Global Chart Book _ September 2009[1]

8/8/2019 Global Chart Book _ September 2009[1]

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

September 10, 2009

Economics Group

Executive Summary: Is the Deepest Recession in Decades Ending?The heady days of 2004-2007, when global GDP growth averaged about five percent per annum,seem like a distant memory now. Growth in most countries slowed in the first half of 2008 due inpart to monetary tightening, the unprecedented rise in energy prices and dislocations in credit

markets. Global economic activity then went into absolute freefall in the fourth quarter of 2008 ascredit markets froze up in the wake of Lehman Brothers failure, and the sharp downturn in majoreconomies extended into the first part of this year. Industrial production in the OECD countries(i.e., the thirty most developed economies in the world) plunged 17 percent in the first quarter of2009, by far the sharpest year-over-year rate of contraction in decades.

It could have been worse. Most major countries averted a catastrophe last year by taking steps toprevent a wholesale collapse of their financial systems via recapitalization, loan guarantees, andincreased deposit insurance. In addition, governments responded to the crisis with stimulativeeconomic policies. Major central banks slashed policy rates to unprecedented levels, andgovernments in most major countries opened the fiscal taps.

Figure 1

OECD Industrial ProductionYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

76 80 84 88 92 96 00 04 08

-20%

-15%

-10%

-5%

0%

5%

10%

OECD Industrial Production: May @ -15.5%

Figure 2

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

65

70

75

80

85

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

65

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Sep @ 74.9

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

There are signs that the medicine is having its desired effects and that growth is returning to mosteconomies. The global recovery is being led by Asia where growth turned positive again earlierthis year. The financial systems of most Asian economies were not nearly as levered as their

western counterparts, so banks in the region were able to ramp up lending again. In addition,most Asian governments responded to the crisis with expansionary fiscal policy. The year-over-

year GDP growth rate in China rose from six percent in the first quarter to eight percent in thesecond quarter. However, the expansion is not confined to only China. Many other countries in

Special Commentary

Global Chartbook: September 2009

Contents Pa

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

Euro-zone ..............Japan......................United Kingdom ....

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

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

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

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

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


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Global Chartbook: September 2009 WELLS FARGO SECURITIES, LLCSeptember 10, 2009 ECONOMICS GROUP

the region, including the large economies of Japan, Korea and Taiwan, are posting positivegrowth rates again.

There is solid evidence to suggest that Canada, the United States and most economies in WesternEurope have stabilized. Production was slashed much faster than final demand in most westerneconomies, leading to sharp declines in inventories. It appears that massive inventory liquidation

has come to an end, and manufacturers are beginning to ramp up production to bring output backin line with final sales. In that regard, stimulus measures enacted late last year and earlier thisyear are helping to boost activity. Most western economies should post positive growth rates overthe next few quarters. That said, the modest global upturn that appears to be underway remainsfragile, and a self-sustaining recovery has not yet been firmly established.

On a purchasing power parity basis, we forecast global GDP will decline about one percent in2009. Although our projection may not sound bad, global GDP has never contracted, at leastnot since the International Monetary Fund began calculating the series in 1970. We project thatthe global economy will grow close to its long-run average of 3.6 percent in 2010 beforeaccelerating to roughly four percent in 2011. Relative to 2004-2007, however, when global GDPgrew nearly five percent per annum, the global recovery that we project over the next few yearsmay seem a bit sluggish. Indeed, we project that growth in the United States and in some westernEuropean economies will be held back by slow growth in consumer spending as individuals

attempt to de-lever and repair battered balance sheets.Inflation rates in most countries shot higher in the first half of 2008 and commodity prices wentthrough the roof. However, the global downturn has caused commodity prices to collapse. Afterrising to six percent in 2008, which is the highest rate in about ten years, global inflation shouldrecede to a bit more than two percent this year. Despite unprecedented amounts of monetarystimulus, inflation should not really be an issue until the global economy truly strengthens. Due tothe slow recovery that we project, we believe that inflation will largely remain benign over thenext few years.

The Dollar Should Appreciate Modestly versus Major CurrenciesThe dollar strengthened significantly last autumn as risk aversion spiked. U.S. Treasury securitiesare considered to be the safest assets in the world, and massive buying of U.S. government bonds

by foreign investors contributed to the dollars strength. The greenback has given up most of itsgains over the past few months as investors have turned less risk averse. With stock marketsrising in most countries and corporate bonds rallying, the safety of low-yielding U.S. Treasurysecurities is not as compelling as it was only a few months ago when worst-case scenarios did notseem farfetched.

Looking ahead, the currency strategy team of Wells Fargo projects that the dollar will trendmodestly higher against most major currencies. Investors expect that most major central banks,including the Federal Reserve, the European Central Bank and the Bank of England, will be onhold until well into next year. Therefore, expected changes in short-term interest rates will nothave as much an influence on exchange rates as in the past. As the U.S. recovery gathers steam,foreign investment flows into long-term securities (e.g., corporate bonds and equities) and directinvestment inflows should resume, helping to lift the greenback. In addition, the decline in theU.S. current account deficit should exert less headwind on the greenback than it did earlier thisdecade when the dollar was trending lower.

Although most commodity and emerging market currencies could weaken a bit in the near termthese currencies should trend higher versus the greenback in the quarters ahead. The globalrecovery should cause most commodity prices to drift higher, which should help to supportcommodity currencies (e.g., the Aussie dollar). In addition, rising levels of risk tolerance shouldcause capital to flow to risky developing countries, which should put upward pressure on manyof those currencies.

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3

WorldOECD Industrial Production

Year-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

76 80 84 88 92 96 00 04 08

-20%

-15%

-10%

-5%

0%

5%

10%

OECD Industrial Production: May @ -15.5%

Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

ECB: Sep @ 1.00%

Bank of Canada: Sep @ 0.25%

US Federal Reserve: Sep @ 0.25%

Bank of England: Sep @ 0.50%

The global economy fell into its deepestrecession in decades as capital markets locked

up in the wake of the Lehman Brothersbankruptcy. Fortunately, the central banks andgovernments of the major economies of the

world averted disaster by slashing interest rates,undertaking fiscal stimulus and taking steps tosupport the global financial system.

There are indications that global economicactivity is starting to grow again. Commodityprices are off their cyclical lows and the rise inthe Baltic Dry index, which measuresinternational shipping prices of dry bulkcargoes, suggests that global trade is starting topick up again. Moreover, hard data show that

industrial production is starting to grow againin most economies.

Asia, which did not have overly leveragedfinancial systems heading into the crisis, isleading the world out of recession. However,

both the United States and the Euro area appearto be turning the corner as well.

Inflation rates were pushed up last year bystrong growth and the sharp rise in commodityprices. However, the deep global recession andthe subsequent collapse in most commodityprices have caused inflationary pressures torecede significantly. In our view, most central

banks will not begin to tighten policy again untilwell into 2010.

