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The Goldman Sachs Group, Inc. Goldman Sachs Research Global Themes and Risks Presentation prepared for meetings in Israel, 31 January-3 February, 2012 Abby Joseph Cohen, CFA Rachel Siu Koby Sadan Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co. 1-212-902-4095 1-212-357-0493 1-212-902-7009 [email protected] [email protected] [email protected] The Global Markets Institute is the public policy research unit of Goldman Sachs Global Investment Research. Its mission is to provide research and high-level advisory services to policymakers, regulators and investors around the world. The Institute leverages the expertise of Research and other Goldman Sachs professionals, as well as highly regarded partners, to offer written analyses and host discussion forums. Exports and business equipment lead all other GDP sectors Private construction showing some life; government spending now turning down 170 165 160 155 Exports 150 145 Business Equipment and Sof tware Index: 2003 Q1=100 140 135 130 125 Personal Consumption Expenditures 120 115 110 Government Expenditures 105 100 Business Structures 95 90 85 1Q 03 3Q 03 1Q 04 3Q 04 1Q 05 3Q 05 1Q 06 3Q 06 1Q 07 3Q 07 1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q11 Data from 2003 Q1 through 2011 Q3 Source: Bureau of Economic Analysis. Goldman Sachs Global Investment Research 2 Technology and capital spending have expanded beyond earlier peaks 365 355 345 335 325 315 Industrial Production, indexed to January 2003 305 295 285 275 265 255 245 235 Semiconductor and related equipment 225 215 205 195 185 Computer and peripheral equipment 175 165 155 Communications equipment 145 135 125 115 105 Industrial production excluding selected high-technology industries 95 85 75 1/03 5/03 9/03 1/04 5/04 9/04 1/05 5/05 9/05 1/06 5/06 9/06 1/07 5/07 9/07 1/08 5/08 9/08 1/09 5/09 9/09 1/10 5/10 9/10 1/11 5/11 9/11 Monthly data from 1/2003 through 12/2011 Source: Federal Reserve Board. Goldman Sachs Global Investment Research 3 Changes in industrial production Stronger growth in Israel, lesser impact from the GFC 150 140 Index: Jan 2003=100 130 Israel 120 US 110 100 90 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-04 Jul-03 Jan-03 80 Source: Federal Reserve Board, Bank of Israel. Goldman Sachs Global Investment Research 4 Employment changes during selected recessions and recoveries Current 2001 1958 Percent Job Losses Relative to Peak Employment 1.0% 0.0% -1.0% -2.0% Structural Cyclical -3.0% The current weakness is linked to the combination of both cyclical and structural factors -4.0% -5.0% -6.0% -7.0% 0 5 10 15 20 25 30 35 40 45 Months from Peak Employment Source: Brookings, Bureau of Labor Statistics, Goldman Sachs Global Markets Institute. Goldman Sachs Global Investment Research 5 Employment levels Disappointing employment growth in the US 140 Index: Jan 2003=100 130 120 Israel 110 US 100 90 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-04 Jul-03 Jan-03 80 Note: Israel employment refers to number of jobs, excluding Palestinian Authority and US employment refers to total nonfarm employees. Source: Bureau of Labor Statistics, Central Bureau of Statistics. Goldman Sachs Global Investment Research 6 Employment gap by education Unemployment rates for adults, 25 years and over 16 14 Less than a high school diploma High school diploma Unemployment rate (%) 12 10 8 Some college or associate degree 6 4 Bachelor's degree and higher 2 0 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Source: Bureau of Labor Statistics Goldman Sachs Global Investment Research 7 Share price performance for major indices Significant divergences have emerged 230 S&P 500 Dow Jones EURO STOXX 50 FTSE 100 210 Deutsche Aktien Xchange 30 Nikkei 225 190 KOSPI 200 Hang Seng Index Index: September 22, 