ing eco may14

Monthly Economic Update May 2014

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Monthly Economic Update Going your own way

The major central banks face diverging threats. In Europe, we expect the ECB to respond to low inflation and the strong euro with another rate cut whereas, in the UK, the housing boom and strong growth might mean higher rates this year. Elsewhere, the PBOC is seeking Chinese macro stability, while the Bank of Japan is worried about a loss in momentum. By contrast, we see the US regaining momentum, and the Fed may be underplaying the inflation risk. Added to the unpredictable Ukraine crisis, this divergence suggests that the current lack of volatility in asset markets might not persist.

While surveys suggest the Eurozone recovery is gaining traction, the ECB remains preoccupied with downside risks. The euro’s strength is a key issue in an environment in which the ECB is uncomfortable with the projected path of inflation. Given Mario Draghi’s clear hints at the May press conference, the June meeting might see a refi rate cut to 0.15%, with the deposit rate moving negative. If the ECB chooses to not cut the refi rate, the euro could soar, compounding the problems for the bank.

We remain sceptical about the ECB adopting quantitative easing (QE). Sovereign bond purchases could leave the Outright Monetary Transactions (OMT) programme redundant since there would be no conditionality, thereby raising the moral hazard issues. At the same time, we expect purchases of asset-backed securities (ABS) to be difficult given the relatively small market and the desire to see similar credit improvements across all member states.

Despite an appalling 1Q14 GDP result (0.1%), the US is in good shape, and the run of weak data due to poor weather in the first quarter is now giving way to much more robust figures. In particular, the labour market and manufacturing production are firming up, and underlying GDP growth is probably c.3.0%, with 2Q14 growth likely to bounce well above this level.

Given this, you would think that Treasury yields would have been nosing higher. However, this has not been the case, partly because the Fed’s taper seems largely invariant to the economic dataflow. However, the looming end to QE, higher inflation numbers in the pipeline and robust activity suggest that this calm in bond markets will not persist forever.

The UK story is getting even better, with employment and growth numbers continuing to surprise. Consequently, the probability of a rate rise this year is increasing, but the problem for the BoE is that the recovery is not as strong outside London and surrounding areas.

Recent data from China supports the view that the economy has stabilised after a slowdown earlier this year, with growth over the coming quarters likely to be supported by fiscal stimulus and monetary indicators pointing to a more sustainable growth picture. The CNY band widening to deter hot money inflows and introduce two-way risk also seems to be working.

If the Bank of Japan (BoJ) is to be believed, Japan is entering a virtuous circle of production growth, employment gains, income increases and further production growth. But while there are some positive signs, the impact of the consumption tax remains unclear and evidence that inflation expectations are rising might not be reliable.

Expectations of negative ECB rates in June are weighing on the EUR. This should be enough to limit EUR:USD upside, before broader dollar strength wins through in 2H14.

FINANCIAL MARKETS RESEARCH

research.ing.com SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION

Global Economics 15 May 2014

Mark Cliffe Head of Global Markets Research London +44 20 7767 6283 [email protected]

Rob Carnell Tim Condon James Knightley Chris Turner Peter Vanden Houte

GDP growth (% YoY)

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US: Out of the cold 1Q14 GDP growth of only 0.1% is a difficult starting point for an upbeat message on the US economy. However, like most of the other data pertaining to the first quarter, growth was also abnormally affected by erratic weather, the impact of which will be at least partly reversed in the second quarter, and the background picture on activity remains strong.

This is not to say that such an abysmal first quarter can be totally written off. The arithmetic of GDP accounting makes it hard now for 2014 as a whole to hit the 3.0% figure we had been forecasting, even with a 4.5% bounce-back in 2Q14. We now have a marginally sub-3.0% 2014 growth figure pencilled in. But that still represents an acceleration from 2013 and, in our view, is not far off trend growth for the US. Hence, the growth picture for the US remains a fairly good one in absolute terms, and certainly relative to developed market standards.

Fig 1 G-7: GDP comparison

Fig 2 US: Labour market slack*

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More recent and timely indicators of activity include the latest labour market report, which was mostly very positive. Non-farm payrolls rose at their fastest rate in years, notching up a 288,000 rise, alongside a drop in the unemployment rate to only 6.3%. For those wishing to take a pessimistic view of the data, the wage component remained weak. We have been talking about the prospects of a pick-up in wages for a long time now, and it is still not happening. This is late relative to normal cycles (maybe not surprisingly), but the shrinking pool of available labour should soon start to deliver rising wages, though whether this is going to be in one month or six months is still up for debate.