Baltic Dry IndexIndex, 1985=1000

0

2,000

4,000

6,000

8,000

10,000

12,000

2000 2002 2004 2006 2008

0

2,000

4,000

6,000

8,000

10,000

12,000

Baltic Dry Index: Sep @ 2,415

Global CPIYear-over-Year Percent Change

0%

2%

4%

6%

8%

10%

12%

14%

16%

1995 1998 2001 2004 2007 2010

0%

2%

4%

6%

8%

10%

12%

14%

16%

Forecast

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


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United StatesReal GDP

Bars = CAGR Line = Yr/Yr Percent Change

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2000 2002 2004 2006 2008 2010

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

GDPR - CAGR: Q2 @ -1.0%

GDPR - Yr/Yr Percent Change: Q2 @ -3.9%

Forecast

Real Residential InvestmentBars = CAGR Line = Yr/Yr Percent Change

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

2000 2002 2004 2006 2008 2010-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Res. Investment - CAGR: Q2 @ -22.8%

Res. Construction - Yr/Yr Percent Change: Q2 @ -25.5%

Forecast

The United States has been in recession sinceDecember 2007, and the decline in GDP has

been the sharpest contraction since the GreatDepression. However, recent indicators suggestthat the downturn has probably ended, and weforecast positive rates of GDP growth throughnext year.

The collapse in home building has exerted asignificant drag on real GDP growth over thepast three years. However, recent monthlyindicators suggest that new construction isstabilizing due to improved affordability and thetax credit for first time home buyers. We lookfor residential construction to grind slowlyhigher next year.

There has been an unprecedented liquidation ofinventories over the past few quarters asproducers have slashed production much fasterthan final sales fell. The pace of liquidationshould slow over the next few quarters, which

will make positive contributions to GDP growth. In our view, the pace of growth will remain

frustratingly slow for the next year or so. Thereare many consumers who leveraged up toomuch over the past few years, and they nowneed to de-lever. Consequently, growth inconsumer spending likely will remain sluggishfor the foreseeable future. With the

unemployment rate likely to climb further, theFederal Reserve likely will not raise rates forsome time.

Change in Real InventoriesBillions of Dollars, Annual Rate

-$200

-$175

-$150

-$125-$100

-$75

-$50

-$25

$0

$25

$50

$75

$100

$125

2000 2002 2004 2006 2008 2010

-$200

-$175

-$150

-$125-$100

-$75

-$50

-$25

$0

$25

$50

$75

$100

$125

Change in Private Inventories: Q2 @ -$159.2B

Forecast

Unemployment RateSeasonally Adjusted

2%

4%

6%

8%

10%

12%

60 65 70 75 80 85 90 95 00 05

2%

4%

6%

8%

10%

12%

Unemployment Rate: Aug @ 9.7%

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

4


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5

Euro-zoneEuro-zone Real GDP

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

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Compound Annual Growth: Q2 @ -0.4%

Year-over-Year Percent Change: Q2 @ -4.7%

Euro-zone Purchasing Manager IndicesIndex

30

35

40

45

50

55

60

65

1998 2000 2002 2004 2006 200830

35

40

45

50

55

60

65

E.Z. Manufacturing: Aug @ 47.9

E.Z. Services: Aug @ 49.5

Since peaking in early 2008 real GDP in theEuro area has contracted five percent, makingthe current slump the deepest downturn indecades. However, both the French and Germaneconomies grew on a sequential basis in thesecond quarter. Stimulative monetary and fiscalpolicies that authorities put in place last yearand earlier this year have helped to stabilize theeconomy.

Growth in the overall Euro area likely will bepositive in the third quarter. The purchasingmanagers indices for the manufacturing andservice sectors are on the cusp of moving intoexpansion territory, and the massive liquidationof inventories that occurred earlier this year setsthe stage for a rebound in production.

Although the worst may be over, we believe thatthe recovery in the Euro-zone will prove to befrustratingly slow. There are a few importanteconomies in which consumers became highlygeared. In our view, sluggish growth inconsumer spending in these economies willrestrain the overall GDP growth rate in the Euroarea.

The European Central Bank slashed its mainpolicy rate to 1.00 percent in May, and it has

been on hold subsequently. With a fragilerecovery and with few inflationary pressures at

present, we project that the ECB will refrainfrom tightening policy until the second half ofnext year.

Household Liabilitites in the Euro-zoneAs a Percent of GDP

0%

20%

40%

60%

80%

100%

120%

Aus tri a Bel gi um Fi nl and France Germany Greece It aly Net h. Port . Spain

0%

20%

40%

60%

80%

100%

120%

1999

2007Euro-zone Consumer Price Inflation


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1997 1999 2001 2003 2005 2007 2009

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Core CPI: Jul @ 1.3%

CPI: Jul @ -0.7%

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


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JapanJapanese Real GDP


-20%

-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-20%

-15%

-10%

-5%

0%

5%

10%

Compound Annual Growth: Q2 @ 3.7%


Japanese Tankan Survey & Real GDPIndex, Year-over-Year Percentage Change

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

1996 1998 2000 2002 2004 2006 2008-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%Tankan Index: Q2 @ -48.0 (Left Axis)

Year-over-Year Percent Change: Q2 @ -6.5% (Right Axis)

Japans economy turned a sharp corner in thesecond quarter and appears to be emergingfrom its deepest recession in the post-warperiod. Real GDP jumped at a 3.7 percent paceafter plunging at an 11.7 percent in the firstquarter. Strong export growth and consumerspending was a major factor behind the about-face. Government rebate checks to householdshave been effective in opening consumer walletsat a time when stronger growth in China andKorea are bolstering exports.

Global trade has rebounded in the secondquarter, and Japans export growth and trade

balance clearly reflect that fact. Real Japaneseexports rose at a 27.9 percent pace in Q2 afterdropping at a 63.9 percent rate in Q1. This hashelped Japans merchandise trade balanceswing back to its traditional surplus position,adding to GDP growth after spending much oflast year in deficit.

The Tankan index of large manufacturersconfirms the turn in the Japanese economy.The Tankan business sentiment index improvedto -48.0 in the second quarter from a record low-58.0 in March. We anticipate furtherimprovement in Q3 from still very low levels.

The yen has been rising against the dollar. It hasgained approximately 2.3 percent against the

dollar over the last month, and more than 6.2percent over the last six months. This is likelyto create some headwinds for Japanese exportgrowth in the months ahead. Japanese Merchandise Trade Balance

Billions of Yen, Seasonally Adjusted

- 500

- 250

0

250

500

750

1,000

1,250

1,500

2000 2002 2004 2006 2008

- 500

- 250

0

250

500

750

1,000

1,250

1,500

Merchandise Trade Balance: Jul @ 194.5

Japanese Exchange RateJPY per USD

80

90

100

110

120

130

140

150

1995 1997 1999 2001 2003 2005 2007 2009

80

90

100

110

120

130

140

150

JPY per USD: Sep @ 93.0

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

6


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7

United KingdomU.K. Real GDP


-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2002 2004 2006 2008

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



U.K. Purchasing Managers' IndicesDiffusion Indices

25

30

35

40

45

50

55

60

65

2000 2002 2004 2006 200825

30

35

40

45

50

55

60

65

UK Services: Aug @ 54.1

UK Construction: Aug @ 48.0

UK Manufacturing: Aug @ 49.2

Since peaking in the first quarter of 2008British real GDP has plunged 5.5 percent,making the current slump nearly as deep as thehorrendous downturn in the late 1970s. Thelock-up in global credit markets after theLehman bankruptcy has had a profound effecton the city of London.

