economic adviser – outlook 2019 · 2018. 12. 19. · 3 / economic adviser ♦ outlook 2019 od has...

Economic Adviser – Outlook 2019 Fixed Income & Macro Research

At the Crossroads – global downturn in 2019?

Outlook 2019 ♦ Date of issue: 17 December 2018

1 / Economic Adviser ♦ Outlook 2019

Contents

Special: At the Crossroads – global downturn in 2019? 2

USA: When will the US currency get weaker again? 4

Euroland: ECB in a dilemma – monetary policy normalization a successful undertaking? 7

Germany: Lane change for the German economy 12

Switzerland: Trial of strength with the EU 15

Japan: Gathering headwind 16

China: Trade war – finale furioso? 17

Britain: Orderly or no-deal Brexit – the decisive question 18

Canada: Oil price decline braking growth – for the time being 21

Mexico: USMCA makes for risk reduction – but what does AMLO have in store? 22

Australia: Growth momentum slower but still quite sound 23

Stock markets: Positive aspects not to be lost sight of in turbulent times 24

Crude oil: 2019 with sideways movement at a slightly higher level 26

Portfolio strategies: Yield curve, Euroland 27

Portfolio strategies: International yield curve 28

Portfolio strategies: Stock market strategy 29

Overview of forecasts 30

Contacts 31

Important information 33

Research portal: www.nordlb.de/research

Bloomberg: NRDR <GO>


Special

At the Crossroads – global downturn in 2019? Analyst: Christian Lips, Chief Economist

Political uncertainties weigh on the global economy

2018 saw the global economy come back down to earth. In the preceding year, business

enterprises, consumers and market participants had proven remarkably unimpressed by

the many and varied global risks; this helped the global economy to a dynamic upswing

and triggered exuberance on the capital markets. The calm was deceptive, however. In

2018 the major crisis issues returned with full force to investors' radar screens. Trade war,

Brexit chaos, the new populist government in Italy, turbulence in several emerging mar-

kets – the growing uncertainties made for a clouding of sentiment in 2018 and the pace of

growth slowed appreciably in most regions. Only in the USA did growth buck the general

trend and pick up – bolstered by the fiscal stimulus from Trump's tax reform.

Chart: GDP growth in selected economic and currency areas

Source: Bloomberg, NORD/LB Fixed Income & Macro Research

Outlook for 2019 – Year of truth with risk factors Brexit, trade war and populism

In 2019 the world will be at the crossroads in the face of important (preliminary) decisions

where the main trouble spots are concerned. The current economic cycle is undoubtedly

well advanced, so it is hardly surprising that we are forecasting a slight slowdown in the

pace of growth for the global economy. However, there is also the risk of a stronger syn-

chronous downturn of the global economy. Possible triggering factors in this context

would be a hard or no-deal Brexit, a massive intensification and extension of the US ad-

ministration's trade conflicts and an escalation of the budget dispute between Italy and

the EU Commission. All these developments are in themselves not unrealistic, but in our

(quite optimistic) baseline scenario we are presuming a victory for common sense – which

means averting a hard Brexit, a permanent ceasefire in the trade war and a compromise

between the EU Commission and Italy, which would also contribute to a certain calming of

the capital markets. All this is difficult to forecast, but the fog of uncertainty will clear

somewhat in the first half of the year. The next few weeks will be decisive as regards the

topic of Brexit, in connection with which everything seems possible. After the 90-day peri-

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

in %, yoyin %, yoy

GDP USA GDP Japan GDP Eurozone GDP Germany

GDP UK GDP Switzerland GDP China (rhs)


od has expired, it will also become clear whether Donald Trump will continue to go for

escalation in trade issues or whether he will after all tend towards a deal with his trading

partners. And Italy is already coming up with proposals towards scaling back the deficit

plans for 2019 – the learning curve of the government in Rome at last appears to be get-

ting a bit steeper. Nevertheless, there is the threat of the European elections in May 2019

seeing a further strengthening of the (right-wing) populist forces in Europe who are acting

on a more networked basis than in the past. This would put the fragile political situation

and the shortcomings of EU governance back more prominently on the agenda. This

doesn’t necessarily have to be the case either, however, seeing as the Brexit chaos is a

reminder to the rest of Europe of the risks that leaving the common home Europe poses to

a single member state.

Chart: Real key interest rates – still a long way to normalization of monetary policy


Implications for the financial markets

In our baseline scenario, however, the global economy will likely be able to make a soft

landing, especially as monetary policy is still very expansionary in the majority of regions.

Only the Fed is in a rate hike cycle, as a result of which the real US key rates (deflated by

consumer price developments) are now no longer clearly negative. We are confident that

in 2019 the Fed will proceed less briskly and that the other leading central banks will act

very cautiously to begin with. It remains to be seen whether the ECB will resolve to under-

take an initial rate at all in 2019. If not, Mario Draghi would be the first ECB president nev-

er to raise the key rate during his term of office. The developments on the financial mar-

kets will also be highly dependent on the risk factors described above. In our baseline sce-

nario we expect moderately rising capital market rates and certainly see potential for the

stock markets. However, investors will be well advised to act with caution until the most

important risks have been clarified.

We wish you enjoyable reading, a happy and peaceful Christmas and a good start into a

successful and happy New Year 2019!

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

in %

Fed ECB BoJ BoE SNB


USA

When will the US currency get weaker again? Analysts: Tobias Basse // Bernd Krampen

A look back at a turbulent year

After having initially displayed the now known relative tendencies to weakness in

Q1/2018, the US economy registered significant growth in the following quarter. Indeed,

the already quite optimistic expectations among many observers – also due to rebound

effects after the weaker start to the year – were without any doubt clearly exceeded. Put

in figures, the annualized rate of change in real economic growth was an impressive 4.2

percent. It goes without saying that the well-known (and extensively discussed) special

effects also played a role in this development, though it should be emphasized that the US

growth figures as at the end of the first half-year are under any circumstances to be seen

as positive. Then, as was to be expected, Q3 saw certain signs of deceleration. However,

the development of real economic activity in the land of unlimited opportunity must un-

doubtedly still be described as positive; preliminary data (2nd publication) indicated that

the US economy started into the second half-year with an annualized expansion rate of 3.5

percent. US growth is therefore weaker – but by no means weak. Q4 now looks set to reg-

ister somewhat less strong growth figures. While the sentiment indicators in the United

States are currently showing no significant indications of a slowdown in the wake of the

intermittently pronounced geopolitical turbulences, the rising interest rates can be ex-

pected to have a successive dampening effect on America's economic activity. Indications

in this direction can already be seen on the US real estate market. Overall, we expect the

US economy to close 2018 with a growth figure for the year as a whole only just short of

the psychologically important mark of 3.0 percent, so in retrospect the development in

terms of economic activity in the USA can certainly be rated as quite positive. The conse-

quences of the upswing are of course also reflected in the labour market data with, as

anticipated, the unemployment rate falling below the – above all psychologically im-

portant – mark of 4.0-percent in the course of 2018. The upshot is that the US economy is

now more or less in a state of full employment.

Chart: Interest rate trend in the USA


0.00

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2.50

3.00

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20.12.2013 20.12.2014 20.12.2015 20.12.2016 20.12.2017

in %

UST 2Y UST 5Y UST 10Y Fed Funds Target


Outlook for 2019

The current data on the sentiment among US business enterprises are not pointing to any

sustained slowdown in economic activity in the land of unlimited opportunity. Indeed, the

two important ISM PMIs actually gained some ground in November as month under re-

view, arriving at levels indicating strong growth in the industrial and services sectors. How-

ever, both time series are likely overstating the upswing in the USA, and we are in fact

reckoning with a slight slowdown in economic growth in 2019 and expect real economic

activity to pick up by 2.50 percent. Private household consumption should remain a relia-

ble mainstay of the upswing in North America, however. In this context an eye needs to be

kept on the ongoingly buoyant employment situation which is likely to remain helpful to

US domestic demand in the longer term as well. Indeed, more and more companies in the

US are confirming at least certain tendencies towards staffing bottlenecks. This of course

predominantly applies where skilled personnel are concerned. The positive situation on

the US labour market also appears to have gradually had certain consequences for the

wage demands on the part of employees, in view of which the FOMC is likely to remain

under pressure to take action. Following the further increase to the Fed funds target rate

expected in December of this year, which should take the upper bound of this key US in-

terest rate for the markets to a level of 2.50 percent, the Federal Reserve's monetary poli-

cy will likely be less briskly realigned in the course of 2019. We are therefore maintaining

our expectation that the Fed officials will be aiming to implement two further rate hikes in

2019. Perhaps the central bank meeting scheduled for December 2018 will already be used

to signal to the financial markets a somewhat greater degree of caution in the reorganiza-

tion of monetary policy in Washington. The US capital market rates are in any case no

longer pricing in three interest rate adjustments in the coming year. This market assess-

ment is in our view highly realistic. As regards 10 year US Treasuries yields, we expect the

psychologically important mark of 3 percent to remain in focus for the time being. Over

the course of the year, this rate would then have to gradually move in the direction of 3.50

percent, though, all told, not at any great hectic pace.

When will the US currency get weaker again?