Another factor the pessimists might be latching on to is the fact that the household survey employment figures were soft. Most of the fall in the unemployment rate was a result of a large decrease in the labour force. This topic has received a lot of airplay over recent quarters, but in recent months, labour participation has actually been ticking higher, not lower, and the downtrend had looked as if it was at least stabilising. Other explanations for the falling labour market include a shift from unemployment to invalidity/sickness and demographic trends towards earlier retirement. Whatever the medium-term explanation, this data is extremely erratic on a month-by-month basis and we read nothing into the latest volatility.

1Q14 provided a downbeat framework for assessing the US backdrop

Now 2014 is unlikely to hit 3.0%, though the underlying growth rate still looks to be 3.0% or thereabouts

Labour data continues to improve…

…and labour ‘slack’ is declining


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These improvements in the economy were, perhaps unusually, noted in the most recent FOMC statement – with the possible exception of the housing market, which was a victim of bad weather, but also higher mortgage rates at the end of last year. We are looking for some improvement in the condition of the housing market in the coming months.

In addition, we believe the Fed is equally relaxed about housing, as it delivered another US$10bn reduction in QE at its April meeting. Nevertheless, despite all the improvements, Fed chairman Janet Yellen’s tone has remained dovish. Her commentary, as well as Fed texts, is maintaining the idea that the unemployment rate remains ‘elevated’. This might be true in a historical sense, but what seems to be missing is any discussion on how elevated it is and whether this warrants zero rates and QE or a more normal policy setting. Furthermore, concepts discussed by the Fed regarding labour market ‘slack’ appear to be poorly defined.

The other element that is frequently referred to is the sub-target inflation rate. As recently as the March FOMC meeting, member Narayana Kocherlakota dissented, saying that the new text did not give sufficient weight to sub-target inflation. Yellen too, perhaps as a nod to Kocherlakota, has been keen to stress the risks from sub-target inflation in her recent testimony. However, the reality is that inflation is not all that low. This week most likely delivered another rise in CPI inflation (published after this note is published), taking the headline inflation rate to 1.9-2.0% YoY. The Fed’s preferred measure of inflation – the PCE index – tends to trend about 0.2/0.3ppt below the CPI, but should in any case move up to about 1.6-1.7% in the next few weeks. Moreover, only a continuation of the current CPI trends would be required to see CPI inflation breach the 2.0% target within the next few months and drag PCE up to target.

When this happens, the Fed will no longer be able to refer to sub-target inflation as an excuse for its accommodative stance and, by then, the unemployment rate is likely to have fallen even further towards 6.0%. Over the same timescale, QE should have declined to only about US$25bn and activity growth will be more visibly running at something closer to 3.0% than 2.0%.

Fig 3 US: Treasury yields low relative to growth

Fig 4 US: Inflation and PCE headed up

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With all this likely to occur in the not-too-distant future, we find it slightly strange that the 10Y US Treasury bond yield is barely 2.60%, much lower than the notional underlying rate of nominal GDP. Admittedly, the market is pricing in a reasonable amount of tightening over 2015-17 and recent economic strength has not generated much reason to alter what is already largely priced in. There has also apparently been strong demand from the pension fund industry for longer-dated maturity assets, helping to keep bonds

Concern about the housing market is premature…

…and does not seem to be unduly worrying the Fed

The sub-target inflation angst is likely to disappear over the next few months…

…alongside strong growth, improving labour conditions, waning QE and higher inflation

Higher Treasury yields seems probable, though they may hold steady for some further months


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bid. However, even so, we find the lack of a pick-up in the yields slightly perplexing – a sort of ‘bond yield conundrum II’.

This will no doubt delight the Fed, which does not want to see economic growth undermined as it normalises policy. However, we wonder whether this is a situation that could continue, and still expect the yields to push higher towards the end of the year, on the back of robust growth, target-or-above inflation, an end to QE and, in time, higher wage growth.

