This document summarizes the key themes and discussions from the 5th Chief Economist Debate in 2014. It includes 4 themes: 1) International Environment, 2) Europe's Challenges, 3) Major Challenges of the Belgian Economy, and 4) Financial Markets Outlook. Each theme features a presentation from a different chief economist providing an analysis of the current economic environment and outlook. The event also includes a Q&A session and networking reception.

1. 5TH CHIEF ECONOMIST DEBATE:
2014 – RECOVERY OR NEW BUBBLE?
Theme I:
International Environment - Peter Vanden Houte: Chief Economist, ING
Theme II: Europe's Challenges - Frank Lierman: Chief Economist, Belfius
Theme III: Major Challenges of the Belgian Economy - Edwin De Boeck: Chief Economist, KBC Bank
Theme IV: Financial Markets Outlook - Bart Van Craeynest: Chief Economist, Petercam
Q&A
Moderator - Alain Deneef: Senior Portfolio Manager, Private Banking, Bank Degroof
Networking Reception
28 January 2014
Vlerick Finance Alumni partner:

2. INTERNATIONAL ENVIRONMENT
Peter Vanden Houte
Chief Economist, ING
Vlerick Finance Alumni partner:

3. 2014: Walking on eggshells
Peter Vanden Houte
Chief Economist ING Belgium

4. Western world recovering, emerging countries lagging
US
Eurozone
4

5. US government was a drag on growth
5

6. Debt payments US households have fallen back strongly
6

7. US construction sector continues to boom
7

8. Shale gas remains a game changer
Gas price Europe
Gas price US
8

9. Shale oil is making energy market less tight
9

10. No Fed hike expected in 2014…
• The Committee now anticipates, based on its
assessment of these factors, that it likely will be
appropriate to maintain the current target range for
the federal funds rate well past the time that the
unemployment rate declines below 6-1/2 percent,
especially if projected inflation continues to run
below the Committee's 2 percent longer-run goal
10

11. …but what about 2015?
11

12. US yield curve will steepen in the course of 2014
12

13. Emerging world remains vulnerable
Weak credit
Too much credit
10
8
Average current
account balance
2010-12
(percent of GDP)
Capital
surplus
Malaysia
6
Russia
Philippines
4
China
2
Hungary
Mexico Thailand
0
-2
Chile
Romania
India
South Africa
Poland
Ukraine
-4
-6
Indonesia
Brazil
Colombia
-8
Capital
shortage
Turkey
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
Real credit growth in excess of GDP growth,
average, 2010-12 (percent)
Source:IMF
13

14. Chinese economy is stabilizing
14

15. EUROPE’S CHALLENGES
Frank Lierman
Chief Economist, Belfius
Vlerick Finance Alumni partner:

16. More or less inflation in the euro area?
That’s the question!
Frank Lierman, Chief Economist
Vlerick Finance Alumni
Brussels, January 28, 2014

17. More or less inflation in the euro area?
That’s the question!
1.
2.
3.
4.
17
More than a bottoming out?
Towards deflation?
Social pack as missing link?
Banking Union, the ultimate solution?

18. More or less inflation in the euro area?
That’s the question!
1.
2.
3.
4.
18
More than a bottoming out?
Towards deflation?
Social pack as missing link?
Banking Union, the ultimate solution?

19. 1. More than a bottoming out?
Increased confidence, prelude for economic rebound?
Euro Area
6
120
4
110
2
100
0
90
-2
80
-4
70
-6
60
00
01
02
03
04
05
06
07
Euro Area Economic Sentiment Indicator (Right)
Euro Area GDP (% YoY) (Left)
19
08
09
10
11
12
13

20. 1. More than a bottoming out?
Consumer spending as driving force?
Euro Area
4
5
3
0
2
-5
1
-10
0
-15
-1
-20
-2
-25
-3
-30
-4
-35
-5
-40
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Euro Area Retail trade, except of motor vehicles and motorcycles (MOV 3M, % 1 YR) (Left)
Euro Area Consumer Confidence Indicator (Right)
20
'13

21. 1. More than a bottoming out?
Turnaround of industrial production?
Euro Area
20
86
15
84
10
82
5
80
0
78
-5
76
-10
74
-15
72
-20
70
-25
-30
68
00
01
02
03
04
05
06
Euro Area Capacity Utilization (%) (Right)
Euro Area Industrial Production (% YoY) (Left)
21
07
08
09
10
11
12
13

22. 1. More than a bottoming out?
International trade crucial for sustainable recovery?
Euro Area
15
10
5
0
-5
-10
-15
-20
'02
'03
'04
'05
'06
'07
Euro Area Exports of goods & services (% YoY)
Euro Area Imports of goods & services (% YoY)
22
'08
'09
'10
'11
'12
'13

