Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic Research e Economic Insight 10 December 2015 Ireland: Phoenix from the ashes Ireland continues to exceed economic expectations with GDP growth likely to reach almost 7% this year and close to 5% in 2016. As a consequence Ireland remains on track to reduce its huge fiscal imbalances. So far, pretty much everything has gone right but Ireland remains vulnerable to global headwinds, with Brexit potentially high up the list. With the initial phase of fiscal austerity apparently consigned to the past, the challenge will be to ensure that Ireland can build on the hard work of recent years. Key points • Economic growth and the improvement in public finances exceeded expectations in the course of 2015. With real GDP expected to grow by almost 5% next year, all the indications are that 2016 will bring another year of good economic news. • Tax revenues have performed particularly strongly this year and the government was able to announce a fiscally expansionary budget for 2016. Ireland will likely meet its target of a structurally balanced budget by 2019. • Although great progress has been made in cleaning up the banking sector, credit growth remains muted. This has not prevented a big surge in house prices, where activity is being driven by cash buyers in a supply-constrained market. • The possibility of Brexit poses a risk to the Irish economy, primarily via distortions to trade links with the UK. But any restrictions to the free flow of labour would reduce the effectiveness of a safety valve that has helped to curb unemployment. So far, so good but the hard work is not yet over Over the past year Ireland has continued its remarkable phoenix-like recovery from the ashes of fiscal meltdown, and all the signs indicate that further progress will be made in 2016. After posting GDP growth last year of 5.2% Ireland looks set to register a near-7% rate of expansion this year before moderating to around 5% in 2016. This comes after a prolonged period of fiscal consolidation which allowed Ireland to exit the EU-IMF financial assistance programme in December 2013 and to return to the capital markets as public sector deficits and debt continue to decline (chart 1). Progress has also been made with regard to recapitalising the banking system, which returned to profitability in 2014 for the first time since 2008. But for all the positive macroeconomic news, Ireland remains a small, open economy which is vulnerable to global events and the spectre of Brexit might pose significant potential challenges. Moreover, the magnitude of the fiscal squeeze was such that concerns have been raised about the impact on income disparities, and despite all the good macro news, there is still a long way to go before large sections of the population will share in the fruits of recovery. Just as Ireland showed how much fiscal progress could be made as a result of belt-tightening, so it will lead the way for other euro zone economies as they count the cost of returning to normality. CHART 1: The decline in Irish deficit- (l) and debt-to-GDP (r) ratios 10 140 5 120 0 100 -5 -10 80 -15 60 Author: 40 Peter Dixon -20 -25 -30 -35 Ex. capital value of bank Promissory Notes 1998 2000 2002 2004 2006 2008 2010 2012 2014 +44 20 747 51808 [email protected] 20 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Department of Finance, NTMA, Commerzbank Research For important disclosure information please see page 8. research.commerzbank.com / Bloomberg: CBKR / Research APP available Chief Economist: Dr. Jörg Krämer +49 69 136 23650 [email protected] Economic Research | Economic Insight CHART 2: Job growth is making steady progress CHART 3: Consumer sentiment back at pre-recession levels Employment, Q1 2008=100 Q4 1995=100 102 140 100 130 98 120 96 110 94 100 92 90 90 88 80 86 70 84 2008 2009 2010 2011 2012 2013 2014 2015 Source: CSO Growth is beginning to look more broad-based as domestic demand recovers Fiscal improvement in 2015 has beaten expectations 60 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Global Insight The economic recovery: Based on solid foundations One of the features of Irish growth over the past couple of years is that we are now seeing signs of much stronger domestic demand. Over the period 2011 to 2013, net trade accounted for an average of 1.9 percentage points of GDP growth per year whereas domestic demand continued to act as a significant drag. As a result, GDP growth averaged only 1.4% p.a. over this period. But over 2014 and 2015 we have seen a bigger pickup in household consumption and investment. The consumer recovery can be partially explained by the job market recovery, with employment in Q2 2015 5.5% above the Q1 2012 lows, thus