---
title: "Markets and Trends 2019: Global economy in the gym"
url: https://www.helaba.com/en/markets-and-trends-2019-global-economy-gym
type: dd_research
language: en
updated: 2026-09-28
keywords: Kapitalmärkte im Überblick, Kapitalmarktausblick, Markets and Trends
---

# Markets and Trends 2019: Global economy in the gym

Values with impact. Markets and Trends 2019 Global economy in the gym Research, December 2018 Global economy in the gym Helaba Research December 2018 2019 will be an exhausting year, so ﬁtness will be essential. The challenges can only be met with a certain level of performance. That's why we are sending the global economy to the gym. Editorial Sport can play a role in improving the lives of individuals, not only individuals, I might add, but whole communities. Koﬁ Annan Dr. Gertrud R. Traud Chief Economist / Head of Research A person’s ﬁtness results from the interaction of several workout goals. Just lifting weights is not enough. Instead, a balance between the following ﬁve factors is needed: Endur- ance, strength, speed, coordination and ﬂex ibility. This is especially important for us “best agers” because, according to numer- ous studies, people who do sports live longer than couch potatoes. Modern gyms have identiﬁed us as a target group. The original place where you pumped iron has evolved into one that focuses on all aspects of ﬁtness. In addition to cardio and muscle training, it also offers back-strength- ening and yoga courses, myofascial release and Pilates. So you can easily test for yourself how ﬁt you are. But how ﬁt is the global eco nomy and how are the individual countries getting themselves into shape? Dear readers, Baseline scenario: global economy in the gym In this year’s baseline scenario, the global economy faces up to the challenges of the gym in 2019. What almost all countries have in common is limited ﬂexibility. A decade after the ﬁnancial crisis, indebtedness in devel oped countries remains high. Total debt in developing countries has also risen sig niﬁcantly in recent years. Private sector debt is currently higher than before the ﬁnancial crisis almost everywhere – Germany is an exception, despite the real estate boom. Although many nations are active in sports, they are concentrating their training routines on achieving shortterm success. Speed, i. e. high growth rates, is the beall and endall. Expansionary ﬁscal policy increases the pace of growth while soaring indebtedness is tol erated, restricting ﬂexibility. This seems to I belong to the generation of baby boomers. In terms of numbers, we make up the largest population cohort – at least in developed countries. We feel young and do not want to be associated with the concept of senior citizens. We are all too happy to follow the slogan of “50 is the new 40”. Some even subtract another decade from it. But how ﬁt are we really? 5 be Donald Trump’s approach to working out so far. For the strongest economy on earth, we recommend an adjustment to their ﬁ tness routine, because more is not always better – sometimes it is not even good at all. Coordination and endurance are the greatest challenges for most countries. The trick of mastering the former is to strike a balance between individual economic policy instru ments. Even more difﬁ cult is the art of perse- verance, i. e. pursuing a policy geared to sus tainability. Unfortunately, it does not pro duce immediate results. On the contrary, oftentimes they only become apparent when another government has long since taken the reins. This is what policymakers must learn to endure. Since progress in a workout routine only comes with time, but muscle ache sets in imme- diately, a certain tolerance for frustration is required. Besides high levels of debt and a more restric tive monetary policy and rising interest rates in many countries, political uncertainty, a simmering trade war and a slowdown in some economies are currently leading to signs of fatigue. To start working out in this environ ment requires enormous mental fortitude. For this reason, a personal ﬁ tness coach is advisable for some countries. He or she pro vides strict guidelines and makes sure that you hang in there, even if your motivation drops off or if it becomes painful. The EU Com mission probably feels like such a coach with Italy at the moment. Workout to yield ﬁ rst positive results as early as 2019 The moderate price of crude oil is helping to sustain economic growth in buyer countries. In combination with a higher euro exchange rate, this will particularly beneﬁ t the euro area. Some emerging countries will be given a workout routine by the IMF, while others will motivate themselves and push ahead with reforms. Precisely because some coun tries will start to sweat, initial results will al- ready be seen in the course of 2019. Eco nomic momentum in the euro area and emerging markets will pick up somewhat. This will beneﬁ t their respective stock markets and currencies. To raise your ﬁ tness level, you don’t neces sarily have to go to a gym. Most activities can also be carried out at home, in the park or in 6 10 % Relaxing spa 20 % Emergency room ﬁ elds, woods and meadows. The countries we have selected have very special ﬁ tness techniques. In the United States, many are passionate about wrestling, while Russia is focusing on cognitive training with chess. The Chinese are using tai chi to slow things down. In our publication you will ﬁ nd addi tional countries and their corresponding sporting activities. This publication represents a summary of the most important subjects and ﬁ ndings of the 2019 annual outlook. This document as well as the complete ver sion (only in German) can be found at: helaba.com/de/research I wish you the best of success with your ﬁ tness training in 2019. Yours Chief Economist / Head of Research 70 % Gym 7 Content Editorial 4 Baseline scenario Gym (70 %) 10 Interest rates and bonds ■ Adding some more weights 16 Equities ■ Switching favourites 18 Crude oil and gold ■ Largely in equilibrium 21 Real estate ■ Mature, but not weakened by age 22 Currencies ■ US dollar and Swiss franc 23 Alternative scenario Emergency room (20 %) 24 Alternative scenario Relaxing spa (10 %) 26 Countries in the baseline scenario 28 Germany ■ Still going strong 30 France ■ Macron the ﬁtness instructor needs more