---
title: "Markets and Trends 2018: Shopping Centre - Nothing Comes for Free"
url: https://www.helaba.com/en/markets-and-trends-2018-shopping-centre-nothing-comes-free
type: dd_research
language: en
updated: 2026-09-28
keywords: Kapitalmärkte im Überblick, Kapitalmarktausblick, Markets and Trends
---

# Markets and Trends 2018: Shopping Centre - Nothing Comes for Free

MARKETS AND TRENDS 2018 Shopping Centre Nothing Comes for Free Helaba Research November 2017 20 % P ALACE 70 % SHOPPING CENTRE 10 % RUIN Consumers‘ and investors‘ wallets are wide open – more than they have been for a long time. But beware: in a positive mood, people are less critical and easily seduced by peripheral cues. The fact that many goods and asset classes have become expensive is quickly overlooked. It applies for both the shopping centre and the capital markets: Nothing comes for free EDITORIAL 3 MARKETS AND TRENDS 2018 Dear readers, Architects equipped with imagination and contemporary concepts possess magic powers: with their buildings they create silent contemporary wit- nesses that are useful and evoke emotions. Baseline scenario “shopping centre” – nothing comes for free! We have also let ourselves be inspired by buildings for the 2018 annual out- look. The symbol of the economic situation and the capital markets is the shopping centre in our baseline scenario (70 % probability). For econo- mists it is actually a very clear choice. After all, shopping centres are nothing more than market places where supply and demand meet. As places for consumption, shopping centres impressively reﬂect the most signiﬁcant component of gross do- mestic product (GDP) – private con- sumption. With a share of between 50 % and 70 %, it signiﬁcantly deter- mines economic development in Dr. Gertrud R. Traud Chief Economist / Head of Research 4 most countries. In doing so, the econ- omy runs smoothly and consumers can enjoy a diverse range thanks to globa lisation. Consumers and investors are currently in a buying mood. But beware: sci- entiﬁc studies have shown that people are less critical and attentive in a posi- tive mood. They are taken in by the perfectly designed atmosphere in the shopping centre. Inﬂation is back In the process, they do not even realise that many prices have already increased in 2017. We should know that a good economic situation is not for free: its price is inﬂation. What is the situation in different countries? We have compared and evaluated: Reading this is for free, so don't hesitate. As in every year, we provide you with an overview of the different asset classes. The mood in the capital mar- kets is very similar to that in the shop- ping centre. That is why you should not just go shopping with open eyes in 2018, but also check the prices when investing in assets. More caution is appropriate due to the high valua- tions – after all, nothing comes for free, either! Information about our alternative sce- narios “ruin” (10 %) and “palace” (20 %) can be found at the end of the brochure. This publication represents a summary of the most important subjects and ﬁndings of the 2018 annual outlook. This document as well as the complete version (only in German) can be found at: http://volkswirtschaft.helaba.de MARKETS AND TRENDS 2018 5 6 Helaba Research, November 2017 © Helaba 1 Editorial 3 Baseline scenario Shopping centre (70 %) 8 Bond markets: Out of crisis mode 14 Equities: Only high-priced products left on the shelf 16 Gold belongs to the shopping list 18 CON TENT Real estate: No more bargains on offer 20 US dollar and Swiss franc 21 Germany: Crowds in the shopping centres 24 France: Reforms in the economic upturn 25 Italy: Major renovations still to be carried out 26 7 MARKETS AND TRENDS 2018 Tables of forecasts in the baseline scenario 32 Financial market forecasts 33 Currency forecasts 34 Gross domestic product, inﬂation, budget deﬁcit 35 Alternative scenario Ruin (10 %) 36 Alternative scenario Palace (20 %) 38 Imprint 40 Editorial date 10 November 2017 2 3 4 Spain: Conﬂict among Spaniards 27 Sweden: 2018 with less shine 28 United Kingdom: Agreement on the negotiation bazaar? 29 USA: "Retail Apocalypse" Now? 30 China: The party is always right 31 SHOPPING CENTRE (70 %) 1 8 Helaba Research, November 2017 © Helaba Shopping centre – Nothing Comes for Free (70 %) Baseline scenario Customers and investors are in a buying mood. However, in the meantime, many goods and asset classes have become expensive. In our baseline scenario, “shopping centre”, we therefore advise against impulse buys. We attribute a 70 % probability to this scenario. In 2018, the global economy will grow as dynamically as in the previ- ous year, at a rate of 3.4 %. Sharply increasing growth rates, as currently promised by many economic indica- tors will, however, not be realised. For the USA, a slight acceleration of the annual average from 2.2 % to 2.5 % emerges. Here, we have as- sumed moderate tax cuts. The un- predictability of future trade policy under President Trump, however, has an impact on the investment climate. The euro area and Germany will not be able to sustain their fast pace from 2017. Consumers are increasingly becoming aware of higher inﬂation. In order to follow a path of sustainably higher growth, a growth-oriented economic policy is required that counteracts both demographic development as well as the neglected infrastructure. In some regions of Europe, populism, protectionism and separatism are proving to be damaging to growth. MARKETS AND TRENDS 2018 9 There will be reduced stimulus from Asia in 2018 compared to 2017. After a phase of