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5 October 2012

GLOBAL ECONOMICS WEEKLY

Even unlimited money may not be enough
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Global Forecasts Global Synthesis Global Rates and Inflation United States

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Despite their potentially vast firepower, central banks are not omnipotent, and the obstacles to achieving robust global growth remain large. European activity indicators have worsened, and point to a broadening and deepening contraction in demand. Spain’s latest budget deficit targets look overly ambitious, and a request for ESM assistance is probably only a matter of time. The US economy looks to be in better shape, but the fiscal cliff still looms.

Outlook GDP Tracking: Q3 GDP tracking 2.0% Data Review & Preview Euro Area Outlook Data Review & Preview United Kingdom Outlook Data Review & Preview Japan Outlook Data Review & Preview Emerging Asia China Outlook Asia Outlook Data Review & Preview EEMEA Outlook Data Review & Preview Latin America Outlook Data Review & Preview Country Snapshots Global Weekly Calendar

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Developed Economies
United States: Getting closer to the edge 6 With the election a month away and year-end in sight, there remains considerable uncertainty regarding the ultimate scale of fiscal tightening at the start of 2013. Euro area: Spain: Sooner probably better than later 11 ECB: It is now up to Spain to trigger OMT activation and up to the Eurogroup to agree on a precautionary programme. UK: Underlying growth remains weak 15 Data suggest that underlying growth in Q3 was weak and we are likely to see only a modest recovery emerge in the final quarter of the year. Japan: Price goal out of reach, ease around the corner 18 The BoJ stood pat today, but we expect it to ease on 30 October, assuming its FY14 CPI forecast confirms that its medium/long-term price stability goal is out of reach.

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Emerging Markets
China: Holiday mood 21 China is in the midst of an eight-day long holiday. The NBS PMI released this week showed a small improvement, though it remained in contraction territory at 49.8. Emerging Asia: Export-oriented Asia gets more help Korea electronic exports rebounded in September ahead of key product launches. 23

INSTITUTIONAL INVESTOR ALL-EUROPE FIXED INCOME RESEARCH SURVEY 2012 Voting has begun in the Institutional Investor All-Europe Fixed Income Research Survey 2012. Barclays would welcome your support. To request a ballot, please go to the Institutional Rankings Assistance page.

EEMEA: Mixed PMIs, rising inflation, central banks on hold 27 September EEMEA PMI improved on average but readings are diverse across countries. IP growth next week is expected to remain generally lacklustre. Latin America: Politics take centre stage 31 Venezuela’s election on October 7 looks set to be very close. Given recent polls, we think the possibility of an opposition victory is higher than the market is pricing.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 45

Barclays | Global Economics Weekly

GLOBAL FORECASTS
Real GDP % over previous period, saar Global Developed Emerging BRIC Real GDP % annual chg Consumer prices % over a year ago Consumer prices % annual chg

1Q12 2Q12 3Q12 4Q12 1Q13 2011 2012 2013 1Q12 2Q12 3Q12 4Q12 2011 2012 2013 3.6 2.3 2.9 3.7 3.5 3.8 3.1 3.5 3.3 2.8 2.7 3.1 3.9 3.0 3.2 1.7 0.5 0.7 1.2 1.3 1.4 1.2 1.3 2.3 1.7 1.7 2.0 2.6 1.9 2.0 5.7 4.1 5.3 6.3 5.7 6.5 5.1 5.6 5.2 4.7 4.5 4.9 6.3 4.8 5.3 5.6 4.5 6.4 7.2 6.9 7.5 6.0 6.6 4.6 4.0 3.8 4.6 6.6 4.3 5.0 2.3 1.5 3.0 3.1 2.0 2.6 2.5 2.6 3.9 3.1 3.0 3.4 4.3 3.4 3.6 America United States 2.0 1.3 2.0 2.5 1.5 1.8 2.2 2.0 2.8 1.9 1.7 2.2 3.2 2.2 2.3 Canada 1.9 2.0 2.5 2.5 2.0 2.4 2.2 2.2 2.3 1.6 1.3 1.6 2.9 1.7 1.9 Latin America 3.2 2.0 5.3 4.5 3.4 4.5 3.2 4.0 7.9 7.4 7.4 7.6 8.2 7.6 8.1 Argentina 3.6 -6.5 12.0 8.0 3.8 8.9 3.1 4.7 24.1 25.4 26.8 28.0 23.5 26.1 28.0 Brazil 0.5 1.6 4.9 4.1 3.6 2.7 1.5 4.1 5.8 5.0 5.2 5.2 6.6 5.3 5.6 Chile 5.1 7.1 4.5 4.1 4.6 6.0 5.4 4.9 4.2 3.1 2.5 2.4 3.3 3.0 3.3 Colombia 1.1 3.5 6.0 6.0 4.0 5.9 4.2 4.6 3.5 3.3 3.0 2.9 3.4 3.2 2.9 Mexico 4.9 3.5 3.1 3.3 2.7 3.9 4.0 3.0 3.9 3.9 4.6 4.4 3.4 4.2 4.1 Peru 8.4 6.4 8.0 7.8 7.0 6.9 6.7 7.0 4.2 4.1 3.4 3.4 3.4 3.8 3.6 Venezuela 8.3 3.4 2.6 1.6 -0.4 4.2 4.9 2.2 25.3 22.6 18.7 20.3 26.1 21.6 27.1 7.3 4.8 4.2 6.0 6.3 6.0 5.4 5.6 2.8 2.3 2.0 2.6 3.7 2.5 3.0 Asia/Pacific Japan 5.3 0.7 -1.5 0.7 1.3 -0.8 2.1 0.9 0.1 -0.1 -0.2 0.1 -0.3 0.0 0.2 Australia 5.6 2.6 2.6 2.5 3.4 2.1 3.7 2.9 1.6 1.2 1.7 2.5 3.4 1.7 2.9 Emerging Asia 7.7 5.7 5.4 7.1 7.4 7.5 6.1 6.6 4.1 3.6 3.0 3.7 5.6 3.6 4.2 China 7.5 6.4 7.2 7.8 7.8 9.2 7.5 7.6 3.8 2.9 2.0 3.1 5.4 2.9 4.0 Hong Kong 2.6 -0.2 0.8 8.2 2.2 5.0 1.5 3.0 5.2 4.2 2.4 0.2 5.3 3.0 3.5 India 5.7 5.8 4.2 6.8 10.0 7.4 5.4 6.7 7.5 7.5 7.4 8.2 9.5 7.7 7.1 Indonesia 5.0 6.7 4.5 5.5 6.6 6.5 6.0 6.0 3.7 4.5 4.6 5.0 5.4 4.5 5.1 South Korea 3.5 1.1 2.0 7.8 2.8 3.6 2.7 3.5 3.0 2.4 1.5 1.7 4.0 2.1 2.0 5.9 5.4 2.3 2.0 7.5 5.1 4.7 5.1 2.3 1.7 1.3 1.4 3.2 1.7 2.2 Malaysia Philippines 13.1 2.5 -2.4 5.9 16.7 3.9 5.5 5.2 3.2 2.7 3.5 4.4 4.8 3.5 3.8 Singapore 9.5 -0.7 -0.6 5.0 4.0 4.9 2.0 3.0 4.9 5.3 4.0 3.9 5.2 4.5 3.3 Taiwan 1.3 3.4 5.7 8.2 0.4 4.0 1.7 3.4 1.3 1.7 3.0 2.4 1.4 2.1 1.9 Thailand 50.8 13.9 2.0 2.0 2.5 0.1 5.5 4.0 3.4 2.5 2.9 3.0 3.8 2.9 3.2 0.1 -0.5 1.1 1.2 1.0 2.4 0.6 1.3 3.2 2.9 3.2 3.1 3.6 3.1 3.0 Europe and Africa Euro area -0.1 -0.7 -1.0 -0.6 0.7 1.5 -0.5 0.3 2.7 2.5 2.6 2.5 ↑ 2.7 2.6 2.2 1.0 -2.0 -1.2 -0.1 0.9 1.8 -0.3 0.4 3.2 2.5 2.5 2.5 ↑ 3.5 2.7 2.0 Belgium 0.1 -0.2 -0.2 0.3 0.8 1.7 0.1 0.5 2.6 2.3 2.3 2.2 ↑ 2.3 2.3 1.9 France 2.0 1.1 -0.1 0.2 2.3 3.1 0.9 1.4 2.4 2.1 2.1 2.0 2.5 2.1 1.9 Germany 2.2 -4.1 -8.3 -4.7 -2.7 -6.9 -6.2 -3.1 1.7 1.1 1.1 1.1 3.1 1.3 0.7 Greece -2.6 0.0 -0.1 ↑ 1.9 ↓ 2.5 1.4 0.2 ↑ 1.6 1.7 1.9 2.4 2.5 1.2 2.1 1.1 Ireland 3.4 ↑ 3.1 -3.3 -3.3 -1.3 -0.7 -0.2 0.5 -2.3 -0.4 3.6 3.6 3.4 ↑ 3.2 ↑ 2.9 Italy 0.9 0.9 -0.9 -0.5 0.6 1.1 -0.4 0.4 2.9 2.6 2.6 3.6 2.5 2.9 3.1 Netherlands 3.0 ↑ 2.0 -0.2 -4.6 -5.8 -4.1 -0.7 -1.7 -3.3 -1.6 3.3 2.8 3.1 ↑ 2.6 ↑ 3.6 Portugal -1.3 -1.7 -3.8 -5.0 -2.0 0.4 -1.8 -1.8 1.9 1.9 2.8 3.7 ↓ 3.1 2.6 3.0 Spain United Kingdom -1.2 -1.5 2.2 0.9 1.7 0.9 -0.3 1.4 3.5 2.7 2.4 2.5 4.5 2.8 2.7 2.1 -0.2 0.8 0.8 1.2 1.9 0.9 1.0 -0.9 -1.0 -0.5 0.0 0.2 -0.6 0.9 Switzerland EM Europe & Africa 0.7 0.2 4.8 4.9 1.2 4.8 2.9 3.0 5.3 5.0 5.8 5.6 6.5 5.4 5.6 Czech Repub. -2.2 -1.0 -0.5 0.2 0.9 1.6 -0.9 0.6 3.1 3.6 3.4 3.1 1.9 3.3 2.5 Hungary -4.1 -0.9 0.0 0.4 0.4 1.5 -1.1 0.3 4.8 5.4 6.0 5.7 3.7 5.5 3.8 Poland 2.1 1.1 -0.1 -0.1 1.2 4.3 2.3 1.6 3.9 3.9 3.7 3.0 4.7 3.7 2.7 Russia 0.7 -4.0 8.7 8.3 -0.1 4.3 3.9 3.6 4.0 3.9 5.9 6.5 8.6 5.1 6.5 Turkey -0.3 7.2 3.6 4.9 2.8 8.5 2.9 3.7 10.5 9.4 8.9 6.7 6.5 8.8 6.9 Israel 3.1 3.4 3.1 2.7 3.1 4.8 3.2 3.5 1.8 1.6 1.9 2.4 3.4 1.9 2.2 South Africa 2.7 3.2 1.9 2.4 3.0 3.1 2.5 3.0 6.1 5.7 5.3 5.5 5.0 5.7 5.5 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). Source: Barclays Research

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Barclays | Global Economics Weekly

GLOBAL SYNTHESIS

Even unlimited money may not be enough
Simon Hayes +44 (0)20 7773 4637 simon.hayes@barclays.com

With many of the world’s major central banks having journeyed deeply into unconventional territory, there has been increased focus on their potentially unlimited firepower. This firepower is now being deployed, with the US Fed engaged in open-ended QE, the ECB rolling out its OMT policy, and the BoJ and BoE likely to ratchet up their QE asset purchases in the coming months. In the circumstances, these moves may have some utility, and financial markets have rallied accordingly. However, monetary policy has its limits, and recent indicators highlight the major challenges that still confront policymakers in securing a sustained renewal of global growth. Europe remains the epicentre of concerns. The composite PMI for the euro area fell to 46.1 in September, its lowest reading since June 2009. It has now been below 50 for 12 of the past 13 months. Although the manufacturing survey registered a slightly lower pace of decline, services activity contracted at its fastest pace for more than three years, emphasising the profound weakness in domestic demand. Looking at Q3 as a whole, the PMIs suggest that GDP growth might have been a touch weaker than the 0.3% q/q contraction that we expect. There are worrying signs that the contraction is broadening and deepening. France showed a particularly marked deterioration, with its composite PMI falling to a level comparable to those of Italy and Spain (Figure 1). In the UK, although the composite PMI remained above 50, the employment index fell sharply, suggesting that the prolonged stagnation in demand might finally be taking its toll on the hitherto charmed labour market. New car registrations data also emphasised the corrosion in confidence and demand. Registrations in the euro area’s four largest economies fell 5.5% q/q in Q3, hitting their lowest level in the history of the series (back to Q1 95 – Figure 2). Again, the deterioration in France was striking (-7.7% q/q), although it was surpassed by that in Italy (-9% q/q). Of course, the worsening in European activity owes a great deal to the public finance crisis in the region, both because the resultant fiscal tightening is a material drag on demand and because the threat of a major euro crisis has depressed sentiment. The goal of retaining, or

European activity indicators have worsened and point to a broadening and deepening contraction in demand

Figure 1: Composite PMIs show a broadening contraction
50=no change 65 60 55 50 45 40 35 30 25 06 07 08 09 10 11 12 Euro area Italy France Spain Germany

Figure 2: Euro area new car registrations have slumped
millions, annualised, sa/wda 13 12 11 10 9 8 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Barclays Research based on national sources

Monthly outturns 3mma

Source: Haver Analytics, Barclays Research

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re-attaining, credibility with financial markets has prompted more tightening measures to be announced. However, it is far from clear that the economic fundamentals will support further aggressive consolidation, and there are increasing concerns that the dreaded “doom loop” between the public finances and economic activity is spreading.
Spain’s budget targets look overly ambitious, and a request for ESM assistance is probably only a matter of time

At the end of last week, the Spanish government confirmed its budget deficit targets at 6.3% of GDP this year and 4.5% next. We are more pessimistic than the government on GDP growth, however, and expect both of these to be overshot. In particular, we think the pass-through from the recent VAT hike has been larger than expected and, together with other tax increases and benefit cuts, will depress household income, and therefore consumption, by more than the official forecast has factored in. Given the country’s past record of slippage in relation to targets, this is an unpromising starting point, and although the government appears reluctant to request ESM assistance and, thus, activate OMTs, such a move is probably only a matter of time. The Portuguese government this week announced further tax increases following a vehement public backlash against a planned increase in employees’ social security contributions. Without the measures, the government said its budget deficit would be more than 6% of GDP, well above the (recently relaxed) target of 5%. On a positive note, Portugal this week successfully exchanged EUR3.75bn of government bonds that were due to mature next year for longer-term debt, giving it a little more breathing space. However, the economic headwinds mean an extension of the EU/ECB/IMF programme may yet be needed. Meanwhile, the latest data for Ireland showed it remains on track to hit its 8.6% deficit target for the current fiscal year. However, with the unemployment rate stuck at nearly 15%, domestic demand continuing to contract and external demand slowing, maintaining its record of solid programme implementation will remain a major challenge.

Activity has weakened further across Asia, and we expect only modest support from the incoming Chinese leadership

Activity indicators across Asia for September also generally fell. The manufacturing PMIs in Korea, Singapore and Taiwan all slipped further below 50, and although the Chinese PMI improved, it remained indicative of falling activity. We expect both Korea and Singapore to loosen monetary policy next week. Regarding China, history suggests that looser policy might follow the November Party Congress. However, given the new leaders’ emphasis on the need for economic restructuring and rebalancing, we think any steps taken are likely to be modest (see Will the Party Congress boost growth? 3 October 2012). The BoJ made no changes to its policy stance this week, but we expect a further extension of asset purchases at the meeting scheduled for 30 October, when the BoJ will update and extend it CPI inflation forecasts. In terms of economic activity, the US is clearly faring better. The manufacturing and nonmanufacturing ISMs posted solid gains in September, and the Employment Report revealed a lower-than-expected unemployment rate, with non-farm payroll numbers on the month rising in line with expectations. Our Q3 GDP tracking estimate stands at 2% (saar), in line with our forecast. Even so, ongoing uncertainty about the outcome of next month’s elections means the looming fiscal cliff remains a source of concern. If the global economy is to face another major shock over the next six months, this is a prime candidate. Central banks are doing all that they can, and, some would argue, more than they should. The spotlight is now on politicians, especially in Europe and the US, who need to make the right judgments in relation to fiscal policy to stabilise public debt in the medium term while supporting near-term demand. The central banks’ munificence may be helpful, but it is far from sufficient to guarantee a favourable outcome.

The US looks in better shape, but the fiscal cliff still looms

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GLOBAL RATES AND INFLATION
Central Bank rates
Official rate % per annum (unless stated) Advanced Fed funds rate BoJ overnight rate ECB main refinancing rate BOE bank rate RBA cash rate RBNZ cash rate Swiss National Bank Norges Bank Riksbank Bank of Canada Emerging China: Working capital rate Indonesia: O/N policy rate India: Repo rate Korea: Base rate Poland: 2w repo rate Russia: Overnight repo rate South Africa: Repo rate Turkey: 1wk repo rate Brazil: SELIC rate Chile: Monetary policy rate Mexico: Overnight rate 6.00 5.75 8.00 3.00 4.75 5.50 5.00 5.75 7.50 5.00 4.50 Easing: 7 Jun 12 Easing: 11 Oct 11 Easing: 17 Apr 12 Easing: 12 Jul 12 Tightening: 19 Jan 11 Tightening: 13 Sep 12 Easing: 11 Dec 08 Easing: 20 Nov 08 Easing: 31 Aug 11 Easing: 12 January 12 Easing: 16 Jan 09 6.56 6.75 8.50 3.25 3.50 5.25 Jul 12 (-31) Feb 12 (-25) Apr 12 (-50) Jul 12 (-25) May 12 (+25) Sep 12 (+25) Q4 12 (-25) Q1 13 (+25) Q1 13 (-50) Q4 12 (-25) Nov 12 (-25) Q4 12 (+25) Sep 14 (+50) Beyond Q3 13 Oct 12 (-25) Q4 13 (+25) Beyond 2013 5.75 5.75 8.00 2.75 4.00 5.75 5.00 5.75 7.25 5.00 4.50 5.75 6.00 7.50 2.75 3.25 5.75 5.00 5.75 7.25 5.00 4.50 5.75 6.25 7.00 2.75 3.25 5.75 5.00 5.75 7.25 5.00 4.50 5.75 6.25 7.00 2.75 3.25 5.75 5.00 5.75 7.25 5.00 4.50 0-0.25 0.10 0.75 0.50 3.25 2.50 0-0.25 1.50 1.25 1.00 Easing: 17 Sep 07 Easing: 30 Oct 08 Easing: 3 Nov 11 Easing: 6 Dec 07 Easing: 1 Nov 11 Easing: 10 Mar 11 Easing: 8 Oct 08 Easing: 14 Dec 11 Easing: 20 Dec 11 Tightening: 1 June 10 5.25 0.50 1.50 5.75 4.75 3.00 2.75 2.25 2.00 0.25 Dec 08 (-75-100) Oct 10 (0-10) Jul 12 (-25) Mar 09 (-50) Oct 12 (-25) Mar 11 (-50) Aug 11 (-25) Mar 12 (-25) Sep 12 (-25) Sep 10 (+25) Beyond 2013 Q2 15 (+20) Q4 12 (-25) Nov 12 (-25) Nov 12 (-25) Q3 13 (+25) Beyond 2013 Q1 13 (+25) Dec 12 (-25) Q2 13 (+25) 0-0.25 0-0.10 0.50 0.25 3.00 2.50 0.25 1.50 1.00 1.00 0-0.25 0-0.10 0.50 0.25 3.00 2.50 0.25 1.75 1.00 1.00 0-0.25 0-0.10 0.50 0.25 3.00 2.50 0.25 1.75 1.00 1.25 0-0.25 0-0.10 0.50 0.25 3.00 2.75 0.25 1.75 1.00 1.50 Current Start of cycle date level Last move Next move expected 4Q 12 Forecasts as at end of 1Q 13 2Q 13 3Q 13