time 31 Italy ■ A risky race 32 Spain ■ A little less momentum 33 Sweden ■ Riksbank dares turnaround 34 United Kingdom ■ Brexit gets rolling 35 Russia ■ Not enough work outs for structural transformation 36 United States ■ Trump’s economic miracle: fake news?! 37 China ■ Slowdown 38 Brazil ■ All just for show? 39 Tables of forecasts in the baseline scenario 40 ■ Imprint 44 Editorial date: 14. November 2018 Gym (70 %) Baseline scenario In contrast, though, the US economy is still booming. However, this is mainly due to the substantial ﬁscal stimulus provided by tax cuts and sizeable increases in public spend- ing. Since this stimulus will run its course, growth on the other side of the Atlantic will also decelerate. As early as 2019, tailwinds from US ﬁscal policy will weaken signiﬁcantly. New Economic Records being set on a daily basis – and it is not by accident! Donald Trump Fiscal policy to set the pace In cyclical terms, the most important eco no m ic regions will move in different directions in 2019: while momentum in the United States and China is likely to weaken, we expect the euro area and Germany to pick up over the course of the year. For emerging markets, we anticipate that conditions will stabilise. Global economic growth will not quite be able to sustain the pace of 2018. The Chinese economy has already shifted down a gear and will continue to lose momen tum in 2019 – in part because of barriers to trade being erected by the United States. 2019 is going to be an exhausting year. The better the ﬁtness of a country is, the easier it will be able to cope with the challenges. That’s why we are sending the global economy to the gym. Precisely because some countries will work up a sweat, they will chalk up their ﬁrst successes as early as 2019: the euro area economy and emerging markets will begin to gather steam again. This will have a positive effect on their respective stock markets and currencies. We attribute a probability of 70 % to this scenario. Gym (70 %) 11 In the euro area and Germany, the current deterioration in sentiment indicators is likely to come to an end before long and the eco nomic situation will recover in 2019. While there will be a tendency towards more ﬁ scal stimulus in the euro area (and China), it will taper off in the United States. We believe that a successful outcome to negotiations on the trade dispute will provide relief, especially for the German automotive industry. We also see steps towards détente in other key economic conﬂ icts, albeit without solving underlying structural problems or settling fundamental differences of opinion. Squab bles over the Italian budget should ultimately Source: Helaba Research Source: Helaba Research 1.5 2.1 GD r t Inf at Q1 – Q4: 3 Eur r, – 0 30 – 0 25 – 0 10 – 0 10 r Bu d 0.60 0.80 0.90 1.00 DAX in ex value 12,300 12,700 13,000 13,200 Germa y 1.6 1.9 GD r t Inf at Q1 – Q4: Rep rate 0 00 0 00 0 25 0 25 US d ar / euro 1.15 1.20 1.20 1.25 EUR STOXX in ex value 3,400 3,500 3,600 3,650 Eur area 2 6 2 3 USA GD r t Inf at Q1 – Q4: Federa u d rate avera e 2 63 2 88 3 13 3 13 r Trea ur e 3 40 3 50 3 40 3 30 S P in ex value 2,800 2,850 2,880 2,900 Selected forecasts 2019 12 culminate in a compromise that will allow both the government and the EU Commission to save face – neither side has an interest in escalating the conﬂ ict. A negotiated solution is also emerging for Brexit. The chaotic cliff edge scenario that many had feared will fail to materialise. However, we do not expect any indications that the EU and the euro area will undergo a process of renewal in 2019 – the muddling through will continue and institutional stagnation will remain the norm in Europe. It is hard to imagine jobs that do not exist yet. The revival in productivity growth in the United States and the euro area that has been eagerly anticipated for years will probably not manifest itself in 2019, either. However, we do not share the sense of pessimism about technology on the part of many doomsayers – digitisation will in ject positive momentum into the global economy for a considerable period of time. Wages to rise more strongly While we assume oil prices will move largely sideways, core inﬂ ation in the US economy, which is running at full capacity, should continue to rise, reaching a new cyclical high of around 2.5 %. Wage pressures will slowly but surely increase. Trade tariffs will tend to drive up prices. Germany and the euro area are likely to post an average annual inﬂ ation rate of around 2 %. Due to increasingly tight Source: Helaba Research 1.5 2.1 GD r t Inf at Q1 – Q4: 3 Eur r, – 0 30 – 0 25 – 0 10 – 0 10 r Bu d 0.60 0.80 0.90 1.00 DAX in ex value 12,300 12,700 13,000 13,200 Germa y 1.6 1.9 GD r t Inf at Q1 – Q4: Rep rate 0 00 0 00 0 25 0 25 US d ar / euro 1.15 1.20 1.20 1.25 EUR STOXX in ex value 3,400 3,500 3,600 3,650 Eur area 2 6 2 3 USA GD r t Inf at Q1 – Q4: Federa u d rate avera e 2 63 2 88 3 13 3 13 r Trea ur e 3 40 3 50 3 40 3 30 S P in ex value 2,800 2,850 2,880 2,900 13 labour markets, as in Central European coun tries, wages will see stronger rises here as well. Fed takes a break, ECB gets warmed up The US Federal Reserve has already travelled a fair distance along the path of monetary policy normalisation. In view of full employ- ment and rising core inﬂation, the Fed is likely to hike the key interest rate further in 2019. In the autumn, however, with a target corridor of 3 % to 3.25 %, it will probably interrupt the tightening cycle in order to assess the extent to which less expansionary ﬁscal and monetary policies are slowing the economy. The ECB, however, will be in a position to push ahead with its strategy of exiting its monetary policy crisis mode by raising interest rates thanks to an accelerating euro economy and inﬂation close to its target. The reﬁ nancing rate is expected to rise to 0.25 % and the deposit rate to – 0.2 % in the second half of 2019. China, the European Union and others have been manipulating their currencies and interest rates lower, while the U. S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing ﬁeld … Donald Trump The strength of the US dollar will recede. With weaker cyclical tailwinds for the US currency, its yield advantage over the euro will dimin ish as a result of the ECB’s interest rate turn- around. On balance, Trump’s