Rob Carnell, London +44 20 7767 6909

Eurozone: ECB points to June Will they or won’t they? This now seems to be the most burning question regarding the ECB’s monetary policy meeting in June. In an unusually outspoken manner, Draghi expressed the Governing Council’s dissatisfaction about the projected path of inflation (too low) and said that it is comfortable with acting at its next meeting.

The ECB has shown itself to be rather cautious regarding the growth outlook, with downward risks still prevailing. Indeed, an escalation in the Ukraine crisis is likely to have a bigger impact on Europe than on the US. While we continue to believe that the recovery will continue in the coming quarters, it is true that it is definitely not a straight upward line. Growth in the first quarter was weaker than expected, even though it was boosted by the unusually mild Winter weather. Some forward-looking indicators project an even slightly weaker second quarter. That said, eyeballing the confidence figures in the services sector it looks as if domestic demand also will now be one of the growth drivers, potentially compensating for less buoyant net exports. All in all, the recovery remains on course, but little acceleration is expected for the time being.

Fig 5 Deflation risk has increased…

Fig 6 …while growth is no longer accelerating

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Interestingly, the ECB no longer seems comfortable with the projected path of inflation. Indeed, HICP inflation increased to 0.7% in April, but this was below consensus. Although food prices, which now lower inflation, might become less of a downward force in the coming quarters, inflation is likely to remain closer to 1% than to 2%. Given the ECB’s strong emphasis on the exchange rate as a clear downward risk, we think the bank is now all but sure to cut rates, reducing the refi to 0.15% and the deposit rate to -0.10%. The absence of a cut could send the euro soaring again, thereby putting renewed pressure on the ECB to reduce rates eventually.

This time, the bond yield ‘conundrum’ is welcome, but it might not continue

The ECB is “comfortable” with acting in June…

…as the recovery remains vulnerable…

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…and inflation too low

The deposit rate is likely to become negative…


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At the same time, the ECB is likely to put a ceiling on the amounts (above the required reserves) that can be placed on the current account at the bank. As these measures are likely to curtail the excess liquidity in the money market, we believe the Eonia is likely to converge with the refi, thereby keeping market rates in positive territory. The ECB is probably eager to keep the negative deposit rate’s cost for the banking sector as low as possible. Finally, we believe the forward guidance will be further strengthened by extending the full allotment in the refinancing operations until the end of 2015. This should keep bond yields low, even if there is some contagion effect from the US once the Fed starts its rate hiking cycle.

As for QE, we are still not convinced it will happen. The purchase of sovereign bonds is probably a ‘no-go’ as, in contrast with the OMT programme, there would be no conditions attached to such a programme, which would entail significant moral hazard risks. While the ECB has previously hinted at the possibility of targeted ABS purchases to unclog the credit channel in peripheral countries, it is quite unlikely to see short-term action in this regard. Indeed, the April 2014 bank lending survey already saw some easing in the credit standards for households, while they remained broadly unchanged for loans to enterprises. The survey of SMEs’ access to finance also reported that bank loan availability had become less negative and already saw some improvement in several Eurozone countries.

On top of that, the ECB is convinced that there is a lagged relationship between the economic cycle and the credit cycle. Finally, the Asset Quality Review aims to foster a sounder banking system, which should lead to a revival in credit activity. It has to be said that an increasing number of banks have seized the more favourable stock market environment to strengthen their capital base.

Meanwhile, the hunt for yield has certainly benefitted peripheral countries, with 10Y yields falling to record lows in several countries, even though both debt levels and unemployment rates remain very high, making long-term debt sustainibility still far from guaranteed. This allowed Portugal to exit its bail-out programme without requesting a precautionary credit line. As for Greece, the economic situation is finally stabilising, but some additional debt relief is still on the cards following the European parliamentary elections.

Peter Vanden Houte, Brussels +32 2 547 8009

UK: London versus the rest UK data flow is going from strength to strength. The economy has added over 1.5m jobs in the past four years, business confidence is at a 40-year high, wages are starting to pick up and the housing market continues to surge ahead. GDP will probably accelerate in 2Q14 versus the 0.8% rate recorded in 1Q14, with momentum through the rest of the year likely to be supported by the fact that aggregate household incomes are being boosted by tax changes, rising pay awards and a 3% rise in the national minimum wage. Thankfully, this means that one key criticism of the UK growth story – that households have not been feeling the recovery – is starting to be addressed. Indeed, consumer confidence is now at a seven-year high.