12.00 Jul 12 (-50) 16.75 Aug 11 (-50) 12.50 Aug 12 (-50) 5.25 8.25 Jan 12 (-25) Jul 09 (-25)

Note: Rates as of COB 4 October 2012. Source: Barclays Research

Key CPI projections
US CPI Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 2011 2012 2013 nsa 225.9 226.5 226.9 226.4 226.2 225.7 226.7 227.7 229.4 230.1 229.8 229.5 229.1 230.8 231.6 231.5 231.3 231.2 231.9 232.7 233.5 234.5 234.8 235.4 y/y 3.6 3.8 3.9 3.5 3.4 3.0 2.9 2.9 2.7 2.3 1.7 1.7 1.4 1.9 2.1 2.3 2.2 2.5 2.3 2.2 1.8 1.9 2.2 2.6 3.2 2.2 2.3 nsa 234.7 236.1 237.9 238.0 238.5 239.4 238.0 239.9 240.8 242.5 242.4 241.8 242.1 243.0 244.3 245.4 245.9 246.9 246.3 247.6 248.3 249.5 250.7 251.7 RPI y/y 5.0 5.2 5.6 5.4 5.2 4.8 3.9 3.7 3.6 3.5 3.1 2.8 3.2 2.9 2.7 3.1 3.1 3.1 3.5 3.2 3.1 2.9 3.4 4.1 5.2 3.2 3.3 UK CPI y/y 4.4 4.5 5.2 5.0 4.8 4.2 3.6 3.4 3.5 3.0 2.8 2.4 2.6 2.5 2.2 2.4 2.5 2.5 2.6 2.4 2.3 2.3 2.9 3.7 4.5 2.8 2.7 nsa 112.03 112.23 113.08 113.44 113.54 113.91 112.96 113.53 115.03 115.56 115.38 115.29 114.65 115.10 115.99 116.32 116.29 116.64 115.48 116.01 117.46 117.87 117.91 118.02 Euro area HICPx y/y 2.49 2.46 3.02 2.98 2.97 2.69 2.59 2.68 2.60 2.49 2.34 2.25 2.34 2.56 2.57 2.54 2.42 2.40 2.23 2.18 2.11 2.00 2.19 2.37 2.7 2.5 2.1 HICP y/y 2.6 2.5 3.0 3.0 3.0 2.7 2.7 2.7 2.7 2.6 2.4 2.4 2.4 2.6 2.7 2.6 2.5 2.5 2.3 2.3 2.2 2.1 2.3 2.5 2.7 2.6 2.2 France CPI ex tobacco nsa 121.94 122.59 122.49 122.73 123.00 123.51 123.06 123.58 124.63 124.80 124.73 124.78 124.22 125.06 124.91 125.07 125.18 125.81 125.18 125.71 126.81 126.91 127.01 127.28 y/y 1.89 2.18 2.18 2.25 2.42 2.40 2.28 2.22 2.24 2.03 1.90 1.87 1.87 2.01 1.98 1.90 1.77 1.86 1.73 1.72 1.75 1.69 1.83 2.00 2.1 2.0 1.8 Sweden CPI nsa 311.13 311.22 313.41 313.42 314.16 314.78 311.85 313.92 314.80 315.49 315.23 314.45 313.23 313.55 315.38 315.94 316.19 317.04 315.01 316.53 317.79 319.03 319.55 319.68 y/y 3.3 3.4 3.2 2.9 2.8 2.3 1.9 1.9 1.5 1.3 1.0 1.0 0.7 0.7 0.6 0.8 0.6 0.7 1.0 0.8 0.9 1.1 1.4 1.7 2.6 1.1 1.6 Japan CPI ex perishables nsa 99.8 99.9 99.9 99.8 99.6 99.6 99.3 99.5 100.0 100.2 100.0 99.6 99.5 99.6 99.8 99.8 99.7 99.7 99.4 99.5 100.0 100.2 100.0 99.7 y/y 0.1 0.2 0.2 -0.2 -0.2 -0.1 -0.1 0.1 0.2 0.2 -0.1 -0.2 -0.3 -0.3 -0.1 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.1 -0.3 0.0 0.1

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

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OUTLOOK: UNITED STATES

Getting closer to the edge
Peter Newland +1 212 526 3153 peter.newland@barclays.com
? ?

With the election a month away and year-end in sight, there remains considerable uncertainty regarding the ultimate scale of fiscal tightening at the start of 2013. However, in our view, this uncertainty is unlikely to have been the key factor behind recent growth dynamics – final demand growth looks to have slowed in Q3, but data for September offer cause for cautious optimism. For example, the manufacturing ISM returned to expansionary territory and the employment report struck a positive note, with an upward revision to payrolls and an employment-driven decline in the unemployment rate.

?

The outcome of the fiscal cliff is still uncertain…

We set out the details of, and uncertainties surrounding, the ‘fiscal cliff’ in a note in June (see Fiscal cliff notes: The only certainty is uncertainty, 13 June 2012). That essentially nothing has changed since then is perhaps as unsurprising as it is discouraging. While our baseline forecast continues to assume that most taxation and spending measures will be delayed or extended, there remains little clarity about when or how this will be accomplished. The outcome of the election provides the first layer of uncertainty: InTrade, a website that provides probability estimates based on investor wagers, suggests that both the likely winner of the presidential race and the composition of House and Senate remain unclear, with the most likely outcome (an Obama victory, a Republican majority in the House and a Democratic majority in the Senate) having only a little over a one-third probability attached to it (Figure 1). While either a Democratic or Republican sweep (of the presidency alongside House and Senate majorities) remain possible, more probable is some form of split government, which implies that the wide disparity of views on many aspects of the fiscal cliff between the two parties will continue to provide the second layer of uncertainty, even once the election is over. Figure 3 sets out the latest positions expressed by the parties on the various measures. There appears to be some agreement on several components (for example, neither party has proposed extending the payroll tax cut and both parties would like to extend the lower and middle income tax cuts enacted under President Bush). However, that does not Figure 2: Consumer and business confidence
Obama 5.2 35.8 2.2 15.0 7.9 1.2 67.4 Romney 2.5 17.3 1.1 7.2

…and the result of the election remains in the balance

Signs of reaching an agreement are thin on the ground

Figure 1: Election outcome probabilities
% Democratic House and Senate Republican House, Democratic Senate Democratic House, Republican Senate Republican House and Senate Republican House, tied Senate Democratic House, tied Senate

index 80

Consumer confidence (lhs) Small business optimism (rhs)

index 96 95 94

65

93 92 91

50
3.8 0.6 32.6

90 89 88

35 87 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
Source: Conference Board, NFIB, Barclays Research

Source: Intrade, Barclays Research

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necessarily suggest that these courses of action will be taken, at least not immediately, given that these measures will most likely be discussed within a broader package (including the far more contentious components, such as the Bush tax cuts for higher income earners and the measures related to the Affordable Care Act).
We have factored in $200bn of tightening

Our forecast continues to factor in $200bn of tightening and we believe that this is a reasonable baseline assumption under any election outcome. Expiration of the payroll tax cut is likely to be the major component. At approximately $120bn, this represents 0.8% of GDP and would be a direct reduction in household incomes of 1.0%, sufficient to trim about 0.8pp from 2013 consumption growth and 0.5pp from 2013 GDP growth, on our estimates. Other tightening measures would most likely include some combination of spending cuts and a scaling down of smaller tax measures (such as the estate tax and other provisions), although the bottom line is that uncertainty still reigns.

Uncertainty is not the main factor behind recent growth dynamics
Uncertainty may have affected spending decisions…

The extent to which this uncertainty has affected the decisions of firms and households is difficult to gauge. On the one hand, measures of consumer and business sentiment have generally improved in recent months, particularly relative to the same time last year, when there was a similar episode of fiscal uncertainty (Figure 2). On the other, as we wrote last month, some measures of final demand have clearly slowed during Q3 (see Q3 growth: A less reassuring blend, 21 September 2012). Our sense is that more fundamental factors have played a larger role than uncertainty, with higher energy prices and weaker activity abroad crimping demand at US manufacturers, which in turn led to a build up in inventories and a cut in production. However, the most recent data offer cause for optimism. For example, the ISM rebounded above 50 in September for the first time in four months, with both new orders and production recovering some lost ground. In addition, the September employment report included several encouraging features. While the 114k increase in payrolls was broadly in line with expectations, this came alongside a net 86k upward revision and a pickup in hours worked. More salient was the three-tenths decline in the unemployment rate to 7.8%, and especially the fact that this fully reflected an increase in employment, rather than a decline in labor force participation.

…but fundamental factors are likely more important

Encouraging September employment report

Figure 3: Political positions on fiscal cliff measures
Size ($bn) Total Most Agreement Payroll Tax Cut 2001/2003 Tax Cuts (Lower/Middle Income) Other Expiring Provisions Emergency Unemp. Comp. AMT patch Estate Tax Obama Tax Credits Affordable Care Act Least Agreement Spending Cuts (Sequester + Medicare Rates) 2001/2003 Tax Cuts ($250k+) -650 -120 -120 -75 -30 -100 -25 -20 -25 -100 -35 Neither party has proposed extending Both parties have proposed extending Repeatedly extended in the past Neither party has proposed extending Democrats propse extension, Republicans elimination of AMT Both parties propose extension but disagree on details Democrats propose extension, Republicans expiration Democrats in favor, Republicans against Both parties propose extension but disagree on details Republicans propose extension, Democrats expiration Latest positions

Source: CBO, OMB, House Budget Committee, Treasury Dept, Tax Policy Center, Barclays Research

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GDP TRACKING: UNITED STATES

Q3 GDP tracking 2.0%
Peter Newland +1 212 526 3153 peter.newland@barclays.com

Weaker-than-expected non-residential construction and a downward revision to core capital goods shipments were offset by strong vehicle sales and a further sharp pickup in manufacturing inventories.
?

While the increase in residential construction and the decline in government construction in August were broadly in line with our forecasts, the private nonresidential component was weaker, pointing to a decline in structures investment in Q3. Meanwhile, September vehicle sales surprised significantly to the upside, rising to 15.0mn (saar) from 14.5mn, the highest since March 2008. This suggests that vehicles will boost consumer spending in Q3 and added 0.1pp to our tracking estimate. Finally, August factory orders suggested that the sharp pickup in inventory levels at the beginning of the quarter continued in August, with manufacturing inventories up 0.6%. This points to a significant addition to Q3 GDP growth from stock building.

?

?

Figure 1: GDP tracking*
Release date 19-Sep 27-Sep 27-Sep 28-Sep 1-Oct 2-Oct 4-Oct 10-Oct 11-Oct 15-Oct
Source: Barclays Research

Indicator Housing starts GDP Durable goods orders Personal spending Construction spending Vehicle sales Factory orders Wholesale inventories Trade Retail sales

Period Aug Q2-3rd Aug Aug Aug Sep Aug Aug Aug Sep

Q3 tracking 2.1 2.1 2.0 1.8 1.7 1.8 2.0

Figure 2: GDP growth contributions
Q2 – 3rd estimate % q/q (saar) Real GDP Consumption Govt. spending Res. investment E&S investment Structures Net exports, $bn Ch inventories, $bn 1.3 1.5 -0.7 8.4 4.8 0.6 -407.4 41.4 1.1 -0.1 0.2 0.4 0.0 0.2 -0.5 Cont. (pp) Q3 – tracking % q/q (saar) 2.0 1.9 -0.6 14.0 5.8 -6.0 -417.6 58.4 1.3 -0.1 0.4 0.5 -0.2 -0.3 0.4 Cont. (pp)

Figure 3: Q3 GDP tracking estimate
% q/q (saar) 3.0

2.5

August personal spending report

2.0

1.5 August
Source: Barclays Research

September

October

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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DATA REVIEW & PREVIEW: UNITED STATES
Dean Maki, Michael Gapen, Peter Newland, Cooper Howes Review of last week’s data releases
Main indicators ISM manufacturing, index Construction spending, % m/m Vehicle sales, mn saar ISM nonmanufacturing, index Factory orders, %m/m Minutes of FOMC meeting released Nonfarm payrolls, chg, thous Private nonfarm payrolls, chg, thous Unemployment rate, % Average hourly earnings, % m/m (y/y) Average weekly hours Period Sep Aug Sep Sep Aug 13-Sep Sep Sep Sep Sep Sep 96 103 8.1 0.0 (1.7) 34.4 100 110 8.1 0.1 34.4 114 104 7.8 0.3 34.5 Previous 49.6 -0.4 R 14.5 53.7 2.6 R Barclays 49.0 0.4 14.3 53.0 -5.6 Actual Comments 51.5 -0.6 14.9 55.1 -5.2 Upside surprise came after three straight sub-50 prints Recovery in residential, weakening elsewhere Highest level since February 2008 Improvement was broad-based A rise in inventories raised Q3 GDP tracking to 2.0% Efforts to enhance forward guidance remain a priority Government sector has added jobs for past 3 months Gain was due to increase in service sector employment Participation rate rose; decline was due to job gains Hourly earnings stand 1.8% higher y/y Modest improvement relative to expectations

Preview of the next week
Monday 8 October No significant events or releases Tuesday 9 October Wednesday 10 October 10:00 Wholesale inventories, % m/m 14:00 Fed Beige Book report released 14:45 Minneapolis Fed President Kocherlakota (FOMC non-voter) speaks in Montana 16:30 Fed Board of Governor Tarullo (FOMC voter) speaks in Pennsylvania 16:45 Dallas Fed President Fisher (FOMC non-voter) speaks in Washington DC Thursday 11 October 3:30 8:30 8:30 8:30 8:30 Initial jobless claims, thous (4wma) Import prices, % m/m (y/y) Nonpetroleum import prices, % m/m (y/y) Trade balance, $ bn Period 06-Oct Sep Sep Aug Prev 2 385 (379) -2.3 (-2.4) -0.3 (-0.2) -47.6 Prev 1 363 (375) -0.7 (-3.2) -0.3 (-0.5) -41.9 Latest 367 (375) 0.7 (-2.2) -0.2 (-0.9) -42.0 Forecast 365 (370) 0.6 0.3 -44.0 Consensus 365 0.7 -44.0 Fed Board of Governor Yellen (FOMC voter) speaks in Tokyo Period Period Aug Prev 2 Prev 2 0.0 Prev 1 Prev 1 -0.2 Latest Latest 0.7 Forecast Forecast 0.2 Consensus Consensus 0.4 20:30 Fed Board of Governor Yellen (FOMC voter) speaks in Tokyo Period Prev 2 Prev 1 Latest Forecast Consensus

10:00 Fed Board of Governor Stein (FOMC voter) speaks in Washington DC 11:15 Fed Board of Governor Raskin (FOMC voter) speaks in France 12:30 Philadelphia Fed President Plosser (FOMC non-voter) speaks in Pennsylvania 14:00 Treasury budget balance, $ bn Sep -45.2 ('09) -34.6 ('10) -62.8 ('11) -35.0 -2.0 18:00 St. Louis Fed President Bullard (FOMC non-voter) speaks in Missouri

Import prices: We are looking for a 0.6% m/m increase in import prices in September, with a further rise in petroleum prices (in line with that in oil prices) combined with a rebound in nonpetroleum prices of 0.3%. The latter would partly reflect the depreciation of the trade-weighted dollar in recent months. Trade balance: We are looking for a widening in the nominal trade deficit in August, to $44.0bn from $42.0bn, and in the real trade in goods deficit to $47.5bn from $46.5bn. Timely indicators have generally been consistent with a weakening of export growth in Q3 – for example, the export component of the manufacturing ISM has been below the 50 mark since May and outbound container traffic declined in July and August.
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Treasury budget balance: Because of the timing of Labor Day weekend, many payments usually made at the beginning of the month (including Social Security payments) were shifted to August from September. This resulted in a substantial widening in the August deficit compared with 2011, and should also translate to a narrower September reading. We look for a deficit of $35.0bn in the last month of fiscal year 2012, which would be in line with our forecast for an annual budget deficit of $1.2trn.
Friday 12 October 8:30 8:30 9:55 PPI, % m/m (y/y) Core PPI, % m/m (y/y) Michigan consumer sentiment- p, index Period Sep Sep Oct Prev 2 0.1 (0.7) 0.2 (2.6) 72.3 Prev 1 0.3 (0.5) 0.4 (2.5) 74.3 Latest 1.7 (2.0) 0.2 (2.5) 78.3 Forecast 0.8 0.2 79.0 Consensus 0.7 (1.7) 0.2 (2.5) 77.8

12:35 Richmond Fed President Lacker (FOMC voter) speaks in Virginia

Producer prices: We expect a 0.8% m/m increase in producer prices in September. At the headline level we expect this to largely reflect further gains in the gasoline and food components, the former in line with market energy prices and the latter partly reflecting the effect of droughts in the Midwest on grain prices. Meanwhile, we have penciled in a 0.2% gain in the core, in line with the trend in recent months. U. Michigan consumer sentiment: On the whole, the picture of consumer sentiment is little changed since last month. Equity market volatility has remained at low levels through August and September and gasoline prices and initial jobless claims have both dropped a bit relative to their September levels. In total, we expect these effects to push the University of Michigan’s preliminary October index of consumer sentiment to 79.0 after a final September print of 78.3.

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OUTLOOK: EURO AREA

Spain: Sooner probably better than later
Fabio Fois +44 (0)20 3134 1136 fabio.fois@barclays.com Philippe Gudin +33 1 4458 3264 philippe.gudin@barclays.com The ECB is ready to launch the OMT once a precautionary programme is in place
? ? ?

ECB: It is now up to Spain to trigger OMT activation and up to the Eurogroup to agree on a precautionary programme. We still expect Spain to request a precautionary programme in the next two weeks, although the government’s indecision may lead to a delay. Growth outlook: Confidence data for September suggest small downside risk to our euro area GDP forecast for Q3 of -0.3% q/q.

The ECB left rates unchanged yesterday, in line with our expectation. More interestingly, ECB President Mario Draghi noted that the Council did not even discuss a rate cut. He also mentioned the continuation of a weak economic environment and a high level of uncertainty, but the focus was clearly on the possible implementation of Outright Monetary Transactions (OMT). He repeated that the ECB was acting in full compliance with its mandate of maintaining price stability when considering entering such a programme, and that it would act as an effective backstop against euro area fragmentation and risks of a “destructive scenario”. Even though the ECB considers last month’s decision to set up the OMT programme to have helped alleviate financial market tensions since, M. Draghi made it clear that it was now up to the euro area governments to put “all the prerequisites” in place – ie, a precautionary programme for those countries facing high refinancing costs 1. We think the improved bond market conditions since last month have been based on investors anticipating that the OMT would soon be activated for Spain. After last week’s announcement on fiscal plans and upcoming structural reforms, we continue to expect the Spanish government to request a precautionary programme in the next two weeks, possibly close to the next European Council on 18 and 19 October. Taking into account the subsequent supportive rhetoric of various European officials on budget and structural measures, we think it is very likely that the measures announced have already been discussed informally with the EU and the IMF and would constitute the core of the attached MoU. However, the Spanish government still seems hesitant to request external assistance, due to Germany’s reluctance to give support, as well as domestic political considerations in conjunction with upcoming regional elections in Galicia, the Basque Country (21 October) and Catalonia (24 November). However, questions remain about the financial market reaction if Spain decides to withhold its request. In particular, it is unclear whether potential market tensions would be intense enough to ‘force’ Spain into a programme. A conditional backstop provided by the ECB OMT, in fact, may prevent the financial community from turning sour on Spain. Investors could have a low appetite for reinstating (or increasing) short positions under current market conditions. Overall, though, we think that Spain will eventually ask for financial support. Economic fundamentals remain weak, and structural reforms (even if implemented properly) are likely to show their positive effects only in the medium term. In the meantime, we expect growth prospects to remain fragile going into next year, while the primary balance adjustment required to meet budget deficit targets is likely to be larger than

We continue to expect Spain to request support in the next two weeks…

… however, positioning and the ECB OMT backstop may help Spain buy some time

1

For more on this please refer to ECB Press Conference: With OMTs a “fully effective backstop”, it is “now essential that governments continue to implement the necessary steps”, 4 October 2012.

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currently envisaged by the government (about EUR50bn through 2014), potentially intensifying the vicious circle of economic depression and fiscal austerity.
Spain: Budget 2013 – ambitious targets as domestic demand headwinds will weigh on growth next year also

At the end of last week, the Spanish government presented the Budget for next year. As expected, the fiscal tightening is quite significant, even though we think the 4.5% of GDP target for next year is far too ambitious and will likely be missed. We welcome the high-level structural measures presented (particularly those aimed at incentive re-employment of young low-skilled unemployed workers); however, before assessing whether they could represent a turning point for the Spanish economy, we think the government will have to provide more details. To this extent, the agenda presented helps financial markets monitor the quality of measures as well as the government’s commitment to strict implementation. The general government budget deficit targets were confirmed at 6.3% of GDP for this year and 4.5% of GDP next year; however, given the partial inclusion of past bank recapitalisation costs (which are considered lost money for the taxpayer), the overall 2012 general government deficit is now expected to be 7.4% of GDP. At this stage, it is unlikely to affect the assessment of the European Commission as it should consider bank recapitalisation a one-off cost and exclude it from the agreed 6.3% target (as in Ireland in 2011). Overall, we continue to believe it will be difficult for Spain to achieve its fiscal targets: we expect the budget deficit to be 7.0% of GDP this year and 5.0% of GDP in 2013. In particular, we are more pessimistic on the growth outlook for next year. Indeed, we expect the domestic demand headwinds that have caused the recession so far to persist in 2013, while we expect a significant negative impulse from fiscal policy and only a gradual improvement of the financing conditions. We look for GDP to contract 1.8% this year and next, compared with official forecasts of contractions of 1.5% this year and 0.5% in 2013 2. The latest set of PMI data published for September continue to suggest downside risks compared with our GDP growth forecast of -0.3% q/q in Q3 (Figure 1). In fact, our PMIbased GDP indicator is consistent with a contraction of about 0.5% q/q. That being said, in the past two quarters, PMIs have been underestimating actual growth. While we acknowledge downside risk to our baseline growth scenario, we think that the magnitude will depend on how activity data may have responded to a protracted period of weak confidence in both the manufacturing and the services sectors. Figure 1: Downside risk to our euro area growth forecast for Q3
1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 Jan-10 Jan-11 Q2 estimate based on June PMI Jan-12 Q3 est. based on Sept PMI Barclays Q3 GDP f.c Q2 GDP

Latest confidence data highlight downside risk to our euro area GDP growth forecast for Q3

Source: Haver, Markit, Barclays Research

2

For more on this, please refer to Spain: Sharp fiscal tightening in a weak economic environment, 2 October 2012.

