Arjen van Dijkhuizen Senior Economist Marine Money, East Meets West Singapore, 20 September 2016

Crucial themes for the global economy Global economic and political challenges and the impact on shipping

Group Economics

Marketing Communication

2

Outline

China: the complex task of guiding a heavyweight downhill, slowly

Europe: can (geo)politics spoil the party?

Are emerging markets ready to deal with another Fed rate hike?

Implications for the global outlook

3

The ECB’s dilemma Europe: can (geo)politics spoil the party?

Eurozone growth momentum fading

4 Source: Thomson Reuters Datastream, ABN AMRO Group Economics

Contribution to % qoq GDP growth, ppts

-0.6-0.4-0.20.00.20.40.6

12Q1 12Q3 13Q1 13Q3 14Q1 14Q3 15Q1 15Q3 16Q1

Consumption and investment Foreign trade GDP

Divergence remains large

5 Source: Thomson Reuters Datastream, ABN AMRO Group Economics

Real GDP growth, Q2 data, % yoy

-1.0-0.50.00.51.01.52.02.53.03.5

ES NL DE BE FR AT FN PT IT GR

Eurozone

Brexit : short-term impact looks mild so far, longer-term more uncertain

6 Source: Thomson Reuters Datastream, ABN AMRO Group Economics

% qoq index %

35

40

45

50

55

60

65

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

08 09 10 11 12 13 14 15 16

Economic growth (lhs) Composite PMI (rhs)

02468

10121416

IE NL BE DE ES FR PT IT FI GR AT

Share of UK in total exports

The end to eurozone austerity? More is in the pipeline.

7 Source: ABN AMRO Group Economics

% GDP

-0.5

0.0

0.5

1.0

1.5

2010 2011 2012 2013 2014 2015 2016

Change in eurozone governments' structural budget balances

ECB monetary policy: what next?

8

ECB revises its projections for GDP growth and inflation slightly lower

0.1

1.31.6

0.2

1.31.6

0.2

1.2

1.6

0.0

0.5

1.0

1.5

2.0

2016 2017 2018

March 2016 June 2016 September 2016

1.41.7 1.8

1.6 1.7 1.71.7 1.6 1.6

0.0

0.5

1.0

1.5

2.0

2016 2017 2018

March 2016 June 2016 September 2016

% %

Source: ECB, ABN AMRO Group Economics 9

ECB on hold in September, but Draghi signals action going forward

10

• ECB left policy rates and QE programme unchanged in September

• Draghi left door open for action in coming months

• ABN AMRO expects ECB will expand duration of its QE programme from March 2017 currently to September 2017 (most likely at October meeting)

• ECB also likely to increase universe of eligible assets. In our view, there are two options (separately or in combination): ECB could buy bonds yielding less than deposit rate and/or bonds below 2y

maturity ECB could increase issue/issuer limit from current 33%

• We think dropping the capital key allocation system for purchases is not likely at the moment

A number of possible sources of geopolitical risk in Europe

11

• Political risk is a broad trend not idiosyncratic

• Brexit market contagion has been limited so far, but political contagion still a risk • Austria presidential election could result in new general elections • Italy referendum could also trigger new general elections • Third Spanish election cannot be ruled out

• Portugal risks have risen (ECB eligibility)

• Refugee crisis adds to internal EU divisions and affects voter sentiment

• Complex relations with EU neighbours (Russia/Ukraine, Turkey)

Brexit: risk of contagion

12 Source: IPSOS-Mori, ABN AMRO Group Economics

0 10 20 30 40 50 60

HUGESPPOBESWFRIT

Want EU referendum Would vote to LEAVE

% of public in poll

13

Political timetable in Europe

Source: ABN AMRO Group Economics

Main political events calender eurozone

Country Last election Next election due Major issues / remarks

Germany Sept 2013 Autumn 2017 Regional elections on 4, 11 and 18 September 2016

France June 2012 June 2017 Presidential election in Spring 2017

Italy Feb 2013 May 2018 Referendum on political reform autumn 2016

Spain June 2016 June 2020 Fragmented result June 2016 - chance of new election

Netherlands Sept 2012 March 2017 Loss of support for parties in government, fragmentation