It goes without saying that the global interest rate environment as a whole remains a fa-

vourable one for the US currency for the time being. The pending hike of the Fed funds

target rate by the central bankers in Washington towards year-end 2018 has likely already

been priced in by the FX segment, so this monetary measure in the USA is hardly likely to

be of help to the dollar anymore. Besides this, the somewhat decelerating growth momen-

tum in the USA ought to provide reason to expect somewhat less support for the US cur-

rency in the longer term. Furthermore, we are still reckoning with the ECB aiming to very

cautiously start raising the key rates in Euroland in the second half of 2019. Against this

backdrop we are forecasting a certain strengthening of the euro over the next 12 months

(and, conversely, thus a weakening of the US dollar). The psychologically important mark

of USD 1.20 per EUR is likely to gradually move into focus within the framework of this

movement. The FX market will have to keep a close eye on the further developments in

terms of Italy's budgetary policy. The extensive public spending planned by the govern-

ment headed by Giuseppe Conte has undoubtedly weighed on the euro of late. The single

currency would certainly benefit in the event that the decision-makers in Brussels and

Rome should now find the way towards some kind of common ground. Geopolitical factors

will at any rate continue to be of significance for the FX segment in 2019 as well.


Fundamental forecasts, USA

2017 2018 2019

GDP 2.2 2.9 2.5

Private consumption 2.5 2.5 2.3

Govt. consumption -0.1 1.5 1.5

Fixed investment 4.0 6.0 3.0

Exports 3.0 1.5 1.5

Imports 4.6 2.0 0.5

Inflation 2.1 2.5 2.3

Unemployment rate 1 4.4 3.8 3.6

Budget balance 2 -4.3 -5.5 -6.9

Current acc. balance 2 -2.3 -2.5 -2.6

Change vs previous year as percentage; 1 as percentage of the labour force;

2 as percentage of GDP

Source: Feri, NORD/LB Fixed Income & Macro Research

Quarterly forecasts, USA

I/18 II/18 III/18 IV/18 I/19

GDP qoq ann. 2.2 4.2 3.5 2.5 2.3

GDP yoy 2.6 2.9 3.0 3.1 3.1

Inflation yoy 2.2 2.7 2.6 2.3 2.1

Change as percentage


Interest and exchange rates, USA

13.12. 3M 6M 12M

Fed funds target rate 2.25 2.50 2.50 2.75

3M rate 2.79 2.65 2.80 3.00

10Y Treasuries 2.91 3.15 3.25 3.45

Spread 10Y Bund 263 275 275 265

EUR in USD 1.14 1.15 1.17 1.20



Euroland

ECB in a dilemma – monetary policy normalization a successful

undertaking? Analyst: Christian Lips, Chief Economist

Review 2018: Markedly weakening economic momentum

2018 saw the eurozone fail to continue its previously highly dynamic development. Already

in the first half of the year, real GDP grew at quarter-on-quarter rates of just 0.4 percent

after five consecutive quarters with qoq expansion of 0.7 percent in each case. The down-

ward tendency continued in the summer, with growth in the third quarter at just short of

0.2 percent qoq – the weakest rate in a good five years. As regards the closing three

months of 2018, there are signs of a slightly higher expansion rate for the eurozone, but

there are basically no changes in the offing to the picture of moderation in growth. The

annual rate of change for 2018 in terms of real GDP is likely to stand at 1.9 percent; the

growth forecast we made twelve months ago (2.5 percent) was therefore overly optimis-

tic. Among the five largest economies, Spain and the Netherlands show the highest expan-

sion rates in 2018 at around 2.5 percent, while Germany, France and above all Italy regis-

tered weaker economic momentum than the rest of the currency area (see chart). On the

expenditure side, the domestic economy remained a reliable mainstay of growth. By con-

trast, net exports made merely a slightly positive contribution to growth, besides which

there was a slowdown in consumption and investment as well in the course of the year.

The continued decline in unemployment and the concomitant increase in employment had

a buttressing effect. The annual average unemployment rate fell significantly to 8.2 per-

cent. However, consumer price inflation of over 2.0 percent at times in year-on-year com-

parison has slowed the expansion in real disposable income.

GDP growth rates in 2018 (swda, yoy in %, own estimates)


Brexit, Italy, European elections – political risks weigh on the outlook for 2019

The economic upswing has been ongoing for 22 quarters now, and the leeway for further

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MTIELVSISKCYEELTLUATESNLFIGRPTECFRDEBEIT

in %


strong expansion has become correspondingly scant, at least in some countries. That said,

the output gap after two recessionary phases was also very large, which is why no conclu-

sions for the outlook can be drawn from the length of the cyclical upswing alone. The eco-

nomic outlook for the eurozone has increasingly clouded in recent months, however. The

economic sentiment indicator has been in downward mode since the turn of the year

2017/2018 but, with 109.5 points in November, was still well above the long-term average

(100.0). With the exception of the construction sector, where sentiment remains in the

region of its all-time high, the euphoria has given way to a more sober assessment in all

sectors of the economy. In particular the various political trouble spots are currently

weighing on the economic outlook. The foreign trade environment gradually deteriorated

over the course of the year, not least on account of the aggressive trade policy pursued by

US president Donald Trump. While the EU succeeded in securing a provisional ceasefire in

the conflict between the two major economic areas, the USA and the EU, in the middle of

the year, a lasting solution to the conflict has still to be achieved. Besides this, the EU is

being at least indirectly impacted by the US trade dispute with China and the economic

deceleration in the Middle Kingdom, with the first signs of a slowdown in trade becoming

visible. Add to this the in part chaotic developments on the way to Brexit. With just three

months to go before Britain's official withdrawal from the EU, the political situation is ex-

tremely confusing and Theresa May has a veritable fight on her hands to secure the British

Parliament's approval of the negotiated compromise with the EU. A hard Brexit would

cause serious economic damage to Great Britain, but the Eurozone would also be hit hard.

And as if the perennial issues trade conflict and Brexit were not enough, doubts about the

political stability of the monetary union have gathered momentum again. Mr. Macron

appears to be taking a political battering on the home front as a consequence of the seri-

ous and violent protests of the "Gilets jaunes"; his ability to reform is being called into

question as result of the latest concessions. Italy's populist government has in the past six

months taken it upon itself to break the previous agreements on budgetary policy with

Brussels and implement (consumptive) electoral promises. However, the pressure of signif-

icantly higher risk premiums for Italian government bonds appears to be gradually raising

the willingness in Rome to talk and negotiate. We expect a compromise to be reached

between Italy's populists and the EU Commission in the first half of 2019. The merely slight

progress made so far in terms of European governance is disappointing, and there is the

threat of a further strengthening of populist forces in the European elections in May. The

risks to the economic development of the euro zone are primarily of a political nature,

against which backdrop we expect GDP growth to slow from 1.9 percent in 2018 to just 1.4

percent in 2019.

Subdued inflation outlook for 2019

The average year-on-year inflation rate in 2018 stood at 1.8 percent which, for the first

time after many years of falling short of the target, met the ECB's definition of price stabil-

ity again. However, the rise in the inflation rate was primarily the result of what were at

times significantly higher energy prices. These were reflected above all in the price com-

ponent energy (see chart). Underlying domestic inflationary pressures, on the other hand,

remained low as in previous years and developed along a flatter curve than originally ex-

pected in the course of the year as well. Despite the improvement in the labour market –

with unemployment down to just 8.1 percent by October – and a wage trend a bit more

dynamic of late, the core rate ex-energy remained close to 1.0 percent yoy. The wage

stimulus is evidently taking a lot more time to have an impact in this cycle. The HICP infla-

tion rate can be expected to drop back below the 2.0 percent yoy mark in the near future

on account of the recent decline in oil prices, and a year-on-year figure of 1.5 percent –

and thus far lower than in 2018 – is to be reckoned with for 2019 as a whole.


Chart: Oil price, headline inflation and core rate ex energy


ECB: Is monetary policy normalization coming too late?

As expected, the European Central Bank (ECB) resolved at its last meeting in 2018 to end

its net purchases under the EAPP. The exit from the quantitative easing (QE) programme

was foreseeable and had been well prepared by the central bankers for some time, even

though the Governing Council had formally kept a back door open until the end. By con-

trast, the key interest rates remained at their historic rock-bottom levels until year-end. In

stopping its asset purchases at the turn of the year the ECB is ending the biggest monetary

policy experiment since the central bank’s inception. The Eurosystem will however keep

the volume of around EUR 2.6 trillion constant as long as necessary. The corresponding

forward guidance on reinvestments was reaffirmed and expanded, to the effect that the

Governing Council intends to fully reinvest maturing EAPP bonds for an extended period as

from the time of the first interest rate adjustment. The forward guidance remains un-

changed as regards the development of the key rates, so no rate hike is to be expected

until beyond summer 2019. Since the first hike – presumably initially only of the deposit

rate – is therefore not to be expected until late 2019 at the earliest, the ECB will in our

view be fully reinvesting maturities from the EAPP until at least 2021. The central bank in

Frankfurt thus remains a key customer on the bond markets and the upward pressure on

capital market interest rates is also limited from this side.

Two interesting basic principles apply to the future reinvestment policy with regard to the

PSPP programme: first, reinvestment of maturities in the same jurisdiction, and second, a

gradual alignment to the new ECB capital key. This would mean that Italian government

bonds in particular would have to be underweighted. At the beginning of 2019 the portfo-

lio of Italian government bonds deviates by almost 1.5 percentage points from the calcu-

lated portion as per the capital key – which equates to a volume of around EUR 28 billion.

Even if the alignment takes place slowly, this is certainly not good news for Italy's populist

government. The fact is, however, that it is not one of the ECB's tasks to iron out unsus-

tainable fiscal policies in individual member states. At least in December, the question of

possible further long-term refinancing operations by the ECB was not at the centre of at-

tention. Nevertheless, we consider a decision on a TLTRO III programme to be quite likely,

since the old TLTRO II operations with a time to maturity of less than one year will lose

considerably in attractiveness from a regulatory point of view. That said, the ECB cannot

use a cliff effect on excess liquidity in parallel with a planned normalization of key interest

rates, which in spirit would run counter to the principle of sequencing. The ECB's long-term

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2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

yoy in %yoy, in pp.

