Deflation - The Hidden Threat

Global
ECONOMICS
Macro Global Economics Q1 2014
Deflation: the hidden threat

As growth accelerates.... ...inflation sinks ever lower... ...paving the way for new economic challenges
By Stephen King, Karen Ward and James Pomeroy
Disclosures and Disclaimer This report must be read with the disclosures and analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
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Summary
As growth accelerates inflation sinks ever lower paving the way for new economic challenges
The big challenge for 2014

Heading into 2014, there is something strikingly odd about the global economy. Inflation in many parts of the world is surprisingly low. This is particularly true of the developed world. In the US and Europe, in particular, central banks are faced with a troubling dilemma: even as activity has picked up, disinflationary pressures appear to be building. Should central bankers consider a tightening of monetary policy in response to the better real economy data or, instead, should they keep policy loose in response to an increasing threat of deflation? We examine the possible reasons behind unexpectedly low inflation. Sometimes, disinflation or deflation can be a force for good, reflecting a sudden surge in productivity that lowers prices relative to wages or a sudden increase in energy supply that drives down headline inflation. Although there is a flavour of the latter in recent US inflation numbers, thanks to the impact of the shale revolution, we doubt these factors fully explain why inflation globally is so low: core inflation rates have, in many cases, also surprised on the downside. Instead, it looks as though low inflation is a reflection of the waning powers of central banks as they have resorted to unconventional monetary stimulus measures. It is already abundantly obvious that unconventional policies have had a bigger impact on financial asset values than on the real economy. In this edition of Global Economics, we examine another distorting effect from unconventional policies channelled through exchange rate movements. It increasingly seems that, rather than removing deflationary trends, monetary stimulus merely allows central banks to export deflation to other parts of the world. Its a monetary version of currency wars.
The international dimension

Initial bouts of quantitative easing whether from the Bank of England, the Federal Reserve or, more recently, the Bank of Japan have been associated with a sizeable exchange rate decline which has lifted inflation temporarily in the host country. Yet, for every exchange rate decline, there has also, inevitably, been an exchange rate rise. And for those who have experienced unwanted exchange rate gains, inflation has ended up lower than expected and, often, lower than desired. The most obvious recent example has been the eurozone experience in the second half of 2013.
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In normal circumstances, this wouldnt be a problem. But with domestic transmission mechanisms not working as well as they might and with growing protectionist policies limiting the scope for trade multipliers to kick in, its increasingly apparent that one countrys monetary stimulus is anothers ball and chain. If unconventional policies work primarily through the exchange rate, they serve primarily to export, rather than cure, disinflationary pressures. At the international level, those pressures refuse to subside.
The policy response

Its comforting to argue that, faced with accelerating economic activity, low inflation wont be around for very long. Yet, for all the welcome news on unemployment in both the US and the UK, wage growth is surprisingly weak. And there is a significant danger of confusing cause with effect. In a standard economic cycle, activity leads inflation. In a post-bubble environment, where debts are high and deleveraging is rife, the opposite applies: excessively low inflation increases real debt levels, makes deleveraging more difficult and, eventually, suppresses demand and activity. Japan provides the obvious and sobering example: a modest recovery in the mid-1990s ultimately was undermined through a combination of creeping deflation and premature policy tightening. This makes the transition from quantitative easing through to forward guidance as tapering takes hold in the US all the more difficult to manage. Forward guidance works on the basis that central banks can gaze into the future and offer a credible promise about the future path for interest rates. But if central banks are unable to decide whether output leads inflation (in the standard cyclical sense) or inflation leads output (in the structural post-bubble sense), providing clear guidance on future monetary policy may prove to be near enough impossible, particularly if policymaking committee members squabble publicly over the appropriate monetary stance.
HSBC growth and inflation forecasts (Forecasts made last quarter in parentheses) ____________________ GDP _____________________ ___________________ Inflation ___________________ 2013f 2014f 2015f 2013f 2014f 2015f World Developed Emerging US China Japan India Eurozone UK Russia Brazil 2.0 1.1 4.5 1.8 7.7 1.7 4.7 -0.4 1.4 1.5 2.2 (2.0) (1.1) (4.5) (1.6) (7.7) (1.9) (4.2) (-0.3) (1.3) (1.7) (1.9) 2.6 1.8 4.9 2.3 7.4 1.3 5.0 0.8 2.6 2.0 2.2 (2.6) (1.7) (4.9) (2.3) (7.4) (1.3) (5.0) (0.8) (2.2) (2.0) (2.2) 2.8 1.9 5.2 2.5 7.7 1.3 6.2 1.0 2.7 2.0 1.2 2.4 1.3 5.5 1.5 2.6 0.3 9.5 1.4 2.6 6.8 6.2 (2.3) (1.4) (5.3) (1.6) (2.6) (0.1) (8.7) (1.5) (2.6) (6.6) (6.2) 2.7 1.6 5.7 1.7 2.7 2.3 7.2 1.0 2.4 5.8 6.0 (2.7) (1.8) (5.6) (1.9) (2.7) (1.9) (7.7) (1.3) (2.4) (5.2) (6.0) 2.9 1.7 6.1 1.9 3.1 1.5 7.8 1.2 2.4 4.8 6.2
Note: World is calculated using nominal GDP weights. Source: HSBC
The forecasts
While the growth outlook improves, we are not forecasting a return to pre-crisis rates of expansion. Our most important innovation this quarter is the introduction of our first published estimates for 2015. We expect global growth to accelerate to 2.8% by then, up from 2.0% in 2012 and 2.6% in 2013. The acceleration reflects a shift from contraction in the eurozone in 2013 to modest expansion alongside a
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more aggressive although unbalanced pick-up in the UK. At around 2.3% in 2014 and 2.5% in 2015, the pace of US economic recovery remains disappointing relative to past experience. The emerging markets shrug off some of their 2013 funk, with a return to growth of above 5% by 2015. Brazil, however, remains notably weak. Were not forecasting a descent into outright deflation. Instead, were highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years. As Japans 1990s experience clearly demonstrates, a near-term cyclical pick-up is in no sense a guarantee that the deflation genie has been put back in its bottle. We suspect forward guidance may increasingly have to focus on the dangers associated with inflationary undershoots than on growth overshoots in the coming months, implying lower interest rates for longer, particularly in the US and the eurozone.
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Contents
Key forecasts Monetary & fiscal policy assumptions Deflation: the hidden threat
The deflation threat Drivers of low inflation Not all explanations stack up
5 6 8
8 9 9
Country and Territory sections

US Canada China Japan India Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Eurozone Germany France Italy Spain UK Norway Sweden Switzerland Hungary Poland Romania Russia Turkey Egypt Israel Saudi Arabia UAE South Africa Mexico Brazil Argentina Chile Colombia 34 36 37 39 41 43 44 45 46 47 48 49 50 51 52 53 54 56 58 60 62 64 66 67 68 69 70 72 73 75 77 78 79 80 81 82 83 85 86 87
Global economic forecasts

GDP Consumer prices Short rates Long rates Exchange rates vs USD Exchange rate vs EUR & GBP Consumer spending Investment spending Exports Industrial production Wage growth Budget balance Current account
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18 20 22 23 24 25 26 27 28 29 30 31 32
Disclosure appendix Disclaimer

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Key forecasts
Key forecasts ___________________ GDP ___________________ _________________ Inflation _________________ 2012 2013f 2014f 2015f 2012 2013f 2014f 2015f World (nominal GDP weights) World (PPP weights) Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India** Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Romania Egypt* Israel Saudi Arabia UAE* South Africa Latin America Mexico Brazil Argentina Chile Colombia 2.2 3.0 1.3 4.7 2.7 2.8 1.7 4.2 4.4 7.7 1.4 5.1 3.7 1.5 6.2 5.6 6.8 1.3 2.0 1.5 6.5 5.0 3.6 2.7 -0.3 -0.6 0.9 0.0 -2.6 -1.6 0.7 0.2 3.3 1.3 1.0 2.7 -0.9 -1.7 1.9 3.4 2.2 0.7 2.2 3.4 5.2 4.4 2.5 2.5 3.9 1.0 1.9 5.6 4.2 2.0 2.7 1.1 4.5 1.8 1.8 1.7 4.3 4.5 7.7 1.7 4.7 3.8 2.9 5.6 4.6 6.8 4.0 2.7 1.7 2.8 5.2 2.4 3.0 0.0 -0.4 0.6 0.2 -1.8 -1.3 1.3 1.4 1.8 0.8 1.9 2.2 -1.4 1.0 1.4 1.5 3.9 2.8 2.2 3.4 3.6 4.5 1.8 2.0 1.3 2.2 2.5 4.3 4.0 2.6 3.2 1.8 4.9 2.3 2.3 2.3 4.2 4.3 7.4 1.3 5.0 4.1 3.7 5.0 5.2 5.9 4.2 3.2 2.8 4.4 5.4 2.8 3.4 1.2 0.8 1.7 0.6 0.4 0.3 2.3 2.6 2.2 2.5 2.1 2.8 1.9 2.1 3.0 2.0 3.1 2.4 3.0 3.6 4.0 5.1 2.6 3.0 4.1 2.2 1.0 4.3 4.5 2.8 3.4 1.9 5.2 2.5 2.5 2.4 4.5 4.6 7.7 1.3 6.2 4.5 4.0 6.0 5.0 6.1 4.5 3.4 3.4 5.2 5.8 3.4 2.6 1.4 1.0 1.5 1.0 0.6 0.9 2.3 2.7 1.5 2.6 2.2 3.1 1.7 1.6 3.3 2.0 4.1 2.4 4.5 3.7 4.3 5.2 3.1 2.5 3.8 1.2 1.5 4.5 4.5 2.8 3.3 1.9 5.4 2.0 2.1 1.4 2.4 2.2 2.7 0.0 10.2 3.4 4.1 4.3 1.7 3.2 4.6 2.2 1.9 3.0 9.3 1.8 1.1 2.3 2.5 2.1 2.2 3.3 2.4 1.9 2.8 0.7 0.9 -0.7 5.1 3.3 5.7 3.7 5.1 8.9 3.3 8.7 1.7 4.5 0.4 5.7 8.0 4.1 5.4 24.0 3.0 3.2 2.4 2.9 1.3 5.5 1.4 1.5 0.8 2.6 2.4 2.6 0.3 9.5 3.3 4.2 7.0 2.1 2.9 2.4 1.2 0.9 2.2 6.6 2.3 1.2 1.5 1.4 1.6 1.0 1.3 1.5 1.8 2.6 2.2 -0.1 -0.2 4.8 1.4 1.7 1.0 6.8 7.5 4.0 6.8 1.8 3.6 1.1 5.8 8.7 3.7 6.2 25.1 2.0 2.0 2.7 3.1 1.6 5.7 1.7 1.7 1.7 3.3 3.2 2.7 2.3 7.2 3.8 4.2 5.6 2.4 4.2 3.1 2.6 1.9 2.6 7.9 2.7 2.5 1.3 1.0 1.7 1.4 0.8 0.7 1.9 2.4 2.3 0.9 0.4 4.9 1.1 1.3 1.8 5.8 6.6 2.3 9.9 2.1 4.1 3.5 5.7 10.0 4.0 6.0 27.4 2.8 2.4 2.9 3.2 1.7 6.1 1.9 1.9 1.9 3.2 3.1 3.1 1.5 7.8 3.9 4.2 4.9 2.0 4.3 3.1 3.0 1.6 3.8 8.2 2.8 2.3 1.4 1.2 1.7 1.5 1.1 1.3 2.0 2.4 2.4 1.5 1.0 5.1 2.4 3.0 2.2 4.8 6.5 2.9 9.1 2.5 4.3 5.5 5.5 10.5 3.5 6.2 26.6 3.0 2.4
Notes: Calendar year; except for * which is based upon Egyptian fiscal year (July-June); Global and regional aggregates are calculated using chain nominal GDP (USD) weights Source: HSBC estimates
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Monetary & fiscal policy assumptions

Monetary and fiscal policy
Country US
2013 The federal governments budget deficit narrowed sharply in FY2013, dropping from USD1,090bn in FY2012 to USD680bn. As a percentage of GDP the deficit fell to 4.1% from 6.8%. The 2.7pp improvement was almost equally divided between revenue increases (1.5%) and spending reductions (1.2%). Payroll and income taxes were raised in 2013, accounting for most of the revenue increase. Spending reductions were the result of ongoing spending cuts required by the Budget Control Act of 2011. As for monetary policy, Fed officials want to keep the monetary stance accommodative but change the mix of policy, by tapering asset purchases (quantitative easing) and placing more emphasis on forward guidance for the fed funds rate.
2014 The federal deficit should decline in FY2014, dropping to roughly USD560bn. Revenue gains will continue, but at a slower pace than in FY2013 in the absence of any new tax increases. We expect revenues at close to 17.5% of GDP, up from 16.7% in FY2013. Outlays as a percentage of GDP are likely to stabilise at close to 20.8%, putting the deficit at roughly 3.3% of GDP. Federal spending as a share of GDP is likely to stop falling because of increases in spending on Social Security and federal health care programmes. We expect that federal debt relative to GDP will stabilise close to 72%.
Canada
The FOMC are likely to continue tapering asset purchases, ending the scheme in Q3 2014. The Fed is likely to continue to reinvest the proceeds of its investments and hold its balance sheet constant to mid-2015. In 2015, the Fed may begin to shrink its balance sheet by halting reinvestments from its portfolio of securities. We expect the federal funds rate to remain at 0.0-0.25% until at least Q3 2015. The federal governments deficit for FY2012/13 of CAD18.9bn was CAD7bn lower The federal government expects its fiscal deficit to narrow from CAD18.9bn in than had been projected in the budget. The federal government is thus closer to its FY2013/14 to CAD5.5bn in FY2014/15, before returning to surplus in FY2015/16. fiscal goal of returning to surplus in FY2015/16 than had been anticipated. Success Hence, the potential for successful achievement of these fiscal goals will depend is not yet assured, however. Amid sluggish nominal income growth, firm control of greatly on developments in 2014. We expect nominal GDP to expand at just over 4% expenditure will determine the success of the federal fiscal plan. With provincial y-o-y, tax revenues will only increase at a moderate pace, including one-off revenuegovernments also trying to lower budget deficits, we expect little contribution to GDP generating measures. Expenditure controls will remain crucial to a lower budget growth from government expenditure. deficit. Hence, fiscal policy will again make only a small contribution to GDP growth in With inflation set to remain low, but with signs that financial stimulus remains high, the 2014. We expect the Bank of Canada to leave the overnight target rate unchanged at 1.0% throughout 2014. Bank of Canada is expected to remain on hold. In our view, the political cycle will play a key role in fiscal policy. Although concern about a possible sovereign credit rating downgrade will constrain the pace of fiscal easing in 2014, we only expect a fiscal adjustment after the October 2014 elections. HSBC forecasts a primary fiscal surplus of about 1.2% of GDP in 2014. We believe the central bank will prefer to keep rates on hold in 2014 because there will be elections that year. However, the persistence of inflationary pressure will probably prompt the central bank to resume tightening in 2015, and there is a possibility that this tightening cycle will begin at the end of 2014. With GDP expected to expand by just 0.8%, we do not expect many member states to impose additional austerity measures to those already agreed. The eurozone budget deficit should decline only marginally to 3%. We expect further easing will be required by the ECB in response to the downside risks to price stability and a further rise in money market rates. Another LTRO is most likely, on condition that the funds are used to support the provision of credit to the real economy. If growth and inflation continue to surprise to the downside a small refi rate cut (maybe 10-15bps) and possibly a small negative deposit rate (-0.1%) look likely. If the ECB thinks that inflation will not return to its definition of price stability (below but close to 2%) in 2016, then outright QE looks increasingly likely in 2015. Despite costly changes to the retirement system and a spending package for education, R&D and traffic infrastructure by the new government, we still expect another small surplus (0.1% of GDP). As a consequence of higher spending, the originally planned cut in contribution rates to pension insurance from 18.9% to 18.3% at the start of the year will likely be withdrawn. Stronger-than-expected public spending growth in 2013 should mean that additional austerity measures are needed to reach the public deficit target of 3.6%. However, the government has only announced EUR15bn in public spending cuts, which will not be enough to slow real public spending growth to 0.4% in 2014 on our calculations. The government has cancelled the green tax, which included a levy on road freight, and a social contribution hike on capital gains. Therefore, without any additional austerity measures, the public deficit could reach 4.1% on our calculations. The debt-to-GDP ratio is likely to rise to 97.7%
Brazil
Eurozone
We believe fiscal easing in 2012-13 is damaging credibility. Although the government is trying to send a more consistent message regarding fiscal policy to markets, Brazil will likely deliver a primary fiscal surplus of 1.7% of GDP. This number would have fallen below 1% of GDP had it not been for one-off revenues. After a hesitant start (a 25bp hike in April), the central bank raised the Selic rate to 10% by the end of 2014 (from 7.25% at the beginning of the year). We expect the Central Bank to end the current tightening cycle with a final 25bp move at the January 2014 MPC meeting, bringing the Selic policy rate to 10.25%. Fiscal tightening in 2013 was less than planned, and much less than half that of 2012, but the better activity data should have allowed the eurozone budget deficit to narrow slightly towards the targeted 3% of GDP by year end. With inflation having slowed by more than expected, and medium-term projections being lowered, the ECB reverted to cutting the refi rate (by 25bps to 0.25%) at the November meetings. ECB head, Mario Draghi, has consistently reiterated that the ECB still has plenty of tools at its disposal and that it is technically ready for a negative deposit rate.
Germany
As in the previous year the government sector is likely to end 2013 with a small budget surplus. This cannot be attributed to a strict savings policy. Rather, gushing tax revenues helped to maintain a surplus. With the economy recovering from weakness in Q1 and employment rising to new highs, tax receipts are likely to surge by more than 3% compared to 2012. The French public deficit is expected to reach 4.1% of GDP in 2013, close to our forecast of 4.2% of GDP. Real public spending growth was much stronger than forecast in the budget law: 1.7% in 2013 instead of 0.5%. This means that the French government did not change the growth rate in real public spending of 1.75% and may only have narrowed the public deficit from -4.8% of GDP to -4.1% thanks to tax hikes. We forecast public debt at 94.8% of GDP.
France
Source: HSBC
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Monetary and fiscal policy
Country Italy
2013 The fiscal contraction planned in the budget for 2013 was less than half of that implemented in 2012. The government cancelled the housing tax IMU, further decreasing the fiscal tightening for the year. The cancellation (which will cause a EUR4bn reduction in revenues) was however offset by the VAT hike on 1st October. EUR20bn currently owed to public administration providers will be paid in Q4. Putting all this together we expect the 2013 deficit target (3% of GDP) to be slightly missed, with deficit reaching 3.2% of GDP by yearend.
2014
UK
Russia
China
Japan
India
With the Excessive Deficit Procedure closed and the economy still ailing, a coalition government is unlikely to push for any more austerity. Our central scenario is that the Italian authorities will not want to endanger the hesitant recovery in 2014 with further fiscal contraction. Only an improvement in the cycle will provide budgetary support, bringing the 2014 deficit to 2.7% of GDP (vs. a 2.5% target). In line with our view, EU Commissioner Olli Rehns recent calls for further consolidation in Italy were met with less understanding than before by PM Enrico Letta. We believe the combination of the highest primary surplus in the eurozone and the deepest recession since WWII greatly reduces the governments will to embark on further austerity. We forecast GDP growth of 1.4% in 2013, with signs that the economic recovery is As the government has so far remained committed to its austerity programme, we do finally feeding through to improved public finances. The OBRs December forecasts not expect it to deviate in 2014 either. However, with an election looming in May 2015, revised down the budget deficit significantly for fiscal year 2013-14 due to higher tax if the recovery is sustained the government may opt to soften the fiscal blow in FY revenues. Even so, there was little in the way of extra spending, with the 2014-15. There has been much focus on costs of living, which could mean measures government keeping the pace of fiscal tightening more or less unchanged. to increase households disposable income. The first few months following the introduction of forward policy guidance by the We expect growth to pick up further in 2014 to 2.6%, slightly below the Bank of Bank of England has seen unemployment falling faster towards the 7% threshold Englands latest forecasts. The BoEs FPC has highlighted risks to financial stability, than the MPC had anticipated. That forced the BoE to bring forward its forecast for especially from the housing market. It has responded by refocusing the BoEs Funding when the headline rate reaches 7% (based on market rates) to Q3 2015. But BoE for Lending Scheme away from mortgage lending to business lending exclusively. We governor Mark Carney has repeatedly stressed that this is merely the point at which think that should actually reduce the need for the MPC to increase the bank rate to the MPC begins to consider tightening policy, and is not an automatic trigger for rate combat any housing bubble, leaving its overall monetary policy stance very hikes. We therefore think rates could be on hold until Q4 2015 at the earliest. accommodative in 2014. The introduction of a fiscal rule from 2013 has effectively put a cap on budget 2014s point inflation target of 5.0% requires extra efforts from the CBR and justifies a spending. Partially offsetting fiscal stress, some public expenditure is being moved relatively hawkish policy, despite the emergence of a negative output gap in mid-2013. below the line (eg a portion of defence procurement is to be financed by bank loans Only the modest indexation of communal tariffs in 2014 should help in reaching the under government guarantees) some are to be financed from the SWF and the inflation target, making it achievable but still ambitious. This requires the key policy State Pension Fund. Even so, the budget should still show a small deficit in 2013 if rate to stay on hold throughout most of 2014, leaving room for just one policy rate cut the average oil price is below USD110/bbl (Brent). In this respect, the rising trend in of 25bp to 5.25% in late 2014, if inflation credibly falls to 5% by then, we think. the breakeven oil price required to balance the budget has yet to reverse. Lower-than-expected collections of non-oil revenues in 2013 and lower economic A change in the CBRs chairmanship in June has made the monetary authorities growth expectations for 2014-16 forced the government to scale back its medium-term more hawkish, surprising the markets. The CBRs monetary policy has become expenditure programme. Therefore, new expenditure demands (including those more forward looking, with an inflation-targeting policy to be officially put in place stemming from President Putins pre-election pledges) need to be met by a from 2015. Introducing its key policy rate at 5.5%, the CBR has effectively combination of cuts in non-essential budget spending and expansion in the offcommitted to maintaining real MM rates positive. Yet, so far its efforts have failed to balance-sheet operations of the federal government (contingent liabilities). Overall, this bring inflation down to the targeted range of 5-6% in 2013, which effectively rules out should keep the budget deficit at or below 1% of GDP and public debt at a very low the possibility of policy rate cuts in the near future. level over the medium-term. Beijing is likely to increase fiscal spending in the final months of 2013, given that the Fiscal policy should stay accommodative to support the recovery in growth, with the fiscal surplus for the first 10 months topped RMB848bn, compared with the budget 2014 budget deficit likely to remain the same as in 2013. Fiscal reforms will expand fiscal deficit target of RMB1.2trn for 2013. The expansion of VAT tax reform and tax the VAT reform and local government bond issuance while expenditure will be breaks for SMEs will assist service companies and small businesses. increased for social welfare areas. With growth momentum stable and inflation pressures still modest, we expect Inflation pressures should remain modest in the coming quarters due to a negative current monetary policy to remain in place, with neither tightening nor loosening in output gap. Current monetary policy should stay in place with no changes to interest in sight. rates. The launch of interbank CDs implies a faster rate of interest rate liberalisation. The BoJ remains comfortably in wait-and-see mode as headline inflation continues The government will raise the consumption tax from 5% to 8% in April 2014. It intends to climb on the back of elevated import prices. At 1.3% and 1.9%, respectively, the to counteract the effect with an emergency spending package totalling JPY5.5trn. The policy boards FY2014 and FY2015 core inflation forecasts are still ambitious and government has also promised tax incentives for investment but we have not may warrant further action after the April 2014 policy meeting. incorporated the impact of the governments so-called third arrow in our forecasts. The early FY2014 repeal of the special Tohoku reconstruction tax has been tabled. We expect the BoJ to ease monetary policy further, as early as Q3 2014, in conjunction with a likely downgrade to its FY2014 and FY2015 Japan-style core inflation forecasts. A sharp deceleration in Q2 2014 growth (caused by the tax hike) will add to pressure on the BoJ to support the economy. We look for the board to announce further increases in risk asset purchases (ETFs) and longer-dated JGBs. The government is targeting a central government deficit of 4.8% of GDP. To Although this is an election year, the government is expected to stick to its achieve this, it is relying on increases in indirect taxes and efforts to strengthen tax medium-term fiscal consolidation plan and target a central government deficit of administration. It also expects higher privatisation receipts and spectrum sales. The 4.2% of GDP. It is likely to assume that a cyclical upswing in growth will allow both tax government is hoping to make savings on fuel subsidies, which will help pave the and non-tax revenue to rise. There will probably be some populist handouts as the way for further outlays on infrastructure and other more productive spending. government continues its efforts to contain the subsidy bill. This would, therefore, However, it will be difficult to achieve the deficit target (likely to be around 5.1% of imply a need for broader spending restraint on more discretionary items, including GDP) as the non-tax revenues will fall short of expectations and the subsidy bill capital outlays. We expect some slippage and a deficit of 4.7% of GDP. could turn out higher due to the depreciation of the currency. Another rate hike may be needed at the beginning of the year, if there are pressures Despite the slowdown in growth, inflation concerns remain, keeping the RBI in on the INR during Fed tapering. Coupled with supply side improvements, this would tightening mode. help slowly ease inflation, keeping the RBI on hold.
Source: HSBC
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Deflation: the hidden threat

Inflation is remarkably low providing a structural economic challenge even as, cyclically, growth improves
The deflation threat

Perhaps the biggest surprise following a period of unprecedented monetary experimentation is the broad absence of inflation. For all the money printing, quantitative easing and forward guidance now on offer, inflation has mostly ended up lower than expected. Chart 1 shows HSBCs surprise indicators for inflation in the major developed markets. With the exception of Japan where Abenomics has led to a shift from deflation to very modest inflation inflation has been consistently surprising on the downside. Indeed, central banks are now confronting a problem once thought to be uniquely Japanese. Inflation is in danger of persistently undershooting central bank targets. Table 2 shows recent performance relative to those targets, focusing on both headline and,
where available, core rates of inflation. Headline inflation is strikingly low, core less so. Other than Japan, however, the direction of change has been consistently downward. How should these inflationary surprises be interpreted?
1. With the exception of Japan, inflation has been surprisingly weak
Index 20 10 0 -10 -20 -30 -40 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
US UK Canada
Source: HSBC FX quantitative research
Stephen King Economist HSBC Bank Plc +44 20 7991 6700 stephen.king@hsbcib.com Karen Ward Economist HSBC Bank Plc +44 20 7991 3692 karen.ward@hsbcib.com James Pomeroy Economist HSBC Bank Plc +44 20 7991 6714 james.pomeroy@hsbc.com
Index 20 10 0 -10 -20 -30 -40
Eurozone Japan Asia ex Japan
2. Inflation is stuck below target Target US Eurozone UK Japan Brazil Mexico Poland Czech Rep. Canada Chile Switzerland Federal Reserve ECB Bank of England Bank of Japan Banco Central do Brasil Banxico National Bank of Poland Czech National Bank Bank of Canada Banco Central de Chile Swiss National Bank 2.0% Close to but below 2% 2.0% 2.0% 4.5% 3.0% 2.5% 2.0% 2.0% 3.0% <2.0% PCE HICP CPI CPI CPI CPI CPI CPI CPI CPI CPI ______ Headline (%) ________ _________ Core (%) _________ End 2011 End 2012 Latest End 2011 End 2012 Latest 2.4 2.7 4.2 -0.2 6.5 3.8 4.6 2.4 2.3 4.4 -0.7 1.5 2.2 2.7 -0.1 5.8 3.6 2.4 2.4 0.9 1.5 -0.4 0.7 0.9 2.1 1.1 5.8 3.6 0.6 1.1 0.7 2.4 0.1 1.9 1.6 3.4 -1.0 6.7 3.4 3.1 2.4 1.9 3.3 -1.2 1.6 1.5 2.6 -0.6 5.9 2.9 1.4 1.1 1.2 1.3 -0.6 1.1 0.9 2.0 0.3 5.8 2.6 1.1 0.0 1.2 2.2 0.1
Source: HSBC, Thomson Reuters Datastream, National Sources
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Drivers of low inflation

Unusually low inflation can stem from a variety of different factors, some good, others bad: Low inflation may result from rapid productivity gains, whereby unit labour costs decline and prices rise more slowly than wages. In that sense, low inflation can be a reward for productive endeavour, leading to a rise in real incomes. Low inflation might reflect a positive terms-oftrade effect. A big drop in energy prices, for example, will benefit energy-consuming nations even as energy-producing nations lose out. For the energy consumers, a big drop in energy prices would feel like a major cut in indirect taxes: prices would fall relative to wages. Low inflation might simply reflect a large output gap, a result of years of below-trend economic growth. If so, it may be a lagging indicator of earlier demand shortfalls. Under those circumstances, inflation would remain persistently too low until and unless the output gap closed. Low inflation could reflect shifts in relative prices and wages around the world. For example, in the absence of full nominal exchange rate adjustment, the arrival of a low-cost producer China, for example on the international scene would place downward pressure on both prices and wages in existing higher-cost countries. Low inflation might reflect a disconnect between central bank attempts to kick-start economic activity and overall financial and monetary conditions. Put another way, even if the central bank wanted to create inflation, weaknesses within the financial system might prevent the central banks message from getting through. Of course, the zero lower bound on interest rates doesnt help.
Not all explanations stack up

In other words, the fact that inflation is low in itself says very little. What matters is why? Weak or stable commodity prices have certainly helped headline inflation rates edge down. The shale energy story has certainly had an impact in the US. But the disinflation is broader based, affecting core prices as well. The idea of a financial disconnect has its attractions not least because the credit crunch has been a defining feature of the post-financial crisis era but it doesnt help to explain similar disinflationary experiences on both sides of the Atlantic. While credit conditions remain tight in the eurozone, they have considerably eased in the US: despite these differences, however, all regions have recently experienced unexpected inflationary declines.
3. Credit conditions have loosened in the US and UK so money growth alone cant explain inflation weakness
Net % 100 80 60 40 20 0 -20 -40 UK BoE CCS Credit loosening 03 04 05 06 07 08 09 10 11 12 13 ECB BLS US SLO
Source: HSBC, Bank of England, ECB, Federal Reserve
International lending standards for corporates
Net % 100 80 60 40 20 0 -20 -40
Credit tightening
In Asia and other parts of the emerging world, inflation has been lower than expected recently (Chart 4) even though financial conditions have mostly remained very loose, and concerns have mainly centred on monetary excesses.
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4. Core inflation has also been nudging down in the emerging world
% Yr 8 6 4 2 0 Nov-06 0 Core CPI % Yr 10
-5 Nov-08 Mexico (LHS) Nov-10 Philippines (LHS) Nov-12 India (RHS)
Source: Thomson Reuters Datastream
Another explanation which doesnt stack up so well to international scrutiny is the pressure on wage costs associated with the increased integration into the international economy of low-cost producers such as China. Certainly, wage growth in the developed world has been very low and, doubtless, the lack of wage pressure has contributed to low inflation. Across Asia, however, labour costs have been a lot more elevated (Chart 5) a reflection of excessively easy financial conditions rather than rapid productivity gains yet inflation there has also been considerably lower than expected. The absence of inflation worldwide cannot be fully explained by low wages alone.
5. despite the strength of wage growth
Meanwhile, there is little evidence to suggest that low inflation has stemmed from a positive supplyside productivity revolution. At a pinch, it might be possible to explain low headline inflation in the US through the impact on oil and gas prices of the shale energy revolution. Real incomes in the US, however, remain very weak, suggesting that, to date, the shale revolution has done little to raise productivity growth. More generally, productivity growth across the developed world remains depressed by past standards, suggesting that low inflation cannot be explained by enhanced productive endeavour (Chart 6).
6. Weak productivity in this recovery would point to higher inflation
Index 125 120 115 110 105 100 95 90 T US Output per Hour - Nonfarm Index: Business Cycle Peak =100 Index 125 120 115 110 105 100 95 90
T+3 T+6 Jul-53 Dec-69 Jul-81 Dec-07
T+9 T+12 T+15 T+18 T+21 T+24 Aug-57 Apr-60 Nov-73 Jan-80 Jul-90 Mar-01
The international angle

A more accurate explanation for low inflation might, perversely, stem partly from the unintended international consequences of unconventional monetary stimulus. Monetary easing notably of the unconventional sort works through two main channels. The first, which central banks are mostly keen to highlight, is the impact via asset prices. The second, which at best will only be politely murmured, is the impact via the exchange rate. It is this second effect which, unintentionally, may have led to lower-than-expected inflation not so much in the country pursuing the monetary stimulus but, instead, in those which have opted not to. For the most part, those countries have experienced rising
Manufacturing unit labour costs Index, 2000=100 Index, 2000=100

240 220 200 180 160 140 120 100 80 240 220 200 180 160 140 120 100 80
00 01 02 03 04 05 06 07 08 09 10 11 12 Indonesia China
Source: OECD
Brazil India
US Eurozone
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nominal exchange rates, leading to lower import prices, squeezed margins for exporters and some domestic producers and, in some cases, lower domestic wages. In normal circumstances, these low inflation effects would not materialise. Exchange rate movements are merely relative. Imagine, for example, that one country loosens monetary policy while the other leaves conditions unchanged. Inflation on average should then be higher, even though the second countrys exchange rate would now be stronger bilaterally than it was before. Imagine, instead, that one country tightens monetary policy while the other leaves conditions unchanged. Inflation on average should then be lower, even though the second countrys exchange rate will now be weaker bilaterally than it was before. Close to the zero rate bound, however, its just possible that changes in monetary policy fail to deliver the usual effects. If, for example, financial systems are not working particularly well, monetary stimulus may only lift the value of asset prices without triggering faster economic growth. If companies, households and governments are busily deleveraging, monetary stimulus may fall on deaf economic ears. If there is uncertainty about the longer-term fiscal arithmetic, increases in government borrowing may only prompt others to save more or, alternatively, repay debt more
7. UK QE helped it export its deflationary problems
Index 100 95 90 85 80 75 70 Jun-08 60 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
GBP TWI (LHS) Eurozone Inflation Surprise (RHS) Japan Inflation Surprise (RHS)
aggressively. Under these circumstances, whatever any individual central bank chooses to do, it may be powerless to prevent a global deflationary bias.
Currency wars revisited

Indeed, under these circumstances, the danger is that monetary loosening merely deflects deflationary pressures to countries elsewhere in the world via movements in exchange rates. Charts 7 and 8 provide evidence to support this view. They show movements in sterling and the Japanese yen around the times that the Bank of England and Bank of Japan adopted quantitative easing. The US experience (not shown) is similar. They also show inflation surprises using HSBCs proprietary approach both for the country adopting quantitative easing and the other major industrialised nations. The country adopting QE tends to end up with inflation initially surprising on the upside while others experience downward surprises. In the case of the US and, much more recently, the UK, however, the initial upward inflationary surprises have not lasted: monetary stimulus has led to only a temporary increase in price inflation, which has singularly failed to feed through to wage inflation. This, in turn, presents an interesting challenge for Japan. For Abenomics to succeed, the Bank of Japan has to deliver an inflation rate of around 2 per cent to be sustained over the indefinite future. This may
8. as has Japan
UK QE, March 2009
Index 120 100 80
Index 200 180 160 140 120 Oct-12
Japan QE, April 2013
Index 120 110 100 90 80
Jan-13
Apr-13
Jul-13
Oct-13
QE US Inflation Surprise (RHS) UK Inflation Surprise (RHS)
QE US Inflation Surprise (RHS) UK Inflation Surprise (RHS)
JPY TWI (LHS) Eurozone Inflation Surprise (RHS) Japan Inflation Surprise (RHS)
Source: HSBC FX quantitative research, Thomson Reuters Datastream
Source: HSBC FX quantitative research, Thomson Reuters Datastream
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prove difficult to do unless the yen persistently falls, in which case Japan would merely be exporting its deflationary problems to countries elsewhere in the world. These observations offer a new take on the currency wars debate. This has typically been couched either in real terms one countrys export gain is anothers export loss or in asset price terms monetary stimulus in one country encourages hot money to inflate asset markets elsewhere. It may just be, however, that the currency war story is more about the shift of disinflationary or deflationary risk from one part of the world to another. The most obvious recent casualty is the eurozone where, through the second half of 2013, the euro went from strength to strength even as inflation dropped lower and lower, in part a reflection of the ECBs reluctance to engage in quantitative easing within the eurozones fragile bank-financed credit system. Persistent inflationary undershoots could further enfeeble eurozone banks by increasing nonperforming loans and, at the same time, make fiscal consolidation a lot less digestible. Officially, none of this is a problem. Table 9 shows the latest official forecasts for inflation in the developed world over the next couple of years alongside the most recent monthly readings. In the vast majority of cases, inflation is forecast to drift higher over the next couple of years,
suggesting that the declines seen through 2013 should be regarded as no more than a peculiar aberration. Yet policymakers can offer no real explanation for why inflation has ended up so low: it certainly wasnt what they expected a year ago. Its just possible that inflation is no longer so easy to control. Such was the Japanese experience as its two lost decades took hold. Chart 10 shows how the trade-off in Japan between inflation and the output gap shifted from the mid-1990s onwards.
10. Japans challenge is to dislodge deflation expectations 4 1984-1995 1995-2013 3
CPI (less food) inflation year-on-year
2 1 0 -1 -2 -3 -10 -5 0 5 Output gap (% GDP), 2 quarter lag
Source: HSBC, Thomson Reuters Datastream, Bank of Japan
For any given output gap, inflation ended up a lot lower than in earlier years, suggesting that deflation can creep up unannounced: in that sense, it is a silent killer. Chart 11 offers confirmation: although Japans lost decades began following the 1990 collapse in equity prices, it wasnt until the mid-1990s that earlier weakness in goods inflation was reflected in much lower services inflation.
9. Central banks assume inflation will in time return to target, despite their inability to explain current forecasting errors Forecast for 2013 made Dec 2012 UK US Germany France Italy Spain Japan Bank of England (Q4) OBR Federal Reserve European Commission Bank of Japan ex. cons tax hike effects 2.3 2.5 1.3 to 2.0 1.9 1.7 2.0 2.1 -0.1 to +0.6 n/a Latest Value 2014 forecast 2.1 2.3 1.4 to 1.6 1.7 1.4 1.6 0.9 2.6 to 3.7 0.6 to 1.7 2015 forecast made Nov 2013 1.9 2.1 1.5 to 2.0 1.6 1.3 1.5 0.6 1.4 to 2.9 0.7 to 2.2
2.1 1.2 1.6 0.8 0.7 0.3 1.1
Source: HSBC, Bank of England, Federal Reserve, Bank of Japan, European Commission
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11. Japanese goods deflation passed through to services eventually

