1. Global economic forecast May 13th 2011

2. GDP growth softened to 1.8% in the first quarter as consumer spending and confidence was hit by oil gasoline prices. Persistently high unemployment is a serious concern, but firms should be more willing to hire this year The deleveraging process still has several years to run and will weigh on medium-term economic growth. A large overhang of houses will prevent a recovery of the property market

3. A strong first quarter augurs well for Germany and the core but fiscal austerity and high borrowing costs will hold back the periphery Rumours of a Greek debt restructuring are gaining currency. The ECB is opposed to this. Greece will not regain access to the markets and will need a second EU/IMF loan. Portugal received a €78bn bailout in May 2011. We expect Spain to meet its funding needs in the markets

4. The March 11 th earthquake and tsunami are having a servere impact on power supplies and supply chains We have revised down our 2011 GDP forecast to 1%. The second quarter will be dire but we expect a rebound in the second half, boosted by reconstruction activity Coordinated international action was taken in March to stem the appreciation of the yen

5. In China massive stimulus has aggravated existing imbalances. Further tightening of monetary policy is needed to tame inflation. Elsewhere in the emerging world, monetary tightening is needed to check inflation. Growth is expected to remain strong on the back of robust domestic demand Brazil will slow as the cental bank tightens policy to control inflation Russia’s recovery will be supported by higher oil prices

6. Oil consumption will continue to grow strongly in 2011, led by the developing world. Consumption is expected to fall in the EU and Japan Despite the collapse of Libyan output, significant spare capacity in OPEC suggests ample supply. However, any escalation in geopolitical tensions could disrupt our supply forecasts Loose global monetary conditions and investors’ search for return will support prices

7. Demand is expected to weaken as monetary tightening bites in the developing world and as stimulus is withdrawn in the EU However, rising emerging market incomes and urbanisation will underpin medium-term demand growth Years of underinvestment, particularly in agriculture, will support prices Gold prices will come under pressure in 2012 as interest rates start to rise and investors reduce their holdings

8. Amid high unemployment the Federal Reserve will not raise its policy rate until the third quarter of 2012 The ECB raised its policy rate by 25 basis points to 1.25% in April. We expect gradual rate increases in the rest of 2011 and 2012 The ECB is keen to cease its emergency purchases of peripheral eurozone government bonds Japanese policy rates will be held at emergency levels until late 2012

9. The euro is being supported by a positive interest differential in relation to the dollar, despite debt stresses in the eurozone periphery The yen will be supported by Japanese institutional investors’ home bias but a declining domestic savings rate will make it vulnerable in the medium term Emerging market currencies will continue to be supported by wide interest rate and growth differentials with OECD economies

10. - Oil prices remain at extremely high levels - Major sovereigns default as public debt surges - New asset bubbles burst, creating renewed financial turbulence - China’s economy crashes - Tensions over currency manipulation lead to a rise in protectionism 16 15 12

11. - Developed economies suffer stagflation - The US dollar crashes - The euro zone breaks up - Economic upheaval leads to widespread social and political unrest + Oil prices slump 10 9 8