vlerick alumni: 5th edition of the vlerick chief economists debate

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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 Reception 28 January 2014 Vlerick Finance Alumni partner:

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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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Page 1: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

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 Reception

28 January 2014Vlerick Finance Alumni partner:

Page 2: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

INTERNATIONAL ENVIRONMENT

Peter Vanden HouteChief Economist, ING

Vlerick Finance Alumni partner:

Page 3: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

2014: Walking on eggshells Peter Vanden Houte

Chief Economist ING Belgium

Page 4: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

Western world recovering, emerging countries lagging

Source: Thomson Reuters Datastream / ING

OECD leading indicator

2009 2010 2011 2012 201394

96

98

100

102

104

EMUBrazilChinaUnited StatesRussian FederationIndia

4

USEurozone

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

5

US government was a drag on growth

Source: Thomson Reuters Datastream,ING

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

100

105

110

115

120

100

105

110

115

120

Rebase GROSS OUTPUT OF GENERAL GOVERNMENT, VALUE ADDED : United States…Rebase GROSS VALUE ADDED - GDP, BUSINESS (AR) : United States to 100

Page 6: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6

Debt payments US households have fallen back strongly

Page 7: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

US construction sector continues to boom

7

Source: Thomson Reuters Datastream

04 05 06 07 08 09 10 11 12 13 140

10

20

30

40

50

60

70

80

300

400

500

600

700

800

900

1Y lag of NATIONAL ASSOCIATION OF HOME BUILDERS HOUSING MARKET INDEX : U…RESIDENTIAL PRIVATE DOMESTIC INVESTMENT (AR) : United States (RH Scale)

Page 8: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

8

Shale gas remains a game changer

Source: Thomson Reuters Datastream,ING

Natural gas prices in EUR2008=100

2008 2009 2010 2011 2012 20130

20

40

60

80

100

120

140

0

20

40

60

80

100

120

140

Rebase London Natural Gas Index P/Therm (EUR) to 100Rebase Natural Gas, Henry Hub U$/MMBTU (EUR) to 100

Gas price Europe

Gas price US

Page 9: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

9

Shale oil is making energy market less tight

Source: Thomson Reuters Datastream

2007 2008 2009 2010 2011 2012 2013 2014 20150

1000

2000

3000

4000

5000 20

40

60

80

100

120

140

160

SURPLUS PRODUCTION CAPACITY - CRUDE OIL : OPECCrude Oil-Brent Cur. Month FOB U$/BBL (RH Scale)

Page 10: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

10

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

Page 11: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

…but what about 2015?

Source: Thomson Reuters Datastream

1985 1990 1995 2000 2005 20101.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

2

4

6

8

10

12

1Y % change of AVG HRLY EARN - TOTAL PRIVATE NONFARM : United StatesUS FEDERAL FUNDS TARGET RATE (RH Scale)

11

Page 12: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

US yield curve will steepen in the course of 2014

Source: Thomson Reuters Datastream

96 98 00 02 04 06 08 10 12 14-2

-1

0

1

2

3

4

-2

-1

0

1

2

3

4

US TREAS.BENCHMARK BOND 10 YR (DS)-US FEDERAL FUNDS TARGET RATE

12

Page 13: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

13

Emerging world remains vulnerable

Hungary

UkrainePoland

India

Thailand

Malaysia

Philippines

ColombiaBrazil

Indonesia

Turkey

China

Russia

RomaniaSouth Africa

Mexico

Chile

-10

-8

-6

-4

-2

0

2

4

6

8

10

-8 -6 -4 -2 0 2 4 6 8 10 12 14 16

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

Page 14: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

14

Chinese economy is stabilizing

Source: Thomson Reuters Datastream,ING

Electricity consumption & cars sales in China

2009 2010 2011 2012 2013-10

0

10

20

30

40

50

-40

-20

0

20

40

60

80

100

120

1Y % change of ELECTRICITY CONSUMPTION (CMLV) : China1Y % change of SALES - PASSENGER CARS : China (RH Scale)

Page 15: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

EUROPE’S CHALLENGES

Frank LiermanChief Economist, Belfius

Vlerick Finance Alumni partner:

Page 16: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

More or less inflation in the euro area? That’s the question!

Frank Lierman, Chief Economist

Vlerick Finance Alumni

Brussels, January 28, 2014

Page 17: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

1. More than a bottoming out?

2. Towards deflation?

3. Social pack as missing link?

4. Banking Union, the ultimate solution?

More or less inflation in the euro area? That’s the question!

17

Page 18: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

1. More than a bottoming out?

2. Towards deflation?

3. Social pack as missing link?

4. Banking Union, the ultimate solution?

More or less inflation in the euro area?That’s the question!

