Economics Research 3 June 2016 Global Economics Weekly Goodbye May, hello June

• The ECB stayed on hold this week, pending the launch of its corporate bond Global Forecasts 2 programme and TLTRO operations. We think room for further easing is limited. Global Synthesis 3 • Japan Prime Minister Shinzo Abe delayed the consumption tax hike by two years. However, details of a Japanese fiscal stimulus have yet to emerge. Global Rates and Inflation 5

• Private consumption in the US remains on a solid footing, but the May United States employment report showed a worrisome slowdown in hiring. Outlook 6 • We expect Fed Chair Yellen to take a more cautious stance on near-term rate hikes US GDP tracking: Q1 1.0%; Q2 2.5% 8 Data Review & Preview 9 given the soft employment report and looming UK referendum.

Euro Area Developed Economies Outlook 11 United States: Goodbye, June, we hardly knew you 6 Data Review & Preview 13 We expect Fed Chair Janet Yellen to remain dovish in her June 6 speech; we think the United Kingdom May employment report has all but eliminated the likelihood of a near-term rate hike. Outlook 15 Euro area: ECB on hold as downside risks slightly fall 11 Data Review & Preview 17 As expected, the ECB kept monetary policy unchanged at this week’s meeting and announced that the corporate sector purchase programme would start on 8 June. Japan Outlook 18 UK: Referendum uncertainty erodes sentiment 17 Data Review & Preview 20 New business orders, as per the Composite PMI, have plumbed their lowest levels since Q4 12 as rising referendum uncertainty causes businesses to restrain spending. Emerging Asia China Outlook 21 Japan: Clearer intentions, uncertain outlook 18 Asia Outlook 23 Japan will delay the VAT hike and compile a fiscal package. However, the new date for Data Review & Preview 25 the hike raises questions about its feasibility, and the scale of the stimulus is unclear. EEMENA Emerging Markets Outlook 27 Data Preview & Review 29 China: Shifting landscape and risks for Chinese banks 21 China’s domestic banking sector has grown rapidly in the last decade, with total Sub-Saharan Africa banking assets around three times the size of GDP at the end of 2015. Outlook 30 Emerging Asia: India growth on path of gradual improvement 23 Data Preview & Review 32 India’s Q1 16 GDP surprised higher. We forecast FY 16-17 growth of 7.8%. We expect Latin America the RBI to stay on hold in June, but forecast a 25bp repo rate cut in Q3 16. Outlook 33 EEMENA: Russia’s monetary policy credibility 27 Data Preview & Review 35 In Russia, we think the CBR will not yet restart its cutting cycle and, therefore, will keep Country Snapshots 36 its key rate at 11%. May inflation likely remained flat at 7.4% y/y.

Sub-Saharan Africa: South Africa: Probable Q1 GDP contraction likely the nadir 30 Global Weekly Calendar 42 In South Africa, Q1 GDP data due out next week are likely to show a 0.6% q/q saar contraction following the deep plunge in mining output.

Latin America: Weak trend to the south, stable to the north 33 In Latin America, incoming activity data are confirming markedly different growth trends in the North and the South.

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 48 Barclays | Global Economics Weekly

GLOBAL FORECASTS

Real GDP Real GDP Consumer prices Consumer prices % over previous period, saar % annual change % over a year ago % annual change Weight* 4Q15 1Q16 2Q16 3Q16 4Q16 2015 2016 2017 1Q16 2Q16 3Q16 4Q16 2015 2016 2017 Global 100.0 2.6 3.1 3.2 3.7 3.3 3.2 3.2 3.7 2.5 2.7 2.7 2.8 2.0 2.6 3.0 Advanced 44.4 1.1 1.5 1.5 2.1 2.1 1.9 1.6 2.1 0.6 0.5 0.8 1.2 0.2 0.8 1.8 Emerging 55.6 3.8 4.4 ↑ 4.4 ↓ 4.9 4.2 ↓ 4.2 4.3 4.9 5.5 5.9 5.4 5.0 4.9 5.4 4.6 BRIC 36.4 4.0 5.7 ↑ 5.4 ↓ 5.7 4.5 ↓ 4.9 5.2 5.5 4.0 4.0 3.7 3.3 4.0 3.7 3.0 Americas 28.6 0.5 0.3 1.0 2.1 2.3 1.5 1.0 2.3 4.4 4.8 4.9 4.9 2.8 4.7 4.8 United States 19.7 1.4 0.8 2.0 2.5 2.5 2.4 1.8 2.4 1.1 1.1 1.7 2.1 0.1 1.5 2.6 Latin America 8.9 -1.5 -0.9 ↑ -1.4 ↓ 1.3 ↓ 1.8 ↓ -0.6 -0.8 2.1 18.0 20.4 ↑ 18.9 ↑ 17.0 ↑ 13.4 18.4 ↑ 15.0 ↑ Argentina 1.1 -1.0 -3.5 -3.5 2.0 3.5 2.1 -1.1 3.7 33.3 43.3 ↑ 44.1 ↑ 39.8 ↑ 27.9 ↓ 40.3 ↑ 20.9 ↑ Brazil 3.6 -5.2 ↑ -1.1 ↑ -2.1 ↓ -0.8 ↓ 0.8 ↓ -3.8 -3.1 0.5 10.1 9.1 8.5 7.6 9.0 8.8 6.3 Colombia 0.7 1.5 1.0 1.0 2.2 2.6 3.1 2.1 3.0 7.4 7.6 7.2 5.9 5.0 7.0 3.5 Mexico 2.4 2.2 3.3 2.0 2.0 2.8 2.5 2.5 2.7 2.7 2.6 2.8 2.8 2.7 2.7 2.9 Peru 0.4 8.0 3.3 0.0 5.3 7.6 3.3 3.8 4.0 4.5 3.9 3.3 3.1 3.5 3.7 2.5 Venezuela 0.6 -7.2 ↓ -19.9 ↑ -13.5 ↓ 5.4 ↓ -5.7 ↓ -5.7 -9.4 ↓ 3.6 212.8 ↓ 259.1 ↓ 225.1 ↓ 201.5 ↓ 121.7 221.2 ↓ 244.4 ↑ Asia/Pacific 45.5 4.7 5.7 ↑ 5.5 5.6 4.5 ↓ 5.4 5.4 5.4 1.9 2.0 1.9 1.8 1.7 1.9 2.1 Japan 5.4 -1.7 2.1 0.5 1.8 1.9 0.6 0.7 1.9 -0.1 -0.5 -0.5 -0.2 0.5 -0.3 0.9 Australia 1.2 3.0 4.3 ↑ 2.0 2.8 3.2 2.5 3.1 ↑ 3.4 1.3 1.4 1.6 1.8 1.5 1.5 2.5 Emerging Asia 38.9 5.6 6.2 ↑ 6.2 ↓ 6.2 4.9 ↓ 6.1 6.0 5.9 2.4 2.6 2.4 2.3 2.0 2.4 2.4 China 20.4 6.5 6.3 6.5 5.9 5.7 6.9 6.4 5.8 2.1 2.5 2.2 1.9 1.4 2.2 1.8 Hong Kong 0.5 0.9 2.0 1.5 2.2 0.3 2.4 1.6 1.5 2.4 2.3 2.4 2.4 3.0 2.4 2.6 India 8.4 4.8 9.6 ↑ 8.1 ↓ 9.5 ↑ 4.1 ↓ 7.3 7.9 ↑ 8.0 5.3 5.0 4.6 4.4 4.9 4.8 5.1 Indonesia 3.0 5.8 3.9 6.6 6.0 5.5 4.8 5.4 6.0 4.3 4.3 3.9 4.4 6.4 4.2 4.7 South Korea 2.0 2.7 2.1 ↑ 2.6 1.6 2.4 2.6 2.6 2.4 1.0 1.0 1.4 1.6 0.7 1.3 1.8 Malaysia 0.9 5.2 4.2 4.7 5.0 4.5 5.0 4.5 4.5 3.4 2.4 2.0 2.9 2.1 2.7 2.5 Philippines 0.8 8.8 4.5 6.0 5.5 6.0 5.9 6.2 6.0 1.2 1.8 2.6 3.0 1.4 2.2 2.7 Singapore 0.5 6.2 -2.0 1.2 2.4 2.7 2.0 1.5 2.5 -0.8 -0.7 -0.2 0.7 -0.5 -0.2 1.0 Taiwan 1.2 0.8 3.1 1.2 3.9 2.8 0.6 1.3 2.5 1.7 1.4 0.7 1.1 -0.3 1.2 1.4 Thailand 1.2 3.4 3.8 2.0 2.5 2.5 2.8 3.0 4.0 -0.5 0.2 0.8 1.3 -0.9 0.5 2.0 Europe and Africa 25.9 1.2 1.5 1.2 1.9 2.1 1.1 1.4 2.0 1.1 0.9 1.1 1.3 1.6 1.1 1.8 Euro area 14.6 1.3 2.1 1.5 1.7 1.7 1.5 1.6 1.7 0.0 -0.2 0.0 0.4 0.0 0.0 1.0 Belgium 0.5 2.1 0.6 1.3 1.1 1.6 1.4 1.3 1.6 1.5 1.3 1.5 1.8 0.6 1.5 2.4 France 2.9 1.7 2.6 0.9 1.4 1.5 1.2 1.6 ↑ 1.6 0.0 -0.1 0.1 0.5 0.1 0.1 0.7 Germany 4.2 1.1 2.7 2.0 1.9 2.0 1.4 1.9 1.8 0.1 -0.3 -0.1 0.3 0.1 0.0 0.8 Greece 0.3 0.5 -1.6 0.0 0.3 1.3 -0.3 -0.7 2.0 -0.2 -0.5 -0.4 0.0 -1.1 -0.3 0.4 Ireland 0.3 11.5 7.4 3.6 3.6 3.0 7.8 6.5 3.3 -0.3 -0.5 -0.1 0.7 0.0 0.0 1.3 Italy 2.4 0.9 1.0 1.1 1.3 1.1 0.7 1.0 1.3 0.0 -0.3 0.0 0.2 0.1 0.0 0.6 Netherlands 0.9 1.0 1.9 1.2 2.5 2.3 2.0 1.5 2.0 0.4 0.2 0.4 0.7 0.2 0.4 1.0 Portugal 0.3 1.0 0.6 1.1 2.1 2.0 1.5 1.1 1.8 0.4 0.4 0.6 1.1 0.5 0.6 1.2 Spain 1.8 3.2 3.1 2.2 1.5 1.9 3.2 2.8 2.2 -0.8 -1.2 -0.7 0.0 -0.6 -0.7 1.0 United Kingdom 2.9 2.4 1.4 -0.2 2.2 1.8 2.3 1.5 1.9 0.3 0.4 0.7 0.8 0.0 0.6 1.5 Switzerland 0.5 0.7 1.3 1.6 1.7 1.5 0.9 1.2 1.4 -0.2 0.4 0.6 0.8 -1.0 0.4 1.0 EM Europe & Africa 7.9 0.8 0.4 1.3 2.2 3.1 -0.1 0.9 2.4 6.1 5.5 5.5 5.6 8.9 5.8 5.5 Poland 1.1 4.2 3.6 ↑ 2.5 3.7 5.5 3.4 3.6 4.1 -1.0 -1.9 -2.2 -2.3 -0.8 -0.6 0.4 Russia 4.0 -3.0 -0.2 0.0 1.4 1.7 -3.3 ↑ -1.0 1.5 8.7 8.5 8.5 8.0 15.5 8.4 6.8 Turkey 1.7 6.8 0.0 3.4 3.5 5.3 4.0 3.3 3.6 8.6 6.8 7.1 7.7 7.7 7.5 8.0 Israel 0.3 3.9 2.7 2.7 2.7 2.7 2.6 2.7 2.7 -0.9 -0.7 -0.2 1.1 -0.5 -0.2 1.1 South Africa 0.8 0.6 -0.6 0.6 0.9 1.2 1.3 0.3 1.4 6.5 6.4 6.8 ↑ 7.5 ↑ 4.6 6.8 6.4 ↑ Note: Arrows appear next to numbers if current forecasts differ from that of the previous week by 0.5pp or more for quarterly annualized GDP, by 0.2pp or more for annual GDP and by 0.2pp or more for Inflation. Weights used for real GDP are based on IMF PPP-based GDP (5yr centred moving averages). Weights used for consumer prices are based on IMF nominal GDP (5yr centred moving averages)”. * IMF PPP-based GDP weights for 2014. Source: Barclays Research

3 June 2016 2 Barclays | Global Economics Weekly

GLOBAL SYNTHESIS Goodbye May, hello June

Michael Gapen Recent data point to stabilization in manufacturing, particularly in the US. Less drag from +1 212 526 8536 manufacturing would be welcome. The ECB stayed on hold pending the launch of its [email protected] corporate bond purchase programme and refinancing operations and Japan PM Abe BCI, US delayed the consumption tax hike by two years. However, details of a Japanese fiscal stimulus have yet to emerge. We expect Fed Chair Yellen to take a more cautious stance on near-term rate hikes given the soft US employment report and impending UK referendum. May PMI data point to stabilization in US, Europe Incoming data continue to signal that global manufacturing remains soft. The Barclays global manufacturing confidence index was little changed in May and pointed to further contraction in manufacturing activity in Q2 (Figure 1). That said, weakness in May’s PMI data was concentrated in Japan and EM ex-China; globally, manufacturing activity appears to have troughed in Q1 16 and stabilized recently. Most of the improvement reflects developments in the US and, to a lesser degree, China (Figure 2). The sharp rebound in US manufacturing PMI suggests that the effects of past dollar appreciation are fading; we still expect a rebound in economic activity in Q2. In Europe, the May softness was concentrated in the periphery and we view the broader deceleration in PMIs in recent months as being in line with our forecast of more moderate growth in Q2 (1.5% q/q saar versus 2.1% in Q1). Finally, PMI data in China were mixed, reflecting persistent uncertainty about the activity outlook; we find the data to be in line with our forecast of slower growth in H2 and beyond. Services and private consumption remain the drivers of our growth forecasts in much of the developed world, but we welcome evidence that manufacturing is now less of a drag on growth

ECB sees downside risks receding As was widely expected, the ECB kept its monetary policy unchanged ahead of the June 8 start of its corporate sector purchase programme and the launch of the first TLTRO II (June 22). The ECB shares our view that the stronger-than-expected growth outturn in Q1 is unlikely to be maintained, and left its inflation outlook broadly unchanged, consistent with our view that a slightly stronger oil price outlook embedded in the June profile would be offset by lower core inflation. Although ECB President Mario Draghi viewed downside risks as having abated

FIGURE 1 FIGURE 2 Global manufacturing confidence remains subdued Trends in the US, Euro area, and China point to stabilization

normalised diff. bal. normalised diff. bal. 2.0 1.0 Global manufacturing confidence and new orders Regional manufacturing confidence 1.5 0.5 1.0

0.0 0.5 0.0 -0.5 -0.5

-1.0 -1.0 -1.5 -1.5 -2.0 Feb 11 Nov 11 Aug 12 May 13 Feb 14 Nov 14 Aug 15 May 16 Feb 11 Nov 11 Aug 12 May 13 Feb 14 Nov 14 Aug 15 May 16 Global manufacturing confidence US Euro area China New orders less finished goods inventories Note: Barclays aggregates. Source: Haver Analytics, Markit, NBS, ISM, Barclays Note: China is average of SAWD data of Markit and NBS PMIs. US data based on Research ISM. Source: Haver Analytics, Markit, NBS, ISM

3 June 2016 3 Barclays | Global Economics Weekly

slightly, the UK referendum remains a concern. Events scheduled in the run-up to the UK referendum (Figure 3) point to the possibility of increased volatility ahead of the June 23 vote.

We still think room for further ECB action is limited. Draghi cited several conditions that would trigger additional easing, including an unwarranted tightening of financial conditions, or second-round effects that would entrench the effect of low oil prices on the medium-term inflation outlook. In our view, any easing would require a shock, such as a vote by the UK to exit from the EU, or a major geopolitical accident. In such an event, we believe the likely option for the ECB would be to extend its APP to loan portfolios. Abenomics: VAT increase delayed, but lack of specifics on fiscal stimulus Japanese Prime Minister Abe announced that the VAT hike previously scheduled for April 2017 would be delayed until October 2019. This decision had been well telegraphed; however, markets were disappointed by the lack of detail on further fiscal stimulus. Although Abe signaled his intention to bring in further economic stimulus measures this autumn, he made no mention of scale. Abe also said the Upper House election would be held on July 10 and that he expects the result to be viewed as a vote of confidence in his government. Over to you, Chair Yellen Data on personal spending and auto sales support our outlook for a rebound in private consumption and, in turn, activity, in Q2. Real personal spending rose 0.6% m/m and 3.0% y/y in April and, at 17.4mn units in May, auto sales support our view that auto sales are returning to a more sustainable pace as opposed to signaling weakness in household spending. However, the exceptionally weak May employment report is worrisome and the details reveal a trend slowing in hiring. We take a strong signal from labor market data; in our view, hiring trends indicate that recession risk is higher than we had previously assumed. We see the soft employment report as taking a rate hike off the table in June and, most likely, in July given that FOMC members will probably want clear evidence that labor markets remain on a solid footing. On June 6, we expect Fed Chair Yellen to say that the outlook for the US economy still warrants gradually tighter monetary policy, but we believe the combination external risks, including the forthcoming UK referendum, and the surprisingly soft employment report will lead her to adopt a more cautious approach than that set out by other FOMC members in recent weeks. We retain our forecast of a September rate hike with a risk to a later move should employment and activity data rebound more slowly than anticipated.

FIGURE 3 FIGURE 4 Upcoming events ahead of the UK referendum US household spending remains on solid footing

y/y % chg Real consumption, lhs mn units, saar Date Event 4 Motor vehicle sales, rhs 20 June 7 ITV Cameron and Farage Q&A June 9 ITV Television debate 3 18 June 15 BBC television debate 2 June 15 BBC Question Time on EU Referrendum (Gove) 16 June 16 Bank of England meeting and minutes 1 June 16 Eurogroup meeting 14 June 16 By-Election in Tooting, South London 0 12 June 19 BBC Question Time on EU Referrendum (Cameron) -1 June 21 BBC television debate at Wembley Arena 10 June 23 UK Referrendum on EU membership -2 June 28 European council meeting -3 8 06 08 10 12 14 16 Source: Barclays Research Source: Haver Analytics, BEA

3 June 2016 4 Barclays | Global Economics Weekly

GLOBAL RATES AND INFLATION Central Bank rates Official rate Start of cycle Next move Forecasts as at end of % per annum (unless stated) Current date level Last move expected Q2 16 Q3 16 Q4 16 Q1 17 Advanced Fed funds rate 0.25-0.5 Tightening:16 Dec 15 0-0.25 Dec 15 (+25) Sep 16 (+25) 0.25-0.5 0.5-0.75 0.5-0.75 0.75-1.0 BoJ deposit rate -0.10-0.10 Easing: 30 Oct 08 0.50 Jan 16 (-20-0)** Jul 16 (-20) -0.10-0.10 -0.30-0.10 -0.30-0.10 -0.30-0.10 ECB main refinancing rate 0.00 Easing: 3 Nov 11 1.50 Mar 16 (-5) - 0.00 0.00 0.00 0.00 ECB deposit facility rate -0.40 Easing: 3 Nov 11 0.75 Mar 16 (-10) - -0.40 -0.40 -0.40 -0.40 BOE bank rate 0.50 Easing: 6 Dec 07 5.75 Mar 09 (-50) Q2 17 (+25) 0.50 0.50 0.50 0.50 RBA cash rate 1.75 Easing: 3 Feb 15 2.50 May 16 (-25) Beyond Q1 17 1.75 1.75 1.75 1.75 RBNZ cash rate 2.25 Easing: 10 Jun 15 3.50 Mar 16 (-25) Jun 16(-25) 2.00 2.00 2.00 2.00 Emerging China: 1y bench. lending rate 4.35 Easing: 21 Nov 14 6.00 Oct 15 (-25) Q3 16 (-25) 4.35 4.10 3.85 3.85 India: Repo rate 6.50 Easing: 15 Jan 15 8.00 Apr 16 (-25) Aug 16 (-25) 6.50 6.25 6.25 6.25 Indonesia: O/N policy rate 6.75 Easing: 17 Feb 15 7.75 Mar 16 (-25) Beyond Q1 17 6.75 6.75 6.75 6.75 Korea: Base rate 1.50 Easing: 12 Jul 12 3.25 Jun 15 (-25) Beyond Q1 17 1.50 1.50 1.50 1.50 Hungary: 2w deposit rate 0.90 Easing: 28 Aug 12 7.00 May 16 (-15) Jun 16 (-15) 0.75 0.60 0.60 0.60 Poland: 2w repo rate 1.50 Easing: 7 Nov 12 4.75 Feb 15 (-50) Q3 16 (-25) 1.50 1.25 0.75 0.75 Russia: One-week repo rate 11.00 Easing: 30 Jan 15 17.00 Jul 15 (-50) Q3 16 (-50) 11.00 10.50 10.00 9.50 South Africa: Repo rate 7.00 Tightening: 29 Jan 14 5.00 Mar 16 (+25) Jul 16 (+25) 7.00 7.25 7.50 7.75 Turkey: One-week repo rate* 7.50 Easing: 22 May 14 10.00 Jan 15 (-50) Q3 16 (+100) 7.50 8.50 8.50 8.50 Turkey: O/N lending rate 9.50 Easing: 27 Aug 14 12.00 May 16 (-50) Jun 16 (-25) 9.25 9.25 9.25 9.25 Brazil: SELIC rate 14.25 Tightening: 17 Apr 13 7.25 Jul 15 (+50) Aug 16 (-25) 14.25 14.00 13.00 12.00 Mexico: Overnight rate 3.75 Tightenin: 17 Dec 15 3.00 Feb 16 (+50) Jun 16 (+50) 4.25 4.25 4.50 4.75

