The World After Brexit

Deutsche Bank Research

Global

Economics

Date 5 July 2016

Global Economic Perspectives

The World After Brexit

________________________________________________________________________________________________________________

Deutsche Bank Securities Inc.

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Peter Hooper

Chief Economist

(+1) 212 250-7352

[email protected]

Michael Spencer

Chief Economist

(+852 ) 2203 8303

[email protected]

Mark Wall

Chief Economist

(+44) 20 754-52087

[email protected]

Torsten Slok

Chief Economist

(+1) 212 250-2155

[email protected]

Matthew Luzzetti

Economist

(+1) 212 250-6161

[email protected]

As the dust begins to settle on the global landscape post Brexit, we take a fresh look at economic prospects for the year ahead. This initial read is subject to even greater uncertainty than usual, making any numbers that we write down questionable at best. That said, at this juncture we see global growth for the year ahead affected only very modestly negatively by the surprise outcome of the UK referendum. Compared to our previous global outlook in December, growth has been marked down by several tenths this year and next, but only partly due to Brexit.

Economic prospects in the UK have taken a substantial hit, but probably not enough to induce a recession. Uncertainty surrounding the process and terms of the UK’s new economic relationship to be determined in the years ahead will weigh on private investment and consumption spending for some time to come. At the same time, policy easing by the Bank of England and substantial depreciation of the pound (with more to come) will cushion the blow.

As Brexit unfolds, we expect the UK’s relationship with the EU countries to gravitate toward preferential trade and financial agreements that fall noticeably short of unfettered access to each other’s markets but also improves noticeably on a WTO baseline. The UK electorate has spoken and wants more control over immigration, regulation, and legislation than the EU would allow under full access to the Single Market. Yet the UK is important enough to the EU to hold significant sway in upcoming negotiations, so we can expect the final arrangement to be unique.

Brexit’s global economic implications are modest because of the UK’s relatively small share in global GDP (a little over 2%). But its potential impact on the EU is more serious, especially for some of its closer trading partners, and in light of potential implications for latent populist political pressures within various member countries. Our guess is that EU GDP growth will be reduced by at least several tenths through next year, and the risks are skewed to the downside.

A key risk and potentially serious crack in the union down the road is to Europe’s banking system. Banks have been weakened by a combination of slow growth, low rates, regulatory tightening, and compression of capital ratios as financial stock prices have plunged – especially in the wake of Brexit. Banking risks are especially acute in Italy.

Our baseline economic scenario for Europe assumes acceleration in credit, but recent developments in the European banking sector pose significant downside risks to this view. A mild scenario where banks decide to keep their balance sheets unchanged until the end of 2017 would lead to a halving of European growth, while a more serious credit crunch could lead to negative growth in 2017.

Distributed on: 07/05/2016 23:29:22GMT

5 July 2016

Global Economic Perspectives: The World After Brexit

Page 2 Deutsche Bank Securities Inc.

The World After Brexit

Introduction

The people have spoken, but for what? The UK’s exit from the EU is not a unilateral process but one that must be negotiated with the 27 other EU countries. That process, possibly lasting more than the two years provided for in the Lisbon Treaty, is fraught with uncertainty, with possibilities ranging from the UK remaining in the Single Market to one in which it is excluded even from a free trade agreement. We think both extremes are unlikely. Rather, we expect the EU members to reach a new kind of agreement, providing the UK and the EU27 with preferential but not unfettered access to each others’ markets – most likely including markets for most financial services. But with the UK unlikely to begin the process described in Article 50 until late this year at the earliest, we expect little reliable information about the future trade and financial relationships between the UK and EU27 will be available for many months.

This uncertainty will likely dampen investment and consumption in the UK and the EU27 countries in the near term. Even if the intention on both sides is to reach an agreement which preserves much of the current economic and financial relationship, the longer the uncertainty lingers the greater will be the economic cost. And the transitional cost will be greater the further away from the status quo the eventual agreement is.

And yet, perhaps surprisingly, we see little potential fallout from this rift on the rest of the world. While we have lowered our UK and Euro area growth forecasts for 2017 quite significantly (by 1.2% and 0.4%, respectively), our US, Japanese and emerging market forecasts show very little downward pressure. The direct impact of Brexit on our 2017 growth forecast for the US, for example, is only -0.1%, while our China and Japan forecast were lowered by 0.2%.

What’s next?

While some commentators – and apparently some voters – may hope for a reversal of the referendum, via a second referendum or a general election, we think that is unlikely and therefore investors should expect a withdrawal of the UK from the EU. That process formally will begin only when the UK government exercises its rights under Article 50 of the Lisbon Treaty, something that is unlikely to happen until after the governing Conservative party selects a new leader in September and possibly not until next year. Article 50 provides for a two-year period of negotiation, the resulting terms of which will require the agreement of a majority of the 27 remaining EU countries and the European Parliament. Possibly, it will take longer than that.

But what kind of relationship will be negotiated? There appear to be a range of possibilities between membership in the European Economic Area – which provides access to the common market in goods and services but requires acceptance of the Four Freedoms of mobility of goods, services, capital and labour – and a more remote WTO-rules based relationship in which the UK trades with the EU27 like any other country that hasn’t negotiated a free trade agreement.

The intention of the UK government – and this is in the interest of the other EU members too – is for it to retain as much of the current trading relationship as possible. The Exit camp did not campaign on an economic autarchy platform, after all. But while the UK will want to be able to restrict immigration, the initial position of the other EU countries is that anything more than the temporary

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Deutsche Bank Securities Inc. Page 3

emergency measures and delays in access to social services that were agreed in February would be unacceptable. While immigration may not be the firm ‘red line’ it is portrayed to be – other EU states have an interest in restricting immigration and so perhaps more flexibility is possible – this will likely be a key point of contention in the negotiations.

Sovereignty – greater autonomy in legislation and regulation -- was also a recurring theme in the referendum campaign and while it may be harder to pin down precisely what the UK wants, it seems to us that any significant shift of regulatory or legislative authority to the UK – or more precisely any material difference in UK legislation or regulation from that prevailing in the EU -- would be inimical with access to the Single Market.

Both considerations would appear, at present, to rule out UK membership in the European Economic Area since the EU has historically tied EEA membership to acceptance of the Four Freedoms. And we expect the UK would not accept being compelled to abide by EU regulations (to retain access to the Single Market) without being able to influence them.

But we think the size and influence of the UK argue for the possibility of a special arrangement beyond what has historically been offered to non-EU countries. So, while completely barrier-free trade is unlikely to be possible as long as the UK insists on regaining sovereignty and restricting immigration beyond what was agreed in February, we think they will succeed in negotiating a free trade agreement that substantially improves on the WTO default.

We expect, similarly, that financial services will also end up in a kind of intermediate arrangement: firms headquartered in the UK won’t be able to passport into the EU, but MiFID2 already seems to allow substantial cross-border provision of some financial services as long as UK regulation is deemed to be equivalent to EU regulation, which we think is not an insurmountable challenge.

Forecasting the global economy post-Brexit

At the best of times, economic forecasting is a challenging and often humbling experience. When the starting point is as uncertain as it often is even in G3 economies where GDP estimates are subject to substantial revisions, providing forecasts during periods of relative calm is difficult enough. We are faced today with trying to provide forecasts during a period of model uncertainty: the key institutional underpinnings of the UK and other economies closely linked to it may be about to change fundamentally. Lacking precedent, anticipating how businesses, households and capital markets will respond requires a judgment call that could end up driving the whole forecast.

Still, we cannot be agnostic about the economic effects of Exit and we believe we can at least provide some guidance even if the numerical forecasts carry a much wider confidence interval than usual.

Conceptually, we think the economic effects of Brexit can be viewed through the lens of conventional trade theory. Just as free trade agreements expand the scope of activities of a country’s entrepreneurs and expand the consumption opportunities of its residents, the erection of trade barriers does the opposite. Firms may find that they have invested on the expectation of engaging in a trading business that is no longer profitable due to tariff and non-tariff barriers on exports or imports. Consumers may find that goods they were accustomed to buying are now prohibitively expensive. They may, though, divert spending to locally sourced goods. But firms may find it more difficult to divert production to local markets. And if firms experience a decline in sales or reduce investment then consumption opportunities will be constrained over time by the lower trend growth in employment income.

5 July 2016



If the UK chooses to remain in the Single Market then trade restrictions will be minimal and the economic consequences minor. At the other extreme of possible scenarios, trading on WTO most-favoured nations terms between the UK and EU will introduce sometimes quite high tariffs on goods trade. And anything short of a customs union agreement will at least re-introduce border checks and other non-tariff inhibitions to trade.

So one can imagine a range of possibilities with progressively greater barriers to trade being introduced and commensurately greater economic adjustment costs. And even though firms and consumers will eventually adjust, there will always be a deadweight loss – the inefficiency costs of interfering with trade. Policy can mitigate this loss – by removing trade barriers with other countries, for example – but unless those policies were not available prior to Brexit (i.e., if the EU was not interested in an FTA with China but the UK is) these don’t fundamentally change the outlook.

