Global Chart Book _ March 2010

8/14/2019 Global Chart Book _ March 2010

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This report is available on wellsfargo.com/research and on Bloomberg WFEC

March 11, 2010

Economics Group

Executive Summary: Will the Global Economy Expand in 2010?The seizing of financial markets that followed Lehman Brothers failure caused the globaleconomy to fall into its deepest recession in decades. By the spring of 2009 industrial production(IP) in the 30 countries that comprise the Organisation for Economic Cooperation and

Development (OECD) had plunged more than 15 percent from year-earlier levels (Figure 1).Incredibly, it could have been far worse. The governments of the worlds major countries avertedcatastrophe at the height of the crisis by taking steps to prevent a wholesale collapse of theirfinancial systems via recapitalization, loan guarantees and increased deposit insurance. Inaddition, major central banks slashed policy rates to unprecedented levels, and manyimplemented programs of quantitative easing to provide further stimulus. Governments in mostmajor countries opened the fiscal taps. One year later, there are clear signs that the medicine ishaving its desired effects as IP in the OECD nations turned slightly positive in December 2009.Unfortunately, however, OECD IP remains 12 percent below its February 2008 peak. At itscurrent rate of increase, IP will not return to its previous peak until mid-2011.

Figure 1

OECD Industrial ProductionYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

81 85 89 93 97 01 05 09

-20%

-15%

-10%

-5%

0%

5%

10%

OECD Industrial Production: Dec @ 0.7%

Figure 2

U.S. Trade Weighted Dollar Major IndexMarch 1973=100

65

70

75

80

85

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

65

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Feb @ 76.0

Source: IHS Global Insight, Organisation for Economic Cooperation and Development, Bloomberg LPand Wells Fargo Securities, LLC

The global recovery is being led by Asia where growth turned positive again last year. Thefinancial systems of most Asian economies were not nearly as levered as their westerncounterparts, so banks in the region were able to ramp up lending again. In addition, most Asiangovernments responded to the crisis with expansionary fiscal policy. Real GDP in China increasednearly 11 percent on a year-ago basis in the fourth quarter of 2009, but the expansion is notconfined to only China. Many other countries in the region, including the large economies ofJapan, Korea and Taiwan, are posting positive growth rates again. Because self-sustaining

Special Commentary

Global Chartbook: March 2010

Contents Pa

World .....................United States .........

Eurozone.................Japan......................United Kingdom ....

Australia.................Canada ...................

Norway...................Singapore................South Korea ...........Sweden...................Switzerland ............Taiwan ...................

Argentina ...............Brazil......................

Chile .......................China.......................India.......................Mexico....................Poland ....................Russia.....................South Africa ...........Turkey....................

Dollar .....................Energy.....................


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Global Chartbook: March 2010 WELLS FARGO SECURITIES, LLCMarch 11, 2010 ECONOMICS GROUP

economic recoveries appear to be taking hold, most Asian governments are beginning to removeemergency stimulus measures that were put in place when the outlook was bleak. However, we

believe it will be quite some time before economic policies turn restrictive in most Asiacountries.

Western economies have stabilized as well. Real GDP in the United States rose about 2 percent in

the second half of 2009, retracing about half of the drop that occurred during the downturn. Thetemporary effects of fiscal stimulus certainly played a role in stabilizing the economy, but recentincreases in core measures of retail sales and capital spending indicate that there is more to thestory than simply fiscal stimulus. In our view, the U.S. economic recovery will remain intact this

year, but the pace of the upturn will likely remain frustratingly slow. Due to slow economicgrowth and benign inflation, the Federal Reserve will likely refrain from hiking rates until latethis year.

Economic activity in the euro area has stopped falling, but the upturn lacks vigor. Domesticdemand remains weak, and exports are the only real source of growth at present. Moreover,attempts by governments in some eurozone economies to slash their budget deficits (e.g., GreeceIreland, Portugal and Spain) will weigh on economic growth in the quarters ahead. Although weproject that economic growth in the euro area will remain positive this year, the probability of adouble-dip recession is not insignificant.

On a purchasing power parity basis, global GDP probably contracted about 1 percent in 2009. Weproject that the global economy will grow about 4 percent in 2010, a bit above its long-runaverage. Relative to 2004-2007, however, when global GDP grew nearly 5 percent per annum, theglobal recovery this year may seem a bit slow. Asia should lead the pack, and the eurozone willlikely be the clear laggard. Growth in North America should fall somewhere between these twoextremes.

Inflation rates in most countries shot higher in the first half of 2008 and commodity prices wentthrough the roof. On a global basis, CPI inflation rose to 6 percent in 2008, the highest rate inabout 10 years. However, the global downturn caused commodity prices to collapse, and globainflation receded significantly last year. Despite unprecedented amounts of monetary stimulusinflation should not really be an issue until the global economy truly strengthens. Due to therelatively slow recovery that we project, we believe that inflation in most countries should remainmanageable over our forecast period.

The Dollar Should Appreciate Modestly versus Major CurrenciesThe U.S. dollar trended lower throughout most of 2009 as the recovery in the global economycaused the greenback to lose its safe-haven appeal. However, the dollar has gotten off to a strongstart in 2010, especially against the euro and other European currencies. U.S. economic data hasgenerally been stronger than expected, while the upturn on the other side of the Atlantic has beendisappointing thus far. Concerns about the Greek debt situation have also weighed on the euro.

Looking ahead, our view, and that of the currency strategy team at Wells Fargo, is that the dollar will trend modestly higher against most major currencies. As the U.S. recovery gathers steamforeign investment flows into long-term securities (e.g., corporate bonds and equities) and directinvestment inflows should continue to strengthen, helping to lift the greenback. In addition, thediminished U.S. current account deficit will exert fewer headwinds on the greenback than it didearlier this decade when the dollar was trending lower.

However, most commodity and emerging market currencies should continue to trend higherversus the greenback in the quarters ahead. The global recovery will likely cause most commodityprices to drift higher, which should help to support commodity currencies (e.g., the Aussiedollar). In addition, rising levels of risk tolerance will clear the way for capital to flow to riskydeveloping countries, which should put upward pressure on many of those currencies.

2


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WorldOECD Industrial Production

Index, 2005=100

40

60

80

100

120

1981 1985 1989 1993 1997 2001 2005 2009

40

60

80

100

120

OECD Industrial Production: Dec @ 95.6

Global Purchasing Manager's IndicesDiffusion Index

30

35

40

45

50

55

60

65

2004 2005 2006 2007 2008 200930

35

40

45

50

55

60

65

Global PMI Manufacturing: Feb @ 55.2

Global PMI Services: Feb @ 52.6

Courtesy of J.P. Morgan

The global economy is bouncing back from itsdeepest recession in decades, though industrial

production in the OECD nations remains wellbelow the peak that was reached in early 2008.Purchasing manager indices have generallyremained in expansion territory, suggestingthat the global recovery remains intact. Mostregions of the world are growing again, with

Asia clearly in the vanguard. The major governments of the world averted

catastrophe in the fall of 2008 by taking stepsto prevent the global financial system fromcollapsing. In addition, most majorgovernments enacted fiscal stimulus programsto shore up economic activity.

