BPCE - 2018 Registration document
4 ACTIVITIES AND FINANCIAL INFORMATION 2018 Foreword
Foreword 4.1
The financial data for the fiscal year ended December 31, 2018 and the comparative data for 2017 were prepared under IFRS as adopted by the European Union and applicable at that date, therefore excluding some provisions of IAS 39 on hedge accounting. This management report discusses the results of Groupe BPCE and BPCE SA group, built around the central institution, BPCE, which was
established on July 31, 2009 following the merger of Groupe Banque Populaire and Groupe Caisse d’Epargne. BPCE SA group’s results are summarized because the operations and results of the two groups are closely related. The main differences in scope relative to Groupe BPCE concern the exclusion of the contributions of the Banque Populaire banks and the Caisses d’Epargne.
Significant events of 2018 4.2
4.2.1
Economic and financial environment
2018: A PHASE OF SLOWER ECONOMIC ACTIVITY AND UNCERTAINTY BEGINS 2018 marked the beginning of a relatively disparate global economic slowdown and uncertainty over the sustainability of an atypical cycle spanning over 9 years. After peaking in 2017, the cycle took a turn for a slower but more sustainable pace, as inflationary signs – still modest in Europe – made an appearance in advanced countries. Although the US economy was continuously driven by pro-cyclical fiscal and budgetary stimulus measures with inflationary effects, the euro zone found itself in a confirmed slowdown and unable to sustain economic growth above its potential. Emerging economies were similarly fragmented, with China, on the one hand, recording a moderate downturn and other countries such as Brazil, Argentina and Turkey, on the other, revealing structural weaknesses. Risks were on the rise as the summer got under way, with threats of escalating protectionism between the US and China (and Europe at large with the German auto industry), a federal government shutdown, multiple unknown factors in Europe surrounding the outcome of Brexit and the Italian budget deficit, potentially weaker economic performance in the US and China, etc. Furthermore, in preparation for a renewed embargo against Iran, oil prices climbed non-stop until October 3, topping $85 per barrel. After that point, they suddenly plummeted 39% due to an unexpected overabundance of production by OPEC, Russia and US shale oil, not to mention the US exemption granted on November 5 to eight countries, including China and India, allowing them to continue purchasing Iranian oil. In addition to heightened volatility, the stock markets underwent a major correction starting in October. The CAC 40 ultimately lost 11%, ending the year at 4,731 points. As a result, fears over stricter-than-expected US monetary tightening for 2019 ended up subsiding. However, the Fed carried out four additional 25-bp rate hikes in 2018, bumping the fed funds rate up to a range of 2.25% to 2.5% in December, while still moving forward
with its balance sheet reduction program. Meanwhile, the ECB left its rates unchanged, but did taper its net asset purchases over the year from € 30 billion per month through September 2018 to € 15 billion per month from October through December. 10-year yields were on the rise until mid-February 2018, with the 10-year OAT peaking at just over 1%, before dropping to unusually low levels towards the end of the year. The US 10-year averaged 2.9% in 2018, versus 0.4% in Germany and 0.78% in France. The Euro remained weak against the dollar ($1.14 on December 31), due to the pro-dollar widening of credit spreads on sovereign bonds, the economic growth gap favoring the United States, and the resurgence of political risk in Europe with the Italian budget deficit. French economic activity (1.5%) came up against supply constraints in 2018, mainly in terms of recruiting qualified staff, in the wake of strong GDP growth (2.3%) in 2017. In the first half, alongside the public transportation strikes, this slowdown can be attributed to the natural aftereffects of last year’s performance and the temporarily negative distributional impacts associated with the tax calendar, which weighed substantially on consumption. Consumer purchasing power was briefly weakened by the rise in the CSG (general social security tax) and indirect taxes on energy and tobacco. The partial decline in social security contributions, the remainder of which would come in October, had even less of an offsetting impact on these tax hikes as mounting oil prices sent inflation climbing to around 2% per year. In fact, inflation ended up averaging 1.9% in 2018 versus 1% in 2017. Foreign trade also contributed adversely to economic activity, due to a glaring lack of competitiveness and the sharp appreciation of the Euro in 2017. Economic conditions improved somewhat in the second half, driven by the positive contribution of foreign trade, robust business investment in Q3 and measures aimed at reducing social security contributions on wages and the housing tax. The fourth quarter brought additional adverse factors, however, such as the Yellow Vest movement which shaved 0.1 point off GDP. The French unemployment rate ended up falling just 0.4 point to 8.7%, thus underperforming 2017.
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Registration document 2018
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