taking it back to mid-2009 levels (chart 2). A recovery in property prices and the boost to real wages from low inflation have helped spur a sharp rise in consumer sentiment back to pre-recession levels (chart 3). Although latest data show a surge in investment which is the product of volatile factors, underlying investment demand also remains strong, driven by a recovery in machinery and equipment. Assessing fiscal improvement According to Department of Finance estimates, the general government deficit is set to come in at 2.1% of GDP in 2015 versus a projection made a year ago of 2.7%. This represents a near-12 percentage point improvement versus the 2009 trough (after we correct for the effects of the capital value of bank Promissory Notes which drove the deficit in 2010 to 32% of GDP). The debt-to-GDP ratio is estimated to fall to 97% of GDP this year, reflecting a 23 percentage point improvement compared to the 2012 peak, and compares with a forecast made a year ago for a debt ratio of 108.5%. In broad terms, the improvement in the deficit relative to expectations this year was driven by higher-than-expected tax revenues – notably corporate taxes, which in the first eleven months of the year contributed the bulk of the revenue overshoot. Nonetheless, tax revenues relative to GDP remain considerably below pre-recession levels (chart 4), and are only back at 2008 levels, CHART 4: Tax revenues remain below pre-recession levels Four quarter average of tax receipts relative to nominal GDP, percent 25 24 23 22 21 20 19 18 17 2000 2001 2003 2004 2006 2007 2009 2010 2012 2013 2015 Source: Department of Finance, Global Insight, Commerzbank Research 2 CHART 5: Spending cuts form basis of consolidation Percent of GDP 45 40 35 30 25 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Outlays Revenues Source: Department of Finance, Commerzbank Research 10 December 2015 Economic Research | Economic Insight CHART 6: The fiscal squeeze seems to be over CHART 7: Irish ratings on the way back Fiscal consolidation, percent of GDP 7 Last ten ratings actions by S&P and Moody’s May- Jul08 09 5.8 6 Jul11 Jan- May- Dec14 14 14 AA+/Aa1 3.7 4 2.6 3 AA/Aa2 2.3 2 2.1 AA-/Aa3 A+/A1 1.8 0.6 A/A2 0.6 0 -1 Oct- Dec- Apr10 10 11 AAA/Aaa 5 1 Jul10 A-/A3 -0.7 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Department of Finance, Commerzbank Research BBB+/Baa1 BBB/Baa2 BBB-/Baa3 BB+/Ba1 Source: Bloomberg whereas outlays have declined by 7.2 percentage points of GDP compared to the 2010 peak (chart 5). Clearly, the bulk of budget consolidation has been achieved by reducing spending. But the days of ongoing fiscal squeeze now appear to be over. The 2015 budget implied a fiscal easing equivalent to 0.5% of GDP (partially offsetting the 1.1 percentage point tightening outlined in 2014) whilst the measures outlined for 2016 imply an easing of 0.7% (chart 6). 2016 budget framed with one eye on the general election In part, the 2016 budget has been framed with one eye on the general election, which must take place no later than 8 April 2016. Whilst latest polls suggest that Fine Gael’s share of the vote – the senior coalition partner – has held up, that of Labour – the junior partner – has fallen sharply. Although there are no market concerns regarding a possible change in the composition of the government coalition next year, the rise of Sinn Fein at the expense of Labour should raise some concerns that the fiscal stance may not be as tight in future as currently projected, given that Sinn Fein’s policies imply a much greater role for the state in the economy. Medium-term fiscal objectives likely to be achieved Nonetheless, by reducing the general government deficit to 2.1% of GDP this year, Ireland will meet its objective of reducing it below the 3% threshold as specified in the EU Stability and Growth Pact (SGP). It will thus exit the corrective arm of the SGP and enter the preventive arm, which in Ireland’s case requires it to achieve a structurally balanced budget by 2019 at a rate of improvement of “more than” 0.5% of GDP per year. The 2016 budget is framed with reference to this policy objective. According to the government’s own forecasts, this is expected to be achieved, with the structural surplus projected at 0.6% of GDP by 2019 rising to 2.5% by 2021. This is largely the result of rising tax revenues on the back of steady income growth with nominal GDP projected to grow at an annual average rate of 4.5% over the forecast period. And rating agencies continue to upgrade Ireland Public finance issues have significantly influenced the main credit rating agencies. Between April 2009 and December 2011, Moody’s cut Ireland’s rating by 10 notches (S&P by 7) but in a process starting in