Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006
Economic growth in Japan was 2.2% in real terms last year –
slightly higher than in 2005.
The economy in the eurozone performed significantly
better in 2006 than in the previous year. In particular,
domestic demand (investments and consumption) gave
rise to real growth, which totalled 2.7% for the year as a
whole. There were marked regional differences: economic
growth in Ireland and Finland, for example, was well above
average, whereas in Italy and Portugal it remained comparatively
subdued.
The German economy grew by 2.7% in real terms in
2006 – a considerable improvement on the previous year.
The pleasing aspect of this development was that growth
derived not only from exports and corporate investments
but also from private consumption, which also made a
more positive contribution again for the year as a whole
(buoyed by the resurging labour market). An initial estimate
indicates an annual average rise of approximately
176,000 in the number of employees with jobs subject to
social insurance, whilst the unemployment rate stood at
9.6% in December, a year-on-year decrease of 1.5 percentage
points.
Economic development in the UK was also up appreciably
year-on-year, driven mainly by domestic demand.
In 2006, growth in the emerging markets accelerated.
China expanded strongly again with 10.7% in real terms.
The Indian economy also continued to develop at a high
level.
Among the central and eastern European countries,
Russia and Poland added to the momentum, whereas in
Turkey the expansion slowed somewhat, due not least to
a strong depreciation of the currency in May and June.
In Latin America, Brazil and Mexico in particular
ensured that the region grew more strongly than the
previous year.
Due to falling oil prices since August, rates of inflation
around the world dropped especially in the final quarter –
in some cases considerably. However, the annual average
inflation rate remained at around last year’s level in the
USA and the eurozone. This environment led to further
interest-rate increases by a number of central banks. The
US Federal Reserve raised its reference interest rate from
4.25% at the start of the year to 5.25% at the end of June,
but then left it unchanged up to the end of the year. The
European Central Bank increased its reference interest rate
from 2.25% to 3.5% during the course of the year, and the
Bank of England raised its key interest rate from 4.5% to
5.0%.
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Capital markets
By and large, prices on the international stock markets
moved upwards in 2006: the EURO STOXX 50, for instance,
improved by 15.1% and the DAX by 22.0%.
In the USA, the S&P 500 also recorded presentable
growth of 13.6%. The Japanese Nikkei Index, however,
recorded an increase of only 6.9%.
Starting from a level of 3.3% at the beginning of the
year, yields on ten-year German government bonds initially
rose to around 4.1% by July against the background
of positive economic expectations and comparatively high
inflation. In view of declining rates of inflation and a cooling
of the US economy, however, yields subsequently fell
to almost 3.6% at the beginning of December, before
renewed economic optimism caused them to rise again to
nearly 4.0% at the end of the year. Having started the year
at just under 4.4%, yields on ten-year US government
bonds climbed to a good 5.2% by the end of June, only to
recede to about 4.7% at year-end.
The euro gained considerable ground against the
US dollar in the course of the year, its price rising from
US$ 1.18 to US$ 1.32. It also climbed against the Japanese
yen, moving up from ¥139.22 at the start of the year to
¥157.12 at the end of 2006.