Global Chart Book _ February 2009

Jay H. Bryson, Global Economist [email protected] 1-704-383-3518 Tim Quinlan, Economic Analyst [email protected] 1-704-374-4407

SPECIAL COMMENTARY Global Chartbook: February 2009

This report is available on www.wachovia.com/economics and on Bloomberg at WBEC

February 12, 2009

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Contents World............................................................................................................................................... 6 Dollar Exchange Rates................................................................................................................... 7 United States................................................................................................................................... 8 Euro-zone........................................................................................................................................ 9 Germany........................................................................................................................................ 10 France ............................................................................................................................................ 11 Italy ................................................................................................................................................ 12 Japan .............................................................................................................................................. 13 United Kingdom .......................................................................................................................... 14 Canada........................................................................................................................................... 15 Australia........................................................................................................................................ 16 Norway.......................................................................................................................................... 17 Sweden .......................................................................................................................................... 18 Switzerland ................................................................................................................................... 19 Brazil.............................................................................................................................................. 20 China.............................................................................................................................................. 21 India............................................................................................................................................... 22 Mexico ........................................................................................................................................... 23 Poland............................................................................................................................................ 24 Russia............................................................................................................................................. 25 Singapore ...................................................................................................................................... 26 South Africa .................................................................................................................................. 27 South Korea .................................................................................................................................. 28 Taiwan ........................................................................................................................................... 29 Turkey ........................................................................................................................................... 30 Energy Markets ............................................................................................................................ 31

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Global Chartbook: February 2009 February 12, 2009

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Executive Summary Global Economy is in Deepest Recession in Decades The heady days of 2004-2007, when global GDP growth averaged about 5% per annum, seem like a distant memory now. Growth in most countries slowed in the first half of 2008 due in part to monetary tightening, the unprecedented rise in energy prices and dislocations in credit markets. However, global economic activity went into freefall in the fourth quarter of last year as credit markets froze up in the wake of Lehman Brothers’ failure. Industrial production in the OECD countries (i.e., the thirty most developed economies in the world) plunged 7.6% in November, the sharpest year-over-year contraction since records began in 1975.

Global economic activity went into freefall in the fourth quarter of 2008.

We forecast global GDP will decline 0.3% this year. Although our projection may not sound “bad,” global GDP has never contracted, at least not since the International Monetary Fund (IMF) began calculating the series in 1970. Every G-7 economy is in deep recession at present, and growth in the developed world likely will remain negative over the next few quarters. The emerging world is hardly immune to the sharp reduction in global trade that is underway. Although not every developing country will experience outright recession, growth in the developing world has already slowed sharply and further weakening seems very likely. Developing economies that had over-leveraged financial sectors – many countries in Eastern Europe would fall into this category – will be especially hard hit. A number of countries, including Belarus, Hungary, Iceland, Latvia, Pakistan and Ukraine, have already gone to the IMF with hat in hand. There probably will be more to follow.

Global GDP will probably contract in 2009, the first year of negative growth since records began in 1970.

What will turn the situation around? For starters, governments have responded to the crisis by announcing steps to shore up their financial systems. Although the global financial system is hardly back to “normal”, some segments of the credit markets are starting to function again. In addition, governments are attempting to stimulate their economies via expansionary macroeconomic policies. Significantly lower interest rates and fiscal stimulus should help to stabilize economic activity later this year. The sharp decline in inflation in most countries over the past few months should help to shore up consumer spending by supporting real income. Global growth should be stronger in 2010 than in 2009, but it will probably fall short of its long-run average (3.7% per annum). Underlying all of our projections is our assumption that policymakers will take the necessary steps to prevent the global financial system from locking up again à la last autumn. If that assumption proves to be overly optimistic, then global economic activity would contract even more than our already grim outlook projects.

Policy easing should help to stabilize economies later this year.

The U.S. economy has been in recession since December 2007, and it likely will remain there until this autumn. Unlike the strong recoveries that followed the deep recessions of 1973-75 and 1981-82, the upturn that we project will take root later this year probably will be relatively weak, at least initially. Growth in consumer spending probably will be very sluggish over the next few years as consumers repair battered balance sheets and raise abysmally low saving rates. We project U.S. real GDP will grow about 1% in 2010, well below the 3% annual growth rate the economy averaged between 1992 and 2007.

The eventual recovery in the United States likely will be very sluggish.

Deep recessions are underway as well in Canada, the Euro-zone and the United Kingdom. On a peak-to-trough basis, real GDP in these economies will probably contract 2 to 4%, which are deep recessions by any measure. Some observers use the

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Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

word “depression” when describing the Japanese economy at present. Indeed, Japanese industrial production essentially collapsed in the fourth quarter. Foreign central banks have slashed policy rates in response to the recent freefall in economic activity. The Bank of England has cut its policy rate to 1.00%, and the lower bound of 0% beckons over the next few months. The European Central Bank has been slower to ease policy – its main policy rate currently stands at 2.00% – but we project further rates cuts in the months ahead for the ECB. Some individual countries could experience a period of mild price declines this year.

Inflation rates in most countries shot higher in the first half of 2008 and commodity prices went through the roof. However, commodity prices have subsequently collapsed as economic growth has slowed sharply. After rising to nearly 6% in 2008, which is the highest rate in about 10 years, global inflation should recede to roughly 2% this year. Although we do not believe the world will experience generalized deflation, some individual countries could experience a period of mild price declines this year.

Dollar Appreciation Should Continue in Near Term After following a downward trend between 2002 and mid-2008, the trade-weighted value of the U.S. dollar is up about 15% on balance since last July. The dollar’s appreciation is not a reflection of a positive near-term outlook for the U.S. economy. Rather, the prognosis for many foreign economies has deteriorated more rapidly than for the U.S. economy since mid-summer. Whereas many investors had expected most foreign economies to avoid recession, it has become glaringly obvious in recent months that those economies will experience their own sharp downturns due to the global nature of the credit crunch. The dollar should appreciate further in the near term.

In our view, the dollar should rally further in the near term. U.S. authorities are generally taking more aggressive steps to stimulate the economy via aggressive monetary and fiscal easing than their counterparts in most other countries. Consequently, signs (or at least expectations) of stabilization and subsequent recovery should show up in the United States before they do in most other economies. Expectations of recovery should be conducive for further dollar strength.

The dollar will probably give up its gains once the reality of a painfully slow recovery become obvious.

However, the problems facing the U.S. economy are generally more serious than the problems that confront many other economies. Although growth in the United States should turn positive again later this year, the recovery we project will probably be very sluggish. We are usually loath to forecast turning points in exchange rates at some point in the future, but sustained dollar strength against the backdrop of very slow U.S. economic growth does not seem to be very credible. Therefore, the dollar could give up its gains and begin to depreciate later this year or early next year as the reality of a very slow U.S. economic recovery becomes painfully clear to investors.

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Global Chartbook: February 2009 February 12, 2009

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Forecasts as of February 11, 2009 Wachovia Currency Forecast (End of Quarter Rates) 2009 Q1

Wachovia International Economic Forecast (Year-over-Year Percentage Change) 2008 Global Major Economies United States Eurozone Germany France Italy UK Japan Canada Developing Economies China India Mexico Brazil

GDP 2009

2010

2008

CPI 2009

2010

3.4%

-0.3%

2.9%

5.6%

1.1%

2.2%

1.3% 0.8% 1.1% 0.7% -0.7% 0.7% -0.3% 0.6%

-2.7% -2.4% -2.4% -1.8% -3.0% -2.7% -3.8% -1.6%

1.1% 1.4% 1.1% 1.7% 0.8% 1.0% 0.8% 2.1%

3.8% 3.3% 2.8% 3.2% 3.5% 3.6% 1.4% 2.4%

-1.1% 0.0% -0.3% 0.1% 0.4% 0.4% -0.8% 0.5%

1.7% 0.9% 0.7% 0.9% 0.6% 0.7% -0.1% 1.3%

9.1% 6.5% 1.4% 6.7%

6.0% 5.0% -1.8% 2.1%

8.0% 7.0% 2.1% 3.1%

5.9% 7.9% 5.1% 5.7%

-0.6% 7.4% 5.1% 4.6%

0.9% 5.0% 3.3% 3.9%

Data As of: February 11, 2009

1

Q2

2010 Q3

Q4

Q1

Q2

Q3

Q4

Major Currencies Euro ($/€) U.K. ($/£) U.K. (£/€) Japan (¥/$)

1.25 1.44 0.87 94

1.18 1.42 0.83 100

1.16 1.40 0.83 105

1.16 1.45 0.80 108

1.20 1.48 0.81 105

1.25 1.54 0.81 102

1.30 1.58 0.82 100

1.35 1.64 0.82 98

Other Industrialized Canada (C$/US$) Switzerland (CHF/$) Norway (NOK/$) Sweden (SEK/$) Australia (US$/A$)

1.25 1.20 6.90 8.30 0.66

1.28 1.28 7.00 8.60 0.65

1.30 1.32 6.90 8.60 0.64

1.28 1.32 6.70 8.40 0.68

1.22 1.30 6.40 8.00 0.72

1.15 1.26 6.20 7.60 0.76

1.10 1.22 5.90 7.30 0.78

1.08 1.18 5.70 7.00 0.80

Developing Economies Mexico (MXN/$) Brazil (BRL/$) Poland (PLN/$) Russia (RUB/$) Turkey (TRY/$) South Africa (ZAR/$) China (CNY/$) India (INR/$) Korea (KRW/$) Singapore (S$/US$) Taiwan (TWD/$)

14.00 2.30 3.70 38.00 1.62 10.00 6.85 48.80 1380 1.50 34.00

14.25 2.40 4.00 39.00 1.65 10.25 6.82 49.00 1400 1.54 34.25

14.50 2.40 4.20 37.00 1.68 10.20 6.80 49.20 1375 1.55 34.25

14.00 2.30 4.00 35.00 1.66 9.80 6.75 48.50 1325 1.53 33.75

13.50 2.20 3.75 33.00 1.60 9.60 6.60 47.50 1275 1.50 33.00

13.00 2.00 3.50 32.00 1.55 9.40 6.50 46.50 1250 1.46 32.50

12.50 1.90 3.30 31.00 1.52 9.20 6.40 46.00 1225 1.42 32.25

12.00 1.80 3.15 30.00 1.50 9.00 6.30 45.00 1200 1.40 32.00

Data as of: February 11, 2009

1

Wachovia International Interest Rate Forecast (End of Quarter Rates) 10-Yr Government Security