Core rate ex energy Energy HICP EMU Oil price yoy (rhs)

Forecast


path to normalization is based on a still cautiously optimistic outlook for overall economic

developments. Nevertheless, the central bankers in Frankfurt have adjusted their projec-

tions for 2019 slightly downwards, in addition to which Mario Draghi stressed the down-

side risks. Due to the high global risks, sentiment became increasingly clouded over the

course of the year. In particular Brexit and Donald Trump's trade policy are weighing on

business confidence. Provided the risks do not actually materialize, late 2019 could well

see the way clear for the next step on the path to normalization – namely a raising of the

deposit rate. An end to negative interest rates would be welcome, but this will depend

very much on the economic data reports in 2019. The ECB would be well advised at this

time to proceed cautiously and not let itself be too quickly diverted from its normalization

path, especially since for the foreseeable future it is not a question of an appreciable tight-

ening of the monetary reins but rather of a gradual scaling back of unconventional stimu-

lus measures.

Chart: Deviations in the PSPP based on the ECB's old and new capital key

Source: Bloomberg, EZB, NORD/LB Fixed Income & Macro Research

Capital market rates (Bunds): upward trend to remain subdued in 2019 as well

Capital market yields initially developed as expected in 2018. Speculation about the im-

pacts of the new US president Trump's aggressive trade policy and the uncertainty factors

Brexit and Italy then increasingly drove investors to safe havens again and caused the yield

on ten-year Bunds to plummet back below the 0.30 percent mark in December 2018. In

particular the massive widening of the spread between Italian government bonds and

Bunds (10Y) to well over 300 basis points at times revived concerns about contagion ef-

fects or even a sovereign debt crisis 2.0. The yield on 10-year Bunds currently stands at just

0.30 percent and, given the manifold risk factors, is at best likely to increase merely mar-

ginally in the first half of 2019. In addition, the ECB's interest rate adjustment path will

likely be even more cautious. We expect the ECB to undertake an initial raising of the de-

posit rate in Q4/2019 at the earliest; the main refinancing rate is unlikely to be upwardly

adjusted before spring 2020. Moreover, the ECB is using unconventional measures to in-

fluence longer-term market expectations regarding the key interest rates, with in particu-

lar the forward guidance aimed at moderating the risk premium for future key-rate chang-

es. Against this background the upside potential among the capital market rates will thus

remain limited for the time being. Should some of the macroeconomic risks (hard Brexit,

US import tariffs on vehicles, Italy) actually materialize, the demand for safe-haven assets,

and thus also for Bunds, would grow again. In that event the yields would likely nosedive

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3/15 9/15 3/16 9/16 3/17 9/17 3/18 9/18

Deviation in %-pts.

DE FR IT ES Rest


to the lows last seen in 2016. If this can be avoided, however, there are justified grounds

for expecting a gradual upward movement of the capital market rates in the eurozone in

the medium term. Above all a – even if cautious – commencement of the ECB's key-rate

normalization process would provide reason for elevated interest rate expectations among

the market participants. As regards the yields on 10-year Bunds, however, we expect a rise

to no more than 0.80 percent over the year.

Fundamental forecasts, Euroland

2017 2018 2019

GDP 2.5 1.9 1.4


Govt. consumption 1.2 1.0 1.3


Net exports 1 0.8 0.3 0.0

Inflation 1.5 1.8 1.5


Budget balance 3 -1.0 -0.7 -1.0

Current acc. balance 3 3.2 3.0 2.7

Change vs previous year as percentage; 1 as contribution to GDP growth;

2 as percentage of the labour force;

3 as percentage

of GDP


Quarterly forecasts, Euroland

I/18 II/18 III/18 IV/18 I/19

GDP sa qoq 0.4 0.4 0.2 0.3 0.3

GDP sa yoy 2.4 2.2 1.6 1.3 1.3

Inflation yoy 1.3 1.7 2.1 2.0 1.8



Interest rates, Euroland

13.12. 3M 6M 12M

Repo rate ECB 0.00 0.00 0.00 0.00

3M rate -0.31 -0.31 -0.28 -0.15

10Y Bund 0.29 0.40 0.50 0.80



Germany

Lane change for the German economy Analyst: Christian Lips, Chief Economist

Review: Growing burdens end the boom

The economic upswing has lost momentum in the course of 2018. Real GDP registered

growth of 2.0 percent in the first half-year as against the same period in 2017. However,

the German economy then went on to record its first drop in GDP since early 2015, with a

seasonally and calendar-adjusted figure of -0.2 percent qoq in Q3. Even assuming sound

quarter-on-quarter growth in Q4 – we are currently reckoning with expansion in the order

of 0.4 percent qoq – the closing quarter of 2018 is only likely to see a year-on-year plus of

around 1.0 percent. 2018 saw the German economy adversely affected in particular by the

growing deterioration of the global economic climate resulting from the diverse global risk

factors. The export-oriented German economy was hit particularly hard by the negative

impacts of the trade conflicts. The dynamics of foreign orders for industry declined signifi-

cantly in the course of the year, and the key leading indicators too registered a downtrend.

For 2018 as a whole, real GDP will likely have expanded by around 1.5 percent and thus

roughly in the same order as potential growth. This clearly disappointed the in some cases

very high expectations among the majority of economic analysts at year-end 2017. Despite

the weak Q3, the economy's capacities remain slightly overstretched. The key mainstay of

growth in 2018 was domestic demand. This applies to private consumption, but gross fixed

capital formation too has expanded in recent months. The latter trend is primarily at-

tributable to ongoingly brisk investment activity on the construction front. Net exports, on

the other hand, have made a significantly negative contribution to growth of late (see

chart).

Chart: Growth contributions to real GDP


Healthy labour market trend continues

Despite the economic slowdown, the healthy labour market trend of recent years has con-

tinued with similar momentum. The number of people in employment in 2018 rose by 1.3

percent, roughly as much as in the previous year (see chart). On average, the unemploy-

ment rate fell from 5.7 to 5.2%. The sustained upward trend in employment and growing

shortages of skilled labour in individual sectors have contributed to significant nominal

wage increases. At a good 1.0 percent yoy however, the expansion in private consumption

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I/13 I/14 I/15 I/16 I/17 I/18

qoq, in pp.

Priv. consumption Govt. consumption Gr. fixed cap. form.Inventories Net exports GDP growth


was as low as it last was in 2014. Real disposable income was dampened by higher infla-

tion prevailing above all in the summer. Investments trended quite dynamically despite the

high degree of global uncertainty. On the buildings front, the rising demand in residential

construction as well as, in general, the low interest rate environment and the lack of high-

yield investment alternatives are continuing to bolster demand.

Chart: Long-term labour market development (incl. forecast)


Outlook: Gradually receding WLTP problem – global risks weigh on sentiment

The poor GDP figures in Q3 were also due to special factors. In particular the problems

encountered by some manufacturers in obtaining timely certification of vehicle models to

the new WLTP exhaust emissions test standard led to a temporary slump in production

and sales in the automotive sector. The production figures available up to November from

the automotive industry association VDA indicate a gradually emerging catch-up effect, for

which reason slight catch-up effects in vehicle production are also to be expected for the

first half of 2019. Besides the problems in the automotive sector, however, capacity bot-

tlenecks and an uncertain global environment are having an increasingly dampening effect

on the economy. Above all, the Brexit issue and – to put it mildly – the unorthodox policies

of Donald Trump and the populist government in Italy are weighing heavily on sentiment.

The PMIs fell further in November, approaching the 50-points mark and thus the expan-

sion threshold. Although the expectations among the financial market experts in the most

recent ZEW survey have risen slightly, this must be gauged in the context of the significant-

ly worsened assessment of the situation, however; the more pessimistic evaluation of the

current situation does after all form the reference point for looking ahead into the future.

The ifo business climate too has in the meantime moved significantly away from its highs

(see chart), meaning that all key leading indicators provide good reason to expect a slow-

down in the pace of economic development. Having been in the fast lane in 2017, the

German economy has shown growing signs of a deceleration of late. It has as a result

changed lanes and will for the time being be running at a slower pace – probably in line

with potential. That said, there is still no reason for alarm as long as the risk factors (Brexit,

Italy, trade war) do not become of decisive significance. The coming half-year will provide

more clarity in this context. In the absence of major shock events, the German economy

will likely register real expansion of 1.3 percent in 2019. We expect a bolstering effect from

private and public consumption, each of which can be expected to grow more strongly

38

39

40

41

42

43

44

45

46 1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

in millions in millions

Unemployment (sa, rhs) Employed persons (sa, inv.)

Forecast


than in the past year. Private consumption will continue to benefit from a buoyant labour

market trend and lower inflation, in addition to which high wage settlements are to be

expected in the upcoming collective negotiations. Where equipment is concerned, on the

other hand, we expect a phase of investment restraint due to the elevated global risks and

the clouded sentiment in key export markets. The ongoing expansive monetary policy and

added stimuli from fiscal policy will buttress the German economy's development in 2019.