What this means for the UK The OECD estimates that in 2011 over half (52.5%) of the domestic value added in UK manufacturing reflected foreign demand.1 That ratio had been rising in previous years so it may be higher today. So a great many firms in the UK will be reconsidering their investment plans. Uncertainty in principle can mean a higher probability of both more positive and more negative outcomes. But Brexit means a particular kind of uncertainty: a rising probability of a negative outcome. So the longer it takes to get clarity on the kind of trade deal the UK and EU27 strike, and the further that agreement is from the status quo ante, the greater the negative impact on investment.

Real business investment in the UK was already falling at an annualized pace of 5.6% over the past two quarters. We expect that with the decision to leave the EU, many more firms will suspend their investment plans pending a decision on whether to move their operations to the other side of the EU tariff wall. By the end of this year, we think business investment could be falling at a 10% annualized rate. Weaker investment will exert a drag on consumption growth too through slower employment and income growth and we have lowered our forecast for UK private consumption growth from 2.5% in a Remain state of the world to 1.7% in the coming few years.

A devaluation of the pound can provide a near-term boost to exports and, unless reversed, offset to some extent the tariff/friction costs to exports. It’ll also discourage imports, though, which will neutralize the effect on exports to the extent that they embody imported intermediate goods – the OECD estimates that in 2011 22.9% of the gross value of UK exports was foreign content – and lead to a reduction in imports of consumer goods. With the UK running a current account deficit of 5.6% of GDP last year, the highest since at least 1955, a depreciation of the pound seems desirable anyway.

So our forecast now for the UK economy has growth reduced by about 1.2ppts during the transition period to the new trade relationship with the EU27. So for 2017, to be precise, we see GDP growth of 0.9%. As we stated above, our baseline view assumes that the result of the upcoming negotiations will leave the UK with somewhat diminished access to the single market, but something at least moderately better than conventional WTO status. While the degradation of access to the EU will be a blow, we do not see it as serious enough to push the UK economy into recession. Recession normally ensues either when an overinvestment imbalance has occurred or monetary authorities have hit the brakes to deal with a serious inflation problem. Neither of those circumstances is currently present in the UK. Moreover, a significant depreciation of sterling along with anticipated easing by the Bank of England will cushion the slowdown.

1https://www.oecd.org/sti/ind/tiva/CN_2015_UnitedKingdom.pdf

https://www.oecd.org/sti/ind/tiva/CN_2015_UnitedKingdom.pdf

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The impact of Brexit on the UK’s financial services sector has received considerable attention, as befitting an important part of the UK economy. As with the merchandise trade relationship between the UK and the rest of the EU there is a wide range of possibilities between a more positive view that most financial services might be able to be provided from London after 2017 under the MiFID2 Directive and the more alarmist suggestions that the loss of the single passport could mean the hollowing out of the City’s financial center. Our own view is at the more positive end of this spectrum. We think it would be very reasonable to argue that the UK regulatory regime is at least as robust as that in the other EU countries and so UK-regulated firms and individuals ought to be given the opportunity to ply their trade unless it is not provided for in the Directive. We would note, though, that the UK financial services sector is less export-dependent than UK manufacturing is – finance is mostly local – so the uncertainty on this question may be less important to the UK economy outside London than it may be to many readers of this report.

It was argued during the referendum campaign that leaving the EU would allow the UK to escape the heavy burden of EU regulations, boosting its long run growth potential. We are not persuaded by those arguments. The UK is already, evidence suggests, a much less regulated economy than most of its continental peers – consider the differences in labour laws between London and either Frankfurt or Paris – and if the desire is to remain in the single market or something approximating it there is unlikely to be much scope to depart from EU norms in other respects.2

Thinking about the impact on other countries In thinking about how Brexit affects countries other than the UK, we expect the inhibition to demand created by this uncertainty will be broadly proportional to the importance of trade between each country and the UK. While the EU accounts for 44% of the UK’s merchandize exports, the UK represents only about 7% of the other EU economies’ exports. So the impact on the Euro Area economies is likely to be less serious than the impact on the UK economy. So it’s not surprising that while we have lowered our 2016 and 2017 GDP growth forecasts for the UK by 0.2% and 1.2% respectively, we have lowered our Euro Area forecasts by only 0.1% and 0.4%.

Within the EU27 we think the distribution of economic losses from Brexit will be more heavily weighted to those countries – Belgium, the Netherlands, Ireland and (non-EU but an EEA country) Norway – for whom exports to the UK are the largest relative to their GDPs (Figure 1).

Figure 1: Exports of goods to UK as % of GDP

Source: IMF, Haver Analytics LP, Deutsche Bank Research

2See Springford, John,”Brexit and EU Regulation: A Bonfire of the Vanities?”, Center for European Reform

February 2016. (http://www.cer.org.uk/publications/archive/policy-brief/2016/brexit-and-eu-regulation-

bonfire-vanities). Springford argues that the UK is a slightly more regulated economy than the US, but

considerably less heavily regulated than most other OECD economies including other EU members.

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aExports of goods to UK % GDP, 2015

http://www.cer.org.uk/publications/archive/policy-brief/2016/brexit-and-eu-regulation-bonfire-vanities

http://www.cer.org.uk/publications/archive/policy-brief/2016/brexit-and-eu-regulation-bonfire-vanities

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Beyond the EU economies, trade links with the UK are surprisingly modest. It may be the world’s fifth largest economy but that means it is about as large an economy as Brazil or Indonesia - -or California, from a US perspective. Just as we don’t often think of shocks to Californian growth as having important global spillovers, it may not be surprising if the Brexit vote doesn’t have dramatic effects outside the UK and a few other European countries. The UK’s once dominant position in world trade is an ancient legacy.

If the result of the exit negotiations results in a greater tariff and non-tariff barriers to trade between the UK and the EU then the transition costs for the UK will be worse than we have assumed and there may be some mitigating investment flow into the EU by firms seeking to avoid these trade frictions. Trade barriers may lower potential growth in all economies, but again we would think these permanent losses will be proportional to the size of the trade relations – that is, a greater impact on the UK than on most EU members and a yet smaller effect on non-EU economies.

In the long run, though, by which we mean something in the order of 5 years or more, it may be difficult to find evidence of a lasting effect of Brexit on even the UK economy. Firms and households will adapt to the changing institutional environment and once firms have adjusted their investments the potential growth rate of the UK economy may not be far from where it is today.

Some new tentative forecasts With these considerations in mind, and some trepidation, we offer our new outlook for the global economy in Figure 2. Crucially, growth in the advanced economies is now seen to be slowing this year where at the beginning of the year we thought it would be stable. And the upside to growth in 2017 that we now see in Japan as a consequence of the delay in the consumption tax increase is offset by the slowdown in the Euro area caused by Brexit.

Figure 2: Global growth and inflation outlook

Source: National statistical authorities, Deutsche Bank Research

Since our last coordinated global forecast revision in December, global growth has been revised down for this year by 0.4% and next year’s forecast has been lowered by 0.3% (Figure 3). The G7 economies are still expected to provide a broadly stable backdrop to EM growth, but a rather less supportive one with GDP growth averaging 1.4% next year versus the 1.8% forecast we had at the beginning of the year. The UK has obviously seen the biggest forecast

2014 2015 2016F 2017F 2014 2015 2016F 2017F

G7 1.7 1.8 1.3 1.4 1.5 0.2 0.9 1.7

US 2.4 2.4 1.5 1.7 1.6 0.1 1.4 2.0

Japan -0.1 0.6 0.2 1.1 2.7 0.8 -0.1 0.8

Euro area 0.9 1.6 1.6 1.1 0.4 0.0 0.2 1.2

UK 3.1 2.2 1.7 0.9 1.5 0.0 0.7 2.2

Asia (ex-Japan) 6.4 6.1 6.0 6.0 3.4 2.4 2.6 2.8

China 7.3 6.9 6.6 6.5 2.0 1.4 1.8 1.8

India 7.0 7.2 7.5 7.6 6.7 4.9 5.2 4.9

EEMEA 2.4 1.1 1.5 2.4 6.0 8.8 6.6 5.8

Turkey 3.0 4.0 4.0 3.8 8.9 7.7 7.4 7.4

Latin America 1.0 -0.4 -0.6 1.8 12.5 15.5 28.0 27.4

Brazil 0.1 -3.8 -3.2 1.0 6.3 9.0 8.8 5.9

Advanced economies 1.7 1.9 1.4 1.5 1.3 0.2 0.8 1.6

EM economies 4.6 4.0 4.1 4.7 5.3 5.7 6.9 6.7

Global 3.4 3.1 3.0 3.4 3.6 3.4 4.4 4.6

GDP growth, % CPI inflation, %

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revisions. Euro Area growth remains at 1.6% this year but has been revised down to 1.1% next year from 1.5% previously. US growth has cumulatively been revised down even more, but in this case the impact of Brexit has been minor – on the order of 0.1% of GDP to the downside over the coming year. A weaker-than-anticipated start to the year, coupled with a worrying rise in inventories, have been the more important factors in leading us to lower our 2016 growth forecast to 1.5% from 2.1% previously and the outlook for 2017 to 1.7% from 2.1% previously.