ﬁscal and trade policies are proving to be a burden on the greenback. The eurodollar exchange rate will rise to 1.25. Financial markets place their faith in the ﬁtness of the euro The turnaround in euro interest rates, higher US yields and mounting inﬂation expecta- tions should then propel 10year Bund yields to around 1 %. The yield on US Treasuries of the same duration will also pick up, but will remain well below the 4 % mark. The spread 14 between US and German government bond yields will narrow, having diverged sharply in 2018. Credit defaults at banks will stay below their longterm average and corporate debt ratios will remain low. Covered bonds, which will con tinue to be resilient, will face reduced de- mand from the ECB. Overall, we expect a moderate increase in risk premiums on debt markets. Following the end of quantitative easing by the major central banks, competition will inten sify both between and within asset classes. A switch of favourites for equities In the case of equities, US stocks are not well placed to add to their relatively high valua- tion. Euro equities, in contrast, are only moderately valued. In the course of 2019, they are once again likely to beneﬁt from an economic tailwind. This will result in a fundamentally derived range of 10,500 to 14,000 points for the DAX. Towards the end of the year, it should reach 13,200 points. Investing on the stock markets means keeping your head when all about you are losing theirs. Erhard Blanck On many real estate markets, low interest rates, solid economic growth and moderate construction activity will ensure a sustained upward trend in rents and purchase prices. However, the existing overvaluation on cer- tain submarkets will continue to increase. Gold should ﬂuctuate between 1,200 and 1,400 US dollars per troy ounce. Overall, the success of an investment strategy not only depends on the choice of asset class but also of region. Demand for risky assets is likely to be somewhat higher in 2019 as political uncertainties subside. 15 Interest rates and bonds Adding some more weights A recovery of the euro area economy over the course of 2019, falling unem- ployment, rising wages and normalised inﬂation rates will pave the way for the ECB to exit its monetary policy crisis mode. The turnaround in interest rates, higher US yields and rising inﬂation expectations should lead to yields on 10-year German government bonds climbing to around 1 %. In 2018, German government bonds have performed below average due to the persis- tently low, in some cases even negative yield levels. On a real basis, things look even worse. As inﬂation has risen to over 2 %, adjusted for the rise in prices the interest rate on German government bonds has fallen to a historic low. Bonds will carry this burden into the coming year. Initial rate hike in the third quarter The key anchor for investors is the ECB’s goal of hiking key interest rates in the second half of 2019. Mario Draghi will probably announce this change of direction himself. It would be just before the end of his term in ofﬁce, which has been marked by a stance of monetary easing that is unparalleled in its breadth. Otherwise, the new president of the ECB would be responsible for this decision, which from Germany’s point of view is long overdue – although it remains to be seen whether a “hawk” with a tendency to raise interest rates or a monetary policy “dove” will be in charge of the ECB in Novem ber. Investors have been relatively relaxed about this issue so far. The experience of recent years has given them a sense of secu- rity that the central bank will act prudently when in doubt. Faced with a number of uncertainties, such as the dispute over the Italian budget, the risk of a chaotic Brexit or the continuation of the trade conﬂict, the envisaged turnaround in interest rates will in any case face a certain scepticism on the part of investors. Our base line scenario – premised on an improvement 16 in the underlying economic environment over the course of 2019 – therefore offers the potential for a surprise in the form of rising yields. In addition, comments from ECB mem bers suggest that the ECB could act more decisively than in recent years, meaning that “perfect” conditions would not be required to justify an initial rate hike. Rising yields in Germany would reﬂect a more efﬁcient and resilient monetary union. Apart from euro area policy tightening, the impact of rising US yields is likely to continue to be felt for the time being. Yields on 10year US government bonds ﬁnally broke through the 3 % barrier and thus ended a long-term downward trend. Three further key interest rate hikes in 2019, the shrinking of the Fed’s balance sheet and increasing public debt in the United States are expected to create a degree of upward pressure on yields. How ever, an end to the cyclical rise in US yields is in sight. This should ultimately cap the increase in 10year yields at a level well below 4 %. Yet Bunds are burdened by their record spread against US Treasuries. Signiﬁcant catchup potential has developed here, especially if inﬂation expectations in the euro area should rise. As a result, the yield curve of German government bonds is likely to become steeper. 17 Equities Switching favourites It’s not age that counts most, but ﬁtness – and this applies to bull markets too. In 2018, equities throughout the world have already shown clear signs of fatigue. More and more indices have slipped into the red. The comparatively high valuation of equities worldwide combined with a pronounced insouciance had made stock markets vul nerable. Less favourable fundamental factors, such as a global deterioration in economic indicators and a gradual withdrawal from ultraloose monetary policy by the major central banks, were therefore able to make their mark, as were recurring geopolitical tensions and trade disputes. Some of the overvaluation has now been corrected, but not all indices are in shape again for the next rally. Moreover, with monetary policy becoming noticeably less easy in the future, competition will intensify both between and within asset classes. US equities with weight issues Despite high valuations, the leading US in dices had reached one record high after another until early October. Deregulation fantasies and “America First” aroused un re alistic expectations. The downsides of US economic policy, on the other hand, have long been played down by market participants. In the wake of price corrections for US equi ties, the acute overheating has subsided. Despite an emerging cyclical slowdown, the US economy will continue to grow slightly above potential. At the very least, this sug gests that there will be moderate growth in corporate proﬁts. However, some of this will be used to reduce the valuation, which is still too high. On aggregate, this points to a fair price range of 2,400 to 3,000 for the S&amp;P 500. 