18

Page 19: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

19

1. More than a bottoming out?

Increased confidence, prelude for economic rebound?

Euro Area

19

00 01 02 03 04 05 06 07 08 09 10 11 12 13-6

-4

-2

0

2

4

6

60

70

80

90

100

110

120

Euro Area Economic Sentiment Indicator (Right)Euro Area GDP (% YoY) (Left)

Page 20: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

20

1. More than a bottoming out?

Consumer spending as driving force?

Euro Area

20

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-5

-4

-3

-2

-1

0

1

2

3

4

-40

-35

-30

-25

-20

-15

-10

-5

0

5

Euro Area Retail trade, except of motor vehicles and motorcycles (MOV 3M, % 1 YR) (Left)Euro Area Consumer Confidence Indicator (Right)

Page 21: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

21

1. More than a bottoming out?

Turnaround of industrial production?

Euro Area

21

00 01 02 03 04 05 06 07 08 09 10 11 12 13-30

-25

-20

-15

-10

-5

0

5

10

15

20

68

70

72

74

76

78

80

82

84

86

Euro Area Capacity Utilization (%) (Right)Euro Area Industrial Production (% YoY) (Left)

Page 22: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

22

1. More than a bottoming out?

International trade crucial for sustainable recovery?Euro Area

22

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-20

-15

-10

-5

0

5

10

15

Euro Area Exports of goods & services (% YoY) Euro Area Imports of goods & services (% YoY)

Page 23: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

23

1. More than a bottoming out?

Ceiling for unemployment in euro area, decrease elsewhere

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '133

4

5

6

7

8

9

10

11

12

13

Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Euro Area Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - United Kingdom Unemployment Rate, Sa - United States Unemployment Rate, Sa - Japan

Page 24: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

24

1. More than a bottoming out?

Sustainable decrease of public deficit?

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-7

-6

-5

-4

-3

-2

-1

0 Governm ent Net Lending, As A Percentage Of Gdp - Euro Area

Page 25: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

25

1. More than a bottoming out?

Worrying increase of government debt

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '1365

70

75

80

85

90

95 General Governm ent Gross Debt, % Of Gdp, - Euro Area (17 Countries )

Page 26: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

1. More than a bottoming out?

2. Towards deflation?

3. Social pack as missing link?

4. Banking Union, the ultimate solution?

More or less inflation in the euro area?That’s the question!

26

Page 27: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

27

2. Towards deflation?

27

Inflation on the way to 0%?

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-1

-0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

Euro Area Harmonized CPI (% YoY) Euro Area Core inflation (Overall Index, Excluding Energy and Unprocessed Food) (% YoY)

Page 28: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

28

2. Towards deflation?

28

Underlying inflation decreases also

Onderliggende inflatie

0

0,5

1

1,5

2

2,5

2010

-08

2010

-10

2010

-12

2011

-02

2011

-04

2011

-06

2011

-08

2011

-10

2011

-12

2012

-02

2012

-04

2012

-06

2012

-08

2012

-10

2012

-12

2013

-02

2013

-04

2013

-06

2013

-08

2013

-10

2013

-12

België EurozoneBelgium Euro area

Page 29: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

29

2. Towards deflation?

29

Money supply decreases even in a LTRO’s environment

00 01 02 03 04 05 06 07 08 09 10 11 12 13-2

0

2

4

6

8

10

12

14

Euro Area Growth Rate M3 (% YoY; 3 Month Moving Average)

Page 30: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

30

2. Towards deflation?

Accelerated decrease of LTRO’s due to reimbursement of banks

Page 31: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

31

2. Towards deflation?

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

31

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-5

0

5

10

15

20

Euro Area Loans to Households (% YoY) Euro Area Loans To Non-Financial Corporations (% YoY)

Page 32: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

32

2. Towards deflation?

32

Lower energycost is welcome

Energiedragers

-10

-5

0

5

10

15

20

2010

-08

2010

-10

2010

-12

2011

-02

2011

-04

2011

-06

2011

-08

2011

-10

2011

-12

2012

-02

2012

-04

2012

-06

2012

-08

2012

-10

2012

-12

2013

-02

2013

-04

2013

-06

2013

-08

2013

-10

2013

-12

België EurozoneBelgium Euro area

Page 33: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

33

2. Towards deflation?

33

'85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '130

20

40

60

80

100

120

140

160 Crude Oil, Brent ($/bbl) - Close

Stagnation of oil price between 100 and 120 USD/Barrel

Page 34: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

34

2. Towards deflation?Remarkable strength of euro

34

'04 '05 '06 '07 '08 '09 '10 '11 '12 '131,1

1,2

1,3

1,4

1,5

1,6

1,7

FX Rate - Spot Mid - US Dollar per Euro

Page 35: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

1. More than a bottoming out?

2. Towards deflation?

3. Social pack as missing link?

4. Banking Union, the ultimate solution?

More or less inflation in the euro area?That’s the question!

