1. Outlook for the Global Economy: Nariman Behravesh Chief Economist, IHS February 24, 2011

2. Copyright © 2011 IHS Inc. All Rights Reserved. 2 The Global Economic Outlook The U.S. economy has picked up steam and will grow faster than Europe or Japan Emerging markets will slow a little, but still grow much more rapidly than the developed world Commodity prices will move up (the only question is how much) – inflation will not be a problem in developed economies (there is still lots of slack), but will become a growing concern in the emerging world Interest rates will remain on hold in the G-7 for a while longer, but keep rising in the BRICs The dollar will decline against most currencies, with the possible exception of the euro The spillover from the troubles in Egypt is limited – for now

3. Copyright © 2011 IHS Inc. All Rights Reserved. 33 The U.S. Recovery Has Picked Up Steam The U.S. economy will be firing on more cylinders in 2011 Net exports will contribute to growth and housing will (hopefully) stop being a drag by mid-year; nonresidential construction has turned the corner The pace of consumer spending has also accelerated, thanks to a gradual improvement in the employment outlook and diminished worries about a double-dip By far the best news is that business optimism is the highest in three years and cash flow remains very strong The Obama-Republican tax package will add around 0.6 percentage point to growth in 2011, but much of the recent rebound is not stimulus related Don’t expect any significant action on the deficit until after 2012 Bottom line: growth in the next few year swill average 3% to 3.5%

4. Copyright © 2011 IHS Inc. All Rights Reserved. 44 Growth in Europe and Japan Will Be Sluggish The pace of growth in Europe will be quite slow Fiscal austerity and sovereign debt/banking jitters will be major drags on the recovery Export growth (thanks to a weaker euro) and stronger consumer spending in Germany will provide some support to the recovery Northern Europe (with the exception of Ireland) will continue to see decent (1.5% to 2.5%) growth, whereas Southern Europe will grow less than 1% and some economies (Greece and Portugal) will contract again this year Eurozone growth will average between 1.5% and 2% in the next few years, U.K. growth will average 2% to 2.5% Japan’s recovery was unsustainably strong in 2010 (4.3%) and will decelerate considerably to only 1.5% to 2%

5. Copyright © 2011 IHS Inc. All Rights Reserved. 5 (Real GDP, percent change) The United States Outpaces Eurozone and Japan

6. Copyright © 2011 IHS Inc. All Rights Reserved. 66 Emerging Markets Will Slow, But Still Grow Much Faster Than the Developed World A multi-speed recovery will likely remain a salient feature of the global economy, with most emerging markets in the fast lane Some large economies (Brazil and China) will slow a little because of policy tightening… …Others (India and Russia) will not slow much – if at all Strong global demand and rising commodity prices are helping growth prospects – but creating inflation headaches Asia will remain the growth leader The emerging world will grow about 6.5% in 2011, compared with about 2.4% for the developed world

7. Copyright © 2011 IHS Inc. All Rights Reserved. 7 (Real GDP, percent change) Still a Multi-Speed World

8. Copyright © 2011 IHS Inc. All Rights Reserved. 88 Commodity Prices Will Move Up – The Only Question Is How Much The rollercoaster ride of commodity prices will continue into 2011 However, with strong global growth over the next year, the upward pressure on commodity prices will increase The level of inventories, exchange rate movements and speculative activity will also influence the extent of price rises for specific commodities The recent surge in food prices has also be caused by bad weather and bad policies In the end, most commodity prices can be expected to rise by at least 10% in 2011

9. Copyright © 2011 IHS Inc. All Rights Reserved. 9 (IHS Global Insight Indexes, 2002:1=1.0) Industrial Materials Prices Have Been Volatile

10. Copyright © 2011 IHS Inc. All Rights Reserved. 10 (IHS Global Insight Index, 2005:1=1.0) Soft Commodity Prices

11. Copyright © 2011 IHS Inc. All Rights Reserved. 11 Oil and Gas Prices ($/barrel)($/mmbtu)

12. Copyright © 2011 IHS Inc. All Rights Reserved. 12 Limited Spillover from Egypt – So Far The relatively peaceful resolution of social unrest in Egypt may encourage similar unrest elsewhere Some of the most vulnerable countries to a “domino” effect include Yemen, Libya, Iran, Syria and Bahrain – Saudi Arabia is a medium vulnerability country, at least in the near-term Even in Egypt, this is just the beginning The Egyptian military’s tight security of the Suez Canal and Sumed pipeline has calmed market fears Roughly 3% of the world’s oil goes through the Suez Canal, versus 17% through the Straits of Hormuz