3-Month LIBOR 2009 United States Japan Euroland U.K. Canada

Q1 1.10% 0.55% 1.80% 1.60% 1.00%

Q2 0.90% 0.40% 1.20% 1.10% 0.90%

2010 Q3 0.80% 0.20% 1.20% 0.75% 0.70%

Q4 0.70% 0.20% 1.20% 0.50% 0.70%

Q1 0.70% 0.20% 1.30% 0.75% 1.25%

Q2 0.70% 0.20% 1.75% 1.25% 2.00%

2009 Q3 1.00% 0.35% 2.50% 1.75% 2.75%

Q4 1.20% 0.40% 3.25% 2.25% 3.50%

Q1 3.00% 1.40% 3.30% 3.70% 3.00%

Q2 3.10% 1.50% 3.50% 3.80% 3.20%

Q3 3.10% 1.60% 3.90% 4.00% 3.50%

Q4 3.10% 1.70% 4.20% 4.20% 3.80%

Q1 3.20% 1.80% 4.30% 4.40% 4.20%

2010 Q2 3.30% 1.90% 4.40% 4.50% 4.40%

Q3 3.40% 2.00% 4.45% 4.55% 4.45%

Q4 3.50% 2.00% 4.50% 4.60% 4.50%

1

Data As of: February 11, 2009

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Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

World

OECD Industrial Production Year-over-Year Percent Change

9%

ƒ

ƒ

ƒ

ƒ

The effects of the credit crunch caused global growth to slow significantly last year. Indeed, it appears that economic activity in many countries contracted sharply in the fourth quarter of 2008. We forecast that global GDP will be essentially flat in 2009, which would be the slowest year for global growth since records began in 1970. The recessions that are underway in every G-7 economy will probably be at least as painful as the downturns of the mid-1970s and the early 1980s. However, the major governments of the world have averted a catastrophe by taking bold steps to support the global financial system. Many major economies have also announced fiscal stimulus measures that will help backstop economic activity. The developing world will also experience significantly slower economic growth this year. Developing countries where economic fundamentals are not sound will probably experience deep recessions as capital flows reverse. Indeed, some developing countries have already come to the IMF seeking adjustment assistance. The remarkable run-up in commodity prices between 2003 and the first half of 2008 led to generalized inflation fears. However, commodity prices have essentially collapsed as global recession has taken hold. Economic weakness and the collapse of commodity prices should cause inflation rates in most countries to decline significantly this year. Some countries may experience mild deflation this year.

9%

6%

6%

3%

3%

0%

0%

-3%

-3%

-6%

-6% OECD Industrial Production: Nov @ -7.6%

-9%

-9% 96

97

98

99

00

01

02

03

04

05

06

07

08

Central Bank Policy Rates 9.0% 8.0% 7.0%

9.0% US Federal Reserve: Feb @ 0.25% Bank of England: Feb @ 1.00% ECB: Feb @ 2.00% Reserve Bank of Australia: Feb @ 3.25%

8.0% 7.0%

6.0%

6.0%

5.0%

5.0%

,o

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0% 2000

0.0% 2001

2002

2003

2004

2005

2006

2007

2008

2009

CRB Index Monthly Average Level

450

450

Global CPI Year-over-Year Percent Change

16%

16%

14%

14%

12%

12%

10%

10% 8%

8%

400

400

350

350

300

300

250

250

200

200

Forecast 6%

6%

4%

4%

2%

2% 0%

0% 1995

6

1998

2001

2004

2007

2010

CRB Index: Feb @ 219.3 150 2000

150 2001

2002

2003

2004

2005

2006

2007

Source: Bloomberg L.P., Federal Reserve Board, International Monetary Fund and Wachovia

2008

Global

2009

Insight,

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Dollar Exchange Rates

US Trade Weighted Dollar Major Index March 1973=100

115

ƒ

ƒ

The trade-weighted value of the U.S. dollar fell nearly 40% between February 2002 and March 2008. A major factor depressing the value of the dollar was the sharp increase in the U.S. current account deficit. In addition, dislocations in credit markets have caused foreign investors to buy fewer U.S. securities. However, the dollar has rallied significantly since midJuly, not only vis-à-vis many major currencies but against most emerging currencies as well. Rather than reflecting newfound optimism regarding the outlook for the U.S. economy, the depreciation of foreign currencies vis-à-vis the greenback is consistent with significantly weaker growth prospects in many foreign economies.

115

110

110

105

105

100

100

95

95

90

90

85

85

80

80

75

75 70

70 Major Currency Index: Feb @ 82.3

65 2000

2001

2002

2003

2004

65 2005

2006

2007

2008

2009

US Trade Weighted Emerging Currency Index ƒ

ƒ

Looking forward, we project that the dollar will continue to strengthen, at least in the near term. For starters, the U.S. current account deficit should continue to narrow. In addition, deep recessions abroad should lead foreign central banks to cut rates further, which should help to boost the dollar. Looking a few quarters out, however, we do not believe the dollar’s strength will be sustained. The recovery that will eventually take hold in the United States likely will not be very robust, at least not initially. The dollar did not strengthen during the recoveries that followed the last two recessions because the initial sluggish nature of those upturns prevented the Fed from tightening policy. Likewise, we believe the Fed will be on hold for the foreseeable future.

March 1973=100

150

150

145

145

140

140

135

135

130

130

125

125 Fed's "Other Important Trading Partners" Index: Feb @ 140.91 120

120 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Current Account Deficit $40

Quarterly in Billions of Dollars, Seasonally Adjusted

$40

The Dollar and Economic Cycles Trade Weighted Dollar, Trough Indexed to 100

130

130

120

120

110

110

100

100

90

90

80

70

70 -12 -9

-6

-3

0

3

$0

-$40

-$40

-$80

-$80

-$120

-$120

-$160

-$160

-$200

Trough @ Mar-1975 Trough @ Nov-1982 Trough @ Mar-1991 Trough @ Nov-2001

80

$0

6 9 12 15 18 21 24 27 30 33 36 Months from Trough

-$240

-$200 Balance on Current Account: Q3 @ $-174.1 B

-$240

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Source: Bloomberg L.P., Federal Reserve Board, International Monetary Fund and Wachovia

Global

Insight,

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Global Chartbook: February 2009 February 12, 2009

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United States

Real GDP Bars = Compound Annual Growth Rate

8.0%

U.S. real GDP dropped at an annualized rate of 3.8% in the fourth quarter, the sharpest rate of contraction since 1982. The unexpected rise in inventories in the fourth quarter prevented the downturn from being more pronounced. However, real GDP will probably slump even faster in the first quarter as inventories are worked off.

ƒ

The U.S. economy could very well be in the midst of its deepest recession in the post-World War II era. Spending on equipment and software in the fourth quarter plunged at the sharpest rate in 50 years, and orders data point in the direction of further declines. Residential construction remains in freefall. Consumer spending has contracted for two consecutive quarters, and mounting job losses will keep consumers stressed. Exports fell sharply in the fourth quarter due to deep recessions in many of America’s most important trading partners.

ƒ

6.0%

The direct lending programs that have been put in place by the U.S. Treasury and the Fed have helped to stabilize the financial system and, thereby, have reduced a large downside risk to U.S. economic prospects. However, the financial system is not out of the woods yet, and lending likely will remain very constrained until banks begin to rebuild their capital bases. Therefore, the recovery that should begin in the second half of 2009 likely will be muted.

ƒ

8.0% 6.0%

Forecast

4.0%

4.0%

2.0%

2.0%

0.0%

0.0%

-2.0%

-2.0%

-4.0%

-4.0%

-6.0%

-6.0%

GDPR - CAGR: Q4 @ -3.8% GDPR - Yr/Yr Percent Change: Q4 @ -0.2%

-8.0% 2000

2002

2004

2006

-8.0% 2008

2010

Real NonResidential Business Fixed Investment Bars = Seasonally Adjusted Annual Rate

25%

Line = Yr/Yr % Change

25%

Fixed Investment: Q4 @ -19.1% Fixed Investment: Q4 @ -4.4%

20%

The collapse in energy prices has caused the overall rate of CPI inflation to drop sharply over the past few months. The core rate of inflation is receding, but not as quickly as the overall CPI inflation rate.

ƒ

Line = Yr/Yr Percent Change

20%

15%

15%

10%

10%

5%

5%

0%

0%

-5%

-5%

-10%

-10%

-15%

-15%

-20%

-20% 1996

1998

2000

2002

2004

2006

2008

Nonfarm Employment Change Change in Employment, In Thousands

500

500

CPI vs. Core CPI Year-over-Year Percent Change

6%

6%

300

300

5%

5%

100

100

4%

4%

-100

-100

3%

3%

-300

-300

2%

2%

-500

-500

1%

1%

-700

CPI: Dec @ 0.1% Core CPI: Dec @ 1.8%

2000 0%

0% 92

8

94

96

98

Nonfarm Employment Change: Jan @ -598,000

00

02

04

06

08

-700 2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: U.S. Department of Commerce, U.S. Department of Labor and Wachovia

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Euro-zone

Euro-zone Real GDP Bars = Compound Annual Rate

5.0%

After two consecutive quarters of declines in real GDP, the Euro-zone is in recession. The recession appears to have gotten worse in the fourth quarter as the purchasing managers’ indices for the manufacturing and service sectors plunged to all-time lows. (The series began in 1997.) Our forecast projects that the Euro-zone economy will remain in recession through the third quarter of this year, and the peak-to-trough decline in real GDP will total about 3%.

