1

Philippe d’ArvisenetGlobal Chief Economist

ECONOMIC RESEARCH DEPARTMENT

THE WORLD ECONOMIC THE WORLD ECONOMIC OUTLOOKOUTLOOK

Conferences BNP PARIBAS,Conferences BNP PARIBAS,

Thursday 6th October, 2005Thursday 6th October, 2005

2

Chart 1

-2

0

2

4

6

8

10

12

14

80 82 84 86 88 90 92 94 96 98 00 02 04 06f

GDP

Trade of Goods & Services

World GDP and trade growth, %

(volume, annual % change)

source: IMF (World Economic Outlook, September 2005)

3

Chart 2

0

10

20

30

40

50

60

70

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

0

1

2

3

4

5

6

7

sources: FMI, OCDE, BNP Paribas

Brent oil price,USD/barrel

Real world growth, %

Brent oil price and world growth

4

Chart 3

0

10

20

30

40

50

60

70

80

90

100

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04sources: IMF, BLS, BNP Paribas

nominal

real, deflated with US CPI, base 2004=100

real, deflated with US price export, base 2004=100

Brent oil price, $/barrel (monthly average)

5

Chart 4

-8

-6

-4

-2

0

2

4

80 82 84 86 88 90 92 94 96 98 00 02 04

Output gap, %

source: OECD

United-States

Japan

Euro zone

6

I - UNITED STATES

7

STRONG ACTIVITY … GDP growth reached 4.2 % in 2004 We expect about 3.5 % in 2005 and 2006 Katrina : lower activity end 2005, acceleration at the beginning of 2006 Growth components :

consumption moderating somewhat as a result of high oil prices (not much risk related to the level in indebtedness, job creations and compensations favourably oriented, long rates remain at a record low)

investment to remain strong (sound financial situation of the corporate sector, higher rates of capacity utilisation, favourable financing conditions, manufacturing mini cycle bottomed out)

exports supported by the lower dollar but impacted by weakness in European investment.

8

… INFLATION PRESSURES SHOULD REMAIN CONTAINED

wages: towards an impact of the unemployment getting closer to NAIRU

productivity gains: in line with their long term trend

… NORMALISATION IN MONETARY POLICY WILL BE ACHIEVED SOON.

9

… IMBALANCES

fiscal policy, the cycle delivers: fiscal deficit will be significantly below expectation

long term problems persist ... current account widening the dollar is likely to remain under pressure

10

Chart 5

-4

-2

0

2

4

6

8

10

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

20

30

40

50

60

70

80

90USA : economic growth and ISM index

Real GDP, y/y % change

ISM Total index

ISM New-orders index

42.7

sources: ISM, BEA

11

Chart 5bis

0

20

40

60

80

100

120

140

160

180

200

80 82 84 86 88 90 92 94 96 98 00 02 04

United States: Conference Board indices on household confidence

presentsituationGlobal

index

expectations

source: Conference Board

12

Chart 6

-2

0

2

4

6

8

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

source: BEA

USA: household income

(volume, y/y % change)

Disposable income

Personal income

13

Chart 7

-4

-2

0

2

4

82 84 86 88 90 92 94 96 98 00 02 04

-600

-300

0

300

600

United States : compensation and employment

source: BLS

Real civilian compensation

(ECI) (y/y % change)Monthly change in employment,

3-month moving average,thousand

14

Chart 8

65,5

66,0

66,5

67,0

67,5

68,0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

3

4

5

6

7

8USA: labor force participation and unemployment rates, %

Labor forceparticipation rate

Unemployment rate

source: BLS

15

Chart 9

-2

0

2

4

6

8

80 82 84 86 88 90 92 94 96 98 00 02 04

-4

0

4

8

12

16

sources: BEA, Federal Reserve

USA: household consumption and saving

Household consumption, volume, y/y %

Household saving rate, %

16

Chart 9bis

0

1

2

3

4

5

6

80 82 84 86 88 90 92 94 96 98 00 02 04sources: Federal Reserve, BEA

United States: residential investment as % of GDP

17

Chart 10

0

50

100

150

200

250

300

350

400

450

500

550

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000United States : mortgage applications

source: Mortgage Bankers of America

Purchase indexRefinancing

index

(4-week average)