Chart: Leading indicators signal significantly decelerated pace of growth


Fundamental forecasts, Germany

2017 2018 2019

GDP 2.2 1.5 1.3


Govt. consumption 1.6 0.9 1.7


Exports 4.6 2.1 2.2

Imports 4.8 3.4 3.5

Net exports 1

0.3 -0.4 -0.5

Inflation 2

1.7 1.9 1.6


Budget balance 4 1.0 1.6 1.1

Current acc. balance 4 8.0 7.6 7.2

Change vs previous year as percentage; 1 as contribution to GDP growth;

2 HICP;

3 as percentage of the civil labour force

(Federal Employment Office definition); 4 as percentage of GDP


Quarterly forecasts, Germany

I/18 II/18 III/18 IV/18 I/19

GDP sa qoq 0.4 0.5 -0.2 0.4 0.4

GDP nsa yoy 1.4 2.3 1.1 1.0 1.1

Inflation yoy 1.4 1.9 2.1 2.2 2.2



-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

-4

-3

-2

-1

0

1

2

3

1995 1998 2001 2004 2007 2010 2013 2016

in %standardized

GDP (yoy in %, rhs) ifo business climateIndustrial confidence (EU Comm.) ZEW "business climate"


Switzerland

Trial of strength with the EU Analyst: Dr. Stefan Grosse

Trial of strength with the EU – blueprint for post-Brexit UK?

Switzerland is currently engaged in a trial of strength with the EU, which in some respects

could be a blueprint for future disputes between London and Brussels. It concerns in par-

ticular the Swiss stock exchange equivalence issue in connection with a framework agree-

ment between Switzerland and the EU which replaces Switzerland's special status with

EEA-like arrangements. Certain EU rules must be respected in return for market access.

The Swiss succeeded in achieving some negotiation successes, such as limiting the scope of

the framework agreement. A topic of dispute lies in the adoption of the EU's principle of

the free movement of persons, to which the Swiss trade unions are opposed because they

fear wage dumping. The EU is using the stock exchange equivalence issue as a means of

exerting pressure. The rules are at present mutually recognized, but Brussels set a dead-

line, namely for December 2018. This has now been extended again for a further six

months. Should it expire without agreement having been reached, stock exchange transac-

tions will be made considerably more difficult and the Swiss stock exchange would suffer

substantial losses in turnover. If the Federal Council in Bern makes too many concessions

in the framework agreement it will face domestic political pressure from the SVP and the

possibility of referendums. The discussion is in any case already of a more emotional than

rational nature. It is our view, however, that a compromise can be found; in particular

Brexit could make the EU more interested in reaching an amicable settlement than in

opening a second front. Switzerland could, for example, exert considerable pressure

through the transit of goods.

Slower growth, expansive SNB

The slowdown in growth is felt in Switzerland too, as reflected in, among other things, the

economic data on Q3, which surprised on the downside with a negative quarter-on-

quarter growth figure of -0.2 percent. Switzerland can hardly decouple itself from the

trend, especially in Europe. The latent risks such as trade conflicts, Brexit and Italy repeat-

edly lead to an appreciation of the Swiss franc. The slowing economic momentum will con-

tinue in 2019, against which background we expect GDP growth of just 1.3 percent. Em-

ployment remains high and domestic consumption robust; the latter will remain a key

mainstay of the Swiss economy in the year ahead as well. The overly subdued price trend

is making for difficulties, especially against the background of the exchange rate problems.

Consequently, the SNB can make little change to its current monetary policy.

Fundamental forecasts*, Switzerland Interest and exchange rates, Switzerland

2017 2018 2019 13.12. 3M 6M 12M

GDP 1.6 2.6 1.3 LIBOR target rate -0.75 -0.75 -0.75 -0.75

Inflation (CPI) 0.5 1.0 0.7 3M rate -0.74 -0.74 -0.75 -0.75

Unemployment rate 1 3.2 2.6 2.4 10Y -0.17 -0.09 0.00 0.10

Budget balance 2 1.3 0.4 0.5 Spread 10Y Bund -46 -49 -50 -70

Current acc. balance 2 9.8 10.5 10.0 EUR in CHF 1.13 1.14 1.15 1.17

*Change vs previous year as percentage; 1 as percentage of the labour force;




Japan

Gathering headwind Analyst: Dr. Stefan Grosse

Gathering headwind

Following revision, the data on Q3 revealed a very significant contraction in growth of 0.6

percent qoq, reflecting the fact that the natural disasters had a greater impact than initial-

ly hoped for. The deep drop into the negative zone will likely soon be history, however,

since there will be catch-up effects from Q4 onwards, not to forget that disasters always

have the effect of a small economic stimulus package. Against this background the domes-

tic economy will likely be giving a more robust showing in the near future. The economic

headwind is gaining strength at the global level, however. Japan will also be particularly

impacted by the economic situation in China and the slowing economic momentum in the

United States. While the trade conflict between Japan and the US is unlikely to be an issue,

as the Japanese are more willing to make concessions than the Chinese, there is neverthe-

less a threat of setbacks in the event of an escalation between the two largest economies.

Even if the "ceasefire" appears to be holding at present, there is nonetheless a considera-

ble residual risk. That said, the degree of investment activity is indicating a stabilization,

though the investment cycle could make for a certain braking effect in the second six

months of 2019. At that time there could be a further – government-induced – problem,

arising from the fact that the government in Tokyo still plans to raise the consumption tax

in October 2019. The experiences gained from the last increase suggest that this will make

for brought-forward consumption in the preceding months but likely trigger a recession

when it comes into effect. The government still has time to abandon its intended measure,

though it will probably only do so if there are no significant negative shocks beforehand.

Overall, though, the signs are that 2019 will give a significantly weaker economic showing.

Bank of Japan's hands remain tied

The BoJ’s hands remain tied where monetary policy is concerned, and normalization is not

to be expected for the time being. Given the slowing economic momentum and the lack of

stimuli for price development, which is being further depressed by the more favourable oil

prices, it also has less alternatives. The central bankers haven't exhausted the volume of

purchases of late, but could easily change up a gear again in this context – something that

has in the meantime become more likely again. The BoJ will at any rate maintain its strate-

gy of yield curve control and the somewhat wider trading range. It will also wish to wait

and see whether the scheduled consumption tax comes and what impact it has.

Fundamental forecasts*, Japan Interest and exchange rates, Japan

2017 2018 201

9

13.12. 3M 6M 12M

GDP 1.9 0.6 0.5 Key rate -0.10 -0.10 -0.10 0.00

Inflation 0.5 1.1 1.8 3M rate -0.11 -0.09 -0.06 0.00

Unemployment rate 1

2.8 2.4 2.8 10Y 0.05 0.09 0.12 0.14

Budget balance 2

-3.7 -3.7 -3.9 Spread 10Y B -23 -31 -38 -66

Current acc. balance 2

4.0 3.8 3.7 EUR in JPY 129 130 130 134

* Change vs previous year as percentage USD in JPY 114 113 111 112





China

Trade war – finale furioso? Analyst: Dr. Stefan Grosse

Fateful year in the trade war

There are growing signs of a slowdown in the Chinese economy. Especially when account is

taken of the fact that there is currently a "frontrunning" in progress, i.e. in this case in-

vestments and purchases being brought forward in anticipation of a trade war escalation.

There is at least 90-day breather in the foreign trade dispute that appears to be holding.

This means that the planned raising of US import tariffs has also been postponed until

January for the time being. Trump implied that he had been hugely successful in the nego-

tiations. China will after all be lowering the tariffs on American cars and also gave indica-

tions of improved market access. That said, all this does not necessarily mean that the

conflict has been resolved. President Trump is always good for a surprise. Particularly in

view of the fact that on the domestic front he is under increasing pressure from the

Mueller investigation, it is difficult to judge how he reacts, whether he aims for a quick

success in order to score points or whether he vents his aggression on his "favourite oppo-

nent". It is at any rate clear that 2019 will be the year in which it will be decided whether

the conflict will be settled or ultimately escalated.

Either way –further stimulus measures are certain

The Chinese government is likely to respond by way of a further economic stimulus pack-

age to the slowing economic momentum, which is attributable not only to the trade con-

flict but also to home-grown problems. We expect that the waning frontloading, the cool-

ing construction sector and the investment cycle will lead to a weak start to 2019, even

without a further escalation of the trade conflict. The PBoC and the government will react

with measures in Q2/2019 at the latest, with minimum reserve rate reductions a certainty

and reductions in consumption tax and corporate tax reductions conceivable. The impact

of the stimuli and the cyclical effects will contribute towards stronger growth in the second

half of the year. The bottom line is that we should see growth above the 6-percent mark.

Downside risks are to be expected from the trade conflict, a possibly stronger slowdown in

the US economy's growth but also from political events in Europe or friction in the capital

markets. On the currency side, the USD 7/CNY mark will likely be exceeded next year, with

a slowdown in growth, interest rate differentials and an indirect economic stimulus pack-

age likely to play a role in this context. That said, the pace of depreciation will be rather

slow towards counteracting capital flight endeavours.

