant source of growth.
However, the impact from the strong currency is partly reversed by weaker funding costs, owing
to strong foreign inflows into Canadian securities.
Inflation: With some spare capacity and the output gap likely to close in 2013, we think
inflationary pressures are likely to remain contained. We expect headline inflation to fall
gradually to 1.6%, as the impact from high food and energy prices gradually disappears, and
end the year close to the central bank‟s 2% target. Core inflation should follow a similar pattern,
reaching a low of 1.7%.
Policy: With considerable monetary stimulus in place, and a narrowing of the output gap, we
expect the BoC to remain on hold in 2012, waiting for some clarity on the US fiscal cliff and the
eurozone crisis before reducing the amount of stimulus and taking any further action. We expect
the BoC to be cautious about tightening monetary policy and to bring rates to 1.75% by end-
2013. The latest budgets show that the various levels of government are in consolidation mode,
causing a small drag on the economy.
Risks: A disorderly resolution of the euro-area debt crisis remains an immediate risk to the
Canadian economy, However, we think the threat from the US „fiscal cliff‟ is much bigger and
would have a much larger impact on the Canadian economy, given the strong economic links
between the two countries. On the upside, domestic demand may be more resilient than
expected, and the US economy may perform better than expected. Moreover, QE3 in the US
could be positive for Canada by boosting commodity prices and the terms of trade.
Fig. 1: Details of the forecast
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2011 2012 2013 2014
Real GDP 1.8 1.8 1.9 2.0 2.2 2.3 2.3 2.2 2.4 2.0 2.1 2.3
Personal consumption 0.7 1.1 1.5 1.5 1.8 1.8 1.8 1.8 2.4 1.6 1.7 1.8
Non residential fixed invest 5.8 9.4 7.0 7.0 6.5 6.5 6.5 6.5 13.1 6.5 6.8 6.5
Residential fixed invest 11.5 1.8 4.0 4.0 5.0 5.0 5.0 5.0 2.3 5.9 4.5 5.0
Government expenditures -2.0 -0.5 0.0 0.0 0.3 0.3 0.3 0.3 0.1 -1.6 0.2 0.3
Exports 4.0 0.8 4.0 4.2 4.3 4.3 4.3 4.2 4.6 4.8 4.0 4.2
Imports 5.2 6.4 4.0 4.0 4.2 4.2 4.2 4.2 7.0 4.0 4.3 4.2
Contributions to GDP:
Domestic final sales 1.4 1.8 2.0 2.0 2.2 2.2 2.2 2.2 3.0 1.8 2.1 2.2
Inventories 0.9 1.9 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.1 0.0
Net trade -0.4 -1.8 -0.1 0.0 0.0 0.0 0.1 0.1 -0.8 0.2 -0.1 0.1
Unemployment rate 7.4 7.3 7.3 7.3 7.3 7.2 7.2 7.2 7.5 7.3 7.2 7.1
Employment, 000 41 120 17 50 60 60 60 60 51 57 60 63
Consumer prices 2.3 1.6 1.3 1.7 1.8 1.8 2.0 2.0 2.9 1.7 1.9 2.0
Core CPI 2.1 1.7 1.6 1.7 2.0 2.0 2.0 2.0 1.7 1.8 2.0 2.0
Fiscal balance (% GDP) -4.4 -3.8 -3.0 -2.2
Current account balance (% GDP) -2.8 -3.4 -3.7 -3.7
Overnight target rate 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.75 1.00 1.00 1.75 3.00
3-month T-Bill 0.91 0.87 0.97 1.00 1.00 1.00 1.30 1.80 0.82 1.00 1.80 3.00
2-year government bond 1.20 1.03 1.07 1.20 1.20 1.30 1.60 2.20 0.95 1.20 2.20 3.20
5-year government bond 1.57 1.21 1.31 1.40 1.50 1.80 2.10 2.30 1.28 1.40 2.30 3.20
10-year government bond 2.11 1.74 1.73 1.90 2.00 2.10 2.30 2.50 1.94 1.90 2.50 3.40
USD/CAD 1.00 1.02 0.98 0.98 1.00 1.00 0.99 0.97 1.02 0.98 0.97 0.97
Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates (saar). Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate
forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 15 October 2012. Source: Bank of Canada, Statistics Canada, Nomura Global Economics.
6
7. Nomura | Global Economic Outlook Monthly 15 October 2012
China | Economic Outlook
Leading indicators suggest an economic recovery in Q4
The growth outlook depends on the strength of housing and infrastructure investments
Forecast change: We revise down our GDP growth forecast for 2013 to 7.7% from 7.9% as our Zhiwei Zhang
+852 2536 7433
European team revised down its 2013 euro-area growth forecast to -0.9% from 0.8%. We keep zhiwei.zhang@nomura.com
our 2012 GDP growth forecast unchanged at 8.1%.
Wendy Chen
Activity: Macro data remain mixed but recent data releases provided positive signals. Growth in +86 21 6193 7237
wendy.chen@nomura.com
industrial production slowed to 8.9% y-o-y in August from 9.2% in July; fixed asset investment
eased to 20.2% from 20.4%, while retail sales rose marginally to 13.2% from 13.1%. In contrast,
export growth rose sharply to 9.9% y-o-y in September from 2.7% in August, import growth
rebounded to 2.4% from -2.6%, and the PMI rebounded to 49.8 from 49.2, with a big jump in
new orders. Leading indicators in the property sector rose sharply in August: growth in new
housing starts jumped to 14% y-o-y from -27% in July, while developers' land purchase growth
snapped back to 66% from -39% in July.
Inflation: CPI inflation edged down to 1.9% y-o-y in September from 2.0% in August, driven
mostly by base effects. We believe CPI inflation climb to 3.1% in Q4 and 4.2% in 2013 as
growth rebounds and food prices accelerate. The PPI dropped to -3.6% y-o-y from -3.5%.