Note: Rates as of COB 03 Jun 2016. Source: Barclays Research Key CPI projections US UK Euro area France Japan CPI RPI CPI HICPx HICP CPI ex tobacco CPI ex perishables nsa y/y nsa y/y y/y nsa y/y y/y nsa y/y nsa y/y Jan-15 233.7 -0.1 255.4 1.1 0.3 98.40 -0.7 -0.6 98.85 -0.4 102.6 2.2 Feb-15 234.7 0.0 256.7 1.0 0.0 99.03 -0.3 -0.3 99.51 -0.3 102.5 2.0 Mar-15 236.1 -0.1 257.1 0.9 0.0 100.17 -0.1 -0.1 100.17 -0.1 103.0 2.2 Apr-15 236.6 -0.2 258.0 0.9 -0.1 100.41 -0.1 0.0 100.29 0.1 103.3 0.3 May-15 237.8 0.0 258.5 1.0 0.1 100.64 0.3 0.3 100.53 0.3 103.4 0.1 Jun-15 238.6 0.1 258.9 1.0 0.0 100.62 0.1 0.2 100.45 0.3 103.4 0.1 Jul-15 238.7 0.2 258.6 1.0 0.1 99.95 0.2 0.2 100.03 0.2 103.4 0.0 Aug-15 238.3 0.2 259.8 1.1 0.0 99.96 0.1 0.1 100.36 0.0 103.4 -0.1 Sep-15 237.9 0.0 259.6 0.8 -0.1 100.18 -0.2 -0.1 99.95 0.0 103.4 -0.1 Oct-15 237.8 0.2 259.5 0.7 -0.1 100.33 0.0 0.1 100.01 0.1 103.5 -0.1 Nov-15 237.3 0.5 259.8 1.1 0.1 100.17 0.1 0.1 99.81 0.0 103.4 0.1 Dec-15 236.5 0.7 260.6 1.2 0.2 100.16 0.2 0.2 100.04 0.2 103.3 0.1 Jan-16 236.9 1.4 258.8 1.3 0.3 98.67 0.3 0.3 99.07 0.2 102.6 0.0 Feb-16 237.1 1.0 260.0 1.3 0.3 98.83 -0.2 -0.2 99.32 -0.2 102.5 0.0 Mar-16 238.1 0.9 261.1 1.6 0.5 100.07 -0.1 0.0 100.02 -0.1 102.7 -0.3 Apr-16 239.3 1.1 261.4 1.3 0.3 100.11 -0.3 -0.2 100.09 -0.2 102.9 -0.3 May-16 240.4 1.1 262.1 1.4 0.4 100.33 -0.3 -0.1 100.33 -0.2 102.9 -0.5 Jun-16 241.5 1.2 262.9 1.5 0.6 100.37 -0.2 -0.2 100.41 0.0 102.8 -0.6 Jul-16 241.8 1.3 262.6 1.5 0.6 99.74 -0.2 -0.2 99.96 -0.1 102.8 -0.6 Aug-16 242.2 1.6 264.1 1.7 0.7 99.90 -0.1 0.0 100.33 0.0 102.9 -0.5 Sep-16 242.8 2.0 264.2 1.8 0.9 100.38 0.2 0.2 100.19 0.2 103.1 -0.3 Oct-16 242.5 1.9 264.0 1.7 0.7 100.56 0.2 0.3 100.29 0.3 103.2 -0.3 Nov-16 242.3 2.1 264.1 1.7 0.7 100.44 0.3 0.3 100.13 0.3 103.1 -0.3 Dec-16 242.2 2.4 265.4 1.9 0.9 100.65 0.5 0.5 100.58 0.5 103.2 -0.1 2014 1.6 2.4 1.6 0.4 0.4 0.4 2.6 2015 0.1 1.0 0.0 0.0 0.0 0.0 0.5 2016 1.5 1.6 0.6 0.0 0.0 0.1 -0.3 2017 2.6 2.5 1.5 1.0 1.0 0.7 0.9 Note: Shaded values indicate actual data. ‘R’ indicates revision to front-month forecast. Source: Barclays Research

3 June 2016 5 Barclays | Global Economics Weekly

OUTLOOK: UNITED STATES Goodbye, June, we hardly knew you

Michael Gapen • We expect Fed Chair Janet Yellen to remain dovish in her June 6 speech; we think the +1 212 526 8536 May employment report has all but eliminated the likelihood of a near-term rate hike. [email protected] • In addition to existing concerns about labor market slack, the employment report and BCI, US accompanying revisions have substantially raised the probability of a US downturn.

Rob Martin • Other data were generally positive: personal consumption rebounded in April and + 1 212 526 1262 auto sales remained strong in May. [email protected] Before the May employment report, we viewed the data flow since the April FOMC as BCI, US supportive of a near-term rate hike. Most regional Federal Reserve presidents seemed to agree; their communications were decidedly hawkish. In contrast, the Chair and other Board members seemed to be in no hurry and, in our view, were already likely thinking of September as the most appropriate time to hike. The employment report was surprisingly weak. At 38k, The May employment report the headline number for May was the weakest print since September 2010. Adding to this signals an elevated risk of a pain, revisions to the data reveal a decidedly negative trend. We have long looked to labor near-term recession markets to judge the underlying health of the US economy (see Labor markets say relax, January 2015). With three out of the past four months below the expansion average, labor markets are giving the first signal that a recession could arrive in the next 9-18 months (Figure 1). This signal is not iron clad; the data could yet reverse. But the recession risk is real. In our view, this release makes a rate move in June or July very unlikely. Indeed, the data are sufficiently weak to put our September hike call at risk, although we maintain it for now.

The data said go . . . employment says no The employment report Communication from regional Federal Reserve presidents had been reliably hawkish since supersedes recent FOMC the April meeting and the April FOMC minutes noted that most participants thought it communications might be appropriate to raise rates in June. But the May employment report supersedes all that. In our view, almost all of the presidents are now likely to change their views on the health of the underlying economy and will no longer push for rate hikes unless and until the labor market rebounds.

The May employment report fell off a cliff. The headline number, at 38k, was weak and we

FIGURE 1 FIGURE 2 Payroll employment growth is well below expansion Weak total growth reflects falling goods employment and average, indicating risk of recession sharply slowing services growth

Thous, m/m chng Thous, m/m chng 600 400 400 300 200 200 100 0 0 -200 -100 -400 -200 -300 -600 -400 -800 -500 -1,000 -600 06 07 08 09 10 11 12 13 14 15 16 06 07 08 09 10 11 12 13 14 15 16 Total employment Expansion average Goods Services

Source: BLS, Haver Analytics Source: BLS, Haver Analytics

3 June 2016 6 Barclays | Global Economics Weekly

see no silver lining in the underlying details. The slowdown in employment reflects falling goods employment and sharply slowing expansion in the services sector (Figure 2). Manufacturing employment held up surprisingly well in 2015, despite the headwinds of a rising dollar, but has now fallen in three of the past four months, for a cumulative decline of 53k. A portion of the slowing in services employment is a result of the Verizon strike, reducing employment about 35k. However, the softening was widespread, with declines in most categories. Of particular concern, wholesale trade and transportation were quite weak. Combined with the slowdown in imports of consumer goods, the weakness may point to impending weakness in the household sector.

The signal from the The signal from the employment report is inconsistent with other signals on activity. Initial employment report is claims remain near 40-year lows and other signs, including the number of firms having inconsistent with other signals trouble filling positions (Figure 3), continue to show substantial strength. In addition, motor on activity vehicle sales remained strong through May and consumption growth picked up to near 3% in April (Figure 4). Most regional Federal Reserve Banks reported tight labor markets, amid modest wage growth.

Chair Yellen’s June 6 speech Even before the employment Even before the employment report, we viewed Fed Chair Yellen as relatively dovish. Her report, we viewed Chair Yellen speech on March 29 was consistent with, at most, one rate hike in 2016. Her comments last as relatively dovish Friday that a rate hike in coming months could be appropriate, did not dissuade us from this view. Despite her positive comments on growth and inflation, we interpreted “coming The risk to the US outlook, months” as more consistent with September than July. With new risks from the labor combined with ongoing risks market report, we expect her to take an even more cautious view. On June 6, we expect from abroad, including the UK Chair Yellen to say that the US economic outlook still warrants a tightening bias in monetary referendum, will likely keep her policy. However, the surprisingly soft employment report should lead her to prefer a much on a path of one hike, but with more cautious approach to raising rates. She will now see the US economy as more fragile risks of none than she, and we, had previously believed. The risk to the US outlook, combined with ongoing risks from abroad, including the imminent UK referendum, will likely keep her on an expected path of one hike, with risks of none. We retain our forecast of a September rate hike but see risks to that call. Should the employment and activity data rebound more slowly than anticipated, the FOMC could push out the next hike to December. If the economy turns, the Fed would likely adopt an easing bias.

FIGURE 3 FIGURE 4 Labor markets seem to be getting tighter, increasing the Consumption and motor vehicle sales bounced back from difficulty of filling open positions Q1 weakness, suggesting stronger Q2 growth

% of firms %, y/y Thous, saar 40 6 20 35 5 18 30 4 3 16 25 2 20 14 1 15 0 12 10 -1 10 5 -2 0 -3 8 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Unable to fill positions Real consumption, lhs Motor vehicle sales, rhs

Source: NFIB, Haver Analytics Source: BEA, Haver Analytics

3 June 2016 7 Barclays | Global Economics Weekly

GDP TRACKING: UNITED STATES US GDP tracking: Q1 1.0%; Q2 2.5%

Jesse Hurwitz Real consumption growth rebounded a touch more than expected in April, factory + 1 212 526 9617 orders showed more inventory stocking and imports look weak in Q2. Offsetting these [email protected] releases, April construction spending disappointed across the board. We are now BCI, US tracking 2.5% Q2 GDP growth on net, unchanged from last Friday.

• Real consumption growth snapped back sharply in April, by slightly more than we had

expected. Our tracking estimate of Q2 consumption growth rose to 3.3%, bringing our

Q2 GDP tracking estimate to 2.6% after rounding.

• The April construction spending report (-1.8%; forecast: 0.7%) was broadly weaker than expected, only in part because of upward revisions to past months’ data. Our Q1 GDP tracking estimate rose by one-tenth to 0.9%, but our Q2 tracking estimate fell to 2.2% on weaker multifamily residential, non-residential and government structures investment.

• The April trade deficit ($37.4bn, forecast: $41.2bn) came in much narrower than

expected as annual revisions marked down the monthly deficit profile by almost $5bn

heading into April. On net, our Q1 and Q2 tracking estimates both rose one-tenth.

• Core capital goods shipments and orders were both marked up modestly for April in the factory orders report, while nondurable inventories came in better than expected. Our Q2 GDP tracking estimate rose two-tenths to 2.5%.

FIGURE 1 US GDP tracking Release date Indicator Period Q1 GDP tracking Q2 GDP tracking 27-May GDP – second estimate Q1 0.8 2.5 31-May Personal income & spending Apr 0.8 2.6 1-Jun Construction spending Apr 0.9 2.2 1-Jun Vehicle sales May 0.9 2.2 3-Jun Trade balance Apr 1.0 2.3 3-Jun Factory orders Apr 1.0 2.5 8-Jun Quarterly services survey (QSS) Q1 9-Jun Wholesale inventories Apr Note: Our GDP tracking estimate is distinct from our official published GDP forecast. It reflects the mechanical aggregation of monthly activity data that feed directly into the BEA’s GDP calculation. Source: Barclays Research

FIGURE 2 FIGURE 3 Durable goods consumption growth perked up in April GDP tracking

3m/3m % chg, saar q/q % chg, saar Q1 GDP tracking estimate 30 3.0 25 Q2 GDP tracking estimate 2.5 20 15 2.0 10 1.5 5

0 1.0 -5 Durable goods consumption 0.5 -10 Vehicle sales -15 0.0 12 13 14 15 16 Feb11 Mar03 Mar24 Apr14 May05 May26 Source: Bureau of Economic Analysis, Haver Analytics, Barclays Research Source: Barclays Research

3 June 2016 8 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: UNITED STATES

Michael Gapen, Robert Martin, Jesse Hurwitz

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments

Personal income, % m/m Apr 0.4 0.4 0.4 Solid rebound in consumption keeps outlook for better Q2 Personal spending, % m/m Apr 0.0 R 0.9 1.0 growth intact PCE price index, % m/m (y/y) Apr 0.1 (0.8) 0.4 (1.1) 0.3 (1.1) Core inflation remains modest Core PCE price index, % m/m (y/y) Apr 0.1 (1.6) 0.2 (1.6) 0.2 (1.6) S&P/Case-Shiller 20-city HPI, %m/m (y/y) Mar 0.7 (5.4) 0.7 (5.0) 0.9 (5.4) Home price gains accelerated modestly in March Chicago PMI index May 50.4 51.0 49.3 Chicago area activity remains tepid Consumer confidence index May 94.7 R 95.5 92.6 Contrasts with rebound in expectations in Michigan survey ISM manufacturing index May 50.8 50.0 51.3 Supplier deliveries improve sharply Construction spending, % m/m Apr 1.5 R 0.7 -1.8 Trims Q2 GDP tracking estimate to 2.2% Vehicle sales, mn saar May 17.3 17.3 17.4 Vehicle sales indicate stable consumption in May ADP private payrolls, chg, thous Apr 166 R 173 173 Private payrolls expand at healthy pace Trade balance, $ bn May -35.5 -41.2 37.4 Boosts Q1 and Q2 GDP tracking estimates Nonfarm payrolls, chg, thous May 123 R 150 38 Private payrolls, chg, thous May 130 145 25 Broad-based softening in service sector employment growth Unemployment rate, % May 5.0 4.9 4.7 after account for Verizon worker strike boosts recession risk 0.4 R for US economy and takes a June rate hike off the table Average hourly earnings, % m/m (y/y) May 0.1 (2.3) 0.2 (2.5) (2.5) Average weekly hours May 34.4 R 34.5 34.4 ISM nonmanufacturing index May 55.7 55.0 51.3 Contracting employment corroborates employment report Factory orders, %m/m Apr 1.7 R 2.0 1.9 Upward revisions to factory demand and better-than- Core capital goods orders, % m/m-f Apr -0.8 P -0.8 -0.6 expected inventories boost Q2 GDP tracking to 2.5% Core capital goods shipments, % m/m-f Apr 0.3 P - 0.4

Preview of the next week

Monday 06 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 02:00 Boston Fed President Rosengren (FOMC voter) speaks at the Helsinki central banking conference in Finland 10:00 Federal Reserve LMCI, chg May -2.6 -2.1 -0.9 - - 12:30 Fed Chair Yellen (FOMC voter) to address World Affairs Council of Philadelphia in Philadelphia, PA Boston Fed President Rosengren (FOMC voter) speaks: Boston Federal Reserve President Eric Rosengren will speak on a panel on QE in Europe and the US. We do not expect substantive forward-looking monetary policy content. The panel will likely focus on the efficacy of past episodes of asset purchases.

Fed Chair Yellen (FOMC voter)speaks: Federal Reserve Chair Janet Yellen will speak on monetary policy and the economy. We expect her speech to point to one or two hikes this year and we believe she will be most comfortable with a September hike. In light of the slowing in April payroll growth, we will listen closely for any sign of a change in her outlook for the US economy.

Tuesday 07 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:30 Nonfarm productivity-f, % q/q Q1 2.1 -1.7 -1.0 P -0.6 -0.6 08:30 Unit labor costs-f, % q/q Q1 1.9 2.7 4.1 P 3.6 4.0 Productivity and ULC: We expect the final estimate of Q1 productivity and labor costs to revise growth in nonfarm business output per hour higher, to -0.6% q/q saar, from the initial estimate of -1.0% q/q saar, as a result of a small upward revision to output. This should put annual productivity growth at 0.7% y/y, one-tenth higher than previously estimated but little changed from its sluggish post-recession trend. Should compensation and hours remain unrevised, this expected revision would bring unit labor costs (ULC) down a touch, to 3.6% q/q saar (initial: 4.1%).

3 June 2016 9 Barclays | Global Economics Weekly

Wednesday 08 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 10:00 US: JOLTS, thous job openings Apr 5604.0 5608.0 5757.0 - -

Thursday 09 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:30 Initial jobless claims, thous (4wma) Jun-04 278 (276) 268 (279) 267 (277) 260 - 10:00 Wholesale inventories, % m/m Apr -0.2 -0.6 0.1 -0.1 0.1

Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 10:00 U of Michigan consumer sentiment- p Jun 91.0 89.0 94.7 94.0 94.5 14:00 Treasury budget balance, $ bn May -192.6 -108.1 106.4 - -60.5 U. Michigan consumer sentiment: We look for the University of Michigan consumer sentiment index to decline modestly, to 94.0, in the preliminary June reading, from 94.7 in the final May print. Last month’s improvement in consumer expectations, although lowered between the preliminary and final estimates, looks out of line with other measures of consumers’ outlook. The Conference Board’s survey showed no such improvement in expectations from April to May. Given that the Conference Board’s data are drawn from a meaningfully larger sample size, we are inclined to view the improvement in the Michigan expectations index as transitory. We expect a decline in this measure in the preliminary June print to be partially offset by an ongoing improvement in current conditions.

3 June 2016 10 Barclays | Global Economics Weekly

OUTLOOK: EURO AREA ECB on hold as downside risks slightly fall

Philippe Gudin • As expected, the ECB kept monetary policy unchanged at this week’s meeting and +33 1 4458 3264 announced that the corporate sector purchase programme would start on 8 June. [email protected] • Updated ECB projections were broadly unchanged, and President Draghi noted that Barclays, UK downside risks to growth and inflation, although still present, had receded a little.

• Business surveys published this week support our view that growth was likely to be more subdued in Q2 after a strong start in Q1.

As expected, the ECB stayed As widely expected, the ECB kept its monetary policy unchanged at this week’s Governing on hold but President Draghi Council (GC) meeting. The GC announced that the corporate sector purchase programme described the contingencies would start on 8 June and confirmed that the first TLTRO II would be launched on 22 June. that would trigger more President Draghi once again called on other policy areas, both at the national and the action. We do not expect European level, to complement the ECB’s action. He also warned that the ECB was ready to more easing this year under do more to support growth and inflation if needed. However, under our baseline our baseline scenario macroeconomic scenario, we do not expect any additional policy action this year. President Draghi cited the conditions that would trigger additional easing, ie, an unwarranted tightening in financial conditions, or the presence of second round effects that would entrench the effect of low oil prices on the medium-term outlook for inflation. We think this would require a shock to actually materialize, such as a UK exit from the EU, which could undermine the integrity of the euro area, or a major geopolitical accident. As a matter of fact, President Draghi proved to be more worried by the risk of a UK vote to leave than he had been at the April meeting. If additional monetary easing was to become necessary, we believe the likely option for the ECB would be to extend QE until a later date than March 2017 and expand its APP to loan portfolios.

Eurosystem staff macro- The updated staff macroeconomic projections were broadly unchanged, and President Draghi economic projections were noted that downside risks, although still present, had receded a little thanks to monetary policy broadly unchanged, although action. As we expected, the eurosystem macroeconomic projections also broadly left core inflation was revised unchanged the inflation forecasts presented in March, as a result of revised volatile and core lower, which is consistent with component assumptions offsetting each other. In particular, the impact of slightly stronger oil our own view prices assumptions embedded in the updated June profile was offset by lower core inflation

FIGURE 1 FIGURE 2 Bank loan growth by component Composite PMI and GDP growth

6 %y/y % q/q 1.0% PMI level 60 5 4 Barclays fc. for Q2 16 3 0.5% 55 2 1 0 0.0% 50 -1 -2 -3 -4 -0.5% 45 10 11 12 13 14 15 16 17 2010 2011 2012 2013 2014 2015 2016 EA GDP (lhs) EA composite PMI output (rhs) NFC loans Consumer credit Mortgage loans Source: ECB, Barclays Research Source: Eurostat, PMI market, Barclays Research

3 June 2016 11 Barclays | Global Economics Weekly

forecasts and stronger FX assumptions. This is consistent with our view that underlying inflation pressures remain muted in the euro area. Indeed, preliminary inflation data for May published this week show that the modest headline and core inflation upticks in May (from - 0.2% to -0.1% for headline and from 0.7% to 0.8% for core) were driven primarily by volatile prices and we retain our view of increasing risks of enhanced and unwelcome core inflation volatility. Consistent with this, we also think that significant downside risks continue to surround both the goods and the services components of core inflation.

The ECB stand ready to decide After recent progress made towards the completion of the first review of the ESM the re-instatement of the programme for Greece, the ECB considers that the conditions are likely to be met soon for waiver on Greek bonds at a the re-instatement of the waiver for Greek securities to be eligible as collateral for later meeting under certain refinancing operations, which would be a significant relief for Greek banks. President Draghi conditions said, however, that such a decision would be taken only after a later GC meeting and would require the verification by the institutions that additional “prior actions” agreed at the last Eurogroup meeting have actually been implemented.

The slowdown in M3 is not a Economic news released this week broadly supported the assessment presented by the ECB in concern as credit to the private its updated staff macroeconomic projections. Monetary developments in April showed a sector continues to accelerate slowdown in the pace of expansion of M3 (from 5.0% to 4.6% y/y), but we are not too worried about it. Rather, we find several reasons to remain constructive regarding the evolution of credit to the private sector (see Figure 1). Credit flow for consumer consumption and house purchase continued to expand at a healthy pace, while the breakdown of lending to non-financial corporations (NFCs) remained well oriented in long durations, suggesting that the imbalance between demand and supply of credit for investment should continue to tighten for good reasons, ie, a rebound in corporate investment Therefore, we remain of the view that the private sector lending outlook will continue to improve, albeit very gradually, and help support the ongoing domestic demand-driven economic recovery.

Manufacturing activity has The composite PMI headline index remained broadly stable for the fourth consecutive remained subdued in May month at 53.1, a level consistent with subdued growth. The sub-index for manufacturing according to PMI and EC surveys was unchanged from the flash, down to a three-month low at 51.5, underlining weaker demand, especially external demand (new export orders at a 16-month low), which is weighing on output and hiring intentions. Subdued manufacturing PMI details also echoed the softness posted by the May European Commission survey and are consistent with our view that the solid Q1 industrial production performance will not be repeated in Q2.