Fundamental forecasts*, China Interest and exchange rates, China

2017 2018 2019 13.12. 3M 6M 12M

GDP 6.9 6.5 6.2 Deposit rate 1.50 1.50 1.50 1.50

Inflation 1.6 2.2 2.3 3M SHIBOR 3.15 2.80 2.50 3.00

Unemployment rate 1 4.2 4.1 4.1 10Y 3.35 3.50 3.61 3.89

Budget balance 2 -3.6 -3.6 -3.7 Spread 10Y Bund 307 310 311 309

Current acc. balance 2 1.3 0.7 0.5 EUR in CNY 7.82 8.21 8.54 8.76

* Change vs previous year as percentage USD in CNY 6.88 7.14 7.30 7.30





Britain

Orderly or no-deal Brexit – the decisive question Analyst: Dr. Jens Kramer

Stalemate at the crossroads between an orderly and no-deal Brexit

The situation in the last few metres before the crossroads between an orderly and a no-

deal departure of the United Kingdom from the European Union on 29 March of the new

year could hardly be more dramatic and confusing. With the Brexit negotiators having

succeeded in concluding an agreement almost 600 pages long with several annexes and a

political declaration of intent, prime minister Theresa May had a great deal of difficulty to

get her own cabinet behind the compromise that had been thrashed out. The Brexit deal

was due to be voted on in the House of Commons on 11 December, but Mrs May sum-

marily called the vote off the day before as it was clear that a majority of MPs would op-

pose the agreement. There is fierce resistance to the so-called backstop clause, which is

intended to avert a hard border between the British North of Ireland and the Republic of

Ireland. To this end, it was agreed in the deal that, if necessary, Great Britain would remain

in the customs union and Northern Ireland in the single market if no agreement on future

trade relations can be reached at the end of the transitional period, which runs until the

end of 2020 and, if necessary, beyond it. Since the agreement provides for neither a uni-

lateral right of exit for Britain nor a time limit for the backstop, the Brexiteers fear that the

different treatment of Northern Ireland and the rest of the United Kingdom will on the one

hand constitute an undermining of integrity and, on the other hand, in extreme circum-

stances put Britain in a state of vassalage to the EU. The discontent ultimately channeled

itself into a party-internal vote of no confidence, which Mrs. May survived with the ap-

proval of almost two thirds of the Conservative MPs.

"No deal" almost as likely as an orderly Brexit

In bilateral talks and at the EU summit on 13 and 14 December, Mrs May in the meantime

endeavoured to attain improvements to the Brexit agreement with regard to the backstop

clause. Understandably and in a rare show of unanimity, however, the EU refused to undo

the painstakingly negotiated package once again. The British were merely conceded the

non-binding declaration of intent that the backstop would only be applied – if at all – for a

limited period and would be replaced by a follow-up regulation still to be agreed. This

means that the orderly withdrawal in the form of the negotiated agreement will be put to

the vote in Parliament no later than 21 January. It would take no less than the most opti-

mistic imagination to see a majority as conceivable. Around one third of the conservative

MPs could oppose it, as could the parliamentarians of the Northern Irish DUP, whose votes

the minority government has relied upon to date. As regards the opposition Labour Party,

it will be a matter of whether its MPs give preference to damage limitation rather than

attempting to bring down the government and forcing fresh elections. In our baseline sce-

nario we are assuming an orderly Brexit and the path thus opened into the transition

phase. A no-deal or hard Brexit and the reversion of the UK's trade relations with the EU

and the rest of the world to WTO standards is almost equally likely, however. Against this

background we outline in the following our forecasts for the year ahead, not only for the

event of an orderly withdrawal but also for the no-deal scenario of a hard Brexit.


Chart: Growth, inflation and monetary policy in baseline and hard Brexit scenarios


Baseline: Restrained growth momentum, Bank of England on a more neutral course

In the event of an orderly withdrawal, the most volatile risks will take a back seat in the

subsequent transition phase, but the uncertainty about the rules and regulations that still

need to be laid down for trade in goods and services, the free movement of people and

capital will dampen investment and the propensity to consume. We expect 2019 to see

real economic growth of 1.1 percent, which will thus remain below potential. The annual

average cost of living will increase by 2.1 percent in year-on-year comparison. The em-

ployment trend should no longer be quite so robust against the background of a down-

trending economy. In this environment we expect the Bank of England to continue steer-

ing its cautious and measured course towards a more neutral monetary orientation. We

expect a bank rate hike in spring and one in autumn. The pound sterling exchange rate

ought to be able to stabilize, doing so in the direction of the GBP 0.85/EUR mark by year-

end 2019. Yields on British government bonds will likely move slightly upwards over the

entire yield curve against the background of rate expectations and a no longer so strongly

pronounced risk perception.

Hard Brexit: Severe adjustment recession, pound close to parity against the euro

In contrast, the macroeconomic implications of a hard Brexit can be described as outright

dramatic. Our model calculations indicate the likelihood of a severe adjustment recession.

Alone the strict restrictions on the cross-border exchange of goods and, above all, services

and the severing of key value chains will lead to a slump in economic output as early as

Q1/2019 which will likely accelerate even further in the summer. For the year as a whole,

we forecast a decline in real GDP of -0.3 percent as against 2018 in the event of a hard

Brexit. The drastic exchange rate losses sustained by the pound sterling – against the euro

in the direction of parity – will drive the inflation rates markedly upwards amid stumbling

domestic demand. Despite its mandate to ensure price stability, the Bank of England re-

mains blocked from raising rates in this constellation. In this crisis scenario we instead

expect a rapid rate cut. In a market environment characterized by incalculable risks, British

government bonds are still the most reliable asset class for investors wishing to remain


invested in the British pound. We expect price gains that will push 10-year yields down to

the 1.00 percent mark.

Fundamental forecasts*, Britain Interest and exchange rates, Britain

2017 2018 2019 13.12. 3M 6M 12M

GDP 1.7 1.3 1.1 Repo rate 0.75 0.75 0.75 1.00

Inflation (CPI) 2.7 2.5 2.1 3M 0.90 0.90 0.90 1.10



Current acc. balance 2 -3.7 -3.7 -3.7 EUR in GBP 0.90 0.87 0.87 0.85

* Change vs previous year as percentage GBP in USD 1.27 1.32 1.34 1.41

1 as percentage of the labour force as per ILO concept;




Canada

Oil price decline braking growth – for the time being Analysts: Tobias Basse // Bernd Krampen

Oil price decline weighs on the economy, restrains BoC from rate hike in the near future

The signs are that the Bank of Canada will not be undertaking its expected rate hike in

January – as can be inferred from an unexpectedly dovish statement by the central bank-

ers following the BoC's meeting in early December. The decline in oil prices to be seen

since early October is having a particularly negative impact on the economy. The BoC

points to the weaker energy sector – with implications for the western provinces but also

for the economy as a whole. Add to that a decline in investment of late and the danger

that the higher interest rates could slow growth somewhat. After a quite sound Q3 with

annualized GDP growth of 2 percent, there are now growing signs of a setback in growth in

Q4, in addition to which the rate of inflation will be dropping for the time being from its

current level of 2.4 percent for oil price-induced reasons.

Economic situation stabilizes again – BoC rate hike thus merely postponed

We are nevertheless assuming that the decline in oil prices will only slightly delay the BoC's

intended further normalization of monetary policy at the beginning of 2019. Besides our

expectation of the oil prices rising again in the course of 2019, the recently more sound

economic data from the land of the maple leaf also provide justification for our assump-

tion. The sentiment among Canada's business enterprises thus remains at a healthy level.

The diminished uncertainty in the wake of the successful negotiations on the NAFTA's suc-

cessor in the form of "USMCA" has undoubtedly stabilized the expectations for 2019.

There was also good news from the labour market, with strong employment growth, be-

sides which the sound GDP expansion to be expected in its southern neighbour, the USA, is

a stabilizing element. Against this background there is no reason to be all that pessimistic

about the economic prospects for Canada in 2019. We expect renewed GDP growth of

around 2 percent. We are maintaining our expectation of two rate hikes by the BoC in

2019 but probably not before spring.

CAD under strain for the time being but should stabilize somewhat in the long run

Slightly rising interest rates – albeit on both sides of the Great Lakes – should only boost

the Canadian currency against the US dollar to the extent that, in our opinion, the current

depreciation has been too rapid. We expect 2019 to see the Canadian dollar moving in the

opposite direction, with an appreciation in the direction of CAD 1.30/USD if the oil prices

stabilize somewhat again as well.

Fundamental forecasts*, Canada Interest and exchange rates, Canada

2017 2018 2019 13.12. 3M 6M 12M

GDP 3.0 2.1 2.1 O/N target rate 1.75 2.00 2.25 2.25

Inflation 1.6 2.3 2.1 3M 1.64 2.10 2.30 3.40

Unemployment rate 1

6.3 5.9 5.8 10Y 2.16 2.30 2.50 2.70

Budget balance 2

-1.1 -0.8 -0.7 Spread 10Y Bund 187 190 200 190

Current acc. balance 2

-2.8 -2.8 -2.5 EUR in CAD 1.52 1.52 1.53 1.57

* Change vs previous year as percentage USD in CAD 1.34 1.32 1.31 1.31





Mexico

USMCA makes for risk reduction – but what does AMLO have in

store? Analysts: Tobias Basse // Bernd Krampen

One uncertainty less for 2019: USMCA is a done deal

The new North Atlantic free trade agreement under the name "USMCA" was signed at the

G20 summit in Buenos Aires on 30 November. This has put one element of uncertainty

aside for Mexico since it basically means that a continuation of the trade between the

three signatory countries can be reckoned with – with positive effects for all of them. Giv-

en the merely slightly less strong growth momentum expected in the USA for 2019, Mexi-

co too should be able to achieve growth of around 2 percent again.

One uncertainty more for 2019: AMLO is Mexico's new president

Another uncertainty has just gathered weight, however: following his election victory in

the summer, Andres Manuel Lopez Obrador (AMLO for short) was sworn in as Mexico's

new president on 1 December. The rating of the new head of state is quite mixed: on the

one hand, he has set himself the fight against corruption and against poverty as goals,

which is an honourable intention but likely difficult to achieve. On the other, concerns

have risen that the left-wing president could hamper the country's economic develop-

ment. Those sceptical of AMLO were given a foretaste of a less investment-friendly policy

when the construction of the new airport in Mexico City was summarily stopped. Moreo-

ver, the capital markets (and the rating agencies) will be keeping a close eye on the new

government's planned expenditure increases, which could admittedly help stabilize growth

in the short term but at the same time drive debt levels higher in the medium term.