35

Page 36: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

36

3. Social pack as missing link?

German unemployment at bottom, while other countries reached a ceiling

'04 '05 '06 '07 '08 '09 '10 '11 '12 '132

3

4

5

6

7

8

9

10

11

12

Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Germany Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Netherlands Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - France Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Belgium

Page 37: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

37

3. Social pack as missing link?

Increasing and or huge unemployment is often linked to Too high fiscal burden

High employers and personal contributions

Expensive rules of lay offs

Inflexible wage negotiations

Low qualification of workers

Low employment rate

Short careers

But also influence of

Overcapacity of production equipment

Insufficient internal demand

Necessity to reduce debt of households

Increased precautionary savings of households

Decreased competitiveness

Page 38: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

38

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 revenues

Reduction of employment in public sector

Increased flexibility

Active employment policy

Activation of unemployed people

Education and training

Premiums

Subsidised employment

Measures to stimulate the creation of companies

Page 39: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

39

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 capital

Initiatives to stimulate employment for youth: 6 bn EUR in 2014 and 2015

Stimulation of mobility within EU via European Employment Network

European alliance for trainings, Erasmus+, …

European labour market via transfer of pension rights, professional qualifications, rights of mobile workers, …

Help to SME’s 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)

Page 40: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

1. More than a bottoming out?

2. Towards deflation?

3. Social pack as missing link?

4. Banking Union, the ultimate solution?

More or less inflation in the euro area?That’s the question!

40

Page 41: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

41

4. Banking Union, the ultimate solution?

Three pillars

European prudential surveillance

ECB from November 2014 on

Assessment 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 government

Private shareholders

ESM

… ?

Page 42: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

42

4. Banking Union, the ultimate solution?

Three pillars (2)

European resolution mechanism and fund

Each bank has to prepare recovery plan

European 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: steps

8 % of liabilities (equity capital, reserves, unsecured bonds, deposits above 100.000 EUR)

National resolution fund

European resolution fund

ESM

National budgets

Page 43: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

43

4. Banking Union, the ultimate solution?

Three pillars (3)

European deposit guarantee

100.000 euro per individual per bank

Current, saving and term accounts plus saving bonds

National funds (0,8% of covered deposits)

Merger of the national funds in 2026.

Page 44: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

MAJOR CHALLENGES OF THE BELGIAN ECONOMY

Edwin De BoeckChief Economist, KBC Bank

Vlerick Finance Alumni partner:

Page 45: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

Major challenges of the Belgian economy

Edwin De BoeckChief Economist KBC Group

January 28th 2014

Page 46: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

46

Real GDP Q4 2007 – Q3 2013

(% change)

Employment Q4 2007 – Q3 2013 (%

change)

Financial & economic crisisBelgium weathered the crisis reasonably well

Germany

Austria

Belgium

France

EMU

Netherlands

Finland

Spain

Portugal

Ireland

Italy

Greece

-25 -20 -15 -10 -5 0 5 10 15 20 -25 -20 -15 -10 -5 0 5

Page 47: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

47

3909

7

3927

8

3946

2

3964

4

3982

8

4000

9

4019

3

4037

4

4055

8

4073

9

4092

3

4110

5

4128

9

4147

0

4162

3-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

3909

7

3927

8

3946

2

3964

4

3982

8

4000

9

4019

3

4037

4

4055

8

4073

9

4092

3

4110

5

4128

9

4147

0-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Belgium

Germany

Euro-periphery (*)

Marked improvement in sentimentModerate recovery in Belgium leading to +/-1.2% growth in 2014

(*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain

Producer confidence (standard deviation from LT-average)

Consumer confidence (standard deviation from LT-average)

Page 48: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

48

1960-73 1974-81 1982-89 1990-99 2000-120

1

2

3

4

5

6

Flanders

Wallonia

Brussels

Euro Area

Flanders loosing its growth advantage (regional GDP-growth, in

% per year, period averages)

Long-term potential growthEstimated at well below 2%

-4%

-2%

0%

2%

4%

6%

Belgium - Declining trend of productivity growth (GDP per worker, YoY-growth in %)

Page 49: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

49

5

7

9

11

13

15

6000

7000

8000

9000

10000

11000

12000

13000

Absolute number (rhs)Per 1000 active businesses (lhs)Ratio of new businesses to bankruptcies (lhs)

