Demographic Spotlight on the Nordic Countries

Transcription

1 9 September 211 Global Demographics and Pensions Research Demographic Spotlight on the Nordic Countries Global Demographics and Pensions Research Research Analysts Amlan Roy amlan.roy@credit-suisse.com Sonali Punhani sonali.punhani@credit-suisse.com Liyan Shi liyan.shi@credit-suisse.com This report provides a comparative summary analysis of Demographics within the four Nordic countries of our focus:,, and. The demographic differences across these countries have implications and effects across a broad range of economic indicators and asset prices. These countries are affluent despite having small population sizes. We reemphasize the need to consider both GDP as well as GDP per capita to assess prosperity and well-being of countries, not merely GDP. The life expectancy differences are fairly important, particularly at older ages and retirement ages. The pensions system and benefits (entitlements) also vary across these countries, highlighting differences among older citizens standards of living as well as generosity. Old-age dependency ratios are one of the biggest drivers of age-related expenditures as highlighted in public policy and our own research; the Nordic countries display significant differences in that respect. has seen a decrease in its old-age dependency ratio over We report an encouraging commonality across all four countries in terms of the rise in fertility rates, which provides some offset against increased life expectancy in terms of the end-effects on old-age dependency ratios. Migration has additionally complemented higher fertility rates in contributing to population growth. Labour productivity growth has been a major contributor to GDP growth over followed by working age population growth. In terms of demographic dividend, we show that all countries are past the first stage of demographic dividend and are reaping the results of the second demographic dividend. Pensions generosity is the highest in in terms of gross replacement rates as well as gross pensions wealth. provides the highest expenditures on health care on a per capita basis although spends the highest in terms of percentage of GDP on age-related health expenditures. We recommend increased retirement ages with flexible working and renegotiated benefits for those with ten years or more of working life remaining as potential solutions to dealing with high age-related expenditures in the medium term. In terms of Human Development Indicators which capture Quality of Life, the Nordic countries do well, with leading the world, followed by (9 th ), (16 th ) and (19 th ). ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER IMPORTANT DISCLOSURES, PLEASE REFER TO

2 9 September 211 We spotlight the comparative demographics of the Nordic countries -,, and. These rich liberal countries had a combined population of 25 million in 21. They are fairly dissimilar to Japan and have some differences with the larger European countries. Yet they face the demographic and pension issues faced by Japan and the rest of the ageing European countries. is among the five oldest countries in the world as highlighted in a previous report 1 and along with the other Nordic countries, it has to bear the burden of its ageing population. Nordic Demographic Comparisons The Nordic countries have smaller population sizes compared to the G6 countries (France, Germany, Japan, Italy, US and UK) as shown in Exhibit 1. The most populous Nordic country,, has a population that is nearly 15% that of Italy. In the 198 s, the population growth rates of the Nordic countries were very low; even had a declining population in Since then, there has been an uneven pattern of population growth as shown in Exhibit 2. The population growth rates today are higher than those in , except in, where population growth rates were.51% in and are.28% in For , has the highest projected population growth rate (.69%) followed by (.56%). This relatively high population growth can be attributed to both high immigration rates and high birth rates. Exhibit 1: Population, 21: Nordic countries vs. G6 Millions Rate per annum (%) Exhibit 2: Uneven pattern of population growth rate % 1.% 25.8% 2.6% Italy UK France Germany Japan US.4%.2%.% -.2% Source: UN, Credit Suisse Source: UN, Credit Suisse The Nordic countries experienced an earlier decline in fertility rates than many other European countries, but the decline has stabilized or reversed since the mid-198s. Currently, the total fertility rates are higher than the G6 average of 1.7 children per woman and the European average of 1.53 children per woman, although still below the replacement rate of 2.1 children per woman. has the highest fertility rate followed by in (as shown in Exhibit 3). The welfare state model and the family-friendly policies in these countries have contributed to improvements in fertility rates, especially considering the high participation rates of women in the labour force as we discuss later. 1 Credit Suisse Demographics Research, Macro Fiscal Sustainability to Micro Economic Conditions of the Old in the Oldest Five Countries, 211 Demographic Spotlight on the Nordic Countries 2

