---
title: "Markets and Trends 2017: The World is Driving Bumper Cars"
url: https://www.helaba.com/en/markets-and-trends-2017-world-driving-bumper-cars
type: dd_research
language: en
updated: 2026-09-28
keywords: Kapitalmärkte im Überblick, Kapitalmarktausblick, Markets and Trends
---

# Markets and Trends 2017: The World is Driving Bumper Cars

MARKETS AND TRENDS 2017 The World is Driving Bumper Cars Helaba Research November 2016 15 % GHOST TRAIN 10 % BIG WHEEL 75 % BUMPER CARS A regular feature of funfairs are the bumper cars, where nudg- ing, shoving and shouting expletives are part of the experience. Otherwise, they do not normally involve any serious accidents. This is also true for our baseline scenario this year, the slogan of which is “The World is Driving Bumper Cars”. What was the last thing you experienced at a funfair? EDITORIAL 3 MARKETS AND TRENDS 2017 Dear readers, There are funfairs in almost every region and country. These lively events attract the most diverse char- acters. You can meet old friends, many children and young people and you can get to know complete strangers. You often share a small space in a community of shared destiny with this mixture of people. The funfair, therefore, is a kind of miniature version of the world in which we live. Bumper cars are a standard fixture of every funfair. It definitely takes some skill to navigate quickly among the confusion. Particularly “determined” individuals are not satisfied with gliding with the crowd in an orderly manner. Nudging, shoving and shout- ing expletives are the risks that you are exposed to. No serious accidents usually occur when you are driving bumper cars, though. Dr. Gertrud R. Traud Chief Economist / Head of Research 4 We see parallels here with our base- line scenario this year, whose slogan is “The World is Driving Bumper Cars” and to which we attribute a probability of 75 %. The world econ- omy will move through 2017 at limited speed. Economic activity in the United States will accelerate, the euro area will continue coasting along and even the commodity-exporting countries will move into forward gear again. Bruising election campaigns in the style of juvenile bullying will cause some pushing and shoving on the circuit; however, this will not throw the world economy off course. The oil price reached a trough in the spring of 2016 and, over the course of 2017, will lead to higher inflation rates of up to 1 ½ % in the euro area and 2 ½ % in the United States. This may alarm certain market participants. Accordingly, volatility on bond mar- kets will be high. However, core in- flation rates, which exclude highly volatile energy and food prices, will remain low, especially in the euro area. In 2017, the ECB will stick to its driving style with steering manoeu- vres consisting of bond purchases and negative deposit rates. As long as growth stays strong, equity markets will receive enough electricity in order to make brisk headway. The US Fed will be moving forward very gradually and will attempt to prevent any crashes from happening. It will only increase key rates to a level that does not have any negative impact on financial markets. You will find information pertaining to our alternative scenarios “Ghost Train” and “Big Wheel” at the end of the brochure. 5 MARKETS AND TRENDS 2017 6 Helaba Research, November 2016 © Helaba 1 Editorial 3 Baseline scenario The World is Driving Bumper Cars (75 %) 8 Bond markets: Between hope and trepidation 15 Equities: Enticing returns 17 CON TENT Gold remains an attraction 18 Real estate: The carnival continues 20 US dollar and Swiss franc 21 Euro area and Germany 22 USA: Slowdown overcome 23 United Kingdom: Brexit uncertainty filters through 24 China: A dragon with lockjaw 25 7 MARKETS AND TRENDS 2017 Tables of Forecasts in the Baseline Scenario 26 Financial market forecasts 27 Currency forecasts 28 Gross domestic product, inflation, budget deficit 29 Alternative scenario Ghost Train (15 %) 30 Alternative scenario Big Wheel (10 %) 32 Imprint 34 Editorial date 11 November 2016 2 3 4 BUMPER CARS (75 %) 1 8 Helaba Research, November 2016 © Helaba The World is Driving Bumper Cars (75 %) Baseline scenario In our baseline scenario, to which we attribute a probability of 75 %, the world is driving bumper cars. On a limited track, all countries move forward. With growth of around 3 %, 2017 will see the world economy expanding slightly more strongly than in 2016 (2.7 %). Negative impacts from emerging econo mies – primarily Brazil and Russia – will taper off. The United States will pick up speed once again. The election of Donald Trump as US President, though, is associated with a degree of uncertainty, which will make the driving floor appear somewhat bumpier. Despite this, growth rates in the United States, at 2 ¼ %, as well as in the euro area, at about 1 ½ %, will be above their respective potentials. In China, the trend towards a slowdown in economic growth will continue. 