Europe COVID-19 Tracker Free to View

21 October 2020

Free to View Europe COVID-19 tracker Economics - Europe

Circuit breaker or recovery breaker?

 Rising infection numbers induce a new wave of restrictions Christian Fuertjes across most European countries… Economist HSBC Trinkaus & Burkhardt AG  ...which could be the beginning of a gloomy winter… James Pomeroy Economist HSBC Bank plc  ...and thus require even more fiscal and monetary stimulus

Increase in new infections now looks dangerously exponential again Hopes for a turnaround in the late surge of rising COVID-19 infection numbers in Europe were bitterly disappointed. Official new infections are instead now far above their late March and early April peaks, and still rising strongly in almost every European country (chart 1). Granted, new hospital admission and intensive care patient numbers remain comparably low so far (charts 2 and 3). However, these usually lag the new infection development by several weeks (chart 4). Moreover, the continued up-tick in the positivity rate of COVID-19 tests underline that the jump in infections is genuine and not just a by-product of more tests (chart 5).

Will curfews contain the virus? Hence, it is not surprising that governments have become increasingly worried, and have re-implemented social distancing measures across Europe (chart 6). The new measure of choice for many countries to brake the infection cycle seem to be curfews. Both Spain and Italy are discussing implementation at the national or at least at the regional levels, while France has already implemented restrictions for roughly a quarter of the population. In the UK, there is concern that England and Scotland could follow Wales and Northern Ireland in implementing a nationwide circuit breaker lockdown, which might involve not only the extension of half-term school holidays, but also the complete closure of bars and restaurants (Telegraph, 21 October). Even the German federal government has finally taken back control from the federal states to implement a nationwide adoption of new restrictions. These include closure of bars and restaurants after 11pm in regions and cities that are designated risk areas. The consequences of increased restrictions are already visible in a downturn in high frequency mobility data (charts 7, 8). With demand for services thus likely being further curbed for the time being, the already weak inflation outlook could become weaker still (chart 9).

As fiscal policy hits its financial boundaries, eyes are again set on the ECB Even if recent restrictions are still far from the complete lockdowns in spring, they still pose an additional threat for the economic recovery, which of course brings up the case for even more fiscal stimulus. But given the already accumulated fiscal burden exemplified in the recent UK data (chart 11), governments may not be as keen to ramp up borrowing as they were the first time round. So, the last resort for relief could be the central banks. With not only core inflation at record low, but also the EUR continuously appreciating (charts 12 and 13) at least for the ECB there is no lack of justification for further easing. Although we expect a further extension in both duration and volume of the PEPP (Chart 14), we still think the ECB will hold its firepower in this respect until December. This is a redacted version of the report published on 21-Oct-20. Please contact your HSBC representative or email AskResearch@hsbc.com for information.

Disclosures & Disclaimer Issuer of report: HSBC Trinkaus & Burkhardt AG This report must be read with the disclosures and the analyst certifications in View HSBC Global Research at: the Disclosure appendix, and with the Disclaimer, which forms part of it. https://www.research.hsbc.com

Free to View ● Economics - Europe 21 October 2020

New confirmed COVID-19 infections reach record highs

1. Across Europe, COVID-19 is gaining a strong foothold once again

Covid-19 cases* in the eurozone big 4 and UK 80000 80000 70000 70000 60000 60000 50000 50000 40000 40000 30000 30000 20000 20000 10000 10000 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Germany France Italy Spain UK** Source: ECDC, HSBC. *7-day MA. **UK cases include a jump of almost 23,000 on Sunday 4 October as a backlog of over 15,000 missing cases were added after an error in the tracking system came to light (Reuters, 4 October).

2. New hospital admissions remain far 3. ...as do ICU admissions, but they are below their spring peak … rising as well

per 100k Weekly new hospital admissions per 100k per 100k Weekly ICU occupancy per 100k 50 50 12 12

40 40 10 10 8 8 30 30 6 6 20 20 4 4 10 10 2 2 0 0 0 0 Feb Mar Apr May Jun Jul Aug Sep Oct Mar Apr May Jun Jul Aug Sep Oct France Germany UK Spain France Germany UK Italy

Source: ECDC, Macrobond, NHS. HSBC Source: ECDC, Macrobond, NHS. HSBC. n.b. 7dma

4. And ICU admissions lag the increase in 5. Up-tick in the positivity rate points to cases by at least 3 weeks the genuine threat of a second wave

Cases Germany: COVID-19 hospitalisations & cases Cases % COVID-19 positivity rate % 7000 7000 50 50 6000 6000 40 40 5000 5000 30 30 4000 4000 3000 3000 20 20 2000 2000 10 10 1000 1000 0 0 0 0 Feb Mar Apr May Jun Jul Aug Sep Apr May Jun Jul Aug Sep Oct Germany France Total new confirmed cases* Italy Spain United Kingdom Austria ICU patients Norway Netherlands Mechanically ventilated patients Sweden Source: Macrobond, HSBC. *7dma Source: Macrobond, HSBC

We acknowledge the assistance of Emily Wagenmann, HSBC Bank plc, in the preparation of this report.

2 Free to View ● Economics - Europe 21 October 2020

New restrictions already dragging on activity across Europe

6. Stringency scores indicate that restrictions have been re-implemented Index Government Response Stringency Score Index 100 100

80 80

60 60

40 40

20 20

0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Germany France Italy Spain United Kingdom Norway Sweden Austria Source: Oxford COVID-19 Government response Tracker, HSBC. note: Data as at 14 Oct 2020

7. Activity has not only stopped its upward trend across all European countries… % y-o-y Europe: mobility data* % y-o-y 10 10

0 0

-10 -10

-20 -20

-30 -30

-40 -40

-50 -50

-60 -60 Feb Mar Apr May Jun Jul Aug Sep Oct

Germany France Italy Spain Sweden UK Source: Google, Macrobond, HSBC. *1-week MA.

