2008 Global Economic Forecast

The Conrad Group 2008 Global Economic Forecast

The Conrad Group www.conradgroupinc.com

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e begin our forecast with two words ‘Election Year’ a fact that seems to have been missed by the majority of analysts to date. The United States is in a recession, crude oil prices have hit record highs, the dollar has reached record lows, the housing market has nose dived and credit markets are experiencing an unprecedented liquidity crisis. So is the sky really falling? Not by a long shot! Let’s begin with the U.S. Economy which has been buffeted by bad news that doesn’t seem to stop coming. As we noted earlier it is an election year and neither the Republicans nor the Democrats want an economic meltdown on their plate. So far we have seen a; • $168 Billion dollar stimulus package approved by congress which will begin impacting the economy in early summer • A unprecedented reduction of interest rates by the Fed which will begin impacting the economy in the fourth quarter • Intervention in the credit markets by the Fed with a $200 Billion dollar credit line • Intervention by the Fed to salvage a leading financial institution But that’s not enough as perception is a tricky thing so what’s next? We expect the following ‘Big Bang’ in the coming weeks • Congress and the Bush administration will announce a plan to allow the Fed and other government entities to purchase up to $400 Billion worth of mortgage backed securities with the authority to renegotiate the structure of these securities • Congress will authorize a $75 Billion dollar infrastructure stimulus package for the immediate upgrading of the U.S. infrastructure

We believe that this will amount to overkill but remember it is an Election Year! We believe that by the beginning of Q4 all of these actions combined with the renewed optimism that comes with the anticipated change in the presidential administration will move the economy rapidly out of a recession. But the consequences will not stop there as we expect the following; • A sustained dollar rally in Q4 driven by positive economic news and as importantly expectations of a new Presidential administration • A dramatic correction in crude oil in Q4 to a level of $77 to $82 per barrel driven by a dollar rally and the perception that the new administration will radically reduce the United States carbon footprint • A sustained rally in the US equity markets in Q4 driven by all of the above And what about the rest of the world specifically the big emerging markets of India, China and Brazil. The big story in 2008 will be China with unprecedented capital inflows and an economy that is overheating Chinese inflation continues to mount exceeding 8% this month. Attempts by the Chinese central bank to cool the economy and tame inflation by raising interest rates and dramatically increasing reserve requirements have failed. So what’s the answer? The sustained appreciation of the Chinese Yuan which we expect will appreciate 5% against the Euro in 2008. The appreciation of the Chinese currency will have a profound effect on the Chinese economy forcing the government to begin focusing on expanding domestic consumption as a driver for economic growth as opposed to exports. The appreciation of the Yuan will also have a significant impact on the two other big emerging markets; India; which has seen exports suffer as a result of a rapid appreciation of the Indian Rupee will find itself in a much more competitive environment.

As such we expect Indian exports to accelerate later this year and a drop in the price of crude oil will further strengthen the Indian economy. We forecast a GDP of 8.6% for 2008 increasing to 9.4% in 2009 with a rally in the Indian equity markets in Q4 of 2008. Two other factors will continue to have a positive impact on the Indian economy the first is the growth of the ‘New Consumer’ within 15 years India will have a middle-class that exceeds 350 million people that’s larger than the entire population of the United States and that will equate to unprecedented buying power. The second is infrastructure investment which will exceed $1 trillion dollars in PPP terms during the next five years. The modernization of India’s infrastructure will have a profound impact on the Indian economy as transport costs decline and the speed and efficiency of transport increases. Brazil; is already becoming the world’s bread basket and ever increasing demand for commodities from the ‘New Consumers’ of China and India will continue to drive Brazil’s exports and the prices for commodities like Soy to record levels. Additionally we believe that the appreciation of the Chinese Yuan will dramatically increase trade flows of commodities to China. Brazil is also benefiting from the ‘New Consumer’ within 10 years Brazil will have a middle-class that exceeds 80 million people that’s significantly larger than the entire population of Canada and that will equate to significant buying power. Luxury retail has already taken off in Brazil with a continued build-out of high end malls and fashion boutiques. Brazil is now the 7th largest cosmetics market in the world and the demand for all types of consumer goods is expected to increase as the economy continues to grow.

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illiam Nóbrega, is the president and founder of The Conrad Group an emerging market strategic planning and M&A facilitation firm based in Miami. He has more than 12 years of experience in this field and is widely credited for initiating global business models in emerging geographies including Brazil, India and China. The firm’s clients include hedge funds, pension funds, investment trusts and numerous Fortune 1000 companies in a wide range of industry verticals. With 115 professionals based in New Delhi, Sao Paulo and Miami it is one of the leading boutique firms in this arena. Prior to founding The Conrad Group, Mr. Nóbrega worked with Deloitte & Touche Consulting in Europe and the United States Mr. Nóbrega is a veteran of Army Special Forces having served in Kurdistan and other operational areas during the Gulf conflict. Mr. Nóbrega is the author of numerous articles and White Papers that focus on various aspects of emerging market strategic planning and he is a frequent contributor to CNN, CNBC, Bloomberg and other national and international media outlets. Mr. Nóbrega is the author of the book ‘Riding the Indian Tiger; understanding India the worlds fastest growing market’ which was published by John Wiley & Sons December 2007. Mr. Nóbrega has a bachelor’s degree from Ohio University, in Athens, Ohio and a master’s degree from the University of Leuven, in Brussels, Belgium. [email protected]

The Conrad Group www.conradgroupinc.com