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Marubeni Research Institute

2013 World Economic, Industry and

Commodity Market OutlookDecember 2012

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2010/1=100

I. World Economic Outlook1-1. Advanced Country Outlook: Pick-Up in 2ndHalf of Year Developed country economies should pick-up in the 2ndhalf of 2013 In the U.S. if the fiscal cliff is avoided business and household sentiment should improve and with household balance sheetadjustments likely progressing the pace of recovery in the

U.S. economy should speed-up. In Japan, a recovery in the external (world) economy and reconstruction demand propped up by the governments supplementary budget should lead to an upturn in the economy.

Although Europe faces a hostile economic environment, a likely recovery in the world economy should allow it to escape from an economic recession.

Possible background to a weak recovery: A deterioration in U.S. fiscal circumstances, and Japan being unable to depend on external demand (andaccompanying capital investment, etc.) to drive its economy, as it has in the past, could be causes

In past U.S. economic recessions expansionary fiscal policies were used to lead to recoveries, however, this time the deficit is being reduced before the economy has picked.

In Japan, before the economic bubble the economy was led by corporate activity driven by external demand. This time input from the corporate sector is weak, while personalconsumptions contribution, driven by various types of purchase subsidies, is large.

Major Advanced Countries Mining/Manufacturing Production

Sources: FRB, Eurostat, METI

dotted line is forecast image

U.S. Fiscal Balance/GDP Growth Rate- 3 Year Periods After Recessions

Japans Corporate Sector Contribution in Economic Expansion Phases

Sources: U.S. Commerce Dept., Japan Cabinet Office

-15

-10

-5

0

5

10-10

-5

0

5

10

15 GDP1

GDP

7311 817 907 013 0712

Euro Zonerecessionary phase

U.S.

Japanrecessionary

phase(estimate)

(estimate)

GDP growth rate (left axis)fiscal balance (right axis)

(as % of GDP)

11/73~ 7/81~ 7/90~ 3/01~ 12/07~

Real GDP Cor orate Sector Contribution Contribution - OtherAverage Growth Capital Investment Personal Consumption

Rate for Period Net Exports Government Expenditure

Private Inventory etc.

2/83~6/85 5.3% 3.9% 1.4%11/86~2/91 5.7% 2.0% 3.7%10/93~5/97 2.4% 0.2% 2.3%1/99~11/00 0.9% 0.6% 0.3%1/02~2/06 1.8% 1.5% 0.3%

3/09~ 2.2% 0.5% 1.7%

Economic

Expansion

Cycles

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Brazil Russia

India China

Deceleration Background: Influence of fiscal/monetary tightening from mid-2010 through 2011 and economic slowdown in the developed countries, affectedboth internal and external demand

The large-scale fiscal stimulus actions and monetary easing that followed the Lehman shock were curtailed from around mid-2010 and tightening ensued with negative effects appearingin 2012 in the form of slowing domestic demand.

From 2011 sporadic slowdowns in developed country economies continued suppressing somewhat the BRICs economies due to the lower external demand.

While India and Russia have sluggish growth prospects for 2013, China and Brazil are expected to move out of their deceleration paths onto recovery tracks China, Brazil and various other emerging economies are expected to reverse their current deceleration trend on the back of recoveries in advanced countries and the effects from their

current economic stimulus measures. In India, due to the high level of debt further government fiscal expenditure is difficult and with high inflation monetary easing is problematic, so the economys ability to recover is weak.

Russias economy will remain sluggish due to the impact of Europes economic woes.

BRICs Interest Rates

Source: Bloomberg.

BRICs Real GDP

Note: BRIC countries real GDPs are based on theIMFsPPP valuations

Sources: Bloomberg, IMF, each countrys government statistics

I. World Economic Outlook1-2. BRICs Outlook: China/Brazil Emerge from Deceleration Phase Toward Recovery

456789

1011121314

09/1 09/7 10/1 10/7 11/1 11/7 12/1 12/7

()

-202468

1012

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

11Q1

11Q2

11Q3

11Q4

12Q1

12Q2

GDP()

dotted line is forecast imageBRICs Mining/Manufacturing Production

Brazil

India

Russia

China

(vs. previous year, %)

(vs. previous years degreeof contribution, %)

domesticdemand

externaldemand GDP

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Sources: IMF World Economic Outlook , October 2012, Marubeni Research Institute

The world economy will see a gradual recovery in 2013-14. We should see average growth rates of around 2% for developed countries and 6% fornewly emerging economies.

In terms of the world economy, with the problem of fiscal deficits in the developed countries stemming from enlarged government debt and instability in the financialmarkets still remaining, economic growth in the developed countries should be moderate at around 2%. As balance sheet adjustments in the U.S. move forward, the

growth rate should gradually pick-up. In Europe, with austerity measures still being carried out economic growth will likely remain at low levels. In Japan, the currentgrowth rate of between 0% and 1% should continue.There will be no change in the emerging economies as the main players in driving the world economy. Emerging economy middle classes continue to expand, while thesize of consumer markets increase. Furthermore, strong investment is boosting domestic demand. However, because economic growth in emerging and developingeconomies is relatively unstable (inconsistent), growth rates will not generally reach the 7% to 9% levels seen before the Lehman shock occurred.

Economic Growth Rate Forecasts (vs. previous year, %)

I. World Economic Outlook

(Reference) 2013-14 Growth Rates: Advanced Countries 2%, Emerging Economies 6%

Sharevs. prior year

(actual)

vs. prior year

(actual)

vs. prior year

(actual)

vs. prior year

(estimate)

vs. prior year

(forecast)

vs. prior year

(forecast)

vs. prior year

(forecast)