8. …it is even slowing considerably across regions % of city moving compared to usual (average, week commencing) 120 120 100 100 80 80 60 60 40 40 20 20

0 0

Lyon

Paris

Milan

Berlin

Rome

Lisbon

Madrid

Vienna

London

Brussels

Hamburg

Barcelona

Stockholm

Amsterdam

Manchester

Birmingham Copenhagen

28/09/2020 05/10/2020 12/10/2020 19/10/2020 Source: Citymapper Mobility Index, HSBC. Note: 100% implies usual level of movement. It is worth nothing, however, that Citymapper data are likely to be artificially depressed relative to Google data because people are not travelling as far/ to new places so are much less likely to need to look up a route.

Free to View ● Economics - Europe 21 October 2020

Low inflation, a strong EUR, and fiscal woes put pressure on the ECB

9. Core inflation in the eurozone dropped to 10. The general inflation trend is clearly a record low in September downwards

% Yr Eurozone inflation % Yr % Yr Europe: inflation % Yr 5 5 5 5

4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 0 0

0 0 -1 -1 -2 -2 -1 -1 2010 2012 2014 2016 2018 2020 2000 2003 2006 2009 2012 2015 2018 2021 Germany France Italy Headline HICP Core HICP Spain UK Services HICP Source: Refinitiv Datastream, HSBC. Source: Refinitiv Datastream, HSBC

11. UK’s fiscal position is deteriorating 12. The EUR is nearing its record high on faster every month a trade-weighted basis…

GBPbn PSNB ex banks, rolling 12-month total GBPbn Index Euro effective exchange rate Index 240 240 130 130 200 200 120 120

160 160 Thousands 110 110 120 120 80 80 100 100 40 40 90 90 0 0 80 80 -40 -40 1999 2002 2005 2008 2011 2014 2017 2020

Nominal Effective Exchange Rate*

2003 2005 2007 2009 2011 2013 2015 2017 2019 2001 Source: ONS Source: Macrobond, HSBC. *EA19 vis-a-vis EER-42

13. … and speculators are still positioning 14. A PEPP extension becomes ever more for continued EUR/USD appreciation likely in the current environment

number of contracts EUR/USD EURbn PEPP: Projections EURbn 250000 1.8 1400 1400 1200 1200 150000 1.6 Envelope raised by 1000 EUR600bn in June 1000 50000 1.4 800 800 600 600 -50000 1.2 400 400 200 200 -150000 1 0 0 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 -250000 0.8 2006 2009 2012 2015 2018 Full usage Net positions of "non commercials" (CME) (LHS) Actual EUR/USD (RHS) Based on the latest run rate* Source: Macrobond, HSBC Source: Refinitiv Datastream, HSBC

4 Free to View ● Economics - Europe 21 October 2020

Localised restrictions and no full-blown lockdowns (so far)

