Throughout 2003 stability and confidence returned to the global economy and to the financial markets. At the beginning of 2004 most leading indicators point to a further acceleration of global economic activity, which is reflected in robust global equity markets. The U.S. economy will continue to be the mainstay of global growth. After growing a healthy 3% in 2003, U.S. gross domestic product (GDP) is seen to expand by some 4% in the current year based on rising investment and employment. The recovery in the euro zone should broaden in 2004 as private consumption will benefit from lower inflation, supported by the strength of the euro. German GDP growth in 2004 could reach 2% bringing it slightly above the euro zone’s average. This, however, requires some pick-up in consumption which has remained sluggish so far. Recent updates to business surveys have shown that despite the strength of the world economy the appreciation of the euro is providing a damper for activity in the industrial sector.
Risks arise mainly from the U.S. where the transition to a self-sustained growth in 2005 might fail, leading to a current-account-induced U.S. dollar crisis, putting the potential adjustment burden on the rest of the world. Finally, risk premiums in the credit markets have dropped to levels which make financial markets extremely vulnerable to shocks from, among other factors, the developments in the Middle East or terrorism.
For Deutsche Bank, 2003 was a year when the results of our transformation program were reflected in our bottom line and the progressing development of our franchise received positive recognition from the markets. But we have also used the previous year to lay the ground for the next phase of our strategy: building a springboard for growth.
In our Corporate and Investment Bank (CIB) we have launched systematic growth initiatives to further strengthen the franchise, such as closing the product and distribution gap between us and the top three players in all aspects of U.S. fixed income in Global Markets; expanding structured products in the U.S. and into Asia-Pacific for Global Equities; further building our U.S. mergers & acquisitions, equity capital markets and debt products business within Global Corporate Finance ; introducing market-based-loan pricing in our Global Banking Division; and selling risk management products through Global Trade Finance in Global Transaction Banking.
We are also determined to generate further profitable growth in Private Clients and Asset Management (PCAM). We will continue our efforts to increase efficiency and optimize the product and service range. A comprehensive portfolio of business initiatives is aimed at capturing additional profit growth potential. Our Asset Management Business Division aims to increase our client base and build our brand and culture from within a strictly-controlled cost environment. Going forward, our Private Wealth Management Business Division intends to increase invested assets, revenues, and overall contribution to the bottom line of the Group. Our Private & Business Clients Corporate Division aims to deliver profitable growth through attracting and keeping clients, and team building. The business seeks to attract and keep customers by serving them throughout their lives, and matching the right advisor with the right offering to the right customer.
In Corporate Investments, we expect to continue to reduce our exposure to non-core activities in 2004 through a continuation of our strategy of opportunistic realization whilst preserving/enhancing value in the portfolio as a whole. This will allow us to re-deploy capital and other resources back into our core client businesses.
Risk discipline made significant progress in 2003 and we expect further progress to be supported by improving economic conditions in 2004. We will continue to closely manage risk-weighted assets. We will increasingly use hedging strategies and securitization structures to the extent that they enable us to manage economic risk and risk-weighted assets in efficient ways. We will expand our use of market-based loan pricing. With support of this pricing framework, we will continue to reallocate our balance sheet towards more profitable customer relationships.
Continued cost discipline will remain a clear priority and we are committed to maintain our rigorous attitude to reducing our cost base, constantly improving the efficiency of our businesses, infrastructure platforms and internal processes. To this end, we aim to further reduce the operating cost base by approximately € 800 million with the completion of the second phase of our strategy. We are confident we can attain this goal as the impact of earlier cost cutting measures become fully visible in the current financial year and as additional cuts in infrastructure costs are made.
Capital management will be further supported by our continued determination to return capital to shareholders. Given the current strength of our core capital ratio, we are very confident that also our second share buy-back program will successfully support our strategic targets, without compromising our strong capitalization.
Our transformation strategy lays a solid foundation for continued growth. We have set aggressive but realistic targets for phase two of our management agenda, and the strong competitive platform, combined with good revenue momentum, makes us confident we can achieve our goal of 25 percent underlying pre-tax return on equity, once the strategy is complete.
The year 2004 has started well for us, and we are confident that, if the world’s economies and financial markets continue to develop positively, our growth objectives are achievable.