The bank
for a changing
world
ECONOMIC RESEARCH DEPARTMENT
Summary of macroeconomic forecasts
GDP Growth
%
Advanced
Inflation
Curr. Account / GDP
2015
2016 e
2017 e
2015
2016 e
2017 e
1.9
1.4
1.3
0.3
0.7
1.5
Fiscal balances / GDP
2015
2016 e
2017 e
2015
2016 e
2017 e
United States
2.6
1.5
1.6
0.1
1.3
2.3
-2.5
-2.6
-2.7
-2.5
-3.1
-3.1
Japan
0.5
0.4
0.1
0.8
-0.2
0.5
3.3
3.6
3.2
-4.5
-4.3
-3.9
United Kingdom
2.2
1.6
0.7
0.1
0.6
2.4
-5.4
-5.9
-4.4
-4.1
-3.6
-4.4
Euro Area
1.9
1.5
1.1
0.0
0.2
1.0
3.2
2.9
2.7
-2.1
-2.1
-1.9
Germany
1.5
1.8
1.3
0.1
0.3
1.1
8.6
8.2
7.5
0.7
0.3
0.1
France
1.2
1.3
1.0
0.1
0.4
1.2
-0.2
-0.2
-0.4
-3.5
-3.4
-3.1
Italy
0.6
0.8
0.3
0.1
-0.1
0.9
2.2
2.2
2.1
-2.6
-2.8
-2.8
Spain
o tuga
3.26
3.10
1.9
-0.6
05
-0.4
08
1.2
1.4
08
1.2
06
1.0
0
-5.1
-4.69
-3.5
Emerging
4.1
4.2
4.9
5.9
6.5
5.5
China
6.9
6.6
6.3
1.4
2.0
2.2
3.1
2.6
1.9
-2.4
-3.0
-3.2
India
7.2
7.9
8.3
4.9
5.4
5.0
-1.3
-1.1
-1.3
-4.1
-3.9
-3.5
Brazil
-3.8
-3.0
2.0
9.0
8.8
5.0
-3.3
-1.0
-1.5
-10.3
-10.1
-9.4
Russia
-3.7
0.0
2.2
15.6
7.1
5.4
5.2
2.8
3.5
-2.4
-3.4
-2.2
World
3.1
3.0
3.3
3.5
4.0
3.8
Source : BNP Paribas Group Economic Research (e: estimates & forecasts)
In the US, the normalisation of the monetary policy has been put on hold for the time being pending the release of stronger data.
The rebound in oil prices has brought relief for the highly-leveraged shale oil sector The stabilisation of the dollar, better Chinese
data and a strong Q1 in the Eurozone reduce the pressure on the manufacturing sector However, pressure on corporate profits do
not bode well for business investment The US consumer remains key, hence the importance of the labour market and wage
evolution.
In the Euro area, the recovery is going on although we expect some moderation in 2017 due to the impact of rising inflation on
consumers’ purchasing power and of low demand from the UK on exports Yet, the immediate impact of the referendum was mild
and activity could surprise to the upside in the coming months Credit will continue to revive on the back of the ECB’s ultra-loose
monetary policy Core inflation will stay low but headline inflation will rapidly accelerate due to the energy inflation profile.
1
US GDP growth and composite ISM
▌GDP, q/q, ann. [L]
▬ M&N Index [R]
2
EMU GDP growth and composite PMI
▌GDP, q/q, ann. [L]
▬ PMI composite [R]
6%
65
4%
60
2%
55
0%
50
-2%
45
-2%
-4%
40
-4%
-6%
35
-6%
-8%
30
-8%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
55
2%
0%
50
45
40
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
Quarterly averages do not always tell the truth: both ISM surveys
are actually rebounding from their early-2016 lows..
economic-research.bnpparibas.com
60
4%
35
Despite some softening the composite PMI is still above the 50
barrier. It is too early to see the potential effects of the Brexit
vote.
