Global economy report : June 2014

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Global Economy Report

June 2014

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Global Economy Report

The Global Economy Report is prepared in cooperation by the Macroeconomic Research Division of

Banca Aletti and the Global Governance Programme of the Robert Schuman Centre for Advanced

Studies of the European University Institute.

The objective of the Report is to provide an analysis of the current and expected macroeconomic and

financial conditions at the global level, with also a focus on key economic areas such as Europe, the

USA and ASIA.

This report has been prepared by:

- Daniele Limonta (daniele.limonta@alettibank.it)

- Massimiliano Marcellino (massimiliano.marcellino@eui.eu)

- Alessandro Stanzini (alessandro.stanzini@alettibank.it)

- Maria Eleonora Traverso (mariaeleonora.traverso@alettibank.it)

with the collaboration of:

- Alberta Martino (alberta.martino@eui.eu)

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EXECUTIVE SUMMARY



In June the World Bank published lower growth forecasts for 2014, in line with

OECD forecasts. Total income should grow by 3.4%, caused by lower growth in

major economies (+1.9%). This reflects a disappointing Q1 due to rough

weather and geopolitical conditions, both phenomena now resolved . Emerging

markets’ growth should be around 4.8%, restrained from some BRICS

countries.

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

In the euro area, qualitative indicators confirm their levels close to

several years’ highs, though with some problems in France.



Our forecast for aggregate income growth for 2014 is at 1.4%, above

consensus; for 2015 at 1.8%.



Inflation has reached its lowest level since 2009 at 0.5%, but this

should be the lower bound. Deflation risk remains definitely modest.



European Parliamentary elections highlighted euro-scepticism growth,

with 143 MPs out of 751 against the Union. The number of

euro-sceptics increased by 55 compared to the previous Assembly. However,

overall there should be no major problems.

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

US growth at the beginning of the year was penalised by adverse climate

conditions and destocking after the strong accumulation in H2 2013. With Spring

we should witness a positive growth payback. Furthermore, the constant decrease

in Jobless Claims, the growth in Payrolls, that is returning to its trend and generally

positive consumer confidence support expectations for favourable fundamentals.

Forecasts: 2.8% for 2014 and 2.9% for 2015.



We expect inflation under 2% for most of the forecasting period, thanks to the

output gap accumulated during the Great Recession and these four years of weak

recovery. For Core CPI we expect a gradual acceleration. Forecasts: Average

Headline CPI at 1.4% in 2014 and at 1.8% in 2015, average Core CPI at 1.8% in

2014 and at 2.1% in 2015.

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

In China the economic slowdown is significant but under control, an effect of the

growth re-balancing sought by policy-makers.



In Japan, volatility due to higher value added tax, around a persistent growth

trend.

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Source: Thomson Reuters Datastream 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 So 04 06 08 10 12 14 16 -4 -2 0246810 -4 -2 0246810 WORLD

TOTAL OECD AREA

OECD NON MEMBER AGGREGATE

Global growth forecasts published in June by the World Bank feature lower growth rates this year than the IMF April forecasts. The revision in growth estimates is basically due to adverse climate conditions that hindered economic activity this winter in the US and political tensions in Eastern Europe, in particular the Ukraine-Russia conflict. The lower estimates for this year at 3.4% (from IMF’s 3.6%) are tied to higher growth rates in the following two years, with growth at 4.0% (from 3.9%) in 2015 and 4.2% (from 4.0%) in 2016.

IMF & WB - GLOBAL ECONOMIC GROWTH

Average yearly changes– at fixed prices

IMF - GLOBAL ECONOMIC GROWTH

forecast

ECONOMIC GROWTH FORECASTS

forecasts

3.1 3.4 4.0 4.2

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Source: Thomson Reuters Datastream

EMG. EC./ NON OECD WORLD

ADV. EC./ OECD TOTAL 0 1 2 3 4 5 6 IMF (apr '14) EU COMM (feb '14) OECD (may '14) WB (jun '14)

EMG. EC./ NON OECD WORLD

ADV. EC./ OECD TOTAL 0 1 2 3 4 5 IMF (apr '14) EU COMM (feb '14) OECD (may '14) WB (jun '14)

2014 IMF - EU COMM. – OECD – WB

2015 IMF - EU COMM. – OECD - WB

Compared to OECD’s global growth forecasts that are the same for 2014 (3.4%), the World Bank estimates a lower increase for both emerging markets at 4.8% (4.9% OECD) and for major economies at 1.9% (2.2% OECD). The greater difference is on this last figure that reflects the cut in US’s growth estimate. For 2015 the World Bank foresees a greater increase, with global growth at 4%, driven by emerging economies, with a 5.4% increase, but slowed down by bland growth in major economies that grow by a mere 2.4%.