Belgium May 2014 May 2019

Austria Sept 2013 Sept 2018 Reprise of presidential election on 4 December 2016

Finland April 2015 April 2019 Presidential election February 2018

Greece Sept 2015 Sept 2019 Risk of break-down of agreement with creditors

Portugal Oct 2015 Oct 2019 Unstable left-wing minority coalition, early election likely

Ireland Feb 2016 April 2021 Minority government led by Fine Geal

14

The rise of Euroscepticism

Source: Various polling agencies, ABN AMRO Group Economics

Elections in 2017 or 2018, % of votes

0

10

20

30

40

FPÖAT

AfDDE

PVVNL

FNFR

M5SIT

LNIT

Result previous election Current polls Main rival in current polls

CDU/CSU UMP/LRPD PD

SPÖ

VVD

15

Italy’s constitutional referendum: almost 50-50

Source: Various polling agencies, ABN AMRO Group Economics

% of votes (5-poll moving average)

20

40

60

80

Mar-14 Feb-16 Jun-16

Yes No

16

Spain: political fragmentation continues after second round

Source: www.theworldweekly.com

Spain election result: 176 seats needed to form a government

17

Refugee inflows economically modest for most countries

Source: ABN AMRO Group Economics, EC

% population

0,0

0,1

0,2

0,3

0,4

0,5

GE SW BE NE AU FR UK

2014 2015

18

The ECB’s dilemma China: the complex task of guiding a heavyweight downhill, slowly

China-phobia has eased

19 Source: Thomson Reuters Datastream, Bloomberg, ABN AMRO Group Economics

1. Fears of large CNY depreciation have abated

3. Stock markets have stabilised

2. Capital outflows have eased, FX reserves stabilise

Shanghai Stock Exchange, A Shares, Index

4. CDS premium has come down again

CNY and CNH versus USD

%yoy

USD trn. USD bn.

-200

-100

0

100

200

2

3

4

11 12 13 14 15 16Monthly change (rhs) FX reserves, stock (lhs)Estimated capital outflows (rhs)

6

6.2

6.4

6.6

6.8

13 14 15 16

USD-CNY USD-CNH

0

1000

2000

3000

4000

5000

6000

7000

04 06 08 10 12 14 16 50

75

100

125

150

175

200

11 12 13 14 15 16

Shift of growth model is underway, but takes years

20 Sources: EIU, ABN AMRO Group Economics

Gross value added, by sector (%)

0%

20%

40%

60%

80%

100%

00 02 04 06 08 10 12 14 16

Industry Services Agriculture

We expect China’s gradual economic slowdown to continue …

21 Source: Thomson Reuters Datastream, Bloomberg, ABN AMRO Group Economics

% yoy

5

7

9

11

13

08 09 10 11 12 13 14 15 16Real GDP growth (official) Bloomberg GDP estimate

5

10

15

20

25

30

11 12 13 14 15 16

Industrial production Fixed investment Retail sales

% yoy

… but its transition to remain bumpy

22 Source: EIU, Thomson Reuters Datastream, ABN AMRO Group Economics

%

% yoy % GDP

100

150

200

250

300

05

101520253035

00 02 04 06 08 10 12 14 16

Credit/GDP (rhs) Domestic credit (lhs) Nominal GDP (lhs)

Overcapacity reduction is proceeding gradually

23 Sources: Thomson Reuters Datastream, ABN AMRO Group Economics

0

10

20

30

40

0

2

4

6

8

85 90 95 00 05 10 15

Steel production (lhs) Coal production (rhs)

100 mln metric tonnes

Slowdown has pushed imports down; more signs of bottoming out

24 Sources: Thomson Reuters Datastream, ABN AMRO Group Economics

Merchandise exports and imports, % yoy, 12 months moving average

-30-20-10

01020304050

08 09 10 11 12 13 14 15 16Export growth Import growth

25

The ECB’s dilemma Are emerging markets ready to deal with more Fed rate hikes?