early 2014 both agencies have since raised it by three notches (chart 7). The decision taken in 2013 to issue longer maturity bonds in exchange for a promissory note issued in 2010 to recapitalise the banking sector proved to be a turning point1. This reduced state financing costs and it is estimated to reduce the deficit-to-GDP ratio by 0.6% per year over the longer-term. On our calculations, this move extended the average time to maturity of Irish debt by almost 18 months – a point which the rating agencies could not ignore. Bank balance sheets are being reduced Issues of concern: (i) The banking sector Ireland’s recent problems have primarily stemmed from an over-extension of bank balance sheets, which at one point reached well over 800% of GDP. Today, it has fallen back to levels last seen in the early years of the century (chart 8). This deleveraging has been driven by a decline in both lending and deposit taking, which has affected both sides of the balance sheet, and which reflects the collapse of Anglo Irish Bank. Unlike countries such as Greece, which experienced a substantial outflow of domestic capital, Irish banks have seen domestic deposits broadly hold up although there has been a significant reduction in the degree of foreign involvement in the banking system (chart 9). 1 10 December 2015 ‘Ireland: One step forward’, Economic Insight, 11 February 2013 3 Economic Research | Economic Insight CHART 8: The rise and fall of the banking system CHART 9: Foreign depositors have exited the Irish market Credit institutions’ balance sheet, percent of GDP Bank deposits by sector, €bn 900 900 800 700 600 500 400 300 200 100 0 2003 800 700 600 500 400 300 2003 2005 2007 2009 2011 2013 2007 Irish private sector 2015 Source: Central Bank of Ireland, Commerzbank Research 2005 2009 2011 Emu residents 2013 2015 RoW residents Source: Central Bank of Ireland Irish private sector deposits are a modest 3% below end-2009 levels, which may be explained by emigration and corporates running down cash balances. But euro area residents have reduced their holdings by 65% and non-EMU foreign residents have cut their holdings by a massive 76%. Banks are now profitable and adequately capitalised One consequence of the crisis is that there has been a significant restructuring of the banking sector, and the five major financial institutions which operated prior to 2008 have been reduced to three. Although much of the international evidence suggests that banks do not contribute much to the immediate economic turnaround following a financial crash, their efficient functioning is a crucial part of the longer-term recovery story. The good news is that in 2014 they recorded a pre-tax profit for the first time since 2008 (chart 10). In common with banks across much of Europe, the survivors of the Irish banking meltdown have been forced to take radical action to improve their asset quality and capital ratios. Common equity Tier 1 ratios remain above the minimum requirements (chart 11), which is an indication that banks have made considerable progress on recapitalisation. But the flow of credit remains restricted Nonetheless, the flow of credit throughout the Irish economy is not yet showing much sign of recovery with credit to both households and corporates continuing to decline (chart 12). The Bank Lending Survey for Ireland, conducted on behalf of the ECB, has shown no change in credit standards in lending to enterprises over the last four years and is an indication that banks are continuing to prioritise the cleaning up of their balance sheets at the expense of business expansion. If this situation persists, it will increasingly act as a drag on indigenous Irish businesses. The fact that it is not perceived to be a major problem today reflects the fact that a large proportion of corporate investment is funded by multinationals. CHART 10: The Irish banking sector is back in profit Pre-tax profits as percent of capital employed for Allied Irish Bank, Bank of Ireland and Permanent TSB 5 0 -5 -10 17.4 15.9 15.4 14.1 13.6 13.4 CET1 (Transitional) AIB 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bloomberg, Commerzbank Research 4 CET1 capital ratios, June 2015 20 18 16 14 12 10 8 6 4 2 0 10 -15 CHART 11: Bank capital ratios are more than adequate CET1 (Fully loaded) BoI PTSB Source: NTMA 10 December 2015 Economic Research | Economic Insight CHART 12: Credit continues to contract … CHART 13: … But the housing market is booming Lending by sector, year-on-year percent change 10 8 6 4 2 0 -2 -4 -6 -8 -10 2009 House prices, national average, year-on-year percent change 20 15 10 5 0 -5 -10 -15 2010 2011 Households 2012 2013 2014 2015 Non-financial corporates Source: Central Bank of Ireland The