The services sector is still in By contrast, the services PMI was up to a four-month high in May, revised slightly up from good shape, but Italy was the the flash, reflecting an improvement on the month in Germany and France, but, as expected, weak spot in May a deterioration in Spain (from 55.2 to 54.8), and especially in Italy where it fell below the 50 threshold (from 52.1 to 49.8). The slight improvement recorded by the PMI survey also echoed a small improvement in the EC survey for the service sector. As a result, the composite PMI was broadly unchanged (53.1 after 53.0), a level at which the index has been hovering around over the past six months, failing to exhibit a clear trend, and consistent with the continuation of subdued growth in the currency union.

Growth likely moderated in Q2 During the first three months of the year, growth was actually stronger than suggested by after a strong Q1 business surveys. Indeed, after the upwards revision this week to French GDP from 0.5% q/q to 0.6% q/q due to stronger consumption and investment, and to a lesser extent the release of a 0.6% q/q increase in Finland, we cannot exclude that Q1 euro area GDP will be revised up next week (7 June) to 0.6% q/q. However, after the stronger than expected growth recorded in Q1, it now appears likely that activity will have moderated in Q2, in line with our expectation of a 0.4% q/q increase, and consistent with the view expressed by President Draghi during the ECB press conference this week.

3 June 2016 12 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: EURO AREA

Francois Cabau, Fabio Fois, Antonio Garcia Pascual, Philippe Gudin, Apolline Menut, Olga Tschekassin, Tomasz Wieladek

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments

E19: M3, % m/m (y/y) Apr 0.4 (5.0) (5.0) 0.3 (4.6) Don't be fooled by a fall E19: Flash HICP, % y/y May -0.2 -0.2 -0.1 Volatile prices in the driving seat E19: "Final" manufacturing PMI, index May 51.5 P 51.5 51.5 Peripheries weakening E19: ECB Interest rate announcement, % Jun 0.00 0.00 0.00 ECB sees downside risks receding E19: "Final" composite PMI, index May 52.9 P 52.9 53.1 Stable headline masks weaker details

Preview of the week ahead Monday 06 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:00 E19: ECB Vice President Constâncio speaks at ESRB high-level international conference in Frankfurt, Germany 13:45 E19: ECB Executive Board Member Cœuré speaks at ESRB high-level international conference in Frankfurt, Germany 06:00 Germany: Factory orders, % m/m (y/y) Apr 0.5 (0.4) -0.8 (0.7) 1.9 (1.7) -0.2 (0.4) -0.5 (0.5) Germany – Factory orders: We expect factory orders to decline slightly following an unusually strong March reading.

Tuesday 07 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 06:00 Germany: Industrial production, % m/m (y/y) Apr 2.3 (1.8) -0.7 (2.0) -1.3 (0.3) 1.0 (1.2) 0.7 (1.0) 06:45 France: Trade balance, € bn Apr -3.9 -5.1 -4.4 - - 06:45 France: Budget, year-to date, € bn Apr -9.2 -25.6 -27.5 - - 07:00 Slovakia: Final GDP, % q/q Q1 0.9 1.0 0.7 P - - 07:00 Spain: Industrial production, % m/m (y/y) Apr -0.2 (3.4) -0.3 (2.1) 1.2 (2.8) - - 08:00 Norway: Manufacturing production, % m/m (y/y) Apr -1.0 (-6.3) 0.8 (-6.0) 0.9 (-7.1) - - 09:00 E19: Final GDP, % q/q Q1 0.3 0.3 0.5 P 0.5 0.5 Germany – IP: We expect industrial production to rise in April, reflecting strong domestic demand. Euro area - Final GDP: We look for euro area Q1 16 GDP to be confirmed at 0.5% q/q, although risks are skewed to the upside, due to the French GDP upward revision. The release of the breakdown should reveal that private consumption rebounded in Q1, while public spending remained firm. Positively, investment growth is expected to remain strong in Q1 after the Q4 upside surprise, although slowing slightly. Meanwhile, external trade should still be a drag on growth, despite exports growth moderately gathering speed.

Wednesday 08 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 10:30 E19: ECB SSM Chair Nouy provides interview at Goldman Sachs 20th Annual European Financial Conference in Paris, France 06:30 France: BdF industrial business sentiment, index May 98 99 99 - 100 07:15 Switzerland: CPI, % m/m (y/y) May 0.2 (-0.8) 0.3 (-0.9) 0.3 (-0.4) - 0.2 (-0.4) 09:00 Malta: GDP, % q/q Q1 2.0 1.4 1.1 - - Thursday 09 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - E19: ECB Executive Board Member Cœuré participates in Bilderberg Meetings in Dresden, Germany 07:00 E19: ECB President Draghi speaks at Economic Forum in Brussels, Belgium 04:30 Netherlands: HICP, % m/m (y/y) May 0.9 (0.3) 1.5 (0.5) 0.1 (-0.2) - - 05:00 Estonia: Final GDP, % q/q Q1 0.2 0.9 0.0 P - - 05:30 France: Final non-farm payrolls, % q/q Q1 0.2 0.2 0.2 P - - 05:45 Switzerland: Unemployment rate (adj), % May 3.4 3.4 3.5 - 3.5 06:00 Germany: Trade balance sa, € bn Apr 13.4 20.2 26.2 - 22.5 09:00 Greece: Unemployment rate, % Mar 24.3 24.4 24.2 - - 09:00 Greece: HICP, % y/y May 0.1 -0.7 -0.4 - - 09:00 Cyprus: Final GDP, % q/q Q1 0.4 0.4 0.9 P - - 10:00 Ireland: HICP, % m/m (y/y) May 0.4 (-0.2) 0.3 (-0.6) 0.3 (-0.2) - - 10:00 Portugal: HICP, % m/m (y/y) May -0.5 (0.2) 2.2 (0.5) 0.4 (0.5) - -

3 June 2016 13 Barclays | Global Economics Weekly

Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 12:15 E19: ECB Vice President Constâncio speaks at Bundesbank's Spring Research Conference in Eltville, Germany 06:00 Germany: Final HICP, % m/m (y/y) May 0.8 (0.1) -0.5 (-0.3) 0.4 (0.0) P 0.4 (0.0) 0.4 (0.0) 06:00 Germany: Final CPI, % m/m (y/y) May 0.8 (0.3) -0.4 (-0.1) 0.3 (0.1) P 0.3 (0.1) 0.3 (0.1) 06:45 France: Industrial production, % m/m (y/y) Apr 1.0 (1.7) -1.3 (0.4) -0.3 (-0.8) 0.4 0.4 (1.0) 07:00 Denmark: CPI, headline, % m/m (y/y) May 0.7 (0.3) 0.1 (0.0) 0.1 (0.0) - 0.2 (0.1) 08:00 Norway: CPI, headline, % m/m (y/y) May 0.5 (3.1) 0.5 (3.3) 0.3 (3.2) - 0.1 (3.1) 08:00 Norway: CPI-ATE, underlying, % m/m (y/y) May 1.0 (3.4) 0.3 (3.3) 0.4 (3.3) - 0.1 (2.9) 08:00 Italy: Industrial production, % m/m (y/y) Apr 1.7 (3.8) -0.7 (1.1) 0.0 (0.5) 0.2 0.2 France – IP: We look for French IP to increase by 0.4% m/m in April, mainly led by the energy sector. Such a print would imply a slight improvement to the negative Q2 carry over to -0.3% (after -0.6% q/q in Q1).

3 June 2016 14 Barclays | Global Economics Weekly

OUTLOOK: UNITED KINGDOM Referendum uncertainty erodes sentiment

Andrzej Szczepaniak This report has been prepared by Barclays Research to provide insight to our clients on the +44 (0)20 3555 6824 implications and effect of the EU Referendum on financial markets and andrzej.szczepaniak@ instruments. Barclays Research does not advocate any position on the EU Referendum barclays.com nor does it seek to influence how or whether our clients should vote in the EU Barclays, UK Referendum. The views expressed in this report represent the independent views of the research analysts who authored this report and do not necessarily reflect the views of Philippe Gudin Barclays plc. +33 1 4458 3264 • New business orders, as per the Composite PMI, have plumbed their lowest levels [email protected] since Q4 12 as rising referendum uncertainty causes businesses to restrain spending. Barclays, UK • Consumer confidence remains in negative territory as the referendum draws closer and households hold back on purchases until after the referendum. • Deteriorating confidence is likely to be partly behind the sudden drop in mortgage lending and the marginal softening in unsecured consumer credit in April.

Businesses are holding back amid rising uncertainty… Despite the upside surprise in the Composite PMI headline for May, which rose 1.1pts to 53.0, exceeding our above-consensus expectation, the April/May average relative to Q1 16 nonetheless declined by 1.8pts to 52.4. This decline was driven by both the manufacturing output index, which dropped by 4.7pts to 50.3, and the services output index, which fell by 1.1pts to 52.9.

Referendum uncertainty is In our view, the marked decline in output in the PMI survey supports our view that rising causing businesses to put new uncertainty with regard to the EU referendum is hurting firm sentiment and causing businesses orders on the back burner to postpone spending decisions until clarity emerges post-referendum. Indeed, the forward- looking indicator of new business orders fell by 1.9pts from Q1 16, to an April/May average of 37% of Markit survey 52.2, its lowest print since Q4 12 (Figure 1). This follows four consecutive quarters of decline respondents say the upcoming (-5.9pts since Q1 15). According to the May Markit report, approximately 32% of respondents referendum is adversely explicitly said that the referendum was inhibiting their ability to secure new business. affecting their business More generally, c.37% of respondents said the upcoming referendum was adversely affecting their business in a variety of ways, ranging from hindering sales and profits, to raising costs,

FIGURE 2 FIGURE 1 We see economic growth slowing to zero in Q2 16 Referendum uncertainty hits new business orders 65 pp Forecast

4 60

2 55 0 50 -2

45 -4 12 13 14 15 16 17 40 Private consumption GFCF 12 13 14 15 16 17 Change in stocks Net trade balance Composite Services Manufacturing Govt consumption Real GDP (% q/q) Note: A figure above 50 represents positive growth while a figure below 50 Source: ONS, Barclays Research represents contraction. Source: Markit, Barclays Research 3 June 2016 15 Barclays | Global Economics Weekly

impeding long-term planning and forcing businesses to put investment plans on hold. Importantly for the UK, where financial services comprise approximately 7% of total output and roughly 18% of services exports, 41% of financial intermediation firms reported the referendum as already having a detrimental impact on activity. Equally, 41% of large service providers also reported that the referendum was adversely affecting their businesses.

As the referendum draws We expect firm sentiment to continue to worsen in the near term as the 23 June referendum closer, we expect firms to the on EU membership approaches and businesses become even more cautious about hiring, hit the brakes on spending and spending and investment decisions, weighing further on new business orders. This supports investment our cautious macro view on economic activity and our expectation that economic growth is likely to grind to a halt in Q2 16 with zero growth after 0.4% q/q in Q1 16 (Figure 2).

…and consumers are likely to follow suit Consumer confidence remains However, firms are not the sole basis of our expectation of zero growth in Q2 16, even if in negative territory, with they are likely to be the largest detractor. Although the May GfK consumer confidence index concerns about the economic rose marginally, +2pts to -1 (Figure 3), this is still well below its 2015 average level, and the outlook the biggest drag April/May average of the barometer declined by 3pts to -2, following three consecutive quarters of decline (-7pts since Q3 15). The latest GfK press release highlighted that, amid conflicting messages from the media, consumers are feeling less certain about the outcome of the referendum and the impact on the economy should an ‘exit’ occur, leading to a 17pt drop in confidence in the general economic situation in the four quarters to the April/May 2016 average. As the referendum looms, we expect confidence levels to decline further, causing households to hold back and delay spending decisions.

Mortgage lending in April fell Deteriorating confidence is likely in part behind the marked fall in mortgage lending for April to its lowest level since August which grew by only £0.3bn, the lowest figure since August 2012 (Figure 4). Mortgage 2012; unsecured consumer approvals, too, fell on the month, registering growth of -5.8% m/m, the third consecutive credit also softened, albeit month of negative growth, and largest decline since April 2014. Unsecured credit also marginally appeared to soften, albeit marginally. It grew by £1.3bn in April, compared with an average of £1.6bn per month in Q1 16. We believe it is likely to soften further in the run-up to the We expect households to hold referendum as uncertainty peaks and households become more cautious about borrowing back on spending as the amid uncertainty. This in particular is important given that the resilience of household referendum looms consumption thus far has, in part at least, been supported by strong borrowing, among other factors (see UK Outlook: Unsustainable resilience in domestic demand).

In sum, as the referendum looms and uncertainty peaks, eroding consumer confidence and restraining household spending, we expect private consumption to decelerate by 0.3pp to 0.4% q/q in Q2 16.

FIGURE 3 FIGURE 4 Concerns about the economic outlook drag on confidence Rising uncertainty begins to hit borrowing 8 8 6 £bn 4 7 2 6 0 -2 5 -4 4 -6 -8 3 -10 2 14 15 16 1 Financial situ. Financial situ. (last 12mths) (next 12mths) 0 Economic situ. Economic situ. -1 (last 12mths) (next 12mths) 10 11 12 13 14 15 16 Major purchases Headline Mortgage lending fllows Consumer credit flows (next 12mths) Source: GfK, Barclays Research Source: BoE, Barclays Research 3 June 2016 16 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: UNITED KINGDOM Fabrice Montagne, Andrzej Szczepaniak

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments Lloyds Business Barometer, % May 38 - 32 Business confidence continues to edge lower as the EU referendum draws nearer. Nationwide HPI, % m/m (y/y) May 0.2 (4.9) - 0.2 (4.7) Annual house price growth registered its second consecutive month of deceleration, reaching 4.7% y/y in May from 5.7% in March. Consumer credit, £bn Apr 1.8 R - 1.3 Unsecured consumer credit grew by 9.5% y/y in April, unchanged from March, but a marginal acceleration Mortgage lending, £bn Apr 7.4 - 0.3 from an average of 9.3% y/y in Q1 16, suggest potential Mortgage approvals, k Apr 70.3 R - 66.3 support to household consumption in Q2 16 should strength in unsecured lending continue. Mortgage approvals, meanwhile, shrank for the third consecutive month, and the value of mortgage lending growth was at its lowest level since August 2012. Manufacturing PMI, index May 49.4 R 49.5 50.1 Despite the positive upside surprise in the Composite PMI headline for May, which rose 1.1pts to 53.0, Services PMI, index May 52.3 52.7 exceeding our above-consensus expectation, the Composite PMI, index May 51.9 - April/May average relative to Q1 16 nonetheless fell by 1.8pts to 52.4. This decline was driven by both manufacturing and services. In our view, this marked decline supports our view that rising uncertainty on the EU referendum is adversely affecting firm sentiment, causing businesses to postpone spending decisions until clarity emerges post-referendum. Construction PMI, index May 52.0 - 51.2 Construction firm sentiment deteriorated for the fifth consecutive month, declining by 6.6pts since December 2015 to 51.2 in May, its lowest print since June 2013.

Preview of the next week Monday 06 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - UK Parliament reconvenes after the Whitsun Recess Tuesday 07 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 21:00 UK PM David Cameron and UKIP leader Nigel Farage Q&A on EU referendum on ITV 08:30 Halifax house price index, % m/m (3m/y) May -1.5 (9.7) 2.2 (10.1) -0.8 (9.2) - 0.3 (8.9) Wednesday 08 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 00:01 REC Permanent Staff Placements, index May 56.6 53.7 53.4 - - 00:01 REC Permanent Staff Salaries, index May 59.3 59.9 59.1 - - 09:30 Industrial output, % m/m (y/y) Apr 0.2 (0.1) -0.2 (0.1) 0.3 (-0.2) 0.0 (-0.4) 0.0 (-0.4) 09:30 Manufacturing output, % m/m (y/y) Apr 0.5 (-0.3) -0.9 (-1.6) 0.1 (-1.9) -0.1 (-1.5) 0.0 (-1.6) Industrial production: We think April industrial production could print flat, with weakness in manufacturing (-0.1% m/m) partially offset by volatile components, notably electricity & gas. This would result in a Q2 16 carryover of 0.2% q/q after -0.4% q/q in Q1 16.

Thursday 09 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 20:00 ITV debate on the EU referendum 00:01 RICS house price balance May 50 42 41 - 35 09:30 Visible trade balance, £bn Apr -12.2 -11.4 -11.2 - -11.1 Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - UK Sovereign Debt to be rated by Fitch 09:30 Bank of England Inflation Attitudes Survey for May 2016 09:30 Construction output, % m/m (y/y) Apr -0.4 (-0.9) -0.9 (-0.4) -3.6 (-4.5) - 1.4 (-4.8)

Note: All times reported are local London time (BST; or GMT + 1.00). Consensus is taken as at 2pm on Friday 27 May.

3 June 2016 17 Barclays | Global Economics Weekly

OUTLOOK: JAPAN Clearer intentions, uncertain outlook

Kyohei Morita • Japan will delay the VAT hike and compile a fiscal package. However, the new date for +81 3 4530 1688 the hike raises questions about its feasibility, and the scale of the stimulus is unclear. [email protected] • The stimulus measures will be compiled this fall and could range from 1% to 2% of BSJL, Japan GDP depending on the economy and other factors, including July election prospects.

Yuichiro Nagai • GDP beat expectations in Q1 and looks strong so far in Q2, but sluggish earnings +81 3 4530 1064 could slow growth in capex and wages, suggesting a need for policy action. [email protected] BSJL, Japan PM Abe clarified his immediate policy intentions and political agenda this week, announcing that the government will postpone the April 2017 VAT hike to October 2019, that the July James Barber, CFA Upper House elections will act as a referendum on that decision (without a simultaneous +81 3 4530 1542 election for the Lower House) and that a fiscal stimulus package will be compiled for the fall [email protected] Diet session. However, there are still significant uncertainties. BSJL, Japan Under the new timing, the final decision on whether to follow through with the VAT hike would need to be made by the fall of 2018 (in order to complete procedures for compiling New date for VAT hike raises the FY19 budget). That effectively takes the decision off PM Abe’s watch since his term as questions about its feasibility LDP president – and hence, prime minister – ends in September of that year, barring exceptions or changes to party rules. Also, the next Lower House election – if it is not dissolved early – would be in December 2018, implying either a disincentive to follow through with the hike at that time or an incentive to dissolve the Lower House early to avoid such a scenario. VAT hike prospects could also be muddied by the Upper House election in July 2019, which comes shortly before the new implementation date of the hike. This, in turn, suggests uncertainty around the fiscal consolidation goal of eliminating the deficit in the primary balance by FY2020 – a goal Mr Abe says he will stick to (see our last Japan Outlook for a simulation of how the goal might be affected by the VAT hike delay).

PM declares “majority of seats PM Abe says the ruling coalition must secure a majority of the seats up for election in July in up for election” as victory line order to declare victory. That means it must increase its seat total by two. Although he may for ruling parties in July not fall on his sword in the event of a near-miss, a significant shortfall could affect his ability to lead – another uncertainty.

Fiscal stimulus coming this fall, At his press conference, PM Abe refrained from commenting on the scale and content of but no details yet on scale or fiscal stimulus measures. JPY5-10trn (1-2% of GDP) is the widely reported (eg, Nikkei, 2 content June) range under discussion within the government. Upcoming signals could fluctuate within this range depending on the economy and markets, as well as other factors, including public polls going into the July election. Our forecasts assume a JPY5rn package.

Q1 GDP beat expectations and A technical recession in Q4 15-Q1 16 might have made a clearer case for large-scale fiscal we expect an upward revision stimulus. As it turns out, real GDP surprised to the upside in Q1 according to the initial data. next week Based on this week’s corporate survey for that period, we now expect real growth to be raised to 2.1% q/q saar from an initial 1.7%, reflecting upward adjustments to private capex and slight downward revisions to private inventory investment (release: 8 June).

Q2 also off to a strong start Meanwhile, April data thus far suggest a strong start to Q2. Industrial production increased 0.3% m/m in April, contrary to expectations for a decline due to the Kumamoto earthquakes. Also, METI forecast indices pointed to further increases of 2.2% m/m in May (0.0% when adjusted for forecasting error) and 0.3% m/m in June. Although actual production tends to undershoot such forecasts, it now appears more likely to expand q/q in Q2.

3 June 2016 18 Barclays | Global Economics Weekly

Employment and consumption figures also surprised to the upside. Based on the household survey and retail sales data, we estimate that the composite index of consumption will show a 0.9% m/m increase in April. If so, it would be 0.9% higher than the average for Q1 (0.5% q/q). While one month does not make a quarter, this suggests an upside risk to our forecast for GDP-based real private consumption to rise 0.2% q/q in Q2.

However, sluggish earnings On the other hand, Japanese companies logged a third consecutive quarter of declining sales dampen the outlook for capex and profits in Q1, according to the above-mentioned corporate survey. The deteriorating and wages, implying a need for earnings picture reflects weak domestic and overseas demand, fading support from oil prices policy action and the JPY, and rising personnel costs. Under such conditions, it may be difficult to expect much acceleration in capex or wages, at least during the current fiscal year.

While capex has continued to trend moderately upward on replacement demand linked to Japan’s aging capital stock, it is a lagging indicator and does not say much about the economic outlook. Moreover, the BoJ Tankan’s DI of current business sentiment, a leading capex indicator, suggests such investment could turn sluggish, implying a need for the policy actions we have assumed.

Wage prospects also appear lackluster. Notably, the breakeven sales ratio, which trended downward through Q2 15, is now back to levels seen at the start of Abenomics. In that context, companies could turn cautious about increasing fixed costs, such as base wages. This is consistent with the results of the latest spring wage negotiations (see this report).

BoJ Tankan to be next big In any case, since the latest corporate survey is for Q1, it does not tell us how companies focus; our outlook for BoJ might be changing their behavior under negative interest rates. For that, we will have to wait easing in July unchanged until the release of the BoJ Tankan on 1 July (summary) and 4 July (full report, including inflation outlook of enterprises). In anticipation of further weakness in corporate inflation expectations and steeper CPI declines in May (release: 1 July) and June (29 July), we retain our forecast of further easing at the 28-29 July MPM.

