BPCE_REGISTRATION_DOCUMENT_2017

4 2017 ACTIVITIES AND FINANCIAL INFORMATION Outlook for Groupe BPCE

Outlook for Groupe BPCE 4.7

Forecasts for 2018: persistently robust French growth Global growth is expected to be reasonably dynamic yet again in 2018 at 3.7% year-on-year, meaning the likely slowdown in economic activity will be pushed back to 2019. In addition to the continuedpossibilityof a sharper slowdownin the Chinese economy, one potential cause is the growing and unexpected risk of renewed tensions affecting prices and wage costs over the year, especially in the United States, stemmingfrom pressure on productionfactors and substantial volumes of global liquidity. In the generally accepted scenario, however, there will be an ongoing synchronized economic improvement between the world’s major economic regions, in principle with no real surge in inflation given that the mutual economic support process is expected to carry over from 2017 and grow stronger in 2018. This improvement is set to benefit significantly from the business investment cycle in the US and the euro zone, driven by persistently positive corporate financial positions. It should also get a helping hand from 1) the extension of economic stimulus policies, with monetary normalization likely to remain very gradual and cautious on both sides of the Atlantic, barring an unexpectedinflationaryspike, 2) the implementationof an admittedlyless ambitious-than-announcedUS tax reform, though set to launchat the peak of the cycle with a relativelyinflationaryimpact as a result; and 3) a neutral-to-accommodativefiscal policy in the main euro zone countries. Also, oil prices are projected to stabilize at around $60 per barrel (Brent crude) in the second half, after climbingat the top of the year. Barring any geopoliticalsurprises,upward pressuresshould be kept in check by US unconventionalshale oil production, poised to pick up sharply by June 2018 amid persistentlyhigh reserves (though on the decline). With French business climate indicators restored to their 2000 and 2007 highs, France is all set to take part in this positive overall trend, maintaining roughly the same GDP growth as 2017 at around 1.8% over the year before slowing. Growth should continueto be fueled by robust global demand, and more importantly by relentlessly resilient business investment.After all, economicactivity is likely to hit a wall of capacity constraintsand supply problems, which in turn are liable to curb the recovery.Consumptionis expectedto provide slightly less modest economicsupport than in 2017, thanks to the relative decline in the savings rate. Purchasingpower is in for a weaker improvement in 2018 (1.1% over the year) compared to 2017 (1.4%), due to the adverse calendar effects of tax measures during the winter and the rise (albeit modest) in inflation (1.3%). The unemployment rate is pegged to average 9.1% in 2018 versus 9.3% in 2017. The governmentstill has many challengesahead, calling for cleanerpublic financesand restoredcompetitiveness. The Fed and the ECB are still afraid of destabilizingthe bond markets, primarily to avoid penalizing institutional investors and public finances. The Fed is expected to cautiously move forward with the monetarynormalizationprocessalready under way, while reducingits balance sheet size and raising the fed funds rate at least three times by 25 bp per quarter, given the as-yet modest increase in inflation, falling unemploymentand the adoptionof a more lenient fiscal policy by the Trump administration.Similarly, the ECB will be tapering its bond purchases from January until at least end-September 2018,

without tightening its policy rates before 2019, as price rises (1.6%) are holding below the 2% target for now. Without any tangible signs of wage acceleration,long rates should slowly make their way back up, keepingpace with very gradualmonetarytighteningand improved economic activity. Aside from the probable risk of volatility triggered by contagionwith US yields, the 10-year OAT has the potentialto hit a shade over 1.2% by end-2018, versus an annual average of 0.8% in 2017. Outlook for the Group and its business lines The Group will continue implementing the transformation plan in 2018, as presented in February 2017, in addition to the TEC 2020 strategic plan announced on November 29, 2017, with three priorities: seizing the opportunitiespresentedby the digital transformationto ● simplify and personalize the bank’s products, services and tools, make customers more independent, generate new revenues and gain efficiency; making commitments: ● to customers:by differentiatingthe 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 responsibilityand green growth reflected in the developmentof responsiblesavings inflows, the funding of the energy transition, and the reduction of theGroup’scarbon 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 talent; setting ambitious growth targets for our businesslines: ● Banque Populaire: by developing the affinity model, particularly - in the civil service sector, Caisse d’Epargne: by serving all customer segments while - tailoring thesales approach to fit their profile, Crédit Foncier: by further integrating its activities into the Group, - Banque Palatine: by developing private banking activities while - migratingto a shared IT platform, Fidor: by launching the new-generating European banking - community, Specialized Financial Services: by boosting market share in all - business lines, Insurance: by consolidatingour position as a top-tier insurer in - France, Asset & Wealth Management: by confirming our position as a - world leader in active investment strategies thanks to our size, profitabilityand capacityfor innovation, Corporate& InvestmentBanking: by becoming a leading bank in - four key sectors: Energy and Commodities, Infrastructure, Aviation, RealEstate& Hospitality.

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Registration document 2017