-80

-40

0

40

80

0

1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16

Portfolio flows to EM (rhs) Fed rate (lhs) UST 10Y rate (lhs)

EM (portfolio) capital flows, the Fed and other factors

26 Sources: IIF, Thomson Reuters Datastream, ABN AMRO Group Economics

% USD bn

Global crisis 2008-09 Fed taper

tantrum 2013

China + Fed 2015

27

Rise in EM external debt

Source: EIU, ABN AMRO Group Economics

EM external debt, % exports

0

50

100

150

200

250

95 97 99 01 03 05 07 09 11 13 15

Em. Asia Em. Europe Latin America MENA

28

FX buffers have fallen, but generally remain solid

Sources: EIU, ABN AMRO Group Economics

EM FX reserves/total external debt (ratio)

0

1

2

3

4

5

95 97 99 01 03 05 07 09 11 13 15Em. Asia Em. Europe Latin America

0.00

0.25

0.50

0.75

1.00

1.25

95 97 99 01 03 05 07 09 11 13 15

Em. Asia Em. Europe Latin America

EM FX reserves/short-term external debt (ratio)

29

Still, averages may hide vulnerabilities in individual countries

Sources: Fitch, ABN AMRO Group Economics

In % GDP

0

50

100

150

200

250

CHN BRA SAF IND TUR RUS MEX IDN

Total debt Foreign currency debt

30

The ECB’s dilemma Implications for the global outlook

31

Global growth remains moderate, divergence EM-DM is narrowing

Source: Thomson Reuters Datastream, ABN AMRO Group Economics

Manufacturing PMI surveys, indices (50 = ‘neutral’)

30

35

40

45

50

55

60

07 08 09 10 11 12 13 14 15 16

Advanced economies Emerging economies World

32

Global trade still lagging behind global growth

Sources: CPB, Thomson Reuters Datastream, ABN AMRO Group Economics

% yoy

-25-20-15-10-505

101520

95 97 99 01 03 05 07 09 11 13 15Global GDP Global trade Industrial production

83

85

87

89

91

93

95

97

2008 2009 2010 2011 2012 2013 2014 2015 2016

Demand Supply

Oil: Global oversupply stabilizing (Q2)

33 Source: IEA

34

Our key forecasts

Sources: ABN AMRO Group Economics, Thomson Reuters Datastream, Bloomberg

Economic outlook 2015 2016 2017 Global GDP 3.2 2.9 3.2

US 2.6 1.5 1.9

Japan 0.6 0.6 0.7

Eurozone 1.9 1.5 1.3

UK 2.2 1.9 1.3

Emerging markets 4.0 3.8 4.3

Emerging Asia 6.1 6.0 5.7

China 6.9 6.5 6.0

World trade 2.2 3.0 3.0

Rates and FX Spot 2016 2017 (14 Sept) (eop) (eop)

US 3-M Libor rate 0.85 0.80 1.40

US 10Y Treasury 1.70 1.60 1.80

EUR/USD 1.1254 1.10 1.10

Commodities Spot 2016 2017 (14 Sept) (eop) (eop)

Oil – Brent 46.5 65 70

Oil - WTI 43.6 65 65

Gas - HH 3.03 2.25 2.75

Iron ore 56.5 56 64

Copper 4755 5000 6000

35

Important information

ABN AMRO Group Economics on the internet

https://insights.abnamro.nl/en

The views and opinions expressed in this document may be subject to change at any given time. Individuals are advised to seek professional guidance prior to making any investments. This material is provided to you for information purposes only and should not be construed as an advice nor as an invitation or offer to buy or sell securities or other financial instruments. Before investing in any product of ABN AMRO Bank N.V., you should obtain information on various financial and other risks and any possible restrictions that you and your investments activities may encounter under applicable laws and regulations. If, after reading the presentation, you consider investing in a product, you are advised to discuss such an investment with your relationship manager or personal advisor and check whether this product –considering the risks involved- is appropriate within your investment activities. The value of your investments may fluctuate. Past performance is no guarantee for future returns. ABN AMRO Bank N.V. has taken all reasonable care to ensure that the information contained in this document is correct but does not accept liability for any misprints. ABN AMRO Bank N.V. reserves the right to make amendments to this material.