Economic Strategy

Economic Scenario
September 11, 2008
Economic Scenario A multi-year adjustment process

Central scenario (70%) A multi-year adjustment process
A multi-year adjustment process
The drop in oil prices is good newsas is the conservatorship for Freddie Mac and Fannie Mae
Fixing the US housing market will take time growth below trend in 2008, 2009 and 2010
Credit supply to remain impaired as financial sector balance sheets are trimmed
Negative wealth effects from falling asset prices (housing and equity)
Additional fiscal stimulus could be in the pipeline (notably in the US and UK)
Still dynamic emerging economies will help keep global recession risks at bay
Monetary policy dilemmas have eased

The Fed is back in risk management mode no rate hikes before 2009
The ECB is changing tack a rate cut is due in 2009
Risk scenario (30%) Global recession

Risks have eased thanks to the sharp drop in oil prices and the GSE conservatorship
Triggers for a global recession; (1) credit crunch, (2) geopolitics, (3) new surge in food & oil prices
Keystone variables: Credit supply indicators

September 2008
Socit Gnrale Asset Management
Main changes to the central scenario
September 2008
G4 Growth Profile US double dips, but prolonged recession is averted
September 2008
Market Outlook
September 2008
US The central scenario

2008-09: Double dip but no deep recession
The GSEs crisis exacerbates the risk of a deep credit

crunch
The housing downturn is far from over. Unemployment will

rise and the saving rate will trend higher.
Buffers: Firm global growth, healthy corporate balance

sheets, fairly valued equity markets, a weak dollar
GDP growth accelerated in Q2, But the rebound will prove

temporary.
Headline inflation may temporarily exceed 5.0%

but core inflation remains under control
The peak in inflation is past. Declining commodity prices

and slower growth in aggregate demand will limit the
pricing power and with strong productivity, unit labour
costs will remain under control.
No deep recession thanks to a very reactive

policy-mix
The fiscal authorities have room for manoeuvre. A new

stimulus package will possibly be adopted if things get
worse
Monetary normalisation will happen once the macro

financial risks recede. A risk management approach has
resurfaced. First rate hike in Q2..09
Fiscal deficit will worsen
Slowdown in tax receipts in 2008 on the back of weaker

profits. Higher expenses probably in the pipeline
Current account deficit
September 2008
A positive contribution of net exports to growth (weaker

dollar, global growth still solid).
Central scenario Eurozone A technical recession in Q2 and

Q3. 2008 but economic growth will (slightly) rebound in 2009
Business and consumer confidence have hit
new lows this summer
Consumer confidence on a downside trend as oil price rise
has made a dent in consumers purchasing power
Investment, the last growth engine, is fading
Business orders are depleting and business confidence is
down as export growth is slowing
Real estate sector : housing prices are plunging (Spain,
Ireland) or start falling, dragging down households
investment
Recent positive signs need to get confirmed

Oil price is receding : consumer confidence is going to
improve as CPI is softening
Inflation expectations levelled off.
Euro FX is depreciating against USD
ECB monetary policy easing in early 2009

ECB : a new rate hike is implicitly dismissed
The ECB is likely to stay on hold until end-2008. Inflation
deceleration and slackness in economic activity will prompt
rate cut(s) in H1.09.
Growth will remain below trend in 2009
September 2008
Central scenario UK - Downside risks are materializing

A technical recession is on the cards
Tight monetary conditions, high inflation and a
deteriorating labour market will continue to
weigh on consumption
Residential investment set to shrug off 0.5pp
to GDP in 2008Tight credit conditions
Corporate balance sheets remain healthy
Net exports set to have a strong positive
contribution
Monetary policy Rate cuts back on the

agenda
Despite a bleak economic environment, rate
cuts will not be due before end-2008:
Above 4% inflation
High inflation expectations
Currency depreciation
But medium-term, well-below trend growth will

help ease inflationary pressures
Fiscal policy A mini-fiscal package

for a start
Housing market measures of 0.06% GDP
New measures for low-income earners are set
to be announced
September 2008
Central scenario Japan to stagnate until year end

