Global Economic Perspectives：Balance sheets, money, and the growth outlook

Global 7 July 2010 Global Economic Perspectives Balance sheets, money, and the growth outlook Deutsche Bank Securities Inc. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010 Economics Table of Contents Key Economic Forecasts .................................. Page 02Balance sheet infection .................................... Page 03MV = PQ .......................................................... Page 07Central Bank Watch .......................................... Page 12Global Data Monitor ......................................... Page 15Charts of the Week .......................................... Page 16Global Week Ahead .......................................... Page 17Financial Forecasts ........................................... Page 19Main Deutsche Bank Global Economics Publications ........................ Page 20 Research Team Peter Hooper (+1) 212 250-7352 peter.hooper@db.com Thomas Mayer (+44) 20 754-72884 tom.mayer@db.com Torsten Slok (+1) 212 250-2155 torsten.slok@db.com Michael Biggs (+44) 20 7545-5506 michael.biggs@db.com Macro Global Markets Research Economics Balance sheet infection (1st article) „ Public sector balance sheets expanded in the wake of the credit crisis and the collapse in private sector borrowing. Central bank balance sheets increased in response to take some of the pressure off the public sector. „ As long as the banking sector’s ability to create credit remains impaired, the extension of central banks’ balance sheets remains benign: it provides liquidity to the government and counters recessionary forces without stoking inflation. However, we expect inflation risks will rise when money and credit multipliers return to normal and central banks face difficulties reducing their balance sheets. This is not around the corner but seems fairly likely in the medium-term, in our view. MV = PQ (2nd article) „ The recent decline in money supply growth in the US and euro area, often to negative levels, has raised concerns about the economic outlook. These concerns are usually couched in the context of the equation of exchange MV=PQ, with the risk being that a fall in M causes either a fall in P (deflation) or a fall in Q (recession). „ In our view, the contraction in M does not threaten the global economic outlook for three reasons: 1) the stock of M is high relative to P and Q, 2) in the short term changes in M are more highly correlated with changes in V than changes in P and Q, and 3) from a business cycle perspective what is important for PQ is not changes in M but rather changes in ΔM. Money flows and nominal GDP growth -4-20246819961998200020022004200620082010-250-200-150-100-50050100150Nominal GDP growthChange in M3 flow (rhs)% yoyEUR bnEuro areaSource: DB Global Markets Research, ECB, Eurostat 7 July 2010 Global Economic Perspectives Page 2 Deutsche Bank Securities Inc. Key Economic Forecasts Real GDP % growthb Consumer Prices % growthc Current Account % of GDPd Fiscal Balance % of GDP 2009 2010F 2011F 20092010F2011F20092010F2011F 20092010F2011FUS -2.4 3.4 3.5 -0.31.81.8-2.7-3.0-3.1 -10.2-8.6-6.3Japan -5.3 3.4 0.7 -1.4-1.0-0.72.84.15.0 -5.6-6.3-6.3Euroland -4.1 1.0 1.0 0.31.51.6-0.6-0.30.1 -6.3-6.5-5.3 Germany -4.9 2.0 1.5 0.21.21.55.06.46.1 -3.1-4.7-4.3 France -2.5 1.1 1.0 0.11.71.4-2.2-1.9-2.1 -7.5-7.9-6.2 Italy -5.1 0.8 0.8 0.81.61.8-3.2-3.0-3.1 -5.3-4.9-3.3 Spain -3.6 -0.7 0.0 -0.21.61.3-5.5-3.9-3.6 -11.2-9.0-7.1UK -4.9 1.2 2.5 2.23.11.4-1.3-0.7-0.4 -11.1-10.0-7.5Sweden -5.1 3.0 2.5 -0.31.62.07.46.06.5 -5.7-3.5-2.5Denmark -4.9 1.6 2.2 1.32.32.04.03.03.0 -6.6-6.0-5.0Norway -1.5 1.0 3.0 2.23.02.014.115.016.0 7.68.010.0 Poland 1.7 3.2 3.1 3.52.52.5-0.7-3.3-4.1 -7.1-6.5-5.7Hungary -6.3 1.5 3.4 4.24.62.40.3-1.0-2.3 -4.0-5.0-3.6Czech Republic -4.2 2.7 3.0 1.11.62.3-1.1-2.0-2.8 -6.5-5.0-4.1 Australia 1.3 2.9 3.8 1.83.33.2-4.1-3.9-3.7 -2.1-4.5-3.5Canada -2.5 3.6 3.4 0.32.02.2-2.9-2.4-2.1 -3.5-3.0-1.6 Asia (ex Japan) 5.7 8.5 7.7 0.94.74.15.03.12.2 -3.5-3.0-3.0 India 5.7 9.0 8.0 2.19.77.5-2.6-2.7-2.7 -6.7-5.9-5.6 China 8.7 9.8 9.3 -0.73.42.57.46.15.1 -2.9-2.5-2.0Latin America -2.0 5.1 3.8 6.48.57.