9 MARKETS AND TRENDS 2017 There are not expected to be any major global cyclical fluctuations. The main reason for this is a change in the composition of growth in the important economic regions: Overall economic expansion will be supported by consumer spending, a factor that is traditionally not very volatile. Capi- tal expenditure, which led to enor- mous spikes both on the up and downsides in past cycles, will remain rather subdued. Deflationary zone to be left behind Globally, inflation has been in retreat for decades. This trend towards disin- flation accelerated at the beginning of 2016 due to a fall in commodity prices. In the meantime, however this process has come to a standstill and consumer price inflation is in a phase of bottoming out. Excess capacity that still exists in the industrial sectors of many countries will continue to Selected Forecasts 2017 Germany GDP growth, % 1.5 Inflation, % 1.4 Q1 – Q4: 3M Euribor, % -0.30 -0.30 -0.30 -0.30 10-yr Bunds, % 0.25 0.35 0.35 0.50 DAX 11,300 11,600 11,800 12,000 Source: Helaba Research United States GDP growth, % 2.2 Inflation, % 2.2 Q1 – Q4: Federal funds rate (average), % 0.63 0.63 0.63 0.88 10-yr Treasuries 2.10 2.30 2.30 2.40 S & P 500 2,200 2,230 2,270 2,300 10 Helaba Research, November 2016 © Helaba prevent any sustained jumps in infla- tion in 2017 as well. Furthermore, in the euro area, a rela- tively high unemployment rate will put a brake on wage rises, and even in countries with full employment, such as the United States, only limited pressure on earnings has been dis- cernible so far. Overall, inflation will accelerate in 2017, both in the United States as well as in the euro area. Nevertheless, this can principally be attributed to base effects in the energy components. In the United States, overall inflation will rise to an average level of just over 2 % over the year and in the euro area to over 1 %. Monetary policy to remain loose The central banks will stick to their low interest rate policies, albeit to varying degrees. The US Fed very rapidly expanded the classic toolkit to combat the crisis by unconven- tional measures and thus entered into unknown territory. Now it is find- ing it much more difficult to reverse the expansionary measures. Since the end of the bond purchase pro- gramme more than two years ago, it has only brought itself to make one interest rate hike. It will continue with this cautious policy of raising rates. By the end of 2017, we anticipate two further interest rate rises. In the course of its crisis manage- ment, the ECB considerably extend- ed the radius of monetary policy ac- tion. Currently, it carries out bond purchases in an amount of EUR 80 billion every month. It is likely to con- tinue this programme until the end of 2017 and, if necessary, even increase Euro area GDP growth 1.4 Inflation, % 1.2 Q1 – Q4: MRO rate, % 0.00 0.00 0.00 0.00 US dollar / euro 1.15 1.15 1.15 1.10 EURO STOXX 50 3,200 3,300 3,350 3,400 11 MARKETS AND TRENDS 2017 the scope of assets eligible for pur- chase. Ultimately, despite an expect- ed increase, inflation will remain be- low the ECB’s target of 2 %. Political events to trigger action Against a backdrop of rather unspec- tacular yet stable economic activity, is it fair to assume that performance on the capital markets in 2017 will be as smooth as it has been up to now? Probably not! Political events will lead to volatility on capital markets. This was already apparent in the context of the British EU referendum as well as the US presidential election. And there are plenty of similar events on the horizon: Before the turn of the year, Italy will be voting on a change to its constitution; in the spring, the Brexit negotiations are likely to kick off; in the Netherlands there are par- liamentary and in France presidential elections; finally, elections to the Ger- man Bundestag will take place in the autumn. Although all of these events could lead to temporary disruptions on financial markets, in our baseline scenario, however, anti-European tendencies will not prevail so that the uncertainty will subside relatively quickly. In our baseline scenario “Bumper Cars”, political events do not end in a massive pile-up on the financial markets. In the run-up to the various decisions, however, accidents and collisions may lead to some more minor scrapes. 