Figure 3: Most revisions have been downward

Note: December 15 World Outlook forecasts have been recalculated using IMF WEO April -16 ppp weights Source: National statistical authorities, Deutsche Bank Research

In the emerging markets, forecast revisions have been, on balance, smaller than for the advanced economies – a marked change from pre-crisis years when emerging market economies often exhibited an exaggerated sensitivity to fluctuations in advanced economy growth. Led by an 80bps downgrade to our Brazil GDP forecast and a 20bps cut in our China forecast, the EM group of countries is now forecast to grow 4.1% this year versus 4.4% expected in December. The EM forecast revision is somewhat smaller for 2017 (-20bps), resulting in a widening of the expected growth differential in favour of emerging markets to 4.7% growth next year versus 1.5% for the advanced economies.

Since December, our inflation forecasts in the advanced economies have been lowered by 0.5%, a consequence mostly of lower-than-expected energy prices. Inflation forecasts for most emerging market economies have receded slightly since the beginning of the year, with the notable exception of Latin America where inflation has surprised to the upside so far this year. The UK referendum result hasn’t led to a significant change in the inflation outlook except in the UK itself, where the depreciation of the pound (with more to come, in our strategists’ view) is expected to push inflation up to 2.2% next year from 1.2% this year.

Despite this rise in inflation expectations, we expect the Bank of England will cut its policy rate twice in Q3, taking it back to the effective floor of 0.1%. The currency-induced inflation spike will be temporary if, as we expect, growth slows below potential in 2017. Our outlook for the ECB has not changed materially, beyond perhaps bringing forward the timing of an expected

%yoy 2015 2016F 2017F 2015 2016F 2017F

G7 0.0 -0.6 -0.4 -0.1 -0.6 -0.4

US 0.0 -0.6 -0.4 -0.1 -0.6 -0.3

Japan -0.1 -1.2 0.3 0.0 -0.8 -1.3

Euro area 0.1 0.0 -0.4 -0.1 -0.7 -0.4

UK -0.1 -0.8 -1.4 0.0 -0.4 0.3

Asia (ex-Japan) 0.0 -0.2 -0.3 0.0 -0.2 -0.1

China -0.1 -0.2 -0.2 0.0 0.0 0.0

India 0.0 0.0 -0.2 0.0 -0.2 0.0

EEMEA 0.1 -0.4 -0.1 0.0 -0.1 -0.1

Turkey 1.1 0.9 0.3 0.1 -0.4 -0.1

Latin America 0.4 -0.5 -0.4 0.0 8.8 7.3

Brazil -0.1 -0.8 -0.1 0.0 0.3 -0.3

Advanced economies 0.0 -0.5 -0.4 -0.1 -0.6 -0.4

EM economies 0.1 -0.3 -0.2 0.0 1.0 0.9

Global 0.0 -0.4 -0.3 0.0 0.3 0.4

Forcast changes since December World Outlook

GDP growth Inflation

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announcement of a further six month extension of its asset purchases and perhaps additional TLTROs. The Bank of Japan is also more likely to ease policy, and after January’s surprise shift in tactic to a negative deposit rate we expect another 10bps rate cut in Q3 this year but no more cuts thereafter.

The biggest change to our policy views, however, is in the US where our lower real GDP growth and inflation forecasts have led us to lower our forecast for the Fed Funds rate by the end of 2017 from 2.13% previously to 1.13%. We still think the Fed will raise rates once this year, in December, but expect only two rate hikes next year.

Systemic risk returns

Since most markets had rallied on the eve of the referendum – a misplaced confidence in a Remain outcome – the response to the Exit result was initially one of shock. But a week or so later investors have regained their balance and in most respects markets seem to be in good shape. Sure, the pound has depreciated about 12% against the dollar since June 23, but the euro is off only 2%. Given how we see the economic losses being distributed, a larger decline in the value of sterling than the euro seems reasonable. Indeed, our strategists expect considerably more depreciation as the Bank of England eases policy. Perhaps reflecting the pound’s depreciation, the UK equity market index has risen above where it was before the referendum, while the broad European equity index is down only 4.5%, which strikes us as a modest decline.

Outside Europe, financial markets have generally absorbed the shock well. Two exceptions stand out to us: the yen is still 4% stronger against the dollar and US treasury yields have fallen even more than Euro Area yields, developments that we attribute to flight to quality flows.

All in all we think the financial markets response implies a very modest tightening of financial conditions in the Euro Area and US if not, in the UK case, a welcome easing. But this will only help offset the possible deterioration in international trade if banks don’t tighten credit. And here, once again, we see rising risks. European financial institutions have seen sharp declines in equity valuations and a widening of credit spreads, raising the risk of a tightening of lending conditions. At the forefront of market concerns at present is the Italian banking system where the government had earlier announced a strategy to help recapitalize banks but has encountered some challenges in putting it into effect.

The downgrade to our euro area forecast still requires an acceleration of euro area credit growth to +3% by the end of 2017; this is only a modest 1pp downward revision relative to our pre-Brexit baseline. 3 But the recent plunge in European bank equity prices poses substantial risks to this view.

Deeply discounted bank stocks reflect serious concerns about profitability. Indeed, there has been a sharp reversal in expectations for bank earnings: Current consensus forecasts project bank earnings to fall by 14% this year, compared to expectations for a 6% rise just six months ago. Expectations for bank earnings are likely to deteriorate further following the Brexit vote.

While all European bank equity indices have suffered after the Brexit vote, Italian banks have been at the center of these concerns. Worries are being driven by the confluence of: (i) chronic weak growth, (ii) unresolved non-performing loan (NPL) issues and (iii) potential political instability ahead of the October Senate referendum. The stock of gross NPLs for Italian banks reached about EUR 200bn, and the average market value of NPLs is currently just 20%

3 For a more detailed discussion of this topic, see Deutsche Bank Research Special Report: Brexit and

euro-area banks: A key contagion channel, (5 July 2016).

http://pull.db-gmresearch.com/p/1662-3ED1/33832060/DB_SpecialReport_2016-07-05_0900b8c08b5c43b9.pdf

http://pull.db-gmresearch.com/p/1662-3ED1/33832060/DB_SpecialReport_2016-07-05_0900b8c08b5c43b9.pdf

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of its nominal value – only half of the implied carry value. Our European colleagues estimate that the cost of taking an immediate action would be for banks to book EUR 43bn of additional provisions if NPLs were valued at current market prices. This would represent a capital hit of about EUR 28bn, or 1.7% of Italian GDP.

Similar declines in bank equity prices may not have a meaningful impact on credit dynamics during normal times, but they are likely to adversely impact credit growth when capital requirements are tightening and banks are struggling to raise capital organically. The collapse in equity prices reduces banks’ ability to raise capital externally. At the same time, extremely low and flat yield curves hinder banks’ ability to grow capital internally. And Brexit means that such an environment will persist for longer. It follows that sustaining lending growth in such circumstances becomes extremely challenging even before accounting for tighter regulation. Moreover, the new aggressive bail-in rules are another element reducing investors’ willingness to invest in banks. And the problem is exacerbated when capital requirements become more stringent in an uncertain economic period.

Market stress can hinder banks’ ability to provide credit, which, in turn, would adversely impact the euro area growth outlook. Employment prospects would worsen, potentially undermining political stability. To assess the impact on euro area growth we consider two scenarios:

Scenario 1: Banks keep their balance sheets unchanged until end-2017 We start with a mild scenario where banks decide to keep their balance sheets unchanged until the end of 2017. In this scenario, the euro area credit impulse would turn negative for the next 12 months, and private domestic demand stagnates until late 2017. As a result, the pace of GDP recovery in 2017 would decline to 0.5%, and the unemployment gap would widen. The impact on euro area growth would be even more significant if we were to also account for feedback effects from global demand.

Scenario 2: A new credit crunch Banks may have to rely to a greater extent on reducing risk-weighted assets (RWAs) to meet new regulatory requirements if they struggle to raise their capital levels. Based on analysis from our European banks analysts, to meet upcoming capital requirements, banks would need to reduce their loan book RWAs by 6.5% if they could raise only half of the required capital. This scenario would require a 2% annual credit contraction until 2019, potentially leading to a cumulative drag of close to 3pp on our euro area private domestic growth projections for 2017-18. Euro area GDP would contract slightly in 2017 (-0.1%), increase well below potential in 2018 (0.4%), and unemployment would begin to rise.

While some significant banking stress is built into our forecast, both of these scenarios represent downside risks. They are risks not to be taken lightly. On the one hand, a variety of policy measures are available that could ameliorate these banking sector risks, including more immediate recognition of non-performing loans, bank recapitalization, progress towards a euro-area wide deposit insurance scheme, temporary regulatory forbearance, and reversal of deposit rate cuts (or at least avoidance of further cuts). But on the other hand, we see significant political constraints in implementing such measures.