Companies are also looking to expand significantly, based on responses to investment and hiring intention surveys. Even the trade numbers are not looking too bad given the strength of the GBP. As such, we have revised our 2014 GDP growth forecast from 3.0% to 3.2%. Our forecast of a first Bank of England (BoE) rate hike in February 2015 remains unchanged, but the risks are increasingly skewed towards an earlier move.

The UK growth story continues to strengthen, with the household sector starting to feel the positive effects

The economy is likely to grow 3.2% this year, with the corporate sector providing significant upside

Hunt for yield keeps spreads low

…though market rates should remain positive

Sovereign bond purchases are still unlikely…

…and it is too soon to implement the ABS programme


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Unfortunately, the other main criticism of the UK growth story – that it is primarily a London and South-East story – still looks valid, as shown in Figures 7 and 8. Employment in London has risen by 9.3% since the depths of the recession and accounted for one in four new jobs created in the country despite the capital city accounting for only 13% of the total UK population. House prices are also up, 52% from their lows in London versus only 11% for the UK excluding London and the South-East. With wealth levels and aggregate incomes rising far less quickly outside London, this creates problems for the BoE when setting policy.

Fig 7 Employment growth: London vs rest of UK

Fig 8 House prices: London vs rest of UK

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That said, there are changes happening. We are starting to see the employment gains spreading out a little more, with all UK regions now seeing more people working than before the crisis started. The West Midlands, East Midlands and Scotland remain the key underperformers, while the East of England and Yorkshire & Humberside are performing relatively well. With business surveys all firmly in expansion territory, we believe the ex-London part of the UK will perform better over the next 12-24 months. Lower costs in these areas are likely to be a key factor behind the expansion, but it might not be swift enough for the BoE to avoid criticism from these regions when policy tightening starts.

James Knightley, London +44 20 7767 6614

China: Stability the priority China’s 1Q14 GDP data and the higher-frequency March economic releases convey the sense of a stable economy. The small upticks in the official and HSBC/Markit Manufacturing PMIs in April data convey the same. We expect the mini-stimulus announced in early April to support second-quarter GDP growth equal to the first quarter’s 7.4%. We cannot identify any macro issue pressing enough to distract the authorities from moving on their ambitious agenda of micro reforms identified during the Third Plenum. We consider this an investor-friendly state of affairs, with emerging market risk assets as the biggest beneficiaries.

A smaller year-to-date increase in the CPI food component – 3.5% in March versus 4.7% in 2013 and 3.9% a year earlier – leads us to revise our 2014 inflation forecast from 2.6% to 2.3% (Bloomberg consensus: 2.6%). If an inflation spike occurs, it should come from the food component; non-food inflation was 1.7% year-to-date in March (vs 1.6% in 2013 and 1.8% a year earlier). However, supply shocks are unpredictable and our forecast revision assumes annual increases in the food component at the March year-to-date level.

The problem is that it is London and the South-East that is feeling most of the benefits

Job growth is starting to rise elsewhere, but the BoE is likely to have to raise rates before the underperforming regions would like

Stable growth and steady reform progress

2014 inflation forecast downgraded


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The historically low 12.1% YoY growth in M2 in March put 1Q14 growth at 21.2% QoQ annualised, which is close to the pre-GFC average and well below the 30% post-GFC average (Figure 9). This is a hopeful sign of a return to stable monetary policy, which we believe would fix most of China’s macro ills, especially over-borrowing – total credit is far in excess of nominal GDP growth – and the shortening of property market cycles.

Since the authorities widened the CNY trading band in March, analysts have been scrutinising the USD:CNY fixings and moves in spot USD:CNY for clues about the authorities’ intent. We take the authorities at their word that the band widening was aimed at imparting greater two-way risk to USD:CNY. We currently believe they want evidence of two-way risk to be manifest in the form of a 1% spot USD premium to the fixing rate. We now expect them to appreciate the fixing rate, which experience has taught will result in a widening of the premium, if the premium narrows ‘too much’.

We think the PBoC will stabilise its USD:CNY fixings at the prevailing 6.16. We forecast spot USD:CNY trading at an average 1% premium to the fixing or around 6.22, to which we have revised our year-end forecast from 6.00.

