1. HOW IS THE BELGIAN ECONOMY MANAGING THE
CRISIS IN EUROPEAN AND GLOBAL PERSPECTIVE?
Frank Smets – Director General, DG Research at European Central Bank
Peter Vanden Houte – Chief Economist, ING
Edwin De Boeck – Chief Economist, KBC Bank
Frank Lierman – Chief Economist, Belfius
Bart Van Craeynest – Chief Economist, Petercam
Moderator: Dirk Selleslagh – News Manager, Tijd.TV
4 February 2013
Vlerick Finance Alumni partner:
2. UPCOMING EVENTS
How to excel in networking MBA Alumni 7 Feb 2013
Buying your own company Platform for Entrepren. Buyouts 21 Feb 2013
Alum. Nights All alumni sections 21 Feb 2013
Latest science on Burn-out MGM Alumni 26 Feb 2013
Improving a CV/Cover Letter MBA Alumni 27 Feb 2013
Sustainability at your company Exec Alumni 5 Mar 2013
Meet the Industry: Shipping Finance Alumni 14 Mar 2013
Visit ThromboGenics Exec Alumni 20 Mar 2013
Entering the job market MBA Alumni 20 Mar 2013
Meet the industry: Media Finance Alumni Apr/May 2013
Event Controllership Finance Alumni 22 May 2012
Workshop on family businesses Finance Alumni Jun 2013
Vlerick Finance Alumni partner:
4. World Economic Update
From half empty to half full
Peter Vanden Houte
Chief economist ING Belgium
February 2013
4
5. What do investors consider to be the biggest “tail risk”?
Should be settled in next 3 months
Downgrade Spain? Elections Italy
Cyprus (elections 17 Feb, bail-out?)
Seems OK
Elections Iran in June
Source BoA-ML Global Fund Manager Survey January 2013
5
7. US housing sector is recovering strongly
15 20
US Case-Shiller house price yoy%
10 15
5
10
0
5
-5
0
-10
-5
-15
-10
-20
US residential construction yoy%
-25 -15
-30 -20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
7
8. Chinese economy is picking up
108 70
106 65
60
104 China new order index
55
102
50
100
45
98
40
96 35
China real estate climate index
94 30
2006 2007 2008 2009 2010 2011 2012 2013
8
9. An improvement in sentiment is not enough in Europe
Remember 2012...
The Governing Council continues to 0.80 EMU quarterly GDP growth
expect euro area economic activity 0.60
to recover, albeit very gradually, in
0.40 ECB report
the course of 2012, supported by
developments in global demand, 0.20
very low short-term interest rates 0
and all the measures taken to
support the functioning of the -0.20
financial sector.(ECB Jan 2012) -0.40
2011 2012
9
10. Divergence within Eurozone remains huge...
Economic sentiment indicator: divergence from lt-average (Jan 2013)
0
-5
-10
-15
-20
-25
DE FI AT BE EA ES FR NL GR IT PT CY
10
11. ...but population still euro supportive
60
50
40
30
20
10
0
FI
IE
IT
FR
DE
BE
ES
AT
CY
PT
NL
LU
GR
EU27
Balance of opinion in favour of EUR
11
12. Growth outlook
2011 2012 2013 2014
USA 1.8 2.3 1.7 2.3
Eurozone 1.5 -0.5 0.0 1.2
Belgium 1.8 -0.2 0.2 1.2
Japan -0.7 2.1 1.3 1.5
China 9.2 7.7 9.0 8.4
12 12
13. The US energy bonanza
350 Natural gas price in euro (January 2004 = 100) 350
300 300
250 250
200 Zeebrugge 200
150 150
London
100 100
50 50
Henry Hub
0 0
2004 2005 2006 2007 2008 2009 2010 2011 2012
13
16. RESPONSES TO THE CRISIS
Frank Lierman
Chief Economist, Belfius
Vlerick Finance Alumni partner:
17. Responses to the crisis :
Japanese and European
experience.
Frank Lierman, Chief Economist
Vlerick Finance Alumni
Brussels, February 4, 2013
18. Responses to the crisis : Japanese and
European experience.
Towards a japanisation of the eurozone ?
The European initiatives.
18
19. Towards a japanisation of the eurozone ?
General context before the crisis.