18

Chart 11

0

100

200

300

400

500

600

700

800

900

1000

1100

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

USA: household debt and investment

Mortgage debt

Residentialinvestment

(flow in billion USD)

source: Flow of Funds (Federal Reserve)

19

Chart 12

7

8

9

10

11

12

13

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05source: Federal Reserve (Flow of Funds)

Home equity loans as % of household mortgage debt

20

Chart 12bis

10,5

11

11,5

12

12,5

13

13,5

14

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

1

1,5

2

2,5

3

3,5

4

4,5

5

5,5United States : household debt and delinquency rate

Debt paymentas % of disposable income

Delinquency rate: consumer credits

Delinquency rate: mortgage credits

source: Federal Reserve

21

Chart 12ter

60

70

80

90

100

110

120

130

140

150

80 82 84 86 88 90 92 94 96 98 00 02 04

10

11

12

13

14

sources: National Association of Realtors, BEA, Federal Reserve

United States: affordability index and household debt payment

Housingaffordability

index*

Household debt payment, as % of disposable income

* a 100 index means that a family with the median income can qualify for a mortgage on a median-priced home.

22

Chart 13

-4

-2

0

2

4

6

8

10

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

100

104

108

112

116

120

124

128

Real GDP,y/y % change

GDP deflator /Unit labour cost

(indice Q1/70=100)

USA : GDP growth and GDP deflator/unit labour cost ratio

sources: BEA, BLS

23

Chart 13bis

-20

-10

0

10

20

30

40

50

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

USA: corporate profits and nonresidential investment

Nonresidential private investment

source:BEA

Corporate profits with IVA & CCADJ

(nominal, y/y % change)

24

Chart 14

70

72

74

76

78

80

82

84

86

80 82 84 86 88 90 92 94 96 98 00 02 04

-15

-10

-5

0

5

10

15

20

25USA: capacity utilisation rate and private investment

Capacity utilisation rate, %

(3-mma)

Nonresidential private investment,

volume, y/y %

(80.3 : period average)

sources: Federal Reserve, BEA

25

Chart 14bis

-1

0

1

2

3

4

80 82 84 86 88 90 92 94 96 98 2000 02 04

4

6

8

10

12USA: corporate financing gap and investment as % of GDP*

(* non financial corporate)

sources: BEA, Federal Reserve

Financing gap

Investment

26

Chart 15

0

1

2

3

4

5

6

7

8

10-95 10-96 10-97 10-98 10-99 10-00 10-01 10-02 10-03 10-04 10-05

3

3,5

4

4,5

5

5,5

6

6,5

7

AAA*

BBB*

BB*

T.Bondnominal

United States: 10-year interest spread, %

* spread corporate bonds - T.Note (LH scale)

T.Note rate

-30

-20

-10

0

10

20

30

40

50

60

70

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

-6

-4

-2

0

2

4

6

8

10

12

14

* to large & medium companies* to small businesses

%

source: Federal Reserve (Senior Loan Officer Opinion Survey)

Net % of bank respondents tightening standards for commercial & industrial loans*

(Fed- Senior Loan Officer Opinion survey on bank lending practices)

Credit market debt of nonfinancial corporate business, y/y % change

27

Chart 16

-2

0

2

4

6

8

10

12

14

80 82 84 86 88 90 92 94 96 98 00 02 04source:BLS

USA: unit labour cost and core inflation

( y/y % change)

Core inflation

Unit labour cost (nonfinancial corporations)

28

Chart 17

-6

-4

-2

0

2

4

6

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

United States: core inflation

source: BLS

(y/y % change)