ƒ

Most components of demand appear to be in full-blown retreat at present. Consumer spending is contracting as consumer confidence has tumbled to a record low. (The series begins in 1985.) Business fixed investment spending remains weak. The ongoing global recession will keep a lid on export growth for much of this year.

ƒ

The overall rate of CPI inflation in the Euro-zone shot up to 4% this summer. However, CPI inflation is receding quickly, which has given the ECB scope to ease monetary policy. Though the bank left rates unchanged at 2.00% earlier this month, the ECB has cut rates by 175 bps since October, and a cut in March seems likely. By summer, we look for the main Euro-zone policy rate to reach 1.00%.

ƒ

The previously high-flying euro has declined sharply against the dollar as the outlook for the Euro-zone economy has deteriorated significantly. We project that the euro will trend lower against the greenback in the next few quarters as the ECB continues to cut rates. Further out, however, the euro could stage a comeback against the dollar as sluggish economic growth in the United States keeps U.S. interest rates very low for an extended period.

ƒ

Line = Yr/Yr % Change

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0% Compound Annual Growth: Q3 @ -0.8% Year-over-Year Percent Change: Q3 @ 0.6%

-1.0%

-1.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Euro-zone Purchasing Manager Indices Index

65

65

60

60

55

55

50

50 z`

45

45

40

40

35

35

E.Z. Manufacturing: Jan @ 34.4 E.Z. Services: Jan @ 42.5

30

30

1998

2000

2002

2004

2006

2008

Euro-zone Interest Rates 6.00%

6.00%

5.00%

5.00%

4.00%

4.00%

3.00%

3.00%

2.00%

2.00%

Euro-zone Exchange Rate 1.70

USD per EUR

1.70

1.60

1.60

1.50

1.50

1.40

1.40

1.30

1.30

1.20

1.20

1.10

1.10

1.00

1.00

Euro-zone 2 Year Govt Bond: Feb @ 1.39%

0.90

0.90 Euro-Dollar: Feb @ 1.294

1.00%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.80

0.80 1999 2000 2001 2002

ECB Policy Rate: Feb @ 2.00% 1.00%

2003 2004 2005

2006

2007

2008 2009

Sources: Global Insight, Bloomberg LP and Wachovia

9

Global Chartbook: February 2009 February 12, 2009

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Germany

German Real GDP Bars = Compound Annual Rate

7.0%

After contracting at an annualized rate of 1.7% in the second quarter, real GDP in Germany declined 2.1% in the third quarter, the largest quarterly decline in twelve years. In short, the German economy is definitively in recession.

ƒ

The downturn appears to be worsening. The Ifo index of German business sentiment, which is highly correlated with growth in industrial production, plunged to an alltime low in December, before edging up a bit in January. (The pan-German series began in 1991.) Industrial production in December plunged 12% relative to the same month in 2007, the fastest pace of contraction on record. (The series began in 1992) We look for a peak-to-trough decline in real GDP of 3.5% in the current cycle, a deep recession by any measure.

ƒ

Unemployment trended lower earlier in this cycle, dropping to its lowest rate since the early 1990s. However, the recent freefall in the economy has manifested itself in rising unemployment in January. Therefore, consumer spending, which has been the Achilles heel of the German economy anyway, probably will weaken in the quarters ahead.

ƒ

Line = Yr/Yr % Change

7.0%

Compound Annual Growth: Q3 @ -2.1% Year-over-Year Percent Change: Q3 @ 0.8%

6.0%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0%

-1.0%

-1.0%

-2.0%

-2.0%

-3.0%

-3.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

German Production Indicators Index, Year-over-Year Percent Change

120

10.0%

115

7.5%

110

5.0%

105 2.5% 100 0.0%

Germany is an important supplier of capital goods to central and eastern Europe. Unfortunately, most emerging European economies have also slipped into deep recessions. Indeed, the value of German exports dropped almost 8% in December relative to the same month in 2007.

ƒ

95 -2.5%

90 85

-5.0%

Ifo Index: Jan @ 83.0 (Left Axis) IP Year-over-Year % Chg 3-M MA: Nov @ -4.0% (Right Axis)

80 1996

1998

2000

2002

2004

2006

-7.5% 2008

German Unemployment Rate

German Merchandise Exports Year-over-Year Percent Change

30%

30%

20%

20%

10%

10%

-10%

-10% Merchandise Exports: Dec @ -11.7%

12.0%

12.0%

11.0%

11.0%

10.0%

10.0%

9.0%

9.0%

8.0%

8.0% Unemployment Rate: Jan @ 7.8%

3-Month Moving Average: Dec @ -6.8%

7.0%

7.0% 1997

1999

2001

2003

2005

2007

-20%

-20%

10

13.0%

0%

0%

1999

Seasonally Adjusted

13.0%

2001

2003

2005

2007

Source: Global Insight, Bloomberg LP and Wachovia

2009

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

France

French Real GDP Bars = Compound Annual Rate

6.0%

France has side-stepped consecutive quarters of contraction in real GDP by virtue of a modest 0.6% gain in the third quarter. However, the contraction gathered force in the fourth quarter. Indeed, industrial production plunged more than 11% in December relative to the same period in 2007, the fastest pace of contraction in decades.

ƒ

There is an external element to the downturn in France. In general, French businesses have not been as aggressive as their German counterparts in restructuring. Consequently, unit labor costs have risen in France over the past few years, which has reduced the relative price competitiveness of French goods. Consequently, the trade balance in France has deteriorated over the past few years, and real net exports have exerted a modest drag on growth.

ƒ

There is an internal element to the downturn as well. Growth in consumer spending weakened earlier this year in response to the sharp rise in energy prices. The recent credit crunch and its associated financial market turmoil have caused consumer sentiment to weaken substantially. Consumer spending fell 0.9% in December relative to the previous month. Recent deterioration in the labor market likely will weigh on consumer spending over the next few quarters.

ƒ

On a peak-to-trough basis, we project that real GDP in France will contract more than 2%, which if realized, would be France’s worst recession in decades.

ƒ

Line = Yr/Yr % Change

6.0%

Compound Annual Growth: Q3 @ 0.6% Year-over-Year Percent Change: Q3 @ 0.6%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0%

-1.0%

-1.0%

-2.0%

-2.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

French Industrial Production Index Year-over-Year Percent Change

8.0%

8.0%

6.0%

6.0%

4.0%

4.0%

2.0%

2.0%

0.0%

0.0%

-2.0%

-2.0%

-4.0%

-4.0%

-6.0%

-6.0%

-8.0%

IPI: Dec @ -11.1%

-8.0%

3-Month Moving Average: Dec @ -9.3% -10.0% 1997

-10.0% 1999

2001

2003

2005

2007

French Merchandise Trade Balance Billions of Euros, Seasonally Adjusted

4.0 €

Volume of French Retail Sales 6.0 %

Year-over-Year Percent Change of 3-Month Moving Average

4.0 %

6.0 %

4.0 %

2.0 %

2.0 %

0.0 %

0.0 %

4.0 €

3.0 €

3.0 €

2.0 €

2.0 €

1.0 €

1.0 €

0.0 €

0.0 €

-1.0 €

-1.0 €

-2.0 €

-2.0 €

-3.0 €

-3.0 €

-4.0 €

-4.0 €

-5.0 €

-5.0 €

-6.0 €

-6.0 €

-7.0 €

-7.0 €

Merchandise Trade Balance: Dec @ -2.5 €

-8.0 € 1997

3-Month Moving Average: Nov @ -0.6% -2.0 % 1998

-8.0 € 1999

2001

2003

2005

2007

2009

-2.0 % 2000

2002

2004

2006

2008

Source: Global Insight, Bloomberg L.P. and Wachovia

11

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Italy

Italian Real GDP Bars = Compound Annual Rate

5.0%

With real GDP growth in Italy negative in three out of the last four quarters, the country has fallen into recession, and available indicators suggest that the pace of contraction accelerated at the end of last year. A widely followed index of Italian business confidence has slumped sharply over the past few months, which is consistent with the 14% drop in industrial production in December relative to the same month in 2007.

ƒ

Not only are the credit crunch and associated global downturn weighing on Italian GDP growth, but Italy also faces a number of structural impediments. Like their counterparts in France, Italian businesses have generally not restructured aggressively over the past few years. This has led to rising unit labor costs which have reduced the relative price competitiveness of Italian goods. If not for sluggish growth in domestic demand which has helped to keep import growth constrained, the trade deficit would have widened even further than it did.

ƒ

An aging population and weak growth in real income have conspired to keep growth in consumer spending weak over the past few years. Indeed, real growth in personal consumption expenditures has not exceeded 2% per annum since 2000.

ƒ

On a peak-to-trough basis, we project that the Italian economy will contract about 4%, which, if realized, would be the worst downturn in Italy in decades. Although the economy will not continue to contract forever, the ensuing upturn probably will be muted.

ƒ

Line = Yr/Yr % Change

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0%

-1.0%

-1.0%

-2.0%

-2.0%

Compound Annual Growth: Q3 @ -2.1% Year-over-Year Percent Change: Q3 @ -0.9%

-3.0%

-3.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Italian and French Business Confidence Index

140

140

Italian Business Confidence: Jan @ 65.5 French Business Sentiment: Jan @ 73.0

130

130

120

120

110

110

100

100

90

90

80

80

70

70

60

60

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Italian Merchandise Trade Balance Billions of Euros, Seasonally Adjusted

3.0 €

3.0 €

Italian Consumer Price Index Year-over-Year Percent Change

4.5%

4.5%

4.0%

4.0%

3.5%

3.5%

3.0%

3.0%

2.5%

2.5%

2.0%

2.0%

1.5%

1.5%

2.0 €

2.0 €

1.0 €

1.0 €

0.0 €

0.0 €

-1.0 €

-1.0 €

-2.0 €

-2.0 € Merchandise Trade Balance: Nov @ -1.7 €

1997

CPI: Dec @ 2.4% 1.0% 1997

12

-3.0 €

-3.0 € 1999

2001

2003

2005

1.0% 1999

2001

2003

2005

2007

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

2007

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Japan

Japanese Real GDP Bars = Compound Annual Rate

7.5%

Real GDP in Japan contracted in both the second and third quarters of 2008, indicating that the Japanese economy, like its other G-7 counterparts, has slipped into recession. And the nosedive in industrial production in the fourth quarter indicates that the downturn in the overall economy gathered even more pace. Japan is likely mired in its deep recession since it emerged from the devastation of the Second World War.