Japan Eurozone
1992 2008
Financial liberalisation and deregulation √ √
Abundant liquidity via interbankmarket √ √
Sharp increase of credit (mainly real estate, SME,
√ (2 x GDP growth) √ (2 x GDP growth)
consumers)
Relaxation credit conditions (smaller margins,
√ √
longer duration, …)
Explosion bank balance sheets, but also off
√ √
balance volumes
Increased risk appetite √ √
Increase of currency (resp. JPY en EUR) √ √
√ (topnr 38.916 pt on
Increase stock markets √ (top middle 2007)
19.02.89)
√ (especially Anglo-saxo and
Real estate bubble √
South European land’s)
Tightening monetary policy √ (from 30.06.89) √ (summer 2008)
Recommandations to limit real estate credits √ (from 2710.89) √ (afterwards)
19
23. Towards a japanisation of the eurozone ?
Direct consequences for banking sector.
Japan
Eurozone 2008
1992
Increase impairments √ √
Erosion collateral √ √
Decline value portfolio equities √ √
Lower ratings √ √
Sharp increase funding cost √ √
Increase corporate bonds √ √
Immediately (mainly
Failure of banks From 1995 on smaller), but some “too big
to fail”
Mergers of banks From 1995 on From 2009
Japanese GAAP- problems IFRS – mark to market
Accounting rules
hidden problems instant known
23
24. Towards a japanisation of the eurozone ?
Reaction of central banks.
Japan Eurozone
- from 8 to 0,5% (between ‘92 and ‘95) - from 4,25 to 1% (between Oct ’08 an
Base rate - 0% (between Feb ‘99 and July ’06) May ’09)
- 0,75% (since July ’12)
- QE (between March ’01 and March -covered bonds (in ‘10 and ‘12)
’06) - SMP (between Spring ‘10 and
- Buying bank equity from Febr ’02 Autumn ‘11)
Liquidity injection (max 3 trilj JPY) - LTRO with durations of 3,6m (‘08),
12m (‘09), 3Y (Dec ’11 and Febr’12)
’12)
- OMT (max 3Y)
24
25. Towards a japanisation of the eurozone ?
Reaction of governments.
Japan Eurozone
- 10 packages between Aug ’91 and - European Commission and national
Stimulative measures for
Oct ’99 (124.4 trilj JPY) governments (in ’09, some are
economy
extinct)
- coop company to buy credits (Jan - ESRB (Jan ’10)
’93) - ESFS (Jan ’10) met EBA, EIOPA en
- rules bad loans (Febr ’04) ESMA
- resolution for housing loans (Dec
’95 and June ’96)
Injection tax payers money
- injection money: - between ’08 and ’11 227,6 bn EUR
o 685 mia JPY (1995) for recapitalisation; 761,2 bn EUR for
o 1,8 trilj JPY (1998) guarantees and 204,8 bn EUR for
o 7,5 trilj JPY (1999) asset rellief and liquidity;
Some 83,2 bn EUR Total : 1 196,6 bn EUR
25
26. Towards a japanisation of the eurozone ?
Reaction of governments. (2)
Japan Eurozone
- Deposit guarantee (Febr ’98) -EFSF (May ’10) –ESM (Oct ’12)
- Financial stability function (Febr ’98) - Depositguarantee 100 000 EUR
-Commission for financial (2008)
reconstruction (March ’99) - Pact stronger EUR (March ’11)
- Six pack (Dec ’11)
- Two pack (July ’12)
- Treaty for stability, coordination and
governance in EMU (March’02) with
Regulation fiscal compact
- Banking Union (June - Dec’12)
- Growth pact (June ’12)
- Liikanen report (Sept ’12)
- Rescue of Greece, Ireland, Portugal,
Cyprus (2010-2012)
- Recapitalisation of Spanish banks
(Dec ’12)
-…
26
27. Towards a japanisation of the eurozone ?
Major differences.
Japan Eurozone
National crisis European crisis
Credit economic banking Credit- and bankingcrisis
crisis. economic debtcrisis.
No panic, bankprofits sufficient to Sense of urgency immediately due
cover credit losses due to Japanese to IFRS rules (mark to market).
accounting rules. Bad debtors were
hidden during some 5 years.
Deflation and positive real interest Inflation and negative real interest
rate consumption decline rate consumption decline
savings stimulated. savings stimulated.
27
28. Responses to the crisis : Japanese and
European experience.
Towards a japanisation of the eurozone ?
The European initiatives.
28
29. The European initiatives.
Risk management and rescue measures.