FIGURE 1 FIGURE 2 Tankan business sentiment indicates that capex could turn Less leeway to raise fixed costs, including base wages sluggish

Corporate behavior and sentiment % Break-even sales ratio pp ("Favorable" - "Unfavorable") JPY trn, annualized 100 Abe- 65 Capex Business conditions DI 60 nomics (LHS) (RHS) 60 40 95 55 20 90 50 0 85 45 -20 40 80 All -40 35 SMEs 75 Large companies 30 -60

25 -80 70 80 85 90 95 00 05 10 15CY 85 90 95 00 05 10 15 CY Source: MoF (corporate survey), BoJ (Tankan), Barclays Research Note: Details in this report. Source: MoF (corporate survey), Barclays Research

3 June 2016 19 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: JAPAN

Kyohei Morita, Yuichiro Nagai, James Barber, CFA

Review of this week’s data

Main indicators Period Previous Barclays Actual Comments Unemployment rate/jobs-applicants Apr 3.2/1.30 3.2/1.31 3.2/1.34 Employment data continued to improve gradually. The ratio large m/m increases in the number of workers and new job offers were especially encouraging, although monthly changes have been volatile since the start of this year. Real household spending (% y/y) Apr -5.3 -0.2 -0.4 Based on the household survey and retail sales data, we estimate that the April composite index of consumption will show a 0.9% m/m increase. If so, it would be 0.9% higher than the average for Q1 (0.5% q/q), suggesting a strong start toward q/q growth in Q2. Industrial production (% m/m) Apr 3.8 -1.6 0.3 IP rose contrary to expectations for a decline due to the recent earthquakes. METI forecast indices pointed to increases of 2.2% m/m in May and 0.3% m/m in June. Although actual production tends to undershoot such forecasts, it now appears more likely to expand q/q in Q2. Corp. survey, capex incl/excl software Q1 8.5/8.9 5.1/6.6 4.2/4.3 Earnings continued to deteriorate, reflecting weak domestic (% y/y) and overseas demand, and fading support from oil prices and the JPY, as well as rising personnel costs. Under such conditions, it may be difficult to expect much acceleration in capex or wages, at least during the current fiscal year. Maikin wages per worker (% y/y) Apr 1.5 0.5 0.3 Growth in scheduled pay, the base component, slowed overall, but was largely unchanged for full-timers. We retain our assessment that wages continue to improve modestly. Preview of the week ahead

Wednesday 8 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:50 Real GDP (% q/q saar), 2nd Q1 1.6 -1.7 1.7 (1st) 2.1 2.0 08:50 Bank lending incl. shinkin (% y/y) May 2.2 2.0 2.2 2.2 n.a. 08:50 BoP current account nsa/sa (JPY bn) Apr 521/1358 2435/1687 2980/1894 2409/2116 2308/2014 14:00 Economy Watchers current DI May 44.6 45.4 43.5 n.a. 43.3 GDP: We expect real growth to be raised to 2.1% q/q saar from an initial 1.7%, reflecting an upward adjustment to private capex and slight downward revision to private inventory investment. Balance of payments: We estimate that the current account remained in the black (both nsa and sa) in April, with unadjusted surpluses in trade and primary income offsetting a deficit in services. Bank lending: We estimate that loan growth, including shinkin, held at 2.2% y/y in May and will watch for any changes in bank lending (eg, to real estate) stemming from the BoJ’s negative interest rate policy (NIRP).

Thursday 9 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:50 Core machinery orders (% m/m) Apr 15.0 -9.2 5.5 -5.5 -3.0 08:50 Money stock, M2/M3 (% y/y) May 3.2/2.6 3.2/2.6 3.3/2.7 3.1/2.5 3.3/2.7 Machine orders: We estimate that core machinery orders turned down m/m in April and believe the risks to the Q2 outlook of major machinery makers (surveyed in late March) are skewed to the downside due to earthquake effects and JPY appreciation. Money stock: We estimate that growth in M2 (excl. Japan Post Bank) remained unchanged, while growth in M3 (incl. Japan Post Bank) slowed slightly in May. Demand for cash may have increased with the decline in interest rates accompanying NIRP.

Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:50 Corporate goods price index, PPI (% y/y) May -3.4 -3.8 -4.2 -4.2 -4.2 13:30 Index of tertiary industry activity (% m/m) Apr 0.7 0.2 -0.7 0.7 0.8 CGPI: We estimate that the domestic component of the CGPI (PPI) logged a 14th consecutive y/y decline in May. Import prices of food/feed have started to fall faster and more broadly, which is likely to weigh on CPI-based food inflation in H2 16. Tertiary index: We estimate that the index rose m/m in April, reflecting generally firm consumption-related indicators, including household spending, as well as various measures of sentiment.

3 June 2016 20 Barclays | Global Economics Weekly

OUTLOOK: CHINA Shifting landscape and risks for Chinese banks

Jian Chang • China’s domestic banking sector has grown rapidly in the last decade, with total +852 2903 2654 banking assets around three times the size of GDP at the end of 2015. [email protected] • We think the rapid expansion of domestic credit through both balance sheet and off- Barclays Bank, Hong Kong balance sheet activity could carry significant financial risks.

Shengzu Wang • With the changing landscape of China’s banking sector, we note that the PBoC is +852 2903 2652 implementing a new macro prudential assessment (MPA) framework. [email protected] Barclays Bank, Hong Kong In China Outlook: Understanding moving parts of credit growth, 29 April 2016, we explained the concept and uniqueness of China’s credit expansion. Among the various channels (such Yingke Zhou as bank lending, bond and equity financing), bank lending is still the most important in +852 2903 2653 terms of overall credit supply to the economy. While emerging market economies tend to be [email protected] more dependent on domestic bank financing rather than non-bank or external financing, Barclays Bank, Hong Kong China’s domestic banking sector has grown rapidly in the past decade, and three Chinese banks are now among the world’s largest in terms of total assets (Forbes, 25 May 2016).

China’s domestic banking Between 2005 and 2015, total assets of China’s commercial banks grew at an average annual sector has been ballooning in rate of 18.2% according to the National Bureau of Statistics, compared with average nominal the last decade GDP growth of 13.8% over the same period. According to the PBoC, as of end-2015, total banking sector assets as a percentage of GDP stood at 296%. This is larger than those of many advanced economies (Figure 1). The rapid expansion of China’s domestic banking sector has supported the economy, but it is also a by-product of restricted capital outflows, in our view. In addition to rapid growth in balance sheet assets, off-balance sheet (OBS) items (i.e., trust loans and wealth management products, or WMPs) are now equivalent to 23% of the banking sector’s total balance sheet assets (from 3.8% in 2007, Figure 2).

We see rising financial risks to The rapid expansion of domestic credit as well as banks’ total assets could carry significant banks’ balance sheets due to financial risks, in our view. First, we see rising financial risks to banks’ balance sheets in the higher leverage ratios… future due to higher leverage ratios for almost all types of borrowers. Focusing on the asset side, bank claims on non-financial corporates (NFC), households, other banks, non-bank financial institutions (NBFI) and the government have increased since the global financial

FIGURE 1 FIGURE 2 Total banking sector assets as % of GDP Off-balance-sheet credit keeps rising % of GDP 350 CNY trn off-balance-sheet credit % 50 off-balance-sheet credit(as % CB's assets, RHS) 25 300 40 20 250

200 30 15

150 20 10

100 10 5

50 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 US (2015) UK (2015) Japan China (2015) Note: off-balance-sheet credit include trust loans, entrust loans, bank (FY2015) acceptance, and WMPs

Source: OECD, Eurostat, Barclays Research Source: Wind, Barclays Research

3 June 2016 21 Barclays | Global Economics Weekly

crisis, and stood at 250% of GDP at end-April 2016, according to Wind data (Figure 3). By type of borrower, claims on government have risen sharply in the past 12 months following the start of the local government debt-for-swap programme, from 13% y/y growth in May 2015 to 82% y/y in April 2016.

…with risks mainly from NFCs More importantly, we think the risks to banks’ balance sheets come mainly from NFCs. Given that bank claims on NFCs are at around 120% of GDP according to the PBoC, we think corporate borrowers may be vulnerable to tightened credit conditions and any negative shocks from industries where capacity reductions are ongoing. Although many Chinese corporates, in particular the large SOEs, may be seen as “too big to fail”, we think the current credit boom is similar to the stimulus in 2009-10 when a large amount of new credit was concentrated in a few areas (for example, real estate). We think a lesson learned from that investment rally is that unwinding excessive capacity is very difficult given the need for painful economic adjustments (see China Outlook: Rising credit risks down the road, 22 April 2016).

OBS activities also carry In addition, OBS activities by banks can be sizeable and carry significant risks, in our view. significant risks OBS refers to trust and entrust loans, bank acceptance bills, and most wealth management products. According to the PBoC, trust loans, entrust loans and bank acceptance bills totalled approximately CNY22trn at end-April 2016. Meanwhile, the issuance of WMPs has grown rapidly in recent years to an estimated CNY23.5trn by end-2015. We note that OBS lending to NFCs (mainly trust and entrust loans) is not fully reflected in banks’ financial statements, which could understate leverage of NFCs (Figure 4).

As a result, the PBoC has With the changing landscape of China’s banking sector, we note that the PBoC began launched a new MPA implementing a new macro prudential assessment (MPA) framework in early 2016. We framework to monitor financial think this MPA should expand the scope of monitoring systematic financial risks by focusing risks on a broader concept of credit. More specifically, in addition to bank loans, the MPA includes bond and equity financing, and inter-bank activities. Despite the change, we still expect the regulatory framework to be updated to provide more comprehensive and consistent coverage of OBS items in future.

FX reserves, trade and inflation Turning to data releases, China’s May NBS manufacturing PMI was flat at 50.1, compared with data will be in focus next week a slight decline in the Caixin PMI to 49.2. In terms of next week’s data releases, we expect FX reserves to fall to USD3.19trn in May, largely due to a negative valuation effect from a strong USD. We also forecast the contraction in exports to widen in May due to weakness in new export orders and some base effects, while the fall in imports should have narrowed on fading price effects. Meanwhile, we expect CPI inflation to have edged down in May due to a pull from falling food inflation, and PPI deflation to narrow further on rising oil prices.

FIGURE 3 FIGURE 4 Breakdown of bank claims Bank claims growth

300 % of GDP % y/y Claims on Govt Claims on other banks 90 Claims on non-bank FIs Claims on NFC 250 80 Claims HH 200 70 60 150 50 100 40 30 50 20 0 10 2006 2008 2010 2012 2014 2016 0 Claims on govt Claims on other banks Claims on non-bank FIs Claims on NFC -10 Claims on HH Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Note: 2016 is year-to-April. Source: Wind, Barclays Research Source: Wind, Barclays Research 3 June 2016 22 Barclays | Global Economics Weekly

OUTLOOK: EMERGING ASIA India growth on path of gradual improvement

Siddhartha Sanyal • India’s Q1 16 GDP surprised higher. We forecast FY 16-17 growth of 7.8%. We expect the +91 22 6719 6177 RBI to stay on hold in June, but forecast a 25bp repo rate cut in Q3 16. [email protected] • Korea data is tracking a mild acceleration in Q2 GDP growth; we expect the BoK to Barclays Bank, India stand pat next week.

James Lee • Overall price pressure remains benign in EM Asia. +65 6308 2801 [email protected] India: GDP remains on a path of gradual improvement Barclays Bank, Singapore India’s Q1 16 (January-March) headline GDP grew 7.9% y/y, beating expectations. Real GDP growth for FY 15-16 (ending March 2016) was 7.6% y/y, slightly above our forecast (7.5%). Overall, we expect the gradual, though potentially uneven, recovery in economic activity to Economic activity on a path of continue, and forecast real GDP growth of 7.8% in FY 16-17. Consumption remains largely gradual recovery; we forecast supportive, while investment activity continues to rely on public spending amid weak private FY 16-17 GDP growth of 7.8% capex. Nominal GDP growth continues to recover. Given the likely normalization and uptick in wholesale price (WPI) and GDP deflator-based inflation indicators in the coming months, we expect an uptick in nominal GDP in FY 16-17, likely in low double-digits (FY 15-16: 8.7%).

Likely good monsoon a key One potential positive in 2016 is the likely more favourable weather conditions. The India positive in 2016; we expect the Meteorological Department (IMD) forecasts modestly above-normal rains during the RBI to stay on hold in June, monsoon season (June-September), after two years of deficient rainfall. If correct, this followed by a 25bp repo rate would provide a boost to the economy in general, and to the farming sector and cut in Q3 16 consumption demand in particular (see Emerging Asia: El Niño giving way to La Niña, 31 May 2016). On the other hand, private capex remains weak, underscoring the need for supportive public policy in the coming quarters. Certain policy initiatives of the government (such as boosting power generation, mining output and infrastructure spending) remain positive developments, in our view. At its last meeting in April, the Reserve Bank of India (RBI) cut the repo rate, offered an accommodative commentary, and surprised with large structural support for banking system liquidity. We expect the RBI to stay on hold at its 7 June meeting, while we expect a 25bp repo rate cut, to 6.25%, in Q3 16.

FIGURE 1 FIGURE 2 India: GDP stays on a path of gradual improvement India: Good monsoon a key positive for India’s growth

GDP (% y/y) Forecast 10 10 9 8 5 7.6 7.8 8 7.2 6 0 7 6.6 4 6 5.5 5.6 2 -5

5 0 -10 4 -2 -15 3 -4 -20 2 -6 1 -8 -25 FY98 FY01 FY04 FY07 FY10 FY13 FY16f 0 Agriculture GDP (% y/y) FY12 FY13 FY14 FY15 FY16 FY17 F Monsoons (% departure from normal, RHS) Source: CSO, Haver Analytics, Barclays Research Source: CSO, IMD, Haver Analytics, Barclays Research

3 June 2016 23 Barclays | Global Economics Weekly

Korea: Data tracking a mild acceleration in Q2 GDP growth May exports improve, although We believe Korea’s recent export and activity data suggest a mild acceleration in GDP less than expected growth in Q2. The y/y export decline continues to moderate, from 11.2% y/y in April to 6.0% in May. Although the improvement fell short of our expectations, the biggest surprise to us came from a sharper decline in vessel exports in May. Seasonally adjusted, we saw some sequential rebound in exports, with the 3m/3m saar turning around, from -5.8% in April to 5.7% in May, the first positive print since November 2014. In all, we think export declines likely bottomed in early 2016, although there seems to be little momentum for a meaningful rebound given the backdrop of sluggish global demand conditions and ongoing price pressures on Korea’s key export goods.

April IP down on inventory Industrial production declined in April, with the high level of inventories continuing to weigh drag, but domestic demand on output. Still, the decline was accompanied by a notable reduction in stockpiles, which holding up pushed the IV/SH ratio lower for the third straight month. Nevertheless, the level of domestic demand remained notably higher than in Q1 16, despite some softening in April. With momentum building in domestic demand indicators in late Q1 16, the April retail sales volume index remains 1.8% above the average of Q1 16, while for investment, the index level was 4.7% above the Q1 average, although the medium-term outlook for investment is clouded given that the capacity utilization ratio remains at its lowest level since early 2009.

BoK likely to stand pat next Looking ahead, we expect the BoK to leave the policy rate unchanged at 1.50% in June, for a week for a 12th consecutive 12th consecutive month. The decision is unlikely to be unanimous, however, as one MPC month, although one member member strongly hinted that he would vote for a cut according to the May meeting minutes, may dissent although this was not representative of the overall tone of the MPC. Meanwhile, the governor’s comments at the accompanying press conference are likely to remain cautious.

Overall price pressure remains benign in EM Asia CPI prints from Korea, This week’s CPI reports from Korea, Indonesia and Thailand for May showed that price Indonesia and Thailand pressure remains benign in EM Asia. Korea’s headline CPI decelerated to 0.8% in May from suggest limited price pressure 1.0% in April, driven mainly by the lagged pass-through of lower oil prices, while Indonesia’s inflation reached its lowest level since December 2009. In Thailand, higher costs of food and fuel continue to push inflation higher relative to the recent past, but overall price pressures remain benign. The headline CPI rose 0.46% y/y in May.

FIGURE 3 FIGURE 4 Korea: Customs exports likely bottomed in early 2016 Korea: High inventory levels a drag on industrial production

%ar Exports %3m/3m saar IV/SH IV/SH ratio %m/m sa IP (RHS, inverted) 10 Exports %y/y 3mma 1.3 -1.5 5 1.3 -1.0 0 1.2 -0.5 1.2 -5 0.0 1.1 -10 0.5 1.1 -15 1.0 1.0 -20 1.0 1.5

-25 0.9 2.0 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 2010 2011 2012 2013 2014 2015 2016 Source: Haver Analytics, Barclays Research Source: Haver Analytics, Barclays Research

3 June 2016 24 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: AUSTRALASIA & EM ASIA

Angela Hsieh

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments Korea: Industrial production (% y/y) Apr -1.5 -2.0 -2.8 IP down on inventory drag; domestic demand holds up Thailand: BoT Monthly Press Release on - - - - Gradual recovery continues in April Economic and Monetary Conditions India: GDP (% y/y) Q1 7.3 7.3 7.9 GDP surprises higher in Q1 16 Korea: CPI (% y/y) May 1.0 1.1 0.8 Consumer price inflation slows to 0.8% in May Korea: Exports (% y/y) May -11.2 1.0 -6.0 May exports improve less than expected China: NBS manufacturing PMI (index) May 50.1 50.0 50.1 Mixed May PMIs suggest uncertainty remains China: Caixin manufacturing PMI (index) May 49.4 49.2 49.2 Australia: GDP ( % q/q, y/y) Q1 0.7/2.9R 0.7/2.7 1.1/3.1 Real GDP growth accelerates to 1.1% q/q in 1Q16 Inflation stays low; BI may ease macro-prudential rules Indonesia: CPI/Core (% y/y) May 3.60/3.41 3.30/3.50 3.3/3.41 for housing Thailand: CPI/Core (% y/y) May 0.07/0.78 0.45/0.84 0.46/0.78 Inflation moves higher as energy prices climb Malaysia: Exports (% y/y) Apr 0.2 2.0 1.6 Exports remain rangebound on weak China shipments

Preview of releases for the next week Monday 06 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 6-7 June Indonesia: Foreign reserves (USD bn) May 104.5 107.5 107.7 107.0 – 6-30 June India: Current account (USD bn) Q1 -6.1 -8.7 -7.1 3.0 4.0 India: We expect the current account to register a surplus in Q1 16, driven largely by weak merchandise imports and a relatively steady services balance.

Tuesday 07 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:30 Taiwan: CPI (% y/y) May 2.41 2.01 1.88 1.60 1.70 12:30 Australia: RBA cash rate (%) Jun 2.00 2.00 1.75 1.75 1.75 09:00 Philippines: CPI (% y/y) May 0.9 1.1 1.1 1.4 1.3 13:30 India: RBI repo rate (%) Jun 6.75 6.75 6.50 6.50 6.50 16:00 Taiwan: Exports (% y/y) May -12.0 -11.4 -6.5 -9.8 -10.7 - China: Foreign reserves (USD bn) May 3202.3 3212.6 3219.7 3193.0 3200.0 Australia: We expect the RBA to leave the cash rate unchanged at 1.75% next Tuesday, as the 1Q16 GDP print confirmed continued growth momentum in the domestic economy while the unemployment rate stands at 5.7%. In addition, the policy and political calendar may complicate any rate action by the RBA, with a double dissolution election scheduled for 2 July. Nevertheless, we think the tone of the statement will likely retain its easing bias for now, with underlying inflation at low levels.

Taiwan: We expect headline inflation to fall, as food prices normalise from recent highs, which should help to offset higher petrol prices. We expect exports to weaken on a m/m basis, following the 2.7% m/m sa rise in April. However, any payback is likely to have been partly offset by one extra working day during May and firming commodity prices.

Philippines: Higher fuel costs, along with sticky core inflation, likely pushed headline higher.

India: We expect the RBI to leave key policy rates unchanged in June. We continue to expect another 25bp repo rate cut in Q3 16.

China: We expect a fall in FX reserves, largely due to a negative valuation effect from a strong USD.

Wednesday 08 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - China: Trade Balance (USD bn) May 32.6 29.9 45.6 60.0 55.6 - China: Exports (% y/y) May -25.4 11.5 -1.8 -3.5 -4.6 - China: Imports (% y/y) May -13.8 -7.6 -10.9 -6.5 -6.0 China: We forecast the contraction in exports to widen due to weakness in new export orders and some base effects. The fall in imports should have narrowed on fading price effects.

3 June 2016 25 Barclays | Global Economics Weekly

Thursday 09 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 05:00 New Zealand: RBNZ official cash rate (%) Jun 2.50 2.25 2.25 2.00 - 09:30 China: CPI (% y/y) May 2.3 2.3 2.3 2.2 2.3 09:30 China: PPI (% y/y) May -4.9 -4.3 -3.4 -3.0 -3.2 - Korea: Bank of Korea 7-day Repo rate (%) Jun 1.50 1.50 1.50 1.50 1.50 New Zealand: With housing prices showing some accelerated gains, the RBNZ’s June meeting has become an increasing close call. We marginally favour a further move by the RBNZ in order to help the struggling dairy industry and support the low level of inflation expectations, while imposing more macroprudential measures to cool property market gains.

China: We expect CPI to have edged down due to a pull from falling food inflation, and PPI deflation to narrow further on rising oil prices.

Korea: We forecast the Bank of Korea will leave its 7-day Repo rate unchanged at 1.50% for a twelfth consecutive month. But the decision is unlikely to be unanimous, as one MPC member strongly hinted that he would vote for a cut in the May meeting minutes. Meanwhile, the governor’s comments at the accompanying press conference are likely to remain cautious.

Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 09:00 Philippines: Total exports (% y/y) Apr -3.9 -4.5 -15.1 -1.5 - 12:00 Malaysia: Industrial production (% y/y) Apr 3.2 3.9 2.8 3.2 - 20:00 India: Industrial production (% y/y) Apr -1.5 2.0 0.1 4.5 - 10-15 Jun India: Trade balance (USD bn) May -6.5 -5.1 -4.8 -7.0 - 10-15 Jun India: Exports (% y/y) May -5.7 -5.5 -6.7 -4.5 - 10-15 Jun China: Aggregate Financing (CNY bn) May 825 2336 751 1000 950 10-15 Jun China: New loans (CNY bn) May 726.6 1370.0 555.6 800.0 750.0 10-15 Jun China: M2 growth (% y/y) May 13.3 13.4 12.8 12.5 12.5 Philippines: We expect to see a recovery in exports, but they likely remained in negative territory for a 14-consecutive month.