23. 1. More than a bottoming out?
Ceiling for unemployment in euro area, decrease elsewhere
13
12
11
10
9
8
7
6
5
4
3
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - Euro Area
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa - United Kingdom
Unemployment Rate, Sa - United States
Unemployment Rate, Sa - Japan
23
'11
'12
'13

24. 1. More than a bottoming out?
Sustainable decrease of public deficit?
0
Governm ent Net Lending, As A Percentage Of Gdp - Euro Area
-1
-2
-3
-4
-5
-6
-7
'02
24
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13

25. 1. More than a bottoming out?
Worrying increase of government debt
95
General Governm ent Gros s Debt, % Of Gdp, - Euro Area (17 Countries )
90
85
80
75
70
65
'02
25
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13

26. More or less inflation in the euro area?
That’s the question!
1.
2.
3.
4.
26
More than a bottoming out?
Towards deflation?
Social pack as missing link?
Banking Union, the ultimate solution?

27. 2. Towards deflation?
Inflation on the way to 0%?
4,5
4
3,5
3
2,5
2
1,5
1
0,5
0
-0,5
-1
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
Euro Area Harmonized CPI (% YoY)
Euro Area Core inflation (Overall Index, Excluding Energy and Unprocessed Food) (% YoY)
27
'13

28. 20
10
-0
20 8
10
-1
20 0
10
-1
20 2
11
-0
20 2
11
-0
20 4
11
-0
20 6
11
-0
20 8
11
-1
20 0
11
-1
20 2
12
-0
20 2
12
-0
20 4
12
-0
20 6
12
-0
20 8
12
-1
20 0
12
-1
20 2
13
-0
20 2
13
-0
20 4
13
-0
20 6
13
-0
20 8
13
-1
20 0
13
-1
2
2. Towards deflation?
Underlying inflation decreases also
Onderliggende inflatie
2,5
2
1,5
1
0,5
0
Belgium
België
28
Euro area
Eurozone

29. 2. Towards deflation?
Money supply decreases even in a LTRO’s environment
14
12
10
8
6
4
2
0
-2
00
01
02
03
04
05
06
07
08
Euro Area Grow th Rate M3 (% YoY; 3 Month Moving Average)
29
09
10
11
12
13

30. 2. Towards deflation?
Accelerated decrease of LTRO’s due to reimbursement of banks
30

31. 2. Towards deflation?
Disappointing evolution of credit to the economy (% / year)
20
15
10
5
0
-5
2004
2005
2006
2007
2008
2009
Euro Area Loans to Households (% YoY)
Euro Area Loans To Non-Financial Corporations (% YoY)
31
2010
2011
2012
2013

32. 20
10
-0
20 8
10
-1
20 0
10
-1
20 2
11
-0
20 2
11
-0
20 4
11
-0
20 6
11
-0
20 8
11
-1
20 0
11
-1
20 2
12
-0
20 2
12
-0
20 4
12
-0
20 6
12
-0
20 8
12
-1
20 0
12
-1
20 2
13
-0
20 2
13
-0
20 4
13
-0
20 6
13
-0
20 8
13
-1
20 0
13
-1
2
2. Towards deflation?
Lower energycost is welcome
Energiedragers
20
15
10
5
0
-5
-10
Belgium
België
32
Euro area
Eurozone

33. 2. Towards deflation?
Stagnation of oil price between 100 and 120 USD/Barrel
Crude Oil, Brent ($/bbl) - Clos e
160
140
120
100
80
60
40
20
0
'85
33
'87
'89
'91
'93
'95
'97
'99
'01
'03
'05
'07
'09
'11
'13

34. 2. Towards deflation?
Remarkable strength of euro
1,7
1,6
1,5
1,4
1,3
1,2
1,1
'04
'05
'06
'07
FX Rate - Spot Mid - US Dollar per Euro
34
'08
'09
'10
'11
'12
'13

35. More or less inflation in the euro area?
That’s the question!
1.
2.
3.
4.
35
More than a bottoming out?
Towards deflation?
Social pack as missing link?
Banking Union, the ultimate solution?