12 Helaba Research, November 2016 © Helaba Between return opportunities and a need for security In this environment, how should in- vestors position themselves? Tradi- tionally secure asset classes such as government bonds do not offer any appreciable return. Sections of the yield curves in advanced countries have slipped into negative territory as a result of extreme monetary policy measures. In view of high valuations and rising inflation rates, there will be some temporary uncertainty on bond markets. Thanks to the stable eco- nomic situation and the ECB’s bond purchase programme, euro corporate bonds are relatively well secured. However, even here things are getting progressively more difficult. In contrast, demand for real estate in the existing environment of low interest rates will remain high, espe- cially in view of the fact that conserv- ative investor groups’ hands are tied by regulation, preventing larger invest- ments in high-risk asset classes. In our baseline scenario, the risk appetite of investors will increase – also thanks to a growing confidence in the stability of the global economy. Among classic investments, equities are currently the most attractively priced. The risk premium, in other words the expected return above the risk-free rate, is still at a dispro- portionately high level in contrast to many other investment classes. A return to the historic average will offer attractive potential. Together with real estate, they should be over- weighted in a balanced portfolio. 13 MARKETS AND TRENDS 2017 BILDBEREICH 14 Helaba Research, November 2016 © Helaba Fixed-income securities: No family pricing Due to the extreme nature of monetary policy, the pressure on institutional investors to invest is immense. The proportion of German bonds that carry a negative yield had reached 62 % at the beginning of November, that of German government bonds was 76 %. Even in the euro area, the volume of all “negative” bonds in circulation, at 44 %, is remarkably high. As long as inflation remained near to zero, in real terms the losses incurred by investors were limited. However, if the average over the year should climb in 2017, our estimate for the euro area is 1.2 %, then the situation in terms of valuation will be all the more difficult. Bunds: Farewell to negative territory! What investors really want are higher coupons. However, they are afraid that choppy waters will lead to a crash. Naturally, borrowers want to retain their The yield on 10-year Bunds has been hovering around the zero-percent mark since the middle of 2016. Despite relatively robust economic growth and higher inflation, no turnaround in interest rates can be expected from the ECB in 2017. On the contrary, it is likely to press ahead with its bond buying programme. Bond markets: Between hope and trepidation 15 MARKETS AND TRENDS 2017 favourable refinancing conditions. A much wider spread in the yield curve could offer a compromise solution: Initially, in view of stable key rates in the euro area, only little will change in the short maturity segment. Everyone whose debts are due for prolongation will continue to enjoy very cheap short-term finance. If you want planning security, this will cost more than before, however. By con- trast, on the investment side, slightly higher yields on longer maturities will provide some relief. The chances are good that the yield on 10-year Bunds will bid farewell to negative territory for good (spread 0 % to 1 %). 10-year US Treasuries are likely to oscillate between 1 ¾ % and 3 %. Covered bonds: Strong demand The low interest rate environment continues to leave many issuers with no choice: Issues with positive yields will probably only be possible on longer maturities for the time being. Only a small number of issues in the short to medium-term maturity segment can be expected to offer positive yields, at best. However, demand will remain strong. After all, these securities are pre- ferred by banks and insurance com- panies due to their low risk weighting. Banks are even permitted to include them in the liquidity reserve they are required to hold. In addition, covered bonds, especially the Pfandbrief, have proven themselves to be resil- ient to crises and should therefore always form part of every risk-averse portfolio. Although low yields, especially if they turn negative, could reduce the waiting time a bit, the queues at the covered bond primary market dodgem would still be long: After