Consumer price

Import price

Producer price

29

Chart 18

0

1

2

3

4

5

97 98 99 00 01 02 03 04 05sources: * University of Michigan, Federal Reserve

Expected inflation, % :T.Note 10year - Inflation indexed T.Note

Consumer sentiment*:expected change in prices, %

for next year

USA: price expectations

30

Chart 19

0

1

2

3

4

5

6

7

8

9

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

United States : interest rates and inflation%

(* monthly average)

source: Federal Reserve

10-year interest rate*

Fed Funds interest rate*

Inflation, y/y %

31

Chart 20

USA : interest rates from the end of recession, monthly average

source: Federal Reserve

0

2

4

6

8

10

12

14

m1 m13 m25 m37 m49

10 year

Fed Funds

January 1983

0

2

4

6

8

10

12

14

m1 m13 m25 m37 m49

10 year

Fed Funds

October 1991

0

2

4

6

8

10

12

14

m1 m13 m25 m37 m49

10 year

Fed Funds

October 2001

0

2

4

6

8

10

12

14

m1 m13 m25 m37 m49

10 year

Fed Funds

October 2001

0

2

4

6

8

10

12

14

m1 m13 m25 m37 m49

10 year

Fed Funds

October 2001

32

Chart 21

USA : real interest rates from the end of recession, monthly average

source: Federal Reserve

-4

-2

0

2

4

6

8

10

m1 m13 m25 m37 m49

10 year

Fed Funds

January 1983

-4

-2

0

2

4

6

8

10

m1 m13 m25 m37 m49

10 year

Fed Funds

October 1991

-4

-2

0

2

4

6

8

10

m1 m13 m25 m37 m49

Fed Funds

October 2001

10 year

33

Chart 22

-8

-6

-4

-2

0

2

4

80 82 84 86 88 90 92 94 96 98 2000 02 04

-2

0

2

4

6

8

10

12

14

Fiscal balance*(federal, states & local)

Current-account balance*

sources: BEA,Federal Reserve

(* as % of GDP)

Household savings rate

USA : current-account and budget balances, and savings

34

Chart 22bis

28

30

32

34

36

38

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

Expenditures

Receipts

USA : public receipts and expenditures as % of GDP

source: BEA

35

Chart 23

-400

-200

0

200

400

600

800

80 82 84 86 88 90 92 94 96 98 00 02 04

Federal government new debt

USA: purchases of US treasuries by non residents

source: Flow of Funds (Federal Reserve)

Treasuries acquisitionby the Rest of the World

Treasuries acquisitionby foreign central banks

(billion USD)

36

Chart 24

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

0,8

0,9

1

1,1

1,2

1,3

1,4

1,5

sources: Bundesbank, Réserve fédérale, Reuters

USA/Euro zone: interest rate & exchange rate

(monthly averages)

EUR/USD exchange rateUSA-Germany :

3-month interest spread, %

37

Chart 25

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

80 82 84 86 88 90 92 94 96 98 2000 02 04

-5500

-4500

-3500

-2500

-1500

-500

500United States : external position

(amounts outstanding end of period, billion USD)

Financial external position

Financial liabilities

Financial assets

source: Federal Reserve (FoF)

38

II - EUROLAND

39

what leading indicators tell us : growth below potential once again in 2005 and 2006

domestic demand is lagging; high unemployment, low increase in real wages impact households confidence and consumption

the financial situation of the corporate sector has strongly improved, and external demand is likely to be sustained, but the weak domestic demand will prevent a strong recovery in investment

the renewed strength of the euro will dampen the contribution of external demand to GDP growth

significant and structural national differences across member countries

40

fiscal policies under stress; the stability pact has been watered down, several countries (Italy, Portugal, Greece …) have entered the EDP (Excessive Deficit Procedure), France and Germany likely to overshoot the ceiling of 3% of GDP in 2005

monetary policy to remain accommodative core inflation outlook is still favorable and growth disappointing no price-wage spiral despite oil shock liquidity is abundant with consequences on asset prices, but with no

general push to domestic demand and consumption prices as yet the appetite to implement structural reforms remains mixed towards a lasting wait & see stance