% Yr 8 6 4 2 0 -2 -4 -6 Jan-81 Oct-85 Jul-90 Apr-95 Jan-00 Oct-04 Jul-09 Services CPI
Source: HSBC, Thomson Reuters Datastream
13. The low-cost, large population countries are seeing rapid export growth Annualised growth in exports 2009-2013 US Germany UK Japan China India Indonesia Pakistan Nigeria Bangladesh Philippines Ethiopia Vietnam Egypt Democratic Rep. Congo
Source: HSBC, IMF DOTS
Japan Goods & Services Inflation
% Yr 8 6 4 2 0 -2 -4 -6
Goods CPI
7.5% 8.8% 6.9% 5.8% 15.2% 15.2% 10.1% 3.6% 4.5% 20.8% 9.9% 10.0% 23.8% 5.9% 35.1%
Trade dries up
The international drivers of unexpectedly low inflation can also be seen in other ways. Globalisation has doubtless played a role. Chart 12, for example, shows how patterns of production have changed over the last two decades.
12. Trade is consistently shifting to lower-cost producers
% of global exports by GDP per capita (2005 USD) 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% 93 95 97 99 01 03 05 07 09 11 0 - 1000 1000 - 3000 3000 - 7000 7000 - 15000 15000+
Post-crisis, however, the international disinflationary bias extends well beyond the impact of globalisation. As we noted in the fourth quarter 2013 edition of Global Economics (Pass the Parcel, 26 September 2013), hopes that countries would be able to enjoy export-led recoveries were, in many cases, dashed, in part because of increased protectionist pressures. For all the talk of WTO deals, new opportunities for the trans-Pacific Partnership (see A pretty big deal, 18 December 2013, Izumi Devalier) and hopes of a transatlantic trade deal, there has been a worrying trend in favour of more protectionist measures in recent years (Chart 14).
14. Protectionist measures have become more commonplace
300 250 Number of new protectionist measures 300 250 200 150 100 50 0
Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13
Source: HSBC, World Trade Alert. Note: Shows number of new protectionist measures worldwide which the World Trade Alert classify as harmful to trade.
Source: HSBC, IMF DOTS
The proportion of the worlds exports accounted for by countries with low production costs has risen rapidly, sending disinflationary pressures to the four corners of the earth. If anything, this process has only accelerated since the financial crisis. Table 13, for example, shows annualised export growth for China and those countries poorer than China but, like China, with relatively large populations. Most of them have enjoyed gains well ahead of the more sedentary experiences of major developed economies.
200 150 100 50 0
As a result, movements in exchange rates may have had less of an impact on trade and more on relative
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inflation rates. Chart 15 shows how remarkably soft world trade growth has been in the post-crisis era, partly a reflection of a reduction in cross-border financial flows (Chart 16).
15. World trade growth has been remarkably weak
%Yr 40 30 20 10 0 -10 -20 -30 -40 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 World trade & GDP Growth %Yr 6 4 2 0 -2 -4 -6 Dec-13
rather than a lagging, indicator. Other things being equal, excessively low inflation will raise real interest rates, increase debt service costs, delay deleveraging and increase default risk. Without expectations of rising wages or prices, households and corporates may continue to delay spending, preventing the recovery from moving into a higher gear. Escape velocity will remain elusive. For Japan, the answer is straight forward: given Shinzo Abes strictures, quantitative easing will continue until inflation is held sustainably at around 2% without resorting to indirect tax increases. Its easy to see why. In the mid-1990s, the Japanese economy appeared to be on the verge of modest recovery, yet following the 1997 consumption tax increase and the Thai baht crisis later that year, Japan succumbed to both recession and sustained deflation (Chart 17). For the Japanese, raising inflation sustainably is a necessary if not sufficient condition of delivering a higher trajectory for economic growth.
17. In Japan the relationship between growth and inflation broke down
% Yr Japan Economic Growth vs. Inflation % Yr 6 4 2 0 -2 -4 -6 90 94 98 GDP
Source: HSBC, World Bank
World trade growth (LHS)

Source: HSBC, IMF
GDP growth (RHS)
16. Home-bias and blockages in the financial system may be limiting cross-border financing
3 2 1 0 -1 -2 06 07 Banks 08 09 10 Non-banks 11 12 13 Total change
Tn USD
Change in cross-border claims
Tn USD
3 2 1 0 -1 -2
6 4 2 0 -2 -4 -6 02 06 CPI 10
Source: BIS
Policy implications
Unexpectedly low inflation creates an awkward dilemma for central banks. With evidence of modest economic recovery building in many parts of the developed world noticeably so in the UK and Japan in 2013 the standard cyclical approach to monetary policy suggests inflationary pressures will, in time, build and interest rates should rise sooner rather than later. Yet, with excessively low inflation, its not so obvious that the usual cyclical arguments apply. It may well be that low inflation becomes a leading,
For the eurozone, the outlook is not so easy. In the first quarter 2014 edition of European Economics (Treading water, 17 December 2013), Janet Henry lists some of the policy options for a European Central Bank that may have to come to terms with a historic failure to deliver its inflation objective historic because inflation is in danger of being too low, not too high. Apart from the
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serious cross-country challenges is it possible to nudge eurozone inflation back up to target without leaving Germany facing an intolerably high domestic inflation rate? the biggest problem lies in delivering a coherent monetary response in a region of the world with a severe absence of credit growth. Perhaps the best the ECB will be able to do is to help reverse the euros renewed and unwarranted ascent in the second half of 2013. From a signalling perspective, however, the Federal Reserve and the Bank of England face perhaps the biggest challenges in 2014. Having effectively said hello to forward guidance and waved goodbye to quantitative easing, they now face a potentially awkward problem: falling unemployment rates might point to an earlier rate increase, while lower inflation might suggest a delay. It might seem a nice problem to have but a premature tightening of policy while inflation was still too low might only lock in a nasty deflationary trend for the long term. Managing market expectations in such circumstances will be no easy task: success will depend not only on what central bankers say but on whether the public take them at their word. We suspect it may not be too long before central bankers abandon unemployment rate targeting altogether (see Taking up the slack, 21 October 2013, Karen Ward). Not all countries around the world will be worrying about excessively low inflation. Monetary policy will remain relatively tight in India and Brazil, two countries which, following massive currency depreciation in the summer, spent 2013 grappling with excessive inflationary pressures. Turkey is likely to tighten policy aggressively in the first quarter of 2014 in response to currency depreciation and deterioration of inflation expectations. All three will struggle with sizeable balance of payments current account deficits through much of the coming year. These, though, are mostly
exceptions, victims of financial spillovers and poor domestic supply-side responses. For the most part, the risk is that inflation will be too low, not too high.
The key forecasts

Our most important innovation this quarter is the introduction of our first published estimates for 2015. We expect global growth to accelerate to 2.8% by then, up from 2.0% in 2013 and 2.6% in 2014. The turnaround reflects a shift from contraction in the eurozone in 2013 to modest expansion alongside a more aggressive although unbalanced pick-up in the UK. At around 2.3% in 2014 and 2.5% in 2015, the pace of US economic recovery remains disappointing relative to past experience. The emerging markets shrug off some of their 2013 funk, with a return to growth of above 5% by 2015. Were not forecasting a descent into outright deflation. Instead, were highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years. As Japans 1990s experience clearly demonstrates, a near-term cyclical pick-up is in no sense a guarantee that the deflation genie has been put back in its bottle. We suspect forward guidance may increasingly have to focus on the dangers associated with inflationary undershoots than on growth overshoots in the coming months. That should provide a novel challenge for central bankers who, with forward guidance, are in danger of focusing too much on the real recovery as opposed to the growing signs of nominal weakness.
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Global economic forecasts
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GDP
Annual % Year World (Nominal GDP weights) World (PPP Weights) Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India** Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway*** Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE* South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 3.8 5.4 2.8 7.6 2.7 2.7 2.6 5.1 5.2 11.6 1.7 9.6 5.8 7.0 5.5 5.6 5.2 8.6 5.2 5.4 5.1 8.2 2.7 2.9 3.3 3.4 3.9 2.7 2.3 4.1 3.3 2.8 4.8 4.6 3.8 6.6 7.2 3.9 6.2 8.2 6.9 7.4 7.9 6.8 5.8 3.1 9.8 5.6 5.0 5.0 4.0 8.5 5.7 6.7 2007 3.7 5.7 2.5 8.2 1.9 1.9 2.0 6.3 6.5 14.2 2.2 9.7 6.0 6.5 6.3 6.3 6.6 9.0 5.1 6.0 5.0 8.5 4.5 3.5 3.1 3.0 3.4 2.2 1.5 3.6 3.5 3.4 5.3 3.4 3.8 5.7 5.7 0.1 6.8 8.5 4.7 7.6 6.3 7.1 5.9 2.0 3.2 5.6 5.0 3.1 6.1 8.7 5.2 6.9 2008 1.2 2.9 -0.2 5.7 -0.2 -0.3 1.2 3.2 3.3 9.6 -1.0 8.2 3.3 2.1 6.0 4.8 4.2 1.7 2.3 0.7 2.5 6.3 2.7 -0.8 0.1 0.3 0.8 -0.2 -1.2 0.9 -0.3 -0.8 1.5 -0.8 2.2 3.8 2.9 0.9 5.1 5.2 0.7 2.3 7.3 7.2 4.1 4.2 3.2 3.6 3.6 1.4 5.2 6.8 3.3 3.5 2009 -2.4 -0.6 -3.9 2.1 -3.0 -3.1 -2.7 0.7 0.8 9.2 -5.5 6.6 0.5 -2.5 4.6 -1.5 1.1 -0.8 0.3 -1.8 -2.3 5.3 1.5 -1.5 -4.4 -4.4 -5.1 -3.1 -5.5 -3.8 -4.5 -5.2 -1.4 -5.0 -1.9 -3.5 -4.4 -6.8 1.6 -7.8 -4.8 -14.8 -6.6 4.7 1.1 0.1 -4.8 -1.5 -2.1 -4.7 -0.3 0.9 -1.0 1.7 2010 3.9 5.2 2.6 7.7 2.5 2.4 3.4 7.0 7.3 10.4 4.7 9.7 7.2 6.8 6.2 7.4 7.6 14.8 6.3 10.8 7.8 6.8 2.3 1.9 2.0 1.9 3.9 1.6 1.7 -0.2 2.2 1.7 1.7 6.3 3.0 4.7 2.3 1.1 3.9 4.5 9.2 4.2 -1.1 5.1 5.7 5.1 1.3 2.9 6.6 5.1 7.5 9.2 5.8 4.0 2011 2.7 3.8 1.4 6.3 1.9 1.8 2.5 4.1 4.1 9.3 -0.5 7.5 4.2 4.9 6.5 5.1 3.6 5.3 3.7 4.2 0.1 6.0 2.6 1.4 1.6 1.6 3.4 2.0 0.6 0.1 1.4 1.1 2.5 3.0 1.8 4.9 1.8 1.6 4.5 4.3 8.8 5.2 2.2 1.8 4.6 7.1 4.3 3.5 4.1 4.0 2.7 8.9 5.9 6.6 2012 2.2 3.0 1.3 4.7 2.7 2.8 1.7 4.2 4.4 7.7 1.4 5.1 3.7 1.5 6.2 5.6 6.8 1.3 2.0 1.5 6.5 5.0 3.6 2.7 -0.3 -0.6 0.9 0.0 -2.6 -1.6 0.7 0.2 3.3 1.3 1.0 2.7 -0.9 -1.7 1.9 3.4 2.2 0.2 0.7 2.2 3.4 5.2 4.4 2.5 2.5 3.9 1.0 1.9 5.6 4.2 2013f 2.0 2.7 1.1 4.5 1.8 1.8 1.7 4.3 4.5 7.7 1.7 4.7 3.8 2.9 5.6 4.6 6.8 4.0 2.7 1.7 2.8 5.2 2.4 3.0 0.0 -0.4 0.6 0.2 -1.8 -1.3 1.3 1.4 1.8 0.8 1.9 2.2 -1.4 1.0 1.4 1.5 3.9 -1.0 2.8 2.2 3.4 3.6 4.5 1.8 2.0 1.3 2.2 2.5 4.3 4.0 2014f 2.6 3.2 1.8 4.9 2.3 2.3 2.3 4.2 4.3 7.4 1.3 5.0 4.1 3.7 5.0 5.2 5.9 4.2 3.2 2.8 4.4 5.4 2.8 3.4 1.2 0.8 1.7 0.6 0.4 0.3 2.3 2.6 2.2 2.5 2.1 2.8 1.9 2.1 3.0 2.0 3.1 0.0 2.4 3.0 3.6 4.0 5.1 2.6 3.0 4.1 2.2 1.0 4.3 4.5 2015f 2.8 3.4 1.9 5.2 2.5 2.5 2.4 4.5 4.6 7.7 1.3 6.2 4.5 4.0 6.0 5.0 6.1 4.5 3.4 3.4 5.2 5.8 3.4 2.6 1.4 1.0 1.5 1.0 0.6 0.9 2.3 2.7 1.5 2.6 2.2 3.1 1.7 1.6 3.3 2.0 4.1 -3.5 2.4 4.5 3.7 4.3 5.2 3.1 2.5 3.8 1.2 1.5 4.5 4.5
Notes: *Fiscal year; **Calendar year; ***Mainland. We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates
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Quarterly % Quarter & % Year North America US* Canada* Asia-Pacific Japan Australia New Zealand China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Israel South Africa Latin America Mexico Brazil Argentina Chile Colombia % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year % Quarter % Year Q3 12 2.8 3.1 0.8 1.2 -0.8 -0.2 0.7 3.2 2.0 7.4 1.5 5.2 6.2 5.3 7.3 0.0 1.5 1.3 3.1 5.4 -0.1 -0.7 0.2 0.9 0.2 0.0 -0.5 -2.8 -0.4 -1.7 0.7 0.1 3.4 0.6 1.4 -1.2 -1.7 1.3 2.9 1.6 -1.3 -0.5 2.8 2.3 0.1 3.1 0.4 0.9 0.6 0.7 0.7 5.8 0.0 2.9 Q4 12 0.1 2.0 0.9 1.0 0.1 -0.3 0.5 2.8 3.4 7.9 2.8 4.7 6.1 6.5 7.1 1.5 1.4 3.8 19.1 5.5 -0.5 -1.0 -0.5 0.3 -0.2 -0.3 -0.9 -3.0 -0.8 -2.1 -0.2 0.0 3.0 1.8 1.4 -1.4 -2.7 0.7 2.1 1.4 -2.5 1.1 3.2 2.1 0.8 3.3 0.5 1.8 1.9 2.1 2.0 5.7 1.7 3.3 Q1 13 1.1 1.3 2.3 1.4 1.1 0.1 0.5 2.1 2.7 7.7 2.9 4.8 6.1 4.1 7.7 0.3 1.5 1.4 5.4 4.9 -0.2 -1.2 0.0 -0.3 -0.1 -0.4 -0.6 -2.5 -0.4 -2.0 0.4 0.2 2.3 1.6 1.5 -2.4 -0.8 0.5 1.6 3.0 -1.1 2.2 3.2 1.6 0.2 0.6 0.7 1.8 3.7 3.0 0.8 4.7 0.3 2.7 Q2 13 2.5 1.6 1.6 1.4 0.9 1.2 0.7 2.4 2.5 7.5 3.2 4.4 5.8 4.4 7.6 4.4 2.3 2.7 2.9 5.0 0.3 -0.6 0.7 0.5 0.5 0.5 -0.3 -2.2 -0.1 -1.6 0.7 1.3 1.9 0.6 2.1 -1.5 0.5 0.8 1.2 4.5 -1.3 1.5 3.7 2.3 -0.5 1.6 1.5 3.3 7.1 8.3 0.5 4.0 2.2 4.2 Q3 13 3.6 1.8 2.7 1.9 0.3 2.4 0.6 2.3 3.5 7.8 2.9 4.8 5.6 5.0 7.0 5.8 3.3 1.7 2.7 5.5 0.1 -0.4 0.3 0.6 -0.1 0.2 0.0 -1.8 0.1 -1.1 0.8 1.5 1.5 0.3 1.9 -1.3 1.8 1.9 1.2 4.4 -1.5 4.1 3.2 1.8 0.8 1.3 -0.5 2.2 1.0 -3.3 1.1 4.7 -0.5 4.5 Q4 13f 1.9 2.3 2.0 2.2 1.0 3.3 0.8 2.7 3.2 7.6 2.7 4.7 5.0 4.7 5.1 5.6 3.6 1.5 0.5 5.5 0.2 0.4 0.5 1.5 0.3 0.6 0.2 -0.7 0.0 -0.4 0.8 2.6 1.5 0.7 2.1 -0.4 2.4 2.3 1.8 3.7 -0.2 2.8 3.7 1.9 1.4 1.7 0.4 1.7 -0.3 1.9 1.0 3.8 2.5 4.5 Q1 14f 2.0 2.5 2.3 2.7 0.9 3.1 0.6 2.8 3.5 7.5 3.6 4.6 4.8 6.3 5.0 6.1 3.6 2.0 3.3 5.2 0.2 0.8 0.4 1.9 -0.1 0.6 0.1 0.0 0.0 0.1 0.6 2.8 1.8 1.1 2.1 1.6 2.3 2.9 2.0 3.6 -0.5 2.5 3.5 2.3 1.5 4.5 0.5 2.2 -0.7 -2.2 1.3 2.0 0.3 4.5 Q2 14f 2.2 2.4 2.3 2.7 -1.3 0.9 0.6 2.6 4.0 7.6 3.7 4.9 4.7 5.9 5.8 3.0 3.3 3.0 4.6 5.3 0.2 0.7 0.4 1.6 0.2 0.3 0.2 0.5 0.2 0.4 0.6 2.7 2.0 2.2 2.0 1.7 2.1 2.8 2.0 3.0 -0.5 2.5 3.5 2.4 0.6 4.0 1.6 2.1 0.2 -1.3 1.2 4.9 2.2 4.5 Q3 14f 2.2 2.1 2.5 2.7 0.4 1.0 0.8 2.9 3.4 7.3 3.6 5.0 5.0 5.0 6.0 3.7 2.9 3.2 4.7 5.4 0.2 0.9 0.4 1.6 0.2 0.7 0.1 0.6 0.1 0.4 0.6 2.5 2.3 3.0 2.1 2.2 1.9 3.1 2.0 2.8 0.5 1.9 3.6 2.7 0.2 3.9 0.2 2.8 0.5 7.1 1.1 5.9 -0.5 4.5 Q4 14f 2.7 2.3 2.2 2.3 0.4 0.4 0.8 2.8 2.6 7.4 3.8 5.4 5.5 3.8 6.7 4.1 3.0 3.4 5.0 5.4 0.3 0.9 0.4 1.5 0.2 0.6 0.1 0.6 0.1 0.5 0.7 2.4 2.5 3.8 2.1 2.0 2.0 3.2 2.0 3.1 0.5 3.2 3.6 2.9 2.0 4.0 -0.5 1.8 0.8 1.0 1.2 4.2 2.5 4.5
Note: *Quarter-on-quarter data has been annualised Source: HSBC estimates
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Consumer prices
Annual % Year World Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India*** Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine* Romania Egypt** Israel* Saudi Arabia UAE South Africa Latin America Mexico Brazil Argentina* Chile Colombia 2006 2.8 2.3 4.5 3.1 3.2 1.1 2.0 1.2 1.5 0.2 7.1 4.7 2.0 13.1 3.6 5.5 1.0 2.2 0.6 4.6 7.4 3.6 3.4 2.2 2.2 1.8 1.9 2.2 3.6 2.1 2.3 2.3 1.4 1.1 6.1 2.5 3.9 1.0 9.7 9.6 9.1 6.6 4.2 2.1 2.3 10.0 4.6 4.5 3.6 4.2 10.9 3.4 4.3 2007 2.8 2.1 5.3 2.8 2.9 2.8 2.2 1.9 4.8 0.1 6.2 3.4 2.0 6.7 2.0 2.9 2.1 2.5 1.8 2.2 8.3 2.3 2.4 2.1 2.1 2.3 1.6 2.0 2.8 2.0 2.3 0.7 2.2 0.7 7.0 2.8 8.0 2.5 9.0 8.8 12.8 4.8 11.0 0.5 4.2 9.0 7.1 5.1 4.0 3.6 15.7 4.4 5.5 2008 4.1 3.1 8.0 3.3 3.8 -3.9 4.1 3.4 5.9 1.4 9.1 6.7 4.3 9.8 5.4 8.2 6.6 4.7 3.5 5.5 23.1 4.4 4.0 3.3 3.3 2.7 3.2 3.5 4.1 3.5 3.6 3.8 3.4 2.4 10.8 6.3 6.1 4.2 14.1 10.4 25.2 7.9 11.6 4.6 9.9 12.0 11.0 7.6 5.1 5.7 23.8 8.7 7.0 2009 1.1 0.0 5.0 -0.2 -0.4 2.6 0.9 0.4 -0.7 -1.3 12.4 2.6 0.5 4.8 0.6 4.3 0.6 2.8 -0.9 -0.9 7.0 1.8 2.1 0.6 0.3 0.2 0.1 0.8 -0.2 1.4 2.2 2.2 -0.5 -0.5 7.7 1.0 4.2 3.5 11.7 6.3 16.0 5.6 15.5 3.3 5.1 1.3 7.2 6.7 5.3 4.9 15.6 11.2 4.2 2010 2.4 1.5 5.5 1.8 1.6 4.1 2.2 1.8 3.3 -0.7 10.2 3.6 2.4 5.1 1.7 3.8 2.8 2.9 1.0 3.3 9.2 2.9 2.3 1.8 1.6 1.2 1.7 1.6 2.0 2.5 3.3 2.4 1.2 0.7 5.9 1.5 4.9 2.6 6.8 8.6 9.4 6.1 11.7 2.7 5.3 1.1 4.3 6.6 4.2 5.0 21.6 1.4 2.3 2011 3.5 2.6 6.4 3.1 3.2 2.6 3.1 2.6 5.4 -0.3 9.0 5.0 5.3 5.4 3.2 4.7 5.2 4.0 1.4 3.8 18.6 3.3 4.0 2.9 2.7 2.5 2.3 2.9 3.1 3.3 4.5 1.3 3.0 0.2 6.3 1.9 3.9 4.3 8.5 6.5 8.0 5.8 11.0 3.5 5.0 1.0 5.0 7.4 3.4 6.6 22.2 3.3 3.4 2012 2.8 1.9 5.4 2.0 2.1 1.4 2.4 2.2 2.7 0.0 10.2 3.4 4.1 4.3 1.7 3.2 4.6 2.2 1.9 3.0 9.3 1.8 1.1 2.3 2.5 2.1 2.2 3.3 2.4 1.9 2.8 0.7 0.9 -0.7 5.1 3.3 5.7 3.7 5.1 8.9 0.6 3.3 8.7 1.7 4.5 0.4 5.7 8.0 4.1 5.4 24.0 3.0 3.2 2013f 2.4 1.3 5.5 1.4 1.5 0.8 2.6 2.4 2.6 0.3 9.5 3.3 4.2 7.0 2.1 2.9 2.4 1.2 0.9 2.2 6.6 2.3 1.2 1.5 1.4 1.6 1.0 1.3 1.5 1.8 2.6 2.2 -0.1 -0.2 4.8 1.4 1.7 1.0 6.8 7.5 -0.4 4.0 6.8 1.8 3.6 1.1 5.8 8.7 3.7 6.2 25.1 2.0 2.0 2014f 2.7 1.6 5.7 1.7 1.7 1.7 3.3 3.2 2.7 2.3 7.2 3.8 4.2 5.6 2.4 4.2 3.1 2.6 1.9 2.6 7.9 2.7 2.5 1.3 1.0 1.7 1.4 0.8 0.7 1.9 2.4 2.3 0.9 0.4 4.9 1.1 1.3 1.8 5.8 6.6 2.0 2.3 9.9 2.1 4.1 3.5 5.7 10.0 4.0 6.0 27.4 2.8 2.4 2015f 2.9 1.7 6.1 1.9 1.9 1.9 3.2 3.1 3.1 1.5 7.8 3.9 4.2 4.9 2.0 4.3 3.1 3.0 1.6 3.8 8.2 2.8 2.3 1.4 1.2 1.7 1.5 1.1 1.3 2.0 2.4 2.4 1.5 1.0 5.1 2.4 3.0 2.2 4.8 6.5 9.2 2.9 9.1 2.5 4.3 5.5 5.5 10.5 3.5 6.2 26.6 3.0 2.4
Note: * Period end values; **Based on Egyptian fiscal year (July-June);***Based on Indian fiscal year (April March). We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates
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Quarterly % Year North America US Canada Asia-Pacific Japan Australia New Zealand China India Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt Israel South Africa Latin America Mexico Brazil Argentina Chile Colombia
Source: HSBC estimates
Q3 12 1.7 0.1 -0.4 2.0 0.8 1.9 9.9 3.1 4.5 1.4 3.6 4.2 1.6 2.9 2.9 5.6 2.5 2.1 2.3 3.4 2.8 2.4 0.4 0.6 -0.5 3.3 6.1 3.9 6.0 9.0 0.0 4.1 6.7 1.8 5.1 4.6 5.2 24.1 2.6 3.1
Q4 12 1.9 1.4 -0.2 2.2 0.9 2.1 10.1 3.8 4.4 1.3 3.0 4.0 1.7 1.8 3.2 7.0 2.3 2.0 1.7 2.6 3.2 2.7 1.2 0.1 -0.4 2.8 5.4 2.9 6.6 6.8 -0.1 4.8 4.7 1.5 5.7 4.1 5.6 24.9 2.2 2.8
Q1 13 1.7 1.6 -0.6 2.5 0.9 2.4 10.7 3.7 5.3 1.5 3.2 4.0 1.4 1.8 3.1 6.9 1.9 1.9 1.2 2.1 2.8 2.8 1.2 -0.1 -0.4 1.8 2.9 1.3 7.2 7.2 -0.5 5.6 7.6 1.3 5.7 3.7 6.4 25.4 1.5 1.9
Q2 13 1.4 0.0 -0.3 2.4 0.7 2.5 9.5 4.0 5.6 1.8 2.6 1.6 1.1 0.8 2.3 6.6 1.4 1.5 0.9 1.3 1.8 2.7 2.0 -0.3 -0.4 1.5 1.8 0.5 7.2 7.0 -0.4 5.3 10.3 2.1 5.7 4.5 6.6 23.8 1.3 2.1
Q3 13 1.6 1.5 0.9 2.2 1.4 2.8 9.7 5.3 8.6 2.2 2.4 1.8 1.2 0.0 1.7 7.0 1.3 1.7 1.1 1.1 1.3 2.7 2.5 0.1 0.0 1.2 1.5 1.1 6.4 8.3 -0.3 3.3 9.5 1.3 6.2 3.4 6.1 25.2 2.1 2.3
Q4 13f 1.2 0.8 1.1 2.2 1.7 3.1 10.0 3.9 8.4 2.8 3.5 2.2 0.9 1.1 1.6 5.8 0.8 1.4 0.7 0.8 0.2 2.1 2.5 0.0 0.0 1.1 0.6 0.9 6.4 7.5 -0.2 1.9 12.2 1.8 5.5 3.5 5.8 25.9 2.2 1.8
Q1 14f 1.4 2.3 1.0 2.4 2.1 3.1 8.9 4.0 7.1 2.6 4.1 1.9 1.5 1.3 1.7 6.7 0.8 1.5 1.1 0.7 0.6 2.0 2.3 0.3 0.1 0.3 0.3 1.5 6.3 6.3 0.6 1.7 9.3 1.8 5.7 3.8 5.8 26.7 2.6 2.1
Q2 14f 1.9 1.1 2.5 2.8 2.6 2.8 8.2 4.0 6.9 2.7 4.1 3.8 2.5 2.1 2.1 7.6 1.1 1.8 1.4 0.8 0.8 2.4 2.3 0.8 0.4 0.7 1.1 2.0 6.0 7.1 1.5 1.7 8.6 1.9 5.8 3.6 5.9 27.5 3.1 2.3
Q3 14f 1.7 1.5 2.8 2.4 2.5 2.4 7.5 4.5 3.6 2.5 4.5 3.6 3.0 2.3 2.8 7.7 0.9 1.6 1.5 0.8 0.4 2.5 2.2 0.9 0.4 1.4 1.5 1.7 5.6 6.2 2.5 2.6 9.4 1.9 5.6 4.2 6.1 27.8 2.9 2.3
Q4 14f 1.9 1.7 2.7 3.0 2.8 2.5 6.6 4.3 4.7 2.0 4.1 3.0 3.3 2.0 3.6 7.9 1.3 1.8 1.7 1.1 1.1 2.7 2.3 1.5 0.8 1.8 2.5 2.1 5.2 6.5 3.5 3.4 9.2 2.1 5.5 4.0 6.3 27.5 2.9 2.8
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Short rates
3 month money End period North America US (USD) Canada (CAD) Asia-Pacific Japan (JPY) Australia (AUD) New Zealand (NZD) China (CNY) India (INR) Hong Kong (HKD) Indonesia (IDR) Malaysia (MYR) Philippines (PHP) Singapore (SGD) South Korea (KRW) Taiwan (TWD) Thailand (THB) Western Europe Eurozone Other Western Europe UK (GBP) Norway (NOK) Sweden (SEK) Switzerland (CHF) EMEA Hungary (HUF) Poland (PLN) Russia (RUB) Turkey (TRY) Ukraine (UAH) South Africa (ZAR) Latin America Mexico (MXN) Brazil (BRL) Chile (CLP)
2009 Q4 0.3 0.5 0.3 4.0 2.8 1.7 4.6 0.5 7.1 2.2 3.9 0.7 2.8 0.5 1.4 0.7 0.6 2.2 0.5 0.3 6.0 4.2 6.6 7.5 16.1 7.1 5.5 8.7 0.5
2010 Q4 0.3 1.2 0.2 5.0 3.2 2.3 9.0 0.3 6.6 3.0 0.8 0.4 2.8 0.7 2.2 0.9 0.8 2.6 1.8 0.2 5.9 4.0 4.1 6.7 9.1 5.5 4.6 11.1 3.3
2011 Q4 0.5 1.4 0.2 4.5 2.7 3.1 9.8 0.4 5.3 3.2 1.6 0.4 3.6 0.9 3.2 1.3 1.1 2.9 2.7 0.1 7.2 5.0 6.4 10.1 21.5 5.5 4.4 10.4 5.1
2012 Q4 0.4 1.3 0.2 3.0 2.6 2.6 8.2 0.4 5.0 3.2 0.6 0.4 2.9 0.9 2.9 0.1 0.5 1.9 1.6 0.0 5.8 4.1 7.5 5.5 18.3 5.2 4.4 7.1 4.9
_____ 2013 _______ ________________ 2014 ________________ Q3 Q4f Q1f Q2f Q3f Q4f 0.2 1.2 0.2 2.6 2.7 2.6 9.7 0.4 7.2 3.2 0.5 0.4 2.7 0.9 2.6 0.1 0.5 1.7 1.2 0.0 3.6 2.7 6.8 6.9 10.2 5.4 3.7 9.4 4.8 0.2 1.2 0.1 2.6 2.7 2.6 9.2 0.4 7.6 3.2 0.5 0.2 2.7 1.1 2.4 0.3 0.5 1.7 1.0 0.0 3.0 2.7 6.9 7.8 12.0 5.2 3.9 10.3 4.3 0.3 1.2 0.2 2.6 3.0 2.6 8.7 0.5 7.7 3.3 0.6 0.3 2.7 1.1 2.3 0.2 0.6 1.7 1.0 0.0 2.8 2.7 6.7 9.5 12.0 5.2 3.9 10.5 4.1 0.3 1.2 0.2 2.6 3.2 2.6 9.5 0.5 7.8 3.4 0.6 0.3 2.7 1.5 2.4 0.2 0.6 1.7 1.0 0.0 2.8 2.7 6.8 9.5 12.0 5.1 3.9 10.5 4.1 0.3 1.2 0.2 2.9 3.3 2.6 8.0 0.5 7.8 3.5 0.6 0.3 2.8 1.1 2.5 0.2 0.6 1.8 1.0 0.0 2.8 2.7 6.6 9.5 12.0 5.1 4.0 10.5 4.1 0.3 1.2 0.2 3.1 3.4 2.6 7.7 0.5 7.8 3.7 0.6 0.3 3.0 1.5 2.6 0.2 0.7 1.8 1.1 0.0 2.9 2.7 6.4 9.5 12.0 5.1 4.2 11.0 4.1
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Long rates
10-year bond yields End period Americas US Canada Chile Asia-Pacific Japan Australia New Zealand India Hong Kong Indonesia Philippines Singapore Western Europe Eurozone* Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Hungary Poland Russia South Africa
Note: *Weighted average of big four eurozone economies. Source: HSBC estimates
2009 Q4 3.8 3.6 5.9 1.3 5.7 6.0 7.7 2.6 10.1 7.9 2.7 3.6 3.4 3.6 4.0 3.9 4.1 4.4 3.3 1.9 7.7 6.3 8.7 9.0
2010 Q4 3.3 3.2 6.2 1.2 5.6 5.8 8.0 2.9 7.9 5.9 1.8 3.8 3.0 3.4 4.5 5.5 3.7 3.7 3.3 1.8 8.0 6.1 7.7 8.9
2011 Q4 1.8 1.9 5.2 1.0 3.7 3.8 8.5 1.5 6.2 5.1 1.4 3.7 1.9 3.1 6.4 5.5 2.1 2.2 1.5 0.7 9.8 5.9 8.3 8.1
2012 Q4 1.8 1.8 5.5 0.8 3.3 3.5 8.2 0.6 5.4 4.4 1.3 2.7 1.3 2.0 4.5 5.6 1.8 2.1 1.5 0.5 6.1 3.7 6.7 6.8
_______ 2013 _______ Q3 Q4f 2.6 2.6 5.4 0.7 3.9 4.7 8.8 2.1 8.4 3.7 2.4 2.9 1.8 2.3 4.4 4.4 2.9 2.9 2.4 1.0 5.9 4.4 7.3 7.7 2.7 2.6 5.4 0.6 4.3 4.8 8.7 2.0 8.6 3.6 2.3 2.9 1.9 2.5 4.1 4.1 2.7 2.9 2.3 1.0 5.9 4.4 7.5 7.9
_________________ 2014 __________________ Q1f Q2f Q3 Q4f 2.6 2.5 5.4 0.5 4.2 4.5 8.8 2.2 8.8 3.8 2.5 2.9 2.0 2.5 4.2 4.2 2.6 2.8 2.2 0.9 6.1 4.0 7.0 7.8 2.5 2.4 5.5 0.5 3.9 4.6 9.0 2.1 8.6 3.7 2.5 2.8 1.9 2.4 4.1 4.0 2.7 2.9 2.3 1.0 5.9 3.9 7.4 7.6 2.3 2.3 5.5 0.6 4.0 4.7 8.5 2.1 8.5 3.9 2.6 2.7 1.8 2.4 4.1 3.9 2.7 2.9 2.4 1.1 5.9 3.6 7.3 7.4 2.1 2.2 5.6 0.7 4.2 4.8 8.2 2.3 8.4 4.1 2.9 2.7 1.8 2.3 4.0 3.8 2.8 3.0 2.5 1.2 5.9 3.6 7.5 7.4
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Exchange rates vs USD

Exchange rates vs USD End period Americas Canada (CAD) Mexico (MXN) Brazil (BRL) Argentina (ARS) Chile (CLP) Asia/Pacific Japan (JPY) Australia (AUD) New Zealand (NZD) China (CNY) Hong Kong (HKD) India (INR) Indonesia (IDR) Malaysia (MYR) Philippines (PHP) Singapore (SGD) South Korea (KRW) Taiwan (TWD) Thailand (THB) Vietnam (VND) Western Europe Eurozone (EUR) Other Western Europe UK (GBP) Sweden (SEK) Norway (NOK) Switzerland (CHF) EMEA Czech Republic (CZK) Hungary (HUF) Poland (PLN) Russia (RUB) Turkey (TRY) Ukraine (UAH) Israel (ILS) Egypt (EGP) South Africa (ZAR)
2009 Q4 1.05 13.08 1.74 3.80 507 93 0.90 0.73 6.83 7.75 46.4 9425 3.42 46.5 1.41 1166 32.1 33.3 18200 1.43 1.61 7.14 5.78 1.03 18.4 188 2.86 30.2 1.50 8.00 3.75 5.48 7.36
2010 Q4 0.99 12.36 1.67 3.97 468 81 1.03 0.78 6.59 7.77 44.7 9010 3.08 43.6 1.28 1121 30.4 30.1 19498 1.34 1.57 6.72 5.81 0.93 18.7 207 2.95 30.5 1.54 7.97 3.68 5.70 6.62
2011 Q4 1.02 13.97 1.88 4.30 520 77 1.03 0.78 6.29 7.77 53.0 9068 3.17 43.8 1.30 1159 30.3 31.6 21037 1.30 1.55 6.86 5.97 0.94 19.6 242 3.43 32.0 1.89 8.03 3.80 6.00 8.07
2012 Q4 1.00 12.87 2.04 4.92 479 86 1.04 0.83 6.23 7.75 55.0 9638 3.06 41.1 1.22 1064 29.0 30.6 20835 1.32 1.63 6.51 5.57 0.92 19.0 221 3.09 30.5 1.78 8.04 3.85 6.10 8.48
____________ 2013 ______________ ____________ 2014 ______________ Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f 1.02 12.33 2.01 5.12 472 94 1.04 0.84 6.21 7.76 54.3 9718 3.09 40.9 1.24 1111 29.8 29.3 20930 1.28 1.52 6.50 5.83 0.95 20.1 237 3.25 31.0 1.81 8.10 3.64 6.80 9.17 1.05 12.98 2.22 5.39 508 99 0.92 0.77 6.14 7.76 59.5 9925 3.16 43.1 1.27 1142 30.0 31.1 21170 1.30 1.52 6.75 6.11 0.95 20.0 227 3.33 32.9 1.93 8.20 3.70 7.00 9.93 1.03 13.17 2.23 5.79 505 98 0.94 0.83 6.12 7.76 62.6 11580 3.26 43.5 1.26 1075 29.6 31.3 21119 1.35 1.62 6.42 6.01 0.90 19.0 220 3.12 32.3 2.02 8.20 3.55 7.00 10.06 1.05 13.00 2.35 6.50 530 102 0.90 0.83 6.08 7.80 61.0 11700 3.20 43.8 1.24 1050 29.5 32.0 21250 1.37 1.64 6.57 6.13 0.91 19.7 219 3.07 32.9 2.00 8.60 3.60 6.90 10.00 1.07 12.90 2.35 7.00 530 106 0.89 0.84 6.04 7.80 59.0 11750 3.18 43.5 1.23 1040 29.4 31.5 21100 1.35 1.65 6.52 6.15 0.93 20.0 219 3.04 33.5 1.95 8.60 3.60 6.80 10.00 1.09 12.80 2.40 7.50 535 103 0.88 0.85 6.02 7.80 60.0 12000 3.21 43.7 1.24 1035 29.3 31.9 21100 1.33 1.61 6.47 6.09 0.94 20.3 222 3.01 34.7 1.95 8.60 3.55 6.80 10.00 1.10 12.70 2.45 8.00 540 103 0.87 0.86 6.00 7.80 61.0 12250 3.24 43.9 1.24 1030 29.2 32.2 21100 1.30 1.55 6.46 6.00 0.96 20.8 223 3.08 34.8 1.95 8.80 3.55 6.80 9.80 1.10 12.60 2.50 8.50 545 101 0.86 0.87 5.98 7.80 62.0 12500 3.27 44.1 1.25 1025 29.1 32.5 21100 1.28 1.50 6.48 5.94 0.98 21.1 227 3.05 35.2 1.90 8.90 3.50 6.80 9.60
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Exchange rate vs EUR & GBP

