Macroeconomic climate

Macroeconomic climate

While the global economic recovery continued in 2013 with growth of 2.9% (previous year: 3.1%), it remained muted and varied from region to region. For the first time in four years advanced economies were the driving force. Assisted by an expansionary monetary policy, the United States and United Kingdom saw further debt reduction in the private sector. Europe also benefited from a more open fiscal policy. The uncertainty surrounding the continued existence of the single currency area receded slightly. In Japan, too, the economy began to gather momentum again.

In emerging markets, on the other hand, economic growth was more restrained, although the pace of growth in China picked up again after a slow start to the year. Major emerging economies such as Brazil, India, Indonesia, South Africa and Turkey experienced a softer phase in 2013. Along with structural difficulties, they were faced with an increased exodus of foreign capital. This caused refinancing conditions to deteriorate by the middle of the year, putting currencies in these countries under pressure.


The US economy continued to fare well despite application of the fiscal brake and the temporary government shutdown: according to figures from the Kiel Institute for the World Economy (IfW), gross domestic product (GDP) rose by 1.6% in 2013 (2.8%). Although the automatic spending cuts that took effect in March curtailed growth in the year just ended, consumer demand nevertheless remained relatively robust as gradual improvement in the financial position of private households supported investment in residential construction and private consumption. This trend was fostered by favourable financial framework conditions. Private-sector capital investments rose and exports also grew. The expansionary fiscal policy pursued by individual states and municipalities more than offset the lower spending on the federal level. Even though consumer confidence indicators retreated in the final quarter and the business climate was softer in some areas, the trend at the end of 2013 was clearly towards growth.


By the middle of the year the Eurozone economy was able to move out of the protracted recession that had lasted more than twelve months. This development was encouraged by the easingof fiscal policy and implementation of the OMT (Outright Monetary Transactions) programme by the European Central Bank (ECB). Since October 2012 this scheme has served to safeguard at no expense sovereign bonds issued by crisis-ridden countries, thereby easing their cost of borrowing and helping them to raise new debt.

Yet the single-currency economy remains in a poor state: the situation continues to vary greatly among the individual Member States. High levels of private and public debt have left many national economies vulnerable to upheavals of crisis-like dimensions. Greece, Italy, Portugal and Spain, above all, have still failed to regain their competitiveness, even though the risk situation here with respect to troubled loans has improved appreciably. According to IfW calculations, GDP in the Eurozone contracted by 0.4% in 2013 (-0.7%).


In Germany the expansion in total economic output – which had been temporarily interrupted by the heightened Eurozone debt crisis – continued. Yet the anticipated economic upswing failed to materialise. Growth for 2013 was put at 0.4% (0.7%) by the IfW. The forces at work here are, however, changing: while momentum in the recovery phase after the financial and economic crisis predominantly came from exports, the spotlight moved to the domestic economy in the year just ended. Low unemployment, higher earnings and a low interest rate level encouraged private consumption and drove home construction.

Foreign trade, on the other hand, was weaker in 2013: owing to comparatively soft demand from the Eurozone, growth in German exports was slower than the pace seen in world trade. With a working population of 41.78 million (+0.6%), the number of people in Germany with a job reached a new record high for the seventh year in succession.


Economic growth in Asia’s emerging markets was again muted. Aside from the lack of demand stimuli from the more advanced economies, domestic economic difficulties increasingly made themselves felt. In China the tendency towards more moderate economic expansion continued. After a weaker first six months the economy picked up momentum over the rest of the year, as reflected in the IfW’s growth figure of 7.5% for the full year (7.8%). This rally was, however, crucially driven by a stimulus programme launched at short notice. Faced with the ever-greater challenge of maintaining its high pace of growth, China unveiled an economic reform project in November that recognises the more significant role played in the economy by market forces and the non-public sector. The Indian economy, currently languishing in a period of weakness, boosted its growth to 4.0% thanks to a vigorous spurt at year-end and hence climbed back to the level seen in 2012 (3.7%).

In Japan the economy regained momentum in 2013. Thanks to powerful stimuli provided by monetary and fiscal policy as well as the markedly improved price competitiveness of Japanese producers on the back of massive currency devaluation, GDP moved sharply higher in the first half of the year. It did, however, soften again towards year-end – as had been the case in the previous year too.

Capital markets

The effects of the Euro debt crisis on capital markets could still be clearly felt in 2013 and central banks continued to pursue an expansionary monetary policy in our main currency areas. The ECB, for example, cut its main rate for the Eurozone twice during the year from a starting point of 0.75% to the current 0.25%; the US Federal Reserve left key interest rates unchanged in the low range of zero to 0.25%, the level on which rates have been since 2008. Over the full year US, German and UK government bonds recorded sometimes marked yield increases in virtually all maturity segments. The yield on ten-year German government bonds, for example, climbed from 1.3% to 1.9% in the course of the year; ten-year US treasury bonds saw an even sharper rise from 1.7% to 3.0%. These increases were supported not only by market expectations concerning the Fed’s gradual pullback from its active market interventions but also by improved or at least stabilised macroeconomic prospects for the US and Europe. As regards those European countries with higher risk premiums which had become the focus of so much attention, the picture was almost uniformly one of recovery. On the other hand, credit spreads on corporate bonds in our main currency areas decreased somewhat as the year progressed, although greater volatility could be observed here in the spring of 2013 as discussions got underway about Federal Reserve policy going forward. The yield increases that ultimately ensued were, in the final analysis, fed primarily by the interest rate component.

Major stock markets soared in some cases to historic highs and recorded substantial price gains over the year. This, too, was a reflection of the continued expansionary monetary policy practised by central banks as well as of the quest by investors for high-yield investments. Such price movements can, however, be only partially explained by isolated indications beginning to emerge from the real economy. Global economic developments nevertheless continue to be subject to a variety of uncertainties and risks.

Despite fluctuations during the year the euro ultimately closed slightly higher against the US dollar and pound sterling year-on-year. The gains against the Australian and Canadian dollars, on the other hand, were significant.

For detailed remarks on the development of Hannover Re’s investments please see the “Investments” section.


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