Eco Charts
07 November 2016
1
The bank
for a changing
world
Summary of financial forecasts
Interest rates
End of period, %
$
€
£
Y
Q3
Q4e
######## ######## ########
Q1e
Q2e
Q3e
Q4e
2015
2016e
2017e
Q2
Fed Funds
0.50
0.50
0.50 0.50-0.75 0.50-0.75 0.50-0.75 0.50-0.75 0.50-0.75
0.50 0.50-0.75 0.50-0.75
Libor 3m $
0.63
0.65
0.85
0.85
0.90
0.90
0.95
0.95
0.61
0.85
0.95
T-Notes 10y
1.79
1.49
1.61
1.60
1.60
1.55
1.55
1.50
2.27
1.60
1.50
ECB "Refi"
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.05
0.00
0.00
Euribor 3m
-0.24
-0.29
-0.30
-0.30
-0.30
-0.30
-0.30
-0.30
-0.13
-0.30
-0.30
Bund 10y
0.16
-0.13
-0.19
-0.20
-0.20
-0.20
-0.20
-0.20
0.63
-0.20
-0.20
OAT 10y
0.41
0.20
0.12
0.10
0.20
0.10
0.10
0.10
0.98
0.10
0.10
BTP 10y
1.23
1.35
1.19
0.90
0.90
0.90
0.80
0.80
1.60
0.90
0.80
BoE Base rate
0.50
0.50
0.25
0.10
0.10
0.10
0.10
0.10
0.50
0.10
0.10
Gilts 10y
1.42
1.02
0.76
0.65
0.65
0.65
0.70
0.80
1.96
0.65
0.80
BoJ Ov ernight
-0.00
-0.06
-0.06
-0.10
-0.10
-0.10
-0.10
-0.10
0.04
-0.10
-0.10
JGB 10y
-0.04
-0.23
-0.08
-0.10
-0.15
-0.15
-0.15
-0.15
0.25
-0.10
-0.15
Q1
Q2
Q3
Q4e
Q1e
Q2e
Q3e
Q4e
2015
2016e
2017e
EUR / USD
1.14
1.11
1.12
1.08
1.12
1.10
1.07
1.05
1.09
1.08
1.05
USD / JPY
112
103
101
108
106
108
115
120
120
108
120
EUR / GBP
0.79
0.83
0.87
0.84
0.86
0.84
0.79
0.77
0.74
0.84
0.77
EUR / CHF
1.09
1.08
1.09
1.12
1.13
1.14
1.15
1.16
1.09
1.12
1.16
EUR / JPY
128
114
114
117
119
119
123
126
131
117
126
Exchange rates
€
2017
Q1
End of period
$
2016
2016
2017
Source : BNP Paribas Group Economic Research / GlobalMarkets (e: estimates & forecasts)
3
Euro-dollar
4
Euro-dollar exchange rate
Spot price
1.50
Government Bond Yields (10 year)
— US ▬ Germany
4%
18-Oct
18-Oct
3%
1.40
1.7%
2%
1.30
1%
1.20
-0.04%
0%
1.10
1.10
1.00
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
5
Interest rates
2016
2017
Interest rates
Spread
-1%
-2%
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
6
Government Bond Yields (10 year)
▬ Germany — France
2016
Oil market
Oil price (Brent)
$ per barrel, spot
4%
2017
18-Oct
18-Oct
120
100
80
3%
2%
60
1%
40
52
0.27%
-0.04%
0%
-1%
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
economic-research.bnpparibas.com
2016
2017
20
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
Eco Charts
07 November 2016
2016
2017
2
The bank
for a changing
world
United States
7
US, business climate
8
Business climate indicators (from purchasing manager index)
▬ ISM Manufacturing
▬ ISM Non manufacturing
US, investment cycle vs corporate profits
▬ Nonfinancial corporate, fixed investment (% value added) [L]
▬ Nonfinancial corporate, net profits (% value added) [R]
65
22%
60
14%
12%
20%
55
50
10%
18%
45
40
8%
6%
16%
35
30
4%
2%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
14%
1991
1996
2001
2006
Source : Thomson Datastream, BNP Paribas
The manufacturing ISM index has rebounded after a long
decline.
