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Management report
2013 macroeconomic conditions
Economic situation
During the course of 2013, the eurozone worked its way out of
recession. The first half of the year saw second-quarter growth of
0.3 per cent, and when admittedly feeble growth of 0.1 per cent
was registered for the third quarter, the recession was technically
over. However, the economic performance of different countries
diverged markedly. Among the major economies, Germany was at
the helm with real GDP growth of around 0.5 per cent, while Italy
brought up the rear with contraction of around 1.8 per cent.
The average eurozone inflation rate in 2013 stood at 1.4 per cent,
significantly below the European Central Bank’s (ECB) target figure
of just under 2 per cent. Falling food and energy prices were the
main reason for the low rate.
In response, the ECB reduced its main refinancing operations rate
on two occasions to the current figure of 0.25 per cent. It also
altered its communication style, giving clear forward guidance
regarding the likely future course of its base rate. As of the end of
the year, unchanged or even lower interest rates were in prospect.
However, whereas the money market interest rates remained stub-
bornly low throughout the year, the capital market interest rates in
the economies of Europe’s core zone rose appreciably as the year
progressed. Thus, for instance, yields on ten-year German govern-
ment bonds increased from a low point of just over 1.1 per cent at
the end of April to more than 2.0 per cent by the end of August.
In contrast, the downward trend in new-debt interest rates
persisted in Europe’s peripheral countries during 2013. Improved
market access coupled with the strength of its economy allowed
Ireland to end its reliance on the aid programme in December, thus
bringing it to a satisfactory conclusion In the same month, Spain
was also able to bring an end to its ESM programme in support of
the banking sector. Both countries announced that they would no
longer require support in the form of a precautionary line of credit
furnished under the European Stability Mechanism (ESM).
Equities and bonds
Established equity markets all round the world registered strong
rises during 2013. Throughout the year, these markets were shored
up by cheap money. In the USA, leading indicators improved
significantly, while action taken in Japan by the government and
central bank to drive down the value of the yen lent strong
support to their export industry, and the end of the long recession
in Europe and progress made towards easing the government
debt crisis were the drivers behind the upturn in the equity
markets. At their year’s high, the Nikkei 225 index stood more than
50 per cent up, some US indexes were up 30 per cent and their
European counterparts ranged from a good 10 per cent (ATX) to
well over 20 per cent (DAX) up. However, in contrast to previous
years, company profit levels during 2013 did not keep step with the
equity price rises, and as a consequence, stock markets grew
relatively more expensive as the year progressed.
The majority of emerging-market investments performed disap-
pointingly during 2013. After a positive start to the year, renewed
fears of significant cooling in the Chinese economy and the first
signs of the running down or tapering of the US Federal Reserve’s
bond-buying programme exerted pressure on both the stock
markets and currencies of many emerging economies.