Peter Hooper, (1) 212 250 7352 Matthew Luzzetti, (1) 212 250 6161 Michael Spencer, (852) 2203 8303

Mark Wall, (44) 20 754 52087 Torsten Slok, (1) 212 250 2155

5 July 2016



Key Economic Forecasts

Source: Deutsche Bank Research, National statistical authorities

Advanced economies 2015 2016F 2017F 2015 2016F 2017F 2015 2016F 2017F 2015 2016F 2017F

US 2.4 1.5 1.7 0.1 1.4 2.0 -2.4 -2.4 -2.6 -2.4 -2.9 -2.9

Japan 0.6 0.2 1.1 0.8 -0.1 0.8 3.3 3.7 3.2 -4.0 -4.0 -3.8

Euro area 1.6 1.6 1.1 0.0 0.2 1.2 3.2 2.6 2.0 -2.1 -2.0 -1.9

Germany 1.7 1.7 1.3 0.1 0.4 1.4 8.5 8.1 7.6 0.7 0.0 -0.2

France 1.2 1.5 1.3 0.1 0.2 1.0 -0.2 -0.3 -0.3 -3.5 -3.3 -2.9

Italy 0.8 0.9 0.4 0.1 0.0 1.1 2.2 2.6 1.9 -2.6 -2.5 -2.4

Spain 3.2 2.8 1.7 -0.6 -0.4 1.3 1.4 1.1 0.3 -5.1 -4.0 -3.6

Netherlands 2.0 1.3 0.9 0.2 0.2 1.1 8.6 10.5 10.2 -1.8 -1.8 -1.8

Belgium 1.4 1.2 0.9 0.6 1.7 1.8 0.0 1.0 0.8 -2.6 -2.7 -2.5

Austria 0.8 1.1 1.1 0.8 1.1 1.7 2.6 2.7 2.7 -1.2 -1.6 -1.5

Finland 0.7 1.1 0.7 -0.1 0.5 1.2 0.1 0.2 0.1 -2.7 -2.4 -2.4

Greece -0.3 -0.7 1.2 -1.1 -0.3 0.7 0.0 1.0 0.9 -7.2 -3.7 -2.0

Portugal 1.5 1.0 1.1 0.5 0.8 1.3 0.6 1.0 0.7 -4.4 -2.8 -2.8

Ireland 7.8 5.0 2.9 0.0 0.3 1.4 4.5 4.0 2.9 -2.3 -1.1 -1.1

United Kingdom 2.2 1.7 0.9 0.0 0.7 2.2 -4.7 -4.0 -3.5 -4.3 -3.0 -3.0

Denmark 1.0 1.1 1.8 0.5 0.4 1.6 7.0 7.0 7.0 -2.5 -2.5 -2.0

Norway 1.1 0.8 1.8 2.2 2.9 2.4 9.0 6.5 6.5 9.0 6.5 6.5

Sweden 3.9 3.3 2.4 0.0 1.0 1.5 5.9 5.7 5.5 -0.8 -1.0 -0.5

Switzerland 0.9 1.0 1.5 -1.1 -0.7 0.3 11.4 9.0 8.0 0.3 -0.5 -0.5

Canada 1.2 1.3 1.9 1.1 1.7 1.9 -3.2 -2.9 -1.9 -0.1 0.3 1.5

Australia 2.5 3.1 3.1 1.5 1.3 1.8 -4.8 -4.5 -4.3 -2.4 -2.3 -1.8

New Zealand 2.5 3.1 2.7 0.3 0.9 2.1 -3.2 -3.4 -3.5 0.4 0.8 1.0

EEMEA 1.1 1.5 2.4 8.8 6.6 5.8 -0.8 -1.6 -0.7 -4.9 -5.2 -3.9

Czech Republic 4.3 2.6 2.7 0.3 0.7 1.6 0.9 1.1 0.5 -1.9 -1.4 -1.6

Egypt 4.2 3.6 4.0 11.0 10.5 9.5 -3.7 -4.0 -3.2 -11.5 -11.0 -9.6

Hungary 2.9 2.4 2.5 -0.1 0.5 1.8 4.4 4.2 3.0 -2.0 -1.9 -2.7

Israel 2.5 2.6 3.1 -0.6 -0.5 0.6 4.7 4.3 4.2 -2.1 -2.9 -2.9

Kazakhstan 1.5 2.0 3.6 6.4 14.2 6.5 -3.0 -3.7 -1.9 -3.2 -0.2 0.1

Nigeria 2.8 2.6 4.1 9.0 11.0 9.5 -3.2 -3.2 -2.0 -3.4 -4.3 -3.0

Poland 3.6 3.6 3.3 -0.9 -0.7 1.1 -0.2 -0.7 -1.6 -2.6 -2.9 -3.0

Romania 3.7 4.0 3.0 -0.6 -0.2 2.6 -0.7 -1.1 -1.5 -1.2 -2.9 -3.0

Saudi Arabia 3.4 1.4 1.6 2.2 4.0 4.0 -8.2 -12.2 -6.8 -15.9 -14.0 -9.5

South Africa 1.3 -0.1 0.5 4.6 6.6 6.3 -4.4 -4.0 -4.4 -3.9 -3.5 -3.4

Turkey 4.0 4.0 3.8 7.7 7.4 7.4 -4.5 -4.5 -4.8 -1.2 -1.8 -1.2

Ukraine -9.7 3.0 3.0 48.7 15.3 9.3 1.0 -1.8 -1.4 -4.3 -4.0 -3.5

United Arab Emirates 3.7 3.0 2.7 4.2 2.9 3.3 2.1 2.5 3.5 -4.0 -2.1 0.3

Asia (ex-Japan) 6.1 6.0 6.0 2.4 2.6 2.8 2.5 2.2 1.8 -3.1 -3.4 -3.4

China 6.9 6.6 6.5 1.4 1.8 1.8 2.8 2.8 2.4 -3.5 -4.0 -4.0

Hong Kong 2.4 1.5 2.4 3.0 2.8 1.4 3.1 3.1 1.9 0.6 -0.3 -0.8

India 7.2 7.5 7.6 4.9 5.2 4.9 -1.1 -1.2 -1.5 -3.9 -3.8 -3.7

Indonesia 4.8 4.8 5.0 6.4 3.8 4.9 -2.1 -2.0 -1.9 -2.5 -2.7 -2.7

Korea 2.6 2.4 2.1 0.7 1.1 1.6 7.7 7.0 6.4 0.0 -0.3 -0.6

Malaysia 5.0 4.2 4.8 2.1 2.0 2.8 3.0 1.9 2.0 -3.2 -3.1 -2.9

Philippines 5.9 6.0 5.8 1.4 2.2 3.2 2.9 1.1 0.7 -0.9 -2.0 -2.7

Singapore 2.0 2.0 2.5 -0.5 0.1 1.5 19.8 19.6 19.5 1.7 2.2 2.8

Sri Lanka 4.8 5.5 6.0 0.9 4.0 5.5 -2.5 -2.7 -2.8 -7.4 -5.5 -5.0

Taiwan 0.7 0.8 1.8 -0.3 1.1 0.8 14.5 12.2 12.0 -1.5 -2.1 -2.2

Thailand 2.8 2.5 2.0 -0.9 0.5 1.8 9.3 5.3 3.8 -2.0 -2.1 -2.2

Vietnam 6.7 6.0 6.3 0.6 2.6 4.6 0.5 -0.5 -1.9 -5.6 -5.2 -5.0

Latin America -0.4 -0.6 1.8 15.5 28.0 27.4 -3.2 -2.1 -2.3 -7.5 -6.4 -6.1

Argentina 2.0 -0.4 2.2 28.3 39.6 22.5 -3.8 -1.8 -2.6 -7.4 -6.4 -6.1

Brazil -3.8 -3.2 1.0 9.0 8.8 5.9 -3.3 -0.8 -1.3 -10.4 -8.9 -8.7

Chile 2.1 1.6 2.7 4.3 4.0 3.3 -2.0 -3.3 -2.5 -2.1 -1.3 -1.9

Colombia 3.1 2.3 3.1 5.0 7.5 4.2 -6.4 -5.8 -4.8 -3.0 -4.0 -3.6

Mexico 2.5 2.3 2.6 2.4 3.1 3.4 -2.5 -2.7 -2.9 -3.8 -3.4 -3.0

Peru 3.3 3.7 4.2 3.5 3.7 2.9 -4.4 -3.9 -3.0 -2.2 -2.8 -2.9

Venezuela -5.7 -7.6 -3.2 120.0 320.0 390.0 -0.3 -0.9 0.2 -19.5 -15.8 -15.0

G7 1.8 1.3 1.4 0.2 0.9 1.7

Advanced economies 1.9 1.4 1.5 0.2 0.8 1.6

EM economies 4.0 4.1 4.7 5.7 6.9 6.7

Global 3.1 3.0 3.4 3.4 4.4 4.6

GDP growth (% yoy) CPI inflation (% yoy) Current Account (% of GDP) Fiscal Balance (% of GDP)

5 July 2016



Key Economic Forecasts

Source: Deutsche Bank Research, National statistical authorities. *Note: All aggregates here are calculated on the basis of countries mentioned in this table only.

