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3 Keith Wade Azad Zangana Craig Botham %, y/y z-score 10 2 5 1 0 0-5 -1-10 -2 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Recession G7 Industrial production Global activity indicator, rhs Source: Thomson Datastream, Schroders Economics Group, 25 October 2017. 2
z-score 2 0-2 -4-6 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Recession US (ISM) Europe (BNB) Japan (Shoko Chukin) 3
y/y, % 30 20 10 0-10 -20-30 -40 94 96 98 00 02 04 06 08 10 12 14 16 18 Real private non-residential investment Durable goods orders Average contribution of total private investment to GDP, % 1.4 Q4 1970 Q4 1973 1.2 1.0 0.8 0.6 0.4 Q3 1980 Q3 1981 Q1 1975 Q1 1980 Q1 1991 Q1 2001 Q2 1958 Q2 1960 Q4 1982 Q3 1990 Q1 1961 - Q4 1969 Q2 1954 - Q3 1957 Q2 2009 present Q3 2001 Q3 2007 0.2 0.0 0 4 8 12 16 20 24 28 32 36 40 44 Number of quarters from trough to peak 4
ECI wage growth, y/y % 4.0 3.5 3.0 2.5 2.0 1.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 Unemployment rate, % Q2 2003 Q1 2010 Q2 2010 Q2 2107 Q3 2017 unemployment 1 5
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Involuntary part-time employment share (% point difference relative to 2007) 6 5 4 3 2 1 0-1 -2-3 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 Median 7
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Individual poll and 5-poll moving averages 40 35 30 25 20 15 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Socialist Democrats (SPÖ ) People's Party (Ö VP) Freedom Party (FPÖ ) 9
Extremadura Melilla Andalucía Castilla - La Mancha Murcia region Ceuta Canarias Asturias Valenciana Galicia Cantabria Castilla and León Rioja Balears, Islands Aragón Catalolnia Navarra País Vasco Madrid % of national 0k 5k 10k 15k 20k 25k 30k 35k 0% 5% 10% 15% 20% Population Nominal GDP GDP per capita Ceuta + Melilla Extremadura Asturias Castilla & León Canarias Castilla - La Mancha Galicia Andalucía Cantabria País Vasco Aragón Rioja Murcia Region Navarra Comunitat Valenciana Catalonia Balears Islands Madrid -30% -20% -10% 0% 10% 20% - 30bn - 20bn - 10bn 0bn 10bn 20bn Budget contribution, bot % of GDP, top 10
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2 Dornbusch, R., Park, Y., and Claessens, S., Contagion: How it spreads and how it can be stopped? World Bank Research Observer, vol. 15, no. 2 (August 2000), pp. 177 97. 15
12% 8% 2% 8% Brazil China India Indonesia 6% 3% 3% 2% 15% 2% 9% 30% Korea Mexico S Africa Thailand Malaysia Russia Taiwan Other 16
EM equities, average pairwise correlation coefficient 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 In crisis periods* Non-crisis Pre-GFC (2002-06) Post-GFC (2011 17) EM equities, average pairwise correlation coefficient 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 BRL CLP MYR THB ZAR IDR KRW MXN INR PHP CZK RUB CNY TWD PLN Non-crisis Crisis 17
EM exports as share of total, by destination 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 China Asia ex China LatAm EM Europe Other Intra EM 18
Share of EM ex China GDP Share of Chinese GDP 20% 70% 18% 60% 16% 14% 50% 12% 40% 10% 8% 30% 6% 20% 4% 2% 10% 0% 0% 96 98 00 02 04 06 08 10 12 14 16 96 98 00 02 04 06 08 10 12 14 16 Liabilities to EM ex China Claims on EM ex China Liabilities to China Claims on China 3 Forbes, K., Rigobon, R., Measuring Contagion: Conceptual and Empirical Issues International Financial Contagion, ed. by Claessens, S., and Forbes, K., 2001. 19
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Contributions to World GDP growth (y/y), % 6 5.0 5.0 5.2 5.2 4.7 4.9 Forecast 5 3.9 3.5 4 3.2 3.1 3.1 3.0 2.7 3.0 2.7 2.6 2.6 3 2.3 2 1 0-1 -0.7-2 -3 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 US Europe Japan Rest of advanced BRICS Rest of emerging World 23