Growth stagnate until end of the year
Recession fares
but buffers are in place
Consumer pain ease as CPI declines
No major inventory overhang
Still fair external demand prospects
Fiscal stimulus boost
Politics/Fiscal policy
The government irons out an 11.7 trillion worth

economic package.
BOJ Normalization to resume mid-09

GDP gap on the back of outflow of domestic
income to overseas caused by terms of trade
deterioration will prevent the monetary authorities
from tightening policy.
The BoJ show a harmonized view with the

government which announced a pump-priming
measures.
September 2008
Central scenario BRIC Domestic demand decouples

Brazil
GDP growth set to ease in 2009 but infrastructure investment

will limit the slowdown
Inflation risks remained tilted to the upside
Further rate hikes in the pipeline
Towards a marked deterioration in external balance
Russia
Fundamentals remain strong thanks to high oil price and

public spending
Inflationary pressure remained elevated
Towards a move from FX targeting to inflation targeting?
The Russian/Georgian conflict has led to huge capital

outflows.
India
Consumption set to continue to support growth
But downside risks are high (inflation, twin deficit, )
Political tensions have eased
RBI set to tighten by 50bps before end of calendar year
China
No trade decoupling, pockets of domestic consumption and

investment decoupling(s).
Inflation has peaked and growth remains the main risk
RMB appreciation to moderate, fully priced in by markets

participants. A depreciation scenario against USD is unlikely.
Huge FX reserves would help weather any downside risk to

growth
September 2008
10
Presentation Outline
Key Themes
Only step one to fixing US housing
No repair yet to money markets
Below trend growth to continue in the US
Europe and Japan hit recession territory
Emerging slowdown, but still sustained growth
Non-Financial Corporate Balance Sheets
Ride the Storm
In Focus - What next for oil?
September 2008
11
1. Only Step One to Fixing US Housing
More Weekend Action from the US Administration

September 7, 2008
Freddie and Fannie Mae placed into conservatorship by the FHFA
Three additional steps from the Treasury

1. Securing capital
A senior preferred stock purchase agreement with an indefinite duration
and a capacity of $100bn each.
2. A liquidity backstop for the GSEs

A new secured lending credit facility which will be available to Fannie
Mae, Freddie Mac, and the FHL Banks. This facility is intended to serve
as an ultimate liquidity backstop and will be available until Dec. 2009.
3. A temporary program to purchase GSE MBS

This will expire with the Treasury's temporary authorities in Dec. 2009.
September 2008
13
Bad news for the equity owners

great news for the bond holders
September 2008
14
and Home Purchasers

US FED FUNDS RATE AND MORTGAGE YIELDS
5.50
6.80
5.00
6.60
4.50
6.40
4.00
6.20
3.50
6.00
3.00
5.80
2.50
5.60
2.00
5.40
1.50
5.20
J
F
M
A
M
J
FED FUNDS
15YR FRM CONVENTIONAL(R.H.SCALE)
Source: DATASTREAM
September 2008
15
Just About Everyone Owns GSE Backed Securities !

Agency and GSE Backed Securities
Rest of the world
US
Household sector
US
Non-financial corporate business
US
State and local governments
US
Commercial banking
US
Savings institutions and credit unions
US
Insurance companies
US
Pension funds
US
Mutual funds
US
GSEs
US
Broker dealers
US
ABS issues
US
REITs
TOTAL
Q1.08, USDbn
1540.8
843.7
17.8
431.3
1010
237.4
517.8
598.1
896.6
717.3
268.1
386.1
93.1
7558.2
% share
20.4%
11.2%
0.2%
5.7%
13.4%
3.1%
6.9%
7.9%
11.9%
9.5%
3.5%
5.1%
1.2%
-
Source: Federal Reserve, Flow of Funds
September 2008
16
US Housing Market Remains Depressed

US HOUSING SUPPLY
12
12
11
11
10
10
85 86 87 88
MTHS OF SUPPLY
AVERAGE (1997-2006)
AVERAGE (1985-2006)
September 2008
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: DATASTREAM
17
but Prices are No Longer Falling Off a Cliff
September 2008
18
Delinquency Rates Continue to Climb
September 2008
19
Putting Public Finances in Danger?