Malaysia: Industrial output to remain supported by resilient electricity output and manufacturing activity in electronics.

India: We expect both exports and imports to have stayed weak in May. We expect trade deficit to widen modestly reversing the sharp narrowing in March and April.

China: M2 growth continues to soften on high base effects, while TSF and new loans likely rebounded due to the PBoC’s MLF and PSL operations in May.

Note: Release dates and consensus estimates are subject to change. Source: Bloomberg, Barclays Research

3 June 2016 26 Barclays | Global Economics Weekly

OUTLOOK: EMERGING EUROPE, MIDDLE EAST AND NORTH AFRICA Russia’s monetary policy credibility

Daniel Hewitt • In Russia, we think the CBR will not yet restart its cutting cycle and, therefore, will keep +44 (0)20 3134 3522 its key rate at 11%. May inflation likely remained flat at 7.4% y/y. [email protected] • We expect the NBP to keep its main policy rate on hold at 150 bp this week. But we Barclays, UK think that the MPC will cut by 25bp in Q3 and Q4, due to weak Q2 real GDP data.

Tomasz Wieladek • Turkey CPI inflation remained flat in May as the pick-up in food inflation was limited. + 44 (0) 20 3555 2336 We expect growth in Q1 2016 to be around 4% y/y. [email protected] Barclays, UK In Russia, notwithstanding improved macroeconomic performance, we think the CBR (Bank of Russia) will keep its 11.0% key policy rate unchanged next week (Figure 1). In addition, Durukal Gun we think that CPI inflation remained almost unchanged at 7.4% y/y in May, compared with +44 (0)20 3134 6279 7.3% y/y in April. The steep decline in y/y inflation that took place during November [email protected] through March reflected a combination of stable monthly inflation and favourable base Barclays, UK effects (Figure 2). With this cycle completed and the easy gains achieved, the CBR will now have to struggle to bring inflation still lower. We expect inflation to remain in the current range and perhaps rise slightly in the next two months. Subsequently, it could resume its decline, provided the RUB remains well behaved, which partly depends on oil price CBR likely on hold next week movements. The RUB exchange rate remains the most important influence on Russia inflation, even though the pass-through has diminished considerably.

The credibility of the CBR has improved considerably, in our opinion. It has established itself

as an institution independent from the presidency and the government. By refraining from Russia’s CPI inflation steady cutting its policy rate for almost a year, it has established solid credentials as an inflation

targeter, avoiding any signs of populist-orientation policies. Therein lies its dilemma. It has improved its reputation by not cutting rates. If the CBR were to cut rates this month, it would risk raising questions as to how serious it is about reaching its 4% target by end- 2017. Almost no one expects the CBR to achieve 4% in 2017 and its own analysis indicates that inflation is not quite yet on a path to 4%. However, the recent IMF mission indicated that it thinks gradual cuts are appropriate. Thus, we do not rule out the possibility of cuts starting in June. With respect to our forecasts, we retain our view that the CBR will start cutting in Q3 and only gradually, at a pace of 50bp in each of the next four quarters, stopping in mid-2017, when its key rate reaches 9%.

FIGURE 1 FIGURE 2 As Russia inflation has declined, real rates have risen… …the CBR is likely on hold to improve credibility further

20 80 4.0 70 76 18 60 72 3.5 16 68 3.0 50 14 64 40 60 2.5 12 30 56 2.0 10 52 20 1.5 8 48 10 44 1.0 6 0 40 4 0.5 36 -10 2 32 0.0 -20 0 28 -0.5 -30 May-13 May-14 May-15 May-16 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 CPI (% y/y) CBR rate (%) RUB (per USD, RHS) CPI (%, 4 week rolling, LHS) RUB (% 12w rolling, RHS)

Source: Haver Analytics, Barclays Research Source: Haver Analytics, Barclays Research 3 June 2016 27 Barclays | Global Economics Weekly

The NBP will likely keep the The National Bank of Poland will likely keep rates on hold at 1.50% at its meeting this week. policy rate on hold at 150bp Poland remains in deflation, with the latest reading at -1.0%. In our view, this is a result of next week… tight monetary policy, and the fact that core CPI is sliding deeper into deflation confirms this. Nevertheless, we expect the MPC to look through deflation for now, since its narrative relies on the idea that this is mostly due to external factors. Whether the MPC cuts later in the year really depends on real activity outturns. While April industrial production and retail sales data have surprised to the upside, this was expected, due to seasonality related to the different timing of Easter. Construction, an important leading indicator of real GDP, … but cut later in the year due surprised to the downside in April, despite the positive Easter headwind. We therefore to weak real activity maintain our call for two cuts of 25bp in the policy rate, one in Q3 and one in Q4.

Inflation is on the rise The latest data suggest that CPI inflation on the year has been rising, or at the very least is throughout the region… positive throughout the region. This generally reflects buoyant labour markets in most of these countries. In Hungary, the authorities have also responded by cutting the policy rate 30bp thus far. We therefore expect headline CPI inflation to keep rising and a reading of 0.3% for next … with Poland as the outlier weeks’ print. In Romania, CPI inflation is likely to remain in positive territory as a result of the buoyant labour market. Czech CPI inflation is also likely to keep rising as a result of the strong real economy. The only outlier is Poland, where CPI remains deep in deflationary territory due Turkey inflation remained flat at to tight monetary policy. Inflation in Turkey came in at 6.6% y/y as food inflation experienced 6.6% y/y in May… a limited increase from its historical low in April, owing to a 1.6% m/m decline in May. More importantly, the Central Bank of Turkey’s (CBT) favoured indices, core-H and core-I, sustained …but we expect it to accelerate their downward trends and retreated below 9% y/y in May. Meanwhile, core inflation into H2 16 momentum continued to slow with annualised core inflation now running at around 6% y/y. Notwithstanding the downtrend in recent months, services inflation remains fairly elevated, and given a monetary policy with higher tolerance for a weaker TRY, we still expect medium- term inflation expectations to remain sticky at around 7-8%. In our view, inflation is likely to accelerate in H2 16, given that the inflationary impetus from the minimum wage increase is yet to take effect and our expectation is that the potential TRY weakness amid likely broader USD strength in H2 16 will also add to inflationary pressures.

Turkey growth is expected to We expect Q1 2016 growth in Turkey to print around 4% y/y next week. While private print 4% y/y for Q1 2016 consumption was notably resilient in 2015 against an extended election cycle accompanied by heightened domestic political tension and rising geopolitical risks, we expect some moderation in 2016. The carry-forward demand will likely be absent in 2015; and a limited rebound in consumer confidence as well as elevated lending rates, despite an easing cycle, suggest a limited pickup in household credit demand. Moreover, the hit to the tourism sector is yet to unfold and will likely have negative spill-over effects on other sectors.

FIGURE 3 FIGURE 4 Poland real GDP growth, industrial production and Turkey and CEE inflation construction output

% yoy Construction Output % yoy 7 12 Industrial Production (RHS) 6 40 7 10 Real GDP (RHS) 5 30 6 4 8 20 5 3 6 10 4 2 1 4 0 3 0 2 -10 2 -1 -20 1 -2 0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 -30 0 Czech Republic Hungary -40 -1 Poland Romania Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Turkey (RHS)

Source: Haver Analytics, Barclays Research Source: Haver Analytics, Barclays Research 3 June 2016 28 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: EMERGING EUROPE, MIDDLE EAST AND NORTH AFRICA Durukal Gun, Daniel Hewitt, Tomasz Wieladek, Alia Moubayed

Review of last week’s data releases Main indicators Period Previous Barclays Actual Comments Turkey: Trade balance (USD bn) Apr -5.0 -4.2 -4.2 Fall in exports offset by lower imports Poland: CPI (% y/y) May P -1.1 -1.0 -1.0 CPI in Poland remained in deflation, in line with our forecast. Russia: Manufacturing PMI May 48.0 - 49.6 Further indication that recession is easing, but recovery weak Turkey: Manufacturing PMI May 48.9 - 49.4 PMI has indicated contraction for three months in a row Hungary: PMI May 52.2 51.5 52.3 Hungary PMI is consistent with expansion in Q2. Poland: Manufacturing PMI May 51.0 52.0 52.1 Polish PMI increased, in line with our forecast. Russia: Reserve Fund (USD bn) May 45.0 - 38.6 Rate of decline same as last year, when $38bn was used Russia: National Wellbeing Fund (USD bn) May 73.9 - 73.0 This fund has stayed steady, but not all its resources are liquid Romania: Retail sales (% y/y) Apr 18.5 - 19.0 Retail sales remain strong amid strong wage and credit growth Hungary: Retail trade IA (% y/y) Apr 4.2 5.0 6.4 Hungary retail trade increased, in line with Q2 expansion. Turkey: CPI (% y/y) May 6.6 6.9 6.6 Inflation remain flat as food prices posted limited pick-up Preview of next week Monday 06 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:00 Czech: Retail sales (% y/y) Apr 5.4 10.5 5.0 - 6.4 - Russia: CPI (% y/y) May 8.1 7.3 7.3 7.4 7.3 Russia: Russian inflation has stabilized at this relatively moderate level. During the next two months, base effects will work against further reductions. However, starting in Q3 we expect inflation to resume easing.

Tuesday 07 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:00 Czech: Trade balance (CZK bn) Apr 25.1 22.4 21.7 - 18.5 08:00 Czech: Industrial output (% y/y) Apr 1.3 5.6 0.6 - 4.0 08:00 Hungary: Industrial production WDA (% y/y) Apr 2.1 1.6 -2.4 0.6 0.3 - Ukraine: Official reserve assets (USD bn) May 13.5 12.7 13.2 - 13.5 Wednesday 08 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 08:00 Hungary: CPI (% y/y) May 0.3 -0.2 0.2 0.3 - 08:00 Hungary: Trade balance (EUR bn) Apr P 0.5 1.0 1.0 1.0 - 08:00 Turkey: Industrial production WDA (% y/y) Apr 5.5 5.9 2.9 2.8 3.1 - Ukraine: CPI (% y/y) May 32.7 20.9 9.8 - 8.1 - Poland: Repo rate (%) Jun 1.50 1.50 1.50 1.50 1.50 Hungary: We expect Hungarian CPI to edge up y/y on a buoyant labour market. We expect the trade balance to remain in surplus. Ukraine: Currency appreciation should help to bring inflation lower. Poland: We expect the MPC to keep rates at 1.50 at this meeting, but to cut later on in the year.

Thursday 09 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 07:00 Romania: Trade balance (EUR bn) Apr -0.4 -0.6 -1.0 - - 08:00 Czech: CPI (% y/y) May 0.5 0.3 0.6 - 0.4

Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 07:00 Romania: CPI (% y/y) May -2.7 -3.0 -3.2 3.4 -3.5 08:00 Turkey: Current account (USD bn) Apr -2.2 -2.0 -3.7 - - 08:00 Turkey: GDP (% y/y) Q1 3.7 3.9 5.7 4.1 4.7 11:30 Russia: One week auction rate (%) Jun 11.00 11.00 11.00 11.00 10.50 14:00 Russia: Trade balance (USD bn) Apr 7.3 7.4 7.7 - 8.8 Russia: We believe the CBR is on the verge of being ready to cut rates. However, we think it will hold off in June to cement the gains in confidence it has made by demonstrating its determination to reach the inflation target.

3 June 2016 29 Barclays | Global Economics Weekly

OUTLOOK: SUB-SAHARAN AFRICA South Africa: Probable Q1 GDP contraction likely the nadir

Peter Worthington • In South Africa, Q1 GDP data due out next week are likely to show a 0.6% q/q saar +27 21 927 6525 contraction following the deep plunge in mining output. [email protected] • However, this week’s May manufacturing and whole-economy PMIs suggest that a Absa, South Africa moderate rebound is likely in Q2.

Miyelani Maluleke • It was a quiet week in the rest of SSA. The focus next week will be on East African +27 11 895 5655 budgets, which are expected to focus on fiscal consolidation. [email protected] Absa, South Africa The South Africa Q1 national accounts are due for release on Wednesday 8 June at 11:30 local time and we expect the data to reflect a GDP contraction in the quarter as mining output Ridle Markus dwindled, manufacturing output growth stalled and consumer spending growth slowed. In the +27 11 895 5374 mining sector, the already published high frequency data showed that output fell by 19.1% [email protected] q/q saar in Q1, the poorest quarter since Q1 14 when platinum mining was hit by a lengthy Absa, South Africa strike. While the manufacturing sector fared relatively better with paltry growth of just 0.5% q/q saar, this will not offset the mining plunge. On the demand side, both retail sales and car Dumisani Ngwenya sales data have showed a sharp slowdown in spending momentum. We thus look for a Q1 GDP contraction of 0.6% q/q saar (equivalent to -0.2% y/y). However, we note that there is +27 11 895 5346 some uncertainty regarding agriculture where the drought is receding but there may be some [email protected] lingering effects on output, including the imminent weak maize harvest and a big risk to the Absa, South Africa winter wheat harvest given continued weak rains in the Cape.

South Africa car sales fell by The Q1 GDP data are of course necessarily backwards looking and the key question now is 10.4% y/y in May whether growth will recover and how strong such a recovery is likely to be. High frequency data have remained mixed but are biased towards a bottoming in growth. On the demand side, this week’s May car sales report disappointed as domestic vehicle sales fell more than expected by 10.4% y/y (consensus: -7.7%) following a contraction of 9.2% in April. Even so, export volumes remained fairly resilient. The slowdown in vehicle export growth to 0.8% y/y (from 39.1% in April) is largely a statistical distortion related to an unusually strong base in 2015. In level terms, May car export volumes were the strongest this year and were up 2.6% m/m compared to April.

FIGURE 1 FIGURE 2 South Africa GDP likely fell in Q1 after a weak mining quarter… … but the PMIs are hinting at a modest activity rebound in Q2

% q/q, saar Mining output Index (50=neutral) Index (50=neutral) 40 58 55 56 54 30 53 54 20 52 52 51 10 50 50 49 0 48 48 46 -10 47 44 46 -20 42 45 -30 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Barclays manuf. PMI (lhs) Whole-economy PMI (rhs)

Source: BER, Markit, Barclays Research Source: BER, Markit, Barclays Research 3 June 2016 30 Barclays | Global Economics Weekly

Where the picture is more encouraging is on the supply side with the two PMI surveys showing some stabilisation. The Barclays manufacturing PMI retreated in May to 51.9 from 54.9 in April. We think the moderation from April reflects some payback following the jump in April, and the May level remains consistent with continued stabilisation in the manufacturing sector. Encouragingly, the Markit PMI also signalled some stabilisation in private sector activity coming in at 50.2 in May, the first reading above the magic 50-point mark since May 2015. The hard April mining and manufacturing production data due out for release next week are the next key releases for assessing Q2 recovery prospects. In the manufacturing data, we are expecting seasonally adjusted output growth of 0.8% m/m (sa), in line with the improvement suggested by the PMI. In mining, the very weak Q1 data were due to a large number of safety related stoppages that are unlikely to be repeated in Q2. We thus forecast seasonally adjusted output growth of 1.8% m/m (sa), partly as pay back to the sharp 3.4% m/m fall in March.

East African budgets to focus on fiscal consolidation Focus will be on budget While the past week was relatively quiet in the rest of Sub-Sahara Africa (SSA), next week presentations in East Africa promises a slew of data releases, though the focus will be on the budget presentations next week across East Africa. On 8 June, all the finance ministers from the east African region will deliver budgets, which we expect will continue to focus on infrastructure investment though fiscal consolidation will be the main theme.

Kenya likely to aim to reduce The region’s largest economy, Kenya, has already indicated that it wants to reign in the large the fiscal deficit to 6.9% of fiscal deficits averaging around 8% of GDP in recent years. The 2016-17 budget documents GDP in 2016-17 indicate the government will seek to reduce the deficit to 6.9% of GDP from an estimated 7.9% of GDP in the current fiscal year ending June. National Treasury Secretary Rotich will be aware of the consequences for sovereign ratings as the deterioration in fiscal metrics over the last five years has been key in the shift in credit rating outlooks by Fitch (since July 2015) and S&P (October 2015). Both agencies currently have their long-term foreign currency ratings on the country at B+; Moody’s affirmed its equivalent B1 rating in February 2016, with a stable outlook. S&P Global Ratings’ Financial Services Director Neil Gosrani earlier this week expressed concern on the possibility of increased spending ahead of the 2017 elections. With Kenya already rated ‘B+/B’ with a negative outlook by S&P, Gosrani added that the negative outlook means that the rating could go to ‘B’. During its ratings review in April, S&P noted that the country’s ratings are being constrained by factors that include high government debt, while it views the country’s public finances as being weak. Kenya is targeting a fiscal deficit of 6.9% of GDP in the upcoming fiscal year starting on 1 July from a projected deficit of 7.9% in FY 2015-16.

In Tanzania, the upcoming A recent IMF mission to Uganda commended the country for the steadfast implementation budget is expected to provide of fiscal policy despite the election, adding that revenue over-performed through the first more room for infrastructure half of the fiscal year. The Fund revealed that the FY 2016-17 budget will see an increase in spending infrastructure investment spending while boosting domestic revenues. In Tanzania, the upcoming budget dominated the Fund’s visit during March as budget implantation was challenging. Additional spending put the budget under pressure though authorities kept the targeted deficit of 4.2% of GDP for FY 2015-16. The upcoming fiscal year’s budget is also expected to provide more room for infrastructure spending while seeking to further reduce the fiscal deficit.

3 June 2016 31 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: SUB-SAHARAN AFRICA Dumisani Ngwenya, Miyelani Maluleke, Ridle Markus, Peter Worthington

Review of last week’s data releases

Main indicators Period Previous Barclays Actual Comments

South Africa: Private sector credit (% y/y) Apr 8.9 8.5 7.1 Figure slightly distorted by updated African Bank credit data. South Africa: Trade balance (ZARbn) Apr 2.9 -0.9 0.4 Consistent with a gradual adjustment in the trade accounts. South Africa: Main budget balance (ZARbn) Apr -18.4 -28.9 -29.1 In line with seasonal trends. South Africa: Barclays PMI (Index) May 54.9 - 51.9 Softer print likely a payback from the strong April jump. Domestic car sales were weak but export volumes remained South Africa: Domestic car sales (% y/y) May -9.2 -6.9 -10.3 resilient. South Africa: Markit PMI (Index) May 47.9 49.0 50.2 The first reading above 50 since May 2015. Nigeria: Manufacturing PMI May 43.7 - 45.7 Index remains in contractionary territory. Nigeria: Markit PMI May 50.0 - 49.2 Highlights increased economic challenges. Mauritius: PPI (% y/y) Apr 0.2 - 0.2 Index was down 0.5% m/m. Kenya: CPI (% y/y) May 5.3 5.1 5.0 Due to a combination of lower food prices and base effects. Uganda: CPI (% y/y) May 5.1 5.2 5.4 Food inflation eased further to 2.3% y/y (-0.9% m/m) Botswana: PSCE (% y/y) Mar 9.2 - 7.3 Credit extended to businesses was down 1.7% m/m. Botswana: Gross reserves (USDbn) Mar 7.3 - 7.6 Reserves cover more than 13 months of imports. Preview of the week ahead Friday, 3 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 19:00 South Africa: S&P credit rating review ------BBB-(N) BBB-(N) - South Africa: Fitch credit rating review ------BBB-(S) BBB-(N) South Africa: Ratings likely to be left unchanged by both agencies, although Fitch might assign a negative outlook.

Monday, 6 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - Kenya: Markit PMI May 55.2 52.6 54.8 - - Tuesday, 7 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - Mauritius: CPI (% y/y) May -0.5 0.9 0.2 1.3 - - Mauritius: Gross reserves (USDbn) May 4.4 4.5 4.5 4.6 - Mauritius: We look for a base-driven rise in headline inflation; FX reserves likely remained at a record high amid FX stability.

Wednesday, 8 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 12:00 Kenya, Uganda, Tanzania: 2016-17 Budget Speeches 11:30 South Africa: GDP %q/q, saar (% y/y) Q116 -2.0(1.6) 0.3(1.1) 0.5(0.1) -0.6(-0.2) - - Tanzania: CPI (% y/y) May 5.6 5.4 5.1 4.9 - - Seychelles: CPI (% y/y) May -0.6 -3.2 -1.1 -0.5 - - Mozambique: CPI (% y/y) May 12.9 12.3 15.3 17.4 - South Africa: We expect the Q1 national accounts data to show a contraction in GDP following a sharp decline in mining output, stalled manufacturing production and a substantial slowdown in household spending. However, there is some uncertainty about agriculture gross value added because drought conditions are receding but still likely to have a lingering effect.

East Africa: EAC countries will deliver their annual budget speeches (2016-17). The focus will be on infrastructure spend, revenue mobilization as well as medium-term fiscal consolidation. In Kenya, recent budget documents indicate that the government will target a deficit of 6.9% of GDP in FY 2016-17 from an estimated 7.9% of GDP in the fiscal year ending 30 June.

Thursday, 9 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 11:30 South Africa: Mining output (% m/m, sa) Apr -5.5 2.1 -3.4 1.8 - 13:00 South Africa: Manufacturing output (% m/m, sa) Apr -1.8 1.6 -0.3 0.8 - South Africa: We expect the mining and manufacturing data to have started Q2 on a slightly positive note, in line with our of a moderate growth rebound in Q2.

Friday, 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - Mauritius: Tourist arrivals (‘000) May 100.7 108.7 91.9 - - - Mauritius: Core inflation (%) May 0.9 0.6 0.7 - -

3 June 2016 32 Barclays | Global Economics Weekly

OUTLOOK: LATIN AMERICA Weak trend to the south, stable to the north

Bruno Rovai • In Latin America, incoming activity data are confirming markedly different growth + 1 212 412 5762 trends in the North and the South. [email protected] • Both Brazil and Argentina are in economic transitions and, although for different BCI, US reasons, share a declining private consumption trend.

