Dr. J. Antonio Villamil Principal Economic Advisor

External Drivers of Florida’s Economic Activity: Slow Recovery Through 2012

Global Economic Conditions

National Economic

Activity

Debt Burden of

“Periphery”

Below Potential Economic

Growth

Recessionary Conditions in

E.U.

Growing Emerging Markets

Housing “Overhang”

Slowly Mending

“Easy” Monetary

Policy

2011-2012

Overview: The 2011-2012 Economic Environment, “May you Live in Interesting Times”

A prolonged period of below-potential economic growth in the Nation, EU economies and US states/regions

Highly constrained fiscal situation: “Doing More with Less”

“Tax Revolt” in many states such as Florida: Just analyze recent Florida and local election results

Consumers and businesses “reliquifying” balance sheets, fiscal sector-spending reductions

Emphasis on productivity, cost controls and debt “deleveraging”

US HOUSEHOLD NET WORTH 1

FLOW OF FUNDS 2

MONETARY BASE 3

INTEREST RATES 4

The “New Normal” Economy - Four Key Areas to Monitor at National Level: Implications for Economic Activity in Florida

US Household Net Worth: Consumers Paying Down Debt, Spending Cautiously and in a “Bad Mood”

Source: Federal Reserve Bank of St. Louis, Economic Research - Flow of Funds, 3Q-2011, December 8, 2011

$65

$52 $55 $56 $55 $56

$59 $60 $60 $57

$0

$10

$20

$30

$40

$50

$60

$70

2007 2008 2009 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3

$ Tr

illio

n

Household Net Worth

US Non-Financial Debt: Consumers and Businesses “Deleveraging,” Federal Debt Growing Rapidly, End of “Stimulus” for State & Local Governments

(∆%; Quarterly Data are Seasonally Adjusted at Annual Rates)

Years Households Business State & Local Governments Federal

Financing and Housing “Bubbles”

2005 2006 2007

11.1% 9.9% 6.7%

9.0% 11.1% 13.6%

5.5% 3.7% 5.4%

7.0% 3.9% 4.9%

The “Great Recession” and the Aftermath 2008 2009 2010

2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1 2011-Q2 2011-Q3

0.1% -1.7% -2.1% -3.1% -2.2% -2.2% -0.7% -1.8% -0.6% -1.2%

6.2% -2.4 % 0.7%

-0.1 % -1.3% 1.8% 2.4% 4.2% 4.5% 3.5%

0.7% 3.9% 2.2% 2.4% -0.5% 2.1% 4.8% -3.3% -3.5% 0.0%

24.2% 22.7% 20.2% 20.6 % 22.5% 16.0% 16.4% 7.9% 8.6% 14.1%

Flow of Funds

Source: Federal Reserve, Flow of Funds, Q3-2011, December 8, 2011.

“Helicopter Ben!”: Monetary Base at Record Levels

8

Source: Federal Reserve Bank of St. Louis Economic Research. January 2000-November 2011. Shaded areas indicate U.S. Recessions.

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US$

Bill

ions

Monetary Base(Excess Reserves of Banking System)

$2.5 Trillion

How Low Can Short-Term Rates Go : Likely to Remain Close to Zero Through 2012

Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from January 2000—November 2011. Shaded areas indicate US recessions.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Federal Funds Rate

Economic drivers overall more positive: Florida’s economy starting to recover slowly from a deep recession, but a return to strong economic growth unlikely next 2 Years

Economic Drivers Outlook 2011-2012

US Economy Modest growth in 2011 and into 2012

Global Economy Top trade and investment partners of Florida expanding, fueling demand for Florida’s goods and services (trade finance, exports, tourism)

Financial Markets

Stability returning, but still fragile, credit availability is improving, but still tight for small businesses and real estate (two key sectors of Florida)

The U.S. and Global Economies under the “New Normal”

11

US Economic Growth Driver of Florida: Below Potential Economic Growth Through 2012

Indicator 2009 2010 2011E 2012F

Economic Growth (∆% Real GDP) -3.5 3.0 1.5 2.0

Inflation (∆% Core CPI/U) 1.7 1.0 1.5 1.6

Personal Income Growth (∆%) -4.3 3.7 4.0 3.5

Fed Funds Rate (Average) 0.16 0.18 0.25 0.25

Unemployment Rate (%) 9.3 9.6 9.0 8.5

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve and UCF. Estimates (E) and Forecasts (F) by The Washington Economics Group (WEG).

Global Economic Activity 2009-2012: Advantage to Florida of Emerging Markets Expansion

Region/Country 2009 2010E 2011E 2012F

World Output (GDP), of which Japan United Kingdom Canada

-0.5 -6.3 -4.9 -2.8

5.1 4.0 1.3 3.2

4.3 -0.7 1.5 2.9

4.0 2.0 2.3 2.6

Euro Area, of which Germany France Spain Italy

-4.1 -4.7 -2.6 -3.7 -5.2

1.8 3.5 1.4 -0.1 1.3

2.0 3.2 2.1 0.8 1.0

1.7 2.0 1.9 1.6 1.3

Developing Asia, of which China India

7.2 9.2 6.8

9.6 10.3 10.4

9.6 9.6 8.2

9.0 9.5 7.8

Source: International Monetary Fund, World Economic Outlook, Update July, 2011 and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

FDI Flows to Florida

Global Economic Activity 2009-2012: Florida Trade Activity Expanding Strongly

Region/Country 2009E 2010 2011E 2012F

Latin America & the Caribbean, of which -2.1 5.9 4.7 4.1

Brazil -0.6 7.5 4.0 3.0

Mexico -6.1 5.4 4.0 3.5

Colombia 1.5 4.3 5.3 4.5

Dominican Republic 3.5 7.8 5.0 4.5

Chile -1.7 5.2 6.3 4.0

Peru 0.9 8.8 7.1 4.0

Argentina 0.9 9.2 8.3 4.0 Source: Economic Commission for Latin America and the Caribbean (ECLAC), Economic Survey of Latin America and the Caribbean 2010 -2011 and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

Florida - Slow Recovery from Recession: Real Estate Market Correction and Slow Population Growth

Indicators 2009 2010 2011E 2012F

Real Gross Domestic Product (Δ%) -2.0 2.0 2.5 3.7

Personal Income (Δ%) -2.7 2.2 3.0 3.5

Population (Δ%) 1.1 1.4 1.0 1.3

Total Non-Ag Employment (Δ%) -6.1 -1.1 1.4 1.8

Exports Growth (Δ%) -18.0 22.0 20.0 18.0

Single-Family Home Median Price (Δ%) -24.0 -7.0 -1.0 5.0

Sources: Florida Agency for Workforce Innovation, Enterprise Florida, Inc. Florida Association of Realtors, UCF and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

South Florida Moderate Recovery from Recession: Real Estate Markets Improving, Growing Global Business, Visitors

Indicators 2009 2010 2011E 2012F

Real Gross Domestic Product (Δ%) -3.1 2.0 2.5 3.0

Personal Income (Δ%) -3.3 2.0 3.5 4.0

Population (Δ%) 2.0 2.1 2.0 2.0

Total Non-Ag Employment (Δ%) -6.2 -1.0 1.5 2.0

Exports Growth (Δ%) -9.1 18.0 19.0 15.0

Single-Family Home Median Price (Δ%) -24.0 -4.1 Smaller Decline

Modest Upturn

Sources: Bureau of Economic Analysis, Florida Agency for Workforce Innovation, Enterprise Florida, Inc. Florida Association of Realtors, UCF and The Washington Economics Group (WEG) for Estimates (E) and Forecasts (F).

Conclusions: What Keeps this Economist “Awake in Miami?” Downside Risks to a Cautiously Positive Outlook for 2011-2012

The need for a “soft landing” in the spending habits of the federal government: Nov 2012 elections − ”Political Noise”?

“Helicopter Ben,” “QE-3?” and “exit strategy” of the FED

Public budgets and finance at state, local levels and in EU

Energy dependence and possible pick-up in inflationary expectations

In Florida, counties with a diversified economic base will perform better than counties that depend on population-driven economic activity

Advantage South Florida Region

Other-than-above risks, 2011-2012 likely to show a slowly improving business environment relative to last 3 years. Implement your business plan, take advantage of growing business opportunities, but monitor carefully the downside risks and keep business plans flexible under this ”New Normal” economy of 2011-2012!