Real GDP y/y% Wt (%) 2016 2017 Prev. Consensus 2018 Prev. Consensus World 100 2.6 3.0 (3.0) 3.2 3.0 (3.0) 3.1 Advanced* 62.8 1.6 2.0 (1.9) 2.1 1.9 (2.0) 2.1 US 27.1 1.5 2.0 (2.0) 2.2 2.0 (2.2) 2.4 Eurozone 17.4 1.7 2.1 (1.8) 2.2 1.9 (1.8) 1.8 Germany 5.1 1.8 2.1 (1.8) 2.0 2.0 (1.9) 1.9 UK 3.8 1.8 1.6 (1.6) 1.6 1.6 (1.6) 1.4 Japan 7.2 1.0 1.6 (1.6) 1.6 1.5 (1.3) 1.2 Total Emerging** 37.2 4.2 4.8 (4.7) 4.9 4.8 (4.7) 4.9 BRICs 24.2 5.2 5.6 (5.5) 5.7 5.6 (5.5) 5.8 China 16.4 6.7 6.7 (6.6) 6.8 6.3 (6.2) 6.4 Inflation CPI y/y% Wt (%) 2016 2017 Prev. Consensus 2018 Prev. Consensus World 100 2.0 2.3 (2.4) 2.2 2.2 (2.3) 2.2 Advanced* 62.8 0.7 1.6 (1.8) 1.7 1.4 (1.4) 1.6 US 27.1 1.3 1.9 (2.0) 2.1 1.9 (1.9) 2.0 Eurozone 17.4 0.2 1.5 (1.6) 1.5 1.1 (1.1) 1.3 Germany 5.1 0.4 1.7 (1.9) 1.7 1.5 (1.3) 1.6 UK 3.8 0.7 2.6 (2.8) 2.7 2.3 (2.2) 2.6 Japan 7.2-0.1 0.5 (0.7) 0.4 1.0 (1.1) 0.7 Total Emerging** 37.2 4.1 3.3 (3.5) 3.2 3.7 (3.8) 3.2 BRICs 24.2 3.5 2.4 (2.7) 2.2 3.0 (3.1) 2.7 China 16.4 2.0 1.8 (2.0) 1.6 2.3 (2.3) 1.9 Interest rates % (Month of Dec) Current 2016 2017 Prev. Market 2018 Prev. Market US 1.25 0.75 1.50 (1.25) 1.52 2.00 (2.00) 1.94 UK 0.25 0.25 0.50 (0.25) 0.54 0.50 (0.25) 0.88 Eurozone (Refi) 0.00 0.00 0.00 (0.00) 0.00 (0.00) -0.33 Eurozone (Depo) -0.40-0.40-0.40 (-0.40) -0.40 (-0.40) -0.26 Japan -0.10-0.10-0.10 (-0.10) 0.07-0.10 (-0.10) 0.08 China 4.35 4.35 4.35 (4.35) - 4.35 (3.50) - Other monetary policy (Over year or by Dec) Current 2016 2017 Prev. 2018 Prev. US QE ($Bn) 4463 4451 4433 (4450) 4013 (4050) EZ QE ( Bn) 1856 1481 2216 (2236) 2546 (2566) UK QE ( Bn) 435 423 444 (444) 445 (445) JP QE ( Tn) 502 476 545 (553) 645 (653) China RRR (%) 17.00 17.00 17.00 16.50 16.00 16.00 Key variables FX (Month of Dec) Current 2016 2017 Prev. Y/Y(%) 2018 Prev. Y/Y(%) USD/GBP 1.31 1.24 1.32 (1.32) 6.8 1.28 (1.30) -3.0 USD/EUR 1.16 1.05 1.19 (1.15) 12.8 1.15 (1.12) -3.4 JPY/USD 113.8 116.6 110 (108) -5.7 112 (110) 1.8 GBP/EUR 0.88 0.85 0.90 (0.87) 5.6 0.90 (0.86) -0.3 RMB/USD 6.65 6.95 6.90 (7.05) -0.7 7.05 (7.40) 2.2 Commodities (over year) Brent Crude 60.3 45.9 51.6 (52.1) 12.5 52.5 (51.8) 1.7 Source: Schroders, Thomson Datastream, Consensus Economics, October 2017 Consensus inflation numbers for Emerging Markets is for end of period, and is not directly comparable. Market data as at 27/10/2017 Previous forecast refers to May 2017, except for BoE forecast, which was updated in September, and Fed, updated in October. * Advanced markets: Australia, Canada, Denmark, Euro area, Israel, Japan, New Zealand, Singapore, Sweden, Switzerland, United Kingdom, United States. ** Emerging markets: Argentina, Brazil, Chile, Colombia, Mexico, Peru, China, India, Indonesia, Malaysia, Philippines, South Korea, Taiwan, Thailand, South Africa, Russia, Czech Rep., Hungary, Poland, Romania, Turkey, Ukraine, Bulgaria, Croatia, Latvia, Lithuania. 24
2017 2018 % 7 % 7 6 5 EM Asia 6 5 EM Asia EM 4 EM 4 Pac ex Jap 3 2 US Eurozone 1 Japan UK 0 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 3 2 1 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Pac ex Jap US Eurozone UK Japan 2017 2018 % 4 % 4 3 2 1 Pac ex Jap EM Asia EM UK US Eurozone Japan 3 2 1 EM UK EM Asia Pac ex Jap US Eurozone Japan 0 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. The views and opinions contained herein are those of Schroder Investments Management s Economics team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This document does not constitute an offer to sell or any solicitation of any offer to buy securities or any other instrument described in this document. The information and opinions contained in this document have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. For your security, communications may be taped or monitored. 25
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