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Report on Operations
Group Results
Macroeconomic situation, banking and financial markets
International Situation
USA/Eurozone
The end of 2009 appears to have halted the free fall in economic
activity seen at the beginning of the year. In fact, the rebound in
world trade helped major economies pull out of the recession.
However, while on the one hand, the global recovery is under way
and the risks of falling back into a recession are rather limited, in the
last quarter of the year, growth seems to have lost steam, since at
least a part of the temporary factors underlying recent improvement
in the global economy are losing their effect. In major developed
economies (USA, Eurozone, UK and Japan), signs of “endogenous”
growth are still scarce, and prospects for consumption and
investments remain subdued.
Despite improvement in the last two quarters, the overall
situation is characterized by weak private demand: after having
collapsed at the turn of the year, it impacted hevily on the growth
performance for the whole 2009: in the US, GDP contracted 2.5%,
and it declined 4% in the Eurozone, while Japan reported a more
substantial decrease of 5.3%.
In the Eurozone, net exports and the rebuilding of inventories were
the main factors that led to the recent improvement in economic
growth. In fact, the summer break brought good news on the exports
side: the world economy saw a rebound in global trade, which after
dropping to all-time lows following the Lehman Brothers collapse
was up thanks to highly expansive fiscal and monetary policies
implemented by governments and central banks. Asian countries,
particularly China, were the first to show signs of recovery and to
provide the greatest push to the growth in trade, followed by the US
and the Eurozone. In Q3 2009, eurozone exports rose by 3.1% on
a quarterly basis, while imports were up by 3%. Annual changes in
these components are still negative, but better than those in previous
quarters (-13.5% in Q3 compared to -17.2% in Q2 for exports;
-11.8% in Q3 compared to -14.3% in Q2 for imports). It should also
be noted that an encouraging feature of this recovery is the high
level of synchronization, increasing the chances that signs of growth
will strengthen globally in succession.
The second factor that seems to have played a significant role in
the recent recovery was the rebuilding of inventories: following the
crisis and the unprecedented drop in demand, firms decided to
slash their production and satisfy their demand out of inventories,
which dropped consequently. In recent months, as a direct result of
the extremely low level of inventories, it is likely that a swift upward
adjustment in production occurred, aimed at satisfying further
increases in external demand.
Investment remained the weak spot in this fragile economic situation,
continuing the downward trend of some two years in the Eurozone
36 2009 Consolidated Reports and Accounts · UniCredit Group
(-0.7% in 2008 and -10.8% in 2009) and in Japan (-1.6% in 2008
and -19.3% in 2009), while in the US the drop was significant,
especially in 2009 (-17.8%) after moderate growth in 2008 (1.8%).
Firms are still having a hard time resuming capital expenditure, and
this difficulty will continue for all of 2010.
However, indicators of economic activity from business confidence
surveys keep signaling a rather sustained momentum. After
collapsing to historical lows at an unprecedented speed, business
confidence surveys have resumed growing, and have returned to
levels consistent with expansion in economic activity, following
widespread improvement in all components. The most significant
improvements were especially reported in new order components,
which, in the Eurozone, returned to the levels prior to the economic
crisis. As regards the PMI manufacturing index, in October 2009 it
moved into an expansionary territory, and in December stood at 51.6,
which is a long way from the low of 33.5 reported in February 2009.
Similarly, in the US the ISM manufacturing index rose from 35.6 in
January 2009 to 55.9 in December.
Clearly, the crisis also had a major impact on labor market
conditions. The widespread reduction in manufacturing resulted in
a sharp reduction in jobs. In 2009, the US economy lost a total of
4.7 million jobs (compared to 3.8 million in 2008). The decline was
significant and led to a considerable increase in the unemployment
rate, which hit 10%. In the Eurozone, the labor market showed
greater resilience due in part to employment support schemes that
limited job losses. Furthermore, even though the labor market is
experiencing the first tentative signs of improvement, the major
risk is that it will remain weak for most of 2010 due to the heavy
underutilization of the labor force.
In terms of prices after remaining in negative territory for five months
(from June to October 2009), in November inflation (the HICP index)
in the Eurozone returned in positive territory figure (+0.5%) and
was up by 0.9% in December due to an unfavorable base effect on
energy prices (in fact, at the end of 2008, oil prices were in free fall).
On the other hand, after providing a significant contribution to the
decline in total inflation at the beginning of the year, in the second
half of the year inflation of food products continued on a downward
trend.
As for monetary policy, after bringing the refi rate to 1.00%, the
European Central Bank (ECB) took several steps to provide an
effective resolution of the financial crisis and to support the real
economy by buying covered bonds and extending cash refinancing
operations for banks in order to revitalize one of the markets most
heavily hit by the financial crisis and to reopen a significant source of
financing for the banking industry.
In the US, after reducing the Fed Funds rate to an all-time low
(in a range of 0 to 0.25%), the Federal Reserve implemented a