FX Report - Department of the Treasury

Report to Congress on International Economic and Exchange Rate Policies U.S. Department of the Treasury Office of International Affairs April 12, 2013 This Report reviews developments in international economic and exchange rate policies and is submitted 1 pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22 U.S.C. § 5305 (the “Act”). 1 The Treasury Department has consulted with the Board of Governors of the Federal Reserve System and International Monetary Fund management and staff in preparing this Report. Table of Contents KEY FINDINGS ............................................................................................................................. 2 INTRODUCTION .......................................................................................................................... 6 U.S. MACROECONOMIC TRENDS ............................................................................................ 6 THE GLOBAL ECONOMY .......................................................................................................... 8 U.S. INTERNATIONAL ACCOUNTS ....................................................................................... 11 THE DOLLAR IN FOREIGN EXCHANGE MARKETS ........................................................... 12 ANALYSES OF INDIVIDUAL ECONOMIES .......................................................................... 13 A

SIA ........................................................................................................................................... 13 China ..................................................................................................................................... 13 Japan ..................................................................................................................................... 19 South Korea .......................................................................................................................... 21 Taiwan................................................................................................................................... 22 E UROPE ...................................................................................................................................... 23 Euro Area .............................................................................................................................. 23 Switzerland ........................................................................................................................... 26 United Kingdom.................................................................................................................... 27 W ESTERN H EMISPHERE .............................................................................................................. 28 Brazil ..................................................................................................................................... 28 Canada................................................................................................................................... 29 Mexico .................................................................................................................................. 30 GLOSSARY OF KEY TERMS IN THE REPORT ................................................................ 31 1 Key Findings The Omnibus Trade and Competitiveness Act of 1988 (the "Act") requires the Secretary of the Treasury to provide semiannual reports on the international economic and exchange rate policies of the major trading partners of the United States. Under Section 3004 of the Act, the Secretary must consider "whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade.” This Report covers developments in the second half of 2012, and where pertinent and available, data through early April 2013. U.S. real GDP grew by 1.7 percent at an annual rate during the second half of 2012. Growth was uneven over the year, in part reflecting temporary factors such as severe drought conditions that affected agricultural output last summer. Although the economy continues to face challenges in 2013, the housing sector is showing clear signs of recovery, households are making progress repairing their balance sheets, firms are making capital investments, and labor market conditions are steadily improving. A consensus of private forecasters currently expects real GDP to grow by 2.3 percent over the four quarters of 2013. Job creation proceeded at a steady pace during much of the latter half of 2012, but accelerated toward the end of the year and into 2013. On average, nonfarm payrolls increased by 180,000 per month in the second half of 2012. Over the six months through March 2013, the average monthly pace of job creation rose to 188,000. Between December 2011 and December 2012, the unemployment rate fell by 0.7 percentage point to 7.8 percent, and dropped further in March 2013 to 7.6 percent, the lowest level in more than four years Boosting growth, creating jobs, and putting public finances on a sustainable path are priorities of the Administration. The federal budget deficit narrowed to 7.0 percent in FY2012, and, based on recent legislative changes, is projected to decline to 5.3 percent of GDP in FY2013. Over the medium-term, the Administration is aiming to cut the deficit to less...

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