Key financial market driver 2 —- US economic outlook Key questions US growth to pick up throughout 2013 e Is the nascent growth recovery sustainable? Will the Fed stimulus boost growth? usves] GDPend ie conpanens, quarer-averquarter How will the election result change fiscal policy deliberations? annualized in % e Can politicians find an agreement to avoid a sharp fiscal contraction in early 2013 (i.e. the "fiscal cliff")? st wesep 5 qq annualized WRENS CIO View (Probability: 70%*) Moderate expansion on jy __ 1 <——_l--- ¢ The economy stays on a moderate growth path but the unemployment rate comes down only very gradually - the 2% ivy - 14, Hi Nit NaAtting oat ; ; » UNITE) / LN Till September report exaggerated the pace of improvement. Core personal consumption expenditure (PCE) inflation stays o% TitiT h ith I , fee slightly below or close to the Federal Reserve's target of 2%. UBS forecasts real GDP growth of 2.0% in 3Q 2012 ve — me iit (consensus: 1.8%) and 1.6% in 4Q 2012 (consensus: 1.9%). The Fed has added considerable stimulus: it extended 6% Al Operation Twist and its interest rate forward guidance, indicated that it will stay highly accommodative even after the 8% —___ We recovery strengthens, launched an open-ended agency mortgage-backed securities (MBS) purchase program of USD “10% 40bn per month, and shows a strong easing bias tied to the state of the labor market. The Fed actions effectively we Te ee ee eee mitigate downside growth risks, but they are unlikely to dramatically boost growth. 2006 2007-2008 «2009 2010-2011 2012-2013 ¢ In the elections, Republicans will likely lose seats in the House on a net basis but retain a majority; we expect them me eonsumpiicnt : Sonera real estate investment to be even with Democrats in the Senate. Obama will likely retain the White House. Such an electoral outcome would shoe NetEpors prolong the existing gridlock between Republicans and Democrats. coueneiiiieaia Real GDP (q/q annualized) ¢ Due to the ongoing politic