Exchange rate vs EUR & GBP End period vs EUR Americas US (USD) Canada (CAD) Asia/Pacific Japan (JPY) Australia (AUD) New Zealand (NZD) Europe UK (GBP) Sweden (SEK) Switzerland (CHF) Norway (NOK) Czech Republic (CZK) Hungary (HUF) Poland (PLN) Russia (RUB) Africa South Africa (ZAR) vs GBP Americas US (USD) Canada (CAD) Asia/Pacific Japan (JPY) Australia (AUD) New Zealand (NZD) Europe Eurozone (EUR) Sweden (SEK) Norway (NOK) Switzerland (CHF) Africa South Africa (ZAR)
2009 Q4
2010 Q4
2011 Q4
2012 ____________ 2013 ______________ ____________ 2014 ______________ Q4 Q1 Q2 Q3 Q4f Q1f Q2f Q3f Q4f
1.43 1.50 134 1.60 1.97 0.89 10.24 1.48 8.29 26.40 270 4.11 43.4 10.56
1.34 1.33 109 1.31 1.72 0.86 9.02 1.25 7.80 25.09 278 3.96 40.9 8.88
1.30 1.32 100 1.27 1.66 0.84 8.90 1.21 7.75 25.50 315 4.46 41.6 10.48
1.32 1.31 114 1.27 1.60 0.81 8.58 1.21 7.34 25.10 291 4.08 40.2 11.19
1.28 1.30 121 1.23 1.53 0.85 8.35 1.22 7.49 25.76 304 4.18 39.8 11.78
1.30 1.37 129 1.42 1.68 0.86 8.77 1.23 7.94 25.97 295 4.33 42.7 12.90
1.35 1.39 133 1.45 1.63 0.84 8.69 1.22 8.14 25.74 297 4.23 43.8 13.62
1.37 1.44 140 1.52 1.65 0.84 9.00 1.24 8.40 27.00 300 4.20 45.1 13.70
1.35 1.44 143 1.52 1.61 0.82 8.80 1.25 8.30 27.00 295 4.10 45.2 13.50
1.33 1.45 137 1.51 1.56 0.83 8.60 1.25 8.10 27.00 295 4.00 46.2 13.30
1.30 1.43 134 1.49 1.51 0.84 8.40 1.25 7.80 27.00 290 4.00 45.2 12.74
1.28 1.41 129 1.49 1.47 0.85 8.30 1.25 7.60 27.00 290 3.90 45.1 12.29
1.61 1.69 150 1.80 2.22 0.89 11.53 9.33 1.67 11.14
1.57 1.56 127 1.53 2.00 0.86 10.53 9.10 1.46 10.84
1.55 1.58 120 1.52 1.99 0.84 10.65 9.27 1.45 12.26
1.63 1.62 141 1.57 1.97 0.81 10.57 9.05 1.49 13.93
1.52 1.54 143 1.46 1.81 0.85 9.87 8.86 1.44 15.06
1.52 1.60 151 1.66 1.96 0.86 10.24 9.26 1.44 16.30
1.62 1.66 159 1.73 1.94 0.84 10.40 9.74 1.46 16.39
1.64 1.72 167 1.82 1.97 0.84 10.77 10.05 1.48 16.50
1.65 1.77 175 1.85 1.96 0.82 10.75 10.14 1.53 16.12
1.61 1.76 166 1.83 1.90 0.83 10.42 9.82 1.51 15.18
1.55 1.70 160 1.78 1.80 0.84 10.01 9.29 1.49 14.39
1.50 1.65 151 1.74 1.72 0.85 9.72 8.90 1.46 13.98
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Consumer spending
Consumer spending % Year World Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia** UAE** South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 3.2 2.4 6.9 2.9 2.9 4.1 3.7 3.5 8.7 1.1 8.5 4.6 6.1 3.2 6.6 4.2 4.5 4.7 1.5 3.2 8.3 3.7 2.9 2.1 2.2 1.6 2.4 1.3 4.0 1.9 1.8 5.1 2.8 1.6 8.0 4.4 1.7 5.0 12.2 4.6 15.9 11.6 6.4 5.1 10.2 14.0 8.3 5.8 5.5 5.2 7.8 7.8 6.4 2007 3.2 2.1 7.8 2.4 2.3 4.3 4.5 4.1 11.0 0.9 9.4 5.7 8.6 5.0 10.4 4.6 6.7 5.1 2.1 1.8 10.8 5.7 3.7 2.0 1.7 -0.2 2.3 1.1 3.6 2.8 2.7 5.4 3.8 2.2 9.0 4.2 -1.0 4.9 14.3 5.5 17.2 10.3 4.2 8.4 17.7 13.2 5.5 5.0 3.0 6.1 9.0 7.6 7.3 2008 0.9 -0.2 5.3 -0.3 -0.6 2.8 2.4 2.3 8.9 -0.9 7.2 2.7 1.9 5.3 8.7 3.7 2.9 1.3 -0.9 2.9 9.3 1.9 0.2 0.2 0.4 0.7 0.2 -0.8 -0.6 -0.4 -1.0 2.0 -0.1 1.2 5.4 2.8 -0.2 5.7 10.6 -0.3 13.1 8.9 5.7 1.6 3.5 9.6 2.2 3.8 1.9 5.7 6.5 5.2 3.5 2009 -0.8 -1.4 1.3 -1.8 -1.9 0.3 1.9 2.5 8.0 -0.7 7.4 0.3 0.2 4.9 0.6 2.3 -0.5 0.0 0.8 -1.1 3.1 0.8 -1.4 -1.3 -0.9 0.3 0.4 -1.6 -3.7 -2.3 -3.6 -0.1 -0.2 1.8 -2.5 0.3 -6.6 2.1 -5.1 -2.3 -14.9 -9.1 5.7 1.9 6.7 -19.5 -1.6 -1.6 -6.5 4.4 0.5 -0.8 0.6 2010 2.8 1.8 6.7 1.9 1.8 3.5 5.3 5.6 10.9 2.8 8.6 5.1 6.1 4.7 6.9 3.4 6.2 4.4 4.0 4.8 10.0 3.2 2.6 1.1 1.0 1.0 1.5 1.5 0.2 1.5 1.0 3.7 3.9 1.7 4.1 0.8 -3.0 3.2 5.5 6.7 7.0 0.2 4.1 5.0 3.2 -5.2 4.4 6.7 5.7 6.9 9.0 10.8 5.0 2011 2.4 1.4 6.1 2.5 2.5 2.3 3.6 3.6 8.8 0.3 8.0 3.6 8.4 4.7 6.8 5.7 4.6 2.4 3.1 1.3 4.4 3.1 2.0 0.2 0.3 2.3 0.5 -0.3 -1.2 0.2 -0.4 2.6 1.7 1.1 5.5 0.5 0.4 2.6 6.4 7.7 15.0 1.1 5.5 3.8 5.0 7.6 4.9 5.5 4.8 4.1 10.7 8.9 5.9 2012 2.0 1.1 4.9 2.2 2.2 1.9 3.8 4.1 8.5 2.0 4.0 3.3 3.0 5.3 7.7 6.6 2.2 1.7 1.6 6.7 2.7 2.5 2.4 -0.6 -1.4 0.7 -0.3 -4.2 -2.8 1.4 1.2 3.0 1.7 2.4 3.9 -2.1 -1.6 1.2 6.8 -0.7 11.7 1.1 5.9 3.2 5.5 9.4 3.5 4.3 4.8 3.2 4.4 6.1 4.7 2013f 2.0 1.3 4.3 1.9 1.9 2.2 3.6 3.9 8.3 2.0 2.4 2.8 3.9 5.3 8.4 5.5 2.4 1.8 1.4 0.1 3.4 1.8 3.7 0.2 -0.5 1.1 0.4 -2.5 -2.5 1.9 1.9 2.2 1.7 2.2 3.9 -0.4 -0.1 0.6 5.6 4.3 5.5 0.5 3.5 4.0 5.0 7.0 2.5 3.0 2.6 2.2 5.2 5.6 4.1 2014f 2.2 1.4 4.5 2.0 2.0 2.1 3.2 3.3 8.1 0.5 4.1 3.2 4.3 4.7 6.7 5.3 3.0 2.6 1.4 0.7 3.6 2.6 3.3 0.9 0.5 1.3 0.6 -0.2 0.3 2.0 2.4 1.2 1.0 2.1 3.2 0.5 1.1 2.5 3.8 2.5 2.5 1.8 3.9 2.7 4.5 6.0 2.7 3.6 5.3 2.0 0.9 4.7 4.5 2015f 2.3 1.6 4.5 2.2 2.2 1.9 3.5 3.6 8.3 0.3 5.2 3.8 3.2 4.7 5.1 5.4 3.8 3.0 1.7 4.5 4.3 2.8 2.2 1.1 0.7 1.2 0.6 0.4 0.6 2.4 2.8 1.9 1.6 2.1 3.1 0.9 1.3 3.2 3.0 4.0 -2.8 1.5 4.4 3.5 4.5 5.0 3.2 2.0 2.0 1.3 1.3 4.9 4.5
Note: *Fiscal year; **Nominal growth We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates
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Investment spending
Investment spending % Year World Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India* Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway*** Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia** UAE** South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 7.5 3.8 16.5 2.7 2.4 6.3 11.7 13.5 24.5 1.5 13.8 4.8 7.1 2.6 6.3 5.4 13.9 3.4 0.5 3.9 9.9 4.8 -2.1 6.0 5.9 8.9 4.3 3.7 8.0 6.2 5.9 10.5 9.5 5.3 13.9 5.9 -2.8 14.9 18.0 13.3 20.9 19.9 13.3 11.7 17.0 14.9 12.1 10.2 8.7 9.8 18.2 4.3 18.1 2007 7.0 2.0 17.9 -1.5 -1.9 3.4 13.0 14.3 25.8 0.3 9.6 6.7 3.2 9.3 10.4 5.2 17.2 4.2 -0.7 1.5 24.2 9.1 7.0 5.7 5.1 5.0 6.4 1.3 4.3 7.5 7.7 13.4 9.1 5.4 16.5 13.3 3.8 17.6 21.0 3.1 24.4 30.3 31.8 12.6 18.8 39.7 14.0 10.0 6.0 13.9 13.6 10.8 14.4 2008 2.9 -3.9 15.7 -6.3 -7.1 1.4 11.9 13.7 26.1 -4.1 3.5 2.5 1.4 11.9 2.4 3.2 13.7 -1.9 -7.9 1.2 3.8 8.3 -3.7 -2.2 -1.6 0.6 0.1 -3.8 -3.9 -4.0 -6.8 -1.1 1.1 0.7 6.5 4.0 2.9 9.6 10.6 -6.2 -1.2 15.6 15.5 4.6 12.6 3.0 13.0 9.2 5.0 13.6 9.1 17.9 9.9 2009 -3.3 -14.4 14.1 -18.3 -19.0 -11.5 13.5 16.7 30.5 -10.6 7.7 -2.7 -3.5 3.3 -2.7 -1.7 -3.2 -1.0 -21.2 -9.2 8.7 -2.3 -13.6 -13.0 -12.7 -11.6 -10.4 -11.8 -18.3 -14.1 -16.9 -13.4 -15.5 -8.0 -10.8 -10.7 -11.1 -1.2 -14.4 -19.0 -50.5 -28.1 -9.1 -3.1 -4.6 -1.3 -4.3 -8.2 -9.3 -6.7 -10.2 -12.1 -1.3 2010 8.9 0.5 18.9 1.0 -0.2 11.5 16.7 18.2 24.5 -0.2 14.0 8.8 7.7 8.5 11.9 19.1 6.1 5.8 36.8 9.4 10.9 4.3 -0.4 0.2 -0.6 5.2 1.2 0.5 -4.2 2.6 2.8 -4.7 6.7 4.8 7.3 0.7 -8.5 -0.4 5.8 30.5 4.9 -1.8 8.0 9.6 3.6 13.0 -2.1 11.0 1.3 21.3 21.2 12.2 4.9 2011 10.4 3.5 17.4 6.3 6.6 4.2 16.1 18.2 23.8 1.4 4.4 0.8 10.2 8.8 6.2 -2.0 6.3 -1.0 -6.8 3.3 -10.4 7.7 3.3 1.6 1.7 7.1 3.0 -1.6 -5.6 1.1 -2.0 6.3 8.3 4.5 7.8 0.4 -5.9 8.5 10.2 18.0 10.1 7.3 -2.1 15.7 7.5 -7.6 4.2 8.9 7.8 4.7 16.6 14.7 18.7 2012 9.2 2.7 14.9 7.8 8.3 4.4 15.3 16.6 20.6 3.4 1.7 4.7 9.4 9.8 19.9 10.4 6.6 -1.7 -4.6 13.2 4.1 8.4 6.4 -2.6 -3.9 -1.3 -1.2 -8.4 -6.9 1.5 1.3 4.5 3.8 -0.4 2.9 -4.3 -3.7 -1.7 6.0 -2.5 0.9 4.9 8.0 3.5 5.0 12.5 4.4 1.5 5.5 -4.0 -4.9 12.3 7.6 2013f 8.9 0.9 15.1 4.1 4.5 0.8 15.0 16.5 20.1 2.1 1.4 3.5 3.6 4.6 9.4 11.8 -0.6 3.5 2.2 -0.2 5.0 -1.6 9.0 -2.6 -3.2 -0.8 -2.3 -5.4 -5.9 -0.6 -1.6 2.4 -1.2 1.3 2.4 -5.2 5.6 -0.5 0.1 4.2 -15.6 -2.6 1.5 -0.6 10.0 7.0 3.2 3.0 -0.7 5.7 4.4 5.6 6.6 2014f 10.5 3.5 15.4 5.5 5.7 3.4 15.1 16.3 19.0 3.1 4.7 5.0 5.8 5.6 7.9 7.4 5.3 3.5 1.8 3.5 9.0 0.4 11.1 1.8 0.6 2.8 -0.6 -0.2 -1.4 5.4 7.8 3.2 3.2 2.7 5.0 -0.8 6.4 5.0 3.0 5.5 -7.0 4.6 3.8 3.0 8.0 12.0 4.6 4.4 7.5 1.8 0.1 3.5 8.0 2015f 11.7 3.6 16.6 5.9 6.1 3.9 16.2 17.3 20.0 0.6 6.6 4.9 2.8 7.7 6.2 12.0 5.1 1.7 2.9 5.8 9.0 2.4 7.7 2.4 1.5 2.2 1.2 1.3 1.6 4.6 5.5 4.7 5.1 3.1 6.1 1.0 5.0 7.4 3.0 8.0 -11.3 5.5 5.8 4.0 8.0 15.0 5.2 4.2 5.4 2.6 -0.4 6.5 8.5
Note: *Fiscal year;**Nominal growth; ***Mainland We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates
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Exports
Export volume growth (GDP basis) % Year World Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India* Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway*** Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia** UAE** South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 11.3 8.9 15.5 8.0 9.0 4.6 14.3 18.6 25.0 9.9 20.4 10.3 9.4 9.4 6.7 12.6 10.8 11.4 11.4 9.1 22.7 3.1 2.0 9.2 9.2 13.6 5.5 8.8 6.7 9.2 12.0 1.0 9.4 10.1 12.1 14.2 19.1 14.6 7.3 6.6 11.1 10.4 21.3 5.5 16.9 11.6 7.5 19.1 16.7 16.5 15.3 41.5 15.9 2007 9.0 6.4 13.5 8.2 9.3 4.6 13.1 16.7 23.8 8.7 5.9 9.3 8.3 8.5 3.8 6.7 9.0 12.6 9.6 7.8 21.9 3.1 4.2 5.4 6.6 8.3 2.3 5.6 6.6 1.8 -2.1 2.6 6.2 9.9 10.5 11.2 15.0 9.1 6.3 7.3 28.1 7.8 23.3 9.2 10.5 8.8 6.6 13.4 8.8 16.6 20.3 15.5 21.4 2008 5.1 2.1 9.8 5.8 6.1 4.6 6.3 8.1 11.2 1.4 14.6 4.1 2.5 9.5 1.6 -2.7 5.0 6.6 0.9 5.1 29.1 3.6 -1.1 0.9 0.8 2.3 -0.6 -2.8 -1.0 1.2 1.1 1.7 0.4 2.5 13.5 3.6 5.7 7.1 0.6 2.7 35.7 8.3 28.8 7.1 34.4 12.8 1.8 12.7 7.2 23.2 25.1 -5.9 26.0 2009 -12.4 -11.1 -14.4 -6.2 -9.1 4.6 -13.5 -18.9 -17.9 -24.2 -4.7 -7.1 -10.0 -9.7 -10.9 -7.8 -7.6 -1.2 -8.7 -12.5 -8.9 2.3 2.4 -11.3 -12.3 -13.0 -11.9 -17.7 -10.0 -8.0 -8.7 -4.8 -12.5 -7.3 -17.9 -10.5 -10.2 -6.8 -4.7 -5.0 -40.3 -6.4 -14.5 -12.3 -38.7 -6.5 -19.5 -20.2 -21.2 -22.7 -20.5 -14.0 -11.7 2010 14.9 11.1 20.7 9.6 11.1 4.6 22.1 26.9 29.4 24.4 19.7 17.5 16.8 15.3 11.1 21.0 18.6 14.7 25.6 14.7 26.5 5.7 3.6 10.2 11.4 14.8 9.0 11.2 11.7 6.3 6.7 1.9 10.0 7.4 11.7 15.0 11.3 12.1 7.0 3.4 29.2 13.2 -3.0 14.2 23.1 3.4 9.0 28.9 29.9 32.0 22.5 28.2 20.0 2011 9.1 5.3 14.4 6.2 6.7 4.6 9.4 12.5 18.3 -0.4 15.3 6.0 3.9 13.6 4.6 -2.8 3.5 9.1 4.5 9.5 34.2 -0.4 2.7 6.0 6.6 8.1 5.6 6.9 7.6 3.8 4.5 -0.8 6.5 3.8 17.4 9.6 8.4 7.7 0.3 7.9 33.0 10.3 1.2 14.2 48.3 18.7 6.8 21.9 17.1 26.8 23.1 14.6 42.9 2012 3.4 2.5 4.4 3.8 3.5 4.6 4.3 4.0 5.9 -0.1 3.0 4.5 1.9 2.0 -0.1 8.9 0.3 4.2 0.1 3.1 18.2 5.8 2.6 2.3 2.7 3.8 2.5 1.9 2.1 1.2 1.0 1.0 1.1 2.0 5.2 4.7 1.7 2.8 1.4 17.2 1.2 -3.0 -2.3 0.9 7.8 10.0 0.4 0.4 6.2 -5.3 -3.6 -3.9 5.4 2013f 2.6 1.6 3.8 3.0 2.5 4.6 4.7 5.4 6.0 1.8 11.2 3.6 6.0 4.5 -0.6 0.1 3.0 4.5 3.1 4.4 18.2 6.6 0.4 0.9 1.1 0.3 0.2 0.1 5.4 0.5 1.2 -1.8 -1.5 1.2 1.5 -0.1 5.0 4.1 1.3 1.1 -9.1 15.4 1.0 -0.7 2.1 3.0 4.5 1.5 1.9 0.5 4.0 0.9 1.2 2014f 4.9 3.8 6.3 5.2 5.4 4.6 7.4 7.7 8.0 5.4 11.1 7.1 8.0 5.1 5.6 4.8 5.8 7.5 2.8 7.8 19.9 6.2 3.0 2.9 3.0 3.0 1.3 2.8 6.7 2.5 2.4 2.3 3.2 3.0 3.6 7.6 4.6 6.8 1.0 6.1 0.0 6.8 4.7 3.5 2.0 3.5 5.0 4.3 9.2 -1.3 -0.7 0.9 10.0 2015f 5.6 4.0 7.5 4.3 4.2 4.6 8.6 9.4 10.0 6.9 10.8 7.5 6.2 8.2 6.1 4.3 6.3 9.6 5.3 7.3 13.7 9.0 3.3 3.4 3.4 3.1 3.3 2.8 6.6 3.2 2.8 3.3 5.9 3.4 4.1 6.1 4.3 6.5 1.5 6.8 4.6 5.0 6.7 4.0 2.5 4.0 6.2 6.3 11.0 1.8 1.5 0.9 8.0
Note: *Fiscal year; **Nominal growth ***Mainland. We now calculate the weighting system using chain nominal GDP (USD) weights Source: HSBC estimates
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Industrial production
Industrial production % Year World Developed Emerging North America US Canada Asia-Pacific Asia Big Three China Japan India Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt Israel Saudi Arabia UAE South Africa Latin America Mexico Brazil Argentina Chile Colombia
2006 6.4 3.2 10.3 2.2 2.2 2.5 10.7 12.6 16.2 4.5 12.9 5.4 2.2 -1.6 4.8 4.1 11.9 9.0 4.8 5.9 2.0 0.6 3.9 4.3 5.7 1.1 3.7 3.9 2.7 1.8 5.7 3.5 6.4 5.7 8.3 9.9 12.0 3.9 7.3 6.2 9.3 9.7 8.5 -1.1 -8.6 4.6 5.7 5.7 2.8 8.4 3.3 10.4
2007 6.7 3.0 11.0 2.6 2.5 4.3 11.1 12.7 16.0 2.8 15.5 6.6 -1.5 5.6 2.3 3.6 5.9 7.0 7.8 8.5 3.6 5.7 3.4 3.8 5.9 1.0 1.9 1.9 1.9 0.8 5.8 4.0 5.2 6.4 10.8 7.8 9.4 6.3 7.0 7.6 10.3 16.4 4.3 -4.0 -2.6 4.2 5.8 2.0 6.0 7.6 4.1 9.8
2008 1.1 -3.0 5.8 -4.1 -3.4 -12.7 5.5 6.6 12.9 -3.4 2.5 2.3 -6.7 3.0 0.8 4.3 -4.2 3.4 -1.1 4.5 2.9 -12.3 -1.8 -1.8 0.0 -3.2 -3.8 -7.5 -1.7 -2.7 2.9 -2.6 3.9 2.0 -1.5 -0.3 2.7 0.6 -0.6 -5.2 2.7 21.9 6.9 4.2 2.7 -0.4 1.9 -0.1 3.1 5.0 0.2 -3.3
2009 -5.9 -12.7 2.1 -9.6 -11.3 9.3 1.4 2.8 12.9 -21.8 5.3 -3.4 -8.3 1.3 -7.6 -4.8 -4.2 -0.7 -7.9 -6.9 -0.9 10.1 -14.0 -15.1 -15.5 -13.9 -18.6 -15.7 -10.5 -10.2 -6.4 -18.1 -7.5 -8.5 -13.6 -17.5 -3.8 -9.3 -9.9 -21.9 -5.5 17.8 -6.2 -7.8 -6.6 -13.6 -6.2 -6.2 -7.4 0.1 -6.7 -4.6
2010 9.5 7.3 12.1 5.6 5.7 4.5 13.7 14.0 15.7 15.6 8.2 14.3 3.5 5.1 7.2 11.2 29.7 16.5 24.2 14.2 4.9 -4.8 6.7 7.3 10.1 4.8 6.9 0.9 4.6 4.1 2.8 8.7 5.1 8.8 8.6 10.5 11.1 8.2 12.8 11.2 5.5 18.1 0.9 2.1 2.6 4.5 8.4 4.6 10.5 9.7 3.2 4.3
2011 4.6 2.3 7.3 3.3 3.4 2.5 6.2 7.4 13.9 -2.8 2.9 3.1 0.7 4.1 1.2 4.7 7.8 5.9 4.4 -8.5 0.8 0.4 3.1 3.3 6.8 2.3 1.2 -1.4 2.5 1.8 0.9 5.7 5.6 5.9 5.9 5.5 6.7 4.7 10.1 7.3 7.5 11.3 0.9 4.7 5.3 2.6 3.3 3.4 0.4 6.5 8.0 5.1
2012 2.5 0.9 4.4 3.4 3.6 0.1 4.8 5.7 10.0 0.6 1.1 2.0 -0.8 4.1 4.4 5.4 0.3 1.2 -0.2 2.2 4.8 0.8 -2.1 -2.4 -0.4 -2.5 -6.4 -6.0 -1.0 -1.7 2.8 -1.1 1.6 2.7 -0.8 -1.8 1.2 2.6 2.5 -2.2 2.4 10.3 0.9 7.5 4.2 2.5 -0.4 2.6 -2.6 -1.2 2.2 -0.1
2013f 2.3 0.8 4.0 2.6 2.6 3.4 4.3 5.1 9.7 -0.9 0.8 1.9 -0.4 6.6 2.2 8.9 1.3 0.0 0.1 -2.5 2.6 1.4 -0.7 -0.9 0.3 -0.5 -3.2 -1.6 -0.2 0.0 4.1 -3.9 -0.4 0.5 0.9 1.8 2.4 0.1 2.5 -4.9 6.5 2.2 -1.8 -3.0 3.6 1.4 1.3 0.1 1.6 1.2 2.0 2.9
2014f 4.2 2.9 5.7 3.4 3.5 2.4 6.2 7.2 9.4 3.9 5.4 3.5 2.7 4.0 4.3 8.0 4.5 0.5 3.4 4.9 2.6 1.7 2.0 1.4 4.1 1.2 0.4 0.6 4.0 4.4 2.7 3.7 2.2 2.8 6.3 4.8 6.2 1.3 2.1 0.0 5.4 4.5 3.9 2.0 4.9 2.8 3.4 3.3 3.2 0.8 4.0 4.8
2015f 4.3 2.9 6.0 2.5 2.5 2.4 6.9 7.8 9.8 5.0 6.1 4.3 0.6 5.0 5.0 8.0 4.2 1.0 4.7 7.3 3.3 1.1 2.7 2.6 3.9 2.6 2.2 2.5 2.9 2.6 2.6 5.4 2.9 2.7 4.6 3.5 5.4 1.5 5.2 -4.8 5.0 6.0 4.5 0.0 4.9 3.3 2.9 3.3 2.1 0.8 5.0 5.0
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Wage growth
Wage growth % Year World North America US Canada Asia-Pacific Asia Big Three* China Japan Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Israel South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 6.8 3.2 3.1 4.2 12.2 9.7 14.0 0.2 4.1 2.2 6.5 2.1 7.9 3.2 5.6 1.4 4.3 4.1 3.2 3.1 2.6 1.2 2.8 3.0 3.1 4.4 5.1 4.1 0.0 17.1 6.6 8.2 5.0 24.3 13.2 29.2 18.9 1.5 7.8 16.8 5.1 7.2 19.4 3.5 8.1 2007 7.4 3.4 3.4 3.1 13.3 10.7 16.2 -1.7 3.9 2.8 4.3 4.3 4.5 6.2 5.9 1.8 3.5 4.1 3.2 3.6 3.0 1.4 2.7 2.2 4.4 4.7 5.3 6.3 0.0 19.5 7.2 8.0 9.1 27.8 14.8 31.9 22.6 5.6 6.7 16.7 5.4 7.3 20.0 4.5 4.7 2008 7.5 2.9 3.0 2.3 13.2 11.0 15.8 0.3 3.3 0.9 7.6 8.9 5.3 5.4 3.1 -0.3 9.5 4.2 3.6 3.6 3.5 2.8 2.9 3.5 5.2 3.3 3.5 5.6 0.0 20.4 7.8 7.6 10.5 27.2 10.6 33.7 23.6 3.0 12.8 20.3 6.0 9.9 23.4 5.3 4.7 2009 3.5 1.8 1.7 2.4 5.2 4.7 9.0 -4.8 -1.0 0.8 5.2 2.5 2.2 -2.7 5.0 -9.2 0.2 3.5 2.5 2.1 2.7 2.0 2.2 3.1 4.3 -0.2 -1.1 4.3 2.9 7.6 3.4 0.5 4.2 7.8 -1.9 11.6 8.4 1.0 11.8 16.8 4.9 8.4 17.3 4.0 6.7 2010 5.9 1.9 1.9 2.4 12.2 9.1 13.0 0.6 5.9 3.3 12.1 8.2 3.4 5.6 6.4 8.6 3.1 3.4 1.6 1.8 1.6 1.7 1.8 2.1 1.2 2.3 2.1 3.6 2.4 13.1 2.2 1.3 3.6 12.4 15.8 17.7 2.5 3.6 13.6 19.9 3.3 9.2 29.3 4.7 5.5 2011 5.9 2.2 2.0 5.0 11.3 8.9 13.0 -0.2 4.0 9.3 7.1 3.8 6.0 6.0 1.7 2.6 6.4 3.7 1.9 2.6 2.5 1.8 2.2 1.7 2.6 2.6 2.4 4.5 2.4 11.2 2.4 5.2 4.9 11.5 15.0 16.2 4.9 3.8 7.2 22.2 3.9 9.4 35.8 6.3 3.8 2012 5.7 1.8 1.9 1.1 11.8 8.7 13.0 -0.9 5.8 5.2 8.3 6.4 4.7 2.3 3.8 1.0 20.6 3.6 2.0 2.3 2.3 2.6 2.1 1.5 1.2 1.8 1.3 4.4 3.1 11.4 2.7 4.7 3.5 13.9 15.0 10.6 5.0 2.2 7.5 20.0 4.3 9.8 24.8 6.3 6.4 2013f 5.4 1.9 1.9 1.5 11.3 8.6 12.5 0.0 5.0 5.5 9.0 7.2 6.0 4.5 5.5 1.5 9.9 2.9 1.7 1.7 1.7 2.6 1.7 1.4 0.1 1.7 1.4 3.6 2.1 10.4 0.5 4.0 2.8 12.5 12.0 9.1 5.3 3.2 8.5 18.0 4.3 7.8 25.7 5.5 3.5 2014f 5.3 2.0 2.0 2.4 11.3 8.6 12.0 1.1 5.2 6.3 6.0 5.7 6.5 4.8 4.5 1.2 12.4 2.9 2.3 1.8 1.5 3.0 1.3 1.4 0.6 2.2 2.2 2.3 1.7 8.9 1.6 5.0 4.0 9.5 11.0 4.5 4.5 3.5 8.0 17.3 3.4 7.3 26.5 5.0 4.0 2015f 5.6 2.0 2.0 2.4 12.4 9.1 12.6 1.3 6.7 6.6 7.0 5.7 6.5 5.0 8.5 1.3 13.9 3.6 2.0 1.8 1.5 2.8 1.5 1.6 0.7 2.6 2.7 2.4 2.0 9.0 2.5 4.0 4.3 9.5 11.0 6.5 5.2 3.8 7.6 16.6 3.7 6.1 26.5 6.0 4.0
Note: *Aggregate for China and Japan only. Global and regional aggregates are calculated using the World Bank's 2004 PPP weights Source: HSBC estimates
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Budget balance
Budget balance % GDP North America US Canada* Asia-Pacific Asia Big Three China Japan India* Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK* Norway Sweden EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 -1.7 -1.9 0.9 -1.6 -2.2 -1.0 -3.6 -3.3 0.0 3.8 -0.9 -3.2 -1.0 0.5 0.6 0.1 0.5 0.3 1.3 1.0 -1.1 -1.3 -1.6 -2.3 -3.4 2.4 -0.4 -2.5 18.3 2.3 3.0 -2.4 -9.5 -3.6 7.4 -0.6 -1.1 -2.2 -8.2 -0.9 21.0 18.9 0.5 -1.7 0.1 -3.6 0.0 0.0 -0.7 2007 -1.0 -1.2 0.7 -0.4 -0.8 0.6 -2.1 -2.5 0.6 7.3 -1.3 -3.1 -0.2 3.1 3.5 0.6 -1.9 -2.2 2.1 -0.3 -0.6 -0.7 0.2 -2.7 -1.6 1.9 -0.4 -2.6 17.3 3.6 1.8 -0.7 -5.1 -1.9 5.4 -1.6 -0.8 -2.9 -7.3 0.0 12.2 16.0 -0.8 -0.7 0.0 -2.8 1.1 8.2 -0.6 2008 -3.0 -3.2 -0.1 -1.9 -2.6 -0.4 -4.2 -6.0 0.0 0.1 -0.1 -4.6 -0.9 1.4 1.7 0.2 -0.9 -0.5 0.5 -0.1 -2.4 -2.1 -0.1 -3.3 -2.7 -4.1 -3.3 -6.3 18.8 2.2 2.6 -2.2 -3.7 -3.7 4.1 -1.8 -1.9 -5.7 -6.8 -2.1 32.5 16.7 -1.2 -0.5 -0.1 -2.0 1.4 4.7 -0.1 2009 -9.5 -10.1 -3.0 -4.5 -5.1 -2.2 -10.3 -6.5 -2.5 1.5 -1.6 -6.7 -3.7 -1.0 -2.1 -1.3 -4.3 -7.2 -4.1 -5.0 -6.8 -6.4 -3.1 -7.5 -5.5 -11.2 -7.9 -10.7 10.5 -0.7 -6.0 -5.8 -4.6 -7.5 -6.0 -5.5 -6.1 -9.0 -6.9 -4.8 -6.1 -13.1 -6.3 -2.9 -2.3 -3.3 -0.6 -4.3 -2.8 2010 -8.4 -9.0 -2.0 -3.8 -4.7 -2.5 -9.3 -4.8 -0.8 4.1 -0.7 -5.4 -3.5 0.2 1.6 -1.2 -1.0 -5.2 -4.8 -6.7 -6.3 -6.2 -4.1 -7.1 -4.5 -9.7 -6.6 -9.3 11.0 0.3 -3.9 -4.8 -4.2 -7.9 -3.9 -3.6 -6.7 -6.8 -8.1 -3.1 5.2 -2.2 -4.2 -2.3 -2.8 -2.5 0.2 -0.3 -3.2 2011 -8.1 -8.7 -1.2 -3.4 -4.3 -1.1 -9.9 -5.8 -0.4 3.8 -1.1 -4.8 -2.0 1.3 1.7 -0.5 -1.0 -2.7 -3.4 -9.2 -4.4 -4.2 -0.8 -5.3 -3.8 -9.4 -5.1 -7.7 13.3 0.2 -0.6 -3.3 4.3 -5.0 0.8 -1.4 -1.8 -5.6 -9.8 -3.0 11.6 3.0 -3.6 -2.4 -2.5 -2.6 -1.7 1.5 -2.0 2012 -6.3 -6.8 -1.0 -3.6 -4.4 -1.5 -10.2 -4.9 -1.1 3.1 -1.9 -4.5 -2.3 2.0 1.6 -1.5 -2.8 -3.6 -2.9 -4.4 -3.6 -3.7 0.1 -4.8 -3.0 -10.6 -3.1 -5.1 13.6 -0.5 -1.5 -4.4 -2.1 -3.9 0.0 -2.0 -5.1 -3.0 -11.0 -3.8 9.8 8.3 -4.2 -2.3 -2.6 -2.5 -2.6 0.6 0.3 2013f -3.8 -4.1 -0.8 -3.8 -4.6 -2.1 -9.8 -5.1 -1.2 2.4 -2.4 -4.0 -2.2 1.4 1.0 -1.5 -2.1 -2.6 -1.3 -3.5 -3.3 -3.2 0.1 -4.2 -3.2 -7.2 -3.6 -5.6 13.6 -0.9 -1.8 -2.9 -2.9 -4.4 -0.2 -1.2 -6.5 -2.5 -13.9 -2.7 8.1 10.8 -4.3 -2.7 -2.4 -3.2 -1.9 -0.8 -1.2 2014f -3.0 -3.2 -0.3 -3.1 -3.8 -1.9 -7.1 -4.7 -0.9 1.4 -1.8 -3.5 -2.0 1.5 2.0 -1.3 -3.1 -2.3 -3.0 -1.7 -2.9 -2.9 0.1 -4.1 -2.8 -6.3 -2.9 -4.7 13.1 -1.1 -1.0 -2.9 -3.0 4.6 0.5 -2.2 -6.9 -2.2 -12.3 -2.8 4.8 7.9 -4.3 -3.3 -3.5 -3.7 -1.6 -1.0 -1.2 2015f -2.2 -2.3 -0.2 -2.7 -3.4 -1.9 -5.9 -4.3 -0.7 1.0 -1.5 -3.0 -2.4 1.4 2.9 -1.2 -3.5 -2.3 -2.0 -0.5 -2.6 -2.8 0.1 -3.6 -2.4 -6.0 -2.1 -3.9 12.8 0.5 -2.1 -3.0 -2.9 -3.0 -0.6 -2.2 -3.8 -1.8 -11.4 -2.5 2.6 4.4 -3.9 -2.7 -3.0 -3.0 -1.3 -1.2 -1.0
Note: *Fiscal year. Global and regional aggregates are calculated using the World Banks' 2004 PPP weights Source: HSBC estimates
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Current account
Current account % GDP North America US Canada Asia-Pacific Asia Big Three China Japan India Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 -5.4 -6.0 1.4 5.1 5.7 9.3 3.9 -1.0 5.1 12.7 3.0 16.1 4.2 24.8 1.4 7.0 1.1 -0.2 -5.8 -8.0 0.2 -0.1 6.3 -0.6 -1.5 -9.0 1.4 -2.8 16.4 8.7 14.4 3.6 -2.0 -7.4 -3.9 9.5 -6.1 1.0 -10.4 1.6 5.2 27.9 16.2 -6.4 1.1 -0.5 1.3 3.6 4.6 -1.9 2007 -4.6 -5.1 0.8 6.0 6.7 10.6 4.9 -0.7 5.7 13.0 2.4 15.4 4.5 26.1 2.1 8.9 6.2 -9.0 -6.7 -7.9 0.3 0.1 7.4 -1.0 -1.3 -10.0 1.1 -2.2 12.5 9.3 8.6 1.3 -4.3 -7.3 -6.2 5.9 -5.9 -3.6 -13.4 1.7 3.1 24.5 7.6 -7.0 0.1 -1.1 0.1 2.8 4.1 -2.9 2008 -4.4 -4.7 0.1 4.5 5.2 9.4 3.3 -2.4 3.4 15.0 0.0 17.1 2.0 15.1 0.5 6.9 0.8 -10.9 -4.9 -8.7 -0.8 -1.6 6.2 -1.8 -2.9 -9.6 1.6 -0.9 15.9 9.0 2.1 1.3 -2.1 -7.3 -6.6 6.1 -5.7 -7.2 -11.6 0.5 1.3 27.9 7.1 -7.2 -1.4 -1.6 -1.7 2.1 -3.2 -2.8 2009 -2.7 -2.7 -2.9 3.7 3.3 5.7 2.9 -2.1 6.6 9.9 2.0 15.5 5.4 17.7 3.7 11.4 8.3 -5.8 -4.6 -3.1 0.2 -0.2 6.0 -1.3 -2.0 -4.8 1.5 -1.4 11.7 6.3 10.5 0.4 -2.4 -0.2 -4.0 4.0 -2.3 -1.5 -4.2 -2.4 3.6 6.2 3.1 -4.0 -0.4 -0.7 -1.5 3.6 2.0 -2.2 2010 -3.1 -3.0 -3.5 3.1 2.9 5.1 3.7 -3.2 5.0 7.0 0.7 10.9 4.3 26.8 2.7 9.3 3.1 -3.0 -3.5 -3.2 0.3 0.1 6.3 -1.4 -3.5 -4.5 1.0 -2.7 11.9 6.3 14.7 0.8 -3.9 0.2 -5.1 4.7 -6.5 -2.2 -4.4 -2.0 4.2 15.6 2.7 -2.0 -1.2 -0.2 -2.2 0.4 1.5 -3.1 2011 -3.1 -3.1 -2.8 1.8 1.2 2.7 2.0 -3.4 4.5 5.6 0.2 11.6 3.1 24.6 2.3 9.0 1.2 0.0 -2.8 -3.7 0.4 0.1 6.2 -1.8 -3.1 -3.8 1.4 -1.5 13.5 6.0 9.0 1.0 -2.7 0.5 -5.0 5.2 -10.0 -6.2 -4.6 -2.6 0.9 24.0 8.8 -2.3 -1.7 -0.8 -2.1 -0.4 -1.3 -2.9 2012 -2.8 -2.7 -3.4 1.0 0.3 2.3 1.0 -5.0 4.0 2.3 -2.8 6.1 2.6 18.6 4.3 10.6 -0.4 1.8 -4.1 -4.7 1.0 1.4 7.0 -2.2 -0.4 -1.1 -0.1 -3.8 14.4 6.1 11.2 0.7 -2.4 1.0 -3.7 3.6 -5.9 -8.2 -4.4 -4.0 0.3 22.6 16.7 -5.2 -1.9 -0.8 -2.4 0.0 -3.5 -3.3 2013f -2.4 -2.4 -3.0 1.3 0.8 2.3 1.0 -2.9 3.8 4.9 -3.7 3.3 3.3 17.4 5.1 10.5 -1.9 1.8 -3.1 -3.5 0.8 2.1 6.8 -1.9 0.5 0.7 -0.1 -3.8 11.0 6.4 13.2 0.0 -1.2 2.9 -1.5 1.6 -7.3 -9.2 -0.6 -2.1 2.7 19.6 13.7 -6.1 -2.7 -1.2 -3.4 -0.8 -3.6 -4.0 2014f -2.1 -2.1 -3.0 1.5 0.9 2.6 1.1 -3.0 4.0 6.5 -2.8 6.0 2.7 18.9 4.4 8.8 0.6 2.0 -3.3 -4.7 1.0 2.1 6.3 -2.0 0.5 0.8 1.0 -2.3 9.6 7.1 12.9 -0.4 -0.6 2.4 -1.6 1.5 -6.3 -8.7 -0.9 -1.9 3.3 14.5 7.4 -6.0 -2.6 -1.3 -3.2 -0.7 -3.9 -4.1 2015f -2.0 -1.9 -2.6 1.7 1.1 2.7 1.6 -3.0 4.6 8.4 0.4 7.7 2.1 19.5 4.4 6.7 4.1 0.7 -3.0 -5.3 2.0 2.0 5.7 -1.9 0.9 0.7 1.1 -2.1 8.5 7.4 12.2 -0.6 -1.1 2.1 -2.5 1.4 -6.5 -1.6 -1.2 -2.5 3.5 9.4 4.1 -5.7 -2.5 -1.4 -3.0 -0.7 -4.6 -3.3
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Current account USDbn North America US Canada Asia-Pacific Asia Big Three China Japan India Asia ex Big Three Hong Kong Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Vietnam Australia New Zealand Western Europe Eurozone Germany France Italy Spain Other Western Europe UK Norway Sweden Switzerland EMEA Czech Republic Hungary Poland Russia Turkey Ukraine Romania Egypt* Israel Saudi Arabia UAE South Africa Latin America Mexico Brazil Argentina Chile Colombia 2006 -782.6 -800.6 18.0 509.5 418.4 253.3 174.4 -9.3 144.2 24.6 10.9 25.4 5.1 36.2 13.5 26.3 2.3 -0.2 -44.4 -8.8 68.8 -15.9 190.9 -12.5 -28.1 -113.9 84.7 -65.8 56.1 36.1 58.3 154.3 -3.0 -8.3 -13.2 94.3 -31.8 1.1 -12.8 1.8 7.0 99.6 36.0 -16.4 21.0 -4.5 13.6 7.8 7.1 -3.0 2007 -698.9 -710.3 11.4 690.3 576.4 371.8 212.6 -8.1 186.6 27.6 10.5 29.2 6.8 46.5 22.1 35.2 15.7 -7.0 -62.2 -10.5 83.0 10.1 264.5 -26.2 -27.3 -153.7 72.9 -61.1 49.4 45.2 39.3 67.3 -7.7 -9.9 -26.5 77.2 -37.8 -5.2 -22.9 2.3 4.6 94.3 19.6 -20.7 -1.1 -11.1 1.6 7.4 7.1 -6.0 2008 -675.4 -677.1 1.8 619.7 556.6 426.1 161.5 -31.0 128.4 32.9 0.1 39.5 3.5 28.9 4.7 27.5 2.2 -10.8 -54.0 -11.4 -110.9 -207.6 213.6 -50.7 -66.1 -145.5 96.7 -27.4 72.3 40.6 11.3 112.0 -4.8 -11.3 -34.9 102.3 -40.5 -12.9 -23.8 0.9 2.2 133.0 22.3 -20.5 -51.4 -17.3 -28.2 6.8 -5.8 -6.9 2009 -422.1 -381.9 -40.2 551.6 404.0 284.1 145.8 -25.9 195.7 21.2 10.6 31.4 9.0 33.5 31.2 42.9 21.9 -6.1 -44.4 -3.7 81.4 -18.8 203.1 -35.3 -42.1 -72.3 100.2 -28.8 45.6 29.0 54.5 28.2 -4.9 -0.2 -17.3 49.0 -12.2 -1.7 -6.8 -4.4 7.3 23.4 7.8 -11.8 -20.6 -5.8 -24.3 11.0 3.5 -5.1 2010 -498.3 -442.0 -56.4 602.2 458.1 305.4 204.9 -52.2 192.9 16.1 5.1 27.1 8.6 62.2 27.5 39.9 10.0 -3.5 -44.3 -4.5 114.0 7.0 209.0 -35.2 -72.3 -62.9 106.9 -64.6 50.0 30.8 90.8 58.4 -7.5 0.3 -24.1 71.1 -45.5 -3.0 -7.3 -4.3 8.2 70.7 7.7 -7.9 -53.6 -1.9 -47.3 1.4 3.2 -8.9 2011 -515.1 -465.9 -49.1 402.1 257.0 201.1 118.6 -62.8 192.7 14.0 1.7 33.5 7.0 65.4 25.1 41.7 4.1 0.2 -41.7 -5.9 134.6 11.4 209.6 -48.6 -67.2 -53.7 123.2 -35.2 66.1 32.0 60.3 152.7 -6.1 0.6 -25.8 98.9 -75.1 -10.2 -8.3 -6.1 1.9 160.7 30.7 -8.4 -76.8 -9.7 -52.5 -1.6 -3.3 -9.8 2012 -502.7 -440.4 -62.3 254.1 166.7 193.1 65.3 -91.8 158.7 6.1 -24.4 18.6 6.6 51.2 48.6 50.7 -1.5 2.8 -63.2 -8.0 248.2 164.3 247.1 -58.4 -7.9 -15.2 83.9 -92.1 71.4 33.5 71.2 181.7 -4.8 1.3 -18.1 72.0 -46.8 -14.3 -7.5 -10.1 0.8 164.6 64.1 -19.4 -85.2 -9.2 -54.2 -0.1 -9.5 -12.2 2013f -456.9 -400.3 -56.6 309.4 204.3 215.0 43.1 -53.8 159.2 13.5 -32.4 10.2 8.7 50.8 61.6 51.0 -7.2 3.1 -47.9 -6.2 334.7 261.3 242.3 -51.7 10.8 9.5 73.4 -100.2 53.5 35.3 84.8 136.7 -2.3 3.8 -7.9 34.5 -60.2 -15.7 -1.2 -5.6 7.2 149.2 56.2 -21.3 -121.0 -15.9 -76.2 -3.8 -10.0 -15.2 2014f -412.3 -359.1 -53.2 384.4 246.5 265.0 41.5 -60.0 195.0 19.2 -24.0 20.7 7.8 59.6 59.3 46.0 2.6 3.9 -47.9 -9.3 380.9 264.3 232.8 -55.0 9.9 11.0 116.7 -57.5 49.6 40.6 84.0 86.0 -1.1 3.3 -9.2 32.4 -54.4 -14.5 -1.7 -5.5 8.6 116.8 33.2 -21.9 -117.1 -17.7 -69.3 -3.3 -10.9 -15.9 2015f -397.4 -349.4 -48.0 516.2 324.0 315.0 73.1 -64.1 248.8 25.3 3.4 28.1 6.5 65.2 64.3 37.1 17.3 1.5 -45.1 -11.5 358.7 246.2 206.5 -50.7 18.4 9.9 112.5 -53.9 45.0 43.4 78.0 29.2 -2.1 2.9 -14.6 29.0 -60.1 -2.4 -2.4 -7.9 9.0 80.7 20.9 -23.7 -116.9 -21.2 -65.5 -3.1 -13.5 -13.5
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US
Less fiscal drag, more growth
In 2013, a sizable dose of fiscal austerity pushed the GDP growth rate down to an estimated 1.8% from 2.8% in 2012. Payroll taxes were increased and the top income tax rate was boosted as well. At the same time, the imposition of an across-theboard sequestration of funds for discretionary programmes led to an estimated 4.4% decline in federal spending. Fiscal drag should ease in 2014 for two reasons. First, no new tax hikes are scheduled; second, although cuts to government spending programmes will continue, the pace will be slower than in 2013. We expect GDP to expand at a rate of about 2.3% in 2014, followed by growth of roughly 2.5% in 2015. Due to the deep recession of 2008/09 and the slow recovery since, US GDP may be as much as 5% below its potential level. We estimate that potential GDP in the US is currently growing at about 2.0% annually. The growth in GDP that we
% q-o-q annualised GDP (% year) GDP Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) 3-month money (%)* 10-year bond (%)* 2013f 1.8 1.9 -1.9 4.5 0.1 1.7 2.5 1.7 2.6 7.4 1.9 1.5 -400.3 -2.4 -4.1 96.9 106.4 0.2 2.7 2014f 2.3 2.0 -0.2 5.7 -0.1 2.2 5.4 3.5 3.5 6.8 2.0 1.7 -359.1 -2.1 -3.2 99.3 108.1 0.3 2.1 2015f 2.5 2.2 -0.1 6.1 0.0 2.4 4.2 2.8 2.5 6.3 2.0 1.9 -349.4 -1.9 -2.3 99.3 109.0 1.0 2.7
expect for the next two years will barely begin to close the gap between the actual and the potential level of output. Given excess productive capacity throughout the economy especially in the labour market inflation pressures are likely to remain quite low. We expect the core rate of CPI inflation to average between 1.5% and 2.0% for the next two years. With inflation low and economic activity well below its potential level, we expect the Federal Reserve to continue with its accommodative policy stance in the year ahead. However, the mix of policy tools is changing. Fed officials believe there are limits to how many securities they can add to the Feds balance sheet through a programme of quantitative easing. We expect that the Fed will continue to scale down the current QE programme in the first half of 2014 while simultaneously emphasising that they will hold the fed funds rate at a very low level for an extended period.
Kevin Logan Economist HSBC Securities (USA) Inc. +1 212 525 3195 kevin.r.logan@us.hsbc.com Ryan Wang Economist HSBC Securities (USA) Inc. +1 212 525 3181 ryan.wang@us.hsbc.com
Q3 13 1.8 3.6 1.4 0.4 5.4 1.5 3.5 3.7 2.7 2.2 7.3 1.9 1.6 -100.0 -2.4 0.2 2.6
Q4 13f 2.3 1.9 2.3 -0.1 4.7 -0.5 1.8 7.4 5.4 6.0 7.1 1.9 1.2 -96.5 -2.3 0.2 2.7
Q1 14f 2.5 2.0 2.1 -0.5 5.7 -0.6 1.7 6.1 2.7 4.1 7.0 1.9 1.4 -91.6 -2.1 0.3 2.6
Q2 14f 2.4 2.2 2.0 -0.4 6.3 -0.1 2.1 4.2 2.7 3.4 6.9 1.9 1.9 -89.9 -2.1 0.3 2.5
Q3 14f 2.1 2.2 1.9 -0.3 6.2 -0.1 2.1 4.2 2.7 2.6 6.7 2.0 1.7 -90.2 -2.1 0.3 2.3
Q4 14f 2.3 2.7 2.3 -0.2 6.3 0.0 2.5 4.2 2.7 1.6 6.6 2.0 1.9 -87.4 -2.0 0.3 2.1
Note: *Period-end Source: Bureau of Economic Analysis, Bureau of Labor Statistics, HSBC estimates
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Fiscal austerity deepened in 2013

