Eurozone Economy Update June 2014

Transcription

1 Eurozone Economy Update June 2014 MACRO REPORT Key Insights Monica Defend Head of Global Asset Allocation Research Andrea Brasili Senior Economist, Europe & EMEA Global Asset Allocation Research Also contributing Riccardo Soggiu Senior Economist, Central Banks Global Asset Allocation Research Despite a weaker-than-expected outcome in Q1 GDP, our outlook remains for a moderate recovery, albeit with more dispersion among countries and, hence, with more need of further accommodation by the ECB. The major headwinds are not changed that much but are probably in a different order of importance. Specifically, the urgency of a reformed institutional framework has been further highlighted by the electoral turnout, while the strength of the currency (or the weakness of external demand) remains to be addressed and the geopolitical risk linked to Ukraine has receded somewhat but lingers. In our view, Eurozone GDP will grow by 1.3% in The disappointment in Q1 is linked to the performance in a few countries (e.g. France, Italy and Netherlands) but some others experienced stronger growth. We reiterate our 1.3% growth forecast for 2014 GDP. Inflation has been low for a protracted period and, as correctly pointed out by the ECB, the main issue this presents is the impact on leveraged agents, first and foremost the public sector. Inflation rose a little in April and we do not expect it to plunge again towards zero but it will increase with extreme gradualism, with endogenously generated price pressures simply absent. ECB: The ECB left rates unchanged in May, but was quite direct in announcing action in June. The likely actions by the ECB going forward include a further small cut in the refinancing rate to 0.10% and a similar 15 bps reduction in the Emergency Refinancing Rate and the Deposit Rate (which will become negative). We also anticipate the injection of liquidity into the market via a new LTRO, possibly rendered in some way conditional to increased lending to SME s, and/or by ending the sterilization of the SMP purchases and/or reducing reserve requirements. Some form of QE is even being considered, with the council unanimous in supporting the possibility of using unconventional tools if deemed necessary. Macro Forecast Main Indicators GDP Growth YOY Change (%) CPI YOY Change (%) 2,0 1,5 1,5 1,0 1,0 0,5 0,5 2014E 2015E 2016E 2014E 2015E 2016E Source: Pioneer Investments. Data as of May 27,

2 In Focus: May 2014 European Elections In the week ending on May 25th, 2014, elections for members of the EU Parliament were held across the European Union, and delivered some interesting results. Eurosceptic and extreme right (anti-immigration) parties obtained a high share of the vote in some countries, as many voters used the election as a means of expressing their anger towards the EU. This anger was motivated in part by the severe austerity measures that were enacted in many countries within the euro-zone as a response to the economic and financial crises that began in the summer of 2007 and overflowed in 2008 with the Lehman Brothers bankruptcy. Discontent was also motivated in part by immigration policies that some voters see as too lax. The most noteworthy result was in France, where the anti-euro and anti-immigration Front National (Marie Le Pen) obtained 25% of votes, well ahead of the 20% of hitherto main opposition party UMP and the 14% of President Hollande s governing Socialists. The government immediately announced it will modify its economic policy and pledged to reduce taxes going forward. In Britain, the leading vote-getter was the UK Independence Party (Nigel Farage), with 27% of the vote; parties opposed to the EU also did well in Denmark and Greece. On the opposite side, pro-eu governing parties did relatively well in Germany where Angela Merkel s CDU was confirmed as the main party. The party in power also did surprisingly well in Italy, where the governing PD led by Matteo Renzi obtained an unexpected 41% of the vote, well ahead of Beppe Grillo s 5 Star Movement at 21% (according to pre-election polls the two parties were almost neck and neck) and Mr. Berlusconi s Forza Italia at 17%. Overall, the centre-right group (European Popular Party) won 213 seats out of a total of 751, the centre-left group (a progressive alliance of Socialists and Democrats) won 190 seats, the Greens won 53 and the ALDE (Alliance of Liberals and Democrats) won 64 seats. Non-aligned, mostly Eurosceptic parties that do not identify with either of the main groups won 141 seats in total; overall they are a very diverse group that ranges from the extreme left to the extreme right and that is very unlikely to coordinate votes on most measures. The Parliament when it convenes will now have to elect a President of the European Union by secret ballot; Socialist candidate Martin Schulz of Germany and Conservative candidate Jean-Claude Juncker of Luxembourg are the two frontrunners for the job. The first three votes require an absolute majority, while at the fourth ballot only the two candidates that obtained the most votes in the third ballot participate with the winner being elected President. Going forward, in our view, the message for the EU is that, given high unemployment, voters demand a greater focus on economic growth and less focus on balanced budgets. Financial markets reacted positively on the Monday following the election results. The euro was little changed on FX markets around 1.365, while Italian, Spanish, Portuguese and Greek bonds rose strongly, tightening the spreads to Germany. European stocks rose to new highs, led by gains of more than 3% in Italy and more than 1% in Germany and Spain. Going forward, in our view, the message for the EU is that, given high unemployment, voters demand a greater focus on economic growth and less focus on balanced budgets. Italy takes over the EU Presidency for the next six months and is likely to push strongly for more economic stimulus and less austerity. A similar message is coming from most countries and Germany will be hard pressed to resist it, although it can be expected, as usual, to do its best. 2