Policy: Policy easing has picked up. The government announced last month that it had
approved many infrastructure projects with a total investment value of about RMB1trn. Total
social financing rose sharply to RMB 1.6trn in September from 1.2trn in August. This reinforces
our view that the authorities are becoming less tolerant of slower GDP growth as the economy
approaches the official annual target of 7.5%, while the upcoming Communist Party meeting on
8 November imparts a further sense of urgency. We expect the People‟s Bank of China to cut
the bank reserve requirement ratio (RRR) by 50bp in October to boost infrastructure investment
further. We maintain our forecast for no interest rate cuts over the remainder of 2012, as a cut
would risk reigniting the property bubble and could damage bank profitability.
Risks: The key risks to our forecast are related to exports and the property market. If crises
escalate in Europe or the US, our export forecast may be too optimistic. If property prices rise
quickly and the government is forced to take further action to cool the sector, any rebound in
property investment could be temporary and offer less support for a growth recovery in Q4.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 8.1 7.6 7.7 8.8 8.4 8.0 7.4 7.0 8.1 7.7 7.5
Consumer prices 3.8 2.9 1.9 3.1 3.5 4.2 4.5 4.5 2.9 4.2 4.0
Core CPI 1.5 1.3 1.1 1.8 2.0 2.1 2.4 2.1 1.4 2.2 2.0
Retail sales (nominal) 14.9 13.9 13.2 15.0 16.2 15.9 15.5 15.6 14.3 15.8 16.0
Fixed-asset investment (nominal, ytd) 20.9 20.4 20.4 21.0 20.8 21.2 21.3 22.0 21.0 22.0 20.0
Industrial production (real) 11.6 9.5 9.2 12.0 10.9 10.7 10.5 10.3 10.6 10.6 10.5
Exports (value) 7.6 10.5 4.5 6.0 3.0 4.0 6.0 6.0 7.1 5.4 6.0
Imports (value) 6.9 6.5 1.4 8.0 7.0 8.0 9.0 9.0 5.6 8.3 10.0
Trade surplus (US$bn) 1.1 68.8 79.5 41.8 -16.0 53.4 70.4 29.4 191.2 137.2 65.7
Current account (% of GDP) 1.7 1.0 -0.4
Fiscal balance (% of GDP) -1.5 -1.5 -1.6
New increased RMB loans 8.0 9.0 9.0
1-yr bank lending rate (%) 6.6 6.3 6.0 6.0 6.0 6.0 6.3 6.5 6.0 6.5 6.5
1-yr bank deposit rate (%) 3.5 3.3 3.0 3.0 3.0 3.0 3.3 3.5 3.0 3.5 3.5
Reserve requirement ratio (%) 20.5 20.0 20.0 19.0 18.0 18.0 18.0 18.0 19.0 18.0 17.0
Exchange rate (CNY/USD) 6.29 6.35 6.28 6.28 6.27 6.25 6.24 6.22 6.28 6.22 6.22
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts
are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 15 October 2012. Source: CEIC and Nomura Global Economics.
7
8. Nomura | Global Economic Outlook Monthly 15 October 2012
Euro Area | Economic Outlook
Deeper and more protracted contraction as consolidation bites
We have revised down our growth forecasts and expect aggressive fiscal
consolidation to deepen recessionary forces. Spain continues to delay a call for help.
Activity: We downgraded our forecasts in Euro area Economics: Marking down growth, 5 Nick Matthews
October, and expect recessionary forces to deepen across the area. While foreign demand is +44 (0) 20 710 25126
Nick.Matthews@nomura.com
likely to remain weak, we expect aggressive fiscal consolidation in a growing number of large
economies to adversely affect domestic demand in those countries. With no monetary policy Stella Wang
+44 (0) 20 710 20599
offset and already negative output gaps, we (like the IMF) believe the fiscal multiplier might be stella.wang@nomura.com
close to unity in the case of Italy and Spain and these countries will experience much deeper
recessions than currently expected (particularly by their respective governments). We forecast
euro area GDP to contract by 0.9% in 2013 after a slightly smaller contraction in 2012.
Inflation: We expect euro area headline inflation to fall back to 1.8% on average next year and
then to 1.6% in 2014, driven by softening core inflation trends due to weak domestic demand.
Upside risks will likely remain from further additional administered price/indirect tax increases to
deliver fiscal consolidation in some member states.
Policy: No discussion on changing interest rates at the last ECB meeting suggests the chances
of a rate cut in December (our baseline) are reduced, though we think the ECB will need to
revise down its growth forecast much further in December. President Draghi continues to stress
conditionality as the essential part of Outright Monetary Transactions (OMTs) and also set out
further limits (i.e. purchases will stop around quarterly reviews and full market access is
required; for more details see Ready and Waiting... (Post ECB meeting), 4 October or last
month‟s GEOM, 10 September). These are further indications that OMTs should not be
confused with a full QE-type programme as they come with more strings attached than investors
would have liked, which could make smooth execution more difficult. Spain continues to delay
an official call for help, but our baseline remains an ECCL is requested by end-month.
Risks: A number of risks and limits to current support mechanisms remain related to
conditionality, maturity restrictions, limited EFSF/ESM financial resources and the uncertain
seniority status. Whether the sovereign bank nexus can be effectively broken now also needs
clarification, given the recent guidance on ESM direct bank recaptalisation from some AAA
countries that legacy assets should be the responsibility of national authorities (see Implication
of statement on ESM from Germany, Netherlands and Finland, 26 September).