all, the ECB, which is constantly in the driving seat, is going to claim around 40 % of available places – i. e. euro- denominated benchmark issues eligible for purchase for itself soon. 16 Helaba Research, November 2016 © Helaba Equities: Enticing returns While there is no return without risk, there is a lot of risk without return. Among classic investments, equities are the only ones that still offer an above-average risk premium. Ammunition already used up on US stocks? Despite declining corporate profits, US stocks managed to reach all-time highs in 2016. For one thing, they were supported by the Federal Re- serve. For another, companies pur- sued shareholder-friendly policies in the form of massive share buybacks and handsome dividend payouts. However, this advantage will shrink as US Treasuries offer somewhat higher returns. On top of that, the valuation of US blue chips is already rather high. More winners in the euro equities tombola In contrast to US equities, the DAX and EURO STOXX 50 had tempo- rarily lost around 30 % of their value by February 2016 compared to their peaks in April 2015. Measured against previous bear markets, how- ever, the correction was somewhat moderate and did not, as is usually the case, lead to an undervaluation of equities. Both the DAX and the EURO STOXX 50 only fell back to their fair values. Thus, the current recovery is also likely to be below average in relation to historic patterns. We assume that the DAX will remain within a P / E ratio range of between 10.5 and 13. An improvement in the leading economic indicators and the outlook for corporate profits will open up room for a moderate rise in valuation. In addition to this, supply / demand conditions also favour equities. This is in no small measure due to the fact that, as a result of the ECB’s monetary policy, which remains extremely loose, the demand for investments that generate return is already outstripping supply anyway. The inference, then, for the DAX is a corridor of between 9,500 and 12,500 points in 2017. 17 MARKETS AND TRENDS 2017 18 Helaba Research, November 2016 © Helaba Gold remains an attraction Gold performed strongly in 2016 vis-à-vis almost all major currencies. Clearly, the notion that gold is the real money is becoming increasingly popular. Negative interest rates at the same time as ever increasing levels of debt add to the impression of a trend towards a monetary sys- tem that may severely impinge on individual freedom. Thus, demand for gold, also as a potential means of exchange and payment, may well grow even further. Still on the ascendency in 2017 Gold will probably continue to be a sought-after hedging instrument in 2017 as well, especially since pricing on asset markets remains distorted by unconventional monetary policy and the risk of staggered corrections is rising. Thus, physical demand by the large gold funds will grow further after an initial surge in 2016. Because central banks, with an eye to the sol- vency of many borrowers, are hardly likely to allow interest rates to rise significantly, as long as inflation picks up the low level of real interest rates should also support the gold price. Regardless of the outcome of indi- vidual elections, at the end of the day political uncertainty will nevertheless be high across the globe. The risk / return ratio of the yellow metal remains attractive. The specu- lative overheating on the futures markets noticeably declined over the course of 2016. Nonetheless, further interim corrections and a certain susceptibility to short-term volatility can be expected. While a gold price of up to 1,200 US dollar per troy ounce appears to be a very safe prospect, it has the potential to rise up to around 1,450 US dollars per troy ounce in 2017. Ultimately, it is important to bear in mind that gold is more suited for asset preser- vation rather than for pursuing tactical goals. 19 MARKETS AND TRENDS 2017 Real estate: The carnival continues With persistently low interest rates in 2017, demand for “bricks and mortar” will remain high. Since it is becoming increasingly difficult for investors to find attractive properties, the trend towards rising real estate prices will continue. For 2017, we anticipate slightly better annual performance on average for investable open-ended real estate funds of just about 3 %. In the first eight months of 2016, cash inflows were very high but have been declin- ing significantly since June. It appears that measures taken by investment funds to limit cash inflows are gradu- ally making themselves felt. In 2017, it does not look as if