8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
1/17
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND
ANALYST CERTIFICATIONS.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATIONClient-Driven Solutions, Insights, and Access
European Economics
14 points for 2014
The euro area should continue its modest recovery this year. Abating
financial and fiscal headwinds should support domestic demand and stronger
global growth spur exports. It's possible corporate spending provides an upside
surprise as firms resume investment after a five-year dearth.
Perhaps the key theme of the euro area in 2013 was its resilience . Both the
financial system and the economy absorbed several political and financial
shocks remarkably well compared to previous years. We think that was a
consequence of the move of most of the periphery into current account surplus.
That theme should continue this year.
But the European Parliament elections in May should continue the theme
of political volatilityas populist parties are likely to perform well. There's also
a small, but real risk, of elections in Greece and Italy. And the ECB's Asset
Quality Review and continued negotiations over banking union could provide
further financial uncertainty.
And those current account surpluses could provide their own risks. Given
the inability of core Europe to generate stronger domestic demand, the euro
area's surplus is now at a record high. That should keep upwards pressure on
the currency and leave markets extremely concerned about deflation risks.
Although we think it'll take another recession for the euro area to slip into
deflation, there'll be a number of months this year when inflation could print
low enough to spook markets.Aggressively easier monetary policy from theECB would help address these risks, and there are several tools it could use.
But in the absence of a new slowdown, we don't expect the ECB to use them.
Monetary conservatismwith its associated risksis likely to prevail.
The countries that could garner interest are France, Germany and the UK.
France's relative economic underperformance has become more apparent,
but investors shorting its fixed income have been consistently disappointed.
That may remain the case.
At the same time, the new German government will bed down this year. The
thrust of its policies appear to be in the opposite direction to those it has
prescribed for other euro area economies. Over the next few years, that may
be constructive for addressing some of the euro area's imbalances, especially if
the introduction of a minimum wage boosts labour incomes and consumption.
But, in the longer-run it may hinder economic performance.
The vigour of the UK's recovery has taken many by surprise , not least
Governor Carney. We think the strength of the upswing can be sustained,
meaning there's likely to be tension between the desire of most of the MPC
to signal that rates will be on hold for some time and markets watching a
burgeoning recovery mature and spare capacity diminish.
Research Analysts
Christel Aranda-Hassel
+44 20 7888 1383
Steven Bryce
+44 20 7883 7360
Mirco Bulega
+44 20 7883 9315
Violante Di Canossa
+44 20 7883 4192
Neville Hill
+44 20 7888 1334
Axel Lang
+44 20 7883 3738
Giovanni Zanni
+44 20 7888 6827
07 January 2014Economics Research
http://www.credit-suisse.com/researchandanalytics
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
2/17
07 January 2014
European Economics 2
2014: The year of doing better, but not well
This year should be one of positive growth in the euro area. The recovery that began
early in 2013 looks set to continue at a modest pace. Surveys such as the PMIs that
track growth well are consistent with the economy growing at an annualized rate of
around 1%. The recovery is made in Europe, like the recession before it. The tight
monetary, financial and fiscal conditions that pushed the economy into recession in 2011-
12 have abated sufficiently for the economy to grow. For example, the fiscal tighteningacross the euro area this year should amount to no more than half a percentage point of
GDP, compared to 2pp of GDP in 2011 and 2012.
The main driver of the recession was the collapse in domestic demand(Exhibit 1). That
has now stabilized and started to grow. And the external environment looks more
promising: the improvement in global cyclical indicators that accompanied the end of the
euro crisis should support an acceleration in export growth (Exhibit 2). In all, then, there's
scope for the pace of euro area growth to pick up further from the limited pace it put in in
the second half of last year. The upswing should be apparent across all the euro area .
We expect GDP across the stressed periphery to register a rise this year, as domestic
demand in these economies also stabilizes and their net trade moves further into surplus.
So the euro area should do better than it has done in recent years this should be
the third year in six in which GDP has not shrunk but it is unlikely to do well. A
recovery predicated on conditions becoming less challenging, rather than a dose of
stimulus, is unlikely to be vigorous. The contrast with the UK, which saw significant
monetary and credit easing ahead of last year, is striking. We expect euro area growth of
just 1.3% this year, compared to 2.8% in the UK. That's hardly impressive given the
cumulative loss in output relative to potential in the last few years.
The euro area economy needs more stimulus, but recovery has reduced the urgency of
policymakers to respond. As we discuss below (page 10), we don't expect the ECB to
ease further. The major problem with this outcome is that the growth we forecast should
do little to meaningfully lower the high levels of unemployment in the periphery, especially
amongst young people, that will continue to pose a risk to political stability (page 14).
Exhibit 1: Euro area domestic demand has troughed Exhibit 2: And export growth should pick up
Q1 2008=100 Euro area exports and global PMI new orders
94
96
98
100
102
104
2008 2009 2010 2011 2012 2013
Euro area
US
Japan
30
35
40
45
50
55
60
-25
-20
-15
-10
-5
0
5
10
15
20
1999 2001 2003 2005 2007 2009 2011 2013
Global PMI new orders, 6m lead, rhs
Real exports, y/y%, 3mma, lhs
Source: Credit Suisse, Thompson Reuters Datastream Source: Credit Suisse, ECB, Markit
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
3/17
07 January 2014
European Economics 3
The not so jobless recovery to come
Last year saw the start of a recovery in GDP in the euro area. This year should see the
start of a recovery in the euro area labour market. That shouldn't be the case. By most
estimates the pace of growth at which the euro area is currently running around 1%pa
should still be consistent with rising, not falling, unemployment.