Foreign reserves rose by US$128.7bn to US$3.95tr in 1Q14. We think most of this increase occurred in January when the USD was trading around 1% weaker in the offshore CNH market compared with the onshore CNY market (Figure 10). We believe that arbitrage-related hot money flows were a factor sustaining the spot USD:CNY discount to the fixing near the previous 1% limit. We also think halting the hot money flow was one reason the authorities widened the USD:CNY trading band, since which time the USD:CNH discount to USD:CNY has disappeared and spot USD:CNY to the fixing has turned into a 1% premium.

Fig 9 China: M2 (%QoQ annualised)

Fig 10 China: USD:CNY and USD:CNY premiums*

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Tim Condon, Singapore, +65 6232 6020

Japan: Wishful thinking The BoJ’s latest bi-annual outlook for economic activity and prices reads optimistically. However, we wonder whether there is an element of wishful thinking in the text.

For example, there are frequent mentions of “virtuous circles”, in which rising domestic demand pushes up production, employment, incomes and, in turn, domestic demand

The BoJ sounds fairly upbeat in its latest bi-annual report…

…citing the “virtuous circle” of production, employment, incomes, etc…

Stabilising monetary policy

Watching the CNY

Restoration of pre-band widening FX trends

End-2014 USD:CNY at 6.22


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again. The catalyst for such changes is the stimulus measures currently underway, with the self-styled quantitative and qualitative easing (QQE) providing the push.

Furthermore, the BoJ now assumes that the inflation rate adjusted for the effects of food and energy and the direct effects of the consumption tax hike, will push inflation up to 2.0% over the middle of its projection period (through fiscal 2015), and it cites rising inflation expectations to support this claim.

There is some support for the BoJ’s optimism. Inflation expectations have been picking up; in Figure 11, we show the breakeven rates for 10Y nominal bonds versus index-linked bonds as evidence. We use the 10Y break-even to try to minimise the effects of the consumption tax hike, which dominates one-year and two-year measures. It is unclear that pricing expectations in surveys such as the Tankan are immune to the direct tax hike impacts.

Fig 11 Japan: Breakeven rates for nominal vs index-linked bonds

Fig 12 Japan: Consumption tax impact on spending and prices

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Perhaps there is also some scope for optimism regarding the domestic demand side. Looking at indicators such as household spending, the 16.1% YoY jump in March shows that consumers waited until the last minute to stock up on goods before the consumption tax hike hit. This is a similar jump to that seen in 1997, but comes against a backdrop of gradually rising, not falling, spending. Consequently, we believe there is a better chance that spending will pick up again in the coming months, rather than continuing to plunge, as it did last time. Labour demand also seems to be firming, if we go by the job-offers-to-applicants ratio, and labour cash earnings also seem to have shown further signs of firming.

One aspect of the BoJ’s forecast that seems particularly optimistic is its assessment of external demand. While we agree with the general direction of improvement in external demand, we do not see much of a pick-up anytime soon from Japan’s main trading partners, one of which is China.

For now, the BoJ seems content to continue with its current QQE policy and, as a result, the JPY is under little pressure to deviate from the narrow range around USD:JPY 102 that it has inhabited for the past three months. But we suspect that the risks around the BoJ’s assessment lie heavily to the downside and would be surprised if there was no need for a further expansion of the JPY60-70tr QE target later this year.

Rob Carnell, London +44 207 767 6909

…furthermore, it looks for inflation (adjusted for the consumption tax hike) to hit 2.0% in 2015

Admittedly, some things are picking up – inflation expectations (maybe)…

…and March saw an inevitable jump in sales to beat the consumption tax hike

…and we still expect the JPY60-70tr QE target to be raised later this year.

But it is less clear that other parts of the economy are doing so well…


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FX: ECB tries to limit EUR rally In a relatively benign environment for risk, the FX focus has squarely shifted to the ECB’s attitude towards the strong EUR and the prospect of negative ECB deposit rates in June. Our team is indeed looking for a cut in the deposit rate to negative territory in June – a move we think should at least cap EUR:USD upside near 1.40.

