1. What’s on an investor’s mind? Stephen Blackman, RBS Group Economics

2. Slide 2 Three questions What is the likely path of global growth? Why does macro matter so much to investors? Where would you put your last penny? Slides available from: stephen.blackman@rbs.com or http://www.rbs.comstephen.blackman@rbs.comhttp://www.rbs.com

3. Slide 3 Balance of economic power was already shifting Source: IMF

4. Slide 4 But there’s a long way to go, or loads of scope left, depending on view point Source: IMF

5. Slide 5 Four post-crisis scenarios: the UK case Slow Grind Higher “U” Return of Instability “W” Cyclical Recovery “V” Deflation “L” High supply, High productivity Low Supply, Low productivity High demand – stimulus works Weak demand - stimulus fails 20092008 2010

6. Slide 6..but different regions, different challenges Japan US UK Eurozone Emerging Asia Ireland Germany Low Supply, Low productivity High supply, High productivity High demand – stimulus works Weak demand - stimulus fails

7. Slide 7 Developed counties could face a V – or a W! Source: OECD

8. Slide 8 Over 2010 consensus become less optimistic about the US Distribution of Consensus Forecasts for 2011 Source: Consensus Forecasts 0.0%0.5%1.0%1.5% 2.0%2.5%3.0%3.5% 4.0% 4.5% Forecast Growth 2011 January 2010 November 2010

9. Slide 9 And for the UK too...though 2010 performed better Source: Consensus Forecasts Distribution of Consensus Forecasts for 2011 0.0%0.5%1.0%1.5% 2.0%2.5%3.0%3.5% 4.0% 4.5% Forecast Growth 2011 January 2010 November 2010

10. Slide 10 US yields brought lower - QE works Source: US Department of the Treasury US Government Debt 10Y Treasury Yields +20% -200bps

11. Slide 11 To L and back again - deflation fears recede Source: Datastream

12. Slide 12 Yet UK inflation is more volatile – led by the import of goods Source: ONS; Bank of England

13. Slide 13 As global prices may keep on rising 0 20 40 60 80 100 120 140 160 200020022004200620082010 Real Oil Prices (2008 $ Dollars) Source: Datastream; FAO

14. Slide 14 W: So are investors betting against monetary debasement and inflation? Source: World Gold Council; Bureau of Labour Statistics

15. Slide 15 U: Sovereign debt issues are spooking investors -200 0 200 400 600 800 1000 19951996199719981999 200020012002200320042005200620072008 2009 2010 Greece Ireland Portugal Spain Government Bond Spreads Relative to German Bunds (Bps) Benefit of Euro Entry Source: Datastream

16. Slide 16 UK has a flexible (and competitive) exchange rate Source: Datastream; Matt at The Telegraph Group

17. Slide 17 But can we sell to the fastest growing economies? Slide 17 UK Exports by Destination, 2009 But only 5% of our exports currently goes to Brazil, Russia, India and China EU 55% Others 16% USA 15% BRICs 5% Other G20 9% Source: ONS

18. Slide 18 U: its likely to be a slow grind higher..... Source: ONS; Group Economics

19. Slide 19 Where wo u ld yo u p u t yo u r money? -1% 1% 6% 7% 14% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% EquitiesCashCom PropCorp Bonds TreasuriesGold Real Gain per Year (%) US Real Investment Returns for past 5 years -3% 1% 5% 2% 6% 10% US Real Investment Returns for past 10 years Source: Datastream; World Gold Council; PMA

20. Slide 20 And where has the money gone? Source: IMA -£5 £0 £5 £10 £15 £20 £25 £30 200520062007200820092010e Guaranteed Property Balanced Bond Equity Retail investment in unit trusts (net £ billions)

21. Slide 21 Thank You and Questions

22. Slide 22 Legal disclaimer This material is published by The Royal Bank of Scotland plc (“RBS”) which is authorised and regulated by the Financial Services Authority for the conduct of regulated activities in the UK. It has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments, other financial instruments or related derivatives (“Securities”). It should not be reproduced or disclosed to any other person, without our prior consent. This material is not intended for distribution in any jurisdiction in which its distribution would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBS makes no representation, express or implied, nor does it accept any responsibility or liability of any kind, with regard to the accuracy or completeness of this information. Unless otherwise stated, any views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the RBS Group’s Group Economics Department, as of the date of publication of this material and are subject to change without notice. Recipients of this material should make their own independent evaluation of this information and make such other investigations as they consider necessary (including obtaining independent financial advice), before acting in reliance on this information. This material should not be regarded as providing any specific advice. RBS accepts no obligation to provide any advice or recommendations in respect of the information contained in this material and accepts no fiduciary duties to the recipient in relation to this information.

23. Slide 23 Technology and energy attract investors’ attention Survey of fund managers Source: Bank of America Merrill Lynch Fund Manager Survey