36. 3. Social pack as missing link?
German unemployment at bottom, while other countries reached a
ceiling
12
11
10
9
8
7
6
5
4
3
2
'04
'05
'06
'07
'08
'09
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa
Harmonized Unemployment Rate, Both Sexes, All Ages, Sa
36
'10
'11
- Germany
- Netherlands
- France
- Belgium
'12
'13

37. 3. Social pack as missing link?
Increasing and or huge unemployment is often linked to
 Too high fiscal burden
 High employers and personal contributions
 Expensive rules of lay offs
 Inflexible wage negotiations
 Low qualification of workers
 Low employment rate
 Short careers
 …
But also influence of
 Overcapacity of production equipment
 Insufficient internal demand
 Necessity to reduce debt of households
 Increased precautionary savings of households
 Decreased competitiveness
 …
37

38. 3. Social pack as missing link?
Key success factors for a reform
 Limitation of unemployment allowances
 Decrease or at least slower increase of salaries
 Decrease of fiscal and parafiscal burden on labour revenues
 Reduction of employment in public sector
 Increased flexibility
 Active employment policy
 Activation of unemployed people
 Education and training
 Premiums
 Subsidised employment
 …
 Measures to stimulate the creation of companies
38

39. 3. Social pack as missing link?
The European 7 stages plan to reduce youth unemployment
 Employment guarantee (within 4 months after school leave or start
unemployment)
 European Social Fund and European Structural and Investment Fund: 25%
of their capital (80 bn EUR) to invest in human capital
 Initiatives to stimulate employment for youth: 6 bn EUR in 2014 and 2015
 Stimulation of mobility within EU via European Employment Network
 European alliance for trainings, Erasmus+, …
 European labour market via transfer of pension rights, professional
qualifications, rights of mobile workers, …
 Help to SME’s and micro companies to hire young persons via European
Regional Development Fund, EIB (yearly budget of 12,5 bn EUR which
could increase up to 37,5 bn EUR via co financing and indirect credits)
39

40. More or less inflation in the euro area?
That’s the question!
1.
2.
3.
4.
40
More than a bottoming out?
Towards deflation?
Social pack as missing link?
Banking Union, the ultimate solution?

41. 4. Banking Union, the ultimate solution?
Three pillars
 European prudential surveillance
 ECB from November 2014 on
 Assessment of broad risk factors on liquidity and funding
(Winter 2014)
 Asset Quality Review (Spring 2014)
 Stress test (Summer 2014)
 Only for some 130 of the 6000 European banks (85% of euro
area banking systems) (min 30 bn EUR or balance sheet of
more than 20% of GDP or having received state aid)
 Forced recapitalisation: who pays the bill?
 National government
 Private shareholders
 ESM
 …?
41

42. 4. Banking Union, the ultimate solution?
Three pillars (2)
 European resolution mechanism and fund
 Each bank has to prepare recovery plan
 European resolution council (EC, ECB, national surveillance
authorities)
 Resolution fund: 1% of covered deposits via contributions of banks
(up to 2026) (goal 55 bn EUR)
 Resolution mechanism: steps
 8 % of liabilities (equity capital, reserves, unsecured bonds,
deposits above 100.000 EUR)
 National resolution fund
 European resolution fund
 ESM
 National budgets
42

43. 4. Banking Union, the ultimate solution?
Three pillars (3)
 European deposit guarantee
 100.000 euro per individual per bank
 Current, saving and term accounts plus saving bonds
 National funds (0,8% of covered deposits)
 Merger of the national funds in 2026.
43

44. MAJOR CHALLENGES OF THE BELGIAN ECONOMY
Edwin De Boeck
Chief Economist, KBC Bank
Vlerick Finance Alumni partner:

45. Major challenges of the
Belgian economy
Edwin De Boeck
Chief Economist KBC Group
January 28th 2014

46. Financial & economic crisis
Belgium weathered the crisis reasonably well
Real GDP Q4 2007 – Q3 2013
Employment Q4 2007 – Q3 2013
(% change)
(% change)
-25 -20 -15 -10 -5
0
5
10
15
20
-25
Germany
Austria
Belgium
France
EMU
Netherlands
Finland
Spain
Portugal
Ireland
Italy
Greece
46
-20
-15
-10
-5
0
5

47. Marked improvement in sentiment
Moderate recovery in Belgium leading to +/-1.2% growth in 2014
Producer confidence
2.0
(standard deviation from LT-average)
Consumer confidence
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
-2.0
-2.5
Belgium
-2.0
Germany
-2.5
Euro-periphery (*)
-3.0
47
-3.0
(*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain
(standard deviation from LT-average)

48. Long-term potential growth
Estimated at well below 2%
Belgium - Declining trend of productivity growth
Flanders loosing its growth advantage
(GDP per worker, YoY-growth in %)
(regional GDP-growth, in % per year, period averages)
6%
6
Flanders
5
Wallonia
4%
Brussels
4
Euro Area
2%
3
0%
2
-2%
1
-4%
0
1960-73
48
1974-81
1982-89
1990-99
2000-12