15. More restrictions all over the place… Country Latest on the lockdown measures Germany On 14 October, the Federal government has unified and tightened up the rules for districts and cities that surpass the two traffic light incidence ratios. Once the 7- day incidence per 100k inhabitants reaches 35 in a district, the traffic light switches to amber. Now only 25 people are allowed to attend a celebration in a public space instead of 50 and only 15 at a private party instead of 25. If the light turns red (at a 7-day incidence of 50 or more), a maximum of 10 (instead of 25) people is permitted to gather in a public space, and only 10 coming from only two different households at a private party. As of 20 October, not only 149 cities and districts are above the “red-light-threshold” with Berlin far leading the way in total new infection numbers, but also the Germany as a whole is now above the threshold. Meanwhile, wearing masks and keeping 1.5 metres distance in closed rooms, shops, and public transport remains compulsory in all federal states (enforced since 27 April). Large events and mass gatherings, where hygiene regulations and contact tracking are not possible, remain prohibited until at least the end of 2020. Since 1 October, country-specific travel warnings have been in effect for a large number of countries due to the COVID-19 pandemic (thus replacing the general warning for travel outside the Schengen area). A travel warning for non-essential touristic travel continues to apply in principle to all countries that are classified as risk areas. France Since 23 September, French departments have been divided into several categories, depending on the circulation of the virus and on the pressure on local ICU capacity notably. In ‘Alert zones’ (74 departments as of 12 October), local authorities can put in place further restrictions like mandatory mask wearing in some places or cancellation of some large events. In ‘High alert zones’ (as of 12 October, six large cities including Bordeaux and Nice), bars are required to close at 10pm, events like local celebrations or student parties are prohibited, while the ceiling for large events (like stadiums or racing tracks) is reduced to 1,000 people (versus a limit of 5,000 at the national level). In ‘Critical alert zones’ (as of 12 October, eight large cities, including Paris and nearby suburbs, Lyon, Lille, Aix-Marseille), bars and all venues open to the public that do not meet strict health procedures are required to close, and restaurants are open to the public under stricter conditions (up to 6 people at the same table, at least one meter between tables, customers’ contact details must be recorded). Gyms and indoors sports facilities are closed to the public, but stadiums, museums, theatres, cinemas, and concert halls remain open provided they have a strict health protocol and abide by the 1,000 people limit. From 5 October, universities are limited to 50% of their capacity. On 14 October, President Macron announced a four-week 9pm-6am curfew from 17 October in the Paris region and in eight major cities, including Lyon, Lille and Aix-Marseille, with a nationwide ban on festive events and on gatherings with more than 6 people. Working from home must be prioritised. For Paris, malls have also to ensure that density is limited to 4 square meters per customer. Restrictions on international travel also still apply, except from travellers from EU member states and other countries including UK, Switzerland, Norway, Japan, Canada, Australia, and New Zealand. Italy Residents can still move freely between regions and external borders remain open. But a two-week quarantine requirement remains in place for most extra- EU countries, while people from 16 high-risk countries (e.g. Bosnia, Brazil, and Chile) are prohibited from entering (with limited exceptions). Travellers from countries with high infection rates, such as Spain, Malta, and the metropolitan area of Paris have an obligation to undertake a COVID-19 test immediately before or upon entry. Schools were re-opened for the first time on 14 September and the government's stated priority is to avoid another lockdown. In order to achieve that, Italy’s nightclubs remain closed, face masks are required indoors and, from 6 October, outdoors. New restrictions were imposed on 13 October and tightened further on 18 October. Official gatherings (weddings etc.) are limited to 30 guests, who must be seated. Attendance at sporting events has been limited to 15% of capacity and in any case to a maximum of 200 for indoor events and 1,000 for outdoor ones. Restaurants and bars with table service have to shut by midnight (without table service at 6pm), but regions can introduce tighter restrictions. Some (Lombardy and Campania) have requested authorisation from the government to implement a curfew from 11pm to 5am, with all activities shut, from Friday 23 October. Organised indoor sport activities continue, but without any competition. Group outdoor amateur sporting activities are suspended (but not organised ones for children). Working from home and gatherings of only up to six people are 'highly recommended’. The 'state of alert' has been extended until 31 January. Spain Most of Spain remains in Phase 3 (or 'new normality'), which includes permission for gatherings of up to 20 people and the reopening of bars and restaurants (but with some limitations, 50% of capacity for indoor spaces, 75% for outdoor spaces). Cinemas, theatres, concert halls remain open (the latter limited to a third of capacity), while in indoor spaces there is a minimum distance of 1.5 metres. So far there has been no nationwide rolling back of these measures, but restrictions have been implemented at a regional and municipal level, affecting about third of the population. Strict confinement measures affect 48 municipalities, including several districts of the capital city Madrid, and since 22 October, the whole region of Navarra, with mobility restrictions other than for health, work, legal, and education reasons. These measures affect some 6.3m people (13.6% of the population). Overall 1741 municipalities have moved back to earlier phases (2 or even 1 in some cases) which entails tougher restrictions to mobility, gatherings or other restrictions of some sort. Restrictions are now affecting about third of the population. The region of Catalonia has announced on 14 October that all bars and restaurants would be shut down for 15 days, the same for casinos and beauty centres (but not hairdressers) and all sport activities are suspended. The region of Madrid is contemplating a possible curfew from midnight to 6am (EI País, 21 October). UK The UK has been re-tightening restrictions since September. Across the UK, masks are compulsory in public indoor spaces, including public transport and taxis. A 14-day isolation period now applies to all arrivals from numerous countries, including France and Spain. But apart from that, the rules are different in each of the UK’s four countries. On 12 October, Prime Minister Johnson announced a new three-tier system for England, dividing areas into medium, high, and very high risk. This new system came into effect on 14 October. For areas designated ‘medium’ risk, private gatherings of more than six people are banned, and restaurants and bars must close at 10pm. For high risk areas, these rules apply, but households are also banned from mixing indoors. For ‘very high’ risk areas, the medium and high rules apply, but are extended so that households are also banned from mixing outdoors, and bars that don’t serve food and casinos are closed. At the time of writing, Liverpool, Lancashire, Greater Manchester, and Sheffield fell into this category, but there was concern that a national ‘circuit breaker’ could be announced (Telegraph, 21 October). In Scotland, the rule of six applies to private gatherings and households are banned from mixing indoors. Indoor bars and restaurants can only open between 6am and 6pm, and must not serve alcohol. Food and alcohol may be served outdoors until 10pm. Additional restrictions are in place in the central belt region, and a tier system is expected to be introduced on 2 November (Sky News, 21 October). ‘Circuit breakers are in place in Wales (23 October – 9 November) and Northern Ireland (4 weeks from 16 October). Both of these circuit breakers include an extended half-term holiday for schools, as well as the closure of cafes, bars, and restaurants, but non-essential retail is only closed in Wales. Source: HSBC.

Free to View ● Economics - Europe 21 October 2020

Real-time activity data

16. Annual electricity demand growth in Italy 17. …while it has rebounded lately in Spain remains broadly in line with last year... despite stricter rules on social distancing

% Yr Italy: electricity consumption % % Yr Spain: electricity consumption % 15 15 10 10 10 10 5 5 5 5 0 0 0 0 -5 -5 -5 -5 -10 -10 -10 -10 -15 -15 -15 -15 -20 -20 -20 -20 -25 -25 -25 -25 -30 -30 -30 -30 Feb Mar Apr May Jun Jul Aug Sep Feb Mar Apr May Jun Jul Aug Sep Change from 9 March (RHS) Change from 9 March (RHS) Change from last year (7-day MA, LHS) Change from last year (7-day MA, LHS) Source: HSBC calculations based on Terna (electricity network provider). Source: HSBC calculations based on REF (electricity network provider).