QUARTERLY GDP

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016F Q3 2016F Q4 2016F Q1 2017F Q2 2017F Q3 2017F Q4 2017F

US 2.9 2.7 2.1 2.0 2.1 1.4 1.2 1.3 1.4 1.6 1.8 1.9

Japan -0.9 0.7 1.8 0.8 0.0 0.2 0.0 0.7 0.5 1.1 1.3 1.4

Euro area 1.3 1.6 1.6 1.7 1.7 1.6 1.6 1.5 1.1 1.1 1.1 1.0

Germany 1.1 1.6 1.7 1.3 1.6 1.3 1.6 1.7 1.4 1.7 1.7 1.6

France 1.3 1.1 1.1 1.3 1.3 1.6 1.5 1.5 1.2 1.3 1.4 1.4

Italy 0.1 0.6 0.8 1.1 1.0 1.0 1.0 0.9 0.6 0.4 0.3 0.4

United Kingdom 2.9 2.3 2.0 1.8 2.0 1.9 1.6 1.2 0.9 0.9 1.0 1.1

Canada 2.0 1.0 1.0 0.3 1.1 1.2 1.2 1.6 1.5 2.1 2.1 2.0

Australia 2.3 2.1 2.7 2.9 3.1 3.3 2.9 3.0 2.7 3.1 3.3 3.3

EEMEA 2.8 3.0 3.1 4.1 3.1 2.7 2.9 3.0 2.8 3.2 2.8 2.8

Poland 3.6 3.1 3.3 4.0 2.5 3.5 3.8 3.7 3.9 3.3 2.8 2.9

South Africa 2.5 1.2 0.8 0.5 -0.2 0.1 0.0 -0.4 0.0 0.4 0.6 0.9

Turkey 2.5 3.7 3.9 5.7 4.8 3.3 3.5 4.1 3.3 4.3 3.7 3.5

Asia (ex-Japan) 6.4 6.4 6.4 6.3 6.3 6.4 6.2 6.1 6.3 6.3 6.2 6.3

China 7.0 7.0 6.9 6.8 6.7 6.7 6.5 6.4 6.5 6.5 6.5 6.5

India 6.7 7.5 7.6 7.2 7.9 7.7 7.5 7.0 7.9 7.6 7.4 7.5

Indonesia 4.7 4.7 4.7 5.0 4.2 4.6 4.7 5.2 4.9 4.8 4.9 5.6

Korea 2.5 2.2 2.6 3.0 2.7 2.7 2.3 1.9 2.0 2.0 2.1 2.2

Taiwan 4.0 0.6 -0.6 -0.3 -0.7 0.7 1.6 1.8 1.4 1.9 1.9 1.8

Latin America 0.2 -0.4 -0.9 -2.0 -1.4 -1.4 -0.4 0.1 1.1 1.5 2.1 2.5

Argentina 2.1 2.3 2.9 0.7 2.1 -2.4 -0.3 -0.9 3.0 1.3 2.0 2.7

Brazil -2.0 -3.0 -4.5 -5.9 -5.4 -3.8 -2.7 -1.3 -0.6 0.6 1.6 2.2

Mexico 2.6 2.3 2.7 2.4 2.6 2.2 2.6 2.4 2.6 2.7 2.8 2.9

G7 1.9 2.0 1.8 1.6 1.6 1.2 1.1 1.2 1.2 1.4 1.5 1.6

Advanced economies 1.9 2.0 1.9 1.7 1.7 1.4 1.3 1.3 1.2 1.4 1.5 1.5

EM economies 5.2 5.2 5.1 4.9 5.0 5.0 5.0 5.0 5.4 5.4 5.4 5.5

Global 3.6 3.6 3.5 3.3 3.4 3.2 3.2 3.2 3.4 3.5 3.5 3.6

(% yoy)

5 July 2016



Key Financial Forecasts

* High inflation regime and controls prevent to have a valid market reference. Source: Deutsche Bank Research, Bloomberg Finance LP, Datastream; as of 05 July 2016

Interest Rates (End of Period)

Advanced economies Current Q3-2016 Q4-2016 Q1-2017 Current Q3-2016 Q4-2016 Q1-2017 Current Q3-2016 Q4-2016 Q1-2017US 0.65 0.58 0.83 0.83 1.43 1.25 1.25 1.25 0.38 0.38 0.63 0.63Japan 0.06 0.05 0.05 0.05 -0.24 -0.15 -0.15 -0.10 -0.10 -0.20 -0.20 -0.20Euro area -0.29 -0.25 -0.25 -0.25 -0.13 -0.10 0.00 0.50 0.00 0.00 0.00 0.00United Kingdom 0.52 0.30 0.15 0.92 0.84 1.00 1.10 1.70 0.50 0.10 0.10 0.10Denmark n.a n.a n.a n.a n.a n.a n.a n.a 0.05 0.05 0.05 0.05Norway n.a n.a n.a n.a n.a n.a n.a n.a 0.50 0.25 0.25 0.25Sweden n.a n.a n.a n.a n.a n.a n.a n.a -0.50 -0.50 -0.50 -0.50Switzerland n.a n.a n.a n.a n.a n.a n.a n.a -0.75 -0.75 -0.75 -0.75Canada 0.45 0.45 0.45 0.45 1.05 1.15 1.20 1.25 0.50 0.50 0.50 0.50Australia 2.01 1.63 1.63 1.63 2.01 1.75 1.50 1.50 1.75 1.50 1.50 1.50New Zealand 2.42 2.17 2.17 2.17 2.31 2.25 2.00 2.00 2.25 2.00 2.00 2.00EEMEACzech Republic 0.29 0.30 0.35 0.35 0.39 0.40 0.50 0.70 0.05 0.05 0.05 0.05Hungary 1.02 0.80 0.75 0.75 2.99 3.00 3.00 3.10 0.90 0.90 0.90 0.90Israel 0.08 0.10 0.10 0.10 1.59 1.70 1.70 1.80 0.10 0.10 0.10 0.10Kazakhstan n.a n.a n.a n.a n.a n.a n.a n.a 16.00 16.00 12.00 12.00Poland 1.61 1.60 1.60 1.60 2.89 2.90 2.80 2.90 1.50 1.50 1.50 1.50Romania n.a n.a n.a n.a 3.30 3.50 3.60 3.70 1.75 1.75 1.75 2.00South Africa 7.36 7.50 7.25 7.25 8.30 8.75 8.75 8.50 7.00 7.00 7.00 7.00Turkey n.a n.a n.a n.a 8.89 9.00 8.75 9.00 7.50 7.50 7.50 7.50Ukraine n.a n.a n.a n.a n.a n.a n.a n.a 16.50 12.00 12.00 12.00Asia (ex-Japan)China n.a n.a n.a n.a 2.83 2.90 2.90 2.90 1.50 1.50 1.25 1.25Hong Kong 0.56 0.70 0.70 0.75 0.95 1.20 1.30 1.40 0.50 0.75 0.75 0.75India 6.54 6.70 6.60 6.50 7.43 7.40 7.30 7.30 6.50 6.50 6.50 6.50Indonesia n.a n.a n.a n.a 7.38 7.20 7.00 7.00 6.50 6.50 6.25 6.25Korea 1.40 1.40 1.15 1.15 1.42 1.70 1.85 1.95 1.25 1.25 1.00 1.00Malaysia 3.60 3.73 3.73 3.73 3.69 3.60 3.60 3.60 3.25 3.25 3.25 3.25Philippines 1.47 1.85 2.20 2.35 3.29 3.30 3.40 3.50 3.00 3.00 3.00 3.00Singapore 1.07 1.20 1.35 1.50 1.83 1.70 1.80 1.90 1.07 1.20 1.35 1.50Sri Lanka n.a n.a n.a n.a n.a n.a n.a n.a 8.00 9.00 9.00 9.00Taiwan 0.81 0.30 0.30 0.30 0.76 0.75 0.80 0.80 1.38 1.25 1.25 1.25Thailand 1.59 1.70 1.80 2.00 1.92 1.80 1.90 2.00 1.50 1.50 1.50 1.50Vietnam n.a n.a n.a n.a n.a n.a n.a n.a 6.50 6.50 6.50 6.50Latin AmericaArgentina* n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.aBrazil 14.25 14.25 13.50 12.50 12.06 11.80 11.70 11.50 14.25 14.25 13.50 12.50Chile 3.84 3.77 3.77 4.26 n.a n.a n.a n.a 3.50 3.50 3.50 4.00Colombia 6.88 7.46 7.51 7.56 7.52 8.21 8.27 8.26 7.25 7.75 7.75 7.75Mexico 4.21 4.25 4.25 4.50 5.93 6.60 6.50 6.50 4.25 4.00 4.00 4.25Peru 5.65 5.75 5.77 6.04 6.08 6.13 6.15 6.42 4.25 4.25 4.25 4.75Venezuela* n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.aExchange Rates (End of Period)