3 1. Growth: Pointing North, with Some Hesitation Despite a weaker-thanexpected outcome for Q1 GDP, the prospect remains for a moderate pickup in activity. It s easy to borrow from the ECB the expression that the Eurozone s ongoing moderate recovery is continuing, but it is fragile and exposed to downward risks. Actually, the diffusion of first quarter GDP, showing lower-than-consensus growth at 0.2%, cooled a bit the expectations and gave a clear message on the persistence of some heterogeneity of conditions among the main countries. This coupled with the fragmentation still visible in the credit market is a source of worries and per se evidence of fragility as a wider dispersion in economic conditions is usually experienced in the most acute phases of a crisis. The 0.2% QoQ growth was the outcome of higher-than-expected growth in Germany and Spain and the opposite in France and Italy. Still, there are arguments for maintaining a relatively positive view. The first is that the weakness can be considered something of an outlier viewed against continuously increasing confidence indicators in Italy and some promising economic policy changes recently enacted in France. But more importantly, the ECB has clearly signalled its intention to act in order to prevent an overly long low inflation period. It is more difficult to assess the impact of the European elections. However, one possible interpretation is that the signalling again of general discontent with at least some European institutions and regulations will give a push towards a more proactive approach in terms of economic policy. Q1 GDP figures were a bit disappointing showing growth at 0.2% QoQ, 0.9% YoY. Details on the composition are not yet available, but data from single countries allows some general assessment. First of all, the disappointment can be partly explained by some erratic results: the dip in Netherlands (down -1.4% QoQ), the very low contribution coming from energy production due to the warm winter that depressed industrial output in particular in France and Italy, and a general weakness of exports that also weight on the US and UK. In addition, the strengthening of the German economy, and in particular, of its domestic demand could exert a significant push to other countries more dependent on external demand to secure a higher pace of growth. Looking ahead, we maintained our 1.3% growth forecast for this year, with a further acceleration in to 1.9% thanks to the progressive closing of the gap between Germany and the other main countries. In terms of composition of growth, the combination of less tight fiscal policy and low inflation will likely benefit consumption; the gains in competitiveness in peripheral countries and a generally more upbeat global demand will help exports. Capital spending will likely improve, following the stimulus coming particularly from Germany. Figure 1. Eurozone GDP % Forecast 5,0-5,0-1 Q3 93 Q4 95 Q1 98 Q2 00 Q3 02 Q4 04 Q1 07 Q2 09 Q3 11 Q4 13 Q1 16 % QoQ % YoY Source: Pioneer Investments. Data as of May 27,