Corporate investment declined for two quarters in a row, in line
with declining profit margins.
9
US, falling oil prices dampen corporate investment..
US Oil market
▬ Oil production (mb/d) ─ Number of drillings [R]
10
1 800
9
1 500
8
1 200
7
900
6
600
5
300
4
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
10
2011
2016
…but benefit to the consumer
▌Private consumption, 3m/3m, ann. [L]
▬ Retail sales, vol., 3m/3m, ann. [R]
6%
15%
10%
3%
5%
0%
0%
-5%
car sales
(adjusted to
scale)
-3%
-6%
-10%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
-15%
Drillings have collapsed. Production is weakening
Private consumption is supported by the strength of the labour
market and the fall in the energy bill
11
12
US, housing market recovers
▬ Housing starts, x1000 [L]
▬ NAHB [R]
3 000
90
2 500
2 000
60
1 500
▬ Housing starts, x1000 [L]
▬ Inventories in months of sales [R]
3 000
14
2 500
12
10
2 000
8
1 500
1 000
30
500
0
US, Housing market recovers
6
1 000
4
500
1991
1996
2001
2006
Source : Thomson Datastream, BNP Paribas
2011
2016
0
The NAHB index bodes well for housing starts going forward
economic-research.bnpparibas.com
2
0
1991
1996
2001
2006
Source : Thomson Datastream, BNP Paribas
2011
2016
0
Inventories still very low in month of sales.
Eco Charts
07 November 2016
3
The bank
for a changing
world
United States
13
US, non-farm payrolls vs unemployment rate
▬ Monthly change in nonfarm payrolls (x1000) [L]
▬ Unemployment rate [R]
400
10%
200
9%
0
8%
-200
7%
-400
6%
-600
5%
-800
4%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
14
US, labour force participation rate
Participation rate
20-64 aged population
81%
79%
77%
75%
1986 1991 1996 2001 2006
Source : Thomson Datastream, BNP Paribas
2011
2016
The US unemployment rate has moved below the 5% threshold.
At this low level of unemployment, wage growth and inflation are
supposed to pick up.
The rate of participation among the working age population (2064) has rebounded recently, a further indication that the labour
market is getting into a better shape.
15
16
US, no concern for inflation… neither deflation
▬ CPI Core y/y
▬ CPI Headline, y/y
US, no concern for inflation… neither deflation
Phillips curve
Yaxis: growth in nominal wages ; Xaxis:unemployment rate
5%
4%
40%
3%
30%
2%
20%
1%
10%
3%
0%
0%
-1%
-10%
2%
-2%
1%
-20%
Energy
-3%
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
R² = 0.6
4%
-30%
0%
2% 3% 4% 5% 6% 7% 8%
Source : Thomson Datastream, BNP Paribas
9%
10% 11%
Energy is largely responsible for the decrease in the inflation
rate. Core inflation (excluding food and energy) is rather stable
but well below 2%, the Fed’s official target.
Wage growth is still subdued. However, the most recent
observation came a little bit higher (estimated rise in hourly
earnings +2.5%yoy in Q1 2016).
17
18
US, credit to corporates keeps healthy
▌Credit to corporate*, net flows, an $bn [L]
▬ Banks tightening credit, % [R]
1 000
800
600
400
200
0
-200
-400
-600
Corporate debt (credit market instrument)
% value added
90
95%
90%
60
85%
30
80%
0
2004 2006 2008 2010 2012
Source : Thomson Datastream, BNP Paribas
2014
2016
75%
-30
70%
1991
1996
2001
2006
Source : Thomson Datastream, BNP Paribas
Credit conditions applied by banks are still easy though less than
before. Net credit flows to corporates (loans and bond issues)
remain considerable.
economic-research.bnpparibas.com
US, highly leveraged corporate sector
2011
2016
US non-financial companies have increased their leverage ratio
by issuing record amounts of debt on the bond market.