18. German electricity demand seems to have 19. … and truck traffic has also been peaked in late September… consolidating in recent weeks

% Yr German electricity consumption % Yr Index Germany truck traffic (7day-MA) Index 10 10 120 120

115 115 0 0 110 110 -10 -10 105 105

-20 -20 100 100

-30 -30 95 95 Feb Mar Apr May Jun Jul Aug Sep Change from 9 March (7-day MA, RHS) 90 90 Change from last year (7-day MA, LHS) © Jan Mar May Jul Sep Source: Macrobond, HSBC Source: Macrobond, HSBC

20. Air travel is stuck at low levels 21. No “eat out” or “help out” any more

% Yr Air travel: Scheduled flights % Yr % Yr Restaurant sales-7 day MA % Yr 0 0 80 80 60 60 -20 -20 40 40 -40 -40 20 20 0 0 -20 -20 -60 -60 -40 -40 -80 -80 -60 -60 -80 -80 -100 -100 -100 -100 Feb Mar Apr May Jun Jul Aug Sep Oct Feb Mar Apr May Jun Jul Aug Sep Global Germany France Italy Spain UK Global Germany United Kingdom Ireland Sweden Source: OAG flights scheduler, HSBC Source: OpenTable, HSBC

6 Free to View ● Economics - Europe 21 October 2020

COVID-19 in Western Europe (spreadsheet with all countries)

22. New COVID-19 cases in Germany have 23. …and even more so in France increased above their former peak… D D Confirmed cases Germany Daily changes Confirmed cases France Daily changes 400000 8000 1000000 35000 350000 7000 300000 6000 800000 28000 250000 5000 600000 21000 200000 4000 150000 3000 400000 14000 100000 2000 200000 7000 50000 1000 0 0 0 0 Feb Mar Apr May Jun Jul Aug Sep Feb Mar Apr May Jun Jul Aug Sep Daily changes (RHS) Number of confirmed cases (LHS) Daily changes (RHS) Number of confirmed cases (LHS) Source: ECDC, HSBC Source: ECDC, HSBC

24. Italy is even back on exponential growth in 25. …While Spain’s increase is linear but at a new cases… much higher level DD Confirmed cases Italy Daily changes Confirmed cases Spain Daily changes 450000 15000 1050000 42000

360000 12000 900000 36000 750000 30000 270000 9000 600000 24000

180000 6000 450000 18000 300000 12000 90000 3000 150000 6000 0 0 0 0 Feb Mar Apr May Jun Jul Aug Sep Feb Mar Apr May Jun Jul Aug Sep Daily changes (RHS) Number of confirmed cases (LHS) Daily changes (RHS) Confirmed cases (LHS)

Source: ECDC, HSBC Source: ECDC, HSBC NB: There were 37,889 cases recorded on Monday 19 October, but zero cases on the Saturday and Sunday. So this number probably covers cases over the weekend and on the Monday.

26. UK cases have jumped sharply in recent 27. New cases in Switzerland are also rising weeks* fast

Confirmed cases UK Daily changes Confirmed cases Switzerland Daily changes 800000 25000 90000 9000

640000 20000 75000 7500 60000 6000 480000 15000 45000 4500 320000 10000 30000 3000 160000 5000 15000 1500

0 0 0 0 Feb Mar Apr May Jun Jul Aug Sep Feb Mar Apr May Jun Jul Aug Sep Daily changes (RHS) Number of confirmed cases (LHS) Daily changes (RHS) Number of confirmed cases (LHS) Source: ECDC, HSBC. *Jump on 4 October driven by incorporation of missing cases – see Source: ECDC, HSBC footnote on Chart 1. Even accounting for the volatility, cases are rising quickly

7 Free to View ● Economics - Europe 21 October 2020

2 8. The development in Belgium and the 2 9. At least Norway seems to have still some Netherlands looks particularly worrying control over the trend in infections D D Confirmed cases Netherlands/Belgium Daily changes Confirmed cases Norway Daily changes 280000 14000 18000 480 240000 12000 15000 400 200000 10000 160000 8000 12000 320 120000 6000 9000 240

80000 4000 6000 160 40000 2000 0 0 3000 80 Feb Mar Apr May Jun Jul Aug Sep NL-Daily changes (RHS) 0 0 BE- Daily changes (RHS) Feb Mar Apr May Jun Jul Aug Sep NL-Number of confirmed cases (LHS) Daily changes (RHS) Number of confirmed cases (LHS) BE- Number of confirmed cases (LHS) Source: ECDC, HSBC Source: ECDC, HSBC

30. In Sweden it’s getting worse again but still 31. Cases in Ireland are now rising fairly rapidly better than in most other countries D Confirmed cases Sweden Daily changes Confirmed cases D Ireland Daily changes 120000 1800 60000 1600

100000 1500 45000 1200 80000 1200

60000 900 30000 800

40000 600 15000 400 20000 300

32. New cases in Portugal continue to pick-up… 33. ...and the Greek numbers are also on the rise D D D D Confirmed cases D D PortugalDD D D Daily changes Confirmed cases Greece Daily cases 120000 3000 30000 600

100000 2500 25000 500

80000 2000 20000 400

60000 1500 15000 300

40000 1000 10000 200

20000 500 5000 100

0 0 0 0 Feb Mar Apr May Jun Jul Aug Sep Feb Mar Apr May Jun Jul Aug Sep Daily changes (RHS) Number of confirmed cases (LHS) Daily changes (RHS) Number of confirmed cases (LHS)

Source: ECDC, HSBC Source: ECDC, HSBC

8 Free to View ● Economics - Europe 21 October 2020

Fiscal measures (in the Big 4 eurozone countries and the UK)

34. Germany is still leading the way in the eurozone in terms of fiscal stimulus measures

% GDP Eurozone: Decomposition of deficit increases in 2020 % GDP 11 10 10 9 8 8 7 6 6 5 4 4 3 2 2 1 0 0 Eurozone Germany France Italy Spain Fiscal impulse Economic cycle* Total

Source: HSBC calculations, European Commission. Note: * This includes the 'normal' short-time work compensation schemes (i.e. excluding exceptions and more generous terms introduced due to the COVID-19 crisis).

