Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Global and Singapore economic outlook, 2014 A pinch better … Irvin Seah Senior Vice President DBS Currency & Economic Research January 2014 Data sources: Data for all charts and tables are US-EIA, CEIC and Bloomberg. Estimates are by DBS Group Research.

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Global outlook

3 2013: markets rewarded economies for simply avoiding disaster  US: 1.6% growth, 28% return  EZ: -0.5% growth, 12% return  JP:1.8% growth, 45% return  Asia: 6.1% growth, 5% return

4 2014: markets will demand genuine growth, the only place we see that is in Asia  Conclude: Asia will outperform in 2014 Asia growth = weighted average of GDP growth of China, Hong Kong, Taiwan, Korea, Singapore, Indonesia, Malaysia, Indonesia, Thailand, Philippines

5 Asia 2014: Europe is the biggest plus! Sideways X to EU will add 0.5% to Asia GDP growth in 2014

6 Asia 2014: the US continues to muddle along Little help from the US…

7 Asia: will continue to drive itself Asia ‘adds’ a Germany every 4 years

8 Asia 2014: China steady, near 8% Focus remains on long-run structural change, reform

9 US risks: consumption Consumption growth finally picking up after 3 years?

10 US: labour market still weak despite falling unemployment rate

11 US risks: investment zero capex growth for 18 months

12 US risks: debt deleveraging takes time…

13 US risks: housing! Mortgage applications falling hard and fast

risks: housing warrants special mention  QE3: Fed is buying $45bn worth of houses every month  That’s 5x the value of all new homes sold every month  What happens when the Fed stops buying? –Mortgage applications drop –Sales/prices drop –Construction drops  It’s not ‘speculation’. It’s what the textbooks predict  If housing drops, tapering stops!

15 Would markets like a Fed U-turn?  No!  Fed is stuck between a rock and a hard place.  Can’t live with QE, can’t live without it  A Fed U-turn is the biggest market risk for 2014  Markets would dub it QE4

16 Risks 2014: Europe Slow growth continues

17 EU risks: unemployment keeps climbing

18 EU risks: US vs EZ rates

19 Risks 2014: Asia  China: structural change is tough –Long-run: restructuring is harder than it seems China is 30x bigger today than it was in 1978 –Short-run: consumption can’t take over for investment And the quick switch mechanism is disappearing  Fed tapering? Probably not a risk anymore –The idea that Asia saw a lot of inflows from QE is wrong in the first place

20 China’s long-term focus Financial sector reform is getting most attention at the moment

21 85% of QE has stayed inside the Fed; it hasn’t gone into the economy

22 Fed tapering: Asia hasn’t seen any inflow for two full years!

23 Most of Asia’s inflows have been long-run flows  Capital has come to Asia for 2 reasons: long-run and short-run  Most of the capital inflow has been long-run inflow  Since 2001 dotcom crash: –US$2.4 trn gross inflow to Asia-10 –US$ 800bn gross outflow ($500bn in 2008; $300bn since Sept11) –Net inflow of $1.6 trn  Three steps forward, one step back  For every dollar of inflow, 66 cents has stayed for the long haul  Pretty good signal-to-noise ratio

24 The biggest structural change underway in the global economy today

growth: a pinch better all around

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Singapore economic outlook

27 NODX share shifting towards Asia/China

28 Recent NODX improvement driven by China

29 Asia driving services growth – e.g. tourism

30 Mfg: External environment improving  Indicators are showing gradual improvement

31 Mfg: Picking up

Services: Key engine 32

33 Services: Growth to persist

34 Slightly better in 2014  GDP growth for 2013 is expected to register 4.0%

35 Inflationary pressure rising

36 Higher inflation in 2014  Inflation to register 3.0% in 2013

37  37  Source: DBS Research A tight SGD NEER policy to curb inflation

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Singapore residential property market

Residential  Household debt and mortgage debt as a percentage of GDP has risen to 77% and 45% respectively 39

Income growth kept pace with credit growth  Income growth in Singapore had largely kept apace with credit expansion with mortgage loan growth averaging 6% since 2000 vs 5% annual income expansion 40

Looking ahead….  We reckon there could be a surplus of 27,000-42,000 homes  This would push vacancies up from the present 5.6% to 8-9% by 2017  Historically, rental rates and yields weaken when vacancies rises above 7% 41

….tipping point in demand squeeze  Population per housing stock reached a high of 4.4 in 2012 from 3.76 in This ratio could retrace back to 3.7 by 2017  Historically, property prices closely mirrors this trend 42

43 … watch interest rates

Residential overview  No boom and bust asset bubble in the works  Oversupply and cooling measures such as the TDSR will curb demand and result in private home price inflexion  Private home vacancies could rise to 8-9% over the next 3 years  Expect up to a 30% decline in primary home transactions this year  Private homes prices to retrace by 5% a year over the next 3 years 44

45 Summary: 2014  Global outlook is improving and Asia will continue to outperform  Risks: –US: housing is the big one; Fed U-turn possible –EU17:unemployment and interest rates go higher, someone wants out of the euro –Asia:China’s restructuring proves harder than thought  Singapore will benefit from stronger Asia growth  GDP growth likely to register 4.0% in 2014… back to medium term potential growth rate  Inflation will be higher, at 3.0% in 2014  Overall, 2014 will be a pinch better….  ……… Happy New Year!

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no liability whatsoever with respect to the use of this document or its contents. Thank you

47  47 GDP & inflation forecasts

48  48 Interest rate and FX forecasts

49 Disclaimer