100.0 2.8 -0.6 5.1 3.8 3.3 3.6 4.1

51.1 0.1 -3.5 3.0 1.6 1.3 1.5 2.3 19.1 -0.3 -3.1 3.0 1.7 1.7 2.3 2.3

14.2 0.4 -4.4 2.0 1.4 -0.4 1.1 2.2

5.6 -1.0 -5.5 4.7 -0.6 2.7 0.7 0.5

2.9 -1.0 -4.0 1.8 0.8 -0.4 1.1 2.2

3.9 1.8 -0.7 8.5 4.0 2.1 3.6 4.1

48.9 6.1 2.7 7.4 6.2 5.3 5.6 5.9

3.5 3.2 -3.6 4.6 5.3 2.0 2.6 3.2

3.0 5.2 -7.8 4.3 4.3 3.7 3.8 3.9

14.3 9.6 9.2 10.4 9.2 7.8 8.2 8.5 5.6 6.9 5.9 10.1 6.9 4.9 6.0 6.4

3.6 4.8 1.7 7.0 4.5 5.4 5.8 5.7

8.7 4.2 -1.5 6.2 4.5 3.2 3.9 4.1

2.9 5.2 -0.3 7.5 2.7 1.5 4.0 4.2

4.9 4.5 2.6 5.0 3.3 5.3 3.6 3.8

2.5 5.6 2.8 5.3 5.1 5.0 5.7 5.5

ASEAN 5

IndiaChina

Central/South America

Middle East/North Africa

Brazil

Sub-Saharan Africa

Russia

Japan

UK

Newly Emerging Economies

NIEs

Central/Eastern Europe

World

Advanced EconomiesUS

Euro Zone

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40

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

B-

BB

BBB-

BBB+

BBB+

AA+

AAA

56

9OMT

ESM103

11

/

12

27

09/10

10/45

10/6EFSF

4

ECB1112

LTRO12

2011 2012

7ECB

42

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5052

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5050

Obama Administration (Democrats) andRepublican Party on the Fiscal Cliff

Europe: Although financial supportmeasures put in place, it has not led toa fundamental solution to the crisis

Such financial support schemes as the

introduction of outright monetary transactions(OTM), or the unlimited purchase ofgovernment bonds (Sept.), by the ECB, and thelaunch of the European Stability Mechanism(ESM) as a safety net to maintain financialorder (Oct.), etc., have been put forth one afteranother.

Lending to Greece resumes (Dec.).Repurchases of government bonds to reducedebt proceeds smoothly, and the debt level falls9.5% against GDP.

Moves to establish a central supervisingmechanism for Euro area banks (planned to

start in March 2014). The long-term aim isregion-wide financial integration through abanking union.

On the other hand, the existence of unstabledomestic political situations, like recent localelections voicing discontent with austeritypolicies in Spain and the announcement ofPrime Minister Montisresignation in Italy, showthat confidence in these policies is dropping.

With economic growth not expected there isuncertainty over whether fiscal reconstructioncan be achieved or not in many Euro countries.

U.S.: Falling confidence overgovernment policies related to thefiscal cliff.

Due to uncertainty over the fiscal cliff businesssentiment has not improved. The key to a realeconomic recovery in the U.S. is avoiding thefiscal cliff.

Even if the fiscal cliff is avoided though, theproblem of fiscal reconstruction in the mid tolong-term still remains.


1-3. 2013 Main Points: Uncertainty Over U.S./Europe Economic Policies a Risk Factor

Source: Bloomberg Note: Ireland 9 year bond rating is based on the S&P long-term Irish currency ra ting (as of 12/19)

Business Confidence (Industry PMI)

Source: Bloomberg

Sources: Various media reportsU.S. Euro Zone

Over 50 = expanding activities/Under 50 = shrinking

Dec.: LTRO carried out

Nov./Dec.: ECB lowers interest rates

Apr.: Portugal requests support

July: Portugal requests support

9/10: Greece debt problems emerge10/4-5: Greece aid request agreed to10/6: EFSF established

ESM inaugurated: Oct.ESM inaugurated: Oct.

May/June: Greek elections

July: ECB lowers interest rates

Sept.: OMT introduced

Lending to Greece resumed: Nov.

Spanish bank support/Greek bond purchases: Dec.

Greece

(B-)

Portugal

(BB)Spain

(BBB-)

Ireland

(BBB-)

Italy

(BBB-)

France

(AA-))

Germany

(AAA)

Long-Term Interest Rates and Policy Responses

President (Democrats) Republicans

Revenues

Seek to cut defense spending. Against cuts to defense budget.

Agreement in principle to end tax cuts for the wealthy (real tax

increase). Negotiating the de finition of wealthy.

Expenditures

Against any large-scale cuts to

Medicare/Medicaid.

Seek to shrink the scope of the

Medicare/Medicaid system.

Give authority to the

administration to raise the limit.

Raise the ceiling for a limited

period.Debt Ceiling

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Source: Bloomberg

Real GDP Growth Rate and Per Capita GDP (PPP)

Future growth expectations low

Even 4 years after the Lehman shock, theeconomic strength of such East Asiancountries as China and Japan, among others,continues to be lower than it was before the

crisis, which is one factor in largely reducedexpectations for future growth.

If you look at the IMFs long-term growth rateforecasts for China (all made in autumn), theywere initially around 9.5% which would havebeen a return to the growth rates of the firsthalf of the 2000s. However, the currentforecast has been substantially reviseddownward to about 8.5%.

Along the same lines, Japans long-termgrowth forecast prior to the Lehman shockwas pegged at just under 2%, but hasrecently been lowered to 1%.

Earlier forecasts for mid to long-term Koreangrowth were around 5%, but since have beencut to about 4%. It seems that countriesfacing the prospects of lower growth are morethan just a few.

Reduced confidence in growth may beshackling economies

In Japan and China, shrinking growthexpectations have led to a worsening inbusiness sentiment. As firms and householdslose confidence in the prospects for futuregrowth, economic activity falls off, and puts adamper on the possibilities for growth.

In Korea the economic growth rate hasdeclined even in the face of rising per capitaGDP. China has been following a similar path,and as mentioned above, is not likely to avoida lower growth rate.Source: IMF Note: Years after 2012 are forecasted. Source: IMF

I. World Economic Outlook1-4. 2013 Main Points:East Asia Growth Expectations Lower, Restraining Economies

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1987

1989

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1GDP

GDP

GDP

1GDP

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10.0

2012 2013 2014 2015 2016 2017

2009

2010

2011

2012

0.5

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2.0

2.5

2012 2013 2014 2015 2016 2017

20092010

2011

2012

Business Confidence (Industry PMI)Over 50 = expanding activities/Under 50 = shrinking

Japan China

Change in China Growth Rate Forecast(all IMF autumn forecasts)

2009 forecast

2010 forecast

2011 forecast

2012 forecast

Change in Japan Growth Rate Forecast(all IMF autumn forecasts)

2009 forecast

2010 forecast

2011 forecast

2012 forecast

(China, year)

GDP growth rate(China)

per capita GDP(Korea)

GDP growth rate(Korea)

(GD

Pgrowthrate,

%)

(percapitaGDP,

$)

per capita GDP(China)

(Korea, year)

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Economy recovering, but fiscalproblem an issue

Weak corporate sector (exports, capitalinvestment) being compensated by anongoing moderate recovery in the household

sector (personal consumption, residentialinvestment).