additional economic policy stimulus, China is returning to a path of slower structural growth. Indebted- ness, in particular of state-owned enterprises, has increased dramati- cally. The Chinese property market remains a stability risk. A persistently high debt ratio in industrialised countries and debt ﬁnancing in emerging economies that has in- creased signiﬁcantly in recent years will be a burden in 2018. Contrary to speculation, the Phillips curve is not dead Selected Forecasts 2018 Source: Helaba Research 10 Helaba Research, November 2017 © Helaba In many industrialised countries, in- ﬂation rates returned to around the 2 % mark in 2017. Shortages in the labour market favour wage growth. This is particularly pronounced in Eastern Europe, where strong wage growth can already be observed due to a lack of skilled workers. The tide also appears to be turning in the USA and Germany. Whilst the rise in inﬂa- tion so far is mainly attributed to higher energy prices, increasing core rates are also to be expected in 2018. In the USA, the inﬂation rate will be signiﬁ- cantly above 2 % in 2018; in the euro area and Germany it will edge towards the ECB’s inﬂation target of 2 %. Com- plaints about “undesirably low” inﬂa- tion rates, therefore, are not justiﬁed any longer. Less expansive monetary policy In industrialised countries, some cen- tral banks return to focusing on inter- est rate increases. The US Federal Reserve will continue to normalise its monetary policy. By the end of 2018 we are expecting an increase in the Fed funds rate in the range from 2.00 % to 2.25 %. In addition, the Fed is planning to reduce its securi- ties portfolio by 10 % by the end of 2018. The ECB is not yet that far ahead, but is also likely to react to the improved economic environment. At the start of 2018 it will scale back its purchas- ing programme from €60 billion per month to €30 billion per month. In September 2018 the monetary spending spree is likely to come to an end. However, this does not mean that the ECB will cease to be a source of demand in the bond market. It will MARKETS AND TRENDS 2018 11 merely freeze its portfolio of securi- ties at around €2.6 trillion and will replace maturing interest-bearing securities with new ones. In the euro area, the turnaround of interest rates will only happen in 2019. We expect that the ECB will reduce the deposit rate from - 0.4 % to - 0.2 % in spring. This penalty pay- ment has become a considerable burden for banks, insurers and – not least – private investors. During 2019, Mario Draghi will increase the key rate (repo rate) from zero to 0.25 %. In 2018, the euro-dollar exchange rate is likely to move initially in the lower end of the 1.10 to 1.20 USD range. With a looming turnaround of interest rates by the ECB, the euro will once again appreciate to 1.20 USD later in the year. Deceptive tranquillity, careless investors Investors have let themselves be lulled into complacency by monetary policy. They have been able to ob- serve that political risks have not led to uncertainty in the ﬁnancial markets, irrespectively of whether those risks ultimately materialised. By historical standards, this is very unusual. But it is not just political cycles that are now being declared obsolete by many people. The economic cycle seems to have become obsolete. This distortion of perception is not new. The longer an economic up- swing lasts, the more secure mar- ket participants feel. Experts’ growth forecasts barely differ from each other. All are in agreement that economic activity will keep running. Financial market participants also evidently do not currently see any requirement to hedge. The implied volatility of equity and bond markets is at an historic low. The market participants last had a similar feel- ing of security in summer 2007. The extreme easing of monetary policy has led to a – partly considerable – valuation expansion in recent years among shares, bonds and real estate. The result is that traditional invest- ments are similarly expensive. Losses on bonds How should investors position them- selves in this environment? With bonds, valuation issues increasingly arise due to higher inﬂation rates. It is not very likely that investors resign 12 Helaba Research, November 2017 © Helaba themselves to lasting real losses in assets' value. During the course of 2018, we are expecting an increase in yields of 10-year German govern- ment bonds of up to 1 %. There is a threat of losses. The ﬁrst choice for new investments should therefore be short- and medium-term maturities. Equity investors have also become markedly careless. The historically low implied share volatility illustrates that risks are currently estimated to be very low by the majority of market participants. With a price / earnings ratio of about 14, the valuation of the DAX is already moving above the long-standing normal band. By contrast, a considerable risk of setbacks is inherent in the combina- tion of high valuations and increased risk appetite, especially since the economic sentiment has probably reached its peak. Using realistic assumptions for earnings growth gives a range for the DAX of 10,500 to 13,500 points. Because shares are frequently exaggerating, it could also temporarily exceed these levels. Real estates have now become equally highly valued. However, they can retain their relative attraction despite alluring yields in the bond market. As the earnings potential of popular asset classes is limited overall, no larger deviations from the strategic neutral values are necessary for 2018. Everything good is already