But the labour market has recently performed better than GDP growth wouldsuggest, as Exhibit 3 shows. Unemployment barely rose last year and employment looks
to have stabilized in Q3. The employment component of the composite PMI survey is
almost at 50. So the labour market looks to be turning. At the country level there's some
dispersion in performance, but even in Spain it appears that unemployment is falling.
Although that may reflect a slowdown in productivity, it does mean that the modest
acceleration in growth we expect this year should bring about a further improvement in
labour dynamics. That's important for a number of reasons. For a start, as Exhibit 4 shows,
falling unemployment should support a further rise in consumer confidence. In turn,
that should help the nascent recovery in domestic demand.
But as well as providing fundamental support to the recovery, the turn in the labour
market should also go some way to help address some of the "stock problems"
legacies of the crisis that we discussed in the 2014 Global Outlook. One of our keyconcerns remains the sharp increase in support for radical political parties in many euro
area economies (see page 14). We think some of that increase in support reflects the high
level of unemployment, especially among young people. So to the extent to which
unemployment rates start to fall, so should current and expected levels of political risk.
The other stock problem is the high (and still rising) level of impaired and bad loans. As we
discuss below (page 9), the ECB's Asset Quality Review should go some way to more
clearly reveal and address the scale of the problem. But, to the extent to which bad
loans are a lagging function of the cycle, falling unemployment should both
correlate with and cause this stock problem to stabilize and possibly improve.
Exhibit 3: Growth and unemployment Exhibit 4: Unemployment and consumer confidence
Euro area GDP growth and changes in the unemployment rate
-6
-4
-2
0
2
4
6-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
90 91 92 93 94 96 97 98 99 00 01 03 04 05 06 07 08 10 11 12 13
12m change inunemployment rate, pp, lhs
GDP, y/y%, 3qma, rhs, inv
-0.6
-0.2
0.2
0.6
1.0
1.4
-40
-35
-30
-25
-20
-15
-10
-5
0
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Consumer confidence, lhs
6 months change inunemployment rate, rhs,inverted
Source: Credit Suisse, Thompson Reuters Datastream Source: Credit Suisse, Thompson Reuters Datastream
https://plus.credit-suisse.com/r/tB16y4https://plus.credit-suisse.com/r/tB16y4https://plus.credit-suisse.com/r/tB16y48/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
4/17
07 January 2014
European Economics 4
Can corporate spending make a difference this year?
Investment has finally stabilized in the last couple of quarters, having fallen by 8% in
the 2011-13 recession after a 16% drop in the 2008-09 recession. Given investment's
capacity to contribute significantly to any volatility in output, it is important for this upswing
to continue and strengthen.
We don't think corporates lack the means to invest.Although bank deleveraging andthe associated decline in lending to corporates should present a stiff headwind against a
strong recovery in investment, we note that the "credit impulse", which matters most for
growth, has turned (European Economics Peripheral Data Monitor: Credit where Credit
is Due). And corporates across the euro area are relatively cash-rich. Over the last few
years the corporate sector has been running a much higher financial balance than usual,
meaning there's capacity for firms to boost spending on investment from existing
cashflows rather than needing to borrow.
Corporates may have a growing need to invest, as well . Net investment has been
especially weak in the euro area in the last few years, meaning that the capital stock is
becoming increasingly obsolete. Investment has fallen back to the end of the 90s levels.
Our view has been that the euro area financial crisis of 2010-12 was a powerful brake on
corporate spending. Given the high levels of uncertainty and the tail risk of a
catastrophic financial collapseit's unsurprising that corporate behavior was cautious.
Uncertainty has abated, though. The European policy uncertainty index, which has fallen
steadily over the past 12 months. It is also evident in the improvement in business
confidence, especially the forward-looking components, from the lows.
These three factors corporates having the financial wherewithal and the need to
invest and reduced uncertaintyshould all make for stronger corporate spending.
There is evidence for that from the latest European Commission surveys or our latest
proprietary survey of European corporates (see here). Given that investment has been
growing at an annualized pace of around 1% since the spring, this suggests that corporate
spending should make a stronger contribution to euro area demand growth in the coming
six to twelve months.
Exhibit 5: Uncertainty abates Exhibit 6: Investment intentions for 2014
European policy uncertainty index Survey taken in October-November of the prior year (%)
50
70
90
110
130
150
170
190
210
1999 2001 2003 2005 2007 2009 2011 2013
-8
-6
-4
-2
0
2
4
1999 2001 2003 2005 2007 2009 2011 2013 Source: Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com,Credit Suisse
Source: European Commission, Credit Suisse
https://plus.credit-suisse.com/r/vQgOUhhttps://plus.credit-suisse.com/r/vQgOUhhttps://plus.credit-suisse.com/r/vQgOUhhttps://plus.credit-suisse.com/r/vQgOUhhttps://plus.credit-suisse.com/r/vQgOUhhttps://plus.credit-suisse.com/r/vQgOUhhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=1025081451&serialid=RIB4jpBbh4KIjPsbir8kR7pMoZpuL0PINBEq9JvWfv8%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=1025081451&serialid=RIB4jpBbh4KIjPsbir8kR7pMoZpuL0PINBEq9JvWfv8%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=1025081451&serialid=RIB4jpBbh4KIjPsbir8kR7pMoZpuL0PINBEq9JvWfv8%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=1025081451&serialid=RIB4jpBbh4KIjPsbir8kR7pMoZpuL0PINBEq9JvWfv8%3dhttps://plus.credit-suisse.com/r/vQgOUhhttps://plus.credit-suisse.com/r/vQgOUh8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
5/17
07 January 2014
European Economics 5
Could global growth be more supportive than expected?
