Please see analyst certifications and important disclosures on the last page of this report. Global Weekly Economic Monitor N O M U R A G L O B A L E C O N O M I C S Inflation clouds spreading Emerging markets are already battling with inflation, while structural factors suggest advanced countries could soon face the policy-exit challenge. GLOBAL LETTER ASEAN: The other major bloc in Asia 5 The rise of ASEAN is creating a fast-growing consumer goods market for the world. REGIONAL ROUNDUPS United States An employability problem 6 The composition of job cuts supports our view that structural unemployment has risen. Europe UK: Chiseling into the ice 8 Cold weather hit Q4 output but we expect upward revisions and some payback in Q1. Japan Strength of the investment rebound in question 10 Much depends on government policies and whether companies invest their surpluses. Asia Korea: Reminiscent of late-1980s Japan (Part II) 12 BOK could be forced to hike sharply if FX policy constrains monetary transmission. Emerging Markets Latin America: Parting company 14 Responses to inflation risks from policymakers in the region differ markedly. SPECIAL TOPICS Germany You cant always get what you want 15 Wages are rising but higher inflation could spoil the party. Russia Deciding the fate of the Reserve Fund 18 Elections may prevent rebuilding of the Reserve Fund despite oil nearing $100/bbl. Venezuela The labor connection 20 With the deterioration in labor conditions, productivity is likely declining. Egypt Winds of change still in the air? 22 Unrest is set to continue and markets to remain unsettled until some stability emerges. 28 January 2011 DATA AND OUTLOOKS Forecast summary 2 Our view in a nutshell . 3 Economic data calendar 4 United States . 24 Europe . 28 Japan . 32 Asia . 34 Emerging Markets . 40 Contacts 53 Nomura Global Economics 2 28 January 2011 Global Weekly Economic Monitor Forecast Summary Note: Aggregates calculated using purchasing power parity (PPP) adjusted shares of world GDP; Our forecasts incorporate assumptions on the future path of oil prices based on oil price futures, consensus forecasts and Nomura in-house analysis. Currently assumed average Brent oil prices for 2011 and 2012 are $89 and $96 respectively, after $79 in 2010. *2011 and 2012 policy rate forecasts are midpoint of 0-0.25% target federal funds rate range. *Inflation refers to wholesale prices. *For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively. Policy rate forecasts in 2011 and 2012 are midpoint of BOJs 0-0.10% target unsecured overnight call rate range. CPI forecasts for Latin America, Egypt and Saudi Arabia are year-on-year changes for Q4. The arrows signify changes from last week. Source: Nomura Global Economics. Real GDP (% y-o-y) Consumer Prices (% y-o-y) Policy Rate (% end of period) 201020112012201020112012201020112012 Global4.94.44.53.43.93.63.083.66 4.16 Developed2.72.42.41.51.91.50.600.861.16 Emerging Markets7.46.6 6.65.66.2 5.95.966.79 7.36 Americas3.73.32.93.43.43.02.242.562.81 United States*2.83.02.51.61.71.10.130.130.13 Canada2.92.32.61.72.02.01.002.003.50 Latin America6.14.34.28.88.48.28.439.399.92 Argentina9.05.04.725.924.425.410.8112.0011.00 Brazil7.54.44.85.95.4 4.510.7512.2510.75 Chile5.56.55.03.03.53.03.254.005.00 Colombia4.85.04.53.23.53.73.004.007.00 Mexico5.34.03.44.43.94.04.504.507.50 Venezuela-1.91.51.527.230.132.017.8020.0022.00 Asia/Pacific8.16.8 7.13.64.3 4.2 4.255.06 5.59 Japan4.41.11.9-0.7-0.10.20.050.050.05 Australia2.83.33.63.03.13.14.755.255.25 New Zealand1.52.83.42.33.92.43.003.754.50 Asia ex Japan, Aust, NZ9.28.18.34.65.2 5.0 5.186.12 6.72 China10.39.89.53.34.55.05.816.817.56 Hong Kong*6.54.75.32.44.54.90.280.400.40 India*8.88.08.69.47.9 6.2 6.257.25 7.75 Indonesia5.96.57.05.16.95.86.507.507.50 Malaysia7.05.25.51.73.33.22.753.253.25 Philippines7.05.45.73.85.05.44.005.006.50 Singapore*14.6 5.35.82.83.23.00.440.400.40 South Korea6.13.55.02.93.73.02.503.253.50 Taiwan10.1 5.3 5.31.02.53.11.632.132.63 Thailand7.74.85.23.34.24.42.002.753.25 Vietnam6.87.27.59.211.88.79.0010.0010.00 Western Europe1.82.02.31.92.52.00.951.492.11 Euro area1.71.92.21.62.32.01.001.502.00 France1.51.72.01.72.01.91.001.502.00 Germany3.63.12.51.21.91.81.001.502.00 Greece-4.0-3.00.94.72.70.51.001.502.00 Ireland-0.60.11.7-1.60.30.71.001.502.00 Italy1.11.21.41.62.62.21.001.502.00 Netherlands1.71.82.20.91.92.11.001.502.00 Portugal1.4-1.20.61.42.81.31.001.502.00 Spain-0.20.51.01.82.81.91.001.502.00 United Kingdom1.5 1.9 2.83.33.81.90.501.002.00 Denmark2.22.52.22.31.81.71.051.552.05 Norway1.92.93.32.51.42.12.002.753.75 Sweden5.23.92.51.31.82.31.252.253.75 Switzerland2.72.22.30.70.61.10.751.752.75 EEMEA3.83.83.55.67.06.25.756.226.76 Czech Republic2.31.42.61.52.52.00.751.252.00 Egypt5.35.55.510.312.19.58.259.009.00 Hungary1.01.52.04.94.73.85.756.256.25 Israel3.34.04.02.73.33.42.003.253.75 Kazakhstan6.85.34.87.27.96.57.007.257.