included! MARKETS AND TRENDS 2018 13 14 Helaba Research, November 2017 © Helaba As expected, the very low yield level of German bonds did not allow any jump in earnings this year. The nomi- nal investment conditions have at least improved. The average annual yield of 10-year German government bonds climbed from around 0.1 % to approximately 0.4 % in 2017. A contin- uation of this trend is to be expected for 2018. At the end of the year, yield is likely to be at around 1 %. The basis for increasing yields is formed by normalising inﬂation – deﬂation ceased to be an issue a long time ago. In the euro area, con- sumer prices are likely to increase by around 1½ % for the second year in a row in 2018. In comparison, yield growth lags behind considerably, German government bonds are not slow sellers thanks to their high quality, but at the same time they are not attractive due to their low yields. In light of the good economic environ- ment, bond yields are likely to tend to rise over the coming year. Pressure comes from the US bond market in particular. Bond markets: Out of crisis mode leading to signiﬁcant real ﬁnancial losses. Whether many investors (apart from the European Central Bank) are prepared to buy on these unfavourable terms is doubtful. ECB delays interest rate turnaround In addition, there is the fact that an extremely enthusiastic purchaser – the ECB – will now scale back its activities. At the start of 2018, it will cut back its purchase programme of 60 billion euro per month to 30 billion euro per month. The Asset Purchase Program is likely to come to an end in September 2018, which however does not mean that the ECB will MARKETS AND TRENDS 2018 15 Equities: Only high- priced products left on the shelf The US stock indices leapt from one record high to the next over the last twelve months. This inevitably raises the question of whether investors have not already been too generous with premature praise, given deregu- lation and tax cuts. disappear as a good customer in the bond market. It will merely freeze its portfolio of securities at around 2.6 trillion euro and replace maturing inter- est-bearing securities with new ones. The US Federal Reserve is one step ahead. It has already begun to gradually scale back its balance sheet total. For US bonds this means a noticeable change in framework conditions, particularly as the Fed is likely to drive key rates towards 2 % in 2018. Out-of-date bonds and bonds repackaged by issuers are once again freely available on the shop shelf. However, it will probably not be so easy to find new investors, particularly as inflation is being increasingly felt in the USA. In tow behind higher key rates, we there- fore expect an increase in yield of 10- year US Treasuries to around 3 %. Draghi under pressure The subject of an interest rate turn- around is likely to continue to preoc- cupy investors, especially if the pur- chase programme is terminated and Mario Draghi’s final year in office approaches. The question that arises is whether he will pull the interest lever himself, or whether the Presi- dent of the ECB will leave this job to his successor from November 2019. We suspect the former. In spring 2019 the negative deposit rate is likely to be raised – by the end of the year, the “penalty interest” should finally fall away. For the first time since 2015, the refinancing rate is likely to show a positive value once again. Higher yields in expectation of a change in monetary policy in the euro area would alleviate the invest- ment crisis and thereby remove the burden from the demand side of the bond market. On the supply side, the prospect of higher interest rates could increase the pressure for re- form in the euro area. 16 Helaba Research, November 2017 © Helaba Expectation bubble with regard to US shares? Only in the ﬁnal stage of the new economy boom from 1998 to 2000, US shares were valued higher. Even under the assumption that, due to tax reforms, the net results of com- panies increase more signiﬁcantly than currently forecast the P/E ratio of the S&amp;P 500 still lies noticeably above the historic average of 15. In any event, the valuation expansion is non-typical for a period of increas- ing key rates. With the Fed now grad- ually reducing its balance sheet, the rally in the US stock market faces the threat of running out of fuel. DAX with unfavourable risk-reward proﬁle Equity investors have also become downright careless in Germany, too. The historically weak implied share volatility, therefore, shows that exchange risks are currently perceived as being very low by the majority of market participants. With a P/E ratio of around 14, the valuation of the DAX is already moving above the long-term normal band. On the basis of key ﬁgures such as the share price / cash ﬂow ratio, the overvalua- tion is even more pronounced. In our baseline scenario, the fair valuation for the DAX lies in the P/E ratio band between 10.5 and 13. Using realistic assumptions for earnings growth, the possible spread for the DAX extends from 10,500 to 13,500 points. At a share price level above 13,000 points, the risks outweigh the upside potential by far. People rarely get the timing perfect for buying and selling shares. In ex- treme cases, things may even turn out opposite to the old trading rule "buy low, sell high". Equity-based saving is a good way to minimise such "timing mistakes" – nothing more, but also nothing less! MARKETS AND TRENDS 2018 17 18 Helaba Research, November 2017 © Helaba Gold belongs to the shopping list With high growth dynamics, moder- ate inﬂation and continued