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Slowdown to 5 percent growth in 2009 Central bank to ease further We believe that the economy will slow further. According to our forecast, GDP will grow by 5 percent in 2009, 4 percent in 2010 and by 6 percent in 2011. More rate cuts likely The dramatic slowdown in inflation has allowed the central bank, the Reserve Bank of India, to slash interest rates. Presently, the repo rate is 4.75 percent, down from the peak of 9 percent in August-October 2008. The Reserve Bank of India will likely ease monetary policy further as the slowdown deepens. The exchange rate The repo rate Source: Reuters Ecowin INR likely to weaken Ongoing national election Congress vs BJP No focus on national issues Most likely outcome is a weak coalition government The INR will likely depreciate. Further portfolio capital outflows from India, a persistent current account deficit, and a further loosening of monetary policy will put pressure on the Indian currency. A national election without national issues There is an ongoing national election for Lok Sabha, the lower house in parliament. The Lok Sabha has 545 members – 543 elected from single-member constituencies and 2 representatives of Anglo-Indians appointed by the president. 131 of the seats are reserved for poor castes and tribes-people. For logistical reasons, voting will be staggered over five dates: April 16, April 23, April 30, May 7 and May 13. There are two main coalitions competing for power: the United Progressive Alliance, which has been in government for the past five years and is led by the Congress party, and the National Democratic Alliance, which is led by the Bharatiya Janata Party (BJP), representing traditional Hindu values and the interests of small businesses, traders and the middle class. These main alliances are also under pressure from a left-wing alliance, forming a “third front”. The election is strange since it seems to be a national election with virtually no focus on national issues such as security, terrorism, or even the ongoing economic crisis. It seems the election will instead be determined by the outcome of small battles fought on local issues, rather than compelling national issues with the potential of producing clear national mandates. The previous consensus on issues like economic liberalisation has now been replaced by a strong sense of competitive populism across the board. The ruling Congress party has a slight edge over the main opposition BJP in forming the next government. However, the increasing fragmentation of Indian politics and rising power of regional parties has made it likely that the next coalition government will be even more fractured than the current one. Many analysts believe that it will be difficult for a new coalition government to deliver economic reforms and improve the infrastructure enough to keep potential growth at 8-9 percent, which has been the average since 2004. Actually, most analysts do not even believe a new coalition government would survive a full five-year term. Petter Lundvik, +46 8 701 33 97, pelu16@handelsbanken.se 36 April 28, 2009
LATIN AMERICA Recovery ahead, but 2009 a tough year Q4 was a wake-up call, clearly showing that Latin America is not an island. However, less vulnerability has limited the effects from the global credit crunch and the region is now experiencing a cyclical downturn instead of a more structural, as in the US. Therefore, we expect a rapid recovery, although the first half of 2009 will be tough. Stronger stock markets and FX while economy remains weak The incidents in recent months have been somewhat paradoxical. Strong global risk appetite, driven by signs of stabilising economies, especially in the US and China, has led to the strongest month for emerging stock markets in 15 years. Although there are many uncertainties ahead, the possibility of a worst case scenario being less likely has supported a recovery in commodity markets. This in turn has put a floor in commodity exporting areas such as Latin America. The tripling of IMF funds by the G20 has provided further comfort to investors in emerging markets, which has supported the return to emerging markets. Real GDP (percentage changes y-o-y) 2007 2008 2009f 2010f 2011f Brazil 5.7 5.1 -1.7 4.0 4.4 Mexico 3.3 1.4 -2.9 2.0 3.2 Argentina 8.6 7.0 -1.0 2.0 3.3 Source: Reuters Ecowin and <strong>Handelsbanken</strong> Capital Markets Economic indicators to remain weak in first half of 2009 At the same time, economic indicators clearly show that the region has been hit hard by the global crisis, underlining that it is probably too early to turn optimistic. Clearly, Q4 was a big wake-up call for most market participants, with growth plummeting throughout the region from a collapse in exports and capital spending. The beginning of 2009 has shown a continued weakening in the region, with exports falling by 20 percent y-o-y in most countries and severely negative industrial production figures. Furthermore, unemployment has started to climb. This suggests that the downturn is spreading to households and private consumption, creating a possible negative feedback loop. All-in-all, economic activity is likely to slow in Q1 and stay weak in Q2, after which the economy is expected to start a slow recovery on the back of monetary and fiscal easing. Q4 wake-up-call Massive monetary easing Source: Reuters Ecowin April 28, 2009 37
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Page 4 and 5: INTRODUCTION Who will pull the worl
Page 6 and 7: Emerging economies have been badly
Page 8 and 9: Consumer spending rebounded in Q1 U
Page 10 and 11: tion is due to the fall in oil pric
Page 12 and 13: The pattern evident in fourth quart
Page 14 and 15: Inflation forecast GDP forecast Sou
Page 16 and 17: Heavy falls in Investment and expor
Page 18 and 19: three quarters, the most rapid incr
Page 20 and 21: Gov’t finances and unemployment S
Page 22 and 23: this outlook, we also sketch an alt
Page 24 and 25: Finnish households have reduced the
Page 26 and 27: to the European Commission, capacit
Page 28 and 29: JAPAN Three more years of slump The
Page 30 and 31: EASTERN EUROPE Troubling times East
Page 32 and 33: CHINA Here’s one on the right tra
Page 34 and 35: Highly restrictive lending quotas w
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Page 42 and 43: MONEY AND INFLATION Money matters W
Page 44 and 45: Money & price level in pooled data:
Page 46 and 47: spiral taking hold. In the late 199
Page 48 and 49: Global currency and interest rate f

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