Chained 2009 USDbn 100 50 0 -50 -100 05 06 07 08 09 10 11 12 13 14 4-quarter change in federal government spending Chained 2009 USDbn 100 50 0 -50 -100
and will continue to act as a drag on growth in 2014

The Budget Control Act of 2011 set caps on the level of
federal spending for discretionary programmes. In addition, a 10% across-the-board spending reduction was required by a sequestration of funds if Congress did not agree on alternative ways to reduce the budget deficit. As Congress failed to agree on a comprehensive long-term plan to reduce the annual projected budget deficits, the sequester was imposed in 2013. Congress may pare back the sequestration spending cuts in 2014, but the bulk of the cutbacks will still be implemented. Fiscal policy will still be contractionary in 2014.
Source: Bureau of Economic Analysis
Output gap remains substantial

Chained 2009 USDtrn 18 Actual GDP 17 Potential GDP 16 15 14 13 12 11 10 95 97 99 01 03 05 07 09 11 13 15
Source: Bureau of Economic Analysis, Congressional Budget Office, HSBC
Excess capacity likely to keep inflation down

Chained 2009 USDtrn 18 17 16 15 14 13 12 11 10
The deep recession of 2008/09 pushed GDP well below
its potential level.

Estimates of potential GDP can never be very precise,
but reasonable estimates of labour force growth and capital investment suggest that potential GDP will grow at about 2.0% in coming years well below the 3.2% average for the previous 40 years. A deep output gap should keep inflation from rising as long as inflation expectations remain stable. Both consumer surveys and data derived from inflation-adjusted Treasury bonds suggest that inflation expectations are, indeed, quite stable currently.
Current core PCE well below the Feds 2.5% threshold

% Yr 2.5 2.0 1.5 1.0 0.5 94 96 98 00 02 04 06 08 10 Core PCE inflation 12 14 % Yr 2.5 2.0 1.5 1.0 0.5
Low inflation should keep interest rates low

The Federal Reserve has announced a policy of not
raising the fed funds rate until the unemployment rate is well below 6.5% and the outlook for inflation is less than 2.5%. The core PCE inflation rate has not been above 2.5% for the past 20 years. During that time, the year-over-year inflation rate has ranged between 1.0% and 2.4%. The unemployment rate is likely to remain above its long-run average in 2014, keeping wage pressures subdued. Domestic inflation pressures are likely to be small. If import and energy price inflation are well contained, as we expect, inflation is likely to stay below 2.0% in 2014.
Source: Bureau of Economic Analysis
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Canada
At best, keeping pace with US
After an inventory-supported q-o-q expansion of 2.7% in Q2 2013, we expect moderate GDP growth of 2.0% in Q4 2013. Business investment and exports are expected to give a boost, after providing little support for GDP growth in Q3 2013. We expect the rotation toward business investment and exports, with a more moderate contribution from consumer spending and housing, to feature prominently in 2014. That said, the rebalancing toward business investment and exports has been choppy, and is not yet firmly entrenched. In the next two years, we expect the Canadian economy to, at best, keep pace with US GDP growth. We see growth of 2.3% in 2014, including a 0.8pp carry-over from 2013, and 2.4% in 2015. On consumption, we look for growth of 2.2% in 2014 amid ongoing moderation in household borrowing, sluggish employment growth and a
9 % q-o-q annualised GDP (% year) GDP Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) CAD/USD* 3-month money (%)* 10-year bond (%)*
Note: *Period end Source: Statistics Canada, HSBC estimates
retreat in auto sales from record 2013 levels. On housing, we expect residential investment to decelerate as household borrowing slows. In the corporate sector, pricing power remains limited but stabilisation in commodity prices and improved global growth should ease the challenges facing corporate profits, supporting business investment. We see exports rebounding in tandem with US economic expansion, but challenges to competitiveness look set to limit export growth, even with a weaker dollar. With fiscal authorities focused on returning to surplus in the next two to three fiscal years, we expect little contribution to GDP growth from government expenditure. We expect the Bank of Canada to remain on hold until at least mid-2015. Although inflation is expected to stay low, and inflation expectations are ensconced below 2%, financial conditions are highly stimulative, and we expect them to remain so.
David Watt Chief Economist HSBC Bank Canada +1 416 868 8130 david.g.watt@hsbc.ca
2013f 1.7 2.2 0.8 0.8 0.5 1.5 4.6 1.0 3.4 7.0 1.5 0.8 -56.6 -3.0 -0.8 75.5 85.2 1.05 1.2 2.6
2014f 2.3 2.1 0.5 3.4 0.5 2.1 4.6 2.8 2.4 6.7 2.4 1.7 -53.2 -3.0 -0.3 75.4 85.3 1.10 1.2 2.2
2015f 2.4 1.9 0.5 3.9 0.4 2.1 4.6 3.5 2.4 6.5 2.4 1.9 -48.0 -2.6 -0.2 75.5 85.2 1.12 1.2 2.6
Q3 13f 1.9 2.7 2.2 0.4 2.4 0.6 1.8 -2.0 -1.4 3.6 6.9 1.9 1.5 -15.0 -3.3 1.03 1.2 2.6
Q4 13f 2.2 2.0 2.1 0.7 3.6 0.5 2.2 4.3 3.2 1.7 7.0 1.6 0.8 -14.8 -3.3 1.05 1.2 2.6
Q1 14f 2.7 2.3 1.9 0.5 3.9 0.5 2.1 4.5 3.8 2.0 6.9 1.9 2.3 -14.3 -3.2 1.07 1.2 2.5
Q2 14f 2.7 2.3 1.9 0.3 3.8 0.5 2.0 4.7 3.7 2.3 6.9 1.8 1.1 -13.5 -3.0 1.09 1.2 2.4
Q3 14f 2.7 2.5 1.9 0.4 4.0 0.5 2.1 4.8 3.4 2.4 6.8 2.0 1.5 -13.2 -3.0 1.10 1.2 2.3
Q4 14f 2.3 2.2 1.9 0.4 3.9 0.4 2.0 4.7 3.5 2.4 6.7 2.2 1.7 -12.7 -2.8 1.10 1.2 2.2
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China
Reform rapid, growth stable
The third plenum was a bold statement of intent about reform over the next decade. Now its time for action. Negotiable certificates of deposits in the inter-bank market have already been launched and are likely to be followed by a deposit insurance scheme, expanding VAT reform, curbing shadow banking lending, increasing the issuance of municipal bonds, lowering entry barriers and expanding a pilot scheme for property tax. Some measures are likely to involve short-term pain. But the broad reform agenda can help unleash pent-up private sector demand for investment and consumption. Moreover, with inflation staying below the official 3.5% target, there is little need for tightening. We expect Beijing to keep monetary and fiscal policy unchanged in 2014. To mitigate risks, Beijing needs to curb shadow lending while regulating local government borrowing, rather than tightening overall credit conditions for the real economy. This can be done by squeezing short-term lending between banks and trust companies. We expect the growth target for M2 money supply to remain at around 13% in 2014, which should be sufficient to support a real economic growth rate of around 7.5%. Improving growth prospects in the developed world should lend support to exports, although the uncertainties in emerging markets may be a constraint. Keeping property prices in check through a combination of lifting supply and limiting demand should have a smaller impact on the property market than simply curbing house purchases in previous years. All this implies that growth is likely to stabilise just under 7.5% in 2014 before increasingly slightly to 7.7% in 2015.
Qu Hongbin Economist The Hongkong and Shanghai Banking Corporation Limited (HK) +852 2822 2025 hongbinqu@hsbc.com.hk Sun Junwei Economist The Hongkong and Shanghai Banking Corporation Limited +8610 5999 8234 junweisun@hsbc.com.cn
% Year GDP GDP (% quarter) Primary industry Secondary industry Tertiary industry Consumer spending Government consumption Investment Domestic demand Exports Imports Industrial production Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) CNY/USD* 3-month time deposit (%)*
Note: *Period end Source: CEIC, HSBC estimates
2013f 7.7 3.5 7.8 8.1 8.3 8.0 20.1 6.0 2.6 9.7 12.5 2.6 215.0 2.3 -2.1 11.0 6.08 2.6
2014f 7.4 3.8 7.6 7.9 8.1 7.5 19.0 8.0 3.0 9.4 12.0 2.7 265.0 2.6 -1.9 11.3 5.98 2.6
2015f 7.7 4.0 7.8 8.2 8.3 7.8 20.0 10.0 5.0 9.8 12.6 3.1 315.0 2.7 -1.9 11.1 5.90 2.6
Q3 13 7.8 2.2 3.5 8.2 8.1 10.1 2.8 6.12 2.6
Q4 13f 7.6 1.9 3.5 7.4 8.1 9.9 3.1 6.08 2.6
Q1 14f 7.5 1.8 3.0 7.7 8.1 9.6 3.1 6.04 2.6
Q2 14f 7.6 1.8 3.8 7.7 7.9 9.4 2.8 6.02 2.6
Q3 14f 7.3 1.7 3.5 7.4 8.0 9.2 2.4 6.00 2.6
Q4 14f 7.4 1.8 4.3 7.6 7.7 9.5 2.5 5.98 2.6
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Chinas growth has been relatively steady in the second half of 2013
25 20 15 10 5 0 05 06 07 08 09 10 11 12 13 IP (LHS)
Source: Markit, CEIC, HSBC
and this is likely to be sustained going into 2014

After bottoming out in Q3, Chinas growth momentum in
65 60 55 50 45 40
%Yr, 3mma
Index
HSBC China manufacturing PMI (RHS)
both the manufacturing and services sectors has remained steady. The latest high-frequency data are consistent with GDP growth of over 7.5% y-o-y in Q4 13. Both HSBCs and the official manufacturing purchasing managers indexes (PMIs) recorded solid numbers in November, implying that industrial production is likely to grow at around 10% y-o-y. The rebound in H2 2013 was thanks to fine-tuning measures that were introduced in the middle of the year. This offset the weak export growth through much of the year.
Steady investment growth

(%yr, 3mma) 60 50 40 30 20 10 0 -10 05 06 07 08 09 10 11 12 13 Total FAI Manufacturing
Source: CEIC, HSBC
thanks to accelerating infrastructure investment in 2014

(%yr, 3mma) 60 50 40 30 20 10 0 -10 Property Infrastructure
Fixed asset investment (FAI) growth edged down to
19.9% y-o-y in the first 11 months, and November FAI growth cooled to 17.6% y-o-y from 19.2% y-o-y in October (Q3 average 20.4%). A pick-up in infrastructure and property investment (24.2% y-o-y and 22.1% y-o-y, respectively) offset the renewed slowdown of manufacturing investment in November. We expect steady investment growth in 2014 supported mainly by robust infrastructure investment and a pick-up of private investment thanks to the deregulation measures.
Inflation remains modest

%Yr 10 %Yr 10 8 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 -10 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
CPI
Source: CEIC, HSBC
leaving room for maintaining accommodative policy

Headline CPI edged down to 3.0% y-o-y in November from
PPI
3.2% y-o-y in October, thanks to receding food prices. PPI recorded the 21st consecutive contraction in November, and is likely to remain in the contraction zone for longer. Despite the likely seasonal fluctuation of food prices to occur around Chinese New Year, we expect broad-based inflationary pressures to remain modest amid a negative output gap and limited upstream price pressures. With inflation likely to stay below the official 3.5% target in 2014, there is little need for tightening. We expect Beijing to keep the current monetary and fiscal policy in place in 2014. Around 13% M2 growth is sufficient to support around 7.5% GDP growth.
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Japan
Sugar rush
The Japanese economy hit a speed bump in Q3 2013, slowing from the brisk 4% annualised growth rates recorded in H1 2013. But early Q4 data point to a reacceleration, as producers and consumers gear up for the April 2014 sales tax hike. Rushed demand should keep growth strong through Q1 2014. The outlook for 2014 is shakier. With the 3ppt sales tax hike amounting to a JPY8trn fiscal drag, the biggest risk to growth is a sharp and prolonged contraction in household spending after Q2 2014. Although we expect the economy to bounce back quickly, thanks to JPY5.5trn in additional stimulus promised by the government, the household sector will likely be hit hard by the fall in real wages. Faster wage growth will be needed to offset the impact of higher taxes. The good news is that winter bonuses are poised to pick up sharply at large firms. The bad news is that SMEs and non-regular
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices* Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) JPY/USD** 3-month money (%)** 10-year bond (%)** 2013f 1.7 2.0 2.0 2.1 -0.5 1.9 1.8 2.7 -0.9 4.0 0.0 0.3 43.1 1.0 -9.8 58.6 245.7 102 0.1 0.6 2014f 1.3 0.5 1.3 3.1 -0.4 1.3 5.4 5.9 3.9 3.9 1.1 2.3 41.5 1.1 -7.1 61.5 247.8 101 0.2 0.7 2015f 1.3 0.3 1.6 0.6 -0.5 0.7 6.9 4.2 5.0 3.7 1.3 1.5 73.1 1.6 -5.9 64.7 250.3 99 0.2 0.7
employees may not yet enjoy the fruits of recent corporate profit growth. 2014s spring wage negotiations will be closely watched. The wage picture is also critical for the Bank of Japan, which is counting on continued income and employment growth for inflation to accelerate in line with its optimistic projections. Encouragingly, US-style core CPI, which omits both food and energy, is now rising after five years. Although we expect price growth to level off in Q1 2014, the BoJ leadership is likely to hold off on further stimulus until it can assess the outcome of the labour negotiations and get a good read on Q2 2014 economic data. We now see the earliest timing of additional easing as Q3 2014. Our base case is that further risk asset and JGB purchases will be announced at the July 2013 MPM, when the board updates its economic forecasts.
Izumi Devalier Economist The Hongkong and Shanghai Banking Corporation Limited +852 2822 1647 izumidevalier@hsbc.com.hk Dinkar Pawan Economics Associate Bangalore
Q3 13 2.4 0.3 2.4 2.2 4.3 -0.5 2.4 3.2 3.2 2.2 4.0 0.6 0.9 5.7 0.5 98 0.2 0.7
Q4 13f 3.3 1.0 2.4 1.8 5.1 -0.3 3.2 7.7 6.4 5.7 4.0 1.2 1.1 6.3 0.5 102 0.1 0.6
Q1 14f 3.1 0.9 2.9 1.5 6.1 -0.5 3.4 4.9 7.4 3.8 3.9 1.4 1.0 8.5 0.7 106 0.2 0.5
Q2 14f 0.9 -1.3 0.0 1.2 3.5 -0.5 1.2 3.3 6.3 2.7 3.9 0.7 2.5 9.6 0.8 103 0.2 0.5
Q3 14f 1.0 0.4 -0.2 1.3 1.7 -0.3 0.8 5.4 4.9 4.3 3.8 0.9 2.8 10.5 0.9 103 0.2 0.6
Q4 14f 0.4 0.4 -0.6 1.4 0.7 -0.3 0.0 6.4 5.1 4.8 3.8 1.1 2.7 13.0 1.1 101 0.2 0.7
Note: *Assumes the planned consumption tax hike will be implemented as scheduled, raising the VAT to 8% from 5% in April 2014, and to 10% from 8% in October 2015 and that JPY3trn in additional stimulus spending will be disbursed in FY2014. **Period end Source: CEIC, HSBC estimates
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Q3 growth slowed
60 50 40 30 20 05 06 07 08 09 10 11 12 13 Manufacturing PMI (output) Services PMI (business activity, RHS) 14 Japan PMIs 55 50 45 40 35
but PMIs suggest a rebound moving into early 2014

Q3 2013 growth decelerated to 1.9% q-o-q saar, from 3.8%
in Q2 2013 due to slowing household consumption, contracting real exports and weak business investment. Forward-looking indicators, however, suggest that the slowdown was short-lived. Although household spending came in flat for Q3 2013, the Cabinet Office private consumption index jumped 0.7% m-o-m sa in September, suggesting that consumption picked up towards the end of the summer. The PMIs also paint a rosy picture of business activity. In November, the manufacturing PMI improved at the sharpest pace in over seven years; the services PMI remains in expansion.
Source: Markit/JMMA, HSBC
Inflation continues to improve

% yr 3 2 1 0 -1 -2 -3 08 09
Headline
as core CPI growth picks up

% yr 3 2 1 0 -1 -2 -3
Japan inflation
Japan-style core inflation (headline CPI ex fresh foods) hit a
10
11
12
13
US-style core
fresh five-year high in October, rising 0.9% y-o-y. Headline inflation was unchanged at 1.1% y-o-y. The pace of pick-up in the energy component is beginning to decelerate. But inflationary pressures remain supported by elevated food prices and an improvement in the price of durable goods. In October, the US-style core measure, which strips out both food and energy, turned positive for the first time in five years. It rose 0.3% y-o-y from 0.0%, the sharpest improvement since 1998.
Japan-style core
Source: NB: Japan-style core inflation refers to headline CPI ex fresh foods. US-style core inflation is headline CPI ex food and energy.
The April 2014 tax hike will bring higher, stickier prices
% y-o-y, avg. per. 3 2 1 0 -1 -2 -3 08 09 10 11 12 13 14 15 16
Source: NB: Shaded regions are HSBC forecasts and reflect the impact of sales tax hikes planned for April 2014 (5% -> 8%) and October 2015 (8% -> 10%)
posing downside risks to household spending

The April 2014 tax hike is expected to push up y-o-y
Headline inflation
% y-o-y, avg. per. 3 2 1 Oct 15 Tax hike 0 -1 -2 -3
Apr 14 Tax hike
headline CPI growth by 2ppt. Meanwhile, wage growth is expected to remain modest. The Japanese Trade Union Federation, the nations biggest labour group, said it would demand a base-pay hike of at least 1% in the spring labour talks. However, wage growth is unlikely to exceed the rise in prices, putting pressure on household wallets and posing downside risks for consumption.
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India
Stabilising
Indias economy picked up pace in the third quarter of CY2013 (second quarter of FY2014), with GDP growth rising to 4.8% from 4.4% in the previous quarter. Growth was pulled up by agriculture, industrial production and financial services. On the demand side, the main boost came from net exports. High-frequency indicators for the fourth quarter suggest that the stabilisation is continuing as macroeconomic uncertainty and financial conditions have eased. The average October-November readings for HSBCs services and manufacturing PMIs have improved slightly. The recovery is likely to be modest given the lingering structural constraints and the need for fiscal tightening in the second half of the fiscal year. However, we raise our FY2014 forecast slightly to 4.6% (from 4.0%) given the stronger print for July-September. The recovery is likely to be led by a pick-up in investment, partly due to the faster implementation of projects cleared through the Cabinet Committee on Investment. Firmer external demand and a weaker currency will help support exports. On the inflation front, concerns remain. WPI and CPI inflation have been ticking up in recent months, partly because the weaker exchange rate has given rise to higher imported inflation. Although domestic demand is soft and rising food supplies will help dampen inflation pressures, adjustments in administered prices and sticky inflation expectations will keep inflation elevated. Given the lingering inflation pressures, the RBI is likely to raise the policy rate further. On the fiscal front, there is a need for significant spending compression during the second half of the fiscal year to meet the 4.8% deficit target.
Leif Eskesen Economist The Hongkong and Shanghai Banking Corporation Limited (Singapore) +65 6658 8782 leifeskesen@hsbc.com.sg Prithviraj Srinivas Economics Associate Bangalore
% Year GDP GDP (% quarter) GDP (Financial year) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) INR/USD* 3-month money (%)* 10-year bond (%)*
2013f 4.7 4.6 2.4 1.2 1.4 3.8 1.8 11.2 1.9 0.8 9.5 -53.8 -2.9 -5.1 24.3 71.6 61.0 9.2 8.7
2014f 5.0 5.3 4.1 3.0 4.7 3.7 4.2 11.1 6.4 5.4 7.2 -60.0 -3.0 -4.7 27.6 72.4 62.0 7.7 8.2
2015f 6.2 6.3 5.2 4.1 6.6 4.0 5.8 10.8 7.9 6.1 7.8 -64.1 -3.0 -4.3 25.4 71.3 64.0 7.7 8.2
Q3 13f 4.8 1.5 4.8 2.2 -1.1 2.6 3.8 2.0 16.3 0.4 1.7 9.7 -5.2 -1.2 -5.5 62.6 9.7 8.8
Q4 13f 4.7 1.0 4.7 2.5 -1.5 2.0 3.4 2.1 16.5 3.3 0.9 10.0 -8.6 -1.8 -5.4 61.0 9.2 8.7
Q1 14f 4.6 1.0 4.6 3.2 -2.0 2.1 3.3 2.6 13.5 3.1 1.4 8.9 -14.8 -2.9 -5.1 59.0 8.7 8.8
Q2 14f 4.9 1.3 4.9 3.8 -3.0 3.8 4.1 2.7 16.1 4.1 6.1 8.2 -15.9 -3.3 -5.0 60.0 9.5 9.0
Q3 14f 5.0 1.6 5.0 4.0 5.0 4.4 3.4 4.6 9.5 8.9 5.1 7.5 -15.6 -3.3 -4.9 61.0 8.0 8.5
Q4 14f 5.4 1.4 5.4 4.1 5.0 5.0 3.3 4.6 10.6 5.9 5.2 6.6 -13.7 -2.6 -4.8 62.0 7.7 8.2
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GDP picked up in the third quarter of CY2013...

