1. Is the global recovery stalling? October 2010 Adrian Cooper acooper@oxfordeconomics.com

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3. Our track record

4. Global growth better than expected in 2010

5. World trade has bounced back very strongly

6. Two key points There is still a very high level of uncertainty about the outlook, especially in the US and Europe The recession was driven by the corporate sector and the shape of the recovery will depend on how corporates react in different countries

7. US weaker than Europe in Q2…

8. …although Europe still lagging US recovery

9. Why has the US recovery slowed? Q2 pulled down by surging imports and easing of restocking cycle Domestic demand was still strong And many recent indicators encouraging Two main areas of worry: ■Housing sector is still a mess ■Jobs recovery disappointing

10. Why has the US recovery slowed? Q2 pulled down by surging imports and easing of restocking cycle Domestic demand was still strong And many recent indicators encouraging Two main areas of worry: ■Housing sector is still a mess ■Jobs recovery disappointing

11. US domestic demand still strong in Q2

12. Why has the US recovery slowed? Q2 pulled down by surging imports and easing of restocking cycle Domestic demand was still strong And many recent indicators encouraging Two main areas of worry: ■Housing sector is still a mess ■Jobs recovery disappointing

13. ISM points to sustained healthy growth

14. Why has the US recovery slowed? Q2 pulled down by surging imports and easing of restocking cycle Domestic demand was still strong And many recent indicators encouraging Two main areas of worry: ■Housing sector is still a mess ■Jobs recovery disappointing

15. Why has the US recovery slowed? Q2 pulled down by surging imports and easing of restocking cycle Domestic demand was still strong And many recent indicators encouraging Two main areas of worry: ■Housing sector is still a mess ■Jobs recovery disappointing

16. Why has the US recovery slowed? Q2 pulled down by surging imports and easing of restocking cycle Domestic demand was still strong And many recent indicators encouraging Two main areas of worry: ■Housing sector is still a mess ■Jobs recovery disappointing

17. But corporates are still not hiring in the US…

18. Strong productivity promised jobs rebound…

19. …given US productivity level very high

20. Why aren’t companies hiring in the US? Long-term unemployment encouraged by more generous benefits? Job losses concentrated in construction and outlook in this sector is bleak Regional mismatch between labour demand and supply Uncertainty

21. Why aren’t companies hiring in the US? Long-term unemployment encouraged by more generous benefits? Job losses concentrated in construction Regional mismatch between labour demand and supply Uncertainty

22. Why aren’t companies hiring in the US? Long-term unemployment encouraged by more generous benefits? Job losses concentrated in construction Regional mismatch between labour demand and supply Uncertainty

23. Changes in US unemployment - worst & best

24. Why aren’t companies hiring in the US? Long-term unemployment encouraged by more generous benefits? Job losses concentrated in construction Regional mismatch between labour demand and supply Uncertainty

25. Bernanke on uncertainty Statement to Senate Banking Committee, 22 July: "Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain.“ Keynote speech at Jackson Hole, Wyoming, 27 August: “…macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.”

26. The recession wasn’t consumer driven in US…

27. …and even less so in Germany

28. Nor were bank job cuts as bad as feared

29. Corporates have driven the cycle – in the US…

30. …and globally, then magnified through trade

31. Corporate sector now running big surpluses

32. Partly that is banks…

33. …but critically it is also non-financials

34. Government retrenchment intensifying…

35. …amid threat of Eurozone sovereign debt crisis

36. And households constrained not only by debt… Eurozone

37. …but also the weak labour market…

38. …and squeeze on real wages as well as higher taxes

39. Financial surpluses here for extended period

40. So consumers will lag rather than lead recovery

41. Corporate surpluses normally get spent in US…

42. …and elsewhere

43. We are seeing some recovery in M&A

44. What might hold companies back this time? Unusual uncertainty Excess capacity Debt Credit constraints

45. What might hold companies back this time? Unusual uncertainty Excess capacity Debt Credit constraints

46. Excess capacity holding back investment Eurozone: Capacity utilisation and real non- residential investment US: Capacity utilisation and real non- residential investment