ƒ

The sources of the downturn are numerous. The volume of exports has weakened sharply due to deep recessions in many of Japan’s most important trading partners. Recent data on “core” machinery orders indicate that capital spending has also weakened sharply, and growth in consumer spending, which has not been very strong over the past few years, appears to have weakened as well.

ƒ

Japan appears headed for another bout of mild deflation. The year-over-year rate of CPI inflation, which rose as high as 2.3% in July when oil prices surged, receded to only 0.40% in December. Inflation probably will turn negative at some point during the next few months.

ƒ

The Japanese yen generally continues to be strong as risk aversion remains acute. We project the greenback will appreciate versus the yen over the next few quarters as investors anticipate a U.S. economic recovery. However, the yen could strengthen anew, probably in late 2009 or early 2010, as the muted nature of the U.S. economic recovery becomes evident.

ƒ

Line = Yr/Yr % Change

7.5%

5.0%

5.0%

2.5%

2.5%

0.0%

0.0%

-2.5%

-2.5%

-5.0%

-5.0% Compound Annual Growth: Q3 @ -1.8% Year-over-Year Percent Change: Q3 @ -0.3%

-7.5%

-7.5% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Japanese Industrial Production Index Year-over-Year Percent Change

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0%

-10.0%

-10.0%

-15.0%

-15.0%

-20.0%

-20.0%

IPI: Dec @ -21.7% 3-Month Moving Average: Dec @ -13.9%

-25.0% 1997

-25.0% 1999

2001

2003

2005

2007

2009

Volume of Japanese Exports Year-over-Year Percent Change

25.0

Japanese Exchange Rate JPY per USD

150

150

140

140

130

130

120

120

110

110

100

100

90

90

20.0

15.0

15.0

10.0

10.0

5.0

5.0

0.0

0.0

-5.0

-5.0

-10.0

-10.0

-15.0

-15.0

-20.0

-20.0

-25.0

80 1995

-25.0

Volume of Japanese Exports: Dec @ -24.4

-30.0 1996

JPY per USD: Feb @ 91.9

25.0

20.0

-30.0 1998

2000

2002

2004

2006

2008

80 1997

1999

2001

2003

2005

2007

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

13

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

United Kingdom

U.K. Real GDP Bars = Compound Annual Rate

6.0%

Real GDP in the United Kingdom contracted at an annualized rate of 5.9% in the fourth quarter, the sharpest rate of contraction since the second quarter of 1980. Purchasing managers’ indices remained at very low levels in January, indicating that the economy likely contracted further in the start of the first quarter.

ƒ

We look for the peak-to-trough decline in U.K. real GDP to exceed 3%, which would make the current downturn more severe than the recession in the early 1990s. The sharp rise in house prices over the past decade has led to a significant build-up in consumer debt, and these imbalances will need to be worked off over the next few years. Thus, the upturn, when it comes, will likely be rather muted.

ƒ

At 3.1% currently, CPI inflation is above the 2% target the Bank of England (BoE) is mandated to achieve in the “medium term.” However, inflation is receding rapidly and it probably will slip into negative territory by summer. The Bank of England has cut rates by 350 bps since October and, in our view, it will take its policy rate down to only 0.50% soon.

ƒ

Sterling has tumbled vis-à-vis the greenback over the past few months as the British economic outlook has deteriorated. Looking ahead to the next few quarters, we project that sterling will weaken a bit further against the greenback as the BoE continues to cut rates. Further out, however, sterling could stage a comeback against the dollar as sluggish economic growth in the United States keeps U.S. interest rates very low for an extended period.

ƒ

USD per GBP

2.200

2.200

2.000

2.000

1.800

1.800

1.600

1.600

1.400

1.400

1.200 1999

14

4.0%

2.0%

2.0%

0.0%

0.0%

-2.0%

-2.0%

-4.0%

-4.0%

-6.0%

-6.0%

Compound Annual Growth: Q4 @ -5.9% Year-over-Year Percent Change: Q4 @ -1.8%

-8.0%

-8.0% 2000

2002

2004

2006

2008

UK Purchasing Managers Indices Diffusion Indices

65

65

60

60

55

55

50

50

45

45

40

40

35

35 UK Services: Jan @ 42.5 UK Construction: Jan @ 34.5 UK Manufacturing: Jan @ 35.8

30 25 2000

2002

30 25

2004

2006

2008

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

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0% CPI: Dec @ 3.1%

0.0% 1997

USD per GBP: Jan @ 1.423

0.0% 1999

2001

2003

2005

2007

1.200 2001

2003

2005

2007

2009

6.0%

4.0%

6.0%

U.K. Exchange Rates

Line = Yr/Yr % Change

Source: Global Insight, Bloomberg L.P. and Wachovia

2009

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Canada

Canadian Real GDP Bars = Compound Annual Rate

6.0%

Monthly real GDP in Canada has contracted for two consecutive months. Even though the Canadian economy grew at an annualized rate of 1.3% in the third quarter, real GDP likely contracted at an annualized rate of roughly 3% in the fourth quarter. Given the worsening outlook for the global economy, it does not seem reasonable that Canadian exports will be adding substantively to growth, at least in the near-future.

ƒ

Retail sales for November were down and probably will weaken further as consumers trim spending. Consumers aren’t the only ones cutting back. The Ivey purchasing managers index, a key measure of business spending recently printed at 36.1 for January, well-below consensus estimates of 40.0. Any number below 50 suggests contraction in business spending.

ƒ

Canada’s labor market sustained a jaw-dropping contraction of 129,000 jobs in January, as the unemployment rate jumped to 7.2%. Though monthly employment numbers have a tendency to swing rather dramatically from month to month, a six-month moving average, shown in the nearby chart, gives a sense of the broader downward trend.

ƒ

The Canadian dollar has been in a trading band between about 1.18 and 1.30 since last fall. We project that the loonie will stay in that range in the near term but may test the upside limit. Further out we expect the Canadian dollar will strengthen against the U.S. dollar as sluggish economic growth in the United States keeps U.S. interest rates very low for some time.

ƒ

6.0%

4.0%

4.0%

2.0%

2.0%

0.0%

0.0% Compound Annual Growth: Q3 @ 1.3% Year-over-Year Percent Change: Q3 @ 0.5%

-2.0%

-2.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Canadian Unemployment Rate 8.5%

8.5%

8.0%

8.0%

7.5%

7.5%

7.0%

7.0%

6.5%

6.5%

6.0%

6.0% Unemployment Rate: Jan @ 7.2% 5.5%

5.5% 2000

2002

2004

2006

2008

Canadian Retail Sales Year-over-Year Percent Change

12.0%

Canadian Exchange Rate

Line = Yr/Yr % Change

12.0%

Retail Sales: Nov @ -0.4%

CAD per USD

6-Month Moving Average: Nov @ 3.6%

10.0%

1.700

10.0%

1.600

1.600

8.0%

8.0%

1.500

1.500

6.0%

6.0%

1.400

1.400

4.0%

4.0%

1.300

1.300

2.0%

2.0%

1.200

1.200

1.100

1.100

0.0%

0.0%

1.700

1.000

1.000 0.900 1990

1993

1996

1999

-2.0%

-2.0% 1997

Exchange Rate: Feb @ 1.226 (L f A i )

1999

2001

2003

2005

2007

0.900 2002

2005

2008

Source: Global Insight, Bloomberg L.P. and Wachovia

15

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Australia

Australian Real GDP Bars = Compound Annual Rate

10%

The Australian economy has grown continuously since 2001. Australia is more dependent on the extraction of natural resources than most other major economies. The significant increase in commodity prices between 2003 and 2008 improved the country’s terms of trade, which boosted growth in real income. The decline in unemployment, which fell in 2008 to the lowest rate in decades, helped to underpin strong growth in consumer spending.

ƒ

The Reserve Bank of Australia (RBA) tightened policy in 2007 and early 2008 due to rising inflation. However, the sharp deterioration in the global economy will cause CPI inflation in Australia to recede in the quarters ahead. Consequently, the RBA has slashed its main policy rate by 400 bps since early September, and it has room to ease further if conditions warrant.

ƒ

The Australian dollar has dropped more than 30% on balance against the greenback since last summer as commodity prices have collapsed. In the near term, the Aussie dollar likely will weaken a bit further as the RBA continues to ease policy. Looking further out, however, the Aussie dollar could strengthen anew as investors begin to feel better about global growth prospects.

ƒ

10%

8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

However, real GDP growth down-under has slowed over the past few quarters. Not only did previous monetary tightening weigh on growth in domestic demand, but real income has been eroded by the collapse in commodity prices.

ƒ

Line = Yr/Yr % Change

Compound Annual Growth: Q3 @ 0.3% Year-over-Year Percent Change: Q3 @ 1.9%

-4%

-2% -4%

2000

2001

2002

2003

2004

2005

2006

2007

2008

Australian Retail Sales Year-over-Year Percent Change

10%

10%

8%

8%

6%

6%

4%

4%

2%

0% 1998

2% 3-Month Moving Average: Dec @ 3.3% Retail Sales: Dec @ 5.6% 2000

2002

0%

2004

2006

2008

Central Bank Policy Rates 8.0%

8.0%

Australian Exchange Rate and CRB Index USD per AUD, Index

1.000

500.0

AUD Exchange Rate: Feb @ 0.67 (Left Axis) CRB Index: Feb @ 214.7 (Right Axis)

7.0% 6.0%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

300.0

2.0%

2.0%

250.0

1.0%

1.0%

200.0

0.0%

400.0

0.800

350.0 0.700

0.600

0.500

2000

0.0% 2001

2002

2003

2004

2005

2006

2007

150.0

0.400

16

7.0%

450.0

0.900

1990 1992 1994

Reserve Bank of Australia: Feb @ 3.25% US Federal Reserve: Feb @ 0.25%

1996 1998

2000 2002 2004

2006 2008

Source: Global Insight, Bloomberg L.P. and Wachovia

2008

2009

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Norway

Norwegian Real GDP Year-over-Year Percent Change

7.5%

ƒ

ƒ

Real GDP in Norway contracted at an annualized rate of 2.8% between the second and third quarters, the first negative outturn in more than two years. Norway is a major producer of crude oil, and export volumes fell sharply in the third quarter. In addition, consumer spending plummeted 2.5%, the largest quarterly decline since the first quarter of 2003. Many monthly indicators, including data on industrial production and retail sales, suggest that the economy probably contracted further in the fourth quarter.