41

Chart 26

-4

-2

0

2

4

6

1999 2000 2001 2002 2003 2004 2005

Real GDP, y/y % change

United States

Euro zone

Japan

sources: BEA, Cabinet Office of Japan, Eurostat

42

Chart 27

40

45

50

55

60

65

97 98 99 00 01 02 03 04 05

Euro zone : PMI

PMI services

PMI manufacturing

source: Reuters

43

Chart 28

45

47,5

50

52,5

55

57,5

60

62,5

65

98 99 00 01 02 03 04 05

-0,5

-0,25

0

0,25

0,5

0,75

1

1,25

1,5

Composite PMI

Real GDP, q/q , %

sources: Reuters, Eurostat

Euro zone : PMI and real GDP growth

44

Chart 29

-1

0

1

2

3

4

5

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

-30

-25

-20

-15

-10

-5

0

5Euro zone : consumer confidence and private consumption

Consumer confidence (balance of opinions, %)

Real privateconsumption,y/y % change

sources: Eurostat, European Commission

45

Chart 30

-2

0

2

4

6

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Euro zone : GDP and employment growth, y/y %

Real GDP

Total employment

source: Eurostat

46

Chart 31

3

4

5

6

7

8

9

10

11

12

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Unemployment rate, %

Euro zone

United States

sources: Eurostat, BLS

47

Chart 32

-20

-15

-10

-5

0

5

10

15

20

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

-25

-20

-15

-10

-5

0

5

10

15

20

25

Euro zone: trade weighted EUR and exports

Nominal effective EUR,y/y % (inverted scale)

source: ECB, Eurostat

Exports of goods, volume,3-month moving avg, y/y %

48

Chart 33

Real GDP growth, y/y % change

sources: Insee, Buba, Istat

-10

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005

GDP

Exports of G&S

Private consumption

France

-10

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005

GDP

Exports of G&S

Private consumption

Germany

-10

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005

GDP

Exports of G&S

Private consumption

Italy

49

Chart 34

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

1999 2000 2001 2002 2003 2004 2005

Total inflation

Core inflation

Euro zone: ECB repo rate and inflation

ECB short-term repo rate

sources: Eurostat, ECB

50

Chart 35

-2

-1

0

1

2

3

4

5

6

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Unit labour cost

Labour productivity

GDP deflator

sources: ECB, Eurostat

Euro zone: unit labour cost and GDP deflator

(y/y % change)

51

Chart 36

Euro zone: M3 and credit growth

0

2

4

6

8

10

12

1997 1998 1999 2000 2001 2002 2003 2004 2005

M3Household credit

Non financial corporate credit

source : ECB

M3 target: 4,5 %

(amount outstanding, y/y %)

52

Chart 37

100

110

120

130

140

150

160

12-98 12-99 12-00 12-01 12-02 12-03 12-04 12-05

Euro zone : M3 & target, indices December 1998 = 100

source: Eurostat

M3

Target (+4.5 % per year)

53

Chart 38

-30

-20

-10

0

10

20

30

40

50

1999 2000 2001 2002 2003 2004 2005

Euro zone : monetary aggregates, y/y % change

sources: Eurostat, ECB

M1

Currency in circulation

M3

54

Chart 39

70

75

80

85

90

95

100

105

80 82 84 86 88 90 92 94 96 98 00 02 04

Euro zone : nominal GDP / M3, indice Q1/80 = 100

source: Eurostat

55

Chart 40

0

1

2

3

4

5

6

01/02 07/02 01/03 07/03 01/04 07/04 01/05 07/05

sources: ECB, Ecowin

Euro zone: OATei

Benchmark 10years

OATei 10years, breakeven inflation(long-term inflation expectations)