35. Germany’s fiscal headroom allows generous direct support and guarantee schemes Measure Detail Direct Overall, the German federal government has scrapped both the balanced budget goal as well as the national debt brake measures until at least the end of 2021, and invoked debt financed fiscal support of roughly EUR218bn on the federal level alone to support the economic recovery from the COVID-19 crisis via two supplementary budget proposals including:  Direct payments to self-employed people, SME’s, and larger businesses to cope with the hit by the COVID-19 disease and the lockdown-related revenue shortfalls (EUR25.0bn)  Bail out for public institutions, municipalities, and social security systems (EUR13.0bn)  Temporary tax redemptions and tax credits (EUR13.3bn)  Child benefit bonus of EUR300 per child (EUR4.3bn)  Social security contribution limit at 40% for 2020 (EUR5.3bn)  Temporary VAT cut until end-2020 (EUR20.0bn)  Additional healthcare investment (EUR5.75bn)  Enhancing the existing short-time work scheme by increasing the maximum duration from 12 to up to 24 months, increasing the wage compensation for longer-term short-time workers up to 87% of the net wage, and refunding employers’ social security payments for employees in short-time work Moreover, the government proposed a number of longer-term expenditures that are not directly linked to tackling the COVID-19 disease, but to ease the path towards a sustainable economic recovery; e.g.:  Increased state subsidy for EEG (EUR11.0bn)  Funding for long-run investment projects, e.g. “green energy” (EUR36.0bn)  Frontloading of planned public investment and expenses (EUR10.0bn) As an additional tool, a debt financed state fund worth EUR200bn as part of the so called “Wirtschaftsstabilisierungsfonds” (WSF) was established that could either be used for KfW refinancing measures (EUR100bn) as well as for direct investment via acquiring shares in businesses (EUR100bn) to bolster their liquidity and ensure their solvency during the pandemic. As of 20 October, EUR6.6bn for recapitalisation measures were drawn. Guarantees Direct fiscal measures were flanked by very generous guarantee schemes designed to provide liquidity support for German businesses of all sizes from SMEs to big corporations. In this respect, the available sum of loan guarantees for programmes offered by the German promotional bank KfW, as well as direct guarantees, sum up to roughly EUR820bn. While most of the KfW loans do not provide a full bail-out and thus up to 20% of the default risk remains with the respective commercial banks, the government has also set up a fully guaranteed loan programme for SMEs (“KfW-Schnellkredit” or “quick loan). Moreover, the government has set aside EUR400bn for direct credit guarantees for e.g. bond issuances by larger companies and corporations as part of the WSF. As of 20 October a total of EUR70.6bn of these instruments have actually been drawn by businesses, with the lion’s share (EUR45.3bn) in KfW, while direct credit guarantees only make up EUR3.8bn. Source: HSBC. Ministry of Finance. For more detail see: Eurozone fiscal outlook, 19 May 2020; and Germany’s supplementary budget; Going big, 22 March 2020

9 Free to View ● Economics - Europe 21 October 2020

36. The French government expects a fiscal deficit of 10.2% of GDP this year Measure Detail Direct Many fiscal initiatives have been launched by Paris against COVID-19. Three budget plans were unveiled in March, measures April, and June, which included a total of EUR136bn (5.6% of GDP) in additional public spending. A fourth support plan worth EUR100bn (4.1% of GDP) until the end of 2024 has been presented on 3 September, more focused on structural measures and potential growth. On 28 September, the French government gave more details on its near-term fiscal plans in detailing its 2021 draft budget, discussed by Parliament from 6 October. It includes large tax cuts for companies (EUR9bn vs EUR5.7bn in 2020, mainly in production taxes), but much less for households (EUR0.4bn vs EUR10.2bn in 2020). According to the 2021 draft budget law, GDP will fall by 10% in 2020, pushing the fiscal deficit to 10.2% of GDP and public debt to 117.4% of GDP. In 2021, there should be a marked rebound in GDP growth (8.0%) which would lead to a reduction in the fiscal deficit (to 6.7% of GDP) and in the public debt ratio (to 116.2% of GDP). No consolidation in public finances can be seen in the draft as the structural deficit is planned to increase to 3.6% of potential GDP in 2021, up from 1.2% in 2020. To finance this plan, French authorities expect to receive EUR40bn in European grants included in the EUR750bn agreement reached in July. The Solidarity fund created in June to support SMEs’ cash position (through grants up to EUR10,000) had disbursed EUR6.4bn as of 16 October. To compensate for new restrictive measures, the government announced on 8 October the extension of the Solidarity fund to 75,000 new companies, as well as new exemptions from social security contributions. The number of workers effectively benefiting from the short time compensation scheme reached 1.3 million at the end of August, down from 1.9 million in July and a peak at 8.6 million in April.

Guarantees Public guarantees (by Bpifrance) to maintain credit lines. EUR300bn (around 12.4% of GDP) of guarantees have been granted. This can cover 90% of a loan for companies with less than 5,000 employees and less than EUR1.5bn of turnover (the maximum is 80% if one of these two conditions is met). The amount cannot exceed three months of turnover in 2019 or, for innovative firms or firms created since 1 January 2019, two years of payroll. According to the Finance Ministry, EUR121.8bn of guaranteed loans had been granted by banks on 2 October. The government announced on 15 October a six-month extension of public guarantees (so that companies can apply until 30 June 2021) as well as discussions with the banking federation in order to defer repayment for one extra year for struggling companies (Les Echos, 15 October). On 19 October, the government confirmed that State-backed quasi-equity loans and bonds, worth EUR10bn to EUR20bn, will be launched in 2021Q1 in order to support long-term financing of SMEs. Source: HSBC. Ministry of Finance. For more detail see: France 2021 budget, 29 September 2020; France budget to the rescue again, 3 September 2020; and French fiscal stimulus: A third package, pushing public debt above 120% of GDP, 10 June 2020