Net trade has been the only engine of euro area GDP growth in recent years, despite a
lackluster performance of global trade growth. In 2014 and for the first time since 2010,
domestic demand will contribute more than net trade to GDP growth, reflecting a more
balanced composition of growth. Even so, the performance of the worlds first exporter
could surprise on the upside thanks to a global investment revival, improved
competitiveness and of course, the (slow) recovery of euro area domestic demand intraeuro area exports represent about half of total euro area exports.
Companies higher investment intentionsare the main reason for global trade to pick up
(remember that the import content of investment is high). In the US, where the net
investment-to-GDP ratio is historically low, firms are facing increased demand from
consumers whose saving effort is likely to ease as the large fiscal drag experienced in
2013 fades away and the job market continues to gradually improve.
In Japan, incentives to invest are high inasmuch as firms have delevered, face low
financing costs and enjoy high profits thanks the Abe/BoJ policies. Higher investment in
those two major countries would be positive for the euro area given its export
specialisation (machine equipment) and the second round effect on EM growth.
Indications that global trade is likely to support the euro area economy are alreadyevident in the surveys. The global manufacturing PMI is currently at robust level and the
new export components of the euro area PMI is also very well oriented. Exhibit 2 indicates
that export growth could accelerate quickly in the first half of the year
Exhibit 7: Global trade growth Exhibit 8: US net investment ratio (% of GDP)
-15
-10
-5
0
5
10
15
1992 1996 2000 2004 2008 2012
Long term average
2
3
4
5
6
7
8
1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Credit Suisse, Ameco Source: Credit Suisse
Negative shocks to the global economy are possible, though. Indeed, communicationchallenges lie ahead for the Fed despite a smooth start to reducing the size of QE3. A
bumpy road can certainly not be excluded and policy uncertainty would most likely derail
investment plans. Japans planned VAT hike in April could depress final demand if wages
dont increaseaccordingly. Chinas efforts to change the structure of its economy could be
hindered by fragility in credit markets while markets could test the strength of other key
and weaker EM countries such as Brazil, India, Indonesia, Turkey and South Africa in the
midst of the Fed tapering.
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
6/17
07 January 2014
European Economics 6
Fiscal policy: Letting the cycle do some work
Pressure on euro area government bond markets has diminished during 2013,
driven by the OMT in the backdrop and by improving activity and external balances
indicators. Barring new political/policy turbulences in 2014, we expect euro area bond
markets, and in particular the periphery, to stabilize further this year.
Fiscal data available for 2013 suggests that most countries have broadly compliedwith their yearly targetswith some limited slippage still possible. Full-year data are
still not available general government figures, on a national account basis, will only be
available in March. However, the monthly indicators of fiscal developments suggest a
broad compliance with the official targets set in agreement with the European Commission
and generally slightly better than 2012 figures.
2014 budget balances should continue to improve.We anticipate a further fall in the
euro area aggregate deficit/GDP ratio next year, to 2.4% from 2.9% in 2013 (Exhibit 10).
Low interest rates and reduced indexation of government expenditures should help drive
deficits down, despite the still modest 2014 GDP growth projections. Peripheral countries
are still under some pressure to reduce their structural deficits although less than in
recent years, after an impressive overall structural consolidation achieved while
Germany is benefitting from favourable funding conditions and stronger domestic demand.
Both circumstances will drive net funding requirements lower, we believe.
The structural adjustment is largely completed for the euro area as a whole,
especially when compared to other major economic area around the world.
Estimates from the IMF put the 2013 structural deficit at around 1.4% of GDP, vs.
estimates of a 4% structural deficit for the UK and for the US (and 9% for Japan). Looking
ahead, this should allow the euro area cyclical recovery to proceed more smoothly, without
major fiscal headwinds.
Exhibit 9: General government balance and debt Exhibit 10: Change in euro area structural balances
Genera l government balance Debt
% GDP 2012 2013E 2014E 2013E
Austria -2.5 -2.5 -1.7 75Belgium -4.0 -2.8 -2.6 100
Finland -1.8 -2.0 -2.0 58
France -4.8 -4.1 -3.6 94
Germany 0.1 0.0 0.1 80
Greece -6.0 -4.0 -2.0 176
Ireland -7.6 -7.3 -4.5 124
Italy -3.0 -3.2 -2.7 133
Netherlands -4.1 -3.2 -3.3 75
Portugal -5.9 -5.5 -4.3 128
Spain -6.8 -6.5 -5.7 95
Euro area -3.2 -2.9 -2.4 96
-1
0
1
2
3
4
5
Ger Aust Fra Fin Bel Neth Ita Ire Spa Por Gre EA
2011 2012 2013 2014
Source: Credit Suisse estimates Source: Credit Suisse estimates
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
7/17
07 January 2014
European Economics 7
The unbearable weight of a current account surplus
The euro area's large current account surplus will remain a perennial theme this
year. As Exhibit 11 shows, it is now running at close to 2.5% of the region's GDP. In large
part, this surplus is a consequence of the crisis and the severe external adjustment in the
periphery (Exhibit 12). But it has also been a consequence of continued high savings rates
in core Europe and the lack of any adjustment in their external surplus.
In large part the rise in the current account surplus was due to a collapse in domestic
demand in the periphery and stagnant domestic demand in core Europe leading to a sharp
fall in imports. And at the same time, solid growth outside the euro area, along with
significant improvements in competitiveness and market share in some peripheral
economies, has supported exports. Given that the weakness in domestic demand is, in
large part, a consequence of the relatively restrictive stance of both monetary and fiscal
policy, it is not a surprise that the surplus was associated with a strong currency.