As far as scenarios related to the fiscal cliffproblem go;the Democrats andRepublicans come to terms and avoid it,the decision is postponed until spring, orno agreement is reached, which we dontbelieve will happen.

Household debt situation improves Due to the slowdown in the world economy

and uncertainty over fiscal policy capital

investment in the corporate sector hasworsened. So the corporate sector shouldremain sluggish for the time being.

Strong auto sales show that the householdsector has picked up. The background to thisis the progress households have made incleaning up their balance sheets. Thehousing sector, which has been a majorissue in the U.S. economy, has seencontinued improvement in sales and priceswhich is giving a boost to the economy.

However, there is some concern over thesustainability of this economic recovery dueto the slow pace in the recovery ofdisposable income.

On the employment front, even though theunemployment rate has continued to remainhigh, non-farm payrolls rose by more than100,000 in the second half of the year. Ledby the private sector, the mild recovery isexpected to continue.

Household Sector Loans/Outstanding Debt Disposable IncomeHousing Sales and Prices

Real GDP Growth Rate

() 2012-13 are IMF estimates.

Sources: CEIC database, IMF

Sources: CEIC database, S&P

Source: CEIC database

Sources: BEA, FRB

I. World Economic Outlook2. U.S.: Housing Market Recovering/Household Debt Improving = Stable Economic Growt

-1,000

-800

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2000/1=100

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1 1 1 1 1 1 1 1

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()

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2.22.6

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2 22 1

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GDP

Change in Non-Farm Sector Employment(vs. prior month)

(10,000 persons)

govern-ment

privatesector

non-farm sector accumulatedincrease/decrease (right axis)

(seasonally adjusted,10,000 units)

(seasonally adjusted,1/2000 = 100)

housing loans (right axis)

other loans (left axis)

outstanding debtdisposable income

$ billion

(seasonally adjusted degree ofcontribution vs. prior period, %)

externaldemand

domesticdemand

real GDP

annually

new home sales

existing home sales

Case-Shiller home price index, (20 cities, right axis)

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1.5

07Q1

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12Q1

GDP -1.0

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1.0

1.5

2.0

2.5

20

10

20

11

20

12

20

13

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2.0

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100

08Q1

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2008Q1=100103

95

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115120

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2001Q1=100

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12Q2

I. World Economic Outlook3. Europe: Emerging From Recession, But Recovery To Be Mild

Economic slump continues The European economy has had negative

growth ever since the Oct.-Dec. period of2011.

Growth rates in the engines of the regionseconomy, Germany and France, have beendull. No improvement in the high rates ofunemployment, centered on Greece andSpain, has been seen.

Long-term interest rates havestabilized

Following the official introduction of the OMTand ESM schemes, long-term interest ratesbegan heading downward. Followingagreement for additional aid to Greece andthe implementation of support for Spanishbanks, financial markets began to returnfrom their previous lull.

Such political cooperation as the creation ofa central supervising body for banks, etc.,aimed at stabilizing financial markets willcontinue.

Labor costs falling With austerity measures continuing, it is

difficult to expect a self-sustained recoveryled by domestic demand occurring.

Although there is no evidence of animproving economy, Greek labor costs havebeen declining.

Europes economy is expected to begin topick-up and emerge from its downturn fromspring of 2013 driven by exports centeringon Germany as a by-product of an improvingworld economy. However, the pace of therecovery should be rather moderate.

Euro Zone Real GDP

2012-13 are IMF estimates Sources: Eurostat, IMF

GDP Growth by Country

Unemployment Rate Source: Eurostat

Source: Eurostat

Labor Costs

Source: Eurostat

Germany

France

Spain

Italy

Greece

external demand

domestic demand

real GDP(vs. prior period, %)

(calendar year)

Greece

Spain

Italy

France

Germany

SpainFranceItalyGreeceGermany

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2012: Confusion due to policy effects,external demands downside

On the one hand the economy was helped byreconstruction driven demand, on the other it was hurtby the end of eco-car purchase subsidies, and the

slowdown in the world economy. This combined withreduced exports and production caused by theworsening relationship between Japan and Chinaseems to have sent the Japanese economy intorecession.

Mainly due to increased imports of fossil fuels as analternative to nuclear power the trade deficitexpanded shrinking the current account surplus.

2013: Possible external demand led recovery

A recovery in the world economy led by the emergingeconomies could spark a pick-up in the Japaneseeconomy.

However, there are fears that the economy could bepushed downward if reconstruction demand peaks outand if the deterioration in Japan-China relationsremains prolonged.

New administrations public sectorinvestment plans

The new administration wants more collaborative tieswith the Bank of Japan, and might revert to revisingthe central bank law in order to carry out strongermonetary easing policies to stamp out deflation.

The formation of the 2013 fiscal year budget has beendelayed so that it can be significantly enlarged as partof the new governments first stage emergencyeconomic measures.

The new administration has a 3 year, 15 trillion yen($150 billion) public works investment plan (NationalInfrastructure Reinforcement Plan) aimed atreconstruction (Northeast Japan) and large scaledisaster preparation. While this fiscal stimulus isexpected to make a contribution to the economy,there are concerns that Japans already critical fiscalsituation will only deteriorate further.