6.0%

6.0%

4.5%

4.5%

3.0%

3.0%

1.5%

1.5%

0.0%

0.0%

-1.5%

ƒ

As in many countries, CPI inflation in Norway rose to multi-year highs last year. However, inflation is receding rapidly and Norges Bank, the country’s central bank, is scrambling to get rates down to more appropriate levels. Indeed, Norges Bank has cut its main policy rate by 325 bps since mid-October, and policymakers have acknowledged that “the downturn in the Norwegian economy may be deeper and more prolonged than Norges Bank has assumed.” Therefore, rates may be cut further in the months ahead. The Norwegian krone has lost about 30% of its value versus the U.S. dollar since last summer as economic growth in Norway has weakened. We look for the krone to fall further in the first half of the year as the Norwegian economy slogs through recession and oil prices remain depressed. However, the krone could begin to strengthen later this year as investors begin to anticipate global recovery.

-1.5%

Mainland GDP : Q3 @ 2.7% Overall GDP: Q3 @ 0.6%

-3.0%

ƒ

7.5%

2000

2001

2002

2003

-3.0%

2004

2005

2006

2007

2008

Volume of Norwegian Retail Sales Year-over-Year Percent Change

10%

10%

8%

8%

6%

6%

4%

4%

2%

2%

0%

0% 3-Month Moving Average: Dec @ -0.4% -2%

-2% 1998

2000

2002

2004

2006

2008

Norwegian Consumer Price Index Norwegian Krone Exchange Rate NOK per USD

10.000

6%

10.000

9.000

9.000

8.000

8.000

7.000

7.000

6.000

6.000

5.000

5.000

4%

4%

2%

2%

0%

0%

CPI: Dec @ 2.1% -2% 1997

NOK per USD: Feb @ 6.766 4.000 1999

Year-over-Year Percent Change

6%

-2% 1999

2001

2003

2005

2007

2009

4.000 2001

2003

2005

2007

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

17

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Sweden

Swedish Real GDP Bars = Compound Annual Rate

7.0%

ƒ

ƒ

Swedish real GDP contracted modestly in the second and third quarters of 2008, suggesting that the economy slipped into recession last year. Unfortunately, it appears that the economy contracted at a much faster pace at the end of the year. For example, industrial production in the fourth quarter plunged more than 12%, the most severe year-over-year rate of contraction in decades.

6.0%

Not only have exports taken a hit, but consumer spending is weakening as well. The value of retail sales fell 1.5% (not annualized) in the fourth quarter relative to the previous quarter. Employment growth, which exceeded 2% per annum back in the heydays of 2006-07, has slipped into negative territory.

Line = Yr/Yr % Change

7.0%

Compound Annual Growth: Q3 @ -0.4% Year-over-Year Percent Change: Q3 @ 0.3%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0% -1.0%

-1.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Swedish Industrial Production Index The Swedish Riksbank, the country’s central bank, has slashed rates by 375 bps since mid-October. Although the policy rate currently stands at only 1.00%, rates will probably be cut further in the months ahead due to the very sharp deterioration in Swedish growth prospects.

ƒ

The Swedish krona has weakened about 30% against the U.S. dollar since mid-July due to the sharp deterioration in the Swedish economic outlook that has occurred since then. Looking forward, we project that the krona will weaken a bit further versus the greenback as the Swedish economy remains mired in recession. However, the krona could begin to strengthen later this year vis-à-vis the dollar due to the sluggish nature of the U.S. economic recovery that we project.

ƒ

Year-over-Year Percent Change

10%

10%

5%

5%

0%

0%

-5%

-5%

-10%

-10% IPI: Dec @ -18.3% 3-Month Moving Average: Dec @ -12.6%

-15% 1997

n

-15% 1999

2001

2003

2005

2007

Swedish Retail Sales Year-over-Year Percent Change

10%

12.00

SEK per USD

12.00

11.00

11.00

10.00

10.00

9.00

9.00

8.00

8.00

7.00

7.00

6.00

6.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

18

8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2% 1997

SEK per USD: Feb @ 8.099 5.00

10%

Retail Sales: Dec @ -1.0% 6-Month Moving Average: Dec @ 0.1%

Swedish Exchange Rate

-2% 1999

2001

2003

2005

5.00

Source: Global Insight, Bloomberg L.P. and Wachovia

2007

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Switzerland

Swiss Real GDP Bars = Compound Annual Rate

6.0%

Real GDP in Switzerland was essentially flat in the third quarter relative to the previous quarter. However, it would be premature to claim that Switzerland has escaped the fate of most other major economies, namely, recession. Indeed, the manufacturing PMI fell off a cliff at the end of last year, suggesting that overall GDP growth likely turned negative.

ƒ

Exports have fallen sharply over the past few months, but it appears that consumer spending is holding up fairly well, at least at this point. However, the unemployment rate rose from a 6-year low of 2.5% last summer to 2.8% in December. With labor market conditions deteriorating, it seems only a matter of time before consumer spending weakens as well.

ƒ

CPI inflation in Switzerland has receded sharply over the past few months, giving the Swiss National Bank (SNB) scope to cut rates by 225 bps since early October. Indeed, the SNB’s target for the 3-month LIBOR rate stands at only 0.50% at present.

ƒ

The Swiss franc has depreciated almost 15% on balance against the dollar since mid-summer as the outlook for the Swiss economy has deteriorated. In the near term, the dollar probably will strengthen further as investors anticipate recovery in the U.S. economy. However, we believe the greenback will give up its gains further out in our forecast period as the sluggish nature of the U.S. recovery becomes painfully apparent.

ƒ

Line = Yr/Yr % Change

6.0%

4.0%

4.0%

2.0%

2.0%

0.0%

0.0%

-2.0%

-2.0% Compound Annual Growth: Q3 @ 0.1% Year-over-Year Percent Change: Q3 @ 1.7%

-4.0%

-4.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Swiss Unemployment Rate Seasonally Adjusted

4.0%

4.0%

3.5%

3.5%

3.0%

3.0%

2.5%

2.5%

2.0%

2.0% Unemployment Rate: Jan @ 2.9%

1.5% 2001

1.5% 2002

2003

2004

2005

2006

2007

2008

2009

Swiss Consumer Price Index Year-over-Year Percent Change

3.5%

Swiss Exchange Rate CHF per USD

1.900

1.900

3.5%

3.0%

3.0%

1.800

1.800

2.5%

2.5%

1.700

1.700

2.0%

2.0%

1.600

1.600

1.5%

1.5%

1.500

1.500

1.400

1.400

1.0%

1.0%

1.300

1.300

0.5%

0.5%

1.200

1.200

1.100

1.100

1.000

1.000 CHF per USD: Feb @ 1.163

0.900 2001

0.0%

0.0% CPI: Jan @ 0.2%

-0.5%

-0.5% 1997

1999

2001

2003

2005

2007

2009

0.900 2002

2003

2004

2005

2006

2007

2008

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

19

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Brazil

Brazilian Real GDP Bars = Compound Annual Rate

12%

The Brazilian economy seemed like it bucked the global trend of weakening growth last year, with real GDP rising more than 7% in the third quarter of 2008. However, the economy appears to have hit an air-pocket in the fourth quarter as industrial production plunged 15.5% in December.

ƒ

The unfolding global recession appears to be contributing to the slowdown in Brazil. The volume of Brazilian exports fell nearly 9% in the fourth quarter relative to the same quarter in 2007. However, growth in domestic demand also is weakening. Growth in real retail sales slowed to 5.1% in November, a respectable rate indeed but the slowest pace in more than two years.

ƒ

Rising food and oil prices pushed up the rate of CPI inflation earlier last year. However, inflation is now starting to recede due to the collapse in energy prices since last summer and slowing growth in Brazil. Therefore, the central bank cut its policy rate by 100 bps in January, the first reduction in more than a year. Further easing in the months ahead seems likely.

ƒ

The Brazilian real has depreciated more than 30% since it rose to a nine-year high versus the dollar in August. Looking to the foreseeable future, we project that the real will weaken somewhat further vis-à-vis the greenback as the outlook for the Brazilian economy remains clouded. However, the real could strengthen anew later this year as the Brazilian economy recovers at a faster rate than the U.S. economy.

ƒ

Line = Yr/Yr % Change

12%

9%

9%

6%

6%

3%

3%

0%

0%

-3%

-3%

-6%

-6%

Compound Annual Growth: Q3 @ 7.4% Year-over-Year Percent Change: Q3 @ 7.1%

-9%

-9% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Brazilian Industrial Production Index Year-over-Year Percent Change

15%

15%

10%

10%

5%

5%

0%

0%

-5%

-5%

-10%

-10%

-15%

-15%

IPI: Dec @ -15.5% 3-Month Moving Average: Dec @ -6.1%

-20% 1997

-20% 1999

2001

2003

2005

2007

2009

Brazilian Policy Rate 30%

30%

25%

25%

20%

20%

15%

15%

Brazilian Exchange Rate BRL per USD

4.00

4.00

3.50

3.50

3.00

3.00

2.50

2.50

2.00

2.00

1.50

1.50

2000

BRL per USD: Feb @ 2.258 1.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

20

Policy Rate: Feb @ 12.66% 10%

10% 2001

2002

2003

2004

2005

2006

2007

1.00

Source: Global Insight, Bloomberg L.P. and Wachovia

2008

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

China

Chinese Real GDP Year-over-Year Percent Change

14.0%

The Chinese economy has slowed noticeably over the past six quarters. From a 13-year high of 12.8% in the second quarter of 2007, the year-over-year growth rate slowed to only 6.8% in the fourth quarter of 2008, the slowest rate in nine years.