Eco Charts
07 November 2016
4
The bank
for a changing
world
United States
19
US, low corporate spreads
20
US corporate spreads
─ High Yield
US, highly leveraged investment trusts
REITS Balance sheet
▬ MSB, $bn [R] ─ Repo as % of total liabilities [L]
20%
40%
350
15%
30%
250
10%
20%
5%
10%
18-Oct
0%
2001
2004
2007
2010
2013
Source : Thomson Datastream, BNP Paribas
300
200
150
100
50
0%
2013
2001
2004
2007
2010
Source : Thomson Datastream, BNP Paribas
2016
0
2016
Corporate spreads, after widening in the second part of 2015,
have tightened as of late.
Real estate investment trusts (REITS) use repo markets as a
source of funding for longer-term, less-liquid assets like RMBS.
Some are vulnerable to contagion risks / asset fire sales [IMF].
21
22
US, Fed funds rate and core inflation
▬ Fed funds
▬ Core CPI, yy
US, real Fed funds rate and unemployment rate
Fed funds rate vs Unemployment
─ Fed funds [Grey = real, LHS] - - - U. Rate [RHS]
8%
8%
10%
6%
6%
8%
4%
4%
2%
2%
6%
0%
0%
1992 1995 1998 2001 2004 2007 2010 2013 2016
Source : Thomson Datastream, BNP Paribas
-2%
1991
1996
2001
2006
Source : Thomson Datastream, BNP Paribas
December 2015 marked the end of an exceptional period (seven
year) of zero interest rates policy.
In the past, a 5% to 5.5% unemployment rate saw the real Fed
funds rate turning positive. This time is different and on this
measure the Fed is well behind the curve.
23
24
US, dollar effective exchange rates
Dollar, real effective exchange rate
1973 = 100
2011
2016
4%
US, external accounts
Current account balance
% GDP
130
2%
120
0%
110
-2%
100
-4%
90
80
1976
1986
1996
2006
Source : Thomson Datastream, IMF, BNP Paribas
2016
The real effective exchange rate (trade weighted & adjusted for
inflation) of the dollar is close to its long term average.
economic-research.bnpparibas.com
-6%
2001
2004
2007
2010
Source : Thomson Datastream, BNP Paribas
2013
2016
Household deleveraging and the surge in shale oil production,
which reduces the dependence on imported energy, have
contributed to a shrinking current account deficit in recent years.
Eco Charts
07 November 2016
5
The bank
for a changing
world
China
25
China, weaker than officially admitted
26
China, growth indicators (y/y)
▬ GDP ─ Ind. output - - - Electr. output
China, change in growth determinants
▬ US, households debt ratio (% GDP) -L▬ China, exports (% GDP) -R-
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
100%
40%
30%
80%
20%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, IMF, BNP Paribas
60%
1998
2001
2004
2007
2010
Source : Thomson Datastream, BNP Paribas
China’s slowdown has been severe in the industry, which
remains hit by weak demand and overcapacities. Signs of
stabilization and easing deflation have emerged since Q2 2016.
China’s export performance remains weak, in part due to
subdued global demand, but also due to a loss of
competitiveness and the decline in processing activities.
27
28
China, investment has come down
China, fixed investment vs private consumption
▬ Fixed investment, % GDP ─ Private consumption, % of GDP
10%
China, credit
240%
220%
200%
180%
160%
140%
120%
100%
80%
2007
2010
2004
2013
Source : Thomson Datastream, BNP Paribas
45%
43%
41%
39%
37%
2010
2006
2008
2012
2014
Source : Thomson Datastream, IMF, BNP Paribas
2016
China, credit outstanding as % of GDP
▬ Total ─ Bank lending
47%
35%
2013
2016
Bonds,
entrusted
loans, bank's
acceptances,
financial
trusts...
2016
Investment ratio is down, which is less a sign of a controlled
rebalancing in growth sources than a painful adjustment after
years of overinvestment and excessive debt.
China’s internal debt ratio is the highest in the emerging world
and continues to increase.
29
30
China, recovery in trade surpluses
China, food and energy bill
China, food & energy trade balance
% GDP
China, trade balance
% GDP
0%
10%
8%
-2%
6%
4%
-4%
2%
0%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source : Thomson Datastream, IMF, BNP Paribas
-6%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source : Thomson Datastream, BNP Paribas
External trade surpluses are on the rise due to improving terms
of trade and weak domestic demand.
