Le prospettive dell'economia mondiale ed europea Emilio Rossi Senior Advisor erossi@oxfordeconomics.com June 2014 1 1 1

Main developments affecting Italian economy Global activity strengthening Recovery in the US, Eurozone improving - risk of deflation? Japan – is “Abenomics” working? China – will there be a crisis? Could the ‘troubled bunch’ Emerging Markets derail recovery? 2 2

AE improving, EM slowing but still faster growth Source: Oxford Economics 3 3 3 3

Major risks dissipating, average risks increasing

AE - Recent trends make us more optimistic Left: D/iis_chart/forecast\overforecastcharts.xls manufacturing production! Right: Z:\Projects\AMT\PPT\Quarterly update\Apr14\Charts_110414.xlsx Updated May 16, 2014 5 5 5

US & JP - Aggressive monetary policy Central Bank Total Assets % of 2008 GDP Source; IMF, World Economic Outlook, April 2014 6

US faster deleveraging helped consumption Household Debt-to-Income Ratio % Source; IMF, World Economic Outlook, April 2014 7

US manufacturing now very competitive Global&US.ppt Linked: D:\NewChart\World\Forecast\WorldForecastCharts.xls Tab: Unit Labour Costs (6) – extend to latest quarter 8 8 8

US – 3% growth from 2015

Abenomics boosting inflation 10

Japan - Consumption tax lifted GDP in Q1… 11

…but domestic demand needs more support... 12

…GDP growth will struggle to stay above 1% 13

We expect QE to be extended into 2015 Source: Oxford Economics 14

China - Forecast is for smooth rebalancing… L i n k e d t o D : \ N e w C h a r t \ C o u n t r i e s \ C h i n a \ F o r e c a s t \ C h i n a F o r e c a s t C h a r t s . x l s E x p e n d i t u r e S t r u c t u r e G r o w t h s l o w s t o j u s t o v e r 6 . 5 % o v e r t h e m e d i u m t e r m a s t h e f a c e p a s t o f c o n s u m p t i o n m a k e s u p f o r s o m e o f t h e s l o w i n g i n i n v e s t m e n t g r o w t h T h i s i s s t i l l a v e r y s i g n i f i c a n t s l o w d o w n f r o m g r o w t h r a t e s o v e r 1 0 % i n t h e l a s t d e c a d e P M I a n d o t h e r d a t a s u p p o r t s t h i s i n t h e s h o r t - t e r m w i t h a s l o w i n g i n i n d u s t r i a l p r o d u c t i o n b u t r e t a i l s a l e s r o b u s t A m o d e r a t e r e f o r m a g e n d a i s i m p l e m e n t e d i n c l u d i n g l i b e r a l i s i n g d e p o s i t r a t e s i n 2 0 1 6 . H u k o u r e f o r m h e l p s t o s u p p o r t r i s i n g l i v i n g s t a n d a r d s E a s i n g i n c r e d i t g r o w t h l e a d s t o g e a r i n g r a t i o s s t a b i l i s i n g c l o s e t o c u r r e n t l e v e l s D : \ D A T A \ P M I \ P M I _ d a t a _ c h a r t s . x l s , t a b s M a n u f a c t u r i n g B R I C s a n d M a n u f a c t u r i n g U S , E Z , J A P , U K U p d a t e d 1 5 / 0 1 / 1 4 China - Forecast is for smooth rebalancing… 15 15

Non-financial corporate debt worrying But over the forecast set to slow in line with nominal GDP D:\NewChart\Countries\China\Core\outstanding debt statistics 16 16

How deleverage and reduce shadow banking... 17 17 D:\NewChart\Countries\China\Core\outstanding debt statistics How deleverage and reduce shadow banking... 17

…without killing off investment? 18 18

EMs affected by weak China and US tapering Updated chart needed 19 19 19

…as well as by commodity prices Updated chart needed 20 20 20

Underlying vulnerabilities still exist... 21

...and need to reform is essential for many EMs... 22

… but widespread crisis unlikely 23 23 E:\oefcom\On-Line Services\CountrySpecific\Emerging\Macro\SecureArea\emweekly\Charts\Oct13 charts … but widespread crisis unlikely 23

Eurozone recovery is gradually strengthening Linked to D:\DATA\PMI\PMI_Data_Charts.xls tab EZ chart Updated May 16, 2014 24 24 24

Orders and capacity suggest turning point… Both charts: Z:\Industry team resources\Charts\GlobalIndustryOverviewCharts 2003 format.xlsx Tab: chart16 Updated May 16, 2014 In Europe, capital goods orders have been on a clear upward path in recent months, reflecting stronger business sentiment and pent-up demand after nearly two years of industrial recession. 25

...but unemployment a Eurozone issue (ex-GY) Source: Oxford Economics

EZ - Access to credit still decreasing Nonfinancial Firm and Household Credit Growth Annual % change Source; IMF, World Economic Outlook, April 2014 27

EZ – competitiveness hindered by ULC

Low inflation nearing deflation risk

Forecast overview 30 Source: Oxford Economics 30

Conclusions Global activity strengthening advanced economies improving EMs disappointing amid capital outflows Euro break-up and fiscal cliff out of the agenda, but risks still twisted on the downside Recovery in the US, Eurozone improving - but risk of deflation Japan - “Abenomics” making progress, third arrow missing China – GDP growth slowing, proposed reforms may avert a severe crisis but risk of plummeting investment and banking crisis 31 31