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DATA REVIEW & PREVIEW: EURO AREA
Philippe Gudin, Francois Cabau, Julian Callow, Fabio Fois, Thomas Harjes, Fabrice Montagne, Marcus Widen Review of last week’s data releases
Main indicators E17: Final composite PMI, index E17: ECB Interest rate announcement, % Period Sep Oct Previous 46.0 P 0.75 Barclays 46.0 0.75 Actual 46.1 0.75 Comments Composite PMI was revised up 3 tenths from its preliminary estimate Interest rates unchanged; with OMTs a 'fully effective backstop'

Preview of week ahead
Monday 8 October 14:00 15:00 06:00 06:30 10:00 E17: First meeting of ESM Governors Italy: PM Monti meets Germany SPD President Gabriel in Rome E17: Eurogroup meeting Germany: Trade Balance sa, bn France: BdF industrial business sentiment, index Germany: Industrial production, % m/m (y/y) Aug Sep Aug 15.6 91 1.7 (-0.3) 18.0 90 -0.4 (0.3) 16.9 93 1.3 (-1.4) -2.0 (-3.0) 15.6 91 -0.5 (-1.5) Period Prev 2 Prev 1 Latest Forecast Consensus

Germany – Industrial production: We expect Industrial production to contract -2.0% m/m (-3.0% y/y) on weak advanced indicators (car registrations, steel, etc). If realised, this would leave the Q3 (July/August) average 0.6% above the Q2 level and limit downside risk to our GDP forecast (flat in Q3). That said, Q3 monthly data are often distorted and seasonal effects not fully accounted for. A contraction in August would also correct July’s surprisingly strong reading. Euro area – Eurogroup meeting: Euro Area Finance Ministers will meet in Luxembourg to discuss economic matters. Likely to be high on the agenda are the situations in Spain (status on requesting financial support), Greece (status of the “troika” report), Slovenia (economic situation) and Cyprus (status on the MoU after the request for financial assistance last June). Next to this, EA Finance Ministers will also have to advance on the modalities of a banking union (Single Supervisor Mechanism) in preparation for the next European Council (18-19 Oct). Unless a formal request of financial support by Spain is made official, we don’t expect much information to filter out of the meeting. Officials will however want to manage some expectations, like for instance on the “troika” report (delays to be expected, possibly in November, in place of October) and on the progress concerning the banking union, which will also be discussed at the Ecofin the following day (probably nothing concrete before the December European council).
Tuesday 9 October 07:00 07:30 22:00 06:45 06:45 08:30 09:00 09:00 07:00 12:30 06:45 07:00 07:30 08:00 08:00 08:00 Global: IMF/World Bank annual meeting (to 14/10) Germany: Chancellor Merkel visits Athens E27: ECOFIN meeting E17: ECB President Draghi speaks on Economic and Monetary Affairs of the European Parliament in Belgium E17: ECB Executive board member Praet speaks at Bundesbank Cash symposium France: Budget, year-to date, bn France: Trade balance, bn Italy: Final GDP, % q/q Greece: HICP, % y/y Italy: Deficit, % of GDP Aug Aug Q2 Sep Q2 Period -69.6 -5.6 -0.7 1.0 4.2 Prev 2 -56.6 -6.1 -0.8 0.9 3.8 Prev 1 -85.5 -4.3 -0.7 P 1.2 8.0 Latest -0.7 1.3 Forecast -5.0 -0.8 Consensus Period Prev 2 Prev 1 Latest Forecast Consensus

Wednesday 10 October

France: President Hollande and Spanish PM Rajoy holds Franco-Spanish summit E17: EU Parliament panel debates on Banking Union proposals E17: ECB Executive board member Praet speaks in Bargeld symposium in Germany France: Industrial production, % m/m (y/y) Denmark: CPI, headline, % m/m (y/y) Sweden: Industrial production, % m/m (y/y) Norway: CPI, headline, % m/m (y/y) Norway: CPI-ATE, underlying, % m/m (y/y) Italy: Industrial production, % m/m (y/y) Aug Sep Aug Sep Sep Aug -2.2 (-4.0) -0.2 (2.2) 3.6 (-2.4) -0.5 (0.5) -0.3 (1.2) 1.0 (-6.7) 0.0 (-2.5) 0.0 (2.3) 0.4 (1.2) -0.5 (0.2) 0.0 (1.3) -1.3 (-7.7) 0.2 (-3.1) 0.3 (2.6) 0.3 (-0.4) -0.4 (0.5) -0.7 (1.2) -0.2 (-7.0) -0.8 (-4.5) 0.5 (2.8) -3.5 (-1.0) 1.4 (0.9) 0.7 (0.7) 0.6 (-9.4) 0.0 (-4.2) 0.4 (2.7) -0.7 (0.8) 0.9 (0.5) 1.0 (1.0) -0.8 13

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France – Industrial production: We expect French IP to correct downwards by -0.8% m/m on weak manufacturing production (1.0% m/m) and quasi-flat energy component (+0.3%). This would unwind the surprise +0.2% increase in July (+0.9% for the manufacturing sector) and leave the Q3 carry over at -0.1%. If realised, our GDP tracker would signal a -0.3% to -0.4 q/q GDP contraction in Q3, lower than our -0.1% q/q current forecast. Denmark – Inflation report: We expect the headline CPI to increase 0.5% m/m and 2.8% y/y, up from 2.6% in a month with seasonal normal increases in, eg, clothes/footwear. Sweden – Industrial production: We expect August IP numbers to show a further reduction, printing -1.0% y/y, down from -0.4 % y/y in July in line with its correlation to previous new orders, the NIER survey and export numbers. Norway - Inflation report: We expect the headline CPI to increase 1.4% m/m and 0.9% y/y, up from 0.5% in a month not only containing seasonally normal increases but also higher energy prices. Italy – Industrial production: We expect Italian IP to have edged up 0.6% m/m in August, consistent with annual rate of growth of -9.4% y/y. Taking into account that industrial output has been historically characterised by high volatility in August, we see risks surrounding our forecast as skewed to the upside. That being said, taking into account our expectation that IP might contract (on a quarterly base) for the fifth consecutive time in Q3, we continue to see risks surrounding our GDP growth forecasts (-0.3% q/q in Q3) as slightly tilted to the downside.
Thursday 11 October 08:00 06:00 06:00 06:00 06:45 06:45 06:45 07:00 07:30 07:30 09:00 09:00 E17: ECB publishes monthly bulletin Germany: Final HICP, % m/m (y/y) Germany: Final CPI, % m/m (y/y) Sweden: Unemployment rate (PES), % France: HICP, % m/m (y/y) France: CPI, % m/m (y/y) France: CPI ex tobacco index Spain: Final HICP, % m/m (y/y) Sweden: CPI Headline, % m/m (y/y) Sweden: CPIF, % m/m (y/y) Greece: Unemployment rate, % Portugal: HICP, % m/m (y/y) Period Oct Sep Sep Sep Sep Sep Sep Sep Sep Sep Jul Sep 0.4 (1.9) 0.4 (1.7) 4.4 0.1 (2.3) 0.0 (1.9) 124.78 -0.9 (2.2) -0.2 (1.0) -0.3 (0.9) 22.7 -0.2 (2.7) 0.4 (2.2) 0.4 (2.1) 4.6 -0.5 (2.2) -0.4 (1.9) 124.22 0.5 (2.7) -0.4 (0.7) -0.4 (0.8) 23.5 0.2 (2.8) 0.0 (2.1) P 0.0 (2.0) P 4.8 0.7 (2.4) 0.7 (2.1) 125.06 …(3.5) P 0.1 (0.7) 0.1 (0.9) 24.4 -0.1 (3.2) 0.0 (2.1) 0.0 (2.0) 4.9 -0.1 (2.3) -0.2 (1.9) 124.91 2.0 (3.5) 0.6 (0.6) 0.7 (0.9) 0.7 (3.2) 0.0 (2.1) 0.0 (2.0) 0.1 (2.5) 0.1 (2.3) 125.26 2.0 (3.5) 0.6 (0.6) 0.7 (0.9) Prev 2 Prev 1 Latest Forecast Consensus

France – Inflation: We look for French September HICP inflation rate to come down by 0.1pp to 2.3%, consistent with a 0.1% m/m decline. Expecting a notable drop in petrol prices, we look for energy prices (-1.6pp y/y) to be the main reason behind this month’s drop in the inflation rate. We project the national CPIx tobacco to come down to 124.91 from 125.06. Sweden – Registered unemployment rate: We expect a slightly higher registered unemployment rate in September at 4.9% up from 4.8% in August, but will pay extra attention to the number of people that received redundancy notification. Sweden – Inflation report: In a month with a strong seasonal pattern we expect the September headline CPI to increase 0.6% m/m and 0.6% y/y, down from 0.7% y/y in August. For the Riksbank preferred CPIF inflation, we expect at 0.7% m/m increase and unchanged inflation rate at 0.9%.
Friday 12 October 08:00 08:00 09:00 Italy: Final HICP, % m/m (y/y) Italy: Final CPI, % m/m (y/y) E17: Industrial production, % m/m (y/y) Period Sep Sep Aug Prev 2 -1.7 (3.6) 0.1 (3.1) 0.9 (-2.6) Prev 1 0.0 (3.3) 0.4 (3.2) -0.6 (-2.0) Latest 2.1 (3.4) P 0.0 (3.2) P 0.5 (-2.4) Forecast 2.1 (3.4) 0.0 (3.2) -0.7 Consensus 2.1 (3.4) 0.0 (3.2) -0.5 (-4.1)

Euro area – Industrial production: Factoring our expectations for French (-0.8% m/m), Italian (+0.6% m/m) and German (-2.0% m/m) industrial production outturns, we project industrial activity in the euro area to drop 0.7% m/m in August. We calculate that this number would bring down the carry over effect to 0.0% for Q3 from +0.5% m/m – assuming August comes in flat.

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OUTLOOK: UNITED KINGDOM

Underlying growth remains weak
Blerina Uru?i +44 (0)20 7773 4373 blerina.uruci@barclays.com
? ?

Data suggest that underlying growth in Q3 was weak and we are likely to see only a modest recovery emerge in the final quarter of the year. Survey indicators suggest unemployment is likely to resume its upward trend as firms choose not to replace outgoing staff in a bid to restore productivity. We continue to forecast the MPC will increase QE to ?425bn and cut Bank Rate to 0.25% in November, although the latter is a more speculative call.

?

The MPC left policy unchanged as expected…

The Monetary Policy Committee (MPC) left policy unchanged with QE at ?375bn and Bank Rate at 0.5% this week, as expected. We continue to expect the committee to loosen policy at its November meeting once the ?50bn of additional purchases announced in July is completed. We forecast a ?50bn increase in QE and a 25bp cut in Bank Rate, although the latter is a more speculative call. The case for expecting more QE remains strong, in our view. The August Inflation Report indicated a bias towards loosening policy, and since then we think the economic outlook has worsened. External demand has weakened, with the recent poor indicators from the euro area particularly concerning, and there are few signs that domestic demand has returned to full health (see ‘Struggling to reach escape velocity’, 4 October 2012). We see a merit in the MPC cutting Bank Rate too, as we are increasingly sceptical of the efficacy of additional bouts of QE. We also note that some MPC members have indicated they hold a similar judgement. However, we have not observed much momentum gathering behind such a move in recent months and await the October MPC minutes and other communications from individual committee members in the coming weeks for further direction on this. The PMI surveys provided further evidence that underlying growth was weak in Q3. The manufacturing and construction surveys were consistent with activity contracting in the respective sectors, while the services index suggested activity expanded at a slower pace. Taken together, the data indicate underlying growth of -0.1% q/q (Figure 1) and once the Figure 2: Surveys indicate post-summer drop in employment
Barclays Q3

… but we think the case for more QE in November remains strong

The PMI surveys provided further evidence of the underlying economic weakness…

Figure 1: Underlying activity remains weak
% q/q 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5
PMI mapping Official GDP

Index 65 60 55 50 45 40 35 30
Construction Manufacturing employment Services employment

00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Haver Analytics, Barclays Research

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Haver Analytics, Barclays Research

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unwind of the Jubilee holiday effect (which we estimate to be 0.5pp) has been taken into account, this points to growth of 0.4% q/q – suggesting some small downside risk to our current forecast of 0.5% q/q growth.
… and suggest the labour market is likely to deteriorate again in Q4

Furthermore, employment indices fell for two of the three sectors of the survey and are now consistent with falling payrolls numbers in manufacturing and services (Figure 2). The employment indices had been puzzlingly strong over the summer (especially for services) despite the weakness in activity. As a result, we think that this month’s fall could reflect some catching up of the lagging labour market indicators with activity and sentiment in the respective sectors. A more worrying explanation could be that after hoarding labour in the hope of economic activity recovering from the current low levels, firms are now looking to reduce headcounts in a bid to restore productivity. Output per worker has fallen by 4.5% since Q3 2007 (Figure 3) and we think it is unlikely that firms will continue to accept such low levels of productivity. As a result, we expect them to limit increases in pay or headcount, or most likely both. This would mean that after experiencing a brief recovery in the summer, the labour market could be gearing up for an increase in the unemployment rate again. We think that after having bottomed at 8.0% in Q2, the unemployment rate is set to increase in the medium term and to peak at 8.6% in mid-2014.

Meanwhile credit conditions remain tight

More evidence of the brittle economic fundamentals comes from credit markets, where lending to households and non-financial firms has failed to recover (Figure 4). Household credit fell in August, both on a secured and unsecured basis, and lending to private non-financial companies (PNFCs) continued the broadly negative trend started in 2008. On the upside, the quarterly credit conditions survey suggested that credit availability for mortgages was expected to increase significantly in Q4, with the Funding for Lending Scheme (FLS) cited as an important contributing factor. However, a similar optimism was absent for lending to PNFCs. We expect credit conditions to remain tight in the near term as the FLS is unlikely to provide much immediate relief, and its effects will take some time before trickling through to the real economy. A more fundamental issue with the effectiveness of the FLS, in our view, is that the weakness of credit flows is as much a result of weak demand as impaired supply. There are few signs yet that the factors weighing down on household and business confidence are receding.

Figure 3: Labour productivity still below pre-recession levels
Q4 07 =100 110 100 90 80 70 60 50 40 70 74 78 82 86 90 94 98 02 06 10
Productivity Extrapolation of trend

Figure 4: Lending to the private sector remains subdued
% GDP 20 15 10 5 0 -5 -10 91 93 95 97 99 01 03 05 07 09 11
Consumer credit Secured lending to individuals Lending to private non-financial companies Total

Source: Haver Analytics, Barclays Research

Source: Haver Analytics, Barclays Research

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DATA REVIEW & PREVIEW: UNITED KINGDOM
Blerina Uru?i Review of last week’s data releases
Main Indicators Consumer credit, ?bn Mortgage lending, ?bn Mortgage approvals, k M4 money supply, % m/m (y/y) Nationwide house price Index, % m/m (y/y) Halifax house price index, % m/m (3m/y) Manufacturing PMI, index Construction PMI, index Services PMI, index BRC shop price index BoE asset purchase decision, ?bn BoE Bank rate decision, % Period Aug Aug Aug Aug Sep Sep Sep Sep Sep Sep Oct Oct Previous -0.2 0.9 R 47.6 R 0.5 (-4.6) 1.1 R (-0.7) -0.5 R (-0.9) 49.6 R 49.0 53.7 1.1 375 0.50 Barclays -0.2 0.8 49.0 0.0 (-0.6) 50.0 48.5 53.0 375 0.50 Actual -0.1 -0.3 47.7 0.2 (-4.1) -0.4 (-1.4) -0.4 (-1.2) 48.4 49.5 52.2 1.0 375 0.50 Comments Lending to individuals and companies fell in August as credit conditions continue to be tight. Overall money supply edged up on the month. Prices fell slightly in September and the outlook for the sector remains weak. The surveys suggest underlying economic weakness, while employment data are consistent with job cuts in services and manufacturing. Shop price inflation eased further. The MPC left monetary policy unchanged as expected.

Preview of week ahead
Monday 8 October There are no significant data releases scheduled Tuesday 9 October 00:01 00:01 09:30 09:30 09:30 BRC total sales, % y/y RICS house price balance Industrial output, % m/m (y/y) Manufacturing output, % m/m (y/y) Visible trade balance, ?bn Period Sep Sep Aug Aug Aug Prev 2 3.5 -22 1.2 (-1.5) 1.4 (-1.2) -7.9 Prev 1 2.0 -23 -2.4 (-3.8) -2.9 (-3.9) -10.1 Latest 1.6 -19 2.9 (-0.8) 3.2 (-0.5) -7.1 Forecast -17 -0.9 (-1.5) -0.8 (-0.8) -8.5 Consensus -19 -0.5 (-1.1) -0.6 (-0.6) -8.3 Period Prev 2 Prev 1 Latest Forecast Consensus

RICS house price survey: We expect the RICS balance to have improved slightly to -17 (from -19), but to remain consistent with more agents reporting falling house prices than increases. This is in line with the average of the Nationwide and Halifax surveys for September, which showed house prices falling at a slightly slower pace. Industrial production: We forecast industrial output to have fallen by 0.9% m/m (from 2.9% previously), driven by falling manufacturing and mining and quarrying output. We expect manufacturing output down by -0.8% m/m (from 3.2%), in line with a sharp fall in car production and a sub-50 reading for the output component of manufacturing PMI in August. Visible trade: We expect the trade deficit to have widened to ?8.5bn (from a ?7.1bn deficit), reversing some of the gains made during July. We think that the main risks to the UK trade deficit come from weak demand from the euro area and we expect this to continue to bear down on the trade outlook in the near term.
Wednesday 10 October There are no significant data releases scheduled Thursday 11 October There are no significant data releases scheduled Friday 12 October There are no significant data releases scheduled Period Prev 2 Prev 1 Latest Forecast Consensus Period Prev 2 Prev 1 Latest Forecast Consensus Period Prev 2 Prev 1 Latest Forecast Consensus

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OUTLOOK: JAPAN

Price goal out of reach, ease around the corner
Kyohei Morita +81 3 4530 1688 kyohei.morita@barclays.com
? ?

The BoJ stood pat today, but we expect it to ease on 30 October, assuming its FY14 CPI forecast confirms that its medium/long-term price stability goal is out of reach. Tankan results actually looked decent and the BoJ still expects a recovery, but one that will be delayed as overseas deceleration weighs on exports and production. We believe it could raise the APP target to JPY90trn from JPY80trn and buy more corporate bonds, but is unlikely to purchase foreign bonds despite political pressure.

Yuichiro Nagai +81 3 4530 1064 yuichiro.nagai@barclays.com James Barber, CFA +81 3 4530 1542 james.barber@barclays.com The BoJ stood pat this week, but lowered its economic assessment
?