As we mentioned last month, Draghi’s speech in Vienna in March gave a strong hint that the EUR was ascending on the ECB’s list of worries. The May press conference saw the strong EUR cited as a risk to both growth and inflation. The ECB now looks prepared to act in June. We think the move to a negative deposit rate will be done primarily to address the strength of the EUR, rather than as a serious effort to promote credit growth. And so far, EUR:USD has reacted to this threat by pulling away from 1.40.

Fig 13 ECB applying brakes to EUR bull trend

Fig 14 Carry trade remains popular

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We doubt a negative deposit rate on its own will be sufficient to start a EUR bear trend. After all, the Eurozone current account surplus is currently worth around €200bn per annum and it will probably take several years for this position to return to a more balanced setting. However, negative rates should drive money market flows away from the EUR. And if they can keep Eurozone market rates anchored at a time when overseas market interest rates start to rise (eg, in the US and UK), a clearer EUR bear trend should start to emerge later in the year. We thus look for modest EUR:USD downside to 1.35 this summer, with a sharper fall occuring when US rates start to gain more upside momentum later this year.

Limited EUR upside against the USD could start to see the EUR become the preferred funding currency for 2H14, particularly if the ECB goes a step further and considers QE. While there are not too many Fed tightening cycles to look at for historical comparison, we note that Alan Greenspan’s well-telegraphed tightening cycle during the middle of the last decade did not derail carry trade strategies. Thus, the EUR could start to reverse some of the large gains posted against high-yield currencies last year.

Chris Turner, London +44 20 7767 1610

The FX focus has squarely shifted to the ECB’s attitude towards the strong EUR

Negative rates should drive money market flows away from the EUR

We thus look for modest EUR:USD downside to 1.35 this summer

The EUR could start to reverse some of the large gains posted against high-yield currencies last year


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Fig 15 ING global forecasts

2013 2014F 2015F 2016F 1Q 2Q 3Q 4Q FY 1Q 2Q 3Q 4Q FY 1Q 2Q 3Q 4Q FY 1Q 2Q 3Q 4Q FY

United States GDP (% QoQ, ann) 1.1 2.5 4.1 2.6 1.9 0.1 4.5 3.5 3.2 2.7 2.7 3.0 3.1 3.1 3.0 3.4 2.8 2.5 3.6 3.1 CPI headline (% YoY) 1.7 1.4 1.6 1.2 1.5 1.4 1.9 2.0 2.4 1.8 2.5 2.6 2.6 2.7 2.6 2.8 2.7 2.6 2.5 2.6 Federal funds (%, eop) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.50 1.00 1.25 1.50 2.00 2.50 Fed monthly average asset purchase total

48.8 85.0 85.0 85.0 65.0 45.0 25.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

3-month interest rate (%, eop) 0.30 0.27 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.40 0.80 1.10 1.40 1.65 2.15 2.65 10-year interest rate (%, eop) 1.84 2.48 2.61 3.02 2.80 2.70 2.80 3.20 3.30 3.40 3.50 3.50 3.60 3.70 3.60 3.60 Fiscal balance (% of GDP) Fiscal Year 2013/14 -3.9 Fiscal Year 2014/15 -2.9 Fiscal Year 2015/16 -2.6 Fiscal Year 2016/7 -2.9 Fiscal thrust (% of GDP) -2.9 -0.8 0.0 0.4 Debt held by public (% of GDP) 72.0 72.6 72.4 72.4 Gross public debt/GDP 102.3 102.7 101.9 101.4 Total (Fed+local) debt held by public / GDP

92.4 94.5 95.0 -

Eurozone GDP (% QoQ, ann) -0.9 1.3 0.6 0.9 -0.4 0.8 1.2 1.4 1.4 1.0 1.4 1.7 1.5 1.5 1.5 1.5 1.6 1.6 1.6 1.6 CPI headline (% YoY) 1.8 1.4 1.3 0.8 1.3 0.7 0.7 0.8 1.0 0.8 1.2 1.4 1.4 1.5 1.4 1.5 1.6 1.6 1.7 1.7 Refi minimum bid rate (%, eop) 0.75 0.50 0.50 0.25 0.25 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.25 0.50 3-month interest rate (%, eop) 0.20 0.20 0.22 0.29 0.28 0.20 0.20 0.20 0.20 0.20 0.20 0.25 0.30 0.35 0.40 0.70 10-year interest rate (%, eop) 1.29 1.73 1.80 1.93 1.70 1.40 1.50 1.60 1.70 1.75 1.80 1.80 1.90 2.00 2.10 2.20 Fiscal balance (% of GDP) Fiscal Year 2013/14 -3.0 Fiscal Year 2014/15 -2.4 Fiscal Year 2015/16 -2.0 Fiscal Year 2016/17 -1.6 Fiscal thrust (% of GDP) -0.8 -0.2 0.1 0.3 Gross public debt/GDP 92.6 95.4 95.0 94.4