European Systemic Risk Board (January 2010)
European System of Financial Supervisors (January 2010)
EBA
EIOPA
ESMA
EFSF (May 10, 2010)
Rescue packages for Greece (May 2010, July2011 and Decembeer
2012), Ireland (December 2010), Portugal (May, 2011) and Cyprus
(Q1, 2013)
A pack for a stronger euro (March, 24-25, 2011)
ESM (March 24-25, 2012, start in October 2012)
Liikanen report on bankstructures (September 2012)
Recapitalisation of Spanish banks (December 2012)
29
30. The European initiatives.
Governance.
Sixpack Twopack TSCG(¹)
5 EU Regulationds and 2 EU Regulations
What? International treaty
1 EU Directive (currently being negotiated)
UE-27 (with some distinction
Who ? between the euro area countries Euro area countries UE-25 (excluding UK and CZ)
and the others)
Date of entry Expected : summer 2012 After ratification by at least 12
13 December 2011 (after the trialogue procedure) euro area countries (target:
into force January 2013)
° stricter and broader fiscal ° more advanced fiscal ° limit on the structural deficit,
surveillance (e.g. operational surveillance and coordiantion in preferably enshrined in the
debt criterion and expenditure the euro area constitution
rule) ° independent national ° the euro area countries comit
° broader macroeconomic institutions responsible for to accepting in principe the EC’s
surveillance monotoring compliance with the recommendations regarding the
° new decision-making fiscal rules excessieve deficit prodecure(²)
Content
procedures ° precise timetable for the ° role for the European Court of
° minimum requirements for annual budget and preliminary Justice
national budgetary frameworks review by the EC ° provides for enhanced
o tougher surveillance regime for coordination
countries with financial difficulties
(automatic for those receiving
assistance)
(¹) Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. The term ‘fiscal contact’ is often
used to refer to the fiscal issues whch it includes.
(²) The euro area countries agree to accept any EC recommendation concerning the existence of an excessive deficit unless
the recommendation is rejected by a qualified majority.
30
Source : NBB
31. The European initiatives.
Proposals for stronger EMU (June 26, 2012)
an integrated financial system
bank supervision (ECB as of March 2014)
bank resolution fund
deposit guarantee scheme
an integrated budget
stability and growth pact (revisited)
treaty for stability, coordination and governance
budget union
Euro bonds
solidarity
European Finance Commissioner
an integrated economic management
European semester
Euro plus act
enforcement of democracy
31
32. ACTIONS AND RESPONSES BY THE ECB
Frank Smets
Director General, DG Research at European Central Bank
and Professor International Economics at the Centre for Economic
Studies at the KU Leuven
Vlerick Finance Alumni partner:
33. ECB monetary policy in
challenging times
Frank Smets
Vlerick Alumni Chief Economists Debate
4 February 2013
The views expressed are my own and not necessarily those of the ECB.
34. Euro area HICP inflation elevated esp. due to indirect tax and
energy price increases – but expected to decline to < 2% in 2013
(annual rates of change)
Sources: Eurostat and ECB.
Latest observation: September 2012 for overall HICP and August 2012 for HICP excluding food and energy.
34
35. Inflation expectations are in line with price stability
Euro area swap-implied HICP path (% p.a.)
Realised y-o-y HICP inflation
Swap-implied HICP inflation path (6 Sep 12)
Swap-implied HICP inflation path (30 Nov 12)
Swap-implied HICP inflation path (4 Jan 13)
4,0 Consensus (Nov-12 survey for '12 and '13 and Oct-12 for rest)
3,0
2,0
1,0
0,0
2010 2011 2012 2013 2014 2015 2016 2017
Sources: Thomson Reuters, ECB, Consensus. Latest observation: 04 Jan 13
35
36. Systemic stress in the euro area (CISS)
Source: Hollo, Kremer and Lo Duca (2012)
38. Why non-standard measures?
• Standard monetary policy in ‘normal’ times:
o Changes in policy-controlled rates …
o translate into money market rates and longer-term
interest rates and asset prices and …
o affect aggregate demand and thus the inflation outlook.
• If some of the links in the transmission process are
impaired due to the financial crisis, standard monetary
policy becomes less effective:
o Changes in policy interest rates do not produce the
desired impact on inflation and …
o risk to price stability ensue.