Details of the forecast
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP -0.1 -0.7 -1.4 -1.6 -0.8 -0.6 -0.2 -0.1 -0.6 -0.9 0.0
Household consumption -0.7 -1.0 -1.7 -1.7 -1.7 -1.5 -1.5 -1.5 -1.1 -1.6 -1.4
Fixed investment -5.1 -3.5 -7.0 -6.6 -5.6 -4.5 -3.9 -3.6 -3.9 -5.3 -3.2
Government consumption 0.7 0.4 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 0.0 -0.7 -0.5
Exports of goods and services 2.6 5.3 0.9 -3.1 0.6 1.6 2.6 2.6 2.3 0.8 2.7
Imports of goods and services -1.2 3.7 -4.7 -7.0 -2.8 -2.1 -0.8 -0.4 -1.4 -2.9 0.2
Contributions to GDP:
Domestic final sales -1.3 -1.1 -2.5 -2.4 -2.2 -1.9 -1.7 -1.6 -1.4 -2.0 -1.4
Inventories -0.6 -0.4 -1.5 -0.9 -0.2 -0.5 -0.1 0.1 -0.9 -0.5 0.2
Net trade 1.8 0.9 2.6 1.7 1.6 1.7 1.6 1.4 1.7 1.7 1.3
Unemployment rate 10.9 11.1 11.4 11.5 11.6 11.8 11.9 12.0 11.2 11.8 12.0
Compensation per employee 1.9 1.7 1.8 1.4 0.9 0.7 0.4 0.3 1.7 0.6 0.6
Labour productivity 0.4 0.2 -0.2 -0.4 -0.7 -0.5 -0.3 0.1 0.0 -0.4 0.5
Unit labour costs 1.5 1.4 2.0 1.8 1.6 1.2 0.7 0.2 1.7 0.9 0.1
Fiscal balance (% GDP) -3.3 -3.1 -2.9
Current account balance (% GDP) -0.3 0.1 0.5
Consumer prices 2.7 2.5 2.6 2.5 2.0 1.9 1.7 1.5 2.6 1.8 1.6
ECB main refi. rate 1.00 1.00 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50
3-month rates 0.78 0.65 0.22 0.52 0.67 0.67 0.67 0.67 0.52 0.67 0.67
10-yr bund yields 1.81 1.60 1.41 1.25 1.31 1.38 1.44 1.50 1.25 1.50 1.75
$/euro 1.32 1.25 1.29 1.28 1.25 1.20 1.18 1.18 1.28 1.15 tbc
Notes: Quarterly real GDP and its contributions are seasonally adjusted annualised rates. Unemployment rate is a quarterly average as a percentage of the labour
force. Compensation per employee, labour productivity, unit labour costs and inflation are y-o-y percent changes. Interest rate and exchange rate forecasts are end
of period levels. Numbers in bold are actual values, others forecast. Table reflects data available as of 10 September 2012.
Source: Eurostat, ECB, DataStream, Nomura Global Economics.
8
9. Nomura | Global Economic Outlook Monthly 15 October 2012
Hong Kong | Economic Outlook
Looming fiscal stimulus
We expect expansionary FY13 budget given weak external demand.
Forecast change: We cut our GDP growth forecast from 3.5% to 2.5% for 2013. Young Sun Kwon
+852 2536 7430
youngsun.kwon@nomura.com
Activity: The volume of retail sales growth increased to 3.2% y-o-y in August from 1.4% in July.
We believe that, although private consumption is weakening, it should not weaken sharply, as it Aman Mohunta
is still supported by a tight labour market and positive wealth effects from buoyant property +91 22 6617 5595
aman.mohunta@nomura.com
prices. Further, domestic demand should remain supported by infrastructure works, while visitor
arrival numbers continue to show double-digit growth (up 20% y-o-y in August). That said, Hong
Kong‟s export slump looks set to continue into at least Q3, and could start having multiplier
effects on domestic demand. Looking ahead, we expect fiscal stimulus and a moderate
improvement in the external demand to lift real GDP growth to 2.5% in 2013 up from 1.5% in
2012. A modest recovery in the global economy should boost GDP growth further to 4% in 2014.
Inflation: CPI inflation surged to 3.7% y-o-y in August from 1.6% in July on higher food prices,
although the rise in residential prices has tapered off and growth in residential mortgage lending
has moderated, which, with a lag, should help ease inflationary pressures. Inflation should
remain moderate through 2013, driven by inflation-mitigating fiscal measures (e.g., a temporary
waiver of public housing rents and subsidies on electricity) but higher food and fuel prices would
restrict a sharp fall. We see CPI inflation slowing from 4.0% in 2012 to 3.5% in 2013. In 2014, a
positive output gap will likely push up CPI inflation to 3.9%.
Policy: Hong Kong's fiscal policy is expansionary as the budget for FY12 (starting in April 2012)
includes not only inflation-mitigating measures but also an income tax reduction for individuals
of up to HKD12,000 per person and a 14.8% increase in capital expenditure. This should
continue to help stabilize inflation and support the job market. We expect the FY13 budget to
also be expansionary given that external demand remains weak.
