Economic report

INFLUENCING FRAMEWORK CONDITIONS

For AKA’s business model, the development of global trade and the development of the global economy are among the influencing framework conditions. The latter, in addition to country-specific factors, has an impact on Germany and the eurozone, which is also important. The global economic development also influences the emerging markets relevant to AKA.

World economy and world trade:
Several supply shocks hit the global economy in 2022. The World Bank reported the global real gross domestic product (GDP) growth for 2022 at 2.9 %, down from 5.9 % last year. The reduction of pandemic-related restrictions and fewer supply chain bottlenecks boosted the economy into the autumn. China’s zero-Covid strategy in particular led to renewed economic disruptions. Over the course of the year, geopolitical tensions were felt due to Russia’s war in Ukraine and climate change, combined with a significant increase in energy and agricultural prices. The resulting increase in inflation led to tighter monetary policy and more restrictive financing conditions. In some countries, monetary tightening was accompanied by the expiry of fiscal support measures. As a result, in the winter of 2022/23, one-third of the global economy should record two consecutive quarters of negative growth. Over the year as a whole, the aggregate expansion rate of the industrialised countries was 2.5 %; the emerging markets were able to grow somewhat at 3.4 %. [1]

The World Trade Organisation (WTO) reported a declining momentum in global trade in 2022 with a real increase of 3.5 %, after 9.7 % in the previous year. Taking into account price developments, particularly as a result of commodity prices, global trade has risen more sharply at a nominal rate of 10 %. [2] Supply chain relaxation, which fluctuated over the year, provided further impetus to import demand in industrialised countries. Nevertheless, global trade volume developed increasingly subdued over the course of the year due to the declining global economy and the e ects of the war in Ukraine. In the Middle East and Africa, trade volumes posted the largest increases, driven by a change in demand for energy resources and the associated financial leeway for higher imports. Imports to Russia and the neighbouring countries fell sharply due to geopolitical factors. Asia showed little growth due to the strict zero-Covid strategy in China. [3]

Industrialised countries: USA – Eurozone – Germany
Economic performance in the USA is of great importance to the global economy. The expiry of pandemic-related government support measures, remaining backlog in supply chains and an early increase in inflation weakened the US economy. Private consumer spending expanded moderately and was supported by the good labour market situation. Progressive monetary tightening has weighed on interest rate-sensitive areas, particularly the construction sector. [4] In 2022 as a whole, at 2.1 %, the economy grew less strongly than other industrialised countries. [5]

According to the projections of the EU Commission, the aggregate GDP of the 20 eurozone countries expanded by 3.2 % in 2022 – more strongly than in the USA. Firstly, the eurozone benefited from the removal of corona virus measures, which was accompanied by a recovery in tourism. In contrast, the largest losses from Russia’s war in Ukraine were recorded by the Baltic countries – in light of the closer economic interdependence in the region. Over the course of the year, price increases became more noticeable, as well as a tighter monetary policy with higher interest rates, particularly in the energy- and capital-intensive sectors. Governments implemented measures to subsidise energy consumption and additional transfers. In autumn, signs of a slight recession for the winter of 2022/23 increased. With milder temperatures, the gas stores, which had decreased in the interim, returned to high storage levels, which contributed to a more relaxed economic sentiment. [6]

In Germany, the economy benefited from two developments up until the late summer: Firstly, the processing of backlogs in order inventories and secondly, a normalisation of the spending behaviour of private households, thanks to the tailing off of the pandemic in consumer-oriented service sectors. However, the economy has been increasingly exposed to supply shocks. Limited energy supply, disruptions in the recovery of supply chain bottlenecks and a tighter labour supply weighed on the production of goods and services in many areas of the economy. All of this also drove inflation to record highs, with associated decreases in purchasing power. [7] Production fell particularly in the energy-intensive sectors, such as the chemical sector. Nonetheless, the federal government’s orders setting a price cap on gas and electricity prices could contribute to a slightly more positive business climate in late autumn. As a result, the gross domestic product grew 1.9 % in 2022, higher on average than the pre-pandemic decade. [8]

Emerging and developing countries
After the recovery from the pandemic in the emerging markets, economic growth has halved from 6.7 % in 2021 to an expected 3.4 % in 2022; a high degree of heterogeneity is postulated. Numerous commodity- exporting countries have expanded at an above-average rate. The impact on some countries’ dynamics was due to production shortages and lower demand from China. In addition to high inflation, which particularly affected countries with low per capita incomes, other stress factors included the strength of the US dollar and the tightening of international monetary policy, with impacts on financing conditions. [9]