4 The most forward-looking high frequency numbers support this moderately optimistic view, with PMIs and confidences (consumer confidence in particular) still on a quite clear upward trend. According to the EU commission figures, consumer confidence was at in January 2013, started 2014 at and continuously improved up to -7.1 (the long term average since January 2001 is ). In addition, the labour market has started to show signs of improvement in some countries and of stabilization in others. The aggregate unemployment figure was 11.8% in March, or stable versus December 2013 and slightly below the 12% level of one year ago. What is more interesting is that, apart from showing wide dispersion(from lows of 4.9% in Austria and 5.1% in Germany to 26.7% in Greece and 25.3% in Spain) unemployment rates are now flat or slightly declining in virtually all Eurozone countries (with two exceptions being Cyprus and Austria). These elements should support our forecast of a gradual improvement in Personal Consumption expenditures, that should grow by 0.9% in 2014 and 1.3%- 1.5% in A stabilization in the labour market should be a prelude to a gradual improvement in Personal Consumption Expenditure. Figure 2. Eurozone Personal Consumption Expenditure % 4,0 3,0 2,0 1,0-1,0 Forecast -2,0 Q3 93 Q4 95 Q1 98 Q2 00 Q3 02 Q4 04 Q1 07 Q2 09 Q3 11 Q4 13 Q1 16 Source: Pioneer Investments. Data as of March 7, % QoQ % YoY After the surprising jump in Q4, Gross Fixed Capital Formation (GFCF) appears to have moderated a little. It actually declined in France (-0.9% QoQ), in Spain (- 0.6% QoQ) and, likely, in Italy while rising robustly in Germany (3.3% QoQ for the equipment and machinery part). Despite this, the outlook for investments remains positive. As noted, the PMI surveys are quite strong (apart from France) with the composite Eurozone survey at 53.9 in May (54 in April) as manufacturing weakened slightly and services strengthened. Industrial confidence per the EU Commission is at 0.37, higher than April and at a quite strong level considering that the long term average is Investment, still lacklustre in France, has been buoyant in Germany and in the equipment component in Spain. Improving confidence, a clear need to replace older equipment, and very favorable financing conditions in core countries support the forecast that GFCF should be one of the engines of the recovery, growing at approximately 3.9% in and moderating a little in

5 Figure 3. Eurozone Investments % 1 Forecast 5,0-5, ,0-2 Q3 93 Q3 95 Q3 97 Q3 99 Q3 01 Q3 03 Q3 05 Q3 07 Q3 09 Q3 11 Q3 13 Q3 15 Source: Pioneer Investments. Data as of March 7, Exports performed quite poorly in Q1, rising marginally in France and Germany and declining a bit in Spain (and likely in Italy). Net exports were actually positive only in Spain, while in Germany and France imports widely outpaced exports. Again, we expect this Q1 weakness to be temporary with both exports and imports accelerating. However, given the (hoped-for) improvement in domestic conditions the contribution of net exports to growth should diminish in coming years (see the graph below). Figure 4. Eurozone GDP Contribution % QoQ % YoY Given negligible contribution from Government Consumption, domestic demand will likely lead growth. 4,0 2,0-2,0-4,0-6, E 2014 E 2015 E 2016 E INV. CHANGES PERS. CONS. EXP. GOV. CONS. EXP. INVESTMENTS NET TRADE GDP Source: Pioneer Investments, as of May 27, Inflation: Stacked at Low Level? March inflation slowed to 0.5% with 5 countries out of 18 showing negative inflation (Greece, Cyprus, Slovakia, Portugal and Spain). In April, inflation accelerated a bit to 0.7%, with core inflation at 1.0% (up from 0.7% in March), but the discomfort of having a 0 as the first number persists. Once again the major disinflationary contributions came from food and energy. Food showed YoY 5