Risks: As a small, open economy and financial hub, Hong Kong is one of the most vulnerable
in Asia to a deeper-than-expected global economic downturn. An economic hard-landing in
China would be especially detrimental to Hong Kong through both trade and financial channels.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 1.6 0.8 3.0 3.5 -1.3 4.1 4.2 7.7
Real GDP 0.7 1.1 1.7 2.2 1.2 2.3 2.6 3.6 1.5 2.5 3.5
Private consumption 6.5 3.7 2.2 1.8 2.4 3.4 3.8 4.8 3.5 3.6 4.4
Government consumption 2.3 3.5 3.0 3.2 3.5 3.7 4.0 4.2 3.0 3.8 4.4
Gross fixed capital formation 12.9 5.7 5.4 4.9 5.8 5.8 5.7 5.6 7.0 5.7 6.1
Exports (goods & services) -3.9 0.1 0.7 2.3 4.9 5.4 5.6 6.2 -0.2 5.5 7.2
Imports (goods & services) -2.0 0.8 1.4 2.5 6.0 6.3 6.7 6.9 0.7 6.5 7.6
Contributions to GDP (% points)
Domestic final sales 7.4 4.1 3.0 2.6 3.2 4.0 4.3 4.9 4.2 4.1 4.8
Inventories -1.8 -1.4 0.4 0.0 0.2 0.3 0.4 0.1 -0.7 0.3 -0.5
Net trade (goods & services) -4.1 -1.6 -1.3 -0.2 -2.1 -2.0 -1.8 -1.0 -1.8 -1.7 -0.6
Unemployment rate (sa, %) 3.4 3.3 3.2 3.3 3.3 3.3 3.2 3.2 3.3 3.2 3.2
Consumer prices 5.2 4.2 2.9 3.6 3.2 3.4 3.6 3.8 4.0 3.5 3.9
Exports -1.2 2.0 5.7 7.4 9.6 11.0 10.9 11.2 3.6 10.7 12.3
Imports 0.9 2.3 5.5 7.0 10.6 11.5 11.5 11.7 4.0 11.3 12.4
Trade balance (US$bn) -12.7 -15.9 -14.8 -15.6 -15.0 -18.1 -17.2 -18.0 -58.9 -68.3 -77.2
Current account balance (% of GDP) 2.7 -0.2 -1.4
Fiscal balance (% of GDP) -0.2 -0.1 -0.2
3-month Hibor (%) 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40
Exchange rate (HKD/USD) 7.76 7.76 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75
Source: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts
are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012. Source: CEIC and Nomura Global Economics.
9
10. Nomura | Global Economic Outlook Monthly 15 October 2012
Hungary | Economic Outlook
Little clarity on backstop path, rate cuts could still occur
We think 2012 will be a crunch year, when funding difficulties and recession throw
fiscal policy off track. An IMF backstop is now expected in January/February.
Policy, fiscal and funding: Since the 2010 election there has been a fiscally conservative but Peter Attard Montalto
+44 (0) 20 710 28440
highly unorthodox policy, which we saw as unsustainable owing to one-off and distortive peter.am@nomura.com
measures. Add in downgrades, deleveraging and patchy capital flows and we think things will
come to a head this year with still some potential funding difficulties. We think the IMF and EU
are needed to prevent this, by providing a backstop and engendering a change in policy
direction. The government can now fund its FX redemptions until February and as such, talks
won‟t restart in the near future. Thus, we think a backstop is not likely to be in place until around
January/February time. A key barrier to talks, however, is the financial transactions tax on the
central bank (an issue which the EU has started treaty infringement proceedings on) as well as
the macro assumptions in the budget which are too bullish. Changing these factors would
create a significant hole in the budget. In addition, the government is attempting to push on with
costly and unfunded growth and jobs programmes. We judge them to be unfunded, in part,
because they purport to use budget reserves that will already be eaten up by low growth
according to our model. Once the economy starts its recovery and a backstop is provided, we
think EURHUF could strengthen to around 294 by end-2013 from “crisis” lows, which required
the government to act (around 315-320). We are concerned about the sustainability of the
current government programme into the 2014 elections given the lack of growth and popularity,
so we do not see an IMF/EU backstop lasting beyond the end of 2013.
Rates and inflation: We expect the bulk of the rate cuts to start once a deal is reached with the
IMF/EC on a backstop in January/February. Our medium-run forecast, regardless whether there
are “early” cuts or not, is that by Q3 of next year rates will be down to around 5.00% thanks to
heavy and rapid cuts after a backstop deal is signed. The headline inflation picture is very bleak
throughout much of 2012, with a peak of 6.6% in Q3, and we see it remaining above target until
late Q2 2014 due to new tax increases. However, core inflation remains very subdued thanks to
low growth.
Growth: We expect a sharp slowdown in consumption as unemployment climbs and exposure
to eurozone core consumption markets takes a hit in this second crisis period after the balance
of payments event in 2008. However, net trade will likely remain supportive as the surplus
climbs through 2012. Private sector investment will probably contract too, accelerated by
deleveraging. However, there is likely to be a lasting impact from the government‟s policy,
weakening FDI with little external help. Our key concern is potential declining growth over the
past four years from 4.0% before the crisis, first to 2.5% and now to just 1.75%.
Figure 1. Details of the forecast Figure 2. Headline and core ex-VAT CPI.
2010 2011 2012 2013 Constant tax core
Real GDP % y-o-y 1.2 1.7 -1.1 0.3 Headline
6.5
Nominal GDP USD bn 128.7 140.2 150.0 150.7
Current account % GDP 1.09 1.4 2.0 1.0
Fiscal balance % GDP -3.2 -6.2 -4.2 -3.0 5.5
Structural balance -5.5 -5.0 -6.5 -5.5
CPI % y-o-y * 4.7 4.1 6.0 4.8 4.5
CPI % y-o-y ** 4.9 3.9 5.9 5.0
Core CPI ex VAT % y-o-y ** -0.4 2.6 2.1 2.7
3.5
Unemployment rate % 10.8 10.7 11.5 11.0
Reserves EUR bn *** 32.3 35.1 30.8 28.1
External debt % GDP*** 139.8 138.9 131.6 130.6 2.5
Public debt % GDP 81.3 82.8 80.9 79.5
MNB policy rate %* 5.75 7.00 6.25 5.00 1.5
EURHUF* 279 315 286 294 Jan-2011 Sep-2011 May-2012 Jan-2013 Sep-2013
Notes: * End of period. ** Period average. Bold is actual data. *** Includes IMF/EU funds. Source: Nomura Global Economics
10
11. Nomura | Global Economic Outlook Monthly 15 October 2012
India | Economic Outlook
Still a lot needs to be done
The pickup in reform momentum is positive, but fundamental issues affecting
investments and inflation have yet to be addressed.
Forecast change: We are revising down our GDP forecasts to 6.4% from 6.6% in 2013 and to Sonal Varma
6.6% from 6.8% in 2014 to reflect weaker external demand. +91 22 403 74087
sonal.varma@nomura.com
Activity: Recent reforms have reversed months of policy paralysis and boosted sentiment.