Cost of Paulson Plan, CBO estimate
from July 22, 2008
$25bn (or 0.2% of GDP) over fiscal
years 2009 and 2010 with a 50%
chance of no cost at all and a 5%
chance that the cost could reach
$100bn.
According to the CBO, the bulk of the
costs relate to the purchase of GSE
equity and debt.
Cost of new measures

We estimate the worst case scenario
for the taxpayer at $200 - 300bn (or
1.4% to 2.1% of GDP).
US: PUBLIC FINANCE RATIOS (%GDP)

2
66
1
64
0
62
-1
-2
60
-3
58
-4
56
-5
Note, the tax payer could even end up

making money from the spreads
between GSE MBS and US Treasuries.
-6
1998
1999
2000
BUDGET BALANCE (%GDP)
PUBLIC DEBT (%GDP)(R.H.SCALE)
54
2001
2002
2003
2004
2005
2006
2007
2008
Source: DATASTREAM
September 2008
20
2. No Repair Yet on Money Markets
Tension on Money Markets Remains High

Spread between 3-month LIBOR and the 3-month Overnight Swap Rates (%)
1.20
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
September 2008
O
c
t
0
8
S
e
p
0
8
A
u
g
0
8
J
u
l
0
8
M
a
y
0
8
A
p
r
0
8
M
a
r
0
8
F
e
b
0
8
J
a
n
0
8
D
e
c
0
7
0.00
N
o
v
0
7
United Kingdom
O
c
t
0
7
Japan
S
e
p
0
7
0.10
A
u
g
0
7
Eurozone
J
u
l
0
7
United States
J
u
n
0
7
0.20
J
u
n
0
8
0.30
22
More Mysteries in the Money Market
September 2008
23
Trimming Bank Balance Sheets is Proving a Lengthy Exercise
September 2008
24
Repairing Credit Supply Will Take Time

US SENIOR LOAN OFFICER SURVEY: C&I LOANS
70
70
60
60
50
50
40
40
30
30
20
20
10
10
-10
-10
-20
-20
-30
-30
90
91
92
93
94
95
96
97
98
99
US C&I LOAN SVY-LARGE & MEDIUM FIRMS,BANKS TIGHTENING CREDIT
US C&I LOAN SVY - SMALL FIRMS, BANKS TIGHTENING CREDIT NADJ
00
01
02
03
04
05
06
07
08
Source: DATASTREAM
September 2008
25
and a Cyclical Increase in Default Rates is on the Cards

US - DEFAULT RATES AND PROFITS
-15
5.50
5.00
-10
4.50
-5
4.00
0
3.50
3.00
10
2.50
2.00
15
1.50
20
1.00
25
0.50
30
90
91
92
93
PROFITS Y/Y (+1YR)
DEFAULT RATE(R.H.SCALE)
0
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Source: DATASTREAM
September 2008
26
A turning point for credit markets ?
September 2008
27
Banks - Continued Tension, but with Greater Dispersion
September 2008
28
3. Below Trend Growth to Continue in the US
Q2 GDP Defies the Leading Indicators

US LEADING INDICATOR AND GDP Y/Y
10
5.00
4.50
8
4.00
6
3.50
3.00
2.50
2
2.00
1.50
1.00
-2
0.50
-4
2000
LEADING IND. Y/Y
GDP Y/Y(R.H.SCALE)
0
2001
2002
2003
2004
2005
2006
2007
2008
Source: DATASTREAM
September 2008
30
Thanks to Exports
US - GDP COMPONENTS (CONTRIBUTION, ANNUALIZED)
5
-1
-1
-2
-2
-3
-3
2005
RESIDENTIAL INV.
PRIVATE CONSUMPTION
NON-RESIDENTIAL INV.
September 2008
2006
2007
NET EXPORTS
2008
Source: DATASTREAM
31
Export Prospects Are Set to Weaken

US NEW EXPORT ORDERS (ISM) & T-W DOLLAR
62
90
60
95
58
100
56
105
54
110
52
115
50
120
48
125
46
130
44
135
2000
2001
ISM NEW EXPORT ORDERS
T-W USD (BROAD)(R.H.SCALE)
2002
2003
2004
2005
2006
2007
2008
Source: DATASTREAM
September 2008
32
and the Income Side Tells a Different Story

