barclays - global economics

Economics Research 30 May 2014

Global Forecasts 2

Global Synthesis 3

Global Rates and Inflation 5

United States Outlook 6

Q1 GDP tracking - 1.0%; Q2 tracking 2.8% 8

Data Review & Preview 9

Euro Area Outlook 11


United Kingdom Outlook 15


Japan Outlook 18


Emerging Asia China: Time for more significant monetary

easing 21

Asia Outlook 24

India and Indonesia: Current account –

A stable path emerges 26


EEMENA Outlook 32

Data Preview & Review 34

Sub-Saharan Africa Outlook 36


Latin America Outlook 39


Country Snapshots 43

Global Weekly Calendar 49

Global Economics Weekly

A tale of two central banks • With little market moving-data in most major economies this week, asset prices

have been driven primarily by expectations of continued central bank easing.

• We think the ECB will cut rates and announce a targeted lending scheme next week, but we do not expect a large-scale asset purchase program.

• We now expect the BOJ to stay on hold for the rest of 2014, instead of easing further. Our new view is based on increased BOJ comments underlining the risks and limits of more QE and indicating confidence that the inflation goal will be met.

• In China, we expect policymakers to announce further measures to support the economy, though marked currency depreciation is unlikely to be among the tools used.

Developed Economies

United States: Expect only a moderate rebound from Q1 weakness 5 Real GDP growth in the US was revised lower to -1.0% in Q1 on less inventory accumulation and stronger drag from net trade, while consumption remained solid.

Euro area: High expectations for June ECB policy meeting 11 Market expectations are running high following ECB President Draghi’s remarks on 8 May that the ECB is comfortable acting in June.

UK: Anemic FLS lending, but consumer confidence surges 15 Q1 data suggest that the refocusing of the FLS scheme toward SMEs’ funding has yet to deliver.

Japan: “No easing in 2014” now our baseline view 18 We have changed our baseline view on BoJ policy to “no easing in 2014” from the previous “ease on 15 July.” We now see a “31 October ease” as the main risk.

Emerging Markets

Emerging Asia: An export-led rebound in the making 24 Growth slowed across Asia in Q1. Alongside the structural slowdown in China, we think temporary factors, including payback from the Q4 surge, were the main culprits.

EEMENA: Dovish central banks amid recovering growth 32 Next week, Poland is likely to keep its policy rate unchanged, but with a dovish bias. That is what happened in Israel this week, while Hungary delivered another rate cut.

Sub-Saharan Africa: South Africa at risk of technical recession 36 South Africa’s Q1 GDP contracted 0.6% q/q saar, due to electricity shortages and the platinum sector strike, and a further contraction in Q1 is a real risk.

Latin America: There is still a hawk out there 39 Central bankers in LatAm are shifting place, as the Brazilian Copom pause has allowed the Colombian Banrep to assume the hawkish seat.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 55

Barclays | Global Economics Weekly GLOBAL FORECASTS

Note: Arrows appear next to numbers if current forecasts differ from that of the previous week by 0.5pp or more for quarterly annualized GDP, by 0.2pp or more for annual GDP and by 0.2pp or more for Inflation. Weights used for real GDP are based on IMF PPP-based GDP (5yr centred moving averages). Weights used for consumer prices are based on IMF nominal GDP (5yr centred moving averages)”. * IMF PPP-based GDP weights for 2013. Source: Barclays Research.

Weight* 4Q13 1Q14 2Q14 3Q14 4Q14 2013 2014 2015 1Q14 2Q14 3Q14 4Q14 2013 2014 2015

Global 100.0 3.5 2.0 3.3 3.9 4.0 2.9 3.2 3.8 2.6 3.0 3.0 3.1 2.6 2.9 2.9Advanced 51.4 1.9 0.9 ↓ 1.7 2.2 2.2 1.2 1.8 2.2 1.2 1.7 1.6 1.8 1.3 1.6 1.8Emerging 48.6 5.2 3.2 4.8 ↑ 5.6 5.8 4.8 4.7 5.4 5.0 5.2 5.2 5.3 4.8 5.1 4.9

BRIC 30.9 6.1 4.0 5.3 ↑ 6.3 ↓ 6.5 5.7 5.5 6.0 3.7 3.7 4.0 4.2 4.2 3.9 4.0Americas 33.0 2.3 -0.3 ↓ 2.8 2.8 2.8 2.0 2.0 ↓ 2.8 3.4 4.0 4.1 4.2 3.1 3.9 3.7

United States 22.2 2.6 -1.0 ↓ 3.0 2.5 2.5 1.9 1.9 ↓ 2.6 1.4 1.9 2.0 2.4 1.5 1.9 2.1Canada 2.0 2.9 2.0 2.0 2.5 2.5 2.0 2.4 2.5 1.2 1.6 1.6 1.7 1.0 1.5 1.9Latin America 8.8 1.5 1.0 2.5 3.5 3.6 2.4 2.1 3.5 10.8 11.5 11.8 11.3 9.0 11.3 9.6

Argentina 1.0 -0.8 -4.4 -4.1 1.1 4.0 3.1 -1.5 4.4 33.2 37.7 39.0 39.0 26.9 37.4 38.2Brazil 3.2 2.8 1.2 2.4 2.4 2.4 2.3 1.9 2.4 5.8 6.3 6.8 6.7 6.2 6.4 5.8Chile 0.4 -0.3 8.2 2.0 8.2 1.2 4.1 4.2 4.7 3.3 4.0 3.7 3.2 1.8 3.6 3.0Colombia 0.7 3.3 5.5 5.9 4.5 4.0 4.3 4.8 4.5 2.3 2.6 2.7 3.2 2.0 2.7 3.2Mexico 2.4 0.5 1.1 ↓ 5.5 4.7 4.5 1.1 3.0 3.8 4.2 3.5 ↑ 3.9 ↑ 3.7 3.8 3.8 3.6Peru 0.5 6.4 3.9 4.4 6.1 8.1 5.0 5.1 5.7 3.4 3.1 2.3 2.5 2.8 2.5 2.5Venezuela 0.5 -2.6 -5.3 -3.6 1.7 2.7 1.1 -1.8 3.0 59.3 63.0 62.7 58.0 40.6 60.7 43.0

Asia/Pacific 40.2 5.4 4.8 4.5 ↑ 6.1 6.3 5.3 5.3 5.6 2.5 3.0 3.0 3.2 2.4 2.9 3.1Japan 6.2 0.3 5.9 -3.7 1.9 2.2 1.6 1.6 1.3 1.3 3.3 ↑ 3.2 3.3 0.4 2.8 2.4Australia 1.3 3.2 2.5 2.1 2.5 3.1 2.4 2.6 3.5 2.9 3.3 2.6 2.3 2.4 2.8 2.7Emerging Asia 32.7 6.5 4.7 6.1 ↑ 7.0 7.2 6.1 6.1 6.4 2.9 2.9 3.0 3.2 3.2 3.0 3.4

China 17.7 7.5 5.8 6.8 8.2 8.2 7.7 7.2 7.2 2.3 2.0 2.5 2.9 2.6 2.4 3.0Hong Kong 0.5 4.4 3.3 2.9 4.0 4.2 2.9 3.4 3.8 4.4 4.2 3.7 3.7 4.3 4.0 4.1India 6.7 5.3 ↓ 4.8 5.3 ↑ 5.6 ↓ 6.6 ↓ 4.5 5.1 6.5 5.2 6.0 5.4 5.0 6.3 5.4 5.6Indonesia 1.7 6.2 3.5 4.9 6.6 7.4 5.8 5.3 5.6 7.8 7.2 4.6 5.2 6.4 6.1 5.3South Korea 2.2 3.6 3.8 4.9 4.5 3.2 3.0 4.1 4.2 1.1 1.8 2.4 2.8 1.3 2.0 2.3Malaysia 0.7 7.6 3.3 5.5 4.0 5.8 4.7 5.4 5.3 3.5 3.4 3.5 3.1 2.1 3.4 3.5Philippines 0.6 6.2 ↑ 4.5 ↓ 8.0 ↓ 9.5 ↑ 8.0 ↑ 7.2 6.5 6.5 4.1 4.6 4.5 3.8 2.9 4.3 3.5Singapore 0.5 6.9 2.3 2.4 1.6 4.9 3.8 3.5 3.4 0.9 2.8 2.4 1.9 2.4 2.0 2.4Taiwan 1.2 7.6 1.9 ↑ 4.5 ↓ 3.6 3.6 2.1 3.6 4.5 0.8 1.3 ↑ 0.8 0.8 ↓ 0.8 0.9 1.8Thailand 0.9 0.5 -8.2 10.0 8.0 8.0 2.9 2.0 4.0 2.0 2.6 2.7 2.5 2.2 2.4 2.5

Europe and Africa 26.8 2.0 0.7 1.8 1.9 1.9 0.6 1.5 1.9 1.7 1.8 1.6 1.8 2.2 1.7 1.9Euro area 14.9 0.9 0.8 1.8 1.7 1.6 -0.4 1.2 1.5 0.7 0.6 0.5 0.6 1.4 0.6 0.9

Belgium 0.6 1.1 1.5 1.1 1.6 1.7 0.2 1.3 1.6 1.0 0.8 ↓ 0.8 ↓ 0.9 ↓ 1.2 0.9 ↓ 1.6

France 3.0 0.7 ↓ 0.1 1.3 1.5 1.5 0.4 0.8 1.5 0.9 0.9 0.9 1.0 1.0 0.9 1.1

Germany 4.3 1.5 3.3 1.9 1.7 1.4 0.5 2.1 1.5 1.0 1.0 0.8 ↓ 1.2 ↓ 1.6 1.0 1.5 ↓Greece 0.4 -4.2 -0.4 4.6 3.3 2.0 -3.9 0.7 2.2 -1.3 -1.6 -1.5 -1.4 -0.9 -1.4 -1.7 ↓Ireland 0.3 -9.0 3.9 4.6 3.9 3.1 -0.6 1.7 2.5 0.2 0.5 0.6 1.1 0.5 0.6 1.3 ↓Italy 2.4 0.3 -0.3 1.4 1.8 1.8 -1.8 0.5 1.1 0.5 0.4 0.4 0.6 1.3 0.5 0.8

Netherlands 0.9 3.7 -5.4 3.1 1.6 1.8 -0.8 0.3 1.6 0.4 0.6 0.3 ↓ 0.4 ↓ 2.6 0.4 ↓ 0.4

Portugal 0.3 2.5 -2.8 1.7 1.7 1.2 -1.4 0.8 1.3 -0.1 -0.3 -0.6 ↓ -0.7 ↓ 0.4 -0.4 -0.7 ↓Spain 1.9 0.7 1.5 1.5 1.5 1.7 -1.2 1.1 1.6 0.0 0.2 -0.1 0.0 1.5 0.1 0.2

United Kingdom 3.2 2.7 3.3 2.6 2.7 2.9 1.7 3.0 2.7 1.8 1.8 1.6 1.6 2.6 1.7 1.9

Switzerland 0.5 0.6 1.8 1.8 1.8 1.8 2.0 1.7 1.7 -0.1 0.0 0.2 0.4 -0.2 0.1 0.5

Sweden 0.5 6.9 1.0 2.6 2.3 2.4 1.5 2.8 2.5 -0.1 0.4 0.5 1.1 -0.1 -0.2 1.6

Norway (mainland) 0.4 2.4 2.6 2.4 2.4 2.4 2.1 2.3 2.6 2.2 2.3 2.4 2.5 2.1 2.4 2.5

Denmark 0.3 -2.0 2.0 2.0 2.0 2.0 0.4 1.3 2.2 0.9 1.1 1.3 1.4 0.7 1.2 1.6EM Europe & Africa 7.1 3.6 -0.8 1.5 1.9 2.0 2.1 1.3 2.3 5.5 5.9 5.8 5.8 5.7 5.7 5.2

Poland 1.1 2.9 4.0 3.0 3.7 3.7 1.6 3.3 3.7 0.9 0.6 0.1 0.4 1.0 0.5 2.1Russia 3.4 3.4 -4.8 0.3 0.7 0.5 1.3 0.1 1.3 6.2 6.7 7.0 6.8 6.8 6.7 5.7Turkey 1.5 4.7 3.8 3.3 2.9 3.5 4.0 2.2 3.5 8.0 8.9 8.1 8.2 7.5 8.3 6.7Israel 0.4 2.9 2.1 1.9 2.3 2.3 3.2 2.4 2.4 1.3 0.9 0.8 1.1 1.6 1.0 2.0South Africa 0.8 3.8 -0.8 1.0 2.0 3.0 1.9 1.4 2.8 5.9 6.4 6.5 6.8 5.8 6.4 5.9

% over previous period, saar

Consumer prices

% annual change

Real GDP Real GDP

% annual change

Consumer prices

% over a year ago

30 May 2014 2

Barclays | Global Economics Weekly GLOBAL SYNTHESIS

A tale of two central banks The ECB meeting should be the markets’ main focus next week, along with US payrolls. We expect the ECB to cut rates and announce a new lending scheme, but we do not expect large-scale asset purchases to be announced at this meeting. Separately, we now expect the BOJ to remain on the sidelines for the rest of 2014, instead of easing in July.

ECB: Expect easing next week, but no QE The most important economic development next week should be the ECB meeting. We do not think the ECB will launch a large-scale asset purchase program (ie, QE) at this juncture. Instead, we expect a cut in the refi rate, to 0.10%, and a cut in the deposit rate, to -0.10% (see ECB comfortable about acting next month, 8 May 2014). These cuts could be accompanied by a targeted LTRO or a Funding for Lending Scheme (FLS) to address a credit crunch in stressed member states. ECB President Mario Draghi seemed to signal as much in a speech at the ECB Forum this week. He acknowledged that credit constraints were slowing the recovery in stressed states (bank lending figures to households and non-financial corporates remain very weak), adding to disinflationary pressures. Although Draghi noted that the ECB was ready for QE if inflation and/or expectations fell too far below projections, most of his speech was devoted to measures to alleviate credit concerns via targeted schemes.

Meanwhile, the EU election results were a mild positive for markets. While Euro-skeptic parties did post gains, these were mainly in bigger countries, including France and the UK. More important, in the stressed periphery, the Euro-skeptics did not have gains of a magnitude that could destabilize existing governments. Peripheral sovereign debt reacted positively to this news (Figure 1) and reversed the spike in bond yields seen in the run-up to the elections.

BOJ likely to stay on hold for the rest of 2014 Although we expect the ECB to move next week, we are changing our call on the BOJ. We now believe that the BOJ is unlikely to ease further in 2014; our prior call was for further easing at the July meeting. There are a few reasons for our change in view. First, the BOJ (particularly Governor Haruhiko Kuroda) continue to express strong confidence that the central bank will achieve its ‘2% in two years’ price stability target for CPI, set in April 2013. Second, the central

Ajay Rajadhyaksha

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We think the ECB will cut rates next week, but investors expecting QE are likely to be disappointed

FIGURE 1 Peripheral debt has rallied after the EU elections

FIGURE 2 US core inflation is now close to Fed year-end forecast

Source: Bloomberg, Barclays Research Source: Bloomberg, Barclays Research

5.5

6.0

6.5

7.0

2.5

3.0

3.5

4.0

4.5

1-Apr 11-Apr 21-Apr 1-May 11-May 21-May

Spain 10y yield, % (LHS) Portugal 10y yield, % (LHS)

Greece 10y yield, % (RHS)

1.4

1.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14

Core PCE, yoy, % Headline PCE, yoy, %

30 May 2014 3

https://live.barcap.com/go/publications/content?contentPubID=FC2035077

Barclays | Global Economics Weekly

bank seems to have become increasingly conscious of the costs and limits of QQE. It has recently decided to increase its legal reserves, to ‘maintain its financial soundness’. This suggests an awareness of the risks associated with eventually exiting QQE, a risk that will grow along with the BOJ’s balance sheet. In addition, the BOJ has repeatedly noted that the Japanese economy could reach the zero output gap quite soon, and that the government needs to unleash the ‘third arrow’ to push up the potential growth rate. The implication seems to be that further easing needs to be preceded by structural reforms by the government.

Although we have changed our view, we believe there are still economic arguments for the BOJ to ease further at the October MPM, should it wish to. For example, ‘upstream’ inflation in consumer goods prices has virtually disappeared, primarily because of the fading effects of JPY depreciation. And although Q1 GDP was much stronger than consensus, the strength of exports seems to be due to statistical procedures rather than true underlying momentum. Meanwhile, industrial production decreased 2.5% m/m in April, a little softer than consensus. Finally, the latest core CPI print was a little firmer than consensus, up 1.5% yoy after excluding VAT effects.

US: Calendar 2014 growth could be sub-2%, but hiking cycle still on track In the US, Q1 GDP was revised down to -1% on weaker inventories, the first quarterly contraction since 2011. But housing data over the past two weeks should alleviate Fed concerns, while labor market, consumption, and durable goods numbers point to a rebound in Q2. We do not expect the weather-related softness in Q1 to translate to a one-to-one increase in growth for the rest of the year. And unlike more bullish forecasts of the US economy, we do not believe that non-residential fixed investment spending will be much stronger because of lower regulatory/policy uncertainty; instead, our view consistently has been that capex should follow final demand (for details, see the US Outlook). Thus, calendar year growth expectations should come down for the rest of the year; we expect GDP growth of 1.9% for 2014.

This somewhat slower growth profile does not change our view on the Fed; we still expect the first hike in June 2015. The labor market continues to strengthen more quickly than Fed forecasts, even with GDP growth averaging 2-2.5% over the last several quarters. And after today’s inflation reports, the headline PCE price index is up 1.6% yoy, while core is up 1.4% (Figure 2), very close to the Fed’s year-end forecast of 1.5% yoy and a substantial jump from last month’s readings of 1.1% on headline and 1.2% on the core. Finally, Fed Presidents Dudley and Williams have both recently indicated that the Fed might not stop re-investing its portfolio run-off until after the first rate increase.

China: Further stimulus likely There was little data of note in China this week, though the sharper than expected property correction remains a major concern. Although last week’s flash PMI should ease fears of a sharp slowdown, Premier Li has recently highlighted that the economy faced downside risks. We expect policymakers to announce further supportive measures for the economy. Already, the Ministry of Finance has said it will accelerate this year’s (pre-budgeted) spending, and the Commerce Ministry has announced measures to support trade growth (including a tax rebate). We believe that the likelihood of further easing from the PBoC – probably in the form of expanded targeted credit expansion – is rising. Interest rate cuts or cuts in the RRR are also possible, though marked currency depreciation is unlikely to be among the measures used.

We now expect the BOJ to be on hold for the rest of the year

US GDP growth for calendar year 2014 is now likely to be below 2%

30 May 2014 4

Barclays | Global Economics Weekly GLOBAL RATES AND INFLATION Central Bank rates

Note: Rates as of COB 29 May 2014, Source: Barclays Research

Key CPI projections

Note: Shaded values indicate actual data. ‘R’ indicates revision to front-month forecast. Source: Barclays Research

Current date level Last move 2Q 14 3Q 14 4Q 14 1Q 15AdvancedFed funds rate 0-0.25 Easing: 17 Sep 07 5.25 Dec 08 (-75-100) Jun 15 0-0.25 0-0.25 0-0.25 0-0.25

BoJ overnight rate 0.10 Easing: 30 Oct 08 0.50 Oct 10 (0-10) H2 18 (+20) 0-0.10 0-0.10 0-0.10 0-0.10

ECB main refinancing rate 0.25 Easing: 3 Nov 11 1.50 Nov 13 (-25) Jun 14 (-15) 0.10 0.10 0.10 0.10

ECB deposit facility rate 0.00 Easing: 3 Nov 11 0.75 Jul 13 (-25) Jun 14 (-10) -0.10 -0.10 -0.10 -0.10

BOE bank rate 0.50 Easing: 6 Dec 07 5.75 Mar 09 (-50) Q2 15 (+25) 0.50 0.50 0.50 0.50

RBA cash rate 2.50 Easing: 1 Nov 11 4.75 Aug 13 (-25) Q1 15 (+25) 2.50 2.50 2.50 2.75

RBNZ cash rate 3.00 Tightening: 24 Apr 14 2.50 Apr 14 (+25) Jun 14 (+25) 3.25 3.50 3.75 4.00

Swiss National Bank 0-0.25 Easing: 8 Oct 08 2.75 Aug 11 (-25) Beyond Q4 15 0.25 0.25 0.25 0.25

Norges Bank 1.50 Easing: 14 Dec 11 2.25 Mar 12 (-25) Q1 15 (+25) 1.50 1.50 1.50 1.75

Riksbank 0.75 Easing: 20 Dec 11 2.00 Dec 13 (-25) Apr 14 (-25) 0.50 0.50 0.50 0.75

Bank of Canada 1.00 Tightening: 1 Jun 10 0.25 Sep 10 (+25) Q1 15 (+25) 1.00 1.00 1.00 1.25

Emerging China: 1y bench. lending rate 6.00 Easing: 7 Jun 12 6.56 Jul 12 (-31) Beyond Q4 14 6.00 6.00 6.00 6.00

Indonesia: O/N policy rate 7.50 Tightening: 13 Jun 13 5.75 Nov 13 (+25) Q1 15 (-25) 7.50 7.50 7.50 7.25

India: Repo rate 8.00 Tightening: 20 Sep 13 7.25 Jan 14 (+25) Q3 14 (-25) 8.00 7.75 7.50 7.50

Korea: Base rate 2.50 Easing: 12 Jul 12 3.25 May 13 (-25) Q3 14 (+25) 2.50 2.75 2.75 3.00

Poland: 2w repo rate 2.50 Easing: 7 Nov 12 4.75 Jul 13 (-25) Beyond Q1 15 2.50 2.50 2.50 2.50Russia: One-week repo rate 7.50 Tightening: 13 Sep 12 5.25 Apr 14 (+50) Q1 15 (-50) 7.50 7.50 7.50 6.50South Africa: Repo rate 5.50 Tightening: 29 Jan 14 5.00 Jan 14 (+50) May 14 (+50) 6.00 6.50 6.50 6.50

Turkey: 1wk repo rate 10.00 Tightening: 28 Jan 14 4.50 Jan 14 (+550) Beyond Q1 15 10.00 10.00 10.00 10.00

Brazil: SELIC rate 11.00 Tightening: 17 Apr 13 7.25 Mar 14 (+25) Jan 15 (+25) 11.00 11.00 11.00 12.00

Chile: Monetary policy rate 4.00 Easing: 12 Jan 12 5.25 Mar 14 (-25) Beyond 2015 4.00 4.00 4.00 4.00

Mexico: Overnight rate 3.50 Easing: 16 Jan 09 8.25 Oct 13 (-25) Q1 15 (+25) 3.50 3.50 3.50 3.75

Start of cycleOfficial rate% per annum (unless stated)