there will be an end to price increases in German residential properties. Demand remains strong, particularly in the urban centres. Sustained immi- gration, albeit no longer on the very high level of 2015, as well as a marked internal migration, militate in favour of this development. In addition, construction activity has been too slow in reacting. Although the number of completed dwellings should break through the 300,000-unit mark in 2017, in view of a requirement of an estimated 350,000 to 400,000 units a year, it is still too low. This should mean that house prices will rise in a similar way to previous years. Fuelled by fundamental factors and low interest rates, the German resi- dential housing market will continue to boom; a strong expansion in lend- ing, an intrinsic element of a real estate bubble, is absent. However, certain submarkets are already notably overvalued. 20 Helaba Research, November 2016 © Helaba US dollar and Swiss franc US growth should gain the upper hand once again in 2017 compared to the euro area. This will also be reflected in monetary policy: While the ECB will push ahead with its bond-buying programme, the Federal Reserve will cautiously raise its key rate. These diverging measures should result in the US yield advantage grow- ing somewhat and thus support the greenback. However, the US currency is clearly overvalued. In relation to purchasing power the euro-dollar rate is only marginally above its lows of 2000 / 2001. Changes in US politics harbour risks for the greenback. Under a Trump administration, the US budget deficit will presumably expand considerably, which should have a fundamentally negative effect on the US dollar. Fur- thermore, the ostensibly protectionist attitude of the new US government will tend to militate against their own currency. However, with no interest rate hikes on the horizon, the poten- tial for the euro is limited. Phases of political uncertainty in Europe, in view of pending elections, as well as the planned negotiations over the British exit from the EU, may put pressure on the euro. Nevertheless, the euro-dollar rate should tend more towards the upper end of the band, which will continue to exist, of 1.05 to 1.15 in 2017. In 2017, the Swiss economy should grow by 1.3 %. Inflation will see a slight rise into positive territory, with- out giving the central bank any cause for concern. The euro area will prob- ably not provide any impulses that would put any severe pressure on the euro against the Swiss franc. Thus, the central bank should manage to keep its own currency under control. Ultimately, the euro-franc rate should therefore remain within a range of 1.08 to 1.10 in 2017, too. 21 MARKETS AND TRENDS 2017 Euro area and Germany The euro area will see solid growth in 2017 of 1,4 %. The enormous gulf between countries is still a problem. The reasons for anaemic growth in certain countries are of a structural nature, so that there is no way of get- ting around the bitter pill of further reforms. Consumption drives growth At 1.5 % in 2017, Germany will grow close to its potential, with consump- tion continuing to act as a primary catalyst. Wage rises, pension adjust- ments and a further increase in em- ployment will ensure that consumer spending remains buoyant. A rise in consumer price inflation to a rate of around 1 ½ % will have a dampening effect. Government consumption expenditure has become an additional support for growth. This component is responsible for almost a fifth of gross domestic product. Growth in German exports to the rest of the euro area is likely to remain sub- dued. Brexit will have a negative im- pact on trade relations with the United Kingdom. Changes to external trade policy in the United States could have a similar effect. The gradual recovery in important emerging market coun- tries, however, will also provide oppor- tunities. Investment in residential housing has been expanding at an above-average rate for many years already. However, non-residential construction has been stagnating. The recent positive trend in new orders for commercial and public sector construction, though, suggests a gradual improvement through 2017. Equipment investment is rising at a moderate rate. Political uncertainties and a hitherto average level of capacity utilisation, at the same time as pressure on consumer prices continues to grow, will put a brake on capital formation. 