3 9 September 211 Exhibit 3: Total fertility rate (rising) Children per woman Exhibit 4: Life expectancy at birth (rising) Years Replacement Rate: Li Source: UN, Credit Suisse Source: UN, Credit Suisse The Nordic countries have historically enjoyed high life expectancy levels. In , leads the group with the highest life expectancy at birth, very similar to the level in France, while has the lowest life expectancy (Exhibit 4). The life expectancy in the Nordic countries is in general higher than the European average of 76.5 years. The extent of population ageing is reflected in high old age dependency ratios. All these Nordic countries except have an old age dependency ratio greater than the European overall of has a particularly high ratio of 28 as shown in Exhibit 5, higher than the levels of the US (2), the UK (25) and France (26). In fact, is the fourth oldest country in the world when measured in terms of its old age dependency ratio 2. Exhibit 5: Old age dependency ratio Ratio of population aged 65+ per 1 population Source: UN, Credit Suisse The old age dependency ratio increased in and, however declined in from 198 to 21. The migration patterns in the Nordic countries are shown in Exhibit 6, which decomposes overall population growth into natural population growth (i.e., births minus deaths) and net migration (inward migration less emigration). We note that s population growth was negative in as deaths exceeded births and immigration was small. Recent immigration levels are high and contributed 69% to the overall population increase in in , and have also experienced strong immigration flows, the highest being in Immigration contributed 6% to the overall population increase in, 66% in and 76% in over the period. 2 Please see footnote on previous page referencing our report on the "Oldest Five" countries of the world. Demographic Spotlight on the Nordic Countries 3

4 9 September 211 Exhibit 6: Natural population change and net migration: Migration has strong effects In thousands Natural Population Change Net Migration Source: UN, Credit Suisse GDP and GDP per capita- Demographic Drivers The GDP levels of the Nordic countries are much lower than for all the G6 countries (Exhibit 7) as they are smaller countries in terms of population size (shown in Exhibit 1). However they have amongst the highest levels of GDP per capita. We compare the GDP per capita of the Nordic countries to those of G6 countries (US, Japan, France, Germany, UK, Italy) in Exhibit 8., and have GDP per capita higher than all G6 countries and GDP per capita of is just below that of the US. The GDP per capita is relatively high in part due to their smaller populations. Hence, it is important to consider both overall GDP as well as population in order to evaluate economic size as well as individual wellbeing. Exhibit 7: GDP (21): Nordic countries & G6 Current prices, Billions of USD Source: IMF, Credit Suisse Italy UK France Germany Japan US Exhibit 8: GDP per capita (21): Nordic countries & G6 Current prices, Thousands of USD Italy UK Germany France Japan US Source: IMF, Credit Suisse Demographic Spotlight on the Nordic Countries 4

5 9 September 211 a) Demographic decomposition of real GDP growth: A growth accounting framework, explained in an earlier report 3, helps decompose GDP growth into growth factors that reflect changes in the labour force structure. Exhibit 9: Real GDP Growth Decomposition in the Nordics Percent per annum Working Age Population Growth Labour Productivity Growth Labour Utilization Growth Real GDP Growth = 3.6% % % Real GDP Growth = 2.7% 3.5% % Real GDP Growth = 2.% % 2.1% Real GDP Growth = 1.8% % % Source: UN, GGDC, Credit Suisse Demographics Research Exhibit 9 displays the demographic decomposition of real GDP growth into the following components: Working-age population growth (population aged years) Labour-productivity growth (real GDP/hours worked) Labour-utilization growth (hours worked/working-age population) We note that labour productivity growth has been a major factor contributing to GDP growth in the Nordic countries. Working age population growth also has had a positive influence on GDP growth in Nordic countries. The projected decline of working age population growth in the future (with, and being negative) could potentially have a negative or adverse effect on GDP growth. 3 Credit Suisse Demographics Research, A demographic perspective of economic growth, 29 Demographic Spotlight on the Nordic Countries 5