Next moveexpected

Forecasts as at end of

HICPnsa y/y nsa y/y y/y nsa y/y y/y nsa y/y nsa y/y nsa y/y

Jan-14 233.9 1.6 252.6 2.8 1.9 115.93 0.7 0.8 125.04 0.5 311.39 -0.2 100.4 1.2Feb-14 234.8 1.1 254.2 2.7 1.7 116.28 0.6 0.7 125.71 0.8 312.70 -0.2 100.5 1.3Mar-14 236.3 1.5 254.8 2.5 1.6 117.39 0.4 0.5 126.29 0.5 312.68 -0.6 100.8 1.4Apr-14 237.1 2.0 255.7 2.5 1.8 117.57 0.6 0.7 126.24 0.6 312.90 -0.4 103.0 3.1May-14 237.5 2.0 256.5 2.6 1.7 117.56 0.5 0.6 126.26 0.6 313.43 -0.4 103.5 3.5Jun-14 237.9 1.9 256.4 2.7 1.8 117.72 0.6 0.6 126.54 0.6 313.33 -0.2 103.3 3.3Jul-14 238.2 2.0 255.8 2.4 1.6 116.86 0.4 0.5 126.15 0.6 312.56 -0.3 103.3 3.2Aug-14 238.6 2.0 257.1 2.4 1.6 116.99 0.4 0.5 126.66 0.6 313.21 -0.2 103.7 3.3Sep-14 239.1 2.1 258.5 2.6 1.7 117.56 0.4 0.4 126.12 0.4 314.43 -0.2 103.8 3.3Oct-14 238.8 2.3 258.1 2.5 1.6 117.66 0.6 0.6 126.24 0.6 314.86 0.1 103.9 3.1Nov-14 238.7 2.4 258.4 2.5 1.6 117.60 0.6 0.7 126.19 0.6 314.95 0.2 104.0 3.3Dec-14 238.7 2.4 259.8 2.5 1.7 117.94 0.6 0.6 126.54 0.6 315.86 0.3 104.0 3.4Jan-15 239.4 2.4 258.8 2.5 1.6 116.59 0.6 0.6 125.43 0.3 313.51 0.7 103.9 3.5Feb-15 240.2 2.3 260.6 2.5 1.7 116.94 0.6 0.6 126.12 0.3 315.05 0.8 104.1 3.6Mar-15 240.9 2.0 261.4 2.6 1.8 118.30 0.8 0.8 126.78 0.4 315.80 1.0 104.4 3.6Apr-15 241.9 2.1 262.5 2.7 1.9 118.57 0.9 0.9 126.79 0.4 316.47 1.1 104.5 1.5May-15 242.3 2.0 263.2 2.6 1.8 118.61 0.9 0.9 126.88 0.5 317.33 1.2 105.1 1.5Jun-15 242.9 2.1 263.6 2.8 1.9 118.75 0.9 0.9 127.17 0.5 317.65 1.4 104.8 1.5Jul-15 243.1 2.1 262.7 2.7 1.7 117.92 0.9 1.0 126.84 0.5 317.41 1.6 105.0 1.6Aug-15 243.6 2.1 264.1 2.7 1.7 118.06 0.9 1.0 127.23 0.5 318.73 1.8 105.4 1.6Sep-15 244.1 2.1 265.8 2.8 1.8 118.69 1.0 1.0 126.74 0.5 320.67 2.0 105.5 1.6Oct-15 243.9 2.1 265.7 2.9 1.9 118.83 1.0 1.0 126.92 0.5 321.89 2.2 107.0 3.0Nov-15 243.9 2.2 265.8 2.9 1.8 118.80 1.0 1.1 126.93 0.6 322.42 2.4 107.1 3.0Dec-15 244.0 2.2 267.7 3.1 1.9 119.15 1.0 1.1 127.33 0.6 323.84 2.5 107.1 3.02012 2.1 3.2 2.8 2.4 2.5 1.9 0.9 -0.12013 1.5 3.0 2.6 1.3 1.4 0.7 -0.1 0.42014 1.9 2.7 1.7 0.5 0.6 0.6 -0.2 2.82015 2.1 2.8 1.9 0.9 0.9 0.5 1.6 2.4

USCPI HICPxRPI CPI

UK Euro areaCPI ex tobacco

JapanCPI CPI ex perishables

France Sweden

30 May 2014 5

Barclays | Global Economics Weekly OUTLOOK: UNITED STATES

Expect only a moderate rebound from Q1 weakness • US real GDP growth was revised lower to -1.0% in Q1 on less inventory accumulation

and a stronger drag from net trade, while consumption remained solid.

• We expect growth to rebound to 3.0% in Q2, led by rebounds in goods consumption and private investment.

• We remain skeptical of acceleration in the growth of business investment as the catalyst for faster output growth; history tells us it is the other way around.

The second estimate of Q1 US GDP growth was revised lower to -1.0, primarily on less inventory growth and weaker trade (Figure 1). Inventories are now estimated to have subtracted 1.6pp from growth, versus -0.6pp as previously reported. Imports grew 0.7% in the quarter in the second estimate, versus a 1.4% drop in the advance estimate, meaning net trade subtracted 1pp from growth. Elsewhere, other changes were largely offsetting, with minor upward revisions to consumption (to 3.1% from 3.0%), business investment, and residential investment balanced by weaker government spending. Overall, the revisions to Q1 GDP growth show economic activity contracting in the quarter and, in our view, mainly reflect the effects of adverse weather.

Growth to rebound before moderating later this year We continue to expect a moderate rebound in growth in the second quarter as activity shifts out of Q1 and into Q2. Consumer spending is likely to remain robust as softness in goods consumption is reversed. Goods consumption grew at a modest 0.7% pace (q/q saar) in Q1, well below its rate in previous quarters (Figure 2). In our forecast, the rebound in goods consumption offsets a slowing in services consumption, leaving overall personal consumption expenditures up 3.0%. Spending on services was boosted by utilities expenditures due to the cold weather and the surge of applicants under the Affordable Care Act, which led health care expenditures to rise at a 9.1% annualized pace in Q1, the strongest reading since 1980. In addition, as we wrote last week (US housing shows resilience, 23 May 2014), the bulk of the incoming data on housing shows the sector

Michael Gapen

+1 212 526 8536 [email protected]

FIGURE 1 Inventory accumulation and trade weighed on growth

FIGURE 2 We expect personal consumption of goods to rebound

Source: BEA, Haver Analytics, Barclays Research Source: BEA, Haver Analytics, Barclays Research

The economy contracted in Q1… …driven by less inventory accumulation and weak export growth

Economic activity is set to rebound in Q2 on stronger goods consumption and private investment

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30 May 2014 6




remaining in a recovery phase, although it appears to be rebounding more slowly than non-housing activity. Finally, we believe business investment in the first quarter was depressed, in part, by the expiration of the bonus depreciation at the end of the year, which likely brought forward some investment that would otherwise have taken place early this year. We look for business investment to rebound in line with residential investment.

That said, we are not looking for the entire Q1 shortfall in growth, versus our 2.5% forecast at the beginning of the year, to materialize in the second quarter. While it is reasonable to expect much of lost goods consumption and production to be simply postponed, the same cannot be said for services, where some activity is likely lost and unlikely to be recovered. Instead, our forecast calls for growth to rebound to 3.0% in Q2, only partially recovering the activity shortfall in Q1, and then for growth to moderate to a 2.5% annualized rate in the second half of the year. Our below-consensus forecast for second-half growth is based in part on our skepticism that a long-awaited surge in capex spending will materialize this year. As a result, the weak Q1 growth outturn, together with our expectation that business investment spending will remain moderate, leaves our forecast for calendar year average real GDP growth in 2014 at 1.9%, the same as in 2013.

Business investment will not accelerate unless the economy does Many analysts have been expecting business investment to accelerate and lead to a commensurate strengthening in real GDP growth. However, we believe it is unlikely that business investment will be the catalyst for a stronger US growth outlook. In forming this view, we point to history, which suggests a strong relationship between the growth of business sector output and the growth of investment spending (Figure 3). Furthermore, Figure 4 shows a similarly strong link between the change in the growth rate of business sector output and the change in the growth rate of business investment. In other words, there is a clear relationship between the change in net investment and any acceleration in business output.1 The accelerator model of investment explains these relationships by asserting that investment spending responds to fluctuations in business output, more than vice versa, and we believe this accurately describes the relationship. This suggests that business investment is likely to follow economic activity and that any acceleration in investment is unlikely to materialize unless the rest of the economy is accelerating.

1 See Perspectives on the Recent Weakness in Investment by Eugenio Pinto and Stacey Tevlin of the Federal Reserve.

We do not expect the entire shortfall in growth relative to forecast to be recovered… … leading to slower growth on a calendar year average

FIGURE 3 There is a strong relationship between the annual rate of change in business output and investment

FIGURE 4 There is also a strong relationship between the change in net investment and the acceleration in business output

Source: BEA, Haver Analytics, Barclays Research Note: Difference in the annual rate of change is in Figure 3.

Source: BEA, Haver Analytics, Barclays Research

History suggests that business investment responds to a stronger economy, not the other way around

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30 May 2014 7

http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/perspectives-on-the-recent-weakness-in-investments-20140521.html

Barclays | Global Economics Weekly GDP TRACKING: UNITED STATES

Q1 GDP tracking -1.0%; Q2 tracking 2.8% The second release of Q1 GDP printed softer than expected, with a 1.7pp drag from inventory accumulation resulting in headline GDP growth of -1.0%. The underlying trend was more encouraging, however, and Q2 appears poised for a strong rebound.

• Beyond inventories, nonresidential investment was a soft spot in Q1, as structures, equipment, and residential investment each provided a 0.2pp drag. We expect these contributions to be largely reversed in Q2, however.

• While durable goods orders surprised to the upside by rising 0.8% m/m in April, core capital goods shipments were a bit softer than expected. On balance, this left our tracking estimate for Q2 unchanged at 3.1%.

• Real personal spending fell 0.3% m/m in April, a downside surprise relative to our expectations. This suggests Q2 consumption is off to a slower start than we had expected and so we have lowered our GDP tracking estimate three-tenths to 2.8%.

Cooper Howes

+1 212 526 3099

[email protected]

FIGURE 1 GDP tracking*

Release date Indicator Period Q1 tracking

Q2 tracking

13-May Business inventories Mar -0.6 3.0 15-May CPI Mar -0.6 3.0 15-May Industrial production Mar -0.6 2.9 16-May Housing Starts Apr -0.6 3.1 27-May Durable goods orders Mar -0.6 3.1 29-May GDP Mar -1.0 3.1 30-May Personal spending Mar -1.0 2.8 2-Jun Construction spending Apr 3-Jun Factory orders Mar 4-Jun Trade Apr

Source: Barclays Research

FIGURE 2 GDP growth contributions

FIGURE 3 Inventory accumulation slowed sharply in Q1

Q1 – 2nd estimate Q2 tracking

% q/q (saar)

Cont. (pp)

% q/q (saar)

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Real GDP -1.0 2.8

Consumption 3.1 2.1 2.8 1.9 Govt. spending -0.8 -0.1 -1.0 -0.2 Res. investment -5.1 -0.2 7.6 0.2 Equip. investment -3.1 -0.2 3.8 0.2 Structures -7.5 -0.2 7.5 0.2 Net exports, $bn -418.9 -0.9 -419.2 0.0 Ch inventories, $bn 49.0 -1.7 56.7 0.2

Source: BEA, Barclays Research Source: BEA, Barclays Research

Note: *Our GDP tracking estimate is distinct from our published GDP forecast. It reflects the mechanical aggregation of monthly activity data that directly feed into the BEA’s GDP calculation.

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30 May 2014 8

Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: UNITED STATES Dean Maki, Michael Gapen, Cooper Howes

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments

Durable goods orders, % m/m Apr 3.6 R -4.3 0.8 Upside surprise driven by aircraft

Durable goods ex transportation, % m/m Apr 2.9 R -0.7 0.1 Core capital goods shipments fell 0.4% m/m

FHFA purchase-only HPI, % m/m (y/y) Mar 0.6 (6.9) 0.4 (6.0) 0.7 (6.5) Strongest gain in New Englandregion

S&P/Case-Shiller 20-city HPI, %m/m (y/y) Mar 0.8 R (12.9) 0.9 (12.0) 1.2 (12.4) All 20 cities increased on a y/y basis

Consumer confidence index May 81.7 R 83.0 83.0 In line with our forecast

Real GDP, % q/q saar Q1 2nd 0.1 -0.6 -1.0 Driven by softer inventory accumulation

Real consumer spending, % q/q saar Q1 2nd 3.0 3.1 3.1 Solid despite contraction in real GDP

Pending home sales, % m/m Apr 3.4 2.0 0.4 Second consecutive monthly increase

Personal income, % m/m Apr 0.5 0.5 0.3 Real disposable income rose 0.2% m/m

Personal spending, % m/m Apr 1.0 R 0.0 -0.1 Real personal spending fell 0.3% m/m

PCE price index, % m/m (y/y) Apr 0.2 (1.1) 0.2 (1.6) 0.2 (1.6) Boosted by rises in food and energy

Core PCE price index, % m/m (y/y) Apr 0.2 (1.2) 0.2 (1.4) 0.2 (1.4) Strongest y/y increase since last February

Preview of the next week

Monday 02 June Period Prev 3 Prev 2 Prev 1 Forecast Consensus

03:00 Chicago Fed President Evans (FOMC non-voter) speaks in Istanbul

09:45 Markit PMI-f, index May 55.5 55.4 56.2 P - -

10:00 ISM manufacturing index May 53.2 53.7 54.9 55.5 55.5

10:00 Construction spending, % m/m Apr -0.4 -0.2 0.2 0.5 0.7

ISM manufacturing: We look for a print of 55.5 in the manufacturing ISM in May, which would be a slight improvement from the April reading of 54.9. The signals from last month’s report do not suggest a substantial shift in the pace of activity growth; the ISM new orders index was unchanged at 55.1, and while the production index was down slightly, the employment index rebounded to its strongest level in 2014. In addition, while the Empire State index climbed sharply, the Philadelphia Fed index showed a modest decline. While all of these indicators suggest that the solid pace of manufacturing activity growth continued in May, it does not appear to be picking up significantly.

Construction spending: We expect that construction spending rose 0.5% m/m in April. Our forecast includes a 1.1% increase in residential construction spending driven by the jump in housing starts on the month, but this is offset somewhat by a 0.5% drag in public construction, which would mark the sixth consecutive monthly decline.

Tuesday 03 June Period Prev 3 Prev 2 Prev 1 Forecast Consensus

- Vehicle sales, mn saar May 15.3 16.3 16.0 16.3 16.0

10:00 Factory orders, %m/m Apr -1.6 1.7 0.9 0.8 0.5

13:50 Kansas City Fed President George (FOMC non-voter) speaks in Colorado

Factory orders: Durable goods orders rose by 0.8% m/m in April, and when combined with our forecast of a 0.9% m/m gain in nondurable orders, we look for a 0.8% increase in factory orders. Nondurable orders and inventories both declined last month, suggesting a rebound in April. We will also be paying close attention to any revisions to April core capital goods orders and shipments from the durable goods report, which initially reported m/m growth rates of -1.2% and -0.4%, respectively.

Wednesday 04 June Period Prev 3 Prev 2 Prev 1 Forecast Consensus

08:15 ADP private payrolls, chg, thous May 193 209 220 - 218

08:30 Trade balance, $ bn Apr -39.3 -41.9 -40.4 -40.1 -41.0

08:30 Non-farm productivity-f, % q/q Q1 3.5 2.3 -1.7 -3.1 -2.3

08:30 Unit labor cost-f, % q/q Q1 -2.1 -0.4 4.2 5.5 4.8

10:00 ISM non-manufacturing index May 51.6 53.1 55.2 56.0 55.5

14:00 Fed Beige Book report released

30 May 2014 9

Barclays | Global Economics Weekly Trade balance: We project a modest narrowing in the April trade balance to $40.1bn in April. While inbound and outbound container traffic rose on the month, the outbound component did so at a slightly faster pace, suggesting exports grew faster than imports. In addition, our projection reflects improvements in the new export orders component in the manufacturing and nonmanufacturing ISM surveys.

Productivity and ULC: We look for a downward revision to Q1 productivity growth (as measured by growth in nonfarm business output per hour) in the final estimate to -3.1% after an initial estimate of -1.7%. This would reflect downward revisions to Q1 nonfarm business output in the second Q1 GDP release. We also expect that growth unit labor costs, which is a reflection of how much faster compensation is growing than productivity, will be revised higher to 5.5% from its initial estimate of 4.2%. On a y/y basis, this would leave productivity up 1.1% and unit labor costs up 1.2%.

ISM nonmanufacturing: We look for a pickup to 56.0 in the May nonmanufacturing ISM after a print of 55.2 in April. Underlying this forecast is the new orders index, which jumped sharply to 58.2 from 53.4 last month and stands at its highest level since late last year. An improvement to 56.0 would also be in line with the recent strength in service sector employment growth, which has averaged 158k per month during the past six months.

Thursday 05 June Period Prev 3 Prev 2 Prev 1 Forecast Consensus

08:30 Initial jobless claims, thous (4wma) 31-May 298 (324) 327 (323) 300 (312) 315 (310) 315

13:30 Minneapolis Fed President Kocherlakota (FOMC voter) speaks in Massachusetts

Friday 06 June Period Prev 3 Prev 2 Prev 1 Forecast Consensus

08:30 Non-farm payrolls, chg, thous May 222 203 288 225 218

08:30 Private non-farm payrolls, chg, thous May 201 202 273 225 213

08:30 Unemployment rate, % May 6.7 6.7 6.3 6.3 6.4

08:30 Average hourly earnings, % m/m (y/y) May 0.3 (2.1) 0.1 (2.1) 0.0 (1.9) 0.2 0.2

08:30 Average weekly hours May 34.3 34.5 34.5 34.5 34.5

15:00 Consumer credit, chg, $ bn Apr 13.4' 13.0 17.5 15.0 16.5

Employment report: We forecast payroll employment to rise by 225k in May, a less robust gain than the 288k increase in April but slightly faster than the average gain of 197k over the past year. We look for a 225k increase in private sector payrolls, with government payrolls unchanged. We perceive the signals from the labor market as a bit more mixed this month than in April. Initial jobless claims have drifted up a bit since the April survey week, while continuing jobless claims are still trending down. The number of people working part-time for economic reasons has edged up over the past few months, but the employment diffusion index points to a broadening in job growth across sectors. Overall, we view the evidence as consistent with a solid payroll gain, though not as rapid as in April. We look for the unemployment rate to stay unchanged at 6.3% in May; although there may be some increase in the labor force participation rate after last month’s 0.4pp drop, we expect the solid pace of job growth to absorb re-entrants and leave the unemployment rate unchanged. Elsewhere in the report, we look for a 0.2% rise in average hourly earnings and an unchanged work week of 34.5 hours.

Consumer credit: We look for a $15.0bn rise in total consumer credit outstanding in April. Within this, we expect a $13.0bn increase in the nonrevolving component and a more modest $2.0bn gain in the revolving component. Both of these would be in line with their trends in recent years, with federal student loans continuing to drive overall credit growth.

30 May 2014 10

Barclays | Global Economics Weekly OUTLOOK: EURO AREA

High expectations for June ECB policy meeting • Market expectations are running high following ECB President Draghi’s remarks on

8 May that the ECB is comfortable acting in June.

• We think the ECB will ease monetary policy on Thursday 5 June by cutting interest rates and announcing further liquidity measures to ease bank credit constraints.

• The EU elections brought mostly good news for governments in the economically stressed member states but a surge of anti-EU sentiment in France and the UK.

The EU elections on 25 May brought good and bad news: anti-EU parties did not score highly enough in any of the economically stressed euro area member states to destabilize the current national governments, which remain, by-and-large, committed to policies and reforms required for a better functioning of monetary and economic union. Especially in Italy, Prime Minister Matteo Renzi received strong support from the electorate and financial markets reacted with relief.

In France and the UK, however, anti-EU parties gained significantly and the French Front National and British UKIP came out on top. Although EU elections often serve to signal discontent with incumbent national governments and their policies, these results also underline growing scepticism among the electorate for further EU integration, or even outright rejection of EU membership, especially in the UK.

In terms of EU governance, we do not expect much change in the work of the EU parliament, which has come to play a significant role over the past few years in EU financial sector regulation. The mainstream pro-EU parties may be forced to cooperate more than in the past but the anti-EU delegates are not going to be in a position to obstruct the work of the parliament (see EU elections: Eurosceptic shockwave opens battle for top EU positions, 27 May 2014).

ECB President Draghi highlighted the risk of a vicious circle of low inflation, falling inflation expectations and credit constraints for the euro area, in his remarks at the ECB Forum on Central Banking in Portugal. He noted that credit constraints appear to be putting a brake on the recovery in stressed member states, adding to disinflationary pressures which, if they become engrained in disinflationary expectations, could cause households and firms to

Thomas Harjes


FIGURE 1 Inflation expectations (market-based)

FIGURE 2 Euro area M1, M3 and adjusted MFI loans to private sector

Source: Barclays Research Source: ECB, Barclays Research

EU elections bring good and bad news

Anti-EU parties surge in France and the UK… …but should have limited impact on parliamentary decisions ECB’s Draghi highlights credit constraints and risk of negative spiral

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defer expenditure in a classic deflationary cycle. He repeated that the ECB was not resigned to allowing inflation to remain too low for too long and added that any destabilization of inflation expectations would call for pre-emptive action.

Long-term inflation expectations (for example measured by the HICPx 5y5y swap rate minus a small premium for inflation volatility) are still close to the “below but close to” 2% target, even after an inflation risk premium of about 20bp is subtracted, but they remain on a downward trend. At the same time, markets do not see inflation rising back to target even over the policy-relevant horizon of two-to-four years, and the HICPx 2y2y swap rate continues to trade in the 1.2-1.4% bracket since March (Figure 1). But the latest wage tariff agreements in Germany and other member states do not yet indicate that lower inflation expectations are becoming ingrained.

We do not think that the ECB is about to launch a large-scale asset purchase programme (or QE) at this juncture, although some downward revision of its inflation forecast, especially for the near term, is likely in June. However, President Draghi might provide more detail soon about what such a programme could look like.

We have pointed out for some time the mounting bank credit crunch in the periphery apparent, in our view, in the continued weak lending volumes despite much better loan demand revealed by the latest lending surveys. The April money and bank lending figures for the euro area showed again a very soft M3 number (Figure 2), mainly reflecting significant sales of private sector securities other than shares (mainly corporate bonds) by banks. This was offset to some extent by increased bank lending to so-called non-monetary financial intermediaries (financial vehicles created to be holders of securitised assets, and financial leasing and holding corporations, etc.).

Other lending to the private sector remains subdued (Figure 3). Even though annual growth became less negative, rising from -3.0% in March to -2.8% in April, the net flow of loans to non-financial corporations (NFCs) stayed negative (-EUR7bn). Moreover, most of this improvement came from Germany, France and the Netherlands, while dynamics in the stressed economies remained very weak (Figure 4).

Therefore, we continue to believe that the ECB will probably announce some credit easing measures together with a 15bp cut in the refi rate to 0.10% and a cut in the deposit rate to -0.10% at the next policy meeting on 5 June. ECB credit easing could come as a Funding for Lending Scheme (effectively subsidizing loans), or very-long term liquidity operations for SME loans that also reduce the risk of bank asset/liability maturity mismatch.

Market-based long-term inflation expectations lower… … and have not been destabilized at this stage

Soft M3 and bank lending figures for the euro area

Credit crunch mounting in stressed member states

ECB interest rate cuts and credit easing measures likely on 5 June

FIGURE 3 Consolidated euro area bank loan growth by component

FIGURE 4 Bank loan growth to NFCs for selected member states

Source: ECB (data adjusted for sales and securitizations). Barclays Research. Source: ECB (data adjusted for sales and securitizations). Barclays Research.