The BoJ voted unanimously to stand pat at its 4-5 October monetary policy meeting. This was not surprising given that just two weeks earlier (19 September) it downgraded its economic assessment and outlook and decided to ease in response. However, it did lower its economic assessment again, noting that “Japan’s economic activity is leveling off more or less” versus last month’s “the pick-up in economic activity has come to a pause.” The BoJ still expects an eventual recovery, but one delayed by six months as overseas deceleration weighs on exports and production. To be sure, August industrial production and METI forecasts for September and October signaled a manufacturing decline through year-end (our IP forecasts: -3.6% q/q in Jul-Sep, -1.0% in Oct-Dec and 1.0% in Jan-Mar 2013), and this was reflected in the BoJ’s Tankan diffusion index of sentiment among manufacturers, especially smaller ones. However, manufacturers (at least large ones) did not look for further deterioration in the expectations for December and FY12 capex plans were actually revised up for both large and small companies, with the latter showing the first non-negative projection in September since 1990. And despite the increase in the inventory/shipment ratio since June, the Tankan indicated that perceptions of inventory excess remain muted. Nor did companies indicate worsening excesses in terms of production capacity or employment. Indeed, the production capacity DI was projected to improve slightly in December for companies overall, and the employment conditions DI was forecast to reach zero, which suggests perceptions of overstaffing are poised to disappear. That said, much of the good news comes with caveats. The solid capex plans, for example, reflect post-earthquake reconstruction demand, which is due to run its course in Q1 13. Many jobs are also related to this demand (especially in construction) and may not represent long-term employment. Also, the overseas supply/demand DI, a macro indicator of company expectations for the overseas economy, continued to show slack on balance, despite projections for an improvement in December. In addition, anti-Japan demonstrations in China occurred largely after the Tankan responses were collected and represent a downside risk, especially to the auto, electrical machinery and retail industries. In this context, the focus now shifts to the 30 October monetary policy meeting, when the BoJ will update its GDP and CPI forecasts for FY12-13 and extend them to FY14. This will “quantify” the BoJ’s recently downgraded outlook for the economy. The main focus will be the FY14 CPI projection, specifically whether the BoJ continues to see the index heading toward its medium- to long-term price stability goal of 1.0%. We expect a downgrade to this outlook to provide the fundamental rationale for further easing. With the BoJ having explicitly pointed to JPY appreciation as a potential catalyst for further accommodation at its last meeting, a stronger JPY could also encourage action.

Tankan results actually looked decent, but not without caveats

Focus shifts to how the BoJ will “quantify” its downgraded outlook, especially related to its price stability goal; we expect more easing on 30 October

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Possible actions: APP expansion to JPY90trn from JPY80trn; more corporate bond purchases

In terms of specific measures, we believe the BoJ could raise the Asset Purchase Program (APP) target from JPY80trn to JPY85trn for end-2013 and extend the deadline for purchases to end-June 2014 with a final target of JPY90trn. To meet the current JPY80trn target, the BoJ is scheduled to buy assets at a monthly pace of JPY1.1trn until end-2012, JPY1.7trn from January to end-June 2013 and JPY0.8trn from July to end-2013 (Figure 1). Compared with the JPY4trn pace since mid-August, this marks a substantial deceleration. Additional easing could soften this slowdown. Given Japan’s current account surplus (ie, surplus savings compared to investment), however, we see little evidence that such expansions are helping to stimulate credit creation. If they were, it should increase legal reserves, not excess reserves. Most of the increase has been in the latter (Figure 2). The BoJ could also increase its purchases of corporate bonds, which would add an element of credit easing to the ongoing quantitative easing. Fundamentals and exchange rates aside, the BoJ is also under political pressure to ease. Japan’s new Minister of Economic and Fiscal Policy, Seiji Maehara, is pushing the BoJ to consider buying foreign bonds and attended today’s MPM to make his presence felt 3. And Shinzo Abe, the new president of the opposition Liberal Democratic Party and frontrunner to become Japan’s next prime minister, is seeking an inflation target of 2-3% (versus the BoJ’s current goal of 1%), even if it means revising the laws governing the BoJ. Foreign bond purchases would likely also require legal changes and face strong resistance from the Ministry of Finance, which argues that such purchases by the BoJ could be construed as intervention and complicate its currency policy management and coordination with foreign currency officials. Notably, the new finance minister, Koriki Jojima, says he is cautious about allowing the BoJ to buy foreign bonds, which is likely to prevent Mr Maehara from proposing such purchases (see this report). At the very least, such hurdles mean buying foreign bonds is unlikely to be a policy option over the near term. Regardless of specific measures, the calls from both ruling and opposition camps for the BoJ to do more to end deflation suggest the central bank will remain under pressure to ease and that the prospects of the government nominating doves to replace BoJ Governor Shirakawa, whose term ends on 8 April 2013, and his deputies, Mr Yamaguchi and Mr Nishimura, who step down on 19 March 2013, may strengthen. Figure 2: BoJ current account deposits reach record (JPYtrn)
Non-reserve current deposits Excess reserves Legal reserves Current account balance

Politics also factoring into the equation

Foreign bond purchases unlikely, but BoJ leadership could become more dovish

Figure 1: APP purchases poised to slow (JPYtrn)
85 80 75 70 65 60 55 50 45 40 35 30 25 20 Net purchases from now Target Balance

40 35 30 25 20 15 10 5 0

Expansion pace (1.1trn yen/month till end-12) (1.7trn yen/month till Jun 13) (0.8yen/month till end-13)

Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov

00 01 02 03 04 05 06 07 08 09 10 11 12 QE
Source: BoJ, Barclays Research

2011

2012

2013

(CY)

APP

Note: As of 30 September. Source: BoJ, Barclays Research

Government officials have no decision-making powers at BoJ policy meetings, but they can propose agenda items and request delays on policy votes. The latter happened in August 2000, when the government tried to postpone the end of the BOJ's zero-interest-rate policy. Board members vetoed the request

3

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DATA REVIEW & PREVIEW: JAPAN
Kyohei Morita, Yuichiro Nagai, James Barber Review of this week’s data
Main indicators BoJ Tankan DI, mfg/non-mfg Period Q3 Previous Barclays -1/8 -2/+6 Actual -3/+8 Comments Sentiment was soft in the latest Tankan, but capex plans and output gap-related perceptions looked solid by comparison. On balance, we believe the results are consistent with our outlook for real GDP to contract in Q3 but bottom in Q4. Eco Car subsidies ran out in late September, pushing auto sales down y/y for the first time in 12 months. Given the lack of frontloading in Q3 and the base effects that will weigh on sales in Q4, we expect GDP-based private consumption to fall for two consecutive quarters (-0.6% q/q in Q3 and -0.1% in Q4). Wages rose, contrary to expectations, but are unlikely to see much upside, in our view, after a period of elevated pay and job retention relative to quake-hit earnings. The BoJ left monetary policy intact, as expected, but lowered its economic assessment. This shifts the focus to the 30 October MPM and whether the BoJ will continue to see the CPI heading toward its price stability goal of 1.0%. We expect a downgrade here to provide the fundamental rationale for a further ease. Political pressure for easing also continues: foreign bond purchases are unlikely, but dovish BoJ leadership may be likely next spring. See Outlook

Auto sales (% y/y)

Sep

7.3

NA

-8.1

Wages per worker (% y/y)

Aug

-1.6

-1.0%

0.2

BoJ MPM

Preview of next week’s data
Tuesday 9 October 8:50 14:00 Current account, nsa (JPY bn) Economy Watchers DI Period Aug Sep Prev 2 215 43.8 Prev 1 433 44.2 Latest 625 43.6 Forecast 426 NA Consensus 421 NA

Balance of payments: We expect the current account to stay in the black for a seventh consecutive month, with deficits in trade and services, and a surplus in income.
Thursday 11 October 8:50 8:50 Core machinery orders (% m/m) Bank lending, including shinkin (% y/y) Period Aug Sep Prev 2 -14.8 0.6 Prev 1 5.6 0.7 Latest 4.6 0.9 Forecast -2.1 0.8 Consensus -2.3 NA

Machinery orders: We look for core orders to log their first m/m decline in three months, and major machinery makers project a second consecutive quarterly decline in Q3. Given that such orders tend to lead capex by two to three quarters, this points to moderate economic deceleration in H1 13. Bank lending: We expect a continuing y/y increase in outstanding loans on support from lending by regional banks to the public sector, but abundant cash flow in the corporate sector is likely to leave lending sluggish overall.
Friday 12 October 8:50 8:50 8:50 Index of tertiary industry activity (% m/m) M2/M3 (% y/y) Corporate goods price index (% y/y) Period Aug Sep Sep Prev 2 0.9 2.2/1.9 -1.4 Prev 1 0.2 2.2/1.9 -2.2 Latest -0.8 2.4/2.1 -1.8 Forecast 0.5 2.4/2.0 -1.2 Consensus 0.4 2.4/2.0 -1.4

Index of tertiary industry activity: We estimate that the index turned up in August, with increases in retail and wholesale activity offsetting a decrease in services. Money stock: We estimate that M2 growth remained unchanged while M3 growth eased slightly. Corporate goods price index: We believe the CGPI fell y/y in September and will remain in negative territory through H1 13.

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OUTLOOK: CHINA

Holiday mood
Yiping Huang +852 2903 3291 yiping.huang@barclays.com Jian Chang +852 2903 2654 jian.chang@barclays.com Steven Lingxiu Yang +852 2903 2653 stevenlingxiu.yang@barclays.com
? ? ?

China is in the midst of an eight-day holiday. The NBS PMI released this week showed a small improvement, though it remained in contraction territory at 49.8. But the public mood seems buoyant, with tourists flooding China’s scenic spots, an indication of economic rebalancing alongside the growth deceleration. The 18th Party Congress is confirmed to start on 8 November. We think the leadership transition could turn out to be modestly positive for growth.

China kicked off an 8-day long holiday

On 30 September, China kicked off an eight-day holiday combining both the Moon Festival and National Day. Earlier this week, the National Bureau of Statistics released the September manufacturing PMI, which showed a marginal rise to 49.8, from August’s 49.2. This could be partly driven by seasonal patterns, as the NBS PMI usually sees a m/m rise in September (1.2% this year vs 0.6% in 2011 and 4% in 2010). The details of the report showed signs of a stabilisation in activity. The production index rose to 51.3, after declining to 50.9 in August from July’s 51.8, while the new orders index also edged higher, to 49.8 from 48.7 previously. The input-cost index rose to 51, its first above 50 reading since April, pointing to some possible recovery in domestic demand. On the other hand, the employment index declined to 48.9, from August’s 49.1 and July’s 49.5, likely reflecting shrinking profit margins in the corporate sector (industrial profits fell by 6.2%y/y in August vs -5.4% in July). Overall, we think the PMI report shows that underlying growth momentum remained weak in September, and supports our view that real GDP growth likely slowed further to 7.3% y/y in Q3 from 7.6% in Q2 (to be released on 18 October). Interestingly, the public mood seems unaffected by the slowdown. On 1 October, China’s National Day, 4.3mn people visited the nationally monitored scenic spots, a rise of 23.7% y/y, while the media reported millions of people stranded on roads across the country due to heavy traffic. Meanwhile, mainland tourists to Hong Kong now seem less interested in luxury goods stores, as more of them are visiting places such as supermarkets and campsites 4. Some may Figure 2: Some initial signs of activity stabilisation
40 30 20 10 0 -10 Sep -07 70 65 60 55 50 45 40 Sep -08 Sep -09 Sep -10 Sep -11 35 Sep -12

The NBS PMI report points to still soft activity

The public mood seems unaffected by the slowdown

Figure 1: New and export orders PMIs recovered marginally
65 60 55 50 45 40 35 30 25 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

NBS PMI new orders
Source: CEIC, Barclays Research

NBS PMI new export orders

IP (% 3m/3m, saar)
Source: CEIC, Barclays Research

NBS PMI production (RHS)

4

http://news.stnn.cc/hongkong/201209/t20120930_1802903.html

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argue that the Chinese are too optimistic after decades of economic success. But the combination of weakening spending on luxury goods and increasing tourism are signs that economic rebalancing is taking place alongside the growth deceleration, in our view.
Indications that economic rebalancing is taking place

We discussed such a ‘transition’ in China: Beyond the miracle: Part 1 - China's next transition, 5 September 2011.Although public sentiment could deteriorate, if the economic downturn continues, we think the underlying wealth redistribution from corporate profits to household income is a long-term trend. We think rising tourism despite the slowdown also provides further evidence of the “consumption upgrading” theme we detailed in China: Beyond the Miracle: Part 4 - The great wave of consumption upgrading, 9 January 2012. Meanwhile, on 28 September the Politburo of the Communist Party of China (CPC) announced that it would hold the 18th Party Congress on 8 November, at which key leaders will be elected. There has been much speculation that the new leaders might implement various policy measures to support growth once they take office. While it is hard to predict the direction of economic and political policies, we think they are likely to increase state investment to promote urbanisation, the services sector and regional development, though they might be less enthusiastic about big stimulus policies. The leadership transition could turn out to be modestly positive for growth. But this won’t be noticeable before the National People’s Congress (NPC) next March. Another way of gauging the likely change in economic policy after a Party Congress is to review historical performance. There were six party congresses during the current reform period. We find no clear evidence that these meetings boosted economic growth – while growth picked up in the year following the 12th and 16th congresses, it decelerated after the other four (Figure 3). However, data on fixed asset investment, which are available only for the past three congresses, shows a clear acceleration after each meeting. Likewise, both M2 and credit growth has generally picked up after the congresses, though sometimes with a lag. Fiscal deficits also increased in most cases. CPI inflation picked up consistently after the congresses during the past 30 years, except after the 15th Party Congress, which was followed by the Asian Financial Crisis. Given this, it is obviously unwise to make firm predictions of what to expect this time. But based on the tendency for fixed asset investment, M2, credit and fiscal deficits to rise in the year after a Party Congress, as well as for inflation to accelerate, this does suggest that the new governments do make efforts to facilitate faster investment growth. Figure 3: Party congresses and macroeconomic indicators, 1977-2011 (GDP and FAI)
20 16 12 8 4 0 1977 12th Party Congress 1982 13th 1987 14th 1992 15th 1997 16th 2002 17th 2007 GDP growth (% y/y) FAI growth (%y/y, RHS) 35 30 25 20 15 10 5 0

18th Party Congress confirmed to start on 8 November

Evidence suggests the Party Congress does not always result in a boost to GDP growth…

…though FAI does tend to accelerate in the following months

Source: CEIC, Barclays Research

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OUTLOOK: EMERGING ASIA

Export-oriented Asia gets more help
Joey Chew +65 6308 3211 joey.chew@barclays.com Wai Ho Leong +65 6308 3292 waiho.leong@barclays.com Korea’s electronic exports rebounded in September
? ?

Korea electronic exports rebounded in September ahead of key product launches. However, Asia PMIs remained below 50 on uncertainty over final demand. The strong increase in the US ISM new orders index may be reassuring. We expect policy easing in Singapore and Korea to support this tentative recovery.

?

More signs that the electronics upturn is shaping up
There have been more encouraging signs of an electronics recovery this week. Korea’s electronics exports rose to a record high of USD15.9bn (seasonally adjusted), well above the monthly average of USD13.3bn in the first eights months of 2012. The increase in production and inventories of electronic parts in August has broadened into a rebound in exports of both semiconductors (September: +16.6% y/y; August: -0.4%) and mobile phones (September: +14.1% y/y; August: -22%). This suggests to us that the recent spike in the manufacturing inventory-shipment ratio (August: 1.17; July: 1.08) should be temporary. The second positive sign was the improvement in US ISM new orders (September: 52.3; August: 47.1), a traditional leading (sometimes coincidental) indicator for Asia electronics. We believe Taiwan’s electronics exports in September could see an improvement similar to Korea’s. Production of electronic parts is up 4.9% in August compared to June. Producers should be ramping up for various launches of smartphones, tablets and PCs (equipped with the new Windows 8). An upturn in Singapore could be slightly delayed, however, as electronics producers there are less plugged into the upturn in demand for smartphones and tablets. Despite signs of restocking (for planned global launches of Apple iPhone5, Samsung Galaxy Note 2), Asia manufacturers remain downbeat in September. We believe they are still uncertain about the strength of final demand in the US, Europe and China. Manufacturing PMIs in Korea, Taiwan and Singapore slipped further below 50 and China’s NBS manufacturing PMI only improved marginally (remaining below 50). Also, the manufacturers’ sentiment survey by the Bank of Korea suggests that the strong rebound in August (regarding conditions for the month ahead) petered out partially in September. Figure 2: Asia PMIs still weak, but could start to turn
65 60 55 50 45 40 35 70 65 60 55 50 45 40 35 30 25 20 Sep-12

US ISM new orders index also rose above 50

But Asia manufacturers remain uncertain over the strength of final demand

Figure 1: Korea electronic exports are recovering
120 100 80 60 40 20 0 -20 -40 Sep-09 Sep-10 Sep-11 Sep-12

Household Electronics Exports (% 3m/3m saar) Industrial electronics Electronics parts
Source: Haver Analytics, Barclays Research

30 Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Asia Manufacturing PMI New Orders (equally weighted) US ISM New Orders (RHS)
Source: Haver Analytics, Barclays Research

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Policy easing looks imminent in Singapore and Korea
Weak July and August data point to disappointing Q3 GDP – Singapore is likely in recession

The still-tentative recovery in tech activity and persistently weak confidence that could drag further on capital expenditure suggest to us that growth in Q3 will likely remain sluggish in the NIEs (Korea, Taiwan, Singapore). In fact, the Singapore government is likely to announce a manufacturing-led recession next week, based on its advance estimate gathered from six to eight weeks of data (Q3F: -5.5% q/q saar; Q2: -0.7%). We also expect the Bank of Korea to revise down its 2012 GDP forecast (now: 3%; Barclays: 2.7%). Policy support is thus necessary, in our view, especially against a backdrop where inflation is moderating (Singapore), or at the lower end of the central bank’s target range (Korea). We expect the Monetary Authority of Singapore to loosen policy incrementally (likely on 12 October). We believe it could do this by targeting a “slightly” slower pace of appreciation in the SGD against its trade partners. Specifically, we assume the slope of the SGD NEER policy band will be reduced to 2% pa, from the current 3%. This will reverse the modest tightening move in April. A “slight” loosening is appropriate, in our view, given that the recession is likely to be short lived (with activity recovering in Q4) and inflation remains elevated from structural cost-push factors, likely to ease only modestly and mostly over base effects. The Bank of Korea also meets next week, on 11 October. We and consensus expect a 25bp cut, after two months of pause. The BoK needed time to reassess the global economy and the dramatic measures from the Fed and ECB, after its first (surprise) cut in July. We believe the BoK’s estimate of the negative output gap is likely to have widened from then – given the disappointment in July and August data (hence the revision in growth forecast we expect). The BoK will look through the rise in inflation (September: 2%; August: 1.2%) as it was driven by crop damage from typhoons. As suggested in its bi-annual report to the parliament, the BoK’s focus is now centred on restoring the economy growth potential. But easing is not a generalised trend in Asia. We do not see Bank Indonesia changing its policy rate on 11 October. In fact, BI has been tightening policy incrementally and in stealth – by raising the lower end of the policy rate corridor. We believe the central bank was trying to allay market concerns about overheating in the economy. We do not believe Indonesia is overheating. Indeed, the August decline in imports of capital goods suggests to us that businesses may have turned cautious as exports (to China) remained persistently weak. This is in line with our expectations, although we do note that data could have also been adversely affected by the Ramadan holiday. Figure 4: MAS is expected to ease policy slightly
125 120 115 110 105 100 Sep-07 Sep-08 Forecast for 12 Oct: reduce slope slightly Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

We expect MAS to ease policy slightly next week…

… and the BoK to cut rates 25bp, as it lowers its 2012 GDP forecast

BI will buck the easing bias

Figure 3: Singapore is likely in a manufacturing-led recession
140 130 120 110 100 90 80 70 60 50 Aug-08 Aug-09 Electronics Biomedical (RHS)
Source: Haver Analytics, Barclays Research

IP (2011=100, SA)

160 140 120 100 80 60 40 Aug-10 Aug-11 20 Aug-12

Transport Engineering

Barclays SGD NEER (7 Oct 2005 = 100) SGD NEER spot and forwards (3 October) Forecast band (2% slope, +/-2% width)
Source: Barclays Research

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DATA REVIEW & PREVIEW: ASIA
Joey Chew, Steven Lingxiu Yang, Kieran Davies Review of last week’s data releases
Main indicators Korea: Exports (% y/y) China: NBS manufacturing PMI Indonesia: CPI (% y/y) Indonesia: Exports (% y/y) Thailand: CPI (% y/y) Korea: CPI (% y/y) Australia: RBA cash rate (%) Taiwan: CPI (% y/y) Malaysia: Exports (% y/y) Period Previous Barclays Sep Sep Sep Aug Sep Sep – Sep Aug -6.2 49.2 4.6 -7.3 2.7 1.2 3.50 3.4 -1.9 -1.5 49.7 4.7 -12.0 3.1 1.8 3.50 2.9 -5.8 Actual -1.8 49.8 4.3 -24.3 3.4 2.0 3.25 3.0 -4.5 Comments Electronics exports upturn offsets drag from vessels. Marginal improvement in line with our view that GDP growth will slow to 7.3% y/y in Q3 (Q2: 7.6%). Food prices corrected after the Ramadan holiday. Despite the weakness in exports, the trade balance turned positive due to import compression. Imports of capital goods declined. Prices of tobacco, transport and electricity surprised higher. Storms and festive demand push food prices temporarily higher. The RBA sees a weaker global outlook. We now expect one more cut by year-end. Typhoons keep food prices elevated in September. Exports fell during Ramadan and due to lower commodity prices.