There are indications that the economy hasstabilized and is starting to grow again. To wit,the purchasing managers indices for themanufacturing and service sectors have movedabove the demarcation line that separatesexpansion from contraction.

Like their counterparts in the United States,British consumers have built up their leverage

over the past decade or so, and it seems likelythat a period of consumer retrenchment is instore. Therefore, we project that the upturn willprove to be very slow due in part to sluggishgrowth in consumer spending.

The Bank of England has reduced its policy rateto only 0.50 percent and it is taking other steps,such as purchasing assets directly from the

banking system, to support the economy. TheBank has an inflation target of two percent thatit attempts to achieve in the medium term. Inour view, the recovery in the British economy

will be very slow, at least over the next year or

so, and inflation will remain benign. Therefore,we expect the Monetary Policy Committee willrefrain from raising rates until well into 2010.

Household LiabilitiesAs a Percentage of Nominal GDP

40%

60%

80%

100%

120%

1999 2000 2001 2002 2003 2004 2005 2006 2007

40%

60%

80%

100%

120%

Euro-zone: 2007 @ 65.0%

United States: 2007 @ 101.8%

United Kingdom: 2007 @ 96.7%

Japan: 2007 @ 74.4%

Canada: 2007 @ 77.8%

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

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1997 1999 2001 2003 2005 2007 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CPI: Jul @ 1.7%

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


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AustraliaAustralian Real GDP


-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-4%

-2%

0%

2%

4%

6%

8%

10%


Year-over-Year Percent Change: Q2 @ 0.6%

Australian Retail SalesYear-over-Year Percent Change

0%

2%

4%

6%

8%

10%

1999 2001 2003 2005 2007 20090%

2%

4%

6%

8%

10%

3-Month Moving Average: Jul @ 6.9%

Retail Sales: Jul @ 5.2%

Unlike most other major countries, Australiahas managed to avert a deep contraction in itseconomy. Real GDP declined at an annualizedrate of 2.2 percent in the fourth quarter of last

year, which is mild compared with the dropsregistered elsewhere, and growth returned topositive territory in the first and secondquarters.

A continued aggressive response by Australianpolicymakers including A$20B in consumerspending incentives helped the Australianeconomy dodge the worst of the global financialcrisis. Solid growth in consumer spending so farthis year is attributable, at least in part, to thefiscal stimulus. That said, retail sales havepulled back somewhat in recent months, raisingquestions about how consumer spending willhold up without government incentives. Still,even after coming down a bit in recent monthsretail sales for July are 6.6 percent higher thanthey were in the same month a year ago.

While the Australian economy has been resilientto the global slowdown, it has not beencompletely immune to its effects. The rate ofunemployment has jumped from 3.9 percentearlier this year to nearly six percent in July.But the worst of the job losses appear to be over,and payrolls actually grew by more than 30,000

jobs in July.

As the economy strengthens, pressure will likelymount for the Reserve Bank of Australia (RBA)to raise its policy rate from the low level of 3.00percent where it has been since April.

Australian Unemployment RateSeasonally Adjusted

3%

4%

5%

6%

7%

8%

9%

1998 2000 2002 2004 2006 2008

3%

4%

5%

6%

7%

8%

9%

Unemployment Rate: Jul @ 5.8%

Central Bank Policy Rates

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Reserve Bank of Australia: Sep @ 3.00%

US Federal Reserve: Sep @ 0.25%


8


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9

CanadaCanadian Real GDP


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



Canadian Merchandise Trade BalanceMillions of Canadian Dollars, Seasonally Adjusted

-C$2,000

C$0

C$2,000

C$4,000

C$6,000

C$8,000

C$10,000

1997 1999 2001 2003 2005 2007 2009-C$2,000

C$0

C$2,000

C$4,000

C$6,000

C$8,000

C$10,000

Merchandise Trade Balance: Jun @ -55M CAD

Canadian GDP contracted at a 3.4 percentannualized pace in the second quarter as netexports of goods and services exerted the largestdrag on growth. However GDP for the month ofJune grew 0.1 percent. While this increase wasmore modest than expected by the consensus, itmay mark the end of the recession for theCanadian economy. It was the first increase intotal monthly GDP since July 2008.

Although net exports were the largest negativefor growth, various indicators of global tradesuggest that international commerce is

beginning to pick back up, which means thesecond quarter may have marked the low pointfor Canadian trade and the economy mayactually receive a boost from net exports incoming months.

The largest positive contribution to secondquarter economic growth came from consumerspending which contributed 1.1 percentagepoints. As the nearby chart shows, Canadianretail sales fell off a cliff as the financial crisisintensified last fall, but on a sequential basis,they have turned the corner in recent months.

Whether or not the Canadian consumer willcontinue to spend is partly dependent onemployment. The bulk of the layoffs seem to be

behind us. In fact, Canada added 27.1K jobs inAugust, and the unemployment rate came down

to 8.7 percent. One month does not a trendmake, but if this sort of job growth provessustainable, it could be supportive of consumerspending during the recovery. Canadian Retail SalesYear-over-Year Percent Change

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1997 1999 2001 2003 2005 2007 2009

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Retail Sales: Jun @ -4.4%

6-Month Moving Average: Jun @ -5.2%

Canadian EmploymentMonth-over-Month Change in Employment, In Thousands

-150

-125

-100

-75

-50

-25

0

25

50

75

100

125

2000 2002 2004 2006 2008

-150

-125

-100

-75

-50

-25

0

25

50

75

100

125

Change in Employment: Aug @ 27.1K

6-Month Moving Average: Aug @ -15.3K



10/29


NorwayNorwegian Real GDP


-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

Compound Annual Growth Rate: Q2 @ -5.0%


Norwegian Real GDPYear-over-Year Percent Change

-3.0%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-3.0%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

Mainland GDP : Q2 @ -1.4%


Due to its large petroleum sector, real GDPgrowth in Norway can be volatile. That said, the2.5 percent decline in overall GDP over the pastfour quarters is the steepest contraction indecades and speaks to the severity of the currentdownturn.

Indeed, the petroleum sector is helping to dragdown the economy at present with totalNorwegian exports of goods and services offabout 9 percent on a year-over-year basis. Incontrast, mainland GDP, which excludes thepetroleum sector, is down only 1.4 percent on a

year-over-year basis. Real consumerexpenditures rose 2.4 percent on a sequential

basis in the second quarter.

Unfortunately, it appears that the Norwegianeconomy has lost some traction in the currentquarter. For example, industrial production fell0.5 percent in July relative to the previousmonth and the manufacturing PMI declinednoticeably in August, suggesting that IP

weakened further.