Marco Oviedo • In contrast, Mexican activity should continue to show a stable and dynamic service +52 55 5241 3331 sector, though extractive industrial production should act as a drag this quarter. [email protected] BBMX, Mexico South America’s two main economies are going through economic transitions, though for different reasons. Brazil is emerging from the depths of recession and showing some signs of Pilar Tavella stabilization thanks to the external sector and a recovery in business confidence. Meanwhile, + 1 212 412 5564 Argentina’s transition toward a more sustainable growth pattern has only just begun. Yet both [email protected] countries share fairly weak private consumption trends that look nowhere near reversing BCI, US course. By contrast, Mexico’s activity outlook suggests a relatively stable services sector, with any weakness stemming from the oil sector as PEMEX reduces production.

We believe the peak of the In Brazil this week, a series of data releases supported our view that the recession bottomed recession in Brazil has been left in the second half of the last year and that this year’s real GDP contraction will be more behind, and incoming data contained than last years’ 3.8% fall. In Q1 16, real GDP contracted by 0.3% q/q sa, better supports this view than expectations (Barclays: -0.6%, consensus: -0.8%). This was the result of a strong contribution from net exports (stemming from a 6% q/q sa increase in exports and a 6.5% fall in imports) and a slightly better fixed-asset investment performance, though this still showed a contraction of 2.7% q/q sa (Barclays: -3.5%). Household consumption continued to fall in Q1, contracting 1.7% q/q sa.

Brazilian real GDP contracted by 5.4% y/y in Q1, from 5.9% and 4.5% in Q4 15 and Q3 15, respectively. We believe that this trend will continue in the quarters to come, in line with our forecast of a 3.1% contraction of real GDP in 2016 as a whole. Although we expect Q2 16 real GDP to be marginally weaker (-0.5% q/q sa), given the paralysis, to some extent, that the country experienced during the government transition between March and May,

FIGURE 1 FIGURE 2 In Brazil, we remain with the view that the worst of the Recovery in US PMIs implies a stabilization of Mexico’s recession behind us manufacturing

10% % y/y F 8% 15 70 65 6% 10 60 4% 5 55 2% 0 50 0% 45 -5 -2% 40 -10 -4% 35 -6% -15 30 97 98 99 01 02 03 05 06 07 09 10 11 13 14 15 17 Jan-07 Jun-08 Nov-09 Apr-11 Sep-12 Feb-14 Jul-15 Real GDP (% y/y) Mexico manufacturing US PMI

Source: IBGE, Barclays Research Source: INEGI, Bloomberg, Barclays Research

3 June 2016 33 Barclays | Global Economics Weekly

especially on the investment side, as well as in government consumption. On the other hand, net exports should continue to buffer the domestic demand recession.

Industrial production is In that regard, April industrial production grew 0.1% m/m sa, surprising consensus to the bottoming-out, with upside (-0.9% m/m sa), yet short of our forecast (0.6%). The upside surprise came from less confidence level in this sector volatile components, such as capital and intermediate goods production, while consumer reacting to the government goods production fell by 0.9% m/m sa, led by durable goods. We believe that the weaker change exchange rate, fostering production of capital goods, coupled with improved business sentiment, could be driving the bottoming-out in industrial sector activity. We believe conditions are also set for some recovery during the second half of this year, as confidence indices up to May, also released this week, showed further improvement in the manufacturing sector. Sector confidence index grew by 2.2% m/m, a second consecutive month of strong improvement, taking the confidence index level to almost the same level as in March 2015, at 79.20. This came mainly from the expectations component, which rose 3.4% m/m, while the current situation component increased for the third time in a row, by 0.9%. We believe the change in government during the period is the underlying reason for the improvement, and we think it could be sustained on the business side.

In contrast, Argentina’s Argentina’s economy is in transition: an overheated economy now needs supply-side economic cycle is only at the expansion for consumption growth to resume at sustainable levels. Real wages fell sharply in beginning, with household Q116, leading to a decline in private consumption: consumer confidence fell 18.3% y/y in consumption carrying most of April. Industrial activity fell 6.7% y/y in April, but part of the decline is explained by an the burden unusually high number of rainy days, which particularly affected the construction and agro- industrial sectors. We expect consumption to stop falling toward the end of this year on the back of a partial recovery in real wages as inflation declines and as nominal wage increases have now been set, together with some job creation from infrastructure and investment projects. Ultimately, however, the economy is counting on stronger public and private investment and a vigorous agricultural sector to provide some relief through the transition.

We expect Mexico’s economy to perform at two speeds in Q2: a very dynamic and stable services sector, which might continue growing close to 2.4% q/q saar during the quarter, contrasting with the industrial sector, which should remain soft on the back of a modest performance in manufacturing and additional output adjustments in the oil and gas sector. The trend should be confirmed next week with the release of IP data for April. We expect a flat print on a m/m basis (0.0% m/m sa). This forecast is consistent with the observed expansion in car production (5.6% m/m sa), the positive growth observed in US IP (0.3%), partially offset by another contraction in oil output (-1.6%), all observed in April. This estimate is consistent with manufacturing expanding at 0.4% m/m sa and construction reporting a flat print.

We expect a relatively stable We expect oil production to be the main drag on industrial activity in Mexico. PEMEX has services sector performance in previously announced that oil production should stabilize at around 2.1mn barrels per day Mexico, while oil production this year, so we expect output to decline by an additional 2% during the rest of the year. On should remain a drag for the other hand, manufacturing should stabilize but expand at a modest rate: US PMIs growth marginally improved to 51.3 in May from 50.8 in April. Under these circumstances, manufacturing in Mexico should be growing close to 0.7% q/q sa in Q2 16, an improvement from the 0.2% observed in Q1. Altogether, given a still-weak oil sector and modest manufacturing, we think IP will likely expand by 0.4% q/q sa, consistent with our Q2 16 GDP forecast of 0.5% q/q sa.

3 June 2016 34 Barclays | Global Economics Weekly

DATA REVIEW & PREVIEW: LATIN AMERICA

Alejandro Arreaza, Marco Oviedo, Bruno Rovai

Review of the week’s data releases

Main indicators Period Previous Barclays Actual Comments Mexico: Budget balance (YTD), MXN bn Apr -61.6 - 177.1 Includes the revenue from Banxico’s surplus of MXN239bn Colombia: Unemployment rate, % Apr 10.2 - 9.1 This number came 1.4pp lower than one year ago Peru: CPI inflation, % m/m May 0.01 - 0.21 In annual terms, inflation decelerated to 3.5% from 3.9%. Brazil: GDP, % y/y 1Q -5.9 -5.8 -5.4 The 0.3% q/q sa contraction came better than expected Mexico: Remittances, USD mn Apr 2200.8 - 2173.4 Consistent with a 8.3% y/y expansion Upside surprise is another data point indicating the peak of Brazil: Industrial production, % y/y Apr -11.4 -9.0 -7.2 recession is now behind us

Preview of the week ahead Saturday 04 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 13:00 Colombia: CPI inflation, % m/m May 1.28 0.94 0.50 - 0.47 Wednesday 8 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - Brazil: Selic overnight rate, % Jun 14.25 14.25 14.25 14.25 - 8:00 Brazil: IPCA inflation, % m/m May 0.90 0.43 0.61 0.75 - Brazil Selic overnight rate: We expect no change in the Selic rate, or any signaling of an upcoming easing on the post-decision communiqué. As this is the last meeting headed by Governor Tombini, we believe he will prefer to avoid any change in forward guidance. We continue to expect an easing cycle to being in the August meeting.

Brazil IPCA inflation: The monthly inflation reading should increase from April due to punctual regulated price adjustments (water & sewage feeds). In y/y terms, we expect that inflation will have been stable at 9.3% in May.

Thursday 9 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus 9:00 Mexico: CPI inflation, % m/m May 0.44 0.15 -0.32 -0.51 - 9:00 Mexico: CPI core inflation, % m/m May 0.36 0.36 0.22 0.19 - 13:00 Uruguay: Unemployment rate, % Apr 7.7 8.0 8.0 - - 19:00 Peru: Reference rate, % Jun 4.25 4.25 4.25 - - Mexico CPI: Our estimate is consistent with a 0.05% 2w/2w inflation print for the second fortnight of the month, which will be mostly driven by a small core inflation (0.05%) and no relevant pressures from the non-core component. Annual inflation should remain at 2.5% y/y with core at 2.9%.

Friday 10 June Period Prev – 3 Prev – 2 Prev – 1 Forecast Consensus - Costa Rica: Econ. activity index, % y/y Apr 4.7 4.9 4.7 - - 9:00 Mexico: Industrial production, % y/y Apr 0.7 2.6 -2.0 1.9 - 13:00 Uruguay: Industrial production, % y/y Apr 0.5 4.6 0.1 - - 14:00 Colombia: Banrep meeting minutes May - - - - - Mexico industrial production: We estimate a flat print at the margin (0.0% m/m sa). This forecast is consistent with the expansion in car production (5.6% m/m sa), the positive growth in US IP (0.3%), partially offset by another contraction in oil output (-1.6%), all observed in April.

3 June 2016 35 Barclays | Global Economics Weekly

COUNTRY SNAPSHOT: AUSTRALIA

2015 2016 2017 Calendar year

% change Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015E 2016E 2017E

Real GDP (% chg, q/q) 0.8 0.3 1.0 0.7 1.1 0.5 0.7 0.8 0.9 0.9 0.9 0.9 … … … … Real GDP (% chg, y/y) 2.3 2.1 2.7 2.9 3.1 3.3 3.0 3.1 2.9 3.3 3.5 3.6 2.7 2.5 3.1 3.4 Private consumption (% y/y) 2.8 2.7 2.9 2.9 3.0 3.1 3.3 3.3 3.4 3.4 3.4 3.3 2.8 2.8 3.2 3.4 Public consumption (% y/y) 1.0 3.6 3.5 3.5 3.7 2.8 2.8 2.8 2.7 2.7 2.7 2.7 0.6 2.9 3.0 2.7 Investment (% y/y) -3.8 -2.8 -4.4 -4.5 -5.7 -4.0 -2.2 -2.1 -1.2 0.0 1.2 2.4 -1.9 -3.9 -3.5 0.6 Inventories contribution (pp) 0.5 -0.7 -0.3 1.1 -0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.1 0.0 Exports (% y/y) 7.6 4.1 6.7 5.4 6.6 8.0 7.2 8.6 9.2 9.7 9.2 8.3 6.7 5.9 7.6 9.1 Imports (% y/y) 3.4 0.6 -0.1 2.1 -2.0 1.1 2.6 3.7 4.2 4.8 5.5 6.0 -1.6 1.5 1.3 5.1 Net exports contribution (pp) 0.9 0.7 1.5 0.8 1.9 1.5 1.1 1.2 1.3 1.2 1.0 0.7 1.7 1.0 1.4 1.0 Nominal GDP (% chg, q/q) 0.5 0.3 0.9 0.4 1.0 1.4 1.1 1.4 1.5 1.8 1.3 1.6 2.9 1.8 3.3 6.0 Unemployment rate (end, %) 6.3 6.0 6.2 5.8 5.8 6.0 5.9 5.8 5.7 5.6 5.5 5.5 6.1 6.1 5.9 5.6 CPI inflation (y/y) 1.3 1.5 1.5 1.7 1.3 1.4 1.6 1.8 2.5 2.5 2.5 2.6 2.5 1.5 1.5 2.5 Underlying inflation (y/y) 2.3 2.2 2.1 2.0 1.5 1.7 1.9 1.9 2.5 2.5 2.6 2.7 2.5 2.2 1.8 2.6 Current account (% GDP) -3.3 -4.7 -4.5 -4.6 -5.1 -5.1 -5.0 -4.9 -4.9 -4.8 -4.9 -5.0 -3.0 -4.3 -5.0 -4.9 RBA cash rate (period end, %) 2.25 2.00 2.00 2.00 2.00 1.75 1.75 1.75 1.75 2.00 2.25 2.50 2.50 2.00 1.75 2.50 Note: With 1Q16 GDP growth of 1.1% q/q against our forecast of 0.7%, our 2016 GDP forecast rises from 2.9% to 3.1%. Source: Australian Bureau of Statistics, Reserve Bank of Australia, Barclays Research COUNTRY SNAPSHOT: BRAZIL

2015 2016 2017 Calendar year average % change q/q saar (unless otherwise stated) Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2014 2015E 2016E 2017E

Real GDP -4.5 -7.7 -6.2 -5.2 -1.1 -2.1 -0.8 0.8 0.8 1.2 0.6 1.2 0.1 -3.8 -3.1 0.5 Private consumption -9.9 -8.2 -6.2 -3.6 -6.7 -2.0 -1.2 0.8 0.6 0.8 1.0 1.4 1.3 -4.0 -4.2 0.4 Investment -14.7 -25.9 -14.8 -17.7 -10.4 -3.9 -2.0 -0.8 -0.8 1.0 0.8 0.8 -4.5 -14.1 -10.8 -0.5 Net exports (contr, % y/y) … … … … … … … … … … … … 0.0 2.7 2.9 0.2 Industrial output (PA) -10.5 -9.5 -12.7 -15.1 -1.8 -0.8 0.3 1.6 0.7 0.8 0.8 1.5 -2.9 -8.3 -5.8 0.8 CPI inflation (% y/y)* 8.1 8.9 9.5 10.7 9.4 8.8 8.4 7.2 6.5 6.2 6.2 6.3 6.4 10.7 7.2 6.3 CPI inflation (% y/y, PA) 7.7 8.5 9.5 10.4 10.1 9.1 8.5 7.6 6.6 6.3 6.2 6.2 6.3 9.0 8.8 6.3 Unemployment rate % (PA) 5.8 6.7 7.5 8.5 9.4 10.0 10.4 10.9 11.1 11.1 11.3 11.4 4.8 7.1 10.2 11.2 Key central bank rate (EOP)* 12.75 13.75 14.25 14.25 14.25 14.25 14.00 13.00 12.00 11.25 10.75 10.50 11.75 14.25 13.00 10.50 Current account (% GDP)* … … … … … … … … … … … … -4.3 -3.3 -1.5 -1.0 Government balance (% GDP)* … … … … … … … … … … … … -6.0 -10.5 -11.3 -10.5 Gross public debt (% GDP)* … … … … … … … … … … … … 57.2 67.1 77.3 83.1 Gross external debt (% GDP)* … … … … … … … … … … … … 14.6 18.8 23.4 24.4 Note: *End of period for quarters and years. Source: IBGE, BCB, National Treasury, Barclays Research

3 June 2016 36 Barclays | Global Economics Weekly

COUNTRY SNAPSHOT: CHINA

2015 2016 2017 Calendar year average

% change y/y Q1 Q2 Q3 Q4 Q1 Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2014 2015 2016E 2017E

Real GDP 7.0 7.0 6.9 6.8 6.7 6.5 6.3 6.1 5.9 5.7 5.7 5.7 7.3 6.9 6.4 5.8 Real GDP (q/q, saar) 6.5 7.3 6.8 6.4 6.3 6.5 5.9 5.7 5.6 5.7 5.7 5.6 … … … … Real GDP (% y/y, YTD) 7.0 7.0 6.9 6.9 6.7 6.6 6.5 6.4 5.9 5.8 5.8 5.8 … … … … Consumption* (pp) 4.5 4.1 4.0 4.6 4.5 4.3 4.1 4.2 3.9 3.8 3.8 3.8 3.7 4.6 4.2 3.8 Investment* (pp) 1.2 2.6 3.0 2.5 2.5 2.4 2.4 2.4 2.1 2.3 2.1 2.1 3.4 2.5 2.4 2.1 Net exports contribution* (pp) 1.3 0.3 -0.1 -0.2 -0.3 -0.1 0.0 -0.2 -0.1 -0.3 -0.1 -0.1 0.2 -0.2 -0.2 -0.1 Industrial output 6.1 6.3 5.8 5.8 5.8 6.0 6.0 5.9 5.8 5.5 5.3 5.1 8.1 6.0 5.9 5.4 CPI inflation 1.2 1.4 1.7 1.5 2.1 2.5 2.2 1.9 1.8 1.9 1.8 1.6 2.0 1.4 2.2 1.8 Unemployment rate (%) 4.0 4.0 4.1 4.0 4.0 4.0 4.0 4.0 4.1 4.1 4.1 4.1 4.1 4.0 4.0 4.1 Current account (% GDP) 3.2 2.7 2.2 3.1 2.0 3.3 3.1 3.2 2.7 2.9 2.4 3.0 2.1 2.8 2.9 2.8 Government balance (% GDP) … … … … -1.8 -3.4 -3.5 -3.5 Key CB rate (period end, %) 5.35 4.85 4.60 4.35 4.35 4.35 4.10 3.85 3.85 3.85 3.85 3.85 5.60 4.35 3.85 3.85 Note: All numbers are expressed in y/y % change unless otherwise specified. *Contributions by GDP expenditure components are all reported as “year to date” numbers officially. Source: Barclays Research

COUNTRY SNAPSHOT: EURO AREA

2015 2016 2017 Calendar year average

% change q/q Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2014 2015 2016E 2017E Real GDP 0.6 0.4 0.3 0.3 0.5 0.4 0.4 0.4 0.5 0.4 0.4 0.5 ...... Real GDP (saar) 2.3 1.6 1.2 1.3 2.1 1.5 1.7 1.7 1.9 1.7 1.8 1.8 ...... Real GDP (y/y) 1.3 1.6 1.6 1.6 1.5 1.5 1.6 1.8 1.7 1.7 1.8 1.8 0.9 1.5 1.6 1.7 Private consumption 0.5 0.3 0.5 0.2 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.8 1.7 1.8 1.7 Public consumption 0.5 0.3 0.3 0.6 0.5 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.8 1.3 1.8 1.4 Investment 1.4 0.1 0.4 1.3 1.1 0.6 0.7 0.7 0.7 0.7 0.8 0.8 1.4 2.6 3.4 2.9 Inventories contribution (pp) 0.2 -0.2 0.3 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.0 Final dom. demand cont. (pp) 0.7 0.3 0.4 0.5 0.7 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.9 1.8 2.1 1.9 Net exports contribution (pp) -0.2 0.4 -0.4 -0.3 -0.2 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.1 -0.6 -0.1 Industrial output (ex construct.) 0.9 0.2 0.2 0.2 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.8 1.4 1.1 1.3 Employment (q/q) 0.2 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.6 1.0 1.1 1.0 Unemployment rate % 11.2 11.0 10.7 10.5 10.3 10.3 10.2 10.0 9.9 9.8 9.6 9.5 11.6 10.9 10.2 9.7 CPI inflation y/y -0.3 0.2 0.1 0.2 0.0 -0.2 0.0 0.4 0.9 1.0 1.0 1.0 0.4 0.0 0.0 1.0 Core CPI (ex food/energy) y/y 0.7 0.8 0.9 1.0 1.0 0.7 0.8 0.8 0.8 1.0 1.0 1.0 0.8 0.8 0.8 1.0 Current account % GDP 3.3 3.2 3.2 3.2 3.1 3.0 2.9 2.9 2.9 2.9 2.9 2.9 2.5 3.2 3.0 2.9 Government balance % GDP … … … … … … … … … … … … -2.6 -2.0 -1.8 -1.6 Refi rate (period end %) 0.05 0.05 0.05 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.05 0.05 0.00 0.00 Note: All numbers expressed in % q/q unless otherwise specified. Source: Barclays Research

3 June 2016 37 Barclays | Global Economics Weekly

COUNTRY SNAPSHOT: INDIA

FY 14-15 FY 15-16 FY 16-17 Fiscal year average

% change y/y Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013-14 2014-15 2015-16 2016-17

Real GDP 7.5 8.3 6.6 6.7 7.5 7.6 7.2 7.9 7.4 7.5 8.1 8.0 6.6 7.2 7.6 7.8 Private consumption 8.2 9.2 1.5 6.6 6.9 6.3 8.2 8.3 8.0 8.0 8.0 8.0 6.8 6.2 7.4 8.0 Public consumption 9.0 15.4 33.2 -3.3 -0.2 3.3 3.0 2.9 6.0 7.0 9.0 9.0 0.4 12.8 2.2 7.6 Fixed investment 8.3 2.2 3.7 5.4 7.1 9.7 1.2 -1.9 6.0 6.0 6.5 6.5 3.4 4.9 3.9 6.2

CPI inflation (average) 7.9 6.7 4.1 5.3 5.1 3.9 5.3 5.3 5.0 4.6 4.4 5.4 9.4 6.0 4.9 4.8 Current account (% GDP) … … … … … … … … … … … … -1.7 -1.3 -0.8 -0.9 General govt balance … … … … … … … … … … … … -7.1 -6.4 -6.0 -5.5 (% GDP) Repo rate (period end, %) 8.00 8.00 8.00 7.50 7.25 6.75 6.75 6.75 6.50 6.25 6.25 6.25 8.00 7.50 6.75 6.25 Note: Values expressed in y/y % unless otherwise specified. India’s fiscal year begins in April and ends in March. Source: Barclays Research COUNTRY SNAPSHOT: JAPAN

