Allianz SE Economic Research https://www.allianz.com/economic-research/en Economic Update February 2014 Claudia Broyer Phone +49.69.24431-3667 claudia.broyer@allianz.com Ann-Katrin Petersen Phone +49.69.24431-3790 ann-katrin.petersen@allianz.com Eurozone economy on the starting blocks page 1 of 6 With a seasonally adjusted sequential rate of 0.3%, GDP growth in the eurozone shifted up a notch at the end of 2013. The majority of member states, including heavyweight Italy, have shaken off recession. All told, the departure point for this year is encouraging since, unlike last year, most eurozone countries show a statistical overhang for 2014. This is particularly marked in Portugal (+0.8%), along with the Netherlands (+0.7%) and Germany (+0.6%). For the eurozone as a whole the statistical overhang amounts to almost 0.4% - on this basis we expect moderate growth in the eurozone this year in the region of 1.5%. Despite lingering risks for the economic outlook, such as flagging reform zeal or possibly emerging doubts about the soundness of the European banking sector and public finances in the course of the Asset Quality Review and bank stress tests, markedly improved cyclical conditions suggest the pickup in the eurozone economy will continue: the world economy and world trade are likely to increase more strongly than in 2012/2013, improved competitiveness and lower risk spreads in the eurozone periphery, lower fiscal drag than in recent years, initial signs of a relaxation in lending standards for small and medium-sized companies and, not least, evidence of a pickup in house prices. In recent months economic sentiment in most eurozone countries has clearly improved. The EU Commission s economic sentiment index for the eurozone has been up on its long-term average for two months now. And although the composite PMI took a short breather in February, it is still up on the fourth-quarter average last year. It is also encouraging that eurozone capacity utilization has risen substantially for the first time in ages and that unemployment is falling in some problem countries. While all this suggests that the eurozone economy is poised to record sequential GDP growth rates of up to ½ percent in the first quarter, we expect the adverse weather in the USA to exert a temporary dampener on US growth momentum in the first three months of 2014. Growth rates in main economic regions GDP, real % change over previous year 2009 2010 2011 2012 2013 1) 2014 2) 2015 2) Industrialized countries -3.7 2.6 1.5 1.3 1.1 2.2 2.0 European Union -4.6 1.9 1.7-0.4 0.0 1.7 1.8 Euro area -4.4 1.9-0.6-0.4 1.5 1.5 1.5 USA -2.8 2.5 1.8 2.8 1.9 3.0 2.5 Japan -5.5 4.7-0.5 1.4 1.6 1.4 1.2 Emerging markets 1.4 7.4 6.1 4.5 4.4 4.6 4.9 Asia 5.9 9.5 7.5 6.1 6.2 6.1 6.2 Latin America -1.5 6.0 4.2 2.8 2.3 2.7 3.1 Central and Eastern Europe -6.7 3.0 3.9 1.7 1.4 2.3 2.8 World -2.1 4.1 3.0 2.4 2.3 3.1 3.0 1) estimate; 2) forecast.