Preview of week ahead
Monday 8 October 10:30 16:00 China: HSBC services PMI Taiwan: Exports (% y/y) Period Sep Sep Prev 2 52.3 -3.2 Prev 1 53.1 -11.6 Latest 52.0 -4.2 Forecast – 2.5 Consensus – 1.0

Taiwan: Production of electronic parts (semiconductors) picked up in August. This likely implies an increase in exports of electronic products in September. Taiwanese producers have been ramping up for the Apple iPhone5 and various other consumer product launches.
Wednesday 10 October 07:00 09:00 Korea: Unemployment rate (%) Philippines: Exports (% y/y) Period Sep Aug Prev 2 3.2 19.7 Prev 1 3.1 4.3 Latest 3.1 6.0 Forecast 3.2 6.0 Consensus 3.2 –

Korea: Frictional unemployment usually rises in September. We see little stress in labour markets. Philippines: Base effects are favourable, though the external environment remains challenging.
Thursday 11 October 08:30 09:00 12:01 – – – Australia: Employment (‘000 change) Korea: South Korea 7-day Repo rate (%) Malaysia: Industrial production (% y/y) Indonesia: Bank Indonesia Reference rate (%) China: New loans (CNY bn) China: M2 growth (% y/y) Period Sep – Aug – Sep Sep Prev 2 -29.9 3.00 7.8 5.75 919.8 13.6 Prev 1 11.7 3.00 3.7 5.75 540.1 13.9 Latest -8.8 3.00 1.4 5.75 703.9 13.5 Forecast 17.5 2.75 -2.9 5.75 700 13.7 Consensus 3.8 2.75 -2.0 – 680 13.6

Australia: We expect an increase in employment, which would be consistent with moderate underlying growth. Unemployment should rise from 5.1% to 5.3% as the participation rate returns to its July level. Korea: We expect the BoK to cut policy rates to support the nascent recovery in the export sector. We think the BoK is also likely to lower its current 3% growth forecast closer to our 2.7% projection, which would widen the negative output gap. Malaysia: Weak mining output and festival-related holidays likely cut into industrial output. Indonesia: BI to keep rates on hold, given relatively benign inflation and continued weak export performance. One key will be comments from BI on whether external weakness is spilling into domestic demand. China: We estimate new loans reached CNY700bn in September (CNY160bn in new loans made by the Big 4 banks in first 26 days in the month, according to media reports) and M2 growth edged up, though M2 growth is being constrained by recent capital outflows.

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Barclays | Global Economics Weekly Friday 12 October 08:00 08:00 13:30 Singapore: MAS monetary policy statement Singapore: GDP, % q/q saar (% y/y) – adv est India: Industrial Production (% y/y) Q3 P Aug -2.5 (3.6) 2.5 9.5 (1.5) -1.8 -0.7 (2.0) 0.1 -5.5 (0.1) 2.0 – – Period Prev 2 Prev 1 Latest Forecast Consensus

Singapore: We expect the government to confirm a manufacturing-led technical recession, and MAS to ease the SGD NEER policy slope slightly. Our estimate of the current slope is 3%, and we expect the Authority to lower it “slightly” to 2%. MAS will continue to be vigilant against inflation, which we think will remain elevated from a historical perspective. India: IP remains weak reflecting persisting macro headwinds. Base effects, however, are turning somewhat more favourable.
Saturday 13 October – – China: Exports (% y/y) China: Imports (% y/y) Period Sep Sep Prev 2 11.3 6.3 Prev 1 1.0 4.7 Latest 2.7 -2.6 Forecast 3.5 -1.0 Consensus 5.6 2.2

China: We look for export growth to have risen slightly given some improvement in the PMI export orders index, as well as trade data from other Asian economies; imports likely contracted again given the soft domestic growth momentum.
Note: Release dates and consensus estimates are subject to change. Source: Bloomberg, Barclays Research

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OUTLOOK: EMERGING EUROPE, MIDDLE EAST AND AFRICA

Mixed PMIs, rising inflation, central banks on hold
Gina Schoeman +44 (0)20 3555 8706 gina.schoeman@absacapital.com
? ? ?

September EEMEA PMI improved on average but readings are diverse across countries. IP growth next week is expected to remain generally lacklustre. Inflation is generally on the rise, driven by food prices. Poland unexpectedly kept rates on hold this week. Central Bank of Russia paused today and we expect Serbia central bank to also pause next week.

EEMEA PMI improves on average but countries diverge
EEMEA PMI rose to 50.8 in September but across countries the readings are diverse

September EEMEA PMI improved slightly on average, rising to 50.8 from 50.2. The region continues to outperform the euro area and German PMIs (though both did improve last month). By country, however, the results were diverse (Figure 1). In the countries where PMI increased (Russia to 52.4, Turkey to 52.2 and Hungary to 52.5), it was above 50 and the key improvements were in the new orders category. In contrast, drivers of PMI declines (Poland to 47.0, South Africa to 46.2 and the Czech Republic to 48.0) differed. Czech PMI was driven lower by the output component mostly, while in South Africa a sharp drop in business activity was to blame (admittedly, new orders also deteriorated). In Poland, new orders fell sharply and the employment category declined below 50 for the first time since March. Reflecting above-50 PMI readings, the average EEMEA IP trend has been robust in recent months (Figure 2). We expect this trend to continue in next week’s August IP releases. In Russia, IP continued to expand in August (2.1% y/y) and will likely keep this momentum, in line with PMIs staying above 50. Turkey’s IP also remains relatively robust (3.4% y/y in July) and we expect this to continue in the August release next week, also supported by a favourable base effect. However, the CEE countries are finding it harder to withstand deteriorating demand from the eurozone. In Hungary, IP growth has been rather weak and volatile in recent months, though it returned to positive territory (+1.4% y/y) in August. For countries experiencing falling PMIs, IP has been more volatile. Poland’s IP growth slowed sharply to 0.5% y/y in August after a strong rebound to 5.2% y/y in July. Czech IP recovered in July following two months of sharp declines. However, we expect a weak

EEMEA IP has been relatively firm but we expect some weaknesses next week

Figure 1: EEMEA PMI up but divergence across countries
55 54 53 52 51 50 49 48 47 46 45 EEMEA Hungary Russia Turkey Czech R. Poland S. Africa PMI*
*EEMEA average is GDP-weighted. Source: Markit, Haver Analytics

Figure 2: EEMEA PMI and IP trends diverged recently
15% 65 60 55 50 45 40 35 Sep-08 Sep-09 Sep-10 Sep-11 30 Sep-12

Aug 12 Sep 12 PMI improving PMI deteriorating

10% 5% 0% -5% -10% -15% -20% Sep-07

EEMEA IP (GDP-weighted, % y/y) EEMEA Manufacturing PMI (SA, GDP-weighted), RHS Euro-zone PMI: Manufacturing (SA), RHS
Note: EEMEA includes Hungary, Russia, Turkey, Czech R., Poland and S. Africa. Source: Haver Analytics, Barclays Research

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For countries with falling PMIs, IP growth has been volatile and often negative

August reading next week as the economy is clearly stagnating. We expect CEE industries to remain moribund, under pressure from eurozone slowing and domestic fiscal tightening. Geographically, South Africa should be an exception as its manufacturing sector is more evenly exposed to other parts of the world. However, labour discontent in the mining sector (which has now split over into other sectors like transport) is weighing on the manufacturing supply chain and, coupled with slowing global demand, this leaves us expecting a 3.3% y/y fall in IP next week (following a rebound to 5.8% y/y in July). Labour unrest has also triggered a change to our near-term USD/ZAR forecast and we have weakened our 1-month view to R8.80/USD from R7.95/USD previously (see Intensifying idiosyncratic risks puts paid to our constructive ZAR view, 4 October 2012).

Rising inflation amid diverging policy responses
Food price rises are expected to feature in many CPI releases this and next week

Food inflation continues to push overall CPI higher in most regional countries. Turkey’s inflation rose 0.3pp to 9.2% y/y in September, mainly driven by food prices. However, we expect headline inflation to ease towards 7.0% y/y by year-end on base effects; recent tax and tariff hikes will likely offset this but only partly. In Russia, CPI rose to 6.6% y/y in September (5.9% previously) owing to food prices and another round of housing utility tariffs hikes. Next week Hungarian CPI is expected to rise to 6.2% y/y from 6.0% as food inflation pushes higher. Czech CPI will likely remain flat at 3.3%, although we are on the low side of the consensus (3.4%). Inflation has remained above the 1-3% target since December 2011. However, monetary relevant inflation is at mid-target and core inflation is below this level. We believe that Romanian inflation will jump to 4.5% y/y (from 3.9%) due to higher food inflation, triggered by a poor local harvest. In Serbia, September inflation is expected to rise to 9.0% y/y (7.9% previously) off higher food prices. EEMEA central banks find themselves caught between slowing growth and higher inflation. They generally show a growth bias but there are some clear exceptions. This week the NBP hesitated to launch a policy easing cycle against expectations for a 25bp cut to 4.50%. While the reasoning in the post-meeting communiqué was unclear, the undertone was very dovish. We continue to believe that a total of 150bp in rate cuts will occur in this easing cycle, ending in mid-2013 (taking the repo rate to 3.25%). In line with our and consensus calls, today the CBR also paused (keeping the auction repo rate at 5.5%) in order to evaluate the impact of the first hike on bank lending and growth. However, we still expect another 25bp rate hike from the CBR in November to reinforce its inflation-targeting focus. We believe the Serbian central bank will tolerate fooddriven CPI and keep the policy rate at 10.5%, given that GDP growth remains negative.

Inflation has likely risen in Hungary, Romania and Serbia and has likely been flat in the Czech Republic

The NBP kept rates unchanged against expectations CBR paused today as expected We expect the Serbia NBS to pause as well next week

Figure 3: Slowing Polish economy calls for rate cuts
6 5 4 3 2 1 0 Oct-08

Figure 4: In Russia the CBR shows inflation targeting bias
12 % 11 10 9 8 7 6 5 4 3 2 Oct-10 20 15 10 5 0 -5 Oct-12

Oct-09 CPI (% y/y) Real GDP (% y/y)

Oct-10

Oct-11

Oct-12

Apr-11

Oct-11

Apr-12

NBP policy rate (%)

CPI, y/y Investment, y/y (RHS)
Source: Rosstat, CBR

1-day fixed rate repo rate

Source: Central Statistical Office, NBP, Barclays Research

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DATA REVIEW & PREVIEW: EMERGING EUROPE, MIDDLE EAST AND AFRICA
Eldar Vakhitov, Daniel Hewitt, Christian Keller, Vladimir Pantyushin, Ilke Van Zyl, Alia Moubayed, Piotr Chwiejczak Review of last week’s data releases
Main indicators Russia: Manufacturing PMI Poland: Manufacturing PMI Turkey: Manufacturing PMI Czech Republic: Manufacturing PMI South Africa: Kagiso PMI Czech Republic: Budget balance (CZK bn) Hungary: Manufacturing PMI Kazakhstan: CPI (% y/y) Romania: Retail sales (% y/y) South Africa: Naamsa vehicle sales (% y/y) Russia: Current account (USD bn) Turkey: CPI (% y/y) Russia: CPI (% y/y) Poland: Base rate (%) Croatia: Retail trade real (% y/y) South Africa: Gross reserves (USD bn) Czech Republic: Retail sales (% y/y) Hungary: Industrial production WDA (% y/y) Romania: Net wages (% y/y) Ukraine: Official reserve assets (USD bn) Russia: Overnight deposit rate (%) Russia: Overnight repo rate (%) Period Previous Barclays Actual Comments Sep Sep Sep Sep Sep Sep Sep Sep Aug Sep Q3 Sep Sep Oct Aug P Sep Aug Aug P Aug Sep Oct Oct 51.0 48.3 50.0 48.7 50.2 -67.0 49.6 4.7 4.4 9.4 21.2 8.9 5.9 4.75 -5.1 50.0 0.3 -2.2 5.8 30.0 4.25 5.50 29.6 50.7 4.9 4.6 14.0 8.8 6.4 4.50 50.9 6.0 30.2 4.25 5.50 30.3 52.4 As expected, the industry continues to expand 47.0 52.2 Increase driven by output and new orders 48.0 Continued weakness implies poor prospects for growth recovery 46.2 Impact of mining unrest through the beneficiation supply chain pushed most categories into negative territory

-71.4 On course to outperform 2012 target; declining capital spending 52.5 High PMI again, but has not translated into better IP or growth 5.0 As expected 4.7 Domestic demand remains reasonably robust 1.4 Base effects brought y/y figure down as momentum growth recovered steeply

13.0 12m rolling C/A surplus narrows gradually 9.2 Driven by food inflation; likely to decline in Q4 on base effects 6.6 As expected, inflation formally breaches the end-year target Against our and consensus calls; the last sentence of the 4.75 statement has been modified significantly, which may suggest that, finally, next month the MPC will start the easing cycle -3.2 Contraction continues every month following March VAT hike 51.0 Continued to edge higher on the back of revaluation effects, increased government cash deposits and maturing FX swaps Has been volatile and rather weak in recent months

-0.8 In line with very low consumer confidence 1.4

5.4 Steady increase in wages continues 29.3 Reserve drain intensifies; though they remain at comfortable levels, concerns about sustainability of the UAH quasi-peg reignite

4.25 As expected; we continue to believe the CBR will raise its rates by 5.50 25bp in November to solidify its inflation targeting position 30.1 Reserves increase in line with supportive oil prices

Kazakhstan: International reserves (USD bn) Sep

Preview of week ahead
Monday 8 October 08:00 08:00 08:00 15:00 Czech Republic: Industrial output (% y/y) Czech Republic: Unemployment rate (%) Czech Republic: Trade balance (CZK bn) Hungary: Budget balance YTD (HUF bn) Period Aug Sep Aug Sep Prev 2 -3.1 8.1 22.1 -517.7 Prev 1 -2.7 8.3 28.9 -437.5 Latest 4.2 8.3 25.8 -559.5 Forecast 0.0 15.0 Consensus 0.0 8.3 15.3 -

Czech Republic: The economy is clearly stagnating and IP is likely to be weak, but the trade surplus is growing as imports sink. Hungary: Budget is on target to keep the deficit below 3% of GDP, as required by the EC.
Tuesday 9 October 08:00 Czech Republic: CPI (% y/y) 08:00 Hungary: Trade balance (EUR bn) 08:00 Turkey: Industrial production NSA (% y/y) Egypt: CPI (% y/y) Kazakhstan: Real wages (% y/y) Russia: Budget level YTD (RUB bn) Serbia: Repo rate (%) Period Sep Aug P Aug Sep Aug Sep Oct Prev 2 3.5 0.7 5.9 7.3 12.0 247.4 10.25 Prev 1 3.1 0.8 3.0 6.4 13.3 282.6 10.50 Latest 3.3 0.4 3.4 6.5 9.5 529.4 10.50 Forecast 3.3 0.5 2.0 6.7 8.8 ↑ 10.50 Consensus 3.4 0.5 -

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Czech Republic: Relatively tough base effects rule out improvement; however, even though the headline rate is above the 1-3% target range, monetary relevant inflation is in the middle of the target and core inflation is below the target. Hungary: Low volumes for both exports and imports are likely to produce approximately the same trade surplus. Turkey: We expect industrial production to have maintained relatively robust growth in August, in line with above-50 PMI readings and a favourable base effect. Egypt: An expected pick-up in food inflation should see headline CPI edge higher. Kazakhstan: Consumer sector is gradually cooling. Russia: Fiscal performance remains strong amid high oil prices. Serbia: We expect the central bank to keep its policy rate unchanged given its opinion that it has a limited impact on food prices, which are currently driving inflation. In addition, growth remains negative and the dinar recently appreciated.
Wednesday 10 October 08:00 08:00 08:00 13:00 Romania: CPI (% y/y) Romania: Industrial output (% y/y) Romania: Trade Balance (EUR bn) Hungary: Central bank’s minutes Period Sep Aug Aug Prev 2 2.0 -0.2 -1.0 Prev 1 3.0 1.4 -0.9 Latest 3.9 1.9 -0.8 Forecast 4.5 1.0 -1.0 Consensus 4.7 -

Romania: Headline inflation is rising as food prices increase on a poor local harvest and higher global prices. We see food inflation rising in September with services and other goods inflation remaining flat. We expect industrial production growth to have moderated and the trade deficit to have widened in August.
Thursday 11 October 08:00 Hungary: CPI (% y/y) 08:00 Turkey: Current account (USD bn) 12:00 South Africa: Manufacturing production NSA(% y/y) Kazakhstan: Industrial production (% y/y) Period Sep Aug Aug Sep Prev 2 5.6 -5.5 4.4 -1.7 Prev 1 5.8 -4.2 0.9 -0.5 Latest 6.0 -3.9 5.8 -3.7 Forecast 6.2 -1.2 -3.3 -2.0 Consensus 6.2 -1.1 -1.9

Hungary: Inflation is likely to continue rising y/y on base effects as food inflation pushes higher. Turkey: In line with the significantly lower-than-expected trade deficit in August, we expect the C/A deficit to have continued to contract on a 12-month rolling basis. South Africa: Base effects are not in favour of manufacturing production growth this month; what’s more, we believe early evidence of August’s mining strikes will show up in the early stages of the beneficiation process. Kazakhstan: IP will likely remain in negative growth territory over the short term.
Friday 12 October Serbia: CPI EU harmonized (% y/y) Ukraine: Merchandise trade balance YTD (% y/y) Russia: Trade balance (USD bn) Period Sep Aug Aug Prev 2 5.5 -5.7 17.4 Prev 1 6.1 -7.2 14.0 Latest 7.9 -8.7 11.1 Forecast 9.0 -10.6 12.5 Consensus 13.7

Serbia: We expect inflation to continue rising mainly on a drought-induced acceleration in food inflation. Ukraine: Trade and C/A deficits will likely remain wide. Russia: The trade balance will likely extend a steady decline on a 12m rolling basis.

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OUTLOOK: LATIN AMERICA

Politics take centre stage
Alejandro Arreaza +1 212 412 3021 alejandro.arreaza@barclays.com Guilherme Loureiro +55 11 3757 7771 guilherme.loureiro@barclays.com Marco Oviedo +52 55 5241 3331 marco.oviedo@barclays.com
? ? ?

Venezuela’s election on October 7 looks set to be very close. Given recent polls, we think the possibility of an opposition victory is higher than the market is pricing. Even in the event of a Chavez victory, signs of his weak health could mean political change comes sooner rather than later. In Mexico, a strong services sector is supporting growth on the backdrop of August industrial deceleration, while in Brazil new data gives signs of activity recovery.

There are important developments in the region; however, this week, the most important will be the outcome of the Venezuelan presidential elections, which puts politics centre stage in the region. The election result could not only radically change the future outlook of Venezuela, but also may have important implications across Latam.

Venezuela: Chavez-Capriles neck and neck in the final stretch
Declining trend of the undecided confirms a tight scenario

We have maintained of the view that October 7 elections are very tight in line with what Consultores 21 poll suggests; however, there are differences among polls. The main discrepancy among polls has been the percentage of undecided. The polls that give a bigger advantage for President Chavez are the ones that have a higher percentage of undecided. We have interpreted the undecided in two different ways. They may abstain and will not vote on election day, or there may be a hidden vote that seems to favor Capriles. In the first case, the margin would widen in favor of Chavez. In the second, if the remaining undecided behave in the same way that the polls suggest they have been behaving in recent months (82% moving towards Capriles and 18% towards Chavez according to Datanalisis), this would leave the race in a technical tie, closer to what the polls that have a lower proportion of undecided, such as Consultores 21, suggest (Figure 1). This supports our view that the possibility of a victory for the opposition are higher than what the market has been pricing. We believe that an opposition victory could be a positive surprise for the market and that it could possibly push Venezuelan assets to levels not seen in the past five years.