2015 2016 2017 Calendar year average

% change q/q Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2015 2016E 2017E Real GDP 1.3 -0.4 0.4 -0.4 0.5 0.1 0.4 0.5 0.5 0.6 0.5 0.5 Real GDP (q/q, saar) 5.4 -1.7 1.6 -1.7 2.1 0.5 1.8 1.9 2.0 2.3 2.1 2.0 Real GDP (y/y) -1.0 0.7 1.8 0.7 0.0 0.6 0.7 1.6 1.6 2.0 2.1 2.1 0.6 0.7 1.9 Private consumption 0.2 -0.8 0.5 -0.8 0.5 0.2 0.2 0.2 0.2 0.2 0.2 0.2 -1.2 0.2 0.8 Public consumption 0.3 0.5 0.2 0.7 0.7 0.5 0.3 0.2 0.2 0.2 0.2 0.2 1.2 2.0 0.9 Residential investment 2.1 2.2 1.7 -1.0 -0.8 0.9 1.1 1.1 1.0 0.8 0.9 1.0 -2.5 1.3 4.0 Public investment -2.8 3.0 -2.2 -3.5 0.3 0.9 2.3 1.3 2.8 3.6 2.7 1.5 -2.5 -0.3 9.8 Capital Investment 3.8 -1.6 0.7 1.2 -0.2 -0.9 0.8 1.3 1.1 1.2 1.2 1.3 1.5 0.3 4.1 Net exports (q/q cont.) 0.1 -0.3 0.1 0.1 0.2 -0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.2 0.3 Exports 2.2 -4.8 2.6 -0.8 0.6 0.9 1.3 1.5 1.6 1.6 1.6 1.6 2.8 1.8 6.1 Imports 1.5 -2.6 1.7 -1.1 -0.5 1.1 1.2 1.3 1.5 1.4 1.4 1.5 0.3 0.7 5.6 Ch. Inventories (q/q cont.) 0.6 0.3 -0.1 -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 -0.1 0.0 Nominal GDP 2.0 -0.1 0.7 -0.2 0.5 0.3 0.7 0.7 0.6 0.8 0.7 0.7 2.5 1.4 2.7 Industrial output 1.1 -1.3 -1.0 -0.0 -1.0 1.5 1.2 1.3 1.7 1.5 1.3 1.0 -1.2 0.4 5.6 Employment -0.0 -0.0 0.4 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.4 1.1 0.6 Unemployment rate (%) 3.5 3.4 3.4 3.3 3.2 3.3 3.2 3.2 3.2 3.2 3.2 3.2 3.4 3.2 3.2 CPI inflation (y/y) 2.1 0.1 -0.1 0.0 -0.1 -0.5 -0.5 -0.2 0.5 0.9 1.2 1.2 0.5 -0.3 0.9 Core CPI ex food/energy (y/y) 2.1 0.4 0.8 0.8 0.7 0.5 0.3 0.2 0.4 0.3 0.3 0.3 1.0 0.4 0.3 Current account (% GDP) 2.8 3.2 3.2 3.8 3.9 4.2 4.2 4.1 3.8 4.0 4.0 4.1 3.3 4.1 4.0 Government balance (% GDP) … … … … … … … … … … … … -6.8 -5.8 -5.3 Overnight call rate (% EOP) 0.10 0.10 0.10 0.10 -0.1 -0.1 -0.3-0.1 -0.3-0.1 -0.3-0.1 -0.3-0.1 -0.3-0.1 -0.3-0.1 0.10 -0.3-0.1 -0.3-0.1 Note: Central bank rates are for end of period, %. Source: BoJ, Cabinet Office, METI, MIC, MoF, Barclays Research

3 June 2016 38 Barclays | Global Economics Weekly

COUNTRY SNAPSHOT: MEXICO

2015 2016 2017 Calendar year average % change q/q saar (unless otherwise stated) Q1 Q2 Q3 Q4E Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2014 2015E 2016E 2017E

Real GDP 1.8 2.5 3.2 2.2 3.3 2.0 2.0 2.8 2.8 3.0 2.9 2.9

Real GDP (% y/y) 2.6 2.3 2.7 2.4 2.6 2.7 2.4 2.5 2.4 2.7 2.9 2.9 2.2 2.5 2.5 2.7 Private consumption 4.3 2.8 3.2 3.8 3.2 1.9 2.4 2.9 2.9 3.0 2.9 2.9 1.8 2.9 2.5 2.8 Public consumption 4.4 0.2 2.8 1.4 1.8 1.3 1.3 1.6 1.6 1.7 1.7 1.7 2.4 2.2 1.4 1.6 Investment 2.8 2.7 1.8 -4.2 4.2 3.5 3.5 5.5 6.5 4.0 5.5 7.5 2.9 4.6 4.9 5.3 Exports 9.2 3.3 10.3 -1.8 5.8 6.5 6.5 6.0 6.1 6.0 6.0 6.0 7.0 9.7 6.9 6.1 Imports 2.6 2.1 8.4 -3.3 6.2 5.5 5.5 5.9 5.9 6.0 5.9 5.9 6.0 5.9 6.0 5.9 Industrial output -0.2 -0.5 2.9 -1.1 2.0 1.9 2.0 2.3 4.9 4.4 4.4 4.4 2.6 1.0 1.4 3.7 Nominal GDP (% y/y) 5.3 5.1 5.2 5.0 5.9 5.2 5.2 5.6 5.5 5.7 6.0 6.0 7.0 5.1 5.6 6.1 CPI inflation (% y/y, avg) 3.1 2.9 2.6 2.3 2.7 2.6 2.8 2.8 3.0 2.8 2.8 3.1 4.0 2.7 2.7 2.9 Unemployment rate (%, avg) 4.3 4.3 4.2 4.2 4.2 3.9 3.8 3.6 3.5 3.4 3.3 3.3 4.7 4.3 3.9 3.4 Key central bank rate (%, eop)* 3.00 3.00 3.00 3.25 3.75 4.25 4.25 4.50 4.75 5.00 5.25 5.25 3.00 3.25 4.50 5.25 Current account (% GDP)* … … … … … … … … … … … … -1.9 -2.9 -3.1 -2.8 Government balance (% GDP)* … … … … … … … … … … … … -3.1 -3.5 -2.5 -2.5 Gross public debt (% GDP)* … … … … … … … … … … … … 41.9 46.5 48.6 48.4 Gross external debt (% GDP)* … … … … … … … … … … … … 33.1 38.8 44.0 43.7 Note: *End of period for quarters and years. Source: INEGI, Banxico, SHCP, Barclays Research COUNTRY SNAPSHOT: SOUTH AFRICA

2015 2016 2017 Calendar-year average

% change q/q saar* Q1 Q2 Q3 Q4 Q1F Q2F Q3F Q4F Q1F Q2F Q3F Q4F 2014 2015 2016F 2017F

Real GDP 1.4 -1.3 0.7 0.6 -0.6 0.6 0.9 1.2 1.4 1.6 1.9 2.0 1.5 1.3 0.3 1.4 Real GDP (y/y) 2.0 1.6 1.2 0.3 -0.2 0.3 0.4 0.5 1.0 1.3 1.5 1.7 1.5 1.3 0.3 1.4 Private consumption 2.6 1.2 0.9 1.6 -0.3 0.1 0.4 0.6 1.0 1.5 1.9 2.2 1.4 1.6 0.5 1.1 Public consumption -2.0 0.4 1.0 1.2 1.9 2.1 2.2 2.2 2.2 2.0 2.1 1.6 1.9 0.3 1.7 2.1 Investment 1.9 1.2 0.6 2.6 0.7 0.6 0.8 1.3 1.6 1.9 2.2 2.5 -0.4 1.4 1.1 1.6 Exports 12.1 8.4 4.3 -0.8 2.6 3.7 4.5 4.7 4.8 5.1 5.3 5.4 2.6 9.0 3.1 4.8 Imports 15.1 -7.0 6.8 11.2 2.8 3.8 5.1 5.9 5.9 5.9 5.8 5.3 -0.5 5.7 4.8 5.7 - Industrial output (y/y) -1.4 -6.7 5.5 2.0 … … … … … … … … 0.1 -0.1 … … CPI inflation (y/y) 4.1 4.6 4.7 4.9 6.5 6.5 6.8 7.6 7.4 6.5 6.1 5.8 6.1 4.6 6.8 6.5 Core CPI ex food/energy (y/y) 5.8 5.6 5.3 5.2 5.5 5.6 5.8 5.9 5.4 5.4 5.5 5.5 5.6 5.5 5.7 5.5 Current account (% GDP) -5.0 -3.1 -4.3 -5.1 -4.0 -4.5 -4.4 -4.3 -4.2 -4.1 -4.1 -4.2 -5.4 -4.4 -4.3 -4.2 Government balance (% GDP)** … … … … ...... -3.8 -3.6 -3.8 -3.3 Repurchase rate (period end, %) 5.75 5.75 6.00 6.25 7.00 7.00 7.25 7.50 7.75 7.75 7.75 7.50 5.75 6.25 7.50 7.50 Note: All numbers expressed in q/q saar % unless otherwise specified; *Historical national accounts data are based on the last SARB Quarterly Bulletin pending the release of a more complete revised data from Stats SA in June; **Consolidated budget figures represent financial years (ie, FY 09/10 = 2010). Source: SARB, Statistics South Africa, National Treasury, Barclays Research

3 June 2016 39 Barclays | Global Economics Weekly

COUNTRY SNAPSHOT: SOUTH KOREA

2015 2016 2017 Calendar year average

% Change Q1 Q2 Q3 Q4 Q1 Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2014 2015 2016E 2017E

Real GDP (q/q, saar) 3.2 1.7 5.0 2.7 2.1 2.6 1.6 2.4 2.4 2.7 2.4 2.0 Real GDP (y/y) 2.4 2.2 2.8 3.1 2.8 3.1 2.2 2.2 2.3 2.3 2.5 2.4 3.3 2.6 2.5 2.4 Private consumption 1.5 1.7 2.2 3.3 2.2 4.0 2.7 2.4 2.8 2.5 2.0 2.0 1.7 2.2 2.8 2.3 Public consumption 3.2 3.3 3.0 3.9 4.5 5.0 4.3 4.0 3.5 3.0 1.5 2.1 3.0 3.4 4.5 2.5 GFCF 2.6 2.2 5.1 5.4 3.0 4.0 2.5 4.0 2.5 2.1 2.1 2.0 3.4 3.8 3.5 2.2 Exports 0.5 -0.4 0.5 2.5 0.7 2.3 3.8 3.0 4.5 4.0 4.2 4.0 2.0 0.8 2.4 4.2 Imports 2.1 1.6 3.1 6.1 1.9 1.0 0.0 -1.0 3.3 3.5 3.0 3.7 1.5 3.2 0.4 3.4 Industrial output -1.1 -1.2 -0.2 -0.1 -0.3 2.2 1.1 2.5 2.1 1.8 1.4 1.1 0.6 -0.9 1.4 1.6 Unemployment rate (%) 3.6 3.8 3.6 3.5 3.8 3.7 3.8 3.8 3.8 3.7 3.8 3.7 3.5 3.6 3.8 3.8 CPI inflation (y/y) 0.6 0.5 0.7 1.1 1.0 1.0 1.4 1.6 1.8 1.9 1.9 1.7 1.3 0.7 1.3 1.8 Current account (% GDP) 6.0 7.7 7.8 7.0 Government balance (% GDP) -1.7 -3.0 -2.3 -2.0 Key CB rate (period end, %) 1.75 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 2.00 1.50 1.50 1.50 Note: With 1Q16 GDP revised higher in the second estimate, our 2016 GDP forecast is marked higher from 2.5% to 2.6%. All numbers expressed in y/y basis unless otherwise specified. Source: Barclays Research

COUNTRY SNAPSHOT: UNITED KINGDOM

Calendar year 2015 2016 2017 average

% Change q/q Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 2015 2016E 2017E

Real GDP 0.5 0.6 0.4 0.6 0.4 0.0 0.6 0.5 0.4 0.5 0.5 0.5 … … … Real GDP (saar) 1.8 2.4 1.8 2.4 1.4 -0.2 2.2 1.8 1.8 2.2 2.1 2.1 … … … Real GDP (y/y) 2.6 2.4 2.2 2.1 2.0 1.4 1.5 1.3 1.4 2.0 2.0 2.0 2.3 1.5 1.9 Private consumption 0.8 0.8 0.5 0.6 0.7 0.4 0.5 0.5 0.6 0.6 0.7 0.7 2.7 2.2 2.3 Public consumption 0.4 0.7 0.7 0.3 0.4 0.0 0.0 0.0 0.3 0.3 0.3 0.3 1.5 1.1 0.8 Investment 1.5 1.3 0.4 -1.1 0.5 -1.6 1.8 1.5 0.7 0.8 0.8 0.9 4.1 0.2 3.6 Inventories (pp) 0.3 -1.7 0.7 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.4 0.2 0.0 Net exports (pp) -1.2 1.7 -1.1 -0.3 -0.4 0.0 0.0 -0.1 -0.1 -0.1 -0.2 -0.2 -0.5 -0.8 -0.4 Nominal GDP (y/y) 3.3 2.7 2.2 2.2 2.5 2.4 2.5 3.1 3.5 4.0 4.0 4.1 2.6 2.6 3.9 Employment 31.2 31.1 31.3 31.5 31.6 31.6 31.6 31.7 31.8 31.8 31.9 32.0 31.3 31.6 31.9 Unemployment rate (%) 5.6 5.6 5.3 5.1 5.1 5.1 5.2 5.1 5.1 5.0 4.9 4.8 5.4 5.1 5.0 CPI inflation (y/y) 0.1 0.0 0.0 0.1 0.3 0.4 0.7 0.8 1.4 1.6 1.5 1.6 0.0 0.6 1.5 Current account (% GDP) -5.3 -4.1 -4.3 -7.0 -6.8 -6.8 -6.6 -6.6 -6.8 -6.9 -7.0 -7.2 -5.2 -6.7 -7.0 Government balance (% GDP) … … … … … … … … … … … … -4.0 -3.2 -2.5 Bank Rate (EOP) 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 0.75 1.00 0.50 0.50 1.00 Note: Government balance is fiscal year forecasts, eg, 2015 = FY 15/16, and defined as public sector net borrowing excluding financial interventions. Source: ONS, Barclays Research

3 June 2016 40 Barclays | Global Economics Weekly

COUNTRY SNAPSHOT: UNITED STATES

2015 2016 2017 Calendar year average % Change q/q saar Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2015 2016 2017 Real GDP 0.6 3.9 2.0 1.4 0.8 2.0 2.5 2.5 2.5 2.5 2.5 2.0 2.4 2.4 1.8 2.4 Real GDP (% y/y) 2.9 2.7 2.1 2.0 2.0 1.6 1.7 2.0 2.4 2.5 2.5 2.4 Private consumption 1.8 3.6 3.0 2.4 1.9 2.5 2.5 2.5 2.5 2.5 2.5 2.0 2.7 3.1 2.5 2.5 Public consump and invest. -0.1 2.6 1.8 0.1 1.2 1.0 1.0 1.0 0.5 0.5 0.5 0.5 -0.6 0.7 1.1 0.7 Residential investment 10.1 9.3 8.2 10.1 17.1 7.0 7.0 6.0 5.0 4.5 4.0 4.0 1.8 8.9 10.3 5.3 Equipment investment 2.3 0.3 9.9 -2.1 -9.0 2.5 5.0 5.0 6.0 6.0 6.0 5.0 5.8 3.1 -0.2 5.4 Intellectual property investment 7.4 8.3 -0.8 -0.2 -0.1 4.0 6.0 6.0 6.0 6.0 6.0 5.0 5.2 5.7 2.2 5.8 Structures investment -7.4 6.2 -7.2 -5.1 -8.9 -2.5 2.5 4.0 5.0 5.0 5.0 4.0 8.1 -1.5 -3.7 4.0 Exports -6.0 5.1 0.7 -2.0 -2.0 1.0 2.0 3.0 3.5 4.0 4.0 4.0 3.4 1.1 0.1 3.3 Imports 7.1 3.0 2.3 -0.7 -0.2 2.0 3.5 4.5 4.5 4.5 4.5 4.5 3.8 4.9 1.4 4.2 Net exports (contr to GDP, pp) -1.9 0.2 -0.3 -0.1 -0.2 -0.2 -0.3 -0.3 -0.2 -0.2 -0.2 -0.2 -0.2 -0.6 -0.2 -0.2 Ch. inventories (contr to GDP, pp) 0.9 0.0 -0.7 -0.2 -0.2 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.2 -0.2 0.0 Final sales to domestic purchasers 1.7 3.7 2.9 1.7 1.2 2.4 2.7 2.7 2.7 2.7 2.7 2.2 2.5 2.8 2.2 2.6 GDP price index 0.1 2.1 1.3 0.9 0.6 2.1 2.1 2.1 2.2 2.2 2.3 2.3 1.6 1.0 1.4 2.2 Nominal GDP 0.8 6.1 3.3 2.3 1.4 4.2 4.6 4.7 4.7 4.8 4.8 4.4 4.1 3.5 3.2 4.7 Employment (avg mthly chg, K) 190 251 192 282 196 112 175 175 175 175 150 150 251 229 164 163 Unemployment rate (%) 5.5 5.4 5.1 5.0 4.9 4.7 4.4 4.3 4.2 4.1 3.9 3.8 6.2 5.3 4.6 4.0 CPI inflation (%y/y) -0.1 0.0 0.1 0.5 1.1 1.1 1.7 2.1 2.7 2.7 2.4 2.4 1.6 0.1 1.5 2.6 Core CPI (%y/y) 1.7 1.8 1.8 2.0 2.2 2.2 2.3 2.4 2.3 2.5 2.5 2.6 1.7 1.8 2.3 2.5 PCE price index (% y/y) 0.2 0.3 0.3 0.5 1.0 0.9 1.1 1.4 1.8 1.9 1.9 2.0 1.4 0.3 1.1 1.9 Core PCE price index (%y/y) 1.3 1.3 1.3 1.4 1.7 1.6 1.8 2.0 2.0 2.1 2.2 2.2 1.5 1.3 1.8 2.1 Current account (%GDP) -2.7 -2.5 -2.9 -2.8 -2.7 -2.8 -2.8 -2.8 -2.9 -2.9 -3.0 -3.2 -2.2 -2.7 -2.8 -3.0 Federal budget bal. (%GDP) -4.0 -2.5 -3.0 -3.0 Federal funds, target range (%) 0-0.250-0.25 0-0.25 0.25-0.5 0.25-0.50.25-0.50.5-0.750.5-0.75 0.75-1.0 0.75-1.0 1.0-1.25 1.25-1.5 Note: All numbers expressed in q/q saar % unless otherwise specified. The budget balance is fiscal year. Source: BEA, BLS, Federal Reserve, US Treasury, Barclays Research

3 June 2016 41 Barclays | Global Economics Weekly

GLOBAL WEEKLY CALENDAR

Saturday 04 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus - US: Cleveland Fed President Mester (FOMC voter) speaks on Macro and Financial Stability in Stockholm, Sweden 17:00 Colombia: CPI inflation, % m/m May 1.28 0.94 0.50 - 0.46

Monday 06 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus - UK: Parliament reconvenes after the Whitsun Recess 08:00 E19: ECB Vice President Constâncio speaks at ESRB high-level international conference in Frankfurt, Germany 06:00 US: Boston Fed President Rosengren (FOMC voter) speaks at the Helsinki central banking conference in Finland 13:45 E19: ECB Executive Board Member Cœuré speaks at ESRB high-level international conference in Frankfurt, Germany 16:30 US: Fed Chair Yellen (FOMC voter) to address World Affairs Council of Philadelphia in Philadelphia, PA - Indonesia: Foreign Reserves, $ bn (to 7/06) May 104.5 107.5 107.7 107.0 - - India: Current account, $ bn (to 30/06) Q1 -6.1 -8.7 -7.1 3.0 1.8 - Russia: CPI, % y/y (to 07/06) May 8.1 7.3 7.3 7.4 7.3 01:00 Australia: TDMI inflation gauge, % m/m May -0.2 0.0 0.1 - - 01:30 Australia: Job advertisements, % m/m May -1.2 0.1 -0.8 - - 06:00 Germany: Factory orders, % m/m (y/y) Apr 0.5 (0.4) -0.8 (0.7) 1.9 (1.7) -0.2 (0.4) -0.5 (0.5) 14:00 US: Federal Reserve LMCI, chg May -2.6 -2.1 -0.9 - - 22:00 New Zealand: ANZ truckometer, % m/m May 1.7 3.3 -2.4 - - 23:30 Australia: AIG construction PCI, index May 46.1 45.2 50.8 - -

Tuesday 07 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus 04:30 Australia: RBA cash rate, % Jun 2.00 2.00 1.75 1.75 1.75 05:30 India: RBI repo rate, % Jun 6.75 6.75 6.50 6.50 6.50 05:30 India: RBI reverse repo rate, % Jun 5.75 5.75 6.00 - 6.00 20:00 UK: PM David Cameron and UKIP leader Nigel Farage Q&A on EU referendum on ITV - China: Foreign reserves, $ bn May 3202.3 3212.6 3219.7 3193.0 3200.0 00:30 Taiwan: CPI, % y/y May 2.41 2.01 1.88 1.60 1.64 01:00 Philippines: CPI, % y/y May 0.9 1.1 1.1 1.4 1.3 06:00 Germany: Industrial production, % m/m (y/y) Apr 2.3 (1.8) -0.7 (2.0) -1.3 (0.3) 1.0 (1.2) 0.7 (1.0) 06:45 France: Trade balance, € bn Apr -3.9 -5.1 -4.4 - - 06:45 France: Budget, year-to date, € bn Apr -9.2 -25.6 -27.5 - - 07:00 Slovakia: Final GDP, % q/q Q1 0.9 1.0 0.7 P - - 07:00 Spain: Industrial production, % m/m (y/y) Apr -0.2 (3.4) -0.3 (2.1) 1.2 (2.8) - - 07:30 UK: Halifax house price index, % m/m (3m/y) May -1.5 (9.7) 2.2 (10.1) -0.8 (9.2) - 0.3 (8.9) 08:00 Taiwan: Exports, % y/y May -12.0 -11.4 -6.5 -9.8 -10.1 08:00 Norway: Manufacturing production, % m/m (y/y) Apr -1.0 (-6.3) 0.8 (-6.0) 0.9 (-7.1) - - 09:00 E19: Final GDP, % q/q Q1 0.3 0.3 0.5 P 0.5 - 11:00 Brazil: IGP-DI inflation, % m/m May 0.79 0.43 0.36 - - 12:30 US: Non-farm productivity-p, % q/q Q1-F 2.1 -1.7 -1.0 P -0.6 -0.6 12:30 US: Unit labor cost-p, % q/q Q1-F 1.9 2.7 4.1 P 3.6 4.0 14:00 Canada: Ivey PMI, index May 53.4 50.1 53.1 - - 22:45 New Zealand: Manufacturing activity, % q/q Q1 0.0 3.3 1.3 - - 23:01 UK: REC Permanent Staff Placements, index May 56.6 53.7 53.4 - - 23:01 UK: REC Permanent Staff Salaries, index May 59.3 59.9 59.1 - - 23:50 Japan: Current account, SA, JPY bn Apr 1357.7 1686.6 1893.6 2116.0 2035.0 23:50 Japan: Final Real GDP, % q/q Q1 -0.4 0.4 0.4 0.5 0.5 23:50 Japan: Final Annualized GDP, % q/q saar Q1 -1.7 1.6 1.7 2.1 2.0 23:50 Japan: Bank lending, including shinkin, % y/y May 2.2 2.0 2.2 2.2 -