Not only have interest rates been reduced tounprecedented lows, but major central bankshave enacted quantitative easing programs

via unconventional purchases of private sectorassets. Central banks in some countries (e.g.,

Australia and Norway) have started to hikerates again, but the Fed, the ECB and the Bankof Japan remain firmly on hold.

Deep global recession and the collapse incommodity prices caused inflationarypressures to recede significantly. Commodityprices have risen off their lows, but elevatedunemployment rates have kept a lid on wageinflation. We forecast that CPI inflation rates

will trend higher this year, but runaway globalinflation la the 1970s does not seem likely. Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

ECB: Mar @ 1.00%

Bank of Canada: Mar @ 0.25%

US Federal Reserve: Mar @ 0.25%

Bank of England: Mar @ 0.50%

Global CPIYear-over-Year Percent Change

0%

2%

4%

6%

8%

10%

12%

14%

16%

1995 1998 2001 2004 2007 2010

0%

2%

4%

6%

8%

10%

12%

14%

16%

Forecast

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

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United StatesReal GDP

Bars = CAGR Line = Yr/Yr Percent Change

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2000 2002 2004 2006 2008 2010

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

GDPR - CAGR: Q4 @ 5.9%

GDPR - Yr/Yr Percent Change: Q4 @ 0.1%

Forecast

Retail Sales Ex. Motor Vehicles & Gasoline Stations3-Month Moving Average

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

Year-over-Year Percent: Jan @ 1.7%

Retail Sales, ex. Autos & Gas, 3-Month Annual Rate: Jan @ 5.4%

After enduring its deepest recession indecades, the U.S. economy grew again in the

second half of 2009 and monthly indicatorspoint to continued growth in the first quarter.Some of the growth reflects the temporaryeffects of government stimulus. In addition, aone-time inventory swing in the fourth quarteroverstates the underlying strength of theeconomy at present.

It would be incorrect, however, to claim thatthe rise in GDP over the past few quarters isdue entirely to stimulus. Core measures ofconsumer spending and business spendinghave posted solid gains over the past fewmonths.

Unfortunately, the pace of growth will probably be sluggish for the next year or so. Manyconsumers need to delever further, which willlikely constrain growth in consumer spending.Unemployment has shot up to the highest ratesince the early 1980s, and the slow pace ofrecovery will likely keep it elevated for theforeseeable future.

Core measures of inflation are very benign atpresent, which allows the Federal Reserve tokeep rates low for an extended period.

Although the Fed has started to remove someemergency measures that were put in placemore than a year ago, we do not look for anincrease in the fed funds rate until late this

year. Unemployment RateSeasonally Adjusted

2%

4%

6%

8%

10%

12%

60 65 70 75 80 85 90 95 00 05 10

2%

4%

6%

8%

10%

12%

Unemployment Rate: Feb @ 9.7%

CPI vs. Core CPIYear-over-Year Percent Change

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

92 94 96 98 00 02 04 06 08 10

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CPI: Jan @ 2.6%

Core CPI: Jan @ 1.6%

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

4


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EurozoneEuro-zone Real GDP

Bars = Compound Annual Rate Line = Yr/Yr % Change

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Compound Annual Growth: Q4 @ 0.4%

Year-over-Year Percent Change: Q4 @ -2.1%

Euro-zone Purchasing Manager IndicesIndex

30

35

40

45

50

55

60

65

1998 2000 2002 2004 2006 2008 201030

35

40

45

50

55

60

65

E.Z. Manufacturing: Feb @ 54.2

E.Z. Services: Feb @ 51.8

Following its 5 percent contraction betweenearly 2008 and mid-2009, real GDP in the

eurozone has grown for two consecutivequarters. However, the pace of the recoveryremains painfully slow with real GDP up only0.5 percent in the second half of 2009.Purchasing managers indices suggest thateconomic activity has continued to expand inthe first quarter, albeit at a sluggish pace.

Despite two consecutive quarters of growth,the recovery in the eurozone is hardly self-sustaining at present. Consumer spending wasflat in the fourth quarter and investmentspending posted its seventh consecutivequarter of decline. Exports were the only area

of strength in the fourth quarter. The well-publicized debt problems of some

European governments will also have growthimplications. Although a break-up of theEuropean Monetary Union is very unlikely,some national governments in the eurozoneneed to make significant fiscal corrections inthe years ahead. Contractionary fiscal policy

will weigh on economic prospects in the euroarea for the foreseeable future.

Weak growth and benign inflation imply thatthe European Central Bank can keep monetarypolicy accommodative for an extended period.Indeed, we believe that the ECB will keep itsmain policy rate at 1 percent, where it has beenmaintained since May 2009, into early 2011. Government Debt and Deficits

Percent of GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

Greece Ireland Portugal Spain

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

Debt

DeficitEuro-zone Consumer Price Inflation

Year-over-Year Percent Change

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1997 1999 2001 2003 2005 2007 2009

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Core CPI: Jan @ 0.9%

CPI: Jan @ 1.0%

Source: Bank of England, EuroStat, IHS Global Insight, StatisticsCanada and Wells Fargo Securities, LLC

5


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JapanJapanese Real GDP


-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15%

-10%

-5%

0%

5%

10%



Japanese Industrial Production IndexYear-over-Year Percent Change

-40%

-30%

-20%

-10%

0%

10%

20%

1997 1999 2001 2003 2005 2007 2009-40%

-30%

-20%

-10%

0%

10%

20%

IPI: Jan @ 18.9%

3-Month Moving Average: Jan @ 6.1%

Fears of a double-dip recession in Japan havefaded in recent months. Fourth-quarter GDP

came in far stronger than the consensusexpected. Nevertheless, the data were in line with our view that Japans rebound in 2010could be somewhat stronger than many expect.Japanese exports are leading the recovery, butsolid advances in domestic spending, both

business and consumer, suggest the recovery inJapan is broadening out.

Japanese orders continue to advance at arobust clip. Core machinery orders rose 20.1percent month over month in December totheir highest level in 12 months. Foreignorders also remained strong, rising at a 20.9

percent pace in December. Manufacturing and business spending should continue to leadJapan out of its deep economic hole.

Even Japans labor market is showingincreasing signs of healing. Employment

jumped 0.9 percent in January, the biggestmonthly gain in 24 years. This helped theunemployment rate drop to 4.9 percent, thelowest reading in 10 months and well below theJuly record of 5.7 percent.

