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Rebuilding confidence

Rebuilding confidence. Han de Jong Group Economics March 2012. Six months ago: pessimism. Contagion in euro crisis Sharp drop in economic activity & business confidence  Fear for another sharp downturn like ‘Lehman’. Why did the global economy not ‘collapse’?.

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Rebuilding confidence

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  1. Rebuilding confidence Han de Jong Group Economics March 2012

  2. Six months ago: pessimism • Contagion in euro crisis • Sharp drop in economic activity & business confidence •  Fear for another sharp downturn like ‘Lehman’

  3. Why did the global economy not ‘collapse’? • Financial system did not dry up • European leaders took positive steps

  4. Business confidence: PMI and ISM index 4 Source: Bloomberg

  5. Business confidence: PMI Index 5 Source: Bloomberg

  6. Divergence US and eurozone Unemployment, % 6 Source: Bloomberg

  7. Money growth % yoy Source: Bloomberg

  8. Divergence Europe: car sales Portugal -48.8 Greece -45.2 Ireland -8.6 France -20.2 Italy -18.9 Netherlands -10.0 UK -2.5 Germany 0.0 Estonia +29.7 Iceland +148.5 % yoy, February 2012 8 Source: Bloomberg

  9. US: self sustaining growth 9

  10. China hard landing or soft landing: Car sales millions Source: Bloomberg

  11. Economic situation US moving to self-reinforcing recovery Europe improving gradually Emerging economies taking advantage of industrial recovery – and room to stimulate 11

  12. Euro crisis LTROs have eased pressure Greek tragedy no longer problem for financial markets – now purely political New Compact Likely increase bail-out funds Calm has returned to markets 12

  13. 2yr government bond yields % 13 Source: Bloomberg

  14. European banks tightening lending criteria until Q4 Net-tightening (%) 14 Source: Thomson Reuters Datastream

  15. Risks to the ECB’s approach • ECB balance sheet riskier • Inflation • Phenomenal distortion in markets, will lead to misallocation • Reduced urgency other policymakers - Public finances - Structural reform

  16. Structural improvements? Deleverging continues Eurozone public finances much improved Structural reform 16

  17. Spain

  18. Italy

  19. Unemployment Source: Bloomberg

  20. US: Debt deleveraging households % GDP 20 Source: Thomson Reuters Datastream

  21. Risks • Escalation euro crisis - Austerity fatigue - Loss of patience • Oil prices • Rising interest rates • China hard landing • Too much austerity • Too little austerity

  22. Price earning ratio S&P 500 Source: Bloomberg

  23. Investment portfolios – adding risk Equities: raised to neutral Equities: - more cyclical exposure - overweight Emerging Markets Bond: High yields, corporates, Emerging Markets 23 23

  24. Equities 24

  25. Bonds % 25

  26. Important information ABN AMRO Group Economics on the internet abnamro.nl/economischbureau - Dutch publications abnamro.nl/groupeconomics – English publications This material is provided to you for information purposes only. Before investing in any product of ABN AMRO Bank NV, you should inform yourself about various consequences that you may encounter under the laws of your country. ABN AMRO Bank NV. has taken all reasonable care to ensure that the information contained in this document is correct but does not accept liability for any misprints. ABN AMRO Bank NV reserves the right to make amendments to this material. This material which is subject to change without notice is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments. While ABN AMRO makes reasonable efforts to obtain information from sources, which it believes to be reliable, ABN AMRO makes no representation or warranty of any kind, either express or implied as to the accuracy, reliability, up-to-dateness or completeness of the information contained herein. Nothing herein constitutes an investment, legal, tax or other advice nor is it to be relied on in any investment or decision. Certain services and products are subject to legal restrictions and therefore may not be available for residents of certain countries. You should obtain relevant and specific professional advice before making any investment decision. The past performance is not necessarily a guide to the future result of an investment. The value of investments may go up or down due to various factors including but not limited to changes in rates of foreign exchange and investors may not get back the amount invested. ABN AMRO disclaims any responsibility and liability whatsoever in this respect.

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