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30 May 2014 12

Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: EURO AREA Apolline Menut, Francois Cabau, Fabio Fois, Antonio Garcia Pascual, Philippe Gudin, Thomas Harjes, Fabrice Montagne



France: Hhsld consum. goods, % m/m (y/y) Apr 0.6 (-1.1) R 0.5 (0.3) -0.3 (-0.5) Household consumption: soft start in Q2

Germany: Unemployment change (000s, sa); (rate, %) May -25.0 (6.7) -10.0 (6.7) 24.0 (6.7) Labour market softer in May

E18: M3, % m/m (y/y) Apr -0.3 (1.0 R) 0.3 (1.2) 0.0 (0.8) Bank lending to the non-financial sector still weak, M3 money growth in freefall

Spain: Preliminary HICP, % y/y May 0.3 0.2 0.2 After Italy and Spain, euro area 'flash' May inflation still expected to be 0.6% y/y Italy: Preliminary HICP, % m/m (y/y) May 0.5 R (0.5) -0.1 (0.4) -0.1 (0.4)

Preview of the week ahead

Monday 2 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

10:30 E18: ECB Executive Board member Mersch speaks on 'A new motto for European Union' in Amsterdam

11:45 E18: SRM Chair Nouy participates in panel discussion at IMF Conference 2014 in Munich

- Italy: Budget, year-to-date, € bn May -12.8 -18.4 -10.1 - -

- Germany: Baden-Wuerttemberg CPI, % m/m (y/y) May 0.5 (1.1) 0.2 (1.0) 0.0 (1.4) 0.1 (1.0) -

- Germany: Bavaria CPI, % m/m (y/y) May 0.5 (0.9) 0.3 (0.9) -0.2 (1.0) 0.1 (0.7) -

- Germany: Hesse CPI, % m/m (y/y) May 0.4 (1.0) 0.3 (1.0) -0.2 (1.3) 0.1 (0.9) -

- Germany: North Rhine Westphalia CPI, % m/m (y/y) May 0.5 (1.6) 0.3 (1.4) -0.1 (1.7) 0.1 (1.4) -

- Germany: Brandenburg CPI, % m/m (y/y) May 0.4 (1.2) 0.2 (1.0) -0.1 (1.3) 0.1 (1.0) -

- Germany: Saxony CPI, % m/m (y/y) May 0.3 (1.2) 0.3 (0.9) -0.1 (1.3) 0.1 (0.9) -

- Germany: Preliminary CPI, % m/m (y/y) May 0.5 (1.2) 0.3 (1.0) -0.2 (1.3) 0.1 (1.0) 0.2 (1.1)

- Germany: Preliminary HICP, % m/m (y/y) May 0.5 (1.0) 0.3 (0.9) -0.3 (1.1) 0.0 (0.9) 0.1 (1.0)

06:30 Sweden: Manufacturing PMI, index May 54.6 56.5 55.5 - -

07:13 Spain: Manufacturing PMI, index May 52.5 52.8 52.7 53.2 53.0

07:30 Swi: Manufacturing PMI, index May 57.6 54.4 55.8 - 55.5

07:43 Italy: Manufacturing PMI, index May 52.3 52.4 54.0 53.6 53.6

07:48 France: Final manufacturing PMI, index May 52.1 51.2 49.3 P 49.3 49.3

07:53 Germany: Final manufacturing PMI, index May 53.7 54.1 52.9 P 52.9 52.9

07:58 E18: Final manufacturing PMI, index May 53.0 53.4 52.5 P 52.5 52.5

16:00 Italy: New car registrations, % y/y May 8.9 5.3 1.9 - -

Germany – Flash Inflation: We project German “flash” HICP inflation to drop 0.2pp to 0.9% y/y in May, owing to a combination of weak food and services prices, more than offsetting a timid rebound in energy prices.

Tuesday 3 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

04:58 Ireland: Manufacturing PMI, index May 52.9 55.5 56.1 56.0 -

08:00 Norway: Registered unemployment rate, % May 2.9 2.9 2.8 2.6 2.6

08:00 Italy: Unemployment rate, % Apr 12.7 12.7 12.7 - 12.8

09:00 E18: Unemployment rate, % Apr 11.8 11.8 11.8 11.8 11.8

09:00 E18: "Flash" HICP, % y/y May 0.8 0.5 0.7 0.6 0.7

09:00 E18: 'Eurostat' core (HICP x fd, alc, tob, ene), % y/y May 1.0 0.7 1.0 0.8 0.8

13:00 Belgium: Final GDP, % q/q Q1 0.3 0.3 0.4 P 0.4 -

Euro area – Flash Inflation: We look for euro area “flash” May HICP headline to decline 0.1pp to 0.6% y/y. In the meantime, we project core inflation to edge down 0.2pp to 0.8% y/y. The latter should be overwhelmingly due to services prices (-0.3pp to 1.3% y/y), while non-energy industrial goods inflation should stay broadly unchanged at 0.1% y/y. On the volatile price front, we project food, alcohol and tobacco prices to drop 0.5pp to 0.2% y/y. This move should be broadly offset by a rebound in energy prices (+1.2pp to 0.0% y/y). At two decimal places, we look for the headline index to be consistent with a 0.60% y/y print.

30 May 2014 13

Barclays | Global Economics Weekly Wednesday 4 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

- Slovakia: GDP, % q/q (to 5/06) Q1 0.3 0.4 0.6 P - -

07:13 Spain: Services PMI, index May 53.7 54.0 56.5 56.0 56.0

07:30 Sweden: Service production, % m/m (y/y) Apr 1.9 (1.5) 0.7 (2.4) -0.2 (2.6) - -

07:30 Sweden: Industrial production, % m/m (y/y) Apr -1.7 (-1.4) 2.0 (1.2) -3.7 (-4.5) - -

07:43 Italy: Services PMI, index May 52.9 49.5 51.1 50.5 51.4

07:48 France: Final services PMI, index May 51.5 50.4 49.2 P 49.2 49.2

07:53 Germany: Final services PMI, index May 53.0 54.7 56.4 P 56.4 56.4

07:58 E18: Final services PMI, index May 52.2 53.1 53.5 P 53.5 53.5

07:58 E18: Final composite PMI, index May 53.1 54.0 53.9 P 53.9 53.9

09:00 E18: PPI, % m/m (y/y) Apr -0.3 (-1.3) -0.2 (-1.7) -0.2 (-1.6) - -0.1 (-1.2)

09:00 E18: Final GDP, % q/q Q1 0.1 0.2 0.2 P 0.2 0.2

15:30 Ireland: Exchequer balance, € bn May -1.7 -2.3 -4.8 - -

Euro area – Final GDP: We look for disappointing Q1 14 euro area GDP to be confirmed at +0.2% q/q. We expect growth to have been supported by inventories and domestic demand (positive contributions from investment and consumption), while net trade contributed negatively due to rising imports and weaker exports.

Thursday 5 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

06:00 E18: SRM Chair Nouy participates in a conference organised by Financial Supervisory Authority in Helsinki

11:45 E18: ECB Interest rate announcement, % Jun 0.25 0.25 0.25 0.10 0.10

12:30 E18: ECB Press conference

04:58 Ireland: Services PMI, index May 57.5 60.7 61.9 61.5 -

05:30 France: ILO Unemployment rate Q1 10.3 10.3 10.2 - 10.4

06:00 Germany: Factory orders, % m/m (y/y) Apr 0.0 (7.0) 0.9 (6.5) -2.8 (1.5) 1.5 (4.7) 1.4 (4.7)

06:00 Finland: GDP, % q/q Q1 0.0 0.0 -0.3 -0.4 -

06:30 Sweden: Services PMI, index May 56.8 53.6 57.8 - -

09:00 Greece: Unemployment rate, % Mar 27.2 26.6 26.5 - -

09:00 E18: Retail sales, % m/m (y/y) Apr 1.0 (0.8) 0.1 (1.0) 0.3 (0.9) - 0.0 (1.1)

10:00 Ireland: Unemployment rate, % May 11.9 11.8 11.7 - -

Euro area – Interest rate: We forecast a 15bp cut in the refi rate to 0.10% and a cut in the deposit rate to -0.10% at the next policy meeting on 5 June.

Germany – Factory orders: We expect some rebound in factory orders after the weak showing in March given the robust readings for order intake in the April business surveys.

Friday 6 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

09:00 E18: ECB Executive Board member Constancio speaks at 2014 IIF Spring Membership in London

06:00 Germany: Industrial production, % m/m (y/y) Apr 0.4 (4.9) 0.6 (4.7) -0.5 (3.0) 0.5 (2.9) 0.3 (2.7)

06:00 Germany: Trade balance sa, € bn Apr 15.0 16.2 16.4 - 15.1

06:45 France: Budget, year-to date, € bn Apr -12.7 -25.7 -28.0 - -

06:45 France: Trade balance, € bn Apr -5.7 -3.8 -4.9 - -5.0

07:15 Swi: CPI, % m/m (y/y) May 0.1 (-0.1) 0.4 (0.0) 0.1 (0.0) - 0.2 (0.1)

08:00 Norway: Manufacturing production, % m/m (y/y) Apr -0.4 (2.8) 0.4 (2.1) 0.8 (3.7) - -

09:00 Cyprus: Final GDP, % q/q Q1 -0.9 -0.8 -0.7 P - -

09:00 Greece: Final GDP, % y/y Q1 -3.2 -2.2 -1.1 P - -

Germany – IP: We see a moderate expansion of industrial activity especially in the vehicle industry.

30 May 2014 14

Barclays | Global Economics Weekly OUTLOOK: UNITED KINGDOM

Anemic FLS lending, but consumer confidence surges • Q1 data suggest that the refocusing of the FLS scheme toward SMEs’ funding has yet

to deliver.

• Credit remains subdued for SMEs, despite an improvement in overall availability of and demand for credit for private non-financial corporations.

• Higher consumer confidence, coupled with improvements in the economic outlook, bodes well for household consumption in Q2.

Usage and lending data for the Funding for Lending (FLS) Extension showed that net lending significantly decreased in Q1 14 relative to previous quarters. After healthy readings during H2 13, Q1 data are somewhat disappointing (Figure 1). Participants drew £2.0bn under the scheme, bringing the cumulative drawdown to date to £43.3bn. Net lending by participants was -£2.7bn, and mainly attributable to negative net lending to large companies. Lending to SMEs also declined, coming in at -£0.7bn in Q1. In terms of sectors, according to the Bank of England, the biggest decline was concentrated in lending to businesses in the real estate sector, which could partially reflect banks’ efforts to reduce non-performing loans to the commercial real estate sector. However, this effort is likely to have been ongoing since after the crisis, and, thus, does not have much explanatory power for Q1’s results.

We believe that the FLS’s success in lending to businesses has been limited so far. While some of the weakness in total lending reflects a shift from banks to other sources of financing for large corporates, SMEs are more dependent on bank loans. Bank of England Credit Conditions Survey for Q1 revealed that even though the balances of availability of credit and demand for credit (in the past three months) for businesses have been positive, availability of credit to medium private non-financial corporations (PFNCs) has failed to keep up (Figure 2). As noted by our credit strategists, banks in the UK (and Europe) appear to be capital-, not liquidity-, constrained, thus, it is unlikely that credit to SMEs will expand substantially, until regulatory uncertainty surrounding CRDIV and the ECB’s AQR has receded (for more details see The end of the cycle?, 14 February 2014, and Targeting the wrong borrowers, pp 13-15 of European credit Alpha: Rational agents, 26 April 2013).

Armela Mancellari

+44 (0) 20 3134 0564

[email protected]

FIGURE 1 Net lending by FLS participants

FIGURE 2 Credit conditions for medium PFNCs

Source: Bank of England, Barclays Research Source: Bank of England, Barclays Research

The Funding for Lending scheme had disappointing results in Q1

The success of the FLS in boosting lending to SMEs is likely correlated with easing capital constraints for banks

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30 May 2014 15






In this regard, one could argue that a scheme that provides relief on capital constraints, rather than liquidity, could be more successful in boosting overall bank lending when capital requirements are a binding constraint. Although difficult to infer causality, Figure 3 shows that the pickup in lending in mid-2013 is associated not only with the ongoing FLS, overall lower bank funding costs in markets at home and abroad, improved economic outlook, but also with the start of the Help to Buy (equity loan) government scheme.

The performance of the FLS in the UK is particularly relevant to recent discussions on ECB interventions to increase credit flows, especially to SMEs (see Bank lending to the non-financial sector still weak, M3 money growth in free fall, 28 May 2014). As higher capital requirements are as important a constraint to bank lending as liquidity, targeted liquidity measures taken by the ECB (along with interest rates cuts) may struggle to gain traction until completion of the comprehensive assessment, amid weak supply and weak demand.

Higher consumer confidence and improved economic outlook are likely to support consumption strength in Q2 Consumer confidence increased again in May, reaching zero and getting out of negative territory for the first time in nine years. The headline index rose to 0 from -3 in April, coming in slightly higher than our above-consensus expectation of -1. Improvements were broad-based, with the ‘general economic situation over the last 12 months’ improving the most, up 8 points to -5.

This month’s positive outcome resonates with ongoing improvements in the economic outlook for consumers and supports consumption growth in Q2. If sustained, strong job creation, the improving property market, improving real earnings, and higher confidence are likely to be an impetus to strong consumption in Q2. We expect household consumption in Q2 to continue growing at a similar pace as in Q1, and recording 2.2% y/y growth in 2014. We also forecast GDP to grow 0.7% q/q every quarter in 2014, consistent with y/y growth of 3.0%.

Potential measures of the ECB to boost credit flows to SMEs need to provide the right incentives

FIGURE 3 Total lending to private non-financial firms and households

FIGURE 4 GfK consumer confidence

Note: Total sterling bank lending to private non-financial firms and households, including by those banks that have not signed up for the FLS Source: Haver Analytics, Barclays Research

Source: Haver Analytics, GfK NOP, Barclays Research

Consumer confidence was out of negative territory for the first time in nine years

We expect household consumption to grow 0.6% q/q in Q2 14

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30 May 2014 16



Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: UNITED KINGDOM Blerina Uruçi, Armela Mancellari



BBA lending data Apr - -

The number of mortgage approvals slowed

CBI distributive trades, total sales May 30 - 16 Sales slowed significantly in May

GfK consumer confidence, index May -3 -1 0 Consumer confidence improved more than expected

Preview of the next week


09:28 Manufacturing PMI, index May 56.6 55.8 57.3 57.0 57.0

09:30 Consumer credit, £bn Apr 0.7 0.6 1.1 0.8 0.8

09:30 Mortgage lending, £bn Apr 1.3 1.6 1.8 1.9 1.7

09:30 Mortgage approvals, k Apr 76.3 69.6 67.1 70.0 64.4

Manufacturing PMI: We expect manufacturing to continue to expand at a healthy pace in May, consistent with indications from April forward-looking sub-indices such as new orders.

Credit flows: We forecast lending to individuals, both secured and unsecured, to continue expanding at a steady pace. We expect net unsecured lending at £0.8bn in May. We forecast net mortgage lending of £1.9bn and the number of mortgage approvals at 70.0k, consistent with the continued increase in housing market activity and prices recently.


07:00 Nationwide house price Index, % m/m (y/y) May 0.7 (9.4) 0.5 (9.5) 1.2 (10.9) 0.5 (10.8) 0.6 (10.9)

09:30 Construction PMI May 62.6 62.5 60.8 61.5 61.0

Nationwide house price index: We expect the survey to show a y/y increase of 10.8%, consistent with ongoing improvement in the housing market that is evident in other housing market surveys such as Halifax and RICS.

Construction PMI: We forecast the construction PMI survey to show a pick-up in the pace of expansion in building activity, supported by strong housing and commercial construction activity. The civil engineering component, related to government procurements, drove the weakness in April, and we expect this component to stabilise in May.

Wednesday 4 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

00:01 BRC shop price index May -1.4 -1.7 -1.4 - -1.2

09:28 Services PMI May 58.2 57.6 58.7 60.0 58.2

Services PMI: We expect the headline index to rise further in May, consistent with significantly above average expansion in activity. The services PMI survey has been strong across the board, indicating the pace of expansion is likely to be sustained. In general, the PMI data outturn and our forecast for the May data would be consistent with the economy continuing to grow at a healthy pace in Q2 2014.


12:00 BoE Bank rate decision, % Jun 0.50 0.50 0.50 - 0.50

12:00 BoE asset purchase decision, £ bn Jun 375 375 375 - 375

BoE monetary policy decision: We expect the Monetary Policy Committee (MPC) of the BoE to leave policy unchanged with Bank Rate at 0.50% and the stock of asset purchases at £375bn. As is usual with a no-change decision, we expect no material statement after the policy announcement.


09:30 Visible trade balance, £ bn Apr -9.5 -8.7 -8.5 -8.2 -8.7

Visible trade deficit: We forecast the deficit to narrow slightly, to £8.2bn, but to remain very large by historical standards.

Week 2-6 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

08:00 Halifax house price index, % m/m (3m/y) May 2.5 (7.9) 1.2 (8.7) -0.2 (8.5) - 0.7 (7.4)

30 May 2014 17

Barclays | Global Economics Weekly OUTLOOK: JAPAN

“No easing in 2014” now our baseline view • We have changed our baseline view on BoJ policy to “no easing in 2014” from the

previous “ease on 15 July.” We now see a “31 October ease” as the main risk.

• The BoJ remains confident that it will reach its CPI target, and showing that is important to its strategy. It also appears increasingly aware of QQE’s costs and limits.

• That said, we still see some risk that core CPI inflation will meet upside resistance in the months ahead and that the BoJ will cut its CPI forecasts and ease in October.

This week brought the usual month-end raft of key economic data, along with further signals that the BoJ may be less inclined to ease. In response, we have changed our baseline view on BoJ policy to “no further easing in 2014.”

To date, we had expected the BoJ to cut its CPI forecasts and to ease at the 14-15 July monetary policy meeting. However, the BoJ as a whole, and Governor Kuroda in particular, continue to express strong confidence that the central bank will achieve its “two percent in two years” price stability target for the CPI, set in April 2013. With the BoJ having stated that core inflation is likely to trend around 1.25% through the middle of the fiscal year, that confidence would not have been undermined by today’s April CPI data, which showed core inflation ex-VAT hike effects strengthening to 1.5% y/y after four months at 1.3%.

Expressing confidence in the CPI outlook is itself important to current BoJ policy, which depends on inflation expectations. When the BoJ cut its real GDP forecasts but maintained its core CPI projections on 30 April, it cited an upshift in the Phillips curve, or a view that medium- to long-term inflation expectations have started to influence wage and price formation. To be sure, there are signs of such an upshift from Q3 13 onward (Figure 1).

Kyohei Morita

+81 3 4530 1688

[email protected]

Yuichiro Nagai

+81 3 4530 1064

[email protected]

James Barber, CFA


FIGURE 1 BoJ confidence in CPI outlook underpinned by signs of an upshift in the Phillips curve

FIGURE 2 Capital inadequate for a long time, but the BoJ is showing signs of concern, which could grow as exit approaches

Source: MIC (CPI), Cabinet Office (national accounts), Barclays Research Note: Shaded area marks required range under BoJ accounting rules (see Japan

Economic Focus, 30 May). Source: BoJ, Barclays Research

Our baseline view on BoJ policy changed to “no easing in 2014” from the previous “ease on 15 July”

The BoJ remains confident in its CPI view, and showing that is important to its strategy

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30 May 2014 18




Separate from the CPI outlook, the BoJ during May also appears to have become more conscious of the costs and limits of QQE in two respects. First, the BoJ announced on 9 May that it decided to increase its legal reserves for FY 13 (to an amount equivalent to 20% of net income, up from the current 5%), a move to “maintain financial soundness”, according to its official statement. This seems to reflect an awareness of the risk to the BoJ’s finances when it eventually exits QQE, a risk that will increase the more the BoJ expands its balance sheet. Since September 2002, the BoJ’s capital adequacy ratio has consistently slumped below required levels based on its accounting rules (Figure 2; see Japan Economic Focus, 30 May).

Second, the BoJ has increasingly stressed the need to boost Japan’s potential growth and to handle the 2% price stability target in the context of the central bank’s “dual mandate” (Article 2 of the BoJ Act states that the BoJ’s operations are “aimed at achieving price stability,” thereby “contributing to the sound development of the national economy”). On 26 May, for example, BoJ Deputy Governor Iwata said that “boosting potential growth above a certain level is a role for the government, which has policy means such as regulatory reform, not for monetary policy” and that without boosting potential growth, QQE may leave Japan with “low real growth under mild inflation.” The timing of such remarks suggests pressure on PM Abe to deliver meaningful reforms when he announces a new growth strategy in June. But the remarks themselves also reflect a genuine argument about the limits of monetary policy. Low potential growth caps actual growth and relentlessly pursuing 2% y/y inflation under that scenario presents a conflict in terms of the BoJ’s dual mandate. This could require the BoJ to effectively soften its price stability target.

That said, the BoJ has consistently maintained that it will act without hesitation, if necessary. Figure 3 shows our outlook for the CPI. In our view, some data signal a risk that CPI inflation (y/y) may not strengthen as fast as the BoJ expects, eg, upstream prices of domestic consumer goods as reflected in the corporate goods prices index turned down y/y in April, the first decline in 11 months. We believe this could reflect on downstream CPI prices in the months ahead, in line with historical correlation (Figure 4). In this light, we see a risk to our new baseline view and regard “further easing at the 31 October MPM,” when the next semi-annual Outlook Report is released, as the main risk.

BoJ also thinking about QQE costs…

FIGURE 3 Our CPI outlook suggests a risk that the BoJ could still cut its CPI forecasts and ease in October

FIGURE 4 Upstream prices of consumer goods have already turned down, which will likely create a drag downstream

Source: MIC (CPI), Barclays Research (forecasts) Note: CGPI is the corporate goods price index (roughly equivalent to US PPI).

Source: BoJ, MIC, Barclays Research

… and limits

We still see downside CPI risks and believe the BoJ could ease further in October

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30 May 2014 19


Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: JAPAN Kyohei Morita, Yuichiro Nagai, James Barber

Review of this week’s data


Corporate services price index (% y/y)

Apr 0.7 3.6 3.4 Excluding VAT hike effects, the CSPI rose 0.8% y/y. Month on month, it fell 0.2%, roughly in line with the previous two Aprils, indicating little evidence of service price revisions at the start of the fiscal year. The CSPI tends to move with CPI goods prices.

National CPI ex-perishables (% y/y)

Apr 1.3 3.0 3.2 We expect the core CPI to rise 1.5% in May, excluding VAT-hike effects, unchanged from April, but see the risks as skewed slightly to the upside. However, with the USDJPY hovering around 101, we expect the effect of earlier JPY depreciation to start fading, limiting the upside for y/y core CPI inflation from June onward.

Tokyo CPI ex-perishables (% y/y)

May 2.7 2.9 2.8

Unemployment/jobs-offers ratio

Apr 3.6/1.07 3.6/1.08 3.6/1.08 Japan’s economic recovery has been led by domestic demand and employment conditions continue to improve nationwide, but we believe labor policies that reduce structural unemployment are needed to achieve further progress.

Real household spending (% y/y)

Apr 7.2 -4.6 -4.6 Real household spending decreased in April due to post-VAT-hike payback, but we expect it to stay relatively resilient toward H2 given the favorable employment and income conditions.

Industrial production (% m/m)

Apr 0.7 -2.1 -2.5 Production turned back down m/m in April, and METI forecast indices for May (+1.7% m/m) and June (-2.0% m/m) suggested it is on track to fall 2.4% q/q in Q2, which would mark the first decline in six quarters. This would be due primarily to post-VAT hike payback, but may also reflect sluggish exports to Asia.



08:50 Corporate survey, capex ex-software (% y/y)) Q1 1.4 2.3 2.8 6.1 5.7

Corporate survey: The Q1 corporate survey is a key input in the second preliminary GDP data for that period. If our forecasts for capital investment are correct, we believe GDP-based capex growth, 4.9% q/q in the initial release, could be revised slightly lower.


10:30 Wages per worker (% y/y) Apr -0.2 -0.1 0.7 0.8 n.a.

Wages per worker: Scheduled pay, the core component of wages, continues to fall y/y, but we expect it to pick up gradually with the economy and corporate earnings. Recent surveys findings bode well for overall pay, including summer bonuses.