13. Copyright © 2011 IHS Inc. All Rights Reserved. 13 Inflation: Low in the Developed World, Rising in Emerging Markets Consumer inflation in the advanced economies will average around 2% next three years, compared with about 5.5% in the emerging world In the United States and Europe, core inflation will remain well within the comfort zone – in Japan deflation will persist for some time Strong growth and loose monetary policies are exerting upward pressures on inflation in key emerging economies, including India, China, Brazil and Russia Also at risk of rising inflation are countries that peg (or strongly manage) their exchange rates to the dollar – mostly in Asia and the Middle East Solution? Tighten fiscal policy

14. Copyright © 2011 IHS Inc. All Rights Reserved. 14 (Percent change) * Excluding Zimbabwe Inflation Will Be Low in the Advanced Countries, Higher in Emerging Markets

15. Copyright © 2011 IHS Inc. All Rights Reserved. 15 Interest Rates Will Be on Hold in the G-7 for a While Longer, But Keep Rising in the BRICs The Fed, the European Central Bank, Bank of England, Bank of Japan and Bank of Canada are all going keep interest rates on hold for at least the first half of 2011 The Fed and the BoJ are likely to keep rates low even longer In contrast, central banks in many large emerging economies (e.g., Brazil, China and India) have already raised rates and will keep tightening in 2011 Monetary policy in a couple of developed economies (Australia and Norway) has also become somewhat more restrictive

16. Copyright © 2011 IHS Inc. All Rights Reserved. 16 (Percent, end of quarter) Policy Interest Rates in the Advanced Countries Will Stay Low

17. Copyright © 2011 IHS Inc. All Rights Reserved. 17 (Percent, end of quarter) Policy Interest Rates in BRICs Are Rising * One-year loan rate

18. Copyright © 2011 IHS Inc. All Rights Reserved. 18 The Dollar Will Decline Against Most Currencies, With the Exception of the Euro The two-speed world and still-large global imbalances will have a predictable effect on exchange rates – downward pressure on the currencies of slow-growing economies and upward pressure on the currencies of fast-growing economies In particular, the U.S. dollar will keep falling against most currencies, especially those of emerging markets – including China On the other hand, further sovereign debt problems in Europe could strengthen the dollar relative to the euro With strong global growth prospects and no post-QE II collapse of the U.S. dollar, the risk of a “currency war” has subsided – even if the rhetoric has not The dollar will not lose its status as the world’s premier reserve currency for sometime

19. Copyright © 2011 IHS Inc. All Rights Reserved. 19 (2005=1.0, inflation-adjusted) The U.S. Dollar: Secular Weakness Against Emerging Market Currencies

20. Copyright © 2011 IHS Inc. All Rights Reserved. 20 Canadian DollarEuro Japanese YenChinese Renminbi (Canadian dollars per U.S. dollar, quarterly averages)(Euro per U.S. dollar, quarterly averages) (Yen per U.S. dollar, quarterly averages)(Yuan per U.S. dollar, quarterly averages) U.S. Dollar Exchange Rates

21. Copyright © 2011 IHS Inc. All Rights Reserved. 21 Top Risks in the Near-Term More sovereign debt restructuring and banking problems in Europe Much higher inflation in emerging markets and boom-busts Property bubbles – especially in China Spike in commodity prices – including oil Stronger growth in consumer spending – U.S., Europe and Asia Continued robust growth in productivity Much greater business optimism and spending

22. Copyright © 2011 IHS Inc. All Rights Reserved. 22 Implications and Growth Drivers Emerging markets will continue to offer the best growth opportunities for some time … … But beware of the risk of boom-busts in key markets, such as Brazil, China and India The rising price of oil, food and other commodities could darken an otherwise rosy outlook – especially in emerging markets The (almost) inevitable need to restructure debt in the Eurozone means more volatility in exchange rates and interest rates – not just for Europe Pricing power will be very limited in the U.S., Europe and Japan Major growth drivers in the coming decade will include: the rise of the middle class populations in emerging markets; aging populations in the developed economies and China; the quest for green growth; and the unrelenting pressures to boost competitiveness and productivity

23. Copyright © 2011 IHS Inc. All Rights Reserved. 23 Thank you! nariman.behravesh@ihs.com