In response to the economic downturn and thedecline in the CPI inflation rate, Norges Bank,the countrys central bank, has cut its mainpolicy rate from 5.75 percent last autumn toonly 1.25 percent presently. Barring anothersharp downturn, the central bank likely will not

hike rates either until it is certain that theNorwegian economy is out of the woods. Inother words, it could be on hold for some time.

Norwegian Manufacturing PMI

30

35

40

45

50

55

60

65

70

2004 2005 2006 2007 2008 2009

30

35

40

45

50

55

60

65

70

Norwegian Manufacturing PMI: Aug @ 42.3

Norwegian Consumer Price IndexYear-over-Year Percent Change

-2%

0%

2%

4%

6%

1997 1999 2001 2003 2005 2007 2009

-2%

0%

2%

4%

6%

CPI: Jul @ 2.2%


10


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11

SingaporeSingapore Real GDPYear-over-Year Percent Change

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2000 2002 2004 2006 2008

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%


Singapore Volume of Imports and Exports3-Month Moving Average, Year-over-Year Pe rcent Change

-30%

-10%

10%

30%

50%

1996 1998 2000 2002 2004 2006 2008-30%

-10%

10%

30%

50%Real Exports: Jul @ -12.6%

Real Imports: Jul @ -15.1%

The Singapore economy bounced back in thesecond quarter, but given the steep declinesover the last four quarters, the economy ismerely recovering from its steepest contractionever.

Real GDP growth in Q2 rebounded 20.4 percentannualized rate. An impressive bounce thatleaves real GDP down a far more modest 3.5percent year-on-year. A strong manufacturingand export lead advance, typical of the Asianregion, was the catalyst behind theimprovement.

The Q2 manufacturing component of GDPjumped at a 49.5 percent quarter-on-quarterannualized pace. Singapores economic fortunes

are closely tied to its export performance. Non-oil domestic exports rose 6.1 percent month-over-month in July, echoing gains in China,Korea, Taiwan and Japan. Export strength isappearing in electronics and pharmaceuticals.

Singapores manufacturing PMI punched wellabove the neutral level to 54.4 in August. This isthe fourth consecutive month the index has heldabove the 50 level indicating manufacturingexpansion, and the strongest manufacturingindex reading for Singapore in nearly three

years. The swift economic contraction over the past

year has stifled any hint of consumer inflation inSingapore. As of July, CPI inflation was -0.5percent year-over-year, down from a 26 yearhigh of +7.5 percent inflation year-over-year inJune 2008.

Singapore Manufacturing PMIIndex

40

45

50

55

60

65

70

1999 2001 2003 2005 2007 2009

40

45

50

55

60

65

70

Singapore Manufacturing PMI: Aug @ 54.4

Singapore Exchange RateSGD per USD

1.300

1.400

1.500

1.600

1.700

1.800

1.900

1997 1999 2001 2003 2005 2007 2009

1.300

1.400

1.500

1.600

1.700

1.800

1.900

SGD per USD: Sep @ 1.439



12/29


South KoreaSouth Korean Real GDP


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



South Korean Industrial Production IndexYear-over-Year Percent Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

1997 1999 2001 2003 2005 2007 2009-30%

-20%

-10%

0%

10%

20%

30%

40%

IPI: Jul @ 0.7%

3-Month Moving Average: Jul @ -3.2%

South Koreas economy leap forward at astunning 2.6 percent quarter-on-quarter pace(10.8 percent annualized) in the second quarter,according to revised real GDP data. This wasthe best quarterly performance for the SouthKorean economy in five and a half years.Domestic demand has risen from the ashes astax cuts and reasonable access to credit boostedconsumer spending growth by 3.6 percentquarter-on-quarter.

Gross fixed investment appears to be followingthe consumers lead, jumping 4.3 percentquarter-on-quarter in the second quarter.

South Koreas industrial production roseanother 2.0 percent month-over-month in July,

the seventh consecutive monthly increase. Therebound in industrial production has beenamong the strongest in Asia since hitting

bottom in January. The manufacturingcomponent of South Korean GDP rose 8.2quarter-on-quarter in the second quarter.

Korean export growth cooled, dropping 9.2percent month-on-month NSA in August andnarrowing the Korean trade surplus to $1.7

billion from $4.4 billion. Exports will likelyremain volatile month-to-month, but areexpected to remain on the general recovery paththey have been on since January. Korean

shipbuilding order backlogs remain supportiveof continued export growth though there havebeen some reports of order cancellations. Astrengthening Korean won could act to dampenexport growth down the road.

South Korean Export & Import VolumesYear-over-Year Precent Change, 3-Month Moving Average

-20%

-10%

0%

10%

20%

30%

40%

2000 2002 2004 2006 2008

-20%

-10%

0%

10%

20%

30%

40%

Volume of Exports: Jun @ -4.1%

Volume of Imports: Jun @ -8.6%

South Korean Exchange RateKRW per USD

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1999 2001 2003 2005 2007 2009

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

KRW per USD: Sep @ 1,236.3


12


13/29


13

SwedenSwedish Real GDP


-20%

-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-20%

-15%

-10%

-5%

0%

5%

10%



Swedish Industrial Production IndexYear-over-Year Percent Change

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

2001 2003 2005 2007 2009-25%

-20%

-15%

-10%

-5%

0%

5%

10%

IPI: Jul @ -20.4%


The Swedish economy tanked at the end of lastyear, plunging nearly 20 percent at anannualized rate in the fourth quarter, and it hascontinued to contract, albeit at significantlyslower rates. Exports are equivalent to about50 percent of GDP, and the sharp downturn inglobal trade has dealt a nasty blow to theeconomy. Most components of domesticdemand, including consumption and businessfixed investment, have weakened as well.

There are some tentative signs of stabilization inthe Swedish economy. Real GDP was essentiallyflat on a sequential basis in the second quarter,and retail sales have strengthened recently,suggesting that growth in consumer spendingmay turn positive in the third quarter. Inaddition, the recent rise in the PMI above 50indicates that the manufacturing sector maysoon turn the corner.

However, the economy is clearly not out of thewoods yet. Hard data show that industrialproduction dropped 0.5 percent in July relativeto June, the 18th consecutive month in which IPhas declined.

The sharp downturn and the sudden drop ininflation led the Swedish Riksbank to slash itsmain policy rate to only 0.25 percent. Althoughthe Riksbank has acknowledged that the

economy is beginning to recover, it also believesthat the outlook is fraught with uncertainty.Therefore, the Riksbank has said that it expectsto be on hold until autumn of next year. Swedish Manufacturing PMI

30

35

40

45

50

55

60

65

70

2002 2003 2004 2005 2006 2007 2008 2009

30

35

40

45

50

55

60

65

70

Swedish Manufacturing PMI: Aug @ 52.4%

Swedish Consumer Price IndexYear-over-Year Percent Change

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1997 1999 2001 2003 2005 2007 2009

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

CPI: Jul @ -1.1%



14/29


SwitzerlandSwiss Real GDP


-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



Swiss Manufacturing PMIDiffusion Index

30

35

40

45

50

55

60

65

70

1997 1999 2001 2003 2005 2007 200930

35

40

45

50

55

60

65

70

Swiss Manufacturing PMI: Aug @ 50.2

Real GDP in Switzerland has declined for fourconsecutive quarters. Relative to the 4.7 percentcontraction that the Euro area has endured, the2.1 percent decline in Swiss GDP seems mild.However, the current downturn is the deepestrecession that Switzerland has experienced in atleast 30 years.

