5TH CHIEF ECONOMIST DEBATE: 2014 – RECOVERY OR NEW BUBBLE? Theme I: International Environment - Peter Vanden Houte: Chief Economist, ING Theme II: Europe's Challenges - Frank Lierman: Chief Economist, Belfius Theme III: Major Challenges of the Belgian Economy - Edwin De Boeck: Chief Economist, KBC Bank Theme IV: Financial Markets Outlook - Bart Van Craeynest: Chief Economist, Petercam Q&A Moderator - Alain Deneef: Senior Portfolio Manager, Private Banking, Bank Degroof Networking Reception 28 January 2014 Vlerick Finance Alumni partner:
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Vlerick Alumni: 5th Edition of the Vlerick Chief Economists Debate
5th Edition of the Vlerick Chief Economists Debate - 28/01/2014 - Mr. Peter Vanden Houte: Chief Economist, ING - Mr. Edwin De Boeck: Chief Economist, KBC Bank - Mr. Frank Lierman: Chief Economist, Belfius - Mr. Bart Van Craeynest: Chief Economist, Petercam
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5TH CHIEF ECONOMIST DEBATE: 2014 – RECOVERY OR NEW BUBBLE?
Theme I: International Environment - Peter Vanden Houte: Chief Economist, ING
Theme II: Europe's Challenges - Frank Lierman: Chief Economist, Belfius
Theme III: Major Challenges of the Belgian Economy - Edwin De Boeck: Chief Economist, KBC Bank
Theme IV: Financial Markets Outlook - Bart Van Craeynest: Chief Economist, Petercam
Q&A
Moderator - Alain Deneef: Senior Portfolio Manager, Private Banking, Bank Degroof
Networking Reception
28 January 2014Vlerick Finance Alumni partner:
INTERNATIONAL ENVIRONMENT
Peter Vanden HouteChief Economist, ING
Vlerick Finance Alumni partner:
2014: Walking on eggshells Peter Vanden Houte
Chief Economist ING Belgium
Western world recovering, emerging countries lagging
• The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal
…but what about 2015?
Source: Thomson Reuters Datastream
1985 1990 1995 2000 2005 20101.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
2
4
6
8
10
12
1Y % change of AVG HRLY EARN - TOTAL PRIVATE NONFARM : United StatesUS FEDERAL FUNDS TARGET RATE (RH Scale)
11
US yield curve will steepen in the course of 2014
Source: Thomson Reuters Datastream
96 98 00 02 04 06 08 10 12 14-2
-1
0
1
2
3
4
-2
-1
0
1
2
3
4
US TREAS.BENCHMARK BOND 10 YR (DS)-US FEDERAL FUNDS TARGET RATE
12
13
Emerging world remains vulnerable
Hungary
UkrainePoland
India
Thailand
Malaysia
Philippines
ColombiaBrazil
Indonesia
Turkey
China
Russia
RomaniaSouth Africa
Mexico
Chile
-10
-8
-6
-4
-2
0
2
4
6
8
10
-8 -6 -4 -2 0 2 4 6 8 10 12 14 16
Weak credit Too much credit
Capital surplus
Capital shortage
Real credit growth in excess of GDP growth, average, 2010-12 (percent)
Average currentaccount balance 2010-12 (percent of GDP)
Source:IMF
14
Chinese economy is stabilizing
Source: Thomson Reuters Datastream,ING
Electricity consumption & cars sales in China
2009 2010 2011 2012 2013-10
0
10
20
30
40
50
-40
-20
0
20
40
60
80
100
120
1Y % change of ELECTRICITY CONSUMPTION (CMLV) : China1Y % change of SALES - PASSENGER CARS : China (RH Scale)
EUROPE’S CHALLENGES
Frank LiermanChief Economist, Belfius
Vlerick Finance Alumni partner:
More or less inflation in the euro area? That’s the question!
Frank Lierman, Chief Economist
Vlerick Finance Alumni
Brussels, January 28, 2014
1. More than a bottoming out?
2. Towards deflation?
3. Social pack as missing link?
4. Banking Union, the ultimate solution?
More or less inflation in the euro area? That’s the question!
17
1. More than a bottoming out?
2. Towards deflation?
3. Social pack as missing link?
4. Banking Union, the ultimate solution?
More or less inflation in the euro area?That’s the question!
18
19
1. More than a bottoming out?
Increased confidence, prelude for economic rebound?