loose monetary policy, classic risk invest- ments gained strongly in 2017. The relative valuation of gold has thus become more attractive. In addition, the inﬂation of asset prices is likely to signiﬁcantly raise ﬁnancial inves- tors’ hedging requirement in the form of physical gold. Both central banks and sovereign wealth funds are also turning to gold. As a result of massive indebt- edness, unconventional monetary policy and decreasing political pre- dictability, US government bonds no longer have the unqualiﬁed status of “risk-free investments”. Apart from that, political risks have largely been disregarded by the ﬁ- nancial markets. Uncertainty in Eu- rope has decreased for now, but the structural problems persist and are only temporarily concealed by posi- tive economic inﬂuences. However, history shows that in times of eco- nomic upheaval, the countries with the largest gold reserves are not in the weakest position. Meanwhile, the US real yield contin- ues to hover around the zero line. Even in the case of rising to slightly higher levels it is expected to give a boost to the gold price as well in 2018. A more pronounced increase in nominal yields would eventually be compensated by correspondingly higher inﬂation rates. With regard to the technical market analysis, gold seems to have moved into a decisive phase after years of consolidation. The medium-term downward trend dating back to 2011 was most recently exceeded, mean- ing that a potential turning point has arisen. In 2018, therefore, the yellow metal could pursue a new sustaina- ble upward trend. Technically, there would be scope for a further in- crease. In 2018, the price of gold is likely to rise above 1,400 US dollars per ounce. MARKETS AND TRENDS 2018 19 Real estate: No more bargains on offer Many investors would like to invest their abundant liquidity in real estate. However, in many cases their shop- ping experience will be disappointing in 2018. Bargains have not been on offer for a long time and quality prop- erty has mostly sold out. Who wants to buy less valuable properties with higher risks? The property cycle is in a mature stage. But an end to the upward trend is not looming in 2018 because the general conditions will remain positive. However, over-valuations can already be observed in many markets. Property values continue to increase – in Germany both in the residential market and the commer- cial sector. The market participants are still not euphoric and the granting of credit is largely inconspicuous. The likely largest risk for property lies in a signiﬁcant increase in interest rates. German open-ended real estate funds are likely to achieve a perfor- mance of around 2½ % in 2018. In light of the still very low yields in the bond market, this form of investment remains relatively attractive. Prices of German residential prop- erty will continue to grow in 2018 – primarily in metropolitan areas. Fi- nancing terms remain very favourable and the population is growing. An increasing demand for living space is faced with supply that is only in- creasing at a moderate rate. Meas- ures taken by a new German govern- ment to support the building of residential property are not likely to change this. Demand for around 400,000 homes is likely to be up against approximately 320,000 prop- erty completions. 20 Helaba Research, November 2017 © Helaba US dollar and Swiss franc In 2018, monetary policy will initially support the US dollar. Whilst the ECB will for the time being move away from its extremely expansive course only very hesitantly, the Federal Reserve will gradually reduce its easy policy and continue the cycle of interest rate hikes. The short-term US yield ad- vantage that has reached a long-time high in comparison with European bonds will increase further still in 2018. Beyond tax measures such as incen- tives to repatriate foreign proﬁts, the Trump government will barely sup- port the greenback. On the basis of its protectionist nature, the gov- ernment has no interest in a currency that is too strong. Despite the deval- uation in 2017, the US currency con- tinues to be expensive in the long term – in particular in relation to the euro. In addition, in Europe the long- term need for the adaptation of monetary policy continues to grow in the euro area. The ﬁrst interest rate hikes by the ECB are probably not due in 2018, but in the ﬁrst half of 2019. A looming interest rate turnaround is likely to strengthen the euro during 2018. We therefore expect that the euro-dollar ex- change rate in 2018 will initially be at the lower end of a range from 1.10 to 1.20. Later in the year, the euro will likely once again climb towards 1.20. The downward trend of the Swiss franc will not continue. The interest rate differences with regard to the euro will instead support the franc. In the long term, the Swiss currency continues to be over-valued, but not at such an extreme level. The euro- franc exchange rate will barely carry on its increase in 2018 and, after temporary setbacks, trade at 1.15. MARKETS AND TRENDS 2018 21 GDP 1.0 % GDP 1. 8 % GDP 3.5 % GDP 1.5 % GDP 2.5 % GDP 2.0 % GDP 2.2 % COUNTRIES IN THE BASELINE SCENARIO 22 Helaba Research, November 2017 © Helaba GDP 1. 2 % GDP 3.3 % GDP 2.0 % GDP 2.0 % GDP 2.8 % GDP 2.0 % GDP 1. 