Aman Mohunta
However, economic fundamentals will take time to catch up for various reasons. First, many of +91 22 6617 5595
these announcements still need to be implemented. Second, external demand remains very aman.mohunta@nomura.com
fragile going into 2013. Third, risks on the fiscal deficit and inflation remain in place. As such, we
expect weak exports and investment demand to keep real GDP growth subdued at 5.5% and
6.4% y-o-y, in 2012 and 2013 respectively from 7.5% in 2011.
Inflation: WPI inflation jumped back to 7.6% y-o-y in August and is likely to inch closer toward
8% in the coming months due to the direct and indirect impacts from the recent hike in
administered fuel prices. Recent INR appreciation could reduce imported inflationary pressures,
but with food inflation likely to accelerate, we expect headline inflation to remain sticky above
7%. A sudden sharp movement in fruit and vegetable prices in either direction is a key risk.
Policy: We expect the Reserve Bank of India (RBI) to keep policy rates unchanged in 2012 as
inflation remains elevated and the fiscal deficit large. We expect the RBI to cut rates by 50bp in
H1 2013 and by another 75bp in 2014, but only once inflation eases. We anticipate fiscal
slippage of 0.7 percentage points (pp) from the budgeted 5.1% of GDP in FY13 (year ending
March 2013) due to the government‟s inability to control subsidies and reduced tax revenues
from weak growth. We expect the fiscal deficit to remain above 5% of GDP for the next two
years, as populist policies take hold ahead of the April 2014 elections.
Risks: A rise in oil prices and a sharp global downturn are the key downside risks. A revival in
global growth and quick turnaround by the government on investment projects are upside risks.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 5.9 5.3 6.1 6.5 7.0 5.9 6.1 7.1
Real GDP 5.3 5.5 5.5 5.7 6.4 6.4 6.3 6.5 5.5 6.4 6.6
Private consumption 6.1 4.0 3.5 4.1 4.6 5.7 5.5 6.2 4.4 5.5 6.9
Government consumption 4.1 9.0 5.5 7.0 5.0 4.6 4.6 3.8 6.3 4.5 5.4
Fixed investment 3.6 0.7 2.0 3.9 6.1 9.0 9.1 9.3 2.5 8.3 8.4
Exports (goods & services) 18.1 10.1 9.9 9.1 4.5 9.2 8.8 9.4 12.0 7.8 9.7
Imports (goods & services) 2.0 7.9 6.5 5.8 9.5 10.4 6.7 4.7 5.6 7.6 9.7
Contributions to GDP (% points)
Domestic final sales 1.3 5.7 5.3 5.4 7.7 7.5 6.3 5.7 4.4 6.8 7.1
Inventories 0.0 0.0 0.1 0.1 0.0 0.1 0.2 0.2 0.0 0.1 0.2
Net trade 4.0 -0.2 0.1 0.1 -1.4 -1.2 -0.2 0.7 1.1 -0.5 -0.7
Wholesale price index 7.5 7.5 8.0 8.2 7.5 7.3 7.0 7.2 7.8 7.2 6.9
Consumer prices 7.2 10.1 9.7 10.7 10.0 8.7 8.7 9.4 9.5 9.2 9.0
Current account balance (% GDP) -3.7 -2.7 -2.8
Fiscal balance (% GDP) -5.8 -5.2 -5.0
Repo rate (%) 8.50 8.00 8.00 8.00 7.75 7.50 7.50 7.50 8.00 7.50 6.75
Reverse repo rate (%) 7.50 7.00 7.00 7.00 6.75 6.50 6.50 6.50 7.00 6.50 5.75
Cash reserve ratio (%) 4.75 4.75 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.75
10-year bond yield (%) 8.54 8.18 8.15 8.10 7.80 7.80 7.80 7.50 8.10 7.50 7.00
Exchange rate (INR/USD) 51.2 54.0 52.7 54.5 55.9 57.3 58.6 60.0 54.5 60.0 57.0
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. CPI is for
industrial workers. Fiscal deficit is for the central government and for fiscal year, e.g, 2012 is for the year ending March 2013. Table reflects data available as of 11
October 2012. Source: CEIC and Nomura Global Economics.
11
12. Nomura | Global Economic Outlook Monthly 15 October 2012
Indonesia | Economic Outlook
Some improvement
External balances are improving but could remain under pressure given the weak
global backdrop and risks of domestic policy swings.
Forecast changes: For 2013, we lower our forecasts for GDP growth to 6.1% from 6.3%, the Euben Paracuelles
+65 6433 6956
policy rate to 6.25% from 6.50%, and the fiscal balance to -2.0% of GDP from -1.9%. euben.paracuelles@nomura.com
Activity: Our forecast of a slowdown in H2 growth was supported by the sharp drop in export Lavanya Venkateswaran
growth, which fell 16.2% y-o-y in July/August after a 9.0% drop in Q2. The weakness was broad +91 22 3053 3053
lavanya.venkateswaran@nomura.com
based and is likely to persist given weak global demand. Indeed, our European team‟s
downgrade of their 2013 GDP growth forecast for the euro area led us to trim our 2013 GDP
growth forecast. But our downgrade is relatively modest given the strength of domestic demand,
as evidenced by still-buoyant credit growth (23.6% y-o-y in August) and consumer confidence.
The trade deficit has narrowed and FX reserves are up, providing some respite to concerns
about external imbalances. However, this may prove temporary, as the narrowing was driven by
a decline in imports in August resulting from the month‟s extended holidays. Longer term, the
risk of a more uncertain pre-election policy environment remains and could add to external
deficits and lead to slower FDI inflows (see Asia Special Report: Indonesia: Policy swings).