Banxico will have to act twice in 2019 to stabilize the peso

Concerns about future policy have also markedly increased the pressure on the Mexican

peso of late. Mexico's national currency has been consistently above the psychologically

important level of 20 pesos per dollar since mid-November – a development on which the

Mexican central bank is keeping a close eye since it means a growing risk of higher infla-

tion. After the rate hike in November, Banxico could take a wait-and-see stance at its

meeting on 20 December – and then likely take renewed action in the first and second

quarters of 2019. Whether or not these measures will be sufficient to stabilize the peso

depends largely on the new president's actions in his first few months in office.

Fundamental forecasts*, Mexico Interest and exchange rates, Mexico

2017 2018 2019 13.12. 3M 6M 12M

GDP 2.1 2.1 2.1 O/N target rate 8.00 8.25 8.50 8.50

Inflation 6.0 4.9 4.0 3M 8.32 8.35 8.60 8.60



Current acc. balance 2 -1.1 -1.6 -1.7 EUR in MXN 23.08 23.00 22.82 23.40

* Change vs previous year as percentage USD in MXN 20.31 20.00 19.50 19.50





Australia

Growth momentum slower but still quite sound Analysts: Tobias Basse // Bernd Krampen

Q3 with unexpected slowing in growth momentum – outlook nevertheless sound

GDP gave an unexpectedly moderate showing in Q3, with a qoq plus of 0.3 percent. The

consumer spending and investment figures were particularly disappointing. Net exports

were admittedly positive, but this was partly due to significantly lower imports. The weak-

ness in consumption is somewhat surprising in view of the sound state of the labour mar-

ket and higher wages of late, but the private households appear to be concentrating more

on repaying their (real estate) loans or saving for old age against the background of appre-

ciably higher interest rates on loans. The sentiment among consumers and businesses has

not deteriorated to any significant degree lately. However, uncertainties such as the high

indebtedness of households (with real estate prices already falling at the same time in

some cases) and the global trade conflict with the feared slowdown in growth in China are

weighing on the economy. We expect a slight slowdown in economic momentum in 2019 –

albeit with ongoingly robust GDP growth of 2.8 percent after just over 3 percent in 2018.

RBA in a positive frame of mind – but makes rate hike dependent on wage growth

Australia's key rates have remained unchanged since mid-2016, and on 4 December the

Reserve Bank of Australia extended this phase as expected. However, the central bankers

appeared optimistic as to the prospects for the economy as a whole in the longer run and,

above all, as regards the development of the labour market. Nonetheless, the view was

expressed that a rate hike would only become an agenda item when wages also rise more

strongly since this would drive inflation higher. Consumer price inflation currently stands

at just 1.9 percent yoy – the RBA will likely wait for an increase to the target range of 2.5

percent. We do not expect an initial rate adjustment until the second half of 2019.

AUD ends downtrend, remains under pressure and will likely appreciate later

A positive outlook on the part of the RBA and the retraction of the rate hike expectations

for the Federal Reserve made for a stabilization of the Australian dollar. The currency thus

ended its sustained downtrend but remains under pressure: while we expect the Fed to

undertake two rate hikes in 2019, the RBA is unlikely to take action before the 2nd half-

year at the earliest. The growth prospects remain similarly sound for both currency areas,

against which background we expect the AUD to be slightly lower for the time being but in

the current range or slightly higher the course of 2019.

Fundamental forecasts*, Australia Interest and exchange rates, Australia

2017 2018 201

9

13.12. 3M 6M 12M

GDP 2.4 3.3 2.7 Cash target rate 1.50 1.50 1.50 1.75

Inflation 1.9 2.0 2.2 3M 2.00 1.95 2.05 2.20



Current acc. balance 2 -2.6 -2.6 -2.5 EUR in AUD 1.57 1.55 1.53 1.53

* Change vs previous year as percentage USD in AUD 0.72 0.74 0.75 0.75





Stock markets

Positive aspects not to be lost sight of in turbulent times Analyst: Thorsten Strauss

2018 was not a good year for the stock markets despite an all-time high in January

This much is already certain right now: there is no likelihood anymore of 2018 being a

good year for the stock markets. There is not much left of the buoyant mood that took the

DAX to a record high of 13,560 points in January. The looming – and in the meantime in-

creasingly manifested – trade conflict between the USA and China, accompanied by recip-

rocal punitive tariffs, has preoccupied the stock exchanges for most of the year. US presi-

dent Trump has put the EU too in the crosshairs because of allegedly unfair trade practic-

es. There is admittedly a sort of truce at present, but this is not likely to be of a permanent

nature. And, with the Damocles sword of punitive tariffs likewise hovering over it, the au-

tomotive industry is a further topic to be taken account of – not to forget further senti-

ment killers in the form of the budget dispute with the EU escalated by Italy's new gov-

ernment, together with the tough EU BREXIT negotiations with the UK. Rising interest

rates in the USA and the resulting increase in competition for equities as an asset class

were also not exactly conducive to market activity. And what really put paid to any opti-

mistic sentiment was an exceptional accumulation of profit warnings by companies around

the time of the reporting for Q3. This evidences the economic slowdown being increasingly

reflected in the income statements posted by the companies. Anyone aware of the grow-

ing number of geopolitical crises had to rub their eyes in amazement for a long time, be-

cause there was no sign of this in the volatility considered to be a measure of risk. That

said, these times too have been over since September at the latest, seeing as the fluctua-

tion intensity on the stock markets has increased appreciably since then. The DAX has in

the meantime fallen to its lowest level in over two years. And even if a year-end rally does

materialize, the stock market barometer will have the greatest difficulty in closing 2018 in

plus. The DAX would in the meantime have to climb by a substantial 20 percent to arrive

back at the level registered at year-end 2017. Against this background, 2018 will likely

prove to be the first year of losses on the stock market after 6 years of what were in some

cases strong DAX gains (2017: +12.5 percent).

Outlook 2019: After a turbulent first half-year, the upward forces ought to prevail in the

further course of the year

And, at least for a certain period of time, the prospects are not particularly favourable as

regards 2019 either. The EU and Britain are continuing their endeavours towards averting

a no-deal Brexit on 29 March. March will likewise see the end of the grace period that the

USA and China have granted each other for a possible rapprochement in the trade dispute.

Italy's draft budget holds ongoing potential for dispute, and the European elections on 26

May could also make for political turbulence. Against this background the market opera-

tors must prepare themselves for a turbulent first half of 2019. Then, however, the un-

doubtedly existing positive influencing factors ought to prevail. Special effects weighing on

the economy, such as the WLTP problem or the consequences of the extreme drought in

the summer of 2018 for shipping on the Rhine will fade out. Though the economy has

slowed perceptibly, there is no reason to fear an emergency braking, so the prospects for

further upward movement in corporate profits are good too. Given the historically still


rock-bottom interest rates, equities appear to be moderately – in some cases favourably

again – valued. Indeed, the dividend yields are exceptionally attractive. And finally, it

should prove possible to defuse at least some of the numerous geopolitical crises. All told,

we are therefore confident of seeing the DAX recover to 12,600 points by year-end 2019.

Cautious optimism for US equities

Our optimism as regards the US stock exchanges is somewhat more cautious. Valuations

there are still significantly higher than in Europe, and dividend yields less attractive, but

this can to some extent be explained by the improved economic situation. Besides this,

interest rates are already considerably higher and will likely continue to rise in the course

of 2019, in addition to which President Trump's unpredictable style of politics can be ex-

pected to repeatedly make for surprises. We also see recovery potential for the S&P 500,

but we expect this to be lower than for the DAX, with a possible rise to 2,875 points by

year-end 2019.


Crude oil

2019 with sideways movement at a slightly higher level Analyst: Niklas von Perbandt

Structural supply deficit turned into surplus in 2018

Accompanied by rising oil prices, the levels in the OECD storage facilities have fallen since

the introduction of production limits by "OPEC+" in January 2017, also buttressed by the

rise in global demand. The daily supply deficit equating to 500,000 barrels in 2017 turned

slowly into a supply surplus in Q3/2018. In addition to the extremely strong growth of the

US oil industry, with expansion of around 2.8 million barrels per day from January 2017 to

November 2018, Saudi Arabia and Russia also contributed in response to the expected

tough US sanctions against Iran to the fact that in Q4/2018, contrary to the intentions of

OPEC+, there was a supply surplus on the market. Having peaked at USD 86 per barrel

Brent since 2017 and gained around 55%, the oil prices collapsed by 30 percent to below

USD 60 per barrel Brent within just 7 weeks as a consequence of this oversupply, the in-

correct anticipation of reduced export volumes and the gloomy outlook for the future.

Early December then saw OPEC+ resolve to further reduce production by around 1.2 mil-

lion barrels/day. It thus stabilized prices along the USD 60/barrel Brent mark and, in our

view, laid the foundation for a sideways movement in oil prices in 2019 in a range between

USD 60 and 70 (Brent).

