Economic environment

The Eurozone appears to have emerged from recession and the economic situation has noticeably eased – proof that action taken by southern crisis-hit countries to consolidate public finances and introduce labour market reform is taking effect. Confidence in the eurozone economy is returning and growth in the real economy can be expected to follow. This improved sentiment is based on growing macroeconomic stability; there are encouraging signs of structural improvement in the Eurozone’s trade balance, with peripheral countries in particular becoming net exporters. The deep recession experienced by these countries as a result of structural adjustments should gradually ease, and the backlog in household consumer demand arising from severe financial cutbacks should slowly disappear. It is probable that this will also be accompanied by increased borrowing. Overall, we expect that in 2014 the Eurozone will experience moderate economic growth.

The Eurozone economy has been boosted by trends in the US, where the economy is performing strongly and gross domestic product (GDP) is growing at a pleasing rate. Private household debt has also decreased significantly in recent years. The real estate market and higher employment rate will both support increased consumer spending by US households. Alongside an increase in assets, there is also a significant rise in US household disposable income. The US Federal Reserve (Fed) will also continue its expansionary course, despite tighter monetary policy, with prime rates remaining close to zero for the foreseeable future.

The pace has slowed recently in emerging countries. We believe that these countries are facing both structural and cyclical challenges. Nevertheless, growth rates are likely to remain relatively high in the future – due in part to high currency reserves held by some of these countries and low overall levels of sovereign debt. In addition, stronger US demand is of more importance for most emerging countries’ economic performance than the Fed’s decreased liquidity. Economic development in China in 2014 is expected to remain stable.

The monetary policy of central banks, which still remains expansionary, will not in our view lead to inflationary pressure in the current year. On the contrary, we expect that inflation will continue to be lower than western central banks’ targets.