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Source: Thomson Reuters Datastream USA EMU JPN 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 IMF (apr '14) EU COMM (feb '14) OECD (may '14) WB (jun '14)

USA EMU JPN 0.0 0.5 1.0 1.5 2.0 2.5 3.0 IMF (apr '14) EU COMM (feb '14) OECD (may '14) WB (jun '14)

2014 IMF - EU COMM. - OECD - WB

2015 IMF - EU COMM. - OECD - WB

For the current two year period, the major difference among forecasts lies in the US growth forecasts.

For its calculations, the World Bank used 1Q data, with its unexpected income decrease (-1% on a yearly basis).

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Source: Thomson Reuters Datastream BRA IND CHI RUS Group 5 0 2 4 6 8 10 IMF (apr.'14) EU COMM (feb '14) OECD (may.'14) WB (jun '14)

ECONOMIC GROWTH FORECASTS

As for BRIC countries, World Bank’s forecasts on China are at 7.6% and 7.5% for these two years; India should grow by 5.5% and 6.3%; in this case estimates have been increased, while for Brazil – 1.5/2.7% - and Russia – 0.5/1.5% - there has been a further cut.

2014 IMF - EU COMM. - OECD

2015 IMF - EU COMM. - OECD

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In March international trade data indicate zero increase in volumes traded compared to last year. We assume this dynamic is due to exceptional phenomena such as adverse climate conditions in the US (and Japan), slowdown in Asia due to non proactive Chinese policy and the Russia-Ukraine crisis. Thus, a decrease on a yearly basis among major economies and almost annulment among emerging economies, with a global figure that is practically flat. The leading indicator (Global Manufacturing PMI- new orders) is compatible with a positive trade evolution

INTERNATIONAL TRADE – EXPORT

CPB Volume Export index, annualised change and average annual values (bottom graph)

INT. TRADE AND LEADING INDICATOR

PMI new orders export

World trade quarterly index ann. 6m average and average annual values (bottom graph)

WORLD TRADE INDEX PMI GLOBAL MANUFACTURING NEW ORDERS (monthly and 3 month average,

right)

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Global industrial activity increased by 3.5% in March, keeping up with levels of a certain intensity. For emerging markets, activity increased under 4.0% on a yearly basis (stable/decreasing), for major economies it grew by 3.2% (stable).

Data suggests a reduction in thrust in the short term

GLOBAL IND. PRODUCTION AND LEADING IND.

Ind. Production CPB trend index and annual average values (bottom graph)

LEADING OECD* Quarterly var annualised

LEADING OECD* (y/y)

LEADING OECD*: MAJOR ECONOMIES + BRIC + Southafrica + Indonesia

GLOBAL INDUSTRIAL PRODUCTION

Ind. Production CPB trend index and annual average values (bottom graph)

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Among major countries for industrial production, activity data signal solid trend values for USA and Japan, positive for UK, Germany and Italy. France and Brazil display contracted conditions. Confidence data signals optimism for British and US businesses, while South Africa, Brazil and Russia still create scepticism.

INDUSTRIAL PRODUCTION BY COUNTRY

Industrial production– latest available data – annualised Difference between real data and level 50 (stability limit) – Markit PMI, HSBC PMI

BUSINESS CONFIDENCE BY COUNTRY

GLOBAL INDUSTRIAL ACTIVITY

-4 -2 0246AUS 5.7 TK 4.59 ES 4.32 US 4.27 JPN 3.76 CAN 3.45 IN 3.36 UK 2.94 MX 2.54 ID 2.52 KO 2.44 RS 2.37 GER 1.87 ITA 1.43 € 1.23 CH -0.37 SA -1.55 FRA -1.99 BRA -2.24 -2 02468UK 7 US 6.4 Netherlands 3.6 Italy 3.2 Spain 2.9 Indonesia 2.4 Germany 2.3 Canada 2.2 €Zone 2.2 Mexico 1.9 India 1.4 China 0.8 Turkey 0.1 Japan -0.1 France -0.4 S.Korea -0.5 Russia -1.1 Brazil -1.2 S. Africa -5.7

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So 2011 2012 2013 2014 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 S 2011 2012 2013 2014 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Analysts’ expectations compared to published economic data confirm a majority of negative surprises in major and emerging economies. Dynamic analysis indicates the phenomenon is decreasing everywhere, with the possibility of a favourable evolution in the coming weeks.