ƒ

The downturn in the rest of the world is having a deleterious effect on the Chinese economy. Export s tumbled more than 17% (year-over-year) in January, in line with declines posted during the painful Asian economic crisis of the late 1990s. Growth in consumer spending has held up better, but it too is starting to show signs of deceleration as well.

ƒ

The Chinese economy will likely expand in 2009 at its slowest pace in almost 20 years. However, policymakers have been quick to respond to the obvious slowdown in the economy. The central bank has cut its benchmark lending rate by more than 200 bps since mid-September, and the central government has announced plans to accelerate infrastructure spending. Expansionary macroeconomic policy should help to support economic activity.

ƒ

The Chinese renminbi, which had gradually strengthened versus the dollar starting in mid-2005, has been essentially stable since last July. We believe that Chinese authorities will permit very little appreciation of the renminbi between now and the end of the year. However, the Chinese currency likely will resume its appreciation next year as the Chinese economy begins to strengthen.

ƒ

14.0%

12.0%

12.0%

10.0%

10.0%

8.0%

8.0%

6.0%

6.0%

4.0%

4.0%

2.0%

2.0% Year-over-Year Percent Change: Q4 @ 6.8%

0.0%

0.0% 2000

2002

2004

2006

2008

Chinese Trade 60.0%

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

60.0%

Exports: Dec @ 4.7% Imports: Dec @ -8.0%

50.0%

50.0%

40.0%

40.0%

30.0%

30.0%

20.0%

20.0%

10.0%

10.0%

0.0%

0.0%

-10.0% 2000

-10.0% 2001

2002

2003

2004

2005

2006

2007

2008

2009

Chinese Retail Sales

Chinese Exchange Rate CNY per USD

8.50

Year-over-Year Percent Change

30.0%

8.50

8.25

8.25

8.00

8.00

7.75

7.75

7.50

7.50

7.25

7.25

7.00

7.00

6.75

6.75

30.0%

25.0%

25.0%

20.0%

20.0%

15.0%

15.0%

10.0%

10.0%

5.0%

5.0%

CNY per USD: Feb @ 6.83 6.50 2005

Retail Sales: Nov @ 20.8% 6-Month Moving Average: Nov @ 22.6% 0.0%

0.0% 1997

1999

2001

2003

2005

2007

6.50 2006

2007

2008

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

21

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

India

Indian Real GDP Year-over-Year Percent Change

12.0%

Economic growth in India has moderated over the last few quarters. The 7.6% GDP growth rate registered in the third quarter was the slowest pace of expansion in four years. Unfortunately, the 2% decline in industrial production in December (year-over-year change) suggests that overall GDP growth slowed further at the end of last year.

ƒ

India is not a manufacturing powerhouse like China, but Indian producers have been hit hard by the global downturn. The value of Indian exports in the fourth quarter was off about eight% relative to the same period in 2007. In addition, it appears that consumer spending weakened in the fourth quarter as well. For example, auto sales in the fourth quarter were down 16% on a year-overyear basis.

ƒ

Sharp increases in food and energy prices earlier this year helped to push up CPI inflation, which is only now starting to recede. However, wholesale price inflation has tumbled sharply since last summer, meaning that further declines in CPI inflation should follow. In response to slower economic growth and easing inflationary pressures, the Reserve Bank of India has cut its main policy rate by 350 bps since mid-October.

ƒ

The Indian rupee fell to an all-time low versus the dollar late last year as the global credit crunch intensified. In the near term, the rupee could weaken a bit more as prospects for the Indian economy, and more broadly the global economy, remain clouded. However, the rupee could begin to claw its way back later this year as economic growth in India begins to strengthen.

ƒ

9.0%

9.0%

6.0%

6.0%

3.0%

3.0%

Year-over-Year Percent Change: Q3 @ 7.6% 0.0%

0.0% 2000

2002

2004

2006

Year-over-Year Percent Change

15.0%

12.5%

10.0%

10.0%

7.5%

7.5%

5.0%

5.0%

2.5%

2.5% 0.0%

0.0% 3-Month Moving Average: Dec @ 0.0%

-2.5%

-2.5% 1997

1999

2001

2003

2005

2007

Indian Consumer Price Index Year-over-Year Percent Change

20% CPI: Dec @ 9.7%

INR per USD

51.00

49.00

49.00

47.00

47.00

45.00

45.00

43.00

43.00

41.00

41.00

39.00

39.00

15%

15%

10%

10%

5%

5%

37.00

0%

0% 1997

INR per USD: Feb @ 48.616

22

15.0%

12.5%

Indian Exchange Rate

2000

2008

Indian Industrial Production Index

20%

51.00

12.0%

1999

2001

2003

2005

37.00 2002

2004

2006

2008

Source: Global Insight, Bloomberg L.P. and Wachovia

2007

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Mexico

Mexican Real GDP Year-over-Year Percent Change

7.0%

7.0%

Year-over-Year Percent Change: Q3 @ 1.6%

Mexican real GDP rose only 1.6% in the third quarter, the slowest year-over-year growth rate since the recession in the early years of this decade. The 5.4% decline in Mexican industrial production that occurred in November suggests that the year-over-year rate of GDP growth may have turned negative in the fourth quarter.

ƒ

The slowdown in the United States, to which 85% of Mexico’s exports are destined, is the primary reason why the Mexican economy appears to be sliding into recession. The total value of Mexican exports tumbled 20% in December. In addition, fewer remittances by Mexican workers in the United States may also be exerting a slowing effect on the Mexican economy.

ƒ

The overall rate of CPI inflation edged down from 6.5% in December to 6.3% in January. Although inflation remains well above the Bank of Mexico’s target of 3%, the recent decline and prospects of more to come due to economic weakness allowed the Bank to cut its policy rate by 50 bps on January 16. The Bank will probably ease policy further in the months ahead.

ƒ

The Mexican peso recently plunged to an all-time low versus the dollar as prospects for economic growth in Mexico have deteriorated. In our view, the peso will remain on the ropes until investors have more visibility regarding growth prospects in Mexico. However, we look for the peso to strengthen later this year as the outlook for the Mexican economy starts to brighten somewhat.

ƒ

6.0%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0% 2004

2005

2006

2007

2008

Mexican Merchandise Trade Balance Millions of USD, Not Seasonally Adjusted

$1,500

$1,500

$1,000

$1,000

$500

$500

$0

$0

-$500

-$500

-$1,000

-$1,000

-$1,500

-$1,500

-$2,000

-$2,000

-$2,500

-$2,500 Merchandise Trade Balance: Dec @ -$2,067

-$3,000

-$3,000

12-Month Moving Average: Dec @ -$1,403 -$3,500

-$3,500

1997

1999

2001

2003

2005

2007

Mexican Consumer Price Index Year-over-Year Percent Change

12%

12%

Mexican Exchange Rate MXN per USD

15.00

15.00

14.00

14.00

13.00

13.00

12.00

12.00

11.00

11.00

10.00

10.00

9.00

9.00

10%

10%

8%

8%

6%

6%

4%

4% CPI: Jan @ 6.3%

2000

MXN per USD: Feb @ 14.21 8.00 1999

2%

2% 2001

2002

2003

2004

2005

2006

2007

2008

2009

8.00 2001

2003

2005

2007

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

23

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Poland

Polish Real GDP Year-over-Year Percent Change

9.0%

9.0%

Year-over-Year Percent Change: Q3 @ 4.8%

Real GDP growth in Poland slipped to 4.8% in the third quarter, the slowest year-over-year growth rate in about three years. Industrial production fell 4.6% (year-overyear) in the fourth quarter, the sharpest downturn since statistics became available in 1994, suggesting that overall GDP growth slowed even further in the fourth quarter.

ƒ

As in most countries, the overall rate of CPI inflation shot higher this year, which led the National Bank of Poland (NBP) to tighten monetary policy. However, CPI inflation has receded over the past few months, and further declines seem likely due to the sharp drop in energy prices and economic weakness. In response, the NBP has cut its main policy rate by 175 bps since late November.

ƒ

Poland continues to incur a significant trade deficit. The current account deficit has swelled from less than 2% of GDP in 2005 to roughly 4% currently. Foreign direct investment has financed much of Poland’s current account deficit over the past few years, but with the global economy slipping into its worst recession in decades it seems likely that FDI will weaken somewhat in the quarters ahead.

ƒ

The Polish zloty has lost about 40% of its value against the dollar since mid-July as the Polish economic outlook has deteriorated and as investors have questioned the resilience of FDI inflows. We forecast that the zloty will depreciate further in the near term. However, the zloty could rebound versus the greenback later this year as Polish economic prospects begin to improve.

ƒ

6.0%

6.0%

3.0%

3.0%

0.0%

0.0%

1995

1997

1999

2001

2003

2005

2007

Polish Merchandise Trade Balance Millions of USD, Not Seasonally Adjusted

$0

$0

-$1,000

-$1,000

-$2,000

-$2,000

-$3,000

-$3,000

-$4,000

-$4,000

-$5,000

-$5,000

-$6,000

-$6,000

-$7,000

-$7,000

-$8,000

-$8,000

-$9,000

-$9,000

-$10,000

-$10,000

Merchandise Trade Balance: Nov @ -$8,340 M

-$11,000

-$11,000 1997

1999

2001

2003

2005

2007

Polish Consumer Price Index Polish Exchange Rate 5.000

4.500

4.500

4.000

4.000

3.500

3.500

3.000

3.000

2.500

2.500

2.000

2.000

1.500

24

10.0%

10.0%

8.0%

8.0%

6.0%

6.0%

4.0%

4.0%

2.0%

2.0%

0.0% 2000

USD per PLN: Feb @ 3.501 1999

12.0% CPI: Dec @ 3.3%

PLN per USD

5.000

Year-over-Year Percent Change

12.0%

0.0% 2001

2002

2003

2004

2005

2006

2007

1.500 2001

2003

2005

2007

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

2008

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Russia

Russian Real GDP Year-over-Year Percent Change

10%

ƒ

ƒ

Russian GDP rose 6.2% in the third quarter of 2008, the slowest year-over-year growth rate in three years. Moreover, industrial production declined 10.3% in December, which is probably the sharpest contraction since the economic crisis of 1998-99. Indeed, Russia is suffering through a financial crisis of sorts at present. During the oil price boom of the past few years the Russian economy was booming. Russian banks became very leveraged and funded themselves via capital inflows from abroad. However, the global credit crunch has led to significant strains in the Russian banking system that has led to the sharp downturn in the Russian economy.