18 Like many other global stock market baro- meters, the DAX and EURO STOXX 50 peaked in January 2018. They thus almost perfectly mirrored the cyclical pattern of earlier phases with declining economic indicators. Euro shares have now reached a fair level on the basis of the most common analytical ratios. In the past, however, pronounced corrective movements usually only ended when there were also indications of an end to the down ward trend in important leading economic indicators. In view of the fact that these indicators are still at a comparatively high level, it is unlikely that there will be a re ver- sal to the upside until spring 2019. DAX ﬁt for 2019 In our baseline scenario, the fair valuation for the DAX lies within a P / E band of between 10.5 and 13. In recent years, this corridor has proven to be a reliable indicator for upper and lower turning points. Potential for higher prices will emerge in the course of 2019 as prospects for corporate proﬁts improve and valuations expand moderately. This translates into a DAX price range of 10,500 to 14,000 points. Towards the end of the year, the German benchmark index should be trading at 13,200 points. The risk / return proﬁle is thus signiﬁcantly more attractive than that of its US counterparts. 19 Crude oil and gold Largely in equilibrium Brent crude to remain stable There will be a more or less sideways move ment in oil prices in 2019 as supply risks diminish. The shift in perception from the supply to the demand side on oil markets is likely to continue next year, and not only because of possible negative fallout from the trade conﬂict. As such, there appears to be ample supply on physical markets. It seems that additional supply from nonOPEC countries is alleviating the market situation. At the same time, global crude oil consump- tion probably reached an interim peak in July 2018. Price volatility is also likely to remain marked in 2019 in the wake of OPEC’s expectation management and China’s shifting demand patterns. However, the geopolitical premium will not be as pronounced as it was in 2018, especially as there will be a tendency for vari ous OPEC countries to reduce their supply shortfalls. Gold with limited potential Gold should be well hedged in 2019 in a range of between 1,200 and 1,400 US dollars per troy ounce. This is supported by persis- tently modest real interest rates in the United States, a weaker US dollar as well as market psychology. Thus, bets by noncommercial market participants against gold have re mained at an extremely high level to date. Finally, a more favourable technical picture suggests a recovery in prices. Impeding factors such as the weakness of various emerging market currencies and a reluctance to buy gold will lose their effect in 2019. However, further US interest rate hikes and the ECB’s turnaround in monetary policy are likely to continue to weigh on gold prices. Above all, however, a resurgence in the opportunities offered by risky securities, such as equities and corporate bonds, sug gests that a signiﬁcant recovery in gold prices is unlikely. 21 Real estate Mature, but not weakened by age The boom on the real estate market is enter ing its tenth year and is thus in a mature phase. But real estate cycles do not succumb to old age. Low interest rates and robust eco nomic growth will keep the sector ﬁt in 2019. A modest rise in interest rates will not choke off the upswing. This means that property values in many European countries should continue to rise. The situation looks less favourable in the US, where higher yields on the bond market already offer investment alternatives. On the German ofﬁce market, rising employ- ment is fuelling strong demand for space. The situation is more difﬁcult on the retail market, which is burdened by increasing ecommerce. With buoyant demand and mod erate construction activity, rents in many segments of the commercial real estate market will continue to rise and vacancy rates will fall in 2019. The valuation of many properties, which has already reached a high level, will continue to climb. For German open-ended real estate funds, we expect an almost unchanged average annual return of around 2 ½ % in 2019. This would mean that the difference to bond yields would be sufﬁciently high as to guar antee a continued inﬂow of funds. The broad range of housing policy activities will not stop the rise in prices on the German residential market in 2019. In particular, the high level of capacity utilisation in the con- struction industry and a shortage of land for development will act as obstacles to signiﬁ- cantly higher construction activity. 22 Currencies US dollar and Swiss franc The US dollar is ﬂagging. The dollar environ- ment, which has so far been rosy, will grad ually deteriorate; “America First” no longer applies to the currency markets. Economic growth in the United States is slowing, while the euro area is recovering from its down- turn. The declining growth advantage of the United States will be reﬂected in monetary policy. The Federal Reserve will interrupt its cycle of interest rate hikes and the ECB will start to raise key rates. The unusually high US yield advantage over the euro will therefore probably recede. In the longer term, the downside potential of the US dollar will predominate. The rising budget deﬁcit and the chronic current account shortfall in the United States favour a weaker currency. Moreover, trade policy does not only entail risks of an economic nature. President Trump’s protectionist policies and his desire for a weaker US dollar are at least indirectly weighing on the latter, especially since the greenback is still con- sidered overvalued. In the course of 2019, the eurodollar exchange rate is likely to hover in a range of between 1.10 and 1.30, rising to 1.25 by the end of the year. The greater the impression that Trump is using the dollar to push through foreign policy goals, the more international investors will look around for an alternative currency. Economist Barry Eichengreen The Swiss franc will weaken slightly against the euro. In comparison to the ECB, the Swiss central bank will further delay its interest rate turnaround and the Swiss yield disad- vantage will increase. Declining political un certainty will reduce demand for the safe investment haven. Consequently, the euro franc exchange rate should climb to 1.20. 