Still substantial slack in the economy Wave of unemployment & bankruptcies probably to continue for a while

Jan-0

7

Jul-0

7

Jan-0

8

Jul-0

8

Jan-0

9

Jul-0

9

Jan-1

0

Jul-1

0

Jan-1

1

Jul-1

1

Jan-1

2

Jul-1

2

Jan-1

3

Jul-1

32

4

6

8

10

12

14

16

18

20

22BelgiumFranceGermanyNetherlandsEuro-periphery (*)

Unemployment rate(harmonized and seasonally adjusted, in %)

Belgium - Bankruptcies

Page 50: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

50

1985

1990

1995

2000

2005

2013

2020

50

55

60

65

70

75

FlandersWalloniaBrusselsBelgium

Employment rate (employed people in % population aged 20-64)

EU2020 Strategy Belgium 73.2%

EU2020 Strategy Flanders 76%

1 2 3 4 5 6 7 8 9 10 11 120

0.5

1

1.5

2

2.5

1970

19751982

198519901995

2000

2005

2012

Both a large pool of unfilled job vacanciesand persistent unemployment

Unemployment rate (unemployed as a % labour force)

Job

vac

ancy

rat

e (u

nfi

lled

vac

anci

es a

s a

% l

abo

ur

forc

e)

Labour marketLabour mismatch hinders the increase in employment rate

Beveridge curve Belgium

Page 51: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

51

Current account balance (in % of GDP)

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-10

-8

-6

-4

-2

0

2

4

6

8

Germany

Euro-periphery (*)

Belgium

(*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

90

95

100

105

110

115

120

Devaluation BEF

Introduction ‘health index’

???

External position Deterioration of cost competitiveness…

Relative unit labour costs (vs. EU-15, 2005 = 100)

Page 52: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

52

20

25

30

35

40

45

19601965

19701975

19801985

19901995

20002005

201070

100

130

160

190

Flanders

Wallonia

Employment in manufacturing (2000 = 100)

Share manufacturing sector (including construction & energy, in

% of GDP)

Share manufacturing sector (excluding construction & energy, in % of GDP)

1995

1997

1999

2001

2003

2005

2007

2009

2011

13%

16%

19%

22%

25%

Belgium

Germany

Industrial activity …adds to the process of desindustrialisation

Page 53: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

53

2008

2009

2010

2011

2012

2013

2014

2015

2016

-4

-3

-2

-1

0

1

2

-1.8

0.6

00.3

1.00.75

1.25

0.75

0.4

-0.2

Realised balanceTarget Stability Program 2013-2016EC Autumn projection (no policy change)

Projected structural budget balance (in % of GDP)

Public financesFiscal consolidation has been ‘back-loaded’

Belgiu

m

Nether

lands

Irela

ndIta

ly

France

Spain

Portugal

0

1

2

3

4

5

6

Structural budget adjustments 2009-2013To be realised before 2016

Budgetary consolidation (structural effort, as a % of GDP)

Page 54: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

54

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

0%

2%

4%

6%

8%

10%

12%

Public pension and healthcare benefits

(in % of GDP)

Healthcare

Pensions

Belgium

Finland

Luxemburg

Netherlands

Austria

Denmark

Germany

Ireland

Sweden

France

UK

Greece

Spain

Italy

Portugal

-2 -1 0 1 2 3 4 5 6

Pensions

Other

Projected change of ageing-related expenditures

(in % of GDP, 2010-2030)

Source: Ageing Report, EC 2012

BelgiumAgeing strikes

Page 55: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

55

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

0%

2%

4%

6%

8%

10%

12%

Public pension and healthcare benefits

(in % of GDP)

Healthcare

Pensions

BelgiumAgeing costs - Worrying, but not (yet) unsustainable

Gross public debt in % of GDP after 2016 (Stability Program until 2016)

1970

1976

1982

1988

1994

2000

2006

2012

2018

2024

2030

2036

2042

2048

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

Scenario 1: primary surplus remains at 2016 level (+3.4% of GDP)

Page 56: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

56

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

0

20

40

60

80

100

120

140

Gross public debt

In % of GDP

In % net household wealth

50

100

150

200

250

300

350

400

450

500

550

Net household wealth (in % of GDP)

Net financial assets

Real estate

Total

BelgiumPoor government, wealthy households

Page 57: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

5720

09Q4

2010

Q2

2010

Q4

2011

Q2

2011

Q4

2012

Q2

2012

Q4

2013

Q295

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110Belgium (ECB-index)

Belgium (Eurostat-index)