Japans retail sales and consumer confidenceboth advanced in January, despite a structuralshift away from department stores. Realconsumption from working households is now1.5 percent above year-ago levels. February

vehicle sales remained up sharply, rising 35.9percent from year-ago levels.

Japanese Unemployment Rate

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

1997 1999 2001 2003 2005 2007 2009

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

Unemployment Rate: Jan @ 4.9%

Japanese Retail SalesYear-over-Year Percent Change

-15.0%

-12.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

1997 1999 2001 2003 2005 2007 2009

-15.0%

-12.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

Retail Sales: Jan @ 2.7%

6-Month Moving Average: Jan @ -0.4%

Source: Bloomberg LP, IHS Global Insight andWells Fargo Securities, LLC

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United KingdomU.K. Real GDP


-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2002 2004 2006 2008

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



U.K. Purchasing Manager IndicesIndex

30

35

40

45

50

55

60

65

2000 2002 2004 2006 2008 201030

35

40

45

50

55

60

65

UK Manufacturing: Feb @ 56.6

UK Services: Feb @ 58.4

After six consecutive quarters of contraction in which real GDP fell more than 6 percent,

economic growth in the United Kingdomreturned to positive territory in the fourthquarter of 2009. Further increases in thepurchasing managers indices in recent monthssuggest that growth has remained positive inthe first quarter.

Following its downturn last year, consumerspending has strengthened over the past fewquarters. In addition, exports grew at a double-digit pace in the fourth quarter. However,capital spending continues to contract. Itappears that businesses may be unwilling tocommit to capex as long as uncertainties

regarding the economic outlook remain high. In our view, the U.K. economy will expand

throughout 2010. However, continueddeleveraging by the household sector will likelyexert headwinds on consumer spendinggrowth. In addition, fiscal tightening also will

weigh on overall economic growth.

The overall rate of CPI inflation is well abovethe Bank of Englands target of 2 percent atpresent. However, CPI inflation has beenpushed up in recent months by sometemporary factors including the hike in the

value-added tax. We forecast that inflation willretreat in coming months, which will give theBank of England the wherewithal to remain onhold until late this year. United Kingdom Retail Sales


-3.0%

0.0%

3.0%

6.0%

9.0%

1999 2001 2003 2005 2007 2009

-3.0%

0.0%

3.0%

6.0%

9.0%



U.K. Consumer Price IndexYear-over-Year Percent Change

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1997 1999 2001 2003 2005 2007 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CPI: Jan @ 3.4%

Source: Bank of England, EuroStat, IHS Global Insight, Bloomberg,LP and Wells Fargo Securities, LLC

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AustraliaAustralian Real GDP


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


Year-over-Year Percent Change: Q4 @ 2.7%

Australian GDP ContributionsYear-over-Year Percentage Contribution to GDP

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

2007 2008 2009-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

Household Expenditures: Q4 @ 0.4%

General Government Expenditures: Q4 @ 0.3%

After sidestepping the worst of the fallout fromthe global financial crisis, Australian economic

growth picked up speed in the last quarter of2009 expanding at a 3.7 percent annualizedpace. The largest contribution to growth camefrom an increase in government spending,likely a reflection of public infrastructureprojects created to help jumpstart theeconomy.

But growth in the fourth quarter wassupported by consumer spending as well. A6.8 percent jump in auto purchases was themain contributor to growth in household finalconsumption, along with a more modest 0.7percent pick-up in rent and other dwelling

services. It is not yet clear how much thestrength in spending has to do withgovernment incentive programs, but wesuspect domestic demand may wane somewhatas government programs wind down. Indeed,following the year-end expiration of the rebateprogram for cars, January auto sales slipped3.4 percent.

The Reserve Bank of Australia (RBA) has beenat the forefront of central banks willing to takeaway the punch bowl as it has raised its keylending rate 100 basis points since this pastOctober. Still, we expect the RBA will take a

measured approach to removing stimulus fromthe economy. Inflation is not yet a big concern.The RBA will also be watching to see if therecovery is self-sustaining once incentives fade.

Australian Consumer Price IndexYear-over-Year Percent Change

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1995 1998 2001 2004 2007

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Overall CPI : Q4 @ 2.1%

Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%


Bank of England: Mar @ 0.50%

Reserve Bank of Australia: Mar @ 4.00%


8


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CanadaCanadian Real GDP


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



Canadian Merchandise Trade BalanceMillions of Canadian Dollars, Seasonally Adjusted

-C$4,000

-C$2,000

C$0

C$2,000

C$4,000

C$6,000

C$8,000

C$10,000

1997 1999 2001 2003 2005 2007 2009-C$4,000

-C$2,000

C$0

C$2,000

C$4,000

C$6,000

C$8,000

C$10,000

Merchandise Trade Balance: Dec @ -246M CAD

The Canadian economy shrank 2.6 percent forthe full-year 2009the biggest contraction

since 1982. But it ended the year on anupswing, growing at a 5.0 percent annual pacein the fourth quarterthe fastest sequentialgrowth rate since the third quarter of 2000.

The recovery in the third quarter was fueled bya 3.5 percent annualized increase in personalconsumption expenditures. Business andgovernment spending also posted gains in thefourth quarter. Final domestic demand is now

just 0.6 percent off its pre-recession peak. Domestic demand is supporting growth in real

imports, which grew at an 8.9 percent pace inthe fourth quarter building on big gains in the

prior quarter. Gross exports rose at a fasterpace than imports, causing net exports tocontribute 1.3 percentage points to the overallgrowth rate.

The overnight rate in Canada has been at0.25 percent since April of last year. While theBank of Canada (BoC) has reiterated its intentto leave the target rate unchanged through thesecond quarter of 2010, recent strength in theCanadian economy has many market-watchersin Canada speculating that the Bank will actswiftly when that time comes. In the meantime, the core rate of inflation remains near the

bottom of BoCs target range of 1 to 3 percent,giving them cover to keep rates low for now.

Canadian Consumer Price IndexYear-over-Year Percent Change

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

"Headline": Jan @ 1.9%

"Core": Jan @ 1.3%Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%


Bank of Canada: Mar @ 0.25%


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NorwayNorwegian Real GDP


-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

Compound Annual Growth Rate: Q4 @ 0.4%


Volume of Norwegian Retail SalesYear-over-Year Percent Change

-2%

0%

2%

4%

6%

8%

10%

2001 2003 2005 2007 2009-2%

0%

2%

4%

6%

8%

10%


Norway experienced a mild recession in2008/2009, but real GDP growth has returned

to positive territory recently. Recent monthlyindicators, including the manufacturing PMIand industrial production data, suggest thatthe Norwegian economy has continued toexpand at a modest pace in the first quarter.

