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| Management Report
Macroeconomic development in 2009
Bank rescue schemes, economic stimulus
packages and expansive monetary policies
by central banks
The year 2009 was ushered in with pessimistic expectations.
After the insolvency of the US investment bank Lehman Broth-
ers in September 2008, it quickly became clear that the crisis,
which until then had been mainly limited to the financial sector,
was also a problem for the real economy. At the start of 2009
many observers even thought that a global depression, as last
seen in the 1930s, was definitely a possibility. Governments and
central banks made unprecedented efforts to prevent the global
economy from sliding into a deflationary downward spiral. As
a result, macroeconomic development was underpinned by a
number of Western governments through bank rescue schemes
and economic stimulus packages, on an unparalleled scale.
These measures were accompanied by expansive monetary poli-
cies on the part of central banks. In addition to historically low key
interest rates (a zero-interest-rate policy was even pursued in the
US), central banks provided the capital markets with the neces-
sary liquidity. The measures taken to stabilise the economy and
capital markets had an impact. Although the first three months of
2009 were still very weak in many Western economies, there was
a turnaround in the second quarter.
Weakest year economically since the
Second World War
In mid-year there were signs indicating an end to the recession,
both in the US and in the Eurozone. Of course, this only applies
as a quarterly comparison. Viewed over the whole year, 2009
will go down in history as one of the weakest years economically
since the end of the Second World War. For 2009, experts esti-
mate the GDP shrinkage rate in the US at around 2.5% and about
4.0% for the Eurozone. In Austria the whole year 2009 could see
a decline of 3.6% in comparison with 2008. Equity markets in
particular responded to the unexpectedly rapid economic stabi-
lisation with a sharp turnaround from March 2009 onwards, while
Euro government bonds remained rather directionless through-
out the year. The Euro bond market initially tended to be rela-
tively weak as the first concerns about inflation emerged. Yields
rose accordingly. In the second half of the year the bond markets
calmed down again, with the yield on 10-year Euro benchmark
bonds at year-end only slightly above its level at the start of the
year. Corporate bonds, both investment grade and high-yield,
were particularly in demand among investors. Commodities also
celebrated a comeback in 2009. The price of one troy ounce of
gold reached USD 1,226.00, a record high.
Equity markets place their faith in hope –
Outlook for 2010
No investment market experienced an emotional roller-coaster
ride to the same extent as equity markets over the past 12
months. Major pessimism about the economy was the domi-
nant theme among investors until the market bottomed out in
mid-March. As a result the leading equity indices lost a further
20–25% in the first few months in comparison with the price level
at the start of the year, which had already been tightly squeezed.
Then there was a sharp turnaround. Firstly the important early in-
dicators of economic activity stabilised, such as the US Purchas-
ing Manager Indices or the German Ifo index. This signalled an
imminent end to the recession while at the same time triggering
an equity rally. For the time being, critical questions as to how far
the soaring equity prices corresponded to economic reality took
a back seat. On balance the major equity indices saw double-
digit growth in 2009. Converted into Euro, of course, the picture
is more diverse. European stock markets did better than those
quoted in US Dollars or Yen. In Europe the ATX enjoyed particular
success, chiefly because of the previous unjustified sell-off of
Austrian stocks, but also due to the gradual rise in confidence
about Eastern Europe. Stock markets in Russia and in China
doubled or rose even higher in the past year. These markets also
saw the biggest downward correction in 2008, however, such that
even these extreme gains could only make up for the previous
losses to a certain extent.
Directionless government bonds,
corporate bonds in demand
After an unprecedented bond rally in the second half of 2008,
when investors practically fled to European government bonds,
the Euro government bond market stabilised in 2009 at a relatively
low level of yields. Initially, inflation was the primary concern due
to the unchecked supply of liquidity from the central banks. The
yield on 10-year Euro benchmark bonds climbed from below 3%
to 3.7% by mid-year. In the second half of the year, however, it was
acknowledged that the risk of inflation remains moderate for the
time being. The 10-year yield fell back to 3.4% by year-end, only
slightly above its level at the start of the year. Corporate bonds
were nevertheless the real winners among investors. After the dra-
matic sell-off of corporate bonds in the wake of the Lehman bank-
ruptcy, this market recovered significantly in 2009. There was a
proper flood of issues because many industrial companies feared
being caught in a credit squeeze. In the end the corporate issues
were more or less snapped up by investors. The credit spread,
i.e. the interest-rate difference between corporate bonds with a
good credit rating and government bonds, fell over the course of
the year from around 400 to the present level of some 140 basis
points. Although this is still considerably higher than the average
50 basis points in the years 2003 to 2007, this figure does reflect
the recklessness at that time, culminating in the financial crisis.
Austrian
economy
The Austrian economy was unable to escape the downward
economic trend throughout the world. The shrinkage rate of
3.6% of GDP nonetheless placed it above the Eurozone average.
From mid-2009 onwards, however, there was a turnaround in the
economy, carried along by the expansive economic policy world-
wide. This recovery should continue in the next few months, with
GDP growth of 1.5% forecast for 2010.
The international economic crisis became apparent in Austria
principally through the slump in exports. They fell by 16.8%
in comparison with the previous year, with exports to the new
EU member states particularly hard hit. From the middle of the
year, however, recovery could also be seen here too, buoyed up
primarily by stronger demand from Germany. The situation on the
employment market could be described as dramatic. On the one
hand, economic stimulus packages, state-sponsored short-time
work and youth employment schemes stabilised the demand
for labour and curtailed the rise in unemployment. On the other,
56,000 jobs were lost, after seasonal adjustment, since the peak
of employment in mid-2008, sending the unemployment rate up
to 7.1%. This negative trend on the employment market will con-
tinue in 2010. In contrast, the economic crisis had a positive im-
pact on the rate of inflation, which reached a record low of 0.5%.