% y -o-y contribution 12 9 6 3 0 -3 10 11 Agriculture Services
Source: CEIC, HSBC
and is expected to hold fairly stable near term

Agricultural output is expected to recover because of the
% y -o-y contribution Forecast 12 9 6 3 0 -3 12 13 14 Industry GDP growth % y-o-y 15
wet monsoons in 2013. Industrial production and services will get a lift from recovering external demand, but structural growth constraints, monetary policy tightening and fiscal spending compression will pose headwinds. Growth is not expected to have recovered notably before we head into 2014. But it should build as confidence slowly starts to recover and we get more traction on the investment projects cleared through the Cabinet Committee on Investments. The weaker exchange rate and a pick-up in trading partner growth will also provide some support for growth in 2014.
Inflation has remained sticky

% y -o-y 15 10 5 0 -5 06 07 08 WPI
Source: CEIC, HSBC
as the weaker exchange rate has lifted inflation

% y -o-y 15 10 5 0 -5
WPI inflation has ticked up on the back of higher food
09
10
11
12
13 CPI
WPI:Core
inflation, adjustments to administered prices and higher costs of imported goods. CPI inflation has been sticky at around 10.0% for a while now. While domestic demand conditions will help contain inflation in coming months, the scope for a decline is limited due to the weak exchange rate and continued adjustments in administered prices, including a potential ad hoc upward adjustment in diesel prices to contain the current account and fiscal deficits. However, an improved food supply will eventually help reduce headline inflation.
Policy rates are likely to move up a bit further

10 5 0 -5 -10 07 08 09 10 11 12 13 14 15 Real policy rate
Source: CEIC, HSBC
to help contain inflation

% 10 5 0 -5 -10
With the currency stabilising, the RBI has cut the MSF
Forecast
Nominal policy rate
by 150bps since this summer and helped guide down the call money rate by infusing more liquidity. At the same time, it has hiked the policy rate (repo) by 50bps to anchor inflation expectations, which has reestablished the spread between the repo and the MSF rate at 100bps. Going forward, we may get one or two more policy rate hikes to contain inflation pressures. However, RBI will also likely gradually ease liquidity conditions to align the call money rate with the repo rate again to make the repo rate the operational policy rate.
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Hong Kong
Fed risk, China opportunity
Uncertainty over the pace of Federal Reserve tapering in 2014 and the expected timing of interest rate rises further ahead could still potential bring volatility to financial conditions in Hong Kong. But there is also reason for hope. Central bank policy is still very accommodative in all major economies. Chinas recent Third Plenum signalled encouraging reforms designed to boost the contribution to growth from consumption and the private sector, and Hong Kong stands to benefit from stronger and refocused growth in China. Easing domestic demand led to a moderation in Hong Kongs Q3 GDP growth to 2.9% y-o-y from the 3.2% annual growth rate registered in the second quarter. Domestic demand is under pressure given slowing property prices (which weighed on consumption through wealth effects) and weaker tourism especially from the Mainland (which has been a major driver of services exports). We therefore lower our full-year growth forecast slightly to 2.9% in 2013 from 3.0%. However, the global outlook should be more stable in 2014. In addition to stronger reform-led Mainland growth expected by our China economists in 2014, the PMIs have recovered in Q4. The US economy may see a moderate improvement in 2014 and the eurozone finally seems to have exited its long recession. We expect Hong Kongs GDP to remain firm at 3.7% y-o-y in 2014. Inflationary pressures resurfaced in Q3 following a jump in food prices in the aftermath of Typhoon Usagi. Although we see this only as a temporary shock, spillovers from elevated private rentals will keep price pressures elevated through H1 2014. We expect inflation to average 4.2% y-o-y in 2014, as both GDP growth and global energy prices remain stable.
John Zhu Economist HSBC Bank plc +44 20 7991 2170 john.zhu@hsbcib.com Rini Sen Economics Associate Bangalore
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP)* Gross external debt (% GDP)** Gross government debt (% GDP)** HKD/USD** 3-month money (%)** 10-year bond (%)**
2013f 2.9 3.9 2.5 3.6 -0.2 3.9 6.0 6.5 -0.4 3.4 5.5 4.2 13.5 4.9 2.4 369.6 33.0 7.80 0.4 2.0
2014f 3.7 4.3 0.8 5.8 0.0 4.5 8.0 8.4 2.7 3.3 6.3 4.2 19.2 6.5 1.4 354.0 32.0 7.80 0.5 2.3
2015f 4.0 3.2 2.0 2.8 0.3 3.4 6.2 6.0 0.6 3.3 6.6 4.2 25.3 8.4 1.0 347.5 31.0 7.80 0.5 2.3
Q3 13 2.9 0.5 2.8 2.7 2.2 -0.5 3.9 5.9 6.4 -0.9 5.3 12.1 17.0 -6.0 7.76 0.4 2.1
Q4 13f 2.7 0.9 2.5 2.1 7.8 0.0 3.9 3.8 4.3 -1.0 3.9 2.0 2.6 11.5 7.80 0.4 2.0
Q1 14f 3.6 1.1 2.3 0.5 8.0 -0.2 2.3 5.5 4.9 2.0 4.0 1.4 2.1 8.0 7.80 0.5 2.2
Q2 14f 3.7 0.8 3.7 0.9 6.2 0.1 5.4 7.0 7.7 3.0 4.0 -2.3 -3.4 -3.0 7.80 0.5 2.1
Q3 14f 3.6 0.8 5.0 1.0 3.6 -0.2 4.6 9.7 10.2 2.8 4.5 15.1 19.9 -9.0 7.80 0.5 2.1
Q4 14f 3.8 1.1 6.2 0.8 5.6 0.1 5.7 9.5 10.3 3.0 4.3 4.9 5.9 14.0 7.80 0.5 2.3
Note: * Fiscal year ending March. Eg, 2013 refers to fiscal year April 2013 March 2014. ** Period end. Source: CEIC, IMF, HSBC estimates
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Indonesia
Taking a breather
Growth likely slowed to 5.6% in 2013, and we now expect it to cool further to 5.0% in 2014, down from our previous 5.5% forecast. This sub-potential growth rate will be the inevitable and desirable outcome of aggressive efforts to cool domestic demand, and in turn rein in the current account deficit. Key responses include the 44% fuel price hike in June, the authorities willingness to allow the IDR to depreciate according to fundamentals, and 175bps of hikes in the reference and FASBI rates since June to 7.50% and 5.75%, respectively. As of October 2013, commercial banks had only lifted their working capital and investment loan rates by around 50bps, and had made no adjustments to consumer loan rates. This suggests much more scope for bank lending rates to rise in the coming months, in turn resulting in a more material slowdown in consumer and business spending, particularly in the first half of 2014.
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) IDR/USD* 3-month money (%)* 10-year bond (%)*
To be sure, legislative and presidential elections in April and July could help temper some of the headwinds to consumer spending. But business spending is likely to slow more materially below trend, due to the uncertainty surrounding the outcome of the presidential election. As domestic activity cools, headline inflation, which has already been lower than we expected, should return to the BIs 3.5-5.5% target range in the second half of 2014. This could happen even earlier. We revise down our CPI forecast to 5.6% but a rebasing of the CPI in January could shave off a further 1-1.5ppts. Policy tightening measures should also return the trade balance to surplus in the second half of 2014 (in balance of payment terms). This suggests no pressing need for BI to continue lifting its policy rate. The current account deficit, while likely to narrow to 2.8% in 2014, will persist, but that is due to large and persistent corporate repatriations.
Su Sian Lim Economist The Hongkong and Shanghai Banking Corporation Limited, (Singapore) +65 6658 8783 susianlim@hsbc.com.sg
2013f 5.6 5.3 6.2 4.6 1.2 4.3 4.5 -0.1 6.6 6.3 9.0 7.0 -32.4 -3.7 -2.4 32.5 29.8 11,700 7.6 8.6
2014f 5.0 4.7 5.6 5.6 -0.2 3.4 5.1 2.7 4.0 6.7 6.0 5.6 -24.0 -2.8 -1.8 35.9 33.4 12,500 7.8 8.4
2015f 6.0 4.7 4.7 7.7 -0.2 5.5 8.2 7.7 5.0 6.3 7.0 4.9 3.4 0.4 -1.5 35.5 33.3 12,500 7.8 8.4
Q3 13 5.6 1.2 5.5 8.8 4.5 1.0 5.1 5.3 3.8 6.8 8.6 -8.4 -3.8 11,580 7.2 8.4
Q4 13f 5.0 1.0 5.5 10.5 4.0 -3.2 2.2 4.3 -4.3 4.0 8.4 -8.1 -4.0 11,700 7.6 8.6
Q1 14f 4.8 1.1 5.3 7.1 5.3 1.6 3.4 2.5 1.4 3.8 7.1 -6.9 -3.3 11,750 7.7 8.8
Q2 14f 4.7 1.3 5.0 5.7 4.4 0.8 1.3 3.7 -0.4 3.7 6.9 -6.6 -3.1 12,000 7.8 8.6
Q3 14f 5.0 1.5 4.4 5.1 5.8 0.1 3.8 6.7 4.3 4.0 3.6 -5.7 -2.7 12,250 7.8 8.5
Q4 14f 5.5 1.5 4.3 5.1 6.9 -3.2 5.0 7.2 5.6 4.5 4.7 -4.4 -2.2 12,500 7.8 8.4
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Malaysia
Domestic headwinds
We forecast GDP growth to pick up in 2014, going from 4.6% in 2013 to 5.2%, which is a slight downgrade from our previous forecast. Some of this acceleration will reflect base-year effects, given the q-o-q contraction in growth in Q1 2013. Sequential growth momentum, however, will actually be slower we expect average quarterly growth of 0.9% (sa) over 2014, versus a 1.2% average for 2013 and a trend pace of 1.1%. In annual terms, much of the pick-up in growth will come from net exports, where the contribution should swing from more than -2ppts in 2013, to +1.6ppts in 2014. Admittedly, the export recovery is likely to be modest, but it will still outstrip the rise in imports, where gains will be tempered by a noticeable weakening in domestic demand. To an extent, the domestic slowdown will reflect the impact that government fiscal consolidation efforts will have on both public and consumer expenditure. The government is (reasonably) targeting a narrower budget deficit of 3.5% of GDP for 2014, against a projected 4% in 2013. Some of this narrowing will come from lower subsidy spending, following a 10-11% hike in subsidised fuel prices in September. Further headwinds to domestic activity could come from interest rate hikes in H2 2014, to counter inflationary pressures. The September fuel price hike and higher electricity tariffs from January 2014 will keep headline inflation in the upper half of the BNMs 2-3% comfort zone for the better part of 2014; further fuel price hikes would easily tip inflation above 3% y-o-y. Lastly, persistently high levels of household debt 80.5% of GDP as at end-2012 and elevated loan growth, particularly in certain segments such as residential property, should give BNM cause to look beyond macro-prudential measures and increase the overall cost of credit.
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) MYR/USD* 3-month money (%)* 10-year bond (%)*
2013f 4.6 8.4 6.3 9.4 0.1 7.5 -0.6 2.0 2.2 2.9 7.2 2.1 10.2 3.3 -4.0 31.7 55.1 3.20 3.2 4.0
2014f 5.2 6.7 2.0 7.9 -2.1 3.8 5.6 4.1 4.3 2.8 5.7 2.4 20.7 6.0 -3.5 29.8 52.6 3.27 3.7 4.7
2015f 5.0 5.1 3.8 6.2 -1.7 5.8 6.1 7.1 5.0 3.8 5.7 2.0 28.1 7.7 -3.0 28.6 51.3 3.30 3.7 4.7
Q3 13 5.0 1.7 8.2 7.8 8.6 -0.5 5.2 1.7 1.8 3.7 9.6 2.2 3.0 4.0 3.26 3.2 3.7
Q4 13f 4.7 1.8 10.4 5.2 10.6 -4.1 7.6 1.8 4.6 1.4 6.2 2.8 3.4 4.2 3.20 3.2 4.0
Q1 14f 6.3 1.3 8.7 7.9 8.0 -2.7 1.6 2.3 -3.1 5.4 4.8 2.6 5.9 7.3 3.18 3.3 4.3
Q2 14f 5.9 1.0 7.5 -3.6 9.7 -1.2 2.8 8.4 5.0 3.7 7.0 2.7 5.2 6.1 3.21 3.4 4.4
Q3 14f 5.0 0.7 5.8 2.2 7.2 -0.7 5.5 5.9 6.7 4.6 6.2 2.5 5.1 5.9 3.24 3.5 4.4
Q4 14f 3.8 0.7 5.0 2.4 6.7 -3.9 5.3 5.8 7.7 3.8 4.9 2.0 4.5 5.0 3.27 3.7 4.7
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Philippines
After the storm
Despite repeated natural disasters, optimism about the Philippines future is still high. Its growth performance thus far warrants that sentiment: y-t-d (Q1-Q3 2013), the economy has expanded 7.4% y-o-y, with five consecutive quarters of GDP expansion at 7% or higher. The latest growth rate in Q3 2013 shows that the economy continues to be supported by robust household spending and a gradual rise in investment all positive signs of domestic demand. This is driven by remittances from Filipinos living abroad who send money home to relatives, thereby supporting consumption. However, growth is expected to slow in Q4 2013 and 2014. The storm on 8 November has exposed the Philippines most fundamental strength and weakness. The strength is the resilience of its people reflected by the likelihood of higher remittances to support relatives as well as the ability of the affected individuals to pick themselves up and carry on.
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) PHP/USD* 3-month money (%)* 10-year bond (%)*
The weakness is the limited funds that were available for spending on infrastructure and relief in the event of a natural disaster. For example, only PHP29.9bn (USD680m) was available for the whole of FY 2013 for flood control, rapid response and emergency housing. Much of the infrastructure in the stricken Eastern Visayas region (farm-to-market roads, fishing boat landing sites and irrigation) was damaged or destroyed. The cabinet has now approved a 2014 reconstruction plan worth about PHP40.9bn (USD934m) to rebuild infrastructure, housing and agriculture, and create jobs. We expect most of the money disbursed between now and Q1 2014 to go to relief efforts rather than reconstruction. Inflation is expected to pick up towards year-end and into 2014. Negative short-term supply shocks will cause food and transportation costs to rise, in our view. After cutting the SDA rate by 150bp from 3.5% to 2.0% in 2013, the BSP will likely hold rates steady.
Q3 13 7.0 1.1 6.2 4.6 13.1 -0.1 7.9 10.6 14.2 8.0 7.3 2.4 2.9 4.6 -1.8 43.5 0.5 3.7 Q4 13f 5.1 0.2 5.3 15.0 6.1 0.6 5.2 6.0 6.0 8.0 7.3 3.5 0.1 0.2 -4.7 43.8 0.5 3.6 Q1 14f 5.0 2.1 5.0 12.0 3.8 -0.6 8.2 3.0 10.0 8.0 7.3 4.1 3.0 4.6 -2.4 43.5 0.6 3.8 Q2 14f 5.8 2.3 5.2 13.0 4.7 -0.3 7.3 5.0 9.4 8.0 7.3 4.1 2.6 3.7 0.7 43.7 0.6 3.7 Q3 14f 6.0 1.3 5.5 14.0 8.1 0.1 7.1 6.0 6.5 8.0 7.3 4.5 2.4 3.5 -1.6 43.9 0.6 3.9 Q4 14f 6.7 0.9 5.5 15.0 12.4 0.1 7.3 5.0 6.5 8.0 7.3 4.1 -0.3 -0.4 -4.5 44.1 0.6 4.1
Trinh D Nguyen Economist

The Hongkong and Shanghai Banking Corporation Limited, (HK)
+852 2996 6975 trinhdnguyen@hsbc.com.hk
2013f 6.8 5.5 12.9 11.8 -1.0 7.5 0.1 4.8 8.9 7.4 6.0 2.9 8.7 3.3 -2.2 22.0 48.6 43.8 0.5 3.6
2014f 5.9 5.3 13.4 7.4 -0.2 6.6 4.8 8.0 8.0 7.3 6.5 4.2 7.8 2.7 -2.0 20.4 46.4 44.1 0.6 4.1
2015f 6.1 5.4 9.1 12.0 0.0 7.2 4.3 7.0 8.0 7.3 6.5 4.3 6.5 2.1 -2.4 18.8 44.3 44.3 0.6 4.1
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Singapore
A new direction
Singapores economy recovered further in Q3 2013, with GDP growth rising to 5.8% y-o-y from 4.4% the previous quarter. In sequential terms, however, growth slowed to 0.3% q-o-q, seasonally adjusted, following the 4.1% jump in Q2. On the supply side, the pick-up was led by manufacturing, with electronics an important contributor, and the services sectors, although financial services, not surprisingly, slowed as the sentiment-sensitive segments were affected by Fed-related tapering fears. On the demand side, private consumption, investment and net exports recovered. High-frequency indicators suggest that the growth momentum firmed going into the final quarter of the year. Exports and industrial production saw faster growth in October, and the PMI survey for electronics also points to faster sequential growth. Retail sales, on the other hand, have remained
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) SGD/USD* 3-month money (%)* 10-year bond (%)*
Note: *Period end Source: HSBC estimates
subdued as consumers continue to be cautious about spending. On the back of the stronger-than-expected Q3 GDP numbers, we raise our growth forecasts to 4.0% for 2013 (from 2.9%) and to 4.2% in 2014 (from 3.5%). We expect growth to pick up through 2014 as the global trade cycle begins to turn, although the rebound in the capacity-constrained economy will likely prove modest by historical standards. Inflation has remained modest in recent months. However, we expect the inflation rate to rise as growth recovers and labour market conditions tighten even further in the coming years. With both growth and inflation expected to have picked up at the end of 2013, and to continue to rise in 2014 and 2015, the MAS is likely to maintain its tightening bias to contain inflationary pressures. Meanwhile the government is continuing its efforts to raise productivity growth to help the economy overcome its tight capacity constraints.
Q3 13 5.8 0.3 3.3 6.8 4.7 2.7 6.3 6.2 6.4 5.3 1.8 1.8 13.8 19.2 2.0 1.26 0.4 2.4 Q4 13f 5.6 0.7 2.5 15.3 1.7 -0.1 -6.3 6.8 2.2 5.6 1.9 2.2 11.4 14.9 2.0 1.24 0.2 2.3 Q1 14f 6.1 1.0 3.4 1.1 5.0 -1.5 -0.8 8.9 6.5 8.2 1.9 1.9 14.1 18.5 1.5 1.23 0.3 2.5 Q2 14f 3.0 1.0 2.8 2.1 9.4 2.9 -0.3 3.8 3.0 2.9 1.9 3.8 14.8 18.9 1.4 1.24 0.3 2.5 Q3 14f 3.7 1.0 2.9 8.0 3.0 -1.0 -1.7 5.4 3.8 3.4 1.9 3.6 16.8 21.5 1.6 1.24 0.3 2.6 Q4 14f 4.1 1.1 3.0 5.3 4.1 -0.4 3.3 5.5 5.5 3.9 1.9 3.0 13.8 16.9 1.6 1.25 0.3 2.9
Leif Eskesen Economist The Hongkong and Shanghai Banking Corporation Limited (Singapore) +65 6658 8782 leifeskesen@hsbc.com.sg Prithviraj Srinivas Economics Associate Bangalore
2013f 4.0 2.4 12.2 -0.6 2.7 2.1 3.0 2.2 1.3 1.9 4.5 2.4 50.8 17.4 1.4 427.0 114.9 1.24 0.2 2.3
2014f 4.2 3.0 3.9 5.3 0.0 0.1 5.8 4.7 4.5 1.9 4.8 3.1 59.6 18.9 1.5 420.0 102.8 1.25 0.3 2.9
2015f 4.5 3.8 6.4 5.1 -0.2 4.3 6.3 6.6 4.2 1.9 5.0 3.1 65.2 19.5 1.4 420.0 98.3 1.26 0.3 2.9
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South Korea
A cautious start to 2014
Growth in South Korea trended up in H2 2013, as the benefits of both monetary and fiscal stimuli delivered at the start of the year filtered through the economy. But with external demand still weak, the magnitude of the recovery has been limited. We expect the Korean economy to enter the new year on a cautious note, with GDP growth picking up from 2.7% in 2013 to 3.2% in 2014. Strong foreign inflows into Korea in the past have fuelled concerns over risks from capital withdrawal. There are a number of events in early 2014 that may cause such risk to materialise: fiscal and monetary developments in the US, potential provocation from North Korea and additional easing by the Bank of Japan. While these may trigger short-term capital movements, we believe Koreas financial system is in a strong position to handle the accompanying risks and mitigate potential systemic pressures.
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) KRW/USD* 3-month money (%)* 10-year bond (%)*
On the domestic front, attention will be centred on whether Koreas recovery is sufficiently broad, given that strength has been biased towards export sectors that are dominated by the countrys large conglomerates. Consequently, the government may feel the need to provide more fiscal support to smaller businesses in 2014. Meanwhile, household debt has shown signs of stabilisation at around 150% of disposable income, following a tightening of credit access by banks. Property prices, too, have ticked up lately, but it is too early to declare a full recovery in the real estate market. Inflation has been muted in Korea. But provided growth recovers gradually, stronger demand, coupled with a low base effect, will pull headline CPI back up and may prompt the Bank of Korea to tighten monetary policy under its new governor who takes office in April 2014. In the absence of a significant external shock, we expect the central bank to raise its policy rate in H2 2014.
Ronald Man Economist The Hongkong and Shanghai Banking Corporation Limited, (HK) +852 2996 6743 ronaldman@hsbc.com.hk
2013f 2.7 1.8 3.0 3.5 0.0 2.2 4.5 3.6 0.0 3.2 5.5 1.2 61.6 5.1 1.0 35.7 33.6 1050 2.7 3.6
2014f 3.2 2.6 1.7 3.5 0.2 2.8 7.5 7.4 0.5 3.2 4.5 2.6 59.3 4.4 2.0 33.4 31.6 1025 3.0 4.1
2015f 3.4 3.0 1.1 1.7 0.2 2.3 9.6 8.9 1.0 3.0 8.5 3.0 64.3 4.4 2.9 32.1 29.4 1000 3.8 4.4
Q3 13 3.3 1.1 2.1 3.1 6.3 0.1 3.3 2.8 2.9 1.0 2.7 4.0 1.2 17.6 5.9 1.1 1075 2.7 3.5
Q4 13f 3.6 0.6 1.9 3.7 8.5 0.2 3.6 6.0 5.3 1.6 3.2 6.0 0.9 11.2 3.6 0.1 1050 2.7 3.6
Q1 14f 3.6 0.8 2.8 3.2 5.5 0.2 3.6 5.2 5.0 1.5 3.2 5.0 1.5 14.1 4.3 0.2 1040 2.7 3.8
Q2 14f 3.3 0.8 2.7 1.3 4.1 0.2 3.4 5.7 6.2 0.8 3.2 5.0 2.5 13.3 4.0 0.2 1035 2.7 3.7
Q3 14f 2.9 0.7 2.3 1.2 2.4 0.2 2.2 9.2 8.7 -0.2 3.1 5.0 3.0 15.0 4.4 0.2 1030 2.8 3.9
Q4 14f 3.0 0.7 2.5 1.2 2.2 0.2 2.2 9.6 9.6 0.0 3.1 5.0 3.3 16.8 4.9 0.2 1025 3.0 4.1
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Taiwan
Low for longer
Taiwan is still operating below potential. GDP growth in Q3 disappointed markets and slowed down on weaker private consumption, government spending and trade. However, we expect growth to pick up from 1.7% in 2013 to 2.8% in 2014. Nonetheless, economic activity is gradually rising, as indicated by the latest high-frequency data: the HSBC Taiwan PMI and new export orders have trended up, driven by stronger demand from the US and Europe. At home, retail sales growth stayed firm, reflecting its strong domestic equity performance and tight labour market. However, we maintain our view that Taiwans recovery will likely be export-led given its trade-dependent structure. From this perspective, eyes will be on when demand from Mainland China starts to show signs of picking up meaningfully, given it has stayed relatively weak but accounts for 27% of Taiwans export market. Inflation pressures are generally muted. There are signs that profit margins of Taiwanese companies are being squeezed. Despite the pick-up of input prices due to higher energy and raw material costs, manufacturers in Taiwan have continued to lower their selling prices to sustain price competitiveness. This will cap upward pressure on headline CPI, which we expect to average 0.9% in 2013, and pick up gradually to 1.9% in 2014. Concerns over the formation of a housing bubble remain elevated in Taiwan. While the Central Bank of China (Taiwan) implemented selective credit control measures, property price growth has not slowed. Consequently, policymakers will likely be wary of loosening monetary conditions further to speed up the recovery. On balance, we expect the rates to stay low at 1.875%, with the next move being a 12.5bp hike in Q3 2014.
Ronald Man Economist The Hongkong and Shanghai Banking Corporation Limited, (HK) + 852 2996 6743 ronaldman@hsbc.com.hk Rini Sen Economics Associate Bangalore
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP)* Gross external debt (% GDP)* Gross government debt (% GDP)* TWD/USD* 3-month money (%)* 10-year bond (%)*
2013f 1.7 1.4 -0.4 2.2 0.0 1.5 3.1 3.0 0.1 4.2 1.5 0.9 51.0 10.5 -1.5 27.3 41.3 29.5 1.1 1.7
2014f 2.8 1.4 1.6 1.8 0.0 1.6 2.8 0.9 3.4 4.1 1.2 1.9 46.0 8.8 -1.3 26.2 40.8 29.1 1.5 2.0
2015f 3.4 1.7 1.7 2.9 0.0 2.0 5.3 3.9 4.7 4.0 1.3 1.6 37.1 6.7 -1.2 25.2 39.9 29.0 1.8 2.2
Q3 13 1.7 0.3 1.5 -1.2 1.8 -0.1 1.0 1.7 0.7 0.7 4.2 0.0 14.9 12.1 29.6 0.9 1.7
Q4 13f 1.5 0.6 1.7 0.3 1.4 -0.1 2.1 1.3 2.1 -0.9 4.2 1.1 10.8 8.4 29.5 1.1 1.7
Q1 14f 2.0 0.8 1.8 -0.6 -2.6 0.0 -0.1 1.9 -1.1 2.5 4.2 1.3 11.2 9.0 29.4 1.1 1.7
Q2 14f 3.0 0.8 1.1 1.7 3.7 0.0 2.3 2.1 0.7 2.6 4.1 2.1 12.7 10.0 29.3 1.5 1.8
Q3 14f 3.2 0.8 1.3 2.5 3.1 0.0 2.0 3.2 1.5 3.9 4.1 2.3 13.0 9.8 29.2 1.1 1.9
Q4 14f 3.4 0.8 1.5 2.8 3.1 0.0 2.1 4.1 2.4 4.4 4.1 2.0 9.1 6.7 29.1 1.5 2.0
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Thailand
Lagging again
The Thai economy significantly underperformed the region in 2013, with our growth forecast at 2.8%. And even with an expected improvement to 4.4% in 2014, Thailand will remain a regional laggard. The bulk of the uptick will come from net exports. Partly this will be due to slightly better export growth, given our expectation of a gradual upturn in the global economic cycle and signs that electronics demand may also be recovering. But imports will also be lacklustre, reflecting the state of domestic demand. Contrary to our expectations, following a quarterly decline in Q1 2013, investment and private consumer spending continued to deteriorate for the better part of 2013, suggesting something deeper than a short-lived adjustment to the conclusion of flood recovery measures at end-2012. Consumer confidence has weakened steadily since March 2013,
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP)** Gross external debt (% GDP) Gross government debt (% GDP) THB/USD* 3-month money (%)* 10-year bond (%)* 2013f 2.8 0.1 6.4 -0.2 1.3 1.3 4.4 2.5 -2.5 0.7 9.9 2.2 -7.2 -1.9 -2.1 38.8 44.5 32.0 2.4 4.1 2014f 4.4 0.7 8.4 3.5 -1.2 -0.6 7.8 0.7 4.9 0.6 12.4 2.6 2.6 0.6 -3.1 41.5 45.9 32.5 2.6 4.6 2015f 5.2 4.5 7.7 5.8 -1.7 4.6 7.3 5.8 7.3 0.5 13.9 3.8 17.3 4.1 -3.5 42.2 46.9 33.0 2.6 4.6
and is at a one-and-a-half-year low amid concerns over domestic political tensions, the high cost of living and the global economic outlook. Business sentiment, too, is at a two-year low. Unfortunately a recovery in sentiment may be elusive, and sub-par growth in domestic demand is likely for Q4 2013 and possibly beyond. Political outcomes will be key. At the time of writing, a snap election has been called for 2 February 2014, but it remains to be seen if the opposition will participate. It believes national political reforms need to take place first. The political turmoil could see the governments THB2trn seven-year infrastructure plan much needed given the absence of long-term growth drivers further delayed or even aborted. Scope for further monetary stimulus is also limited. Despite the BOTs surprise 25bp cut in November, household debt remains elevated, at 78.5% as of Q2 2013.
Q3 13 2.7 1.3 -1.2 7.4 -6.5 -0.9 0.1 3.8 0.7 -3.5 0.7 9.2 1.7 -0.9 -0.9 31.3 2.6 4.2
Q4 13f 0.5 0.9 -4.9 7.4 -4.2 1.9 -3.6 2.6 -2.7 -4.2 0.7 10.4 1.6 -1.1 -1.2 32.0 2.4 4.1
Q1 14f 3.3 1.1 -2.8 13.9 0.5 1.0 -2.0 5.2 -2.8 -1.3 0.7 9.0 1.7 0.0 0.0 31.5 2.3 4.2
Q2 14f 4.6 1.2 -0.2 6.3 -1.9 -1.6 -3.4 8.7 -2.4 4.3 0.7 12.6 2.1 0.3 0.3 31.9 2.4 4.3
Q3 14f 4.7 1.3 2.2 6.4 8.3 -3.7 1.0 8.5 3.8 8.5 0.6 13.0 2.8 0.9 1.0 32.2 2.5 4.4
Q4 14f 5.0 1.2 3.9 8.0 7.5 -0.5 2.1 8.7 4.5 8.7 0.6 14.9 3.6 1.4 1.3 32.5 2.6 4.6
Note: *Period end; **on FY basis, eg. 2013 refers to October 2012 to September 2013 Source: CEIC, HSBC estimates
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Vietnam
Banking on the future
The economy is gradually stabilising. Growth accelerated in Q3 2013, to 5.5% y-o-y from 4.9% in Q2, driven mainly by higher growth in the manufacturing sector. Higher inflows of FDI have helped offset the decline in domestic investment. Year to date, USD10.5bn has been disbursed, while registered capital is USD13.8bn. The National Assembly meeting concluded with members affirming the state-owned sectors importance to the strategic development of the country. Inflation trended down to 5.8% y-o-y in November, helped by lower transport costs, while food prices rose. Core inflation decelerated to 7.1% y-o-y in November from 8.0% in October. We expect it to continue to slow but remain sticky owing to the bottlenecks in the economy. The year-to-date trade deficit declined to USD95m reflecting a decline in demand for non-essential goods for consumption and new investment in electronics, which boosted exports. We expect the economy to expand by 5.2% in 2013, broadly the
% Year GDP Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports* Imports* Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) VND/USD**
Note: *Value terms, **Period end Source: CEIC, HSBC estimates
same rate as the previous year. The recovery process has been bumpy thus far: HSBC manufacturing PMI shows that economic activity has stabilised but that the pace of expansion is still sluggish. One bright spot is increased employment. We expect growth to accelerate to 5.4% in 2014, a modest increase led by slightly higher consumption and investment as well as export growth. There are signs that corporate demand is slowly rising, but caution still reigns. We expect inflation to remain in single digits, but to rise gradually owing to higher food inflation and service costs. Although the Asset Management Company has now opened for business and bought debt, it is not expected meaningfully to improve Vietnams uncomfortable debt position. Vietnam is likely to be stable into 2014, but we do not expect its growth rate to be impressive unless aggressive policy reform is implemented, with a view to levelling the playing field to support private domestic enterprises.
Trinh D Nguyen Economist The Hong Kong and Shanghai Banking Corporation Limited, (HK) + 852 2996 6975 trinhdnguyen@hsbc.com.hk
2007 8.5 10.8 8.9 24.2 4.5 16.2 21.9 39.8 4.6 12.2 8.3 -7.0 -9.0 -2.2 32.3 44.6 16,217
2008 6.3 9.3 7.5 3.8 4.7 8.1 29.1 28.6 4.7 20.0 23.1 -10.8 -10.9 -0.5 32.4 42.9 16,900
2009 5.3 3.1 7.6 8.7 3.3 3.8 -8.9 -13.3 4.6 15.8 7.0 -6.1 -5.8 -7.2 41.6 51.2 18,200
2010 6.8 10.0 12.3 10.9 3.0 10.3 26.5 21.3 4.3 16.5 9.2 -3.5 -3.0 -5.2 44.3 54.2 19,498
2011 6.0 4.4 7.2 -10.4 2.9 -0.5 34.2 25.8 4.5 19.0 18.6 0.2 0.0 -2.7 37.9 48.5 21,037
2012 5.0 2.7 7.2 4.1 3.0 3.6 18.2 6.6 4.6 12.0 9.3 2.8 1.8 -3.6 39.0 48.4 20,835
2013f 5.2 3.4 7.3 5.0 3.2 4.3 18.2 18.3 5.0 11.0 6.6 3.1 1.8 -2.6 39.1 46.6 21,250
2014f 5.4 3.6 7.0 9.0 3.1 5.5 19.9 21.6 5.0 14.0 7.9 3.9 2.0 -2.3 38.3 45.5 21,100
2015f 5.8 4.3 6.5 9.0 3.0 5.9 13.7 14.5 5.0 14.0 8.2 1.5 0.7 -2.3 38.3 45.5 21,100
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Australia
More rebalancing expected
As mining investment slows down and eventually begins to fall, other parts of the Australian economy will need to pick up pace. This rebalancing of growth has been slow to get started, with overall GDP growth running below trend in 2013 as a result. The rebalancing we have seen has been led by the property market, with low interest rates driving a strong pick-up in housing prices in 2013. This is starting to feed through to an increase in approvals for new housing construction, implying that there should be a pick-up in housing investment in the coming quarters. Consumer and business confidence have also improved in recent months, reflecting low interest rates, rising asset prices and greater political certainty following the early September election and change of government. A constraint on the degree of rebalancing in growth has been the AUD, which has remained fairly high for most of 2013, despite commodity prices having fallen from their 2011 peak levels. The mining story has also continued to be fairly resilient so far, with investment levelling out rather than collapsing. This has provided time for the other parts of the economy to pick up and become drivers of overall growth. We expect mining investment to decline in 2014, although the effect of this fall on growth is expected to be more than offset by a ramp-up in resource exports as new capacity comes on line. The mining sector is not expected to be a drag on GDP growth. We expect GDP growth of 2.4% in 2013 and for it to pick up to 2.8% in 2014, as growth is expected to rebalance further in 2014. This is expected to accelerate to an above-trend pace in 2015, supported by a ramp-up in exports of liquefied natural gas, as new capacity comes on line.
Paul Bloxham Economist HSBC Bank Australia Limited +612 9255 2635 paulbloxham@hsbc.com.au Adam Richardson Economist HSBC Bank Australia Limited +612 9006 5848 adamrichardson@hsbc.com.au
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross government debt (% GDP) USD/AUD* 3-month money (%)* 10-year bond (%)*
2013f 2.4 1.8 1.2 -1.6 -0.2 0.3 6.6 -2.6 2.6 5.7 2.9 2.3 -47.9 -3.1 -1.3 27.9 0.90 2.6 4.3
2014f 2.8 2.6 2.4 0.4 -0.3 2.2 6.2 3.8 2.6 5.6 2.9 2.7 -47.9 -3.3 -3.0 30.0 0.86 3.1 4.2
2015f 3.4 2.8 1.8 2.4 -0.3 2.6 9.0 6.1 3.3 5.1 3.6 2.8 -45.1 -3.0 -2.0 32.0 0.86 4.1 4.9
Q3 13 2.3 0.6 1.8 1.7 -1.9 -0.3 0.1 6.1 -3.7 2.7 5.7 2.7 2.2 -12.5 -3.3 0.94 2.6 3.9
Q4 13f 2.7 0.8 2.1 3.0 -2.8 -0.3 0.9 5.8 -2.6 -1.7 5.8 2.6 2.2 -12.2 -3.4 0.90 2.6 4.3
Q1 14f 2.8 0.6 2.4 2.4 0.2 -0.3 2.2 5.2 2.3 1.0 5.8 2.6 2.4 -11.0 -3.1 0.89 2.6 4.2
Q2 14f 2.6 0.6 2.4 2.9 -0.1 -0.3 1.8 5.2 0.9 2.1 5.7 2.7 2.8 -12.2 -3.4 0.88 2.6 3.9
Q3 14f 2.9 0.8 2.8 2.2 0.6 -0.3 2.6 7.0 5.9 3.5 5.5 3.0 2.4 -12.6 -3.5 0.87 2.9 4.0
Q4 14f 2.8 0.8 2.9 2.2 1.0 -0.3 2.4 7.3 5.9 3.5 5.3 3.2 3.0 -12.0 -3.3 0.86 3.1 4.2
Note: *Period end Source: Australian Bureau of Statistics, Thomson Reuters Datastream, RBA, HSBC estimates
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New Zealand
Firing on all cylinders
New Zealands economy looks to be at the beginning of a boom, with a range of factors supporting demand, including post-earthquake construction, high dairy prices and a housing boom. Post-earthquake reconstruction activity is ramping up and is likely to remain a key source of growth for a number of years, with government estimates suggesting it could total around 20% of annual GDP. At the same time, New Zealands rural sector has been given a big boost from a strong run-up in dairy prices. Weak global dairy supply, along with strong demand from China, has seen the price of dairy products surge through 2013. As a result, New Zealands terms of trade reached a 40-year high in Q3. Coupled with a recovery in production, following an earlier drought, rural incomes are set to rise significantly through the course of 2014. The housing market also remains strong. House prices are currently rising at a 10% annual pace and low interest rates and strong inward migration suggest this strength is likely to continue. The RBNZs recently imposed lending restrictions have had little impact on house prices to date. The housing market boom is also beginning to support a broader rise in household spending. Rising asset prices and an improving labour market have provided a boost to retail sales. Overall, business surveys are pointing to a strong pace of growth over the second half of 2013. We expect growth to be 3.0% in 2013, and now expect a stronger acceleration into 2014, to growth of 3.4% (previously 3.1%), before expected rate rises through 2014 see growth moderate in 2015. With demand picking up and New Zealands economy already operating at capacity, the central bank may soon raise interest rates. We expect the RBNZ could begin to raise rates in Q1 2014.
Paul Bloxham Economist HSBC Bank Australia Limited +612 9255 2635 paulbloxham@hsbc.com.au Adam Richardson Economist HSBC Bank Australia Limited +612 9006 5848 adamrichardson@hsbc.com.au
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross government debt (% GDP) NZD/USD* 3-month money (%)* 10-year bond (%)*
2013f 3.0 3.7 0.4 9.0 0.2 4.4 0.4 4.4 1.4 6.2 1.7 1.2 -6.2 -3.5 -3.5 36.8 0.83 2.7 4.8
2014f 2015f 3.4 2.6 3.3 2.2 1.6 0.8 11.1 7.7 0.1 0.0 4.9 3.3 3.0 3.3 7.9 5.1 1.7 1.1 5.4 5.0 2.3 2.0 2.5 2.3 -9.3 -11.5 -4.7 -5.3 -1.7 -0.5 38.5 34.9 0.87 0.88 3.4 4.3 4.8 5.5
Q3 13 3.5 1.2 4.5 0.0 11.8 0.0 5.3 -2.4 4.7 2.1 6.2 1.7 1.4 -1.3 -2.8 0.83 2.7 4.7
Q4 13f 3.2 1.3 3.9 1.5 12.0 1.1 6.4 -0.8 7.3 1.9 5.9 1.8 1.7 -1.6 -3.6 0.83 2.7 4.8
Q1 14f 3.5 0.8 4.1 2.0 12.9 0.2 5.9 -2.0 7.3 1.9 5.6 2.1 2.1 -2.0 -4.1 0.84 3.0 4.5
Q2 14f 4.0 0.7 3.4 1.9 11.5 0.3 5.2 5.2 8.2 2.4 5.5 2.3 2.6 -2.3 -4.6 0.85 3.2 4.6
Q3 14f 3.4 0.6 3.1 1.4 10.4 0.0 4.5 5.2 8.0 1.6 5.3 2.4 2.5 -2.4 -4.8 0.86 3.3 4.7
Q4 14f 2.6 0.6 2.7 1.0 9.8 0.0 4.1 4.0 7.8 1.3 5.2 2.3 2.8 -2.6 -5.1 0.87 3.4 4.8
Note: *Period end Source: Statistics New Zealand, Thomson Reuters Datastream, HSBC estimates
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Eurozone
Better but not good enough
Eurozone Q3 GDP data slowed to just 0.1% q-o-q after 0.3% in Q2, as export growth was meagre while imports grew in response to the modest growth in domestic demand. Q4 looks set to show a renewed pick-up on the back of better exports. We expect a similar sort of expansion over the next two years: relatively weak growth with occasional stronger quarters when exports come to the rescue. There will be some pockets of domestic growth, such as German consumer spending and investment growth, and there are a few areas where monetary policy seems to be working (eg, for French households), but overall growth will be constrained by high unemployment rates and ongoing problems in the banking system, which we do not expect to be fully addressed by the ECB asset quality review and stress tests. We leave our 2014 GDP growth forecast unchanged at 0.8% and look for a still-modest 1.0% in 2015. This pace of demand growth will prevent any meaningful pick-up in inflation. Indeed, we expect the very high level of unemployment to keep wage growth slowing, at least through 2014. Such a weak nominal growth outlook will make it very hard to stabilise debt stocks as quickly as official projections suggest. In response to lower-than-expected inflation, the ECB finally delivered another refi rate cut in November, but the ECB balance sheet is still shrinking, helping to keep the euro strong. In 2014, policy options include another refi rate cut and the possibility of a negative deposit rate. But, in our view, another LTRO (possibly a fixed rate one that is conditional on lending to SMEs) is the most likely next step. If inflation risks continue to shift to the downside, even outright asset purchases could be on the cards for 2015.
Janet Henry Economist HSBC Bank plc +44 20 7991 6711 janet.henry@hsbcib.com
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) USD/EUR* 3-month money (%)* 10-year bond (%)*
2013f -0.4 -0.5 0.3 -3.2 -0.6 -0.9 1.1 0.0 -0.9 12.1 1.7 1.4 261.3 2.1 -3.2 93.7 1.37 0.3 2.9
2014f 0.8 0.5 0.1 0.6 -0.4 0.6 3.0 2.4 1.4 12.1 1.5 1.0 264.3 2.1 -2.9 96.0 1.28 0.2 2.7
2015f 1.0 0.7 0.3 1.5 -0.4 0.7 3.4 2.9 2.6 11.8 1.5 1.2 246.2 2.0 -2.8 96.1 1.25 0.2 2.7
Q3 13 -0.4 0.1 -0.4 0.6 -2.5 -0.3 -0.5 0.8 0.5 -0.9 12.1 1.5 1.3 71.2 2.2 1.35 0.1 2.9
Q4 13f 0.4 0.2 0.3 0.5 -1.2 -0.4 0.4 2.0 1.8 0.4 12.2 1.6 0.8 95.3 2.9 1.37 0.3 2.9
Q1 14f 0.8 0.2 0.4 0.2 0.6 -0.4 0.7 3.7 3.3 0.7 12.2 1.5 0.8 45.2 1.4 1.35 0.2 2.9
Q2 14f 0.7 0.2 0.4 0.2 0.6 -0.4 0.8 2.3 2.3 0.9 12.2 1.5 1.1 70.7 2.2 1.33 0.2 2.8
Q3 14f 0.9 0.2 0.5 0.1 0.6 -0.4 0.5 2.9 1.9 1.6 12.1 1.5 0.9 50.9 1.6 1.30 0.2 2.7
Q4 14f 0.9 0.3 0.5 0.1 0.7 -0.4 0.5 3.1 2.2 2.4 12.0 1.5 1.3 96.2 3.1 1.28 0.2 2.7
Note: *Period end, 10-year bond is a GDP weighted average of Germany, France, Italy and Spain Source: Thomson Reuters Datastream and HSBC estimates
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Disinflationary pressures persist