Inflation and monetary policy: CPI inflation eased to 4.3% y-o-y in September from 4.6% in
August due to lower food prices and core inflation. Inflation is likely to remain comfortably within
Bank Indonesia‟s (BI) 3.5-5.5% target range this year, but we expect it to gradually rise because
of strong domestic demand and a weaker IDR. As such, we think it remains appropriate for BI to
maintain its tightening bias which should manifest in the form of administrative measures rather
than outright rate hikes. We pushed out the timing of our first rate hike forecast to Q3 2013.
Fiscal policy: We expect the official fiscal deficit targets of 2.2% and 1.6% of GDP for 2012 and
2013, respectively, to be missed, in part because of still-large subsidies. For 2013, the proposed
budget does not account for an adjustment in fuel prices (see Asia Economic Alert: Indonesia:
2013 budget - another missed opportunity?, August 23). We expect a higher 2013 fiscal deficit
of 2% of GDP, as the government attempts to provide more fiscal support to growth.
Risks: Downside risks stem from external shocks: a deeper recession in the euro area, a hard
landing in China and large capital outflows. In addition, more protectionist policy
announcements could further generate negative sentiment on investment.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized)
Real GDP 6.3 6.4 6.0 5.8 5.6 6.0 6.3 6.5 6.1 6.1 6.2
Private consumption 4.9 5.0 5.5 5.2 5.3 5.3 5.5 5.5 5.2 5.4 5.6
Government consumption 5.9 7.0 9.0 10.0 5.0 8.0 8.0 8.0 8.3 7.5 7.0
Gross fixed capital formation 10.0 12.3 11.2 10.0 9.9 8.8 8.8 7.1 10.9 8.6 9.0
Exports (goods & services) 7.9 1.9 2.7 4.8 5.0 6.0 11.0 8.0 4.2 7.6 10.0
Imports (goods & services) 8.0 10.9 8.0 6.6 6.5 6.5 6.2 14.0 8.3 8.4 11.9
Contributions to GDP (% points)
Domestic final sales 5.5 6.2 6.5 6.6 5.7 5.7 5.9 5.9 6.1 6.0 6.0
Inventories 2.0 2.3 0.8 -0.6 0.0 0.0 -0.9 -0.1 1.1 -0.3 -0.3
Net trade (goods & services) 0.7 -3.2 -1.7 -0.2 0.0 0.2 2.9 -1.6 -1.1 0.4 0.2
Consumer prices 3.7 4.5 4.5 5.1 5.2 4.9 5.0 5.0 4.5 5.0 5.1
Exports 5.3 -7.6 -5.0 2.8 5.6 5.9 7.6 15.1 -1.3 8.7 8.0
Imports 21.4 8.9 9.0 11.5 7.2 6.2 4.8 17.3 12.4 9.0 14.4
Merchandise trade balance (US$bn) 1.7 -1.3 -0.7 -1.2 1.0 -1.6 0.8 -2.7 -1.5 -2.5 -3.3
Current account balance (% of GDP) -1.5 -3.2 -2.2 -2.0 -0.8 -2.3 -1.2 -3.1 -2.2 -1.9 -1.6
Fiscal Balance (% of GDP) -2.4 -2.0 -2.2
Bank Indonesia rate (%) 5.75 5.75 5.75 5.75 5.75 5.75 6.00 6.25 5.75 6.25 6.75
Exchange rate (IDR/USD) 9146 9433 9591 9600 9625 9650 9675 9700 9600 9700 9600
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are
modal (i.e., the single most likely outcome). Table reflects data available as of 11 October 2012.
Source: CEIC and Nomura Global Economics.
12
13. Nomura | Global Economic Outlook Monthly 15 October 2012
Japan | Economic Outlook
Weaker external demand likely leads to a recession in H2 2012
We expect decelerating demand across the globe to hurt exports and business
investment in 2012 and 2013.
Forecast change: We have revised down our real GDP growth forecast for 2012 further to Tomo Kinoshita
2.0% from 2.3% and 2013 forecast to 0.5% from 1.1%. +81 3 6703 1280
tomo.kinoshita@nomura.com
Activity: Japan's exports and production have been affected more severely than expected by
the deterioration in the European economy, anemic recovery in the Chinese economy, and the
abrupt decline in business sentiment seen over the past few months in other parts of Asia ex-
Japan. The global slowdown in production looks likely to persist through the end of this year,
which we think will weigh on Japan‟s exports as the global slowdown in capital investment hurts
Japan‟s capital goods exports. As a result, real GDP growth is likely to be negative in both Q3
and Q4 2012. We nonetheless expect a brighter picture to emerge from the beginning of 2013
as Japan benefits from a recovery in the manufacturing sector in the rest of Asia including
China. Capex by non-manufacturers should also stay resilient in 2013.
Inflation and monetary policy: We expect core inflation (CPI excluding fresh food) to improve
only marginally from 0% in 2012 to 0.1% in 2013 as the recession in H2 2012 should delay the
closing of the output gap. This is likely to increase political pressure on the Bank of Japan (BOJ)
to take more aggressive easing measures. We expect the BOJ to implement further easing
policy by the end of this year.
Policy: We expect post-quake reconstruction spending by the government to contribute to
growth until Q1 2013. The enactment of the consumption tax hike bill on 8 August was an
important fiscal achievement to tackle the medium-term budget deficit problem. We expect the
government to raise the consumption tax rate from 5% to 8% in April 2014 and further to 10% in
October 2015, as scheduled.
Risks: External factors continue to represent the main risks facing the Japanese economy.
These external factors include an expansion and prolonging of the risks associated with
European government debt, a decline in confidence in US economic policy, and concerns about
a global economic slowdown, all of which could have a negative impact on the Japanese
economy via financial market turmoil in the form of further strengthening of the yen and
weakening of share prices.