Large trade deficits generated by food and energy imports have
declined in the last three years for the same reasons.
economic-research.bnpparibas.com
Eco Charts
07 November 2016
6
The bank
for a changing
world
Euro Area
31
Euro area, lagging behind
32
GDP, vol. (2008 = 100)
▬ US ─ EMU
Euro area, consumption remains strong
▌Private consumption, yy
▬ Retail sales, vol., yy
115
4%
110
2%
105
0%
100
-2%
95
90
-4%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
2009 2010 2011 2012 2013 2014
Source : Thomson Datastream, BNP Paribas
We forecast similar growth rates for the Eurozone the US in
2016. Since the start of 2008 the picture is completely different.
Consumption growth was a key driver behind the Eurozone
recovery. It will suffer from rising inflation in the coming months.
33
34
Germany, GDP growth vs business surveys
▌GDP, q/q, ann. [L]
- - - PMI Manuf.[R] ▬ PMI composite [R]
6%
65
4%
2%
2015
2016
2017
France, GDP Growth vs business surveys
▌GDP, q/q, ann. [L]
- - - Composite indicator (BdF&Insee) ▬ PMI [R]
6%
65
60
4%
60
55
2%
55
0%
50
0%
50
-2%
45
-2%
45
-4%
40
-4%
40
-6%
35
-6%
35
-8%
30
-8%
30
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
Business surveys and early data indicate that GDP growth
slowed significantly in Q2. The uncertainty following the Brexit
vote is likely to weigh on production in the coming quarters.
After a strong start in Q1 (+2.7% saar), growth suffered a sharp
payback in Q2 (-0.4%) due to negative temporary factors. Q3
growth should rebound. Business surveys point in that direction.
35
36
France, housing activity recovering
Housing
▬ Starts (12m cumulated) ─ Surveys [RHS]
500
30
France, consumption and purchasing power gains
▬ Real Disposable Household Income (%, y/y)
— Real Household Consumption (% , y/y)
4%
3%
450
0
400
2%
1%
-30
350
0%
-1%
300
2006
2008
2010
2012
2014
Source : Thomson Datastream, BNP Paribas
2016
-60
After a four-year slump, the French housing market has been
showing signs of life since mid-2015. The recovery remains
limited but it is growth supportive and this is what matters.
economic-research.bnpparibas.com
-2%
2006
2008
2010
2012
2014
2016
Source : Thomson Datastream, European Commission BNP Paribas
The lack of inflation, arising from cheap oil prices, has been
boosting purchasing power gains for two years, supporting private
consumption. The jobs recovery has recently added its support.
Eco Charts
07 November 2016
7
The bank
for a changing
world
Euro Area
37
Italy, GDP growth vs business surveys
▌GDP, q/q, ann. [L]
- - - PMI Manuf.[R] ▬ PMI composite [R]
38
6%
65
4%
2%
Spain, GDP growth vs business surveys
▌GDP, q/q, ann. [L]
- - - PMI Manuf.[R] ▬ PMI composite [R]
6%
65
60
4%
60
55
2%
55
0%
50
0%
50
-2%
45
-2%
45
-4%
40
-4%
40
-6%
35
-6%
35
-8%
30
-8%
30
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
Italian growth turned back positive in 2015, but still fails to
accelerate.
Spanish economic growth is likely to weaken in the quarters
ahead.
39
40
Euro area, fixed investment vs cap. utilisation rate
▬ Corporate investment % of GDP (LHS)
▬ Capacity utilisation rate (RHS)
Euro area, corporate fixed investment vs profits
▬ Corporate investment % of GDP (LHS)
▬ Corp. profit index (2007 = 100, RHS)
11.5%
90%
11.5%
102
11.0%
85%
11.0%
100
10.5%
80%
10.5%
98
10.0%
75%
10.0%
96
70%
9.5%
9.5%
2006
2008
2010
2012
2014
Source : Thomson Datastream, BNP Paribas
2016
2006
2008
2010
2012
2014
Source : Thomson Datastream, BNP Paribas
94
2016
Investment picked up on the back of a rising trend in capacity
utilisation rates. As a percentage of GDP, it stabilized since early
2016.
