The Global Economic Outlook Jay H. Bryson, Managing Director and Global Economist November 17, 2015

The Global Economic Outlook

Jay H. Bryson, Managing Director and Global EconomistNovember 17, 2015

Economics 2

-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: Q3 @ 1.5%

GDP - Yr/Yr Percent Change: Q3 @ 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

Economics 3

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Final Sales to Domestic PurchasersBars = CAGR Line = Yr/Yr Percent Change

Real Fin Sales to Dom. Purch. - CAGR: Q3 @ 2.9%

Real Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q3 @ 2.8%

Forecast

Real Final Sales

Growth in domestic spending clearly has

strengthened


Economics 4

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Government Purchases Bars = CAGR Line = Yr/Yr Percent Change

Government Purchases-CAGR: Q3 @ 1.7%

Government Purchases-Yr/Yr: Q3 @ 0.7%

Forecast

Government Purchases Forecast

The headwinds on growth from government spending

have largely dissipated


Economics 5

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Business Fixed InvestmentBars = CAGR Line = Yr/Yr Percent Change

Non-Res Fixed Invest - CAGR: Q3 @ 2.1%

Non-Res Fixed Invest - Yr/Yr Percent Change: Q3 @ 2.1%

Forecast

Business Fixed Investment Forecast

Business fixed investment spending should continue to

grow at a solid pace, as it usually does at this point in

the cycle


Economics 6

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Real Personal Consumption ExpendituresBars = CAGR Line = Yr/Yr Percent Change

PCE - CAGR: Q3 @ 3.2%PCE - Yr/Yr Percent Change: Q3 @ 3.2%

Forecast

Real PCE Forecast

Growth in consumer spending has ramped up in

recent quarters


Economics 7

-2.0

-1.0

0.0

1.0

2.0

3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

2000 2002 2004 2006 2008 2010 2012 2014 2016

Net Exports Percentage Point Contibution to Real GDP

Net Exports: Q3 @ 0.0 Pct. Points

Forecast

Real Net Exports

Net exports likely will exert a modest drag on growth

going forward


Economics 8

-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: Q2 @ 1.4%

Year-over-Year Percent Change: Q2 @ 1.5%

Forecast

Eurozone GDP

The economic recovery in the Eurozone should

continue

Source: IHS Global Insight and Wells Fargo Securities, LLC

Economics 9

-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 : Oct @ 1.0%

CPI : Oct @ 0.0%

Eurozone CPI

The rate of CPI inflation in the euro area is well below

the ECB’s target


Economics 10

€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

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Th

ousa

nds

ECB Balance SheetTrillions of Euros

ECB Balance Sheet: Oct @ €2.63T

ECB Balance Sheet

The ECB likely will bolster its QE program in the near

future

Source: Bloomberg LP and Wells Fargo Securities, LLC

Economics 11

China Real GDP

We forecast that growth in China will slow further, but that the economy will not

completely implode


0%

2%

4%

6%

8%

10%

12%

14%

0%

2%

4%

6%

8%

10%

12%

14%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Chinese Real GDP ForecastYear-over-Year Percent Change

Year-over-Year Percent Change: Q3 @ 6.9%

Forecast

Economics 12

-12%

-8%

-4%

0%

4%

8%

12%

16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Contributions to Chinese Real GDP Growth

Net Exports: 2014 @ 0.1%Gross Capital Investment: 2014 @ 3.4%Final Consumption Expenditures: 2014 @ 3.8%GDP Growth: 2014 @ 7.3%

Contributions to Chinese Growth

Chinese authorities hope to rebalance growth toward more consumer spending

Source: CEIC and Wells Fargo Securities, LLC

Economics 13

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

04 05 06 07 08 09 10 11 12 13

Financial Assets of Chinese HouseholdsTrillions of Yuan

Other: 2013 @ 6.6T YuanCurrency: 2013 @ 4.9T YuanBonds: 2013 @ 0.9T YuanStocks: 2013 @ 6.4T YuanInsurance: 2013 @ 9.0T YuanBank Deposits: 2013 @ 47.8T Yuan