Japan GDP (% QoQ, ann) 4.5 4.1 0.9 0.7 1.5 5.9 -1.3 0.0 0.8 1.7 1.0 2.2 2.6 0.7 1.2 0.1 1.0 1.1 1.6 1.0 CPI headline (% YoY) -0.6 -0.3 0.9 1.4 0.4 1.7 3.3 2.2 1.9 2.3 1.8 1.2 1.2 1.3 1.4 0.3 0.9 0.8 0.8 0.8 BoJ O/n call rate (%, eop) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 BoJ asset purchase total 68 91 113 136 158 181 203 225 240 260 280 300 320 335 345 350 3-month interest rate (%, eop) 0.17 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 10-year interest rate (%, eop) 0.50 0.80 0.70 0.60 0.60 0.60 0.70 0.80 0.90 0.90 0.90 1.00 1.00 1.00 1.10 1.10 Fiscal balance (% of GDP) Fiscal Year 2013/14 9.2 Fiscal Year 2014/15 9.5 Fiscal Year 2015/16 8.8 Fiscal Year 2016/17 6.9 Fiscal thrust (% of GDP) 0.0 -0.4 0.8 0.0 Gross public debt/GDP 241 248 251 255

China GDP (% YoY) 7.7 7.5 7.8 7.7 7.7 7.4 7.5 7.6 7.6 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 CPI headline (% YoY) 2.4 2.4 2.8 2.9 2.6 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 7-day repo rate (% eop) 3.60 5.70 4.25 5.40 4.19 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.25 10-year T-bond yield (%, eop) 3.59 3.61 4.07 4.62 4.54 4.60 4.80 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Fiscal balance (% of GDP) Fiscal Year 2013/14 -1.3 Fiscal Year 2014/15 -1.2 Fiscal Year 2015/16 -1.1 Fiscal Year 2016/17 -1.0 Fiscal thrust (% of GDP) n/a n/a n/a n/a Gross public debt/GDP 22.4 19.9 18.0 16.0

UK GDP (% QoQ, ann) 1.4 3.1 3.4 2.7 1.9 3.2 3.8 2.6 2.8 3.2 2.7 2.7 3.0 2.8 2.8 2.4 2.4 2.6 2.4 2.6 CPI headline (% YoY) 2.8 2.7 2.7 2.1 2.6 1.7 1.7 1.6 1.8 1.7 2.3 2.4 2.4 2.3 2.3 2.1 2.1 2.2 2.2 2.2 BoE official bank rate (%, eop) 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 BoE Quantitative Easing (£bn) 375 375 375 375 375 375 375 375 375 375 375 375 375 375 370 360 3-month interest rate (%, eop) 0.50 0.50 0.50 0.50 0.50 0.55 0.70 0.90 1.10 1.40 1.60 1.90 2.10 2.30 2.50 2.70 10-year interest rate (%, eop) 1.90 2.50 2.72 3.00 2.74 2.90 3.10 3.30 3.40 3.50 3.60 3.70 3.80 3.90 4.00 4.00 Fiscal balance (% of GDP) Fiscal Year 2013/14 -6.4 Fiscal Year 2014/15 -4.8 Fiscal Year 2015/16 -3.4 Fiscal Year 2016/17 -2.3 Fiscal thrust (% of GDP) -1.0 -0.9 -0.8 -0.8 Gross public debt/GDP 88.0 88.7 87.7 86.0