2005 = 100 KOSPI 200 Heng Seng Index 170 150 130 Deutsche Aktien Xchange 30 FTSE 100 110 S&P 500 90 70 50 Nikkei 225 Dow Jones EURO STOXX 50 30 9/05 1/06 5/06 9/06 1/07 5/07 9/07 1/08 5/08 9/08 1/09 5/09 9/09 1/10 5/10 9/10 1/11 5/11 9/11 1/12 Source: FactSet. Goldman Sachs Global Investment Research 8 Global growth outlook Global GDP projected at 3.3% in 2012, with recession in Europe ($ Billions) US Eurozone Germany France Italy Japan United Kingdom China Canada Brazil Mexico Korea Australia Israel 2010 GDP 14,527 12,364 3,334 2,604 2,087 5,363 2,272 5,892 1,568 2,099 1,035 1,014 1,235 202 2008 (0.3) % 0.3 0.8 (0.2) (1.3) (1.0) (1.1) 9.6 0.7 5.2 1.2 2.3 2.5 4.0 2009 (3.5) % (4.2) (5.1) (2.6) (5.2) (5.5) (4.4) 9.2 (2.8) (0.3) (6.1) 0.3 1.4 0.8 Growth Rates 2010 2011(E) 3.0 % 1.8 % 1.8 1.5 3.6 3.0 1.4 1.6 1.2 0.6 4.4 (0.8) 2.1 0.9 10.4 9.2 3.2 2.4 7.5 3.0 5.4 6.2 2.6 4.9 3.8 3.7 2.0 4.8 2012(E) 2.1 % (0.8) 0.1 (0.4) (1.6) 2.0 0.7 8.6 2.2 2.8 2.8 3.5 2.5 2.3 2013(E) 2.2 % 0.7 1.5 0.9 (0.1) 1.5 2.3 8.7 2.5 4.1 3.9 4.1 3.7 4.0 Source: Goldman Sachs Economics Research. Goldman Sachs Global Investment Research 9 US federal debt as a percentage of GDP 140 Great Depression/ World War II 120 Credit Crisis/ 2008-09 Recession Percent of GDP 100 80 Reagan Administration 60 40 Civil War 20 0 1792 1802 1812 1822 1832 1842 1852 1862 1872 1882 1892 1902 1912 1922 1932 1942 1952 1962 1972 1982 1992 2002 2012 Source: USGovernmentSpending.com. Goldman Sachs Global Investment Research 10 Disclosures January 26, 2012 Disclosures Disclosures This report has been prepared by the Global Markets Institute, the public policy research unit of the Global Investment Research Division of The Goldman Sachs Group, Inc. (“Goldman Sachs”). As public policy research, this report, while in preparation, may have been discussed with or reviewed by persons outside of the Global Investment Research Division, both within and outside Goldman Sachs, and all or a portion of this report may have been written by policy experts not employed by Goldman Sachs. While this report may discuss implications of legislative, regulatory and economic policy developments for industry sectors, it does not attempt to distinguish among the prospects or performance of, or provide analysis of, individual companies and does not recommend any individual security or an investment in any individual company and should not be relied upon in making investment decisions with respect to individual companies or securities. Distributing entities This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd (ABN 21 006 797 897); in Brazil by Goldman Sachs do Brasil Banco Múltiplo S.A.; in Canada by Goldman, Sachs & Co. regarding Canadian equities and by Goldman, Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union.. European Union: Goldman Sachs International, authorized and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and United Kingdom; Goldman Sachs AG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.. General disclosures in addition to specific disclosures required by certain jurisdictions Goldman Sachs conducts a global full-service, integrated investment banking, investment management and brokerage business. It has investment banking and other business relationships with governments and companies around the world, and publishes equity, fixed income, commodities and economic research about, and with implications for, those governments and companies that may be inconsistent with the views expressed in this report. In addition, its trading and investment businesses and asset management operations may take positions and make decisions without regard to the views expressed in this report. Copyright 2012 The Goldman Sachs Group, Inc. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc. Goldman Sachs Global Investment Research 12