There's little to suggest a change in these fundamentals this year. Given their
improving competitiveness and domestic headwinds against demand, we expect surpluses
in the periphery to continue to rise. Recent data do suggest a marked improvement in
domestic demand in Germany. But given the unwillingness of fiscal or monetary
policymakers to ease policy further, it seems unlikely that demand will grow sufficiently to
bring about an equivalent decline in surpluses in core Europe.
But such a large current account surplus is likely to put growing pressure on those
policymakers to ease. Germany's persistent current account surplus came under
criticism from both the US government and the European Commission last year. We
should expect more of the same this year. And the strong euro will continue to add to
disinflationary pressures in the euro area. Indeed, a strong appreciation from here
would likely have a marked impact on inflation, potentially pushing headline inflation rates
closer to deflation (see page 8), and so raising the prospect of a more aggressive policy
response from the ECB.
Exhibit 11: An unsustainably high surplus Exhibit 12: Asymmetric adjustment
Euro area current account surplus, as % GDP Trade balances as % euro area GDP
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1980 1985 1990 1995 2000 2005 2010
-2.0
-1.5-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1999 2001 2003 2005 2007 2009 2011 2013
"Core"
"Periphery"
Source: Credit Suisse, ECB Source: Credit Suisse, Eurostat
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
8/17
07 January 2014
European Economics 8
Deflation scares
Inflation is unlikely to move steadily above 1% until the end of the year. And our
projections show a new trough in March, when a combination of base effects and
subdued energy inflation should push it back to 0.7%. Given the low starting point and
the consequent concerns over deflation, downside risks to prices will be closely
watched by markets.We see short-term risks coming from some weakness in services
inflation, apparent in the December preliminary prints, a smaller than expected impactfrom French VAT on prices and a relapse of the euro area economy back into recession.
Also, a strong currency would heighten deflation scares.
December core inflation fell to an all-time low, partly because of one-off factors in
Germany affecting services inflation. Core HICP should not print lower inflation rates, but
risks remain on the downside. Furthermore, recent experiences showed that the pass
through from higher indirect taxes has been far more muted than in the past. Given the
tentative state of the household sector in France, we would expect this to be the case
there too and we pencil in only a mild (but with downside risks) impact of the change in
taxation on prices.
On the growth side, the mild recovery we are expecting should put a floor to
downside pressures on inflation.Different measures of capacity utilization are pointing
to relatively stronger inflationary pressures, rather than to a protracted period of disinflation
or even deflation. Against the argument of lower inflation ahead we also note that short-
term inflation expectation measures have turned the corner, while longer-term inflation
expectations remain well anchored. Exhibit 14 shows our proxy for euro area standardized
price expectations. These have troughed in April and have been grinding higher for the
last nine months.
To conclude, a broad range of factors impacting short- and long-term inflation
expectations are pointing to low, but not lower inflation in the euro area.We will
likely see a prolonged period of low inflation, to be followed by a gradual upward
movement towards inflation rates below, but close to, 2% later on. Other things being
equal,inflation should not push the hand of the ECB further.
Exhibit 13: Inflation projections Exhibit 14: Euro area price expectations
HICP and HICP ex energy, food, alcohol and tobacco, y/y% Standardised
0.9
0.80.7
1.1
1.0 0.9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2012 2013 2014 2015
Headline inflation
Core inflation
1.41.5
1.4
-3
-2
-1
0
1
2
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Credit Suisse estimates, Thomson Reuters DataStream Source: Credit Suisse, Thomson Reuters DataStream, Markit Economics
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
9/17
07 January 2014
European Economics 9
Banking union and AQR: A risk and opportunity
The latest banking union deal has come in for considerable criticism, both for its
complexity and lack of significant backstop.Against the backdrop of the ECB's Asset
Quality Review this year, it's a common view that these polices will contribute to continued
bank deleveraging and possibly risk a relapse back into recession.
However, it's worth bearing in mind that the stress tests and asset reviews aretaking place at a time of relative financial calm.Capital markets are open. And given
that a key aim of the process is to ensure banks have properly valued the loans on their
books and provisioned and capitalized sufficiently against them, there's evidence that the
process is already under way. As Exhibit 15 shows, capital and reserves on banks'
balance sheets in the euro area has already risen significantly over the past year or so.
This is a process that should continue.
So although deleveraging is likely to continue this year, it's not clear its pace will
worsen.Indeed, as recovery becomes entrenched and banks become better capitalized,
bank lending could start to stabilize. Given that it's the second derivative of credit growth
that matters for GDP growth, there's scope for this headwind to ease.
On the banking union deal itself, we also maintain a more constructive view, for
now.While it still lacks important detailsnotably on the backstop during the fund's build-up phase (2015-25), as well as on the decision process to resolve a bank we consider
as positive the fact that the Single Resolution Fund will eventually become fully European
and mutualized ten years from now. We also believe that the steady state amounts
available in the fund (55bn) would be sufficient to deal with most banking crisis with the
ESM or other backstops having to deal only with the most acute systemic crises.
We would have liked more explicit commitments from European officials, but the banking
union framework is there to be improved possibly already in the coming months, thanks
to the intervention of the European Parliament.In the absence of further clarifications,
the risk is that confidence would not be sufficiently restored, maintaining an
unnecessary, too high, level of fragmentation in European financial markets.