30 May 2014 20

Barclays | Global Economics Weekly IN FOCUS: CHINA

Time for more significant monetary easing The probability of more significant monetary easing is rising, in our view. While interest rate and RRR cuts are both possible, details of the PBoC’s next easing move are uncertain. We think the real economy would be benefit more from interest rates cuts.

We see an increasing probability that more significant monetary easing, including (targeted) interest rate or RRR cuts, will be announced in the coming weeks. The easing could take the form of:

• More targeted easing measures – including re-lending, targeted RRR cuts or innovative financing tools – to improve credit availability and reduce financing costs for specific sectors in the real economy;

• Targeted interest rate cuts, which would help to lower the cost of borrowing; and

• RRR cuts, which would add liquidity, improve the money multiplier, boost bank lending and lower interest rates. We note that an RRR cut could be a good complement to an interest rate cut. Lower interest rate differentials would reduce arbitrage incentives and capital inflows, resulting in a tightening of domestic liquidity.

While the direction is clear, the details of the PBoC’s new move are uncertain. This apparently reflects diverging opinions among top policymakers with respect to: 1) the actual state of the economy and whether to wait to act until the Q2 GDP report is released in July; 2) how low a growth rate the government should tolerate and how much easing it should provide; and 3) the effectiveness and costs/benefits of different monetary policy tools, such as broad-based RRR cuts and interest rate cuts (Figures 1 and 2). We also note that central bank has enjoyed more independence in determining monetary policy in recent years.

In our view, cutting interest rates would be better policy than broad-based RRR cuts, given, on the one hand, the high leverage in the economy and weak demand, and, on the other hand, ample liquidity and unresolved implicit guarantees and “moral hazard”. Although lending rates have been liberalised, a symmetric cut to both deposit and lending rates should transmit to the real economy.

Jian Chang

+852 2903 2654

[email protected]

FIGURE 1 RRR and interest rate moves

FIGURE 2 RRR and change in FX purchases

Note: Shade areas represent the periods of a slowdown in q/q GDP growth. Source: CEIC, Barclays Research

Source: CEIC, Barclays Research

Increasing probability of further monetary easing…

… but details of the next move are uncertain

Interest rate cuts would be better than RRR cuts, in our view

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30 May 2014 21


The PBoC has opted for selective easing aimed at specific sectors and has targeted stable, and lower, interbank interest rates so far in 2014 (Figure 3). Measures that have been taken include:

• Ensuring ample liquidity in the banking system and low interbank interest rates since late January.

• Establishing a re-lending programme of CNY50bn to support the financing for micro- and small-sized enterprises in March.

• Cutting the reserve requirement ratio for county-level rural commercial banks 200bp and the RRR for rural cooperatives 50bp in mid-April. We note that the reductions were announced by Premier Li at a regular State Council meeting.

• Asking banks to prioritise mortgage lending, charge reasonable rates and quicken loan approvals in May.

• Extending the re-lending programme. According to 21st Century Business Herald, a Chinese-language newspaper, the PBoC may have provided CNY300-500bn to China Development Bank to finance social housing construction, and possibly also to lend through China Construction Bank, in late May.

But the central bank has been facing increasing pressure to ease further:

• Downside risks to growth are rising given the ongoing property market correction (see China trip notes: Accepting slower growth, 27 May 2014). Despite better manufacturing PMIs and the expectations that May activity data will show some improvement, sentiment is subdued. There appears to be consensus view that the Chinese economy is in a fragile state and faces significant challenges to balance reform and growth.

• Another headwind is the weakening economy with tightening financing conditions and rapidly rising financing costs since H2 13 (Figures 4 and 5). This reflects higher cost pressures facing commercial banks, a rising risk premium and the “crowding out” by interest rate-insensitive sectors of other financing and pushing up lending rates. Although, the PBoC’s lowering of interbank interest rates has partly reversed the rise in shorter-term bond yields, it has not translated into lower bank lending rates or lower longer-term bond yields (Figure 6).

Selective easing measures taken this year

FIGURE 3 Interbank rates were kept low

FIGURE 4 More loans are priced at higher rate

Source: CEIC, Barclays Research Source: CEIC, Barclays Research

Mounting pressure for further easing

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30 May 2014 22



• There is increasing evidence that Premier Li Keqiang is probably more serious about the 7.5% growth target than hoped by those who have wanted the government to tolerate lower growth. To be sure, although unemployment, a key indicator to watch, has yet to be a concern, as judged by anecdotal evidence and official job creation numbers, slower growth would add to risks of a financial crisis.

• Premier Li has been considering a more active implementation of this year’s government measures to shore up confidence and prevent a downward spiral after the weaker-than-expected April data releases. His strongest signal was sent on 22 May, when he called for further fine-tuning of monetary policy to support the real economy, noting corporates, particularly SMEs, are facing tightening financing conditions and high borrowing costs.

Meanwhile, major ministries announced growth-stabilisation initiatives in the past week

• On 28 May, Ministry of Finance said it will accelerate this year's government budget spending and warned that the difficulties facing the economy must not be underestimated. The ministry asked the local offices to speed up the approval, transfer and spending of budgets.

• On 23 May, the Custom Administration announced measures to support a stable trade growth, including export tax rebates and promoting imports.

• On 19 May, the Ministry of Commerce announced May-July trade support measures, such as accelerating the processing of export tax rebates.

Growth-stabilising measures were announced

FIGURE 5 Slowing financing growth

FIGURE 6 Lending rate and bond yields

Source: CEIC, Barclays Research Source: CEIC, Barclays Research

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30 May 2014 23

Barclays | Global Economics Weekly OUTLOOK: EMERGING ASIA

An export-led rebound in the making • Growth slowed across Asia in Q1. Alongside the structural slowdown in China, we

think temporary factors, including payback from the Q4 surge, were the main culprits.

• Weakness in exports in the early part of the quarter was a major factor, but this weakness is now being unwound, led by the newly-industrialised economies.

• The slowdown in Asean was more pronounced than expected in Q1, but it too should ultimately benefit from the G3 recovery as demand for natural resources returns.

With the release of India’s Q1 GDP today, we now have growth numbers for all EM Asian countries. Using our forecast for India, where we expect growth to remain subdued, we estimate that growth in EM Asia slowed to 4.6% y/y in Q1, down from 4.7% in Q4. Much of this slowdown was driven by regional heavyweight China (54% of our GDP weighting for EM Asia), where growth slowed to 5.8% q/q saar – better than our forecast, but a sizable drop from the 7.5% growth in Q4. A more pronounced slowdown in Asean economies also drove the weakness, offsetting the better-than-expected performance in some of the newly-industrialised economies. Indeed, in contrast to the rest of the region, growth in Korea accelerated slightly in Q1.

What has driven the Q1 slowdown? Broadly speaking, part of the slowdown in growth was likely payback from the surge in Q4 GDP, where growth was clearly above potential in a number of economies – particularly Taiwan and Malaysia, which both expanded 7.6% q/q saar in Q4. Another major factor was the disruptions to exports on the back of the severe winter in the US, as well as some genuine export weakness on the back of the slowdown in China. As a result of the bigger than expected payback for Taiwan, which slowed to 1.9% q/q saar in Q1, we lowered our 2014 forecast by 40bp to 3.6%.

Bill Diviney

+65 6308 3607 [email protected]

China and the NIEs did better than forecast, but the slowdown in Asean was more pronounced than expected

Growth was running above potential in some economies in Q4, while exports were hit by both temporary and structural factors

FIGURE 1 Growth slowed in most economies, but north Asia performed relatively better (quarterly numbers are q/q saar)

Country Q1 14 (fcast) Q4 Comment 2014F (prev)

EM Asia 4.6 (4.6) 6.6 Growth slowed in line with our forecast in Q1, but north Asia performed relatively better than expected, while Asean slowed by more than expected.

6.1

China 5.8 (4.9) 7.5 ronger private consumption offset weaker investment and net exports. 7.2

India 4.6 (4.8) 6.0 Momentum likely remained muted in Q1 on weak manufacturing and government spending.

5.2

Indonesia 3.5 (4.1) 6.2 Weaker exports on disruptions to freight from floods and weak demand from China. 5.3

Korea 3.8 (3.6) 3.6 The notable outperformer in the region, with a mild acceleration driven by exports and investment, though consumption growth paused after recent strength.

4.1

Malaysia 3.3 (4.0) 7.6 Payback from Q4 strength, but still robust on y/y basis. Domestic demand strong, external demand recovering.

5.4

Philippines 4.5 (8.6) 6.2 Domestic demand improved and net exports made their first positive contribution in 5 quarters, but statistical discrepancies and inventories weighed on headline growth.

6.5

Singapore 2.3 (-0.4) 6.9 Manufacturing and inventory accumulation led upside surprise to growth. 3.5

Taiwan 1.9 (2.8) 7.6 Bigger than expected payback from Q4 strength led us to cut our 2014 growth forecast 40bp. Strong services exports and tourism inflows continued to support growth.

3.6 (4.0)

Thailand -8.2 (0.0) 0.5 Sharp deterioration, with private consumption slipping to a new post-Asia crisis low amid continued political instability. We cut our 2014 forecast a further 1pp, having already lowered it by 1.3pp in Q1, and see risks to the downside.

2.0 (3.0)

Source: Barclays Research

30 May 2014 24


There have also been some idiosyncratic factors behind the slower Q1 growth. In Indonesia, growth slowed sharply to 3.5% q/q saar from 6.2% in Q4. We think disruptions to freight from extensive flooding in many provinces was a significant factor, while the cumulative 175bp of hikes by Bank Indonesia in H2 last year has also begun to reign in credit growth. Thailand saw a dramatic deterioration in growth in Q1, with GDP contracting by 8.2 q/q saar, and private consumption dropping to levels not seen since the Asian financial crisis. This has been due to sharply weaker confidence on the back of the political instability there. With no immediate resolution in sight and domestic demand remaining weak in Thailand, we cut our 2014 growth forecast a further 1pp to 2%, having already cut growth by 1.3pp in February. Risks remain skewed to the downside.

Stronger external demand to drive a Q2 acceleration With much of the slowdown in Q1 driven by what we view as temporary factors, we expect most of Asia to see a rebound in growth in Q2, led by stronger demand from China, the US, Europe, and with stronger consumption in north Asia offsetting weakness in Asean. We already see signs that the strengthening in external demand at the end of Q1 extended into Q2, with exports from the newly industrialised economies – particularly Korea, which has a high brand premium for its finished consumer goods – accelerating further in April. We expect Korea’s May exports, released this weekend, to show solid per-day export growth, although headline exports are likely to moderate on the back of a higher number of public holidays in the month.

The pick up in external demand is being underpinned by a recovery in the G3 economies of China, the US and Europe. In China in particular, government efforts to stimulate growth via the quick start of investment projects appears to be having an impact, with the May HSBC flash PMI surprising to the upside; we expect the official NBS PMI released over the weekend to pick up to 50.6 from 50.4 in April. We also expect May trade data released next week to show a further improvement in both imports and exports from April. In the US meanwhile, the ongoing recovery in capex is expected to provide further support to Asia’s electronics exporters – the NIEs – in particular, while the economic recovery in Europe has driven a sharp pick-up in exports from Asia generally. Though we expect the recovery in the G3 to benefit north Asia first and foremost, given its high export content of finished consumer goods, south Asia is also expected to ultimately benefit via a second-order rise in demand for natural resources, likely with a 1-2 quarter lag.

Indonesia and Thailand were affected by more idiosyncratic factors

Stronger external demand to support growth across Asia, but weak domestic demand in Asean will offset strength in the NIEs

NIEs to benefit first and foremost from G3 recovery, with trickle-down reaching Asean with a 1-2 quarter lag

FIGURE 2 Asean decelerating, NIEs accelerating

FIGURE 3 Export recovery to the G3 has supported the NIEs

Source: Haver Analytics, Barclays Research Source: Haver Analytics, Barclays Research

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60

Apr-11 Apr-12 Apr-13 Apr-14

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NIE exports by destination (% y/y, 3mma)

30 May 2014 25

Barclays | Global Economics Weekly IN FOCUS: EMERGING ASIA

India and Indonesia: Current account – A stable path emerges This is an excerpt from a report published on 28 May 2014. See full report here.

Vulnerabilities in India and Indonesia have declined significantly, owing to smaller and sustainable current account deficits. In India, the deficit dropped from 5.0% in 2012 to 2.6% of GDP in 2013. In Indonesia, although the gap has narrowed less, it has improved.

We believe policymakers in both countries remain cautious and will pursue policies designed to limit the risks of another flare-up of concerns about financing current account deficits, similar to last summer. In 2014, we expect India to consolidate the improvement in its current account deficit; on the other hand, Indonesia is playing catch-up after lagging in H2 13. Foreign reserves have risen in both the countries. India has accumulated more FX reserves than Indonesia, but both economies appear in better positioned than they were in 2013. Export growth momentum has improved in both economies. Owing to weak growth and restrictions on gold imports, India’s import demand has contracted more sharply.

India – exports gaining competitiveness Vulnerabilities in India have declined significantly, owing to smaller current account deficits. In India, the deficit dropped from 5.0% of GDP in 2012 to 2.6% of GDP in 2013. Declining import growth, particularly in the non-oil component, has been instrumental in driving the first-stage adjustment to the current account. India’s exports have also gained competitiveness much faster in this cycle than have Indonesia’s. This is due to India’s more diversified export sector: the weaker INR has increased the competitiveness of the country’s oil refining and petrochemical, automobile, and labour-intensive textiles and leather sectors.

Faster growth in developed market economies should help to support India’s invisibles balance. India’s dividend payments have also remained manageable, at USD21.8bn during 2013. Furthermore, India is the world’s largest recipient of remittances, another significant area of support, drawing in more than USD60bn of remittances in 2013. India’s services surplus rose significantly in 2013, aiding the adjustment in the current account, and we forecast it will rise further in the coming months, supported by strong growth in the US and improving momentum in the EU.

India Rahul Bajoria

+65 6308 3511

[email protected]

Siddhartha Sanyal

+91 22 6719 6177

[email protected]

Indonesia Wai Ho Leong

+65 6308 3292

[email protected]

Bill Diviney

+65 6308 3607

[email protected]

FIGURE 1 India: Current account gap has narrowed significantly…

FIGURE 2 … adjustment largely due to an improving trade balance

Source: Haver Analytics, Barclays Research Note: *April 2014 petrochemical exports are Barclays’ estimate.

Source: Haver Analytics, Barclays Research

-35

-30

-25

-20

-15

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-5

0

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Current account: existing forecast (USDbn)

-22

-18

-14

-10

-6

-2

2

Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14

Trade balance Trade balance ex oil*Trade balance ex oil, gold*

USD bn, 3mma

30 May 2014 26



We believe the period of major adjustments in India’s current account is coming to an end. While import growth is weak, we expect a modest pickup in import demand as growth improves. Capital imports are likely to rise, leading to a modest widening in the current account deficit. Also, consumption imports, which have declined in line with slowing private consumption, may start turning around on improved sentiment. So far, oil imports, which by their nature are sticky, have increased significantly as a percentage of total imports.

India’s gold import bill declined 46% y/y in FY13-14 (~35% in volume terms), due to strict administrative measures to limit imports. In FY14-15, we think gold demand will rise marginally, and that some administrative measures may be relaxed as the deficit becomes manageable. We expect an 8-10% y/y increase in gold import volume. If import controls are removed completely – unlikely, in our view – we think gold demand could increase 20-25%.

A big risk would be an increase in oil prices, especially one stemming from geopolitical tensions in the Middle East or Eastern Europe. The oil deficit, which accounted for c75% of India’s merchandise trade deficit in FY13-14, remains critical, and any major change in oil prices would have a dramatic effect on the current account balance and growth.

We are lowering our FY14-15 current account deficit forecast to USD41.5bn (2.0% of GDP), from USD50bn (2.4% of GDP), which would represent a marginal rise from the USD32.4bn (1.7% of GDP) shortfall in FY13-14. For calendar year 2014, we forecast a current account deficit of USD34.3bn (1.7% of GDP). In light of recent influx of capital, we are also raising our forecast of the overall balance of payments surplus to USD40bn in FY14-15, and project foreign reserves of USD340bn at the end of FY14-15 (March 2015).

FIGURE 3 India: Sensitivity to gold prices has declined; oil prices still a material risk

Brent (USD/bbl)

80 90 100 110 120

Current account balance (USD bn)

Gold (USD/oz) 1100 -8 -18 -29 -39 -49 1200 -10 -20 -31 -41 -51 1300 -12 -22 -32 -43 -53 1400 -14 -24 -34 -45 -55 1500 -16 -26 -36 -47 -57 Source: Haver Analytics, Barclays Research

FIGURE 4 India: Crude oil deficit steady despite slower growth…

FIGURE 5 … while consumer and capital imports have fallen sharply


We expect a resurgence of capital imports

Gold imports appear manageable

-120

-100

-80

-60

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-20

0

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

FY12 FY13 FY14 FY15

Oil balance, YTD, USD bn

15

20

25

30

35

40

2006 2008 2010 2012 2014

(%, 12m rolling

average)

Capital imports (% of imports)Exportable or growth imports (% of imports)Energy imports (% of imports)

30 May 2014 27


Indonesia – manufactured exports to offset mineral drag Indonesia’s current account adjustment is just starting, led by its merchandise trade balance. Even though we forecast a 2% decline in energy shipments this year, we expect this to be offset by increases in palm oil (+10%) and, more importantly, manufactured goods exports. Also, we expect the weaker IDR to result in a sharp decline in imports, as domestic manufacturers reduce their use of relatively more expensive foreign goods, although we expect this adjustment to play out over several years. This points to a small customs trade surplus in 2014, a big turnaround from the USD4bn deficit in 2013. On a BoP basis, we raise our 2014 trade surplus forecast to USD9.5bn from USD6.9bn (2013: USD6.2bn). This will speed the improvement in the current account deficit, which we now expect to narrow to 2.3% of GDP this year (previous forecast: 2.5% of GDP) from 3.3% of GDP in 2013.

Looking at Indonesia’s goods balance, the country’s exports are skewed heavily towards primary commodities. For instance, exports of food stuffs, mineral fuels and crude materials account for 59.2% of Indonesia’s exports. Of this, coal accounts for 13.3%, palm oil 10.7%, natural gas 10% and petroleum 8%. This breakdown is shifting, albeit slowly, driven by government efforts to retain commodity processing activity locally. These efforts include a ban on the export of unprocessed ores implemented in January 2014 (the export of semi-finished products, such as concentrates, is still allowed until 2017, with an export tax).

Production may have bottomed, but the outlook for coal exports remains bleak. According to the Energy and Mineral Resources Ministry, coal production totalled 110mn tons in Q1 2014, up 4.5% y/y – exceeding 25% of the government’s output cap of 421mn tons for 2014 – the same amount of production last year. However, a drag on exports is coming from declining coal prices, a trend in place since 2012, driven by weakening global economic growth and the increasing use of cleaner energy sources, like liquefied natural gas (LNG) and shale fuels. For example, the Newcastle thermal coal price fell from USD84/ton on 1 January to USD72.75 by April. Also, China’s thermal coal imports rose by 6% in 2013 to 212mn tons, but its LNG imports rose by 23%. Moreover, Chinese coal miners are increasingly able to meet domestic demand. We expect coal shipments from Indonesia to fall 8.4% in 2014, which would be slightly more than the 6.4% fall in 2013.

Palm oil (10.7% of total exports) – This segment is an important offset for declining coal exports. A source of upside surprise in March exports was palm oil, which jumped 13.3% m/m to 1.79mn tons on the back of higher demand (due to higher soybean prices – a substitute). This dynamic is likely to compound the value effect, given that the benchmark

FIGURE 6 Indonesia: Rising light manufacturing and palm oil exports…

FIGURE 7 …as heavy manufacturing and energy become less of a drag


Goods balance – palm oil compensates for weaker coal outlook this year

Coal is 13.3% of total exports

0

5

10

15

20

25

30

35

06 07 08 09 10 11 12 13 14Palm oil Energy Heavy mfg Light mfg

% share of exports

-20

-10

0

10

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30

40

06 07 08 09 10 11 12 13Palm oil EnergyHeavy mfg Light mfgMinerals affected by ban Other

pp contribution to annual export growth

30 May 2014 28


palm oil price was MYR2,850/ton in March, 11% higher than the average in January. Although the benchmark price has receded slightly since April, it remains above the January average. If anything, we think the likely onset of El Nino weather conditions suggests there is upside to monthly export values. We expect palm oil shipments to rise 15% this year.

We expect the deficit in the services balance to improve slightly in 2014, to a shortfall of USD9.9bn (2013: -USD11.4bn), with a yawning transport deficit balanced by an improving travel balance. As exports pick up, so should the usage of foreign shipping companies, banks and insurers. However, a significant mitigating factor is tourism.

Tourism – Visitor arrivals topped 2.21mn in Q1 2014, 10% higher than a year ago – and much better than we had expected. We expect the travel surplus in the services segment to widen significantly this year, thanks to increased tourism on account of three factors. First, while a weaker IDR makes outbound travel from Indonesia less affordable, it reduces the cost of a holiday in Indonesia for foreign visitors. Second, the development of new airports is also likely to be a strong facilitator of visitor arrivals. Ten new airports were constructed in 2013, and another 15 projects are underway. This includes the IDR3trn expansion and renovation of Ngurah Rai International Airport in Bali, which is scheduled to be completed by end-June 2014. A third push factor for tourist arrivals this year is a potential diversion of visitors away from other parts of southeast Asia on account of domestic political tensions.

However, we expect the income deficit to remain a drag, due mainly to net profit repatriation by overseas direct investors (2013: USD16.7bn of the total income deficit of USD27bn). Returns on Indonesian assets abroad are paltry by comparison – just USD0.2bn in 2012. This is not likely to improve substantially in the near term, in our view, given the large presence of MNCs and foreign-owned enterprises in Indonesia. In the near term, we expect this trend to worsen, as initiatives to win FDI and fill industrial zones gather pace. By comparison, interest and dividend payments to portfolio investors accounted for only USD6.3bn of the income deficit in 2013. All told, we expect the income deficit to narrow marginally to USD23.5bn this year (2013: -USD27bn; 2012: -USD26.8bn).

FIGURE 8 Indonesia: Exports to China have risen since financial crisis…

FIGURE 9 … but Asean remains the main export destination


Services balance – a yawning transport deficit balanced by an improving travel balance

Development of new airports is also likely to be a strong facilitator of visitor arrivals.

Income deficit due to profit repatriation should narrow slightly

0

5

10

15

20

25

01 02 03 04 05 06 07 08 09 10 11 12 13 14Asean EU ChinaUS Japan Korea/Taiwan

% share of non-oil exports Asean19%

EU11%

China14%

US10%

Japan10%

Korea/Taiwan7%

Other29%

30 May 2014 29

Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: AUSTRALASIA & EM ASIA Bill Diviney, Kieran Davies



Singapore: IP (% y/y) Apr 12.1 4.2 4.6 IP slowed on weakness in electronics, partially offset by pharma.

Thailand: Mfg production (% y/y) Apr -10.5 R -4.1 -3.9 Manufacturing and export momentum remains weak.

Thailand: Exports (% y/y) Apr -3.1 7.8 -0.9

Korea: CA balance (USD bn) Apr 7.3 6.5 7.1 Cumulative surplus to April at record USD22bn, driven by trade.

Philippines: GDP (% y/y) Q1 6.5 6.0 5.7 Robust domestic growth overshadowed by statistical discrepancies.

Korea: IP (% y/y) Apr 2.7 3.6 2.4 IP still sluggish in April, but leading indicators pointing up.

India: GDP (% y/y) Q1 4.7 4.6 4.6 Growth remains weak and momentum slow.


