The world economy

At the beginning of 2014, most leading indicators – above all the index of global business confidence – suggest that growth of the world economy will accelerate moderately this year. After two years with significantly below-average rates of growth of global GDP, there are now good chances of a perceptible improvement. In particular, growth should gain momentum in the advanced economies, while the prospects for some emerging economies remain rather moderate.

The economic development of the United States is expected to be rather dynamic compared with 2013. A steadily improving labor market, the positive wealth effects of higher equity and real-estate prices, low inflation and an upturn in investment should allow significant acceleration of economic growth to a rate of between 2.5 and 3%. However, this is based on the assumption that there are no major restrictions from the side of fiscal policy. Despite the incipient economic improvement, the US Federal Reserve is not expected to increase interest rates in 2014. But the expansive monetary policy in the form of monthly bond buybacks is likely to be gradually phased out. Furthermore, there are indications that economic dynamism in Japan will subside as the year progresses, primarily due to the country’s fiscal policy and the planned tax increases.

Although the European sovereign debt crisis is far from being finally resolved, the associated burdens have decreased to such an extent that the economy of the European Monetary Union should move out of recession in 2014. But ongoing high levels of unemployment and the disappointingly low level of lending are likely to prevent any significant acceleration of growth. Overall, fiscal policy will remain restrictive, although much less so than last year. Total GDP growth will therefore probably remain moderate at approximately 1%. Growth of the German economy should once again be above average. The economic outlook for the United Kingdom is even more favorable, with GDP growth of probably more than 2%.

The economic revival in the United States and Europe will have a positive impact on the emerging economies through a significant increase in world trade. But structural problems are hindering a more sustained economic upturn in some countries such as India, Brazil and Russia. Another factor is that monetary policy is likely to be restrictive in some countries in order to limit inflationary pressure and to avoid capital outflows. The emerging economies are therefore expected to post similar growth to the previous year at approximately 4.5%. The main assumption in this respect is that the reform measures taken in China are effective and the Chinese economy moves onto a stable growth path of at least 7 to 7.5%.

In total, therefore, global economic output could expand by rather more than 3% in 2014.

With regard to the currencies important for our business, we continue to anticipate sharp exchange-rate fluctuations in 2014. Compared with the average exchange rates in the year 2013 (USD/€: 1.33; GBP/€: 0.85), we anticipate a trend of slight depreciation of the US dollar, while the British pound should remain fairly stable against the euro. With regard to the Japanese yen (average for 2013: 130 yen/euro) and exchange rates important to us of various emerging markets, we assume that those currencies will depreciate once again.

In order to counteract the risks arising for our business as a result of the still very volatile exchange rates, we conduct hedging transactions as far as this makes sense for the various currencies. For the year 2014, we have hedged well over half of the exchange-rate risks as of mid-February.