% Yr 4 3 2 1 0 -1 03 04 05 06 07 08 09 10 11 12 13 Germany Periphery* Core HICP inflation % Yr 4 3 2 1 0 -1 Other Eurozone
with some of the periphery in outright deflation

After hitting a four-year low of 0.7% y-o-y in October,
inflation edged back up to 0.9% in November. Falling energy and food price inflation have contributed to the low inflation rate, but underlying inflation is also subdued. Inflation should tick up a little further as energy base effects become less favourable. There will also be some small tax rises, such as French VAT in January and Italian excises in December, but the impact on headline inflation for the eurozone will be relatively small. In 2014, a relatively slow domestic demand recovery is expected to keep downward pressure on wages, allowing inflation pressures, particularly in the services sector, to remain very subdued. We expect inflation to average just 1.0% in 2014.
*Periphery: Spain, Greece, Italy, Ireland & Portugal Source: Eurostat, HSBC
Credit continues to contract

% Yr 16 12 8 4 0 -4 -8 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Loans to corporates
Source: ECB
and AQR is unlikely to prevent further deleveraging

% Yr 16 12 8 4 0 -4 -8
EMU outstanding loans
The monetary data remain extremely weak. M3 growth
Loans to households
slowed to just 1.4% in October and private sector loan growth continued to weaken, dragged down by corporate loan growth (-3.7% y-o-y), while household loan growth is stabilising (+0.1% y-o-y) thanks to some improvement in mortgage lending (+0.9% y-o-y). The ECB will undertake an asset quality review (AQR) and stress tests in 2014 before assuming its role as single banking supervisor. It hopes this will restore trust in cross-border lending. However, without a single supervisory mechanism that has a genuine fiscal backstop, it will fail to sever the link between the banks and the sovereigns, meaning the fragmentation of monetary conditions is set to persist.
ECB cut rates again in November and

% 6 5 4 3 2 1 0 -1 05 06 07 Refi rate EONIA
Source: Thomas Reuters Datastream
other policy options could be on the cards for 2014

% 6 5 4 3 2 1 0 -1
ECB
Lower-than-expected inflation finally triggered another
25bps cut in the refi rate to 0.25% in November.

The ECB left the door open to a further cut and even the
08
09
10
11
12
13
Deposit rate Marginal lending
possibility of a negative deposit rate, which, in an environment of full allotment, sets the floor for the overnight rate. This will likely come back up as a policy option whenever the euro is under significant appreciation pressure. However, the more likely next policy measure is another LTRO (most likely on a conditional basis) to coincide with the impact of QE tapering. This could help to offset any rise in market rates and put downward pressure on the euro, although the take-up is unlikely to be as big as for previous LTROs.
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Germany
Rebalancing, just gradually
Thanks to a robust increase in domestic demand, the German economy expanded by 0.3% q-o-q in Q3. Net exports, in the past often a major growth driver, detracted 0.4ppt from GDP growth in Q3, and have not contributed positively at all in 2013 so far a sign that a gradual rebalancing is taking place in the German economy. The modest upswing of business fixed investment should continue, given the favourable mix of loose financing conditions, improved corporate sentiment and increasing orders for domestic investment goods. Employment, already above 42m for the first time in history, should rise further, as hiring intentions have stabilised and vacancies have picked up again. Job losses as an adverse effect of the likely introduction of a nationwide minimum wage of EUR8.5/hour should be felt much later, and predominantly in the lower-paid service sector. In the manufacturing industry, wages already
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) USD/EUR* 3-month money (%)* 10-year bond (%)* 2013f 0.6 1.1 0.5 -0.8 1.0 0.8 0.3 1.0 0.3 6.9 2.6 1.6 242.3 6.8 0.1 79.8 1.37 0.3 1.9 2014f 1.7 1.3 0.8 2.8 1.1 1.6 3.0 3.1 4.1 6.7 3.0 1.7 232.8 6.3 0.1 77.5 1.28 0.2 1.8 2015f 1.5 1.2 0.8 2.2 1.1 1.3 3.1 2.8 3.9 6.5 2.8 1.7 206.5 5.7 0.1 75.2 1.25 0.2 1.8
exceed this minimum substantially. Thus, despite rising unit labour costs, the damage to international competitiveness should be limited. Private consumption should remain an important pillar of growth, as income expectations have marked a multi-year high, buying intentions increased further and the ECB rate cut to 0.25% undermined the willingness to save even further. Below the surface, the solid domestic outlook has some effects on inflation. While in absolute terms, German core inflation was steady, the gap to eurozone inflation not only narrowed, but recently has become positive on the back of recessionary tendencies in the crisis countries. This, together with an investment rebound, should lead to a gradual decline of the current account surplus from near-record high levels of 7% of GDP 2012. Following sluggish growth in 2012 and 2013, GDP should expand above trend in 2014 and 2015.
Stefan Schilbe Economist HSBC Trinkaus & Burkhardt AG +49 211910 3137 stefan.schilbe@hsbc.de Rainer Sartoris Economist HSBC Trinkaus & Burkhardt AG +49 211910 2470 rainer.sartoris@hsbc.de
Q3 13 0.6 0.3 1.1 0.5 0.6 1.0 1.2 -0.2 1.3 0.2 6.8 2.4 1.7 58.3 6.4 1.35 0.1 1.8
Q4 13f 1.5 0.5 1.4 0.6 1.5 1.1 1.7 2.1 2.8 3.7 6.9 2.8 1.4 65.0 7.3 1.37 0.3 1.9
Q1 14f 1.9 0.4 1.4 0.6 4.2 1.1 1.8 3.9 4.1 4.8 6.8 3.0 1.5 58.1 6.2 1.35 0.2 2.0
Q2 14f 1.6 0.4 1.1 1.1 3.1 1.1 1.8 2.2 2.8 3.6 6.7 3.0 1.8 57.2 6.1 1.33 0.2 1.9
Q3 14f 1.6 0.4 1.3 0.8 1.9 1.1 1.4 2.9 2.7 4.0 6.6 3.0 1.6 55.9 6.1 1.30 0.2 1.8
Q4 14f 1.5 0.4 1.2 0.8 2.2 1.1 1.3 3.1 2.8 4.0 6.5 3.0 1.8 61.4 6.8 1.28 0.2 1.8
Note: *Period end Source: Thomson Reuters Datastream, HSBC estimates
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Business fixed investment

% Yr 60 40 20 0 -20 -40 -60 02 03 04 05 06 07 08 09 10 11 12 13 New domestic orders VDMA (roll. 3MMAV, LHS) Business fixed investment (machinery and equipment, RHS)
Source: Macrobond and HSBC
The long-awaited turnaround has begun

% Yr 30 20 10 0 -10 -20 -30
Germany, business fixed investment
The improvement of corporate sentiment (ifo business
climate, PMIs) and an increase in industrial orders signal an acceleration of industrial production. As a result, capacity utilisation, already close to the long-term average, should rise further, thus making a turnaround in business fixed investment increasingly likely. Both sentiment indicators and hard data have improved recently: expectations of companies in the capital goods sector reached their highest level since August 2011; new domestic orders for machinery and equipment, often a reliable leading indicator for investment, have picked up notably.
Private consumption
% 70 55 40 25 10 -5 -20 -35 -50 -65 95 97 Germany, consumer surveys % 0 -5 -10 -15 -20 -25 -30 -35 -40 -45
Consumer spending an important pillar of growth

Private households are increasingly optimistic about the
99 01 03 05 07 09 11 13 Willingness to buy (LHS) Major purchases over next 12 months (RHS)
future. GfK consumer sentiment has reached its highest level since 2007, income expectations have improved on the back of rising employment and the willingness to buy, even for major purchases, is near multi-year highs. The willingness to save tumbled further in November following the ECB rate cut to a record-low 0.25%. Consumption, which contributed 0.7ppt to GDP growth in the first three quarters of 2013 (and therefore was the most important growth driver), should continue to expand in the coming months.
Source: Macrobond, www.policyuncertainty.com and HSBC
Inflation
Inflation excluding energy and unprocessed food % Yr 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 03 04 05 06 07 08 09 10 11 12 13
Spread* Germany
*Germany minus eurozone Source: Macrobond & HSBC
Underlying price pressure above eurozone average

% Yr 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5
Since 2003, when Germany was called the sick man of
Trend since 2003 Eurozone
the eurozone, the spread between German and eurozone core inflation has not only narrowed but has become substantially positive. The major reason is the economic weakness in many peripheral countries, where sizable output gaps undermine the price-setting ability of companies. In Germany, a domestic-led recovery on the back of an investment rebound and solid consumption will likely lead to comparably higher price pressures. Given the healthy labour market, labour unions are in a good bargaining position to receive compensation for the increase in inflation and productivity, thus leading to a gradual decline of competitiveness longer term.
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France
France stalls
In 2011 and 2012, France enjoyed stronger growth than the eurozone as a whole. But in the third quarter of 2013, GDP fell by 0.1% q-o-q, while the eurozone continued to expand. As a result, industrial production remains 14% below its pre-crisis level, and the level of French exports is similar to that in 2008 whereas in the eurozone exports are 6% higher than in 2008. Moreover, the latest business surveys show that the outlook is worsening. France frequently underperforms during a period of economic recovery due to the size of its automatic stabilisers. For example, high levels of taxation prevent an acceleration in consumer spending. But, the latest surveys point to an additional problem beyond the less cyclical nature of the French economy. The French manufacturing PMI has been falling since September and remains stuck below 50, while in Germany and Italy it has moved above this threshold and has risen over the period. Over the next few quarters, French growth will continue to be hampered by low business profit margins, which will prevent any upturn in investment. On top of this, the rapid growth in government spending suggests that further tax increases are on their way, despite the tax burden already having reached the record level of 46.3% of GDP in 2013. Furthermore, the increase in VAT could limit consumer spending at the start of 2014, having bolstered it at the end of 2013. Constant tinkering with the rules for business and household taxation, the loss of competitiveness of French exports and the scale of the automatic stabilisers will continue to cap French growth in 2015. However, the growth in public spending is likely once again to stave off a fall in consumer spending, albeit at the cost of a higher deficit than currently forecast by the government.
Mathilde Lemoine Economist HSBC France +33 1 40 70 32 66 mathilde.lemoine@hsbc.fr
2013f 0.2 0.4 1.7 -2.3 0.1 0.5 0.2 1.1 -0.5 10.9 1.7 1.0 -51.7 -1.9 -4.2 203.3 94.8 1.37 0.3 2.5
2014f 0.6 0.6 0.5 -0.6 0.4 0.7 1.3 1.7 1.2 10.9 1.3 1.4 -55.0 -2.0 -4.1 205.0 97.7 1.28 0.2 2.3
2015f 1.0 0.6 1.1 1.2 0.4 0.9 3.3 2.6 2.6 10.8 1.5 1.5 -50.7 -1.9 -3.6 206.2 99.0 1.25 0.2 2.3
Q3 13 0.2 -0.1 0.6 1.7 -2.4 0.3 0.8 -0.5 1.5 -1.4 11.0 1.6 1.1 -14.9 -2.1 1.35 0.1 2.3
Q4 13f 0.6 0.3 0.9 1.5 -1.6 0.4 1.4 0.5 3.3 0.6 10.8 1.6 0.7 -15.1 -2.1 1.37 0.3 2.5
Q1 14f 0.6 -0.1 0.8 1.0 -1.4 0.4 1.2 1.3 3.1 1.0 10.8 1.3 1.1 -14.3 -2.0 1.35 0.2 2.5
Q2 14f 0.3 0.2 0.6 0.4 -0.8 0.4 0.9 -0.2 1.8 0.0 10.9 1.2 1.4 -13.9 -2.0 1.33 0.2 2.4
Q3 14f 0.7 0.2 0.6 0.4 0.0 0.4 0.5 1.9 1.1 1.8 10.9 1.3 1.5 -13.5 -2.0 1.30 0.2 2.4
Q4 14f 0.6 0.2 0.4 0.4 -0.1 0.4 0.3 2.2 0.9 2.1 11.0 1.4 1.7 -13.2 -1.9 1.28 0.2 2.3
Note: * Period end Source: Thomson Reuters Datastream, HSBC estimates
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French businesses are missing out on the exportdriven recovery

Index 60 55 50 45 40 35 11 12 13 Index 60 55 50 45 40 35
... which limits revival in industrial production In France, businesses do not benefit from foreign demand rebound as much as in other eurozone countries. In the third quarter of 2013, French exports were at a similar level to Q1 08, whilst in the eurozone they were 6% higher, in Germany 11% higher, and in Spain 17% higher. Manufacturing PMI surveys suggest that this trend will continue in Q4. In November, the new export orders component was only 48.7 in France, against 53.9 in Germany and 54 for the eurozone as a whole. Therefore, the French manufacturing PMI continued to decline in November, to 48.4 from 49.8 in September, while in both Germany and Italy this index rose and was higher than 50.
Eurozone manufacturing PMI French manufacturing PMI

Sources: Markit, HSBC
The tax rise and the prospect

Tax burden in European countries
of further increases are fuelling social tensions Since 2011, EUR74bn in additional taxes have been earned by successive governments. But the effect on the deficit has been minimal: it should be 4.2% of GDP in 2013, instead of the 3% announced by the government in the autumn of 2012. This worsening of the French budget position is not only due to slower-than-expected GDP growth, but also to persistently strong growth in structural public spending. In 2013, the structural deficit (ie, excluding cyclical effects) was 1ppt of GDP higher than the government forecast, at 2.6% of GDP. Against this background, several sections of the French population are refusing to pay taxes and to accept new tax implementation, which could undermine Frances ability to stabilise its debt-to-GDP ratio.
% of GDP 50 45 40 35 30 25 20
% of GDP 50 45 40 35 30 25 20
Sources: European Commission, HSBC
The automatic stabilisers are no longer only a brake on recovery...

French non financial businesses % of v alue-added 34 32 30 28 26 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Profit margin ratio (LHS) Social security contributions paid by employ ers (RHS)
Sources: INSEE, HSBC
Denmark France Belgium Finland Sweden Italy Austria Eurozone EU27 Netherlands Germany UK Portugal Spain Ireland
... they are causing France to drop behind

The increase in social security contributions has pushed
% of v alue-added 17.0 16.5 16.0 15.5 15.0
labour costs higher in France. At the same time, productivity has fallen. As a result, French exports have become less competitive than those from other eurozone countries. Moreover, weak business margins in France are limiting investment and thus improvements in non-price competitiveness for French exports. The profit margin of French companies is 28% of the value added (Eurostat), against 38% in the eurozone and 41% in Spain. Only consumer spending continues to be bolstered by the growth in volume of social security benefits, which is pushing up households gross disposable income.
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Italy
Some relief at year-end
Survey indicators such as PMIs, industrial orders and capacity utilisation all improved markedly in recent months, pointing towards expansion. Nonetheless, industrial production and GDP growth stalled again in the third quarter. We expect this unusual detachment to end in Q4, with Italian GDP expanding by 0.2% q-o-q. While recent fiscal interventions (increases in energy and alcohol excises and in down payment for the 2014 IRES tax) should keep the public deficit close to its target (we expect it at 3.2% of GDP versus a 3% target), they will also slow down the recovery in consumption and investment. The political environment has improved considerably in recent months. With the expulsion of Silvio Berlusconi from parliament and his partys split, the government is less dependent on his judiciary problems. In the coming weeks,
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) USD/EUR* 3-month money (%)* 10-year bond (%)* 2013f -1.8 -2.5 -0.2 -5.4 -0.2 -2.7 0.1 -2.6 -3.2 12.2 1.4 1.3 10.8 0.5 -3.2 131.0 1.37 0.3 4.1 2014f 0.4 -0.2 0.0 -0.2 0.2 0.1 2.8 1.8 0.4 12.4 1.4 0.8 9.9 0.5 -2.8 132.4 1.28 0.2 4.0 2015f 0.6 0.4 0.0 1.3 0.0 0.5 2.8 2.5 2.2 11.9 1.6 1.1 18.4 0.9 -2.4 132.0 1.25 0.2 4.0
we will also discover if the rising star of the left (newly elected Partito Democratico (PD) secretary Matteo Renzi) will want to bank on his popularity and push for early elections. We think this is highly unlikely, as no electoral reform is materialising yet and, without it, president Napolitano will hardly call for new elections. Nonetheless, elections in Q1 2014 cannot be entirely ruled out at this stage. Further ahead, the fiscal outlook looks stable as the pension reform will further increase the sizeable primary surplus. On the other hand, the lack of structural reforms means higher potential growth is unlikely. Consequently, we dont expect Italian growth to go beyond 0.4% and 0.6% in 2014 and 2015, respectively. Things could change should Mr Renzi become the next prime minister and implement his reformist agenda, but it is early to ponder on that possibility now.
Matteo Cominetta Economist HSBC Bank plc +44 20 7991 6708 matteo.cominetta@hsbc.com
Q3 13 -1.8 0.0 -2.0 0.1 -5.1 0.0 -2.3 0.0 -1.2 -3.9 12.3 1.5 1.1 9.2 1.8 1.35 0.1 4.4
Q4 13f -0.7 0.2 -1.4 0.1 -3.5 0.0 -0.9 0.8 0.6 -1.2 12.4 1.5 0.8 4.5 0.8 1.37 0.3 4.1
Q1 14f 0.0 0.1 -0.8 0.0 -0.8 0.0 -0.5 2.8 1.3 -0.9 12.4 1.4 0.7 -5.4 -1.0 1.35 0.2 4.2
Q2 14f 0.5 0.2 -0.2 0.0 -0.8 0.0 0.4 2.8 2.4 0.1 12.4 1.4 0.8 5.5 1.0 1.33 0.2 4.1
Q3 14f 0.6 0.1 0.1 0.0 0.2 0.0 0.1 2.8 1.2 1.1 12.3 1.4 0.8 4.3 0.8 1.30 0.2 4.1
Q4 14f 0.6 0.1 0.3 0.0 0.6 0.0 0.3 2.8 2.2 1.5 12.3 1.5 1.1 5.2 1.0 1.28 0.2 4.0
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The gap between industrial orders and production

Index (Yr change) Italy % Yr 15 30 10 20 5 10 0 0 -5 -10 -10 -20 -15 -30 -20 -40 -25 -50 -30 -60 02 03 04 05 06 07 08 09 10 11 12 13 Orders book (LHS) Industrial production (RHS)
... bodes well for near-term growth

Industrial orders are growing at one of the fastest rates
since the inception of the euro (see chart).

Orders are usually a good predictor of industrial production. Last time the orders yearly change was at these levels (April
2011) industrial production was growing at 5% y-o-y. This, together with PMIs well above 50 and increasing capacity utilisation, points towards an acceleration in Italian industrial production (currently at -3.4% y-o-y) and GDP.
Domestic orders finally showing signs of life

Index 10 0 -10 -20 -30 -40 -50 -60 -70 01 03 05 Domestic 07 09 Exports 11 13 Total Order books Index 10 0 -10 -20 -30 -40 -50 -60 -70
suggest domestic demand is stabilising

Industrial orders from foreign residents turned around
strongly during the summer.

Domestic orders have now followed, rising solidly in the
last four months.

This suggests domestic demand is finally stabilising,
even if at a low level.

We think the public administrations payment to
providers of EUR20bn (1.4% of GDP) of arrears played an important role in this stabilisation. With EUR20bn more to be paid in 2014, we think the positive move should continue.
Structural reforms are needed

Index (00 =1) 1.4 1.3 1.2 1.1 1.0 0.9 0.8 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Germany France Italy Spain Nominal unit labour cost Index (00 =1) 1.4 1.3 1.2 1.1 1.0 0.9 0.8
to increase potential growth

While growth looks set to improve in the short term, the
long-term outlook for Italy remains challenging.

Competitiveness has been lagging behind European
peers for a while, and it does not look like this trend is changing (see chart). We deem the loss in competitiveness Italy has experienced to be more structural than that seen elsewhere, for example, in Spain. We thus think that, without bold structural measures, Italy will not cure itself of its low-growth malaise.
Source: Thomson Reuters Datastream, HSBC
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Spain
Short-term pain, long-term gain
Spains recent outstanding export performance supports our view that the decline in its competitiveness was only temporary and was caused by macroeconomic mismanagement in the pre-crisis bubble year rather than a structural loss of productivity. We therefore expect it to continue to increase its productivity and competitiveness in the years to come, laying the foundations for sustainable growth in the future. This also implies that we expect Spanish exports to continue performing very well. That said, the bubble years did leave a toxic legacy of public deficits and credit tightness that have yet to be resolved. True, the recently completed banking sector reform programme removed the most pressing problem for Spanish banks their exposure to the real estate sector. Nonetheless, the banks remain highly leveraged, dependent on ECB money and weighed down by high and rising non-performing loans. In a year when the ECB will be scrutinising Spanish banks balance sheets, we do not expect any expansion on this front, suggesting that the credit crunch will persist well into 2014. This, in turn, will prevent a sharp rebound in investment and consumption, leading to a very gradual recovery in domestic demand. Public finances are also still facing a considerable challenge: we expect the deficit to overshoot the three-times raised 6.5% of GDP target in 2013. Although we believe the EU authorities soft stance on austerity will continue, we think that closing the structural gap between public revenues and expenditure will further weigh on domestic demand. For these reasons we expect Spanish GDP to grow only 0.3% in 2014 before accelerating to 0.9% in 2015.
Matteo Cominetta Economist HSBC Bank plc +44 20 7991 6708 matteo.cominetta@hsbc.com
2013f -1.3 -2.5 -1.2 -5.9 1.8 -3.0 5.4 0.5 -1.6 26.5 0.1 1.5 9.5 0.7 -7.2 92.5 1.37 0.3 4.1
2014f 0.3 0.3 -1.9 -1.4 1.9 -0.5 6.7 4.8 0.6 26.3 0.6 0.7 11.0 0.8 -6.3 97.9 1.28 0.2 3.8
2015f 0.9 0.6 -2.0 1.6 2.1 0.3 6.6 5.3 2.5 25.6 0.7 1.3 9.9 0.7 -6.0 102.0 1.25 0.2 3.8
Q3 13 -1.1 0.1 -2.2 0.3 -6.3 0.4 -2.5 4.7 0.7 -1.0 26.6 0.6 1.3 11.6 1.8 1.35 0.1 4.4
Q4 13f -0.4 0.0 -0.2 -0.2 -3.6 0.4 -1.0 5.0 3.7 0.5 26.6 0.6 0.2 5.0 1.6 1.37 0.3 4.1
Q1 14f 0.1 0.0 0.4 -2.0 -3.0 0.4 -0.9 11.0 9.1 0.6 26.4 0.6 0.6 -3.7 -1.2 1.35 0.2 4.2
Q2 14f 0.4 0.2 0.4 -1.6 -0.8 0.5 -0.3 5.7 4.4 0.4 26.4 0.6 0.8 4.9 1.5 1.33 0.2 4.0
Q3 14f 0.4 0.1 0.1 -2.2 -0.9 0.5 -0.5 4.9 2.6 0.5 26.2 0.6 0.4 3.1 1.0 1.30 0.2 3.9
Q4 14f 0.5 0.1 0.2 -2.0 -0.7 0.5 -0.4 5.4 3.2 1.0 26.2 0.6 1.1 6.2 2.0 1.28 0.2 3.8
Note: *Period-end Source: Thomson Reuters Datastream, HSBC estimates
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High public deficits are a legacy of the crisis

EURbn 500 400 300 200 100 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Expenditures
Source: CEIC
and look structural

Various austerity packages approved by the Spanish
EURbn 500 400 300 200 100 0
Public finances
Revenues
government managed to more or less stabilise public expenditure (see chart). The same cannot be said for revenues, which were left virtually unchanged after increases in most taxes (personal and corporate income, VAT, excise). It therefore looks as if the gap between revenues and expenditure will be difficult to close. Without strong growth, further austerity is unlikely to bring the Spanish deficit down significantly from its current high levels. High deficit levels will keep pressure on the Spanish government, acting as a drag on public consumption.
The stabilisation in the labour market

000 Persons 400 300 200 100 0 -100 -200 -300 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Active
Source: Spanish statistics office
is smaller than it appears

000 Persons 400 300 200 100 0 -100 -200 -300
Quarterly changes
The unemployment rate in Spain has stabilised at
around 26% in recent months. However, this is more due to the decline in the active population (ie, a reduction in the number of people looking for a job) than to genuine employment creation. As the chart shows, in the past 12 months the active population in Spain has fallen by 370,000 units (1.6%). Without strong employment creation, private consumption will hardly repeat the surprising increase seen in Q3.
Unemployed
Outstanding export performance

Index 120 110 100 90 80 70 08 09 Germany 10 11 France 12 Italy 13 Spain Exports of goods and services 2008=100 Index 120 110 100 90 80 70
driven by rapid catch-up in competitiveness

We think Spain only temporarily lost competitiveness. Excessively loose monetary policy by the ECB and other
macroeconomic mismanagement reduced Spains competitiveness, rather than a structural decline in productivity. This explains why Spain managed to regain competitiveness so quickly and why it posted the strongest export performance of any major eurozone economy (see chart). We think this outperformance will continue in the future, paving the way for sustained growth in Spain once it has solved its fiscal and banking issues.
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UK
Growth rising not interest rates
The UK economy outperformed most of its European peers in 2013 and the recovery looks set to continue in 2014. We expect growth of 2.6% in 2014, up from 1.4% in 2013. Improving credit conditions, a recovery in the housing market and much higher consumer confidence mean growth has been driven by household consumption and an inventory rebuild. Net trade disappointed again in Q3 and was a larger drag on growth than in Q2, despite some signs of recovery in the eurozone. To support the recovery, the Bank of England has said it does not intend to consider tightening monetary policy until unemployment has fallen below 7%. In August, the MPC thought this would take until H2 2016. Following strong data the BoE revised its unemployment forecast in November to show the headline rate falling faster, although it has been at pains to emphasise that the 7% threshold is not an automatic trigger for tightening. So even if unemployment reaches 7% earlier than the BoEs current expectation of Q3 2015 (in-line with our own forecast) we dont see the MPC immediately starting to raise Bank Rate. But with the latest labour market data showing yet another unexpectedly large improvement, we now forecast unemployment to be 7.2% by H2 2014. As this is close to the threshold the policy rate should hot up. Ultimately, the UK outlook depends on productivity: if productivity rises along with the economic recovery, then the fall in unemployment should slow. But if productivity grows slowly in the face of rising demand, firms will need to hire and pay more, putting pressure on the MPC to tighten. For now, however, house prices rather than wage inflation seem to be the more pressing worry. The BoEs FPC outlined its macroprudential tools and refocused the Funding for Lending credit easing scheme away from mortgage lending. We think rate hikes will be used only as a last resort and do not expect the first rate increase before Q4 2015.
Simon Wells Economist HSBC Bank plc +44 20 7991 6718 simon.wells@hsbcib.com
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Manufacturing output Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) PSNB (% GDP) USD/GBP* GBP/EUR* 3-month money (%)* 10-year bond yield (%)*
Note: *Period end Source: ONS, HSBC estimates
2013f 1.4 1.9 0.4 -1.6 0.4 1.5 1.2 2.0 0.0 7.7 1.4 2.6 -100.2 -3.8 5.6 1.64 0.84 0.5 2.7
2014f 2.6 2.4 0.1 7.8 0.0 2.6 2.4 2.4 4.4 7.4 2.2 2.4 -57.5 -2.3 4.7 1.50 0.85 0.7 2.8
2015f 2.7 2.8 -0.7 5.5 -0.1 2.3 2.8 1.6 2.6 7.0 2.7 2.4 -53.9 -2.1 3.9 1.47 0.85 0.9 2.9
Q3 13 1.5 0.8 2.2 0.9 0.3 0.5 2.1 -0.7 1.9 -0.1 7.6 0.8 2.7 1.62 0.84 0.5 2.9
Q4 13f 2.6 0.8 2.3 0.9 6.5 0.3 0.0 2.5 3.7 2.9 7.4 1.9 2.1 1.64 0.84 0.5 2.7
Q1 14f 2.8 0.6 2.2 1.1 7.4 0.6 3.2 3.0 4.5 4.3 7.3 2.8 2.0 1.65 0.82 0.6 2.6
Q2 14f 2.7 0.6 2.6 0.4 9.0 0.2 3.2 0.7 2.1 4.6 7.3 1.0 2.4 1.61 0.83 0.6 2.7
Q3 14f 2.5 0.6 2.4 -0.2 7.4 -0.5 2.0 3.4 1.7 4.7 7.2 2.6 2.5 1.55 0.84 0.6 2.7
Q4 14f 2.4 0.7 2.4 -0.8 7.4 -0.4 2.0 2.6 1.3 4.1 7.2 2.6 2.7 1.50 0.85 0.7 2.8
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Household consumption has been strong

pp 3 2 1 0 -1 -2 -3 -4 -5 07 Contribution to Y-o-Y UK GDP growth pp 3 2 1 0 -1 -2 -3 -4 -5
offsetting the large drag from weak net trade

UK household consumption has been a large contributor
08 09 Net Trade Stockbuilding
10
11
12 13 HH consumption
to GDP growth since 2012, despite households real disposable income stagnating. There was also a strong contribution from stockbuilding in Q3 2013, which should slow once firms reach desired levels of inventories, making it an unsustainable source of growth. By contrast, net trade has continued to be a drag on growth. This is mainly due to the weakness in services sector exports, in which the UK has traditionally specialised, and persistent growth in imports.
Source: ONS, HSBC
Credit growth is picking up, especially consumer lending

Net % 10 0 -10 -20 -30 -40 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Consumer condfidence (LHS) UK Net Unsecured Consumer Credit (RHS)
Source: Bank of England, DG-ECFIN
but it is difficult to reconcile spending growth with falling real wages

Our inflation and wage growth forecasts still suggest that
Consumer confidence and credit
%YoY 20 15 10 5 0 -5
the squeeze on real pay will continue.

That means growth in consumer spending will depend
on borrowing or a reduction in savings.