Production cuts by OPEC+ and increases by the USA determine the market

We expect 2019 to see an average price over the year of around USD 67 (Brent). However,

the core prerequisite for this is a sufficient degree of production discipline on the part of

OPEC+, as well as the continuation of an active production volume control system after the

current programme expires in summer 2019. If the cuts are not extended or if they fall far

short of the targets due to noncompliance, the fundamental developments in supply and

demand will lead to significant selling pressure on the prices. The excess supply that would

result from an expected non-OPEC production growth of 2.2 million barrels and an ex-

pected growth in global demand of 1.3 million barrels would be too strong. However, the

signals from the leading OPEC+ countries Saudi Arabia and Russia currently point more to a

deepening of the cooperation. Assuming high OPEC+ compliance, prices in H1/2019 ought

to recover somewhat from the recent discounts. This is also due in particular to the growth

in US production volumes, which can be expected to be curbed in H1/2019 by limited pipe-

line capacities. In Q3 and Q4, any supply gaps ought to then have been filled by fresh shale

oil from the USA; this will likely give rise to downward pressure. In the course of Q4 we

expect more stable prices again which, as result of rising demand for crude oil, can be ex-

pected to benefit the shipping industry (which will be subject to revised fuel regulations as

of 2020).

It goes without saying that the crude oil prices will remain dependent on numerous risk

factors such as weather-related outages, armed conflicts (especially in the Strait of Hor-

muz), uncertain national production trends, geopolitical and macroeconomic develop-

ments and rapidly changing market sentiment. In particular, a possible slowdown in the

global economy could have a significant negative impact on demand. Against the back-

ground of high price sensitivity to even minor changes in the fundamental supply situation,

any price forecast is therefore associated with a large degree of uncertainty.


Portfolio strategies

Yield curve, Euroland

Yields and forecasts (Bunds/Swap) Yield curve forecasts (Bunds)

Yields (in %) NORD/LB forecast for horizons

current 3M 6M 12M

3M -0.31 -0.31 -0.28 -0.15

1Y -0.61 -0.60 -0.55 -0.50

2Y -0.58 -0.55 -0.50 -0.45

3Y -0.53 -0.49 -0.41 -0.30

4Y -0.41 -0.36 -0.27 -0.11

5Y -0.27 -0.20 -0.10 0.10

6Y -0.18 -0.08 0.02 0.26

7Y -0.07 0.04 0.14 0.40

8Y 0.05 0.15 0.25 0.54

9Y 0.16 0.27 0.37 0.67

10Y 0.29 0.40 0.50 0.80

2Y (Swap) -0.14 -0.10 -0.05 0.00

5Y (Swap) 0.28 0.35 0.40 0.55

10Y (Swap) 0.88 0.95 1.00 1.20

Source: Bloomberg, NORD/LB Fixed Income & Macro Research Source: Bloomberg, NORD/LB Fixed Income & Macro Research

Forecasts and total returns Expected total returns

Total returns (in %) for horizons…

3M 6M 12M

3M -0.08 -0.16 -0.28

1Y -0.16 -0.34 -0.61

2Y -0.18 -0.38 -0.66

3Y -0.20 -0.20 -0.69

4Y -0.16 -0.44 -0.73

5Y -0.22 -0.52 -0.91

6Y -0.44 -0.84 -1.53

7Y -0.54 -0.98 -1.96

8Y -0.58 -1.09 -2.40

9Y -0.65 -1.17 -2.77

10Y -0.72 -1.26 -3.07


A total return is the absolute profit from an investment in the time period under consideration, with account being

taken of the pro-rata yields plus the price gains or losses to be anticipated on the basis of the forecast yield curve

change.

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

3M 1 2 3 4 5 6 7 8 9 10

%Expected total returns

3M 6M 12M



International yield curve: 3-month & 12-month horizons

3-month horizon

Expected total returns (as %) in euro Expected total returns (as %) in national currencies

EUR USD GBP JPY CHF USD GBP JPY CHF

1Y -0.2 -0.6 3.3 -0.8 -1.2 1Y 0.6 0.1 -0.1 -0.2

2Y -0.2 -0.5 3.2 -0.8 -1.1 2Y 0.7 0.1 -0.1 -0.3

3Y -0.2 -0.8 3.1 -0.8 -1.3 3Y 0.4 -0.1 -0.1 -0.3

4Y -0.2 -1.2 2.9 -0.9 -1.3 4Y 0.0 -0.3 -0.2 -0.3

5Y -0.2 -1.5 2.9 -0.9 -1.4 5Y -0.3 -0.3 -0.2 -0.5

6Y -0.4 -1.7 2.6 -1.0 -1.5 6Y -0.5 -0.6 -0.4 -0.5

7Y -0.5 -1.9 2.0 -1.1 -1.6 7Y -0.7 -1.1 -0.4 -0.6

8Y -0.6 -2.0 1.6 -1.2 -1.7 8Y -0.8 -1.5 -0.6 -0.7

9Y -0.7 -2.2 1.5 -1.1 -1.7 9Y -1.0 -1.6 -0.5 -0.8

10Y -0.7 -2.3 1.4 -1.1 -1.7 10Y -1.1 -1.7 -0.4 -0.7


12-month horizon

Expected total returns (as %) in euro Expected total returns (as %) in national currencies

EUR USD GBP JPY CHF USD GBP JPY CHF

1Y -0.6 -2.8 6.4 -3.8 -4.4 1Y 2.7 0.7 -0.2 -1.0

2Y -0.7 -2.9 6.0 -3.9 -4.2 2Y 2.6 0.4 -0.2 -0.7

3Y -0.7 -3.2 5.4 -3.9 -4.3 3Y 2.2 -0.2 -0.3 -0.8

4Y -0.7 -3.7 4.8 -4.0 -4.3 4Y 1.7 -0.7 -0.4 -0.8

5Y -0.9 -4.2 4.6 -4.2 -4.6 5Y 1.1 -1.0 -0.5 -1.1

6Y -1.5 -5.0 4.2 -4.4 -4.8 6Y 0.4 -1.3 -0.8 -1.3

7Y -2.0 -5.2 3.6 -4.6 -5.0 7Y 0.1 -1.9 -0.9 -1.5

8Y -2.4 -5.7 3.1 -4.7 -5.3 8Y -0.4 -2.3 -1.1 -1.8

9Y -2.8 -5.8 2.9 -4.5 -5.4 9Y -0.5 -2.5 -0.9 -2.0

10Y -3.1 -6.3 2.7 -4.3 -5.4 10Y -1.0 -2.7 -0.6 -2.0


A total return is the absolute profit from an investment in the time period under consideration, with account being

taken of the pro-rata yields plus the price gains or losses to be anticipated on the basis of the forecast yield curve

change.



Stock market strategy; 3- month, 6-month & 12-month horizons

Levels and performance

Index Level as at Status Performance since

13.12.2018 Prev. month Start of year Prev. month Start of year

DAX 10,924.70 11,257.24 12,917.64 -2.95% -15.43%

MDAX 22,480.77 23,453.53 26,200.77 -4.15% -14.20%

EuroSTOXX50 3,112.17 3,173.13 3,503.96 -1.92% -11.18%

STOXX50 2,862.05 2,934.21 3,177.84 -2.46% -9.94%

STOXX600 349.42 357.49 389.18 -2.26% -10.22%

Dow Jones 24,597.38 25,538.46 24,719.22 -3.68% -0.49%

S&P 500 2,650.54 2,760.17 2,673.61 -3.97% -0.86%

Nikkei 21,816.19 22,351.06 22,764.94 -2.39% -4.17%


Index forecasts EuroSTOXX50 and S&P500

Index

NORD/LB forecasts

for horizons ...

3M 6M 12M

DAX 11,800 12,200 12,600

MDAX 24,800 25,800 26,600

EuroSTOXX50 3,280 3,400 3,450

STOXX50 3,025 3,150 3,175

STOXX600 370 380 390

Dow Jones 25,750 26,000 26,500

S&P 500 2,775 2,825 2,875

Nikkei 21,500 22,000 21,300



Date of going to press for data, forecasts and text was Friday, 14 December 2018, 2:25 pm.

The next English issue of Economic Adviser will be appearing on 28 January 2019.

2000

2200

2400

2600

2800

3000

3000

3100

3200

3300

3400

3500

3600

3700

3800

14.12.2017 14.03.2018 14.06.2018 14.09.2018

EuroSTOXX50 S&P 500 (r.S.)