%

56

Chart 41

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2003

2004

2005e

2006p

Euro zone: fiscal balance as % of GDP

sources: OECD, BNPParibas

Germany

Austria

Belgium

Spain

Finland

France

Ireland

Italy

Luxemburg

Netherlands

Portugal

Greece

57

Chart 42

0

0,1

0,2

0,3

07/0

408

/04

09/0

410

/04

11/0

412

/04

01/0

502

/05

03/0

504

/05

05/0

506

/05

07/0

508

/05

09/0

510

/05

10-year interest rate spread, %

(daily data)

sources: Central Banks

Italy - Germany

58

III - UNITED KINGDOM

59

ACTIVITY : WEAKER GROWTH

Manufacturing activity has bottomed out stagnant retail sales after a period of moderation following the

cooling of the housing market business and financial services remain dynamic

INFLATION : ABOVE BUT CLOSE TO 2% TARGET

inflation at 2.4 % in August 2005 favourable base effects (energy) in the coming months however: retail prices are less responsive to sluggish sales

60

RISK : MAINLY ON THE DOWNSIDE

housing market - cooling could be faster than anticipated wages - generous pay settlements could push inflation up and

undermine competitiveness

POLICY : THE WRONG MIX

Fiscal policy : too accommodative - economy is close to potential but deficit is close to 3% GDP

Monetary policy : MPC shows no appetite for further easing after August rate cut

61

Chart 43

-6

-4

-2

0

2

4

6

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

y/y %

q/q, annualized %

UK : real GDP growth, %

source: ONS

62

Chart 44

-10

-5

0

5

10

15

20

25

30

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

UK : house price and retail sales

( y/y % change)

sources: Halifax, ONS

All houses price

Volume of non-food retail sales

63

Chart 45

40

45

50

55

60

65

97 98 99 00 01 02 03 04 05

Euro zone

UK

UK/Euro zone : PMI manufacturing

source: Reuters

64

Chart 46

-10

-5

0

5

10

15

20

25

30

35

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

60

80

100

120

140

160UK : house price and loans on dwellings

House price, y/y % change

sources: Halifax, Bank of England

Number of loans on dwellings approved,

thousand

65

Chart 47

-8

-6

-4

-2

0

2

4

93 94 95 96 97 98 99 00 01 02 03 4 05f 06f

35

40

45

50

55UK : public budget and debt as % of GDP

Public debt(Maastricht definition)

Public sector balance

sources: OECD, BNPParibas

66

Chart 48

0

2

4

6

8

10

12

14

16

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

UK : interest rates

Base rate

10-year bond yield

(monthly average, %)

source: Bank of England

Harmonised inflation, y/y %

67

IV - JAPAN

68

JAPANESE ECONOMIC RECOVERY GOES ON GDP growth has been booming during H1 (4.5% saar) and should

slow somewhat in H2 ...both investment and consumption should back domestic recovery

HOUSEHOLD CONSUMPTION RECOVERY SEEMS WELL ROOTED

Private consumption has been booming in H1, in line with the fall in the jobless rate …

… and the expectation of an end to deflation Furthermore, wages, which are positively correlated with a lag to

corporate profits, have resumed since the beginning of this year

69

WHAT CHANGES IN MONETARY POLICY?

Core CPI (excl. fresh food) are still in negative territory (-0.2%) but much less than before (-1% early 2003)

A very moderate increase in prices is expected to show up next year Then, the BOJ will shift for its quantitative easing to an interest rate

objective The yen is likely to strengthen versus the dollar

70

IT IS KEY TO ACHIEVE FISCAL SUSTAINABILITY

The public deficit represents 7% of GDP and the public debt 170%

Primary fiscal deficit is 6%; a stabilization of the debt ratio requires 1.5% of primary surplus

A complete reshuffle of Japan’s tax system as well as a continuation of structural reforms are absolutely perquisite to raise Japan growth potential and help the country cope with the challenge of its ageing population.