FX Rate (vs. US Dollar) FX Rate (vs. Euro) FX Rate (vs. Yen)Advanced economies Current Q3-2016 Q4-2016 Q1-2017 Current Q3-2016 Q4-2016 Q1-2017 Current Q3-2016 Q4-2016 Q1-2017US 1.11 1.08 1.05 1.01 103 101 105 107Japan 103 101 105 107 114 109 110 108Euro area 1.11 1.08 1.05 1.01 114 109 110 108United Kingdom 1.33 1.33 1.28 1.25 0.84 0.81 0.82 0.81 136 135 135 134Denmark 6.68 6.91 7.10 7.39 7.44 7.46 7.46 7.46 15.4 14.6 14.8 14.5Norway 8.29 8.52 8.57 8.85 9.25 9.20 9.00 8.94 12.4 11.9 12.3 12.1Sweden 8.44 8.10 8.10 8.37 9.41 8.75 8.51 8.45 12.2 12.5 13.0 12.8Switzerland 0.97 1.04 1.09 1.15 1.08 1.12 1.14 1.16 105.7 97.1 96.3 93.0Canada 1.29 1.35 1.34 1.36 1.43 1.46 1.41 1.37 79.8 74.8 78.4 78.7Australia 0.75 0.70 0.68 0.66 1.48 1.54 1.54 1.54 77.3 70.6 71.4 70.4New Zealand 0.72 0.68 0.63 0.61 1.55 1.59 1.67 1.66 73.9 68.7 66.0 65.2EEMEACzech Republic 24.3 25.1 25.8 26.8 27.1 27.1 27.1 27.1 4.2 4.0 4.1 4.0Hungary 284.9 294.4 304.8 317.8 316.9 317.5 320.0 321.3 0.4 0.3 0.3 0.3Israel 3.86 3.85 3.90 3.95 4.29 4.14 4.11 3.99Kazakhstan 338.0 325.3 329.8 329.8 376.4 351.3 346.3 333.1Poland 3.95 4.02 4.10 4.19 4.40 4.34 4.30 4.23 25.8 25.1 25.6 25.5Romania 4.06 4.09 4.18 4.34 4.52 4.40 4.40 4.38South Africa 14.6 15.5 15.5 15.6 16.2 16.7 16.3 15.8Turkey 2.89 2.97 3.06 3.13 3.22 3.19 3.22 3.16Ukraine 24.94 24.37 25.00 24.65 27.65 26.20 26.32 24.90Asia (ex-Japan)China 6.66 6.82 7.00 7.00 7.40 7.37 7.35 7.07 15.4 14.8 15.0 15.3Hong Kong 7.76 7.78 7.80 7.80 8.64 8.40 8.19 7.88 13.2 13.0 13.5 13.7India 67.18 68.50 68.00 68.50 74.83 73.98 71.40 69.19 1.5 1.5 1.5 1.6Indonesia 13,172 13,550 13,500 13,350 15,135 14,634 14,175 13,484 127.74 134.16 128.57 124.77Korea 1,153 1,220 1,250 1,255 1,315 1,318 1,313 1,268 0.09 0.08 0.08 0.09Malaysia 4.00 4.26 4.27 4.41 4.45 4.60 4.48 4.45 25.7 23.7 24.6 24.3Philippines 47.0 46.9 47.5 47.3 52.3 50.7 49.9 47.8 2.2 2.2 2.2 2.3Singapore 1.34 1.41 1.44 1.46 1.50 1.52 1.51 1.47 76.3 71.6 72.9 73.3Sri Lanka 145.3 147.0 147.0 147.5 161.74 158.76 154.35 148.98 0.7 0.7 0.7 0.7Taiwan 32.21 33.50 34.00 34.20 35.87 36.18 35.70 34.54 3.2 3.0 3.1 3.1Thailand 35.05 35.90 36.00 36.60 39.03 38.77 37.80 36.97 2.9 2.8 2.9 2.9Vietnam 22,255 23,200 23,500 23,700 25,371 25,056 24,675 23,937 0.005 0.004 0.004 0.005Latin AmericaArgentina 15.02 15.81 16.63 17.52 16.78 17.07 17.46 17.70Brazil 3.27 3.40 3.45 3.50 3.57 3.67 3.62 3.54Chile 657 697 682 680 735 753 716 687Colombia 2,934 3100 3118 3079 3,436 3,348 3,274 3,110Mexico 18.43 18.30 18.00 17.50 20.48 19.76 18.90 17.68Peru 3.29 3.37 3.47 3.47 3.65 3.64 3.64 3.52Venezuela 9.98 25.00 35.00 45.00 11.08 27.00 36.75 45.56

3M rate 10Y rate Official rate

5 July 2016



Long-term forecast

Source: Deutsche Bank Research, National authorities

2014 2015 2016F 2017F 2018F 2019F 2020F 2014 2015 2016F 2017F 2018F 2019F 2020F

Advanced economies

US 2.4 2.4 1.5 1.7 1.9 2.0 2.0 1.6 0.1 1.4 2.0 1.7 2.0 2.0

Japan -0.1 0.6 0.2 1.1 1.5 1.4 1.3 2.7 0.8 -0.1 0.8 1.1 1.5 1.0

Euro area 0.9 1.6 1.6 1.1 1.2 1.3 1.4 0.4 0.0 0.2 1.2 1.5 1.7 1.9

United Kingdom 3.1 2.2 1.7 0.9 1.2 1.2 1.2 1.5 0.0 0.7 2.2 2.5 2.0 2.0

Canada 2.5 1.2 1.3 1.9 2.1 2.1 2.1 1.9 1.1 1.7 1.9 1.7 2.0 2.0

Australia 2.7 2.5 3.1 3.1 3.0 2.7 2.8 2.5 1.5 1.3 1.8 1.9 2.1 2.5

EM economies

South Africa 1.6 1.3 -0.1 0.5 2.5 3.2 3.3 6.1 4.6 6.6 6.3 4.5 5.0 5.0

China 7.3 6.9 6.6 6.5 6.5 6.5 6.3 2.0 1.4 1.8 1.8 2.0 2.1 2.1

India 7.0 7.2 7.5 7.6 8.0 8.0 8.0 6.7 4.9 5.2 4.9 5.0 5.0 5.0

Indonesia 5.0 4.8 4.8 5.0 5.5 6.0 6.0 6.4 6.4 3.8 4.9 6.0 6.0 6.0

Brazil 0.1 -3.8 -3.2 1.0 2.2 1.7 1.6 6.3 9.0 8.8 5.9 5.1 5.0 5.5

2014 2015 2016F 2017F 2018F 2019F 2020F 2014 2015 2016F 2017F 2018F 2019F 2020F

Advanced economies

US 1.6 1.6 0.7 0.9 1.1 1.2 1.2 0.8 0.8 0.8 0.8 0.8 0.8 0.8

Japan 0.1 0.9 0.6 1.5 2.0 1.9 1.8 -0.2 -0.3 -0.4 -0.4 -0.5 -0.5 -0.5

Euro area 0.6 1.2 1.1 1.0 0.9 0.9 1.0 0.2 0.3 0.4 0.5 0.5 0.5 0.5

United Kingdom 2.5 1.7 1.1 0.3 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

Canada 1.4 0.2 0.3 1.0 1.2 1.2 1.2 1.1 1.0 1.0 0.9 0.9 0.9 0.9

Australia 1.2 1.1 1.5 1.5 1.4 1.1 1.2 1.5 1.4 1.6 1.6 1.6 1.6 1.6

EM economies

South Africa 0.0 -0.5 -1.2 -0.5 1.5 2.2 2.3 1.6 1.8 1.1 1.0 1.0 1.0 1.0

China 6.7 6.4 6.1 6.1 6.1 6.1 6.0 0.5 0.5 0.5 0.4 0.4 0.4 0.3

India 5.6 5.8 6.1 6.2 6.6 6.6 6.6 1.4 1.4 1.4 1.4 1.4 1.4 1.4

Indonesia 3.8 3.6 3.6 3.8 4.3 5.0 5.0 1.2 1.7 1.8 1.5 1.5 1.5 1.5

Brazil -0.8 -4.7 -2.4 0.2 1.6 1.0 1.0 0.9 0.9 -0.9 0.7 0.7 0.7 0.7

2014 2015 2016F 2017F 2018F 2019F 2020F 2014 2015 2016F 2017F 2018F 2019F 2020F

Advanced economies

US 0.13 0.38 0.63 1.13 1.63 2.00 2.00 2.15 2.26 1.25 1.25 1.50 1.75 2.00

Japan 0.10 0.10 -0.20 -0.20 -0.20 -0.10 -0.10 0.44 0.31 -0.15 -0.15 -0.15 -0.05 -0.05