The weak growth rate that the economyregistered in the fourth quarter understates, atleast to some extent, the overall state of theeconomy at present. Real consumer spendingrose in excess of 5 percent in the fourthquarter. Not only has the labor marketremained relatively supported, but the rise inthe price of oil, which is one of the countrys

main exports, has helped to lift real income.The overall GDP growth rate was depressed bythe 11 percent increase in gross imports, whichreflects solid growth in domestic demand.

The overall rate of CPI inflation has reboundedto 2.5 percent, a bit above the core rate of2.3 percent. Although inflation is not aproblem at present in Norway, the core ratecould begin to trend higher in the monthsahead if growth strengthens.

Norges Bank, the countrys central bank, hasraised its main policy rate from 1.25 percentlast October to 1.75 percent at present.

Although the Bank kept rates unchanged at itslast policy meeting in early February, mostinvestors look for more rate hikes in themonths ahead.

Norwegian Industrial Production IndexYear-over-Year Percent Change

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1997 1999 2001 2003 2005 2007 2009

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

IPI: Jan @ 5.2%


Norwegian Consumer Price IndexYear-over-Year Percent Change

-2%

0%

2%

4%

6%

1997 1999 2001 2003 2005 2007 2009

-2%

0%

2%

4%

6%

CPI: Jan @ 2.5%


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SingaporeSingapore Real GDPYear-over-Year Percent Change

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2000 2002 2004 2006 2008

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%


Singaporean Industrial Production IndexManufacturing Production, Year-over-Year Percent Change

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1997 1999 2001 2003 2005 2007 2009-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%


Singapores fourth quarter GDP was revised upto a 2.8 percent decline on a seasonally

adjusted annualized rate, leaving the year-over-year increase a much stronger 4.0percent. The fourth quarter decline is seen asonly a pause in a somewhat stronger recoverytrend. The government revised up itsprojection for 2010 GDP growth to a range of4.5 percent to 6.5 percent based on thestronger data. Private consumption andinvestment are bouncing back to pre-crisisgrowth rates as manufacturing and exportsaccelerate. In the fourth quarter, services andagricultural sectors appeared to join theexpansion.

Singapores manufacturing expansioncontinues. Februarys PMI edged up to 51.9from 51.4 in January. Singapores PMI has

been in expansion territory for ten consecutivemonths now. January industrial productionfigures confirmed the trend, rising 11.8 percentfrom December levels and jumping 39.4percent from year-ago levels.

Labor market conditions are on the mend as well. Singapore added 38,700 jobs in thefourth quarter with the unemployment ratefalling to 2.1 percent, the lowest rate in sevenquarters.

Singapore has exited deflation, at least for onemonth. January CPI rose 0.4 percent, leavingconsumer prices up 0.2 percent from a yearago, after eight straight months of deflation.

Singapore Unemployment RateSeasonally Adjusted

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1999 2001 2003 2005 2007 2009

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Unemployment rate: Q4 @ 2.1%

Singapore Consumer Price IndexYear-over-Year Percent Change

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1997 1999 2001 2003 2005 2007 2009

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

CPI: Jan @ 0.2%


11


12/29


South KoreaSouth Korean Real GDP


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



South Korean Industrial Production IndexYear-over-Year Percent Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

1997 1999 2001 2003 2005 2007 2009-30%

-20%

-10%

0%

10%

20%

30%

40%

IPI: Jan @ 31.0%


South Koreas expansion lost some significantmomentum in the fourth quarter, leaving

much uncertainty around the growth outlookfor 2010. The fourth quarter GDP estimaterose a modest 0.7 percent at an annualizedrate, though year-over-year GDP still advanced6.0 percent when many other countries in theregion saw year-over-year declines.

South Koreas industrial production in Januarywas flat compared to December, and consumerconfidence has not increased since October.The worsening job market continues to weighon consumers willingness and ability to spend.

South Koreas unemployment rateunexpectedly spiked to 4.8 percent in January

from 3.6 percent in December. Theunemployment rate is now at an 11-year high.

The governments leading economic indicatorsalso point to a continued moderation ingrowth, especially in the second half of 2010.Six out of the 10 components in this measureare now contracting. The fact that China,South Koreas largest trading partner, is alsotightening loan growth, puts even moredownside risk into the outlook.

The consensus is still expecting some interestrate hikes from the Bank of Korea in 2010, but

more than 50 basis points in hikes seemsunlikely in this environment, especiallyconsidering household debt, as a share ofdisposable income remains at 144 percent. South Korean Unemployment Rate

Percent and 12-Month Moving Average

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%



South Korean Rates3-M Bill, 10-Yr Government Bond

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2004 2005 2006 2007 2008 2009 2010

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

3-Month Government: Mar @ 2.18%

South Korean 10-Yr Government: Mar @ 5.21%


12


13/29


SwedenSwedish Real GDP


-20%

-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-20%

-15%

-10%

-5%

0%

5%

10%

Compound Annual Growth: Q4 @ -2.2%


Swedish Manufacturing PMI

30

35

40

45

50

55

60

65

70

2002 2003 2004 2005 2006 2007 2008 2009 201030

35

40

45

50

55

60

65

70

Swedish Manufacturing PMI: Feb @ 61.5%

Although growth has returned to most otherareas of the world, the Swedish economy

continues to contract. Relative to its peak inearly 2008, real GDP has declined nearly7 percent. However, the rise in themanufacturing PMI recently suggests that realGDP growth may have turned positive in thefirst quarter.

About 60 percent of the countrys exports aredestined for the European Union and another10 percent go to emerging Europe. Bothregions have lagged the global upturn, whichhas weighed on Swedish exports. Consumerspending has posted modest gains over thepast few quarters, but investment spending

continues to plunge at a double-digit pace. Due to the rise in energy prices over the past

year the overall inflation rate returned topositive territory in December, and it will likelytrend a bit higher in the months ahead. Thatsaid, a major inflationary outbreak in Swedendoes not seem likely due to the weakness in theeconomy.

The Riksbank (the countrys central bank) cutits main policy rate to only 0.25 percent lastsummer, where it has subsequently beenmaintained. However, the Riksbank recentlystated that because the recovery is now onfirmer ground it expects to begin raising itsmain policy rate sometime this summer orautumn. Swedish Merchandise Trade Balance

Billions of Swedish Krona, Seasonally Adjusted

0

5

10

15

20

25

1997 1999 2001 2003 2005 2007 2009

0

5

10

15

20

25

Merchandise Trade Balance: Jan @ 7.5B SEK

12-Month Moving Average: Jan @ 7.3B SEKSwedish Consumer Price IndexYear-over-Year Percent Change

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1997 1999 2001 2003 2005 2007 2009

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

CPI: Jan @ 0.6%


13


14/29


SwitzerlandSwiss Real GDP


-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



Swiss Manufacturing PMIDiffusion Index

30

35

40

45

50

55

60

65

70

1997 1999 2001 2003 2005 2007 200930

35

40

45

50

55

60

65

70

Swiss Manufacturing PMI: Feb @ 57.4

After experiencing a mild recession in late2008/early 2009 in which real GDP contracted

2.4 percent, the Swiss economy is growingagain. Real GDP rose at a solid rate in thesecond half of last year, and monthlyindicators, including the manufacturing PMI,suggest that growth has remained positive inthe first quarter of 2010.