The stabilisation of profit margins could encourage corporate
investment to pick up. Uncertainty following the UK referendum
could hold back investment decisions though.
41
42
France, fixed investment vs corporate profit
▬ Corporate investment % of GDP (LHS)
▬ Operating earnings % of value added (RHS)
13%
34%
France, fixed investment vs corporate debt
▬ Corporate investment % of GDP (LHS)
▬ Corporate debt % of value added (RHS)
13%
140%
12%
120%
11%
100%
33%
12%
32%
31%
11%
30%
10%
2000
2003
2006
2009
2012
Source : Thomson Datastream, BNP Paribas
2015
29%
The rise in corporate profit margins has been building up since
2014, supporting the upturn in business investment.
economic-research.bnpparibas.com
10%
2001
2004
2007
2010
2013
Source : Thomson Datastream, BNP Paribas
2016
80%
Credit growth has supported corporate investment in France.
However the proportion of investment generating productivity
gains is insufficient.
Eco Charts
07 November 2016
8
The bank
for a changing
world
Euro area
43
Corporate debt ratio, diverging trends
44
Nonfinancial corporate debt as % of value added
▬ Germany ─ France
Euro area, trend in corporate fixed investment
Investment in Mach. & Equipt., 2008 = 100 (vol.)
▬ Spain ─ Italy
140%
110
100
120%
90
100%
80
80%
70
60
60%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source : Thomson Datastream, BNP Paribas
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
The French corporate sector’s debt-ratio has increased
significantly over the past decade, contrary to what happened in
Germany.
Very different dynamics of investment in Spain versus Italy,
where the gap compared to the pre-recession level remains
huge.
45
46
Euro area, trend in labour costs
Change in unit labour costs
2011 - 2015 (Q4)
IR
GR
PT
ES
Euro area, trend in exports
EU Export Volume Index (s.a., 2013 = 100)
▬ Intra EU 28
▬ Extra EU 28
NL
BG
FR
IT
140
BD
FN
OE
-5%
+0%
-10%
+5%
Source : Thomson Datastream, BNP Paribas
120
100
80
+10%
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source : Thomson Datastream, BNP Paribas
+15%
Down in many countries of the EMU “periphery” (Ireland, Spain,
Greece, Portugal).
External trade is weaker outside Europe, stronger inside…
47 Euro Area, credit to corporates vs bank lending survey
48
▌Credit to corporate*, net flows EUR bn [L]
▬ Expected tightening, % [R] - - - Expected demand, % [R]
1 200
1 000
800
600
400
200
0
-200
-400
2006
2008
2010
2012
2014
Source : Thomson Datastream, BNP Paribas
2016
Spain, credit to corporates, EURbn
▬ 12m cumulated net flows ─ Monthly net flows (annualized)
90
75
60
45
30
15
0
-15
-30
100
0
-100
-200
2009 2010 2011 2012 2013 2014
Source : Thomson Datastream, BNP Paribas
ECB’s bank lending surveys are improving with credit standards
back to their normal levels. Demand for credit though still strong
seems to be softening a bit.
economic-research.bnpparibas.com
Spain, credit to corporates
2015 2016 2017
Credit to corporates tends to recover in Spain.
Eco Charts
07 November 2016
9
The bank
for a changing
world
Euro area
49
Euro area, financing conditions improve
50
Bank's lending rates to corporates (<1Y & EUR 1mn)
▬ Italy ─ Spain - - - France
Euro area, consumer credit recovers
Euro are consumer credit
12m cumulated flows, EURbn
7%
50
6%
5%
25
4%
3%
0
2%
1%
0%
2004
2007
2010
Source : Thomson Datastream, BNP Paribas
2013
2016
-25
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
The convergence of lending rates shows fragmentation is
declining.