Figure 1: Capriles still tight but ahead
50 49 48 47 46 45 44 Declared preference Capriles
Source: Consultores 21, Barclays Research

Figure 2: The contrast between the current and last campaign (hours of Chavez appearances during months before elections)
100 90 80 70 60 50 40 30 20 10 0 Antepenultimate month Penultimate month 2006
Source: ODH, Barclays Research

48.9

46.5 45.7 45.7

Last month

Vote simulation Chavez

2012

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Signals of Chavez weak health increases the possibility of a political change

Notably, despite facing such a difficult election, President Chavez has maintained a slowpaced campaign. This is not surprising to us; since his illness and his third surgery in February, we have expected that his ability to campaign would be notably limited. Therefore, we think that his limited public appearances, which is in contrast to previous elections, likely confirms his weak status. Therefore, even in the event of a Chavez victory, in our view, it is possible that there could be a political change sooner rather than later. The Venezuelan constitution says that, if the president’s permanent absence occurs in the first four years of his/her term, a new election needs to be called within 30 days. After the election Venezuela will face important challenges. The Venezuelan government has been undertaking a highly expansionary fiscal policy while trying to maintain a strong exchange rate. This inconsistency between the fiscal and exchange rate policies has sharply weakened the fiscal accounts. If Capriles wins, we think an expansionary mix of economic policies and the dissembling of the exchange rate and prices control would be possible. If Chavez remains in power, he would likely have to rely on devaluation and cuts in government spending to rebalance public accounts. Beyond Venezuela the most important immediate impact of the election would be in the Central American and Caribbean. Chavez has set agreements with several countries in region to sell them oil under preferential conditions, which the opposition nominee has pledged to suspend given the high cost that they imply for Venezuela. This could force countries such as the Dominican Republic and Jamaica to look for alternative sources for financing. On the other side, Colombia could benefit from a political change in Venezuela through an increase in trade, even if it could also imply a reduction in the FDI flow.

If Capriles wins a gradual adjustment seems possible, while Chavez would likely need to rely in devaluation and expenditures cuts

Caribbean economies could need to look for alternative financing. Colombia could benefit from trade

Mexico: The services sector should lighten up the economy
Services mitigate weak manufacturing sector activity data

In Mexico, a strong services sector is supporting growth on the backdrop of August industrial deceleration. The IMEF released the PMI for manufacturing sector for September this week showing a further decline relatively to the August print, as it contracted 2.6% m/m sa (-0.8% y/y) reaching a level of 50 from 53 previously. The falling US industrial output in August (1.2% m/m sa) might have affected sentiment on September. Nevertheless, the nonmanufacturing PMI actually gained more steam and rose 3.4% m/m sa (9.0% y/y), reaching 53.9 from 52.3 previously. Services account almost 60% of Mexico’s economy, so we believe that this development more than supports our view of a very soft deceleration in H2 2012 and that there is more dynamism in the services sector than suggested only by the retail sales index (see note Mexico IGAE: A more upbeat tone for the services sector).

Brazil: Clearer signs of activity recovery
The worst activity readings in Brazil are behind

Since we published the Emerging Markets Quarterly, September 25, 2012, high-frequency data flow continued to support our view that the worst activity readings in Brazil are behind us and a recovery is building up. Earlier this week, IBGE released the industrial production report for August, growing 1.5% m/m sa (Barclays: 1.5%, consensus: 2.0%), picking up steam from an upwardly revised 0.5% gain in July (prev. 0.3%). The release already left the carryover (base effects) for real GDP growth in Q3 12 at 5.4% q/q annualized, above our 4.9% forecast. And even if the auto production data (out this Thursday at -0.1% m/m sa – due to fading effects of the tax breaks) implies some moderation in September IP (our preliminary forecast is 0.1% m/m SA), in all, data flow continues to support our view of a stronger recovery in 2H 12, consistent with our 4.9% and 4.1% q/q annualized real GDP growth forecasts for Q3 and Q4 12, respectively.

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DATA REVIEW & PREVIEW: LATIN AMERICA
Alejandro Arreaza, Sebastián Brown, Guilherme Loureiro, Bruno Rovai, Marco Oviedo, Sebastian Vargas Review of the week’s data releases
Main indicators Peru: CPI, % m/m Mexico: Remittances, USD mn Brazil: Trade balance, USD mn Brazil: Industrial production, % y/y Uruguay: CPI, % m/m Chile: BCCh meeting minutes Uruguay: Unemployment rate, % Period Sep Aug Sep Aug Sep Aug Sep Previous Barclays 0.51 1866.3 3227.0 -2.9 0.93 6.6 0.34 2800 -2.8 0.6 6.7 Actual 0.54 1895 2557 -2.0 1.21 5.5 Comments Further pressures on inflation coming from food prices Remittances is on a weak trend (-4.3% y/y in MXN terms) Both exports and imports are moderating, but exports continue to lead the way down 1.5% m/m sa, leaving the Q3 real GDP growth carryover at 1.3% q/q sa Inflation surprise explains unexpected increase in policy rate The board will continue watching global developments as the Chilean economy keeps showing solid activity signs Strong decline in unemployment

Preview of the week ahead
Monday 08 October 7:00 7:30 9:00 9:00 Brazil: IGP-DI inflation, % m/m Chile:: Trade balance, USD mn Mexico: CPI, % m/m Mexico: CPI core, % m/m Period Sep Sep Period Sep Sep Prev 2 0.69 912 Prev 2 0.46 0.22 Prev 1 1.52 -95 Prev 1 0.56 0.31 Latest 1.29 -843 Latest 0.30 0.22 Forecast -350 Forecast 0.45 0.20 Consensus Consensus -

Tuesday 09 October

Mexico CPI: We expect an acceleration in the headline inflation on the back of strong pressures in the non-core inflation, while the core inflation should come in a softer note, reflecting the adjustments in landline telephone rates during H1 Sep.
Wednesday 10 October 9:00 Brazil: Selic overnight rate, % Mexico: Gross fixed investments. % y/y Period Oct Jul Prev 2 8.5 8.7 Prev 1 8.0 7.5 Latest 7.5 2.7 Forecast 7.25 6.4 Consensus -

Brazil Selic overnight rate: We maintain our final 25bp Selic cut in October, given that no doors were closed in the latest Inflation Report and we have yet to confirm that the local recovery is well rooted. Even if most of the high-frequency activity indicators and inflation prints have been stronger than expected, the latter was driven by higher commodities prices (which we are confident the Copom will look through it) and the former by temporary measures to stimulate growth (mainly tax breaks to the auto sector), in our view.
Thursday 11 October 8:00 19:00 Brazil: Retail sales, % y/y Peru: Reference rate, % Period Aug Oct Prev 2 8.3 4.25 Prev 1 9.4 4.25 Latest 7.1 4.25 Forecast 8.6 4.25 Consensus -

Brazil retail sales: We expect it to drop by 0.5% m/m sa, on the back of softer supermarket sales (-1.0% m/m sa). For the broader index, we forecast an increase of 0.7% m/m sa (11.9% y/y) given the 9.5% m/m sa jump in vehicles sales. Peru reference rate: The authorities continue to think the increase in inflation is mainly explained by supply pressures on food prices and expect a moderation in Q4, while they are still cautious regarding the growth outlook. Therefore, we expect them to remain on hold while tightening monetary conditions through reserves requirements.
Friday 12 October 9:00 12:00 15:00 Colombia: Banrep meeting minutes Peru: Trade balance, USD mn Mexico: Industrial production, % y/y Uruguay: Industrial production, % y/y Argentina: CPI, % m/m Period Sep Aug Aug Aug Sep Prev 2 117.5 3.5 8.5 0.7 Prev 1 540.3 3.8 3.8 0.8 Latest -192.1 4.9 7.2 0.9 Forecast 3.8 0.8 Consensus -

Mexico industrial production: The 0.4% m/m sa decline we forecast reflects the drop of 0.7% m/m sa in US manufacturing. Contrasting it, imports of intermediate goods rose 1.4% m/m sa. Overall, we believe the services sector might counterbalance the weak August industrial performance.
Week 08-14 October Brazil: CAGED formal job creations, k Period Sep Prev 2 120 Prev 1 143 Latest 100 Forecast Consensus 33

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COUNTRY SNAPSHOT: AUSTRALIA
2011 % change q/q Nominal GDP (% chg, q/q) Real GDP (% chg, q/q) Real GDP (% chg, y/y) Private consumption Public consumption Investment Net exports contribution (pp) Inventories contribution (pp) Unemployment rate (%) CPI inflation (y/y) Underlying CPI (y/y) Current account (% GDP) RBA cash rate (period end, %) Q1 1.0 -0.4 1.2 3.4 2.5 4.4 -2.7 -0.1 5.0 3.3 2.5 -2.6 4.75 Q2 2.8 1.4 2.0 3.0 2.2 4.3 -2.6 1.1 5.0 3.6 2.8 -2.0 4.75 Q3 1.2 1.1 2.8 3.4 2.5 10.9 -2.9 0.2 5.2 3.5 2.6 -1.8 4.75 Q4 0.3 0.5 2.6 3.2 2.9 8.9 -2.5 0.3 5.2 3.1 2.7 -2.6 4.25 Q1 0.3 1.4 4.4 4.3 2.5 9.9 -1.3 0.6 5.2 1.6 2.2 -3.5 4.25 2012 Q2 1.3 0.6 3.7 4.0 3.1 11.0 -0.8 -0.3 5.1 1.2 2.0 -3.2 3.50 3.50 3.00 3.00 3.00 3.00 3.00 Q3 -0.4 0.6 3.2 3.4 2.5 5.6 -0.3 0.3 5.2 1.7 2.5 Q4 0.5 0.6 3.3 3.6 1.3 9.4 -1.1 -0.1 5.2 2.5 2.6 Q1 1.1 0.8 2.8 2.6 0.6 8.7 -1.1 0.0 5.2 3.1 2.8 2013 Q2 1.0 0.7 2.8 2.9 -0.7 9.4 -1.7 0.2 5.1 3.3 2.8 Q3 1.1 0.5 3.0 3.4 0.2 9.0 -1.7 0.0 5.1 2.7 2.5 Q4 0.8 0.5 2.9 3.4 0.5 5.5 -0.8 0.0 5.1 2.6 2.5 2.1 3.3 2.5 7.1 -2.7 0.4 5.2 3.4 2.6 -2.3 4.25 3.7 3.8 2.4 8.9 -0.8 0.1 5.2 1.7 2.3 -3.8 3.50 3.00 3.0 3.1 0.1 8.1 -1.3 0.0 5.1 2.9 2.7 Calendar year average 2011 6.4 2012 2.7 2013 3.2

Note: Calendar year except for fiscal balance, which is financial year end June. Source: Barclays Research

COUNTRY SNAPSHOT: BRAZIL
% change q/q saar (unless otherwise stated) Nominal GDP (in BRL) Real GDP Private consumption Public consumption Investment Net exports (contr., % y/y) Industrial output (PA) CPI inflation (% y/y)* CPI inflation (% y/y, PA) Unemployment rate % (PA) Key Central Bank rate (EOP)* Current account (% GDP)* Government balance (% GDP)* Gross public debt (% GDP)* 2011 Q1 5.0 3.3 2.0 -0.5 11.2 -1.3 2.8 6.3 6.1 6.1 -2.3 -2.2 54.5 Q2 13.6 2.3 2.6 6.4 3.4 -1.2 0.1 6.7 6.6 6.0 -2.1 -2.1 54.5 12.9 Q3 2.3 -0.6 -0.3 -2.1 -5.3 -0.4 -3.0 7.3 7.1 6.0 -2.0 -2.5 54.6 12.4 Q4 5.8 0.5 3.9 2.6 -0.9 -0.5 -6.7 6.5 6.7 5.7 -2.1 -2.6 54.2 12.0 Q1 7.7 0.5 3.6 6.6 -5.8 -0.2 -4.4 5.2 5.8 5.7 9.75 -2.0 -2.4 56.2 12.4 2012 Q2 6.0 1.6 2.5 4.3 -2.8 -0.5 -3.8 4.9 5.0 6.0 8.50 -2.2 -2.6 57.2 12.8 Q3 8.6 4.9 4.1 4.9 2.8 -0.7 6.9 5.1 5.2 6.1 7.50 … … … … Q4 9.7 4.1 4.1 4.1 4.1 -0.7 3.7 5.2 5.2 6.2 7.25 … … … … Q1 11.7 3.6 4.1 4.1 4.5 -0.8 3.5 5.6 5.4 6.2 7.25 … … … … 2013 Q2 10.5 4.7 4.5 4.9 4.9 -0.1 5.2 5.9 5.6 6.2 7.25 … … … … Q3 9.2 4.5 4.3 4.9 4.9 -0.3 5.0 5.7 5.7 6.3 7.25 … … … … Q4 9.7 4.4 4.9 4.1 4.9 -0.3 4.7 5.5 5.6 6.3 7.25 … … … … Calendar year average 2011 9.9 2.7 4.1 1.9 4.7 -0.8 0.4 6.5 6.6 6.0 11.00 -2.1 -2.6 54.2 12.0 2012 6.8 1.5 3.0 4.0 -2.0 -0.5 -2.4 5.2 5.3 6.0 7.25 -2.3 -2.8 57.7 13.3 2013 9.9 4.1 4.1 4.4 3.9 -0.4 4.1 5.5 5.6 6.3 7.25 -2.5 -2.8 57.0 12.4

11.75 12.25 12.00 11.00

Gross external debt (% GDP)* 12.7

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

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COUNTRY SNAPSHOT: CHINA
2011 % change y/y Real GDP Real GDP (q/q, saar) Consumption* (pp) Investment* (pp) Net exports contribution* (pp) Industrial output CPI inflation Unemployment rate (%) Current account (% GDP) Government balance (% GDP) Key CB rate (period end, %) Q1 9.7 9.6 5.9 4.3 -0.4 14.4 5.1 4.1 1.9 … 6.06 Q2 9.5 8.7 4.6 5.1 -0.1 13.8 5.8 4.1 3.5 … 6.31 Q3 9.1 8.4 4.5 5.0 -0.1 13.9 6.3 4.1 2.9 … 6.56 Q4 8.9 7.9 4.8 5.0 -0.5 12.8 4.6 4.1 2.7 … 6.56 Q1 8.1 7.5 6.2 2.7 -0.8 11.6 3.8 4.0 1.4 … 6.56 2012 Q2 7.6 6.4 4.5 3.9 -0.6 9.5 2.9 4.0 3.2 … 6.31 Q3 7.3 7.2 4.1 4.1 -0.6 8.8 2.0 4.0 2.3 … 6.00 Q4 7.2 7.8 3.9 4.1 -0.5 8.5 3.1 4.0 2.3 … 5.75 Q1 7.3 7.8 4.5 3.2 -0.4 9.0 4.3 4.0 2.1 … 5.75 2013 Q2 7.6 7.8 4 3.8 -0.3 9.4 4.2 4.0 2.1 … 5.75 Q3 7.8 7.8 4 3.8 -0.2 10.7 4.0 4.0 2.1 … 5.75 Q4 7.8 7.8 4 3.8 -0.2 11.1 3.6 4.0 2.1 … 5.75 Calendar year average 2011 9.2 … 4.7 4.9 -0.4 13.7 5.4 4.1 2.8 -1.1 6.56 2012 7.5 … 3.9 4.1 -0.5 9.6 2.9 4.0 2.3 -1.5 5.75 2013 7.6 … 4.0 3.8 -0.2 10.0 4.0 4.0 2.1 -2.0 5.75

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

COUNTRY SNAPSHOT: EURO AREA
2011 % change q/q Real GDP Real GDP (saar) Real GDP (y/y) Private consumption Public consumption Investment - Residential construction - Non-residential construction - Non-construction investment Inventories contribution (pp) Final dom. demand cont. (pp) Net exports contribution (pp) Industrial output (ex construct.) Employment (q/q) Unemployment rate % CPI inflation (y/y) Core CPI (ex food/energy) y/y Current account % GDP Government balance % GDP Refi rate (period end %) Q1 0.6 2.5 2.4 0.0 -0.2 2.0 2.7 1.8 1.6 0.0 0.3 0.2 1.0 0.1 9.9 2.5 1.1 -0.1 ... 1.00 Q2 0.2 1.0 1.6 -0.4 0.0 -0.2 -0.6 -1.1 0.6 0.4 -0.3 0.2 0.2 0.2 9.9 2.8 1.6 -0.3 ... 1.25 Q3 0.1 0.3 1.3 0.2 -0.2 -0.4 -0.6 -1.0 0.1 -0.3 0.0 0.4 0.7 -0.1 10.2 2.7 1.3 0.0 ... 1.50 Q4 -0.3 -1.4 0.6 -0.5 0.0 -0.5 -0.2 -0.2 -0.9 -0.5 -0.4 0.5 -2.0 -0.2 10.6 2.9 1.6 0.2 ... 1.00 Q1 0.0 -0.1 0.0 -0.2 0.2 -1.3 0.1 -2.1 -1.7 -0.1 -0.3 0.4 -0.5 -0.3 10.9 2.7 1.5 0.7 ... 1.00 2012 Q2E -0.2 -0.7 -0.5 -0.2 0.1 -0.8 -0.9 -0.8 -0.8 -0.2 -0.2 0.2 -0.5 0.0 11.3 2.5 1.6 1.3 ... 1.00 Q3E -0.3 -1.0 -0.8 -0.1 -0.3 -0.9 -0.8 -1.0 -1.0 0.0 -0.3 0.1 -1.0 -0.2 11.6 2.6 1.6 1.4 ... 0.75 Q4E -0.2 -0.6 -0.6 -0.2 -0.4 -0.4 -0.5 -0.6 -0.4 0.0 -0.3 0.1 -1.1 -0.2 11.8 2.5 1.6 1.5 ... 0.50 Q1E 0.2 0.7 -0.4 0.0 -0.3 0.2 -0.2 0.1 0.4 0.0 0.0 0.2 -0.4 -0.2 11.8 2.3 1.7 1.7 ... 0.50 2013 Q2E 0.3 1.0 0.0 0.1 -0.1 0.4 0.0 0.2 0.8 0.0 0.1 0.1 -0.3 -0.1 12.0 2.3 1.8 1.8 ... 0.50 Q3E 0.3 1.2 0.6 0.2 0.0 0.5 0.0 0.5 0.9 0.0 0.2 0.1 -0.1 0.0 12.0 2.3 1.9 1.9 ... 0.50 Q4E 0.4 1.4 1.1 0.2 0.0 0.5 0.2 0.5 0.8 0.0 0.2 0.1 0.0 0.0 12.0 2.1 1.8 2.0 ... 0.50 Calendar year average 2011 ... ... 1.5 0.1 -0.1 1.6 0.7 -1.3 3.9 0.2 0.3 1.0 3.5 0.2 10.2 2.7 1.4 0.0 -4.1 1.00 2012E ... ... -0.5 -0.8 -0.1 -3.1 -1.7 -4.3 -3.4 -0.7 -1.1 1.3 -2.8 -0.5 11.4 2.6 1.6 1.2 -3.3 0.50 2013E ... ... 0.3 -0.1 -0.8 -0.2 -1.1 -0.5 0.7 0.0 0.6 0.6 -2.2 -0.5 11.9 2.2 1.8 1.8 -2.4 0.50

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

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COUNTRY SNAPSHOT: INDIA
FY 11 % change y/y Real GDP (q/q saar) Real GDP Private consumption Public consumption Fixed investment WPI inflation (y/y) Current account (% GDP) General govt balance (% GDP) Repo rate (period end, %) Q1 8.4 8.5 9.1 11.1 8.8 10.5 … … 5.25 Q2 9.6 7.6 8.6 10.5 6.9 9.3 … … 6.00 Q3 8.0 8.2 7.3 4.7 11.1 8.9 … … 6.25 Q4 9.7 9.2 7.6 6.7 3.7 9.6 … … 6.75 Q1 4.8 8.0 4.9 4.9 14.7 9.6 … … 7.50 FY 12 Q2 4.3 6.7 4.6 7.2 5.0 9.7 … … 8.25 Q3 6.1 6.1 6.4 4.7 -0.3 9.0 … … 8.50 Q4 5.7 5.3 6.1 4.1 3.6 7.5 … … 8.50 Q1 5.8 5.5 4.0 9.0 0.7 7.5 … … 8.00 FY 13 Q2 4.2 5.3 5.5 6.0 4.0 7.4 … … 8.00 Q3 6.8 5.7 5.5 6.0 5.0 8.2 … … 8.00 Q4 10.0 6.5 6.0 6.0 5.0 8.0 … … 7.50 Fiscal year average 2011 … 8.4 8.1 7.8 7.5 9.6 -2.7 -8.1 6.75 2012 2013 … 6.5 5.5 5.1 5.5 9.0 -4.2 -8.1 8.50 … 5.8 5.3 6.7 3.7 7.8 -3.2 -8.0 7.50

Note: Values expressed in y/y % unless otherwise specified. India’s fiscal year begins in April of previous year and ends in March of the current year. Source: Barclays Research

