1. Global economic forecast May 18th 2010

2. The economy is recovering strongly, not least because of temporary factors such as a normalisation of inventories and massive fiscal stimulus that will fade soon Consumer spending is gaining momentum, but we remain concerned that households may have to do more to improve their balance sheets A large stock of houses on the market now or coming in the near future will exert renewed downward pressures on prices

3. Europe’s economy has recovered somewhat, but the euro area’s fiscal crisis has accelerated consolidation measures that will weigh heavily on growth The sharp depreciation of the euro will boost exports. This will mainly benefit export-oriented countries like Germany rather than weaker countries like Greece Unemployment has risen only moderately due to wage subsidies, but an employment recovery will be slow

4. Japan’s recovery is driven mainly by a recovery of exports and a significant fiscal boost Wage cuts for workers and a weak labour market will weigh on consumer spending Urgent fiscal consolidation greatly limits room for further fiscal stimulus beyond measures already approved Weak domestic demand and a strong yen are putting downward pressure on Japanese prices again

5. Chinese growth has been supported by massive fiscal and monetary stimulus, but this will be scaled back during 2010 raising risks to growth Despite a bad monsoon, India is recovering strongly supported by renewed capital inflows Brazil’s brisk recovery is driven by strong domestic growth and Asian demand for its commodities After a sharp decline, Russia is regaining strength from high oil prices

6. Oil consumption growth will bounce back strongly in 2010, led by robust growth in consumption in the developing world and the US Output restraint and significant spare capacity in OPEC producers suggests ample supply A stronger US dollar and the withdrawal of economic stimulus will lead to a moderate decline in prices moving into 2011

7. Rising emerging market incomes and urbanisation will underpin medium- term demand growth Years of underinvestment, particularly in agriculture, will support prices In the near-term, many raw materials suffer from temporary supply shortfalls Gold prices have been fuelled by vibrant investor demand, while fundamentals remain weak

8. The fiscal crisis has led the European Central Bank to start new unorthodox measures. It is unlikely to start raising rates before Q3 2012 In the US, the Fed will want to offset fiscal tightening by waiting with rate hikes until Q3 2011 Japanese policy rates are likely to be held at emergency levels until Q4 2011 while in the UK rates will rise in the first half of 2011 Lingering banking sector and household weakness could lead to new efforts to support lending

9. The US$ has been boosted by its role as a safehaven currency in the euro area fiscal crisis. Despite widespread concerns, the dollar will remain the major global currency for a long time Doubts about sovereign default risk and even the survival of the euro area and weak economic prospects will continue to weigh on the euro The yen will remain firm against the US$, partly reflecting Japanese institutional investors home bias

10. - Sovereigns default as public debt spirals out of control - Developed economies fall into a deflationary spiral + Improved confidence prompts a stronger rebound in demand + Emerging-market growth surges - New asset bubbles burst, creating renewed financial turbulence 15 16 12

11. - Protectionism takes hold, undermining globalisation - The Chinese economy crashes - The euro zone breaks up - The global economy experiences a double-dip recession - Economic upheaval leads to widespread social & political unrest 10 12 10 9