23 Emergency room (20 %) In our negative alternative scenario, above-average political risks are accompanied by a growing number of purely cyclical arguments. Histori- cally high debt levels and an already very expansionary monetary policy limit the scope to stimulate the economy. Alternative scenario The US dollar lives up to its reputation as a crisis currency, especially as problems in the single currency area weigh on the euro. The eurodollar exchange rate plummets to 0.95. Gold is in demand and reaches a level of 1,600 to 1,800 US dollars per troy ounce. The economic slump triggers a correction in real estate prices, especially in heavily overvalued segments. A sharp drop in sales and pressure on mar gins lead to substantial declines in corporate proﬁts. Increasing risk aversion results in signiﬁcant valuation discounts. The DAX plunges to 9,000point territory. Diagnosis: Multiple risks There are more than enough potential trig gers for a global recession in 2019. The slow down in China may be surprisingly more pro nounced. In the United States, the Fed’s interest rate hikes could be sufﬁcient to stall economic growth. Finally, it does not take much imagination to extend the downward trajectory of economic indicators in the euro area. Investors look for safety and shift out of risky assets and into the safe havens of US Treas uries and Bunds. The yield on 10year Ger man government bonds tests new historic lows towards the – 1 % mark, as other European government bonds are shunned. Emergency room (20 %) 25 Relaxing spa (10 %) In our positive alternative scenario, the economic environment resembles a relaxing spa. Everything feels very laid-back and a sense of ease spreads throughout the world. Sentiment improves and risk premiums fall. Alternative scenario Inﬂation spurs central banks into action The good economic situation leads to rising inﬂation. Monetary policy on both sides of the Atlantic is tightened by more. The interest rate on 10year Treasuries climbs to around 5 %, while yields of German government bonds of the same maturity move towards the 2 % mark. The euro beneﬁts from the political strengthening of the monetary union. The euro-dollar exchange rate climbs to 1.35. Real estate becomes more expensive de spite higher interest rates. In more and more market segments, the valuation situa- tion comes to a head. Companies use their scope for price hikes to expand proﬁt margins. In view of the increasing risk appetite of investors, there is an explosion in valuations. The DAX surpasses the 15,000point mark. The global economy simply reaccelerates. Previous symptoms of weakness in China and the euro area turn out to have been a temporary dip. The United States experi- ences sustained growth of 3 % to 4 %. With the global industrial cycle picking up speed again, stimulus measures in China have a procyclical effect, pushing economic growth towards 7 % and more. Germany and its EU neighbours also beneﬁt from the global industrial upturn. The German and euro area economies expand by around 3 %. Higher growth ﬂushes revenues into state coffers and thus promotes a compromise solution in the dispute over appropriate ﬁscal policy. Relaxing spa (10 %) 27 Countries in the baseline scenario Countries in the baseline scenario Germany Still going strong The German economy is expected to accel- erate from mid-2019 onwards. At 1.5 %, economic growth will remain above the employment threshold in 2019. In 2019, consumption will be the main factor contributing to economic growth. At 1.6 %, consumer spending should increase more strongly than in the previous year. The rise in employment and increases in collective bargaining settlements will have a positive effect. Consumers will also beneﬁt from the return to the equal funding of contributions to statutory health insurance and the “mothers’ pension”. The sharp drop in new orders in the manu- facturing sector and the high degree of un certainty regarding trade policy are still holding back capital formation. Equipment spending will pick up speed again in the course of 2019 but is expected to be up only 3 % on the year (2018: 4.5 %). Investment in construction is also continu- ing to grow: demand for residential housing remains high and ﬁnancing conditions are favourable, with real income rising and interest rates still low. The public sector is increasingly investing in infrastructure and demand for ofﬁce buildings, in particular, is buoyant. Foreign trade is not expected to make a posi tive contribution to growth in 2019, either. Exports to the EU are likely to be further hampered by the UK due to Brexit uncertain- ties. However, China will remain a bright spot despite somewhat slower economic growth, while exports to the United States will only increase at a belowaverage rate. 30 France Macron the ﬁtness instructor needs more time After years of belowaverage economic growth, gross domestic product (GDP) is set to grow by 1.5 % in 2019, the same rate as for the euro area as a whole. The population expects to see swift results. But patience is called for, because there will be a time lag before President Macron’s struc tural reforms take effect. This is true for changes to employment law and the incre- mental reduction in corporation tax, which should gradually translate into higher investment. Consumer spending held back economic growth in 2018. The hike in the social secu rity tax reduced net income growth in the ﬁrst half of the year, while relief from changes to social security contributions did not take effect until the second half. In addition to an expansion in employment and higher wages in 2019, this should have a positive effect on private consumption. In France, the government deﬁcit is expected to rise again in 2019. It is planned to reach a level of 2.8 % of GDP, up from 2.6 % in 2018. Oneoff effects, such as the assumption of the debt of SNCF, the stateowned railway company, are a reason for this. Investment in equipment is also expected to increase in 2019. However, as economic re covery will only gradually take hold, the pace of capital formation will scarcely be higher than in the previous year. Construc- tion activity will continue to provide a modest impetus, while foreign trade should have a somewhat negative effect on growth. 