1. The future of the economy Prof Dominic Swords

2. From recession to recovery? Short term cyclical growth Long term structural change Risks and opportunities 2011 : tactical plans 1 – 3 years: sustain competitiveness 5 Years + : Megatrends

3. Fix – asset, credit and stock markets Stabilise – confidence and sentiment – investment and consumption Grow – momentum - expansion phase EU ? From recession to recovery?

4. …is what we saw at last year’s conference Sentiment improving in the EU

5. 0.6 1.3 1.2 0.8 2.6 0.9 Risk and volatility will be continuing themes in our economies & markets 7 EU Forecast (Sept 2010) for 2011 European Commission Summer 2010 Slow return to growth Slow return to growth At lower level in mid term At lower level in mid term And continued significant risks And continued significant risks What does this tell us? EU 0.8 USA 1.7

6. …is what we saw at last year’s conference Sentiment improving in the EU

7. Sentiment Suffering a Setback in 2011

8. And further weakening in Autumn 2011

9. Industrial Sectors

10. Service Sector

11. Retail Trades

12. Consumer Confidence

13. Construction Confidence

14. 0.6 1.3 1.2 0.8 2.6 0.9 Risk and volatility will be continuing themes in our economies & markets 7 EU Forecast (Sept 2010) for 2011 European Commission Summer 2010 Slow return to growth Slow return to growth At lower level in mid term At lower level in mid term And continued significant risks And continued significant risks What does this tell us? EU 0.8 USA 1.7

15. 0.9 3.4 2.2 1.1 3.9 4.5 1.4 Risk and volatility will be continuing themes in our economies & markets 7 EU Forecast (May 2011) for 2011 European Commission Summer 2010 Slow return to growth Slow return to growth At lower level in mid term At lower level in mid term And continued significant risks And continued significant risks What does this tell us? EU 2.0 USA 2.1

16. 0.8 2.9 1.6 0.7 4.0 2.3 1.1 Risk and volatility will be continuing themes in our economies & markets 7 EU Forecast (Sept 2011) for 2011 European Commission Summer 2010 Slow return to growth Slow return to growth At lower level in mid term At lower level in mid term And continued significant risks And continued significant risks What does this tell us? EU 1.0 USA 1.5

17. The bailout in Ezone, Greece and the World - Scenarios: - Successful rollout of plan over next 12 months – 30% - Kick the can down the road and continued problems – 60% - Disorderly collapse of Greece – 10% and growing - Scenarios: - Successful rollout of plan over next 12 months – 30% - Kick the can down the road and continued problems – 60% - Disorderly collapse of Greece – 10% and growing

18. The bailout in Ezone, Greece and the World - Scenario 1: - Successful rollout of plan over next 12 months – 30% - An orderly wind down of debt - Insulate Greek problems and rebuild confidence in Italy and Spain - Allows for managed exit of Greece if required - Bring in Poland from the substitute’s bench - Scenario 1: - Successful rollout of plan over next 12 months – 30% - An orderly wind down of debt - Insulate Greek problems and rebuild confidence in Italy and Spain - Allows for managed exit of Greece if required - Bring in Poland from the substitute’s bench

19. The bailout in Ezone, Greece and the World - Scenario 2: - Kick the can down the road and continued problems – 60% - Into extra extra time - Scenario 2: - Kick the can down the road and continued problems – 60% - Into extra extra time

20. The bailout in Ezone, Greece and the World - Scenario 3: - Disorderly collapse of Greece – 10% and growing - The consequences? - Scenario 3: - Disorderly collapse of Greece – 10% and growing - The consequences?

21. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility

22. Stock Market Volatility

23. Commodity Prices

24. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - Continued uncertainty driving volatility - Less credit and more expensive credit

25. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - banks under such pressure that their expansion is likely to be below the needs of even a slow growth world - giving rise to new forms of credit generation - greater financial efficiency is critical and - non financial markets capacity exchange arrangements - Continued uncertainty driving volatility - Less credit and more expensive credit - banks under such pressure that their expansion is likely to be below the needs of even a slow growth world - giving rise to new forms of credit generation - greater financial efficiency is critical and - non financial markets capacity exchange arrangements

26. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’

27. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - May increase pressures if Greek situation worsens - BUT, subdued growth masks growth hotspots such as green technologies - Zero growth still delivers the same business levels as last year! - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - May increase pressures if Greek situation worsens - BUT, subdued growth masks growth hotspots such as green technologies - Zero growth still delivers the same business levels as last year!

28. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Concerns about over-heating in the next phase of growth in ‘new world’ - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Concerns about over-heating in the next phase of growth in ‘new world’

29. China is setting a new course - Long term ambitions for moderately prosperous society - xiaokang - Spread benefits of growth, re-energise agricultural productivity and output, redress urban drift to the East - Expand domestic market, reduce export dependency, allow yuan to appreciate in due course - Invest in infrastructure and building!!! - Long term ambitions for moderately prosperous society - xiaokang - Spread benefits of growth, re-energise agricultural productivity and output, redress urban drift to the East - Expand domestic market, reduce export dependency, allow yuan to appreciate in due course - Invest in infrastructure and building!!!

30. China is setting a new course - http://english.cntv.cn/program/china24/20101019/101039.shtml http://english.cntv.cn/program/china24/20101019/101039.shtml - http://english.cntv.cn/program/china24/20101019/101039.shtml http://english.cntv.cn/program/china24/20101019/101039.shtml

31. Changing global order From BRIC to BRICS – Brazil, Russia, India and China joined by S Africa – a gateway to the continent From G7 (USA, Japan, Germany, France, Italy UK and Canada) to E7 (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) In 2000 G7 twice the size of E7, by 2010 a third larger and will reach parity before 2020 BRICS plus next 11 large, high growth potential and integrated markets – S Korea, Mexico, Turkey, Philippines, Malaysia, Egypt, Indonesia, Nigeria, Vietnam, Pakistan and Bangladesh

32. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Concerns about over-heating in the next phase of growth in ‘new world’ - Investment in infrastructure and building waiting on the side lines - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Concerns about over-heating in the next phase of growth in ‘new world’ - Investment in infrastructure and building waiting on the side lines

33. The aftermath of the crisis and bailouts - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Concerns about over-heating in the next phase of growth in ‘new world’ - Investment in infrastructure and building waiting on the side lines - Though different countries with different appetites for use of infrastructure to drive growth and development – compare USA, UK, Ezone, China and India - Continued uncertainty driving volatility - Less credit and more expensive credit - Subdued domestic growth in fiscal consolidation zones – the ‘old world’ - Concerns about over-heating in the next phase of growth in ‘new world’ - Investment in infrastructure and building waiting on the side lines - Though different countries with different appetites for use of infrastructure to drive growth and development – compare USA, UK, Ezone, China and India

34. The world after the crisis Business after the crisis Markets driven by different macro-fundamentals – two speed globe, re-structuring of power and diverse regional developments Multinationals concentrating and competing in emerging markets and local competitors becoming stronger and more capable Increasing competitors from emerging markets growing in domestic markets and being successful in markets overseas Therefore - Increase in competition and price pressure Changes in industry structure and in supply chain Consolidation in many sectors From customer centred to customer integrated (brand, social networks, creating genuine value...) Importance of distinctiveness

35. What’s staring us in the face? -A changing global landscape -Short term volatility continues -Medium term survivors focus on ‘what good looks like’ to be in the game -Longer term new capital sources and growth hotspots -A changing global landscape -Short term volatility continues -Medium term survivors focus on ‘what good looks like’ to be in the game -Longer term new capital sources and growth hotspots