Search
Macroeconomic development
The following information on inflation and growth rates in 2010 reflects the status of estimates at the time this Annual Report went to press.
Global economy
According to IMF (International Monetary Fund) data, the global economy recovered significantly in 2010. The most recent estimates put global economic growth at 5.0%, following a 0.6% contraction in 2009. In its January update of the World Economic Outlook, the IMF refers to a two-speed recovery, meaning that economic growth – for which the IMF differentiates between the regions of advanced economies and emerging and developing economies – has increased at different speeds. The advanced economies (the U.S., the eurozone, Japan, etc., according to the IMF) grew by 3.0%, while the emerging and developing economies (such as Central and Eastern Europe, Asia and Latin America) grew by 7.1%. One of the key growth drivers was private consumption, which declined the most during the financial and economic crisis. The volume of world trade also rose by 12.0% in 2010, after a 10.7% decrease in 2009.
According to the IMF statistics, Japan was the fastest-growing economy among the advanced economies, improving 4.3% with the help of government aid measures. After the IMF revised its forecast for U.S. economic growth to 2.6% back in October, growth at year-end amounted to 2.8%, encouraged by the Fed's $600 billion monetary aid package. The eurozone grew by 1.8% despite resurgent concerns regarding the financial stability of some EU member states that reemerged towards the end of 2009 and efforts to reduce state debt. The main driver of this growth was the strong recovery of the German economy, which grew by 3.6% in 2010.
Among the emerging and developing economies, the Russian economy recorded a substantial recovery. According to IMF figures, it grew by 3.7%, while it had recorded a contraction of 7.9% as recently as 2009. China once again had the highest growth rate, adding 10.3% in 2010 (PY: 9.2%). Economic activity in India rose by 9.7% and made a major contribution to the strong economic upturn in Asia.
Consumer prices in developed countries grew only moderately by 1.5% in 2010. However, there was a significant increase in inflation in some regions particularly in the fourth quarter. The IMF estimates that prices increased by 6.3% in emerging and developing economies.
Germany
The German economy increased by 3.6% in 2010, the strongest growth rate since reunification. Measured in terms of growth, Germany was not only the front runner in the eurozone but also among the G7 countries. This growth was driven primarily by four factors: the recovery of exports encouraged by the revival of the global economy, the catch-up effect from investments delayed in 2009, the inventory cycle, and expansive monetary and fiscal policy. Only €14 billion of the €115 billion German Business Fund (Wirtschaftsfonds Deutschland) launched by the German Federal Government in the spring of 2009 was used, chiefly by SMEs, by the end of December 2010. The fund was closed at the end of January 2011. Over the past two years, the use of reduced working hours and working time accounts proved to be the appropriate means to combat the effects of the crisis. For example, the unnemployment rate fell to 7.7% in 2010. From January 2007 to October 2010, unemployment was reduced by 21% despite the financial and economic crisis. In comparison, U.S. unemployment rose by 109% in the same period.
At 3.5% of GDP, the German budget deficit exceeded the Maastricht criteria of the Stability and Growth Pact by only 50 basis points, while inflation increased by 1.1% in 2010. Private consumption increased by 0.5% and lagged behind this performance.
Western Europe/eurozone
According to the IMF, eurozone economic growth increased by 1.8% in 2010. The increase would have been only 0.75% excluding growth in Germany (+3.6%) according to Deutsche Bank. Some European countries were still struggling with declining economic performance, including Spain (-0.3%), Ireland (-0.5%) and especially Greece (-4.2%). In order to get a handle on rising government debt – which in some cases represented a double-digit percentage of GDP – in the medium term, these countries committed themselves to strict savings plans. The exact arrangement of these programs varies greatly from country to country, but the fundamental principles are the same: reducing state spending and implementing appropriate tax increases without placing economic growth under too much stress. The budget deficit in the eurozone countries is 6.2% overall according to preliminary data. In addition to the known "problem countries", the French and Spanish governments are also struggling with high budget deficits and high unemployment. In Spain, for example, the bursting of the real estate bubble was one factor that led to a dramatic decrease in the construction sector and record unemployment in the eurozone. Every fifth person of working age in Spain is currently without work. According to The Economist economic magazine, eurozone unemployment was 10.1% in 2010. To improve the refinancing opportunities of some countries on the financial markets and to stabilize the common currency, EU finance ministers agreed in mid-May 2010 to launch an EU/IMF rescue package worth €750 billion. The package consists of several parts. The EU is providing a one-time community fund of €60 billion, the IMF is providing €250 billion, and €440 billion is being financed by means of a special purpose vehicle (EFSF – European Financial Stability Facility). In November of 2010, Ireland had to accept financial assistance of €85 billion from the package, which led to speculation that other member countries would also have to accept help before long. In addition to Portugal, Belgium and Spain were also possible candidates for this. In order to find a reliable mechanism for coping with member states in distress in the future, the introduction of a European Stability Mechanism (ESM) is being discussed. One issue in particular is to what extent the creditors should take part in the economic restructuring of a country in distress.
Over the course of the year, inflation in the eurozone increased sharply and amounted to 2.2% for the year as a whole, driven primarily by energy and food prices. This leads to considerations that the European Central Bank could be one of the first major central banks to change its interest policy by the middle of 2011 at the latest.
Central and Eastern Europe
Following the sharp decline of the Eastern European countries with the only major exception being Poland, this region was also able to stabilize itself with the support of the global economic recovery and posted growth in 2010. According to the IMF, economic performance of the Central and Eastern European region improved by 4.2% in 2010. Apart from the comparatively high rate of inflation, the main problem in this region remains the high level of unemployment which exceeds 10% in countries like Hungary and Poland. As regards budget deficit, only Poland is currently below the 3% limit, which is why countries like the Czech Republic and Hungary have taken significant steps to enforce state budget consolidation measures. Savings on the expenditures side are to be achieved primarily through cuts in subsidies and reductions in public sector wages.