COUNTRY SNAPSHOT: JAPAN
2011 % change Real GDP (q/q, saar) Real GDP (q/q) Private consumption (q/q) Public consumption (q/q) Residential investment (q/q) Public investment (q/q) Capital Investment (q/q) Net exports (q/q)* Ch. Inventories (q/q)* Nominal GDP (q/q) Industrial output (q/q) Employment (q/q) Unemployment rate (%) CPI inflation (y/y) Core CPI ex food/energy (y/y) Current account (% GDP) Government balance (% GDP) Overnight call rate Q1 -7.9 -2.0 -1.5 0.3 1.7 -4.4 -0.1 -0.3 -0.8 -2.4 -1.5 0.2 4.8 -0.8 -1.4 3.0 … 0.10 Q2 -1.3 -0.3 0.6 0.6 -3.0 7.4 -0.9 -0.9 0.0 -1.3 -4.2 -0.4 4.7 -0.3 -0.9 1.6 … 0.10 Q3 6.9 1.7 1.1 0.2 4.8 -1.1 0.3 0.6 0.2 1.6 5.4 -0.2 4.4 0.2 -0.5 2.2 … 0.10 Q4 0.3 0.1 0.7 0.4 0.1 -1.0 5.5 -0.7 -0.4 -0.3 0.4 0.4 4.5 -0.2 -1.1 1.4 … 0.10 Q1 5.3 1.3 1.2 1.1 -1.6 3.6 -1.6 0.1 0.3 1.3 1.2 0.4 4.5 0.1 -0.6 1.2 … 0.10 2012 Q2 0.7 0.2 0.1 0.2 0.9 1.8 1.4 -0.1 -0.2 -0.3 -2.0 -0.3 4.4 0.0 -0.5 1.1 … 0.10 Q3 -1.5 -0.4 -0.6 0.5 1.6 2.4 0.2 -0.4 0.1 -0.7 -3.0 0.2 4.4 -0.2 -0.3 1.8 … 0.10 Q4 0.7 0.2 -0.1 0.7 -0.6 2.1 0.4 -0.2 0.1 0.2 0.9 0.2 4.3 0.1 -0.1 0.7 … 0.10 Q1 1.3 0.3 0.1 0.4 -2.1 1.4 0.2 0.0 0.1 0.6 1.4 0.2 4.2 0.2 -0.1 0.8 … 0.10 2013 Q2 0.5 0.1 0.1 0.2 0.9 0.4 -0.5 -0.0 0.1 0.1 0.4 0.2 4.1 0.2 0.0 0.8 … 0.10 Q3 2.0 0.5 0.2 -0.5 3.6 -1.5 0.5 0.3 0.1 0.3 1.1 0.2 4.0 0.4 0.1 1.0 … 0.10 Q4 3.0 0.7 0.8 -0.7 4.1 -1.9 0.5 0.2 0.1 0.7 1.6 0.2 4.0 0.2 0.2 1.1 … 0.10 Calendar year average 2011 -0.8 0.1 2.0 5.7 -3.5 1.3 -0.9 -0.5 -2.8 -2.4 -0.1 4.6 -0.3 -1.0 2.1 -8.9 0.10 2012 2.1 2.2 2.2 1.4 7.8 3.5 -0.6 0.1 1.1 1.0 0.4 4.4 -0.0 -0.4 1.2 -8.8 0.10 2013 0.9 0.2 0.9 2.0 3.6 1.0 -0.2 0.3 0.7 1.0 0.7 4.0 0.2 0.1 0.9 -8.6 0.10

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

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COUNTRY SNAPSHOT: MEXICO
2011 % change q/q saar Real GDP Private consumption Public consumption Fixed investment Exports Imports Industrial output CPI inflation (% y/y, avg) Unemployment rate (%, avg) Key Central Bank rate (%, eop)* Current account (% GDP)* Government balance (% GDP)* Gross public debt (% GDP)* Gross external debt (% GDP)* Q1 2.1 3.3 -0.1 7.8 9.0 6.9 6.7 3.5 5.2 4.50 … … … … Q2 5.5 4.1 -2.4 11.2 5.8 7.6 2.8 3.3 5.4 4.50 … … … … Q3 4.9 6.4 6.5 5.2 -4.6 1.4 1.5 3.4 5.3 4.50 … … … … Q4 3.0 3.3 3.4 -0.1 4.2 3.2 3.8 3.5 5.0 4.50 … … … … Q1 4.9 3.1 2.4 19.4 19.5 12.7 4.3 3.9 5.1 4.50 … … … … 2012 Q2 3.5 1.8 -4.8 1.2 3.7 -0.7 4.8 3.9 4.9 4.50 … … … … Q3 3.1 2.0 0.5 1.0 3.0 0.5 2.4 4.6 4.8 4.50 … … … … Q4 3.3 3.2 0.7 1.1 2.8 1.5 2.9 4.4 4.8 4.50 … … … … Q1 2.7 3.5 1.1 2.5 2.2 2.5 1.9 4.1 4.8 4.50 … … … … 2013 Q2 2.8 3.5 1.5 4.0 2.1 3.0 3.0 4.5 4.7 4.50 … … … … Q3 2.8 4.0 1.6 5.5 5.5 5.0 4.2 3.9 4.7 4.50 … … … … Q4 3.0 4.0 1.7 4.5 6.0 5.5 4.5 3.8 4.6 4.50 … … … … Calendar year average 2011 3.9 4.5 0.6 8.9 6.7 6.7 4.0 3.4 5.2 4.50 -1.1 -2.5 35.4 26.7 2012 4.0 3.1 1.0 6.3 6.5 4.5 3.5 4.2 4.9 4.50 0.1 -2.3 35.7 25.3 2013 3.0 3.3 0.7 2.8 3.1 2.5 3.0 4.1 4.7 4.50 -0.2 -2.0 35.3 23.7

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

COUNTRY SNAPSHOT: SOUTH AFRICA
2011 % Change q/q saar Real GDP Real GDP (y/y) Private consumption Public consumption Investment Exports Imports Industrial output (y/y) CPI inflation (y/y) Core CPI ex food/energy (y/y) Current account (% GDP) Government balance (% GDP)* Repurchase rate (period end, %) Q1 4.6 3.7 6.2 9.4 4.4 7.3 7.0 4.9 3.9 3.0 -2.6 ... 5.5 Q2 1.0 3.3 3.4 -0.4 5.0 6.1 6.7 0.7 4.6 3.3 -3.0 ... 5.5 Q3F 1.7 2.9 3.8 4.8 5.9 8.0 18.5 2.4 5.4 3.9 -4.1 ... 5.5 Q4F 3.2 2.6 4.6 7.3 7.2 4.4 11.0 2.1 6.1 4.1 -3.6 ... 5.5 Q1 2.7 2.1 3.1 2.2 5.3 -1.4 4.8 1.2 6.1 4.4 -4.9 ... 5.5 2012 Q2F 3.2 2.7 2.9 4.1 5.7 -6.2 0.9 ... 5.7 4.5 -6.4 ... 5.5 Q3F 1.9 2.8 3.1 3.5 3.7 0.2 3.0 ... 5.2 4.9 5.6 ... 5.0 Q4F 2.4 2.6 2.9 3.5 4.5 0.5 3.3 ... 5.2 4.9 5.3 ... 5.0 Q1F 3.0 2.6 3.2 3.5 5.9 7.2 8.1 ... 5.4 5.0 5.2 ... 5.0 2013 Q2F 3.4 2.7 3.6 3.5 6.4 8.1 8.9 ... 5.0 5.1 5.2 ... 5.0 Q3F 3.6 3.1 3.8 3.4 6.6 6.2 7.2 ... 5.3 5.1 5.3 ... 5.0 Q4F 3.7 3.4 4.0 3.5 6.6 8.7 9.2 ... 5.2 5.1 5.6 ... 5.0 Calendar-year average 2011 3.1 3.1 5.0 4.5 4.4 5.9 9.7 2.6 5.0 3.5 -3.3 -5.0 5.5 2012F 2013F 2.6 2.5 3.4 3.9 5.6 0.6 6.5 ... 5.5 4.7 -5.5 -5.2 4.5 3.5 3.0 3.0 3.5 5.6 4.3 6.2 ... 5.3 5.0 -5.3 -4.4 5.0

Note: All numbers expressed in q/q saar % unless otherwise specified; *Quarterly numbers are not seasonally adjusted or annualised, while annual numbers represent financial years (ie, FY 09/10 = 2010). Source: SARB, Statistics South Africa, National Treasury, Absa Capital

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COUNTRY SNAPSHOT: SOUTH KOREA
2011 % Change Real GDP (q/q, saar) Real GDP (y/y) Private consumption Public consumption Investment Industrial output Unemployment rate (%) CPI inflation (y/y) Current account (% GDP) Government balance (% GDP) Key CB rate (period end, %) 3.00 3.25 3.25 3.25 3.25 3.25 3.00 2.75 2.75 2.75 2.75 2.75
Note: All numbers expressed in y/y basis unless otherwise specified. Source: Barclays Research

2012 Q4 1.3 3.3 1.1 1.8 -1.8 5.0 3.1 4.0 Q1 3.5 2.8 1.6 4.7 4.6 3.9 3.4 3.0 Q2 1.1 2.3 1.1 3.6 -2.1 1.5 3.3 2.4 Q3 2.0 2.0 1.7 3.0 0.0 1.7 3.1 1.5 Q4 7.8 3.6 3.5 7.0 4.2 3.1 3.1 1.7 Q1 2.8 3.4 2.9 1.5 1.5 2.4 3.2 1.6

2013 Q2 1.2 3.4 3.2 1.5 6.0 4.1 3.2 1.9 Q3 3.6 3.8 3.2 1.0 7.0 4.8 3.2 2.4 Q4 6.1 3.4 3.2 1.5 7.0 4.6 3.2 2.3

Calendar year average 2011 2012 2013

Q1 5.3 4.2 2.9 1.4 -2.1 10.4 3.8 3.8

Q2 3.4 3.5 3.0 1.8 0.7 7.1 3.4 4.0

Q3 3.4 3.6 2.1 3.3 -1.5 5.3 3.2 4.3

3.6 2.3 2.1 -1.2 7.0 3.4 4.0 2.4 -2.0 3.25

2.7 2.0 4.6 1.7 2.5 3.2 2.1 2.1 -1.0 2.75

3.5 3.1 1.4 5.4 3.9 3.2 2.0 2.1 -0.5 2.75

COUNTRY SNAPSHOT: UNITED KINGDOM
2011 % Change q/q Real GDP Real GDP (saar) Real GDP (y/y) Private consumption Public consumption Investment Inventories (q/q cont.) Net exports (q/q cont.) Nominal GDP Industrial output Employment Unemployment rate % CPI inflation y/y Core CPI y/y Current account % GDP Govt. balance % GDP* Bank Rate Q1 0.5 2.0 1.4 -1.1 0.2 -1.9 0.0 1.3 1.6 -0.1 0.4 7.8 4.1 3.2 -1.7 ... 0.50 Q2 0.1 0.3 0.7 -0.2 0.3 0.0 0.6 -0.5 0.4 -1.1 0.0 7.9 4.4 3.3 -0.8 ... 0.50 Q3 0.5 2.1 0.6 -0.1 0.1 0.5 0.5 -0.1 0.5 -0.2 -0.6 8.3 4.7 3.2 -2.9 ... 0.50 Q4 -0.4 -1.4 0.7 0.2 0.3 -0.7 -0.8 0.4 0.6 -1.4 0.3 8.4 4.7 3.2 -2.2 ... 0.50 Q1 -0.3 -1.2 -0.1 0.3 3.1 3.2 -1.2 -0.5 0.0 -0.2 0.4 8.2 3.5 2.5 -4.0 ... 0.50 2012 Q2 -0.4 -1.5 -0.5 -0.2 -1.6 -2.7 1.3 -0.8 1.0 -0.7 0.7 8.0 2.7 2.1 -5.4 ... 0.50 Q3 0.5 2.2 -0.5 0.1 -0.2 0.9 0.4 0.0 1.3 0.4 0.2 8.0 2.4 2.1 -4.5 ... 0.50 Q4 0.2 0.9 0.1 0.0 -0.2 1.6 -0.2 0.2 1.5 0.2 -0.1 8.2 2.5 2.1 -3.7 ... 0.25 Q1 0.4 1.7 0.8 0.3 -0.2 2.0 0.0 0.0 1.2 0.9 0.0 8.3 2.5 ... -3.8 ... 0.25 2013 Q2 0.4 1.7 1.6 0.3 -0.4 1.6 0.0 0.1 1.2 0.1 0.0 8.4 3.0 ... -3.8 ... 0.25 Q3 0.5 1.9 1.5 0.4 -0.3 1.7 0.0 0.0 1.3 0.1 0.1 8.4 2.9 ... -3.9 ... 0.25 Q4 0.5 1.8 1.8 0.5 -0.5 1.5 0.0 0.0 1.0 0.1 0.0 8.5 2.5 ... -4.1 ... 0.25
Calendar year average

2011 ... ... 0.9 -0.9 0.2 -2.4 0.3 1.2 3.6 -0.7 0.5 8.1 4.5 3.2 -1.9 -7.8 0.50

2012 ... ... -0.3 0.3 2.1 1.7 -0.3 -0.9 2.6 -1.9 1.0 8.1 2.8 2.2 -4.4 -6.3 0.25

2013 ... ... 1.4 0.9 -1.5 5.4 0.4 0.0 5.1 1.3 0.3 8.4 2.7 ... -3.9 -7.0 0.25

Note: *Fiscal year forecasts, 2012 = FY 12-13; excludes the impact of financial sector interventions. Source: ONS, Barclays Research

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COUNTRY SNAPSHOT: UNITED STATES
2011 % change q/q saar Real GDP Private consumption Public consump and invest. Residential investment Equip. & software investment Structures investment Net exports ($bn, real) Net exports (contr to GDP, pp) Final sales Ch. inventories ($bn, real) Ch. inventories (contr to GDP, pp) GDP price index Nominal GDP Industrial output Employment (avg mthly chg, K) Unemployment rate (%) CPI inflation (% y/y) Core CPI (% y/y) Core PCE price index (% y/y) Current account (% GDP) Federal budget bal. (% GDP) 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 0-0.25 0-0.25 0-0.25 Q1 0.1 3.1 -7.0 -1.4 11.1 -28.2 -417 0.0 0.6 30.3 -0.5 2.0 2.2 4.4 192 9.0 2.1 1.1 1.1 -3.2 Q2 2.5 1.0 -0.8 4.1 7.8 35.2 -400 0.5 2.4 27.5 0.0 2.6 5.2 1.2 130 9.1 3.4 1.5 1.3 -3.2 Q3 1.3 1.7 -2.9 1.4 18.3 20.7 -398 0.0 2.3 -4.3 -1.1 3.0 4.3 5.6 128 9.1 3.8 1.9 1.6 -2.9 Q4 4.1 2.0 -2.2 12.1 8.8 11.5 -418 -0.6 1.5 70.5 2.5 0.4 4.2 5.1 164 8.7 3.3 2.2 1.7 -3.1 Q1 2.0 2.4 -3.0 20.5 5.4 12.9 -416 0.1 2.4 56.9 -0.4 2.0 4.2 5.9 226 8.2 2.8 2.2 1.9 -3.5 2012 Q2 1.3 1.5 -0.7 8.5 4.8 0.6 -407 0.2 1.7 41.4 -0.5 1.6 2.8 2.6 67 8.2 1.9 2.3 1.8 -3.0 Q3 2.0 2.0 -0.5 14.0 6.0 -6.0 -421 -0.4 1.4 58.0 0.5 1.3 3.4 5.0 146 8.1 1.7 2.0 1.7 -3.1 Q4 2.5 2.5 -3.0 10.0 8.0 8.0 -414 0.2 2.4 60.0 0.1 1.7 4.3 5.0 160 7.8 2.2 2.1 1.8 -2.9 Q1 1.5 1.5 -2.0 8.0 6.0 6.0 -413 0.0 1.5 62.0 0.1 2.1 3.6 4.0 150 7.7 2.1 2.3 1.8 -2.9 2013 Q2 2.0 2.0 -2.0 10.0 8.0 8.0 -411 0.0 2.1 63.0 0.0 1.9 4.0 4.5 180 7.5 2.2 2.3 2.0 -2.9 Q3 2.5 2.5 -1.5 12.0 10.0 8.0 -412 0.0 2.7 64.0 0.0 3.1 5.7 4.5 200 7.3 2.5 2.5 2.2 -2.9 Q4 2.5 2.5 -1.5 12.0 10.0 8.0 -414 0.0 2.7 64.0 0.0 2.9 5.4 5.0 200 7.1 2.4 2.7 2.4 -2.9 Calendar year average 2011 1.8 2.5 -3.1 -1.4 11.0 2.8 -408 0.1 2.0 31.0 -0.1 2.1 4.0 4.1 153 8.9 3.2 1.7 1.4 -3.1 -8.7 2012 2013 2.2 1.9 -2.0 11.6 7.8 9.4 -415 -0.1 2.0 54.1 0.2 1.7 3.9 4.6 150 8.1 2.2 2.2 1.8 -3.1 -7.7 2.0 2.0 -1.8 10.3 7.4 5.2 -413 0.0 2.0 63.3 0.3 2.0 4.1 4.4 183 7.4 2.3 2.4 2.1 -2.9 -6.2

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

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GLOBAL WEEKLY CALENDAR
Saturday 6 October 12:00 Chile: CPI, % m/m Period Sep Prev 2 -0.3 Prev 2 Prev 1 0.0 Prev 1 Latest 0.2 Latest Forecast Consensus 0.5 0.6 Forecast Consensus Monday 8 October Period E17: First meeting of ESM Governors 14:00 Italy: PM Monti meets Germany SPD President Gabriel in Rome 15:00 E17: Eurogroup meeting New Zealand: REINZ HPI, % m/m (to 12/10) Sep 00:30 Australia: Job advertisements, % m/m Sep 05:45 Swi: Unemployment rate (adj), % Sep 06:00 Germany: Trade Balance sa, bn Aug 06:30 France: BdF industrial business sentiment, index Sep 07:15 Swi: CPI, % m/m (y/y) Sep 08:00 Taiwan: Exports, % y/y Sep 10:00 Germany: Industrial production, % m/m (y/y) Aug 11:00 Brazil: IGP-DI inflation, % m/m Sep 21:45 New Zealand: Card spending, % m/m Sep 23:00 New Zealand: House prices, % y/y Sep 23:01 UK: BRC total sales, % y/y Sep 23:01 UK: RICS house price balance Sep 23:50 Japan: Current account, JPY bn Aug

0.3 -0.7 -1.1 -0.8 2.9 2.9 15.6 18.0 91 90 -0.3 (-1.1) -0.5 (-0.7) -3.2 -11.6 1.7 (-0.3) -0.4 (0.3) 0.69 1.52 0.4 -1.1 4.2 4.6 3.5 2.0 -22 -23 215.1 433.3

1.3 -2.3 2.9 3.0 16.9 15.6 93 91 0.0 (-0.5) - 0.3 (-0.4) -4.2 2.5 1.0 1.3 (-1.4) -2.0 (-3.0) -0.5 (-1.5) 1.29 0.83 3.0 -0.3 4.8 1.6 -19 -17 -19 625.4 425.5 421.1

Tuesday 9 October Period Prev 2 Prev 1 Latest Forecast Consensus Serbia: Repo rate, % Oct 10.25 10.50 10.50 10.50 Global: IMF/World Bank annual meeting (to 14/10) Germany: Chancellor Merkel visits Athens 07:00 E27: ECOFIN meeting 07:30 E17: ECB President Draghi speaks on Economic and Monetary Affairs of the European Parliament in Belgium 22:00 E17: ECB Executive board member Praet speaks at Bundesbank Cash symposium Egypt: CPI, % y/y (to 10/10) Sep 7.3 6.4 6.5 6.7 Venezuela: CPI, % m/m Sep 1.4 1.0 1.1 2.0 2.0 00:30 Australia: Business confidence, index Sep -3.2 3.0 -2.0 05:00 Japan: Economy watchers' DI Sep 43.8 44.2 43.6 06:45 France: Budget, year-to date, bn Aug -69.6 -56.6 -85.5 06:45 France: Trade balance, bn Aug -5.6 -6.1 -4.3 -5.0 07:00 Czech: CPI, % y/y Sep 3.5 3.1 3.3 3.3 3.4 08:30 UK: Industrial output, % m/m (y/y) Aug 1.2 (-1.5) -2.4 (-3.8) 2.9 (-0.8) -0.9 (-1.5) -0.5 (-1.1) 08:30 UK: Manufacturing output, % m/m (y/y) Aug 1.4 (-1.2) -2.9 (-3.9) 3.2 (-0.5) -0.8 (-0.8) -0.6 (-0.6) 08:30 UK: Visible trade balance, ?bn Aug -7.9 -10.1 -7.1 -8.5 -8.3 08:30 Italy: Final GDP, % q/q Q2 -0.7 -0.8 -0.7 P -0.7 -0.8 09:00 Greece: HICP, % y/y Sep 1.0 0.9 1.2 1.3 09:00 Italy: Deficit, % of GDP Q2 4.2 3.8 8.0 13:00 Mexico: CPI, % m/m Sep 0.46 0.56 0.30 0.45 0.48 23:30 Australia: Consumer confidence, % m/m Oct 3.7 -2.5 1.6 Wednesday 10 October Period Prev 2 Prev 1 Latest Forecast Consensus France: President Hollande and Spanish PM Rajoy holds Franco-Spanish summit Brazil: Selic overnight rate, % Oct 8.50 8.00 7.50 7.25 7.50 00:30 US: Fed Governor Yellen (FOMC voter) speaks in Tokyo 07:00 E17: EU Parliament panel debates on Banking Union proposals 12:30 E17: ECB Executive board member Praet speaks in Bargeld symposium in Germany 18:00 US: Fed Beige Book report released 18:45 US: Minneapolis Fed President Kocherlakota (FOMC non-voter) speaks in Montana 20:30 US: Fed Governor Tarullo (FOMC voter) seaks in Pennsylvania 20:45 US: Dallas Fed President Fisher (FOMC non-voter) speaks in Washington DC 01:00 Philippines: Total exports, % y/y Aug 19.7 4.3 6.0 6.0 4.7 06:45 France: Industrial production, % m/m (y/y) Aug -2.2 (-4.0) 0.0 (-2.5) 0.2 (-3.1) -0.8 (-4.5) 0.0 (-4.2) 07:00 Denmark: CPI, headline, % m/m (y/y) Sep -0.2 (2.2) 0.0 (2.3) 0.3 (2.6) 0.5 (2.8) 0.4 (2.7) 07:00 Romania: CPI, % y/y Sep 2.0 3.0 3.9 4.5 4.7 07:30 Sweden: Industrial production, % m/m (y/y) Aug 3.6 (-2.4) 0.4 (1.2) 0.3 (-0.4) -3.5 (-1.0) -0.7 (0.8) 08:00 Norway: CPI, headline, % m/m (y/y) Sep -0.5 (0.5) -0.5 (0.2) -0.4 (0.5) 1.4 (0.9) 0.9 (0.5) 08:00 Norway: CPI-ATE, underlying, % m/m (y/y) Sep -0.3 (1.2) 0.0 (1.3) -0.7 (1.2) 0.7 (0.7) 1.0 (1.0) 08:00 Italy: Industrial production, % m/m (y/y) Aug 1.0 (-6.7) -1.3 (-7.7) -0.2 (-7.0) 0.6 (-9.4) -0.8 14:00 US: Wholesale inventories, % m/m Aug 0.0 -0.2 0.7 0.2 0.4 21:45 New Zealand: Food prices, % m/m Sep 1.4 0.2 0.1 22:30 New Zealand: Business PMI, index Sep 50.0 49.4 47.2 23:50 Japan: Core machinery orders, % m/m Aug -14.8 5.6 4.6 -2.1 -2.3 23:50 Japan: Bank lending, including shinkin, % y/y Sep 0.6 0.7 0.9 0.8 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.