After six years of decline, consumer credit flows are still
recovering, although not as strong as in early 2016.
51
52
Monetary aggregates, Euro area vs US
Monetary aggregates (2008 = 100)
— EMU (M3) ▬ US (M2)
Euro area, base money surge with the QE
Money base
▌R.Reserves ▌Ex.Reserves ▌D. Facility
160
1 200
150
140
1 000
800
130
600
120
400
110
200
100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source : Thomson Datastream, BNP Paribas
Monetary support has been much stronger in the US than in the Base money (bank’s holdings to the ECB) was temporarily
Euro area, looking at broad aggregates. This is now changing inflated by the ECB’s TLTROs. It is now increasing along with the
with the ECB’s asset purchase program.
QE.
53
Euro area, M3 vs core inflation rate
▬ CPI Core y/y [L]
▬ M3, y/y [R]
54
3.0%
15%
2.5%
12%
2.0%
9%
1.5%
6%
1.0%
3%
0.5%
0%
0.0%
2001
2004
2007
2010
2013
Source : Thomson Datastream, BNP Paribas
2016
M3 is weakening on the back of slower M1 growth.
economic-research.bnpparibas.com
-3%
Euro Area, ECB “refi” rate vs determinants
▬ Core inflation rate [L]
▬ Unemployment rate [R, inv.] - - - "Refi" rate [L]
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
7%
8%
9%
10%
11%
12%
2001
2004
2007
2010
2013
Source : Thomson Datastream, BNP Paribas
2016
13%
The refi has been lowered to 0.0% as of 16 March 2016, and the
deposit facility rate (DFR) cut to -0.40%.
Eco Charts
07 November 2016
10
The bank
for a changing
world
Markets
55
Italian 10 year rates
56
Italy, Govt. bond yields
▬ 10y ─ 2y
Spanish 10 year rates
Spain, Govt. bond yields
▬ 10y ─ 2y
8%
9%
18-Oct
6%
7%
4%
5%
2%
0%
-2%
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
57
3%
1.45%
Spread
1%
-0.04%
2016
18-Oct
Spread
1.10%
-1%
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
2017
France, over several maturities
58
-0.20%
2016
2017
Euro, still rather cheap
Trend in the euro (2011 = 100)
▬ Against the dollar ─ Trade weighted
France, Govt. bond yields
▬ 10y ─ 5y - - - 2y
4%
130
18-Oct
3%
120
2%
110
100
1%
0.27%
-0.35%
-0.62%
0%
-1%
2011
2012
2013
2014
2015
Source : Thomson Datastream, BNP Paribas
2016
90
80
2010
2006
2008
2012
2014
Source : Thomson Datastream, BNP Paribas
2017
2016
Very low everywhere along the curve, and generating substantial
savings on debt interest payments (EUR 41.8bn in 2017 draft
budget bill, down EUR 2.7bn compared to 2016 budget act).
The euro has rebounded in nominal effective terms. However, it
looks still cheap by historical standards.
59
60
Euro-dollar vs interest rates spread
▌ Bund - Treasuries yields spread 5y [R]
▬ Euro vs dollar [L]
Euro-dollar vs ECB’s balance sheet
ECB's balance sheet vs euro-dollar
▬ ECB Balance Sheet, €bn [L] ─ €/$ [R]
1.60
1.0%
4 000
1.50
1.50
0.5%
3 500
1.40
1.40
0.0%
1.30
-0.5%
3 000
1.30
1.20
-1.0%
2 500
1.20
1.10
-1.5%
2 000
1.10
-2.0%
1 500
1.00
2006
2008
2010
2012
2014
Source : Thomson Datastream, BNP Paribas
2016
The spread between German and US interest rates is likely to
stay very negative over the foreseeable future, weighing on the
euro.
economic-research.bnpparibas.com
2009 2010 2011 2012 2013 2014 2015 2016 2017
1.00
The introduction of a negative deposit rate in 2014 and the
anticipation of ECB QE caused a big correction of the euro. More
recently, a dovish Fed has caused a strengthening of the euro.
Eco Charts
07 November 2016
11
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