America
Despite the significant monetary and fiscal efforts made in 2009, the critical factor of the U.S. economy – the unemployment rate – remained high at just over 9%. The 2009 investment program totaling $800 billion and the lowering of the interest rate to between 0% and 0.25% did not quite have the desired effect as of the beginning of the third quarter of 2010. The U.S. Federal Reserve Bank therefore provided another $600 billion to the U.S. economy in November 2010 under its "quantitative easing" policy. There were also additional tax breaks for companies and private households that the U.S. government resolved at the end of 2010. In total, the IMF estimates that the U.S. economy grew by 2.8% in the year under review, after it fell by 2.6% in 2009. One reason for the U.S. economic upswing in 2010 was the rapid inventory buildup that accounted for about 60% of economic performance. According to the latest information, the budget deficit increased to 8.9% of GDP. The most recent estimates put unemployment at 9.4%. Although the U.S. economy has been in a growth phase for around 18 months, only 951,000 new jobs were created in this period. Even if economic development created 200,000 new jobs per month, it would take until 2020 to bring the unemployment rate below 6%. Since around 70% of U.S. economic performance depends on consumption, the U.S. labor market situation is considered especially important. The housing market stabilized in 2010. However, significant tax incentives were needed for this. Nonetheless, home prices in 16 of the 20 most important U.S. metropolitan areas fell in the past year according to the Case-Shiller Home Price Index.
Asia
According to IMF information, the Japanese economy grew 4.3% in the past year, the highest growth in the triad markets in 2010. Growth drivers were exports and especially private consumption. However, a large part of economic growth in Japan was due to government incentives, most of which expired at the end of the third quarter and which led to a government deficit of approximately 200% of GDP. Economic activity took a considerable downturn as early as the fourth quarter of 2010. This is easy to see from the Japanese statistics on new car registrations. According to JAMA, the Japan Automobile Manufacturers Association, the number of new automobile registrations in the fourth quarter was down by 37% from the previous quarter's figure. Another problem in the Japanese economy is that nominal wages have been falling now for a decade, which leads to a decrease in the savings rate since consumer spending has remained the same. At the same time, Japanese unemployment of around 5% is comparatively high despite the falling wages. More than half of Japanese exports are now capital goods, which means Japan benefits directly from the boom in demand in China but has also made the Japanese economy more dependent on the success of its giant neighbor. In contrast, export activity in other regions is suffering due to the strong Japanese yen observed over the past two years. Compared to the euro, the yen has appreciated by 25% since the end of 2008. This development and others caused the Bank of Japan (BoJ) to make massive currency interventions in September 2010 that were not particularly effective. The BoJ also cut the key interest rate to almost zero percent.
In 2010, China was again the growth driver of the global economy. With economic growth of 10.3%, China grew faster than any other economy in the world. This growth is accompanied by a significant increase in inflation, mainly due to the significant increase in food prices in China as well. They rose by almost 12% in the year under review alone, while inflation excluding food prices climbed just 1.9%. The positive factor about the increase in food prices is the redistribution of wealth from cities to rural areas. Due to ongoing good export development (encouraged by the prevailing exchange rates), the increase in wages in the coastal areas is pushing production further and further inland, which also means a redistribution of wealth to rural areas. However, there is still a long way to go in eliminating the immense imbalances. In addition to increasing food prices, land prices are also continuing to rise rapidly, causing some market observers to compare the situation in Hong Kong especially with the situation in the U.S. three years ago. Rising inflation caused the Chinese central bank to cut interest twice in a row in the fourth quarter. The required reserve ratio (RRR) of commercial banks at the central bank was raised six times in a row to almost 19% in 2010. However, the more restrictive monetary policy was counteracted by efforts to further increase the foreign trade surplus, since, in order to maintain good export figures, the Chinese government had to constantly purchase foreign currencies to keep its own currency low in comparison to other currencies. Despite interest rate increases in October and December 2010, real interest rates remained negative due to comparatively high inflation. China also failed to become more independent from its exports by increasing domestic consumption in 2010. On the contrary, private consumption accounted for only a third of economic growth, while investments currently make up 50% of GDP.
The Indian economy also remained on a growth course in 2010. At 9.7%, its economy just missed double-digit growth. The Indian central bank is still facing the challenge of creating a balanced interest policy to contain inflation without endangering economic growth. Inflation is and will remain the main issue in India. Due to the unfavorable monsoon period, food prices in particular drove the inflation rate for food to 14%. Overall, inflation in 2010 rose to 9.7% and the Indian central bank recently reacted by increasing interest rates again to 6.25%. It raised the interest rate a total of six times in a row in 2010. Exports are also picking up speed. Sectors with problems keeping up with international competition, such as the textile, crafts and tea industries, should be able to count on government help.
Russia
After a sharp drop in 2009 (-7.9%), the Russian economy recovered significantly in 2010. Encouraged by rising raw material prices again, but also by the current increase in industrial production and growing employment, its GDP rose by 3.7% in 2010 according to the IMF. With its significant resources, Russia is one of the largest energy producers in the world with approximately one-quarter of the world's gas reserves (25.2%), about 6.3% of the world's oil reserves, and the world's second-largest coal reserves (19%). It produces 19.6% of the world's gas and 12.4% of the world's oil. The inflation rate fell to 6.8% in the period from January to November 2010 (compared with 8.8% for all of 2009). This slight decline is due to summer wildfires causing food prices to climb considerably again, which drove inflation in the second half of the year. Based on economic data, the Russian budget developed better than planned. Its budget deficit was around 5% of GDP as of the end of 2010, and is expected to fall to 2.9% by 2013.