6 9 September 211 b) Demographic Dividend The Demographic Dividend theory (coined by Bloom and Canning) is a theory that attributes part of GDP per capita growth of countries to demographic factors. The First Dividend arises from higher participation of the population in the labor force. It occurs when fertility rates decrease, leading to fewer young people to be fed. During this stage, the labor force temporarily grows more rapidly than the dependent population, which frees up resources for investment in family welfare and economic development. This leads to a rapid growth in per capita income. It typically lasts for decades, but is transitory in nature. Later, with the onset of faster population aging, the share of population in the working ages declines and population growth outstrips labor force growth; consequently per capita income grows more slowly. The realization of the first dividend for a country or a region is contingent on how wages, labor force participation rates and unemployment are affected by the rapid working age population growth that leads to the initial prospect of the first dividend. The Second Demographic Dividend arises as a response to the challenge of population aging. A key economic challenge for aging populations is to provide consumption for the old who have substantially reduced labor income. Anticipated increases in the share of the population concentrated in the retirement ages induce individuals, firms and governments to accumulate capital, which can translate into productivity growth. If the capital is invested in the domestic economy, the result will be capital deepening and more rapid growth in output per worker. If the capital is invested abroad, the result will be an improvement in the current account and an increase in national income. In either case, per capita income will grow more rapidly than it would otherwise. The second dividend is not transitory in nature, as population ageing may produce a permanent increase in capital and thus per capita income. The size of the dividends depends on trends in population structure, how much people produce and consume at each age, how a society supports its elderly, and hence how much capital is accumulated. The first dividend yields a transitory bonus, whereas the second dividend transforms that bonus into greater assets and sustainable development. The realization of the dividends depends on the effectiveness of policy implementation. Andrew Mason in his 25 4 paper calculated the value of the demographic dividends. The first demographic dividend started in in 1965, in and in 1975, and in in 198. It lasted for two or three decades. During 197-2, the size of the first dividend was small in these countries, especially in. The second dividend was the highest in, and negative in (Exhibit 1). Exhibit 1: Demographic Dividends: Contribution to growth in GDP/N 197-2, rate per annum First Dividend Second Dividend Total Year First Dividend Started Year First Dividend Ended Source: Andrew Mason, Credit Suisse Note: GDP/N- actual growth in GDP per effective consumer, 197-2, in percent per year. The effective no. consumer is the no. of consumers weighted for age variation in consumption needs. 4 Andrew Mason, "Demographic Transition and Demographic Dividends in Developed and Developing Countries", 25 Demographic Spotlight on the Nordic Countries 6

7 9 September 211 Labour force trends There is a need to increase labour force participation rates for the older workers and encourage people to work longer to bear the burden of the ageing population in these countries 5. As Exhibit 11 shows, effective retirement ages 6 (age when people actually retire) in, and are below the respective official retirement ages for men. The gap between effective and official retirement age for men is as high as 3.2 years in. Only in, men work longer than the official retirement ages. Effective retirement ages for women are lower than the official retirement ages for all Nordic countries. While this practice is currently sustainable, it is not so for the future without accompanying reforms in labour markets, pensions, health and taxes. Exhibit 11: Average effective age of retirement versus the official age Years Men Effective (24-29) Official (21) Women Effective (24-29) Official (21) OECD-34 average OECD-34 average In, there is a drop of 42.3% (from 83.8% to 41.4%) in economic activity rates while going from the age group to the 6-64 age group, and a further drop of 34.4% (from 41.4% to 7.1%) while going from the 6-64 age group to 65+ age group (Exhibit 12). The drop in economic activity rates beyond 55 years of age in each five-year group is similarly observed in. In and, however, the drop from the age group to the 6-64 age group is much smaller (only 18.8% in and 16.% in ). The data suggest that older workers retire later in these two countries. Exhibit 12: Economic activity rates by age, 21: Activity rates drop drastically 55+ onwards Percent Source: ILO, Credit Suisse Exhibit 13: Gap between male and female economic activity rates, 21 Percent Men 65 Women Source: ILO, Credit Suisse 5 A point we highlighted in our demographics launch publication addressed to policy makers and investors in ageing developed countries. See Credit Suisse Research (2) "The Demographic Manifesto: New Jobs, New People". 6 Technically, the average effective age of retirement is the average effective age at which older workers withdraw from the labour force. It is calculated as a weighted average of (net) withdrawals from the labour market at different ages over a five-year period for workers initially aged 4 and over. Demographic Spotlight on the Nordic Countries 7

8 9 September 211 The Nordic countries have done well in maintaining a low gap between male and female participation rates (Exhibit 13). The gaps in these countries are in the range of 8% to 1%, lower than those within the Europe overall of 14.3%. The economic dependency ratio measures the number of non-workers per worker in the total population. A number greater than one means that there are more non-workers in the economy than the workers to support them. The Nordic countries have levels below one and even below the European average (Exhibit 14). In future though, there is a danger of this ratio increasing to greater than one as the population ages, as we see did happen in in 198. Exhibit 14: Economic dependency ratio in Nordic countries lower than one Number of non workers per worker Europe (total) Source: ILO, Credit Suisse Exhibit 15 displays the unemployment trends in the Nordic countries, which reflect a combination of cyclical influences over the business cycle as well as structural factors such as labour market norms as well as the underlying demographics. Potential labour force numbers typically trail population numbers by 2 or so years in the Nordics as the typical worker enters the labour force with more years spent in education. Exhibit 16 displays the labour force growth rate in these countries and there also exist differences, reflecting the structure of the economy as well as its demographics. Exhibit 15: Unemployment rates % of civilian labour force Rate per annum (%) Exhibit 16: Labour force growth Source: ILO, Credit Suisse Demographic Spotlight on the Nordic Countries 8