31 Italy A risky race In Italy in particular, there is an urgent need for sound ﬁscal policy, as the country has the secondhighest public debt in the euro area after Greece at over 130 % of gross domestic product. Under pressure from the ﬁnancial markets, the government is likely to ﬁnd a compromise with Brussels. Nevertheless, ﬁscal policy will be more expansionary than previously assumed. In the short term, this could generate positive growth impulses. However, the higher interest rate spread is already putting a heavy strain on Italian banks. The net effect of a more expansionary policy will be rather small. Nevertheless, economic growth is expected to rise slightly to 1.3 % in 2019. Since 2001, the Italian economy has been growing at a consistently slower pace than the average of the euro area as a whole. This indicates that, rather than a temporary weak ness in demand, there are concrete structural problems. The planned measures will not help in this respect. In particular, the reversal of the pension reform with the option of earlier retirement is likely to have a counterproductive effect. The collapse of the Morandi Bridge in Genoa has put the need to modernise and expand infrastructure into sharp relief. Italy’s new populist government wants to signiﬁcantly expand the budget deﬁcit in 2019. In so doing, it is provoking a conﬂict with the EU Commission. The ﬁnancial markets have reacted nervously to this. The spread to German government bond yields has widened signiﬁcantly as a result. 32 Spain A little less momentum Thanks to years of aboveaverage growth rates, Spain has long since returned to its precrisis income level. Nevertheless, the country has become poorer compared to the rest of the euro area. Gross domestic pro duct (GDP) per capita in 2018 is about 77 % of the average in the single currency area, compared with a little over 84 % in 2007. After three years of growth rates of 3 % and more, Spain will only expand by 2.5 % in 2018. This is expected to fall to 2.3 % in 2019. In this environment, the Spanish government also intends to relax its ﬁscal policy stance somewhat. Nevertheless, with a budget deﬁcit of 2.7 % of GDP, the Maastricht ceiling of 3 % is likely to be observed for the ﬁrst time in ten years. It is doubtful as to whether the target of 1.8 % will be achieved in 2019. Despite strong economic growth, govern- ment debt is barely declining and still stands at 98 % of GDP. Consumption will grow at roughly the same rate as GDP in 2019, stimulated by higher employment, a slight increase in wages and economic policy measures. Equipment spending and construction activity should continue to expand. Addition- al government support for social housing will have a positive impact. Foreign trade is not expected to make a positive contribution for the year as a whole. In order to continue to expand at an above- average rate and thus reach the income level of the euro area in the medium term, Spain would have to tackle its structural weak- nesses in a more systematic way. However, the extent to which these problems are being addressed is inadequate. 33 Sweden Riksbank dares turnaround The Swedish economy excelled in 2018 with solid growth rates and this will continue. It seems to be the appropriate time for interest rate hikes, as consumer price inﬂation has been hovering above the central bank’s target of 2 % since August. In 2019, it is expected to be slightly higher at 2.2 %. In this respect, we expect the Riksbank to start raising inter- est rates and to ﬁnally abandon the record low key rate of – 0.5 %. Real estate price a key factor In addition to consumer prices the Swedish central bank also considers developments in the real estate market as well as the external value of the krona. For this reason, extreme caution is likely when raising interest rates in order to avoid a rapid slowdown on the hous- ing market and an excessive appreciation of the currency. With this in mind, the key inter est rate is not expected to reach positive ter ritory until 2020 at the earliest. Sentiment in industry is good and the sector is projected to grow at 4 %. Publicsector consumption should increase by 2 % next year and also contribute to economic growth. However, the real estate market is a load factor. In the major cities, house prices have fallen by 6 % since the beginning of 2018. Accordingly, the construction sector is likely to make a negative contribution to growth next year. Overall, economic growth, at 2.4 %, should be slightly lower in 2019 than in the previous year. 34 United Kingdom Brexit gets rolling Brexit will formally enter into force on 29 March 2019 at 23.00 GMT. A withdrawal agreement has virtually been negotiated. It provides for a transition phase until the end of 2020, during which the relationship between the United Kingdom and the EU will remain almost unchanged. This phase will provide an opportunity to settle unre- solved issues regarding the future relation- ship from 2021 onwards. This future relationship will likely include restrictions on trade in services and on the free movement of workers, but trade in goods will probably remain largely intact. Regular customs controls are not in the economic interest of the EU, either. Despite the risks involved in the negotiations and subsequent ratiﬁcation – especially in the British parliament – the United Kingdom is likely to leave the EU with a welldeﬁned agreement. After all, a “no deal” Brexit would entail massive economic upheaval. Modest economic growth Thanks to the transition phase, Britain’s formal exit from the EU will have little im pact on its economy. In general, however, Brexit will be a burden on growth. Consumer spend- ing should stabilise. However, investment will presumably increase more slowly. Over all, gross domestic product is expected to grow at a marginally lower rate of 1.2 % in 2019 than in 2018. Inﬂation will decline slightly to 2.2 %. The Bank of England will continue its process of monetary policy normalisation and tentatively raise its key interest rate to 1.0 %. As uncertainties recede, the pound sterling will beneﬁt. 