47. What might hold companies back this time? Unusual uncertainty Excess capacity Debt Credit constraints

48. Companies seeking to pay down debt

49. What might hold companies back this time? Unusual uncertainty Excess capacity Debt Credit constraints

50. Corporate lending very weak

51. Forecast takes a hopeful view on investment for US

52. Subdued recovery for major economies

53. Interest rates to remain low for some time

54. Emergers leading recovery despite slowing in some

55. Consumption is robust in China…

56. …pulling up rest of Asia…

57. …and supporting Asian consumer

58. Low debt levels gives plenty of fiscal scope… deficit as % of GDP

59. …and credit taps can turn on quickly if needed

60. But pull from China’s imports is easing…

61. …pressure coming from stronger currencies…

62. …and dependence on OECD still significant

63. Corporate recovery Renewed crisis ■Threat of double-dip means renewed slump in asset prices as Eurozone sovereign debt crisis re-emerges ■Pressure to cut budget deficits rapidly in all major economies ■Rising unemployment and business failures feed back into banking ■Limited scope for monetary policy offset Sub-par recovery ■Business optimism remains low and corporates continue to hoard cash ■Investment and job growth is modest as capacity is underutilised ■Monetary policy supports banking sector but fiscal coffers are empty ■Easier credit conditions mean benefits of loose monetary policy feeds through to a stronger housing and consumer recovery Financial sector recovery Outlook still highly uncertain Renewed global boom ■Strong corporate liquidity feeds into new investment boom ■Faster growth boosts business and consumer confidence, and trade multiplier magnifies upturn ■Bank balance sheets improve quickly and credit growth resumes ■Strong growth boosts tax revenues/cuts social security payments, helping fiscal consolidation Oxford forecast ■Gradual rise in business confidence encourages corporates to invest ■But weak banks combined with excess capacity limit scale of investment recovery ■Consumer spending recovery limited by pace of job growth and fiscal retrenchment ■But recovery strong enough that fiscal crisis remains contained

64. Oxford Economics’ forecast scenarios

65. Oxford Economics’ forecast

66. Singapore: Overview Advance Q3 GDP showed a 19.8% drop, the worst on record and driven by a sharp slowdown in manufacturing, in particular the biomedical sector. Annual growth halved from 19.6% in Q2 to 10.3% in Q3 although the still economy remains on track to meet the governments forecast of growth between 13 and 15% this year. With Chinese imports now less buoyant and growth faltering in the EU and the US, we expect export growth to slow markedly in the coming months. The Monetary Authority of Singapore tightened monetary policy this month. Property prices were 23% up on a year ago in Q3. The authorities recently announced a series of measures aimed at cooling the property market. Tourist arrivals have been buoyant this year, boosting by hosting the Youth Olympic games and by the opening of two new casino complexes. The authorities are targeting 17m tourist arrivals by 2015, up from 9.7m last year.

67. Singapore: GDP growth slowing after H1 surge

68. Singapore: H1 activity was strong across the board

69. Singapore: Manufacturing now slowing sharply

70. Singapore: House prices soaring

71. Singapore: Tourist arrivals buoyant

72. Malaysia: Overview National accounts data showed that GDP growth slowed to 8.9% in Q2, a stronger performance than had been expected. GDP growth is expected to moderate in the second half of the year but consumer spending should be less affected than the more export-oriented sectors. Robust domestic demand boosted the import recovery to such an extent that net exports subtracted from growth throughout the recovery period Malaysia is very vulnerable to developments abroad, particularly in China, the main destination for its exports behind Singapore. The uncertain outlook for the global economy means quarterly growth is likely to be much more modest in 2010H2 than in H1. Bank Negara have already raised rates three times this year. We expect one more increase in Q4. The fiscal deficit hit a twenty year high of 7% of GDP last year and the government is hoping to reduce it to 5.6% this year.

73. Malaysia: strong recovery starting to slow

74. Malaysia: Strong imports hindered net exports

75. Malaysia: Recovery lagged neighbours

76. Malaysia: Exports now slowing sharply

77. Malaysia: Government keen to reduce the deficit

78. Bank Lending: Strong recovery this year

79. Exchange Rates: Rapid gains in recent months