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Group Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.Key Themes For 2020
Europe Monthly Outlook Presentation
December 2019Disclaimer
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment
on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from
Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or
information with Fitch Solutions Macro Research.
Europe Monthly Outlook Presentation
December 2019Agenda
4 9
Europe’s Outlook Faces Major Headwinds Theme 4: Limits Of Monetary And Fiscal
In 2020 Policy In The Eurozone
5 Theme 1: Eurozone Growth To Stabilise
But Risks To Remain Elevated 11 Theme 5: Labour Market Gains In CEE Set
To Lose Momentum
6 Theme 2: Trade Uncertainty Drag To
Persist In 2020 13 Theme 6: Geopolitical And Policy Risks To
Overshadow Hunt For Yield
7 Theme 3: Changes In The EU To
Exacerbate Divisions 15 Data Chart Pack
Europe Monthly Outlook Presentation
3
December 2019Europe’s Outlook Faces Major Headwinds In
2020
• Many of the risks faced by Europe in 2019 will continue to cloud the
region’s outlook in 2020.
• While hard data suggest that exports may have bottomed out, the
external environment will provide limited support as still sluggish global
growth, on account of lingering US-China trade tensions and increased
protectionism, will continue to weigh on sentiment and headline growth.
• Domestically, fiscal and monetary authorities have little policy room
owing to a build-up of public debt over the past decade and low
marginal returns from further monetary policy accommodation.
• Persistent weakness in Western European countries will reverberate
through their Eastern European peers. Eastern European countries will
remain exposed to shifts in investor sentiment dictated by global growth
and trade.
Europe Monthly Outlook Presentation
4
December 2019Theme 1: Eurozone Growth To Stabilise, But Risks To Remain Elevated
Mudding Through
Eurozone – Real GDP, % chg y-o-y • We forecast growth to average
1.2% in 2020.
3.5
3.0
• Labour markets will continue to
2.5 support wage growth, although
2.0 we forecast an increase in the
unemployment rate.
1.5
1.0
• Inflation will remain subdued,
0.5 averaging 1.5%.
0.0
-0.5 • Fiscal and monetary policy will
remain supportive of growth.
-1.0
-1.5
Q111 Q411 Q312 Q213 Q114 Q414 Q315 Q216 Q117 Q417 Q318 Q219 • Risks are tilted to the downside.
Source: Eurostat, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 2: Trade Uncertainty Drag To Persist In 2020
Growing Pessimism About The Export Sector • Trade uncertainty to continue
Selected Countries – Export Expectations For The Months Ahead, balance of responses
weighing on growth in 2020.
European Union (28 countries) Germany France
25
• After the December election, the
UK will embark on negotiations
20 for a trade deal with the EU.
15
10 • Instability in trade relations with
the US, China and Brazil.
5
0
• New trade deals on tariff
-5 reduction unlikely in 2020.
-10
• WTO paralysis to prolong
-15
Q112 Q412 Q313 Q214 Q115 Q415 Q316 Q217 Q118 Q418 Q319 uncertainty over US disputes.
Source: Eurostat, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 3: Changes In The EU To Exacerbate Divisions
Row Over Budget Size
EU – Budget, % of GNI • Frictions over 2021-2027 EU
budget to last well into 2020.
1.4
• Clashes over budget size, as
1.2
hawkish members push to
1
decrease spending.
0.8 • Plans to increase migration,
climate change, and digital
0.6 economy funds while cutting
spending on agriculture and
0.4
cohesion will stir wide opposition.
0.2
• Proposals to link EU funds
0 disbursals to rule of law will be
1993-1999 2000-2006 2007-2013 2014-2020 2021-2027*
challenged by CEE members.
*EC Calculations. Source: EC, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 3: France Will Seek To Increase Its Clout On EU Politics
Europe’s Geopolitical Alignments • France will fail to spur EU reform
progress as it lacks the necessary
support from other members.
• Franco-German tensions unlikely
to abate.
• President Macron’s
rapprochement towards Russia
and veto to starting accession
talks with North Macedonia and
Albania will win him few allies.
• Stalling EU enlargement will
underpin fears over strengthened
Russian influence in the Western
Note: North Macedonia awaiting formal accession. Source: Fitch Solutions Balkans.
Europe Monthly Outlook Presentation
December 2019Theme 4: Limits Of Monetary Policy
Low Interest Rate Environment Causing Surge In Technical
Provision
• Backlash against the ECB’s loose
Liabilities Of Dutch Pensions Funds, EURmn; Netherlands & Germany 10-Year Government monetary policy will increase.
Bonds, % Inverted
Technical provisions Total liabilities Germany Netherlands • In addition to banks’ margins, low
1,800,000 -1 interest rates for longer will
1,600,000 depress pension funds’ income
0
1,400,000
while increasing their liabilities,
1 limiting their ability to meet payout
1,200,000
requirements.
1,000,000 2
800,000 3 • Governments’ failure to ease
600,000 regulatory requirements for
4
400,000 pension funds could increase
5 public discontent, pushing people
200,000
towards Eurosceptic political
0
Q102 Q203 Q304 Q405 Q107 Q208 Q309 Q410 Q112 Q213 Q314 Q415 Q117 Q218
6 parties.