housing market is booming as cash buyers drive the market -20 -25 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Bloomberg (ii) The housing market Although the banking system is not injecting a significant amount of credit into the economy, the Irish housing market continues to perform well (chart 13). Prices are up 35% from the March 2013 trough, although they are still 33% below the September 2007 peak. In the absence of a surge in bank credit, it is safe to assume that the housing market is being driven by cash buyers. Indeed, data from the Banking and Payments Federation of Ireland, which compares mortgage drawdowns with mortgage approvals, suggests that over the past four years almost half of all transactions have been financed without a mortgage (chart 14). This has raised some concerns that the market is once again in bubble territory and may be heading for a correction. Mortgage arrears remain high but are now on the decline But such fears appear overblown. Housing market corrections have a particularly devastating effect on the economy when the decline in prices leaves house buyers with an asset worth less than their mortgage liabilities. But this is unlikely to be a major issue in an environment where mortgage liabilities are low. Indeed, the ratio of household mortgage debt to income – although high, at around 156% – is at ten year lows and heading downwards (chart 15). Mortgage arrears are also declining, with 9.3% of all mortgages in arrears by more than 90 days compared with a high of 12.9% in Q3 2013. Although the value of the mortgage book in arrears is higher, at 13.4%, reflecting the fact that those borrowing large amounts prior to the housing market crash have taken the biggest hit, this is down from a peak of 17.3% and is consistent with the picture of a banking sector which is making progress in clearing out its balance sheet. Residential market also being driven by a lack of supply One of the other factors driving the market is that the housing supply-demand balance has become considerably tighter in recent years. Housing completions peaked at 93.4k units in 2006 but this had fallen to 11.0k by 2014 (a similar figure is likely in 2015). With the Irish population already at its highest in 150 years and the excess supply generated prior to the bust being eroded rapidly, The Housing Agency reckons that Ireland currently needs 21k new units per year. At current rates of construction, we are well below these levels, which suggests that at least part of the elevated rate of price inflation is due to a shortage of properties. CHART 14: Cash buyers are driving the housing market Percentage of housing transactions not funded by a mortgage 65 60 55 50 45 40 35 30 2012 Source: BPFI 10 December 2015 2013 2014 2015 CHART 15: Mortgage debt is on the decline Long-term household liabilities as percentage of disposable income 220 210 200 190 180 170 160 150 140 130 120 110 100 90 2002 2004 2006 2008 2010 2012 2014 Source: CSO, Central Bank of Ireland, Commerzbank Research 5 Economic Research | Economic Insight (iii) Brexit Trade links with the UK have traditionally been strong We have noted previously that the UK’s departure from the EU would have implications for the 2 remaining EU members . But nowhere is this more of an issue than Ireland, for which the UK is the second largest single export market and the most important in Europe (chart 16). Indeed, Ireland is the only country which shares a land border with the UK, and the province of Northern th Ireland alone was the 11 most important destination for Irish exports last year – one place ahead of China. That said, the importance of the UK to the Irish economy has declined: Forty years ago, it absorbed 56% of Irish exports – a rate almost four times higher than today. Nonetheless, merchandise trade is concentrated in a small number of product types, and any rise in trade tariffs which affects these sectors could have a disproportionate impact on Irish export volumes. Moreover the share of imports from the UK is double the export share, suggesting that issues which significantly impact on UK export prices could weigh heavily on Ireland. In the worst case scenarios, Brexit could adversely affect Irish GDP growth The extent to which Ireland will be affected by Brexit issues depends upon the nature of the 3 relationship between the UK and the EU. One study calculated that in the case where the UK and the EU negotiate a bilateral agreement, trade between the EU and the UK would be reduced by more than 20%. If a similar reduction were to occur in the Irish case, it could result in a 3.3 percentage point decline in Irish merchandise exports. Given that export volumes account for more than 100% of Irish GDP