22 Helaba Volkswirtschaft / Research, November 2016 © Helaba it is likely that there will be corporate tax reform, we do not expect this to lead to any significant impulses for investment. Federal budget deficits will increase over the next few years. Economic growth will amount to around 2 ¼ % in 2017 and will thus be stronger than in 2016 (1.6 %). Inflation should be noticeably higher in 2017, at 2.2 %, than the 1.2 % it reached in 2016. With two interest rate hikes by the end of 2017, the Fed will only very gradually exit from its expansionary monetary policy stance. USA: Slowdown overcome As president, Donald Trump will influence the macroeconomic out- look for 2017 in two principal areas: trade and fiscal policy. Although other policy spheres, such as dereg- ulation, social or energy policy, are also relevant from an economic perspective, their effects will be delayed. Even in the absence of a genuine trade war with China or Mexico, tariffs or other trade restrictions will result in rising prices and US external trade will suffer as a result. These dampening factors will be partially compensated for by a more expansionary fiscal policy. The chances of significant tax reductions in 2017 / 2018 are better with a Republican-controlled Con- gress than those of a large stimulus programme. The cut in personal income taxes announced by Trump and the abolition of inheritance tax, however, will mainly help top-tier earners and therefore only boost demand to a limited extent. Although 23 MARKETS AND TRENDS 2017 United Kingdom: Brexit uncertainty filtersthrough Investment is the main casualty of political uncertainty after the Brexit- vote. Faced with an unclear situation, many companies do not have any security in planning with respect to European single market access. This will also gradually have a negative impact on the labour market. In addi- tion, real incomes are under pressure because the depre ciation of sterling has made imports more expensive and thus lifted inflation. Growth in consumer spending is slowing down. External trade will probably provide a positive contribution, albeit this has more to do with a reduced level of imports than with any increase in exports. Even if the British economy does not descend into an outright recession, there will be a marked slowdown in growth. Growth of gross domestic product should halve in 2017 to around 1 %. Apart from the depreciation of the pound sterling, energy prices should generate inflationary pressure. Inflation will climb in 2017 to approximately 2.5 %. Despite this, the Bank of Eng- land may slightly reduce the bank rate once again due to weaker eco- nomic activity. Together with bond purchases, this should support Brit- ish bonds. After its sharp fall, the pound sterling will probably only come under temporary pressure. Agreement over the exit from the EU is not likely to emerge until the latter half of 2018 at the earliest. However, there is a significant risk that, in the absence of a settlement or of the nec- essary majorities in the EU, the parties will go their separate ways in “conflict”. It is less likely that the British will man- age to negotiate terms that are mainly advantageous to them, in other words to “pick the cherries”. 24 Helaba Research, November 2016 © Helaba United Kingdom: Brexit uncertainty filtersthrough China: A dragon with lockjaw With an estimated growth rate of 6.5 % in 2016, China is once again one of the frontrunners among the major economies. The panic attack on the markets around a year ago turned out to be unwarranted. Currently, according to official statis- tics a considerable gap is opening up between private investment and that of state-controlled companies – unfortunately in the wrong direction. While growth in private capital invest- ment is constantly declining, the state- owned enterprises are yet again the ones who are moving up a gear. As so often in China, though, these data should be taken with a pinch of salt, however. One area in which investment activity is booming is residential housing construction. In view of rising real estate prices, especially in the large cities, and an absence of diversified investment alternatives for people’s own retirement, buying into “bricks and mortar” is almost mandatory for many households. However, relatively low loan-to-value ratios and the im- portant role of (quasi) state banks in lending, suggest that a correction would be less critical than was the case in the United States in 2007 / 2008. The government is not going to take any risks before the party congress in the autumn of 2017 and will support growth with expansionary fiscal pol- icy and additional lending. However, the exchange rate will most likely play a lesser role. The yuan will probably only see minor depreciation in 2017 as well. Overall, this should be suffi- cient in ensuring that China achieves an annual growth rate in 2017 of 5.8 %, although its potential in the medium term is probably around 5 %. 