6 Inflation will likely remain well below 2% level for some period, before gradually picking up. inflation at 0.7% down from 1.0% in March (and around 3% a year ago) while energy continued to provide a negative push but to a lower extent, -1.2% versus- 2.1%. It should be noted that lower energy consumption is good for consumers purchasing power. In January 2013 inflation was at 2.0% YoY with the contribution coming from energy and food amounting to almost 1.1%; now with headline inflation at 0.7% the contribution is 0. Low inflation is not by definition always a bad thing. But it is problematic in the medium term for debtors, in particular for sovereign borrowers. Given the well-known Easter seasonality that depressed CPI in March, the rebound in services inflation was strong at 1.6% YoY from 1.0% YoY; prices of non-energy industrial goods were virtually frozen (0.1% YoY) due to the strength of the exchange rate and fierce competition on tradable goods. While it still seems unlikely that an outright deflation is incoming, the prospect remains for a long period of quite low price pressure. In fact, under our main scenario we do not foresee strong increases in oil and commodities, and it is difficult to imagine a widespread correction of the exchange rate given the trade surpluses that characterize the Eurozone. On the other side, however, these external prices should stabilize or even increase a little while on the domestic side the labor market has started to signal a stabilization and even a very mild improvement. Obviously, this will not be enough to generate wage (and then price) pressures, but it will probably be enough (in particular in Germany) to halt downward pressures. We have slightly cut our inflation forecasts for 2014 to 0.8%, and then our models suggest a mild increase to 1.2% and 1.3% respectively in 2015 and Figure 5. Eurozone Inflation % 5,0 Forecast 4,0 3,0 2,0 1,0 ECB Comfort Zone -1,0 Q1 95 Q1 97 Q1 99 Q1 01 Q1 03 Q1 05 Q1 07 Q1 09 Q1 11 Q1 13 Q1 15 % QoQ % YoY Source: Pioneer Investments. Data as of May 27, Central Bank: Waiting for Further Steps The ECB left monetary policy unchanged in May but cleared the way for an action in June The ECB has held short term rates at 0.25% since November 2013 as economic growth has remained uncertain and inflation below its 2% target. Only a small further reduction in interest rates is now possible, as rates have nearly reached 0, but the bank in May again indicated that the ECB expects to keep interest rates at present or lower levels for an extended period of time. This forward guidance would require a significant improvement in economic data to be changed (the next meeting is on June 5). Mr. Draghi indicated that the Governing Council discussed all instruments and added that the ECB is comfortable with acting in June if needed but the Governing Council wants to see the June staff projections before 6

7 acting. He underlined that economic risks are on the downside and that inflation is expected to remain around the current low levels before increasing gradually in Draghi specifically indicated that the euro s effect on inflation is cause for serious concern but also stated that the exchange rate is not a policy target even though it keeps the inflation rate low and depressed. The likely actions by the ECB in June are a further small cut in the refinancing rate to 0.10% (or, less likely, only to 0.155), a similar 15 bps reduction in the Emergency Refinancing Rate (from 0.75% to 0.60%) and the Deposit Rate (which will become negative by 0.15%). There is also the well-founded expectation in the market for the injection of liquidity in the market via a new LTRO, possibly rendered in some way conditional to increased lending to SME s, and/or by ending the sterilization of the SMP purchases (164.5B at present) and/or reducing reserve requirements. Some form of QE is even being considered, with the council unanimous in supporting the possibility of using unconventional tools if deemed necessary. On this point it is more likely that little action will be taken, but a road map should be clearly detailed of how QE would be carried out should economic or financial conditions worsen. The ways it could be carried out are: 1) via ABS purchases, a relatively small market in Europe, currently not functioning properly, but this action would be done in the hope that it would reopen this market and thus free up capital for banks to make new loans; 2) via EFSF and ESM bonds, which are guaranteed by all members of the Eurozone (the draw back here is that there are no new issues at the moment and the stock of outstanding bonds is limited, 182B for EFSF and 70B of ESM bonds according to Bloomberg data); and 3) via government bonds, but this would likely require considerable work from the legal department to make sure the NO Monetary Financing clause in the ECB s statute is respected, and not all countries seem to be in favor of this measure just yet. Triggers A coordinated economic policy response strengthening the potential growth in the laggard countries should further accelerate the ongoing recovery. Reinforced institutional arrangements taking place in an orderly way increasing confidence across Europe and business opportunities in the real economy. Stronger-than-expected global growth should help the external channel, pushing growth higher. Risks An excessive appreciation of the exchange rate could have the double effect of reducing external demand and downgrading further inflation; while this second part is usually considered positive given that it supports consumer purchasing power, given the extremely low price dynamics, it will render the debt adjustment in peripherals more difficult. An almost immediate risk is coming from the political tensions in the nearby Ukraine, involving the EU s diplomacy and relationship with Russia. In addition, important EU countries such as Poland are in direct geographical proximity. 7