37. Italy: Some EUR100bn in total support measures this year Measure Detail Direct Parliament approved in the summer a new package of fiscal support worth EUR25bn (1.5% of GDP) this year and measures another EUR6bn (0.4% of GDP) next year. This is mainly due to the higher-than-expected spending on the short- time work compensation schemes, the recapitalisation needs of public entities responsible for providing guarantees to the banks on the loans to firms, and measures in support of local authorities. Short-time work compensation schemes have been extended until the end of the year, but only for firms that have lost revenues during the crisis and have been tapping the scheme so far. The lay-off freeze has also been extended until year end, although from 15 October only for the firms that are tapping the short-time work schemes. This follows on from EUR75bn (4.5% of GDP) of fiscal measures implemented earlier in the year to support the health sectors, workers, and firms. The government also introduced a large tax credit (110%) for major renovations improving the environmental efficiency of residential and commercial buildings. The government expects a deficit of 10.8% of GDP this year based on its latest multi-annual budgetary plan approved on 6 October. For 2021, the government said it intends to use EU 'grants' in full, which should provide an additional boost to growth next year of 0.3ppt, while the EU 'loans' should help finance the planned fiscal expansion next year, pushing the fiscal deficit from 5.7% in the baseline (no policy change) scenario to 7% of GDP in the government's plans. The expansionary measures in 2021 are set to support the sectors and workers hit hardest by the crisis and reduce the tax burden on medium-low income earners, and extend short-time work schemes and guarantees to the banks. Some EU funds could be used to finance a temporary reduction of labour taxes from 2021 – one of the reform priorities identified by the EC for Italy – which could take the form of cuts to social contributions paid by firms to incentivise permanent hires, particularly among the young. The government has confirmed the permanent reduction in income tax for those earning between EUR28,000 and EUR40,000 (introduced temporarily this year) and the tax credit for firms’ investment in the south of Italy. It also intends to start put aside some money for a major income tax reform starting in 2022.

Guarantees Extension (from EUR1bn to EUR3bn) of the SME guarantee fund to maintain finance for small firms (by CDP). EUR4bn allocated by SACE (state-owned export credit agency) in support of SMEs facing liquidity issues and to support export (covering loans of up to EUR5m). The total amount of guarantees provided was intended to unlock liquidity for the firms of up to EUR350bn. An expansion was announced in April, intended to provide EUR400bn of liquidity for firms – EUR200bn for the domestic market and EUR200bn for exports (taking the total to EUR750bn, according to the PM, but due to a duplication between the two schemes we think the total is EUR450-500bn). Up to EUR25,000 are available immediately, based on a valid tax document for the previous year, and with a 100% guarantee. The guarantee is 90% for firms with less than 5,000 workers and less than EUR1.5bn of revenues, 80% for firms with more than 5,000 workers, and between EUR1.5bn and EUR5bn of revenues, and 70% for larger firms. As of 25 September, there have been EUR294bn of moratorium payments on the loans and another EUR65.9bn of loans to SMEs have been granted based on government guarantees (out of EUR101bn requested). Source: HSBC. Ministry of Finance, Fondo di Garanzia. For more detail see Italy multi-annual budgetary plan: Fiscal consolidation back-loaded, 6 October 2020; Eurozone fiscal outlook, 19 May 2020; Thinking the Unthinkable, 11 May 2020, and Italy: Further lock-down measures could increase the costs of the outbreak, 12 March 2020.

10 Free to View ● Economics - Europe 21 October 2020

38. Spain has committed 2.8% of GDP in direct fiscal measures to support the economy Measure Detail Direct Spain has approved EUR28bn (2.5% of GDP) in discretionary fiscal measures to support the economy. These measures include measures to support the health sector, workers’ protection schemes, extension of unemployment benefits, and measures to support households and firms hit hardest by the crisis. For the short-time work compensation scheme (ERTE), initially SMEs were exempted from 100% of their social contributions, and 75% for all other firms (EUR17.9bn). Short-time schemes have now been extended until January 2021, but the discount to firms' social contribution has been progressively reduced (currently 35/25%). From 15 June, a new, temporary, minimum citizenship income scheme, of EUR460 per adult to up to EUR1,015 per household, is also available. On 3 July, the government announced further support measures, among which EUR10bn will be available for equity support to strategic firms and EUR1.1bn in fiscal incentives to renew vehicles for low-income earners. With Spain's coalition government lacking a majority in parliament, so far the prospects for approving a budget for next year appear limited, which would mean this year's budget gets rolled forward (effectively that would mean the 2018 budget gets rolled over, since Spain has not been able to pass a budget since then). Based on a no-policy- change scenario, the government sees a fiscal deficit of 7.8% of GDP next year, down from 11.1% this year. Guarantees Guarantees of up to EUR100bn provided to the banks by the Instituto de Crédito Oficial (ICO), the state promotional bank, for certified liquidity needs within the next 12 months (18 months SMEs and self-employed), covering up to 80% of the loans to SMEs and self-employed, and up to 70% of the loans to larger firms (new loans) and 60% for other loans. On 3 July the government added a further EUR40bn to the scheme, taking the maximum loan coverage to EUR140bn. So far, a little more than EUR100bn has been used. Source: HSBC. Ministry of Finance, Moncloa, Instituto de Crédito Oficial (ICO). For more detail see: Overly optimistic: Spain's latest official macroeconomic projections, 13 October 2020: Eurozone fiscal outlook, 19 May 2020; Spain outlook: Hard hit by COVID-19, 6 August 2020; Spain Economic Outlook: Will prudence pay?; 27 May 2020; Eurozone fiscal outlook, 19 May 2020