10%

9%

9%

8%

8%

7%

7%

6%

6%

5%

5%

4%

4% Year-over-Year Percent Change: Q3 @ 6.2%

3%

3% 2001

2002

2003

2004

2005

2006

2007

2008

Russian Merchandise Trade Balance ƒ

ƒ

CPI inflation, which shot up to a six-year high last summer, is starting to recede due in part to the marked decline in oil prices. However, lower oil revenues have caused Russian trade surplus to shrink rapidly. The central bank still has ample foreign exchange reserves (almost $400 billion), but the level of reserves has dropped more than $200 billion since late July. The Russian ruble has lost about 35% of its value against the dollar since mid-July as Russian banks have scrambled for dollar funding. In our view, the Russian currency could fall even further in the near term. Sooner or later, however, the currency will bounce, and we look for the ruble to gradually appreciate later this year as the storm raging in Russian financial markets begins to subside.

Billions of USD, Seasonally Adjusted

$20

$20

Merchandise Trade Balance: Dec @ $4.6

$18

$18

$16

$16

$14

$14

$12

$12

$10

$10

$8

$8

$6

$6

$4

$4

$2

$2 $0

$0 1999

2001

2003

2005

2007

Russian Consumer Price Index Year-over-Year Percent Change

20.0%

20.0%

Russian Exchange Rate RUB per USD

38.000

38.000

36.000

36.000

34.000

34.000

32.000

32.000

30.000

30.000

28.000

28.000

26.000

26.000

24.000

24.000

15.0%

15.0%

10.0%

10.0%

CPI: Jan @ 13.4% 2002

RUB per USD: Feb @ 36.222 22.000 2001

5.0%

5.0% 2003

2004

2005

2006

2007

2008

2009

22.000 2002

2003

2004

2005

2006

2007

2008

Source: Global Insight, Bloomberg L.P. and Wachovia

25

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Singapore

Singapore Real GDP Year-over-Year Percent Change

15.0%

Real GDP in Singapore fell 3.7% in the fourth quarter, the sharpest rate of contraction since the “tech” recession earlier this decade. A break down of real GDP in the fourth quarter into its underlying demand components is not yet available. However, monthly data show that growth in export volumes slipped into negative territory during the fourth quarter for the first time in seven years. Singapore has one of the most open economies in the world, and slower export growth weighs significantly on economic activity in the city-state.

ƒ

ƒ

ƒ

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0% Year-over-Year Percent Change: Q4 @ -3.7%

The downturn in export growth has caused the unemployment rate to rise modestly over the past few months. Although growth in real consumer spending showed few signs of slowing through the third quarter of last year, deterioration in labor market conditions should lead to weaker growth in consumer spending over the next few quarters.

-10.0%

CPI inflation shot up earlier this year due to the combination of an increase in the goods and service tax and higher food and energy prices. However, the yearover-year rate of CPI inflation is now starting to recede.

30.0%

30.0%

10.0%

10.0%

-10.0%

-10.0%

Because the city-state is such an open economy, the Monetary Authority of Singapore manages the exchange value of the Singapore dollar versus a basket of currencies. The generalized rise of the U.S. dollar since last summer has translated into an appreciation of the greenback vis-àvis the Singapore dollar. Although the greenback probably will strengthen further in the near term, we look for the Singapore dollar to regain its footing later this year.

ƒ

-10.0% 2000

2002

Singapore Exchange Rate SGD per USD

1.900

1.900

1.800

1.800

1.700

1.700

1.600

1.600

1.500

1.500

2004

2006

50.0%

3-Month Moving Average, Year-over-Year Percent Change

-30.0% 1996

1.400

1998

2000

2002

2004

SGD per USD: Feb @ 1.495 1997

2006

Year-over-Year Percent Change

8.0%

7.0%

7.0%

6.0%

6.0%

5.0%

5.0%

4.0%

4.0%

3.0%

3.0%

2.0%

2.0%

1.0%

1.0%

0.0%

0.0% CPI: Dec @ 4.3%

2001

2003

2005

2007

2009

-1.0% -2.0%

-2.0% 1999

2001

2003

2005

2007

1.300 1999

-30.0%

2008

Singapore Consumer Price Index

1997

1.300

50.0%

Real Exports: Dec @ -7.1% Real Imports: Dec @ 0.2%

-1.0% 1.400

2008

Singapore Volume of Imports and Exports

8.0%

26

15.0%

Source: Global Insight, Bloomberg L.P. and Wachovia

2009

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

South Africa

South African Real GDP Bars = Compound Annual Rate

7.5%

Real GDP in South Africa rose only 3.0% in the third quarter, the slowest year-over-year growth rate in five years. Unfortunately, data on industrial production, which slumped more than 8% in December, suggest that overall GDP growth weakened even further in the fourth quarter. Although export growth has slowed over the past few years, the most important source of the slowdown in South Africa has been consumer spending. The sharp rise in CPI inflation over the past year or so may be contributing to slower growth in real consumer spending via its deleterious effect on real income growth. Indeed, growth in real retail sales has turned negative over the past few months.

ƒ

CPI inflation rose into double-digit territory last year, but it is starting to recede rapidly. The South African Reserve Bank, which had been raising rates, has cut rates by 150 bps since December on the expectation that inflation will decline further.

ƒ

South Africa is incurring a sizeable current account deficit at present (about 8% of GDP). That, along with the previous rise in inflation, are signs that the economy was running too hot. Significant real exchange rate appreciation over the past few years has also contributed to the blowout in South Africa’s current account deficit.

ƒ

The South African rand weakened sharply last autumn as the global credit crunch intensified. We believe that the rand will remain weak in the near term, but project that it will regain its footing later this year or early next year as global growth prospects begin to improve.

ƒ

5.0%

2.5%

2.5%

Compound Annual Growth: Q3 @ 0.2% Year-over-Year Percent Change: Q3 @ 3.0%

0.0% 2000

2001

2002

2003

2004

2005

0.0% 2006

2007

2008

South African Industrial Production Index 15.0%

Manufacturing, Year-over-Year Percent Change

15.0%

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0% IPI: Dec @ -8.2% 3-Month Moving Average: Dec @ -5.5%

-10.0% 1999

-10.0% 2001

2003

2005

2007

South African Consumer Price Index

South Africa Exchange Rate

Year-over-Year Percent Change

15.0%

CPI: Dec @ 9.5%

Rand per USD

13.000

12.000

12.000

11.000

11.000

10.000

10.000

9.000

9.000

8.000

8.000

7.000

7.000

6.000

6.000 RND per USD: Feb @ 9.566

12.0%

12.0%

9.0%

9.0%

6.0%

6.0%

3.0%

3.0%

0.0% 1997

0.0% 1999

2001

2003

2005

2007

2009

5.000

5.000 2000

7.5%

5.0%

15.0%

13.000

Line = Yr/Yr % Change

2001

2002

2003

2004

2005

2006

2007

2008

Source: Global Insight, Bloomberg L.P. and Wachovia

27

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

South Korea

South Korean Real GDP Bars = Compound Annual Rate

20.0%

Real GDP in Korea plunged at an annualized rate of 20.8% in the fourth quarter relative to the previous quarter, nearly as bad as the contraction registered in the first quarter of 1998 following the implosion of Korea’s financial system in the autumn of 1997.

ƒ

The country’s trade surplus has disappeared as export growth has tumbled. Indeed, the value of Korea’s exports plunged more than 30% in January relative to the same month in 2008. However, growth in domestic demand has also turned negative with retail spending trade down nearly 6% in December. Like their American counterparts, consumers in Korea are rather leveraged and consumption expenditures probably will remain very weak for the foreseeable future.

ƒ

CPI inflation, which rose to a 10-year high of 5.9% in July, has subsequently receded sharply as energy prices have collapsed and as the economy has weakened markedly. The Bank of Korea has slashed rates by 325 bps since early October. Its main policy rate currently stands at an all-time low of 2.00% and further easing seems likely.

ƒ

The won tumbled to a 10-year low versus the dollar last autumn as the global credit crunch intensified. The won has stabilized recently, albeit at low levels against the dollar. The won likely will remain weak in the near term as the Korean economy continues to contract. However, the won could regain its footing and begin to strengthen later this year or early next year as Korean growth prospects begin to improve somewhat.

