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Management report
2012 macroeconomic conditions
Economic situation
In 2012, the eurozone as a whole was in recession, though eco-
nomic performance at national level was highly variable. Where-
as Germany and Austria registered slight GDP growth, elsewhere
deep recession reigned, particularly in southern Europe. However,
from midsummer onwards the economic woes also spread north-
wards, and by the end of the year the economy of the entire euro-
zone had reached a low point. Given this weak economic perfor-
mance, inflation rates were unusually high at an average of 2.5 per
cent. This was due to sharp rises in energy and food prices, while
tax increases in southern European countries also exerted upward
pressure on the overall European inflation rate.
Despite the tax increases, many European countries suffered
debt-refinancing problems. In March 2012, investors in Greek gov-
ernment bonds suffered a haircut. Despite this debt cancellation to
the tune of around 100 billion euros, indebtedness remained at un-
sustainable levels, and at the end of the year further debt was writ-
ten off through the repurchase of bonds at an average of 35 per
cent of their nominal value.
Italy and Spain also suffered serious deterioration in debt-refinanc-
ing conditions. Then in the summer, as investors cast ever great-
er doubts on the continuing existence of the eurozone, the ECB
took the initiative, announcing that it was prepared to intervene in
the secondary market in order to reduce interest rates, provided
the countries concerned introduced economic and budgetary re-
forms. That calmed the situation on the financial markets, and in-
terest rates on new Italian and Spanish debt subsided to manage-
able levels.
Currency
During this period, the euro–US dollar exchange rate came under
pressure, with the value of the euro hitting a low point of USD 1.20.
However, as the year progressed the ECB’s stance helped restore
the euro to the 1.30 USD rate prevailing at the start of the year.
Equities and bonds
Global equity markets proved very robust. After sharp rises at the
start of the year, prices slumped during spring in response to the
European sovereign debt crisis. However, unexpectedly good
company results, with impressive margins and profit levels given
the state of the global economy, pushed prices on many leading
equity indices back up to year-highs by September/October. Un-
certainty sparked by the US presidential election campaign then
led to renewed falls in mid-November. Among the established in-
dices, the DAX was to the fore, with an overall performance for the
year of around +30 per cent.
Shares were not alone in offering handsome returns during 2012.
The bond market, and in particular the corporate segment thereof,
had an excellent year, with the speculative high-yield segment reg-
istering a performance of +20 per cent at index level.