Sunday 01 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

08:00 Korea: Exports (% y/y) May 1.4 5.1 9.0 2.0 3.4

09:00 China: NBS manufacturing PMI (index) May 50.2 50.3 50.4 50.6 50.7

Korea: Increased number of public holidays in early May likely weighed on headline export growth, but underlying momentum in per day exports should remain solid, supported by ongoing recoveries in the G3 economies.

China: We expect the NBS PMI to edge up to 50.6 from 50.4 in April, consistent with our expectation for a pickup in sequential growth momentum to 6.8% q/q saar in Q2 from 5.8% in Q1.


12:00 Indonesia: Exports / Imports (% y/y) Apr -5.9 / -3.5 -2.5 / -9.9 1.2 / -2.3 3.7 / -8.9 2.6 / –

12:00 Indonesia: CPI (% y/y) May 7.8 7.3 7.3 7.2 7.3

– Indonesia: Trade Balance (USD mn) Apr -443.9 843.4 673.2 300.0 285

– Thailand: CPI (% y/y) May 2.0 2.1 2.5 2.50 2.53

Indonesia: We expect the recovery in exports to continue, while a high base will weigh on import growth. Inflation should continue to moderate, with good harvests keeping food prices in check.

Thailand: Food prices and energy prices may tick higher, but core inflation remains manageable, at 1.8%.


07:00 Korea: CPI (% y/y) May 1.0 1.3 1.5 1.7 1.6

09:30 Australia: Retail sales (% m/m) Apr 1.1 0.3 0.1 0.7 –

09:45 China: Final HSBC manufacturing PMI (index) May 48.5 48.0 48.1 Flash: 49.7 49.6

12:30 Australia: RBA cash rate (%) Jun 2.50 2.50 2.50 2.50 –

13:30 India: RBI repo rate (%) Jun 7.75 8.00 8.00 8.00 8.00

21:30 Singapore: PMI / Electronics PMI (index) May 50.9 / 51.2 50.8 / 51.6 51.1 / 50.4 50.9 / 51.0 –

03-09 June Indonesia: Foreign Reserves (USD bn) May 102.7 102.6 105.6 108.5 –

Korea: A lower base for petrol prices should push up headline inflation, offsetting any impact from recent KRW strength.

Australia: Partial indicators point to stronger sales growth in April and we expect a 0.7% rebound. Record warm weather poses a clear downside risk to sales of winter clothes, heaters, etc, in May. We expect no change in rates as RBA is likely to retain its forward guidance of a period of stable rates. Based on the May board minutes, RBA may drop the reference to the high exchange rate. The market is pricing in a 3% chance of a 25bp rate cut.

India: RBI expected to hold key policy interest rates and reserve requirements steady in June.

Indonesia: Continued modest trade surplus and rise in term deposits should support another pick-up in FX reserves.

30 May 2014 30

Barclays | Global Economics Weekly Wednesday 04 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

09:30 Australia: GDP (% q/q ) Q1 0.8 0.6 0.8 1.4 –

Australia: Ahead of key trade, business and public demand data due Monday and Tuesday, we expect a 1.4% rise in Q1 GDP. This is driven by strength in net exports, although investment is also stronger than we initially thought.


07:00 Korea: Final GDP (% y/y) Q1 2.7 3.4 3.7 Adv. Est.: 3.9 –

08:30 Taiwan: CPI (% y/y) May -0.1 1.6 1.7 1.8 1.7

09:00 Philippines: CPI (% y/y) May 4.1 3.9 4.1 4.3 4.1

09:30 Australia: Trade balance (AUD mn) Apr 1122 1257 731 -425 1000

Taiwan: We expect inflation to edge higher amid elevated food prices and an easing in the negative drag from petrol prices. Efforts by the government to increase pork imports should help to ease food prices in the months ahead.

Philippines: Higher food costs, combined with rising costs of housing, transport and services, are likely to take inflation to a two and a half year high.

Australia: We think that the trade balance should swing from a large surplus to a solid deficit of AUD425mn given stronger imports and weaker exports. Customs data show a 2% rise in imports, while export prices fell at a faster rate in April.


12:01 Malaysia: Exports (% y/y) Apr 12.3 12.3 8.4 12.0 9.1

Malaysia: We expect better palm oil exports, coupled with higher manufacturing shipments, to push export growth back to double digits.


– China: Exports (% y/y) May -18.1 -6.6 0.9 5.5 9.0

– China: Imports (% y/y) May 10.0 -11.3 0.8 7.5 8.0

China: We expect export growth to remain subdued as external demand turns out to be less helpful. Meanwhile, the launch of stabilising measures is likely to lend some support to import growth.

Note: Release dates and consensus estimates for all of the data given in tables above are subject to change. Source: Bloomberg, Barclays Research

30 May 2014 31

Barclays | Global Economics Weekly OUTLOOK: EMERGING EUROPE, MIDDLE EAST AND NORTH AFRICA

Dovish central banks amid recovering growth • Next week, Poland is likely to keep its policy rate unchanged, but with a dovish bias.

That is what happened in Israel this week, while Hungary delivered another rate cut.

• Next week, Central Europe real sector indicators are likely to confirm a continued growth recovery. May inflation is likely to remain elevated in Russia and Turkey.

• In Ukraine, Poroshenko’s win in the presidential elections was met with a cautious reaction by Russia. Meanwhile, the violence in Eastern Ukraine continues.

Central banks in the region continue to have a dovish bias, even if this does not always translate into immediate cuts. In Poland, we expect rates to be kept on hold at the MPC meeting next week, particularly given the NBP forward guidance of no rate change until at least September. While growth is recovering, inflation dropped to a less-than-expected 0.3% y/y in April, suggesting deflation risk; the NBP will likely downgrade its inflation forecasts in its next inflation report in July (Figure 1). However, we do not think another rate cut is likely. Instead, we expect the NBP to delay rate hikes until mid-2015 or possibly later.

This week, Hungary cut its base rate by 10bp for the 22nd consecutive month of cuts and the third month at 10bp. The NBH statement was extremely dovish, leaving little doubt that cuts will continue at the same pace. We expect four additional monthly cuts, bringing the base rate to 2.0% at end-September. Even then, there is currently more risk the NBH will continue to cut further rather than break off the cut cycle sooner. Among the reasons cited for maintaining the cut cycle are low inflation, noninflationary growth, lower external vulnerability, and improvements in the risk premium.

In Israel, the BoI remained on hold for the third consecutive month at 0.75%. However, the statement was considerably more dovish than last month because of weak growth data, a sharp deceleration in inflation, and declining inflation expectations. The main reason for the BoI inaction, in our view, is that the ILS has weakened for the past two months. We retain our forecast that the BoI will cut its base rate further by 25bp at either its next MPC meeting or the one after, unless inflation or growth surprise on the upside.

Eldar Vakhitov

+44 (0)20 7773 2192

[email protected]

Daniel Hewitt

+44 (0)20 3134 3522

[email protected]

Poland is likely to stay on hold next week, but extend forward guidance

FIGURE 1 Poland inflation remains below the target

FIGURE 2 PMI is likely to remain elevated in CEE-3, weak in Russia

Source: National Bank of Poland, GUS, Haver Analytics, Barclays Research Source: Markit, Haver Analytics, Barclays Research

Room for more rate cuts in Hungary

Israel stayed on hold, but may cut in the next two months

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Inflation target

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30 May 2014 32


The favourably low inflation environment in Central Europe has recently been supported by recovering economic growth. Next week’s real sector indicators are likely to provide further evidence of improving growth (Figure 2). Manufacturing PMI prints for May are likely to remain elevated in Central Europe, as opposed to Russia where we expect another below-50 print. However, the average may subside slightly, in line with lower flash euro area PMI. Furthermore, we expect retail sales and IP prints for April to reflect the continued recovery in private consumption and production in Central Europe (Figure 3).

Outside Central Europe, inflation remains high in Russia and Turkey. Next week, inflation in Russia is likely to have accelerated further to 7.6% y/y in May. Despite some RUB appreciation in recent weeks, inflation continues to be pushed higher by the significant depreciation from January to April, leading to rising inflation expectations (Figure 4). We expect these effects to persist in the coming months, keeping inflation above 7%. The CBR’s restrictive monetary policy and lower tariff hikes should help to lower inflation, but it will remain well above 6% at year-end, in our opinion. This is well above the official CBR’s target of 5% and higher than the possible adjusted target of 6%. In Turkey, inflation is likely to accelerate close to 10% y/y in May, though this will likely be its peak. In June, we expect inflation to drop due to favourable base effects, though it is far from clear how strong the disinflation in H2 will be. We still see upside risks to CBT’s year-end inflation target of 7.6%, instead expecting inflation to reach 8.3% y/y.

In Ukraine, the situation remains unsettled. Billionaire businessman and experienced politician Petro Poroshenko won the presidential elections held on 25 May, managing to secure 55% of votes in the first round and, thus, avoid a run-off. However, the turnout was very low in the Donetsk and Lugansk regions where the pro-Russian separatists effectively blocked most election commissions. While Poroshenko’s win in the first round is the most market-friendly outcome, by itself it is not sufficient to ensure de-escalation of the armed conflict. Russia’s reaction to the presidential elections results has been cautious thus far. Mr Poroshenko’s determination to step up the anti-terrorist military operation against the pro-Russian militants appears to be the main roadblock preventing the start of the direct negotiations with Russia (Ukraine presidential elections: Poroshenko wins, the conflict continues, 27 May 2014). Meanwhile, the economic dispute between Gazprom and Naftogas has not been resolved thus far as negotiations between Russia, Ukraine and the EU continue. There are signs that EU mediation may help to reach a compromise solution before 3 June when Gazprom threatens to restrict the gas supplies to Ukraine.

Central Europe growth continues to recover

Inflation is likely stay elevated in Russia and Turkey

FIGURE 3 Solid recovery of private consumption in Central Europe

FIGURE 4 Inflation is still elevated in Russia on past RUB depreciation

Source: Haver Analytics, Barclays Research Note: Dot denotes Barclays forecast. Source: Bloomberg, CBR, Barclays Research

In Ukraine, violence continues after the presidential elections Russia, Ukraine and the EU are trying to find a compromise on the gas supplies

-4%

-2%

0%

2%

4%

6%

8%

10%


Retail sales (3mma, % y/y)

Poland Czech R. HungaryRomania Russia

28

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31

32

33

34

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37

3

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May-11 May-12 May-13 May-14

CPI (% y/y) 1w auction repo (%)

USD/RUB, avg (RHS)

End-2014inflation target

30 May 2014 33



Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: EMERGING EUROPE, MIDDLE EAST AND NORTH AFRICA Eldar Vakhitov, Daniel Hewitt, Christian Keller, Alia Moubayed, Durukal Gun



Poland: Retail sales (% y/y) Apr 3.1 7.6 8.4 Retail sales point to improving domestic demand

Poland: Unemployment rate (%) Apr 13.5 - 13.0 Labor markets remain rather loose, upside potential

Israel: Discount rate (%) May 0.75 0.50 0.75 BoI decided to hold, even with a more dovish statement

Turkey: Consumer confidence May 78.5 - 76.0 At higher levels compared with Q1

Hungary: Deposit rate (%) May 2.50 2.40 2.40 NBH cuts as expected, and more cuts in the pipeline

Egypt: Deposit rate (%) May 8.25 8.25 8.25 On hold as expected

Turkey: Trade balance (USD bn) Apr -5.2 - -7.2 Still improving on a 12m rolling basis

Croatia: Real GDP (% y/y ) Q1 P -1.2 - -0.4 Long-term recession continues



06:00 Russia: Manufacturing PMI May 48.5 48.3 48.5 - -

08:00 Hungary: Manufacturing PMI May 54.3 53.7 54.6 - -

08:00 Turkey: Manufacturing PMI May 53.4 51.7 51.1 - -

08:00 Poland: Manufacturing PMI May 55.9 54.0 52.0 - 52.2

08:30 Czech: Manufacturing PMI May 56.5 55.5 56.5 - -

Russia: PMI will likely remain below 50 despite somewhat better trends in IP recently.

Hungary: High PMI level is consistent with strong growth recovery in place (although PMI may have lost its predictive value).

Turkey: In line with recovery in industrial confidence and stable capacity utilization, PMI is likely to remain well above 50.

Poland: Last month’s PMI decline is in line with other data that suggest the recovery may have lost momentum in the past few months. Nevertheless, we expect a rebound in PMI this month.

Czech: Real sector growth continues to disappoint relative to the very high PMI levels.


Poland: Repo rate (%) Jun 2.50 2.50 2.50 2.50 2.50

08:00 Romania: Retail sales (% y/y) Apr 5.0 7.5 11.9 - -

08:00 Turkey: CPI (% y/y) May 7.9 8.4 9.4 10.0 10.1

Poland: The NBP will likely remain on hold this month given its forward guidance of no change until at least September. Both inflation and growth have been below expectations, and the NBP could change its forecast in July with its Inflation report. We do not think a rate cut is likely and think the next move will be a hike in mid-2015, or possibly later.

Romania: Strong recovery in private consumption continues.

Turkey: Inflation is likely to accelerate close to 10% y/y in May, though this will likely be its peak. In June, we expect inflation to drop due to favourable base effects; however, it is far from clear how strong disinflation in H2 will be.


08:00 Hungary: Retail trade IA (% y/y) Apr 6.2 6.7 8.3 7.8 -

Russia: CPI (% y/y) May 6.2 6.9 7.3 7.6 -

Hungary: We expect domestic consumer spending to have remained elevated as CPI is falling and wages are starting to rise (though mainly supported by public sector wages hikes).

Russia: Despite some RUB appreciation in recent weeks, inflation remains under the influence of the significant depreciation from January to April, as well as rising inflation expectations.

30 May 2014 34

Barclays | Global Economics Weekly Thursday 5 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

08:00 Czech: Retail sales (% y/y) Apr 6.4 8.1 5.2 7.2 -

08:00 Hungary: Industrial production WDA (% y/y) Apr P 6.4 8.2 8.1 7.3 -

Czech: Domestic demand will strengthen during Q2, in our view.

Hungary: Production is likely to keep rising, though at a slightly decelerated rate.


08:00 Hungary: Trade balance (EUR bn) Apr P 0.5 0.8 0.6 0.7 -

08:00 Czech: Industrial output (% y/y) Apr 5.7 6.7 8.7 7.8 -

09:00 Czech: Current account (EUR bn) Q1 -536.0 -1631.4 -370.9 2500 -

Ukraine: CPI (% y/y) May 1.2 3.4 6.9 9.5 -

Ukraine: Official reserve assets (USD bn) May 15.5 15.1 14.2 17.0 -

Hungary: The positive trade balance will likely be extended as exports and imports increase gradually due to increases in food and car exports.

Czech: Current account moving into positive territory while IP remains elevated.

Ukraine: Inflation will likely continue its sharp acceleration due to pass-through from exchange rate weakness and a hike in gas tariffs. Foreign reserves were boosted by the first tranche of the IMF loan disbursed in May.

30 May 2014 35

Barclays | Global Economics Weekly OUTLOOK: SUB-SAHARAN AFRICA

South Africa at risk of technical recession • South Africa’s Q1 GDP contracted 0.6% q/q saar, due to electricity shortages and the

platinum sector strike, and a further contraction in Q1 is a real risk.

• Although Zambia’s headline inflation was unchanged in May at 7.8% y/y, we believe a tightening bias on monetary policy remains.

• Next week the focus is likely to be on Uganda’s MPC meeting, where we expect rates to be on hold.

South Africa’s growth momentum has deteriorated markedly Real GDP contracted by 0.6% q/q saar in Q1 14, in between Barclays' forecast of -0.8% q/q saar and the consensus forecast of -0.2% q/q saar (this equals 1.8% y/y growth). We caution that annualizing quarterly growth figures tends to magnify small differences in actual level forecasts. The contraction, which is the first since the 2008/09 global financial crisis, had two principal causes: the strike in the platinum sector, which started on 23 January; and the ongoing electricity shortages, which culminated in actual load shedding on 6 March 2014 and reduced electricity supply to industrial customers on a number of other occasions. These supply-side shocks caused contractions of gross value added in two sectors primarily: mining and quarrying (down 24.7% q/q saar) and manufacturing (down 4.4% q/q saar). Many downstream and upstream industries close to the mining sector – for example, steel – have been hit by the loss of business and product from the platinum mines, with the mining companies having declared force majeure to many of their suppliers. Outside of the mining and manufacturing industries, however, the economy continued to trundle along in Q1 14, expanding 1.8 q/q saar after 1.6% q/q saar in Q4 13.

On the assumption that South Africa enjoys a modest growth recovery of 1% q/q saar in Q2, and further gradual pickup in the second half of the year, South Africa can expect to show overall GDP growth of about 1.5% this year. However, we think there are downside risks to the assumption of a 1% growth number for Q2. First, the platinum sector strike continues to drag on; even if it resolves tomorrow, output for the sector is likely to be lower than in Q1, since it will take some time for the platinum mines to become fully operational

Peter Worthington

+27 21 927 6525

[email protected]

Ridle Markus

+27 11 895 5374

[email protected]

Dumisani Ngwenya


FIGURE 1 South African mining and manufacturing output is volatile

FIGURE 2 Zambia: Currency depreciation poses upside risk to inflation

Source: StatsSA, Barclays Research Source: Reuters, Barclays Research

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30 May 2014 36


again. Second, the very limited activity and confidence data available so far point to a very weak start to Q2 14. For example, seasonally adjusted BER PMI for the manufacturing sector took a very sharp tumble in April to 47.4 from an average of 50.6 in Q1 14, and car sales for April were also very weak. An unhelpful dispersion of an unusually high number of public holidays in April could have skewed the data a bit, and we therefore keenly await the May PMI and car sales data due out next week, and the first hard output numbers for the mining and manufacturing sectors starting the week after. Nonetheless, although it is early days, data-wise, we cannot entirely discount the possibility of a second successive quarter of slightly negative q/q overall growth (in other words, a technical recession). A bumper maize harvest and tourism season may provide some offset to further shrinkage of mining and manufacturing, but even if overall real GDP is simply flat compared with Q1, then real GDP for 2014 as a whole is not likely to top 1.3%. We do not expect a rapid rebound. As noted previously, it will take a lot of time for the platinum mines to restore production to pre-strike levels. Also, we think the electricity shortages will continue to drag on growth, especially during these colder winter months. We think the electricity constraint is likely to bind until at least 2 units of the Medupi power plant are connected to the grid, which we do not expect until the end of 2015. In the nearer term, we think the wage discussions which have just opened in the key steel and engineering industries should be monitored carefully for signs that they may deadlock into strike action. From a demand-side perspective, we would expect most of the growth hit to be felt in inventories and exports.

Policy tightening risks persist despite unchanged May inflation print Zambian headline inflation remained unchanged at 7.8% y/y in May (from April), which was in line with our expectations. However, inflation edged up 0.7% over the month. Food and non-alcoholic beverages inflation rose to 8% y/y in May from 7.6% in April. The unchanged headline print was mainly as a result of base effects, which offset the rise in fuel prices during the month. The overall outlook for inflation remains clouded by a rapidly depreciating exchange rate, while the increase in food prices may also be viewed with some concern. However, while acknowledging the upside risk the exchange rate poses to the inflation outlook, the Bank of Zambia’s (BoZ) MPC believes that the recent good harvests will result in an improvement in food supply, thereby pushing food inflation lower.

Our inflation projections point to a rise to above 8% in the medium term, though the exchange rate remains the biggest threat to the outlook. The ZMW has depreciated around 20% year-to-date (vs USD), and we believe that it may depreciate further amid a shortage of USD in the market. The BoZ has so far provided limited support to the currency, resisting the introduction of any FX measures. In a statement on its website on 29 May, the BoZ identified the lower copper prices as a key reason for the currency’s woes. The BoZ assured the public that the prospects for the economy remain positive and strong with growth expected to exceed 7% in 2014, while the year-end inflation target has been maintained at 6.5%. The Bank added that it will continue to “prudently” intervene in the FX market, while advising the public to “desist from taking any speculative positions on the kwacha”. Though the Bank failed to announce any measures to stem the currency’s depreciation, we expect action to be taken well ahead of the next MPC meeting on 7 August. Therefore, we believe that the bias remains towards policy tightening in coming months.

Next week, the focus will be on Uganda’s MPC, where inflation has continued to decline. In particular, core inflation has eased to 3.3% y/y in May from 3.4% previously, while headline inflation decelerated to 5.4% in May from 6.7% in April. Core inflation has remained within the 5% medium-term target since the start of the year. The Bank of Uganda’s MPC noted at its May meeting that it expects inflation to remain relatively moderate in the near term, in line with our expectations. As such, we expect monetary policy to be kept unchanged at its June MPC meeting.

Zambian inflation unchanged in May at 7.8% y/y

Depreciating currency the biggest inflation risk in Zambia

With positive inflation outlook, the Bank of Uganda is expected to hold its policy rate unchanged next week

30 May 2014 37

Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: SUB-SAHARAN AFRICA Ridle Markus, Peter Worthington, Dumisani Ngwenya, Miyelani Maluleke



South Africa: Leading indicator Mar 99.6 NA 99.1 The slight decline points to subdued growth momentum.

South Africa: Real GDP, % y/y Q1 14 2.0 1.7 1.6 The strike in the platinum sector and energy shortages severely knocked growth in Q1, with the first quarterly contraction since the 2008-09 global financial crisis. South Africa: Real GDP, % q/q saar Q1 14 3.8 -0.8 -0.6

South Africa: Producer prices (% y/y) Apr 8.2 8.6 8.8 Another upside surprise in producer prices, but pass-

through to consumer prices remains limited.

Uganda: CPI (% y/y) May 6.7 6.8 5.4 Food prices fell significantly more than we expected.

Kenya: CPI (% y/y) May 6.4 6.7 7.3 Explained by unfavourable base effects (transport) as well

as higher food prices.

Angola: Policy rate (%) - 9.25 9.25 9.25 As expected. Further disinflation possible in the short term.

Zambia: CPI (% y/y) May 7.8 7.8 7.8 Base effects offset the effect of m/m price increases.

Preview of the week ahead Friday, 30 May Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

08:00 South Africa: PSCE (% y/y) Apr 8.2 8.7 8.8 9.3 8.8

14:00 South Africa: Trade balance (ZAR bn) Apr -16.9 0.7 -11.4 -10.0 n/a

14:00 South Africa: Main budget balance (ZAR bn) Apr -26.3 14.5 -23.4 -35.0 n/a

South Africa: Household credit growth is likely to have remained subdued, but strong corporate credit uptake and base effects should lead the y/y rate of growth in total private sector credit to accelerate. We expect the effect of the platinum sector strike to show up in the April merchandise trade data, which underpins our view of another large deficit (see “SSA Outlook” for more details). Provisional financing data point to a large budget deficit in April, but these need to be adjusted for the timing of some late requests and other payment flows.

Monday, 2 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

11:00 South Africa: BER manufacturing PMI May 51.7 50.3 47.4 48.5 -

- South Africa: Vehicle sales May -3.1 -0.2 -10.5 -7.0 -

South Africa: April’s PMI and car sales data indicated a very weak start to Q2, but they may have been skewed by the unhelpful distribution of a particularly high number of holidays in the month. We think the underlying economy is quite weak, but that there may be a little moderation in the same indicators for May.

Wednesday, 4 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

12:00 Uganda: Policy rate (%) - 11.50 11.50 11.50 11.50 -

Uganda: We expect the Bank of Uganda to remain on hold with inflation at comfortable levels and the growth outlook positive. Core inflation (3.3% y/y in May) has been below the 5% target since the start of the year and is expected to remain contained in upcoming months, amid limited FX pressures.