ƒ

Line = Yr/Yr % Change

20.0%

Compound Annual Growth: Q4 @ -20.8% Year-over-Year Percent Change: Q4 @ -3.6%

15.0%

15.0%

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0%

-10.0%

-10.0%

-15.0%

-15.0%

-20.0%

-20.0%

-25.0%

-25.0% 2000

2002

2004

2006

2008

South Korean Merchandise Trade Balance Billions of USD, Not Seasonally Adjusted

$4.0

$4.0

$3.0

$3.0

$2.0

$2.0

$1.0

$1.0

$0.0

$0.0

-$1.0

-$1.0

-$2.0

-$2.0

-$3.0

-$3.0

-$4.0

-$4.0 Merchandise Trade Balance: Jan @ $-3.0

-$5.0

-$5.0

1997

1999

2001

2003

2005

2007

2009

South Korean Retail Sales Year-over-Year Percent Change

17.5%

South Korean Exchange Rate KRW per USD

1,500

15.0% 1,500

1,400

1,400

1,300

1,300

1,200

1,200

1,100

1,100

1,000

1,000

1999

28

12.5%

10.0%

10.0%

7.5%

7.5%

5.0%

5.0%

2.5%

2.5%

0.0%

0.0%

-2.5%

-2.5%

-5.0%

-5.0% -7.5%

-7.5% 2002

2003

2004

2005

2006

2007

900

900 2001

2003

2005

2007

2009

15.0%

12.5%

2001

KRW per USD: Feb @ 1,370.3

17.5%

Retail Sales: Dec @ -5.6% 6-Month Moving Average: Dec @ -1.9%

Source: Global Insight, Bloomberg L.P. and Wachovia

2008

2009

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Taiwan

Taiwanese Real GDP Year-over-Year Percent Change

10.0%

Real GDP data for the last quarter of 2008 have not been released yet, but the 24% decline (year-over-year rate) in industrial production in the fourth quarter does not bode well for overall GDP growth. Indeed, the 4% decline in GDP that occurred in the third quarter of 2001 in the wake of the “tech” crash could easily be surpassed.

ƒ

Growth in Taiwan has been driven by exports over the past few years, and the sharp downturn in the global economy has imparted a nasty shock to the Taiwanese economy. In addition, growth in domestic demand, which already had been rather lackluster, has weakened further recently. Indeed, real retail spending fell nearly 7% in the fourth quarter relative to the same period during the preceding year.

ƒ

CPI inflation, which shot up to a 14-year high of 5.8% in July, has fallen sharply over the past few months to only 1.6% currently. The central bank has cut its main policy rate by more than 200 bps since late September (it currently stands at only 1.50%), and further easing seems likely in the months ahead. In addition, the government has announced some fiscal stimulus measures that may eventually reduce the rate of deterioration in the economy

ƒ

The Taiwanese dollar has lost more than 10% of its value against the U.S. dollar since mid-July as the Taiwanese economic outlook has deteriorated sharply. In the near term, we project that the Taiwanese dollar will continue to trend gradually lower. However, the Taiwanese dollar could begin to strengthen modestly later this year as the Taiwanese economy stabilizes and starts to grow again.

ƒ

10.0%

7.5%

7.5%

5.0%

5.0%

2.5%

2.5%

0.0%

0.0%

-2.5%

-2.5% Year-over-Year Percent Change: Q3 @ -1.0%

-5.0%

-5.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

Taiwanese Industrial Production Index Year-over-Year Percent Change

40.0%

40.0%

30.0%

30.0%

20.0%

20.0%

10.0%

10.0%

0.0%

0.0%

-10.0%

-10.0%

-20.0%

-20.0%

-30.0%

-30.0%

IPI: Dec @ -32.3% 6-Month Moving Average: Dec @ -24.4%

-40.0% 1997

-40.0% 1999

2001

2003

2005

2007

2009

Taiwanese Export & Import Volumes 30.0%

Year-over-Year Percent Change, 3-Month Moving Average

30.0%

Taiwanese Exchange Rate TWD per USD

36.00

20.0%

20.0%

35.00

35.00

10.0%

10.0%

34.00

34.00

0.0%

0.0%

33.00

33.00

-10.0%

32.00

32.00

-20.0%

36.00

TWD per USD: Feb @ 33.661

-10.0%

-20.0% Volume of Exports: Dec @ -24.1%

31.00

31.00

Volume of Imports: Dec @ -22.8% -30.0% 1997

2001

2003

2005

2007

30.00

30.00 1999

-30.0% 1999

2001

2003

2005

2007

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

29

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Turkey

Turkish Real GDP Year-over-Year Percentage Change

12.5%

•

•

•

Real GDP growth in Turkey barely expanded in the third quarter, rising only 0.5% relative to the same period in 2007. Overall GDP growth probably slipped into negative territory in the fourth quarter judging by the 13% decline in industrial production that was registered during the quarter. Not only has export growth turned negative recently, but consumer spending and investment spending have both turned down in the past few quarters.

10.0%

10.0%

7.5%

7.5%

5.0%

5.0%

2.5%

2.5%

Inflation was the big issue throughout most of 2008, but the year-over-year rate has receded somewhat in recent months due to economic weakness and the collapse in energy prices. The central bank, which had been tightening policy earlier in 2008, has cut rates by 375 bps since midNovember. More easing likely will occur in the months ahead. Turkey’s external accounts have deteriorated over the past few years. The country’s current account deficit currently stands around 5% of GDP, the highest ratio in decades. Large current account deficits, which must be financed by capital inflows from abroad, make the country vulnerable to the whims of risk-averse investors. The Turkish lira rose to a seven-year high versus the greenback last August, but it has subsequently lost about 30% of its value against the dollar as the global economic outlook has deteriorated significantly. We project that the lira will remain weak against the greenback, at least in the near term, as Turkish growth prospects remain poor. However, the lira could begin to appreciate against the dollar later this year as investors begin to anticipate economic recovery in Turkey.

ƒ

12.5%

0.0%

0.0%

-2.5%

-2.5%

-5.0%

-5.0%

-7.5%

-7.5%

-10.0%

Year-over-Year Percent Change: Q3 @ 0.5%

-12.5%

-12.5% 2000

TRY per USD

1.800

2001

2002

2003

2004

2005

2006

2007

2008

Turkish Industrial Production Index Year-over-Year Percent Change

25.0%

25.0%

IPI: Dec @ -17.6% 3-Month Moving Average: Dec @ -12.5%

20.0%

20.0%

15.0%

15.0%

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0%

-10.0%

-10.0%

-15.0%

-15.0%

1997

1999

2001

2003

2005

2007

Turkish Merchandise Trade Balance $0

Turkish Exchange Rate

-10.0%

Millions of USD, Not Seasonally Adjusted

$0

-$1,000

-$1,000

-$2,000

-$2,000

-$3,000

-$3,000

-$4,000

-$4,000

-$5,000

-$5,000

-$6,000

-$6,000

-$7,000

-$7,000

1.800

1.600

1.600

1.400

1.400

1.200

1.200

1.000

1.000

0.800

0.800

-$8,000

-$8,000 Merchandise Trade Balance: Dec @ -3,585.6 USD

0.600

0.600

1997

TRY per USD: Feb @ 1.618 0.400 2000

30

-$9,000

-$9,000 1999

2001

2003

2005

2007

0.400 2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: Global Insight, Bloomberg L.P. and Wachovia

Global Chartbook: February 2009 February 12, 2009

SPECIAL COMMENTARY

Energy Markets

Crude Oil NYMEX Front-Month Contract, Dollars per Barrel

$160

Crude oil prices fell sharply last year as the global economy weakened significantly in the wake of the credit crunch. The collapse was exacerbated by the unwinding of speculative positions that contributed to the moon-shot in crude prices earlier in the year. Crude prices remain depressed today because of ample inventories. Indeed, U.S. inventories are currently 15% above their levels at this time last year. Distillate stocks are also elevated at present, up about 10% on a year-over-year basis.

ƒ

Gasoline prices have followed crude prices lower. However, prices of the former have not come down as much as the latter because stocks of gasoline aren’t as ample as crude inventories at present. Indeed, gasoline inventories are 3% lower than they were at the same time last year.

ƒ

Natural gas has not been immune to the same forces that have driven oil prices over the past year. Indeed, the price of natural gas in the United States is down more than 65% from its peak last July. Gas in storage is up 5% over the past year which has helped to put downward pressure on natural gas prices.

ƒ

Until global economic activity starts to strengthen, it is hard to envision a significant increase in energy prices. We project that crude prices will remain roughly flat for the remainder of the year before rising somewhat next year as modest growth returns to the global economy.

ƒ

$160

$140

$140

$120

$120

$100

$100

$80

$80

$60

$60

$40

$40

$20

$20 Crude Oil: Feb @ $40.17

$0 2000

2001

2002

2003

$0 2004

2005

2006

2007

2008

2009

Crude Oil Inventory Year-over-Year Percent Change

20.0%

20.0%

15.0%

15.0%

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0%

-10.0%

-10.0%

-15.0% -20.0% 2005

-15.0% Oil Inventory: Jan @ 15.3% 2006

-20.0% 2007

2008

2009

Gasoline Inventory 15.0%

Natural Gas $16

Henry Hub Spot, Dollars per MMBTU

$16

$14

$14

$12

$12

$10

$10

$8

$8

$6

$6

$4

$4

$2

$2 Natural Gas: Feb @ $4.75

15.0%

10.0%

10.0%

5.0%

5.0%

0.0%

0.0%

-5.0%

-5.0%

-10.0%

-10.0%

-15.0% 2005

Gasoline Inventories: Feb @ -5.1% 2006

2007

-15.0% 2008

2009

$0

$0 2005

Year-over-Year Percent Change

2006

2007

2008

2009

Source: Moody’s Economy.com and Wachovia

31

Wachovia Economics Group

John E. Silvia, Ph.D.

Chief Economist

(704) 374-7034

[email protected]

Mark Vitner

Senior Economist

(704) 383-5635

[email protected]

Jay H. Bryson, Ph.D.

Global Economist

(704) 383-3518

[email protected]

Sam Bullard

Economist

(704) 383-7372

[email protected]

Anika Khan

Economist

(704) 715-0575

[email protected]

Azhar Iqbal

Econometrician

(704) 383-6805

[email protected]

Adam G. York

Economic Analyst

(704) 715-9660

[email protected]

Tim Quinlan

Economic Analyst

(704) 374-4407

[email protected]

Kim Whelan

Economic Analyst

(704) 715-8457

[email protected]

Yasmine Kamaruddin

Economic Analyst

(704) 374-2992

[email protected]

Wachovia Corporation Economics Group publications are distributed by Wachovia Corporation directly and through subsidiaries including, but not limited to, Wachovia Capital Markets, LLC, Wachovia Securities, LLC and Wachovia Securities International Limited. The information and opinions herein are for general information use only. Wachovia does not guarantee their accuracy or completeness, nor does Wachovia assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. © 2009 Wachovia Corp.