HOSTED BY PRESENTED BY

The Global Economic Outlook

Jay Bryson, Ph. D. Managing Director, Global Economist

Wells Fargo Securities

Economics 2

-12%

-8%

-4%

0%

4%

8%

-12%

-8%

-4%

0%

4%

8%

2002 2004 2006 2008 2010 2012 2014 2016

Eurozone Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change

Compound Annual Growth: Q1 @ 2.2%Year-over-Year Percent Change: Q1 @ 1.7%

Forecast

Eurozone GDP

The recovery in the Eurozone should continue, albeit at a

modest pace

Source: IHS Global Insight and Wells Fargo Securities, LLC, April 2016

Economics 3

-1%

0%

1%

2%

3%

4%

5%

-1%

0%

1%

2%

3%

4%

5%

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Eurozone Consumer Price Inflation Year-over-Year Percent Change

Core CPI: Apr @ 0.7%CPI: Apr @ -0.2%

Eurozone CPI

The Eurozone is dangerously close to a deflationary

environment

Source: IHS Global Insight and Wells Fargo Securities, LLC, May 2016

Economics 4

€0.0

€0.5

€1.0

€1.5

€2.0

€2.5

€3.0

€3.5

€0.0

€0.5

€1.0

€1.5

€2.0

€2.5

€3.0

€3.5

00 01 03 05 07 09 11 13 15

ECB Balance SheetTrillions of Euros

ECB Balance Sheet: May @ €3.03T

ECB Balance Sheet

The ECB’s QE program should remain operational through at

least March 2017

Source: IHS Global Insight and Wells Fargo Securities, LLC, May 2016

Economics 5

-12%

-9%

-6%

-3%

0%

3%

6%

-12%

-9%

-6%

-3%

0%

3%

6%

00 02 04 06 08 10 12 14 16

U.K. Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change

Compound Annual Growth: Q1 @ 1.4%Year-over-Year Percent Change: Q1 @ 2.0%

Forecast

U.K. GDP Growth

The economic expansion in the United Kingdom should

continue, unless that country decides to leave the European

Union

Source: IHS Global Insight and Wells Fargo Securities, LLC, April 2016

Economics 6

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Chinese Real GDP ForecastYear-over-Year Percent Change

Year-over-Year Percent Change: Q1 @ 6.7%

WFFcst.