US: REAL GDP GROWTH VS. GROSS DOMESTIC INCOME (%, Y/Y)
10
10
-2
-2
-4
-4
70
72
74
76
GROSS DOMESTIC INCOME
REAL GDP
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
Source: DATASTREAM
September 2008
33
US Employment Conditions Continue to Weaken
September 2008
34
A Welcome Relief !
US HOUSEHOLD ENERGY BILL (AS% OF PERSONAL INCOME) AND OIL
6.00
160
140
5.50
120
5.00
100
80
4.50
60
4.00
40
3.50
20
3.00
2000
2001
ENERGY EXPENDITURES
OIL PRICE(R.H.SCALE)
0
2002
2003
2004
2005
2006
2007
2008
Source: DATASTREAM
September 2008
35
A Multi-year Period of Below Trend Growth

US Real GDP growth
8.0%
7.0%
6.0%
5.0%
4.0%
Forecasts
3.0%
2.0%
1.0%
0.0%
-1.0%
Q(t)/Q(t-1) annualized
Q(t)/Q(t-4)
September 2008
Q3 09
Q1 09
Q3 08
Q1 08
Q3 07
Q1 07
Q3 06
Q1 06
Q3 05
Q1 05
Q304
Q104
Q3 03
Q1 03
Q3 02
Q1 02
Q3 01
Q1 01
Q3 00
Q1 00
-2.0%
1995-2007 average
Potential growth (Fed's estimate)
36
4. Europe and Japan hit recession territory
Eurozone Activity is weakening sharply as confidence is deteriorating

fast and deep
EURO ZONE SURVEYS
3
2.00
1.50
1.00
0.50
0
0
-0.50
-1.00
-1
-1.50
-2.00
-2
-2.50
-3
92
93
94
95
96
ECONOMIC SENTIMENT
INDUSTRIAL CONFIDENCE(R.H.SCALE)
CONSUMER CONFIDENCE(R.H.SCALE)
September 2008
-3.00
97
98
99
00
01
02
03
04
05
06
07
08
Source: DATASTREAM
38
Eurozone A technical recession, but not a prolonged recession. Below

potential growth.
September 2008
39
Eurozone Declining housing prices drag down households

investment and consumption
CHANGE IN EUROPE AND US REAL HOUSE PRICES (CPI BASED)
30
30
25
25
20
20
15
15
10
10
-5
-5
-10
-10
-15
-15
-20
95
FRANCE
SPAIN
UK
September 2008
-20
96
97
98
99
00
01
02
US
03
04
05
06
07
08
Source: DATASTREAM
40
Eurozone PMI survey points to lower job creation, but not a sharp
downturn
September 2008
41
Eurozone Easing of inflation will sustain consumption in quarters

ahead
September 2008
42
Eurozone And consumer sentiment should benefit gasoline price

decline
C o n s u m e r c o n fid e n c e a n d g a s o lin e p r ic e
1 0
1 .1 5
1 .2 0
1 .2 5
0
1 .3 0
-5
-1 0
1 .3 5
1 .4 0
1 .4 5
-1 5
1 .5 0
-2 0
1 .5 5
-2 5
1 .6 0
S O N D J F M A M J J
A S O N D J F M A M J J A S
G e r m a n c o n s u m e r c o n fid e n c e
G a s o lin e p r ic e F r a n c e ( R .H . S C A L E )
F r e n c h c o n s u m e r c o n fid e n c e
G a s o lin e p r ic e G e r m a n y ( R . H . S C A L E )
S o u rc e : D A T A S T R E A M
September 2008
43
Eurozone - Faltering foreign demand but the euro has been recently
declining restoring somewhat competitivity
E U R O L A N D : E X P O R T O R D E R B O O K P O S IT IO N A N D E U R O E X C H A N G E R A T E
1 1 5
1 0
5
1 1 0
0
1 0 5
-5
1 0 0
-1 0
-1 5
9 5
-2 0
9 0
-2 5
8 5
-3 0
8 0
-3 5
9 5
9 6
9 7
9 8
9 9
0 0
0 1
0 2
0 3
0 4
E U R O E X C H A N G E R A T E
E X P O R T O R D E R B O O K P O S IT I(R .H .S C A L E )
0 5
0 6
0 7
0 8
September 2008
44
Eurozone Productive investment : not a free fall, as profits remain

elevated and many Capex decisions are driven by long term trends
Manufacturing and cyclical
industries are in a bad mood
In many industries, Capex decisions
are driven by long term demand
trends: infrastructure, transport, oil
and gas, utilities
NON FINANCIAL CORP. PROFITS (% OF VALUE ADDED)

39.50
0
-0.50
-1.00
39.00
-1.50
-2.00
-2.50
38.50
-3.00
-3.50
38.00
-4.00
-4.50
37.50
1999
2000
GROSS OPERATING SURPLUS
NET LENDING(R.H.SCALE)
-5.00
2001
2002
2003
2004
2005
2006
2007
Source: DATASTREAM
September 2008
45
UK - The Worst Crisis Since in 60 Years ?