Details of the forecast
% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 5.3 0.7 -2.2 -0.3 1.7 0.4 1.7 1.6 2.0 0.5 1.2
Private consumption 5.0 0.5 -0.4 -1.2 0.7 1.0 1.2 1.9 2.4 0.4 1.2
Private non res fixed invest -6.3 5.6 -7.8 0.4 3.6 5.0 5.1 4.4 2.3 2.1 5.7
Residential fixed invest -6.3 3.8 4.5 4.9 7.0 8.6 7.0 3.6 1.6 6.2 -2.9
Government consumption 4.4 0.6 1.2 0.9 1.4 1.4 1.2 1.2 2.0 1.2 1.2
Public investment 15.2 7.2 8.9 10.7 8.2 -36.1 -3.3 -8.0 7.8 -3.3 -10.1
Exports 14.3 5.0 -12.2 1.1 1.0 4.9 3.8 3.1 2.1 0.7 5.6
Imports 9.1 6.7 -3.0 -0.1 3.2 4.9 4.8 6.5 5.5 2.7 5.9
Contributions to GDP:
Domestic final sales 3.7 1.9 -0.3 0.0 1.7 -0.2 1.6 1.7 2.5 0.7 1.2
Inventories 1.2 -0.8 -0.2 -0.5 0.3 0.5 0.2 0.3 -0.1 0.1 0.0
Net trade 0.4 -0.4 -1.7 0.2 -0.3 0.1 -0.1 -0.4 -0.4 -0.3 0.0
Unemployment rate 4.6 4.4 4.3 4.4 4.5 4.5 4.4 4.3 4.4 4.4 4.2
Consumer prices 0.3 0.2 -0.3 0.0 -0.2 0.0 0.2 0.1 0.0 0.0 2.0
Core CPI 0.1 0.0 -0.2 0.0 0.1 0.1 0.1 0.1 0.0 0.1 2.0
Fiscal balance (fiscal yr, % GDP) -9.6 -10.4 -9.4
Current account balance (% GDP) 1.3 1.6 2.0
Unsecured overnight call rate 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10
JGB 5-year yield 0.32 0.22 0.19 0.11 0.17 0.15 0.12 0.15 0.11 0.15 0.20
JGB 10-year yield 0.99 0.83 0.77 0.73 0.82 0.82 0.85 0.88 0.73 0.88 1.10
JPY/USD 82.9 79.8 78.0 82.0 83.0 85.0 86.0 88.0 82.0 88.0 90.0
Note: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. Unemployment rate is as a percentage of the labor force. Inflation
measures and CY GDP are y-o-y percent changes. Interest rate forecasts are end of period. Fiscal balances are for fiscal year and based on general account. Table
reflects data available as of 15 October. All forecasts are modal forecasts (i.e., the single most likely outcome). Numbers in bold are actual values, others forecast.
Source: Cabinet Office, Ministry of Finance, Statistics Bureau, BOJ, and Nomura Global Economics.
13
14. Nomura | Global Economic Outlook Monthly 15 October 2012
Malaysia | Economic Outlook
Signalling fiscal responsibility
The government's fiscal deficit targets look ambitious, but considering the upcoming
elections they show the government's strong committment to fiscal consolidation.
Forecast changes: We reduce our 2013 GDP growth forecast to 4.0% from 4.3% previously. Euben Paracuelles
+65 6433 6956
euben.paracuelles@nomura.com
Activity: The weakness in exports has deepened in Q3 with average export growth of -3.6% y-
o-y in July/August versus 4.0% in Q2. Industrial production, however, continues to grow at a Lavanya Venkateswaran
faster rate than implied by export growth, suggesting that domestic demand remains strong. +91 22 3053 3053
lavanya.venkateswaran@nomura.com
This is likely to be supported by additional expenditures ahead of the national elections, which
in our base case will be held in November, and must be called before April 2013. We reiterate
our 2012 GDP growth forecast of 4.8% because of the strong fiscal stimulus, but reduce our
2013 forecast to 4.0% (versus the government assumption of 4.5-5.5% in the budget) to reflect
the downgrade in our growth forecast for the euro area, but also the likely fiscal consolidation
after the elections.
Inflation and monetary policy: Headline inflation remained stable at 1.4% y-o-y in August.
This brings year-to-August inflation to 1.8% y-o-y. Core CPI inflation, however, eased further to
1.5% from 1.6% in July. Producer price inflation (which leads the CPI by 2 months) declined by
0.5% y-o-y in August from -0.2% in July (and -0.9% in June), consistent with our view that CPI
inflation could come off further in the next few months before gradually rising towards year-end.
We still expect Bank Negara Malaysia (BNM) to keep the policy rate unchanged late Q3 2013,
unless external conditions deteriorate more sharply, in which case it would have room to cut.
Fiscal policy outlook: The 2013 budget aims to reduce the fiscal deficit to 4.0% of GDP from
4.5% in 2012. The announcement of more one-off handouts was accompanied by deficit-
improving measures. In our view, this reflects the government continuing to strike a balance
between achieving political objectives without undermining fiscal responsibility. Nonetheless, we
think the 2013 fiscal deficit target still looks ambitious. We expect a deficit of 4.5% of GDP in
2013 based on higher-than-budgeted operating expenditures (Asia Economic Alert: Malaysia:
Budget 2013 - signalling fiscal responsibility, October 1).