8 Domestic demand was the sole engine of the strong growth in Q1. This will likely benefit other Eurozone countries as well. 4. Country-Specific Analysis: Germany GDP figures in Q1 showed healthy growth in Germany. GDP rose a strong 0.8% QoQ with the yearly pace at 2.3% YoY. It should be noted that in the quarter net exports contributed negatively to growth, with exports rising a pallid 0.2% QoQ and imports by a much stronger 2.2%. Despite this, buoyant growth in investments (3.6% QoQ for construction and 3.3% QoQ for equipment and machinery) and, finally, in personal consumption (0.7% QoQ) prompted the acceleration. Higher frequency indicators are still supportive: the IFO index, despite a small decline in May is at historically very high levels (110.4 vs. a long term average since 2001 of 102.5), PMIs are well above 50 (56.4 for services, 52.9 for manufacturing). Our Coincident Indicator The weakness in March industrial output determined a slowdown in the indicator, while the message from surveys in the last two months are clearly positive on the consumer side, a bit more mixed in the business side. The indicator hit 0.77 in March (well above its long term average) and then declined a little in the next two months to 0.68 in May. This is still consistent with robust growth in Q Germany Pioneer Coincident Indicator 3,0 2,0 1,0-1,0-2,0-3,0-4,0-5,0 Jan-00 Aug-01 Mar-03 Oct-04 May-06 Dec-07 Jul-09 Feb-11 Sep-12 Apr-14 Source: Pioneer calculation on Datastream, Bloomberg. Data as of end of May Expectations Ahead On the basis of both high frequency figures and the Q1 GDP release we slightly upgraded our forecast for 2014 to 2.2%; the growth pace will slightly slow only in the following years. Fixed investments should jump in 2014 (7.7% is our forecast for the equipment component) and then moderate a little, while personal consumption should accelerate gradually (1.4% in 2014, 1.9% and 2.0% in 2015 and2016). Net export contribution will likely be negligible in 2014, slightly negative in 2015 and turn positive again in Inflation should stay above the Eurozone average (1.1% this year and 1.7%, 1.5% in 2015 and 2016). Italy Q1 GDP growth disappointed, but recent actions by the government could have an impact on growth. GDP disappointed in Q1, returning to negative territory. Details of composition have yet to be released, however monthly numbers suggested some weakness in consumption (retail sales persistently declined in value terms in the first three months of the year) and exports (as in the other European countries). Taken in and of itself, this should prompt a strong downward revision in forecasts. However 8

9 there are a couple of reasons for optimism. The first is evidence of a persistent upturn in confidence; manufacturing PMI hit 54 in April while services PMI is at Consumer confidence is also showing a very strong upward trend, hitting in May up from 98.3 at the beginning of the year and a cyclical low of 84.8 in January The second positive element is the support of the new Italian government of a consumption tax cut on low earners (for a total amount of 6.6B this year and 10 next year) that is likely to have a quite significant impact on spending. Our Coincident Indicator Considering Q1 as an outlier rather than indicative of the actual trend is also supported in some ways by our coincident indicator, that thanks to continuously improving surveys in May almost reached its long term average. Clearly, the indicator is consistent with positive growth in the second quarter of the year. Italy Pioneer Coincident Indicator Jan-00 Aug-01 Mar-03 Oct-04 May-06 Dec-07 Jul-09 Feb-11 Sep-12 Apr-14 Source: Pioneer Investments calculation on Datastream, Bloomberg. Data as of end of May Expectations Ahead We corrected our forecast for Italy slightly downward, assuming as noted that part of the weakness in the first quarter was due to erratic factors and factoring in the labour wedge tax cuts (the impact of which should be %). It also should be noted that the wide success of the main political party in the government coalition should in some ways sustain the pace of reforms and, consequently, also confidence. Our forecast is for GDP growth at 0.6%.That implies a quite good second half pace and should provide a positive push in where now we see a lower gap with the Euro average than before. That said, forecasts for Italy are more uncertain than those for other European countries. Inflation should stay lower than the Euro average for a protracted period suggesting that some positive correction in competitiveness is ongoing. Spain The Spanish economy in the first quarter rose a respectable 0.4% QoQ (with YoY growth at 0.5%, the first positive readout in 9 quarters), and a pace many would have deemed impossible just some months ago. The details available on components reveal further positive growth in private consumption (0.4% QoQ), confirming that the mild improvements in the labor market, higher confidence and some purchasing power gains linked to the very low dynamics of prices are sustaining consumption. There has been a mild decline in investments, entirely due 9

