1. Global economic forecast December 14th 2010

2. The recovery is softening, with the weakness of private-sector jobs creation giving particular cause for concern But a new round of fiscal stimulus will support growth in 2011 and guard against another recession. Inflationary pressures remain very weak—core consumer price inflation below 1% in year-on-year terms A large stock of houses on the market or coming in the near future will exert renewed downward pressure on prices

3. Europe’s economy is recovering but the fiscal crisis has raised risks The economy is burdened with spare capacity and urgent need for fiscal consolidation Unemployment has risen only moderately owing to wage subsidies, but employment recovery will be slow Greece is likely to need a re- structuring of its government debt despite a massive rescue package, and Ireland could face the same fate

4. Export performance in Japan will deteriorate in 2011, reflecting a deceleration of Chinese growth and continued yen strength The urgent need for fiscal consolidation greatly limits room for further fiscal stimulus beyond measures already approved Weak domestic demand is putting downward pressure on Japanese prices again, so that deflation continues

5. Chinese growth has been supported by massive stimulus, but this has aggravated existing imbalances India is growing strongly on the back of robust domestic demand. However, fiscal pressures remain and will act as a constraint on potential growth Brazil’s performance has been driven by demand for commodities from China and by solid domestic consumption Russia’s recovery is supported by the rise in oil prices over the past year

6. Oil consumption will continue to grow in 2011, led by the developing world and the US. Consumption will continue to fall in the EU Output restraint and significant spare capacity in OPEC producers suggests ample supply. Any escalation in geopolitical tensions could disrupt our supply forecasts Loose global monetary conditions and investors’ search for return will support prices

7. Fiscal stimulus in China and restocking in the OECD drove demand in 2010, but will fade in 2011 Rising emerging market incomes and urbanisation will underpin medium-term demand growth Years of underinvestment, particularly in agriculture, will push up prices Gold prices have been strong, fuelled by vibrant investor demand, while fundamentals remain weak. Persistent economic uncertainty will support prices in 2011

8. The Federal Reserve will not raise its policy rate until the third quarter of 2012 The ECB has stepped up purchases of bonds of struggling governments; the central bank is also now unlikely to raise rates until the third quarter of 2012 Japanese policy rates will be held at emergency levels until late 2012 The European fiscal crisis raises new concerns for banking sector stability

9. Expectations of earlier rate hikes in the US and lingering concerns about the fragility of the euro zone will support the US$ against the euro over the longer term The yen will remain firm against the US$, reflecting heightened risk perceptions and Japanese institutional investors’ home bias Emerging market currencies will continue to be supported by wide interest rate and growth differentials with OECD economies

10. - A number of developed sovereigns default as public debt surges - Tensions over currency manipulation lead to a rise in protectionism - New asset bubbles burst, creating renewed financial turbulence - Developed economies fall into a deflationary spiral - The global economy experiences a double-dip recession 16 15 10

11. - The Chinese economy crashes - The euro zone breaks up - Economic upheaval leads to widespread social and political unrest + Emerging-market inflation surges + Confidence revives, prompting a stronger rebound in demand 10 9 9 8