UK - BUSINESS AND CONSUMER CONFIDENCE
15
30
10
20
10
-5
-10
-10
-20
-15
-30
-20
-40
-25
-30
-50
-35
-60
75
77
79
CONSUMERS
BUSINESS(R.H.SCALE)
81
83
85
87
89
91
93
95
97
99
01
03
05
07
Source: DATASTREAM
September 2008
46
UK - An Unprecedented Housing Bust

UK - HOME LOANS APPROVAL AND HOUSE PRICE
160
35
30
140
25
120
20
15
100
10
80
5
0
60
-5
40
-10
20
86
87
88
89
90
91
92
HOUSING LOANS APPROVAL
HALIFAX HOUSE PRICE Y/Y(R.H.SCALE)
-15
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: DATASTREAM
A 1bn (0.06%GDP) Homeowners Support Package

A 1-year tax emption for around 50% of all house purchases
Creation of a new mortgage rescue scheme
Bringing forward public spending to deliver up to 5,500 new social rented homes
Public funds available to buy unsold property from house builders
Further measures are likely notably to help the low-income earners
September 2008
47
UK - Financing gap back to zero but corporate profit ratio remains close
to historical high
UK - NON-FINANCIAL CORPORATE BALANCE SHEET (%GDP,1y SUM)
3
26
25
24
23
0
22
-1
21
-2
20
-3
19
-4
18
-5
17
70
72
74
76
78
80
FINANCING GAP
GROSS OPERATING SURPLUS(R.H.SCALE)
82
84
86
88
90
92
94
96
98
00
02
04
06
08
Source: DATASTREAM
September 2008
48
UK - A weaker Sterling will help exports to recover

UK - EXPORT AND STERLING (Y/Y)
-20
30
-15
20
-10
10
-5
0
-10
10
-20
15
-30
20
25
-40
90
91
92
93
94
95
EXPORT ORDERS
STERLING EFF. EXCHANGE R(R.H.SCALE)
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Source: DATASTREAM
September 2008
49
UK - Short-term, high inflation and inflation expectations combined with

external price pressures are limiting the BoE room to manoeuvre
UK - STERLING AND IMPORT PRICES (Y/Y)
UK - INFLATION
5.50
5.50
5.00
5.00
4.50
4.50
4.00
4.00
-20
15
-15
10
-10
-5
3.50
3.50
3.00
3.00
2.50
2.50
5
0
5
0
2.00
2.00
1.50
1.50
1.00
1.00
0.50
0.50
10
15
-5
20
1997 1998 1999 2000

CPI Y/Y
INFLATION EXPECTATIONS (Source: BoE)
2001
2002
2003
2004
2005
2006
2007
2008
25
-10
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
TRADE WEIGHTED GBP Y/Y
IMPORT PRICE EX-OIL+ERR.(R.H.SCALE)
Source: DATASTREAM
Source: DATASTREAM
September 2008
50
but longer-term, the economic slowdown points to an aggressive

easing cycle
September 2008
51
Japan - Business confidence plummeted to the level of the

past recession from Oct. 2000 to Jan. 2002
September 2008
52
Japan - But the absence of inventory pressure indicates this

economic downturn will be short and shallow
September 2008
53
Japan - Sharp rise in price, coupled with economic deceleration

seriously damages real purchasing power of consumers
September 2008
54
BOJ will be forced to stay sidelines as deteriorating nations

terms of trade considerably spoils domestic purchasing power
Trade loss
amounts to
5% of GDP
September 2008
55
5. Emerging slowdown, but still sustained growth
Emerging Asia - Growth is the Risk Now, not Inflation
China
India
HK
Korea
Taiwan
Singapore
Indonesia
Philippines
Malaysia
Vietnam
Thailand
Regional
Regional ex Chindia
September 2008
CPI (ave. yoy)