House prices in most parts of Switzerland didnot get overly inflated during the past decade,so the economy is not suffering from thehangover of a burst housing bubble. Realconsumer spending has turned up over thepast few quarters, and investment spendinghas also strengthened. Unless global economic

activity lurches lower again, which we do notexpect, a self-sustaining expansion appears to

be taking hold in Switzerland.

CPI inflation has returned to positive territoryagain as energy prices have rebounded. Asmeasured by the core rate of CPI inflation,however, there are few inflationary pressuresin the economy at present. The core rate ofinflation is currently 0.6 percent, down a fullpercentage point from late 2008.

The Swiss National Bank (SNB) hasmaintained its target for Swiss franc LIBOR atthe very low rate of only 0.25 percent sinceMarch 2009. Given the recovery in theeconomy, however, most investors look for theSNB to hike rates later this year. Swiss Retail Sales


-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2003 2004 2005 2006 2007 2008 2009 2010

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Retail Sales: Dec @ 112.4%

3-Month Moving Average: Dec @ 1.3%Swiss Consumer Price IndexYear-over-Year Percent Change

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1997 1999 2001 2003 2005 2007 2009

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

CPI: Jan @ 1.0%


14


15/29


TaiwanTaiwanese Real GDPYear-over-Year Percent Change

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%


Taiwanese Industrial Production IndexYear-over-Year Percent Change

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

1997 1999 2001 2003 2005 2007 2009-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

IPI: Jan @ 69.7%


Taiwans economic recovery continued to buildmomentum in the fourth quarter. GDP surgedat an 18 percent annualized pace and is now9.2 percent higher than a year ago. Therebound is being paced by large increases inmanufacturing and exports, as Taiwan deepenstrading relations with China and taps theiroutsized growth rate.

Taiwans industrial production jumped 69.7percent in January from a year ago, whileJanuary exports exploded, rising 71.8 percentfrom last year. These increases partly reflect thesteep declines registered last year at the heightof the financial crisis and certainly are notsustainable on a prolonged basis. Year-over-

year growth rates are expected to diminish as2010 progresses and base effects fade.

Price deflation has rapidly retreated as growthreasserts itself. In fact, CPI inflation increased

year over year to 2.35 percent in February. Theeconomy exited deflation after 11 consecutivemonths. Core inflation, excluding volatile foodand energy categories, continues to moderatehowever, falling to minus 1.1 percent.

Taiwans central bank cut rates seven timesduring the crisis and has held rates steady sinceFebruary 2009. With core inflation pressuresstill relatively low, the central bank will likely

not be hiking interest rates until perhaps mid-year at the earliest. A strengthening Taiwanesedollar also reduces the pressure on the central

bank to hike interest rates to stabilize thecurrency.

Taiwanese Consumer Price IndexYear-over-Year Percent Change

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1997 1999 2001 2003 2005 2007 2009

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

6-Month Moving Average: Feb @ -0.3%

CPI: Feb @ 2.4%

Taiwanese RatesOvernight Rate, 10-Yr Government Bonds

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

1999 2001 2003 2005 2007 2009

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Overnight Rate: Mar @ 0.11%

Taiwan 10-Yr Government: Mar @ 3.96%


15


16/29


ArgentinaArgentine Economic Activity Index


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1997 1999 2001 2003 2005 2007 2009

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Economic Activity: Dec @ 5.0%

Argentine Consumer Price IndexYear-over-Year Percent Change

0%

2%

4%

6%

8%

10%

12%

14%

2004 2005 2006 2007 2008 2009 20100%

2%

4%

6%

8%

10%

12%

14%

Consumer Price Index: Jan @ 8.2%

After a tumultuous period for Martn Redrado,the president of the central bank, he was finally

fired from the institution and a moregovernment-friendly successor was appointed by the Fernndez-Kirchner administration.The new president of the central bank is Ms.Mercedes Mar del Pont.

The Argentine government has started torecognize a higher rate of inflation, eventhough the opposition and private analysts arestill claiming that the real rate of inflation is atleast twice as much as the official rate. TheINDEC, the countrys statistical office, reportedthat consumer prices increased by 1.0 percentin January with a 12-month rate of

8.24 percent. Private analysts are following labor union

salary negotiations because these unions areasking for up to 25 percent salary increases.Labor unions are pro-government institutions,and thus acceptance of those salary increases

would tend to confirm analysts arguments thatinflation is at least twice as much as the officialreported rate.

Argentine exports increased by 18.6 percent inJanuary compared to the same month a yearearlier, while imports rose by 16.2 percent.The January trade balance was $1.22 billion,taking the 12-month trade surplus to $17.23

billion. However, trade is still well below pre-crisis levels. Argentine Exchange Rate

BRL per USD

2.50

2.75

3.00

3.25

3.50

3.75

4.00

03 04 04 05 06 07 08 09

2.50

2.75

3.00

3.25

3.50

3.75

4.00

ARS per USD: Mar @ 3.857

Argentine Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

1997 1999 2001 2003 2005 2007 2009

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

Merchandise Trade Balance: Jan @ $1,217


16


17/29


BrazilBrazilian Real GDP


-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%



Brazilian Retail SalesYear-over-Year Percent Change

-8%

-4%

0%

4%

8%

12%

2001 2002 2003 2004 2005 2006 2007 2008 2009-8%

-4%

0%

4%

8%

12%

Retail Sales: Dec @ 9.1%

6-Month Moving Average: Dec @ 7.0%

As we were expecting, Brazilian inflation rateshave started to accelerate, and the central bank

will have to start increasing interest rates verysoon if they do not want to face resettinginflation expectations in the coming quarters.This is even more imperative during 2010considering that 2010 is a presidential election

year and such years have been characterized, inthe past, by changing inflation expectations.

Consumer prices increased by 0.78 percent inFebruary after posting a 0.75 percent increaseduring the first month of the year. The year-earlier rate stood at 4.83 percent in February,up from a 4.59 percent rate in January.Meanwhile, while the year-over-year wholesale

rate was still in deflationary territory inFebruary (-1.19 percent), it was up strongly,1.38 percent, on a month-over-month basisand could start threatening consumer inflationin the coming months.