There has been a pick-up in lending to consumers,
which has coincided with a general improvement in consumer sentiment and a resilient labour market. The risk is that household indebtedness starts rising again, and from still elevated levels. Indeed, the Office for Budget Responsibility has recently revised its forecasts to show a sharper increase in household debt over the forecast horizon than previously expected.
Persistently high services inflation has come down
but medium-term inflation depends on productivity growth and the monetary policy response to it
UK services inflation has historically been much higher
% Year 6.0 4.5 3.0 1.5 0.0 -1.5 -3.0 97 99 01 Goods

Source: ONS
UK CPI
% Year 6.0 4.5 3.0 1.5 0.0 -1.5 -3.0
03
05
07 Services
09
11
13 Core
than for goods. CPI-services inflation has averaged 3.7% since 1997, compared with 1% for goods. Both goods and services inflation have fallen recently as some of the factors keeping inflation up have waned. Overall inflation might even dip below the MPC's 2% target in Q1 2014. Further ahead, the prospects for UK inflation depend on how productivity evolves. We expect a gradual rise in productivity and, in turn, a modest pick-up in wage growth to keep inflation contained. But with credit growth rising and policymakers desperate not to tighten too early, we do not expect disinflation to be a major problem in the UK.
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Norway
Fundamentals still sound
Norways economy slowed in 2013, but mainland GDP should still have grown by a respectable 1.8% for the year as a whole. The main drag was weak consumption growth, and this may remain sluggish due to a reversal in house prices. However, there had been fears that the housing market was overheating, and Norway has been one of the pioneers of macro-prudential polices to slow house price appreciation and the accumulation of household debt. These policies seem to be working but will lead to a period of softer growth in the meantime. We, therefore, lower our GDP forecast for 2014 (from 3.1% to 2.2%) but believe Norways economic fundamentals are still sound. The main strength lies in the labour market, with an unemployment rate that is among the lowest in the developed world and wages actually rising in real terms. That should limit the downsides to consumption in 2014. Headline inflation reached a recent peak of 3.2% y-o-y in August and has been above the central banks target of 2.5% for several months. Part of this was due to the rise in import prices as the krone depreciated through 2013. On the whole, domestic inflationary pressures should remain under control given greater spare capacity. Firms are also reporting a lower degree of labour shortages. Indeed, the Norges Bank was more dovish than expected at its December meeting. It kept the policy rate unchanged at 1.5% and pushed back the first policy tightening in its policy rate forecast. That does not mean a rate cut, however. We think the central banks policy mix seems about right, striking a balance between using macro-prudential policies to target specific issues, such as household indebtedness, and keeping the policy rate unchanged while inflation remains under control in order to sustain growth.
John Zhu Economist HSBC Bank plc +44 20 7991 2170 john.zhu@hsbcib.com
% Year GDP* GDP (% quarter)* Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports* Imports* Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) NOK/EUR** 3-month money (%)** 10-year bond (%)**
2013f 1.8 2.2 2.0 2.4 3.5 2.2 -1.8 1.8 4.1 2.6 3.6 2.2 53.5 11.0 13.6 27.0 8.40 1.7 2.9
2014f 2.2 1.2 2.0 3.2 3.7 1.8 2.3 3.2 2.7 2.6 2.3 2.3 49.6 9.6 13.1 26.0 7.60 1.8 3.0
2015f 1.5 1.9 2.0 4.7 3.8 2.4 3.3 5.2 2.6 2.5 2.4 2.4 45.0 8.5 12.8 25.0 7.40 2.0 3.1
Q3 13 1.5 0.5 1.7 1.6 1.2 4.1 1.5 0.0 2.7 3.9 2.7 1.8 2.5 12.7 9.9 8.14 1.7 2.9
Q4 13f 1.5 0.2 1.5 1.9 -0.8 3.0 1.2 0.1 1.4 4.1 2.6 2.2 2.5 13.4 11.0 8.40 1.7 2.9
Q1 14f 1.8 0.8 0.9 2.0 2.5 3.0 1.5 1.7 2.5 3.9 2.6 2.3 2.3 12.2 10.0 8.30 1.7 2.8
Q2 14f 2.0 0.5 1.1 2.0 2.4 3.0 1.6 1.8 4.3 2.3 2.6 2.3 2.3 11.3 9.0 8.10 1.7 2.9
Q3 14f 2.3 0.8 1.4 2.0 3.2 3.0 1.9 2.9 2.1 2.2 2.6 2.3 2.2 13.7 10.5 7.80 1.8 2.9
Q4 14f 2.5 0.4 1.6 2.0 4.7 3.0 2.3 2.8 3.9 2.5 2.5 2.4 2.3 11.6 9.0 7.60 1.8 3.0
Note: *Mainland, **Period end, exports and imports of travel and non-oil-related goods and services Source: Statistics Norway, HSBC estimates
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Sweden
Reaching the bottom
Swedens economy has been very sluggish, contracting 0.1% q-o-q in Q2 and growing 0.1% q-o-q in Q3. There has been persistent deflation in 2013 due to a combination of lower commodity prices and weak domestic pricing power. This seems to be having second-round effects, as the latest wage and wage settlements data point to a sharp decline in nominal pay growth in 2014, which will hurt household consumption and also risk deflationary pressures becoming entrenched. The better news is that the most recent surveys point to a rebound in Q4, and unemployment seems to have stabilised, although it remains elevated at around 8%. The gradual return to growth in Swedens largest export market, the euro area, should also help net exports in 2014. The current weakness in the Swedish economy is also partly due to sharp destocking. Once the inventory cycle turns positive in 2014, we expect growth to pick up. Finally, government spending will take up some of the slack from reduced household spending through greater public sector spending and investment. The Riksbank has generally been much more concerned about household debt, despite inflation being around 2ppt below its 2% target. But slowing inflation in major economies is likely to have refocused attention on the risks of a structural fall in inflation, which is not helpful for indebtedness either, especially as wage inflation has slowed as well. This was the reason that the ECB acted to cut its refi rate, resulting in a spread between the Riksbank and ECB rising close to historical highs. We expect no rate rises in 2014.
John Zhu Economist HSBC Bank PLC +44 20 7991 2170
john.zhu@hsbcib.com
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%)* Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) SEK/USD* SEK/ EUR* 3-month money (%)* 10-year bond (%)*
2013f 0.8 1.7 1.2 -1.2 -0.4 0.6 -1.5 -2.2 -3.9 7.9 2.1 -0.1 35.3 6.4 -0.9 42.0 6.57 9.00 1.0 2.3
2014f 2.5 1.0 1.4 3.2 0.8 2.1 3.2 2.4 3.7 7.5 1.7 0.9 40.6 7.1 -1.1 42.0 6.48 8.30 1.1 2.5
2015f 2.6 1.6 1.4 5.1 0.3 2.1 5.9 5.3 5.4 6.9 2.0 1.5 43.4 7.4 0.5 41.0 6.56 8.20 1.2 2.7
Q3 13 0.3 0.1 1.7 1.0 2.3 -0.8 0.4 -2.5 -2.6 -5.0 7.9 2.1 0.1 33.4 6.1 6.42 8.69 1.2 2.4
Q4 13f 0.7 0.2 1.3 1.0 -0.4 -0.4 0.7 -1.5 -1.9 -2.2 7.9 1.7 0.0 9.3 6.6 6.57 9.00 1.0 2.3
Q1 14f 1.1 0.9 0.9 1.1 2.4 -0.1 1.1 0.3 0.1 0.1 8.0 1.5 0.3 9.7 7.1 6.52 8.80 1.0 2.2
Q2 14f 2.2 0.9 0.9 1.2 2.8 0.1 1.8 2.1 1.2 4.5 7.9 1.6 0.8 10.1 6.8 6.47 8.60 1.0 2.3
Q3 14f 3.0 0.9 0.9 1.5 2.8 0.3 2.6 4.5 3.6 5.3 7.7 1.8 0.9 10.1 7.1 6.46 8.40 1.0 2.4
Q4 14f 3.8 0.9 1.2 1.6 4.9 0.5 3.1 5.9 4.8 5.0 7.5 2.0 1.5 10.8 7.2 6.48 8.30 1.1 2.5
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Switzerland
Industrial recovery too, at last
The Swiss recovery finally broadened to the manufacturing sector in Q3. As in Q2, GDP grew 0.5% q-o-q. Indeed, while consumption growth weakened slightly, exports of goods rebounded strongly after having broadly stagnated since 2011. Exporters have overcome the constraints of the highly valued CHF through price competitiveness (exports deflator fell 1.3% y-o-y in Q3). Supply-side data confirm this picture, as manufacturing value added grew by 1.5% q-o-q in Q3 in real terms, after three consecutive quarters of decline. We expect the manufacturing rebound to continue in 2014, as Swiss exporters are more exposed to Germany (20% of exports), where the recovery is stronger, than to France and peripheral countries combined. Those better prospects are confirmed by the latest manufacturing PMI and KOF industry surveys and should lead to accelerating equipment investment in 2014. Hence, hiring should pick up, and we now expect a decline in the unemployment rate, starting in Q1 2014. Higher labour income should support a continuation of the strong growth in consumption observed in 2012 and 2013. In 2015, internal demand should remain strong, allowing inflation to return to slightly above 1% by year-end. But the SNB is unlikely to react with an increase in the 3-month Libor target rate or with a withdrawal of the 1.20 EUR-CHF floor if, as we expect, the exchange rate still hovers just above this level. Indeed, the SNB should want to avoid adding upward pressures on the CHF, which could threaten the recovery of the manufacturing sector. Instead, regulatory measures aimed at curbing some forms of bank lending and later a partial sterilisation of past FX interventions could be discussed by the SNB.
Franois Letondu Economist HSBC France +33 1 40 70 39 33 francois.letondu@hsbc.fr
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) CHF/USD* CHF/EUR* 3-month money (%)* 10-year bond (%)*
2013f 1.9 2.2 2.1 1.3 -0.7 1.6 1.2 0.4 -0.4 3.2 0.7 -0.2 84.8 13.2 0.3 240.3 34.5 0.91 1.24 0.0 1.0
2014f 2.1 2.1 0.9 2.7 -0.7 2.2 3.0 3.5 2.2 3.1 0.8 0.4 84.0 12.9 0.5 242.4 33.5 0.98 1.25 0.0 1.2
2015f 2.2 2.1 0.6 3.1 -0.7 2.2 3.4 3.8 2.9 2.8 1.0 1.0 78.0 12.2 0.8 235.3 32.5 1.00 1.25 0.0 1.3
Q3 13 1.9 0.5 2.1 2.3 2.1 -1.1 1.4 1.6 0.5 -0.8 3.2 0.7 0.0 20.1 12.5 0.90 1.22 0.0 1.0
Q4 13f 2.1 0.4 1.9 1.3 2.8 -0.7 1.4 2.0 0.7 1.4 3.2 0.7 0.0 22.1 13.8 0.91 1.24 0.0 1.0
Q1 14f 2.1 0.5 2.0 1.2 3.5 -0.7 2.4 2.6 3.4 1.9 3.1 0.7 0.1 20.4 12.4 0.93 1.25 0.0 0.9
Q2 14f 2.0 0.5 2.0 1.2 2.2 -0.7 1.5 3.9 3.2 2.4 3.1 0.8 0.4 22.3 13.6 0.94 1.25 0.0 1.0
Q3 14f 2.1 0.5 2.3 0.3 2.5 -0.7 2.6 2.4 3.6 2.0 3.0 0.8 0.4 19.8 12.2 0.96 1.25 0.0 1.1
Q4 14f 2.1 0.5 2.2 0.8 2.7 -0.7 2.2 3.2 3.5 2.5 3.0 0.9 0.8 21.4 13.4 0.98 1.25 0.0 1.2
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Hungary
Policy stimulus at work
Given a stronger-than-expected H2 2013 performance, we raise our GDP growth forecast for 2013 (from 0.5% to 1.0%) and also increased it modestly for 2014 (from 2.0% to 2.1%). Domestic demand should be the main growth driver in 2014 while exports look set to slow given the high base effect in 2013. In Q2 and Q3, fixed investment grew for the first time since end-2008. In Q2, this was entirely down to public investment, and we suspect the same was true in Q3. The government plans strong investment growth in 2014. Private investment should also pick up from Q4 2013 on the funding-for-growth scheme (FGS). The scheme triggered not only redenomination and refinancing but also new credit growth. Corporate forint-denominated credit growth jumped to 9-10% y-o-y in September-October from -5.1% in H1 2013 and was only partially offset by a faster contraction in corporate FX credit. The central
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) HUF/EUR* 3-month money (%)* 10-year bond (%)* 2013f 1.0 -0.1 1.2 5.6 1.0 0.9 5.0 5.2 1.8 10.5 4.0 1.7 3.8 2.9 -2.9 123.0 81.1 300 3.0 5.9 2014f 2.1 1.1 1.0 6.4 1.5 2.2 4.6 4.9 4.8 10.2 5.0 1.3 3.3 2.4 -3.0 114.8 79.6 290 2.9 5.9 2015f 1.6 1.3 1.0 5.0 2.5 1.9 4.3 4.8 3.5 10.3 4.0 3.0 2.9 2.1 -2.9 109.9 79.0 290 3.7 5.9
bank seems keen to increase the FGS from the current HUF1.25trn (4.3% of 2013 GDP). But we expect the take-up rate to slow as banks find fewer projects good enough for the low 2.5% risk premium the upper lending rate set by the CB under FGS. The FGS aimed not only to lower investment costs but also to improve the business confidence of SMEs sustainably to boost potential GDP growth. In our view, the government will also have to improve the business environment in the banking sector to support the growth outlook. However, ahead of Q2 2014 parliamentary elections, the risks remain skewed to more negative news for banks, as the government considers imposing another support programme for FX mortgage holders on them. Rising inflation will test the credibility of the central bank in H2 2014. An easing monetary policy bias in the eurozone and prevailing disinflation concerns may limit the necessary rate hikes, though.
Agata Urbanska-Giner Economist HSBC Bank plc +44 20 7992 2774 agata.urbanska@hsbcib.com
Q3 13 1.8 0.9 0.0 2.1 8.2 1.5 1.2 6.0 5.8 3.3 9.9 3.9 1.5 1.2 3.5 297 3.6 5.9
Q4 13f 2.4 0.4 0.4 -0.3 10.0 2.0 2.1 8.0 8.0 6.9 9.8 5.5 0.6 0.9 2.7 300 3.0 5.9
Q1 14f 2.3 0.5 0.6 1.0 11.0 0.3 2.8 6.0 6.8 6.2 10.6 6.5 0.3 1.1 3.8 295 2.8 6.1
Q2 14f 2.1 0.7 1.2 1.0 7.0 1.0 1.9 4.5 4.5 5.0 10.4 5.2 1.1 0.5 1.6 295 2.8 5.9
Q3 14f 1.9 0.4 1.4 1.0 5.0 1.5 2.3 3.8 4.4 3.8 10.0 4.5 1.5 1.1 3.2 290 2.8 5.9
Q4 14f 2.0 0.2 1.3 1.0 5.0 2.0 1.9 4.0 4.0 4.4 10.0 3.9 2.5 0.5 1.4 290 2.9 5.9
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Poland
Recovery too slow for comfort
GDP growth has shifted up to a higher gear since Q2 2013. It was 0.5-0.6% q-o-q in Q2-Q3 2013 (2.2% annualised) following five quarters of an average 0.2% q-o-q expansion (0.8% annualised). This is still short of the National Bank of Polands potential growth estimate of 2.4-2.7%. Given stronger-than-expected growth in H2 2013, we nudge up our 2014 GDP growth estimate to 3.0% y-o-y from 2.6%. However, this will still only dent rather than close the big 2% negative output gap in 2013, as estimated by the NBP. Moreover, we do not see any significant strengthening of the recovery trend in 2015, given the frail eurozone growth outlook. Our new 2015 forecasts envisage a weak pick-up in global GDP growth in 2015 and, in particular, the ECB still struggling to deliver more policy easing. This has prompted us to postpone our expectations of CB policy rate normalisation in Poland to 2015.
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) PLN/EUR* 3-month money (%)* 10-year bond (%)* 2013f 1.4 0.6 1.6 -0.5 0.5 -0.1 4.1 0.7 2.4 13.6 2.8 1.0 -7.9 -1.5 -4.4 73.2 58.6 4.20 2.7 4.4 2014f 3.0 2.5 1.7 5.0 1.5 3.0 6.8 6.6 6.2 13.8 4.0 1.8 -9.2 -1.6 4.6 69.1 51.4 3.90 2.7 3.6 2015f 3.3 3.2 2.2 7.4 2.5 4.3 6.5 8.5 5.4 13.8 4.3 2.2 -14.6 -2.5 -3.0 68.4 51.5 3.90 3.5 3.6
Since the beginning of the year, we have argued for a recovery based on exports and a moderation in fiscal tightening. Indeed, even as revenues have underperformed in 2013, the government has largely stuck to expenditure plans and allowed for a higher budget deficit. Export growth has been slow to pick up so far, but leading indicators are positive. In 2014 both these factors should strengthen. Export growth should benefit from stronger growth in the eurozone and Germany in 2014 than in 2013. We expect fiscal tightening in 2014 to be delivered mostly through pension reform and to be neutral for growth. Also the European Commission cut Poland some additional slack this autumn and extended the Polish EDP deadline to 2015, adding one more year on top of the two-year extension granted earlier in 2013. The economy will also benefit from the 275bp in interest rate cuts delivered between November 2012 and July 213 and, on our forecasts, stable record low rates through 2014.
Q3 13 1.9 0.6 1.0 1.7 0.6 1.5 0.5 6.4 3.4 5.0 13.0 3.1 1.1 -3.1 -2.4 4.23 2.7 4.4
Q4 13f 2.3 1.1 1.4 0.5 1.0 1.5 1.5 4.9 3.0 4.9 13.3 3.3 0.9 -2.3 -1.6 4.20 2.7 4.4
Q1 14f 2.9 1.0 1.9 2.5 2.0 2.0 2.3 6.0 4.8 6.4 14.6 3.1 1.5 -2.3 -1.8 4.10 2.7 4.0
Q2 14f 2.8 0.8 2.4 0.5 4.0 1.0 3.3 6.5 7.3 6.8 13.9 4.0 2.0 -0.9 -0.7 4.00 2.7 3.9
Q3 14f 3.1 0.7 2.6 1.5 5.0 2.0 3.1 7.0 7.0 5.3 13.3 4.2 1.7 -3.3 -2.3 4.00 2.7 3.6
Q4 14f 3.2 0.6 2.8 2.0 7.0 2.0 3.3 7.0 7.4 6.2 13.4 4.5 2.1 -2.7 -1.7 3.90 2.7 3.6
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Positive domestic demand growth returned in Q3

% Yr 8 6 4 2 0 1Q 08 1Q 09 1Q 10 1Q 11 1Q 12 1Q 13 Private consumption (LHS) % Yr 15 10 5 0 -5 -10 -15 Fixed investment (RHS)
and is set to strengthen in 2014

Domestic demand growth turned positive in Q3 2013 for
the first time in six quarters. The contribution to GDP growth from private consumption was the strongest in five quarters. Also, investment contributed positively to GDP for the first time in five quarters. The pick-up in private consumption should extend in 2014. This, in our view, will be based on an improving labour market and recovering credit growth. The negative trend in employment growth turned around in Q2 2013, and we expect modest but positive employment growth in 2014. Consumer confidence has been slowly improving since the end of 2012. And household credit is also showing signs of revival. These positive trends should be supported by better growth in the eurozone and accommodative domestic macro policy.
Source: Polish Central Statistical Office
Investments should grow in 2014

% 85 80 75 70 65 08 09 10 11 Capacity utln (LHS) Investments (RHS) 12 % Yr 25 15 5 -5 -15 -25 13 New orders (RHS) Construction (RHS)
helped by limited public investment cuts

The contraction of investment spending in 2012 and
2013 has been mostly down to public investment cuts. Private investment growth turned negative in H1 2013 but recovered in Q3. In 2014 and 2015, public investment should also if not add at least not take away from growth. High capacity utilisation and growing new industry orders should support investment activity in 2014. Record low interest rates will provide cheap financing. The Polish investment vehicle set up at the end of 2012 should have its first investment spending in 2014. And the structural funds from the new EU financial framework 2014-20 should lift public and private investment in the next couple of years.
Negative output gap will narrow in 2014

4 3 2 1 0 -1 -2 -3 06 07 08 09 10 11 12 13 14 15 Output gap (%), LHS Policy rate (%), RHS CPI (% Yr), RHS 7 6 5 4 3 2 1 0
but we dont expect it to close before 2016

We have postponed the timing of our rate rise forecasts in
Poland to 2015. That is mostly owing to the limited pick-up in global GDP growth envisaged in our new 2015 forecasts, as well as the weak eurozone growth outlook and our view that the ECB will still be focused on policy easing in 2014 and 2015. NBPs own forecast does not show any risk to the inflation target on the policy horizon and sees CPI slowly approaching the target in the next couple of years. The 2012 experience shows that the MPC is sensitive to current inflation and so any supply shock that could push inflation higher in 2014 could bring rate hikes forward. We will also monitor how credit growth responds to stable low interest rates.
Source: National Bank of Poland, November 2013 Inflation Report
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Romania
Cautious policy mix
Romanias economic performance in 2013 was influenced by one-off exports and an agriculture boost. Agriculture contributed 2.3pp to 4.1% y-o-y value-added growth in Q3 2013. Falling food price inflation in Q3 brought headline CPI in below the 2.5% CB target. Food prices constitute over 37% of the consumption basket and strongly influence high CPI volatility. On average, net exports contributed over 5pp to GDP growth of 2.6% in 9M 2013. This is the highest net export contribution since 2009, but this time it was driven by growing exports rather than collapsing imports. New export capacities in the automotive sector contributed significantly but not exclusively. Both exports and the agricultural performance in 2013 built a high base that will be difficult to beat in 2014. Given stronger-thanexpected GDP growth in Q3, we raise our 2013 GDP estimate from 1.6% to 2.8% y-o-y but trim our 2014 forecast from 2.9% to 2.4% y-o-y. On the structural side, the above one-off growth drivers are accompanied by a cautious policy mix. Fiscal policy should remain mostly neutral for growth in 2014. Romania agreed a tight 2.2% of GDP budget deficit target under a new precautionary IMF/EU financial assistance programme. The central bank cut its policy interest rate by 125bp to 4.0% in H2 2013 but stressed that the easing cycle was near its end, as it is concerned about potential inflation reversal on volatile food prices in H2 2014. Given the cautious domestic policy mix, we forecast only a gradual recovery in domestic demand and imports in 2014; therefore, we expect only a moderate correction to the massive improvement in the current account deficit over the past couple of years. This should be accompanied by falling external debt and stabilising public sector debt. On the downside, there will likely be more noise from domestic politics ahead of the presidential elections scheduled for late 2014.
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) RON/EUR* 3-month money (%)* 10-year bond (%)*
2013f 2.8 0.5 -1.5 -2.6 -2.0 -1.8 15.4 3.4 6.5 5.1 5.3 4.0 -1.2 -0.6 -2.5 68.7 38.2 4.40 2.8 5.3
2014f 2.4 1.8 1.5 4.6 1.0 2.6 6.8 7.0 5.4 5.0 4.5 2.3 -1.7 -0.9 -2.2 64.5 38.4 4.30 3.5 5.0
2015f 2.4 1.5 1.5 5.5 2.0 2.7 5.0 5.4 5.0 4.8 5.2 2.9 -2.4 -1.2 -1.8 64.5 38.0 4.30 4.1 5.0
Q3 13 4.1 1.6 1.0 -3.2 -4.0 -0.5 -0.9 19.1 4.4 8.8 4.9 4.9 3.3 -1.1 -2.0 4.46 3.3 5.2
Q4 13f 2.8 -0.3 0.8 -2.0 0.6 0.0 -0.3 18.4 8.7 6.9 4.9 5.4 1.9 -0.4 -0.8 4.40 2.8 5.3
Q1 14f 2.5 0.5 1.0 1.0 2.0 -1.0 1.2 11.0 8.5 6.0 5.3 6.1 1.7 0.0 0.0 4.40 2.7 5.1
Q2 14f 2.5 0.8 2.1 2.0 4.0 -1.0 3.0 7.0 8.0 5.0 4.8 4.4 1.7 -0.4 -0.9 4.35 2.7 5.0
Q3 14f 1.9 0.9 1.5 1.0 5.0 1.0 2.5 4.5 6.0 5.0 4.8 3.7 2.6 -0.9 -1.8 4.30 3.0 5.0
Q4 14f 3.2 0.8 2.3 2.0 6.0 1.0 3.4 5.0 5.5 5.5 5.1 3.6 3.4 -0.3 -0.5 4.30 3.5 5.0
Note *Period end Source: Thomson Reuters Datastream, HSBC estimates
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Russia
Lagging behind the world
Russian officials have tempered their expectations for Russias economy, scaling down average long-term annual GDP growth to 2.5% for 2014-30. This would diminish Russias share of the global economy to 3.4% by 2030. This scenario underpins the need for structural improvements in the Russian economy that could accelerate the potential growth rate by 1-2ppt. We introduce our 2015 forecast and remain more conservative than the authorities as we do not expect annual GDP growth to exceed its potential growth rate at 2%. It looks unlikely that Russia will be able to close the negative output gap in either 2014 or 2015. That said, both monetary and fiscal policies in Russia remain broadly prudent. The Russian Central Bank (CBR) aims to complete the transition to inflation targeting by 2015 and has to maintain a relatively hawkish stance in order to lower high inflationary expectations entrenched by past years of high inflation in Russia. Importantly, the CBR has managed to sustain corporate lending growth in its desired range of 10-15% in annual terms in 2013 without changing its key policy rate. This implies that the key policy rate may stay on hold until the CBR sees credible evidence of inflation easing to its target of 5.0% in 2014 and 4.5% in 2015. Russia does not look ready to embed itself in expensive fiscal stimulus programmes. Russias fiscal policy targets a small budget deficit, at or below 1% of GDP, in 2014-16 in the lower oil prices environment. This allows only a minimal increase in nominal federal budget expenditures in 2014 and stipulates their decline in real terms in the medium term. This is dictated by a fiscal rule and the decrease in oil & gas taxes.
Alexander Morozov Economist HSBC Bank (RR), Moscow +7 495 783 8855 alexander.morozov@hsbc.com
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) RUB/USD* 3-month money (%)* 10-year bond (%)*
2013f 1.5 5.6 -0.6 0.1 2.6 3.6 1.3 2.8 0.1 5.6 12.5 6.8 34.5 1.6 -0.2 29.8 15.1 32.9 6.9 7.5
2014f 2.0 3.8 -1.0 3.0 2.6 3.2 1.0 0.9 1.3 5.6 9.5 5.8 32.4 1.5 0.5 33.5 15.4 35.2 6.4 7.5
2015f 2.0 3.0 -1.0 3.0 2.7 2.7 1.5 -0.2 1.5 5.6 9.5 4.8 29.0 1.4 -0.6 37.5 16.0 37.3 6.2 7.7
Q3 13 1.2 0.3 5.5 -1.0 0.0 2.7 0.5 2.0 -0.1 5.3 12.0 6.4 1.1 0.3 2.0 32.3 6.8 7.3
Q4 13f 1.8 0.6 5.3 -1.5 2.5 2.5 0.0 2.0 0.3 5.6 10.0 6.4 6.8 1.5 -4.2 32.9 6.9 7.5
Q1 14f 2.0 0.5 4.6 -1.0 3.0 2.3 1.0 2.0 1.3 6.0 9.8 6.3 24.7 6.8 -0.6 33.5 6.7 7.0
Q2 14f 2.0 0.5 4.0 -1.0 3.0 1.9 1.0 1.0 1.3 5.5 9.5 6.0 2.5 0.7 2.3 34.7 6.8 7.4
Q3 14f 2.0 0.4 3.6 -1.0 3.0 1.7 1.0 0.6 1.3 5.3 9.1 5.6 0.7 0.2 1.6 34.8 6.6 7.3
Q4 14f 2.0 0.4 3.0 -1.0 3.0 1.4 1.0 0.0 1.3 5.6 8.7 5.2 6.7 1.5 -1.4 35.2 6.4 7.5
Note: * Period end Source: Rosstat, CBR, MOF, MOE, HSBC estimates
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Modest official long-term growth expectations

Official growth forecast % 3.5 % 3.5
Russias share in the worlds GDP to drop

The Ministry of Economic Development (MOED) has
2.5
2.5
1.5 2011/15 2016/20 2021/25 2026/30 2013/30 GDP growth

Source: MoED
1.5
lowered Russias long-term growth forecast to 2.5% (annual average) in its baseline scenario. The MOED now considers a conservative scenario (that assumes a status quo in economic policies) as a baseline, instead of an innovative scenario that assumed a significant rise in private and public investment. The MOED has also scaled down its expectations of long-term growth of the global and Russian economies in its conservative scenario. Under the new baseline scenario, Russias share in the world economy is seen to decrease to 3.4% in 2030 from 4.0% in 2012, mostly after 2020.
Money market (MM) rates stay above policy rate

Monetary policy stance % 7.5 7.0 6.5 6.0 5.5 5.0 o/n 1w 2w 1m Policy rate 3M MTRO MM rates curve 2m Policy rate 3M MTRO FX swap % 7.5 7.0 6.5 6.0 1Y MTRO 5.5 5.0 3m 6m 1y FX swap 1Y MTRO
CBR has monetary policy toolkit, not just policy rate

The CBR has kept its key policy rate on hold since
September 2012. Yet, it has other monetary policy tools it could use to achieve the desired policy objectives. Controlling the amount of liquidity injected into the banking system through refinancing facilities, the CBR managed to increase overnight MM rates in H2 2012, keeping them in the 6.0-6.5% range most of the time since then. At the same time, CBR managed to decrease longer-term MM rates and make the MM rates curve flatter by launching its 1Y and 3M MTRO facilities in H2 2013. A combination of various monetary policy tools allowed corporate lending growth to be sustained without changing the key policy rate.
Source: MoF, HSBC
Improved ranking in Doing Business (DB) Survey

Ease of Doing Business*
Investor Protection Resolving Insolvency Enforcing Contracts Trading Across Borders Paying Taxes Starting a Business Construction Permits Getting Electricity
Structural reforms: one step forward, two steps back

Russia has significantly improved its country ranking in
Registering Property Getting Credit
Ranked 92nd in DB14
Ranked 111th in DB13
the World Banks Doing Business survey over the past 12 months, jumping up 19 positions in the ranking. Streamlining property registration and access to electricity in Moscow were the key achievements in this respect. Yet, local business surveys do not reveal much appreciation of changes for the better in the business climate, with fixed investment declining in Q1-Q3 2013. Unfortunately, initiating positive structural reforms, the government launched some doubtful structural changes at the same time. The latter include setbacks in pension reform, merger of General Court and Arbitration Court, and the discontinuation of the acceptance of carnet TIR in trans-border trade, so that the reforms balance is neutral or negative.
*Doing Business (DB) Source: World Bank
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Turkey
Waiting for a rebalancing
Q3 GDP growth came in at 4.4% y-o-y, driven by domestic demand growth. Following two better-than-expected quarters, we raise our 2013 growth forecast from 3.3% to 3.9%. For 2014, we continue to expect a slowdown on the back of two factors: lower corporate sector profitability as FX-indebted companies feel the lagged impact of a weaker lira, and further monetary tightening, which is most likely to come through in the first quarter of the year. Household spending is likely to slow in 2014, while private investment growth is likely to remain subdued. Our 2014 growth forecast is unchanged at 3.1%. In 2014, Turkey will have local elections (March) and presidential elections (in the summer). As a result, we expect a moderate amount of fiscal stimulus to come through. The governments medium-term programme envisions a widening in
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) TRY/USD* 3-month money (%)* 10-year bond (%)*
Note: *Period end Source: National sources, HSBC estimates
the budget deficit from 1.2% of GDP at the end of 2013 to 1.9% by the end of 2014. This should also provide a small boost to GDP growth. Given Turkeys low public debt, there is some room for manoeuvre on the fiscal policy front. Monetary policy in Turkey remains dependent on the path of policy normalisation in the US and on global risk appetite. The start of QE tapering could put renewed pressure on the Turkish lira, prompting the CBRT to raise interest rates. We continue to look for further tightening until the overnight lending rate stands at 9.50%. This would restore real yields for Turkish assets, slow credit growth, curb inflationary pressures and reverse the widening in Turkeys large current account deficit. The lira will remain vulnerable to periods of risk aversion until this tightening comes through.
Melis Metiner Economist HSBC Turkey +90 212 376 4618 melismetiner@hsbc.com.tr
2013f 3.9 4.3 6.7 4.2 0.9 4.5 1.1 6.9 2.5 10.0 12.0 7.5 -60.2 -7.3 -1.2 44.3 35.0 2.00 7.8 9.4
2014f 3.1 2.5 8.4 5.5 0.3 3.9 6.1 9.7 2.1 10.5 11.0 6.6 -54.4 -6.3 -2.2 42.6 33.0 1.90 9.5 9.5
2015f 4.1 4.0 10.8 8.0 0.1 5.7 6.8 12.2 5.2 9.5 11.0 6.5 -60.1 -6.5 -2.2 40.7 31.0 1.90 9.0 9.5
Q3 13 4.4 0.9 5.1 0.6 6.0 1.9 4.8 -2.2 6.0 3.7 10.5 10.0 8.3 -59.1 -7.2 -1.2 2.02 6.9 9.2
Q4 13f 3.7 -1.0 3.0 10.0 4.4 -0.7 4.2 2.0 2.0 1.9 10.5 10.0 7.5 -60.2 -7.3 -1.2 2.00 7.8 9.4
Q1 14f 3.6 0.4 2.1 9.0 6.6 -0.6 3.8 8.5 7.0 1.8 10.6 9.0 6.3 -58.5 -7.0 -1.4 1.95 9.5 9.0
Q2 14f 3.0 1.4 1.9 9.5 7.7 -1.0 4.2 8.0 8.0 1.0 10.5 9.0 7.1 -57.0 -6.8 -1.6 1.95 9.5 9.2
Q3 14f 2.8 1.9 3.0 8.0 4.0 1.3 3.7 4.5 12.0 2.8 10.5 10.0 6.2 -55.0 -6.6 -2.0 1.95 9.5 9.0
Q4 14f 3.1 2.0 3.1 7.5 3.6 1.3 3.8 4.0 12.0 2.9 10.5 12.0 6.5 -54.4 -6.5 -2.2 1.90 9.5 9.5
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Both headline and core inflation are high

% Yr 12 11 10 9 8 7 6 5 4 3 2 2010 2011 2012 2013 Headline CPI Core inflation (D-index)
Source: Turkstat, HSBC
keeping real rates in negative territory, and pointing towards further tightening
% Yr 12 11 10 9 8 7 6 5 4 3 2
Consumer inflation
The CBRT raised interest rates by 125bps in 2013, and
pushed up the effective cost of funding by even more, taking it from 4.50% in April to 7.75% currently. But headline and core inflation remain elevated, pointing towards further tightening. As of November, headline CPI stands at 7.3% and core inflation (excluding unprocessed food and energy prices) stands at 7.4%. Higher-than-expected unprocessed food inflation and lira weakness both played a role in pushing up prices during the year. Service and rent costs have also risen sharply, pointing to un-anchoring of inflation expectations.
Turkey imported USD12.9bn of gold in the first 10 months of 2013

bn USD -10 -20 -30 -40 -50 -60 -70 -80 2010 Current account balance bn USD -10 -20 -30 -40 -50 -60 -70 -80 2013
which was partially responsible for the widening in the current account deficit
In 2012, Turkey was a large exporter of gold, and in
2011
2012
Current account balance (12-month sum) Excluding gold (12-month sum)

Source: CBRT
2013, it was a large importer. These sharp swings have made it difficult to see the underlying picture. Between December 2012 and October 2013, Turkeys current account deficit widened by USD12.4bn. Excluding gold, it narrowed by USD2.3bn. But Turkey has historically been a gold importer, so to focus solely on the non-gold current account balance would be misleading. It is clear that a current account deficit fluctuating between 6% and 7% of GDP is a vulnerability in the current global environment.
In the long term, Turkey must focus on structural reforms

% Yr 20 15 10 5 0 -5 -10 2006 2007 2008 2009 2010 2011 2012 Labour productivity Productivity vs. wage growth % Yr 20 15 10 5 0 -5 -10 Nominal wages in manufacturing sector
and boost its productivity

Wage growth has significantly outpaced productivity
growth in recent years.