we calculate that such a decline over a two-year period would halve the rate of GDP growth. Any impediments to the flow of labour to the UK may reduce the effectiveness of a useful safety valve Another possible consequence of Brexit might be to impact on labour flows between Ireland and the UK. Traditionally, links between the two countries have been strong and although the relationship is less clear cut than in the past, a mechanism is still in place whereby “net flows 4 from Ireland to the UK increase when the Irish unemployment rate rises relative to the UK rate.” There are two factors which are likely to come into play in the event of Brexit. In the first instance, Irish emigrants may choose other destinations in place of the UK which is likely to result in reduced outflows due to the greater distances involved and possible linguistic barriers. A second outcome may be that EU immigrants are diverted to Ireland who would otherwise have gone to the UK, which would again result in a higher domestic labour force. Simulation analysis suggests this would also depress Irish wages Barrett et al (2015) conducted a simulation exercise in which the Irish labour force is assumed to rise by 60,000 (roughly the extent of net Irish emigration to the UK over the period 2011-13), in an attempt to capture greater restrictions on labour outflows. With the bulk of the adjustment assumed to fall on low-skilled workers, either via wages or employment levels, the overall effect is to raise employment levels but produce a very sharp decline in wages (chart 17). 4 CHART 16: UK remains a big market for Irish exports CHART 17: Restrictions on UK-Irish labour flows would depress wages Top 10 export destinations 2014, percent of total Percentage change versus baseline 3.8 2.8 2.4 2.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 22.2 5.2 5.9 6.6 15.1 13.2 US UK BE GY SZ Source: CSO, Commerzbank Research FR NL SP IT JP 2.2 2.0 -3.7 -3.9 Low skilled employment adjustment Employment Low skilled wage adjustment Average wage Source: Barrett et al (2015) 2 ‘Brexit: A primer’, Economic Insight, 3 September 2015 Hufbauer, G. and J. Schott (2009). ‘Fitting Asia-Pacific Agreements into the WTO system’ in Richard Baldwin and Patrick Low (eds.) Multilateralizing Regionalism: Challenges for the Global Trading System, Cambridge: Cambridge University Press. 4 Barrett, A., A. Bergin, J. FitzGerald, D. Lambert, D. McCoy, E. Morgenroth, J. Siedschlag and Z. Studnicka (2015) ‘Scoping the Possible Economic Implications of Brexit on Ireland’, ESRI Research Series 48 3 6 10 December 2015 Economic Research | Economic Insight Ireland is generally in better shape than we might have dared hope … Final thoughts Ireland has emerged from the worst of the fiscal squeeze in better shape than we might have dared hope. But as the austerity chapter is brought to a close, Ireland will face significant challenges going forward. One is that the recent improvement in public finances owes a lot to tax revenues, particularly from corporates, which cannot be relied upon to continue growing strongly in a world of less buoyant growth. It remains to be seen whether Ireland will be able to afford further fiscal giveaways in future or whether it may be forced to resume a tight fiscal stance once the election is out of the way. … although further progress in bank restructuring is necessary The good news is that the ECB’s easy monetary stance has offset some of the fiscal pain. But despite the fact that restructuring in the banking sector has helped restore it to partial health, banks continue to curb their lending activities. Unless we see further progress on this front in the coming years, this will increasingly act as a drag on growth. Although the strength of the housing market is cited as a possible source of instability, and has awakened fears that Ireland has not learned the lessons of the boom-and-bust, the market is being driven by cash-buyers operating in an environment of increasingly limited supply. Indeed, a recent survey by the CSO pointed out that across 80% of the country it is more expensive to rent than to buy, suggesting that there is a major structural problem in the residential sector. Accordingly, we do not view a housing bust as a major risk to the economy, although any price correction which impacts on already-high levels of mortgage arrears could act as a hindrance to banking sector reform. The political challenge will be to ensure that people gain the full benefit of their sacrifices One lesson which Ireland offers to other European nations facing structural fiscal issues is that it is possible to weather the storm so long as the government does its part to maintain social cohesion. During the initial phase