Because it is a small economy that issurrounded by many large neighbors exportsare very important to Switzerland, and thecollapse in global trade last year causedindustrial production to weaken significantly.Recent indicators suggest that the economy isstarting to stabilize. For example, the value ofSwiss exports has risen for two consecutivemonths, and the purchasing managers indexrose in August to its highest level in a year.

The rate of CPI inflation has moved intonegative territory. As in most other countries,however, the decline in the overall CPI isoverstated by the collapse in petroleum pricesover the past year. The core rate of inflation isstill positive, although it has fallen below1 percent recently.

Because exports are so important to the Swisseconomy, Swiss authorities play particularlyclose attention to the value of the Swiss franc.Indeed, the Swiss National Bank (SNB)

intervened in the currency markets earlier thisyear to counter upward pressure on the franc,and the SNB likely would intervene again if thecurrency were to strengthen anew. Swiss Consumer Price Index


-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1997 1999 2001 2003 2005 2007 2009

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

CPI: Aug @ -0.8%

Swiss Exchange RateCHF per USD

0.900

1.000

1.100

1.200

1.300

1.400

1.500

1.600

1.700

1.800

1.900

2001 2002 2003 2004 2005 2006 2007 2008 2009

0.900

1.000

1.100

1.200

1.300

1.400

1.500

1.600

1.700

1.800

1.900

CHF per USD: Sep @ 1.066


14


15/29


15

TaiwanTaiwanese Real GDPYear-over-Year Percent Change

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%


Taiwanese Industrial Production IndexYear-over-Year Percent Change

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1997 1999 2001 2003 2005 2007 2009-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

IPI: Jul @ -8.1%


Taiwans economy is emerging from recessionand the countrys leading economic indicatorssuggest that the economy will continue toimprove through the end of the year and into2010. Real Q2 GDP growth rose at 21 percentrate. Inventory building should supportproduction and growth in the quarters ahead.

Taiwan was recently hit by a major typhoon thatdamaged agricultural production. However theagricultural sector accounts for less than twopercent of GDP and the economic recovery willhardly be impacted by this event. Thegovernment has already passed a special budgetfor reconstruction of $2.9 billion to be spentover the next three years.

The typhoon has aggravated CPI inflation, atleast temporarily, as a jump in food prices sent

August CPI up 1.8 percent month-on-month.But with CPI inflation still down 0.8 percent

year-on-year, the central bank is expected tohold its key policy rate steady at its record low1.25 percent for some time to come.

Taiwans industrial production has reboundedsmartly since January, rising 34.0 percent. Therise has mirrored the recovery in export growththat began around that time. While the overalllevel of exports remains severely depressedcompared to a year ago, exports have been

growing again on a consistent basis. Exportsare a key driver of the Taiwanese economy, andan upswing here suggests stronger growth and

better profitability ahead. Taiwanese Export & Import VolumesYear-over-Year Percent Change, 3-Month Moving Average

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1997 1999 2001 2003 2005 2007 2009

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Volume of Exports: Jun @ -17.8%

Volume of Imports: Jun @ -18.0%

Taiwanese Exchange RateTWD per USD

30.00

31.00

32.00

33.00

34.00

35.00

36.00

1999 2001 2003 2005 2007 2009

30.00

31.00

32.00

33.00

34.00

35.00

36.00

TWD per USD: Sep @ 32.900



16/29


ArgentinaArgentine Real GDP


-32%

-24%

-16%

-8%

0%

8%

16%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-32%

-24%

-16%

-8%

0%

8%

16%



Argentine Consumer Price IndexYear-over-Year Percent Change

0%

2%

4%

6%

8%

10%

12%

14%

2004 2005 2006 2007 2008 20090%

2%

4%

6%

8%

10%

12%

14%

Consumer Price Index: Jul @ 5.5%

Our coverage of Argentina has to start with acautionary note: information coming fromofficial sources such as the INDEC, the countrys

statistical institute, is highly dubious due to thefact that the Kirchner administration has beenaccused of meddling with the countrys statisticsto achieve its political goals.

While initially it was thought that the consumerprice index was tainted because theadministration was trying to keep the cost offinancing the government lowspecifically thegovernment had issued bonds indexed to therate of inflationnow the markets areconvinced that most of the data coming fromthe INDEC are tainted.

The central bank is offering to exchange almost$22 billion pesos in bonds indexed to CER plus200 basis points (the inflation indexingmechanism) in exchange for bonds tied to theBadlar interest rate plus 275 basis points. TheBadlar interest rate is the rate for wholesale CDs

within the commercial banking sector.

According to the monthly index of economicactivity (a proxy for GDP) the Argentineeconomy weakened further in June, dropping by0.4% year over year. That puts first quartergrowth at 3.3%, down from 6.8% during 2008.

All in all, and if we believe the numbers,Argentina is probably one of the only countries

that has not been affected by the worldwidefinancial crisis. And there may be a reason forthis: Argentina has been out of the worldfinancial markets since it defaulted in 2001.

Argentine Exchange RateBRL per USD

2.50

2.70

2.90

3.10

3.30

3.50

3.70

3.90

03 04 04 05 06 07 08

1.00

1.50

2.00

2.50

3.00

3.50

4.00

ARS per USD: Sep @ 3.848

Argentine Economic Activity IndexYear-over-Year Percent Change

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1997 1999 2001 2003 2005 2007 2009

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Economic Activity: Jun @ -0.4%


16


17/29


17

BrazilBrazilian Real GDP


-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%



Brazilian Retail SalesYear-over-Year Percent Change

-8%

-4%

0%

4%

8%

12%

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

-4%

0%

4%

8%

12%

Retail Sales: Jun @ 5.6%

6-Month Moving Average: Jun @ 4.5%

The Brazilian economy is on the mend as theworld financial system recovers from last yearscollapse. However, the recovery is not expectedto be as strong as was the collapse late last year.The reason for this is that the Brazilian economyhas become a relatively large world exporter,and while demand from other developingcountries is improving, demand from thedeveloped world is still weak.

Good news coming from the inflation front. Theconsumer price index increased by 0.24% inJuly, taking the year over year inflation rate to4.5% and hitting the target of the Braziliancentral bank for the first time since January of2008. Wholesale prices, which are highlycorrelated with consumer prices, dropped by4.1% during the period, meaning that consumerprices are going to continue to slow.