38
39. Why non-standard measures? (cont.)
• Non-standard measures (NSMs) are the tools we use to
address malfunctioning financial markets and offset
impairments in the monetary transmission mechanism:
o NSMs’ immediate objective is to restore the effectiveness
of our standard policy tool, so that it can produce its
normal effects
o NSMs’ ultimate objective is to maintain price stability;
without deploying them, we would have lost control over
inflation
o The precise features of the NSMs have changed over
time, so as to address the particular impairment prevailing
at any point
39
40. ECB non-standard measures: Phase 1
• Key disruption: freeze of the interbank market; need for
banks to obtain liquidity from other sources
o risks of hasty assets liquidation; through lower asset
prices, spill overs to whole banking system (“fire sale”) …
o … and of a sharp reduction in credit (“credit crunch”)
o through a credit crunch, risk of a fall in aggregate
demand and production; downward pressure on prices
• Non-standard response mainly targeted at banking
sector
o Fixed-rate full allotment
o Expansion of eligible collateral list
o Longer maturity LTROs (up to 12 months)
o Covered bond purchase programme
o USD funding programme 40
41. Risk premia in the interbank market
US & Euro Area 3-month spreads
2,5 2,5
2 2
Euribor-OIS
spread
percent per annum
1,5 1,5
1 1 USD Libor-
USD OIS
0,5 0,5
0 0
2004 2005 2006 2007 2008 2009 2010 2011 2012
42. Systemic stress and liquidity support
1 6
% change in ECB BS (8 week moving average) RHS
0.9 Crisis threshold
5
Composite indicator of systemic stress (CISS)
0.8
4
0.7
3
0.6
0.5 2
0.4
1
0.3
0
0.2
-1
0.1
0 -2
2007 2008 2009 2010 2011 2012 2013
Source: Rostagno; Euro area CISS from Hollo, Kremer and Lo Duca (2012): "CISS - A Composite Indicator of Systemic Stress in the
Financial System", ECB Working Paper No. 1426. Balance sheet data from ECB. Own calculations.
Note: Weekly data. Last observation: 9 Nov 2012. - Developments in the CISS can be decomposed into contributions from five stress
subindices (relating to money market, bond market, equity market, financial intermediaries, FX market) and the overall contribution from the
cross-subindex correlations.
43. ECB non-standard measures: Phase 1I
• Key disruption: Persistently elevated sovereign bond
yields in selected euro area Member States; partly driven
by self-fulfilling expectations and redenomination risk
o Pass-through of high sovereign yields to lending rates to
firms and households, hence downward pressure on
aggregate demand and prices and …
o mutually reinforcing interaction with fragile banking
systems and risk of financial fragmentation.
• Non-standard measures extended to include direct
intervention in financial markets
o Securities Market Programme (SMP)
o 3-year LTRO; decrease of required reserve ratio; ACCs
o Outright Monetary Transactions (OMT)
43
45. Positive impact of the 3-year LTROs and OMT announcement on
sovereign yield spreads and interbank credit risk
Sovereign yield spreads in Italy and Spain and interbank credit risk
(basis points, daily data)
10-yr IT sovereign spreads 10-yr ES sovereign spreads
3-month EURIBOR-OIS (rhs)
800 200
Draghi's London speech
700 175
3-year LTROs announcement
600 150
500 125
400 100
300 75
200 50
100 25
0 0
Oct/10
Jan/07
Mar/11
Jan/12
Jun/07
Nov/07
Jul/09
Aug/11
Jun/12
Nov/12
Sep/08
Feb/09
Dec/09
May/10
Apr/08
Source: Bloomberg and ECB calculations.
Note: Daily data, last observation is 21 Dec 2012. The sovereign yield spreads are calculated vis-à-vis the 10-year
German Bund. Vertical lines represent the 3-year LTRO announcement and Draghi London speech (December
2011 and July 2012).
51. External trade
Exports suffering from European slowdown & deteriorating
competitiveness
Real exports Nominal unit labour costs
(Q4 2007 = 100) (Q4 2007 = 100)
115
114
110
112
105
110
100 108
95 106
90 104 Belgium
Belgium Germany
Germany 102 Netherlands
85
EMU (ex. Germany) France
100
80
98
51 8/03/2013
52. External position
Watch out for the negative trend
Development of market share on Deficit (-)/surplus (+) on the current
the country’s export markets account balance
120 (1999 = 100) 8 (in % of GDP)
115 Belgium
Germany
6
110 France
105
4
100
95 2
90
0
85
Belgium
80
Germany -2
75 France
70 -4
53. Public finances
The road of fiscal austerity
Budget balance total Belgian government Public debt ratio
(in % of GDP) (% of GDP)
130
-5,9 -4,8 -3,6 -2,8 -2.15 -1,1 0,0 Belgium (KBC calculation) (*)
0
Belgium (Stability Programme Spring 2012)
120
-1 Euro Area
4.7 bn. 110
-2
0.7 bn.