Economic Research Economic Update February 20, 2014 page 2 of 6 Gregor Eder Phone +49.69.24431-3358 gregor.eder@allianz.com Emerging markets: Will the calm on the currency markets last? After the currencies of numerous emerging markets had come under substantial downward pressure in late January, the situation has since eased appreciably. In countries like Turkey, for example, resolute action by the central bank has succeeded in stabilizing the domestic currency and offsetting at least some of the recent losses. In January it was the combination of several factors that triggered an abrupt withdrawal of capital from the emerging markets. At the latest since the US Fed s announcement in December 2013 that it would gradually rein in its bond-purchasing program this year, it was clear that the period of ultra-loose monetary policy would at least slowly come to an end, rendering investments in industrial countries increasingly attractive and investments in emerging markets less attractive. So at the very moment that financial markets were reweighting risks, worries about the economic outlook in individual emerging markets came to a head. Fears of a marked slowdown in the Chinese economy and the massive slide of the Argentine peso against the US dollar were ultimately the straw that broke the camel s back at the end of January. Currencies such as the Turkish lira and the Russian ruble came under massive pressure. How long the renewed calm on the currency markets can last remains to be seen. A renewed abrupt outflow of capital from the emerging markets is by all means possible given that the overall picture has not changed substantially compared with early 2014: the monetary policy exit will come sooner or later in Europe too. In addition, considerable macroeconomic imbalances still exist in a number of emerging markets which cannot be eliminated overnight. On top of this comes the tense domestic political situation in countries such as the Ukraine and Thailand. The extent to which the reduction of macroeconomic dislocations can render a country more resilient is demonstrated by India: until well into 2013 India suffered from a yawning current account deficit. This in combination with weak growth and stubbornly high inflation exposed the Indian currency to massive selling pressure in 2013. Over the course of the year the rupee tumbled 11% against the US dollar. In recent quarters, however, the imbalances in India have eased appreciably: the current account deficit is shriveling fast and inflation is falling. This was doubtless one of the main factors why the Indian currency proved relatively stable amid the turbulence seen in January. The example of India illustrates that the financial markets differentiate between the individual economies. This was evident during the currency turmoil in late January and is likely to be the case in the event of a renewed wave of selling. After years of expansionary monetary policy by the Fed, bemoaned by many emerging markets, the key now is to adapt to normalization. Not all countries will navigate this transition equally well. 3.25 Turkish lira per euro 70 Indian rupee per US dollar 3.00 2.75 2.50 2.25 2.00 66 62 58 54 50 46 1.75 2010 2011 2012 2013 42 2010 2011 2012 2013