Wednesday 08 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus - Brazil: Selic overnight rate, % Jun 14.25 14.25 14.25 14.25 14.25 - Poland: Repo rate% Jun 1.50 1.50 1.50 1.50 1.50 10:30 E19: ECB SSM Chair Nouy provides interview at Goldman Sachs 20th Annual European Financial Conference in Paris, France 21:00 New Zealand: RBNZ official cash rate, % Jun 2.50 2.25 2.25 2.00 2.00 - China: Trade Balance, $ bn May 32.6 29.9 45.6 60.0 55.6 - China: Exports, % y/y May -25.4 11.5 -1.8 -3.5 -4.2

- China: Imports, % y/y May -13.8 -7.6 -10.9 -6.5 -6.8 Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue. Sources: Reuters, Market News, Bloomberg, Barclays Research

3 June 2016 42 Barclays | Global Economics Weekly

Wednesday 08 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus - Ukraine: CPI, % y/y May 32.7 20.9 9.8 - 8.1 01:30 Australia: Home loans, % m/m Apr -3.5 0.9 -0.9 - 2.5 01:30 Australia: Investment lending, % m/m Apr -1.0 3.1 1.5 - - 05:00 Japan: Economy watchers' DI May 44.6 45.4 43.5 - 43.4 06:30 France: BdF industrial business sentiment, index May 98 99 99 - 100 07:00 Hungary: CPI, % y/y May 0.3 -0.2 0.2 0.3 0.1 07:00 Hungary: Preliminary Trade balance, EUR bn Apr 0.5 1.0 1.0 1.0 0.5 07:00 Turkey: Industrial production WDA, % y/y Apr 5.5 5.9 2.9 2.8 2.8 07:15 Switzerland: CPI, % m/m (y/y) May 0.2 (-0.8) 0.3 (-0.9) 0.3 (-0.4) - 0.2 (-0.4) 08:30 UK: Industrial output, % m/m (y/y) Apr 0.2 (0.1) -0.2 (0.1) 0.3 (-0.2) 0.0 (-0.4) 0.0 (-0.4) 08:30 UK: Manufacturing output, % m/m (y/y) Apr 0.5 (-0.3) -0.9 (-1.6) 0.1 (-1.9) -0.1 (-1.5) 0.0 (-1.6) 09:00 Malta: GDP, % q/q Q1 2.0 1.4 1.1 - - 09:30 South Africa: GDP % q/q, saar (% y/y) Q1 -2.0 (1.6) 0.3 (1.1) 0.5 (0.1) -0.6 (-0.2) - 12:00 Brazil: IPCA inflation, % m/m May 0.90 0.43 0.64 0.75 - 12:15 Canada: Housing starts, k saar May 217.3 202.4 191.5 - - 12:30 Canada: Building permits, % m/m Apr -9.5 15.3 -7.0 - - 14:00 US: JOLTS, k job openings Apr 5604.0 5608.0 5757.0 - - 23:01 UK: RICS house price balance May 50 42 41 - 35 23:50 Japan: Core machinery orders, % m/m Apr 15.0 -9.2 5.5 -5.5 -3.0 23:50 Japan: M2/M3, % y/y May 3.2/2.6 3.2/2.6 3.3/2.7 3.1/2.5 3.3/2.7

Thursday 09 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus - Korea: Bank of Korea 7-day Repo rate, % Jun 1.50 1.50 1.50 1.50 1.50 - E19: ECB Executive Board Member Cœuré participates in Bilderberg Meetings in Dresden, Germany 07:00 E19: ECB President Draghi speaks at Economic Forum in Brussels, Belgium 19:00 UK: ITV debate on the EU referendum 23:00 Peru: Reference rate, % Jun 4.25 4.25 4.25 - 4.25 01:30 China: CPI, % y/y May 2.3 2.3 2.3 2.2 2.3 01:30 China: PPI, % y/y May -4.9 -4.3 -3.4 -3.0 -3.1 04:30 Netherlands: HICP, % m/m (y/y) May 0.9 (0.3) 1.5 (0.5) 0.1 (-0.2) - - 05:00 Estonia: Final GDP, % q/q Q1 0.2 0.9 0.0 P - - 05:30 France: Final non-farm payrolls, % q/q Q1 0.2 0.2 0.2 P - - 05:45 Switzerland: Unemployment rate (adj), % May 3.4 3.4 3.5 - 3.5 06:00 Germany: Trade balance sa, € bn Apr 13.4 20.2 26.2 - 22.5 07:00 Czech: CPI, % y/y May 0.5 0.3 0.6 - 0.4 08:30 UK: Visible trade balance, £bn Apr -12.2 -11.4 -11.2 - -11.1 09:00 Greece: Unemployment rate, % Mar 24.3 24.4 24.2 - - 09:00 Greece: HICP, % y/y May 0.1 -0.7 -0.4 - - 09:00 Cyprus: Final GDP, % q/q Q1 0.4 0.4 0.9 P - - 09:30 South Africa: Mining output, m/m sa Apr -5.5 2.1 -3.4 1.8 - 10:00 Ireland: HICP, % m/m (y/y) May 0.4 (-0.2) 0.3 (-0.6) 0.3 (-0.2) - - 10:00 Portugal: HICP, % m/m (y/y) May -0.5 (0.2) 2.2 (0.5) 0.4 (0.5) - - 11:00 South Africa: Manufacturing production, % m/m, sa Apr -1.8 1.6 -0.3 0.8 - 12:30 Canada: New house price index, % m/m (y/y) Apr 0.1 (2.0) 0.2 (2.0) 0.2 (2.0) - - 12:30 Canada: Capacity utilization, % Q1 80.5 81.6 81.1 - - 12:30 US: Initial jobless claims, k (4wma) Jun-04 278 (276) 268 (279) 267 (277) 260 - 13:00 Mexico: CPI inflation, % m/m May 0.44 0.15 -0.32 -0.51 -0.47 13:00 Mexico: CPI core inflation, % m/m May 0.36 0.36 0.22 0.19 0.21 14:00 US: Wholesale inventories, % m/m Apr -0.2 -0.6 0.1 -0.1 0.1 22:45 New Zealand: Retail Card spending, % m/m May 0.7 0.1 0.9 - 0.5 22:45 New Zealand: Total Card spending, % m/m May -0.1 0.5 1.5 - -

23:50 Japan: Corporate goods price index, % y/y May -3.4 -3.8 -4.2 -4.2 -4.2 Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue. Sources: Reuters, Market News, Bloomberg, Barclays Research

3 June 2016 43 Barclays | Global Economics Weekly

Friday 10 June Period Prev -3 Prev -2 Prev -1 Forecast Consensus - UK: Sovereign Debt to be rated by Fitch 08:30 UK: Bank of England Inflation Attitudes Survey for May 2016 10:30 Russia: One week auction rate, % Jun 11.00 11.00 11.00 11.00 11.00 12:15 E19: ECB Vice President Constâncio speaks at Bundesbank's Spring Research Conference in Eltville, Germany - Costa Rica: Econ. activity index, % y/y Apr 4.7 4.9 4.7 - - - India: Trade balance, $ bn (to 15/06) May -6.5 -5.1 -4.8 -7.0 - - India: Exports, % y/y (to 15/06) May -5.7 -5.5 -6.7 -4.5 - - China: Aggregate Financing, CNY bn (to 15/06) May 825 2336 751 1000 950 - China: New loans, CNY bn (to 15/06) May 726.6 1370.0 555.6 800.0 750.0 - China: M2 growth, % y/y (to 15/06) May 13.3 13.4 12.8 12.5 12.5 01:00 Philippines: Total exports, % y/y Apr -3.9 -4.5 -15.1 -1.5 -1.5 04:00 Malaysia: Industrial production, % y/y Apr 3.2 3.9 2.8 3.2 3.5 04:30 Japan: Index of tertiary industry activity, % m/m Apr 0.7 0.2 -0.7 0.7 0.7 06:00 Germany: Final HICP, % m/m (y/y) May 0.8 (0.1) -0.5 (-0.3) 0.4 (0.0) P 0.4 (0.0) 0.4 (0.0) 06:00 Germany: Final CPI, % m/m (y/y) May 0.8 (0.3) -0.4 (-0.1) 0.3 (0.1) P 0.3 (0.1) 0.3 (0.1) 06:00 Romania: CPI, % y/y May -2.7 -3.0 -3.2 3.4 -3.5 06:45 France: Industrial production, % m/m (y/y) Apr 1.0 (1.7) -1.3 (0.4) -0.3 (-0.8) 0.4 0.4 (1.0) 07:00 Turkey: GDP, % y/y Q1 3.7 3.9 5.7 4.1 4.7 07:00 Denmark: CPI, headline, % m/m (y/y) May 0.7 (0.3) 0.1 (0.0) 0.1 (0.0) - 0.2 (0.1) 08:00 Norway: CPI, headline, % m/m (y/y) May 0.5 (3.1) 0.5 (3.3) 0.3 (3.2) - 0.1 (3.1) 08:00 Norway: CPI-ATE, underlying, % m/m (y/y) May 1.0 (3.4) 0.3 (3.3) 0.4 (3.3) - 0.1 (2.9) 08:00 Italy: Industrial production, % m/m (y/y) Apr 1.7 (3.8) -0.7 (1.1) 0.0 (0.5) 0.2 0.2 08:30 UK: Construction output, % m/m (y/y) Apr -0.4 (-0.9) -0.9 (-0.4) -3.6 (-4.5) - 1.4 (-4.8) 12:00 India: Industrial production, % y/y Apr -1.5 2.0 0.1 4.5 - 12:30 Canada: Net change in employment, k May -2.3 40.6 -2.1 - 1.0 12:30 Canada: Unemployment rate, % May 7.3 7.1 7.1 - 7.1 12:30 Canada: Participation Rate, % May 65.9 65.9 65.8 - - 13:00 Mexico: Industrial production, % y/y Apr 0.7 2.6 -2.0 1.9 0.2 14:00 US: "Flash" U of Michigan consumer sentiment Jun 91.0 89.0 94.7 94.0 94.5 18:00 US: Treasury budget balance, $ bn May -192.6 -108.1 106.4 - -60.5 Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue. Sources: Reuters, Market News, Bloomberg, Barclays Research

3 June 2016 44 Barclays | Global Economics Weekly

GLOBAL KEY EVENTS

2016 2017

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May North America FOMC meeting 15 27 - 21 - 2 14 … … … … … FOMC minutes - 6 17 - 12 23 - … … … … … Fed's Beige Book 1 13 - 7 19 30 - … … … … … Bank of Canada - 13 - 7 19 - 7 … … … … … Europe ECB "policy" meeting 2 21 - 8 20 - 8 … … … … … ECB minutes 30 - 18 - 6 10 - 5 … … … … ECB monthly bulletin 16 - 4 22 - 3 22 … … … … … ECB "non-policy" meeting 22 6 3 21 5 2,16 14 … … … … … Bank of England 16 14 4 15 - 3 15 - 2 16 13 11 BoE Inflation Report - - 4 - - 3 - - 2 - - 11 BoE minutes 16 14 4 15 - 3 15 - 2 16 13 11 Riksbank - 5 - 6 26 - 20 - … … … … SNB 16 - - 15 - - 15 - … … … … Norges Bank 23 - - 22 - - 15 - … … … … Asia/RoW Bank of Japan 15-16 28-29 - 20-21 31 1 19-20 … … … … … BoJ minutes 21 - 3 27 - 7 26 … … … … … Reserve Bank of Australia 7 5 2 6 4 1 6 … … … … … RBNZ 9 - 11 22 - 10 - - 9 23 … … Key international meetings IMF/IBRD - - - - 7-9 - - - - - 21-23 … EU Summit 28-29 - - - 20-21 - 15-16 … … … … … ECOFIN 17 12 - - 11 … … … … … … … G20 - - - 4-5 - - - … … … … … G7 ------… Elections Austria (Presidential) † ------Czech Republic (Senate) - - - - Oct ------Germany (Presidential) ------Feb - - - Germany (Regional) - - - 4,18 ------Ireland (Parliamentary) ------Japan (Parliamentary; Upper House) - 10 ------Italy (Local)† 5,19 ------Netherlands (Parliamentary) ------Mar - - Philippines (General) ------Russia (Parliamentary) - - - 18 ------United Kingdom (EU Referendum) 23 ------

US (Presidential/Legislative) - - - - - 8 ------Note: (-) No event, (*) to be confirmed, (…) Event yet to be confirmed, (†) second round Source: Central banks, IMF, European Commission, Reuters, Bloomberg, Market News, Barclays Research

3 June 2016 45 Barclays | Global Economics Weekly

CRITICAL EVENTS CALENDAR FOR US, EURO AREA, JAPAN AND UK

Date Country Event Likely outcome: Our assessment

June 2016 05-Jun Italy Local Elections (first round) Local ballots will are likely to have meaningful implications for the national political outlook, as we think they could influence the date of the next general election 07-Jun UK EU Referendum Debates PM David Cameron and UKIP leader Nigel Farage answer questions from the public on ITV 09-Jun UK EU Referendum Debates ITV holds an EU referendum debate 15-16 Jun Japan BoJ monetary policy meeting Risk of further easing. However, our baseline forecast remains further easing in July. 15-Jun US FOMC meeting We expect the FOMC to leave the federal funds target range unchanged at its June meeting, as some committee members will want to wait for further indication of a bounce back in activity and inflation before proceeding with a gradual rate hike cycle. 15-Jun UK EU Referendum Debates The second of three BBC televised debates. This debate will have a particular focus on Northern Ireland. 15-Jun UK EU Referendum Debates BBC Question Time on the EU referendum with Michael Gove 16-Jun UK Election A by-election is to be held in Tooting, South London, following Sadiq Khan’s resignation following his election as Mayor of London. Given the upcoming EU referendum, we will look to see whether there is an increase in UKIP’s share of the vote; at the 2015 General Election, it was 2.9%, an increase of 1.6pp from 2010. 16-Jun UK BoE policy meeting We expect the BoE to keep its policy stance unchanged, with the Bank Rate at 0.50% and the APF at £375b. We expect no material change in the tone of the Committee’s communication prior to the result of the EU referendum. 16-Jun Euro area Eurogroup meeting (Luxembourg) 17-Jun EU ECOFIN meeting (Luxembourg) 19-Jun Italy Local Elections (second round) 19-Jun UK EU Referendum Debates BBC Question Time on the EU referendum with PM David Cameron 21-Jun UK EU Referendum Debates The third and final of the BBC televised debates to be held at Wembley Arena. 23-Jun UK European Union membership referendum The result of the EU referendum is likely to be close, with polls currently indicating both camps as neck and neck. Our baseline macro scenario, however, assumes a continuation of the status quo 28-29 Jun EU EU Summit July 2016 10-Jul Japan Upper House election PM Abe calls this a referendum on the decision to delay the VAT hike and has set “a majority of the seats up for election” as a victory line for the ruling coalition. 11-Jul Euro area Eurogroup meeting (Brussels) 12-Jul EU ECOFIN meeting (Brussels) 14-Jul UK BoE Policy meeting We expect the BoE to keep its policy stance unchanged, with the Bank Rate at 0.50% and the APF at £375bn. 21-Jul Euro area ECB Governing Council meeting 27-Jul US FOMC meeting 28-29 Jul Japan BoJ monetary policy meeting The BoJ to update its CPI and GDP forecasts. We expect an IOER cut on the policy-rate balance of current accounts to -0.3% from -0.1%, and an increase in ETF and J-REIT purchases. August 2016 04-Aug UK BoE policy meeting We expect the BoE to keep its policy stance unchanged, with the Bank Rate at 0.50% and the APF at £375bn. The August 2016 Inflation Report is also to be released in which the Committee will update its forecasts to end-2018.

3 June 2016 46 Barclays | Global Economics Weekly

Date Country Event Likely outcome: Our assessment

September 2016 08-Sep Euro area ECB Governing Council meeting 15-Sep UK BoE policy meeting We expect the BoE to keep its policy stance unchanged, with the Bank Rate at 0.50% and the APF at £375bn. 18-Sep Russia Parliamentary Elections 20-21 Sep Japan BoJ monetary policy meeting 21-Sep US FOMC meeting October 2016 07-09 Oct World IMF/IBRD summit , Washington D.C 10-Oct Euro area Eurogroup meeting (Brussels) 11-Oct EU ECOFIN meeting (Brussels) 20-Oct Euro area ECB Governing Council meeting 20-21 Oct EU EU Summit 31-Oct Japan BoJ monetary policy meeting November 2016 01-Nov Japan BoJ monetary policy meeting 02-Nov US FOMC meeting 03-Nov UK BoE policy meeting Source: Barclays Research

3 June 2016 47 Barclays | Global Economics Weekly

GLOBAL ECONOMICS RESEARCH

Christian Keller Head of Economics Research

+44 (0)20 7773 2031 [email protected] Barclays, UK

Americas Michael Gapen Alejandro Arreaza Jesse Hurwitz Rob Martin Head of US Economics Research Economist – Colombia, Peru, Venezuela US Economist Senior Economist – US + 1 212 526 8536 +1 212 412 3021 + 1 212 526 9617 + 1 212 526 1262 [email protected] [email protected] [email protected] [email protected] BCI, US BCI, US BCI, US BCI, US Marco Oviedo Bruno Rovai Pilar Tavella Blerina Uruçi Chief Economist – Chile, Mexico Economist – Brazil Economist – Argentina US Economist +52 55 5241 3331 +1 212 412 5762 +1 212 412 5564 + 1 212 526 3099 [email protected] [email protected] [email protected] [email protected] BBMX, Mexico BCI, US BCI, US BCI, US

Europe and Middle East Philippe Gudin de Vallerin Francois Cabau Fabio Fois Jeff Gable Head of EMEA Economics European Economist Southern European Economist Head of Macro and FICC Research, +33 (0) 1 4458 3264 +44 (0) 20 3134 3592 +39 02 6372 2637 Barclays Africa Group [email protected] [email protected] [email protected] +27 11 895 5368 Barclays, UK Barclays, UK Barclays, UK [email protected] Absa, South Africa Antonio Garcia Pascual Daniel Hewitt Apolline Menut Fabrice Montagne Chief European Economist Senior Economist – CEE, Israel European Economist Chief UK Economist +44 (0)20 313 46225 +44 (0) 20 3134 3522 +44 (0)20 3555 0862 +44 (0)20 7773 3277 [email protected] [email protected] [email protected] [email protected] Barclays, UK Barclays, UK Barclays, UK Barclays, UK Alia Moubayed Andrzej Szczepaniak Olga Tschekassin Tomasz Wieladek Senior Economist – MENA UK Economist European Economist Senior International Economist +44 (0)20 313 41120 + 44 (0) 20 3555 6824 + 44 203 134 1524 + 44 (0) 20 3555 2336 [email protected] [email protected] [email protected] [email protected] Barclays, UK Barclays, UK Barclays, UK Barclays, UK

Africa Jeff Gable Miyelani Maluleke Ridle Markus Dumisani Ngwenya Head of Africa Non-Equity Research Economist – South Africa Head of Sub Saharan Africa Economics Economist – Sub Saharan Africa +27 11 895 5368 +27 11 895 5368 Research +27 11 895 5346 jeff.gable@ barclays.com miyelani.maluleke@ barclays.com +27 11 895 5374 [email protected] Absa, South Africa Absa, South Africa ridle.markus@ barclays.com Absa, South Africa Absa, South Africa Peter Worthington Head of South Africa Research + 27 21 927 6611 peter.worthington@ barclays.com Absa, South Africa

Asia-Pacific David Fernandez Tetsufumi Yamakawa Rahul Bajoria James Barber, CFA Head of FICC Research, Asia Pacific Head of Japan Research Economist – India, Malaysia, Japan Research +65 6308 3518 +81 3 4530 1130 Philippines, Thailand +81 3 4530 1542 [email protected] [email protected] +65 6308 3511 [email protected] Barclays Bank, Singapore BSJL, Japan [email protected] BSJL, Japan Barclays Bank, Singapore Jian Chang Yukito Funakubo Angela Hsieh Kyohei Morita Chief Economist – China Japan Economist Regional Economist Chief Economist, Japan +852 2903 2654 +81 3 4530 1068 +65 6308 2003 +81 3 4530 1688 [email protected] [email protected] [email protected] [email protected] Barclays Bank, Hong Kong BSJL, Japan Barclays Bank, Singapore BSJL, Japan Yuichiro Nagai Siddhartha Sanyal Shengzu Wang Yingke Zhou Japan Economist Chief Economist – India Economist – China, Hong Kong Economist – China, Hong Kong +81 3 4530 1064 +91 22 6719 6177 + 852 2903 2652 +852 2903 2653 [email protected] [email protected] [email protected] [email protected] BSJL, Japan Barclays Bank, India Barclays Bank, Hong Kong Barclays Bank, Hong Kong

3 June 2016 48

Analyst Certification We, Michael Gapen, Rob Martin, Jesse Hurwitz, Philippe Gudin, Francois Cabau, Fabio Fois, Antonio Garcia Pascual, Apolline Menut, Olga Tschekassin, Tomasz Wieladek, Andrzej Szczepaniak, Fabrice Montagne, James Barber, CFA, Kyohei Morita, Yuichiro Nagai, Jian Chang, Shengzu Wang, Yingke Zhou, James Lee, Siddhartha Sanyal, Angela Hsieh, Durukal Gun, Daniel Hewitt, Alia Moubayed, Miyelani Maluleke, Ridle Markus, Dumisani Ngwenya, Peter Worthington, Marco Oviedo, Bruno Rovai, Pilar Tavella, Alejandro Arreaza, David Fernandez and Rahul Bajoria, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

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