9 9 September 211 Pensions and Health There are differences in the life expectancy after pensionable age for men in (16.4 years), (16.8 years), (15.7 years) and (17.9 years). In addition, there are also differences in conditional life expectancy, i.e., life expectancy at age 65 and age 8 as shown in Exhibit 17 and Exhibit 18. Each additional year lived past retirement becomes more expensive for retirees across all countries with expensive health care and long-term care, irrespective of who pays for it. Exhibit 17: Life expectancy at 65, 29 Exhibit 18: Life expectancy at 8, 29 Years Years Males Females Males Females We discuss below two measures of pension generosity within public pension systems. The gross replacement rate shows the level of pensions in retirement relative to earnings when working. For workers with average earnings, the gross replacement rate averages 57% in the 34 OECD countries. Gross pension wealth measures the total value of the lifetime flow of retirement incomes. For average earners, the gross pension wealth is 9.6 times annual earnings on average in OECD countries. The figure is higher for women because of their higher life expectancy. Gross pension retirement rates (Exhibit 19) and gross pension wealth (Exhibit 2) for the average earner are low in, and relative to the European average. The Danish pension system, however, is relatively more generous measured by its high levels of gross pension replacement rates and pension wealth for men and women. Exhibit 19: Gross pension replacement rates for the average earner (28) Gross pension entitlement divided by gross pre retirement incomes EU Exhibit 2: Gross pension wealth for the average earner (28) Gross pension wealth is the total value of lifetime flow of pension incomes. It is measured as a multiple of gross annual individual earnings Men Women EU Demographic Spotlight on the Nordic Countries 9

10 9 September 211 The health expenditure per capita data measured in PPP USD terms for the four Nordic countries are shown in Exhibit 21. ranks the highest and the lowest. Total health expenditure as a share of GDP is highest in at 11.5% and lowest in at 9.2% in 29 (Exhibit 22). Public health expenditure is high in all four countries, especially (9.8%). We expect the share of private health expenditures to increase in the future if the governments do not manage to ensure the same level and quality of benefits that the older citizens and retirees have become acquainted with and accustomed to. Exhibit 21: Health expenditure per capita, 29 Exhibit 22: Health expenditure (% of GDP), 29 USD PPP 5352 Public 9.8 Private 1.7 Total: A large share of the population is living on sickness and disability benefits in the four Nordic countries. The percentage of disability benefit recipients in 28 within the 2-64 aged population was 1.3% in and, 8.5% in, and 7.2% in. These shares are much higher than the OECD average of 5.7% (Exhibit 23). In fact, many people of working age who are able to work relied on sickness benefits as their main source of income. This further adds to the fiscal burden in these countries. For example, expenditures on disability and sickness benefits account for 4.8% of GDP and 23% of public social spending in, and 3.6% of GDP and 13% of public social spending in in 27. Exhibit 23: Disability benefit recipients % of population aged OECD average Age related expenditure increases in the Nordic countries strain their public finances and need to be considered by policy-makers as well as investors in order to gauge the sustainability in the medium- to long-term. In Exhibit 24, we present the projections of age related expenditure increases from the European Commission s 29 Aging Report 7. This 7 Credit Suisse Demographics Research (21) "A Demographic Perspective of Fiscal Sustainability: Not Just the Immediate Term Matters" and European Commission, Sustainability Report 29 Demographic Spotlight on the Nordic Countries 1

11 9 September 211 report assumes that social protection arrangements remain unchanged in the future and that nearly all government revenues and non-age related expenditures stay constant as a share of GDP. We note that the projected increases in pension spending in and are higher than the corresponding European average and that for few major European countries. However, the projected increases in health care expenditures are lower in Nordic countries compared to the European average and countries such as UK and Germany. Exhibit 24: Age related expenditure components Percent of GDP Country Pensions Health Care Long-term Care Level in Change from 27 Level in Change from 27 Level in Change from to: 27 to: 27 to: UK Germany Italy France EU Source: European Commission, Credit Suisse Quality of Life: the Human Development Index The Human Development Index (HDI) is a summary composite index that measures a country's average achievements in three basic aspects of human development: health, knowledge, and income. The education component of the HDI is measured by mean of years of schooling for adults aged 25 years and expected years of schooling for children of school-going age. Mean years of schooling is estimated based on duration of schooling at each level of education. Expected years of schooling estimates are based on enrollment by age at all levels of education and population of official school age for each level of education. The education index is the geometric of two indices. Health is measured using life expectancy at birth component. The decent standard of living component is measured by GNI per capita (PPP US$) instead of GDP per capita (PPP US$) The HDI uses the logarithm of income to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean. Exhibit 25 shows the HDI rankings and levels for the Nordic countries and the G6 countries. The levels of individual components that make up the HDI are also presented. We note that has the highest ranking in terms of quality of life measured by HDI and, and also rank among the top 2. Demographic Spotlight on the Nordic Countries 11