8 % GDP 6.5 % GDP 3.5 % GDP 3.0 % GDP 2.5 % MARKETS AND TRENDS 2018 23 Germany: Crowds in the shopping centres German economic growth in 2017 at a calendar-adjusted rate of 2,5 % topped the previous year’s high ﬁgure of 1.9 %. Even if the strong momentum doesn’t quite hold, at 2 % the GDP increase for 2018 is likely to be brisk. Only in 2019 growth will move closer to the potential at 1.7 %. The expansion model will only change gradually. Private consumer expend- iture is likely to continue to make a signiﬁcant contribution to economic growth in 2018, with rising real in- comes and higher levels of employ- ment – despite inﬂation running at 1.8 %. A boom in investment should not be expected in Germany. The con- tribution to growth made by gross investments will change very little, yet its composition will. Investment in equipment will gain momentum. Companies are likely to ease off on their restraint as the general condi- tions for capital formation have im- proved. In contrast, the momentum of con- struction investment is likely to de- crease a little in 2018. Nevertheless, demand for homes will remain high in light of a favourable labour mar- ket, rising incomes and migration to and within Germany. The unusually favourable ﬁnancing conditions will make construction decisions easi- er. The sector will beneﬁt from the resources provided for municipal infrastructure and the increasingly improved ﬁnancial position of local authorities. It is expected that foreign trade will also not make a positive contribution to growth in 2018. The favourable do- mestic economy will cause imports to increase more quickly than exports. 24 Helaba Research, November 2017 © Helaba marked increase in building permits signals a lasting upturn. International competitiveness remains the weakness of the French econo- my; foreign trade will hold back growth in 2018, too. The planned reforms by the new president are likely to bring about an improvement here in the medium term. The Maastricht criterion of a deﬁcit no greater than 3 % of GDP has not been met by France since 2007. The new government is determined to achieve this from 2017 onwards. France: Reforms in the economic upturn In recent years, France has grown signiﬁcantly more slowly than Ger- many. This gap is likely to narrow. Gross domestic product is expected to grow by 1.8 % in 2018, only two- tenths less than in Germany. Despite the brightening economic situation, private consumption grew considerably more weakly than in the previous year with only a 1 % increase in 2017. In real terms, private households were left with less in their pocket as a result of higher inﬂation. Higher employment and barely higher wages were unable to compensate for this. Not all consumer wishes will come true in 2018: at 1½ %, this com- ponent will grow just below average. Investment in equipment should generate positive stimulus in 2018. Increased margins and improved capacity utilisation underline this conclusion. After years of decline, French construction investment has increased by presumably more than 3 % in 2017. The momentum is currently coming from both non-residential and residential construction. The MARKETS AND TRENDS 2018 25 Italy: Major renovations still to be carried out Italy is also in an upturn – but it is only a weak one. Since the launch of the euro, with the exception of the year 2000, the country has never been able to reach the momentum of the euro area. Noth- ing is likely to change in this respect for the time being. Although consumer prices grew more strongly in 2017 than in the previous year, private consump- tion expenditure, at an estimated 1½ %, grew by the same rate as gross domes- tic product. This was ﬁnanced by a decreased savings rate. Furthermore, employment is growing. Despite the limited ﬁnancing capacity of many Ital- ians, the consumer climate is friendly, meaning that a growth in consumption is expected in 2018 similar to that of the previous year. Despite the somewhat more favourable economic situation, the government has little scope for election gifts. Corporate earnings will remain under pressure in 2018 as a result of stagnat- ing productivity and slight increases in labour costs. However, industrial capacity utilisation in Italy has grown considerably above the long-standing average. Since the business environ- ment is also positive in the other sec- tors, capital formation is likely to increase moderately. Construction activity should increase for the third year in a row in 2018. Conversely, slightly negative effects will again result from foreign trade. Because the standard of living can only be raised by continuously increasing productivity, the reform process should be reinforced. Despite the huge prob- lems, no quick pace of reform is ex- pected before the upcoming parlia- mentary elections, which will take place no later than May 2018. It is rath- er unlikely that there will be subse- quent political change. 26 Helaba Research, November 2017 © Helaba Spain: Conﬂict among Spaniards In 2017, Spain achieved economic growth of more than 3 % for the third time in a row, thereby surpassing the pre-crisis level at the start of 2008. Our growth forecast of 2.8 % for 2018 assumes that the Catalonia conﬂict can be resolved swiftly. If this is not the case, a deduction of at least half a percentage point should be expected. The strong mo- mentum of recent years was a coun- ter-movement against both of the previous recessions, as well as the result of improved competitiveness. In 2017, the Spanish inﬂation rate climbed from negative territory to 2 %. This is above-average when compared with the whole euro area and is a burden on the budgets of private households. Despite this, consumer momentum has only slightly decreased. Continuously increasing employment continues to generate a stimulus. In addition, wage rises are somewhat higher. The number of people unemployed