2008
2009
6.6
4.5
9
6.5
4.5
3.2
4.5
2.9
3
5.9
8.9
6.2
4.8
19.8
3.5
6.7
5.9
2.5
2.5
6.8
2.5
3.8
9.3
3
4.8
4.4
GDP Growth
2008
2009
9.5
9
8.1
7.8
4.1
4.5
4.0
3.9
3.7
4
4.5
5.1
6
6.2
4.4
4.3
5
4.5
7.1
6.4
4.9
5
7.2
6.9
4.4
4.1
57
China Resilient, but Slowing

CHINA REAL GDP Y/Y
13
105
104
12
103
11
102
10
101
100
9
99
8
98
7
1998
1999
2000
2001
GDP Y/Y
LEADING INDICATORS +1YR(R.H.SCALE)
97
2002
2003
2004
2005
2006
2007
2008
2009
Source: DATASTREAM
September 2008
58
China Equities Look More Reasonable Prices

CHINA - MSCI AND PE RATIO (MSCI)
26
110
24
100
90
22
80
20
70
18
60
16
50
14
40
12
30
10
20
8
2003
2004
MSCI CHINA - 12MTH FWD P/E RTIO
MSCI CHINA - AGGREGATE PRICE(R.H.SCALE)
10
2005
2006
2007
2008
Source: DATASTREAM
September 2008
59
Eastern Europe The credit crunch has taken its toll on the Baltic and
Hungarian credit binge but not yet in Poland
September 2008
60
Eastern Europe Risks remain high, especially in the Baltics and in the
South-Eastern Countries
September 2008
61
especially in the event of a currency shock
Hungary
Source: National bank of Hungary

September 2008
62
6. Non-Financial Corporate Balance Sheets

Ride the Storm
US - Cash flows companies remain high

U S: C A SH
F L O W & P R O F IT
(% G D P )
1 0 /9 / 0 8
1 3
1 3
1 2
1 2
1 1
1 1
1 0
1 0
8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7
IN T E R N A L C A S H F L O W , % G D P
P R O F IT S , % G D P
September 2008
64
US - Debt ratios are far from their 1999 level

U S - L IA B IL IT IE S (% , N O N F IN A N C IA L C O R P O R A T E , F O F )
1 0 /9 /0 8
1 .2 0
0 .2 7
0 .2 6
1 .1 0
0 .2 5
0 .2 4
1 .0 0
0 .2 3
0 .9 0
0 .2 2
0 .2 1
0 .8 0
0 .2 0
0 .1 9
0 .7 0
0 .1 8
0 .6 0
8 0
8 2
8 4
8 6
8 8
9 0
9 2
L IA B IL IT IE S / N E T W O R T H
L IA B IL IT IE S / A S S E T (R . H .S C A L E )
0 .1 7
9 4
9 6
9 8
0 0
0 2
0 4
0 6
0 8
September 2008
65
US - But a strong increase of the corporate bond as a source of

financing
U S - C O M P O S IT IO N O F L IA B IL IT IE S (% , F O F )
1 0 /9 / 0 8
0 .3 0
0 .5 6
0 .2 8
0 .5 4
0 .2 6
0 .5 2
0 .2 4
0 .5 0
0 .2 2
0 .4 8
0 .2 0
0 .4 6
0 .1 8
0 .4 4
0 .1 6
0 .4 2
8 0
8 2
8 4
8 6
8 8
9 0
9 2
9 4
9 6
9 8
0 0
0 2
C O R P O R A T E B O N D S / L IA B IL IT IE S
C R E D IT M A R K E T IN S T R U M E N T / L IA B IL IT IE S (R .H .S C A L E )
0 4
0 6
0 8
September 2008
66
US - And a preference for bonds issues and decrease capital

U S : N O N F A R M N O N F IN A N C IA L C O R P O R A T E B U S IN E S S
1 0 /9 / 0 8
8 0 0
8 0 0
6 0 0
6 0 0
4 0 0
4 0 0
2 0 0
2 0 0
-2 0 0
-2 0 0
-4 0 0
-4 0 0
-6 0 0
-6 0 0
-8 0 0
-8 0 0
-1 0 0 0
-1 0 0 0
-1 2 0 0
7 0 7 2 7 4 7 6 7 8 8 0 8 2 8 4 8 6 8 8
C R E D IT M A R K T IN S T R U M E N T (F O F )
N E T N E W E Q U IT Y IS S U E S
9 0
9 2
9 4
9 6
9 8
0 0
0 2
0 4
-1 2 0 0
0 6 0 8
September 2008
67
How Long Will it Take for Market Confidence to Return?
September 2008
68
In Focus: Whats next for oil?
Oil prices up and down - the same list of suspect