35 Russia Not enough work outs for structural transformation After his reelection in March 2018, President Vladimir Putin set the bar very high for the new government: he has demanded that the government deliver a better education and health system, nationwide poverty reduction, higher infrastructure investment, rising salaries in the public sector and an in crease in pensions above the inﬂation rate. Financing these projects is a feat of strength, even for resourcerich Russia. They will not automatically boost economic growth of 1.7 % in 2019. No expansionary ﬁscal and monetary policy impulses are to be expect- ed. Consumer spending – the mainstay of economic growth – will temporarily weaken as a result of the increase in the VAT rate from 18 % to 20 % at the beginning of 2019. The relatively independent central bank will react with higher key interest rates in the event of increasing inﬂationary pressure fol lowing the VAT increase and if the rouble depreciates. The solid set of data (public ﬁnances, current account, currency reserves) ensures a high level of macroeconomic stability. However, structural disadvantages are hampering economic growth. The investment ratio is therefore below average at 21 % of gross domestic product. The government is reluctant to implement economic reforms because they would be accompanied by domestic political changes. Only with more commitment and additional workouts will the Russian economy become more independent of the energy sector and develop a greater momentum of its own. United States Trump’s economic miracle: fake news?! The US economy is booming. Donald Trump regards this as the result of his successful economic policies. The immediate surge in demand is primarily due to very loose ﬁs cal policy. The tax cut at the end of 2017 has considerably reduced the tax burden on house holds and companies. At the same time, government spending is increasing at a rate not seen since 2009. The IMF esti- mates that the direct ﬁscal stimulus account- ed for one percentage point of gross do mestic product in 2018. On a “current law” basis, this effect will not turn negative in 2019, but will more than halve. Accordingly, economic growth in 2019 should slow from around 3 % to 2.6 %. Trade wars are good and easy to win. Donald Trump The negative impact of the trade dispute, on the other hand, should be manageable, as Donald Trump chose to pick a ﬁght at a time when the US economy was showing consid- erable momentum. At least in the medium and long term, US consumers and companies are also likely to be among the losers. Further interest rate hikes … and then a hiatus The Fed will initially push ahead with its policy of gradual interest rate hikes as core inﬂa tion continues to rise. The target range for the key interest rate should reach 3.00 % to 3.25 % in the summer. This would be at the lower end of what we would consider a neutral interest rate level. In view of the slowdown in economic growth, however, a longer hiatus in the cycle of interest-rate hikes should be on the cards from autumn onwards. 37 China Slowdown Economic policy doping enabled China to largely maintain its pace of growth into 2018. In 2019, though, the dragon will tend to lose speed despite an increased dose of stimu- lus. Growth is likely to slow from an annual average of 6.6 % in 2018 to 6 % in 2019. This reﬂects a combination of an ongoing struc- tural weakening and an acute cyclical dip. More stimulus The leadership in Beijing will continue to pursue on the course of a more expansion- ary ﬁscal policy and a loosening of mone- tary and credit policy. It will put reforms on the back burner that are sensible in the me- dium term, but will be a burden in the short term. This will stabilise growth. However, it will ultimately put the country’s medium to longterm prosperity at risk as it does not address underlying structural problems – high levels of corporate debt and the ex cessive shares of investment and indus try in the economy. At the same time, relations with the United States and other advanced Western econo- mies will become more difﬁcult, even if, as expected, the trade dispute with the United States does not escalate further. The govern ment will probably want to avoid a noticeable depreciation of the yuan. It could get out of hand, create additional conﬂict potential with the United States and bring less economic beneﬁt than it used to, because exports are no longer China’s main driver of growth today. There are no winners in a trade war. Xi Jinping 38 Brazil All just for show? Investors reacted with relief to the victory of rightwing populist Jair Bolsonaro in the presidential elections in October 2018. The ambitious reform plans of his designated minister, Paulo Guedes, include privatisa- tions and an urgently needed reform of the pension system. The implementation of these projects, however, depends on approval by the highly fragmented Congress. Turning public ﬁnances around remains the greatest challenge. Government debt has literally exploded since 2014 and is expected to exceed 80 % of gross domestic product (GDP) in 2019. Without decisive consolida- tion, the country is heading for a debt crisis. The previous government had therefore al ready inserted a spending cap into the con stitution. But even that is probably not enough to slow the rise in government debt. The new government plans a smaller deﬁcit of 5.7 % of GDP in 2019. Higher investment and a recov- ery in consumer spending to offset negative impact of ﬁscal consolidation on growth. Due to high currency reserves and moder- ate current account deﬁcits, Brazil is in good shape on the external front. Liberal economic reforms will ensure that investment picks up soon. Together with a slight recovery in consumer spending thanks to lower unem- ployment ﬁgures, economic growth could therefore rise to 2.3 % in 2019. Tables of forecasts in the baseline scenario Financial market forecasts Change since 31.12.2017 Current \* Q1 / 2019 Q2 / 2019 Q3 / 2019 Q4 / 2019 in basis points interest rate in % ECB deposit facility rate 0 – 0.40 – 0.40 – 0.40 – 0.20 – 0.20 Repo rate 0 0.00 0.00 0.00 0.25 0.25 Overnight rate Eonia – 2 – 0.36 – 0.35 – 0.35 – 0.20 – 0.20 3M Euribor 1 – 0.32 – 0.30 – 0.25 – 0.10 – 0.10 6M Euribor 1 – 0.26 – 0.25 – 0.20 – 0.05 0.00 12M Euribor 4 – 0.15 – 0.15 – 0.10 0.10 0.20 2yr Bunds 6 – 0.57 – 0.50 – 0.40 – 0.25 – 0.20 5yr Bunds 2 – 0.18 – 0.05 0.10 0.25 0.30 10yr Bunds – 2 0.41 0.60 0.80 0.90 1.00 2-yr swap rate 3 – 0.12 0.00 0.10 0.25 0.30 5-yr swap rate 2 0.34 0.45 0.60 0.70 0.75 10-yr swap rate 7 0.96 1.05 1.15 1.25 1.30 30-yr swap rate 2 1.51 1.60 1.70 1.80 1.85 Federal funds rate \*\* 75 2.13 2.63 2.88 3.13 3.13 3M USD Libor 92 2.61 2.90 3.10 3.30 3.25 10yr USTreasuries 73 3.14 3.40 3.50 3.40 3.30 in local currency, % index DAX – 11. 