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Exhibit 41: European Commission Industrial Confidence Survey Eurozone business sentiment has remained steady despite recent shocks, including Brexit. Index Level 10 5 Industrial Confidence ----- Average Since 1985 50 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Data through November 2016. Source: Investment Strategy Group, Datastream. Exhibit 42: Drivers of Eurozone 2-Year Capital Spending Plans Key factors that influence business investment stand at their highest levels in years. Z-Score 1.2 > m 2013 a ‘it a m 2014 - : 2015 08 0.8 m 2016 07 0.8 0.6 > 05 0.4 04 5 0.2 0.0 + = 7 01 -0.1 -0.2 0.2 92 02 -0.4 06-5 -06 -0.8 - Expected Demand Financial Conditions Technical Factors* Data through 2016. Note: Based on the European Commission investment survey. Source: Investment Strategy Group, Datastream. * Technical factors include technological developments, the availability of labor and government incentives to invest. As a result, Eurozone policy is likely to remain accommodative, keeping financial conditions supportive of growth. While we expect the European Central Bank (ECB) to gradually shift to a more neutral stance that is less punitive to bank profitability and acknowledges the uptrend in headline inflation, this shift does not imply the removal of accommodation. Indeed, the ECB has already announced an extension of quantitative easing through December 2017. Meanwhile, the European Commission has endorsed a moderate fiscal easing of 0.5% of GDP for the Eurozone. Given that fiscal policy is typically loosened ahead of major elections, this guidance could soon be embraced in France and Germany. Of equal importance, both consumption and business investment are well positioned as we enter 2017. On the former, continued improvement in the labor market and ongoing GDP growth should Ongoing uncertainty regarding Brexit, the banking sector and upcoming elections remains a potential downside risk. encourage consumers to spend a bit from their precautionary savings, particularly given today’s relatively high savings rate. At the same time, the fundamental justifications for increased business spending, such as higher demand and easy credit conditions, stand at their best levels in years (see Exhibit 42). Perhaps not surprisingly, a late 2016 survey of manufacturing firms revealed their investment intentions stood at all-time highs.!% Of course, ongoing uncertainty regarding Brexit, the banking sector and upcoming elections remains a potential downside risk, particularly for an investment recovery. As a result, we acknowledge a greater-than-normal range of potential outcomes, both positive and negative. For example, the victory of the far right in the French presidential election could unleash fears about France exiting the European Union and endanger the survival of the euro, while the new government in Italy could speed up the long-overdue resolution of the banking sector’s problems and change the electoral law to reduce political uncertainties. For now, our base case assumes that Italy will avoid a populist party in government and that a centrist candidate will win the French presidential election. Thus, we expect the Eurozone to again weather the storm in 2017. Outlook | Investment Strategy Group 43 HOUSE_OVERSIGHT_014576