25 MARKETS AND TRENDS 2017 TABLES OF FORECASTS IN THE BASELINE SCENARIO 2 26 Helaba Research, November 2016 © Helaba Financial market forecasts Forecast horizon at end … \* 10.11.2016 \*\* average Sources: Bloomberg, Helaba Research in basis points interest rate in % in local currency, % % index price in $ Changes since year end current \* Q1 / 2017 Q2 / 2017 Q3 / 2017 Q4 / 2017 ECB deposit facility rate -10 -0.40 -0.40 -0.40 -0.40 -0.40 MRO rate -5 0.00 0.00 0.00 0.00 0.00 Overnight rate Eonia -23 -0.35 -0.35 -0.35 -0.35 -0.35 3M Euribor -18 -0.31 -0.30 -0.30 -0.30 -0.30 6M Euribor -17 -0.21 -0.20 -0.20 -0.20 -0.20 12M Euribor -13 -0.07 -0.05 -0.05 -0.05 0.00 2-yr Bunds -27 -0.62 -0.65 -0.60 -0.60 -0.45 5-yr Bunds -32 -0.37 -0.35 -0.25 -0.25 -0.15 10-yr Bunds -36 0.27 0.25 0.35 0.35 0.50 2-yr swap rate -11 -0.14 -0.15 -0.10 -0.10 0.05 5-yr swap rate -21 0.12 0.10 0.20 0.20 0.30 10-yr swap rate -33 0.67 0.70 0.80 0.80 0.90 30-yr swap rate -42 1.19 1.20 1.30 1.30 1.40 Federal funds rate \*\* 0 0.38 0.63 0.63 0.63 0.88 3M USD Libor 27 0.89 0.90 0.90 0.90 1.15 10-yr US-Treasuries -12 2.15 2.10 2.30 2.30 2.40 DAX -1.1 10,630 11,300 11,600 11,800 12,000 EURO STOXX 50 -6.8 3,047 3,200 3,300 3,350 3,400 Dow Jones 7.9 18,808 19,200 19,500 19,800 20,000 S&P 500 6.0 2,167 2,200 2,230 2,270 2,300 Nikkei 225 -8.9 17,344 18,000 18,500 19,000 19,500 Brent crude $ / bbl 23.0 46 50 52 50 53 Gold $ / oz 18.6 1,259 1,400 1,450 1,500 1,450 27 MARKETS AND TRENDS 2017 Currency forecasts Forecast horizon at end … \* 10.11.2016 Sources: Bloomberg, Helaba Research vs. USD, % vs. Euro, % vs. USD, % exchange rate exchange rate exchange rate Performance year to date current \* Q1 / 2017 Q2 / 2017 Q3 / 2017 Q4 / 2017 vs. Euro US dollar -0.3 1.09 1.15 1.15 1.15 1.10 Japanese yen 12.3 116 115 115 121 115 British pound -15.1 0.87 0.90 0.90 0.90 0.85 Swiss franc 1.2 1.07 1.08 1.08 1.10 1.10 Canadian dollar 2.5 1.47 1.55 1.53 1.52 1.49 Australian dollar 4.2 1.43 1.53 1.49 1.47 1.45 Swedish krona -6.9 9.85 9.30 9.20 9.10 9.00 Norwegian krone 5.5 9.11 8.90 8.90 8.80 8.70 Chinese yuan -4.4 7.42 7.94 7.94 7.99 7.70 vs. US-Dollar Japanese yen 12.5 107 100 100 105 105 Swiss franc 1.6 0.99 0.94 0.94 0.96 1.00 Canadian dollar 2.7 1.35 1.35 1.33 1.32 1.35 Swedish krona -6.6 9.04 8.09 8.00 7.91 8.18 Norwegian krone 5.7 8.37 7.74 7.74 7.65 7.91 Chinese yuan -4.6 6.81 6.90 6.90 6.95 7.00 US-Dollar vs. … British pound -14.8 1.26 1.28 1.28 1.28 1.29 Australian dollar 4.5 0.76 0.75 0.77 0.78 0.76 28 Helaba Research, November 2016 © Helaba Gross domestic product, inflation,budgetdeficit Gross domestic product real change, % yoy Consumer prices Change, % yoy Budget defi cit % of GDP 2015 2016e 2017f 2018f 2015 2016e 2017f 2018f 2015 2016e 2017f 2018f Euro area 1.9 1.6 1.4 1.4 0.0 0.2 1.2 1.4 -2.1 -1.8 -1.7 -1.5 Germany 1.5 1.8 1.5 1.4 0.3 0.4 1.4 1.5 0.7 0.5 0.3 0.3 France 1.2 1.2 1.2 1.3 0.1 0.3 1.2 1.4 -3.5 -3.3 -3.0 -2.7 Italy 0.6 0.8 1.1 1.2 0.1 0.0 1.1 1.2 -2.6 -2.4 -2.4 -2.1 Spain 3.2 3.2 2.5 2.1 -0.6 -0.4 1.1 1.3 -5.1 -4.6 -3.8 -3.3 Netherlands 2.0 1.7 1.5 1.7 0.2 0.2 0.9 1.2 -1.9 -1.2 -1.0 -0.8 Austria 1.0 1.5 1.3 1.4 0.9 1.1 1.5 1.7 -1.0 -1.3 -1.4 -1.3 Greece -0.2 -0.7 1.3 1.7 -1.1 0.0 1.0 1.5 -7.5 -3.0 -2.0 -1.0 Portugal 1.6 0.9 1.1 1.4 0.5 0.7 1.1 1.4 -4.4 -4.2 -2.6 -2.1 Ireland 26.3 4.5 3.0 3.2 0.0 0.0 1.0 1.5 -1.9 -1.2 -1.0 -0.5 United Kingdom 2.2 2.0 0.8 1.0 0.1 0.7 2.5 2.2 -4.3 -3.5 -3.5 -3.5 Switzerland 0.8 1.3 1.3 1.3 -1.1 -0.3 0.0 0.5 0.1 0.2 0.0 0.0 Sweden 4.1 3.1 2.4 2.4 0.0 0.9 1.4 1.4 0.0 -0.3 -0.2 0.2 Norway 1.6 1.0 1.5 1.7 2.1 3.5 2.1 2.2 6.4 3.0 3.4 3.6 Poland 3.6 3.0 2.7 3.2 -0.9 -0.6 1.7 1.8 -2.6 -3.1 -2.8 -3.0 Hungary 3.1 2.0 2.5 2.5 -0.1 0.2 1.6 2.4 -2.0 -2.3 -2.5 -2.6 Czech Republic 4.5 2.5 2.4 2.3 0.3 0.6 1.6 2.0 -0.4 0.0 -0.6 -0.7 Russia -3.7 -1.0 0.8 1.3 15.5 7.1 5.5 4.7 -2.4 -3.7 -2.5 -1.4 United States 2.6 1.6 2.2 1.8 0.1 1.2 2.2 2.5 -3.3 -3.5 -4.2 -4.7 Japan 0.6 0.5 0.4 0.3 0.8 -0.3 0.1 0.3 -5.4 -5.0 -7.0 -7.4 Asia ex Japan 5.4 5.1 4.8 4.5 2.5 2.8 2.8 2.8 -2.8 -3.2 -3.6 -3.7 China 6.9 6.5 5.8 5.5 1.5 2.1 1.8 2.0 0.6 -3.0 -5.0 -5.0 India 7.5 7.0 6.9 6.9 4.9 5.5 5.1 5.0 -3.9 -3.8 -3.7 -3.6 Latin America 0.1 -0.5 1.6 2.5 12.6 17.0 14.0 12.5 -3.8 -5.0 -4.7 -2.7 Brazil -3.8 -3.0 0.8 1.5 9.0 8.5 5.5 5.0 -8.4 -6.5 -6.9 -5.5 World 3.0 2.7 3.0 2.9 3.0 3.4 3.5 3.4 – – – – Sources: EIU, Macrobond, Datastream, Helaba Research GDP growth