G10 ECONOMIC SURPRISE INDEX

Citigroup business surveys

G10 SURPRISE INDEX (ist.) TRENDS AND

IMPULSES

EMERGING MKTS ECONOMIC SURPRISE INDEX

Citigroup business surveys

EMG MKTS SURPRISE INDEX (ist) TRENDS AND IMPULSES

Positive surprises area

negative surprises area

Positive surprises area

negative surprises area

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The elections for the European Parliament highlight the growth of euro-scepticism with 143 MPs out of 751. The number of euro-sceptics increased by 55 members compared to the previous Assembly, thanks to frustration of millions of people with the economic crisis that produced business bankruptcies, income drop, destruction of jobs and high unemployment. The net victory in France of Le Pen’s right has triggered a period of political conflict with Hollande’s government. In Italy Renzi’s party’s success certainly strengthened his leadership.

EUROPEAN ELECTIONS

EUROPEAN ELECTIONS 2014

Source: Il Sole 24 ore

0 5 10 15 20 25 GRE 26.5 SPA 25.3 CYP 16 POR 15.1 SLO 13.9 SLK 13 ITA 12.7 EMU 11.8 IRE 11.7 FRA 9.8 LTV 9.4 FIN 9 NLD 8.7 BEL8.5 LUX 7.1 GER 6.7 EST 5.1 AUS 4.9 MAL 4.5 DISOCC. -5anni

UNEMPLOYMENT RATES - Source: national statistic offices

So 2008 2009 2010 2011 2012 2013 2014 88 90 92 94 96 98 100 102 104 88 90 92 94 96 98 100 102

104 EMU – GDP - Source: Eurostat – fixed prices 2008=100 (bn euro) GERMANY (2.7) AUSTRIA (0.31) EIRE (0.16) FRANCE (2.0) NETHERLANDS (0.6) SPAIN (1.0) ITALY (1.6) PORTUGAL

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Source: Thomson Reuters Datastream 2009 2010 2011 2012 2013 2014 -1400 -1200 -1000 -800 -600 -400 -200 0 -1400 -1200 -1000 -800 -600 -400 -200 0 SPA -138.111 POR -215.588 ITA -158.548 IRE -108.271 Source: Bloomberg, 16/06/2014 CSDR

COUNTRY RISK AND RATING

Difference with Germany’s 10 year rates in basis points

2009 2010 2011 2012 2013 2014 050 100 150 200 250 050 100 150 200 250 2009 2010 2011 2012 2013 2014 0400 800 1200 1600 0400 800 1200 1600 GER 21 JP 38.02 FRA 37.9 US 15.6 SPA 68.57 POR 143.78 ITA 88.87 IRE 46

COUNTRY RISK– 5 YEAR CDS

5 year credit default swap

The progressive solution to the Eurozone crisis, the consolidation of public finances in countries in deeper troubles and the improvement of Europe’s economic outlook increased rating on several of the Union’s countries and on the area as a whole. Greece, Portugal and Spain were upgraded thanks to improved public finances, inverting the trend after months of downgrading.

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0.6 -2.8 -0.7 -3.3 -0.6 0.4 -2.4 -0.7 -2.4 -1.3 0.0 -2.1 -0.9 -3.9 -0.8 GER FRA ITA SPA NED 2013 2014 2015 S 78.4 93.5 132.6 93.9 73.5 76.0 95.6 135.2 100.2 73.8 73.6 96.6 133.9 103.8 73.4 GER FRA ITA SPA NED 2013 2014 2015 S 0.0 -4.3 -3.0 -7.1 -2.5 0.0 -3.9 -2.6 -5.6 -2.8 -0.1 -3.4 -2.2 -6.1 -1.8 GER FRA ITA SPA NED 2013 2014 2015