49. Still substantial slack in the economy
Wave of unemployment & bankruptcies probably to continue for a while
Unemployment rate
Belgium - Bankruptcies
(harmonized and seasonally adjusted, in %)
22
20
18
16
14
Belgium
France
Germany
Netherlands
Euro-periphery (*)
15
Absolute number (rhs)
Per 1000 active businesses (lhs)
Ratio of new businesses to bankruptcies (lhs)
13000
12000
13
11000
11
10000
12
10
9
8
6
8000
7
7000
4
2
49
9000
5
6000

50. Labour market
Labour mismatch hinders the increase in employment rate
Both a large pool of unfilled job vacancies
and persistent unemployment
Employment rate
(employed people in % population aged 20-64)
2.5
EU2020 Strategy Flanders 76%
EU2020 Strategy Belgium 73.2%
70
65
60
55
50
Flanders
Wallonia
Brussels
Belgium
Job vacancy rate
(unfilled vacancies as a % labour force)
75
2
1.5
2005
2000
1
1970
0.5
1995
1985
1990
1975
1982
0
1
50
2012
Beveridge curve
Belgium
2
3
4
5
6
7
8
9
Unemployment rate
(unemployed as a % labour force)
10 11 12

51. External position
Deterioration of cost competitiveness…
Relative unit labour costs
Current account balance
(vs. EU-15, 2005 = 100)
(in % of GDP)
8
120
6
Devaluation BEF
115
4
2
110
0
105
-2
-4
100
-6
Germany
-8
Euro-periphery (*)
95
Belgium
-10
90
51
(*) Euro-periphery = Portugal, Ireland, Italy, Greece & Spain
Introduction
‘health index’
???

52. Industrial activity
…adds to the process of desindustrialisation
Share manufacturing sector
(excluding construction & energy, in % of GDP)
25%
45
Share manufacturing sector
(including construction & energy, in % of GDP)
40
22%
35
30
25
19%
20
190
16%
Belgium
Germany
Employment in manufacturing
(2000 = 100)
160
Flanders
130
100
13%
70
52
Wallonia

53. Public finances
Fiscal consolidation has been ‘back-loaded’
Projected structural budget balance
Budgetary consolidation
(in % of GDP)
(structural effort, as a % of GDP)
2
6
1.25
1.0
1
0.75
0.6
0.3
0.75
5
0.4
0
0
-0.2
-1
-2
4
3
-1.8
2
1
-3
0
-4
53
Realised balance
Target Stability Program 2013-2016
EC Autumn projection (no policy change)
Structural budget adjustments 2009-2013
To be realised before 2016

54. Belgium
Ageing strikes
Public pension and healthcare
benefits
12%
Projected change of ageing-related
expenditures
(in % of GDP, 2010-2030)
(in % of GDP)
Portugal
Italy
10%
Spain
Pensions
Greece
8%
Other
UK
France
Sweden
6%
Ireland
Germany
4%
Denmark
Healthcare
Austria
Netherlands
2%
Pensions
Luxemburg
Finland
0%
Belgium
-2
54
-1
0
1
2
Source: Ageing Report, EC 2012
3
4
5
6

55. Belgium
Ageing costs - Worrying, but not (yet) unsustainable
Gross public debt in % of GDP after 2016
Public pension and healthcare
benefits
(in % of GDP)
12%
150
140
130
(Stability Program until 2016)
Scenario 1: primary
surplus remains at 2016
level (+3.4% of GDP)
120
10%
110
100
8%
90
80
6%
70
60
50
4%
40
Healthcare
30
Pensions
2%
20
10
0
0%
55
Scenario 2: primary
surplus decreases by
ageing cost after 2016

56. Belgium
Poor government, wealthy households
Net household wealth
Gross public debt
(in % of GDP)
550
140
500
Net financial assets
450
Real estate
400
Total
120
100
350
80
In % of GDP
300
250
200
60
40
150
100
50
56
20
0
In % net household wealth

57. Housing market
Sales transactions & new mortgages declining, prices not (yet) cooling off
Recent property price development
(all types of dwellings, 2011Q1 = 100)
70000
110
109
108
107
Belgium (Eurostat-index)
Belgium (FOD-index)
65000
New production of housing
loans (rhs)
160000
EMU (Eurostat-index)
140000
60000
104
103
180000
Belgium (ECB-index)
106
105
Number of home sales (lhs)
120000
55000
102
100000
101
100
50000
80000
99
98
97
45000
60000
96
95
57
40000
40000