100
-3
53.6
Need for extra savings 6.5
(KBC estimate)
-4 90
-5 Budget balance under 80
unchanged policy
-6
70
60
Realised figures Target Stability Programme (April 2012)
(*) Under unchanged policy assumption for 2014-2015
53
54. Public finances
LT-sustainability still at risk given unfavourable ageing costs
Belgium - Old-age dependency ratio Belgium - Total public sector expenditure
(population aged 65+ in % of 15-64) resulting from ageing (in % of GDP)
45 35
40
30
35
25
30 2012 Ageing Report EC
2009 Ageing Report EC
2006 Ageing Report EC
2003 Ageing Report EC
25 20
2010 2015 2020 2025 2030 2010 2015 2020 2025 2030
54 8/03/2013 Source: EC (Ageing Reports)
55. Housing market
Prices not (yet) cooling off, on the contrary
Recent development Belgian property prices Tightening of banks’ lending standards for
(2011Q1 = 100) housing loans (lending survey NBB)
107 80
106 Belgium (ECB-index) Change in credit conditions
Belgium (FOD-index) 60 Change in mortgage loan demand
105
Belgium (Eurostat-index)
104
EMU (Eurostat-index) 40
103
102 20
101
100 0
99
-20
98
97 -40
96
-60
95
(*) A negative sign indicates at a strengthening of the lending criteria
resp. a decline in mortgage loan demand (and vice versa)
56. Growth outlook
2013 & 2014
Evolution of consensus forecasts of
Growth outlook 2013 & 2014 (in%) real GDP growth in 2013 (in %)
1,8
2013 Belgium EMU Germany
1,6
EC 0.7 0.1 0.8
OECD 0.5 -0.1 0.6 1,4
IMF 0.3 0.1 0.9 1,2
NBB -0.1 -0.9/0.3 -
Consensus 0.1 -0.1 0.7 1
4 Belgian banks 0.3 - -
0,8
KBC 0.5 0.0 0.9
0,6
EMU
2014 Belgium EMU Germany
EC 1.6 1.4 2.0 0,4 Germany
OECD 1.6 1.3 1.9 Belgium
0,2
IMF 1.0 1.2 1.4 Belgium (KBC)
KBC 1.5 1.4 1.9 0
-0,2
Consensus forecast made in month
56 8/03/2013
57. Interest rates
Declining credit spreads Yield 10-year government bonds
(in basis points) (in %)
400
Political crisis
June 2010 - 6
350 November 2011 US
Germany
300 Interest differential vs.10 Y. Bunds 5 Belgium
CDS 5Y Sovereign Premium
250 4
200
3
150
2 KBC outlook 10-year rates
100 End of year (in %)
+6m +12m
US 2.25 2.75
1
50 Germany 1.75 2.25
Belgium 2.45 2.95
0 0
57
58. IMPACT OF THE OUTLOOK FOR INVESTORS
Bart Van Craeynest
Chief Economist, Petercam
Vlerick Finance Alumni partner:
59. Institutional
Asset Management
Titre de la présentation
Vlerick Alumni Debate
Monday 4 February 2013
21-09-2011
59/25
60. Goldilocks is back (for now)
Global growth accelerates
15 2
Global growth is picking up
10 1
5 0 Inflation remains under control
0 -1
Monetary policy remains supportive
-5 -2
-10 -3
Global Industrial production (yoy) Political risks have eased
Global leading indicator (rhs)
-15 -4
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
60
04-02-2013 | Petercam Macro Presentation | 60/25
61. Government bonds getting very expensive
16
14
12
10
8
6
4
2
US bond yield
0
Jan-50 Jan-55 Jan-60 Jan-65 Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10
61
04-02-2013 | Petercam Macro Presentation |
66. Investment strategy
┃ Overweight Equities
Prefer Emerging markets and Europe
Cyclicals over defensives
┃ Underweight Bonds
High yield over credit and government bonds
Inflation-linked over nominals
┃ Hold positions in gold and USD
Gold as ‘insurance’
USD looks attractive
66
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