Euro Area
19
00 01 02 03 04 05 06 07 08 09 10 11 12 13-6
-4
-2
0
2
4
6
60
70
80
90
100
110
120
Euro Area Economic Sentiment Indicator (Right)Euro Area GDP (% YoY) (Left)
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Euro Area Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - United Kingdom Unemployment Rate, Sa - United States Unemployment Rate, Sa - Japan
24
1. More than a bottoming out?
Sustainable decrease of public deficit?
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-7
-6
-5
-4
-3
-2
-1
0 Governm ent Net Lending, As A Percentage Of Gdp - Euro Area
25
1. More than a bottoming out?
Worrying increase of government debt
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '1365
70
75
80
85
90
95 General Governm ent Gross Debt, % Of Gdp, - Euro Area (17 Countries )
1. More than a bottoming out?
2. Towards deflation?
3. Social pack as missing link?
4. Banking Union, the ultimate solution?
More or less inflation in the euro area?That’s the question!
Stagnation of oil price between 100 and 120 USD/Barrel
34
2. Towards deflation?Remarkable strength of euro
34
'04 '05 '06 '07 '08 '09 '10 '11 '12 '131,1
1,2
1,3
1,4
1,5
1,6
1,7
FX Rate - Spot Mid - US Dollar per Euro
1. More than a bottoming out?
2. Towards deflation?
3. Social pack as missing link?
4. Banking Union, the ultimate solution?
More or less inflation in the euro area?That’s the question!
35
36
3. Social pack as missing link?
German unemployment at bottom, while other countries reached a ceiling
'04 '05 '06 '07 '08 '09 '10 '11 '12 '132
3
4
5
6
7
8
9
10
11
12
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Germany Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Netherlands Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - France Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Belgium
37
3. Social pack as missing link?
Increasing and or huge unemployment is often linked to Too high fiscal burden
High employers and personal contributions
Expensive rules of lay offs
Inflexible wage negotiations
Low qualification of workers
Low employment rate
Short careers
…
But also influence of
Overcapacity of production equipment
Insufficient internal demand
Necessity to reduce debt of households
Increased precautionary savings of households
Decreased competitiveness
…
38
3. Social pack as missing link?
Key success factors for a reform
Limitation of unemployment allowances
Decrease or at least slower increase of salaries
Decrease of fiscal and parafiscal burden on labour revenues
Reduction of employment in public sector
Increased flexibility
Active employment policy
Activation of unemployed people
Education and training
Premiums
Subsidised employment
…
Measures to stimulate the creation of companies
39
3. Social pack as missing link?The European 7 stages plan to reduce youth unemployment
Employment guarantee (within 4 months after school leave or start unemployment)
European Social Fund and European Structural and Investment Fund: 25% of their capital (80 bn EUR) to invest in human capital
Initiatives to stimulate employment for youth: 6 bn EUR in 2014 and 2015
Stimulation of mobility within EU via European Employment Network
European alliance for trainings, Erasmus+, …
European labour market via transfer of pension rights, professional qualifications, rights of mobile workers, …
Help to SME’s and micro companies to hire young persons via European Regional Development Fund, EIB (yearly budget of 12,5 bn EUR which could increase up to 37,5 bn EUR via co financing and indirect credits)
1. More than a bottoming out?
2. Towards deflation?
3. Social pack as missing link?
4. Banking Union, the ultimate solution?
More or less inflation in the euro area?That’s the question!
40
41
4. Banking Union, the ultimate solution?
Three pillars
European prudential surveillance
ECB from November 2014 on
Assessment of broad risk factors on liquidity and funding (Winter 2014)
Asset Quality Review (Spring 2014)
Stress test (Summer 2014)
Only for some 130 of the 6000 European banks (85% of euro area banking systems) (min 30 bn EUR or balance sheet of more than 20% of GDP or having received state aid)
Forced recapitalisation: who pays the bill?
National government
Private shareholders
ESM
… ?
42
4. Banking Union, the ultimate solution?
Three pillars (2)
European resolution mechanism and fund
Each bank has to prepare recovery plan
European resolution council (EC, ECB, national surveillance authorities)
Resolution fund: 1% of covered deposits via contributions of banks (up to 2026) (goal 55 bn EUR)
Moderator: Alain Deneef: Senior Portfolio Manager, Private Banking, Bank Degroof
Vlerick Finance Alumni partner:
THANK YOU
You are kindely invited to the networking reception
Vlerick Finance Alumni partner:
UPCOMING EVENTS
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