Equity Analysts’ Economic Outlook

1. Equity Analysts’ Economic Outlook • Investment horizon: 3 – 5 years • Need long-term economic forecasts • Equity analysts estimate (nominal) fundamental growth rates for the stocks they cover using firm-level information from the 10-Ks. They adjust the growth rates taking into account industry-level information, as well as real GDP and inflation forecasts. • Overall economic outlook: • For the U.S. and Euro area • Slightly bearish in the short-term – nominal growth rates of about 5 - 5.5% (U.S.) and 3.25 – 3.5 % (Euro zone) in 2011 and about 4.25% - 4.5% (U.S.) and 2.5% - 3.5% (Euro zone) in 2012 • Long-term – assume US historical average growth of 5.5% - 6%. The Euro area does not have as long a time series so assume last growth rate forecast to be long-term forecast • For the Rest of the World • Slightly more bullish for BRIC – e.g., nominal growth rate for China is forecast to be about 14 – 15% over the next two years • By definition, emerging markets are expected to have higher growth rates so historical averages probably do not apply. Assume last growth rate forecast to be long-term forecast

2. Sources for economic forecasts: • For the U.S.: Survey of Professional Forecasters • http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/2011/spfq411.pdf • 45 forecasters surveyed by the Federal Reserve Bank of Philadelphia • Latest 4Q release has forecasts up to 2014 • For the Euro zone: Survey of Professional Forecasters • http://www.ecb.int/stats/prices/indic/forecast/html/table_3_2011q4.en.html • Forecasts from participating financial institutions surveyed by the European Central Bank • Latest 4Q release has forecasts up to 2016 • For the Rest of the World: Global Economic Prospects • http://siteresources.worldbank.org/INTGEP/Resources/335315-1307471336123/7983902-1307479336019/Full-Report.pdf • Semi-annual report from the World Bank • Latest release (June 2011) has forecasts up to 2013