10 Consumers demand is strong if one takes into account the situation in the labor market to the construction components, as equipment is on a firm upward trajectory). There was also a large rebound in public spending that mirrored the wide decline in the previous quarter (-3.9% QoQ in Q4, + 4.4% in Q1 2014). On the external side, exports declined as has happened in various countries (-0.4% QoQ) while imports rose by 1.5%, thus marking a wide negative contribution from net exports this quarter (partly due to currency appreciation). To summarize, while things should normalize externally with the recent gains in competitiveness sustaining exports, the confirmation of positive growth in domestic demand (considering consumption plus investment in machinery and equipment) is, for us, the true good news and motivates further optimism for the coming quarters. Our Coincident Indicator Our coincident indicator for Spain re-entered a clear upward trend in March and confirmed it in the last two months. While industrial output in Q1 has been a bit bumpy but generally positive (0.5% growth with respect to the previous quarter) consumer-related data were more clearly upward-oriented (both retail sales and the car market, with data available up to April) and surveys maintained a clear upward direction as well. The indicator is consistent with positive growth in Q2, at least in line with that reported in Q1. Spain Pioneer Coincident Indicator Jun-03 Jul-04 Aug-05 Sep-06 Oct-07 Nov-08 Dec-09 Jan-11 Feb-12 Mar-13 Apr-14 Source: Pioneer calculation on Datastream, Bloomberg. Data as of end of May Expectations Ahead Given this picture, we expect the Spanish economy to grow at a 1.3% pace in 2014 and further accelerate in the following years. The acceleration of imports in Q1 (and stronger-than-expected domestic demand) will result in a slight negative contribution from net exports this year, while in the contribution will become positive again (albeit small) given the gains in competitiveness obtained by Spain. A cap on a more robust acceleration has been created by the necessity to cut the public deficit in the coming years. We expect personal spending to grow at a healthy 1.9% in Investments should increase by 0.8%. Looking at the labour market, unemployment should decline, but only gradually. France France displayed disappointing performance in Q1. GDP was flat vs. Q4 last year, showing a 0.8% YoY growth. But the composition was even worse than the headline, considering that all the main components gave negative contribution (private consumption declined by -0.5% QoQ, investment fell by -0.9% QoQ, and 10

11 the increase in exports of + 0.3% was outpaced by the 1.0% increase in imports. Only government spending and inventories prevented a negative reading. Monthly releases suggested some weakness, with industrial output marking a -0.3% contraction vs. Q4 last year and even household spending, traditionally an engine for France, was fairly weak. PMIs opened a gap vs. the broader Eurozone at the start of the year, and declined (surprisingly) again below the 50 threshold in May (49.3 for manufacturing and 49.2 for services). Our Coincident Indicator March industrial output was also weak in France, partly compensated by (an upwardly revised) household spending, that however corrected down in April. A partial weakening in May surveys on the business side have given to the indicator (which is still below its long term average) a quite bumpy dynamics. Nonetheless, the indicator is consistent with a positive albeit not terribly strong growth pace in Q2. France Pioneer Coincident Indicator Jan-00 Aug-01 Mar-03 Oct-04 May-06 Dec-07 Jul-09 Feb-11 Sep-12 Apr-14 Source: Pioneer calculation on Datastream, Bloomberg. Data as of end of May Expectations Ahead Given the weakness in Q1 (and also considering it as a particularly weak juncture) it is difficult to foresee GDP above 1.0% this year. We have revised 2014 GDP downward to 0.9% and this forecast implies a non-trivial pace of growth over the second half of the year. GDP growth should accelerate to 1.9% and 2.2% in 2015 and Domestic demand will remain fairly weak this year. In particular, an acceleration of fixed investment will only begin to be statistically visible in Net export contribution to growth will be essentially zero for the whole forecasting period. In the near future we expect French companies to benefit from some government policy-driven gains in their competitiveness businesses. Inflation will be substantially in line with the Euro area: Below 1% this year and slightly above that in