EUR:USD (eop) 1.28 1.30 1.35 1.37 1.38 1.35 1.33 1.28 1.25 1.23 1.20 1.20 1.20 1.22 1.25 1.30 USD:JPY (eop) 94 100 98 105 103 105 108 110 112 115 118 120 120 120 120 120 USD:CNY (eop) 6.21 6.14 6.12 6.05 6.21 6.22 6.22 6.22 6.22 6.22 6.22 6.22 6.22 6.22 6.22 6.22 EUR:GBP (eop) 0.84 0.86 0.84 0.83 0.83 0.81 0.81 0.80 0.79 0.78 0.78 0.78 0.78 0.79 0.80 0.80

Oil (US$/bbl, pa) 110 105 110 109 105 105 105 110 110 110 110 110 110 110 110 110

Source: ING forecasts


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Research analyst contacts Developed Markets Title Telephone Email

London Mark Cliffe Head of Global Markets Research 44 20 7767 6283 [email protected] Rob Carnell Chief International Economist 44 20 7767 6909 [email protected] James Knightley Senior Economist, UK, US, $ Bloc 44 20 7767 6614 [email protected]

Chris Turner Global Head of Strategy and Head of EMEA and LATAM Research

44 20 7767 1610 [email protected]

Tom Levinson Foreign Exchange Strategist 44 20 7767 8057 [email protected]

Aengus McMahon Head of European High Yield Research 44 20 7767 8044 [email protected]

Amsterdam Maarten Leen Head of Macro Economics 31 20 563 4406 [email protected] Martin van Vliet Senior Economist, Eurozone 31 20 563 9528 [email protected] Teunis Brosens Senior Economist, US 31 20 563 6167 [email protected] Dimitry Fleming Senior Economist, Netherlands 31 20 563 9497 [email protected]

Padhraic Garvey Global Head of Rates and Debt Strategy 31 20 563 8955 [email protected] Jeroen van den Broek Developed Markets Strategy and Research 31 20 563 8959 [email protected] Maureen Schuller Head of Covered Bond Strategy 31 20 563 8941 [email protected] Alessandro Giansanti Senior Rates Strategist 31 20 563 8801 [email protected] Job Veenendaal Quantitative Strategist 31 20 563 8956 [email protected] Roelof-Jan van den Akker Head of Technical Analysis 31 20 563 8178 [email protected]

Mark Harmer Head of Developed Markets Credit Research 31 20 563 8964 [email protected]

Brussels Peter Vanden Houte Chief Economist, Belgium, Eurozone 32 2 547 8009 [email protected] Carsten Brzeski Senior Economist, Germany, Eurozone 32 2 547 8652 [email protected] Julien Manceaux Economist, France, Belgium, Switzerland 32 2 547 3350 [email protected] Philippe Ledent Economist, Belgium, Luxembourg 32 2 547 3161 [email protected] Anthony Baert Economist, Ireland, Slovenia, Portugal 32 2 547 3995 [email protected]

Milan Paolo Pizzoli Senior Economist, EMU, Italy, Greece 39 02 89629 3630 [email protected]

Emerging Markets Title Telephone Email

New York Gustavo Rangel Chief Economist, LATAM 1 646 424 6464 [email protected]

London Dorothee Gasser-Châteauvieux Chief Economist, EMEA 44 20 7767 6023 [email protected]

Hungary Andras Balatoni Senior Economist, Hungary 36 1 255 5581 [email protected]

India Upasna Bhardwaj Economist, India 91 22 3309 5718 [email protected]

Philippines Joey Cuyegkeng Economist, Philippines 632 479 8855 [email protected]

Poland Rafal Benecki Chief Economist, Poland 48 22 820 4696 [email protected] Grzegorz Ogonek Economist, Poland 48 22 820 4608 [email protected]

Romania Vlad Muscalu Chief Economist, Romania 40 21 209 1393 [email protected] Mihai Tantaru Economist, Romania 40 21 209 1290 [email protected]

Russia Dmitry Polevoy Chief Economist, Russia and CIS 7 495 771 7994 [email protected] Egor Fedorov Senior Credit Analyst, Russia and CIS 7 495 755 5480 [email protected]

Singapore Tim Condon Head of Research & Chief Economist, Asia 65 6232 6020 [email protected] Prakash Sakpal Economist, Asia 65 6232 6181 [email protected]

Turkey Muhammet Mercan Senior Economist, Turkey 90 212 329 0751 [email protected] Muammer Kömürcüoğlu Economist, Turkey 90 212 329 0753 [email protected]


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