Economic Research Economic Update February 20, 2014 page 3 of 6 Germany: Economic indicators and forecasts* 2013 2014 2015 Q1 Q2 Q3 Q4*** Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014f 2015f GDP real 0.0 0.7 0.3 0.4 0.6 0.6 0.4 0.4 0.4 0.3 0.2 0.2 0.4 2.0 1.6 Private consumption 0.3 0.6 0.1-0.2 0.8 0.5 0.4 0.5 0.3 0.3 0.2 0.3 0.9 1.6 1.5 Government spending 0.1-0.2 0.5 2.5-1.4 0.2 0.3 0.2 0.3 0.3 0.3 0.3 1.1 1.0 1.1 Investment in machinery/equipment -1.6 1.2 0.5-0.4 2.0 1.5 1.5 1.5 1.0 0.8 0.6 0.6-2.2 4.6 4.6 Construction -2.3 1.9 2.4 1.4 0.3 0.4 0.4 0.4 0.5 0.5 0.4 0.4-0.3 3.7 2.2 Domestic demand 0.3 0.4 0.7 0.2 0.6 0.4 0.3 0.4 0.3 0.3 0.2 0.3 0.7 1.8 1.5 Exports -1.0 2.4 0.1 2.0 0.5 1.5 1.0 1.0 0.8 0.6 0.6 0.4 0.6 4.6 3.6 Imports -0.6 1.9 0.8 2.3 0.6 1.2 1.0 1.2 0.7 0.7 0.6 0.6 1.3 5.0 3.7 Industrial production (excl. construction)**) 0.4 1.3 0.6 0.4 1.4 1.0 1.1 0.8 0.7 0.7 0.4 0.4 0.2 4.1 3.0 Unemployment rate (EU def.) % 5.4 5.4 5.3 5.2 5.2 5.2 5.1 5.1 5.0 5.0 4.9 4.9 5.3 5.1 4.9 Unemployment rate (nat. def. % 6.9 6.9 6.8 6.9 6.8 6.7 6.7 6.6 6.5 6.5 6.4 6.4 6.9 6.7 6.5 Employed persons (national d y-o-y 0.6 0.5 0.5 0.6 0.6 0.7 0.7 0.7 0.7 0.6 0.5 0.4 0.6 0.7 0.6 Consumer prices y-o-y 1.5 1.5 1.6 1.3 1.3 1.3 1.3 1.7 1.7 1.7 1.8 1.9 1.5 1.4 1.8 Current account balance EUR bn 46.3 49.6 48.8 58.2 50.0 49.0 49.0 48.0 48.0 47.0 46.0 45.0 201.0 196.0 186.0 % of GDP 7.3 7.0 6.6 Budget balance EUR bn -1.7 4.3-3.8 (Maastricht-definition) % of GDP -0.1 0.2-0.1 *) quarterly figures: percentage change over previous period, seasonally and working day adjusted, except where noted, yearly figures: percentage change, not working day adjusted; **) yearly average working day adjusted. ***) Figures of 2013/Q4 calculated from yearly figures of 2013 minus the first three quarterly figures. Euro area: Economic indicators and forecasts* f = forecast. 2013 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013e 2014f 2015f GDP real -0.2 0.3 0.1 0.3 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3-0.4 1.5 1.5 Private consumption -0.1 0.1 0.1 0.3 0.2 0.2 0.3 0.3 0.4 0.3 0.2 0.2-0.5 0.9 1.2 Government spending 0.3 0.0 0.2 0.0 0.2 0.2 0.1 0.1 0.2 0.3 0.2 0.3 0.2 0.5 0.8 Investment -2.0 0.3 0.5 0.7 0.8 0.7 0.6 0.6 0.9 0.8 0.6 0.6-3.0 2.7 3.0 Exports -0.9 2.1 0.3 1.0 1.1 1.2 1.3 1.0 1.2 1.0 0.9 0.8 1.2 4.3 4.3 Imports -1.1 1.5 1.2 0.8 0.7 1.0 1.1 1.0 1.2 1.3 0.9 0.9 0.2 3.9 4.5 Unemployment rate % 12.0 12.1 12.1 12.0 12.0 11.9 11.8 11.6 11.5 11.3 11.2 11.1 12.1 11.8 11.3 Consumer prices y-o-y 1.9 1.4 1.3 0.8 0.7 0.8 1.0 1.5 1.5 1.7 1.5 1.6 1.4 1.0 1.6 Current account balance EUR bn, nsa 50.4 61.5 42.7 66.8 65.0 60.0 55.0 55.0 60.0 60.0 60.0 60.0 221.3 235.0 240.0 % of GDP 2.3 2.4 2.4 Budget balance % of GDP -3.0-2.5-2.0 3m money market rate**) % 0.2 0.2 0.2 0.3 0.3 0.3 0.4 0.5 0.5 0.7 1.0 1.3 0.2 0.4 0.8 10yr gov. bond yield***) % 1.3 1.7 1.8 1.9 1.9 2.1 2.2 2.4 2.5 2.6 2.7 2.8 1.6 2.1 2.6 *) quarterly values: percentage change over previous period, seasonally adjusted, except where noted; annual GDP not adjusted; foreign trade incl. intra-trade. **) end of quarter, yearly average. ***) Germany as benchmark; end of quarter, yearly average. e = estimate; f = forecast. USA: Economic indicators and forecasts* 2013 2014 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014f 2015f GDP real 1.1 2.5 4.1 3.2 2.2 3.2 2.8 2.7 2.1 2.6 2.7 2.7 1.9 3.0 2.5 Private consumption 2.3 1.8 2.0 3.3 2.3 2.4 2.5 2.3 2.6 2.2 2.3 2.3 2.0 2.5 2.4 Fixed investment -1.5 6.5 5.9 0.9 4.5 7.8 6.8 7.0 6.4 6.4 6.5 6.5 4.3 5.2 6.7 Inventory change USD bn 42.2 56.6 115.7 127 100 110 110 113 83 81 81 81 85.4 108.3 81.5 Government spending -4.2-0.4 0.4-4.9 2.1-0.4-1.1-0.6-0.2 0.0 0.0 0.0-2.2-0.7-0.3 Gross domestic demand 1.4 2.5 3.8 1.7 1.9 3.0 2.5 2.6 1.9 2.4 2.5 2.6 1.7 2.4 2.4 Exports -1.3 8.0 3.9 11.4 6.3 6.1 6.1 5.3 5.7 6.1 6.1 6.1 2.8 6.9 5.9 Imports 0.6 6.9 2.4 1.0 3.4 3.9 4.1 4.0 4.5 4.9 4.9 5.1 1.4 3.2 4.5 Net exports USD bn -422.2-424.5-419.7-370.1-358.7-350.6-343.4-339.8-337.0-334.3-331.5-330.0-409.1-348.1-333.2 Industrial production 4.1 1.2 2.5 5.5 1.8 4.5 4.3 4.3 4.3 4.2 3.9 