The Global Economy

Growth of the global economy, having already slowed slightly in 2012 to 3.0 %, continued to decline in 2013 to an estimated 2.8 % on an annualized basis. After the economy reached its low point in the first quarter of 2013 compared to previous year, a recovery was seen over the course of the remainder of the year.

The slowdown affected industrialized and emerging market countries. Economic output slowed from 1.4 % in 2012 to a projected 1.1 % in 2013 in industrialized countries and from 4.7 % to around 4.5 % in emerging market countries. The structural problems that contributed to the financial and economic crisis remained in focus in the industrialized countries. The reduction of private and public debt dampened growth, in particular in the eurozone. Furthermore, political uncertainties in the eurozone and the U.S. weighed on the global economy. Monetary policies of the major central banks continued to be extremely accommodative and supported the global economy. Key interest rates were at historically low levels and extensive quantitative easing measures provided additional support to the economy. In May 2013, initial indications from Ben Bernanke, Chairman of the U.S. Federal Reserve, that the U.S. central bank might be reducing the rate of its asset purchases over the course of the year led to a change in the international interest rate cycle, which then had a negative impact on numerous emerging market countries as a result of capital outflows. The Federal Reserve's decision in December 2013 to taper quantitative easing starting January 2014 was largely priced into the market.

The eurozone, after six consecutive quarters of declining economic activity, experienced moderate growth in the second quarter of 2013. As an annualized average, the eurozone economy declined by 0.4 % in 2013, due to the weak winter half year 2012/2013, which was a little less than in 2012 (-0.6 %). The economy was supported by a recovery of the global economy and receding uncertainty over the future development of the sovereign debt crisis. International investors' trust in the eurozone improved in 2013, which led to net capital inflows. A decisive factor of stabilization in the eurozone was the European Central Bank's accommodative monetary policy, and in particular its statement that it would use its full range of instruments, e.g. lowering the policy rate corridor, vLTRO, private and public asset purchases, in the event of an emergency, its reduction of the interest rate in November 2013 to the historic low of 0.25 % and its statement that it would hold the interest rate at this level or lower for an extended period of time, as part of its “forward guidance” provided for the first time in 2013. Germany's economy began to recover following the weak winter half year 2012/2013. This was driven by solid domestic demand, thanks to the peak employment level, solid real income growth and a moderate rise in investments. As an annualized average, the German economy grew by 0.4 %, following an increase of 0.7 % in 2012.

U.S. economic growth slowed in 2013 to an estimated 2.0 %, compared to 2.8 % in 2012. Automatic spending cuts and uncertainties around the direction of fiscal policy – discussions of increasing the debt ceiling and extending the transitional budget as well as the temporary government shutdown – dragged on the economy. The recovery of the real estate market, the continuous improvement of employment figures and the strong rise on the stock markets led to a recovery in the second half of 2013, with a growth rate of around 4 %. Strong support to the U.S. economy came from the Federal Reserve's expansive monetary policy.

In Japan, economic growth rose slightly to 1.5 % in 2013, a development driven by extremely expansive fiscal and monetary policies, the first two pillars of what is called “Abenomics”. However, there was little that followed the announcement of the third pillar of Abenomics, structural reform, in 2013.

In emerging market countries, growth calmed to an estimated 4.5 % in 2013. The Federal Reserve's announcement in May that it might be reducing the rate of its asset purchases over the course of the year shifted attention to structural weaknesses of the emerging market countries that had been masked by portfolio investments in previous years, leading to strong outflows of capital. In particular, these affected countries with relatively high budget and current account deficits such as South Africa, India, Indonesia, Brazil and Turkey. Depending on the region, performance was mixed in emerging market countries. Economic growth in Asia (excluding Japan) is estimated to have been at 5.9 %, slightly less than in 2012. China's economic activity – thanks to the recovery in the second half of the year – grew in 2013 by 7.7 %, slightly below previous year’s growth (7.8 %). Although relatively weak world trade tempered growth in the first half of the year, the economy accelerated somewhat in the second half following the recovery of the global economy. However, growth was subdued by uncertainties about the impact of a rebalancing of China's economic structures, which should be pushed forward energetically by the extensive Central Committee resolutions in November 2013. In India, the economy grew somewhat stronger at 4.3 % in 2013, not least due to the devaluation by 12 % of the rupee versus the U.S. dollar over the course of the year. Despite the unfavorable political environment, the government launched extensive reforms intended to stimulate future growth. Economic activity in Latin America grew by only an estimated 2.3 % in 2013, following 2.8 % in 2012. In Brazil, infrastructure bottlenecks, a lack of reforms and weak commodities prices weighed on the economy, which is estimated to have grown by a moderate 2.2 % in 2013.


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