For Turkey to achieve sustainable, long-term growth,
it must focus on a series of supply-side reforms to boost productivity. Most importantly, these include labour market and education reform.
Source: Turkstat, The Conference Board
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Egypt
Hard miles ahead
Our forecasts capture the improvement we expect to see in Egypts economic fortunes over the coming two years. We are optimistic that growth will rise above 4% in the latter part of the forecast period the fastest pace at which the economy will have expanded since the 2011 revolution as investment spending and consumption normalise, and exports of goods and services recoup previous losses. Recent high-frequency data, including PMI numbers that rose above 50 for the first time in a year in December, support this view and suggest that stabilisation is already underway. These gains, however, must be seen in context. First, stabilisation is taking place at a low base. By our estimates, the past three years of unrest have cost Egypt more than 10ppt of real growth, leaving the economy USD100bn smaller than it might have been. Also, unemployment has risen sharply and is only likely to reverse slowly given the spare capacity in the economy and growth in the labour force. Major policy challenges must also be addressed. Although the currency has stabilised, for example, it has held its value only as a consequence of tight controls on still-scarce foreign exchange. Public finances are still under greater strain, with the deficit likely to remain at double-digit levels, driving debt above 100% of GDP. Financial support from the Gulf will likely help Egypt withstand these pressures but may also dim appetite for introducing the reform measures needed to bring the imbalances under control. Ultimately, economic stabilisation will also be contingent on political normalisation. Although the transition has made some progress since the July 2013 ousting of President Mohammed Morsi, Egypt remains without a constitution, parliament or elected president. The bitter divide between Egypts military rulers and Islamist opposition movement shows no sign of easing, suggesting violent protests are likely to continue, compromising stability and weighing on policy making.
Simon Williams Economist HSBC Bank Middle East Limited, Dubai +971 4423 6925 simon.williams@hsbc.com Liz Martins Economist HSBC Bank Middle East Limited, Dubai +971 4423 6928 liz.martins@hsbc.com
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Domestic demand Exports Imports Industrial production Unemployment (%) Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) EGP/USD* 3-month money (%)*
2013f 2.2 3.5 3.7 1.5 3.1 1.0 -2.9 2.2 13.2 6.8 -5.6 -2.1 -13.9 17.7 94.3 6.90 8.0
2014f 3.0 3.9 3.3 3.8 3.8 4.7 6.8 4.5 13.4 9.9 -5.5 -1.9 -12.3 19.0 95.2 6.80 7.8
2015f 4.5 4.4 4.0 5.8 4.6 6.7 6.6 6.0 13.0 9.1 -7.9 -2.5 -11.4 17.7 100.8 7.00 8.0
Q3 13 1.9 -1.6 3.5 2.5 2.0 3.2 2.0 6.0 9.5 -0.3 -0.5 -13.9 7.00 8.5
Q4 13f 2.9 -1.6 4.0 3.0 3.0 3.7 5.0 7.0 12.2 -2.8 -4.0 -14.2 6.90 8.0
Q1 14f 3.5 -3.7 4.0 3.5 5.0 4.1 6.0 7.0 9.3 -0.8 -1.2 -14.7 6.80 7.8
Q2 14f 3.8 11.4 4.3 4.0 4.5 4.3 6.0 7.0 8.6 -3.8 -5.6 -14.0 6.80 7.8
Q3 14f 3.9 -1.5 4.3 4.0 5.5 4.4 6.0 7.0 9.4 -0.3 -0.4 -12.4 6.80 7.8
Q4 14f 4.6 -1.0 4.5 4.0 5.5 4.6 7.0 6.5 9.2 -2.8 -3.4 -12.6 6.80 7.8
Note: Fiscal years, where 2012 refers to FY 2011/12 (July-June). * Period-end Source: CBE, HSBC estimates
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Israel
Steady growth on resilient domestic demand
Economic growth has remained steady during the past year, fuelled by steady private consumption demand and some acceleration in investments (in H2 2013). Private consumption is expected to have expanded by 4% in 2013 due to expansionary monetary policy, steady job creation and a positive wealth effect from rising financial and housing assets. But growth has been totally dependent on domestic demand as industrial exports contracted by 4.3%, offset in part by service exports fuelled by sales of start-up companies. Recent economic indicators suggest some growth acceleration in Q4 2013 as exports have rebounded and private consumption remains resilient, despite recent tax hikes (VAT, cigarettes and alcohol) and cuts in social spending (child allowances especially). In October, consumer confidence returned to pre-fiscal consolidation levels witnessed earlier in 2013, in part due to low unemployment (5.9%), while the PMI moved slightly higher but remains low (46.6). We expect domestic demand in 2014 to be affected by fiscal drag (we estimate by 0.8% of GDP) from fiscal consolidation, likely to be offset by some acceleration in export growth, driven by the improving global environment even though ILS appreciation has eroded export competitiveness, as Israel boasts an improving current account surplus (due to natural gas) and strong net FDI. Monetary policy is expected to remain in neutral mode for most of 2014 on the back of improving growth and a frothy housing market. FX intervention will be maintained to slow shekel appreciation. Immediate geopolitical risks appear to have receded following negotiations with Iran, while the turmoil in Syria has not spilled over into Israel.
Dr. Murat Ulgen Economist HSBC Bank plc +44 20 7991 6287 muratulgen@hsbc.com
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) ILS/USD* 3-month money (%)* 10-year bond (%)*
2013f 3.4 4.0 2.3 -0.6 0.0 2.5 -0.7 -1.8 -1.8 6.4 3.2 1.8 7.2 2.7 -2.7 38.3 67.0 3.60 1.0 3.4
2014f 3.6 2.7 2.4 3.0 0.0 2.7 3.5 1.0 3.9 6.0 3.5 2.1 8.6 3.3 -2.8 34.5 65.0 3.50 1.3 3.0
2015f 3.7 3.5 2.8 4.0 0.0 3.4 4.0 2.8 4.5 5.8 3.8 2.5 9.0 3.5 -2.5 34.0 63.0 3.50 1.8 3.0
Q3 13 3.2 0.7 5.1 4.8 1.4 0.0 4.1 -3.0 0.9 -7.7 6.2 3.3 1.3 1.7 2.6 -3.3 3.55 1.3 3.8
Q4 13f 3.7 0.8 3.0 4.0 2.0 0.0 3.0 -2.0 -1.0 0.0 6.0 3.3 1.8 2.0 3.1 -2.7 3.60 1.0 3.4
Q1 14f 3.5 0.9 2.6 2.3 3.0 0.0 2.6 3.0 0.0 3.0 6.0 3.4 1.8 2.1 3.3 -2.7 3.60 1.0 3.5
Q2 14f 3.5 0.9 2.7 2.4 3.0 0.0 2.7 3.0 1.0 4.0 6.0 3.5 1.9 2.1 3.3 -2.8 3.55 1.0 3.4
Q3 14f 3.6 0.9 2.8 2.4 3.0 2.7 3.3 1.0 4.0 6.0 3.5 1.9 2.2 3.4 -2.8 3.55 1.0 3.0
Q4 14f 3.6 0.9 2.8 2.5 3.0 2.8 4.5 2.0 4.5 6.0 3.6 2.1 2.2 3.4 -2.9 3.50 1.3 3.0
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Saudi Arabia
Another good year
Saudi Arabias robust domestic demand story has continued into the fourth quarter of 2013, setting it up for another strong year in 2014. Its PMI reading continues to be one of the highest globally (57.1 in November 2013), while the engines of growth expansionary fiscal spending, private sector credit and, increasingly, corporate bond and sukuk issuance remain firm. Indeed, according to MEED, infrastructure projects planned or underway now total nearly USD1trn a rise of over USD200bn during 2013. Despite the expansionary fiscal policy that has prevailed since 2011, the Saudi government should remain in surplus: we forecast a narrowed but comfortable balance of around 4% of GDP in 2013-14. The current account should also remain comfortably in surplus, allowing for the continued accumulation of external assets. Over the first nine months of 2013, SAMA added around USD5bn per month to its reserves, which now total USD700bn, or over five years worth of goods import cover.
% Year GDP Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) SAR/USD* 3-month money (%)*
Downside risks appear in the form of lower crude output: a recovery in production from Libya and/or Iran, coupled with the potential for a resumption of growth in Iraqi oil output, could cause OPECs swing producer to reduce volumes. That said, any decline is likely to mean diminished surpluses, rather than a deceleration in spending, with the governments policies continuing to be driven by the needs of its growing, and overwhelmingly young, population. CPI inflation (around 3% y-o-y) and the PMI index output cost index (50.2) show inflationary pressure to be remarkably low. However, this could change over 2014, with both fiscal and monetary conditions loose, domestic demand strong and labour costs rising. The governments rigorous pursuit of Saudisation goals enforcing strict quotas of Saudi nationals employed at any company, and a concomitant crackdown on illegal expatriate workers has pushed firms costs up. We forecast a rise in the CPI to 5% by end 2014.
2007 2.0 17.7 2.4 18.8 1.0 10.7 10.5 22.2 -4.0 4.2 94.3 24.5 12.2 23.2 18.5 3.75 4.0
2008 4.2 3.5 6.0 12.6 3.3 9.8 34.4 9.7 4.2 9.9 133.0 27.9 32.5 20.2 13.2 3.75 2.5
2009 0.1 6.7 1.0 -4.6 1.8 -0.8 -38.7 -6.3 -7.8 5.1 23.4 6.2 -6.1 26.5 15.9 3.75 0.8
2010 5.1 3.2 1.0 3.6 0.9 3.0 23.1 4.2 2.1 5.3 70.7 15.6 5.2 22.9 9.8 3.75 0.8
2011 7.1 5.0 4.0 7.5 4.1 5.5 48.3 7.0 4.7 5.0 160.7 24.0 11.6 15.9 5.4 3.75 0.8
2012 5.2 5.5 6.0 5.0 3.4 5.7 7.8 5.5 7.5 4.5 164.6 22.6 9.8 15.4 5.7 3.75 1.2
2013f 3.6 5.0 4.2 10.0 3.1 6.3 2.1 6.0 -3.0 3.6 149.2 19.6 8.1 14.9 5.3 3.75 1.3
2014f 4.0 4.5 3.6 8.0 3.1 5.4 2.0 6.0 2.0 4.1 116.8 14.5 4.8 14.2 5.0 3.75 1.5
2015f 4.3 4.5 3.6 8.0 3.0 5.5 2.5 5.8 0.0 4.3 80.7 9.4 2.6 13.9 4.7 3.75 0.0
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UAE
Back in the game
The 27 November 2013 announcement that Dubai had been chosen to host the Expo 2020 event wrapped up a strong year for the UAE. The decision cements a substantial improvement in global perceptions of Dubai, five years after its debt crisis had brought it to international attention for very different reasons. Apart from the 70m visitors Expo is projected to bring to the UAE in 2020 itself, the event should stimulate growth over the coming years through accelerated investment and boost demand through the new jobs associated with the infrastructure build-out. As part of its bid, the government of Dubai estimates it will need to invest USD8bn in extending the public transport system, expanding hotel capacity and constructing the giant Expo site itself. The news adds to already high levels of consumer and investor confidence in the economy. The UAEs recovery had lagged that of the broader region in 2012 but gained pace in 2013, and by November, the UAEs PMI had hit a new high of
% Year GDP Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) AED/USD 3-month money (%)*
58, overtaking Saudi Arabia for the first time in our surveys history. Credit growth has begun to show signs of life again, after four years of stagnation, and conditions in the bond markets remain supportive. The real estate market is also exhibiting strong growth, with residential prices in Dubai up around 20% y-o-y in September 2013. We are optimistic that this strong growth picture will continue in 2014, potentially accelerating even further if there is continued progress on a deal with Iran, reducing a geopolitical threat that has weighed on the UAE for some years. Indeed, the challenge for the UAE now is not so much how to stimulate growth, but how to manage its pace, and avoid the pitfalls that led to the crisis of 2009. Most immediately, this will require regulation of the real estate market, but it will also require regulation of the broader credit market to ensure there is no repeat of the rapid increases in domestic and international lending that drove the 2003-08 boom-and-bust cycle.
2007 3.2 13.2 2.5 39.7 0.8 30.1 8.8 34.5 -2.6 9.0 19.6 7.6 16.0 57.8 13.2 3.67 4.6
2008 3.2 9.6 3.6 3.0 1.4 20.7 12.8 21.4 2.7 12.0 22.3 7.1 16.7 50.6 13.7 3.67 4.2
2009 -4.8 -19.5 4.0 -1.3 1.2 -16.2 -6.5 -15.7 -6.6 1.3 7.8 3.1 -13.1 64.5 22.4 3.67 1.9
2010 1.3 -5.2 5.0 13.0 1.1 12.0 3.4 2.1 2.6 1.1 7.7 2.7 -2.2 56.7 23.0 3.67 2.2
2011 4.3 7.6 6.0 -7.6 1.0 6.3 18.7 18.8 5.3 1.0 30.7 8.8 3.0 53.4 20.9 3.67 1.5
2012 4.4 9.4 0.0 12.5 0.8 6.5 10.0 16.6 4.2 0.4 64.1 16.7 8.3 50.8 19.7 3.67 1.3
2013f 4.5 7.0 0.0 7.0 0.0 8.3 3.0 4.2 3.6 1.1 56.2 13.7 10.8 51.8 18.6 3.67 0.8
2014f 5.1 6.0 5.0 12.0 0.0 12.0 3.5 6.0 4.9 3.5 33.2 7.4 7.9 50.2 17.1 3.67 1.0
2015f 5.2 5.0 6.0 15.0 0.0 14.4 4.0 7.0 4.9 5.5 20.9 4.1 4.4 45.8 15.3 3.67 1.0
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South Africa
Macroeconomic struggles
South Africas economy stalled in the third quarter as growth slowed to just 0.7% at a sequential annualised pace amid protracted strikes and production stoppages in the manufacturing sector. While manufacturing should rebound in Q4 2013, weakening domestic demand is evident in slowing activity in many services sectors. Weak job creation, anaemic household credit growth and consumer confidence at a 10-year low are feeding through to sluggish household consumption, while low business confidence and the electricity constraint limit the scope for private investment in 2014. We lower our 2014 GDP growth forecast to 2.6% (from 2.7% previously) before accelerating to 3.1% in 2015. Following a temporary breach of the upper band of the 3.0-6.0% target range, inflation slowed to 5.3% in November as food and petrol inflation
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) ZAR/USD* 3-month money (%)* 10-year bond (%)*
Note: *Period end Source: CEIC, Bloomberg, HSBC estimates
moderated. The currency depreciated by about 20% against the USD in 2013 and remains the principal upside risk to inflation, prompting more hawkish rhetoric from the SARB in recent MPC statements. We expect fragile economic activity, downside growth risks and relatively benign inflation to preclude rate hikes until 2015. Despite significant trade revisions that were positive for South Africas external balance, the current account deficit deteriorated to 6.8% of GDP in Q3. The trade deficit widened as a result of strong import growth, falling terms of trade and production stoppages in key export sectors. We expect competitiveness gains conferred from FX depreciation to support macro rebalancing, with a gradual improvement in the current account over the next two years. Large twin deficits mean South Africa remains vulnerable to global growth and monetary policy developments.
David Faulkner Economist HSBC Securities (South Africa) (Pty) Ltd +27 11 676 4569 david.faulkner@za.hsbc.com Dr Murat Ulgen Economist HSBC Bank plc +44 20 7991 6782 muratulgen@hsbc.com
2013f 1.8 2.5 2.5 3.2 0.5 2.8 4.5 6.0 1.4 25.0 8.5 5.8 -21.3 -6.1 -4.3 17.0 45.0 10.00 5.2 7.9
2014f 2.6 2.7 3.0 4.6 0.4 3.3 5.0 5.5 2.8 25.0 8.0 5.7 -21.9 -6.0 -4.3 16.2 46.5 9.60 5.1 7.4
2015f 3.1 3.2 3.0 5.2 0.5 3.6 6.2 5.8 3.3 25.0 7.6 5.5 -23.7 -5.7 -3.9 14.4 48.0 9.50 5.6 7.4
Q3 13f 1.8 0.2 2.9 1.1 3.2 0.5 2.6 5.2 7.0 0.9 24.7 9.0 6.2 -23.2 -6.8 -4.2 10.06 5.4 7.7
Q4 13f 1.9 0.8 2.3 2.5 3.4 0.5 2.7 9.5 8.0 2.0 25.0 8.5 5.5 -21.4 -6.2 -4.4 10.00 5.2 7.9
Q1 14f 2.3 0.4 2.4 2.8 3.9 0.3 2.9 4.5 4.9 2.1 25.2 8.3 5.7 -22.1 -6.2 -4.3 10.00 5.2 7.8
Q2 14f 2.4 0.6 2.6 3.0 4.4 0.4 3.1 4.9 5.4 2.7 25.5 8.1 5.8 -22.1 -6.1 -4.2 10.00 5.1 7.6
Q3 14f 2.7 0.7 2.9 3.0 4.8 0.5 3.4 5.3 5.7 3.2 25.3 8.0 5.6 -22.5 -6.0 -4.2 9.80 5.1 7.4
Q4 14f 2.9 0.8 3.2 3.0 5.2 0.5 3.6 5.5 6.0 3.0 25.0 7.6 5.5 -22.8 -5.8 -4.3 9.60 5.1 7.4
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Mexico
A constructive view for 2014
After a challenging 2013 in terms of economic growth, we believe the economy will gain momentum in 2014, taking GDP growth to 4.1% from the 1.3% we expect for 2013. Current consensus is 3.5% (Banamex survey, 5 December). Our outlook relies on a slight improvement in US industrial production and exports, which should provide the basis for growth in the Mexican economy. A number of domestic factors are also likely to be very important: 1) the fading of the political transition; 2) the counter-cyclical fiscal policy, involving a fiscal deficit of 4.1%, up from 2.9% in 2013; 3) the monetary easing policy delivered at the end of 2013; 4) the normalisation of the gas shortage that represented a constraint for some companies in 2013; 5) a gradual stabilisation in the low-income housing construction crisis; and 6) the low statistical base of comparison. The inflation outlook remains benign, although we expect a temporary pick-up in 2014 on the back of the impact of tax changes approved in 2013. On our projections, this will take year-end inflation to 3.9% from the 3.4% we expect for 2013. Even so, we believe Banxico will keep the Fondeo rate unchanged at 3.5% in 2014, owing to the transitory nature of the tax hikes. Nonetheless, the Feds decisions on monetary policy will undoubtedly have a significant impact on future Mexican interest rate trends. We therefore expect Banxico to raise rates in early 2015 at the earliest. We believe the reform drive will be maintained in 2014, with discussions of the secondary laws and other non-economic reforms, such as the anticorruption autonomous commission. The most important reform-related issue for 2014 will be discussions on secondary laws for the energy reform.
Sergio Martin Economist HSBC Mxico, S.A +52 55 5721 2164 sergio.martinm@hsbc.com.mx Lorena Dominguez Senior economist HSBC Mxico, S.A +52 55 5721 2172 lorena.dominguez@hsbc.com.mx
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) MXN/USD* 3-month money (%)* 10-year bond (%)*
2013f 1.3 2.6 1.4 -0.7 -1.3 2.0 1.9 2.6 0.1 4.5 4.3 3.7 -15.9 -1.2 -2.4 15.9 39.0 13.00 3.9 6.7
2014f 4.1 5.3 3.4 7.5 -2.9 5.6 9.2 9.5 3.3 4.4 3.4 4.0 -17.7 -1.3 -3.5 15.4 40.6 12.60 4.2 6.4
2015f 3.8 2.0 0.3 5.4 -1.5 2.6 11.0 10.9 3.3 4.4 3.7 3.5 -21.2 -1.4 -3.0 14.9 40.1 12.60 4.1 6.6
Q3 13 1.3 0.8 2.0 2.6 -3.5 5.5 5.3 -0.6 5.3 3.4 -2.8 -0.9 -0.6 13.17 3.7 6.6
Q4 13f 1.7 1.4 2.1 2.5 1.1 1.1 -1.4 1.3 4.5 3.5 -1.7 -0.5 -1.3 13.00 3.9 6.7
Q1 14f 4.5 1.5 5.0 3.1 5.6 8.4 3.1 2.3 4.2 3.8 -6.3 -1.9 0.2 12.90 3.9 6.7
Q2 14f 4.0 0.6 5.4 3.3 7.2 8.8 10.0 3.2 4.7 3.6 -2.2 -0.7 -0.7 12.80 3.9 6.7
Q3 14f 3.9 0.2 5.2 3.5 8.0 10.1 12.7 3.6 5.2 4.2 -5.5 -1.6 -0.8 12.70 4.0 6.5
Q4 14f 4.0 2.0 5.6 3.7 9.0 9.6 11.8 4.0 4.1 4.0 -3.6 -1.0 -2.2 12.60 4.2 6.4
Note: *Period end Source: INEGI, Banxico, Ministry of Finance, HSBC estimates
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Brazil
World Cup and elections
2014 will be a big year for Brazil: it will be hosting the FIFA World Cup in June-July and will hold general elections in October. The World Cup will probably not provide as much stimulus to growth as had been expected until very recently. Investment in the urban infrastructure needed to host the event has fallen short of expectations, and it is possible that the event itself may cause disruptions to regular business activities (thereby leading to output losses). Consequently, even with a boost from higher tourism and other World Cup-related activities, the events net impact on the economy is uncertain. Ultimately, we forecast that GDP growth will be just 2.2% in 2014 which is the same as our 2013 estimate. In October, Brazil will also hold general elections. Polls suggest that the most likely outcome is re-election for President Dilma Rousseff, but based on the last two presidential elections, we believe the election will be more competitive than polls currently suggest. Given expectations of more challenging global liquidity conditions, policymakers have launched initiatives that appear to be aimed at improving policy credibility. Some have been successful, such as the privatisation of the Rio and Belo Horizonte airports. Others, such as signalling (but not yet delivering on) a new domestic fuel price policy in order to improve profitability at Petrobras, have backfired. Still other initiatives are works in progress: improving communication with investors by sending a more consistent message on fiscal policy; and promising to taper quasi-fiscal policy easing through the BNDES. In our view, the lacklustre outlook for economic growth and weakening investor confidence increase the importance of such policy initiatives.
Constantin Jancs Chief-Economist HSBC Bank Brasil S.A. +55(11)3371-8183 constantin.c.jancso@hsbc.com.br Priscila H Godoy Economist HSBC Bank Brasil S.A. +55(11)3847-5190 priscila.h.godoy@hsbc.com.br
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices (avg) Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) BRL/USD* 3-month money (%)* 10-year bond (%)*
Note: *Period end Source: IBGE, Central Bank of Brazil and HSBC
2013f 2.2 2.2 2.1 5.7 2.8 0.5 8.4 1.6 5.1 7.8 6.2 -76.2 -3.4 -3.2 15.5 59.5 2.35 10.3 13.0
2014f 2.2 2.0 4.6 1.8 2.5 -1.3 -2.0 3.2 5.5 7.3 6.0 -69.3 -3.2 -3.7 17.1 61.7 2.50 11.0 13.2
2015f 1.2 1.3 1.6 2.6 1.6 1.8 -0.9 2.1 6.2 6.1 6.2 -65.5 -3.0 -3.0 18.2 58.4 2.60 11.8 13.4
Q3 13 2.2 -0.5 2.3 2.3 7.3 3.2 3.1 13.7 0.8 5.4 7.5 6.1 -80.5 -3.6 -3.3 13.7 58.5 2.23 9.4 11.7
Q4 13f 1.7 0.4 1.8 2.8 3.5 2.3 0.9 4.5 1.7 5.2 7.6 5.8 -76.2 -3.4 -3.0 14.0 59.5 2.35 10.3 13.0
Q1 14f 2.2 0.5 2.4 4.8 0.3 2.4 6.3 0.2 2.0 6.3 7.4 5.8 -74.5 -3.4 -3.3 14.6 60.1 2.35 10.5 12.9
Q2 14f 2.1 1.6 2.4 5.3 -1.2 2.2 -0.4 0.9 2.0 6.5 7.1 5.9 -72.7 -3.4 -3.5 15.2 60.6 2.40 10.5 13.0
Q3 14f 2.8 0.2 1.8 4.9 2.5 2.5 1.0 2.0 4.8 6.0 7.3 6.1 -71.0 -3.3 -3.6 15.6 61.2 2.45 10.5 13.0
Q4 14f 1.8 -0.5 1.6 3.5 5.6 2.7 0.0 4.1 4.2 5.7 7.4 6.3 -69.3 -3.2 -3.6 15.9 61.7 2.50 11.0 13.2
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Meeting fiscal target will require more one-offs

%GDP 5 4 3 2 1 0 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Brazil Fiscal Balance %GDP 5 4 3 2 1 0 "Official" Primary bal "Core" Primary bal (HSBC)
and fiscal policy credibility is already an issue

The original fiscal target for the consolidated public sector
was a primary (non-interest) surplus of 3.1% of GDP.

After adjustments and revisions, this became a primary
surplus of 1.5% for the federal government only.

We estimate that the primary surplus for the
consolidated public sector in 2013 will reach about 1.7% of GDP. We forecast that the Treasury will only meet this target thanks to one-off revenues raised through the sale of the Libra oil concession (BRL15bn) and a tax amnesty programme (REFIS which we estimate will raise a further BRL12-15bn). In the absence of these one-off revenues, we estimate that the recurrent (core) primary fiscal balance will be under 1% of GDP.
Source: Central Bank of Brazil, National Treasury and HSBC
Repressed inflation and other factors

Brazil Inflation % 9 8 7 6 5 4 3 2 1 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 IPCA x-intervention
Source: IBGE and HSBC
point to upside risks for inflation

% 9 8 7 6 5 4 3 2 1 0
Consumer inflation in Brazil would be much higher were
IPCA
it not for the governments direct intervention in key prices such as fuel and electricity prices, or tax cuts affecting specific items. Tapering this intervention in 2014-15 will be a key challenge faced by policymakers. Specific upside risks to headline consumer inflation in 2014 include fuel prices (domestic gasoline prices are about 10% below international prices, even after the fuel price increase in December), BRL depreciation and the fact that fiscal pressure may force the government to reverse some of the tax cuts granted in 2012. We forecast IPCA inflation of 6.3% in 2014.
Rousseff well ahead of Opposition in the polls

Voter Preferences (%) Dilma Rousseff (PT) Acio Neves (PSDB) Eduardo Campos (PSB) Abstain Undecided 0 20 40 60
but her lead may be vulnerable

Brazils election will be for president, state governors
and one-third of the senate, house and state legislatures. The election will be held on 5 October and, if necessary, a second round will be held on 26 October. Polls suggest that President Rousseff is favourite to win, but with an approval rating of around 40% (down from over 60% before the June street protests), her lead may be vulnerable to negative economic news or more street protests during the FIFA World Cup. President Rousseffs image among voters appears to be tied to economic and management competence, so the government will seek to preserve the status quo on the economic front (mainly to avoid an increase in unemployment or inflation).
Source: IBOPE (Election poll held on 18 November 2013)
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Argentina
The limits of gradualism
The newly appointed cabinet had a clear priority: dealing with falling reserves. First, it increased the pace of ARS depreciation to an annualised rate of 45%. Second, the government sent a bill to Congress to increase excise taxes on more expensive cars to 50%. Third, the pay-in-advance tax on credit card purchases abroad rose from 20% to 35% and dollar purchases for tourism are subject to the 35% rate. The authorities are also working on FX supply: 1) there is an early agreement to compensate Repsol; 2) negotiations are ongoing for infrastructure funding, swaps and bond repos with other countries; and 3) it appears there is more commitment to progress with the new CPI. An agreement with the IMF could help refinance Paris Club debt and re-open export-import bank financing. Still, these measures and the efforts to boost FX supply have not yet paid off: reserves continue to fall. It may well be that gradualism is not enough. We estimate that the ARS is approximately 25% overvalued and, with current policies even assuming constant 25% inflation it will take at least two years to reach a fair real exchange rate. Without correction, a strong local currency fuels expectations of additional devaluation and inflation. This in turn promotes dollarisation by portfolio holders and the general population. Attempts to short the ARS lead to the anticipation of imports and the hoarding of exports. Real negative rates also fuel dollarisation. Moreover, the larger the gap between parallel and official market rates, the higher the incentive to over-invoice imports and under-invoice exports, and to engage in other types of arbitrage. We may be approaching a point where only a much weaker ARS could reverse dollarisation. We see a sharp depreciation or a multiple currency system as more likely than fiscal-monetary tightening.
Javier Finkman Economist HSBC Bank Argentina S.A +54 11 4344 8144 javier.finkman@hsbc.com.ar Jorge Morgenstern Economist HSBC Bank Argentina S.A +54 11 4130 9229 jorge.morgenstern@hsbc.com.ar
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) ARS/USD* 1-month deposit rate (%)**
2013f 2.5 5.2 5.3 4.4 -2.4 3.6 4.0 8.3 1.2 7.6 25.7 25.1 -3.8 -0.8 -1.9 30.1 45.0 6.50 20.0
2014f 1.0 0.9 1.0 0.1 -1.6 2.6 -0.7 1.3 0.8 9.1 26.5 27.4 -3.3 -0.7 -1.6 35.4 52.2 8.50 23.0
2015f 1.5 1.3 3.0 -0.4 -1.2 1.6 1.5 0.7 0.8 9.6 26.5 26.6 -3.1 -0.7 -1.3 37.9 52.6 11.00 23.0
Q3 13 -3.3 1.0 3.0 5.0 0.0 -8.0 -3.7 1.9 9.6 0.7 8.2 25.0 25.2 -1.6 -0.3 -1.2 5.79 18.1
Q4 13f 1.9 -0.3 2.5 1.4 1.0 -1.1 4.6 4.3 1.4 1.7 7.6 25.5 25.9 -0.4 -0.1 -4.0 6.50 20.0
Q1 14f -2.2 -0.7 0.9 1.0 -2.0 -3.4 -0.8 0.0 -0.5 -3.2 9.2 24.2 26.7 -1.4 -0.3 -0.9 7.00 20.7
Q2 14f -1.3 0.2 0.9 1.0 0.0 -1.9 1.9 1.5 2.9 -2.1 8.9 23.7 27.5 0.8 0.2 -1.0 7.50 21.4
Q3 14f 7.1 0.5 0.9 1.0 1.0 -1.0 7.6 -1.1 1.8 7.9 9.5 25.1 27.8 -1.8 -0.4 -1.0 8.00 22.2
Q4 14f 1.0 0.8 0.9 1.0 1.0 -0.3 1.7 -3.5 0.7 0.6 9.1 26.0 27.5 -1.0 -0.2 -3.4 8.50 23.0
Note: *Period end, ** Wholesale, private banks, average of the last month of the period Source: INDEC, BCRA, Ministry of Finance and HSBC estimates, an average of private estimates were used for consumer prices from 2007 onwards
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Chile
Domestic moderation
Investment led the slowdown in the Chilean economy in 2013. In 2014, consumption is likely to follow suit. Normalisation in inventories and ongoing support from exports should allow the economy to achieve a growth rate similar to that seen in 2013. The current account deterioration that was causing authorities concern in mid-2013 has improved as domestic demand has moderated. We expect the fundamental support for consumer spending stemming from employment and wage gains to remain in place, but to moderate at the margin. A negative wealth effect will come from currency depreciation as tradable goods become dearer. Also, sentiment has deteriorated in recent quarters, and the possibility of higher taxes could cause some caution among consumers. Returning president Michelle Bachelet is pushing for an increase in permanent tax revenues in the
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) CLP/USD* 3-month money (%)** 10-year bond (%)*** 2013f 4.3 5.6 4.0 5.6 0.6 5.3 0.9 2.7 2.0 6.3 5.5 2.0 -10.0 -3.6 -0.8 43.3 26.5 530 4.3 5.4 2014f 4.3 4.7 3.6 3.5 0.4 4.6 0.9 4.0 4.0 6.5 5.0 2.8 -10.9 -3.9 -1.0 44.4 25.8 545 4.1 5.6 2015f 4.5 4.9 4.1 6.5 0.4 4.8 0.9 4.0 5.0 6.5 6.0 3.0 -13.5 -4.6 -1.2 43.1 24.9 550 4.8 5.6
order of 3pp of GDP. Although this measure is only expected to be fully deployed four years after Congress approval, the debate should make it a key issue in 2014. In the mid-term, we expect Chiles growth rate to fall from the 4.5% level of recent years. Higher costs in the mining industry owing to geological, energy, regulatory and qualified labour factors will diminish investment. Higher energy prices arising from an insufficient increase in cheap energy supply are likely to hit company profitability and ultimately consumers. We expect the Central Bank of Chile to maintain a slightly stimulative policy stance in 2014, complementing its two 50bp rate cuts in Q4 2013 with an additional 25bp in Q1 2014. We believe inflation will continue to converge upward towards 3% at the centre of the target range.
Jorge Morgenstern Economist HSBC Bank Argentina, S.A +54 11 4130-9229 jorge.morgenstern@hsbc.com.ar
Q3 13 4.7 1.1 5.3 4.9 3.2 0.3 2.6 13.1 2.9 0.6 5.7 5.9 2.1 46.5 69.3 -3.7 505 4.8 5.4
Q4 13f 3.8 1.0 4.5 4.5 2.0 0.7 6.8 5.4 9.5 4.0 6.3 5.5 2.2 27.4 37.6 -0.2 530 4.3 5.4
Q1 14f 2.0 1.3 4.5 3.0 3.0 0.1 2.1 4.5 2.4 4.2 5.9 5.1 2.6 -1.7 -2.5 -0.3 530 4.1 5.4
Q2 14f 4.9 1.2 4.5 3.0 3.0 0.4 6.2 4.1 6.2 4.3 6.0 5.0 3.1 -1.9 -2.7 -0.3 535 4.1 5.5
Q3 14f 5.9 1.1 5.0 4.0 4.0 0.4 5.3 4.4 3.2 4.5 5.8 5.1 2.9 50.9 73.7 -0.4 540 4.1 5.5
Q4 14f 4.2 1.2 4.9 4.0 4.0 0.4 4.6 4.3 5.1 4.5 6.5 5.0 2.9 30.0 40.2 -0.4 545 4.1 5.6
Note: *Period end, ** Central Bank nominal paper period-end auctions, *** 10-year swap, period-end Source: BCCh, INE, Dipres, HSBC estimates
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Colombia
Gaining momentum
A new round of nationwide strikes in August and September put some downward pressure on activity readings for Q3, mainly through a very strong negative impact on consumer confidence. However, the latest results suggest that consumer confidence has already started recovering. In contrast, business confidence turned positive in Q3 after several months in negative territory. This seems to have offset the weak readings in Q3 for the main leading indicators for supply and demand, industrial production and retail sales. The agrarian strike also had a disruptive effect on foodstuff prices. This effect was later reversed, although, by November, the deflation in foodstuffs was probably explained by additional factors such as cross-border smuggling. Inflation was also dragged downwards by lower power tariffs and gasoline prices, and reached an all-time low of 1.76% y-o-y in November. In our view,
% Year GDP GDP (% quarter) Consumer spending Government consumption Investment Stockbuilding (% GDP) Domestic demand Exports Imports Industrial production Unemployment (%) Wage growth Consumer prices Current account (USDbn) Current account (% GDP) Budget balance (% GDP) Gross external debt (% GDP) Gross government debt (% GDP) COP/USD* 3-month money (%)*
the inflation rate should begin accelerating in the coming months. However, we believe that low inflation readings will allow accommodative monetary stimulus to continue, and we now think that only in Q4 2014 will authorities begin increasing rates. Therefore, we now target a year-end policy rate of 4% instead of our previous forecast of 4.75%, which was consistent with our estimate of the neutral rate. Negotiations with the FARC moved a step forward with the agreement on the political participation of the rebel group. The prospects of a peace deal could buttress President Santoss bid for reelection, which was made official in the last days of November. Current polls anticipate Mr Santos would win a second term in a run-off election.
Ramiro Blazquez Economist HSBC Bank Argentina S.A. +54 11 4348 2616 ramiro.blazquez@hsbc.com.ar
2013f 4.0 4.1 5.3 6.6 -0.3 4.5 1.2 6.4 2.9 9.5 3.5 2.0 -15.2 -4.0 -1.2 21.7 38.2 1930 3.25
2014f 4.5 4.5 5.2 8.0 -0.7 5.2 10.0 10.9 4.8 9.0 4.0 2.4 -15.9 -4.1 -1.2 21.7 37.8 1960 4.75
2015f 4.5 4.5 5.0 8.5 0.4 5.0 8.0 8.0 5.0 9.0 4.0 2.4 -13.5 -3.3 -1.0 2000 5.00
Q3 13 4.5 -0.5 3.8 6.0 7.0 0.2 5.6 5.0 9.9 3.8 9.1 3.2 2.3 -4.5 -4.9 -1.4 1828 3.25
Q4 13f 4.5 2.5 4.5 6.0 9.0 -0.9 5.2 5.0 9.9 6.1 9.5 3.1 1.8 -4.7 -4.6 -1.5 1930 3.25
Q1 14f 4.5 0.3 4.5 6.0 9.0 0.0 6.0 6.0 9.0 4.1 10.4 3.5 2.1 -1.7 -2.0 -1.7 1935 3.25
Q2 14f 4.5 2.2 4.5 8.0 12.0 -3.4 4.0 7.0 9.0 4.4 9.8 4.8 2.3 -4.2 -4.5 -2.0 1940 3.75
Q3 14f 4.5 -0.5 4.5 4.0 7.0 0.4 5.2 8.0 9.5 5.0 9.6 4.1 2.3 -4.7 -4.9 -0.7 1950 4.00
Q4 14f 4.5 2.5 4.5 3.0 4.0 0.3 5.2 8.0 9.5 5.5 9.0 4.0 2.8 -4.9 -4.6 -0.4 1960 4.75
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Notes
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Notes
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Stephen King, Karen Ward, James Pomeroy, Kevin Logan, Ryan Wang, David Watt, Hongbin Qu, Jun Wei Sun, Izumi Devalier, Leif Eskesen, John Zhu, Su Sian Lim, Trinh Nguyen, Ronald Man, Paul Bloxham, Adam Richardson, Janet Henry, Stefan Schilbe, Rainer Sartoris, Mathilde Lemoine, Matteo Cominetta, Simon Wells, Francois Letondu, Agata Urbanska-Giner, Alexander Morozov, Melis Metiner, Simon Williams, Elizabeth Martins, Murat Ulgen, David Faulkner, Sergio Martin, Lorena Dominguez, Constantin Jancso, Priscila Godoy, Javier Finkman, Jorge Morgenstern and Ramiro Blazquez
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Disclaimer
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Where this document contains market updates/overviews, or similar materials (collectively deemed Commentary in Canada although other affiliate jurisdictions may term Commentary as either macro-research or research), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). Copyright 2013, HSBC Bank plc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank plc. MICA (P) 118/04/2013, MICA (P) 068/04/2013 and MICA (P) 110/01/2013
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Global Economics Research Team

Global
Stephen King Global Head of Economics +44 20 7991 6700 stephen.king@hsbcib.com Karen Ward Senior Global Economist +44 20 7991 3692 karen.ward@hsbcib.com James Pomeroy +44 20 7991 6714 james.pomeroy@hsbc.com Julia Wang +852 2996 6568 juliarwang@hsbc.com.hk Joseph Incalcaterra +852 2822 4687 joseph.f.incalcaterra@hsbc.com.hk
Global Emerging Markets

Pablo Goldberg Head of Global EM Research +1 212 525 8729 pablo.a.goldberg@hsbc.com Bertrand Delgado EM Strategist +1 212 525 0745
Europe & United Kingdom

Janet Henry Chief European Economist +44 20 7991 6711 janet.henry@hsbcib.com Simon Wells Chief UK Economist +44 20 7991 6718 simon.wells@hsbcib.com Matteo Cominetta +44 20 7991 6708 John Zhu +44 20 7991 2170 Germany Stefan Schilbe +49 211910 3137 Rainer Sartoris +49 211910 2470 France Mathilde Lemoine +33 1 4070 3266 Francois Letondu +33 1 4070 3933 matteo.cominetta@hsbc.com john.zhu@hsbcib.com
bertrand.j.delgado@us.hsbc.com
Emerging Europe and Sub-Saharan Africa

Murat Ulgen Chief Economist, Central & Eastern Europe and sub-Saharan Africa +44 20 7991 6782 muratulgen@hsbc.com Alexander Morozov Chief Economist, Russia and CIS +7 495 783 8855 alexander.morozov@hsbc.com Artem Biryukov Economist, Russia and CIS +7 495 721 1515 artem.biryukov@hsbc.com Agata Urbanska Economist, CEE +44 20 7992 2774 Melis Metiner Economist, Turkey +90 212 376 4618
stefan.schilbe@hsbc.de rainer.sartoris@hsbc.de
agata.urbanska@hsbcib.com
melismetiner@hsbc.com.tr
mathilde.lemoine@hsbc.fr francois.letondu@hsbc.fr
David Faulkner Economist, South Africa +27 11 676 4569 david.faulkner@za.hsbc.com
North America
Kevin Logan Chief US Economist +1 212 525 3195 kevin.r.logan@us.hsbc.com Ryan Wang +1 212 525 3181 David G Watt +1 416 868 8130 ryan.wang@us.hsbc.com david.g.watt@hsbc.ca
Middle East and North Africa

Simon Williams Chief Economist +971 4 423 6925 Liz Martins Senior Economist +971 4 423 6928
simon.williams@hsbc.com
liz.martins@hsbc.com
Latin America
Andre Loes Chief Economist, Latin America +55 11 3371 8184 andre.a.loes@hsbc.com.br Argentina Javier Finkman Chief Economist, South America ex-Brazil +54 11 4344 8144 javier.finkman@hsbc.com.ar Ramiro D Blazquez Senior Economist +54 11 4348 2616 Jorge Morgenstern Senior Economist +54 11 4130 9229 Brazil Constantin Jancso Senior Economist +55 11 3371 8183 Priscila Godoy Economist +55 11 3847 5190 Mexico Sergio Martin Chief Economist +52 55 5721 2164
Asia Pacific
Qu Hongbin Managing Director, Co-head Asian Economics Research and Chief Economist Greater China +852 2822 2025 hongbinqu@hsbc.com.hk Frederic Neumann Managing Director, Co-head Asian Economics Research +852 2822 4556 fredericneumann@hsbc.com.hk Leif Eskesen Chief Economist, India & ASEAN +65 6658 8962 leifeskesen@hsbc.com.sg Paul Bloxham Chief Economist, Australia and New Zealand +612 9255 2635 paulbloxham@hsbc.com.au Adam Richardson +612 9006 5848 Trinh Nguyen +852 2996 6975 Ronald Man +852 2996 6743 Sun Junwei +86 10 5999 8234 Sophia Ma +86 10 5999 8232 Su Sian Lim +65 6658 8963 Izumi Devalier +852 2822 1647 adamrichardson@hsbc.com.au trinhdnguyen@hsbc.com.hk ronaldman@hsbc.com.hk junweisun@hsbc.com.cn xiaopingma@hsbc.com.cn susianlim@hsbc.com.sg izumidevalier@hsbc.com.hk
ramiro.blazquez@hsbc.com.ar
jorge.morgenstern@hsbc.com.ar
constantin.c.jancso@hsbc.com.br
priscila.h.godoy@hsbc.com.br
sergio.martinm@hsbc.com.mx
Central America Lorena Dominguez Economist +52 55 5721 2172
lorena.dominguez@hsbc.com.mx
Principal contributors
Stephen King Chief Economist HSBC Bank Plc +44 20 7991 6700 stephen.king@hsbcib.com Stephen is the HSBC Groups Global Head of Economics and Asset Allocation research. He joined the company in 1988, having previously worked as an economic adviser at the UK Treasury. Stephen is a regular economics commentator on television and radio and frequently writes columns for the Financial Times and The Times. Stephens new book, When the Money Runs Out, was published by Yale University Press in May 2013. Stephens first book, Losing Control: the Emerging Threats to Western Prosperity, was published in 2010 and is also available from Yale.
Karen Ward Senior Global Economist HSBC Bank Plc +44 20 7991 3692 karen.ward@hsbcib.com Karen joined HSBC in 2006 as UK economist. In 2010 she was appointed Senior Global Economist with responsibility for monitoring challenges facing the global economy and their implications for financial markets. Before joining HSBC in 2006 Karen worked at the Bank of England where she provided supporting analysis for the Monetary Policy Committee. She has an MSc Economics from University College London.
James Pomeroy Economist HSBC Bank Plc +44 20 7991 6714 james.pomeroy@hsbc.com James is a global economist at HSBC. He joined the team in December 2013, having been an analyst within the Asset Allocation team since June 2012. He holds a BSc in economics from the University of Bath.

Deflation - The Hidden Threat

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Deflation - The Hidden Threat

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Macro Global Economics Q1 2014