working day adjusted if available; e = estimate, f = forecast 29 MARKETS AND TRENDS 2017 GHOST TRAIN (15 %) 3 30 Helaba Research, November 2016 © Helaba In the negative alternative scenario “Ghost Train”, the global economy is on the precipice of recession. Nu- merous spectres pop up all over the place. Increasing restrictions on free trade act as the trigger for a substan- tial downturn. China is not able to get to grips with the restructuring of its economy and suffers a hard landing. Germany is particularly badly affect- ed by the collapse in global trade. Economic output shrinks in 2017 by around 1 % and unemployment rises significantly. EU sceptic parties win a majority in upcoming elections. More countries hold referenda over exiting the EU. Investors look for safety, fleeing from risky assets into the “safe havens” of Treasuries and Bunds. In the course of this, yields of 10-year US Treasur- ies fall to below 1 % and the yield on 10-year German government bonds sinks even further into negative terri- tory towards the -1 % mark. Gold and the US dollar live up to their reputation as crisis currencies in times of severe uncertainty. Gold once again approaches its previous record highs of over 1,900 US dollars per troy ounce. The euro-dollar rate comes under pressure and falls be- low 0.90. Despite the very low inter- est rates, real estate suffers price corrections. Risk aversion rises enor- mously and leads to considerable downward valuation adjustments for equities. The DAX collapses towards the 6,000-point mark. Ghost Train (15 %) Alternative scenario 31 MARKETS AND TRENDS 2017 BIG WHEEL (10 %) 4 32 Helaba Research, November 2016 © Helaba In our positive alternative scenario “Big Wheel”, global growth continues to accelerate. Spearheaded by a strong investment stimulus, the economy booms. This is reinforced by global trade, which once again sees strong increases. Political un- certainty is pushed into the back- ground. China and Brazil surprise everyone with a strong cyclical recovery in 2017. The United States remains the frontrunner among advanced coun- tries, whose GDP growth rate ap- proaches the 4 %-mark. The euro area is able to increase its growth to at least 2.5 %, with Germany again acting as the economic powerhouse with output growth of around 3 %. Inflation is slightly above the ECB’s target. The Fed increases the pace of inter- est rate hikes slightly. The ECB grad- ually curbs its purchase programmes, but does not initiate a turnaround in interest rates yet. Yields of 10-year US Treasuries rise significantly to over 3 % and 10-year Bund yields come close to the 2 %-mark. The tightening in the US yield advantage drives the euro-dollar rate towards 1.30. A reduction in risk aversion leads to a noticeable rise in valuation. The DAX breaks through the 14,000-mark. In light of rising interest rates, real es- tate loses its relative attractiveness. However, this effect is compensated for by the considerably better situa- tion on rental markets so that negative price reactions fail to materialise. Big Wheel (10 %) Alternative scenario 33 MARKETS AND TRENDS 2017 Imprint Published by Helaba Landesbank Hessen-Thüringen Girozentrale 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 32-20 24 Fax: + 49 69 / 91 32-22 44 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 & Sohn, Maintal, Germany Photo credits AdobeStock: p. 17, © bilderstoeckchen; p. 29, © Johanna Mühlbauer; p. 35, © jasonbatterham F1 Online: Umschlag, p. 8, Gerhard Schoner; p. 30, Jochen Tack / imagebroker Fotolia: p. 6, © pasicevo; p. 20, © Roberto Tanglewood; p. 28, © Manfred Steinbach; iStock: p. 2, susisonnschein1979; p. 14, stocknshares Getty Images: p. 23 © Jessica Carrasquillo / EyeEm Shutterstock: p. 7, Joe Techapanupreeda; p. 7, Nalidsa; p. 18, Luna Vandoorne; p. 21, AForlenza; p. 22, Ewais; p. 24, Patricia Marroquin; p. 25, qingqing; p. 26 – 27, Patricia Marroquin; p. 32, FooTToo Authors Christian Apelt Barbara Bahadori Ulrike Bischoff Marion Dezenter Patrick Franke Ulrich Kirschner Dr. Susanne E. Knips Ulf Krauss Sabrina Miehs Dr. Stefan Mitropoulos Dr. Stefan Mütze Heinrich Peters Stefan Rausch Ulrich Rathfelder Markus Reinwand Dr. Gertrud R. Traud Ralf Umlauf Claudia Windt 34 Helaba Research, November 2016 © Helaba MINIATURE VERSION OF THE WORLD IN WHICH WE LIVE. THE FUNFAIR IS A KIND OF 35 MARKETS AND TRENDS 2017 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 to grow at a slightly higher pace than in the previous year. Inflation fears to put pressure on bonds. Elections will move markets. DAX once again above 12,000 points.