Overview of forecasts

Fundamental forecasts

in % GDP growth Rate of inflation Unemployment

rate1

Budgetary balance2

2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

USA 2.2 2.9 2.5 2.1 2.5 2.3 4.4 3.8 3.6 -4.3 -5.5 -6.9

Euroland 2.5 1.9 1.4 1.5 1.8 1.5 9.1 8.2 7.8 -1.0 -0.7 -1.0

Germany 2.2 1.5 1.3 1.7 1.9 1.6 5.7 5.2 4.9 1.0 1.6 1.1

Japan 1.9 0.6 0.5 0.5 1.1 1.8 2.8 2.4 2.8 -3.7 -3.7 -3.9

Britain 1.7 1.3 1.1 2.7 2.5 2.1 4.4 4.1 4.5 -1.8 -1.9 -2.2

Switzerland 1.6 2.6 1.3 0.5 1.0 0.7 3.2 2.6 2.4 1.3 0.4 0.5

China 6.9 6.5 6.2 1.6 2.2 2.3 4.2 4.1 4.1 -3.6 -3.6 -3.7

Canada 3.0 2.1 2.1 1.6 2.3 2.1 6.3 5.9 5.8 -1.1 -0.8 -0.7

Mexico 2.1 2.1 2.1 6.0 4.9 4.0 3.4 3.4 3.5 -1.6 -2.1 -2.5

Australia 2.4 3.3 2.7 1.9 2.0 2.2 5.6 5.3 5.0 -0.6 -0.7 -0.4

Change vs previous year as percentage; 1 as percentage of the labour force (Germany: as per Federal Employment Office definition);



Key rates Exchange rates

in % 13.12.18 3M 6M 12M EUR in… 13.12.18 3M 6M 12M

USD 2.25 2.50 2.50 2.75 USD 1.14 1.15 1.17 1.20

EUR 0.00 0.00 0.00 0.00 JPY 129 130 130 134

JPY -0.10 -0.10 -0.10 0.00 GBP 0.90 0.87 0.87 0.85

GBP 0.75 0.75 0.75 1.00 CHF 1.13 1.14 1.15 1.17

CHF -0.75 -0.75 -0.75 -0.75 CNY 7.82 8.21 8.54 8.76

CNY 1.50 1.50 1.50 1.50 CAD 1.52 1.52 1.53 1.57

CAD 1.75 2.00 2.25 2.25 MXN 23.08 23.00 22.82 23.40

MXN 8.25 8.25 8.50 8.50 AUD 1.57 1.55 1.53 1.53

AUD 1.50 1.50 1.50 1.75 Source: Bloomberg. NORD/LB Fixed Income & Macro Research


Interest rates (government bonds)

3M rates Yields 2Y Yields 5Y Yields 10Y

13.12. 3M 6M 12M 13.12. 3M 6M 12M 13.12. 3M 6M 12M 13.12. 3M 6M 12M

USD 2.79 2.65 2.80 3.00 2.76 2.60 2.95 3.10 2.75 3.05 3.15 3.35 2.91 3.15 3.25 3.45

EUR -0.31 -0.31 -0.28 -0.15 -0.58 -0.55 -0.50 -0.45 -0.27 -0.20 -0.10 0.10 0.29 0.40 0.50 0.80

JPY -0.11 -0.09 -0.06 0.00 -0.15 -0.13 -0.12 -0.08 -0.13 -0.09 -0.06 -0.01 0.05 0.09 0.12 0.14

GBP 0.90 0.90 0.90 1.10 0.77 0.80 0.85 1.20 0.92 1.00 1.20 1.40 1.29 1.50 1.70 1.80

CHF -0.74 -0.74 -0.75 -0.75 -0.80 -0.77 -0.75 -0.75 -0.58 -0.49 -0.40 -0.30 -0.17 -0.09 0.00 0.10


Spreads (bp)

3M EURIBOR 2Y Bunds 5Y Bunds 10Y Bunds

13.12. 3M 6M 12M 13.12. 3M 6M 12M 13.12. 3M 6M 12M 13.12. 3M 6M 12M

USD 310 296 308 315 334 340 345 355 303 325 325 325 263 275 275 265

JPY 20 22 22 15 43 42 38 37 14 11 4 -11 -23 -31 -38 -66

GBP 121 121 118 125 136 135 135 165 119 120 130 130 100 110 120 100

CHF -43 -43 -47 -60 -21 -22 -25 -30 -31 -29 -30 -40 -46 -49 -50 -70



Annex

Contacts at NORD/LB Fixed Income & Macro Research

Michael Schulz

Head +49 511 361-5309 +49 172 740 4123 [email protected]

Michaela Hessmert

Banks +49 511 361-6915 +49 152 076 52093 [email protected]

Henning Walten

Covered Bonds +49 511 361-6379 +49 15225 456 7178 [email protected]

Melanie Kiene

Banks +49 511 361-4108 +49 172 169 2633 [email protected]

Christian Lips

Chief Economist Head of Macro Research +49 511 361-2980 +49 172 735 1531 [email protected]

Matthias Melms

Head of Covered Bonds & SSA +49 511 361-5427 +49 172 851 7454 [email protected]

Tobias Basse

Macro +49 511 361-9473 [email protected]

Dr. Frederik Kunze

Covered Bonds +49 511 361-5380 +49 172 354 8977 [email protected]

Dr. Stefan Grosse


Dr. Norman Rudschuck

SSA +49 511 361-6627 +49 152 090 24094 [email protected]

Dr. Jens Kramer


Thomas Scholz

SSA +49 511 361-4710 +49 174 415 5821 [email protected]

Bernd Krampen



Sales

Trading

Institutional Sales +49 511 9818-9440

Covereds/SSA +49 511 9818-8040

Sales Sparkassen &

Regionalbanken +49 511 9818-9400

Financials +49 511 9818-9490

Sales MM/FX +49 511 9818-9460

Governments +49 511 9818-9660

Fixed Income/ Structured

Products Europe +352 452211-515

Federal States/Regions +49 511 9818-9550

Sales Asia +65 64 203131

Frequent Issuers +49 511 9818-9640

Origination & Syndicate

Corporate Sales

Origination FI +49 511 9818-6600

Ships/Aircraft +49 511 9818-9440

Origination Corporates +49 511 361-2911 Real Estate/Structured

Financing +49 511 9818-8150

Corporate Customers +49 511 9818-4003

Treasury

FX/MM +49 511 9818-4006

Collat. Management/Repos +49 511 9818-9200

Liquidity Management +49 511 9818-9620 +49 511 9818-9650


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Directive or those measures and therefore may not contain all the information required where a document is prepared pursuant to the Prospectus

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This Material is provided for information purposes only and it is not intended to solicit any orders for securities transactions or commodities futures

contracts. While we believe that the data and information contained in this Material is obtained from reliable sources, we do not guarantee the

accuracy or completeness of the data and information.

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This Material has been provided to you without charge for your convenience only. All information contained in this Material is factual information

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Under no circumstances shall this Material constitute an offer to sell, or issue or the solicitation of an offer to buy or subscribe for Products or

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Additional information for recipients in Netherlands

The value of your investments may fluctuate. Results achieved in the past do not offer any guarantee for the future (De waarde van uw belegging

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Constituting Recommendations Concerning Financial Instruments or Issuers thereof dated 19 October 2005.

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This Material is intended only for institutional clients and may not be (i) used by, (ii) copied by any means or (iii) distributed to any other kind of

investor, in particular not to retail clients. This Material does not constitute or form part of an offer to buy or sell any of the securities covered by

the report nor can be understood as a request to buy or sell securities where that practice may be deemed unlawful. This Material is based on

information obtained from sources which we believe to be reliable, but is not guaranteed as to accuracy or completeness. Unless otherwise stat-

ed, all views herein contained are solely expression of our research and analysis and subject to change without notice.

Additional information for recipients in Singapore

This Analysis is intended only for Accredited Investors or Institutional Investors as defined under the Securities and Futures Act in Singapore. If

you have any queries, please contact your respective financial adviser in Singapore.

This Analysis is intended for general circulation only. It does not constitute investment recommendation and does not take into account the specif-

ic investment objectives, financial situation or particular needs of the Recipient. Advice should be sought from a financial adviser regarding the

suitability of the investment product, taking into account the specific investment objectives, financial situation or particular needs of the Recipient,

before the Recipient makes a commitment to purchase the investment product.

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This Material does not constitute or form part of, and should not be construed as a prospectus or offering memorandum or an offer or invitation to

acquire, sell, subscribe for or otherwise trade in shares, subscription rights or other securities nor shall it or any part of it form the basis of or be

relied on in connection with any contract or commitment whatsoever. This Material has not been approved by any regulatory authority. Any offer

of securities will only be made pursuant to an applicable prospectus exemption under EC Prospectus Directive, and no offer of securities is being

directed to any person or investor in any jurisdiction where such action is wholly or partially subject to legal restrictions or where such action would

require additional prospectuses, other offer documentation, registrations or other actions.

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on 1 January 2009).

NORD/LB will comply with the Directives of the Swiss Bankers Association on the Independence of Financial Research, as amended.

This Material does not constitute an issuing prospectus pursuant to article 652a or article 1156 of the Swiss Code of Obligations. This Material is

published solely for the purpose of information on the products mentioned in this advertisement. The products do not qualify as units of a collec-

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the Swiss Financial Market Supervisory Authority (FINMA).

Additional information for recipients in the Republic of China (Taiwan)

This Material is provided for general information only and does not take into account any investor’s particular needs, financial status, or invest-

ment objectives. Nothing in this Material should be construed as a recommendation or advice for you to subscribe to a particular investment

product. You should not rely solely on the Material provided when making your investment decisions. When considering any investment, you

should endeavour to make your own independent assessment and determination on whether the investment is suitable for your needs and seek

your own professional financial and legal advice.

NORD/LB has taken all reasonable care in producing this Material and trusts that the information is reliable and suitable for your situation at the

date of publication or delivery, but no representation or warranty of accuracy or completeness is given. To the extent that NORD/LB has exercised

the due care of a good administrator, we accept no responsibility for any errors, omissions, or misstatements in this Material. NORD/LB does not

guarantee any investment results and does not guarantee that the strategies employed will improve investment performance or achieve your

investment objectives.

Additional information for recipients in the UK

NORD/LB is subject to limited regulation by the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”). Details

about the extent of our regulation by the FCA and PRA are available from NORD/LB on request.

This Material is a financial promotion. Relevant Persons in the UK should contact NORD/LB’s London Branch, Investment Banking Department,

Telephone: 0044 / 2079725400 with any queries.

Investing in financial instruments referred to in this Material may expose an investor to a significant risk of losing all of the amount invested.

Time of going to press

Monday, December 17, 2018 4:16 PM (CET)

economic adviser – outlook 2019 · 2018. 12. 19. · 3 / economic adviser ♦ outlook 2019 od has...

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