Gothaer Allgemeine Versicherung AG Group Annual Report for ...

Management Report
Outlook
General economic outlook for 2012
The global economic environment is expected to remain difficult in 2012. Economic
growth in the industrialized world is likely to be below the long-term average. Consequently,
a further increase in capacity utilization across the economy as a whole is not
anticipated and employment growth – if registered at all – will probably be less dynamic
While Germany is presumed to have no reason to fear a fall in macroeconomic activity,
the eurozone as a whole faces the prospect of a downturn over at least two quarters in
succession, i.e. it is likely to slip into recession in 2012. The main risk for the eurozone
economy – and for the German economy as well – continues to be the euro debt crisis.
Apart from the consolidation measures taken by the countries directly hampering growth,
the ongoing mood of uncertainty may curb private demand and thus have an indirect
negative impact on eurozone economic performance.
Inflation is likely to slow in 2012 as a result of generally flagging economic dynamism,
ongoing under-utilization of production capacities and a more difficult labour market
environment offering little scope for significant pay rises. Against this backdrop, 2012 is
expected to bring no change in the monetary policy of the central banks and thus no rise
in key lending rates.
Because of the weaker macroeconomic environment anticipated, there is no direct
prospect of an increase in interest rates, so bond markets are likely to operate at current
price levels. If capital market participants become more confident that the euro debt
crisis will be solved during 2012 and if they become less risk-averse as a result, the yields
of core eurozone countries' bonds are likely to rise and spreads for periphery countries
decrease. In our basic scenario, German federal government bonds (Bunds) with a residual
term of 10 years could have a year-end yield of close to 3.0 % in this environment.
The stock markets, in particular, would also profit from a reduction of risk aversion.
Because most market participants anticipate an economic downturn, which is thus
already largely reflected by share prices, stock market activity in 2012 will again be
politically defined, being significantly shaped by further developments surrounding the
euro debt crisis. Against this backdrop, stock market actors are very likely to take their
cue from bond market developments and government refinancing efforts.
Gothaer Allgemeine Group Annual Report 2011 39