Exhibit 15: A recapitalizing banking sector Exhibit 16: Credit growth still weakEuro area banks' capital and reserves as % liabilities Euro area private sector credit growth %
5.0
5.5
6.0
6.5
7.0
7.5
1999 2001 2003 2005 2007 2009 2011 2013
-2
0
2
4
6
8
10
12
14
1999 2001 2003 2005 2007 2009 2011 2013 Source: Credit Suisse, ECB Source: Credit Suisse, ECB
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
10/17
07 January 2014
European Economics 10
Weapons but not the will? The ECBs options for 2014
Our 2014 forecast has an unchanged ECB monetary policy stance. This assumes that
economic activity will continue to recover at a modest pace accompanied by very subdued
price pressures. But the ECB is not asymmetric when it comes to inflation and is
likely to act if it falls further. InThe ECB's arsenalwe outlined an array of measures that
we believe are still in the toolbox and could be used if required.
The ECBsbazooka, outright asset purchases, requires a serious risk of deflation,in
our view. This is not our base scenario but the very subdued inflation backdrop provides
little buffer in the event of another shock to economic activity. The tools for pure money
creation in order to preserve the price stability objective have always been available
to the ECBand it is interesting to note that ECB members have not ruled asset purchases
out. Should the need arise asset purchases are likely to follow the Feds script: open
endedand not limited to sovereign bonds but also including corporate paper. And
since size and variety will be important it makes little sense to relate QE to the ECBs
capital key since it could amount to the entire outstanding debt of Greece and exceed it in
the case of a smaller economy such as Estonia.
Prior to using the bazookaand to start with we believe that the ECB would cut rates
further in the event of inflation falling to 0.5% or lower. A further cut in the key policy rate
would also entail anegative deposit rate, in our view.
Other options in the ECBs toolbox are unlikely to be related to inflation but will be more a
response to liquidity issues of the euro areas banking system. Another VLTRO, lower
reserve requirements and ending or setting a rate cap to sterilizing the SMP are often
mentioned in this category. At the December press conference President Draghi ruled out
more unconditional unlimited funding through another VLTRO ahead of the AQR. But
cutting reserve requirements further to help periphery banks that have problems fulfilling
these and/or suspending the SMP drain against the backdrop of shrinking excess liquidity
cannot be excluded.
Exhibit 17: Percentage of outstanding debt boughtunder 1 trn QE using ECB capital key
Exhibit 18: The ECB has to provide increasinglyhigher fine tuning rates as excess liquidity shrinks
% %
2725 25
18 17
13 13 13 13 12 12 119 9 8
0
5
10
15
20
25
30
35
40
EST
GRE
SLK
SLJ
LUX
MAL
FIN
SPA
NET
CYP
GER
POR
AUS
FRA
BEL
ITA
IRE
151 97
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
May-10 Mar-11 Jan-12 Nov-12 Sep-13
Average fine tuning rate
ECB deposit rate
Source: Credit Suisse Source: ECB, Credit Suisse
https://plus.credit-suisse.com/r/tBUya0https://plus.credit-suisse.com/r/tBUya0https://plus.credit-suisse.com/r/tBUya0https://plus.credit-suisse.com/r/tBUya08/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
11/17
07 January 2014
European Economics 11
The UK: Carney's challenge
This year is likely to bring volatility to UK markets , driven by a tension between a
burgeoning recovery and a central bank keen to keep monetary policy expansionary.
The UK economy begins the year on a strong note. Business surveys, such as the PMIs,
are consistent with growth stronger than the 3% annualized rate that the economy saw in
the middle quarters of 2013. This strength can be sustained. Business optimism is at itshighest in years, suggesting a long-overdue rise in business spending . That could
be supported by the recent fall in the size of corporate pension deficits, in turn a
consequence of rising long-term real interest rates. And given there's a general election
next year, the tone of fiscal policy is also likely to become (temporarily) more stimulative.
These are pro-cyclical forces at workthat can generate a vigorous recovery.
This strength challenges the signal and intent of the Bank of England MPC's
forward guidance. As Exhibit 20 shows, unemployment is likely to hit the 7% threshold, at
which the MPC's current guidance to keep policy rates on hold becomes obsolete, at some
point in the next few months. Given that the aim of forward guidance was to signal to UK
economic agents that the MPC intended "to maintain the current exceptionally stimulative
stance of monetary policy until weve seen a sustained period of strong growth", as Chief
Economist Dale has put it, the MPC may have to rephrase its guidance language.
We expect the MPC to sign up to a statement similar to that above , possibly at the
February Inflation Report, or sooner. But it's also possible that while a majority of MPC
members pursue such guidance, othersmost notably Wealecould start voting for higher
rates soon after the threshold is met (seeUK Economics: Forward forward guidance).
Although strong growth is l ikely to be welcomed by the Bank, the recent changes made to
the FLS suggest that policymakers are likely to lean against any increase in
household debt accumulation. "Macroprudential" policy tools, such as increasing capital
charges for types of lending, are likely to be deployed by the Bank this year. We think
they're intended as a substitute to monetary tightening. But markets may judge that
the only way they're likely to be effective is if they're used as a complement to higher rates.
Exhibit 19: UK growth set to strengthen further Exhibit 20: Unemployment rate set to fall sharplyMarket sector GDP growth and composite PMI Fitted measure using claimant count rate and vacancy rate
30
35
40
45
50
55
60
65
-15
-10
-5
0
5
10
1998 2000 2002 2004 2006 2008 2010 2012 2014
Composite PMI, rhs
Market sector GDP, q/q% ann, lhs
4
5
6
7
8
2002 2004 2006 2008 2010 2012 2014
Actual unemployment rate
Average of fitted values
"7% threshold"
Source: Credit Suisse, Markit, ONS Source: Credit Suisse, ONS
https://plus.credit-suisse.com/u/WWCqddhttps://plus.credit-suisse.com/u/WWCqddhttps://plus.credit-suisse.com/u/WWCqddhttps://plus.credit-suisse.com/u/WWCqdd8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
12/17
07 January 2014
European Economics 12
The French contrarian
After some improvement at the beginning of 2013, Frances PMIs weakened in 4Q
2013. National surveys paint a better picture of activity, but we still believe that
French GDP growth is likely to underperform the euro area in 2014.