12 9 September 211 Exhibit 25: Human Development Index and its components HDI Rank VERY HIGH HUMAN DEVELOPMENT HDI Value Life expectancy at birth (years) Mean years of schooling (years) Expected years of schooling (years) GNI per capita (PPP 28$) HDI Value , United States , , Germany , Japan , France , , , Italy , United Kingdom ,87.74 Source: UNDP, Credit Suisse Expected years of schooling: Number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age-specific enrollment rates were to stay the same throughout the child s life. Marriage and Family Size Marriage rates have declined in the four Nordic countries in the past decades, though they are currently above the OECD average. In addition, people are delaying marriage and child bearing. The average age of first marriage for men and women has increased by around 6-8 years from 198 to 28, as shown in Exhibit 26. Exhibit 26: Average age of first marriage increasing Years Exhibit 27: Distribution of households by size Share of total households Men Source: UNECE, Statistics, Credit Suisse Women Source: Euromonitor, Credit Suisse We also note that the extent of delay in child bearing has not been as much as the delay in marriage. For example, the average age of first marriage surpassed the average age of first birth for women in at around 1995, and on average, Finnish women gave birth to their first child two years before their first marriage in % of births occurred outside marriage in in 21, and the rate was even higher in at 55% in 28. This reflects the declining role of marriage and increase in cohabitation of partners. Demographic Spotlight on the Nordic Countries 12

13 9 September 211 Consequently, households have grown smaller in these countries. As shown in Exhibit 27, the share of one-person households increased from 29% to 39% in, from 26% to 39% in, from 28% to 4% in, and from 33% to 47% in during Similarly, the share of two-person households also increased (except in ), while three-person, four-person and five-plus-person households all declined in the four countries. Conclusions This report presents a summary of the core demographic indicators of the Nordic region. We present trends over the last three decades and also demonstrate the macro linkages of the demographic factors to explaining GDP growth, GDP per capita growth as well as public finances within these affluent and liberal small economies. We show the role of migration in influencing population growth within these countries. We highlight aspects of the labour market, the pension system and benefits (health as well as disability) and highlight that multi-pronged reform across pensions, health, labour markets and taxes is essential for fiscal sustainability in the medium- to long-term. A key aspect that we highlight briefly is how families have changed due to marriage, childbearing and other changes. Decreased family sizes have implications across all sectors and all asset classes as we have maintained in previous research. References Andrew Mason, Demographic Transition and Demographic Dividends in Developed and Developing Countries (25) Credit Suisse Research, Macro Fiscal Sustainability to Micro Economic Conditions of the Old in the Oldest Five Countries (211) Credit Suisse Research, A Demographic Perspective of Fiscal Sustainability: Not Just the Immediate Term Matters (21) Credit Suisse Research, A Demographic Perspective of Economic Growth (29) Credit Suisse Research, New Jobs, New People The Demographic Manifesto (2) European Commission and Economic Policy Committee 29 Ageing Report: Economic - and budgetary projections for the EU-27 Member States (28-26)', European Economy, (29) Demographic Spotlight on the Nordic Countries 13

14 GLOBAL DEMOGRAPHICS & PENSIONS RESEARCH Eric Miller, Managing Director Global Head of Fixed Income and Economic Research LONDON Amlan Roy, Managing Director amlan.roy@credit-suisse.com Sonali Punhani, Analyst sonali.punhani@credit-suisse.com Liyan Shi, Analyst liyan.shi@credit-suisse.com

15 Disclosure Appendix Analyst Certification Amlan Roy, Sonali Punhani and Liyan Shi each certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. Disclaimer References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse AG operating under its investment banking division. For more information on our structure, please use the following link: This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ( CS ) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR s, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS s own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS s website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority ( FSA ). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Securities Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. This material is not for distribution to retail clients and is directed exclusively at Credit Suisse's market professional and institutional clients. Recipients who are not market professional or institutional investor clients of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm s length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. Copyright 211 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay purchase price only.