DEBT/GDP estimates 2013-2015 DEBT-SURPLUS/GDP estimates 2013-2015

2.2 -2.0 2.2 -3.7 -0.7 2.0 -1.5 2.6 -2.1 -1.0 1.7 -1.0 2.9 -2.6 -0.2 GER FRA ITA SPA NED SURPLUS-PRIMARY DEFICIT/GDP

estimates 2013-2015 DEBT-SURPLUS/GDP ADJUSTED FOR THE CYCLE

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07 08 09 10 11 12 13 14 15 -5 -4 -3 -2 -1 0 1 2 3 -5 -4 -3 -2 -1 0 1 2 3 S 07 08 09 10 11 12 13 14 15 -4 -3 -2 -1 0 1 2 -4 -3 -2 -1 0 1 2 S 1990 1995 2000 2005 2010 2015 -3 -2 -1 0 1 2 -3 -2 -1 0 1 2

OECD COUNTRIES – PRIMARY BALANCE ADJ. FOR THE CYCLE

OECD data – change % on potential GDP

FISCAL RESTRICTION FISCAL EXPANSION S 07 08 09 10 11 12 13 14 15 -3 -2 -1 0 1 2 -3 -2 -1 0 1

2 EUROZONE– PRIMARY BALANCE ADJ. FOR THE CYCLE

USA – PRIMARY BALANCE ADJ. FOR THE CYCLE

FISCAL RESTRICTION

FISCAL EXPANSION

JAPAN– PRIMARY BALANCE ADJ. FOR THE CYCLE

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INTERBANK-OIS 1m differential

CDS PREMIUM EUROZONE

BANKS

FOREIGN BANK’S ASSETS vs PERIPHERAL COUNTRIES

Aggregate banks data vs Italy, Eire, Greece, Spain, Portugal

€ mld

CREDIT INTEREST RATES

business credit under 1 mln euro CREDIT INTEREST RATES

Consumer credit variable rate 1-5 years

MONETARY POLICY AND

FINANCIAL CONDITIONS

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S 04 05 06 07 08 09 10 11 12 13 14 010 20 30 40 50 010 20 30 40 50

Central bank assets as a percent of IMF nominal GDP forecast

S 2009 2010 2011 2012 2013 2014 0.0 0.5 1.0 1.5 2.0 2.5 3.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 rif mg 0.4 eur3m 0.217 refi 0.15 eonia 0.03 depo -0.1 t. o/n (EONIA) EURIBOR 3m o/n deposits Principal refinancing Marginal refinancing ECB-OFFICIAL RATES’CORRIDOR

In the June meeting, ECB adopted a strongly expansive manoeuvre. It reduced the official rate to 0.15% from previous 0.25%, marginal refinancing rate at 0.4% from previous 0.75% and, finally, interest rate on Central Bank’s deposits was lowered by 10 bp, making it negative for the first time, at -0.10%. It announced it shall interrupt liquidity sterilisation generated by the SMP programme, putting it in the system (165 bn). It has also proposed new long term loans (expiry 2018) from September and from December for banks, conditional on granting credit to the private sector. This mechanism may be renewed in 2015 and 2016 (expiry 2018), for a total amount that may be amply above 400 bn.

CENTRAL BANKS’ FINANCIAL STATEMENTS

Total asset, % nominal GDP (IMF data)

US FED EUROZONE ECB UK BoE JP BoJ

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The operations of principal refinancing with full adjudication shall be extended to 2016.

Thus, soon a programme of purchase of asset backed securities (ABS) to favour

alternative financial sources for the private sector.

The package of measures has been coupled with a strengthening of “forward guidance”,

announcing that rates will remain at current levels for a prolonged time period and, if

necessary, there will be further unconventional measures. These strategies have been

put in place to face the risks of a long period of low inflation, whose causes lie not only

in downward pressure on food and energy prices, but also in the currency’s strength and

in the fragility of internal demand.

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S 06 07 08 09 10 11 12 13 14 15 -30 -20 -10 010 20 30 40 -30 -20 -10 010 20 30 40 Fra Ger Ita Ned Aus Bel Spa Por Ire Gre -1.11 So 06 07 08 09 10 11 12 13 14 15 -40 -30 -20 -10 010 20 30 40 -40 -30 -20 -10 010 20 30 40 Fra Ger Ita Ned Aus Bel Spa Por Ire Gre -2.97