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Thursday 11 October Period Prev 2 Prev 1 Indonesia: Bank Indonesia Reference rate, % Oct 5.75 5.75 01:00 Korea: South Korea 7-day Repo rate, % Oct 3.00 3.00 07:30 US: Fed Governor Yellen (FOMC voter) speaks in Tokyo 08:00 E17: ECB publishes monthly bulletin Oct 14:00 US: Fed Governor Stein (FOMC voter) speaks in Washington 15:15 US: Fed Governor Raskin (FOMC voter) speaks in France 16:30 US: Philadelphia Fed President Plosser (FOMC non-voter) speaks in Pennsylvania 22:00 US: St.Louis Fed President Bullard (FOMC non-voter) speaks in Missouri 23:00 Peru: Reference rate, % Oct 4.25 4.25 China: New loans, CNY bn (to 15/10) Sep 919.8 540.1 China: M2 growth, % y/y (to 15/10) Sep 13.6 13.9 China: Foreign reserves, USD bn (to 15/10) Sep 3298.9 3206.1 00:00 Australia: Inflation expectations, % m/m Oct 3.3 2.4 00:30 Australia: Employment change, k Sep -29.9 11.7 00:30 Australia: Unemployment rate, % Sep 5.3 5.2 00:30 Australia: Participation rate, % Sep 65.3 65.2 01:00 New Zealand: Consumer confidence, % m/m Oct 4.4 3.3 04:00 Costa Rica: Econ. activity index, % y/y Aug 5.9 5.2 04:01 Malaysia: Industrial production, % y/y Aug 7.8 3.7 06:00 Germany: Final HICP, % m/m (y/y) Sep 0.4 (1.9) 0.4 (2.2) 06:00 Germany: Final CPI, % m/m (y/y) Sep 0.4 (1.7) 0.4 (2.1) 06:00 Sweden: Unemployment rate (PES), % Sep 4.4 4.6 06:45 France: HICP, % m/m (y/y) Sep 0.1 (2.3) -0.5 (2.2) 06:45 France: CPI, % m/m (y/y) Sep 0.0 (1.9) -0.4 (1.9) 06:45 France: CPI ex tobacco index Sep 124.78 124.22 07:00 Spain: Final HICP, % m/m (y/y) Sep -0.9 (2.2) 0.5 (2.7) 07:00 Hungary: CPI, % y/y Sep 5.6 5.8 07:30 Sweden: CPI Headline, % m/m (y/y) Sep -0.2 (1.0) -0.4 (0.7) 07:30 Sweden: CPIF, % m/m (y/y) Sep -0.3 (0.9) -0.4 (0.8) 07:30 Sweden: CPI, index level Sep 314.45 313.23 09:00 Greece: Unemployment rate, % Jul 22.7 23.5 09:00 Portugal: HICP, % m/m (y/y) Sep -0.2 (2.7) 0.2 (2.8) 10:00 Ireland: HICP, % m/m (y/y) Sep -0.2 (1.9) -0.1 (2.0) 12:30 US: Initial jobless claims, k (4wma) 06-Oct 385 (379) 363 (375) 12:30 US: Import prices, % m/m (y/y) Sep -2.3 (-2.4) -0.7 (-3.2) 12:30 US: Non-petroleum import prices, % m/m (y/y) Sep -0.3 (-0.2) -0.3 (-0.5) 12:30 US: Trade balance, $ bn Aug -47.6 -41.9 18:00 US: Treasury budget balance, $ bn Sep -45.2 ('09) -34.6 ('10) 23:50 Japan: M2/M3, % y/y Sep 2.2/1.9 2.2/1.9 23:50 Japan: Index of tertiary industry activity, % m/m Aug 0.9 0.2 23:50 Japan: Corporate goods price index, % y/y Sep -1.4 -2.2

Latest 5.75 3.00

Forecast Consensus 5.75 5.75 2.75 2.75

4.25 4.25 703.9 700.0 13.5 13.7 3240.0 2.4 -8.8 17.5 5.1 5.3 65.0 -1.9 4.5 1.4 -2.9 0.0 (2.1) P 0.0 (2.1) 0.0 (2.0) P 0.0 (2.0) 4.8 4.9 0.7 (2.4) -0.1 (2.3) 0.7 (2.1) -0.2 (1.9) 125.06 124.91 …(3.5) P 2.0 (3.5) 6.0 6.2 0.1 (0.7) 0.6 (0.6) 0.1 (0.9) 0.7 (0.9) 313.55 315.38 24.4 -0.1 (3.2) 0.7 (3.2) 0.8 (2.6) 0.0 (2.5) 367 (375) 365 (370) 0.7 (-2.2) 0.6 -0.2 (-0.9) 0.3 -42.0 -44.0 -62.8 ('11) -35.0 2.4/2.1 2.4/2.0 -0.8 0.5 -1.8 -1.2

4.25 660.0 13.6 3228.0 5.0 5.3 65.0 -1.3 0.0 (2.1) 0.0 (2.0) 0.1 (2.5) 0.1 (2.3) 125.26 2.0 (3.5) 6.3 0.6 (0.6) 0.7 (0.9) 315.40 365 0.7 -44.0 -2.0 2.4/2.0 0.4 -1.4

Friday 12 October Period Prev 2 Prev 1 Latest 00:00 Singapore: MAS monetary policy statement 16:35 US: Richmond Fed President Lacker (FOMC voter) speaks in Virginia Serbia: HICP, % y/y Sep 5.5 6.1 7.9 00:00 Singapore: GDP, advance estimate, % y/y Q3 3.6 1.5 2.0 05:30 India: Industrial production, % y/y Aug 2.5 -1.8 0.1 08:00 Italy: Final HICP, % m/m (y/y) Sep -1.7 (3.6) 0.0 (3.3) 2.1 (3.4) P 08:00 Italy: Final CPI, % m/m (y/y) Sep 0.1 (3.1) 0.4 (3.2) 0.0 (3.2) P 09:00 E17: Industrial production, % m/m (y/y) Aug 0.9 (-2.6) -0.6 (-2.0) 0.5 (-2.4) 12:30 US: PPI, % m/m (y/y) Sep 0.1 (0.7) 0.3 (0.5) 1.7 (2.0) 12:30 US: Core PPI, % m/m (y/y) Sep 0.2 (2.6) 0.4 (2.5) 0.2 (2.5) 13:55 US: Michigan consumer sentiment- p, index Oct 72.3 74.3 78.3 19:00 Argentina: CPI, % m/m Sep 0.7 0.8 0.9

Forecast Consensus 9.0 0.1 2.0 2.1 (3.4) 2.1 (3.4) 0.0 (3.2) 0.0 (3.2) -0.7 -0.5 (-4.1) 0.8 0.7 (1.7) 0.2 0.2 (2.5) 79.0 77.8 0.8 0.8

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.

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GLOBAL KEY EVENTS
Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 Forthcoming central bank announcement dates North America FOMC meeting 24 12 30 20 FOMC minutes 4 14 2 20 10 Fed's Beige Book 10 28 16 6 17 Bank of Canada 23 4 23 6 17 Europe ECB "policy" meeting 4 8 6 10 7 7 4 ECB monthly bulletin 11 15 13 17 14 14 11 ECB "non-policy" meeting 18 22 20 24 21 21 18 Bank of England 3-4 7-8 5-6 9-10 6-7 6-7 3-4 BoE Inflation Report 14 13 BoE minutes 17 21 19 23 20 20 17 Riksbank 25 18 13 17 SNB 13 14 Norges Bank 31 19 13 Asia/RoW Bank of Japan 4-5, 30 19-20 19-20 21-22 13-14 6-7 3-4, 26 BoJ minutes 11 2,26 26 19 12 9 Reserve Bank of Australia 2 6 4 5 5 2 RBNZ 6 14 Source: Central banks, IMF, European Commission, Reuters, Bloomberg, Market News, Barclays Research May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

1 22 29 2 9 16 8-9 15 22 8 21-22 2,27 7 -

19 5 6 13 20 5-6 19 20 19 10-11 14 4 13

31 10 17 17 4 11 18 3-4 17 3 2 -

21 1 8 31-1 7 14 6 -

18 4 5 12 19 4-5 18 5 19 18 3 12

30 23 2 9 17 9-10 23 24 23 1 -

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CALENDAR OF FORTHCOMING CRITICAL EVENTS FOR THE EURO AREA
Date October, 2012 October Euro area Final “troika” report on Greek bail-out expected Likely to advocate that some easing of the programme requirements is necessary given worse-than-expected recession but no decision likely to be taken until late October. Could offer support for spending restraint The focus will be on preparing the European Council with special focus on Spain (discuss the program, if application already received), Greece (ongoing “troika” review), banking union and approval of the conclusions from the fifth quarterly review of Portugal’s aid program Country Event Likely outcome: our assessment

08-Oct

Euro area

Eurogroup meeting (Luxembourg)

08-Oct 09-Oct 09-Oct 09/14-Oct 09-Oct 10-Oct 10-Oct 11-Oct 14-Oct Mid October 15-Oct 15-Oct 16-Oct 16-Oct 18/19-Oct

Euro area EU Germany Global Italy France/Spain Italy Italy Belgium Italy Portugal Italy Spain Greece EU

First meeting of ESM Governors ECOFIN meeting (Luxembourg) Chancellor Merkel visits Athens IMF/World Bank annual meeting 0.8bn 26w t-bill French President Hollande and Spanish PM Rajoy holds Franco-Spanish summit 7.0 12m BOT 5.5bn BTP Auction Local elections Government presents the Budget for 2013 Government presents the Budget for 2013 18.37bn BTP redemption 4.0bn 12m (letras 18Oct13) & 18m (Letras 16Apr14) 1.0bn 13w t-bill EU Summit (Brussels) The focus will be on Spain, Greece and on the future of the euro area based on the report of the four presidents (banking union in particular)

18-Oct 20-Oct 21-Oct 23-Oct 24-Oct 26-Oct 26-Oct 28-Oct 28-Oct 29-Oct 29-Oct 29-Oct 30-Oct 31-Oct

Spain Cyprus Spain Spain Euro area Italy Italy Finland Italy Spain Belgium Italy Italy Spain

3.5bn 5y & 10y SPGB Auction Government presents the Budget for 2013 Local elections (Galicia & Basque) 3.0bn 3m (letras 18Jan13) & 6m (Letras 19Apr13) ECB President Draghi addresses members of budget, finance and EU Bundestag committees 2.5bn CTZ Auction 1.0bn BTPei Linker Auction Municipal elections Local elections (Sicily) 5.3bn SPGB redemption 2.0bn 4y, 10y & 30y BGB Auction 9.4bn 6m BOT 8.5bn 5y & 10y BTP Auction 15bn SPGB redemption

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Barclays | Global Economics Weekly Date 01-Nov 04/05-Nov 08-Nov 12-Nov 13-Nov 14-Nov 18-Nov 19-Nov 25-Nov 25-Nov 03-Dec 04-Dec 05-Dec 06-Dec 13/14-Dec Country Italy G20 Euro area Euro area EU Portugal France Euro area Spain France Euro area EU Ireland Euro area EU Event 13.48bn CCT Redemption G20 Summit ECB Governing Council meeting (Frankfurt) Eurogroup meeting (Brussels) ECOFIN meeting (Brussels) General strike UMP Presidency elections (first round) EU Foreign Ministers meet (Brussels) Local elections (Catalonia) UMP Presidency elections (second round) Eurogroup meeting (Brussels) ECOFIN meeting (Brussels) Government presents the Budget for 2013 ECB Governing Council meeting (Frankfurt) EU Summit (Brussels) It is expected that Heads of States and Governments sign on the establishment of a banking union (Single Supervision Mechanism) starting as soon as 2013 for banks in program countries. Likely to be interpreted as a vote on fiscal autonomy Likely outcome: our assessment

November, 2012

December, 2012

15-Dec 31-Dec 2013 Jan 10-Jan 07-Feb March 07-Mar April 04-Apr 19-21-Apr 02-May 06-Jun

Italy Italy Germany Euro area Euro area Spain Euro area Italy Euro area Global Euro area Euro area

18.7bn BTP redemption 12.3bn CTZ redemption Niedersachen (Lower Saxony) Election ECB Governing Council meeting ECB Governing Council meeting Local Election ECB Governing Council meeting General Election ECB Governing Council meeting IMF/World Bank annual meeting ECB Governing Council meeting ECB Governing Council meeting

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

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GLOBAL ECONOMICS RESEARCH Piero Ghezzi Head of Global Economics, Emerging Markets and FX Research +44 (0)20 3134 2190 piero.ghezzi@barclays.com Global Julian Callow Chief International Economist +44 (0)20 7773 1369 julian.callow@barclays.com Michael Gavin Head of Asset Allocation +1 646 412 5915 michael.gavin@barclays.com Alejandro Arreaza Economist – Latin America +1 212 412 3021 alejandro.arreaza@barclays.com Cooper Howes US Economist +1 212 526 3099 cooper.howes@barclays.com Bruno Rovai Economist – Latin America +55 11 3757 7772 bruno.rovai@barclays.com Christian Keller Head of Emerging EMEA Research +44 (0)20 7773 2031 christian.keller@barclays.com Jeff Gable Head of ABSA Capital Research +27 11 895 5368 jeff.gable@absacapital.com Daniel Hewitt Senior Economist – EMEA +44 (0) 20 3134 3522 daniel.hewitt@barclays.com Blerina Uruci UK Economist +44 (0)20 7773 4373 blerina.uruci@barclays.com Nigel Chalk Head of Emerging Asia Research +65 6308 2625 nigel.chalk@barclays.com Jian Chang Regional Economist – China, Hong Kong +852 2903 2654 jian.chang@barclays.com Wai Ho Leong Senior Regional Economist – Korea, Malaysia, Singapore, Taiwan +65 6308 3292 waiho.leong@barclays.com Prakriti Sofat Regional Economist – Indonesia, Philippines, Sri Lanka, Vietnam +65 6308 3201 prakriti.sofat@barclays.com Tetsufumi Yamakawa Head of Japan Research +81 3 4530 1130 tetsufumi.yamakawa@barclays.com Joey Chew Regional Economist – Singapore +65 6308 3211 joey.chew@barclays.com Kyohei Morita Chief Economist, Japan +81 3 4530 1688 kyohei.morita@barclays.com Nick Verdi FX Strategist, Asia-Pacific ex-Japan +65 6308 3093 nick.verdi@barclays.com Rahul Bajoria Regional Economist – India, Malaysia, Thailand +65 6308 2153 rahul.bajoria@barclays.com Kieran Davies Economist – Australia and New Zealand +61 4660 09006 kieran.davies@barclays.com Yuichiro Nagai Japan Economist +81 3 4530 1064 yuichiro.nagai@barclays.com Lingxiu (Steven) Yang Regional Economist – China, Hong Kong +852 2903 2653 lingxiu.yang@barclays.com Tal Shapsa International Economist +1 212 526 3724 tal.shapsa@barclays.com Sebastian Brown Economist – Chile +1 212 412 6721 sebastian.brown@barclays.com Guilherme Loureiro Economist – Brazil +55 11 3757 7372 guilherme.loureiro@barclays.com Marcelo Salomon Chief Economist – Brazil, Chile, Mexico +1 212 412 5717 marcelo.salomon@barclays.com Francois Cabau European Economist +44 (0) 20 3134 3592 francois.cabau@barclays.com Antonio Garcia Pascual Chief Southern European Economist +44 (0)20 313 46225 antonio.garciapascual@barclays.com Fabrice Montagne Senior European Economist +33 (0) 1 4458 3236 fabrice.montagne@barclays.com Michael Gapen Senior US Economist +1 212 526 8536 michael.gapen@barclays.com Peter Newland Senior US Economist +1 212 526 3153 peter.newland@barclays.com Sebastian Vargas Economist - Argentina, Uruguay +1 212 412 6823 sebastian.vargas@barclays.com Chris Crowe UK Economist +44 (0)20 7773 4816 chris.crowe@barclays.com Thomas Harjes Senior European Economist +49 69-7161 1825 thomas.harjes@barclays.com Alia Moubayed Senior Economist – Middle East & North Africa +44 (0)20 313 41120 alia.moubayed@barclays.com

The Americas
Dean Maki Head of US Economics Research +1 212 526 1731 dean.maki@barclays.com Alejandro Grisanti Chief Economist – Latin America Ex-Brazil, Mexico +1 212 412 5982 alejandro.grisanti@barclays.com Marco Oviedo Chief Economist – Mexico +52 55 5241 3331 marco.oviedo@barclays.com

Europe
Philippe Gudin de Vallerin Head of European Economics Research +33 (0) 6 4094 4978 philippe.gudin@barclays.com Fabio Fois European Economist +44 (0) 20 3134 1136 fabio.fois@barclays.com Simon Hayes Chief UK Economist +44 (0)20 7773 4637 simon.hayes@barclays.com Vladimir Pantyushin Chief Economist – Russia and CIS +7 495 7868450 vladimir.pantyushin@barclays.com

Asia-Pacific
Jon Scoffin Head of Research, Asia Pacific +65 6308 3217 jon.scoffin@barclays.com James Barber, CFA Japan Research +81 3 4530 1542 james.barber@barclays.com Yiping Huang Chief Economist, Emerging Asia +852 2903 3291 yiping.huang@barclays.com Siddhartha Sanyal Chief Economist, India +91 22 6719 6177 siddhartha.sanyal@barclays.com

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Analyst Certification We, Piero Ghezzi, Simon Hayes, Peter Newland, Michael Gapen, Cooper Howes, Dean Maki, Fabio Fois, Philippe Gudin, Francois Cabau, Blerina Uruci, James Barber, CFA, Kyohei Morita, Yuichiro Nagai, Jian Chang, Yiping Huang, Steven Lingxiu Yang, Joey Chew, Wai Ho Leong, Kieran Davies, Gina Schoeman, Piotr Chwiejczak, Daniel Hewitt, Christian Keller, Alia Moubayed, Vladimir Pantyushin, Eldar Vakhitov, Ilke Van Zyl, Alejandro Arreaza, Guilherme Loureiro, Marco Oviedo, Bruno Rovai, Gavin Stacey, Marcelo Salomon, Rahul Bajoria, Siddhartha Sanyal and Jeff Gable, 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. 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