71

Chart 49

-4

-3

-2

-1

0

1

2

3

4

5

95 96 97 98 99 00 01 02 03 04 05

Japan : GDP growth, y/y %

Nominal GDP

Real GDP

source: Cabinet Office

Real Domestic demand

72

Chart 50

-30

-20

-10

0

10

20

30

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Japan : exports growth

Exports to the USA

Exports to Asia(3-month moving average of the y/y %)

source: MoF

73

Chart 51

-6

-4

-2

0

2

4

6

95 96 97 98 99 00 01 02 03 04 05

-24

-18

-12

-6

0

6

12

18

24 Japan : consumption and investment

Public investment

Household consumption

(volume, y/y %)

source: Cabinet Office

74

Chart 52

-50

-40

-30

-20

-10

0

10

20

30

40

50

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Japan: profits and business climate

Current profits, all industries, y/y % change

Tankan surveys: business condition, forecasts, all enterprises, %

sources: MoF, Tankan (Bank of Japan)

75

Chart 53

0

10

20

30

40

50

60

70

80

90

100

110

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

-25

-20

-15

-10

-5

0

5

10

15

20

25

30Japan : orders and leading indicator

EPA leading indicator

Orders for machines,

y/y % change

source: Cabinet Office

(3-month moving averages)

76

Chart 54

99

100

101

102

103

104

105

106

107

108

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

1,5

2

2,5

3

3,5

4

4,5

5

5,5

6The labour market in Japan

Unemployment rate, %

Total employment (index 01/90 = 100)

source: Ministry of Labour

77

Chart 55

-4

-2

0

2

94 95 96 97 98 99 00 01 02 03 04 05

0,4

0,5

0,6

0,7

0,8

0,9

1Japan : employment growth and job offers to applicants ratio

source: Ministry of Labour

Full-time employees, y/y %

Job offers to applicants ratio

78

Chart 56

-4

-2

0

2

4

6

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

6

8

10

12

14

16

sources: Ministry of Labour, Ministry of Public Management, OCDE

Taux d'épargne des ménages

Japan : wages, inflation and saving rate

(* y/y % change)

Consumer priceindex*

Average earnings* (6-month moving average)

79

Chart 57

0

1

2

3

4

5

6

7

8

9

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

80

90

100

110

120

130

140

150

160

170% Japan : interest & exchange rates

(monthly average)

USD/JPY exchange rate

3-month interest rate

10-year interest rate

sources: BoJ, Reuters

80

V - CHINA

81

Economic growth still strong, although moderating from 9.5% in 2004 to 9%- 8% in 2006-07.

Significant effect of restrictive measures to reduce economic overheating (credit growth under control) Inflation is subdued : the control of domestic prices limits the impact of high global oil prices Low impact of the change from the peg to a currencies basket system : de facto still highly controlled exchange system despite some liberalisation Comfortable external financial position : large current surplus, huge foreign reserves

82

But some negative factors to monitor :

Strong external trade tensions and difficult trade compromises could hamper exports prospects Renewed doubts about statistical reliability Increasing social tensions Rising costs continuously erode corporate margins and increase local firms vulnerability to an economic downturn (especially for sectors in excess of supply)

All in all, over medium term growth potential still strong but possible reversal of current business cycle over short term and adjustments at the microeconomic level

83

Chart 58

China: real GDP growth, %

0

2

4

6

8

10

12

14

16

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05f 06f

sources: China Stat. Info. & Service Centre, BNP Paribas

84

Chart 59

0

5

10

15

20

25

98 99 00 01 02 03 04 05

China: monetary aggregate M2 and loans growth (y/y %)

source: Bank of China

M2

Loans

85

Chart 60

-10

-5

0

5

10

15

20

25

30

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Consumer prices

Retail prices

Producer prices

China: inflation (y/y %)

source: National Bureau of Statistics of China

86

Chart 61

0

10

20

30

40

50

60

01-01 07-01 01-02 07-02 01-03 07-03 01-04 07-04 01-05 07-05

0

1

2

3

4

5

6

7

8

sources: NBS, BNP Paribas

China: FAI growth and real interest rate

Real loan rate, 5 to 10 years, %

Fixed assets investment, y/y %

87

Chart 62

0

2

4

6

8

10

12

14

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

China: interest rates, %

source: Bank of China

Discount rate

Prime lending rate

88

Chart 63

-4

-3

-2

-1

0

1

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05f 06f

China: fiscal balance as % of GDP

sources: China Stat. Info. & Service Centre, BNP Paribas

89

Chart 64

-40

-20

0

20

40

60

80

100

120

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Total

with USA

with Japan

China: foreign trade balances

source: General Administration of Customs

(monthly data, 1-year cumulative, billion USD)