BUSINESS LOANS- TREND

One year growth rates HOUSEHOLDS’ LOANS- _TREND One year growth rates

After defining the first pillar of the Banking Union with the Single Supervisory Mechanism (bank surveillance under the ECB by November 2014, period necessary for the “Asset Quality Review” of the 130 banks and following “stress test”), the European Parliament has accepted, modified and approved the second pillar project proposed by Ecofin, which defines the regulatory mechanism for the unified management of banking crises. The basic framework is modified in a more federal sense and in terms of greater efficiency (sleeker and faster procedures): a bank’s failure will involve shareholders and creditors (up to 8% of the bank’s assets), with the creation of (a) a Resolution Committee that in an executive session and with a qualified weighted majority will take immediate decisions on appeal to single bank-saving fund (full session only for funds over 5 bln) and (b) a Resolution Fund, financed with private funds, i.e. the contributions on a national level for each bank…

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-10 -5 0510 Belgium 9.67 Malta 5.07 Luxembourg 3.61 France 2.26 Finland 1.55 Germany 1.14 Estonia 0.92 Austria 0.83 Slovakia 0.83 Italy -1.11 Netherlands -2.95 Slovenia -3.18 Greece -3.42 Ireland -4 Cyprus -4.02 Portugal -4.1 Spain -5.13 Latvia -9.02 -25 -20 -15 -10 -5 05Estonia 3.1 Belgium 1.61 Finland 0.64 Germany -0.54 Austria -0.9 Slovakia -0.9 France -1 Luxembourg -1.43 Netherlands -2.36 Italy -2.97 Cyprus -4.06 Malta -6.12 Greece -6.56 Ireland -7.16 Portugal -8.29 Latvia -8.82 Spain -11.51 Slovenia -24.36

… The fund will work with national compartments, with 40% in common starting the first year and 70% in three years, with a final endowment (after eight years) of 55 bn euro. However, for the transition period, apart from the bail-in (that doesn’t completely resolve the needs of coverage for restructuring), there’s no financial structure that may break the perverse connection between government and banks. The new regulation foresees that the Resolution Committee must agree on financial solutions to obtain immediate liquidity, even from the public sector. Thus, there’s something more than an option to seek support from a fund such as ESM. The Single Resolution Mechanism (SRM) will be in place from January 2015, while “bail in” will start in 2016.

BUSINESS LOANS

One year growth rates

EUROPE AND MONETARY UNION

HOUSEHOLDS’ LOANS

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Source: Thomson Reuters Datastream 2007 2008 2009 2010 2011 2012 2013 2014 2015 0123456 2007 2008 2009 2010 2011 2012 2013 2014 2015 0246810 12 14 UK 0.5 EZ 0.15 US 0.25 JPN 0.068 BRA 11 IND 8 KOR 2.5 AUS 2.5 NOR 1.5 CAN 1 SWE 0.75 So 02 04 06 08 10 12 14 6.0 6.5 7.0 7.5 8.0 8.5 0510 15 20 25 20 1° peg 2° peg 6 5.23

OFFICIAL REFERENCE RATES

CHINA - RATES AND EXCHANGE RATES

CNY Fwd rate 1y

(sx)

PBoC (1 year rate)

Big banks’ reserve rate on deposits

CNY (sx) $/yuan

%

In the June meeting, the Fed reduced by a further 10 bn USD its liquidity injections, bringing monthly asset acquisitions down to 35 bn (25 bn treasury bonds and 10 bn MBS). At the current pace, tapering will be over in Autumn, while the normalisation phase with increase in cost of money will start much later, by summer 2015. However, it has been stressed that the inversion in monetary policy will be gradual and with feasible targets. BoE confirmed stable QE (375 mln GBP) and forward guidance, i.e. if inflationary pressure is absent, before raising rates, the Committee for monetary policy will wait for further evidence of a reduction of excessive productive capacity. Among central banks, Mexico (at 3%) and Turkey (at 9.5%) have lowered rates between May and June by half a point. In April Russia raised them by the same value to 7.5% and New Zealand by 0.25% to 3%. The PBoC (China) reduced the rate of required reserves for rural credit twice. Overall, the system suffers from a significant drop in monetary and credit aggregates. Official rates are stable, while for the past weeks the exchange rate moved in the new fluctuation band (+/- 2% daily), suggesting weakness.

Shanghai interbank (1 month rate)

MONETARY POLICY

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Global inflation stopped the fall in April returning above 3%, thanks to the increase in the major economies (1.5%). Also the decrease of emerging markets halted, consolidating the 5.5% level. Among major economies, price trend is on the rise (April data), with an intensity unseen for the past two years: production prices are at +1.4%, the general price index is at 1.9% and core at 1.4% (impulses remain on the rise).

