1. 1 Philippe d’Arvisenet Global Chief Economist ECONOMIC RESEARCH DEPARTMENT THE WORLD ECONOMIC OUTLOOK AMSTERDAM, March 2007

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4. 4 Philippe d’Arvisenet Global Chief Economist Economic Research Department I - UNITED STATES

5. 5 Philippe d’Arvisenet Global Chief Economist Economic Research Department BELOW POTENTIAL GROWTH IN 2007 The housing market correction is not over yet  Slowdown mitigated by temporary phenomenon: oil prices down, unexpected warm weather...  Consumption is expected to weaken GDP growth close to 2% in 2007  But the economy will rebound later : once inventory correction (housing and industry) is over

6. 6 Philippe d’Arvisenet Global Chief Economist Economic Research Department LOWER INFLATIONARY PRESSURES Upward pressures from energy prices have receded Gradual decline in core inflation  Slower growth in activity alleviate tensions  Increases in shelter costs to moderate Fed  Fed’s view to change  Ease expected for the end of Q2 EXTERNAL IMBALANCES  The current account deficit is expected to remain close to 6.5% GDP  Slower domestic demand and a weaker dollar should limit the slippage

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32. 32 Philippe d’Arvisenet Global Chief Economist Economic Research Department II - EUROZONE

33. 33 Philippe d’Arvisenet Global Chief Economist Economic Research Department ECONOMIC ACTIVITY Growth above potential in 2006  Solid domestic demand.  Weak external sector (with the exception of Germany) Deceleration in 2007  Impact of VAT hike in H1 2007 (however, lower-than-expected)  External demand: the impact of US slowdown  Impact of the Euro appreciation  Lagging impact of monetary tightening

34. 34 Philippe d’Arvisenet Global Chief Economist Economic Research Department Inflation : what ECB looks at  Pressure on core inflation  Wage negotiations (Germany and Italy)  Higher capacity use rebuilds pricing power  Headline inflation impacted by favourable base effects until summer Monetary stance  M3 growth reached a record high since the launch of the Euro  Lending to household is slowing, lending to corporate is accelerating  Interest rates are entering in neutral territory  Refi rate at 4% in mid-2007. A pause is to follow

35. 35 Philippe d’Arvisenet Global Chief Economist Economic Research Department STRUCTURAL ISSUES Challenges :  low potential growth  the cost of aging A lot remains to be done :  fiscal consolidation  goods market reform (privatization, competition, barriers to entry etc…)  labour market reform (disincentives to work, disincentives to create jobs have to be addressed…) The political impediments

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47. 47 Philippe d’Arvisenet Global Chief Economist Economic Research Department III - JAPAN

48. 48 Philippe d’Arvisenet Global Chief Economist Economic Research Department ECONOMIC GROWTH HEADING TOWARDS A SOFT PATCH GDP growth, 2.2% in 2006, likely to decelerate below potential in H1 07, before accelerating again, up 2% at most in 2007 Final domestic demand is supportive Inventories correction will substact to growth early in 2007 Slowdown in exports but also in investment

49. 49 Philippe d’Arvisenet Global Chief Economist Economic Research Department BoJ hiked last month Credibility issue, risks seen with asset prices BoJ will remain cautious (long pause expected) The yen should gradually strengthen versus the dollar (unwinding of carry trade...) Japan core inflation at zero and below zero with international standards

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