Friday, 6 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

- Mozambique: CPI (% y/y) May 2.3 3.6 3.6 4.3 -

- Mauritius: CPI (% y/y) May 5.6 4.5 4.2 4.4 -

- Seychelles: CPI (% y/y) May 2.3 2.2 2.2 2.2 -

Mozambique: We expect headline inflation (Maputo CPI) to have risen due to base effects (food). Inflation is likely to end the year close to the 5.6% year-end target,, in our view.

Mauritius: Food inflation may have risen, pulling overall inflation higher. Food prices have been volatile since the start of 2014, posing risks in both directions. We see upside risks to the BoM’s 3.9-4.3% y/y inflation forecast for year-end.

Seychelles: Both food and non-food inflation remain subdued despite some recent pressures on the SCR. There is a possibility that food inflation (latest: 0.1% y/y) may enter negative territory, resulting in a decline in the headline print.

30 May 2014 38

Barclays | Global Economics Weekly OUTLOOK: LATIN AMERICA

There is still a hawk out there • Central bankers in LatAm are shifting place, as the Brazilian Copom pause has

allowed the Colombian Banrep to assume the hawkish seat.

• Banxico should keep rates unchanged at its June 6 meeting, but the statement is likely to be more neutral.

Brazilian monetary authorities sanctioned market expectations this past Wednesday by maintaining the target Selic interest rate at 11% and interrupting a 13-month long hiking cycle responsible for 375bp of rate rises. And while its communiqué was laconic, it gave an important signal that this may just be a pause, not necessarily the end of the hiking cycle (see Brazil: BCB Pauses, As Expected, 28 May). Our base case scenario is that whoever is elected in this year’s election (October 5) will probably have to re-anchor inflation expectations. Headline IPCA will likely be trending at the upper bound of the target by year-end 2014 (we are forecasting 6.4%, while the latest BCB focus survey has it a tad higher at 4.47%, Figure 1), and as we move into 2015, hikes in repressed regulated prices should offset the slowdown of the demand-sensitive component of inflation. And, in our view, the main question mark remains activity, which could change the expected course of monetary policy swiftly if the slowdown is more severe than expected.

On this front, May sentiment data, both consumer and business experienced one of the steepest contractions since the 2008-09 global financial crisis (Figure 2). Consumer confidence collapsed 3.3% while business confidence slumped 5.1% from April, signalling that if activity follows suit, the BCB’s upcoming decisions are still to be defined.

In Mexico, Banxico’s next monetary policy meeting will be June 6. At the April 25 meeting, the board decided to maintain the reference rate at 3.50%, in a unanimous vote, and stated that while the balance of risks for inflation remains benign, the activity outlook started to improve. At this next meeting, we expect the board to remain on hold one more time, but to deliver a very neutral statement, given the recent developments in inflation and growth. Inflation has behaved well, reaching 3.4% y/y in the first fortnight of May, and is expected to remain under control in the coming months. In terms of economic activity, growth has been very modest, as GDP expanded only 0.3% q/q sa in Q1 14. In fact, while in the latest

Alejandro Arreaza

+1 212 412 3021

[email protected]

Marco Oviedo

+52 55 5241 3331

[email protected]

Marcelo Salomon


FIGURE 1 Inflation to remain high and sticky in Brazil…

FIGURE 2 …while consumer and business sentiment take big hits

Source: IBGE, Barclays Research Source: FGV, Barclays Research

Activity should be the bellwether for what the Copom does next

Banxico to keep rates unchanged on June 6, with a neutral bias

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30 May 2014 39



Quarterly Inflation Report Banxico adjusted its 2014 real GDP annual growth forecast to 2.3-3.3% from 3-4% previously, it also expects growth to start accelerating soon. The latest releases support that view. April high frequency indicators have been very positive (ANTAD same-store sales, employment, manufacturing exports and car production), and this will likely be a highlight of the next meeting’s communiqué, supporting the board’s confidence on the timing of the recovery. We also expect to get a better understanding of how the board sees the balance of risks for monetary policy normalization in the US, especially the consequences of the end of tapering and a possible anticipation of rate hikes, if inflation ticks up in that country. Nevertheless, we believe that this will not spark the need to act pre-emptively in normalizing policy in Mexico. We believe the board will show a strong neutral position and the intention to remain on hold for a prolonged time.

At its previous meeting, the Colombian central bank, Banrep, surprised by hiking rates earlier than we and the consensus had expected (we were expecting the tightening cycle to start in July). Given that inflation is still benign and that the risk of the GDP gap closing faster than expected is low, we maintain our 4.75% year-end rate forecast but now expect Banrep to normalize rates earlier, though still in a gradual manner (which could include pauses in between hikes). As we go to press, Banrep is expected to announce its rate decision (May 30); to assess what to expect, we have to evaluate what has happened since the last meeting. April inflation was higher than expected (0.46% vs. 0.32% consensus). Even if it was driven mainly by food and energy, it moved y/y inflation closer to the center of the target (2.72% y/y vs. 3.0% target). On the activity side, retail sales and industrial production in March performed stronger than the consensus (the former grew 8.3% and the latter 9.8%, vs. 6.2% and 7.9% expected). Finally, on the political front, we had a surprise in the first round of the presidential elections last week, as President Santos came in second place behind the opposition candidate Oscar Zuluaga. There will still be a second round of voting on June 15, but this unexpectedly strong showing of the opposition is setting up a much more challenging race for Santos’s re-election. And even though Banrep has followed a very independent policy path, the most recent surprise hike happened in a split decision, and the part of the board that voted for maintaining rates (which is likely to have been led by the Minister of Finance) is unlikely to change course now. Despite these pressures, we believe Banrep will hike again by 25bp, lifting the target rate to 3.75%.

FIGURE 3 Mexican exports have accelerated in April…

FIGURE 4 ,,,while employment has improved and inflation is tame

Source: Inegi, Barclays Research Source: INEGI, IMSS, Barclays Research

Colombian Banrep to hike again, despite political pressure

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30 May 2014 40

Barclays | Global Economics Weekly DATA REVIEW & PREVIEW: LATIN AMERICA

Alejandro Arreaza, Marco Oviedo, Bruno Rovai, Sebastian Vargas

Review of the week’s data releases


Peru: GDP, % y/y Q1 14 5.2 - 4.8

Brazil: Tax collections, BRL bn Apr 86.6 - 105.8 Tax collections increased only 0.93% y/y in real terms

Mexico: Trade balance, USD mn April 1026.6 - 509.6 Manufacturing exports increased 2.1% m/m sa

Brazil: Selic overnight rate, % May 11.00 11.00 11.00 BCB remains data dependent; this decision is a pause, rather than the end of the cycle

Brazil: IGP-M inflation, % m/m May 0.78 0.03 -0.13 Stronger declines in agricultural and industrial PPI lead wholesale prices to negative territory



1:00 Peru: CPI inflation, % m/m May 0.60 0.52 0.39 0.15 0.18

1:00 Peru: WPI inflation, % m/m May 0.20 0.38 0.06 - -


- Chile: BCCh meeting minutes May - - - - -

10:00 Mexico: Remittances, USD mn Apr 1590.2 1679.9 2056.0 - -

14:00 Brazil: Trade balance, USD mn May -2125 112 506 -50 -


8:00 Brazil: Industrial production, % y/y Apr -1.8 4.4 -0.9 -6.3 -

13:00 Uruguay: Unemployment rate, % Apr 6.7 7.0 6.3 -6.4 -

13:00 Uruguay: CPI inflation, % m/m May 1.66 0.58 -0.06 0.4 -

17:00 Colombia: PPI inflation, % m/m May 1.2 1.7 0.4 - 0.30

Brazil industrial production: We expect industrial production to contract 0.4% m/m sa, driven by a deceleration in most leading indicators. Despite the 0.9% m/m sa expansion in auto production in April, corrugated paper declined 0.6% m/m sa, steel production contracted 3.4% m/m sa, utility capacity levels slowed 30bp, while business confidence index contracted 0.6% m/m.


7:30 Brazil: COPOM meetings May - - - - -

8:30 Chile: Economic activity index, % y/y Apr 1.5 3.4 3.0 - -

9:00 Mexico: Consumer confidence index May 1.66 0.58 -0.06 - -

Brazil COPOM meetings: The minutes will be very important in gauging how the slowdown of economic activity is being perceived by the monetary authority. We expect the BCB to mention the declines in food prices, a deceleration in private demand driven by worsening business and consumer sentiment, and the lagged effects of its past hikes, to have played an important role in its decision.


7:00 Brazil: IGP-DI inflation, % m/m May 0.85 1.48 0.45 -0.19 -

8:00 Brazil IPCA inflation, % m/m May 0.69 0.92 0.67 0.40 -

8:00 Chile: CPI inflation, % m/m May 0.5 0.8 0.6 - -

8:00 Chile: CPI ex-perish&fuel, % y/y May 0.4 0.7 0.8 - -

10:00 Mexico: Overnight rate, % Jun 3.50 3.50 3.50 3.50 -

Brazil IPCA inflation: We expect a significant deceleration in prices in May, as we forecast IPCA to print at 0.40% m/m. The highlights of the report will likely come from lower food and transportation group prices, with the latter being supported by a stronger decline in air fares, as well as a reduction in fuel prices. In annual terms, our forecast is consistent with IPCA moving a tad up, to 6.31% y/y from 6.28%.

30 May 2014 41

Barclays | Global Economics Weekly Mexico overnight rate: We expect the board of Banxico to remain on hold one more time, leaving the overnight rate unchanged at 3.50% under a very neutral tone, highlighting that the April data suggest that the recovery of the economy is on track and that inflation remains under control.

Week 02-06 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus

- Argentina: Govern. Tax revenue, RS bn May 81.2 78.7 92.7 - -

- Venezuela: CPI inflation, % m/m May 3.3 2.4 4.1 7.1 -

30 May 2014 42

Barclays | Global Economics Weekly COUNTRY SNAPSHOT: AUSTRALIA

2013 2014 2015 Calendar year average

% change Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014E 2015E

Real GDP (% chg, q/q) 0.5 0.8 0.6 0.8 0.6 0.5 0.6 0.8 0.9 1.0 1.1 0.9 .. .. .. ..

Real GDP (% chg, y/y) 2.1 2.4 2.4 2.8 2.9 2.6 2.6 2.5 2.8 3.3 3.8 4.0 3.6 2.4 2.6 3.5

Private consumption (% y/y) 1.5 1.7 2.1 2.6 2.9 3.1 3.4 3.5 3.6 3.8 4.0 4.1 2.5 2.0 3.2 3.9

Public consumption (% y/y) 0.4 -0.3 1.6 2.7 1.9 2.1 1.1 0.5 0.2 0.1 0.6 1.3 2.8 1.1 1.4 0.6

Investment (% y/y) -4.0 -1.5 -3.5 -3.5 -0.8 -6.1 -6.3 -6.9 -6.0 -3.1 -0.6 1.5 8.4 -3.1 -5.0 -2.1

Inventories contribution (pp) -0.9 0.0 -0.6 -0.3 0.3 0.0 0.4 0.5 0.2 0.2 0.1 0.0 0.0 -0.6 0.3 0.1

Exports (% y/y) 7.6 7.2 5.9 6.5 6.3 7.2 9.7 10.1 10.9 10.9 10.9 10.1 5.8 6.8 8.3 10.7

Imports (% y/y) -3.4 -0.1 -3.1 -4.6 -1.1 -4.8 -1.6 -0.8 0.4 2.5 4.7 6.7 6.1 -2.8 -2.1 3.6

Net exports contribution (pp) 2.3 1.6 1.9 2.4 1.6 2.6 2.5 2.4 2.4 2.1 1.7 1.2 -0.1 2.1 2.3 1.8

Nominal GDP (% chg, q/q) 1.1 1.2 0.8 1.6 0.9 0.2 0.0 0.6 1.2 1.5 1.5 1.4 3.7 3.8 3.1 4..0

Unemployment rate (end, %) 5.5 5.6 5.7 5.8 5.8 6.0 5.9 5.9 5.8 5.8 5.7 5.7 5.2 5.7 5.9 5.8

CPI inflation (y/y) 2.5 2.4 2.2 2.7 2.9 3.3 2.6 2.3 2.5 2.5 2.8 3.0 1.8 2.4 2.8 2.7

Underlying CPI (y/y) 2.4 2.5 2.3 2.6 2.7 2.9 2.6 2.4 2.7 2.7 3.0 3.2 2.3 2.4 2.6 2.9

Current account (% GDP) -2.8 -3.2 -3.2 -2.6 -2.6 -3.0 -3.5 -3.6 -3.5 -3.5 -3.6 -3.7 -4.1 -2.9 -3.2 -3.6

RBA cash rate (period end, %) 3.00 2.75 2.50 2.50 2.50 2.50 2.50 2.50 2.75 3.00 3.25 3.50 3.00 2.50 2.50 3.50

Source: Australian Bureau of Statistics, Reserve Bank of Australia, Barclays Research

COUNTRY SNAPSHOT: BRAZIL

% change q/q saar (unless otherwise stated)


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014E 2015E

Real GDP 0.0 7.5 -2.1 2.8 1.2 2.4 2.4 2.4 2.0 2.4 2.8 3.0 … … … …

Real GDP (% y/y) 1.7 3.3 2.2 2.0 2.3 1.1 2.2 2.1 2.3 2.3 2.4 2.6 1.0 2.3 1.9 2.4

Private consumption -0.4 1.4 3.9 2.7 1.6 0.8 1.4 1.8 2.4 2.4 2.6 2.8 3.2 2.3 2.0 2.1

Public consumption -1.7 2.9 3.8 3.2 -0.8 2.0 2.8 2.4 1.6 1.2 2.0 1.6 3.3 1.9 1.9 1.9

Investment 16.7 15.4 -7.9 1.2 -5.1 1.6 1.2 2.0 2.8 2.8 3.2 3.6 -4.0 6.3 0.9 2.5

Exports -14.3 27.8 -4.8 17.5 -5.9 5.7 4.9 4.5 3.6 3.2 2.8 2.8 0.5 2.5 7.6 3.8

Imports 22.6 1.6 -1.9 -0.5 2.0 -3.9 -2.0 0.0 2.0 4.1 4.5 4.9 0.2 8.4 -3.2 1.7

Net exports (contr, % y/y) -1.7 -0.4 -1.6 -0.1 0.8 0.5 0.8 0.4 0.7 0.3 0.0 -0.2 0.0 -0.9 1.4 0.2

Nominal GDP (in BRL) 15.6 11.6 4.4 9.1 7.8 8.7 9.6 7.7 7.5 7.2 8.8 8.8 6.0 10.2 8.4 8.4

Industrial output (PA) 6.7 1.2 -4.4 -2.7 1.2 2.2 1.9 2.2 2.6 2.3 2.6 2.8 -2.6 1.4 0.1 2.4

CPI inflation (% y/y)* 6.6 6.7 5.9 5.9 6.2 6.4 6.8 6.4 6.2 5.6 5.6 5.6 5.8 5.9 6.4 5.6

CPI inflation (% y/y, PA) 6.4 6.6 6.1 5.8 5.8 6.3 6.8 6.7 6.5 5.7 5.5 5.6 5.4 6.2 6.4 5.8

Unemployment rate % (PA) 5.4 5.0 5.5 5.7 5.8 6.0 6.2 6.4 6.5 6.4 6.3 6.1 5.7 5.4 6.1 6.3

Key central bank rate (EOP)* 7.25 8.00 9.00 10.00 11.00 11.00 11.00 11.00 12.00 12.00 12.00 12.00 7.25 10.00 11.00 12.00

Current account (% GDP)* -3.0 -3.2 -3.6 -3.7 -3.4 -3.2 -3.0 -3.3 -2.8 -2.8 -2.7 -2.5 -2.4 -3.7 -3.3 -2.5

Government balance (% GDP)* -2.8 -2.8 -3.3 -3.3 -3.0 -2.8 -2.8 -3.5 -3.5 -3.4 -3.3 -3.5 -2.5 -3.3 -3.9 -3.5

Gross public debt (% GDP)* 59.4 59.1 58.3 57.2 59.4 59.5 59.7 58.1 60.2 60.4 60.6 58.6 58.8 57.2 58.1 58.6

Gross external debt (% GDP)* 14.5 14.2 13.8 14.1 14.5 14.1 14.0 14.0 13.9 13.9 13.7 13.7 14.0 14.1 14.0 13.7

Note: *End of period for quarters and years. Source: IBGE, BCB, National Treasury, Barclays Research

30 May 2014 43

Barclays | Global Economics Weekly COUNTRY SNAPSHOT: CHINA


% change y/y Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2012 2013 2014E 2015E

Real GDP 7.7 7.5 7.8 7.7 7.4 7.2 7.2 7.2 7.3 7.4 7.2 6.9 7.7 7.7 7.2 7.2

Real GDP (q/q, saar) 6.5 8.0 8.4 7.5 5.8 6.8 8.2 8.2 6.1 7.2 7.2 7.2 … … … …

Real GDP (% y/y, YTD) 7.7 7.6 7.7 7.7 7.4 7.3 7.3 7.2 7.3 7.4 7.3 7.2 … … … …

Consumption* (pp) 4.3 3.4 3.5 3.9 5.7 4.1 3.7 3.7 3.5 3.5 3.5 3.5 4.2 3.9 3.7 3.5

Investment* (pp) 2.3 4.1 4.3 4.1 3.1 4.0 4.0 3.7 3.8 3.8 3.6 3.5 3.6 4.1 3.7 3.5

Net exports contribution* (pp) 1.1 0.1 -0.1 -0.3 -1.4 -0.8 -0.4 -0.2 0.0 0.1 0.2 0.2 -0.2 -0.3 -0.2 0.2

Industrial output 9.5 9.1 10.1 10.0 8.7 8.5 8.3 8.3 8.8 9.0 8.4 7.8 10.0 9.7 8.5 8.5

CPI inflation 2.4 2.4 2.8 2.9 2.3 2.0 2.5 2.9 3.2 3.4 2.8 2.6 2.6 2.6 2.4 3.0

Unemployment rate (%) 4.1 4.1 4.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1 4.1

Current account (% GDP) 2.2 2.2 1.7 2.1 0.0 2.8 2.0 2.8 1.0 1.9 2.0 2.9 2.3 2.0 1.9 2.0

Government balance (% GDP) … … … … … … … … … … … … -1.7 -1.9 -2.2 -2.2

Key CB rate (period end, %) 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00

Note: All numbers are expressed in y/y % change unless otherwise specified. *Contributions by GDP expenditure components are all reported as “year to date” numbers officially. Source: Barclays Research

COUNTRY SNAPSHOT: EURO AREA

% change q/q


Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2012 2013 2014E 2015E

Real GDP -0.2 0.3 0.1 0.2 0.2 0.4 0.4 0.4 0.4 0.4 0.3 0.3 ... ... ... ... Real GDP (saar) -0.8 1.3 0.6 0.9 0.8 1.8 1.7 1.6 1.5 1.5 1.3 1.3 ... ... ... ... Real GDP (y/y) -1.1 -0.6 -0.3 0.5 0.9 1.0 1.3 1.5 1.7 1.6 1.5 1.4 -0.6 -0.4 1.2 1.5 Private consumption -0.2 0.1 0.1 0.1 0.1 0.4 0.3 0.3 0.3 0.3 0.3 0.3 -1.4 -0.7 0.8 1.2 Public consumption 0.2 -0.1 0.4 -0.3 0.6 0.2 0.2 0.2 0.2 0.2 0.2 0.2 -0.6 0.1 0.8 0.8 Investment -1.7 0.1 0.5 1.1 0.3 0.6 0.8 0.8 0.6 0.5 0.5 0.5 -3.8 -2.9 2.5 2.5 - Residential construction -1.4 -0.6 0.8 -0.2 0.3 0.2 0.4 0.4 0.3 0.3 0.3 0.4 -3.3 -3.6 0.8 1.3 - Non-residential construction -2.7 -0.2 0.4 0.5 0.1 0.3 0.6 0.6 0.4 0.4 0.4 0.4 -4.7 -4.3 1.3 1.9 - Non-construction investment -1.4 0.8 0.4 2.1 0.4 1.1 1.1 1.1 0.9 0.7 0.7 0.7 -3.6 -1.7 4.1 3.6 Inventories contribution (pp) 0.1 -0.1 0.3 -0.3 0.3 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 -0.5 -0.1 -0.1 0.0 Final dom. demand cont. (pp) -0.4 0.1 0.2 0.2 0.3 0.4 0.4 0.4 0.3 0.3 0.3 0.3 -1.7 -0.9 1.1 1.4 Net exports contribution (pp) 0.1 0.4 -0.3 0.4 -0.3 0.2 0.1 0.1 0.1 0.1 0.0 0.0 1.5 0.6 0.1 0.3 Industrial output (ex construct.) 0.3 0.7 0.0 0.5 0.2 0.3 0.3 0.4 0.6 0.7 0.7 0.8 -2.5 -0.7 1.3 2.2 Employment (q/q) -0.5 0.0 0.0 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 -0.5 -0.9 0.4 0.8 Unemployment rate % 12.0 12.0 12.0 11.9 11.8 11.8 11.7 11.6 11.5 11.4 11.3 11.2 11.3 12.0 11.7 11.3 CPI inflation (y/y) 1.9 1.4 1.3 0.8 0.7 0.6 0.5 0.6 0.7 0.9 1.0 1.1 2.5 1.4 0.6 0.9 Core CPI (ex food/energy) y/y 1.4 1.1 1.1 0.8 0.8 0.9 0.8 0.9 0.9 1.2 1.2 1.3 1.5 1.1 0.9 1.2 Current account % GDP 2.2 2.6 2.1 2.8 2.3 2.4 2.4 2.4 2.4 2.3 2.3 2.2 1.5 2.4 2.4 2.3 Government balance % GDP … … … … … … … … … … … … -3.7 -3.1 -2.6 -2.1 Refi rate (period end %) 0.75 0.50 0.50 0.25 0.25 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.75 0.25 0.10 0.10

Note: All numbers expressed in % q/q unless otherwise specified. Source: Barclays Research

30 May 2014 44

Barclays | Global Economics Weekly COUNTRY SNAPSHOT: INDIA

FY 13-14 FY 14-15 FY 15-16 Fiscal year average

% change y/y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012-

13 2013-

14 2014-

15 2015-

16

Real GDP 4.7 5.2 4.6 4.6 4.9 5.2 5.6 6.4 6.5 6.5 6.5 6.3 4.5 4.7 5.6 6.4

Private consumption 5.6 2.8 2.8 8.2 5.5 5.5 6.3 6.3 6.5 6.5 6.8 6.8 5.0 4.8 5.9 6.6

Public consumption 12.9 -0.1 3.6 -0.4 8.0 5.0 7.0 7.0 7.0 7.0 7.0 7.0 6.2 3.8 6.8 7.0

Fixed investment -2.8 3.1 0.2 -0.9 4.5 5.0 5.5 6.0 6.5 6.5 7.0 7.0 0.8 -0.1 5.3 6.8

WPI inflation (average) 4.8 6.6 7.0 5.2 6.0 5.4 4.9 5.5 5.7 5.7 5.6 5.5 7.4 5.9 5.4 5.6

CPI inflation (average) 9.5 9.7 10.4 8.4 8.0 6.6 5.9 7.9 7.0 7.5 7.0 6.5 10.2 9.5 7.1 7.0

Current account (% GDP) … … … … … … … … … … … … -4.7 -1.7 -2.0 -2.4

General govt balance (% GDP) … … … … … … … … … … … … -7.4 -7.2 -7.0 -7.0

Repo rate (period end, %) 7.25 7.50 7.75 8.00 8.00 7.75 7.50 7.50 7.50 7.50 7.50 7.50 7.50 8.00 7.50 7.50 Note: Values expressed in y/y % unless otherwise specified. India’s fiscal year begins in April and ends in March. Source: Barclays Research