58. www.kbceconomics.be
58

59. FINANCIAL MARKETS OUTLOOK
Bart Van Craeynest
Chief Economist, Petercam
Vlerick Finance Alumni partner:

60. Institutional
Asset Management
Titre de la présentation
Vlerick Alumni Debate
Tuesday 28 January 2014
21-09-2011
60/25

61. Global recovery
15
102
Global industrial production (annual change)
OECD leading indicator (rhs)
10
101
5
100
0
99
-5
98
-10
97
-15
Feb-95
96
Feb-97
Feb-99
Feb-01
Feb-03
Feb-05
Feb-07
Feb-09
Feb-11
Feb-13
61
28-01-2014 | Petercam Macro Presentation |

62. An extended period of low bond yields
16
14
12
10
8
6
4
2
US bond yield
0
Jan-00 Dec-09 Dec-19 Dec-29 Dec-39 Dec-49 Dec-59 Dec-69 Dec-79 Dec-89 Dec-99 Dec-09
62
28-01-2014 | Petercam Macro Presentation |

63. Financial repression
Business confidence
63
28-01-2014 | Petercam Macro Presentation |

64. Recovering equity markets
130
US
Europe
EM
120
110
100
90
80
70
60
50
Index (start 2008 = 100)
40
Jan-08
Jul-08
Jan-09 Jul-09
Jan-10 Jul-10
Jan-11 Jul-11
Jan-12
Jul-12
Jan-13 Jul-13
Jan-14
64
28-01-2014 | Petercam Macro Presentation |

65. Bubbles?
US equities
50
45
Valuation S&P500 (Shiller PE)
40
35
30
25
20
15
10
5
0
Jan-00 Dec-09 Dec-19 Dec-29 Dec-39 Dec-49 Dec-59 Dec-69 Dec-79 Dec-89 Dec-99 Dec-09
65
28-01-2014 | Petercam Macro Presentation |

66. Global equities still offer return potential
MSCI World
14
0
Return over the next 10y (annual average, in %)
12
Price/trend earnings MSCI World (rhs, inverted)
10
5
10
8
15
6
20
4
25
2
30
0
35
-2
40
-4
45
-6
Jan-81
50
Jan-85
Jan-89
Jan-93
Jan-97
Jan-01
Jan-05
Jan-09
Jan-13
66
28-01-2014 | Petercam Macro Presentation |

67. Rotation towards equity
1400
Investments of US mutual funds (cumulative, bn dollar)
1200
Equities
Bonds
Jan-08
Jan-09
1000
800
600
400
200
0
-200
-400
-600
Jan-07
Jan-10
Jan-11
Jan-12
Jan-13
67
28-01-2014 | Petercam Macro Presentation |

68. Japanese equity is very much geared to global recovery
68
28-01-2014 | Petercam Macro Presentation |

69. Global asset class outlook
Expected returns 2014
30
25
19%
20
17%
15
10
8%
6%
4.5%
5
2.1%
1.8%
0.3%
0
US Eq
Euro Eq
EM Eq
JP Eq
US Gov
Euro Gov Euro Credit Euro HY
Returns in local currency
69
28-01-2014 | Petercam Macro Presentation |

70. Petercam N.V.
Sint Goedeleplein 19
1000 Brussel
Tel.: +32 (0)2 229 63 11
Fax : +32 (0)2 229 65 98
Bart Van Craeynest
Chief Economist
bart.vancraeynest@petercam.be
Tel.: +32 (0)2 229 62 32
My blog:
https://insights.petercam.com
Twitter: @BVanCraeynest
Brussels – Frankfurt – London - Luxemburg - Madrid - Geneva
70
28-01-2014 | Petercam Macro Presentation |
70/25

71. INTERACTIVE DEBATE
Chief Economists
and Audience
Moderator:
Alain Deneef: Senior Portfolio Manager,
Private Banking, Bank Degroof
Vlerick Finance Alumni partner:

72. UPCOMING EVENTS
Career Testimonial
Round table with Yves Leterme
Pecha Kuncha - student event
Marketing Shower: Customer Intelligence
Buy your own company conference - ism Vlerick Business School
Meet the CEO 2014
Platform for development
Experience the future: Power of the Crowd’
Brussel
Brussel
Gent
Tervuren
Elsene
Brussel
Leuven
Brussel
PUB/MGM
Vlerick Alumni
Marketing
Marketing
VBS - Finance
PUB/MGM
MBA
PUB/MGM
THANK YOU
You are kindely invited to the networking reception
Vlerick Finance Alumni partner:
30/01/2014
30/01/2014
3/02/2014
20/02/2014
27/02/2014
11/03/2014
12/03/2014
26/03/2014