Risks: With exports nearly 100% of GDP, a sharp drop in commodity prices and a collapse of
global growth is the biggest downside risk. The political cycle also poses significant negative
risks that could dim prospects for structural reforms.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 4.9 5.4 4.7 4.3 4.1 3.5 4.0 4.5 4.8 4.0 4.6
Private consumption 7.4 8.8 7.9 8.1 7.6 4.8 4.9 5.3 8.0 5.6 5.5
Government consumption 7.3 9.4 13.3 9.6 8.0 5.9 4.6 4.4 10.0 5.4 4.5
Gross fixed capital formation 16.2 26.1 19.4 10.7 8.2 5.2 5.0 7.6 18.0 6.4 7.0
Exports (goods & services) 2.8 2.1 1.8 2.1 4.4 5.7 7.1 6.6 2.2 5.9 7.2
Imports (goods & services) 6.8 8.1 8.2 7.9 8.2 8.6 8.3 7.2 7.8 8.1 8.5
Contributions to GDP (% points)
Domestic final sales 8.1 11.6 10.1 8.4 6.8 4.6 4.5 5.5 9.5 5.3 5.4
Inventories -0.2 -1.2 -0.1 0.9 0.2 1.1 0.1 -0.8 -0.1 0.1 0.0
Net trade (goods & services) -3.1 -4.9 -5.3 -5.0 -2.9 -2.2 -0.6 -0.2 -4.6 -1.4 -0.8
Unemployment rate (%) 3.0 3.0 3.0 3.2 3.1 3.1 3.0 2.9 3.0 3.0 3.1
Consumer prices 2.3 1.7 1.3 1.6 2.0 2.4 2.7 2.5 1.7 2.4 2.5
Exports 3.9 0.9 -0.1 4.7 4.7 7.9 10.2 8.4 2.3 7.8 10.4
Imports 6.4 5.7 5.3 11.5 8.4 11.0 11.5 8.9 7.2 10.0 14.4
Merchandise trade balance (USD bn) 9.7 6.8 7.3 7.1 8.5 5.8 7.4 7.3 31.0 29.0 23.1
Current account balance (% of GDP) 8.0 4.1 8.0 5.9 7.3 2.7 7.7 6.0 6.5 6.2 5.7
Fiscal Balance (% of GDP) -4.9 -4.5 -4.2
Overnight policy rate (%) 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.50 3.00 3.50 4.00
Exchange rate (MYR/USD) 3.06 3.18 3.06 3.07 3.06 3.05 3.03 3.02 3.07 3.02 2.92
Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts
are modal forecasts (i.e., the single most likely outcome). Table reflects data available as 11 October 2012. Source: CEIC and Nomura Global Economics.
14
15. Nomura | Global Economic Outlook Monthly 15 October 2012
Mexico | Economic Outlook
Growth supported by domestic demand
Growth will likely remain above potential in 2012.
Activity: The Mexican economy is on track to expand above potential in 2012. However, there Benito Berber
+1 212 667 9503
are risks to growth associated with a decelerating outlook in the US and the eurozone. On the Benito.Berber@nomura.com
positive side, domestic demand in Mexico has picked up, evidenced by strong private
consumption and investment. Consumption has been supported by credit. After growing at an
annual pace of above 4% rate year to date, we now expect growth to moderate to between 3%
and 3.5% for the rest of the year. For 2013, we expect the economy to expand at 3.5%.
Inflation: Inflation remains above 4%, the upper bound of the target band. We estimate that the
output gap has already closed. Agricultural prices have been the main culprit of high inflation.
For 2013, we expect most of the supply-side shocks to dissipate; therefore, we forecast inflation
to moderate to 3.4%.
Policy: We forecast the central bank of Mexico (Banxico) to keep the policy rate unchanged at
4.50% until 2014. There remains a pass-through of the depreciating exchange rate into inflation.
Under most scenarios of the exchange rate, Banxico‟s reaction function will remain unaffected
in the coming years. A rate cut is still possible if the economy decelerates, if MXN appreciates
significantly. We do not expect the rate to be tightened this year unless US economic activity
accelerates significantly. Our medium-term view for the MXN remains sanguine due to the
improvement in fundamentals. We forecast that MXN will strengthen to 12.00 by 4Q 2013.
Risks: The main risk is a double-dip recession in the US economy, which seems unlikely. In
terms of inflation, we see the following risks to our call: (1) pass-through effects due to MXN
depreciation; and (2) increases in gasoline prices. In terms of fiscal policy, the main risk stems
from a protracted downward correction in oil prices that would put pressure on fiscal revenues.
Details of the forecast
% y-o-y change unless noted 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 2011 2012 2013
Real GDP 4.5 3.9 4.6 4.1 2.7 3.5 3.7 3.4 3.9 3.7 3.5
Personal consumption 5.2 4.3 4.3 3.3 1.7 4.7 4.3 3.1 4.6 4.5 3.5
Fixed investment 9.0 5.9 8.6 6.2 2.4 3.2 3.2 3.2 8.2 3.0 3.2
Government expenditure 0.5 1.8 2.9 1.7 5.3 0.4 1.3 0.4 0.6 3.9 3.1
Exports 4.3 3.1 5.1 6.3 4.9 7.2 5.1 4.4 6.7 4.1 4.0
Imports 6.2 3.8 7.1 4.0 2.7 6.3 4.7 3.6 6.8 4.3 3.9
Contributions to GDP (pp):
Industry 1.3 1.1 1.4 1.2 0.8 1.0 1.1 1.0 1.2 1.1 1.0
Agriculture 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.2 0.2 0.1
Services 2.9 2.5 2.9 2.6 1.7 2.2 2.4 2.2 2.5 2.4 2.2
CPI 3.14 3.82 3.73 4.34 4.60 4.00 3.55 3.70 3.82 4.10 3.40
Trade balance (US$ billion) -3.9 -0.7 1.8 1.5 -4.1 -3.9 -3.8 -3.8 -1.5 -4.7 -15.2
Current account (% GDP) -0.9 -1.5 -1.5
Fiscal balance (% GDP) -2.6 -2.2 -2.2
Gross public debt (% GDP) 35.6 37.3 35.0
Overnight Rate % 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50
USD/MXN 13.90 13.94 12.81 13.36 12.86 12.70 12.70 12.50 13.94 12.70 12.00
Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-over-year changes for Q4. Trade data
are period sums. Interest rate and currency forecasts are end of period. Contributions to GDP do not include taxes. Numbers in bold are actual values, others forecast.
Table reflects data available as of 15 October 2012.
Source: Nomura Global Economics.
15