is falling signiﬁcantly and the con- sumer climate is friendly. Little is likely to change in this regard in 2018. Public consumption expendi- ture will continue to grow only mod- erately. In 2017, the public deﬁcit was still above the 3 % that is actu- ally permitted. Spanish investment is growing pleasingly. The property crisis has been overcome, prices are increas- ing again. With low mortgage inter- est rates, investment in residential construction is rising. Investment in equipment has been growing since 2013. On the basis of increased competitiveness and the economic upswing, the companies' optimism towards the future seems justiﬁed. In contrast to other European countries, Spain also beneﬁts from foreign trade. MARKETS AND TRENDS 2018 27 Sweden: 2018 with less shine The Swedish economy once again grew strongly by 3.1 % in 2017. In 2018, the country, which has a high level of exports, will continue to ex- pand its economy, even if the growth rate will be lower at 2.5 %. Monetary and ﬁscal policy, which con- tinues to be supportive to growth, as well as house prices that have been increasing rapidly for years, ensure numerous visits to department stores. The indebtedness of private house- holds now amounts to around 180 % of disposable income. Measures such as the reduction of the lending limit for loans have so far shown no sustaina- ble effect to counteract this trend. Fiscal policy as a crucial factor In 2018, growth stimulus is likely to come from the continuing expansive ﬁscal policy. The budget plan con- centrates on the creation of new jobs, which in particular creates the pre- requisite for increased consumer spending in light of the high admis- sion quota of migrants. In addition, tax cuts are planned and money is to be invested in health services and the education system. Despite increasing inﬂation and strong growth ﬁgures, the Swedish central bank continues to adhere to its expansive monetary policy. The Riksbank will also orientate at the ECB in future in order to avoid a sig- niﬁcant appreciation of the Swedish krona and deﬂationary tendencies. The Swedish central bank will prob- ably leave the key rate at - 0.5 % until autumn 2018 to ensure that the Swedish economy can remain on its export track. 28 Helaba Research, November 2017 © Helaba United Kingdom: Agreement on the negotiation bazaar? Brexit hovers above everything in the United Kingdom. The economic con- sequences of the referendum have so far been paid mainly by consumers, as the devaluation of the pound makes imports more expensive and puts a strain on real incomes. Since there are also limitations on credit-ﬁnanced con- sumption, private consumption will only grow by 1 % in 2018. The consid- erable uncertainty associated with Brexit will increasingly impair invest- ments by companies, meaning that gross domestic product is likely to grow by 1 % in 2018 – a slower rate than the previous year (1.5 %). The Bank of England will remain calm after the most recent interest rate rise and could leave its key rate at 0.5 %, especially as growth is slowing down. Inﬂation will eventually reach its peak and will once again fall towards the 2 % mark over the course of 2018. The very sluggish Brexit negotiations overlap with the economic situation and monetary policy. The free trade agreement beyond the Single Market that Britain desires cannot be negoti- ated in its entirety in the time re- maining. Due to its relative size alone, the United Kingdom is more strongly dependent on an agreement being reached than the EU. Over the course of the year, pres- sure on Prime Minister May to reach a compromise will increase. An agreement could include a relatively free trade in goods, restricted trade for services and limited freedom of movement for workers. Despite all the problems and risks, a deal still seems to be the most likely solution – by 2019 at the latest. MARKETS AND TRENDS 2018 29 USA: “Retail Apocalypse” Now? For some time now in the USA there has been a controversial discussion about “the death of malls” and the bankruptcies of major retailers (“Re- tail Apocalypse”), despite a brilliant sentiment in the economy and growth in private consumption which come close to that of the boom years in the late 90s. It seems contradictory that retailers are starv- ing whilst households are spending money generously. The background is the meteoric rise of online retailing, which comes along with a radical structural change – meaning that excess capacity is shut down. In ad- dition, the proportion of consumer expenditure spent on services is in- creasing. Contrary to often-heard horror sto- ries, household indebtedness cur- rently gives no cause for concern. In light of the strained labour market, wages should generally increase, and employment will continue to rise – al- beit less dynamically than in previous years. Consumption remains on track. In addition, there is now a no- ticeable recovery in investments that is not just limited to the mining and energy sectors. Supported by monetary and ﬁscal policy The US economy is likely to register growth of around 2.5 % in 2018, following growth of about 2 % in 2017, taking into account a slight stimulus from tax cuts and increased govern- ment spending. Monetary policy will not hinder economic growth. Even if – as expected – the Fed increases the target range by the end of 2018 to between 2.00 % and 2.25 %, real interest rates (less inﬂation) will re- main at almost zero. 30 Helaba Research, November 2017 © Helaba China: The party is always right At the conference of the Communist Party of China, party leader