EFTA01458964.pdf

8 December 2015 World Outlook 2016: Managing with less liquidity Summing up The net result of all these forces is that we see euro area GDP growth at 1.6% in 2016, the mildest of accelerations on 2015 and consistent with our earlier views. However, the composition of growth has changed compared to earlier views. Export growth is expected to be a little slower, with indirect impacts on investment and employment. Monetary and fiscal policy will try to fill the hole left by the discontinuation of this year's oil stimulus. The biggest risk to growth in 2016 is that the joint policy effort does not replace the fading oil stimulus. We few 2016 will mark the peak rate of growth in this recovery and GOP arowth will be slower in 2017. Oil prices pose a significant threat in 2017. Our commodity strategists expect oil prices to rise in 2017, for supply reasons, not demand. The fiscal rules are likely to bite more in 2017 than 2016. If inflation is Figure I I: Headline and core rising, the ECB will probably not turn on the monetary spigot again either. inflation to correct upwards in 2016 Structural reform has been very modest, meaning little expectation for a non- Euro Ares 10CP Ingatom cyclical recovery. The onus will increasingly be on the global recovery to 35 51 'a Fusee 30 compensate. Given the repeated overestimation of global growth in recent 25 years. a stronger global economy has a lot to prove. 20 15 10 Euro area inflation: Normalising 05 Euro area inflation should recover gradually over the coming quarters as (1) the 00, 415 drag from lower commodity costs is assumed to progressively fade, (2) the 1 weaker exchange rate is putting upward pressure on non-commodity import 2010 2011 2012 2013 2014 2015 2015 2017 prices and (3) improving economic conditions and ECB support for Sower Dash* &ant Assrth. twat expectations allow some normalisation in domestic inflation. Figure 12: The inflation benefits of Point (1), above, is likely to mean that consumer energy inflation will rise quickly into 2016; under our assumptions, headline and core inflation are euro depreciation are materialising expected to converge by the end of 2016. Indirect effects via domestic —HCP core goods INEIG/056/ —Cu, irade.witleted. lam Ind 054 production costs are however one factor working against a quick rise in 2 16yee % yey. nvectsi .20 ds underlying inflation. 15 .10 (2) has been increasingly visible in some HICP components, with HICP durable 0 goods inflation for example running at close to record highs in October. This 05 5 should continue to exert some upward pressure on consumer prices through 0 10 IS next year, especially on goods prices, but also on some services components, .05 30 such as package holidays. 20:10 2033 2005 2035 2012 2015 Some*. Nubcti• dont Assurc*, CC4 atoms (3) Growth above trend and falling unemployment are expected to support margins and allow some rise in labour costs, while higher spot inflation and ECB policy should push up inflation expectations. In that context, domestic Figura 13: Household confidence inflation is projected to rise, although only gradually. We see inflation close to points to inflation turning point 1% on average next year and around 1.6% in 2017. —711C.. recnormn a pnerel servos Ms/ --.....7104iehon tool/Send, ficisrtlel situation (15tn Yw.MI %Yoe %banal. 10 UK: On course to a mid-year rate hike 5. 5 0 The outlook remains for GDP growth to slow to trend over 2016 and 2017. In 3 our view, government spending will slow due to ongoing austerity and we 2 -5 expect investment and exports to be held back by the EU referendum and a 10 fragile external backdrop/strong currency, respectively. Growth will likely be 15 weighted towards consumption. Inflation should rise and undermine 2001 2003 2005 2007 2000 2011 2013 2015 2017 purchasing power, but only slowly. We expect interest rates to rise too, and save. Reseen. eta ardpan household finances are more highly geared than ever. However, the slowdown in private consumption growth should be more muted thanks to robust employment growth and the capacity for households to reduce the savings rate. Deutsche Bank AG/London Page 27 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0119134 CONFIDENTIAL SDNY_GM_00265318 EFTA01458964