We have been in the past more optimistic than the consensus on France and the
data have supported our view, in the sense that France has outperformed euro areaGDP growth for the past three years. The reasons for our more optimistic view have been
explained in previous works. We also stressed that, from a bond market perspective,
France could hardly be associated with the "periphery". France is, indeed, at the true core
of Europe, in terms of economic structure and politically, meaning that policies will in most
cases suit the needs of the country. The French economy has also a number of strengths,
its bond market is liquid, and seen as sufficiently stable by rating agencies. As a matter of
fact, bond rates have remained relatively close to the German Benchmark in 2013. We
believe that the French bond market should continue to be supported in 2014.
But complacency would be misplaced. Losses of competitiveness might dampen
the gains expected from a rebound in external demand. Although demand from
France's key trade-partners has been recovering and should continue to accelerate this
year, the new export orders component of Frances manufacturing PMI has been
weakening in recent months suggesting that France has not (yet) benefitted meaningfully
from the stronger external demand.
A more significant overhaul of the economy is necessary to lift potential growth in
France.Despite some timid reforms and some tentative signs of their impact on labour
costs, more needs to be done, notably on labour market flexibility and competitiveness.
We view as positive the fact that the first declarations of the government this year include
the intention to cut further labour costs before the end of 2014. Meanwhile, non-price
factors also remain a drag on competitiveness, in our view.
Timing is of the essence, though. In our view, France should reform, but only
progressively. Indeed, we have stressed on several occasions that risking killing one of the
few remaining engines of growth in the euro area French domestic demand is not a
good idea, especially if there is no other strong engine to take up the baton of growth.France needs to build a solid reform framework, applying those reforms in earnest
only once domestic demand in Germany takes off more robustly.This is, en passant,
the strategy deployed by Germany in the 2000s: reforms happened while the rest of the
euro area was enjoying strong domestic demand growth.
Fiscal consolidation appears to be on track so far, but additional steps will be
needed by 2015. The European Commission (EC)s forecasts published in November
envisaged that Frances general government budget deficit will be 4.1% of GDP in 2013
and 3.8% of GDP in 2014, and the EC concluded that France is compliant with European
rules so far. However, we concur with the ECs view that additional measures will have to
be taken to comply with the 3% of GDP deficit target for 2015.
Overall, recent data are consistent with our view that French GDP growth will pick
up this year relative to 2013 but also that it will likely underperform the euro areagrowth acceleration.The popularity of the government is currently very low. However, in
the context of improving euro area growth numbers, the relative underperformance of the
French economy should occur without causing too much additional collateral damage to
the French government.
https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1017791561&source_id=emcmt&serialid=IkRbC5sypgrINTcVulixfyWEAt4qrSjRBToM4GrUnDs%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1017791561&source_id=emcmt&serialid=IkRbC5sypgrINTcVulixfyWEAt4qrSjRBToM4GrUnDs%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1017791561&source_id=emcmt&serialid=IkRbC5sypgrINTcVulixfyWEAt4qrSjRBToM4GrUnDs%3d8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
13/17
07 January 2014
European Economics 13
German structural reforms? Nein danke!
The European crisis has been a major catalyst of reform action, but not in Germany .
From the start, the German economy was under less reform pressure thanks to
weathering the financial crisis with more resilience. In part, however, this was also due to
the economy harvesting labour market reforms implemented before the Merkel
governments by her centre-left predecessor in the first half of last decade. But the Merkel
years,which started in 2005,have not been characterized by any reform impulses athome.
This could be blamed on the fact that her first term in office was at the helm of a grand
coalition, but she led a centre-right coalition in her second term and as Exhibits 21 and 22
show, that time was not used to tweak and implement any furthering of the previous
reform effort. If anything, temporary labour contracts became marginally less flexible again,
although on that front Germany remains below the EU average. But it remains way above
that average when it comes to protection of permanent workers.
The rolling back of reforms is likely to be speeded up in coming years. Merkel has
started her third term in office leading a grand coalition once more and the coalition
agreement is a significant step-back from hard-won past economic reforms. This
applies not only to the labour market, where the introduction of a statutory minimum wage
will be accompanied by more regulation and restrictions on temporary work, but rent
controls and a lowering of the pension age is likely to put a brake on economic progress.
As the panel of independent economic experts who advise Merkel, the so-called five wise
men, bluntly remarked in their annual report: economic policy measures [in the coalition
agreement] taken together threaten to ruin the reform progress Germany has achieved
This flies in the face of periphery euro area members which have seen much pressure
to reform coming from Germany. As the wise men put it: The German federal government
can only convince other European governments to assume national responsibility and
conduct necessary reforms, if it adheres to this advice in its own national area of
responsibility. We could not agree more.
Exhibit 21: Protection of temporary workers againstindividual and collective dismissals Exhibit 22: Regulation on temporary contracts
Scale from 0 (least restrictions) to 6 (most restrictions) Scale from 0 (least restrictions) to 6 (most restrictions)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
USA UK IRL SPA GRE POR ITA FRA GER
2013
2008
EU average 2013
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
USA UK IRL SPA GRE POR ITA FRA GER
20132008
EU average 2013
Source: OECD, Credit Suisse Source: OECD, Credit Suisse
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
14/17
07 January 2014
European Economics 14
Political risk 1: The (European) Parliament of Populists
One of the consequences of the euro area crisis has been an increase in social
tensions and a rise in non-mainstream parties in several countries . There are still
residual risks of destabilising early-elections in Greece or Italy, for example, this year, but
the main political event should be the European parliamentary elections, on May 25. The
risk is that a similar increase in "extremism" surfaces in the European elections.