Belgium (FOD-index)

EMU (Eurostat-index)

Recent property price development (all types of dwellings, 2011Q1 = 100)

40000

45000

50000

55000

60000

65000

70000

40000

60000

80000

100000

120000

140000

160000

180000Number of home sales (lhs)

New production of housing loans (rhs)

Housing market Sales transactions & new mortgages declining, prices not (yet) cooling off

Page 58: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

58

www.kbceconomics.be

Page 59: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

FINANCIAL MARKETS OUTLOOK

Bart Van CraeynestChief Economist, Petercam

Vlerick Finance Alumni partner:

Page 60: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

60/2521-09-2011

Titre de la présentation

Tuesday 28 January 2014

InstitutionalAsset Management

Vlerick Alumni Debate

Page 61: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6128-01-2014 | Petercam Macro Presentation |

Global recovery

Feb-95 Feb-97 Feb-99 Feb-01 Feb-03 Feb-05 Feb-07 Feb-09 Feb-11 Feb-13-15

-10

-5

0

5

10

15

96

97

98

99

100

101

102Global industrial production (annual change) OECD leading indicator (rhs)

Page 62: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6228-01-2014 | Petercam Macro Presentation |

An extended period of low bond yields

Dec-99 Dec-09 Dec-19 Dec-29 Dec-39 Dec-49 Dec-59 Dec-69 Dec-79 Dec-89 Dec-99 Dec-090

2

4

6

8

10

12

14

16

US bond yield

Page 63: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6328-01-2014 | Petercam Macro Presentation |

Financial repression

Business confidence

Page 64: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6428-01-2014 | Petercam Macro Presentation |

Recovering equity markets

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-1440

50

60

70

80

90

100

110

120

130US Europe EM

Index (start 2008 = 100)

Page 65: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6528-01-2014 | Petercam Macro Presentation |

Bubbles?

Dec-99 Dec-09 Dec-19 Dec-29 Dec-39 Dec-49 Dec-59 Dec-69 Dec-79 Dec-89 Dec-99 Dec-090

5

10

15

20

25

30

35

40

45

50Valuation S&P500 (Shiller PE)

US equities

Page 66: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6628-01-2014 | Petercam Macro Presentation |

Global equities still offer return potential

Jan-81 Jan-85 Jan-89 Jan-93 Jan-97 Jan-01 Jan-05 Jan-09 Jan-13-6

-4

-2

0

2

4

6

8

10

12

14 0

5

10

15

20

25

30

35

40

45

50

Return over the next 10y (annual average, in %)

MSCI World

Page 67: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6728-01-2014 | Petercam Macro Presentation |

Rotation towards equity

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13-600

-400

-200

0

200

400

600

800

1000

1200

1400

Equities Bonds

Investments of US mutual funds (cumulative, bn dollar)

67

Page 68: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6828-01-2014 | Petercam Macro Presentation |

Japanese equity is very much geared to global recovery

Page 69: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

6928-01-2014 | Petercam Macro Presentation |

Global asset class outlook

US Eq Euro Eq EM Eq JP Eq US Gov Euro Gov Euro Credit Euro HY0

5

10

15

20

25

30

6%

0.3%

17%

8%

19%

2.1%

1.8%

4.5%

Expected returns 2014

Returns in local currency

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70/2528-01-2014 | Petercam Macro Presentation |70

Bart Van CraeynestChief [email protected].: +32 (0)2 229 62 32

My blog:https://insights.petercam.com

Twitter: @BVanCraeynest

Petercam N.V.Sint Goedeleplein 19 1000 BrusselTel.: +32 (0)2 229 63 11Fax : +32 (0)2 229 65 98

Brussels – Frankfurt – London - Luxemburg - Madrid - Geneva

Page 71: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

INTERACTIVE DEBATE

Chief Economistsand Audience

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

Vlerick Finance Alumni partner:

Page 72: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate

THANK YOU

You are kindely invited to the networking reception

Vlerick Finance Alumni partner:

UPCOMING EVENTS

Career Testimonial Brussel PUB/MGM 30/01/2014Round table with Yves Leterme Brussel Vlerick Alumni 30/01/2014Pecha Kuncha - student event Gent Marketing 3/02/2014Marketing Shower: Customer Intelligence Tervuren Marketing 20/02/2014Buy your own company conference - ism Vlerick Business School Elsene VBS - Finance 27/02/2014Meet the CEO 2014 Brussel PUB/MGM 11/03/2014Platform for development Leuven MBA 12/03/2014Experience the future: Power of the Crowd’ Brussel PUB/MGM 26/03/2014

Page 73: Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate