EY Eurozone forecast: Autumn 2013
Outlook for financial services
Welcome to the Autumn 2013 edition of the EY Eurozone Forecast: Outlook for Financial Services
“Over the summer we saw signs that a sustainable economic recovery in the Eurozone may finally be underway. But a number of challenges remain before we will see a return to profitability and, more importantly, stability in financial services. Not least the unintended consequences and legacy of well-intentioned regulation.”Andy Baldwin
Head of Financial Services, Europe, Middle East, India and Africa
Read Andy's Forecast Overview here
As the Eurozone emerges from recession there are positive signs of growth for financial services. By 2014 total bank lending is set to increase by 3.2% and operating income is due to rise by 7.1%. Life and non-life premiums are forecast to increase in 2013-17, and more robust risk appetite means investors are moving away from safe havens and seeking higher return assets.
Even so, the road ahead is not without obstacles. The persistent low interest rate environment and on-going regulatory burdens are creating challenges across financial services. The ECB’s asset quality review is expected to limit bank lending and push the peak for non-performing loans into 2014 at 7.8%. Solvency II and the demands of an aging population are forcing insurers to develop new products, and putting balance sheets under pressure. And while Eurozone AUM is set to grow by 3.9% in 2014-17 it remains below the historic average of 6.7%.
What do these, and other Eurozone developments mean for your financial services organization and the wider industry? Read our Autumn 2013 forecast to find out more, or contact us for in depth insight on the issues affecting your organization.
Sector Highlights: Hover over, click an image below to learn more.
Bank deposits forecast to increase by 4.4% a year in 2015–17, contributing to profitability in most Eurozone countries.
Banking sector highlights
- Total lending set to increase by 3.2% to €12,440b in 2014, as the Eurozone finally emerges from recession.
- Lending growth will be particularly strong in Germany, at over 5% this year, where business investment is already picking up.
- The ECB’s AQR, due to start early next year, has encouraged a rise in provisioning against non-performing loans (NPLs). NPLs are forecast to peak at 7.8% of total loans in 2013.
- Total bank operating income is expected to rise 7.1% in 2014, as banks put the worst of provisioning behind them.
- Deposit growth of 4.4% a year in 2015-17 will contribute to profitability in most Eurozone countries, with Cyprus a notable exception.
“The AQR is more of an affirmation than a source of concern for some Eurozone banks. The strongest are increasingly keen to move from compliance-driven spending to growth-focused investment.”Robert Cubbage
EMEIA Banking & Capital Markets Leader
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Insurance sector highlights
- Pressure on life premiums will ease as household incomes start to rise again. Premiums are forecast to average 2.7% growth a year in 2014-17.
- Average non-life insurance premiums are set to grow 1.3% across the Eurozone this year, but Germany will see growth of 4%, ahead of the rest of Europe.
- In southern Europe, the difficult economic environment will limit rate increases, especially in motor policies. For example, new car registrations are expected to fall by 7% this year in Italy.
- Continued low interest rates, the challenges of Solvency II, and a steadily aging population will encourage the development of new products, including those related to retirement and care.
“Growing longevity risks mean that low interest rates are putting balance sheets under ever-greater pressure. Another two years of very low rates will pose an existential threat to some European insurers.”Andreas Freiling
EMEIA Insurance Leader
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Asset management sector highlights
- Assets under management (AUMs) in pan-European funds are forecast to rise 6.1% in 2013, to €4,817b, but growth will then slow to less than 4% in 2014-17.
- Equity funds are set to outperform other asset classes, as investors gradually leave safe-havens. AUMs in pan-European equity funds forecast to increase over 50% between 2012 and 2017, to €2,079b.
- AUMs in bond funds will see little overall growth in the next five years, up just over 5% in 2013-17, as investors move out of bonds in core countries. However, peripheral markets will continue to expand, with bond AUMs in Spain forecast to rise by 33% and in Italy by 16% over the same period.
- Alternative investments, such as property market funds, will become more popular, especially in Germany, where a 2% increase in property AUMs is expected in 2013.
“The effects of increasing optimism are also being felt on the operational side of asset management. Many firms are shifting from a focus on pure cost control to a more value based view that supports balanced investment.”Roy Stockell
Partner, EMEIA & ASIA PAC Leader for Asset Management
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