Our view is that this is more than a risk it is almost a certainty. If we trust recent
polls, the European parliament will have 25%or even close to 30% in some scenarios
of Eurosceptic MEPs (from just under 20% currently).
However, we also believe that eurosceptic MEPs will not be enough to block
decisions also because they are, differently from the large European Parliament's
political parties, quite heterogeneous amongst themselves. A strong nationalist party like
the Front National, in France, has been hovering around 20% of national vote for many
months now, according to polls. The same is true for Italy's M5S. Both parties present
themselves as fundamentally eurosceptic, and given the proportional electoral system in
existence for the EP elections, those two parties will have a significant delegation in
Brussels. However, these Eurosceptic parties are very heterogeneous. Similar
considerations are valid for otherleft or rightnational Eurosceptic parties.
The most likely outcome is that "Grand coalition" majorities will form on major
decisions, as has been the case until now in the present Parliament.Although polls
are suggesting a fall in support from the traditional center-right parties, and potentially a
slight relative majority in favour of the center-left (thanks notably to a return to form of the
Labour party in the UK), it is highly unlikely that the latter will be able to reach an absolute
majority without support from centrists and/or centre-right parties.
Overall, the risk of a blockage of the European institutions due to the surge in anti-
euro sentiment seems very small. However, it is a risk that needs to be monitored
closely first, because we are still five months away from the European elections; and
second, because the risk would be amplified later this year and beyond if the European,
and in particular euro zone economy, does not improve more forcefully.
Exhibit 23: Actual and predicted percentage of seats held by each parliamentary group
Estimates based on current polls
Abbr.Group Name 2009 2014 (E)
Predominantly Pro-European (PP) orPredominantly Eurosceptic (PE)
EPP European People's Party 36.0% 27.8% PP
S&D Socialists & Democrats 25.0% 28.4% PP
ALDE Alliance of Liberals and Democrats for Europe 11.4% 8.3% PP
Greens-EFA The GreensEuropean Free Alliance 7.5% 5.1% PP
ECR European Conservatives and Reformists 7.3% 8.1% PE
GUE-NGL European United LeftNordic Green Left 4.8% 6.3% PE
EFD Europe of Freedom and Democracy 4.3% 4.3% PE
Non-Inscrits Non-Inscrits 3.7% 11.9% PE
Total 100.0% 100.0%
Source: www.notre-europe.eu, Credit Suisse
8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
15/17
07 January 2014
European Economics 15
Political risk 2: Independence days
On September 18 Scotland will hold a referendum on the question Should Scotland
be an independent country?Current polls suggest that a no vote is likely, with about
60% of those polled voting no (excluding undecided and dont know votes). Nonetheless,
there are still eight months to go before the vote, and a yes vote does appear to be a
distinct risk.
A yes vote would raise significant economic questions.The most significant probably
concerns Scotlands choice of currency. While the yes campaign has stated that its
intention is for an independent Scotland to keep sterling as its legal currency, issues
remain unresolved. For example, if the Bank of England were the lender of last resort for
Scottish banks, what would its role be in bank supervision? Would there be a Scottish
representative on the MPC? Is it sensible to enter into a monetary union in which fiscal
transfers are being explicitly dissolved? The manner in which the national debt would
be split is also of interest.It seems likely that the current stock of gilts would remain a
liability of the remaining UK (rUK), while Scotland would take on a portion of the debt,
incurring a liability to the rUK (probably weighted by population or GDP) and gradually
issue its own sovereign bonds. The Fitch ratings agency has recently commented that
Scottish independence would not have a material impact on the credit rating of the rUK,
though presumably it could increase gross debt to GDP for the rUK by around 10% (withnet debt unchanged in the scenario described above).
The transition process could also be challenging.The yes campaign has said that if
the referendum passes they expect Scotland to become a fully independent country by
March 2016, leaving a year and a half of transition period between the referendum and
actual independence. This creates a risk of cross-border capital flows out of Scotland,
particularly if investors fear redenomination risk (as we saw in peripheral Europe). Outside
of the UK, a yes vote for Scottish independence could also have an impact on other
separatist groups, most notably in Catalonia.
Spains government can and will block Catalonias referendum on independence.
That is the big difference to Scotland. Catalonias president, Artur Mas, had to deliver on
his election promise and plans to hold a referendum on 9 November. But the Spanish
constitution requires approval from both the government and the lower house ofparliament and both the majority conservative government and the main opposition
socialist party oppose it.
The referendum might thus be a mere consultation which is not legally binding. But
this risks pushing the problem out into 2016. Mas has already warned that if Madrid
opposes the referendum he will turn the regional election due that year into a vote on
independence.