Euro area 0.05 0.05 0.00 0.00 0.00 0.50 1.00 0.54 0.63 0.00 0.30 0.60 0.90 1.25

United Kingdom 0.50 0.50 0.10 0.10 0.10 0.10 0.10 1.76 1.97 1.10 1.30 1.50 1.70 1.90

Canada 1.00 0.50 0.50 1.00 1.75 2.25 2.25 1.81 1.40 1.20 1.25 1.85 2.25 2.25

Australia 2.50 2.00 1.50 1.25 1.25 1.75 2.25 2.81 2.82 1.50 1.50 2.50 2.50 2.50

EM economies

South Africa 5.75 6.25 7.00 6.50 6.50 7.50 8.00 7.96 9.50 8.75 8.50 8.75 9.00 9.50

China 2.75 1.50 1.25 1.25 1.00 1.00 1.00 3.65 2.86 2.90 3.30 3.50 3.60 3.70

India 8.00 6.75 6.50 6.50 6.50 6.50 7.00 7.86 7.76 7.30 7.50 7.50 7.50 7.80

Indonesia 7.75 7.50 6.25 6.25 6.25 6.25 6.25 7.80 8.60 7.00 7.50 7.50 7.50 7.50

Brazil 11.75 14.25 13.50 10.75 10.75 13.50 11.50 12.36 16.51 11.70 11.50 12.50 11.87 11.41

2014 2015 2016F 2017F 2018F 2019F 2020F 2014 2015 2016F 2017F 2018F 2019F 2020F

Advanced economies

US 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.21 1.09 1.05 0.90 1.00 1.10 1.15

Japan 120.64 120.50 105.00 113.00 110.00 105.00 100.00 146.70 131.66 110.25 101.70 110.00 115.50 115.00

Euro area 1.21 1.09 1.05 0.90 1.00 1.10 1.15 1.00 1.00 1.00 1.00 1.00 1.00 1.00

United Kingdom 1.56 1.47 1.28 1.15 1.27 1.34 1.40 0.78 0.73 0.82 0.78 0.79 0.82 0.82

Canada 1.16 1.38 1.34 1.40 1.30 1.22 1.24 1.41 1.51 1.41 1.26 1.30 1.34 1.43

Australia 0.82 0.73 0.68 0.60 0.65 0.70 0.70 1.48 1.49 1.54 1.50 1.54 1.57 1.64

EM economies

South Africa 11.58 15.55 15.50 16.00 14.00 12.90 13.50 14.06 16.92 16.32 14.41 14.00 14.18 15.52

China 6.20 6.49 7.00 7.00 7.00 7.00 7.00 7.43 7.07 7.35 6.30 7.00 7.70 8.05

India 63.33 66.33 68.00 69.00 69.00 70.00 70.00 76.89 72.21 71.40 62.10 69.00 77.00 80.50

Indonesia 12440 13795 13500 13000 12500 12000 12500 15052 15037 14175 11700 12500 13200 14375

Brazil 2.66 3.90 3.45 3.65 3.75 3.85 3.95 3.22 4.25 3.62 3.29 3.75 4.24 4.54

GDP growth,% yoy CPI inflation, % yoy

GDP per head, % yoy Population growth, % yoy

Key official interest rate, % (eop) 10Y bond yields (eop)

FX rate vs. USD (eop) FX rate vs. EUR (eop)

5 July 2016



Central Bank Watch

G3

US Post Brexit, the Fed is clearly in a wait and see mode. Before raising rates again, it will need to see (1) employment growth picking up significantly from its recent lull, (2) financial conditions settling down post Brexit, and (3) overall US growth and inflation prospects developing in line with FOMC expectations. While a September hike remains on the table, we see conditions more likely to be in place for the next move by December.

Japan The Bank of Japan seems to be under increasing pressure to respond to the appreciating yen either through outright FX intervention or an easing of policy at the next meeting on July 15. We do not expect a rate cut, so perhaps intervention would be the most effective means of targeting the problematic currency trend. The delay in the consumption tax increase and a likely (albeit small) fiscal stimulus package later this year should provide some boost to growth. We continue to expect a further easing of monetary policy later this year, likely including a cut in the interest rate on banks’ policy balances in Q3.

Euroland Following Brexit the ECB will be sensitive to the evolution of financial conditions. We do not expect the ECB to cut the deposit rate again, but an extension of the timeframe for QE and new TLTRO2 auctions would be ways to signal an accommodative stance through a period of long-lived uncertainty.

Other European countries UK We expect the BoE to cut the Bank Rate 25bp at the next Inflation Report meeting in August and a further 15bp in September. If the threat to markets and the economy is greater still, we would expect the BoE to restart QE.

Sweden In February, the Riksbank cut the repo rate 15bp to -0.50%. The Central Bank’s rate profile suggests there is a small risk of a further cut.

Switzerland The SNB left policy on hold at its last meeting with rates well below zero. We see further gradual depreciation of CHF vs. EUR going forward.

Figure 1: G3 policy rates

% Current Sep-16 Dec-16 Mar-17 Jun-17

Fed 0.38 0.38 0.63 0.63 0.63

BoJ -0.10 -0.20 -0.20 -0.20 -0.20

ECB 0.00 0.00 0.00 0.00 0.00

Source: Deutsche Bank Research

Figure 2: Key European policy rates


BoE 0.50 0.10 0.10 0.10 0.10

SRB -0.50 -0.50 -0.50 -0.50 -0.50

SNB -0.75 -0.75 -0.75 -0.75 -0.75


-2

0

2

4

6

8

2001 2004 2007 2010 2013 2016

Fed BoJ ECB

%%

-2

0

2

4

6

8

2001 2004 2007 2010 2013 2016

UK Sweden Switzerland

%

5 July 2016



Dollar bloc Canada We continue to expect that the Bank will remain on hold through the end of this year. With respect to the medium-term outlook, structural adjustment of the Canadian economy toward non-resource sectors may be hampered by an uncertain global growth picture as well as elevated inventory levels in both Canada and the US. The upshot is that monetary policy should remain highly accommodative until well into the second half of 2017, if not longer. Australia While we are confident that interest rates in Australia will eventually move lower – and we retain our forecast of a terminal cash rate of 1.25% – we would not rule out the Bank keeping rates on hold in August. Holding in August isn’t our central case right now, but we do think markets need to be open to the possibility that the RBA may, given a solid tone to the activity data and in the wake of having made large downward revisions to their inflation forecasts, sit on the sidelines for a little longer and wait for a couple of inflation readings before acting again. New Zealand Looking ahead to the next meeting on 11 August, we continue to formally pencil in a 25bp cut in the OCR. However, the reality is that we presently feel that this meeting is a 50/50 call, with a whole host of important domestic economic releases to come over the next few weeks.

BRICs

China The government is tightening control on credit, and will likely bolster direct financing through policy banks going forward. We expect two more RRR cuts and one interest rate cut in H2. We see growth to slow down in the rest of the year. The RMB has picked up the pace of depreciation. We expect USDCNY to reach 7 by year end.

India Having cut the policy rate by 150bps in this cycle, RBI has moved toward easing the liquidity environment through the narrowing of its policy rate corridor and commitment to remove the structural liquidity deficit. These measures and achieving the medium-term target of pushing inflation below 5% by early 2017 will be an uphill task given the various risks from fiscal, food supply, and services sector inflation, which probably will lead the RBI to maintain a cautious stance. Consequently, we expect no more rate cuts in this cycle.

Brazil As the recession is allowing inflation to decelerate and the BRL is stronger on the back of lower country risk, we believe the next BCB move will be a reduction in interest rates. However, since current inflation still remains above the official target, we see no rate cuts until October.

Figure 3: Dollar bloc policy rates


BoC 0.50 0.50 0.50 0.50 0.50

RBA 1.75 1.50 1.50 1.50 1.25

RBNZ 2.25 2.00 2.00 2.00 2.00


Figure 4: BRICs policy rates


PBoC 1.50 1.50 1.25 1.25 1.25

RBI 6.50 6.50 6.50 6.50 6.50

BCB 14.25 14.25 13.50 12.50 11.50


0

2

4

6

8

10

2001 2004 2007 2010 2013 2016

Canada Australia NZ

%

0

10

20

30

2001 2004 2007 2010 2013 2016

China India Brazil

%

Glo

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5 J

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201

6

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rities In

c.