LDPs Main Economic/Fiscal Policies


Mining/Manufacturing Production Index

Current Account Balance (fiscal year base)

Sources: Japan Ministry of Finance, Japan Foreign Trade Council

Source: Media reports


4. Japan: External Demand Starting Point to Gradual Recovery

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8

10Q1

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10Q3

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12Q4

Source: METI

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5.5

-1.6

-7.3

-2.8

10.4

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4.7

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20

25

30

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

) 2012-13 are Marubeni Research Institute estimates

ource: CEIC database

externaldemand

domesticdemand

real GDP

(seasonally adjusted degree ofcontribution vs. prior period, %)

incomeothertrade and servicesbalance

annual Japan ForeignTrade Council

estimate

(trillion yen)

other

transportation machinery

mining/manufacturing industry

general machinery

electrical machinery/electronics/IT

(estimate)

(vs. prior period, %)

Policy Area Objectives/Content

New (comm and) Headquarters for Japan's Economic Revitalization, development of a

"recapture of50 trillion in national income project".

Top proirity: Escaping from deflation, yen appreciation. Achieve a nominal economic

growth rate of 3%.

Carry out 5 years of concentrated reform to becom e the "world's easiest place for

companie s to do business" and a "country where it is possible for individuals to

maximize there employment and income opportunities".

Recycle overseas investment earnings domesticall y and vice-versa to create a growth

linkage and becom e an "industry investment powerhouse c ountry".

Delation

Set 2% inflation target. With a view toward reivising the central bank law, impl ement

aggressive monetary easing policies.

Yen Depreciati on Create a "public-pri vate foreign bond fund" through cooperation betweent the finance

ministry, the BOJ and the pr ivate sector.

Early implementation of "first phase emergency economi measures (large scale

budget of 10 trillion?).

Fiscal Stimulus

Establish a "Basic National Infrastructure Reinforcement Law" (additional 15 trillion

in ivetment over 3 years).

Growth Strategy Establisha a Japan Econom ic Revitalization and Strengthening Industrial

Competitiveness Law aimedat the mid to long-term.

Significantly reduce the corporate tax rate.

Create a "Committee on Industry Competitiveness" in the Japan Economic and Fiscal

Policy Headquarters.

Overall

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12.1

10.39.7 9.8 9.8 9.5

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10.4

9.37.78 2

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.1Q

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4Q

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.1Q

2Q

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4Q

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.1Q

2Q

3Q

4Q

10

11

12

13

Economic Growth Stages


5. China: Purposely Steering Economy Toward Self-Sustained Medium Range Growth 2012: Moderate recovery after hitting bottom in

the July-Sept. period

Such economic measures as the promotion of purchasesof eco-friendly household appliances and investment insubway construction and other projects to help jump startthe economy have been gradually successful. So, afterhitting bottom in the July to Sept. period of 2012, theeconomy began to moderately recover.

However, in order to avoid a crash from over-extendedhigh growth, the final job of the Hu Jintao governmentwas to put the economy onto a medium paced growthpath, and as such no large scale fiscal stimulus wasinjected into the economy whose growth rate is expectedto remain below (%.

2013: Growth rate moves into 8% range onimproved external/domestic demand

In 2013 both the domestic and overseas demand climatewill likely improve, so the economic growth rate shouldrise to somewhere in the 8% range.

Although the new government will in all likelihood pursuean economic growth strategy, achieving significantgrowth may prove difficult as the potential growth rate hasshifted to a lower level (economic stage).

A shift from an era of high growth to a mediumgrowth stage

Since Chinas open reforms began in 1978 it hasachieved an average annual growth rate of 10% (10%range) for more than 30 years .

However, limits are beginning to appear in Chinas highgrowth model which was spurred by exports and

investment from new economic reforms and marketopening measures as well as its population bonus. Thereis now some concern that China is falling into the middleincome country trap.

As a solution to this problem, raising incomes, expandingthe consumer market and promoting deregulation andliberalization in the economy are all necessary. In otherwords, China must shift to a self-sustainable economicgrowth model. This is the biggest challenge for the newgovernment.

Sources: China Central Statistics Bureau, United Nations Population

Bureau, World Bank

2012-13 are Marubeni Research Institute Estimates

Main Economic Indicators

Real GDP Growth Rate (vs. same period prior year, %)Final

ConsumptionNet

ExportsCapital

FormationReal GDP

China

Japan

Working Age Population Ratio

China

Capital Formation to GDP Ratio

Japan

China

Exports to GDP Ratio

Japan

Jan.-Mar. Apr.-June July-Sept. Oct.-Nov.

Fixed Asset Inv estment 20.9% 19.9% 20.7% 21.6%

Inv estment Public Ex penditure - 2.4% 12.9% 23.3% 25.6%

Residential Investment 27.0% 17.4% 19.0% 27.3%

Consumer Goods Sales 15.2% 13.9% 13.5% 14.7%

Motor Vehicle Sales -3.9% 10.0% 4.4% 6.8%

Exports 7.6% 10.5% 4.5% 6.9%

Trade Imports 7.1% 6.5% 1.6% 1.0%

Net Exports -261.6% 47.3% 24.7% 63.7%

M in in g/Ma nufa ctu rin g Pr od uctio n 1 6.6% 9 .5 % 9 .1 % 9.9%

Steel Production 0.3% 1.6% 2.1% 11.5%

Electricity Generation 6.5% 1.2% 2.1% 7.5%

PMI (manufacturing) 51.5 51.3 49.7 50.4

Consumption

Produciton

(vs. same period previous year)

Calendar Year

i O

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-6-4-202

468

101214

07Q1

07Q2

07Q3

07Q4

08Q1

08Q2

08Q3

08Q4

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

11Q1

11Q2

11Q3

11Q4

12Q1

12Q2

12Q3

2010

2011

2012

2013

GDP

()

7.5

2.7

1.5

4.0

0

200

400

600

800

07Q1

07Q2

07Q3

07Q4

08Q1

08Q2

08Q3

08Q4

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

11Q1

11Q2

11Q3

11Q4

12Q1

12Q2

12

3

-10

-50

0

50

100

0

100

200

300

400

500

600

700

07/1

07/4

07/7

07/10

08/1

08/4

08/7

08/10

09/1

09/4

09/7

09/10

10/1

10/4

10/7

10/10

11/1

11/4

11/7

11/10

12/1

12/4

12/7

12/10

-20

-16

-12

-8

-4

0

4

8

12

07Q1

07Q2

07Q3

07Q4

08Q1

08Q2

08Q3

08Q4

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

11Q1

11Q2

11Q3

11Q4

12Q1

12Q2

12Q3

2010

2011

2012

2013

GDP

4.3 4.3

3.7

3.8


6. Brazil Russia: Investment Recovery Expected in Brazil, Europe to Impact Russia

Brazil: Recovery in Investment Key to Economic Revival

Since 2011, Brazil has faced the problems of a high real, high labor costs, the peakingout of inward foreign investment and delayed action on monetary easing action.Although the government eventually cut interest rates and introduced measures tocurb the reals rise, the economy has continued to slow.