Brazilian exports surged by 27.2 percent inFebruary compared to the same month a yearearlier, while imports skyrocketed by 50.9percent during the same period. The tradedeficit was $394 million in February, up from a$166 million deficit in January. While thecountry has benefited considerably by a strongrebound in the price of petroleum, the main

difference compared to last years commodityexport performance was due to a large increasein overall production of commodities.

Brazilian Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1997 1999 2001 2003 2005 2007 2009

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Merchandise Trade Balance: Jan @ $-166

Brazilian Exchange RateBRL per USD

1.00

1.50

2.00

2.50

3.00

3.50

4.00

99 00 01 02 03 04 05 06 07 08 09 10

1.00

1.50

2.00

2.50

3.00

3.50

4.00

BRL per USD: Mar @ 1.778


17


18/29


ChileChilean Real GDP


-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%



Chilean Consumer Price IndexYear-over-Year Percent Change

-4%

0%

4%

8%

12%

1997 1999 2001 2003 2005 2007 2009-4%

0%

4%

8%

12%

CPI: Jan @ 0.8%

While early indicators on the countrysproductive capacity tend to indicate that GDP

will be negatively affected during the first andsecond quarter of the year, the reconstructioneffort will bump GDP growth up during thesecond half of the year. Early estimates on thecost of the earthquake are approaching $30

billion, or about 19 percent of GDP.

We expect the Chilean economy to grow by 2.7percent during 2010, down from our previousforecast of 4.4 percent before the earthquake.

We estimate the largest impact on GDP to beallocated to the second quarter of the year andthen envision relatively strong growth duringthe third and fourth quarter of the year. While

inflation may be an issue for the central bankdue to scarcity of products across the economy,

we should expect central bank policy to remainaccommodative for the first three quarters ofthe year.

Chiles currency experienced high volatilitygoing into late last year and during the firsttwo months of this year. This volatility wasexacerbated following the massive earthquakethat struck the country in late February. Whilethe earthquake hurt the currency at first, thepeso seems to have regained its composure andhas been on a strengthening path during the

early part of March.

Chilean Economic Activity IndexYear-over-Year Percent Change

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2004 2005 2006 2007 2008 2009

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Economic Activity: Dec @ 3.9%

Chilean Exchange RateBRL per USD

400

500

600

700

800

99 00 01 02 03 04 05 06 07 08 09 10

400

500

600

700

800

CLP per USD: Mar @ 512.500


18


19/29


ChinaChinese Real GDP


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2000 2002 2004 2006 2008

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Chinese Manufacturing PMISeasonally Adjusted

35

40

45

50

55

60

2005 2006 2007 2008 2009 201035

40

45

50

55

60

Chinese Manufacturing PMI: Feb @ 52.0

After slowing significantly in early 2009, realGDP growth in China has rebounded sharply in

recent quarters. Because Chinese banks werenot overly leveraged, the government directedthem to increase lending aggressively. Inaddition, the government stimulated theeconomy via acceleration of plannedinfrastructure spending.

Growth in domestic demand has been solid.The value of retail sales is currently growingnearly 18 percent on a year-over-year basis,and export growth also rebounded in thesecond half of last year.

Now that the economy is firmly back on track,the government is directing banks to slow

down the pace of credit creation beforeinflation becomes an issue. Most indicatorspoint in the direction of continued stronggrowth in the first quarter but, as the recentdecline in the manufacturing PMI suggests, thepace of growth may slow somewhat goingforward.

Will Chinese authorities tighten too much?Probably not, because inflation largely remains

benign. The overall rate of CPI inflation is verylow at presentonly 1.5 percent in Januaryand the core rate of inflation is barely abovezero percent at present. Although economicpolicies will become less accommodative in themonths ahead, there is no reason for Chineseauthorities to slam on the brakes. Chinese Loan Growth


0%

5%

10%

15%

20%

25%

30%

35%

99 01 03 05 07 09

0%

5%

10%

15%

20%

25%

30%

35%

Chinese Loan Growth: Jan @ 29.3%

Chinese CPI InflationYear-over-Year Percent Change

-4%

-2%

0%

2%

4%

6%

8%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-4%

-2%

0%

2%

4%

6%

8%

10%

Overall CPI: Jan @ 1.5%

Non-food CPI: Jan @ 0.4%


19


20/29


IndiaIndian Real GDP


0%

3%

6%

9%

12%

2004 2005 2006 2007 2008 2009

0%

3%

6%

9%

12%


Indian Industrial Production IndexYear-over-Year Percent Change

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

1997 1999 2001 2003 2005 2007 20090.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%3-Month Moving Average: Dec @ 12.9%

Real GDP growth in the Indian economy hasfluctuated over the past year or so. After

slowing in the wake of the global recession,growth bounced back up in mid-2009.However, overall GDP growth weakened againin the fourth quarter as agricultural output,

which accounts for nearly 20 percent of IndianGDP, fell because of the effects of last yearsdrier-than-normal monsoon.

Despite the fluctuations in the overall rate ofGDP growth, the underlying state of the Indianeconomy remains relatively strong at present.Growth in industrial production reboundedstrongly last year, and recent monthlyindicators suggest that growth remained solid

in the first quarter. For example, themanufacturing PMI remained well above 50in January and February.

Strong growth in automobile sales shows thatconsumer spending generally remains solid. Inaddition, exports have accelerated with the

year-over-year growth rate in the value ofIndian exports growing at a double-digit paceat present.

Wholesale price inflation, which is the benchmark inflation gauge in India, has shotup over the past few months. With recoverytaking hold and inflation starting to trendhigher, the RBI will probably start to take backsome of its previous rate cuts in the near term.

Indian Wholesale Price InflationYear-over-Year Percent Change

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Wholesale Price Inflation: Jan @ 8.6%Indian Real GDP


-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2002 2004 2006 2008

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Overall GDP: Q4 @ 6.0% (Left Axis)

Agricultural Output: Q4 @ -2.8% (Right Axis)


20


21/29


MexicoMexican Real GDP


-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2004 2005 2006 2007 2008 2009

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%


Industrial Production IndicesYear-over-Year Percent Change

-15%

-10%

-5%

0%

5%

10%

1999 2001 2003 2005 2007 2009-15%

-10%

-5%

0%

5%

10%

Mexico, 3-Month Moving Average: Dec @ -1.8%

U.S.: Jan @ 0.9%

The Mexican economy is starting to show signsof life after the worst crisis in more than forty

years. According to the INEGI, the countrysstatistical institute, the Mexican economycontracted by 2.3 percent during the fourthquarter of 2009 compared to the same period a

year earlier, leaving the full year with a drop of6.5 percent. However, the Mexican economyended on an up-note, growing 2.0 percentduring the last quarter of the year compared tothe previous quarter on a seasonally adjusted

basis.