of the fiscal tightening, social welfare payments were largely protected although they were subsequently reduced. The readiness of younger segments of the Irish labour force to emigrate also played a role by reducing unemployment relative to the outcome which would have occurred with a more static labour force, and further reduced the welfare burden. But anecdotal evidence indicates that many people have yet to feel many of the benefits evident in the macro data. Ireland’s biggest political and economic challenge in the coming years will be to ensure that they do. 10 December 2015 7 Economic Research | Economic Insight This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or Commerzbank’s branch offices mentioned in the document. Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. The author(s) of this report, certify that (a) the views expressed in this report accurately reflect their personal views; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. The analyst(s) named on this report are not registered / qualified as research analysts with FINRA and are not subject to NASD Rule 2711. Disclaimer This document is for information purposes only and does not take into account specific circumstances of any recipient. The information contained herein does not constitute the provision of investment advice. It is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the financial instruments and/or securities mentioned in this document and will not form the basis or a part of any contract or commitment whatsoever. Investors should seek independent professional advice and draw their own conclusions regarding suitability of any transaction including the economic benefits, risks, legal, regulatory, credit, accounting and tax implications. The information in this document is based on public data obtained from sources believed by Commerzbank to be reliable and in good faith, but no representations, guarantees or warranties are made by Commerzbank with regard to accuracy, completeness or suitability of the data. Commerzbank has not performed any independent review or due diligence of publicly available information regarding an unaffiliated reference asset or index. The opinions and estimates contained herein reflect the current judgement of the author(s) on the date of this document and are subject to change without notice. The opinions do not necessarily correspond to the opinions of Commerzbank. Commerzbank does not have an obligation to update, modify or amend this document or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. This communication may contain trading ideas where Commerzbank may trade in such financial instruments with customers or other counterparties. Any prices provided herein (other than those that are identified as being historical) are indicative only, and do not represent firm quotes as to either size or price. The past performance of financial instruments is not indicative of future results. No assurance can be given that any financial instrument or issuer described herein would yield favourable investment results. Any forecasts or price targets shown for companies and/or securities discussed in this document may not be achieved due to multiple risk factors including without limitation market volatility, sector volatility, corporate actions, the unavailability of complete and accurate information and/or the subsequent transpiration that underlying assumptions made by Commerzbank or by other sources relied upon in the document were inapposite. Commerzbank and or its affiliates may act as a market maker in the instrument(s) and or its derivative that has been mentioned in our research reports. Employees of Commerzbank and or its affiliates may provide written or oral commentary, including trading strategies, to our clients and business units that may be contrary to the opinions conveyed in this research report. Commerzbank may perform or seek to perform investment banking services for issuers mentioned in research reports. Neither Commerzbank nor any of its respective directors, officers or employees accepts any responsibility or liability whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this document. Commerzbank may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Commerzbank endorses, recommends or approves any material on the linked page or accessible from it. Commerzbank does not accept responsibility whatsoever for any such material, nor for any consequences of its use. This document is for the use of the addressees only and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part, for any purpose, without the prior, written consent of Commerzbank. The manner of distributing this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves about and to observe such restrictions. By accepting this document, a recipient hereof agrees to be bound by the foregoing limitations. Additional notes to readers in the following countries: Germany: Commerzbank AG is registered in the Commercial Register at Amtsgericht Frankfurt under the number HRB 32000. Commerzbank AG is supervised by both the German regulator, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Graurheindorfer Strasse 108, 53117 Bonn, Marie-Curie-Strasse 24-28, 60439 Frankfurt am Main and the European Central Bank, Sonnemannstrasse 20, 60314 Frankfurt am Main, Germany. United Kingdom: This document has been issued or approved for issue in the United Kingdom by Commerzbank AG London Branch. Commerzbank AG, London Branch is authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), and the European Central Bank and is subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details on the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request. This document is directed exclusively to eligible counterparties and professional clients. It is not directed to retail clients. No persons other than an eligible counterparty or a professional client should read or rely on any information in this document. Commerzbank AG, London Branch does not deal for or advise or otherwise offer any investment services to retail clients. United States: This document has been approved for distribution in the US under applicable US law by Commerz Markets LLC (‘Commerz Markets’), a wholly owned subsidiary of Commerzbank AG and a US registered broker-dealer. Any securities transaction by US persons must be effected with Commerz Markets, and transaction in swaps with Commerzbank AG. Under applicable US law; information regarding clients of Commerz Markets may be distributed to other companies within the Commerzbank group. This research report is intended for distribution in the United States solely to “institutional investors” and “major U.S. institutional investors,” as defined in Rule 15a-6 under the Securities Exchange Act of 1934. Commerz Markets is a member of FINRA and SIPC. Commerzbank AG is a provisionally registered swap dealer with the CFTC. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. Under no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. In Canada, the information contained herein is intended solely for distribution to Permitted Clients (as such term is defined in National Instrument 31-103) with whom Commerz Markets LLC deals pursuant to the international dealer exemption. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities may not be conducted through Commerz Markets LLC. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities described herein and any representation to the contrary is an offence. European Economic Area: Where this document has been produced by a legal entity outside of the EEA, the document has been re-issued by Commerzbank AG, London Branch for distribution into the EEA. Singapore: This document is furnished in Singapore by Commerzbank AG, Singapore branch. It may only be received in Singapore by an institutional investor as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”) pursuant to section 274 of the SFA. Hong Kong: This document is furnished in Hong Kong by Commerzbank AG, Hong Kong Branch, and may only be received in Hong Kong by ‘professional investors’ within the meaning of Schedule 1 of the Securities and Futures Ordinance (Cap.571) of Hong Kong and any rules made there under. Japan: Commerzbank AG, Tokyo Branch is responsible for the distribution of Research in Japan. Commerzbank AG, Tokyo Branch is regulated by the Japanese Financial Services Agency (FSA). Australia: Commerzbank AG does not hold an Australian financial services licence. This document is being distributed in Australia to wholesale customers pursuant to an Australian financial services licence exemption for Commerzbank AG under Class Order 04/1313. Commerzbank AG is regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) under the laws of Germany which differ from Australian laws. © Commerzbank AG 2015. All rights reserved. Version 9.21 Commerzbank Corporates & Markets Frankfurt Commerzbank AG DLZ - Gebäude 2, Händlerhaus Mainzer Landstraße 153 60327 Frankfurt Tel: + 49 69 136 21200 8 London Commerzbank AG, London Branch PO BOX 52715 30 Gresham Street London, EC2P 2XY Tel: + 44 207 623 8000 New York Commerz Markets LLC 225 Liberty Street, 32nd floor New York, NY 10281 - 1050 Tel: + 1 212 703 4000 Singapore Branch Commerzbank AG 71, Robinson Road, #12-01 Singapore 068895 Tel: +65 631 10000 Hong Kong Branch Commerzbank AG 15th Floor, Lee Garden One 33 Hysan Avenue, Causeway Bay Hong Kong Tel: +852 3988 0988 10 December 2015