Source: DNB, Bloomberg, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 4: And Fiscal Policy In The Eurozone
Budget Balance, % of
Government Debt, % of GDP • Fiscal stimulus will unlikely pick
GDP
up the slack from monetary policy.
2019f 2020f 2019f 2020f
Finland -0.8 -0.9 60.2 59.5 • Fiscal policy across eurozone
countries will become mildly
France -3.2 -2.7 99.9 98.6 expansionary at best in 2020.
Germany 1.1 0.6 60.0 58.0 • Major eurozone economies have
limited policy room, given high
Italy -2.4 -2.6 138.3 139.3 debt burdens.
Netherlan • Countries which boast healthier
0.9 0.8 51.5 48.5
ds public finances, such as
Germany, remain constrained by
Spain -2.2 2.2 96.6 95.7 self-imposed political restrictions.
f = Fitch Solutions forecast. Source: National sources, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 5: Labour Market Gains In CEE Set To Lose Momentum
Labour Market Conditions Set To Ease
Industrial Firms Reporting Labour Shortages As A Factor Limiting Production, % balance of • Persistently sluggish global
responses (4qma) growth will have increasingly
negative knock-on effects on the
Czech Republic Hungary Poland Romania Slovenia Slovakia
CEE region in 2020.
80.0
70.0
• Resilience of CEE labour markets
60.0
will gradually weaken.
50.0
40.0 • This will contrast with
30.0 developments observed over the
20.0
course of 2019, which saw
unemployment rates hover close
10.0
to record-low levels and wage
0.0 growth surge.
-10.0
Q107 Q108 Q109 Q110 Q111 Q112 Q113 Q114 Q115 Q116 Q117 Q118 Q119
Source: Eurostat, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 5: Labour Market Gains In CEE Set To Lose Momentum
Resilience of CEE Labour Markets Started To Gradually Weaken
Job Vacancy Rate, % • Protracted weakness in the
eurozone manufacturing sector
Czech Republic Hungary Poland Romania Slovenia Slovakia
will strain productive capacity and
6
hiring intentions across the CEE.
5
• In 2020, upward pressure on
4
wages will start to ease.
3 • This in turn will reduce
households’ purchasing power,
2 weighing on the contribution of
private consumption to real GDP
1 growth.
0
Q410 Q311 Q212 Q113 Q413 Q314 Q215 Q116 Q416 Q317 Q218 Q119
Source: Eurostat, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 6: Geopolitical And Policy Risk To Overshadow Hunt For Yield
In Ukraine, Russia And Turkey
• The hunt for higher yields will
Turkey To Remain The Underperformer continue to spur flows into EM
Average Exchange Rate Against US Dollar, % chg y-o-y
European countries in 2020.
2019f 2020f
15.0
• However, concerns over sluggish
10.0 global growth, geopolitical and
policy risks could challenge this
5.0 outlook.
0.0
• Turkish assets are likely to
-5.0
underperform Ukrainian and
-10.0 Russian assets as policymaking
risks in the former will remain
-15.0
Turkey Russia Ukraine
elevated owing to aggressive rate
cuts and continued prioritisation of
short-term growth.
f = Fitch Solutions forecast. Source: Bloomberg, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Theme 6: Geopolitical And Policy Risk To Overshadow Hunt For Yield
In Ukraine, Russia And Turkey
• The implementation of business-
UAH Still Has Legs friendly reforms will provide
Exchange Rates, UAH/USD & RUB/USD
tailwinds to economic growth and
will support Ukrainian assets in
RUB/USD UAH/USD
70 29
2020, prolonging the hryvnia’s
strong performance.
69
28
68
27 • Despite strong macroeconomic
67
fundamentals, Russian assets
66 26 remain exposed to geopolitical
65
25
risks, with the threat of tighter US
64 sanctions still hanging over the
63
24 country.
62 23
• The rouble’s strong performance
in 2019 will likely tail off in 2020.
Source: Bloomberg, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Data Pack 2019
Average Real GDP Growth, % (2019-2024) 3.0 Budget Balance, % of GDP 2024
4.0
2.0
3.5
3.0 1.0
2.5 0.0
2.0 -1.0
1.5
-2.0
1.0
-3.0
0.5
-4.0
0.0 Germany United France Ukraine Russia Turkey
Germany United France Ukraine Russia Turkey Kingdom
Kingdom
Pensionable Population, % Total 2016
Current Account Balance, % of GDP 2019 25 2021
8.0
2024
6.0 20
4.0
15
2.0
0.0
10
-2.0
-4.0 5
-6.0
Germany United Kingdom France Ukraine Russia Turkey 0
United States United France Ukraine Russia Turkey
Kingdom
Note: All figures are Fitch Solutions forecasts. Source: National sources, Fitch Solutions
Europe Monthly Outlook Presentation
December 2019Disclaimer
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment
on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from
Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or
information with Fitch Solutions Macro Research.Fitch Solutions Client Services
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