And although there was a pick up in the economy due to fiscal stimulus focusing onconsumption and led by increased auto sales, the recovery was short-lived and notself-sustainable.

An expected improvement in external economies, including the bottoming out of theChinese economy, and the return of capital investment spurred by monetary easingshould push the Brazilian economy to a moderate recovery.

Russia: Sluggish European economy to pull Russias down

Although the Russian economy has been supported by personal consumption andfixed capital formation, domestic demand has been dull. Energy-related prices,Russias main export category, are weak, and the sluggish European economy, itsmain export destination, will affect exports, so it is likely that the Russian economywill be headed for a slowdown.

With supply limitations and continued high food prices inflation continues. However,as the employment climate is good a large drop off in personal consumption is notexpected.

A recovery in the world economy should diminish the effects of Russias sluggishconsumption and help prop up the economy.

Russias Trade and Trade Growth() 2012-13 are IMF estimates. Sources: CEIC database, IMF

Source: CEIC database Source: CEIC database

domesticdemand

real GDPexternaldemand

(degree of contributionvs. prior period, %)

Brazils Real GDP Growth Ratecalendar

year

domestic demand

real GDP

external demand


Russias Real GDP Growth Rate calendar year

() 2012-13 are IMF estimates. Sources: CEIC database, IMF

exports foreign investment flowstrade balance

Brazils Trade and Inward Foreign Investment($100 million)

($100 million)

non-energy energy-related trade growth rate (right)


1

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Total Exports (value)

Real GDP Growth Rates Consumer Prices Stable growth supported by domestic demand

Steady growth continues driven by personalconsumption from expanding middle classes. In termsof the GDP growth rate, after coming in at 4.5% in 2011it shoutd hit 5.4% in 2012 and 5.8% in 2013.

Due to the slowdown in the U.S. and Chineseeconomies, exports have been sluggish and inwardinvestment from overseas has slowed, which has hadsomewhat of a suppressive effect on the ASEANeconomies as a whole. However, even in suchcountries as Thailand and Malaysia, whose economiesare highly dependent on overseas exports, fiscalstimulus measures helped boost consumption anddomestic demand bolstered the economy leading tosteady growth in general.IndonesiaMaintained solid growth in 2012 on the back

of domestic demand. 2013 should also see stablegrowth led by domestic demand, however, there is

some concern over rising inflationary pressures.PhilippinesExpanded public investment gave the

economy a boost. Remittances from overseas andstrong personal consumption continue to drivegrowth.

ThailandExperienced a V-shaped economic recoveryon the back of flood reconstruction measures. In2013 there will be limits to how much externaldemand can push up the Thai economy, and fiscalstimulus aimed at boosting consumption will shrinkwith a slight negative effect on the economy.

MalaysiaEven though external demand fell, fiscal

stimulus measures boosted consumption allowingthe economy to maintain steady growth. However,the likely reduction of these measures in the nearfuture should have some effect on the economy inthe coming year.

VietnamDue to the impact of monetary tightening,inflation is showing signs of calming. With anexpansion of public investment foreseen in 2013, theeconomy is expected to accelerate.

I. World Economic Outlook7. ASEAN: Stable Growth Buoyed by Domestic Demand


Sources: CEIC database, IMF

() 2012-13 are IMF estimates


Source: CEIC databaseSources: CEIC database, IMF

() 2012-13 are IMF estimates

. or conom c u oo

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-12

-8

-4

0

4

8

12

16

07Q1

07Q2

07Q3

07Q4

08Q1

08Q2

08Q3

08Q4

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

11Q1

11Q2

11Q3

11Q4

12Q1

12Q2

12Q3

2010

2011

2012

1

GDP()

10.1

6.8 6.0

4.9

-10

-5

0

510

15

-8

-4

0

48

12

07/1

07/4

07/7

07/10

08/1

08/4

08/7

08/10

09/1

09/4

09/7

09/10

10/1

10/4

10/7

10/10

11/1

11/4

11/7

11/10

12/1

12/4

12/7

12/10

GDP

7

8

8

9

91

1

1

0

200

400

600

800

1000

06Q1

06Q2

06Q3

06Q4

07Q1

07Q2

07Q3

07Q4

08Q1

08Q2

08Q3

08Q4

09Q1

09Q2

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

11Q1

11Q2

11Q3

11Q4

12Q1

12Q2

12Q3

(

20116100

-8

-6

-4

-2

0

2

4

07Q1

07Q3

08Q1

08Q3

09Q1

09Q3

10Q1

10Q3

11Q1

11Q3

12Q1

GDP

. or conom c u oo8. India/Korea: Economic Reforms Essential for India, External Demand Dependence

Continues in Korea

India: Limitations due to high inflation and fiscal deficit, structural economicreforms essential

Due to high inflation and the government deficit, the government has not been able to carry outeffective economic stimulus measures even as the economy decelerates. So, economic growthcontinues to remain dull.

The government embarked on such economic reforms as the easing of restrictions on foreigninvestment (retail industry, etc.), and the reduction of domestic subsidies (fuel, etc.). Stock pricesare rising on the possibility of a reduction in the fiscal deficit and improved productivity in theeconomy.

While there is currently little room for monetary easing, the prerequisite for a full economicrecovery would be an upturn in the world economy as well as accelerated investment in theeconomy and a recovery in domestic production based on progress on economic reform.

Koreas Real GDP Growth Rate

Korea: Although a shift in economic policy is expected, dependence on externaldemand remains

As the Korean economy is dependent on external demand the economy has been slowing asexports have become sluggish due to the slowdown in the world economy. Further clouding thepicture is that the relatively cheap won that exports have been dependent on, is showing signs ofreversing course.

Also, household debt has risen so it is hard to imagine a situation in which personal consumptionexpands. The current external demand driven economic structure will continue into the near futureso as the world economy recovers Korean exports should pick up and lead the economy back up.