39. Brussels' proposed Recovery Fund is a step change in the joint EU fiscal response – Measure Detail Direct Supporting joint research initiatives (EUR140m mobilised using public and private sources for research on vaccines, measures diagnosis and treatment) and help with the procurement of protective equipment and respiratory devices. EUR37bn (0.3% of GDP) pledged to the so-called “Corona investment initiative” to support healthcare systems, SMEs, and the labour market. Rather than requesting that its member countries refund the unspent pre-financing of EU funds, the EC will allow them to keep the funds for use as co-financing for additional projects. Another EUR28bn (0.2% of GDP) of EU structural funds will be made fully eligible for COVID-19 related expenses. On 28 May, the EC unveiled its proposal for a 'Next Generation EU' fund of up to EUR750bn, which was agreed by the European Council on 21 July. This will now have to be approved by the European Parliament, which has put forward some objections to the part of the deal related to the net seven-year EU budget plan and the implementation of ‘rule of law’ conditionality and the national parliaments later in the year. The European Commission (EC) will be able to borrow the funds using the EU budget as a guarantee until 2026 (but no later). The composition changed from the initial EC proposal: the 'grants' (which are really net transfers from future budgets) fall from EUR500bn to EUR390bn while the 'loans' element increases from EUR250bn to EUR360bn. The money borrowed by the EC must be reimbursed by 2058. Funds should be made available "to countries for the sole purpose of addressing the consequences of the COVID-19 crisis." This applies to both 'loans' and 'grants'. Countries have to submit recovery and resilience plans with the list of projects they would like to finance, which will be assessed by the EC within two months of the submission, against the criteria of consistency with the country-specific recommendations. "Growth potential, job creation and economic and social resilience" shall have the highest score, while "effective contribution to the green and digital transition shall also be a prerequisite for a positive assessment". The assessment will then have to be approved by the Council by qualified majority voting (QMV), which means 15 countries representing at least 65% of the population. As for the disbursements, the EC assesses the "satisfactory fulfilment of the relevant milestones and targets." It will then seek the opinion of the Economic and Financial Committee (a lower level meeting of the Finance Minister gathering), and in "exceptional" cases where one or more members consider that there are "serious deviations from the satisfactory fulfilment" of the targets "they may request the President of the European Council to refer the matter to the next European Council" meeting. No payment will be made until "the next European Council has exhaustively discussed the matter". The whole process should not take longer than three months. In the end, the opinion of the EC prevails.

Guarantees A EUR25bn pan-European guarantee fund allocated by the European Investment Bank (EIB), which will be provided to the banks as a first-loss insurance to help them extend their credit lines to SMEs, covering EUR200bn of loans. Fiscal EUR240bn of a credit line (Pandemic Crisis Support) from the European Stability Mechanism (ESM) based on the backstops existing credit line (ECCL) of up to 2% of GDP per country. The only requirement to access the credit line is that countries “commit to use this credit line to support domestic financing of direct and indirect healthcare, cure and prevention related costs due to the COVID-19 crisis”. Although the Eurogroup statement also says that “afterwards, countries should “remain committed to strengthen economic and financial fundamentals”. An unemployment reinsurance system (“SURE”). The EC issues up to EUR100bn of debt, “building on the EU budget as much as possible” and backed guarantees provided voluntarily by the countries, which will be used to finance the short-time work compensation schemes set up by the countries. The fund has been approved by the Council (EUR87.8bn allocated to 17 countries) and should start tapping the markets in the second half of October. Source: HSBC. European Council, European Commission. For more detail see A deal, at last, 21 July 2020: How big a deal? What the EU recovery fund could mean for growth ,10 June 2020; An ambitious proposal: Q&A on Brussels' Next Generation EU fund, 28 May 2020; and Eurozone fiscal outlook, 19 May 2020.

11 Free to View ● Economics - Europe 21 October 2020

40. The UK is willing to spend “whatever it takes” to tackle the outbreak Measure Detail Direct The UK government has announced direct fiscal support measures worth GBP192bn, according to latest estimates, 3easures in a series of packages announced since the March Budget. The biggest single measure was the Job Retention Scheme, where companies were eligible for grants covering 80% of furloughed workers’ salaries, plus National Insurance contributions – launched on 20 March. At its peak, over 9m workers were registered on the scheme, which draws to a close at the end of October. Latest ONS estimates suggest that 3.5m people could still be on it, and hence at risk of losing their job when it expires. On 8 July, the Chancellor announced a Job Retention Bonus where companies will be paid GBP1,000 for every furloughed employee they bring back to work, and on 24 September he added the Jobs Support Scheme (JSS), which would subsidise the wages of workers who cannot work all of their normal hours. As well as that, the government provided help for self-employed people and cancelled business rates for 12 months for all companies in retail, hospitality, and leisure. For the latter, cash grants of up to GBP25,000 have also been made available. On 9 October, in anticipation of the tighter restrictions to be announced in England, Chancellor Sunak also announced new support for businesses that would be forced to close, including a less generous version of the JRS and cash grants. On 8 July, a set of new measures were announced, this time not so much to cushion the blow of lockdowns, but to entice people back out and restart the economy. These included a 6-month cut in VAT from 20% to 5% for restaurants, hotels, and cultural attractions, and the Eat Out to Help Out discount scheme which applied (with considerable success) in August. The package also included a 6-month stamp duty 'holiday', raising the tax-free threshold on house purchases from GBP125,000 to GBP500,000. On 24 September, against a backdrop of rising COVID-19 case numbers, the Chancellor announced a new Winter Package of measures. As well as the aforementioned JSS, the Chancellor eased the terms of government-backed loans and deferred VAT payments, extended the July VAT cut for hospitality businesses (from mid-January to end-March), and introduced more help for the self-employed. However, in his speech at the Conservative Party Conference on 5 October, he struck a cautious note, pledging to “always balance the books” and warning of “hard choices” to come. While it appears that the September package has replaced an Autumn Budget, we expect to hear from the Chancellor one more time this year, as a Spending Review is due. Guarantees A package of government loan guarantees for businesses up to GBP330bn (or more if necessary). For larger corporates, a Corporate Financing Facility of “low cost easily accessible commercial paper”. The facility will stand ready to offer unlimited financing to eligible companies over the coming year, according to a letter from the Chancellor to the Governor of the BoE. For smaller businesses, the Coronavirus Business Interruption Loan Scheme (CBILS), which allows SMEs to borrow up to GBP5m (up from GBP1.2m originally), with no interest due in the first six months. The scheme was further expanded to offer 80% guaranteed loans of up to GBP25m to companies with turnover between GBP45m and GBP500m, and reformed to reduce any claim on business owners’ personal assets as collateral. On 27 April, the government guarantee was increased to 100% for small firms borrowing up to GBP50,000 under the new Bounce Back loans (BBLs) programme. And on 24 September, the Chancellor announced a number of changes to make the terms on the CBILs and BBLs easier, including extending the term of the government guarantee and introducing payment delays for struggling companies. New GBP1.25bn fund for innovative start-ups announced on 20 April, comprising GBP500m “Future Fund” for high growth companies, and another GBP750m in loans and grants for smaller start-ups. Source: HSBC. Ministry of Finance. For more detail see UK rescue package, 2 April 2020; The UK's Job Retention Scheme, 11 June 2020 UK fiscal Statement, 8 July 2020