2 11,472 12,300 12,700 13,000 13,200 EURO STOXX 50 – 8 .0 3,225 3,400 3,500 3,600 3,650 Dow Jones 2.3 25,286 26,000 26,500 26,800 27,000 S&amp;P 500 1.8 2,722 2,800 2,850 2,880 2,900 Nikkei 225 – 4 . 2 21,811 22,500 23,000 23,500 24,000 % price in $ Brent crude $ / bbl – 2 .1 65 73 75 72 74 Gold $ / oz – 7.7 1,202 1,280 1,300 1,320 1,280 Forecast horizon at end … Sources: Bloomberg, Helaba Research \* 13.11.2018 \*\* target range, mid point 41 Currency forecasts Forecast horizon at end … Change since 31.12.2017 Current \* Q1 / 2019 Q2 / 2019 Q3 / 2019 Q4 / 2019 vs. Euro vs. Euro, % exchange rate US dollar 6.3 1.13 1.15 1.20 1.20 1.25 Japanese yen 5.3 128 125 128 128 132 British pound 2.1 0.87 0.85 0.85 0.80 0.80 Swiss franc 2.9 1.14 1.15 1.15 1.20 1.20 Canadian dollar – 0.9 1.49 1.48 1.52 1.52 1.58 Australian dollar 1.7 1.56 1.55 1.60 1.58 1.58 Swedish krona 4.0 10.22 9.90 9.80 9.60 9.50 Norwegian krone – 2.5 9.59 9.30 9.10 8.90 8.80 Chinese yuan 0.5 7.84 8.05 8.28 8.28 8.50 vs. US-Dollar vs. USD. % exchange rate Japanese yen 1.0 114 109 107 107 106 Swiss franc 3.4 1.01 1.00 0.96 1.00 0.96 Canadian dollar 5.3 1.32 1.29 1.27 1.27 1.26 Swedish krona 10.7 9.06 8.61 8.17 8.00 7.60 Norwegian krone 3.6 8.50 8.09 7.58 7.42 7.04 Chinese yuan 6.9 6.96 7.00 6.90 6.90 6.80 US-Dollar vs. … vs. USD. % exchange rate British pound – 4.0 1.30 1.35 1.41 1.50 1.56 Australian dollar – 7.6 0.72 0.74 0.75 0.76 0.79 \* 13.11.2018 Sources: Bloomberg, Helaba Research 42 Gross domestic product, inﬂation, budget deﬁcit Gross domestic product Real change, % yoy Consumer prices Change, % yoy Budget deﬁcit % of GDP 2017 2018e 2019f 2020f 2017 2018e 2019f 2020f 2017 2018e 2019f 2020f Euro area 2.5 1.9 1.6 1.8 1.5 1.8 1.9 1.8 – 1.0 – 0.6 – 0.7 – 0.6 Germany 2.5 1.6 1.5 1.8 1.8 2.0 2.1 2.0 1.0 1.4 1.2 1.2 France 2.3 1.6 1.5 1.8 1.2 2.1 2.0 1.8 – 2.7 – 2.6 – 2.8 – 2.2 Italy 1.6 1.0 1.3 1.6 1.3 1.3 1.4 1.3 – 2.4 – 1.9 – 2.3 – 2.2 Spain 3.0 2.5 2.3 2.1 2.0 1.8 1.7 1.6 – 3.1 – 2.7 – 2.4 – 1.8 Netherlands 3.0 2.6 2.2 1.8 1.3 1.7 2.2 1.8 1.1 1.3 1.1 0.9 Austria 2.7 2.8 2.0 2.0 2.1 2.0 2.0 2.1 – 0.8 – 0.3 – 0.2 0.0 Greece 1.5 2.0 1.9 2.0 1.1 0.8 1.2 1.2 0.8 0.6 0.5 0.5 Portugal 2.8 2.0 1.8 1.7 1.6 1.5 1.6 1.6 – 3.0 – 0.8 – 0.6 – 0.3 Ireland 7.2 4.5 3.0 3.5 0.3 0.8 1.5 1.8 – 0.3 – 0.2 – 0.1 0.2 United Kingdom 1.7 1.3 1.2 1.5 2.7 2.5 2.2 2.2 – 1.8 – 1.4 – 1.7 – 2.0 Switzerland 1.7 3.1 2.0 1.5 0.5 1.0 1.4 1.4 0.8 0.6 0.4 0.4 Sweden 2.4 2.8 2.4 2.4 1.8 1.9 2.2 2.0 1.4 1.2 1.0 1.0 Norway 2.4 1.9 2.4 2.4 1.9 2.6 2.8 2.8 4.4 4.8 4.2 4.8 Poland 4.7 5.0 4.0 3.3 2.0 1.9 2.2 1.8 – 1.4 – 1.1 – 1.4 – 1.5 Hungary 4.4 4.7 3.4 2.5 2.3 3.0 3.4 2.8 – 2.2 – 2.6 – 2.2 – 2.2 Czech Republic 4.5 2.8 2.6 2.5 2.5 2.2 2.2 2.0 1.5 1.3 1.0 0.8 Russia 1.5 1.8 1.7 1.7 3.7 3.0 4.3 4.0 – 1.4 0.6 0.7 0.7 United States 2.2 2.9 2.6 1.8 2.1 2.4 2.3 2.2 – 3.7 – 4.8 – 5.1 – 4.6 Japan 1.7 0.9 1.0 0.3 0.5 1.0 1.5 2.0 – 3.5 – 3.7 – 3.8 – 3.4 Asia ex Japan 5.8 5.7 5.2 5.0 2.3 3.0 3.4 3.1 – 2.8 – 2.9 – 3.0 – 3.0 China 6.8 6.6 6.0 5.8 1.6 2.2 2.2 2.0 – 3.9 – 4.1 – 4.5 – 4.5 India 6.7 7.4 7.2 7.2 3.3 4.5 4.9 4.8 – 3.5 – 3.6 – 3.3 – 3.2 Latin America 0.8 0.8 1.8 2.0 6.2 6.8 6.8 5.2 – 3.3 – 2.9 – 1.8 – 1.7 Brazil 1.0 1.6 2.3 2.2 3.4 4.1 4.0 3.9 – 8.0 – 7.0 – 5.7 – 5.6 World 3.6 3.6 3.4 3.2 2.5 2.9 3.1 2.8 – – – – Sources: EIU, Macrobond, Datastream, Helaba Research GDP growth working day adjusted if available; e = estimate, f = forecast 43 Imprint Helaba Research Dr. Gertrud R. Traud, Chief Economist / Head of Research Editors: Dr. Stefan Mitropoulos, Barbara Bahadori Neue Mainzer Straße 52 – 58, 60311 Frankfurt am Main, Germany Phone + 49 69 / 91 3201, F + 49 69 / 29 1517 Bonifaciusstraße 16, 99084 Erfurt Phone + 49 3 61 / 2 1771 00 www.helaba.com This publication was very carefully researched and prepared. However, it contains analyses and forecasts regarding current and future market conditions that are for informational purposes only. The data are based on sources that we consider reliable, though we can- not assume any responsibility for the sources being accurate, complete, and uptodate. All statements in this publication are for informational purposes. They must not be taken as an offer or recommendation for investment decisions. Concepts and design La Mina GmbH, Darmstadt, Germany Printed by Druckerei Braun &amp; Sohn, Maintal, Germany Photo credits Adobe Stock: p. 19, © lazyllama – stock.adobe.com Alamy Stock Foto: p. 30, Gerrit de Heus; p. 32, Roberto Fumagalli; p. 37, AB Forces News Collection Getty Images: Cover (U2), © Vostok; p. 33, © japatino; p. 38, © Frank Gaglione iStock: Title, serts; p. 7, tawanlubfah; p. 8, p. 10, serts; p. 17, PrathanChorruangsak; p. 20, bluecinema; p. 28 – 29, olaser; p. 31, Pavel1964; p. 39, golero; p. 40 – 43, GrapeImages Matthes, Steffen: p. 4, © Steffen Matthes Ott, Thomas: Cover (U3), © Thomas Ott / Prime Time Fitness Frankfurt Shutterstock: p. 9, hxdbzxy; p. 9, mythja; p. 22, Alextype; p. 23, Kanut Srinin; p. 24, hxdbzxy; p. 26, mythja; p. 34, gillmar; p. 35, Spencer Hopkins Unsplash: p. 36, © @apx90 Authors Christian Apelt Patrick Boldt Patrick Franke Patrick Heinisch Ulf Krauss Dr. Stefan Mitropoulos Dr. Stefan Mütze Heinrich Peters Ulrich Rathfelder Markus Reinwand Dr. Gertrud R. Traud 44

Increasing divergence between economic areas. Germany and euro area to see higher growth in the course of 2019. First rate hike in the euro area. End of year forecast for DAX: 13,200 Points.