One of the major challenges facing the new administration is correcting the large disparities(income gap, etc.) in the economy and shift away from the preferential treatment allotted the largemajor corporations in the economy.

Indias Real GDP Growth Rate

Indias Wholesale Prices/Fiscal Balance

Sources: CEIC database, Korea National Statistical Office

6.3

3.6

2.7

3

0

1

2

3

4

5

6

7

2010

2011

2012


() 2012-13 are IMF estimates. Sources: Reserve Bank of India, IMF () 2012-13 are IMF estimates. Sources: Korea National Statistical Office, IMF

domesticdemand real GDP

externaldemand

calendaryear

(degree of contributionvs. prior period, %)

external demand

domestic demand

real GDP

(calendar year)(vs. prior period, %)

other household debt

housing related debt

Seoul House Price Index

(vs. GDP, %)

(trillion won) (June 2011 = 100)

Koreas Housing Prices/Outstanding Debtprimary balance

wholesale price index (right axis)


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Sources: UNCTAD, Bloomberg, BOJ

1

ODA and FDI to Africa

Sources: UNCTAD, OECD.

The Middle East/North Africa Following the Arab Spring

Japans ODA/FDI to Africa

. Wo d co o c Ou oo9. Middle East/Africa: Democracy Movements at Midpoint, World Investment in Africa

Robust

Sources: Japans Foreign Ministry, various media reports

0

100

200

300

400

500

600

700

2005 2006 2007 2008 2009 2010

ODA

-5

0

5

10

15

20

25

30

2005 2006 2007 2008 2009 2010

ODA

ODA

FDI

($100 million)

ODA

FDI

($100 million, minus outflows)

Democracy movements at midpoint

The Arab Spring movements were triggered by theDecember 2010 pro-democracy demonstrations inTunisia and swiftly spread to other countries in theMiddle East and North Africa.

First in Tunisia and then in Libya and Yemen, oldregimes fell with subsequent efforts made to amendtheir constitutions and hold new parliamentary andpresidential elections, while in Egypt a civilianpresident emerged for the first t ime.

However, in Tunisia ratification of a new constitutionhas been delayed. In Egypt the expansion ofpresidential authority has led to large-scaledemonstrations, and Syria is currently in a state ofcivil war. These pro-democracy movements arenow at their midpoint.

Focus is on Africa, the last of the emerging

markets About half of the worlds top 20 fastest growingeconomies are in Africa, and with the benefit of apopulation bonus through 2050 Africas economicgrowth potential is huge.

U.S. and European companies have been quick tosee Africas attractiveness and have been investingaggressively despite the risks involved. In recentyears the amount foreign direct investment in Africahas overtaken the amount of ODA going to thecontinent.

On the other hand, the level of ODA going to Africafrom Japan still far exceeds the amount of private

investment flowing into the continent, which is acause for concern.

In June of 2013 the Tokyo International Conferenceon African Development (TICAD V), a conferenceon international cooperation between Japan andAfrica convened every 5 years, will be held . It isexpected that this conference will help activateJapanese investment in Africa.

Country How Democratization Started Current Situation

Egypt

Libya

Syria

Bahrain

Jordan

Morroco

Oman

Kuwait

Algeria

Tunisia

In June of 2012 the Muslim Brotherhood is declared free

and legitimate, their leader Mr. Morsi enters the election

and becomes the first civilian president. Morsi announces

plans to exapnd presidential powers leading to an

outbreak of demonstrations. The supreme constitutional

court invalidates part of the parlianetary elections.

President Morsi vows to hold parliamentary elections in

the 1st half of 2013. However, their is strong opposition

to a new Islamist leaning constitution, confusion reigns

over a voter referendum to ratify the constitution.

Demonstrations break out in

Decemebr 2010, PresidentBen Ali goes into exile in

January.

Demonstrations start in

February 2011. President

Saleh steps down in

November.

Yemen

Demonstrations begin to occur

in March 2011, turns into a

state of civil war.

Civil war continues between the Assad regime and the

opposition factions.

In response to calls of political and economic reform by

the citizenry, government says it will amend the

constitution

In July of 2012 elections for a constitutional assembley

are instituted. In August authority was given to a

provisional national councilA cabinet was formed in

November. They will serve until a constitution has been

enacted and a general election carried out.

In February 2012 Mr. Hadi appointed president. The

constituion is to be amended in 2nd half of 2013 and

parliamentary and presidential elections to be carried out

in February 2014.

Civil war commences from

February 2011. In October

Libya's former leader Qaddaffi

is killed.

In Oman, part of the king's authority has been transferred

to congress in respons to various pre-democracy

requests.

Demonstrations break out in

January 2011. In February

President Mubarak resigns.

Anti-government

demonstrations

Anti-government

demonstrations

An interim parliament and president are put in place in

2011. a new constitution is drawn up with parliamentaryand presidential elections schedule for 2013. However,

enactement of the constitution is postponed.

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Paper/Pulp The domestic marketfor paper and paperboard peakedin 2000. Such major products asprinting and publishing paper continue to be pressed by cheap imports. Cardboarddemand will be sluggish as reconstruction demand winds down. Industry leaders areaggressively making moves overseas to capture growth markets in Asia and otherregions.

IT/Telecom The IT network and cloud computing environment is expanding. Smart phones and tabletdevices continue to diversify applications, and the networking of smart phones, smart TVetc., creating smart appliancesthrough LTE (wireless standard) for practical use isadvancing. More advanced technology related to information securitymanagement,backupand other risk management needs is growing.

Steel With the expansion of public investment and repair of aging infrastructureand a demandrush for big ticket items like homes before the consumption tax is raised, constructiondemand will likely increase, however auto-related steel demand will be weak.Anoversupply of steel will continue in East Asia.The rising cost of electricity will especiallyhurt electric arc furnaces, so the management environment in the industry will be severe.

Textiles Despite a tough climate for personal consumption, there is expected to be demand forapparel using functional materials, In terms of industrial textiles, although home sales areexpected to recover, auto production is forecasted lower, so demand for auto-relatedtextiles should weaken. Demand for carbon fiber should be firm driven by the expansionof wind power plants and use in aviation applications.