12 Free to View ● Economics - Europe 21 October 2020

Disclosure appendix

Analyst Certification The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Christian Fuertjes and James Pomeroy

Important disclosures This document has been prepared and is being distributed by the Research Department of HSBC and is not for publication to other persons, whether through the press or by other means.

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.

Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.

The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or liquidity provider in the securities/instruments mentioned in this report.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for queries regarding other research reports. In order to find out more about the proprietary models used to produce this report, please contact the authoring analyst.

13 Free to View ● Economics - Europe 21 October 2020

Additional disclosures 1 This report is dated as at 21 October 2020. 2 All market data included in this report are dated as at close 20 October 2020, unless a different date and/or a specific time of day is indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.

14 Free to View ● Economics - Europe 21 October 2020

Disclaimer Legal entities as at 1 September 2020 Issuer of report ‘UAE’ HSBC Bank Middle East Limited, DIFC; HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai HSBC Trinkaus & Burkhardt AG Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Securities Königsallee 21/23 (Canada) Inc.; HSBC France, S.A., Madrid, Milan, Stockholm; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC D-40212 Düsseldorf Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities Germany (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Telephone: +49 211 910-0 Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Fax: +49 211 910-98091 Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Website: www.research.hsbc.com Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch; PT Bank HSBC Indonesia; HSBC Qianhai Securities Limited; Banco HSBC S.A. This document has been issued by HSBC Trinkaus & Burkhardt AG (“HSBC”) for the information of its customers only. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. From time to time research analysts conduct site visits of covered issuers. HSBC policies prohibit research analysts from accepting payment or reimbursement for travel expenses from the issuer for such visits. The information and opinions contained within the research reports are based upon publicly available information at the time of publication which are subject to change from time to time. Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. The information contained herein is under no circumstances to be construed as investment advice and is not tailored to the needs of the recipient. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In the UK, this publication is distributed by HSBC Bank plc for the information of its Clients (as defined in the Rules of FCA) and those of its affiliates only. Nothing herein excludes or restricts any duty or liability to a customer which HSBC Bank plc has under the Financial Services and Markets Act 2000 or under the Rules of FCA and PRA. A recipient who chooses to deal with any person who is not a representative of HSBC Bank plc in the UK will not enjoy the protections afforded by the UK regulatory regime. HSBC Bank plc is regulated by the Financial Conduct Authority and the Prudential Regulation Authority. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. Only Economics or Currencies reports are intended for distribution to a person who is not an Accredited Investor, Expert Investor or Institutional Investor as defined in SFA. The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch accepts legal responsibility for the contents of reports pursuant to Regulation 32C(1)(d) of the Financial Advisers Regulations. This publication is not a prospectus as defined in the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. Please refer to The Hongkong and Shanghai Banking Corporation Limited Singapore Branch’s website at www.business.hsbc.com.sg for contact details. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (ABN 48 006 434 162, AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated business. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. It may not be further distributed in whole or in part for any purpose. HSBC Trinkaus & Burkhardt AG is regulated by the Federal Financial Supervisory Authority ("BaFin"). In Canada, this document has been distributed by HSBC Securities (Canada) Inc. (member IIROC), and/or its affiliates. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offense. In Brazil, this document has been distributed by Banco HSBC S.A. ("HSBC Brazil"), and/or its affiliates. As required by Instruction No. 598/18 of the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários), potential conflicts of interest concerning (i) HSBC Brazil and/or its affiliates; and (ii) the analyst(s) responsible for authoring this report are stated on the chart above labelled "HSBC & Analyst Disclosures". If you are an HSBC Private Banking (“PB”) customer with approval for receipt of relevant research publications by an applicable HSBC legal entity, you are eligible to receive this publication. To be eligible to receive such publications, you must have agreed to the applicable HSBC entity’s terms and conditions (“KRC Terms”) for access to the KRC, and the terms and conditions of any other internet banking service offered by that HSBC entity through which you will access research publications using the KRC. Distribution of this publication is the sole responsibility of the HSBC entity with whom you have agreed the KRC Terms. If you do not meet the aforementioned eligibility requirements please disregard this publication and, if you are a customer of PB, please notify your Relationship Manager. Receipt of research publications is strictly subject to the KRC Terms, which can be found at https://research.privatebank.hsbc.com/ – we draw your attention also to the provisions contained in the Important Notes section therein. © Copyright 2020, HSBC Trinkaus & Burkhardt AG, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Trinkaus & Burkhardt AG. MCI (P) 077/12/2019, MCI (P) 016/02/2020

[1158129]