12 5. Macroeconomic Forecast: Eurozone EMU MACROECONOMICFORECASTS Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E GDP& COMPONENTS GDPQoQ Personal ConsumptionExpenditure Government Consumption Expenditure FixedInvestments TotalConsumption+ FixedInvestment+Inventories TotalConsumption+ FixedInvestment YoY% Exports Imports E 2014 E 2015 E Net trade Inventorieschanges ECONOMICTREND YoY(%change) YoY(%change) YoY% YoY(%change) Industrial Production HourlyCompensations Unit LabourCost ProducerPricesIndex ConsumerPricesIndex UnemploymentRate Forecast from Pioneer Investments. Update as of the 27th of May 2014; for time series with higher frequency (monthly or daily) than quarterly, we consider the quarterly average; in grey AAR elaborations; in Italic exogenous variables; all figures, if not otherwise specified, are %Y/Y. 12

13 Germany E 2015E 2016E E* 2015 E* MacroeconomicForecasts Q1 Q2 Q3 Q4 Q1 Q2E Q3E Q4E Q1E Q2E Q3E Q4E GDP& Components GDP GDPYoY Personal ConsumptionExpenditures Government ConsumptionExpenditures FixedInvestment (MachineryandEquipment) Exports Imports GDPContributions Net trade Inventorieschanges ConsumerPricesIndex Unemployment Forecast from Pioneer Investments.Update as of 26th of May 2014; for time series with higher frequency (monthly or daily) than quarterly, we consider the quarterly average; in Italic exogenous variables; GDP components on quarterly frequency are %Q/Q; all other figures, if not otherwise specified, are %Y/Y. France E 2015E 2016E E* 2015 E* Macroeconomic Forecasts Q1 Q2 Q3 Q4 Q1 Q2E Q3E Q4E Q1E Q2E Q3E Q4E GDP& Components YoY% GDP GDPYoY PersonalConsumptionExpenditures Government ConsumptionExpenditures FixedInvestment Exports Imports GDPContributions Net trade Inventories changes ConsumerPricesIndex Unemployment Forecast from Pioneer Investments Update as of 26th of May 2014; for time series with higher frequency (monthly or daily) than quarterly, we consider the quarterly average; in Italic exogenous variables; GDP components on quarterly frequency are %Q/Q; all other figures, if not otherwise specified, are %Y/Y. Spain E 2015E 2016E E* 2015 E* MacroeconomicForecasts Q1P Q2 Q3 Q4 Q1 Q2E Q3E Q4E Q1E Q2E Q3E Q4E GDP& Components YoY% GDP GDPYoY Personal ConsumptionExpenditures Government ConsumptionExpenditures FixedInvestment Exports Imports GDPContributions Net trade Inventorieschanges ConsumerPricesIndex Unemployment Forecast from Pioneer Investments Update as of 29th of May 2014; for time series with higher frequency (monthly or daily) than quarterly, we consider the quarterly average; in Italic exogenous variables; GDP components on quarterly frequency are %Q/Q; all other figures, if not otherwise specified, are %Y/Y. Italy E 2015E 2016E E* 2015 E* Macroeconomic Forecasts Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E GDP& Components YoY% GDP GDPYoY PersonalConsumptionExpenditures Government ConsumptionExpenditures FixedInvestment Exports Imports GDPContributions Net trade Inventories changes ConsumerPricesIndex Unemployment Forecast from Pioneer Investments Update as of 27th of May 2014; for time series with higher frequency (monthly or daily) than quarterly, we consider the quarterly average; in Italic exogenous variables; GDP components on quarterly frequency are %Q/Q; all other figures, if not otherwise specified, are %Y/Y. 13

14 Important Information Unless otherwise stated, all information contained in this document is from Pioneer Investments and is as of May 27, Unless otherwise stated, all views expressed are those of Pioneer Investments. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any services. Pioneer Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies. Date of First Use: June 4,