3.7 2.6 3.5 4.2 Unemployment rate % 7.7 7.5 7.2 7.0 6.6 6.5 6.4 6.2 6.1 6.0 5.9 5.9 7.4 6.4 6.0 Consumer prices 1.2 0.4 2.2 1.1 1.7 2.2 2.4 2.1 2.0 2.1 2.1 2.1 1.5 1.8 2.1-104.9-96.6-94.8-91 -95-94 -93-93 -94-97 -99-101 -388-375 -391 Current account balance USD bn -2.5-2.3-2.2-2.1-2.2-2.1-2.1-2.1-2.1-2.1-2.1-2.2-2.3-2.1-2.1 % of GDP -680.3-575 -540 Federal budget FY, USD bn -4.1-3.3-3.0 3-month money market rate * % 0.3 0.3 0.2 0.2 0.2 0.3 0.3 0.3 0.4 0.6 0.9 1.2 0.3 0.3 0.7 10-year treasury yield **) % 1.9 2.5 2.6 3.0 2.9 3.1 3.2 3.3 3.4 3.5 3.6 3.7 2.3 3.2 3.5 Exchange rate **) USD per EUR 1.28 1.31 1.35 1.38 1.32 1.30 1.30 1.30 1.32 1.33 1.34 1.35 1.33 1.31 1.33 *) Percent change over previous period, seasonally adjusted annual rates, except where noted; **) End of quarter, yearly average. f = forecast. China: Economic indicators and forecasts* 2011 2012 2013e 2014e 2015f Domestic economy GDP change in % (real) 9.3 7.7 7.7 7.4 7.2 GDP (USD bn) 7298 8231 9331 10601 11764 Inflation in % (annual average) 5.4 2.7 2.6 3.2 3.0 Budget balance in % of GDP -1.1-1.6-2.0-2.0-2.2 External sector Merchandise exports 1805.9 1970.9 2125.0 2338.0 2525.0 (USD bn) Merchandise imports 1569.9 1653.3 1785.0 1980.0 2140.0 Current account balance 136.1 193.1 200.0 209.0 217.5 Current account balance in % of GDP 1.9 2.3 2.1 2.0 1.8 Net foreign direct investment 231.7 191.1 160.0 140.0 120.0 Gross foreign debt 694.9 737.0 787.8 837.6 895.0 Foreign debt in % of exports* 33 32 31 30 30 Foreign exchange reserves excl. gold 3202.8 3331.1 3800.0 3980.0 4160.0 Import cover in months* 19.0 18.7 19.6 18.7 18.1 Interest rates Time deposit rate (1 year, annual average) 3.3 3.2 3.0 3.2 3.5 Stock market Shanghai Composite index (year-end, 2014: 19/2) 2199 2269 2116 2143 Exchange rate Year-end (CNY per USD) 6.30 6.23 6.05 5.95 5.90 Annual average (CNY per USD) 6.46 6.31 6.15 6.00 5.97 *Goods, services and income e = estimate; f = forecast
Economic Research Economic Update February 20, 2014 page 4 of 6 Euro area Indicators Production and retail sales (Index 2010=100) Labor market Costs and prices (percentage change on year earlier)
Economic Research Economic Update February 20, 2014 page 5 of 6 Germany Ifo, industry (Index 2005=100) Production and new orders (Index 2010=100) Labor market Costs and prices (percentage change on year earlier)
Economic Research Economic Update February 20, 2014 page 6 of 6 These assessments are, as always, subject to the disclaimer provided below. ABOUT ALLIANZ Together with its customers and sales partners, Allianz is one of the strongest financial communities. Around 78 million private and corporate customers rely on Allianz's knowledge, global reach, capital strength and solidity to help them make the most of financial opportunities and to avoid and safeguard themselves against risks. In 2012, around 144,000 employees in over 70 countries achieved total revenue of 106.4 billion euros and an operating profit of 9.3 billion euros (restated on January 1, 2013 due to a change in accounting standard and presentation). Benefits for our customers reached 89.2 billion euros. This business success with insurance, asset management and assistance services is based increasingly on customer demand for crisis-proof financial solutions for an aging society and the challenges of climate change. Transparency and integrity are key components of sustainable corporate governance at Allianz SE. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group's core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events) (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. NO DUTY TO UPDATE The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law.