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Macroeconomic development in 2010
Upward trends with moderate growth
In the past year 2010, the global economy continued its upturn
after the economic and financial crisis. In the course of the year it
nevertheless became clear that each particular economic region
performed very differently. While Germany and emerging markets
were the engines of global economic growth, the EU's Mediter-
ranean countries battled with major problems. Despite an intact
upwards trend, the rather modest economic growth in the United
States remained far behind previous recovery phases after reces-
sions. Concerns about a "double-dip" in the USA, i.e. another fall
back into recession, grew as the year progressed. In the last few
months of the year, however, some important economic indica-
tors turned out to be better than expected, and growth should
level off at about 2.8 per cent.
The Eurozone also continued its economic recovery in 2010,
although the gap between core countries and periphery became
ever wider. It became clear at the latest on onset of the Greece
crisis in the spring that the PIGS states (Portugal, Ireland, Greece
and Spain) in particular had been living above their means for
many years. In the wake of the financial crisis, ailing banks and
the property markets had to be supported with billion-euro bailout
packages, resulting in an explosion of public debt in these coun-
tries. The Maastricht criteria could no longer be met. Swingeing
consolidation of national budgets in the PIGS states combined
with tax increases led in some cases to recessive tendencies in
those countries.
The trend in Germany was exactly the opposite. The largest
member country of the Eurozone reaped the rewards of its
long-standing policy of strengthening the competitiveness of the
domestic economy and benefited from the boom in demand from
emerging markets. In 2010 Germany should have achieved eco-
nomic growth of more than 3.5 per cent, the biggest rise since the
country was re-unified. Austria was a beneficiary of the economic
power in Germany, its most important trading partner, and of the
noticeable recovery in Eastern Europe. It should have obtained
growth of about 1.9 per cent.
The Euro in the course of the year –
an emotional roller-coaster ride
In the course of 2010 the Euro went through a proper roller-
coaster ride of the emotions. In the first few months the European
single currency lost about 20 per cent against the US Dollar.
Following the announcement of the Euro bailout facility of EUR
750 billion, it then recovered, only to fall again at the start of the
Ireland crisis. The Euro rate against the Swiss Franc was almost
invariably downwards throughout 2010. As a result the Franc,
along with gold, became a "safe haven" for unnerved investors.
Expansive monetary policy
by the central banks
The central banks did not introduce the expected change in
their monetary policy in 2010. Even at the start of the year, many
financial market analysts still expected that the central banks would
gradually tighten their extremely expansive monetary policy in the
course of the year. The first rises in key interest rates were even
forecast for the 4th quarter. It nevertheless turned out quite differ-
ently. Both the US central bank, the Federal Reserve (Fed), and the
European Central Bank (ECB) have not only maintained their ex-
pansive monetary policy line throughout the whole year, but even
expanded it. This applies in particular to the Fed, which launched
a second quantitative easing programme from November. This
means that it intends to buy up US government bonds worth up
to USD 600 billion by the spring of 2011, to keep interest rates low
and to stimulate the economy further. In view of the turbulence in
the Eurozone, the ECB also had to give up its staunch rejection
of "special measures". Since the onset of the Greece crisis, it had
been compelled to buy up Euro government bonds. In comparison
with the Fed, however, it tread very carefully in this respect.
Sharp price rise for industrial commodities,
gold and silver top performers
Prices for industrial commodities continued their upward trend
due to strong demand, especially from China. In contrast, the
price of oil remained for a long time at an almost unchanged level,
only at year-end rising by a good 10 per cent. Because of the pre-
vailing uncertainty, gold was one of the absolute top performers
in the past year. On a Euro basis, the price increased 40 per cent
in comparison with the end of 2009. The price of silver also went
up substantially, almost doubling in the course of the year.
Two worlds on equity markets
In the past year, equity markets repeatedly came under pres-
sure from the public debt crises. The steps taken by the Chinese
government to counter overheating of the country's economy also
had an adverse effect. The predominantly very positive corporate
data invariably prevented a sell-off on stock markets. Instead, the
equity markets saw a sideways movement for months on end.
Concerns about the US economy caused uncertainty at times. As
the economic data improved increasingly from September, fear of
recession subsided in the USA. Together with the announcement
of a further massive loosening of monetary policy, this was the
starting signal for an upwards trend on global equity markets in
the final months of the year.
The actual motor driving the price of equities was the very good
corporate data, both in Europe and in the USA. The quarterly
figures for companies in 2010 were very much better than had
been expected by the market. Accordingly the profit expectations
were constantly corrected upwards, increasing the attractive-
ness of shares. There is, however, a very wide difference in equity
performance in 2010. This is revealed particularly in Europe. The
German DAX index in particular benefited from the strength of
the domestic economy, especially exports. The Austrian ATX also
returned above-average performance, driven by the good profits
reported by companies and early purchases of shares due to the
price gain tax applicable from 2011 onwards. A disappointing
"underperformer" on the other hand was the key European index,
EuroStoxx50, which closed the year down on balance. The split
nature of the European economy is reflected in the EuroStoxx50,
especially the latent risks in the European banking sector, which
remain at a high level. Southern European stock markets (Spain,
Italy, Greece) tended to be particularly weak, due to the public
debt crisis. Surprisingly, even the stock markets in some emerg-
ing markets were hardly able to benefit from the uninterrupted
strength of their national economies in 2010. For example, the
Brazilian Bovespa closed the year with almost no change and the
Hang Seng China Index even remained in negative territory.
Turbulence on bond markets
The national debt crisis in the Eurozone naturally had a serious
effect on the Euro bond market. At times there was proper turmoil
on the Euro bond market due to concerns that the Greece crisis
would spread to other Euro states. As a result, the risk premiums
of Euro bonds issued by these governments truly exploded in
comparison with the German benchmark. The bailout facility of
more than EUR 750 billion was unable to calm down the market
for European government bonds on a long-lasting basis. As it
turned out, Ireland was the first Eurostate to flee to the refuge of
the bailout facility. Initially German government bonds, seen as a
safe investment, benefited from the uncertainty in the Eurozone.
The yield on 10-year German government bonds fell from over
3 per cent to about 2 per cent at times. In the last months of the
year, however, the interest rate climbed back up to 3 per cent.
Greek government bonds, on the other hand, most recently had
yields of more than 12 per cent per year.
Austrian economy
Austria was a beneficiary of the economic power in Germany, its
most important trading partner, and of the noticeable recovery in
Eastern Europe. It should have obtained growth of about 1.9 per
cent. Over the next two years a slight acceleration in the rate of
growth is expected, to 2.1 and 2.3 per cent, respectively.
The main force behind the upturn was strong growth in exports.
In real terms the export of goods increased by 10.5 per cent year-
on-year, with a significant rise in demand from Asian countries.
Following this strong recovery, export growth is expected to
weaken to 7 per cent for the coming year. On the other hand,
domestic demand performed less well. In view of lower capac-
ity utilisation as the financial crisis unfolded, growth in plant and
equipment investments did not return to positive territory until
mid-2010, much later than in previous upturn periods. Private
households also remained reluctant to spend due to the weak
development of real wages in the past year. The Austrian labour
market was a positive surprise, with 35,000 more people now in
employment. This meant that unemployment was reduced from
4.8 per cent in 2009 to 4.3 per cent in 2010. The rate of inflation
rose again slightly in 2010 in line with the economic recovery, to
1.7 per cent. The main factors were rising prices for energy and
food. The tax increases introduced as part of budget consolida-
tion will be a factor in the inflation rate accelerating to 2.2 per cent
for the year 2011.