Electric

Power/

Energy

Such fuel importsas LNG and heavy oil, etc., for use in electric power are at high levels.On the other hand, gasoline demand continues to slightly shrink. In the short-term the

restarting of nuclear powerplants and revisal of renewable energy feed-in-tariffs in thecoming year will be issues. In the mid to long-term the focus will be on government actiontoward increased liberalizationof the market and creating a fair competitive environmentthrough reform of the electric power structure.

Industrial

Plants

Due to the sluggish growth of the Chinese economy metal and mineral resource priceshave been on the weak side. Exports to Europe remain subdued. Large inventories of

construction machinery in such major markets as China are one of the main causes ofsuppressed demand. Infrastructure repair needs in developed countriesis high, sotesting equipment demand should rise, and overall demand for industrial plants andequipment in emerging economies should continue to increase.

Chemicals Ethylene production has been slack since peaking in 2007. Industrial use chemicalshipments are down in such major demand industries as motor vehicles and electricmachinery. Japanese exports are on a downwardpath as China and the Middle Eastexpand production. Against rising global cost competitiveness, the key to survival isproduction efficiency, slimming down overcapacityand targeting higher value-addedregions, meaning expanding overseas using a strategy of selection and concentration.

Construction/

Cement

According to the Research Institute of Construction and Economy forecasts constructiondemand will be up 2.0% in fiscal 2013 compared with the previous year (fiscal 2012sestimate is +4.1%). Government construction spending will likely fall compared to fiscal2012, but private residential investment, including reconstruction demand should see amoderate recovery from a demand rush by consumers to beat the raising of theconsumption tax. However, a shit to overseas investment by the private sector couldhave reverse effects offsetting the demand rush.

Electric

Machinery

Digital household appliance sales are sluggish. The market for PCs, game consoles, TVs,etc., are shrinking as smart phones and tablet devices become alternatives. Centered on

Europe, demand for office equipment is weak. In terms of electrical machinery andsemiconductors used in industry, demand is brisk in products like the i-phone, however,Japanese manufacturers are increasingly struggling in the face of overseas competition.

Attention is now turning to smart energy related equipment..

Distribution Personal consumption is expected to grow 1.1% in 2013 compared to 2012 (2012sestimate is +1.7%). Due to the commoditization of tablet devices, the analysis and

accumulation of product and service information by customers and customer informationby the service industry is both growing and becoming easier, leading to activatedservices. Retailers no longer waits for customer, but go to them. The virtual distance andphysical distance to the customer is shrinking.

Motor

Vehicles

Domestically, in lieu of the end of lower taxes on the purchases of eco-cars it is likely thatsales will drop. Additionally, the strong yen may continue to be a burden calling for areconsideration of the domestic production structure. A recovery in the U.S. andSoutheast Asian auto markets continues, however, reduced Japanese auto production inChina is a concern. Due to slumping sales in Europe, a global realignment of theindustryis starting to take place.

Food Food product sales are expected be up 1.1% in 2013 compared to 2012 (+0.2% in 2012)With the increase in elderly, dual income and single households the market for theready-to-eat meals and online supermarkets will grow. Price reduction (includingdevelopment of private brands) in anticipation of the hike in the consumption tax isspreading, Within this climate employee cutbacks and restructuring will take place. In themid-term, being able to respond to a shrinking market will be key.

II. Industry/Commodity Market Outlook

1. Japanese Industry Directions: Major Industry Trends/Issues in 20131. Newly emerging markets in Africa and Indochina are gaining attention, companies reviewing their strategies toward China.2. With the global economic growth structure shifting, companies are adjusting their business portfolios and re-integrating based on these new global realities.3. On the domestic front, with tablet devices spreading rapidly and electric power systems transforming, various Japanese industries are moving to become

smarter by equipping themselves with smart devices and systems (IT-ization).

1

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Marubeni Research Institute 1

It is estimated that listed firms ordinary profits will rise by 19%, a total of about 2.8 trillion yen ($298 billion)in fiscal 2013. In particular, this will be driven by a solid U.S.car market and by the effects of structural reforms in the Japanese electrical and precision machinery industries in fiscal 2011-12 (however, this is based on theassumption that additional restructuring costs will not occur).Still, compared to 2007 ordinary company profits by industry in Japan will still be generally lower. For example, profits in the steel and non-ferrous metal industry will be73% lower than in 2007 due to a rise in raw material prices for steel and non-ferrous metals and an easing in steel demand in East Asia. On the other hand, domestic-

related demand in telecommunications, food products, and retail is on an upward trend.

II. Industry/Commodity Market Outlook2. Listed Firms (Japan) Ordinary Earnings to Recover, But Still Lower Than 2007

Source: Nomura Securities Fiscal 2012-13 Corporate Financial Results Outlook (December 2012)

Ordinary Company Profits by Major Industry

Profits

Decreased

Compared

to fiscal

2007

0

10,000

20,000

30,000

40,000

50,000

60,000

2007

2012

2013

0

10,000

20,000

30,000

40,000

50,000

60,000

2007

2012

2013

0

10,000

20,000

30,000

40,000

50,000

60,000

2007

2012

2013

0

5,000

10,000

15,000

20,000

25,000

30,000

2007

2012

2013

0

5,000

10,000

15,000

20,000

25,000

30,000

2007

2012

2013

0

5,000

10,000

15,000

20,000

25,000

30,000

2007

2012

2013

Motor Vehicles Steel/Non-Ferrous Metals

actual estimate estimate

fiscal 2007 fiscal 2012 fiscal 2013





Telecom Food Products Retail

Profits

Increased







(100 million) (100 million) Electronics/Precision Instruments (100 million)

(100 million) (100 million) (100 million)

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Direction of the Electric Power and Energy Industries

Fundamental direction;Review of the large-scale, centralized electric power structure,promotion of energy conservation/efficiency,reduction ofdependence on nuclear power, andexpansion of renewable energy.

Liberal Democratic Partys (LDP) public pledges;Expand energy conservation and renewable energy,decide within a 3-year time frame their policy on the useof nuclear power,determine in 10-years time a sustainable energy mix plan for electric power (long-term non-dependence on nuclear power or not), andlook

at the viability of every possible type of energy resource.