G7 – PRICE TRENDS change % annualised

INFLATION

INFLATION change % annualised INFLATION BY COUNTRY

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RAW MATERIALS

CRB indexes, change since beginning of the year

INFLATIONARY PRESSURE GLOBAL INDICATOR INFLATIONARY PRESSURE H IG H I N FL A TI O N LOW I N FL A TI ON std dev mm

EURO&USA 10y BREAKEVEN INFLATION

Euro index, based on French 1-15 y government bonds

EURO BREAKEVEN INFLATION INDEX* fv 1.8% USA BREAKEVEN INFLATION INDEX fv 2.25% ALETTI INDEX The general index of raw materials (CRB index) confirmed values around the 2012 highs, with a correction in June driven by decrease in food and industrial goods. The inflationary impulses observed are potentially able to drive price dynamics much higher. The 10 year European linker index (French stock) is under 1.5% at the lowest in this phase. We expect an evolution between 1.45% and 1.75% in the coming weeks. We indicate 2.1-1.6% as normal range, with a fair value at 1.8%. For the same in USD, we consider contrasting impulses in the 2.20% area, with a progressive predominance for the growing ones that should soon bring 2.25-2.30% in the normal area, 2.6-1.9% with fair value 2.2/2.3%.

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Source: Thomson Reuters Datastream 2011 2012 2013 2014 -2 02-2 02 98 00 02 04 06 08 10 12 14 -2 024-2 024

GER 10y r 0.45 US 10y r 0.36 JP 10y r -2.53

2011 2012 2013 2014 -4 -2 02-4 -2 02 -4 -2 024-4 -2 024 GER 3m r -0.53 US 3m r -1.91 JP 3m r -3

REAL 3 MONTH RATES

Deflated series with cpi – periods: -3y and from 1997

REAL TEN YEAR RATES

Deflated series with cpi – periods: -3y and from 1997

GER

JP

USA JP GER

USA

Compared to compressed nominal rates, the real short term rates are negative in all three areas, mostly in Japan due to growth in inflation. Dynamic analysis indicates descending impulses in the coming weeks for USD and Yen, while for the euro the dynamic is forecasted to be stable/growing. Same with long term rates (those in USD are higher), thus the dominating force is downward, more for the Yen and for the USD.

-3y

da 1997

-3y

da 1997

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(rebased) 90 92 94 96 98 00 02 04 06 08 10 12 14 10 15 20 25 10 15 20 25 10.94 15.07

Source: Thomson Reuters Datastream -2 0246810 WORLD 5.9 G7 5.6 EMG. 4.8 % 1/1 local % -3m % -6m S 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 50 60 70 80 90 100 110 50 60 70 80 90 100 110 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 15 30 0 15 30 pe 15.07 91.96 9.79% G7 MARKETS EMERGING MARKETS STOCK MARKET

Quarterly earnings and yearly trend

PE RATIO FORWARD EARNINGS12M Real values

Since March, the recovery trend among emerging markets and major markets is the main factor. The compartment has solid fundamentals and not unfavourable economic policies. Since the beginning of the year, the MSCI index of the seven major countries gains 5.6% while the MSCI EM. MARKETS has a 4.8% performance. The expected earnings growth in a year for the G7 is at 9.8% and 10.8% for EM.MKTS. MSCI G7 is at 15.11 times earnings, while MSCI EM.MKTS is at 10.94, decidedly relevant values in the first case, while in the second they leave room to grow. The condition, however, is not unstable, with a probable further expansion. The earning momentum is positive for the USA (on the rise) and Japan (decreasing). Eurozone and Far East are recovering, but not China.

2012 2013 2014 40 42 44 46 48 50 700 800 900 1000 1100 1200 1300 MSCI WORLD MSCI EM (sx) MSCI G7 So 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 50 60 70 80 90 100 110 50 60 70 80 90 100 110 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 15 30 0 15 30 pe 10.94 87.67 10.28% G7 MARKETS EMERGING MARKETS MSCI WORLD

MSCI WORLD-MSCI G7-

MSCI EMERGING MARKETS

Source: Thomson Reuters Datastream 0246810 12 14 16 18 WORLD 7.7 G7 7.5 EMG. 7.1 % 1/1 € % -3m % -6m

INDICI MSCI - QUOTES

MSCI – performance in local currency and in euro

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