90

Chart 65

-20

-10

0

10

20

30

40

50

60

70

98 99 2000 01 02 03 04

China: balance of payments (billion USD)

Current-account balance

Net direct investment

Net Errors & Omissions

sources: China Stat. Info. & Service Centre, BNP Paribas

91

Chart 66

0

5

10

15

20

25

2001 2002 2003 2004 2005

120

125

130

135

140

145

China: banking liquidity

sources: Bank of China, DRIASIA

Real loans growth,y/y % Deposits

as % of loans

92

List of charts

1 : World GPD and trade growth 2 : Oil price and world growth 3 : Nominal and real oil price 4 : Output gap

I - UNITED STATES

charts n° 5 to 25

5 : Real GDP growth and ISM 5bis : Consumer confidence of the Conference Board 6 : Household income 7 : Compensation and employment 8 : Participation and unemployment rates 9 : Household consumption and saving 9bis : Residential investment as % of GDP 10 : Mortgage applications

93

11: Household debt and investment 12 : Home equity loans as % of household mortgage debt 12bis : Household debt and delinquency rate 12ter : Housing affordability index and household debt payment 13 : GDP growth and GDP deflator/unit labor cost ratio 13bis : Corporate profits and nonresidential investment 14 : Capacity utilisation rate and private investment 14bis : Corporate financing gap and investment as % of GDP 15 : 10-year interest spread and Senior loan officer survey 16 : Labor costs and inflation 17 : Core inflation 18 : Price expectations 19 : Interest rates and inflation 20 : Nominal interest rates from the end of recession 21 : Real interest rates from the end of recession 22 : Current-account & budget balances and savings 22bis : Public receipts and expenditures as % of GDP 23 : Purchases of US Treasuries 24 : USA/Euro zone, interest and exchange rates 25 : External position

94

II - EURO ZONE

charts n° 26 to 42

26 : Real GDP growth, USA, Japan, Eurozone 27-28 : PMI and GDP growth 29 : Consumer confidence and private consumption 30 : GDP and employment growth 31 : Eurozone/USA, unemployment rate 32 : Effective exchange rate and real exports 33 : Real GDP components growth/country 34 : Repo rate and inflation 35 : Labor cost, productivity and GDP deflator growth 36 : M3 and credit growth 37 : M3 and target 38 : Monetary aggregate growth 39 : Nominal GDP / M3 40 : OATei and expected inflation 41 : Fiscal balance/country 42 : Italy/Germany, 10-year interest rate spread

95

III - UNITED KINGDOM

charts n° 43 to 48

43 : Real GDP growth 44 : House price and retail sales 45 : UK/Euro zone, PMI 46 : House price and loans on dwellings approved 47 : Public budget and debt 48 : Interest rates and inflation

96

IV - JAPAN

charts n°49 to 57

49 : Real GDP and domestic demand growth 50 : Exports growth 51 : Consumption and investment 52 : Profits and Tankan’s surveys 53 : Orders and leading indicator 54 : Labour market 55 : Employment growth and job offers to applicants ratio 56 : Wages, inflation and savings 57 : Interest and exchange rates

97

V - CHINA

charts n° 58 to 66

58 : Real GDP growth 59 : M2 and credit growth 60 : Inflation 61 : Fixed assets investment growth and interest rate 62 : Discount and lending rates 63 : Fiscal balance 64 : Foreign trade 65 : Balance of payments 66 : Banking liquidity

98

ECONOMIC RESEARCH DEPARTMENTPhilippe d'ARVISENET 33 1.43.16.95.58 philippe.darvisenet@bnpparibas.comChief Economist

OECD COUNTRIESPhilippe d'ARVISENET

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