Xi rose to the Olympus: in the party constitution, he is now on the same level as Mao. Overall, 2017 was a successful year for the Chinese leadership, while, in 2015 and 2016, it did not always look very bright from an economic policy perspective. Among other things, Xi has beneﬁtted from a weaker posi- tion of the USA as a global leader under Donald Trump. Tail wind from the industrial cycle From an economic perspective, the situation has also improved. This is based on a massive ﬁnancial policy stimulus and increased lending initi- ated by the government. This partly reﬂects an upward movement in the industrial cycle that can be observed globally. However, considerable risks like the high levels of indebtedness of state-owned enterprises and a poten- tial bubble in the property market, persist. This is a drawback of Xi’s poli- cy: when in doubt he opts for stability and against risky reforms, however necessary they may be. Short-term stability – medium-term risks We therefore maintain our estimate that China will head for medium- term trend growth of around 5 % each year. The slow pace of reforms in- creases the likelihood of the “China crash”, feared by many observers for years. The efforts by the govern- ment to stimulate demand in the short term at any cost increase sta- bility risks in the medium term. For 2018 we anticipate growth of 6.5 % (2017: 6.8 %), as the government, with regard to economic policy, probably will take gradually its foot off the accelerator. MARKETS AND TRENDS 2018 31 TABLES OF FORECASTS IN THE BASELINE SCENARIO 2 32 Helaba Research, November 2017 © Helaba Financial market forecasts MARKETS AND TRENDS 2018 33 Forecast horizon at end … \* 09.11.2017 \*\* target range, average Sources: Bloomberg, Helaba Research in basis points interest rate in % in local currency, % % index price in $ Changes since year end current \* Q1 / 2018 Q2 / 2018 Q3 / 2018 Q4 / 2018 ECB deposit facility rate 0 - 0.40 - 0.40 - 0.40 - 0.40 - 0.40 Repo rate 0 0.00 0.00 0.00 0.00 0.00 Overnight rate Eonia - 3 - 0.36 - 0.35 - 0.35 - 0.35 - 0.35 3M Euribor -1 - 0.33 - 0.30 - 0.30 - 0.30 - 0.25 6M Euribor - 6 - 0.28 - 0.25 - 0.25 - 0.25 - 0.20 12M Euribor -11 - 0.19 - 0.20 - 0.20 - 0.15 - 0.10 2-yr Bunds 2 - 0.75 - 0.70 - 0.60 - 0.60 - 0.50 5-yr Bunds 18 - 0.35 - 0.30 - 0.20 - 0.20 0.00 10-yr Bunds 17 0.38 0.70 0.80 0.80 1.00 2-yr swap rate - 4 - 0.20 - 0.20 - 0.10 - 0.10 0.00 5-yr swap rate 12 0.20 0.25 0.35 0.35 0.50 10-yr swap rate 18 0.84 1.10 1.15 1.15 1.30 30-yr swap rate 32 1.56 1.70 1.75 1.75 1.85 Federal funds rate\*\* 50 1.13 1.63 1.88 1.88 2.13 3M USD Libor 41 1.41 1.90 2.15 2.15 2.40 10-yr US-Treasuries -10 2.34 2.60 2.80 2.80 3.00 DAX 14.8 13,183 12,800 12,500 11,500 12,300 EURO STOXX 50 9.8 3,613 3,500 3,450 3,200 3,400 Dow Jones 18.7 23,462 23,000 22,500 21,000 22,000 S&amp;P 500 15.4 2,585 2,530 2,450 2,300 2,400 Nikkei 225 19.6 22,869 22,000 21,500 20,000 21,000 Brent crude $ / bbl 12.5 64 60 62 59 60 Gold $ / oz 10.9 1,284 1,360 1,370 1,400 1,420 Currency forecasts 34 Helaba Research, November 2017 © Helaba Forecast horizon at end … \* 09.11.2017 Sources: Bloomberg, Helaba Research vs. USD, % vs. Euro, % vs. USD, % exchange rate exchange rate exchange rate Performance year to date current\* Q1 / 2018 Q2 / 2018 Q3 / 2018 Q4 / 2018 vs. Euro US dollar - 9.7 1.16 1.10 1.15 1.15 1.20 Japanese yen - 6.9 132 127 125 125 128 British pound - 3.6 0.89 0.85 0.90 0.90 0.85 Swiss franc - 7.3 1.16 1.12 1.15 1.17 1.15 Canadian dollar - 4.3 1.48 1.44 1.50 1.47 1.51 Australian dollar - 3.7 1.52 1.47 1.49 1.47 1.50 Swedish krona -1.8 9.75 9.50 9.40 9.20 9.00 Norwegian krone - 4.0 9.47 9.10 9.00 8.90 8.80 Chinese yuan - 5.0 7.72 7.48 7.88 7.88 8.16 vs. US-Dollar Japanese yen 3.1 113 115 109 109 107 Swiss franc 2.5 0.99 1.02 1.00 1.02 0.96 Canadian dollar 6.0 1.27 1.31 1.30 1.28 1.26 Swedish krona 8.7 8.38 8.64 8.17 8.00 7.50 Norwegian krone 6.2 8.13 8.27 7.83 7.74 7.33 Chinese yuan 4.6 6.64 6.80 6.85 6.85 6.80 US-Dollar vs. … British pound 6.5 1.31 1.29 1.28 1.28 1.41 Australian dollar 6.5 0.77 0.75 0.77 0.78 0.80 Gross domestic product, inﬂation, budget deﬁcit Gross domestic product real change, % yoy Consumer prices Change, % yoy Budget deﬁcit % of GDP 2016 2017e 2018f 2019f 2016 2017e 2018f 2019f 2016 2017e 2018f 2019f Euro area 1.8 2.3 2.0 1.7 0.2 1.5 1.6 1.7 -1.5 - 1.2 - 1.0 - 0.9 Germany 1.9 2.5 2.0 1.7 0.5 1.7 1.8 2.0 0.8 0.8 0.7 0.6 France 1.1 1.8 1.8 1.6 0.3 1.2 1.4 1.6 - 3.4 - 3.0 - 2.8 - 2.7 Italy 1.1 1.6 1.5 1.3 - 0.1 1.4 1.3 1.4 - 2.5 - 2.3 - 2.1 - 2.1 Spain 3.3 3.1 2.8 2.2 - 0.3 2.0 1.6 1.7 - 4.5 - 3.3 - 2.4 -1.7 Netherlands 2.1 3.3 2.3 2.1 0.1 1.3 1.5 1.7 0.4 0.6 0.5 0.7 Austria 1.5 2.8 2.2 2.0 0.9 2.2 2.2 2.1 -1.6 -1.2 -1.1 -1.0 Greece - 0.2 1.2 2.0 2.0 0.0 1.2 1.0 1.5 0.5 -1.2 - 0.5 - 0.8 Portugal 1.5 2.4 2.0 1.8 0.6 1.5 1.4 1.5 - 2.0 -1.5 -1.4 -1.4 Ireland 5.1 4.0 3.5 3.0 - 0.2 0.3 1.2 1.5 - 0.6 - 0.3 - 0.2 0.0 Great Britain 1.8 1.5 1.0 1.4 0.6 2.7 2.4 2.0 - 2.9 - 2.5 - 2.5 - 2.5 Switzerland 1.4 0.7 1.5 1.3 - 0.4 0.5 0.7 1.2 0.1 - 0.1 - 0.1 0.0 Sweden 3.3 3.1 2.5 2.4 1.0 1.7 1.8 1.8 0.9 0.8 0.7 0.6 Norway 1.1 1.9 2.2 2.0 3.6 2.2 2.2 2.0 3.0 4.2 3.8 3.6 Poland 2.9 4.1 3.5 3.3 - 0.6 1.9 2.4 2.3 - 2.5 - 2.0 - 2.2 - 2.3 Hungary 2.2 3.7 3.3 2.5 0.4 2.4 3.0 2.7 -1.9 - 2.3 - 2.5 - 2.3 Czech Republic 2.6 4.5 3.0 2.8 0.7 2.5 2.3 2.2 0.7 1.0 0.7 0.5 Russia - 0.2 1.9 1.8 1.7 7.0 3.8 4.0 4.7 - 3.4 - 2.1 -1.3 -1.1 United States 1.5 2.2 2.5 2.0 1.3 2.1 2.4 2.5 - 3.9 - 3.9 - 5.0 - 4.7 Japan 1.0 1.6 1.2 1.0 - 0.1 0.4 0.6 1.0 - 4.6 - 4.5 - 5.0 - 5.3 Asia ex Japan 5.4 5.3 5.0 5.2 2.7 2.4 2.6 3.0 - 3.0 - 3.1 - 3.5 - 