On top of this, the exchange rate hasappreciated considerably once again to close

August at 1.9 reals per dollar. While this maynot be good for the countrys external sector, itis great news for inflation and the ability of thecentral bank to keep interest rates down in thenear term.

While industrial production dropped 9.9% inJuly compared to the same month a year earlier,it advanced 2.2% compared to June on a

seasonally adjusted basis. Thus, we expect theBrazilian industrial sector to continue itsrecovery as the important auto manufacturingsector steadily recovers after last years collapse. Brazilian Industrial Production Index


-20%

-15%

-10%

-5%

0%

5%

10%

15%

1997 1999 2001 2003 2005 2007 2009

-20%

-15%

-10%

-5%

0%

5%

10%

15%

IPI: Jul @ -10.4%


Brazilian Exchange RateBRL per USD

1.00

1.50

2.00

2.50

3.00

3.50

4.00

99 00 01 02 03 04 05 06 07 08 09

1.00

1.50

2.00

2.50

3.00

3.50

4.00

BRL per USD: Sep @ 1.843



18/29


ChileChilean Real GDP


-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%



Chilean Consumer Price IndexYear-over-Year Percent Change

-4%

0%

4%

8%

12%

1997 1999 2001 2003 2005 2007 2009-4%

0%

4%

8%

12%

CPI: Aug @ -1.0%

Julys drop in the consumer price index markedthe seventh deflationary month in the last ninemonths as the worldwide financial crisisproduced a steep turnaround in commodityprices. In August, the consumer price indexdropped 1.0% year over year. This is a hugeturnaround considering the country wasstruggling with accelerating inflation up untilOctober of 2008 when the rate topped 9.9%.

The reversal in inflation is another clearindicator of how efficient Chilean markets.Thus, as other Latin American countries sufferthe effects of still high inflation on the back ofhighly structural factors, the Chilean economy ison the mend and ready to start its recoveryprocess without having to be concerned withentrenched levels of inflation.

According to the IMACEC, the monthly index ofeconomic activity, the Chilean economydropped by 2.7% year over year in July.However, we believe the economy is on themend and expect the drop in economic activity

will slow down during the second half of theyear and will probably end the year with a dropof only 1.0%.

Meanwhile, the Chilean peso has started toappreciate once again, a trend observed in mostLatin American countries, with several notable

exceptions. The Chilean peso closed at 550.64pesos per dollar after hitting 670.25 at theheight of the worldwide financial crisis inOctober of last year. Chilean Economic Activity Index


-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2004 2006 2008

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Economic Activity: Jul @ -2.7%

Chilean Exchange RateBRL per USD

400

500

600

700

800

99 00 01 02 03 04 05 06 07 08 09

400

500

600

700

800

CLP per USD: Sep @ 551.750


18


19/29


19

ChinaChina Real GDP


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2000 2002 2004 2006 2008

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


Chinese TradeYear-over-Year Percentage Change, 3-Month Moving Average

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

Exports: Jul @ -23.5%

Imports: Jul @ -17.8%

China has not been immune to the downturnthat has affected essentially every country in the

world over the past year. Indeed, the sharpdownturn in Chinese exports helped to slow realgrowth. However, the rise in the year-over-yeargrowth rate from 6.1 percent in the first quarterto nearly eight percent in the second quartershows that recovery is underway.

Unlike most western countries, Chinas financialsystem was not overly leveraged in the yearsleading up to the global credit meltdown.Therefore, Chinese banks had the ability tocontinue lending, and the Chinese governmentremoved most lending restrictions that were putin place when inflation was seen as publicenemy No. 1. In addition, the governmentstimulated the economy via acceleration ofplanned infrastructure spending.

Consumer prices are currently down 1.8 percenton a year-over-year basis. Although the collapsein oil prices over the past year is partlyresponsible for the mild rate of deflation, manyother prices are also lower. With inflation non-existent and the global recovery still fragile,Chinese authorities are in no hurry to tightenpolicy.

Since the global credit crunch hit in earnest lastsummer, the Chinese government has held the

value of the renminbi stable against the dollar.Until Chinese exports start growing again atnormal rates, the government will likelymaintain an essentially fixed exchange rate. Chinese Loan Growth


0%

5%

10%

15%

20%

25%

30%

35%

99 01 03 05 07 09

0%

5%

10%

15%

20%

25%

30%

35%

Chinese Loan Growth: Jul @ 31.4%

Chinese Exchange RateCNY per USD

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

8.50

2005 2006 2007 2008 2009

6.50

6.75

7.00

7.25

7.50

7.75

8.00

8.25

8.50

CNY per USD: Sep @ 6.83



20/29


IndiaIndian Real GDP


0%

3%

6%

9%

12%

2000 2002 2004 2006 2008

0%

3%

6%

9%

12%


Indian Interest Rates3-Month Government Bill, 10-Year Government Security

0%

2%

4%

6%

8%

10%

12%

2001 2003 2005 2007 20090%

2%

4%

6%

8%

10%

12%

10-Yr Government: Sep @ 7.47%

3-Month Government Bill: Sep @ 3.40%

As in most other countries, real GDP growth inIndia has slowed over the past two years.However, the uptick in the year-over-yeargrowth ratefrom 5.8 percent in the firstquarter to 6.1 percent in the second quartershows that the economy is beginning to recover.

Exports are starting to recover, so some of therecent acceleration in the Indian economyreflects the effects of the upturn that isunderway in most foreign economies. That said,Indian authorities responded to the globalfinancial crisis last autumn with expansionarymacroeconomic policies. The Reserve Bank ofIndia cut its main policy rate to the lowest levelin years.

Inflation is not much of an issue at present.Indeed, the rate of wholesale price inflation,

which is the benchmark inflation gauge in India,is slightly negative at present. With the globalrecovery fragile at present and with benigninflation, Indian authorities are not likely totighten policy anytime soon.

Another near-term risk to the Indian economycomes from the agricultural sector, whichaccounts for nearly 20 percent of Indian GDP.Rainfall from the annual monsoon has been well

below normal this year, so agricultural outputcould be depressed later this year. Although the

bad monsoon is probably not enough to derailthe entire economy, the year-over-year GDPgrowth rate could be restrained over the nextfew quarters. Indian Wholesale Price Inflation


-2%

0%

2%

4%

6%

8%

10%

12%

14%

1999 2001 2003 2005 2007 2009

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Wholesale Price Inflation: Aug @ -0.2%Indian Exchange Rate

INR per USD

37.00

39.00

41.00

43.00

45.00

47.00

49.00

51.00

53.00

2000 2002 2004 2006 2008

37.00

39.00

41.00

43.00

45.00

47.00

49.00

51.00

53.00

INR per USD: Sep @ 48.875


20


21/29


21

MexicoMexican Real GDP


-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2004 2005 2006 2007 2008 2009

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%


Industrial Production IndicesYear-over-Year Percent Change

-15%

-10%

-5%

0%

5%

10%

1999 2001 2003 2005 2007 2009-15%

-10%

-5%

0%

5%

10%

Mexico, 3-Month Moving Average: Jun @ -11.5%

U.S.: Jul @ -13.1%

The Mexican economy is showing some signs ofimprovement. According to the INEGI, thecountrys statistical institute, the PMI dropped

by only 2.9 points in August compared to thesame month a year earlier (52.7 versus 49.8)and by 0.3 points compared to July and on aseasonally adjusted basis. But the mostimportant news with respect to manufacturingactivity is that this was the fourth consecutivemonthly improvement in the index.