Quickening inflation will likely become a newthreat to this years economic recovery.Januarys 1.1 percent month-over-month

increase in the consumer price index wasunexpected and unwelcomed as the central

bank tries to give continuity to last yearsexpansionary monetary policy. However, ifthis trend continues, the central bank will haveto move fast if it wants to avoid a resetting ofinflation expectations.

On the positive side, the Mexican peso hasstrengthened considerably during the firstmonths of the year, and this could contributeto lower price pressure in coming months.

While the Mexican trade sector improvedconsiderably in January with exportsincreasing by 26.7 percent year over year, thestrength of this recovery has left a bitter flavor,as many were expecting an even larger surge inexports.

Mexican Consumer Price IndexYear-over-Year Percent Change

2%

4%

6%

8%

10%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2%

4%

6%

8%

10%

12%

CPI: Jan @ 4.5%

Mexican Exchange RateMXN per USD

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

1999 2001 2003 2005 2007 2009

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

MXN per USD: Mar @ 12.66


21


22/29


PolandPolish Real GDP


0.0%

3.0%

6.0%

9.0%

1995 1997 1999 2001 2003 2005 2007 2009

0.0%

3.0%

6.0%

9.0%


Polish Industrial Production IndexYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

IPI: Jan @ 8.5%

Polands economy grew 1.2 percent in thefourth quarter of 2009 from the previous

quarter, and 3.1 percent from the same quartera year ago. Trade led the way, contributing 2.2percentage points to the annual growth rate.Inventory replenishment also supportedgrowth. Private consumption growth slowedduring the quarter. Meanwhile, gross fixedinvestment was unchanged from the previousquarter, but was up 1.6 percent year over year.For all of 2009 real GDP rose 1.7 percent,meaning Poland was the only European Unionmember to avoid recession during the globaleconomic crisisa remarkable achievement.

Stimulus packages in many Western Europeanmarkets, along with the lagged effects of thezlotys depreciation during the crisis, havefueled robust export growth. This, in turn, hassupported a rebound in industrial production.However, recent year-over-year industrialproduction growth rates are also benefitingfrom a very low base of comparison. Lookingahead, fading European stimulus and thelagged effects of the zlotys appreciation during2009 could dampen export growth.

Inflation has accelerated over the past fewmonths. However, the expected slowdown inexports, rising unemployment, slowing wage

growth, the stronger zloty and more favorable bases of comparison for prices will allow thecentral bank to hold off on raising short terminterest rates for several more months. Polish Merchandise Trade BalanceMillions of Polish Zloty, Not Seasonally Adjusted

-$11,000

-$10,000

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

1997 1999 2001 2003 2005 2007 2009

-$11,000

-$10,000

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

Merchandise Trade Balance: Dec @ -$4,484 M

Polish Consumer Price IndexYear-over-Year Percent Change

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

CPI: Jan @ 3.6%


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RussiaRussian Real GDP


-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


Russian Merchandise Trade BalanceBillions of USD, Seasonally Adjusted

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

1999 2001 2003 2005 2007 2009$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20Merchandise Trade Balance: Dec @ $12.7B

Russian real GDP was down 8.9 percent year0ver year in the third quarter of 2009, an

improvement over the 10.9 percent drop in Q2.Strong export growth and improving retailsales suggests growth improved further in thefourth quarter. In February the governmentreleased a preliminary estimate of a 7.9 percentdecline in real GDP for all of 2009.

Exports were up 20.1 percent from a year agoin December, a vast improvement over the 22.3percent decline seen just two months prior. Arecovering global economy has spurreddemand for oil, natural gas and metals, whichtogether comprise nearly 75 percent of Russiasexports. Imports have also improved, but not

as much as exports. This has led to a tradesurplus nearly triple that of a year ago, helpingto bolster economic growth.

Retail sales have improved quickly over thepast few months, rising 7.9 percent in Januaryfrom a year earlier, a marked improvementover the 0.9 percent decline seen inSeptember. Demand has improved as real wagegrowth has finally turned positive, whilepersonal disposable income growth is trendinghigher. However, a jump in the unemploymentrate in January to 9.2 percent, along with tightcredit conditions, will likely keep consumers

contribution to economic growth limited. Annual inflation slowed further in February to

7.2 percent. Thus, further interest rate cutscould follow Februarys 25 basis point cuts.

Russian Retail SalesYear-over-Year Percent Change

-20%

0%

20%

40%

60%

80%

100%

120%

1997 1999 2001 2003 2005 2007 2009

-20%

0%

20%

40%

60%

80%

100%

120%


Russian Unemployment RatePercent of Labor Force

5.0%

6.5%

8.0%

9.5%

11.0%

12.5%

14.0%

15.5%

1999 2001 2003 2005 2007 2009

5.0%

6.5%

8.0%

9.5%

11.0%

12.5%

14.0%

15.5%



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South AfricaSouth African Real GDP


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%



South African Merchandise Trade BalanceBillions of Rand, Not Seasonally Adjusted

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

1997 1999 2001 2003 2005 2007 2009-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

Merchandise Trade Balance: Jan @ -33,310.4

For the full-year 2009, the South Africaneconomy contracted 1.8 percent. But like

many foreign economies it ended the year onan up-note rising at a 3.2 percent annualizedpace in the fourth quarter.

Manufacturing grew at a 10.1 percent pace inthe fourth quarter, thanks in part to anincrease in export activity as the broader globalrecovery helped support foreign demand formanufactured goods from South Africa.

Despite the strength in exports, other parts ofthe economy remain rather weak, most notablyin the consumer sector. Indeed, retail trade

weighed on fourth quarter GDP growth. Year-over-year retail sales numbers have been in

negative territory since February of 2009.

The South African Reserve Bank is stuckbetween a rock and a hard place. The inflationrate is back above the central banks 3 percentto 6 percent target band for a second month inJanuary. But with the pick-up in economicactivity just starting to take shape, this is notime to throw a wet blanket on the buddingrecovery. Recognizing the challenge facing thecentral bank, South Africas Finance Ministersent a letter to Central Bank Governor Marcusin February encouraging him to be flexibleand that temporary deviations" of inflationfrom the target rate are acceptable. We expectthe Reserve Bank to exercise its flexiblemandate and leave the repurchase rateunchanged at 7 percent for some time.