3.4 China 6.7 6.8 6.5 6.3 2.1 1.5 2.0 2.2 - 3.7 - 4.0 - 4.5 - 4.5 India 7.1 6.7 7.2 7.5 4.9 3.3 4.4 4.8 - 3.5 - 3.2 - 3.2 - 3.0 Latin America - 0.7 1.2 2.0 2.2 19.5 19.0 19.5 17.0 - 4.9 - 4.2 - 3.0 - 2.0 Brazil - 3.6 0.7 2.0 2.3 8.7 3.0 3.5 4.2 - 6.4 - 8.0 - 7.0 - 5.7 World 2.9 3.4 3.4 3.3 3.6 3.9 4.1 4.0 – – – – Sources: EIU, Macrobond, Datastream, Helaba Research GDP growth working day adjusted if available; e = estimate, f = forecast MARKETS AND TRENDS 2018 35 RUIN (10 %) 3 36 Helaba Research, November 2017 © Helaba In our negative alternative scenario “ruin”, structural weaknesses pave the way to a global downturn. Distri- bution conﬂicts increase. Politics react with protectionism; globalisation and international trade are pushed back. Investment activity suffers under economic and political uncertainty. Under threat of job losses, house- holds reduce their consumption. Due to its export quota of almost 50 %, Germany is particularly strongly affected by the global economic downturn. Investment activity is also encumbered by this. Germany slides into a recession. The downward trend extends to the European Union, meaning that the unresolved structural problems of the currency union once again emerge with force. In this environment, the conversion of the European institu- tions into a community of competi- tion fails. Investors are looking for security and ﬂee from risk assets into the “safe haven” of treasuries and gov- ernment bonds. During this process, 10-year US treasuries fall to 1 %, whilst yields on 10-year German government bonds plunge towards the -1 % mark. Gold and the US dollar, in these times of high uncertainty, live up to their reputation as crisis-proof cur- rencies. Gold once again approach- es its old peak of over 1,900 US dollars per ounce. The euro-dollar exchange rate falls to 0.90. The now highly valued real estate market proves to be vulnerable to corrections. Risk aversion rises rap- idly and causes signiﬁcant valuation discounts on shares. The DAX crashes towards the 8,000-point mark. Ruin (10 %) Alternative scenario MARKETS AND TRENDS 2018 37 PALACE (20 %) 4 38 Helaba Research, November 2017 © Helaba In our positive alternative scenario “palace”, the global economy reach- es an impressive level of growth. Brisk trade and investment activi- ties, as well as progress in produc- tivity, open up new possibilities. In this environment, the conversion of the European Union into a commu- nity of competition is successful. China and Russia generate crucial growth stimulus in 2018. The Peo- ple’s Republic of China tackles its excess capacity in heavy industry and launches a new investment cy- cle. Both European and Russian companies and consumers beneﬁt from the abolition of sanctions against Russia. Among the industrialised coun- tries, the USA leads growth with almost 4 %. Germany beneﬁts from stronger global trade and achieves a rate of expansion of around 3 %. Progress in productivity makes Eu- ropeans competitive on the global markets. All of the countries in the euro area grow strongly. As a result of high growth levels, inﬂation increases signiﬁcantly above the central banks’ stated goal of 2 %. The Fed and ECB accelerate the pace of normalisation. The ECB initiates the turnaround of interest rates already in 2018. The bond market experiences massive losses. 10-year US treasuries climb to 4 % and 10-year German govern- ment bonds approach the 2 % mark. The euro-dollar exchange rate reaches 1.30. Corporate earnings grow strongly and the DAX exceeds the threshold of 15,000 points. Real estate loses its relative attraction in light of in- creasing interest rates. However, this effect is compensated by the considerably better situation on the rental markets. Palace (20 %) Alternative scenario MARKETS AND TRENDS 2018 39 Imprint Published by Helaba Landesbank Hessen-Thüringen Research Dr. Gertrud R. Traud Chief Economist / Head of Research Editors Dr. Stefan Mitropoulos, Barbara Bahadori MAIN TOWER Neue Mainzer Straße 52 – 58 60311 Frankfurt am Main Germany Phone: +49 69 / 91 32-01 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 is based on sources that we consider reliable, though we cannot assume any responsibility for the sources being accurate, complete, and up-to-date. 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 Getty Images: p. 22, SG Hirst / Creative iStock: p. 7, p. 36, Vladimir\_n; p.14, Wikoski; p.18, Hayatikayhan; p. 21, Matthew71; p. 23, Stellalevi; p. 24, SolStock; p. 25, MartinPBGV; p. 26, Dvoevnore; p. 27, Track5; p. 28, 97; p. 29, zhz\_akey; p. 30 – 33, tomazl Masterﬁle: p.17, © BlendImages MyZeil: p. 38 – 39, Operation Desk MyZeil Plainpicture: p. 7, p. 34, Clair Dorn Shutterstock: Cover, hxdbzxy; p. 6, p. 8, hxdbzxy; p. 20, Ravil Sayfullin Authors Christian Apelt Barbara Bahadori Ulrike Bischoff Patrick Boldt Marion Dezenter Patrick Franke Ulrich Kirschner Dr. Susanne E. Knips Ulf Krauss Sabrina Miehs Dr. Stefan Mitropoulos Dr. Stefan Mütze Heinrich Peters Ulrich Rathfelder Stefan Rausch Markus Reinwand Dr. Gertrud R. Traud Ralf Umlauf Claudia Windt 40 Helaba Research, November 2017 © Helaba 41 MARKETS AND TRENDS 2018 BY THOSE WHO DARE TO DREAM IT. A NEW CITY IS BUILT DANILO DOLCI (1924 – 1997) Helaba Landesbank Hessen-Thüringen MAIN TOWER Neue Mainzer Strasse 52 – 58 60311 Frankfurt am Main Germany Phone + 49 69 / 91 32- 01 Bonifaciusstrasse 16 99084 Erfurt Germany Phone + 49 3 61/ 2 17-71 00 www.helaba.de

Global economy already at top Level. Interest rate turnaround in the Eurozone only in 2019. High valuation of the DAX holds significant downside risks.