2009 2010 2011 2012 2013 2014 2015 2016

Dec Dec Dec Dec Dec Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

US 5.25 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.26 0.38 0.4 0.4 0.4 0.4 0.4

Japan 0.50 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.1 0.1 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 -0.10 -0.10 -0.10 -0.10 -0.10

Euro area 4.25 0.05 1.00 1.00 1.00 0.75 0.25 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 ## 0.00 0.0 0.0 0.0

UK 5.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50

Sweden 4.75 -0.35 0.25 1.25 1.75 1.00 0.75 0.00 0.00 -0.10 -0.25 -0.25 -0.25 -0.25 -0.35 -0.35 -0.35 -0.35 -0.35 -0.35 -0.35 -0.50 -0.5 -0.5 -0.5 -0.5

Denmark 5.50 -0.75 0.95 0.70 0.30 -0.20 -0.10 -0.05 -0.50 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.65 -0.65 -0.65 -0.65 -0.65 -0.65

Norway 5.75 0.75 1.75 2.00 1.75 1.50 1.50 1.25 1.25 1.25 1.25 1.25 1.25 1.00 1.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 0.50 0.5 0.5 0.5

Switzerland 2.75 -0.75 0.25 0.25 0.00 0.00 0.00 -0.25 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75 -0.75

Australia 7.25 2.00 3.75 4.75 4.25 3.00 2.50 2.50 2.50 2.25 2.25 2.25 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.0 2.0 1.75 1.8 1.8

Canada 4.50 0.25 0.25 1.00 1.00 1.00 1.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50

New Zealand 8.25 2.50 2.50 3.00 2.50 2.50 2.50 3.50 3.50 3.50 3.50 3.50 3.50 3.25 3.00 3.00 2.75 2.75 2.75 2.50 2.50 2.50 2.25 2.3 2.3 2.3

EMEA

Czech 3.75 0.05 1.00 0.75 0.75 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.1 0.1 0.1 0.1

Hungary 11.50 1.35 6.25 5.75 7.00 5.75 3.00 2.10 2.10 2.10 1.95 1.80 1.65 1.50 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.20 1.05 0.90 0.90

Israel 4.50 0.10 1.00 2.00 2.75 2.00 1.00 0.25 0.25 0.25 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.1 0.1 0.1 0.1 0.1

Kazakhstan 11.00 5.50 7.00 7.00 7.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50

Poland 6.00 1.50 3.50 3.50 4.50 4.25 2.50 2.00 2.00 2.00 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.500 1.500 1.500 1.500 1.5 1.5 1.5 1.5

Romania 10.25 1.75 8.00 6.25 6.00 5.25 4.00 2.75 2.50 2.25 2.25 2.00 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75

Russia 9.50 5.00 6.00 5.00 5.25 5.50 5.50 17.00 17.00 15.00 14.00 14.00 12.50 11.50 11.50 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.0 11.0 11.0 10.50

South Africa 12.00 5.00 7.00 5.50 5.50 5.00 5.00 5.75 5.75 5.75 5.75 5.75 5.75 5.75 6.00 6.00 6.00 6.00 6.25 6.25 6.75 6.75 7.00 7.00 7.00 7.00

Turkey 22.50 4.50 9.00 6.25 5.75 5.50 10.00 7.75 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.5 7.5 7.5

Ukraine 12.00 6.50 10.25 7.75 7.75 7.50 6.50 14.00 14.00 19.50 30.00 30.00 30.00 30.00 30.00 27.00 22.00 22.00 22.00 22.00 22.00 22.00 22.00 19.00 18.00 16.50

LatAm

Brazil 13.75 7.25 8.75 10.75 11.00 7.25 10.00 11.75 12.25 12.25 12.75 13.25 13.25 13.75 14.25 14.25 14.25 14.25 14.25 14.25 14.25 14.25 14.3 14.3 14.3 14.3

Chile 8.25 0.50 0.50 3.25 5.25 5.00 4.50 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.25 3.50 3.50 3.50 3.50 3.50 3.50 3.50

Colombia 10.00 3.00 3.50 3.00 4.75 4.25 3.25 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.75 4.75 5.50 5.75 5.75 6.25 6.50 6.50 7.25 7.50

Mexico 8.25 3.00 4.50 4.50 4.50 4.50 3.50 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.25 3.75 3.75 3.75 3.75 4.25

Peru 6.50 1.25 1.25 3.00 4.25 4.25 4.00 3.50 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.50 3.50 3.50 3.75 4.00 4.25 4.3 4.3 4.3 4.3

Asia

China 4.14 1.75 2.25 2.75 3.50 3.00 3.00 2.75 2.75 2.75 2.50 2.50 2.25 2.00 2.00 1.75 1.75 1.50 1.50 1.50 1.50 1.50 1.5 1.5 1.5 1.5

Hong Kong 6.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 0.75 0.75 0.75 0.75 0.75 0.75

India 9.00 4.75 4.75 6.25 8.50 8.00 7.75 8.00 7.75 7.75 7.50 7.50 7.50 7.25 7.25 7.25 6.75 6.75 6.75 6.75 6.75 6.75 6.8 6.50 6.5 6.5

Indonesia 9.50 5.75 6.50 6.50 6.00 5.75 7.50 7.75 7.75 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.25 7.00 6.75 6.75 6.75 6.50

Korea 5.25 1.50 2.00 2.50 3.25 2.75 2.50 2.00 2.00 2.00 1.75 1.75 1.75 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.5 1.5 1.5 1.25

Malaysia 3.50 2.00 2.00 2.75 3.00 3.00 3.00 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25

Philippines 7.50 3.50 4.00 4.00 4.50 3.50 3.50 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.0 4.0 4.0 3.00

Singapore 3.25 0.17 0.31 0.20 0.18 0.18 0.21

Sri Lanka 12.00 7.50 9.75 9.00 8.50 9.50 8.50 8.00 8.00 8.00 8.00 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 8.00 8.0 8.0 8.0 8.0

Taiwan 3.63 1.25 1.25 1.63 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.75 1.75 1.75 1.63 1.63 1.63 1.50 1.50 1.50 1.50 1.38

Thailand 4.75 1.25 1.25 2.00 3.25 2.75 2.25 2.00 2.00 2.00 1.75 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.5 1.5 1.5 1.5

Vietnam 15.00 6.50 8.00 9.00 15.00 9.00 7.00 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50

Note: 1. Red arrow means rate hike, green arrow means rate cut.

2. Since February-2016, Japan policy rate is the interest rate on reserve balance.

Source: Deutsche Bank, Central Banks, Haver Analytics

Max

(2007-

2008)

Trough

policy

rate*

Central Bank policy rate monitor

5 July 2016



Appendix 1

Important Disclosures

Additional information available upon request

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instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA,

Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks

involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by

multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to

losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional

losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories

of investment advice, products and services. Recommended investment strategies, products and services carry the risk

of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in

market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the

relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in

this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the

name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank

Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are

not disclosed according to the Financial Instruments and Exchange Law of Japan.

Korea: Distributed by Deutsche Securities Korea Co.

South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register

Number in South Africa: 1998/003298/10).

Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles

Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters

arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who

is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and

regulations), they accept legal responsibility to such person for its contents.

Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should

independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank

research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without

written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and

is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited,

Taipei Branch may not execute transactions for clients in these securities/instruments.

Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre

Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall

within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower,

West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related

financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre

Regulatory Authority.

Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute,

any appraisal or evaluation activity requiring a license in the Russian Federation.

Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the

Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall

within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya

District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.

United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated

by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services

activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai

International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been

5 July 2016



distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as

defined by the Dubai Financial Services Authority.

Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product

referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please

refer to Australian specific research disclosures and related information at

https://australia.db.com/australia/content/research-information.html

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the

meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

Additional information relative to securities, other financial products or issuers discussed in this report is available upon

request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.

Copyright © 2016 Deutsche Bank AG

https://australia.db.com/australia/content/research-information.html

5 July 2016



5 July 2016



GRCM2016PROD035693

David Folkerts-Landau Group Chief Economist and Global Head of Research

Raj Hindocha Global Chief Operating Officer

Research

Michael Spencer Head of APAC Research

Global Head of Economics

Steve Pollard Head of Americas Research

Global Head of Equity Research

Anthony Klarman Global Head of Debt Research

Paul Reynolds Head of EMEA

Equity Research

Dave Clark Head of APAC

Equity Research

Pam Finelli Global Head of

Equity Derivatives Research

Andreas Neubauer Head of Research - Germany

Stuart Kirk Head of Thematic Research

International Locations

Deutsche Bank AG

Deutsche Bank Place

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Sydney, NSW 2000

Australia

Tel: (61) 2 8258 1234

Deutsche Bank AG

Große Gallusstraße 10-14

60272 Frankfurt am Main

Germany

Tel: (49) 69 910 00

Deutsche Bank AG

Filiale Hongkong

International Commerce Centre,

1 Austin Road West,Kowloon,

Hong Kong

Tel: (852) 2203 8888

Deutsche Securities Inc.

2-11-1 Nagatacho

Sanno Park Tower

Chiyoda-ku, Tokyo 100-6171

Japan

Tel: (81) 3 5156 6770

Deutsche Bank AG London

1 Great Winchester Street

London EC2N 2EQ

United Kingdom

Tel: (44) 20 7545 8000

Deutsche Bank Securities Inc.

60 Wall Street

New York, NY 10005

United States of America

Tel: (1) 212 250 2500

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