Real South African Retail SalesYear-over-Year Percent Change

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

2003 2004 2005 2006 2007 2008 2009

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

Wholesale & Retail Sales: Dec @ -3.7%

South African Consumer Price IndexYear-over-Year Percent Change

0%

3%

6%

9%

12%

15%

2003 2005 2007 2009

0%

3%

6%

9%

12%

15%

CPI: Jan @ 6.2%


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TurkeyTurkish Real GDP

Year-over-Year Percentage Change

-15.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%


Turkish Industrial Production IndexYear-over-Year Percent Change

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1997 1999 2001 2003 2005 2007 2009-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

IPI: Jan @ 12.1%


The year-over-year contraction in Turkish GDPslowed to just 3.3 percent in the third quarter

of 2009. Inventory replenishment andgovernment spending provided a boost, whiletrade contributed as export declines slowed.Recent data suggests the economy continued toimprove in the fourth quarter, for which GDPdata is not yet available.

Industrial production was up 12.1 percent inJanuary from a year ago after surging 25.2percent in December, which was the biggestincrease in over four years. The recent largeincreases are being driven in part by a low baseof comparison as production losses were heavyaround the same time a year earlier.

With the increase in production, has come anincrease in imports of intermediate goods usedin production of goods for export. This, along

with improved domestic demand, has led to are-widening of the trade deficit, which nearlytripled in January from a year earlier. Strongexport growth has helped the economy recover,

but looking ahead, weakness in Europe and thelagged effects of the liras recent appreciationcould dampen exports as the year progresses.

Inflation is starting to rear its ugly head onceagain, rising 10.1 percent year over year inFebruary. Very low levels of comparison duringthe crisis and higher taxes are factoring intothe rebound. This has led the central bank tohalt its rate easing cycle, and rates could startto rise later this year should inflation persist.

Turkish Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

1997 1999 2001 2003 2005 2007 2009

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

Merchandise Trade Balance: Jan @ -3,640.0 USD

Turkish Consumer Price IndexYear-over-Year Percent Change

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1997 1999 2001 2003 2005 2007 2009

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

CPI: Feb @ 10.1%


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Dollar Exchange RatesU.S. Trade Weighted Dollar Major Index

March 1973=100

65

70

75

80

85

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

65

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Feb @ 76.0

Euro-zone Exchange RateUSD per EUR

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1999 2001 2003 2005 2007 20090.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

USD per EUR: Mar @ 1.360

The weighted-average value of the dollartrended lower throughout most of 2009 as the

recovery in the global economy caused thegreenback to lose its safe-haven appeal.However, the dollar has gotten off to a strongstart in 2010, especially against the euro andother European currencies.

The appreciation of the dollar versus the eurothis year reflects, at least in part, some investornervousness regarding the Greek debtsituation. However, U.S. economic datagenerally have been stronger than expectedthis year whereas data from the eurozone havelargely been disappointing.

The U.S current account deficit has narrowedconsiderably over the past few years, whichexerts fewer headwinds on the dollar. At thesame time, net capital inflows into the UnitedStates have strengthened over the past fewmonths, which have also helped boost thegreenback.

Wells Fargo projects the dollar will appreciatemodestly over the next few quarters versusmost major currencies, as the U.S. economicrecovery continues to prompt foreign buying ofhigher yielding U.S. assets. However,commodity and emerging market currencies

will likely appreciate further on a trend basis ascommodity prices continue to grind higher andas increasing levels of risk tolerance causescapital to flow to those countries. Monthly Net Securities Purchases

Billions of Dollars

-$120

-$80

-$40

$0

$40

$80

$120

$160

2004 2005 2006 2007 2008 2009

-$120

-$80

-$40

$0

$40

$80

$120

$160

Net Securities Purchases: Dec @ $63 Billion

3-Month Moving Average: Dec @ $70 Billion

Current Account DeficitQuarterly in Billions of Dollars, Seasonally Adjusted

-$240

-$200

-$160

-$120

-$80

-$40

$0

$40

92 94 96 98 00 02 04 06 08

-$240

-$200

-$160

-$120

-$80

-$40

$0

$40

Balance on Current Account: Q3 @ $-108.0 B

Source: Bloomberg LP, Federal Reserve Board, IHS Global Insight,Intl. Monetary Fund and Wells Fargo Securities, LLC

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EnergyCrude Oil

NYMEX Front-Month Contract, Dollars per Barrel

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$0

$20

$40

$60

$80

$100

$120

$140

$160

Crude Oil: Mar @ $81.50

Crude Oil InventoryYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Oil Inventory: Feb @ -2.6%

After collapsing from their all-time high inJuly 2008, oil prices have trended higher since

early 2009. The recent upturn in globaleconomic activity is helping spur a modestrecovery in petroleum demand. More recently,colder-than-usual weather in North Americahas helped boost demand.

Global supply has declined a bit, which is alsohelping support prices. The combination ofslightly higher demand and the marginalreduction in supply has caused stocks ofpetroleum products to drop. Indeed, excessstocks of crude have been pared backsignificantly over the past few months, andinventories are currently at year-ago levels.

Distillate inventories, which rose significantlyin the second half of last year, have retreatedsomewhat as well. Stocks of gasoline havestarted to rise in recent weeks in advance of thesummer driving season.

We project that oil prices will grind slowlyhigher in the quarters ahead. Oil demandshould rise further as the global economycontinues to recover.

Natural gas prices trended lower throughoutmost of 2009 due to weak demand andexcessive inventories. However, colder-than-normal weather has caused gas in storage toreturn to year-ago levels over the past few

weeks. Assuming that the U.S. economicrecovery remains intact, gas prices shouldslowly trend higher over the course of the year.

Natural GasHenry Hub Spot, Dollars per MMBTU

$0

$2

$4

$6

$8

$10

$12

$14

$16

2005 2006 2007 2008 2009 2010

$0

$2

$4

$6

$8

$10

$12

$14

$16

Natural Gas: Mar @ $4.75

Natural Gas StorageYear-over-Year Percent Change

-30%

-15%

0%

15%

30%

45%

2005 2006 2007 2008 2009 2010

-30%

-15%

0%

15%

30%

45%

Natural Gas Storage: Feb @ -2.2%


27


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29/29

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research& Economics

(704) 715-8437(212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]

Mark Vitner Senior Economist (704) 383-5635 [email protected]

Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]

Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]

Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 [email protected]

Sam Bullard Economist (704) 383-7372 [email protected]

Anika Khan Economist (704) 715-0575 [email protected]

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Adam G. York Economist (704) 715-9660 [email protected]

Ed Kashmarek Economist (612) 667-0479 [email protected]

Tim Quinlan Economic Analyst (704) 374-4407 [email protected]

Kim Whelan Economic Analyst (704) 715-8457 [email protected]

Yasmine Kamaruddin Economic Analyst (704) 374-2992 [email protected]

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 theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wachovia Bank N.A., Wells Fargo Bank N.A,

Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein arefor general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nordoes Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person uponany such information or opinions. Such information and opinions are subject to change without notice, are for generalinformation only and are not intended as an offer or solicitation with respect to the purchase or sales of any security oras 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 2010 Wells Fargo Securities, LLC.

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Global Chart Book _ March 2010

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