COUNTRY SNAPSHOT: JAPAN


% change q/q Q1 Q2 Q3 Q4 Q1 Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2012 2013 2014E 2015E

Real GDP 1.2 0.9 0.3 0.1 1.5 -0.9 0.5 0.6 0.4 0.3 0.6 -0.1

Real GDP (q/q, saar) 4.9 3.5 1.3 0.3 5.9 -3.7 1.9 2.2 1.5 1.2 2.6 -0.5

Real GDP (y/y) 0.1 1.3 2.4 2.5 3.0 0.9 1.1 1.6 0.5 1.7 1.9 1.2 1.4 1.6 1.6 1.3

Private consumption 1.0 0.7 0.2 0.4 2.1 -2.2 0.3 0.2 0.2 0.2 0.8 -0.8 2.0 2.0 1.2 0.3

Public consumption 0.9 0.7 0.2 0.3 0.1 0.3 0.4 0.3 0.4 0.3 0.2 0.3 1.7 2.2 1.1 1.3

Residential investment 1.8 0.8 3.3 4.3 3.1 -4.5 -2.9 0.3 0.4 1.7 1.2 -0.3 2.9 8.9 3.0 -0.2

Public investment 4.5 6.4 6.9 1.2 -2.4 2.1 3.6 1.9 -0.2 -2.2 -1.7 -0.6 2.8 11.4 7.3 0.8

Capital Investment -2.0 1.0 0.7 1.4 4.9 2.4 -0.3 0.9 1.1 1.3 1.5 0.8 3.7 -1.5 8.7 4.2

Net exports (q/q cont.) 0.4 0.1 -0.5 -0.6 -0.3 -0.2 0.0 0.0 -0.0 -0.1 -0.1 0.2 -0.9 -0.3 -1.2 -0.1

Exports 4.3 2.9 -0.7 0.5 6.0 0.7 1.7 1.8 1.7 1.5 1.5 1.6 -0.1 1.7 8.8 6.5

Imports 1.1 1.8 2.4 3.7 6.3 2.3 1.2 1.5 1.6 1.6 1.8 0.5 5.3 3.4 14.0 6.3

Ch. Inventories (q/q cont.) 0.0 -0.3 0.1 -0.0 -0.2 0.1 0.1 0.1 -0.0 -0.0 -0.0 -0.0 0.1 -0.3 -0.1 0.1

Nominal GDP 0.8 0.9 0.2 0.2 1.2 -0.4 0.6 0.6 0.5 0.2 0.6 0.4 0.5 0.9 1.9 1.8

Industrial output 0.5 1.6 1.8 1.8 2.9 -2.5 0.8 2.0 1.5 1.4 1.7 -1.4 0.6 -0.8 4.6 4.3

Employment 0.2 0.3 0.3 0.4 -0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.5 0.8 0.9 0.4


CPI inflation (y/y) -0.3 0.0 0.7 1.1 1.3 3.3 3.2 3.3 3.6 1.5 1.6 3.0 -0.1 0.4 2.8 2.4

Core CPI ex food/energy (y/y) -0.8 -0.4 -0.0 0.5 0.6 2.7 2.7 2.8 3.1 1.1 1.2 2.6 -0.6 -0.2 2.2 2.0

Current account (% GDP) 0.8 1.5 0.5 0.0 -1.2 0.8 0.5 0.5 0.5 0.7 0.7 0.7 1.0 0.7 0.2 0.7


Overnight call rate 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Note: Central bank rates are for end of period, %. Source: BoJ, Cabinet Office, METI, MIC, MoF, Barclays Research

30 May 2014 45

Barclays | Global Economics Weekly COUNTRY SNAPSHOT: MEXICO

% change q/q saar (unless otherwise stated)


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013E 2014E 2015E

Real GDP 1.0 -2.9 3.9 0.5 1.1 5.5 4.7 4.5 3.3 3.3 3.3 3.3

Real GDP (% y/y) 0.6 1.6 1.4 0.7 1.8 2.8 2.9 3.9 4.5 3.9 3.6 3.3 3.9 1.1 3.0 3.8

Private consumption 5.6 -1.8 2.3 0.2 1.9 4.5 4.0 3.9 3.2 3.2 3.2 3.2 4.7 2.4 2.5 3.5


Investment -3.7 -3.6 -5.6 0.6 1.5 5.5 6.0 7.0 6.5 5.5 4.2 4.2 4.6 -1.8 1.8 5.8

Exports 9.3 15.8 6.1 -2.2 3.5 4.4 5.3 5.3 5.9 5.9 5.9 5.9 5.9 2.0 3.9 5.6

Imports -2.1 5.8 -9.1 -0.5 5.1 8.0 6.9 6.8 6.1 6.1 6.1 6.1 5.4 1.3 3.3 6.4

Industrial output -1.2 -1.5 1.5 0.0 1.6 4.4 4.8 4.8 4.5 4.5 4.5 4.5 2.6 -0.6 2.2 4.6

Nominal GDP (% y/y) 3.7 2.2 3.3 3.3 3.6 6.0 6.2 7.6 8.2 7.6 7.2 6.9 7.3 3.1 6.5 7.5

CPI inflation (% y/y, avg) 3.7 4.5 3.4 3.7 4.2 3.5 3.9 3.7 3.3 3.7 3.6 3.8 4.1 3.8 3.8 3.6

Unemployment rate (%, avg) 5.0 5.1 4.9 4.7 4.7 4.6 4.4 4.3 4.3 4.2 4.1 4.1 5.0 5.0 4.5 4.2

Key Central Bank rate (%, eop)* 4.00 4.00 3.75 3.50 3.50 3.50 3.50 3.50 3.75 4.00 4.25 4.50 4.50 3.50 3.50 4.50

Current account (% GDP)* … … … …

-1.2 -1.8 -2.7 -2.2

Government balance (% GDP)* … … … …

-2.6 -2.3 -3.5 -3.1

Gross public debt (% GDP)* … … … …

35.3 37.6 38.9 39.2

Gross external debt (% GDP)* … … … …

29.2 29.8 31.7 31.4

Note: *End of period for quarters and years. Source: Haver Analytics, Barclays Research

COUNTRY SNAPSHOT: SOUTH AFRICA

2013 2014 2015 Calendar-year average

% change q/q saar Q1 Q2 Q3 Q4 Q1F Q2F Q3F Q4F Q1F Q2F Q3F Q4F 2012 2013 2014F 2015F

Real GDP 0.8 3.2 0.7 3.8 -0.6 1.0 2.0 3.0 3.1 3.1 3.1 3.2 2.5 1.9 1.5 2.8

Real GDP (y/y) 1.8 1.9 1.8 2.1 1.8 1.2 1.5 1.3 2.3 2.8 3.1 3.2 2.5 1.9 1.5 2.8



Investment 3.8 5.6 7.0 3.1 3.5 2.2 2.8 3.3 4.0 4.2 4.5 4.6 4.4 4.7 3.6 3.8

Exports 5.9 9.0 16.7 3.9 6.0 5.0 5.0 6.4 6.5 6.4 6.4 6.5 0.4 4.2 6.0 6.5

Imports 21.5 7.3 7.0 -18.9 33.2 5.3 5.5 6.6 6.6 6.6 6.6 6.7 6.0 4.7 6.8 6.4

Industrial output (y/y) -0.1 3.3 0.5 1.7 1.5 … … … … … … … 2.1 1.4 … …

CPI inflation (y/y) 5.7 5.7 6.2 5.4 5.9 6.4 6.3 6.7 6.2 5.9 5.7 5.5 5.7 5.8 6.3 5.8

Core CPI ex food/energy (y/y) 5.0 5.2 5.2 5.3 5.4 5.6 5.9 6.1 6.1 5.9 5.7 5.6 4.6 5.2 5.8 5.8

Current account (% GDP) -5.7 -6.2 -6.4 -5.1 -6.1 -5.9 -5.6 -5.5 -5.4 -5.3 -5.2 -5.3 -5.2 -5.8 -5.8 -5.3

Government balance (% GDP)* ... ... ... ... … … … … ... ... ... ... -3.7 -4.3 -4.3 -4.0

Repurchase rate (period end, %) 5.0 5.0 5.0 5.0 5.5 5.5 6.0 6.0 6.5 6.5 7.0 7.0 5.0 5.0 5.8 6.8

Note: All numbers expressed in q/q saar % unless otherwise specified; *Consolidated budget figures represent financial years (ie, FY 09/10 = 2010). Source: SARB, Statistics South Africa, National Treasury, Barclays Research

30 May 2014 46

Barclays | Global Economics Weekly COUNTRY SNAPSHOT: SOUTH KOREA


% Change Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2012 2013 2014E 2015E

Real GDP (q/q, saar) 2.5 4.1 4.4 3.6 3.8 4.9 4.5 3.2 4.5 4.9 4.1 3.6

Real GDP (y/y) 2.1 2.7 3.4 3.7 3.9 4.1 4.2 4.1 4.3 4.3 4.2 4.3 2.3 3.0 4.1 4.2



Investment -2.6 5.0 5.9 7.8 7.8 8.0 8.6 7.0 8.6 6.8 7.0 8.5 -0.2 4.0 7.9 7.7

Exports 5.6 5.9 2.6 3.2 5.4 6.0 6.8 6.8 7.0 7.0 7.5 7.5 5.1 4.3 6.3 7.3

Imports -0.6 1.4 0.6 4.9 5.5 5.6 6.5 6.8 7.5 7.5 8.0 8.5 2.5 1.6 6.1 7.9

Industrial output -0.8 0.0 0.2 1.9 1.6 4.1 5.6 4.6 4.6 4.9 5.2 5.7 1.4 0.3 4.0 5.1


CPI inflation (y/y) 1.6 1.2 1.4 1.1 1.1 1.8 2.4 2.8 2.5 2.5 2.0 2.0 2.2 1.3 2.0 2.3

Current account (% GDP) 3.4 6.6 7.3 7.1 … … … … … … … … 4.2 6.1 5.1 4.1


Key CB rate (period end, %) 2.75 2.50 2.50 2.50 2.50 2.50 2.75 2.75 3.00 3.00 3.25 3.25 2.75 2.50 2.75 3.25 Note: All numbers expressed in y/y basis unless otherwise specified. Source: Barclays Research

COUNTRY SNAPSHOT: UNITED KINGDOM


% Change q/q Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2013 2014E 2015E

Real GDP 0.4 0.8 0.8 0.7 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 ... ... ...

Real GDP (saar) 1.4 3.1 3.4 2.7 3.3 2.6 2.7 2.9 2.8 2.7 2.7 2.7 ... ... ...

Real GDP (y/y) 0.5 1.7 1.8 2.7 3.1 3.0 2.8 2.9 2.7 2.8 2.7 2.7 1.7 3.0 2.7

Private consumption 1.0 0.3 0.8 0.3 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 2.2 2.2 2.4

Public consumption -0.5 1.4 0.6 0.0 0.1 -0.1 -0.3 -0.2 0.0 0.0 0.0 -0.2 0.7 0.4 -0.4

Investment 0.9 4.0 1.9 1.9 0.6 2.6 2.2 2.1 2.0 2.6 1.7 2.1 -0.6 7.6 8.9

Inventories (q/q cont.) -0.7 -0.2 1.1 -0.8 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.1 0.0

Net exports (q/q cont.) 0.5 0.0 -1.1 1.0 0.0 0.0 0.0 0.1 0.0 -0.1 0.0 0.0 0.2 0.2 0.0

Nominal GDP 0.8 0.1 1.5 1.6 1.5 1.2 1.2 1.3 1.3 1.2 1.2 1.2 3.5 5.4 5.1

Industrial output 0.4 0.7 0.6 0.5 0.6 0.5 0.5 0.6 0.5 0.5 0.5 0.5 -0.3 2.3 2.0

Employment -0.1 0.2 0.6 0.6 0.6 0.2 0.1 0.2 0.3 0.3 0.3 0.3 1.3 1.8 1.1

Unemployment rate % 7.8 7.8 7.6 7.2 6.8 6.7 6.7 6.6 6.4 6.4 6.3 6.2 7.6 6.7 6.3

CPI inflation y/y 2.8 2.7 2.7 2.1 1.8 1.8 1.6 1.6 1.7 1.9 1.8 1.9 2.6 1.7 1.9

Core CPI y/y 2.2 1.7 2.0 1.8 ... ... ... ... ... ... ... ... ... ... ...

Current account % GDP -4.1 -2.4 -5.6 -5.4 -3.9 -3.9 -3.4 -3.4 -3.4 -3.5 -2.9 -2.9 -4.4 -3.7 -3.2

Govt. balance % GDP* ... ... ... ... ... ... ... ... ... ... ... ... -5.8 -4.4 -3.2

Bank Rate 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25 0.50 0.50 1.25 Note: *Fiscal year forecasts, 2013 = FY 13-14; excludes the impact of financial sector interventions. Source: ONS, Barclays Research

30 May 2014 47

Barclays | Global Economics Weekly COUNTRY SNAPSHOT: UNITED STATES

% Change q/q saar


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2015

Real GDP 1.1 2.5 4.1 2.6 -1.0 3.0 2.5 2.5 2.5 2.5 3.0 3.0 2.8 1.9 1.9 2.6


Public consumption and invest. -4.2 -0.4 0.4 -5.2 -0.8 -1.0 -0.5 -0.5 -0.5 -0.5 0.0 0.0 -1.0 -2.2 -1.5 -0.5

Residential investment 12.5 14.2 10.3 -7.9 -5.0 10.0 8.0 8.0 8.0 8.0 8.0 8.0 12.9 12.2 2.5 8.1

Equipment investment 1.6 3.3 0.2 10.9 -3.1 8.0 6.0 6.0 6.0 6.0 8.0 8.0 7.6 3.1 4.0 6.5

Intellectual property investment 3.7 -1.5 5.8 4.0 5.1 6.0 5.0 5.0 4.0 4.0 6.0 6.0 3.4 3.1 4.7 4.8

Structures investment -25.7 17.6 13.4 -1.8 -7.5 8.0 6.0 6.0 4.0 4.0 4.0 4.0 12.7 1.3 2.9 4.9

Exports -1.3 8.0 3.9 9.5 -6.0 6.0 6.0 6.0 6.5 6.5 6.5 6.5 3.5 2.7 3.3 6.3

Imports 0.6 6.9 2.4 1.5 0.7 5.0 5.0 5.0 5.5 5.5 6.0 6.0 2.2 1.4 3.1 5.4

Net exports (contr to GDP, pp) -0.3 -0.1 0.1 1.0 -1.0 0.0 0.0 0.0 0.0 0.0 -0.1 -0.1 0.1 0.1 -0.1 0.0

Final sales 0.2 2.1 2.5 2.7 0.6 3.1 2.5 2.6 2.5 2.5 3.0 3.0 2.6 1.7 2.2 2.7

Ch. inventories ($bn, real) 42.2 56.6 115.7 111.7 49.0 44.6 42.6 40.6 39.6 38.6 37.6 36.6 57.6 81.6 44.2 38.1

Ch. inventories (contr to GDP, pp) 0.9 0.4 1.7 0.0 -1.6 -0.1 -0.1 -0.1 0.0 0.0 0.0 0.0 0.2 0.2 -0.3 0.0

GDP price index 1.3 0.6 2.0 1.6 1.3 2.5 2.0 2.3 2.4 2.5 2.6 2.6 1.7 1.4 1.8 2.4

Nominal GDP 2.8 3.1 6.2 4.2 0.3 5.2 4.5 4.9 4.9 5.0 5.7 5.7 4.6 3.4 3.6 5.0

Industrial output 4.2 1.9 2.5 4.9 4.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 3.8 2.9 4.3 5.0

Employment (avg mthly chg, K) 206 201 172 198 190 229 200 200 200 200 225 225 186 194 205 213


CPI inflation (%y/y) 1.7 1.4 1.6 1.2 1.4 1.9 2.0 2.4 2.2 2.1 2.1 2.2 2.1 1.5 1.9 2.1

Core CPI (%y/y) 1.9 1.7 1.7 1.7 1.6 1.9 2.1 2.3 2.5 2.6 2.6 2.6 2.1 1.8 2.0 2.6

PCE price index (%y/y) 1.4 1.1 1.1 1.0 1.1 1.7 1.8 2.1 2.1 1.9 2.0 1.9 1.8 1.1 1.6 2.0

Core PCE price index (%y/y) 1.5 1.2 1.2 1.2 1.1 1.5 1.7 1.9 2.2 2.2 2.2 2.3 1.8 1.2 1.6 2.2

Current account (%GDP) -2.5 -2.3 -2.3 -1.9 -2.0 -2.0 -2.0 -2.0 -2.0 -2.0 -2.0 -2.1 -2.7 -2.3 -2.0 -2.0

Federal budget bal. (%GDP)

-6.8 -4.1 -2.8 -2.4

Federal funds rate (%) 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0.50 0.75 1.00

Note: All numbers expressed in q/q saar % unless otherwise specified. The budget balance is fiscal year. Source: BEA, BLS, Federal Reserve, US Treasury, Barclays Research

30 May 2014 48

Barclays | Global Economics Weekly GLOBAL WEEKLY CALENDAR

Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue.

Period Prev -3 Prev -2 Prev -1 Forecast Consensus

0:00 Korea: Exports, % y/y May 1.4 5.1 9.0 2.0 3.41:00 China: NBS manufacturing PMI, index May 50.2 50.3 50.4 50.6 50.75:00 Peru: CPI inflation, % m/m May 0.60 0.52 0.39 0.15 0.18

23:30 Australia: AIG/PWC manufacturing PMI, index May 48.6 47.9 44.8 - -23:50 Japan: Corporate survey, capex ex software, % y/y Q1 1.4 2.3 2.8 6.1 5.923:50 Japan: Corporate survey, capex including software, % y/y Q1 0.0 1.5 4.0 5.8 5.8


7:00 US: Chicago Fed President Evans (FOMC non-voter) speaks in Istanbul10:30 E18: ECB Executive Board member Mersch speaks on 'A new motto for European Union?' in Amsterdam11:45 E18: SRM Chair Nouy participates in panel discussion at IMF Conference 2014 in Munich

- Kazakhstan: CPI, % y/y May 5.4 6.2 6.5 - -- Indonesia: Trade Balance, $ mn Apr -443.9 843.4 673.2 300 285- Indonesia: Imports, % y/y Apr -3.5 -9.9 -2.3 -8.9 -8.9- Philippines: Fiscal balance, PHP bn (to 06/06) Apr -34.2 -9.7 -40.2 - -- Italy: Budget, year-to-date, € bn May -12.8 -18.4 -10.1 - -- Germany: Baden-Wuerttemberg CPI, % m/m (y/y) May 0.5 (1.1) 0.2 (1.0) 0.0 (1.4) 0.1 (1.0) -- Germany: Bavaria CPI, % m/m (y/y) May 0.5 (0.9) 0.3 (0.9) -0.2 (1.0) 0.1 (0.7) -- Germany: Hesse CPI, % m/m (y/y) May 0.4 (1.0) 0.3 (1.0) -0.2 (1.3) 0.1 (0.9) -- Germany: North Rhine Westphalia CPI, % m/m (y/y) May 0.5 (1.6) 0.3 (1.4) -0.1 (1.7) 0.1 (1.4) -- Germany: Brandenburg CPI, % m/m (y/y) May 0.4 (1.2) 0.2 (1.0) -0.1 (1.3) 0.1 (1.0) -- Germany: Saxony CPI, % m/m (y/y) May 0.3 (1.2) 0.3 (0.9) -0.1 (1.3) 0.1 (0.9) -- Germany: Preliminary CPI, % m/m (y/y) May 0.5 (1.2) 0.3 (1.0) -0.2 (1.3) 0.1 (1.0) 0.2 (1.1)- Germany: Preliminary HICP, % m/m (y/y) May 0.5 (1.0) 0.3 (0.9) -0.3 (1.1) 0.0 (0.9) 0.1 (1.0)

0:00 Australia: RP Data-Rismark house price, % m/m May 0.0 2.3 0.3 - -0:30 Australia: TDMI inflation gauge, % m/m May 0.2 0.2 0.4 - -1:30 Australia: Building approvals, % m/m (y/y) Apr 6.9 (34.5) -5.4 (22.9) -3.5 (20.0) 8.0 2.0 (12.3)1:30 Australia: Company operating profit, % q/q Q1 0.3 4.3 1.7 5.5 2.51:30 Australia: Wages bill, % q/q Q1 0.9 0.5 1.1 - -1:30 Australia: Small business profits, % q/q Q1 -4.4 -7.2 -0.8 - -1:30 Australia: Real business inventories, % q/q Q1 0.4 -0.5 -0.5 0.4 -0.41:30 Australia: Real business inventories, ppc to q/q GDP Q1 0.4 -0.4 0.0 0.3 -1:30 Australia: Real business sales, % q/q Q1 0.2 0.4 0.7 - -4:00 Indonesia: Exports, % y/y Apr -5.9 -2.5 1.2 3.7 2.64:00 Thailand: CPI, % y/y May 1.96 2.11 2.45 2.50 2.524:00 Indonesia: CPI, % y/y May 7.75 7.32 7.25 7.2 7.306:30 Sweden: Manufacturing PMI, index May 54.6 56.5 55.5 - -6:30 Australia: Commodity price index, % y/y May -10.8 -12.5 -12.6 - -7:00 UK: Halifax house price index, % m/m (3m/y) (to 6/06) May 2.5 (7.9) 1.2 (8.7) -0.2 (8.5) - 0.7 (7.4)7:13 Spain: Manufacturing PMI, index May 52.5 52.8 52.7 53.2 53.07:30 Swi: Manufacturing PMI, index May 57.6 54.4 55.8 - 55.57:43 Italy: Manufacturing PMI, index May 52.3 52.4 54.0 53.6 53.67:48 France: Final manufacturing PMI, index May 52.1 51.2 49.3 P 49.3 49.37:53 Germany: Final manufacturing PMI, index May 53.7 54.1 52.9 P 52.9 52.97:58 E18: Final manufacturing PMI, index May 53.0 53.4 52.5 P 52.5 52.58:28 UK: Manufacturing PMI, index May 56.6 55.8 57.3 57.0 57.08:30 UK: Consumer credit, £bn Apr 0.7 0.6 1.1 0.8 0.88:30 UK: Mortgage lending, £bn Apr 1.3 1.6 1.8 1.9 1.78:30 UK: Mortgage approvals, k Apr 76.3 69.6 67.1 70.0 64.4

13:45 US: "Final" Markit PMI, index May 55.5 55.4 56.2 P - -14:00 US: ISM manufacturing index May 53.2 53.7 54.9 55.5 55.514:00 US: Construction spending, % m/m Apr -0.4 -0.2 0.2 0.5 0.716:00 Italy: New car registrations, % y/y May 8.9 5.3 1.9 - -22:45 New Zealand: Terms of trade index, % q/q Q1 4.6 7.5 2.3 - 2.023:00 Korea: CPI, % y/y May 1.0 1.3 1.5 1.7 1.6

Sunday 01 June

Monday 02 June

30 May 2014 49




- Poland: Repo rate, % Jun 2.50 2.50 2.50 2.50 2.504:30 Australia: RBA cash rate, % Jun 2.50 2.50 2.50 2.50 2.505:30 India: RBI reverse repo rate, % Jun 6.75 7.00 7.00 - 7.005:30 India: RBI repo rate, % Jun 7.75 8.00 8.00 8.00 8.00

17:50 US: Kansas City Fed President George (FOMC non-voter) speaks in Colorado23:10 Australia: RBA Head of Payments Policy Department Richards speaks in Sydney

