BPCE - 2018 Registration document

4 ACTIVITIES AND FINANCIAL INFORMATION 2018 Outlook for Groupe BPCE

Outlook for Groupe BPCE 4.7

2019 forecasts: an already faltering French recovery Risks associated with the economic environment have grown considerably since October 2018, as indicated by the loss of confidence on the financial markets. The global business cycle is now entering a spontaneous consolidation phase, after a 10-year span of modest, non-inflationary recovery. Fears have multiplied and are becoming self-sustaining, be they fears of an economic downturn in the US and especially China, heightened protectionism, the fallout from Brexit or the exacerbation of political risk in Europe (Yellow Vest movement in France, excessive budget deficit in Italy, European elections in spring). Not to mention the uncertainty surrounding oil prices and the fragile state of certain emerging countries. Global economic activity is expected to grow 3.1% in 2019 versus 3.6% in 2018, with GDP growth rates approaching their potential in most economies and particularly the euro zone: this should help ease tensions on supply capacities and, as a result, on wages and prices, thus limiting the rise in interest rates. Furthermore, setting aside the lack of major macroeconomic imbalances on both sides of the Atlantic, there are some supportive factors to be found that could limit the possibility of a recession starting this year: in the wake of tax stimulus measures, public spending should take up the baton in the US, albeit to a lesser extent; monetary easing and public spending stimulus programs in China; purchasing power gains derived from lower oil prices and, for Europe, the past depreciation of the euro boosting competitiveness in the euro zone, etc. That said, the price of the barrel could make its way back to $70 in the first half with OPEC cutting production to 1.2 million barrels per day starting in January. The Fed, ever mindful of destabilizing the bond markets and targeting a neutral interest rate for the economy, is expected to carry out only one 25 basis point key rate hike instead of three, while potentially continuing to reduce the size of its balance sheet. The ECB is likely to maintain its current balance sheet size by reinvesting maturing bonds, after bringing its asset purchase program to an end on January 1, 2019. It will probably not raise its key rate in 2019 due to the weakness of core inflation. In the absence of any tangible signs of wage acceleration, long rates should climb sluggishly as central banks on both sides of the Atlantic tighten their monetary policies (though moderately), the supply of US securities automatically increases and the ECB’s net asset purchases cease. The 10-year OAT is pegged at just over 0.8% for end-2019 versus an annual average of 0.78% in 2018. After recently stabilizing, the euro should trend upwards against the dollar, due to the rise in the twin US deficits, the slowdown in US economic activity and fewer-than-initially-expected Fed rate hikes. France is unlikely to escape the slowdown in global demand this year, despite the pronounced yet fleeting rise in consumer purchasing power stemming from decelerating inflation (reflecting the previous weakness in oil prices) and from Macron measures in response to the Yellow Vest movement with a plan approximately € 11 billion centered on high-consumption households. However, the rebound in private-sector consumption is not expected to be strong enough to stop growth from deflating back to its potential of 1.2% versus 1.5% in 2018. In particular, the household savings rate is set to top 15.2%

versus 14.7% in 2018 in what is perceived as a more uncertain environment. The persistently high unemployment rate should only decrease marginally, offering limited support to drive wages higher. Similarly, business investment should be resilient at best, without excessive momentum, although it should get a temporary cash boost of around € 20 billion with the CICE (Competitiveness and Employment Tax Credit) becoming a continuous expense reduction, and from attractive financing conditions. Lastly, INSEE has predicted that foreign trade will make a negative contribution to growth in the first half. This downturn in the cycle, in today’s tense political and social climate, is liable to impede the enhancement of structural reforms aimed at cleaning up public finances and restoring competitiveness. The budget deficit is once again expected to significantly top the 3% mark in 2019. Outlook for the Group and its business lines The Group will continue implementing its TEC 2020 Strategic Plan in 2019, with three priorities: First, seizing the opportunities presented by the digital transformation to simplify and personalize the bank’s products, services and tools, make customers more independent, generate new revenues and gain efficiency; by offering solutions tailored to new customer preferences and - providing support at “key moments” of their lives, with different levels of service, by keeping its promise of availability, advice and excellence, - thanks in large part to the adaptation of the omni-channel relationship banking model; to Asset & Wealth Management clients: ● by providing a range of innovative, bespoke and active - investment strategies and solutions, particularly through a broadened range of expertise and an expanded presence in the Asia-Pacific region; to Corporate & Investment Banking clients: ● by differentiating the Group over the long term and creating - value for customers through the implementation of cross-business expertise in its strongest sectors; to cooperative shareholders: ● by furthering its commitments to society and funding the French - economy, in a spirit of responsibility and green growth reflected in the development of responsible savings inflows, the funding of the energy transition, and the reduction of the Group’s carbon footprint; to employees: ● by keeping its promise as an employer to develop employability, - simplify the employee experience and promote diversity, by attracting and retaining top talents in the industry; - Second, making commitments: to retail banking customers: ●

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Registration document 2018

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