Much will depend on Spains economic recovery.Fiscal austerity has been at the root
of the more secessionist fervour as we wrote in Catalonia's choice.The region, Spains
wealthiest but also most indebted one, has long sought to re-negotiate intra-regional
transfers and to have more tax autonomy along the lines of Navarre and the Basque
country. A reform of the financing of the regions via a more federal system could appease
Catalonia, but although favoured by socialists, the conservative government continues to
oppose this path. But this might change after the 2015 national election if calls for
secession remain strong.
https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1003673261&source_id=emcsplus&serialid=MnKm5%2bdVYtNCURnN4%2fA48gU0oOxmk7xMd3hOqvJCJow%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1003673261&source_id=emcsplus&serialid=MnKm5%2bdVYtNCURnN4%2fA48gU0oOxmk7xMd3hOqvJCJow%3dhttps://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=1003673261&source_id=emcsplus&serialid=MnKm5%2bdVYtNCURnN4%2fA48gU0oOxmk7xMd3hOqvJCJow%3d8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
16/17
GLOBAL FIXED INCOME AND ECONOMIC RESEARCHDr. Neal Soss
Global Head of Economics and Demographics Research(212) 325 3335
Eric MillerCo-Head, Securities Research & Analytics
(212) 538 [email protected]
ECONOMICS AND DEMOGRAPHICS RESEARCH
GLOBAL / US ECONOMICS
Dr. Neal Soss
(212) 325 3335
Jay Feldman
(212) 325 7634
Dana Saporta
(212) 538 3163
Isaac Lebwohl
(212) 538 1906
LATIN AMERICA (LATAM) ECONOMICS
Alonso Cervera
Head of Latam Economics
52 55 5283 3845
Mexico, Chile
Casey Reckman
(212) 325 5570
Argentina, Venezuela
Daniel Chodos
(212) 325 7708
Latam Strategy
Juan Lorenzo Maldonado
(212) 325 4245
Colombia, Peru
Di Fu
(212) 538 4125
BRAZIL ECONOMICS
Nilson Teixeira
Head of Brazil Economics
55 11 3701 6288
Daniel Lavarda
55 11 3701 6352
Iana Ferrao
55 11 3701 6345
Leonardo Fonseca
55 11 3701 6348
Paulo Coutinho
55 11 3701-6353
EURO AREA / UK ECONOMICS
Neville Hill
Head of European Economics
44 20 7888 1334
Christel Aranda-Hassel
44 20 7888 1383
Giovanni Zanni
44 20 7888 6827
Violante di Canossa
44 20 7883 4192
Axel Lang
44 20 7883 3738
Steven Bryce
44 20 7883 7360
Mirco Bulega
44 20 7883 9315
EASTERN EUROPE, MIDDLE EAST AND AFRICA (EEMEA)ECONOMICSBerna Bayazitoglu
Head of EEMEA Economics
44 20 7883 3431
Turkey
Sergei Voloboev
44 20 7888 3694
Russia, Ukraine, Kazakhstan
Carlos Teixeira
27 11 012 8054
South Africa
Gergely Hudecz
33 1 7039 0103
Czech Republic, Hungary, Poland
Alexey Pogorelov
7 495 967 8772
Russia, Ukraine, Kazakhstan
Natig Mustafayev
44 20 7888 1065
EM and EEMEA cross-country analysis
Nimrod Mevorach
44 20 7888 1257
EEMEA Strategy, Israel
JAPAN ECONOMICS NON-JAPAN (NJA) ECONOMICS
Hiromichi Shirakawa
Head of Japan Economics
81 3 4550 7117
Takashi Shiono
81 3 4550 7189
Dong Tao
Head of NJA Economics
852 2101 7469
China
Robert Prior-Wandesforde
65 6212 [email protected]
Regional, India, Indonesia, Australia
Christiaan Tuntono
852 2101 [email protected]
Hong Kong, Korea, Taiwan
Santitarn Sathirathai
65 6212 5675
Regional, Malaysia, Thailand
Michael Wan
65 6212 3418
Singapore, Philippines
Weishen Deng
852 2101 7162
China
GLOBAL DEMOGRAPHICS & PENSIONS RESEARCH
Dr. Amlan Roy
Head of Global Demographics
44 20 7888 1501
Sonali Punhani
44 20 7883 4297
Angela Hsieh
44 20 7883 9639
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]8/13/2019 Credit Suisse, Jan 7, 2014, European Economics. " 14 points for 2014"
17/17
Disclosure Appendix
Analyst CertificationThe analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal viewsabout 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.References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link:https://www.credit-suisse.com/who_we_are/en/This report may contain material that 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 licensingrequirement 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 trademarksor 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 anoffer 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 treatrecipients 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 anindependent 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 orstrategy 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 contactan 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 bereliable, 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 tothe 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 thefuture issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analyticalmethods of the analysts who prepared them and CS is under no obligation to ensure that such other communications 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, oreffect 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 lastthree 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 providedwithin 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. Someinvestments 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. Pastperformance 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 judgment 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 thisreport 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 financialinstruments. 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 riskand 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, financialand 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 interestedin 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 investmentsdiscussed 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 youroriginal 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 difficultto 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 containhyperlinks 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 suchwebsite 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 authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA. This report is being distributed in Germany by CreditSuisse 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 CreditSuisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (Mxico), S.A. (transactions related to thesecurities 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 FinanceBureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewherein 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, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse
AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), havingregistered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT CreditSuisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, TaipeiSecurities 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 whomthey should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under theFinancial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutionalinvestor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 ofSingapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide toyou. 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 applicablesecurities 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 wishingto 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 CreditSuisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are notmarket professional or institutional investor customers 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 itscontents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the PRA and regulated by the FCA and the PRA or in respect of which theprotections of the PRA and FCA 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. CSmay 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 tomunicipalities 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'slength 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 oron behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution shouldcontact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financialinstitution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content.Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.Copyright 2014 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 principalcan 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, youwill be requested to pay the purchase price only.
https://www.credit-suisse.com/who_we_are/en/https://www.credit-suisse.com/who_we_are/en/https://www.credit-suisse.com/who_we_are/en/