China Household Assets

Equities play a limited role in the allocation of Chinese

financial wealth

Source: CEIC and Wells Fargo Securities, LLC

Economics 14

$0

$10

$20

$30

$40

$50

$60

$70

$80

$0

$10

$20

$30

$40

$50

$60

$70

$80

UnitedStates

Euro Area UnitedKingdom

EmergingAsia

J apan China

Size of Financial MarketsTrillions of USD, 2013

Bank Assets

Debt Securities

Equity Securities

Financial Markets

The Chinese economy is largely bank financed

Source: CEIC, IMF and Wells Fargo Securities, LLC

Economics 15

6.00

6.50

7.00

7.50

8.00

8.50

6.00

6.50

7.00

7.50

8.00

8.502005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Chinese Exchange RateCNY per USD (Inverted Axis)

CNY per USD: Oct @ 6.32

China Exchange Rate

Chinese authorities are allowing the renminbi to

depreciate slowly


Economics 16

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Chinese Foreign Exchange ReservesTrillions of USD

Foreign Exchange Reserves: Oct @ $3.5 Trillion

China FX Reserves

China has a huge warchest of foreign exchange

reserves


Economics 17

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

Debt Outstanding

If there is a leverage issue in the Chinese economy it resides in the non-financial

corporate sector

Source: CEIC, BIS and Wells Fargo Securities, LLC

Economics 18

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

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

Asian Exports to ChinaPercent of Total Asian Exports

Exports to China: 2014 @ 13.2%

Trade with China

China has become a more important trading partner for many Asian economies over the past few decades


Economics 19

0%

3%

6%

9%

12%

15%

0%

3%

6%

9%

12%

15%

Hong Kong Taiwan Malaysia Korea Singapore Australia J apan India

Value Added Attributable to Foreign FDDPercent of Total Value Added, 2011

China

United States

Value Added

Some, but not all, Asian economies have limited

economic exposure to China

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

Economics 20

0%

1%

2%

3%

4%

0%

1%

2%

3%

4%

1995 2000 2005 2011

Global Value-Added Embodied in FDDPercent of Global GDP

United States

China

Global Value-Added

The United States has about twice as much “pull” on the global economy than China


Economics 21

-4%

-2%

0%

2%

4%

6%

8%

10%

-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Brazilian Real GDPYear-over-Year Percent Change, NSA

Real GDP: Q2 @ -2.6%

Forecast

Brazil GDP

The Brazilian economy is in the middle of a deep

recession


Economics 22

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.599 01 03 05 07 09 11 13 15

Brazilian Exchange RateBRL per USD (Inverted Axis)

BRL per USD: Oct @ 3.86

Brazil Exchange Rate

The Brazilian currency has weakened sharply over the

past year or two


Economics 23

0%

3%

6%

9%

12%

15%

18%

0%

3%

6%

9%

12%

15%

18%

1998 2000 2002 2004 2006 2008 2010 2012 2014

Brazilian Consumer Price IndexYear-over-Year Percent Change

CPI : Oct @ 9.9%

Brazil CPI

Exchange rate depreciation is helping to push up the

inflation rate


Economics 24

6%

9%

12%

15%

18%

21%

6%

9%

12%

15%

18%

21%

05 06 07 08 09 10 11 12 13 14 15

Brazilian Policy RatePercent

Selic Rate: Oct @ 14.25%

Brazil Policy Rate

The Brazilian central bank has tightened monetary policy to keep inflation expectations in check


Economics 25

-9%

-6%

-3%

0%

3%

6%

9%

-9%

-6%

-3%

0%

3%

6%

9%

00 02 04 06 08 10 12 14 16

Real GDP GrowthYear-over-Year Percent Change

Mexico: Q2 @ 2.2%

United States: Q3 @ 2.0%

Forecast

Mexico GDP

Solid real GDP growth in the United States is helping to support economic growth

in Mexico


Economics 26

-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

Global Economic IndicatorsYear-over-Year Percent Change

Global Industrial Production: Q3 @ 1.7%U.S. GDP: Q3 @ 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