China GDP

The Chinese economy likely will continue to slow, but we do not

believe it will completely fall apart either

Source: Bloomberg LP and Wells Fargo Securities, LLC, March 2016

Economics 7

0%

50%

100%

150%

200%

250%

0%

50%

100%

150%

200%

250%

09 10 11 12 13 14 09 10 11 12 13 14

U.S. vs. China Debt Outstanding by SectorPercent of GDP

Central GovernmentNon-Financial CorporateHousehold

United States China

China Debt

Debt problems in China are concentrated in the business

sector

Source: Bloomberg LP and Wells Fargo Securities, LLC, April 2015

Economics 8

-4%

0%

4%

8%

12%

16%

20%

24%

28%

-4%

0%

4%

8%

12%

16%

20%

24%

28%

00 02 04 06 08 10 12 14

Chinese Industrial Value AddedYear-over-Year Percent Change

State-Owned: Mar @ 2.9%All: Mar @ 6.3%

Industrial Value-Added in China

The state-owned enterprise sector is relatively inefficient

Source: CEIC and Wells Fargo Securities, LLC, March 2016

Economics 9

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

1980 1985 1990 1995 2000 2005 2010 2015

Real Global GDP GrowthYear-over-Year Percent Change, PPP Weights

Period Average

WFForecast

Global GDP Growth

We forecast that global GDP growth will remain below its

long-run average in 2016

Source: International Monetary Fund and Wells Fargo Securities, LLC, May 2016

Economics 10

0%

2%

4%

6%

8%

10%

0%

2%

4%

6%

8%

10%

EmergingAsia

EmergingEurope

Latin America MENA Sub-SaharanAfrica

Real GDP Growth by RegionPer Annum Growth Rates, Period Averages

2004-20072011-20152016-2020

Regional GDP Growth

The slowdown in the developing world has been broad based

Source: International Monetary Fund and Wells Fargo Securities, LLC, April 2016

Economics 11

$0

$20

$40

$60

$80

$100

$120

$140

$160

$0

$20

$40

$60

$80

$100

$120

$140

$160

00 02 04 06 08 10 12 14 16

Crude OilNYMEX Front-Month Contract, Dollars per Barrel

Crude Oil (WTI): Jun-3 @ $48.62

Oil Prices

Slow global growth and excess supply likely will keep oil prices

depressed for some time

Source: IHS Global Insight and Wells Fargo Securities, LLC, June 2016

Economics 12

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

92 94 96 98 00 02 04 06 08 10 12 14 16

Global Trade IndicatorsYear-over-Year Percent Change

Real Exports: Mar @ 0.8%Industrial Production: Mar @ 0.8%

Global Trade

Deceleration in economic activity is playing a role in the

slowdown in global trade

Source: IHS Global Insight and Wells Fargo Securities, LLC, April 2016

Economics 13

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008 2010 2012 2014 2016

U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change

GDP - CAGR: Q1 @ 0.8%GDP - Yr/Yr Percent Change: Q1 @ 2.0%

Forecast

Real GDP Forecast

Our forecast looks for real GDP growth to remain generally solid

in coming quarters

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC, May 2016

Economics 14

-15%

-10%

-5%

0%

5%

10%

15%

-15%

-10%

-5%

0%

5%

10%

15%

92 94 96 98 00 02 04 06 08 10 12 14 16

Global Economic IndicatorsYear-over-Year Percent Change

Global Industrial Production: Q1 @ 1.1%U.S. GDP: Q1 @ 2.0%

Global Industrial Production

It would take a sharp downturn in the rest of the world to have a

meaningful effect on U.S. economic growth

Source: IHS Global Insight and Wells Fargo Securities, LLC, April 2016

Economics 15

10.8%12.6%

17.6%

23.1%24.4%

30.6%

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

U.S. Japan China UnitedKingdom

Canada Germany

Value-Added Embodied in Foreign FDDPercent of Total Value-Added

2011

Value Added

The United States derives only 10 percent of its value added

from final spending in the rest of the world

Source: Organisation for Economic Cooperation and Development and Wells Fargo Securities, LLC, August 2015

Economics 16

2%

4%

6%

8%

10%

12%

14%

16%

18%

2%

4%

6%

8%

10%

12%

14%

16%

18%

94 96 98 00 02 04 06 08 10 12 14 16

Unemployment RatesSeasonally Adjusted

Unemployment Rate: May @ 4.7%

U-6 Unemployment Rate: May @ 9.7%

U.S. Unemployment Rate

There is less slack in the labor market today

Source: U.S. Department of Labor and Wells Fargo Securities, LLC, June 2016

Economics 17

-2%

-1%

0%

1%

2%

3%

4%

5%

-2%

-1%

0%

1%

2%

3%

4%

5%

92 94 96 98 00 02 04 06 08 10 12 14 16

PCE Deflator vs. Core PCE DeflatorYear-over-Year Percent Change

PCE Deflator: Apr @ 1.1%"Core" PCE Deflator: Apr @ 1.6%

PCE Inflation

The underlying rate of inflation is slowly starting to trend higher

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC, May 2016

Economics 18

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

90 92 94 96 98 00 02 04 06 08 10 12 14 16

10-Yr Treasury and Federal Funds Target RatePercent

10-Year Treasury Yield: May @ 1.81%Fed Funds Target: May @ 0.50%

U.S. Interest Rates

Short-term interest rates likely are headed higher, albeit at a

slow pace

Source: IHS Global Insight and Wells Fargo Securities, LLC, April 2016

Economics 19

65

70

75

80

85

90

95

100

105

110

115

65

70

75

80

85

90

95

100

105

110

115

2000 2002 2004 2006 2008 2010 2012 2014 2016

Trade Weighted DollarMajor Curency Index, 1973 = 100

Trade Weighted Dollar: Q1 @ 89.8

Forecast

U.S. Dollar

We forecast that the U.S. dollar will strengthen a bit further in

coming quarters

Source: Federal Reserve Board and Wells Fargo Securities, LLC, May 2016

Economics

Wells Fargo Securities Economics Group

20

John E. Silvia … ....................... … john.silvia@wellsfargo.com

Global Head of Research and Economics Diane Schumaker-Krieg ………………… ……….diane.schumaker@wellsfargo.com Global Head of Research & Economics

Chief Economist

Mark Vitner, Senior Economist……………....………. . mark.vitner@wellsfargo.com

Jay H. Bryson, Global Economist …………………....…… ….jay.bryson@wellsfargo.com

Sam Bullard, Senior Economist sam.bullard@wellsfargo.com

Nick Bennenbroek, Currency Strategist ……nicholas.bennenbroek@wellsfargo.com

Anika R. Khan, Senior Economist … . anika.khan@wellsfargo.com

Eugenio J. Alemán, Senior Economist… …………eugenio.j.aleman@wellsfargo.com

Azhar Iqbal, Econometrician………………… …………… azhar.iqbal@wellsfargo.com

Tim Quinlan, Senior Economist …………… ……………. .tim.quinlan@wellsfargo.com

Senior Economists Erik Nelson, Economic Analyst erik.f.nelson@wellsfargo.com

Alex Moehring, Economic Analyst alex.v.moehring@wellsfargo.com

Misa Batcheller, Economic Analyst misa.n.batcheller@wellsfargo.com

Michael Pugliese, Economic Analyst michael.d.pugliese@wellsfargo.com

Julianne Causey, Economic Analyst julianne.causey@wellsfargo.com

Economists Eric J. Viloria, Currency Strategist eric.viloria@wellsfargo.com

Sarah House, Economist …………… ………… sarah.house@wellsfargo.com

Michael A. Brown, Economist ……………… … michael.a.brown@wellsfargo.com

Jamie Feik, Economist jamie.feik@wellsfargo.com

Economic Analysts

Administrative Assistants

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2016 Wells Fargo Securities, LLC.

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