BPCE - 2019 Universal Registration Document
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ACTIVITIES AND FINANCIAL INFORMATIONS 2019
OUTLOOK FOR GROUPE BPCE
Outlook for Groupe BPCE 4.7
2020 FORECASTS: RECESSION ON THE HORIZON? The global economy in 2020 – nearing the end of the cycle, more leveraged than in 2017 and 2018, and in a persistent industrial recession since Q4 2018 – was expected to show moderate improvement until the month of February came along. Activity now seems to be headed for a recession amid greater uncertainty, at least for the first half in many countries, brought on by the spread of the coronavirus (Covid-19) since January. As mandatory confinement measures grow more widespread in an effort to prevent healthcare systems from becoming overloaded, economic activity has been gripped by temporary paralysis, especially in the United States, Europe and France, raising the specter of a severe downturn of as-yet unknowable magnitude and duration. Quarantine measures are causing major and increasing global disruptions in supply and production chains, while also spreading to the service sector (tourism revenues, air travel, local sales), which can then be expected to slow the rate and possibly even the scale of the expected recovery (probably in the second half) once the health crisis has passed. Furthermore, oil prices collapsed in early March to under $30/barrel due to the twofold shock in demand (impact of Covid-19) and supply (price war between manufacturers to gain market share), an event liable to create record-setting over supply. The extension of confinement measures and steep drop in oil prices triggered a panic on the stock market in March, the likes of which have not been seen since 1929, with 7 years of CAC 40 gains wiped out in less than 4 weeks. This unpredictable shock forced central banks and governments in most affected countries to hit back with an extremely fast, unprecedented and no-holds-barred response, relative to the standard fiscal and monetary rules spanning economic history. They have tended to adopt a “lender of last resort” approach, such as the Fed, the ECB and the German and French governments. The main goal for them is to avoid triggering a downward spiral of mistrust between economic agents, and to prevent temporary liquidity problems from snowballing into solvency problems and causing a chain reaction of defaults by normally sound companies. The Fed in particular unexpectedly lowered the fed funds rate range to a floor of 0 0.25% on March 15, after the 50-bp cut already made on March 3. It also urgently accelerated its treasury and mortgage bond purchases, which will total $700bn over the next few months. Lastly, it pumped massive liquidity injections into banks and cut their mandatory reserve ratio. Similarly, as it did during the 2008 crisis, the Fed opened dollar swap lines with five other central banks to keep the world’s dollar-dependent financial system running smoothly. Meanwhile the BCE, with less leeway to lower its key rates, already launched massive refinancing operations on March 12. It is expected to ramp up this initiative – as it did on March 18 by initiating a new €750bn Pandemic Emergency Purchase Program (PEPP) set to run at least through end-2020 – notably by stepping up its efforts to prevent euro zone sovereign spreads from widening. In addition, the Single Supervisory Mechanism (SSM) relaxed capital requirements for banks, and governments announced guarantees for business loans. These complementary measures should gradually prove effective in shoring up liquidity and credit flows. On the whole, this monetary activism should keep long rates very low for long, with the 10-year OAT near or below zero, although they should bounce back moderately as economic activity mechanically picks up again in the second half from the
extremely low starting point of quasi-deflation hit during the mandatory confinement period. There is the possibility of a risk premium emerging, however, given the magnitude of the fiscal support measures at play, and possibly even the subsequent rise of inflation, stemming from greater pressure on supply as opposed to demand. On the downside, US economic activity, initially set to enjoy the usual pre-Presidential election boost, may end up in recession despite what may well be a sharp mechanical rebound in the second half. The Chinese economy, expected to take a major hit from the impact of Covid-19 in the first half, is likely to slow significantly despite public and monetary measures taken to stimulate domestic demand. The euro zone, already showing multiple signs that the end of the cycle was nearing, should also fall into recession, even if it does experience a vigorous turnaround in the second half. Once the health crisis is over, the euro zone should benefit from measures to support household purchasing power, persistently ultra-low oil prices (around $40/barrel), and exceptionally accommodative monetary and fiscal policies Even with a hearty rebound in the second half, French GDP may be in for a rougher than-expected recession, in the event the strict confinement policy lasts more than a month a half (from March 16 to end-April). The intensity of the recession will naturally depend on how long the confinement lasts and how extensive the withdrawal mechanisms are, setting the stage for a severe twofold shock on supply and demand. The economic forecast is as follows: a GDP decline of up to 10% in the first half, caused by the economic paralysis starting on March 16, followed by an equivalent rebound in the second half on the back of extraordinary fiscal measures totaling some €300bn (13% of GDP), with temporary and highly targeted measures aimed in particular at curbing cash flow problems experienced by SMEs. OUTLOOK FOR THE GROUP AND ITS BUSINESS LINES The Group will continue implementing its TEC 2020 Strategic Plan in 2020, 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 supporting them in “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 clients through the implementation of cross-business expertise in its strongest sectors; Second, making commitments: to retail banking customers: •
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UNIVERSAL REGISTRATION DOCUMENT 2019 | GROUPE BPCE
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