1. Global economic forecast November 1st 2009

2. The housing market has stabilised recently but a sustained recovery is unlikely until 2011 Factors putting downward pressure on home prices include 20%+ of mortgage holders now in negative equity and a large stock of unsold properties Rising oil prices and bond yields threaten to undermine the recent recovery in consumer sentiment Despite loose macro policy, inflationary pressures remain contained

3. Europe’s economy has stabilised, but prospects are far from bright The economy is burdened with spare capacity and both deflation and unemployment remain risks Austria, Belgium, Netherlands and Sweden look vulnerable to their large Eastern Europe financial exposure Despite internal stresses, the risk of a break-up of the euro area remains small

4. Japan’s recovery will be supported mainly by a significant fiscal boost worth around 3% of GDP from the second half of 2009 In the absence of a sustained export recovery the outlook remains poor Wage cuts for workers and rising unemployment will weigh on consumer sentiment Weak domestic demand and a strong yen are putting downward pressure on Japanese prices again

5. Chinese growth will be supported by fiscal spending, but this risks aggravating existing imbalances India has a small exposure to external trade, but the government’s ability to boost fiscal spending is limited Brazil has room for further monetary policy loosening, but investment still looks set to fall sharply in 2009 Russian growth prospects have been hit by lower commodity prices and struggling banks and companies

6. Consumption growth will recover in the developing world in 2010 but OECD consumption growth will be subdued Output restraint and significant spare capacity in OPEC producers suggests ample supply US dollar weakness and loose global monetary conditions will support prices

7. Rising emerging market incomes, population growth and urbanisation will underpin demand growth, offsetting weak OECD demand In real terms, prices are not particularly high Many raw materials suffer from disruptions to supply which support prices We are still paying the price for years of underinvestment, particularly in agriculture

8. Euro zone, UK and Japanese policy rates to be held at emergency levels until end-2010 US tightening to start in Q3 2010 Lingering banking sector and household weakness suggests that the pace of any tightening thereafter will be slow Initial tightening in the developed world will take the form of withdrawing unorthodox measures rather than raising interest rates

9. The US$ is set to weaken against the euro from the second half of 2009 as the global economy starts to recover Concerns about the euro zone will slow the pace of depreciation The large and growing US Treasury market will, however, be a source of US$ volatility The yen will remain firm against the US$, partly reflecting Japanese institutional investors home bias

10. The global economy experiences a deep double-dip recession Regulatory tightening after the financial crisis is too stringent Economic upheaval leads to widespread social and political unrest Key markets fall into a deflationary spiral The world suffers a major pandemic 16 20 16 15

11. New asset bubbles burst, creating renewed financial turbulence Protectionism takes hold, undermining globalisation The US dollar collapses Sovereigns default as public debt spirals out of control A geopolitical shock hits the global economy 12 15 10 9 6