On the negative side, rating agencies arereviewing their assessment of the country.

While Moodys Investor Services affirmed thecountrys rating in early August, Standard &Poors and Fitch may put Mexico on credit watchfor a possible downgrade. Moreover, concernsare increasing regarding the countrys elevatedfiscal deficit and declining oil production.

Consumer prices increased by 0.27% in July totake the year over year rate to 5.4%, still abovethe central banks target range. However,monthly inflation numbers were higher in Julythan in June. The resilience of the countrysinflation rate shows how difficult it is for Mexicoto bring down inflation even as the economyfaces its worst recession since the 1930s.

The Mexican peso has been pounded once againafter rating agencies said that they were

considering a potential downgrade of Mexicansovereign ratings. The peso was trading at 13.51pesos per dollar on September 3, 2009 afterappreciating to almost 12.8 pesos per dollar bymid-August.

Mexican Consumer Price IndexYear-over-Year Percent Change

2%

4%

6%

8%

10%

12%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2%

4%

6%

8%

10%

12%

CPI: Jul @ 5.4%

Mexican Exchange RateMXN per USD

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

1999 2001 2003 2005 2007 2009

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

MXN per USD: Sep @ 13.37



22/29


PolandPolish Real GDP


0.0%

3.0%

6.0%

9.0%

1995 1997 1999 2001 2003 2005 2007 2009

0.0%

3.0%

6.0%

9.0%


Polish Industrial Production IndexYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan 2008 Jul 2008 Jan 2009 Jul 2009-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

IPI: Jul @ -4.6%

Polish real GDP surprised to the upside in thesecond quarter of 2009, rising 1.1% from a yearearlier following a 0.8% increase in Q1. Thus,unlike most other European countries, itappears as though Poland will avoid a recessionduring this global downturn. Net exports

boosted growth, but that was only due to furthererosion in imports, as the contraction in exportsremained unchanged at -14.6% year over year.However, high unemployment, stagnant wagegrowth and sluggish recovery prospects inPolands main trading partners in the EU posesignificant headwinds for Polands economy inthe near term.

Industrial production continued to decline inJuly, falling 1.0% m/m and 4.6% y/y. However,the y/y reading has improved markedly fromthe lows reached earlier this year. The Julyreport showed weaker auto and metalsproduction, but a spike in construction activity.The PMI paints a more optimistic picturethough, rising to a 15-month high of 48.2 in

August, thanks in part to rising export orders. Inflation has held fairly steady recently, rising

3.6% y/y in July. While this is above the 3.5%target, high unemployment and stagnant wages

will likely restrain inflation in the comingmonths. A rebounding zloty will also help.

However, an increase in excise taxes and thepossibility of a stronger than expected recoverymeans the central bank must continue to keepan eye on inflation. Thus, the central bank keptthe interest rate unchanged at 3.5% in August.

Polish Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

-$11,000

-$10,000

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

1997 1999 2001 2003 2005 2007 2009

-$11,000

-$10,000

-$9,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

Merchandise Trade Balance: Jun @ -$1,172 M

Polish Exchange RatePLN per USD

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

1999 2001 2003 2005 2007 2009

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

PLN per USD: Sep @ 2.860


22


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23

RussiaRussian Real GDP


-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


Russian Industrial Production IndexYear-over-Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2003 2004 2005 2006 2007 2008 2009-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

IPI: Jul @ -10.8%


Russian real GDP plunged 10.9% y/y in Q209,worse than expected and a deeper contractionthan the 9.8% drop seen in Q109. On a q/q basisthe economy did grow 7.5%, but this was weakerthan typically seen in the second quarter. Whiledetailed information is not yet available, it islikely that the decline was driven by continued

weakness in manufacturing, construction andhousehold spending amid lackluster externaldemand, tight credit conditions and highunemployment.

More recent news shows a slightly brighteningpicture, however. Industrial production rose4.7% in July from the prior month, resulting ina 10.8% y/y drop, the smallest y/y decline inseven months. The manufacturing PMI rose to49.6 in August from 48.4 in July, suggestingthat manufacturing is on the brink of expansion,

while the services sector has already crossedinto expansion territory as the PMI rose to 52.2in August from 48.5 in July.

The CPI was flat in August, bringing the y/yreading down to 11.6% from Julys 12.0%.Inflation has moderated from the highs seen inmid-2008 as oil prices have been cut in half, the

weak labor market has restrained wage growthand the rebound in the ruble has helped tocontain import price growth.

Slowing inflation and the rebound in the rubleamid a return of investor appetite for riskierassets have allowed the central bank to cutinterest rates five times in the last four months.The rate currently stands at 10.75%.

Russian Consumer Price IndexYear-over-Year Percent Change

6%

8%

10%

12%

14%

16%

18%

20%

2002 2003 2004 2005 2006 2007 2008 2009

6%

8%

10%

12%

14%

16%

18%

20%

CPI: Aug @ 11.7%

Russian Exchange RateRUB per USD

22.000

24.000

26.000

28.000

30.000

32.000

34.000

36.000

38.000

2001 2002 2003 2004 2005 2006 2007 2008 2009

22.000

24.000

26.000

28.000

30.000

32.000

34.000

36.000

38.000

RUB per USD: Sep @ 31.581



24/29


South AfricaSouth African Real GDP


-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%



South African Consumer Price IndexYear-over-Year Percent Change

0%

3%

6%

9%

12%

15%

2003 2005 2007 20090%

3%

6%

9%

12%

15%

CPI: Jul @ 6.7%

Real GDP in South Africa fell at an annualizedrate of 3.0% in the second quarter of 2009relative to the previous quarter. This came onthe heels of the sharpest rate of contraction in25 years in the first quarter. Unfortunately, itappears that the economy may continue to

weaken in the third quarter, because thepurchasing managers index remained at a lowlevel through August

As global trade dried up late last year and earlythis year, South African exports collapsed. Thedownturn in exports is one reason why theSouth African economy has gone into a slump.

While exports continued to contract in thesecond quarter, imports shrank at an even fasterpace resulting in a positive contribution fromtrade to the overall GDP number for the quarter.

Consumption was a significant drag to Q2 GDP.Year-over-year retail sales numbers have beennegative for most of 2009. As we approach theanniversary of the financial crisis, comparisonsshould improve but we see little other reason to

be optimistic about the consumer. CPI inflation peaked about the same time as oil

and other commodities in the summer of 2008.The inflation rate has receded somewhat,allowing the South African Reserve Bank(SARB) to cut rates by 450 bps since early

December. Although inflation is just above thetarget range of 3 percent to 6 percent, the SARBexpects that inflation will recede further due tothe global economic downturn. Real South African Retail Sales


-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

2003 2004 2005 2006 2007 2008 2009

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

Wholesale & Retail Sales: Jun @ -6.7%

South African Exchange RateRand per USD

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

RND per USD: Sep @ 7.636


24


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25

TurkeyTurkish Real GDP

Year-over-Year Percentage Change

-15.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-15.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%


Turkish Industrial Production IndexYear-over-Year Percent Change

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1997 1999 2001 2003 2005 2007 2009-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

IPI: Jul @ -9.2%


Real GDP plunged 13.8% in Q109 from a yearearlier, the steepest decline on record. Publicspending rose 5.7%, reflecting a nearquadrupling of the budget deficit in the firstfour months of 2009 from a year earlier. Thesouring economy has put increased pressure onthe prime minister to accept assistance from theIMF, but seems reluctant to adhere to the IMFsstringent conditions of fiscal deficit reductionamid a very deep recession. In order to spurdemand, the government cut taxes earlier this

year on new cars, furniture and homeappliances. However, in order to shore up the

budget deficit, the government increased taxesin July on motor fuels and food and drinkserved in high class hotels and restaurants.

Industrial production fell 9.2% in June from ayear earlier, the smallest decline since October2008, and well off the low of -23.8% reached inFebruary. Production rose 0.9% from the priormonth, the fifth consecutive monthly increase.

As exports have plummeted, the government istrying to maintain an expansive fiscal policy inorder to fuel domestic demand.

The CPI rose 5.3% in August from a year earlier,less than half the rate seen a year ago, as therecession has clipped price pressures.

The lira has regained some ground this year asrisk aversion has abated somewhat in theforeign exchange markets. This has helped toslow inflation and has allowed the central bankto cut the interest rate from 16.75% in October2008 to a record low 7.75% in August 2009.

Turkish Consumer Price IndexYear-over-Year Percent Change

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1997 1999 2001 2003 2005 2007 2009

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

CPI: Aug @ 5.3%

Turkish Exchange RateTRY per USD

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

TRY per USD: Sep @ 1.491



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Dollar Exchange RatesU.S. Trade Weighted Dollar Major Index

March 1973=100

65

70

75

80

85

90

95

100

105

110

115

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

65

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Sep @ 74.9

U.S. Total Net Capital InflowsBillions of Dollars

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

$300

2003 2004 2005 2006 2007 2008 2009-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

$300

Net Capital Inflows: Jun @ -$31.2B

The dollar strengthened significantly lastautumn as risk aversion spiked. Massive foreign

buying of U.S. government bonds, considered tobe the safest assets in the world, caused thedollar to strengthen. In addition, repatriation offoreign investments by American investors alsocontributed to the appreciation of the dollar.

The greenback has given up most of its gainsover the past few months as investors haveturned less risk averse. With stock marketsrising in most countries and corporate bondsrallying, the safety of low-yielding U.S. Treasurysecurities is not as compelling as it was earlierthis year.

The widening of the U.S current account deficitbetween 2002 and 2006 exerted significantdownward pressure on the greenback duringthat period. However, the current accountdeficit has narrowed considerably since lastsummer. Not only have petroleum importsdeclined sharply, but non-oil imports have also

weakened because of the deep recession. Wells Fargo projects that the dollar will

appreciate modestly over the next few quartersversus most major currencies as the U.S.economic recovery prompts foreign buying ofhigher yielding U.S. assets. Commodity andemerging market currencies may weaken a bit

in the near term, but they likely will appreciatefurther on a trend basis as higher levels of risktolerance causes capital to flow to thosecountries. U.S. Purchases of Foreign Securities

Billions of Dollars

-$45

-$30

-$15

$0

$15

$30

$45

$60

2004 2005 2006 2007 2008 2009

-$45

-$30

-$15

$0

$15

$30

$45

$60

Purchases of Foreign Securities: Jun @ $33B

3-Month Moving Average: Jun @ $28B

Trade Balance In Goods And ServicesBillions of Dollars

-$80

-$70

-$60

-$50

-$40

-$30

-$20

-$10

$0

92 94 96 98 00 02 04 06 08

-$80

-$70

-$60

-$50

-$40

-$30

-$20

-$10

$0

Total Balance: Jun @ -$27.0 Billion

Goods Only: Jun @ -$38.4 Billion

Source: Bloomberg LP, Federal Reserve Board, IHS Global Insight,International Monetary Fund andWells Far o Securities LLC

26


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27

EnergyCrude Oil

NYMEX Front-Month Contract, Dollars per Barrel

$0

$20

$40

$60

$80

$100

$120

$140

$160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

$0

$20

$40

$60

$80

$100

$120

$140

$160

Crude Oil: Sep @ $68.02

Crude Oil InventoryYear-over-Year Percent Change

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2005 2006 2007 2008 2009-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Oil Inventory: Aug @ 13.0%

Oil prices collapsed last year as the creditcrunch caused the global economy to fall into itsdeepest recession in decades. However,petroleum prices are up about $40/barrel fromtheir lows earlier this year as global economicprospects have improved.

The global recovery is helping to pushpetroleum prices higher, but ample inventoriesare working in the other direction to restrainprice increases. Indeed, stocks of crude oil arecurrently 13 percent higher than they were a

year ago. Inventories of gasoline are up5 percent relative to last year, and distillatestocks stand about 25 percent higher than theydid last year.

We project that oil prices will grind slowlyhigher in the quarters ahead. Oil demandshould rise as the global economy continues torecover. On the other hand, however, ampleinventories should constrain the upwardpressure on petroleum prices.

The sharp downturn in economic activity alsoled to a collapse in natural gas prices. Unlikepetroleum, however, natural gas prices have not

yet recovered. Indeed, the price of natural gasrecently fell to its lowest level in seven years.Earlier this year, storage of natural gas was upabout 40 percent on a year-over-year basis.

Although stocks are not as abundant as theywere a few months ago, high inventories shouldprevent a rapid rise in gas prices anytime soon.

Natural GasHenry Hub Spot, Dollars per MMBTU

$0

$2

$4

$6

$8

$10

$12

$14

$16

2005 2006 2007 2008 2009

$0

$2

$4

$6

$8

$10

$12

$14

$16

Natural Gas: Sep @ $2.49

Natural Gas StorageYear-over-Year Percent Change

-30.0%

-15.0%

0.0%

15.0%

30.0%

45.0%

2005 2006 2007 2008 2009

-30.0%

-15.0%

0.0%

15.0%

30.0%

45.0%

Natural Gas Storage: Aug @ 16.7%



28/29


29/29

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research& Economics

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

[email protected]

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

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

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

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

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

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

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

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

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

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

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

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

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

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer

registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wachovia Bank N.A., Wells Fargo Bank N.A,

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

banks and is a wholly owned subsidiary of Wells Fargo & Company 2009 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED NOT BANK-GUARANTEED MAY LOSE VALUE

Global Chart Book _ September 2009[1]

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