Economics 27

9.7%

12.6%

17.6%

21.5% 21.9%

27.3%

0%

5%

10%

15%

20%

25%

30%

0%

5%

10%

15%

20%

25%

30%

U.S. J apan 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


Economics 28

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

Unemployment RatesSeasonally Adjusted

Unemployment Rate: Oct @ 5.0%

U-6 Unemployment Rate: Oct @ 9.8%

U.S. Unemployment Rate

There is less slack in the labor market today

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

Economics 29

-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

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

PCE Deflator: Sep @ 0.2%"Core" PCE Deflator: Sep @ 1.3%

PCE Inflation

The drop in oil prices should cause the overall

rate of inflation to recede, but “core” inflation likely

will remain steady


Economics 30

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

03 05 07 09 11 13 15

U.S. Inflation IndicatorsYear-over-Year Percent Change

Nonfuel Import Prices: Sep @ -3.1%Import Prices from China: Sep @ -1.3%Core CPI : Sep @ 1.9%

Import Prices

CPI inflation is not highly correlated with changes in

prices of imports from China


Economics 31

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

10-Yr Treasury and Federal Funds Target RatePercent

10-Year Treasury Yield: Oct @ 2.07%

Fed Funds Target: Oct @ 0.25%

U.S. Interest Rates

The Fed likely will begin to raise the fed funds rate

later this year


Economics 32

-4%

-2%

0%

2%

4%

6%

8%

10%

-4%

-2%

0%

2%

4%

6%

8%

10%

80 84 88 92 96 00 04 08 12 16 20

Real GDP Growth by RegionYear-over-Year Percent Change

World: 2014 @ 3.4%

Advanced Economies: 2014 @ 1.8%

Developing Economies: 2014 @ 4.6%

IMF Projections

World GDP Growth

The IMF does not believe that the developing world

will return to pre-crisis growth rates

Source: IMF and Wells Fargo Securities, LLC

Economics 33

Wells Fargo International Economic Forecast(Year-over-Year Percent Change)

GDP CPI

2015 2016 2017 2015 2016 2017

Global (PPP Weights) 3.0% 3.2% 3.4% 3.3% 3.4% 3.6%Global (Market Exchange Rates) 2.9% 3.1% 3.3% n/a n/a n/a

Advanced Economies1 2.1% 2.3% 2.4% 0.2% 1.5% 1.9%

United States 2.4% 2.5% 2.4% 0.1% 1.8% 2.2%Eurozone 1.5% 2.0% 2.2% 0.0% 1.1% 1.6%United Kingdom 2.4% 2.2% 2.1% 0.1% 1.3% 1.9%J apan 0.6% 0.9% 1.4% 0.8% 0.8% 1.1%Korea 2.5% 3.0% 3.3% 0.7% 1.8% 2.0%Canada 1.2% 2.0% 2.3% 1.2% 1.8% 1.9%

Developing Economies1 3.9% 4.0% 4.4% 6.1% 5.3% 5.3%

China 6.9% 6.3% 6.1% 1.5% 1.4% 1.8%India2 7.3% 7.3% 7.8% 5.3% 5.1% 5.5%Mexico 2.3% 2.3% 2.8% 2.7% 3.1% 3.0%Brazil - 2.3% - 1.0% 1.6% 8.9% 8.0% 7.2%Russia - 3.7% 0.0% 2.3% 15.5% 7.3% 6.0%

Forecast as of: November 11, 20151Aggregated Using PPP Weights 2Forecasts Refer to Fiscal Year

International Economic Forecast

We project that global GDP growth will strengthen a bit during the next two years


Economics

Wells Fargo Securities, LLC Economics Group

34

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Documents

The Global Economic Outlook Jay H. Bryson, Managing Director and Global Economist November 17, 2015