Recent Notable Developments

Reintroduction of Bidding on New Thermal (fossil fuel) Power Plants Bidding procedures are under review by Tokyo Electric Power for a 2.6 million kw thermal power plant. Trading firms, steel producers, banks, other power

companies and oil and gas companies are showing interest in participating. Tokyo Electric Power is accepting proposals for various types of electric power related projects from both domestic and foreign entities. Chubu Electric Power,

Tokyo Gas, Osaka Gas, and wholesale electricity developers (J-Power) have all made proposals.

Introduction of a Renewable Energy Feed-in-Tariff System (July 2012) The recognized (approved) electric power amount related to this is 3.65 million kw (of this 3.26 million is for solar power, as of the end of November.) In Hokkaido

the cost for energy storage battery installation and the equipping of transmission networks related to renewable energy are going to be subsidized (METI).

Structural Reform of Electric Power: At the beginning of 2013 details of the reform plan will be made public.

Separation of electricity transmission/distribution: Separation of the different functions (parts) of electric power or at least the legal separation (ownership does notchange) to ensure fairness in the transmission and distribution of electricity.

Retail liberalization: Consumers can initially select between a regulated price or a free market price for electricity, eventually making a full transition to free marketprices depending on progress of competition in the market place.

Smart Community Experimental demonstration communities are already going forward. (Yokohama, Toyoda City, Kyoto-Osaka-Nara Research City, Kita-Kyushu City) Ministry of Economy, Trade and Industry to approve and then lend support to municipalities smart-community master plans. (Miyako City, Kita-Kami City,

Kesennuma City, Ishinomaki City, Ohira Village, Yamamotocho, Aizu-Wakamatsu City)Smart Meters: The aim of the governments Energy and Environmental Committee is to have smart meters installed in 80% of total demand (household, commercial

building and industrial customers) within the next 5 years. All the electric power companies have already begun to introduce smart meters (Kansai Electric Power leads in this area). The assumption is that smart meters will

be needed for demand response, dynamic pricing, HEMS and BEMS in smart cities in order to make energy, i.e. electricity, distribution advanced. Expansion ofwireless data processing equipment/systems and other semiconductor related peripheral markets.

Fuel Procurement Electric power and gas companies to rely on more diversified and flexible fuel procurement, and the joint construction and joint use of new facilities. For example

cooperating on the joint procurement of U.S. LNG (Chubu Electric Power and Osaka Gas) and U.S. coal (Kansai Electric Power and Kyushu Electric Power), etc. Aim to shift to natural gas and expand co-generation. Looking at the possibility of constructing a gas pipeline network.

1

II. Industry/Commodity Market Outlook (Japan)3. Electric Power/Energy Industries: Signs of Moves in New Directions/New Business

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II. Industry/Commodity Market Outlook (World)

4. Resource Price: Gradual Recovery in World Economy, Price Rises Mild on Oversupply

Oversupply offsets effects of economic recovery, little change Supply and demand continue easing, prices may rise with

economic recovery

From excess supply constraints to a slight rise in 1sthalf of year Recovery in yields leads to increased production, lower prices

CRB Crude Oil

Copper Corn

Since many development projects havebeen postponed due to sluggish globaldemand and an economic recovery inChina is expected, prices will likely risein the first half of the yearIn the 2ndhalf though, the pace of therecovery in global demand will not beable keep up with the increase in new

supply. So there will likely be aworsening of the excess supplysituation in 2014 putt ing downwardpressure on prices. However, thisdownward pressure may have limits asChina builds up its inventories inanticipation of potential future demand.

Prices may see some downwardmovement at the beginning of the yeardue to uncertainty over the economicenvironment, however, a moderaterecovery in the world economy andexcess liquidity in the market couldlead to some gradual upwardmovement in commodity prices. Still,as the economic recovery is likely to bemild there is a limitation to how farresource prices might rise.There will be the potential foroversupply in many resources in the 2ndhalf of the year and the market will thenbe expected to soften. So, looking atthe entire year there should be little

overall change in prices.

Currently inventories are low and theprice range high, but from the nextfiscal year, acreage under cultivationshould increase and yields recover, soprices should begin to fall in Februaryand March. Weather factors can easilyinfluence prices though, so it ispossible they could rise just beforesummer. Once crop conditions areknown and fears of low inventoriesgone prices will drop.U.S. ethanol demand has leveled off,but with lower corn prices demand forcorn used in feed is likely rise.

Demand in advanced countriescontinues to fall. An economic recoverin the emerging economies is expectedbut with increased production from non

OPEC countries the oversupplysituation may continue. On the otherhand, due to low interest rate policiesthere is excess liquidity in the globalmarket. If the economic recoveryprogresses this capital may find its wayinto the oil market ahead of the summedemand season and push prices upslightly.Excess inventories of WTI in the U.S.are expected to be cut shrinking theprice differential with Brent. Geopoliticarisks will still remain a factor in pricevolatility.

450

500

550

600

650

700

750

800

850

20111 20121 20131

CBOT/

2011 2012 2013

200

250

300

350

400

20111 20121 20131

/CRB19

2011 2012 2013

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

20111 20121 20131

LME/

2011 2012 2013

50

60

70

80

90

100

110

120

130

20111 20121 20131

/

2011 2012 2013

WTI:

Reuters-Jeffries CRB Index

19 commodity basket

forecast

Jan. 2013Jan. 2012Jan. 2011

estimate forecast average annual price

LME Copper ($/ton)

forecast

Jan. 2013Jan. 2012Jan. 2011

estimate forecast average annual price

WTI Crude Oil ($/barrel)

CBOT Corn (cent/bushel)

forecast

Jan. 2013Jan. 2012Jan. 2011

estimate forecastaverage annual price

BrentWTI

forecast

Jan. 2013Jan. 2012Jan. 2011

estimate forecastaverage annual price

8/21/2019 2013weo

19/19


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Telephone: 03-3282-7687

http://www.marubeni.co.jp/research/index.html

Note:

All information and viewpoints contained in this material are the work of the Marubeni Research Institute based on data available atthe time of release. The Marubeni Research Institute is not responsible for any subsequent changes or notification of changes in theinformation and/or positions taken in this report.

The data used in this report is basically public information and as such the Marubeni Research Institute cannot vouch for either theaccuracy or thoroughness of such information. Any conclusions made or action taken based on the contents of this report is st rictly upto the discretion of the user of this report with all outcomes the sole responsibility of the user.

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