Higher oil prices
1.The weak US dollar and low US
interest rates
2.Speculators and index traders
3.Tight fundamentals
Low inventories
Refineries bottleneck
4.Rising costs
5.Geopolitics: Iran
What did trigger lower

prices?
1. A stronger US dollar
2. Speculators and index
traders
Hedge funds deleveraging
3. Better fundamentals
Demand destruction
Increased output (notably
from Saudi Arabia)
4. Geopolitics: Iran
5. A calm hurricane season
September 2008
70
Oil prices peaked in July and are now below 100$/b: whats next?
O IL P R IC E S
1 5 0
1 5 0
1 4 0
1 4 0
1 3 0
1 3 0
1 2 0
1 2 0
1 1 0
1 1 0
1 0 0
1 0 0
9 0
9 0
8 0
8 0
7 0
7 0
6 0
6 0
J
J
A
B R E N T $ /B
W T I $ /B
September 2008
71
Oil The impressive link to the dollar
O IL P R IC E A N D U S D O L L A R
150
94
140
96
130
98
120
100
110
102
100
104
90
106
80
108
70
110
60
112
50
2006
2007
O IL P R IC E (B R E N T )
U S D O L L A R ( E F F ,IN V )(R .H .S C A L E )
2008
September 2008
72
Open interest surge between 2001 and Summer 2008

but are now decreasing
Commodity investors might have sold $40 bn since early July
September 2008
73
Oil Price-induced demand reduction resulted

Us demand dropped by 1mb/d y/y in August
0 0 0 'S
2 1 .8 0
U S O IL C O N S U M P T IO N (1 0 0 0 M B /D )
2 1 .6 0
2 1 .4 0
2 1 .2 0
21
2 0 .8 0
2 0 .6 0
2 0 .4 0
2 0 .2 0
20
1 9 .8 0
2005
2006
U S O IL C O N S U . (M A V 4 W )
2007
2008
September 2008
74
Oil Global demand is slowing and not just in the OECD countries
World oil demand change (mb/d)
mb/d
3.0
Source : IEA August 2008
2.5
Rest of the world

Middle East
China
Emerging Asia ex China
OECD
Global demand
2.0
1.5
1.0
0.5
0.0
-0.5
2003
September 2008
2004
2005
2006
2007
2008
2009
75
OPEC in the spotlight, trying to take the lead

OPEC produces 40% of world oil and its role will be more dominant in the long-term
September 2008
76
OPEC decided to adhere to old production quotas:

A gradual cut in output and a Saudi Arabia affair
OPEC Production is 2 mb/d higher than a year ago
Production is recovering in Irak (no quota)

OPEC 11 official targets are not revised
Saudi Arabia is the swing producer
Some countries are unable to produce to quota

and Iran supplies above capacity
September 2008
77
Supply higher than demand But OECD stock cover has not increased since
the beginning of the year
OECD End of Month Oil Stocks (Industry)
Source : IEA
Days of forward demand are based on average demand over the next three months
September 2008
78
Geopolitics: Another front. Producers in Azerbaijan have few alternative

export routes
September 2008
79
Long term fair value Real price approach

R E A L O IL P R IC E
2 0 0
2 0 0
1 8 0
1 8 0
1 6 0
1 6 0
1 4 0
1 4 0
1 2 0
1 2 0
1 0 0
1 0 0
8 0
8 0
6 0
6 0
4 0
4 0
2 0
2 0
0
7 1 7 3 7 5 7 7 7 9 8 1 8 3 8 5
U S C O R E C P I
U S P E R S O N A L IN C O M E
W O R L D G D P P E R C A P IT A
September 2008
0
8 7
8 9
9 1
9 3
9 5
9 7
9 9
0 1
0 3
0 5
0 7
0 9
80
Long term fair value Substitute approach

The surge in oil prices had not been reflected in other substitutes (gas, coal)
September 2008
81
Long term fair value Long term marginal cost

