Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

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5th Edition of the Vlerick Chief Economists Debate - 28/01/2014 - Mr. Peter Vanden Houte: Chief Economist, ING - Mr. Edwin De Boeck: Chief Economist, KBC Bank - Mr. Frank Lierman: Chief Economist, Belfius - Mr. Bart Van Craeynest: Chief Economist, Petercam

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PowerPoint Presentation

5th CHIEF ECONOMIST DEBATE: 2014 RECOVERY OR NEW BUBBLE?

Theme I: International Environment - Peter Vanden Houte: Chief Economist, ING Theme II: Europe's Challenges - Frank Lierman: Chief Economist, Belfius Theme III: Major Challenges of the Belgian Economy - Edwin De Boeck: Chief Economist, KBC Bank Theme IV: Financial Markets Outlook-Bart Van Craeynest: Chief Economist, Petercam Q&A

Moderator - Alain Deneef: Senior Portfolio Manager, Private Banking, Bank Degroof

Networking Reception28 January 2014

Vlerick Finance Alumni partner:

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INTERNATIONAL ENVIRONMENT

Peter Vanden HouteChief Economist, ING

Vlerick Finance Alumni partner:

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2014: Walking on eggshells

Peter Vanden HouteChief Economist ING Belgium

1/28/2014

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Western world recovering, emerging countries lagging

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US

Eurozone

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US government was a drag on growth

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Debt payments US households have fallen back strongly

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US construction sector continues to boom

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Shale gas remains a game changer

Gas price Europe

Gas price US

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Shale oil is making energy market less tight

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No Fed hike expected in 2014

The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal

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but what about 2015?

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US yield curve will steepen in the course of 2014

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Emerging world remains vulnerable

Hungary

Ukraine

Poland

India

Thailand

Malaysia

Philippines

Colombia

Brazil

Indonesia

Turkey

China

Russia

Romania

South Africa

Mexico

Chile

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0

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-2

0

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Weak credit

Too much credit

Capital surplus

Capital shortage

Real credit growth in excess of GDP growth, average, 2010-12 (percent)

Average currentaccount balance 2010-12 (percent of GDP)

Source:IMF

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Chinese economy is stabilizing

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EUROPES CHALLENGES

Frank LiermanChief Economist, Belfius

Vlerick Finance Alumni partner:

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More or less inflation in the euro area? Thats the question!

Frank Lierman, Chief EconomistVlerick Finance AlumniBrussels, January 28, 2014

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More than a bottoming out?Towards deflation?Social pack as missing link?Banking Union, the ultimate solution?

More or less inflation in the euro area? Thats the question!

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More than a bottoming out?Towards deflation?Social pack as missing link?Banking Union, the ultimate solution?

More or less inflation in the euro area?Thats the question!

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1. More than a bottoming out?

Increased confidence, prelude for economic rebound?

Euro Area

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1. More than a bottoming out?

Consumer spending as driving force?

Euro Area

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1. More than a bottoming out?

Turnaround of industrial production?

Euro Area

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1. More than a bottoming out?

International trade crucial for sustainable recovery?

Euro Area

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1. More than a bottoming out?

Ceiling for unemployment in euro area, decrease elsewhere

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1. More than a bottoming out?

Sustainable decrease of public deficit?

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1. More than a bottoming out?

Worrying increase of government debt

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More than a bottoming out?Towards deflation?Social pack as missing link?Banking Union, the ultimate solution?

More or less inflation in the euro area?Thats the question!

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2. Towards deflation?

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Inflation on the way to 0%?

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2. Towards deflation?

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Underlying inflation decreases also

Belgium

Euro area

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2. Towards deflation?

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Money supply decreases even in a LTROs environment

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2. Towards deflation?

Accelerated decrease of LTROs due to reimbursement of banks

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2. Towards deflation?

Disappointing evolution of credit to the economy (% / year)

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2. Towards deflation?

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Lower energycost is welcome

Belgium

Euro area

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2. Towards deflation?

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Stagnation of oil price between 100 and 120 USD/Barrel

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2. Towards deflation?Remarkable strength of euro

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More than a bottoming out?Towards deflation?Social pack as missing link?Banking Union, the ultimate solution?

More or less inflation in the euro area?Thats the question!

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3. Social pack as missing link?

German unemployment at bottom, while other countries reached a ceiling

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3. Social pack as missing link?

Increasing and or huge unemployment is often linked to

Too high fiscal burdenHigh employers and personal contributionsExpensive rules of lay offsInflexible wage negotiationsLow qualification of workersLow employment rateShort careers

But also influence of Overcapacity of production equipmentInsufficient internal demandNecessity to reduce debt of householdsIncreased precautionary savings of householdsDecreased competitiveness

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3. Social pack as missing link?

Key success factors for a reform

Limitation of unemployment allowances Decrease or at least slower increase of salaries Decrease of fiscal and parafiscal burden on labour revenuesReduction of employment in public sectorIncreased flexibility Active employment policy Activation of unemployed peopleEducation and trainingPremiumsSubsidised employment

Measures to stimulate the creation of companies

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3. Social pack as missing link?

The European 7 stages plan to reduce youth unemployment

Employment guarantee (within 4 months after school leave or start unemployment)European Social Fund and European Structural and Investment Fund: 25% of their capital (80 bn EUR) to invest in human capitalInitiatives to stimulate employment for youth: 6 bn EUR in 2014 and 2015Stimulation of mobility within EU via European Employment NetworkEuropean alliance for trainings, Erasmus+, European labour market via transfer of pension rights, professional qualifications, rights of mobile workers, Help to SMEs and micro companies to hire young persons via European Regional Development Fund, EIB (yearly budget of 12,5 bn EUR which could increase up to 37,5 bn EUR via co financing and indirect credits)

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More than a bottoming out?Towards deflation?Social pack as missing link?Banking Union, the ultimate solution?

More or less inflation in the euro area?Thats the question!

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4. Banking Union, the ultimate solution?

Three pillars

European prudential surveillanceECB from November 2014 onAssessment of broad risk factors on liquidity and funding (Winter 2014)Asset Quality Review (Spring 2014)Stress test (Summer 2014)Only for some 130 of the 6000 European banks (85% of euro area banking systems) (min 30 bn EUR or balance sheet of more than 20% of GDP or having received state aid)Forced recapitalisation: who pays the bill?National governmentPrivate shareholdersESM ?

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4. Banking Union, the ultimate solution?

Three pillars (2)

European resolution mechanism and fundEach bank has to prepare recovery planEuropean resolution council (EC, ECB, national surveillance authorities)Resolution fund: 1% of covered deposits via contributions of banks (up to 2026) (goal 55 bn EUR)Resolution mechanism: steps8 % of liabilities (equity capital, reserves, unsecured bonds, deposits above 100.000 EUR)National resolution fundEuropean resolution fundESMNational budgets

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4. Banking Union, the ultimate solution?

Three pillars (3)

European deposit guarantee100.000 euro per individual per bankCurrent, saving and term accounts plus saving bondsNational funds (0,8% of covered deposits)Merger of the national funds in 2026.

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MAJOR CHALLENGES OF THE BELGIAN ECONOMY

Edwin De BoeckChief Economist, KBC Bank

Vlerick Finance Alumni partner:

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Major challenges of the Belgian economy

Edwin De BoeckChief Economist KBC GroupJanuary 28th 2014

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28/01/2014

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Real GDP Q4 2007 Q3 2013 (% change)

Employment Q4 2007 Q3 2013 (% change)

Financial & economic crisisBelgium weathered the crisis reasonably well

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Ma