- Venezuela: CPI inflation, % m/m (to 12/06) May 3.3 2.4 4.1 7.1 5.0- US: Vehicle sales, mn saar May 15.3 16.3 16.0 16.3 16.0- Indonesia: Foreign Reserves, $ bn (to 09/06) May 102.7 102.6 105.6 108.5 -

1:00 China: NBS non-manufacturing PMI, index May 55.0 54.5 54.8 - -1:30 Australia: Retail sales, % m/m Apr 1.1 0.3 0.1 0.7 0.31:30 Australia: Real net exports, ppc to q/q GDP Q1 -0.3 0.7 0.6 1.0 0.81:30 Australia: Current account balance, AUD mn Q1 -12.4 -12.5 -10.1 -6.8 -7.01:30 Australia: Net foreign liabilities, AUD bn Q1 814 846 830 - -1:30 Australia: Real public final demand, % q/q Q1 -1.4 1.5 0.3 - -1:45 China: Final HSBC manufacturing PMI, index May 48.0 48.1 49.7 P 49.7 49.74:58 Ireland: Manufacturing PMI, index May 52.9 55.5 56.1 56.0 -5:00 Japan: Auto sales, % y/y May 15.0 14.5 -11.4 - -6:00 UK: Nationwide house price Index, % m/m (y/y) May 0.7 (9.4) 0.5 (9.5) 1.2 (10.9) 0.5 (10.8) 0.6 (10.9)7:00 Turkey: CPI, % y/y May 7.9 8.4 9.4 10.0 10.08:00 Norway: Registered unemployment rate, % May 2.9 2.9 2.8 2.6 2.68:00 Italy: Unemployment rate, % Apr 12.7 12.7 12.7 - 12.88:30 UK: Construction PMI May 62.6 62.5 60.8 61.5 61.09:00 E18: Unemployment rate, % Apr 11.8 11.8 11.8 11.8 11.89:00 E18: "Flash" HICP, % y/y May 0.8 0.5 0.7 0.6 0.79:00 E18: 'Eurostat' core (HICP x fd, alc, tob, ene), % y/y May 1.0 0.7 1.0 0.8 0.8

13:00 Belgium: Final GDP, % q/q Q1 0.3 0.3 0.4 P 0.4 -13:30 Singapore: PMI, index May 50.9 50.8 51.1 50.9 51.313:30 Singapore: Electronics PMI, index May 51.2 51.6 50.4 51.0 -14:00 US: Factory orders, %m/m Apr -1.6 1.7 0.9 0.8 0.522:45 New Zealand: Real construction, % q/q Q1 -0.3 1.0 -1.0 - 5.523:01 UK: BRC shop price index May -1.4 -1.7 -1.4 - -1.223:30 Australia: AIG/CBA services PSI, index May 55.2 48.9 48.6 - -


14:00 Canada: Interest rate announcement, % Jun 1.00 1.00 1.00 - -18:00 US: Fed Beige Book report released

- Russia: CPI, % y/y (to 9/06) May 6.2 6.9 7.3 7.6 -- Slovakia: Final GDP, % q/q (to 05/06) Q1 0.3 0.4 0.6 P - -

1:00 New Zealand: Commodity prices, % m/m May 0.9 -0.1 -4.0 - -1:30 Japan: Wages per worker, % y/y Apr -0.2 -0.1 0.7 0.8 -1:30 Australia: GDP, % q/q (y/y) Q1 0.8 (2.4) 0.6 (2.4) 0.8 (2.8) 1.4 0.9 (3.2)7:13 Spain: Services PMI, index May 53.7 54.0 56.5 56.0 56.07:30 Sweden: Service production, % m/m (y/y) Apr 1.9 (1.5) 0.7 (2.4) -0.2 (2.6) - -7:30 Sweden: Industrial production, % m/m (y/y) Apr -1.7 (-1.4) 2.0 (1.2) -3.7 (-4.5) - -7:43 Italy: Services PMI, index May 52.9 49.5 51.1 50.5 51.47:48 France: Final services PMI, index May 51.5 50.4 49.2 P 49.2 49.27:53 Germany: Final services PMI, index May 53.0 54.7 56.4 P 56.4 56.47:58 E18: Final services PMI, index May 52.2 53.1 53.5 P 53.5 53.57:58 E18: Final composite PMI, index May 53.1 54.0 53.9 P 53.9 53.98:28 UK: Services PMI May 58.2 57.6 58.7 60.0 58.29:00 E18 : PPI, % m/m (y/y) Apr -0.3 (-1.3) -0.2 (-1.7) -0.2 (-1.6) - -0.1 (-1.2)9:00 E18: Final GDP, % q/q Q1 0.1 0.2 0.2 P 0.2 0.2

12:15 US: ADP private payrolls, chg, k May 193 209 220 - 21812:30 Canada: Int'l merchandise trade, $ bn Apr -0.3 0.8 0.1 - -0.212:30 US: Trade balance, $ bn Apr -39.3 -41.9 -40.4 -40.1 -41.012:30 US: Non-farm productivity-f, % q/q Q1 3.5 2.3 -1.7 -3.1 -2.312:30 US: Unit labor cost-f, % q/q Q1 -2.1 -0.4 4.2 5.5 4.814:00 US: ISM non-manufacturing index May 51.6 53.1 55.2 56.0 55.515:30 Ireland: Exchequer balance, € bn May -1.7 -2.3 -4.8 - -17:00 Uruguay: CPI inflation, % m/m May 1.66 0.58 -0.06 0.40 -23:00 Korea: Final GDP, % y/y Q1 3.4 3.7 3.9 P 3.9 -

Tuesday 03 June

Wednesday 04 June

30 May 2014 50




6:00 E18: SRM Chair Nouy participates in a conference organised by Financial Supervisory Authority in Helsinki 11:00 UK: BoE Bank rate decision, % Jun 0.50 0.50 0.50 - 0.5011:00 UK: BoE asset purchase decision, £ bn Jun 375 375 375 - 37511:45 E18: ECB Interest rate announcement, % Jun 0.25 0.25 0.25 0.10 0.1012:30 E18: ECB Press conference17:30 US: Minneapolis Fed President Kocherlakota (FOMC voter) speaks in Massachusetts0:30 Taiwan: CPI, % y/y May -0.05 1.61 1.65 1.8 1.671:00 Philippines: CPI, % y/y May 4.1 3.9 4.1 4.3 4.21:30 Australia: Trade balance, AUD mn Apr 1122 1257 731 -425 5104:58 Ireland: Services PMI, index May 57.5 60.7 61.9 61.5 -5:30 France: ILO Unemployment rate Q1 10.3 10.3 10.2 - 10.46:00 Germany: Factory orders, %m/m (y/y) Apr 0.0 (7.0) 0.9 (6.5) -2.8 (1.5) 1.5 (4.7) 1.4 (4.7)6:00 Finland: GDP, % q/q Q1 0.0 0.0 -0.3 -0.4 -6:30 Sweden: Services PMI, index May 56.8 53.6 57.8 - -9:00 Greece: Unemployment rate, % Mar 27.2 26.6 26.5 - -9:00 E18: Retail sales, % m/m (y/y) Apr 1.0 (0.8) 0.1 (1.0) 0.3 (0.9) - 0.0 (1.1)

10:00 Ireland: Unemployment rate, % May 11.9 11.8 11.7 - -12:30 Canada: Building permits, % m/m Apr 8.1 -11.3 -3.0 - 1.212:30 Chile: Economic activity index, % y/y Apr 1.5 3.4 3.0 - -12:30 US: Initial jobless claims, k (4wma) 31-May 298 (324) 327 (323) 300 (312) 315 (310) 31514:00 Canada: Ivey PMI, index May 57.2 55.2 54.1 - 58.423:30 Australia: AIG construction PCI, index May 44.2 46.2 45.9 - -


9:00 E18: ECB Executive Board member Constancio speaks at 2014 IIF Spring Membership in London14:00 Mexico: Overnight rate, % Jun 3.50 3.50 3.50 3.50 3.50

- Ukraine: CPI, % y/y May 1.2 3.4 6.9 9.5 -0:00 Colombia: CPI inflation, % m/m May 0.63 0.39 0.46 - 0.330:00 New Zealand: House prices, % y/y May 9.3 8.8 8.4 - -4:01 Malaysia: Exports, % y/y Apr 12.3 12.3 8.4 12.0 9.16:00 Germany: Industrial production, % m/m (y/y) Apr 0.4 (4.9) 0.6 (4.7) -0.5 (3.0) 0.5 (2.9) 0.3 (2.7)6:00 Germany: Trade balance sa, € bn Apr 15.0 16.2 16.4 - 15.16:45 France: Budget, year-to date, € bn Apr -12.7 -25.7 -28.0 - -6:45 France: Trade balance, € bn Apr -5.7 -3.8 -4.9 - -5.07:15 Swi: CPI, % m/m (y/y) May 0.1 (-0.1) 0.4 (0.0) 0.1 (0.0) - 0.2 (0.1)8:00 Norway: Manufacturing production, % m/m (y/y) Apr -0.4 (2.8) 0.4 (2.1) 0.8 (3.7) - -8:30 UK: Visible trade balance, £bn Apr -9.5 -8.7 -8.5 -8.2 -8.79:00 Greece: Final GDP, % y/y Q1 -3.2 -2.2 -1.1 P - -9:00 Cyprus: Final GDP, % q/q Q1 -0.9 -0.8 -0.7 P - -

11:00 Brazil: IGP-DI inflation, % m/m May 0.85 1.48 0.45 0.19 -12:00 Brazil: IPCA inflation, % m/m May 0.69 0.92 0.67 0.40 0.4512:00 Chile: CPI inflation, % m/m May 0.5 0.8 0.6 - -12:30 Canada: Unemployment rate, % May 7.0 6.9 6.9 - 6.912:30 Canada: Net change in employment, k May -7.0 42.9 -28.9 - 21.312:30 Canada: Participation Rate, % May 66.2 66.2 66.1 - -12:30 US: Non-farm payrolls, chg, k May 222 203 288 225 21812:30 US: Private non-farm payrolls, chg, k May 201 202 273 225 21312:30 US: Unemployment rate, % May 6.7 6.7 6.3 6.3 6.412:30 US: Average hourly earnings, % m/m (y/y) May 0.3 (2.1) 0.1 (2.1) 0.0 (1.9) 0.2 0.2 (2.0)12:30 US: Average weekly hours May 34.3 34.5 34.5 34.5 34.519:00 US: Consumer credit, chg, $ bn Apr 13.4' 13.0 17.5 15.0 16.5

Friday 06 June

Thursday 05 June

30 May 2014 51

Barclays | Global Economics Weekly GLOBAL KEY EVENTS

Source: Central banks, IMF, European Commission, Reuters, Bloomberg, Market News, Barclays Research (*) Potential second round, (#) Subject to change, (**) To be confirmed, (…) Event yet to be confirmed

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Forthcoming central bank announcement datesNorth AmericaFOMC meeting - 18 30 - 17 29 - 17 28 … … … … … …FOMC minutes 21 - 9 20 - 8 19 - 7 18 … … … … …Fed's Beige Book - 4 16 - 3 15 - 3 ... … … … … … …Bank of Canada - 4 16 - 3 22 - 3 … … … … … … …EuropeECB "policy" meeting 8 5 3 7 4 2 6 4 8 5 5 2 7 3 2ECB monthly bulletin 15 12 10 14 11 9 13 11 15 12 12 9 14 10 9ECB "non-policy" meeting 21 17 16 - 17 15 19 17 21 18 18 15 20 17 15-16Bank of England 7-8 4-5 9-10 6-7 3-4 8-9 5-6 3-4 7-8 4-5 4-5 8-9 8-11 3-4 8-9BoE Inflation Report 14 - - 13 - - 12 - - 11 - - 13 - -BoE minutes 21 18 23 20 17 22 19 17 21 18 18 22 20 17 22Riksbank - - 3 - 4 28 - 16 - … … … … … …SNB - 19 - - 18 - - 11 - - 19 - - 18 -Norges Bank - 19 - - 18 - - 11 … … … … … … …Asia/RoWBank of Japan 20-21 12-13 14-15 7-8 3-4 6-7,31 18-19 18-19 … … … … … … …BoJ minutes 7,26 18 18 13 9 10 6,25 25 … … … … … … …Reserve Bank of Australia 6 3 1 5 2 7 4 2 - 3 3 7 … … …RBNZ - 12 24 - 11 30 - 11 29 - 12 30 … 11 -Key international meetingsIMF/IBRD - - - - - 10-12 - - - - - 17-19 - - -EU Summit 27 26-27 … … … … … … … … … … … … …ECOFIN 6 20 8 … … … 7 … … … … … … … …G20 - - - - 20-21 10 13-15** - - - - - - - -G8 - 4-5 - - - - - - - - - - - 4-5 -ElectionsBelgium (Parliamentary) 25 - - - - - - - - - - - - - -Brazil (Presidential) - - - - - 5, 26* - - - - - - - - -Colombia (Presidential) 25 15* - - - - - - - - - - - - -EU (Parliamentary) 22-25 - - - - - - - - - - - - - -Egypt (Presidential) 26-27 - - - - - - - - - - - - - -Estonia (Parliamentary) - - - - - - - - - - 6# - - - -Finland (Parliamentary) - - - - - - - - - - 19 - - - -Greece (Presidential) - - - - - - - - - Feb - - - - -Indonesia (Presidential) - - 9 - - - - - - - - - - - -Israel (Presidential) - 14 - - - - - - - - - - - - -Latvia (Parliamentary) - - - - - 4 - - - - - - - - -New Zealand (Parliamentary) - - - - 20 - - - - - - - - - -Poland (Presidential) - - - - - - - - - - - - - Jun -Romania (President) - - - - - - 2, 16* - - - - - - - -Spain (Catalonia referendum) - - - - - - 9 - - - - - - - -Sweden (General) - - - - 14 - - - - - - - - - -Turkey (Presidential) - - - 10, 24* - - - - - - - - - - -Turkey (General) - - - - - - - - - - - - - 13 -Ukraine (Presidential) 25 15* - - - - - - - - - - - - -United Kingdom (Local) 22 - - - - - - - - - - - - - -United Kingdom (Parliamentary) - - - - - - - - - - - - 7 - -United Kingdom (Scotland referendum) - - - - 18 - - - - - - - - - -United States (Congressional) - - - - - - 4 - - - - - - - -

2014 2015

30 May 2014 52

Barclays | Global Economics Weekly CRITICAL EVENTS CALENDAR FOR US, EURO AREA, JAPAN AND UK

Note: All the times are local. Source: Barclays Research

Date Country Event Likely outcome: Our assessment

Jun Japan PM Abe to formulate a new growth strategy04-05 Jun UK BoE Policy meeting04-05 Jun G8 G8 Meeting (Russia)5-Jun Euro area ECB Governing Council meeting5-Jun Spain €4.5 bn 3y & 5y SPGB Auctions12-13 Jun Japan BoJ monetary policy meeting12-Jun Italy €7.5 bn BTP Auctions

18-Jun US FOMC meetingWe expect the FOMC to reduce the pace of asset purchases by $10bn at its June meeting, bringing the monthly pace to $35bn.

18-Jun Spain €5.5 bn SPGB Auctions19-Jun Euro area Eurogroup meeting (Brussels)20-Jun EU ECOFIN meeting (Brussels)23-Jun Belgium €3.25 bn BGB Auctions25-Jun Italy €2.5 bn CTZ Auction25-Jun Italy €1 bn BTPEi Auction26-Jun UK Financial Stability Report, June 201426-27 Jun EU EU Summit (Brussels)27-Jun Italy €7 bn BTP Auctions27-Jun Italy €1.5 bn CCT Auctions

End Jun France Supplementary 2014 budget release.The government announced a supplementary budget before thesummer, likely including measures to correct for 2013 fiscal slippagesand revenue shortfall.

1-Jul EU Italy holds EU presidency for H2 20143-Jul Euro area ECB Governing Council meeting7-Jul Euro area Eurogroup meeting (Brussels)8-Jul EU ECOFIN meeting (Brussels)09-10 Jul UK BoE Policy meeting

14-15 Jul Japan BoJ monetary policy meetingThe BoJ updates CPI and GDP forecasts as part of interim assessmentof April Outlook Report.

30-Jul US FOMC meeting

06-07 Aug UK BoE Policy meeting7-Aug Euro area ECB Governing Council meeting07-08 Aug Japan BoJ monetary policy meeting13-Aug UK BoE Inflation report20-Aug US FOMC meeting

Late Aug JapanPM Abe to reshuffle Cabinet and LDP leadership posts after end-August, according to Kyodo News

03-04 Sep UK BoE Policy meeting03-04 Sep Japan BoJ monetary policy meeting4-Sep Euro area ECB Governing Council meeting14-Sep Sweden General election17-Sep US FOMC meeting18-Sep UK Scotland referendum20-21 Sep G20 G20 meeting (Australia)

September 2014

August 2014

July 2014

June 2014

30 May 2014 53


Note: All the times are local. Source: Barclays Research

2-Oct Euro area ECB Governing Council meeting4-Oct Latvia Parliamentary elections06-07 Oct Japan BoJ monetary policy meeting08-09 Oct UK BoE Policy meeting09-10 Oct G20 G20 meeting (Washington) (tbc)10-12 Oct Global IMF/IBRD meeting29-Oct US FOMC meeting

31-Oct Japan BoJ monetary policy meetingOur baseline view is ‘no further easing in 2014,’ but we see a risk of an ease at this meeting, when the next Outlook Report is released.

2-Nov Romania Presidential elections4-Nov US Congressional elections05-06 Nov UK BoE Policy meeting6-Nov Euro area ECB Governing Council meeting7-Nov EU ECOFIN meeting (tbc)9-Nov Spain Catalonia referendum13-15 Nov G20 G20 meeting (Brisbane, if needed)16-Nov Romania Presidential elections (potential second round)

18-19 Nov Japan BoJ monetary policy meeting

November 2014

October 2014

30 May 2014 54

Barclays | Global Economics Weekly GLOBAL ECONOMICS RESEARCH

The Americas

Dean Maki Head of US Economics Research +1 212 526 1731 [email protected]

Alejandro Arreaza Economist – Latin America +1 212 412 3021 [email protected]

Michael Gapen Senior US Economist +1 212 526 8536 [email protected]

Alejandro Grisanti Chief Economist – Latin America Ex-Brazil, Mexico +1 212 412 5982 [email protected]

Cooper Howes US Economist +1 212 526 3099 [email protected]

Marco Oviedo Chief Economist – Mexico +52 55 5241 3331 [email protected]

Bruno Rovai Strategist – LatAm; Economist – Brazil +55 11 3757 7772 [email protected]

Marcelo Salomon Chief Economist – Brazil, Chile, Mexico +1 212 412 5717 [email protected]

Tal Shapsa International Economist +1 212 526 9982 [email protected]

Sebastian Vargas Economist - Argentina, Uruguay +1 212 412 6823 [email protected]

Europe

Philippe Gudin de Vallerin Head of European Economics Research +33 (0) 1 4458 3264 [email protected]

Christian Keller Head of EEMEA Research +44 (0)20 7773 2031 [email protected]

Francois Cabau European Economist +44 (0) 20 3134 3592 [email protected]

Fabio Fois Southern European Economist +39 02 6372 2637 [email protected]

Jeff Gable Head of ABSA Capital Research +27 11 895 5368 [email protected]

Antonio Garcia Pascual Chief Euro Area Economist +44 (0)20 313 46225 [email protected]

Thomas Harjes Senior European Economist +49 69-7161 1825 [email protected]

Daniel Hewitt Senior Economist – CEE, Israel +44 (0) 20 3134 3522 [email protected]

Armela Mancellari UK Economist +44 (0) 20 3134 0564 [email protected]

Apolline Menut European Economist +44 (0)20 3555 0862 [email protected]

Fabrice Montagne Senior European Economist +33 (0) 1 4458 3236 [email protected]

Alia Moubayed Senior Economist – MENA +44 (0)20 313 41120 [email protected]

Blerina Uruci UK Economist +44 (0)20 7773 4373 [email protected]

Eldar Vakhitov Economist – CEE +44 (0)20 777 32192 [email protected]

Asia-Pacific

David Fernandez Head of FICC Research, Asia Pacific +65 6308 3518 [email protected]

Tetsufumi Yamakawa Head of Japan Research +81 3 4530 1130 [email protected]

Rahul Bajoria Economist - India, Malaysia, Philippines, Thailand +65 6308 3511 [email protected]

James Barber, CFA Japan Research +81 3 4530 1542 [email protected]

Jian Chang Chief Economist – China +852 2903 2654 [email protected]

Kieran Davies Economist – Australia, New Zealand +61 4660 09006 [email protected]

Bill Diviney Regional Economist +65 6308 3607 [email protected]

Wai Ho Leong Senior Regional Economist - EM Asia ex China +65 6308 3292 [email protected]

Kyohei Morita Chief Economist, Japan +81 3 4530 1688 [email protected]

Yuichiro Nagai Japan Economist +81 3 4530 1064 [email protected]

Siddhartha Sanyal Chief Economist - India +91 22 6719 6177 [email protected]

Serena Zhou Economist - China, Hong Kong +852 2903 2653 [email protected]

30 May 2014 55

mailto:[email protected]



Analyst Certification We, Ajay Rajadhyaksha, Michael Gapen, Cooper Howes, Dean Maki, Thomas Harjes, Francois Cabau, Fabio Fois, Antonio Garcia Pascual, Philippe Gudin, Apolline Menut, Fabrice Montagne, Armela Mancellari, Blerina Uruçi, James Barber, CFA, Kyohei Morita, Yuichiro Nagai, Jian Chang, Bill Diviney, Kieran Davies, Daniel Hewitt, Eldar Vakhitov, Durukal Gun, Christian Keller, Alia Moubayed, Ridle Markus, Dumisani Ngwenya, Peter Worthington, Miyelani Maluleke, Alejandro Arreaza, Marco Oviedo, Marcelo Salomon, Bruno Rovai, Sebastian Vargas, Serena Zhou, Rahul Bajoria, Siddhartha Sanyal and Wai Ho Leong, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Each research report excerpted herein was certified under Reg AC by the analyst primarily responsible for such report as follows: I hereby certify that: 1) the views expressed in this research report accurately reflect my personal views about any or all of the subject securities referred to in this report and; 2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. Important Disclosures: Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 14th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com, or call 212-526-1072. Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Barclays may have a conflict of interest that could affect the objectivity of this report. Barclays Capital Inc. and/or one of its affiliates regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt securities that are the subject of this research report (and related derivatives thereof). Barclays trading desks may have either a long and/or short position in such securities, other financial instruments and/or derivatives, which may pose a conflict with the interests of investing customers. Where permitted and subject to appropriate information barrier restrictions, Barclays fixed income research analysts regularly interact with its trading desk personnel regarding current market conditions and prices. Barclays fixed income research analysts receive compensation based on various factors including, but not limited to, the quality of their work, the overall performance of the firm (including the profitability of the investment banking department), the profitability and revenues of the Fixed Income, Currencies and Commodities Division and the potential interest of the firm’s investing clients in research with respect to the asset class covered by the analyst. To the extent that any historical pricing information was obtained from Barclays trading desks, the firm makes no representation that it is accurate or complete. All levels, prices and spreads are historical and do not represent current market levels, prices or spreads, some or all of which may have changed since the publication of this document. Barclays produces various types of research including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Unless otherwise indicated, Barclays trade ideas are provided as of the date of this report and are subject to change without notice due to changes in prices. In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html. In order to access Barclays Research Conflict Management Policy Statement, please refer to: http://group.barclays.com/corporates-and-institutions/research/research-policy.

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