U S P P I D R IL L IN G
C O S T IN D E X A N D
W T I
1 6 0
1 4 0
1 2 0
1 0 0
8 0
6 0
4 0
2 0
0
8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8
D R IL L IN G C O S T IN D E X
W T I
Rising costs - Exploration licences, labour, royalties, taxes, material , energy,

Lesser gains in access to reserves (resource nationalism)
Lesser progress on drilling and exploration technologies
September 2008
82
Long term fair value Energy supply responds in the long-term

Renewable energy cost (2001 US$-cent per kWh)
2001
Potential
future
energy
energy cost
costs
Oil and Coal
4
Electricity
Wind
48
310
Solar photovoltaic
25160
525
Solar thermal
1234
420
Large hydropower
210
210
Small hydropower
212
210
Geothermal
210
18
Biomass
312
410
Heat
Geothermal heat
0.55
0.55
Biomass heat
16
15
Low temp solar heat 225
210
Source: World Energy Assessment, 2004. In 2001,
WTI oil price was $26/b.
September 2008
83
Oil prices is dropping. Reasons not to cheer to quickly
Flows
The pace of dollar appreciation will fade
Investors come back when price levels are supporting
Fundamentals
Fair oil price is around 80$/b-100$/b
Supply is now bigger than global demand but
Inventories remain low in OECD countries
Growth remain robust in emerging countries
OPEC could cut production if price dropped too quickly
Climate:
The hurricane season is not over (end October): Gustav, Ike
The impact on downstream production would be more meaningful than on upstream production
The last two winters were mild. Will it be the case for the next one?
Geopolitics:
A potential flare-up with Iran
New uncertainties around Russia
September 2008
84

Economic Strategy

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Economic Strategy

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Economic Scenario

September 11, 2008

Economic Scenario A multi-year adjustment process

Monetary policy dilemmas have eased

Risk scenario (30%) Global recession

Keystone variables: Credit supply indicators

Socit Gnrale Asset Management

Main changes to the central scenario

Socit Gnrale Asset Management

G4 Growth Profile US double dips, but prolonged recession is averted

Socit Gnrale Asset Management

Socit Gnrale Asset Management

US The central scenario

The GSEs crisis exacerbates the risk of a deep credit

The housing downturn is far from over. Unemployment will

Buffers: Firm global growth, healthy corporate balance

GDP growth accelerated in Q2, But the rebound will prove

Headline inflation may temporarily exceed 5.0%

The peak in inflation is past. Declining commodity prices

No deep recession thanks to a very reactive

The fiscal authorities have room for manoeuvre. A new

Monetary normalisation will happen once the macro

Fiscal deficit will worsen

Slowdown in tax receipts in 2008 on the back of weaker

Current account deficit

A positive contribution of net exports to growth (weaker

Socit Gnrale Asset Management

Central scenario Eurozone A technical recession in Q2 and

Recent positive signs need to get confirmed

ECB monetary policy easing in early 2009

Growth will remain below trend in 2009

Socit Gnrale Asset Management

Central scenario UK - Downside risks are materializing

Monetary policy Rate cuts back on the

But medium-term, well-below trend growth will

Fiscal policy A mini-fiscal package

Socit Gnrale Asset Management

Central scenario Japan to stagnate until year end

The government irons out an 11.7 trillion worth

BOJ Normalization to resume mid-09

The BoJ show a harmonized view with the

Socit Gnrale Asset Management

Central scenario BRIC Domestic demand decouples

GDP growth set to ease in 2009 but infrastructure investment

Inflation risks remained tilted to the upside

Further rate hikes in the pipeline

Towards a marked deterioration in external balance

Fundamentals remain strong thanks to high oil price and

Inflationary pressure remained elevated

Towards a move from FX targeting to inflation targeting?

The Russian/Georgian conflict has led to huge capital

Consumption set to continue to support growth

But downside risks are high (inflation, twin deficit, )

Political tensions have eased

RBI set to tighten by 50bps before end of calendar year

No trade decoupling, pockets of domestic consumption and

Inflation has peaked and growth remains the main risk

RMB appreciation to moderate, fully priced in by markets

Huge FX reserves would help weather any downside risk to

Socit Gnrale Asset Management

In Focus - What next for oil?

Socit Gnrale Asset Management

1. Only Step One to Fixing US Housing

More Weekend Action from the US Administration