Asia
In Asia, growth slowed to expected 4.4 % in 2022 as forecasted, particularly due to a weaker performance in China. Numerous Covid-19 breakouts, combined with strict containment measures, and a weak real estate sector weighed on China’s economy. Despite government action to stimulate the economy, growth in China amounted to 3.0 %, the smallest increase since 1976, apart from the pandemic year 2020. [10] These issues also had an international impact, due to lower import demand and the internationally intertwined production chain. The Southeast Asian countries experienced appreciation as an alternative production chain element to China. India was once again one of the countries with the strongest growth in the world, given its strong orientation toward the domestic economy, with growth of just under 7 %. [11]

Latin America
In Latin American countries, the first half of the year was positive, thanks to normalisation in more contact-intensive sectors – in terms of the coronavirus pandemic and the commodity price increase, from which countries with corresponding resources benefited. In addition, the direct effects of the Ukraine war are weak due to moderate trade and financial relations with Eastern Europe. However, the positive effects were reduced by a weaker decline in commodities purchase from China, higher input costs and associated inflationary pressure, as well as an increase in international interest rates. In the more industrialised countries Brazil and Mexico, there was a weaker demand from the United States, their major trading partner, as well as political and regulatory uncertainties. Hence the economic growth for both countries was below average, with an expected 3.0 % and 2.6 % in the region. The growth rate across the entire Latin American region was 3.6 %. [12]

Eastern Europe and Central Asia
Economic growth in Eastern Europe was expected to be 0.2 %. This development mainly reflected the consequences of Russia’s war in Ukraine. Regional growth was 4.2 %, excluding these two countries. Interruptions in energy and goods deliveries, higher prices and tighter monetary policy have weighed on economic activities. On the other hand, a partial reallocation of capital and trade flows regarding Russia was able to support domestic demand in some Eastern European economies. Regional energy exporters were able to benefit from higher prices. The Russian economy fell 2.1 %, [13] owing to eroding consumer spending and limited investment opportunities due to international sanctions. The country was buoyed by higher oil and gas prices combined with a deflection of energy exports to buyers outside Europe. The Ukrainian economy suffered a war-related decline of probably 35 %. Turkey (4.7 %) and Uzbekistan were among the countries with the most expansion. [14]

Africa and the Middle East
The World Bank forecasts growth of 3.4 % for Sub-Saharan Africa in 2022. Challenges were lower growth in main trading partners, tighter financial and monetary conditions, and a negative change in terms of trade in commodity import countries. In addition to climate change and rising fertiliser prices, the agricultural sector was temporarily burdened by significantly higher agricultural prices. The two oil exporting countries Nigeria and Angola were only able to make limited use of the tailwind of the energy price increase due to institutional deficits. They reported growth rates of 3.1 %, while South Africa (1.9 %) was affected by bottlenecks in the power sector. In North Africa and the Middle East (5.7 %), energy-exporting countries benefited from the tailwind of higher energy prices. [15]

International financing conditions
Global financing conditions became more restrictive in 2022. After central banks initially acted cautiously, increasing inflationary pressures led to an increasing tightening of monetary policy in industrialised countries. The rise in inflation was a result of the global economic recovery from the previous year, tight supply chains and tight labour markets. In addition, there were large increases in energy and agricultural prices. [16]

In the United States, the rise in inflation was earlier than in other industrialised countries, so the Federal Reserve Bank (Fed) responded sooner, and also with more rate increases than the European Central Bank (ECB). From March to December 2022, the federal funds rate was increased by 4.25 percentage points to 4.25–4.5 %, the highest level since 2007. At its end-of-year meeting, the Fed moved to a more moderate course, but at the same time signalled further interest rate hikes. At the same time, the Fed continued to reduce its central bank balance sheet with securities. [17] The ECB raised interest rates by a total of 2.5 percentage points to 2.5 % from July to year-end, also signalling further rate hikes. At the same time, it ended the net acquisition of assets in its purchase programmes. It only wanted to reduce its portfolio at a controlled, modest pace in the following year. [18]

In addition to tighter monetary policy, inflation led to a sharp rise in long-term interest rates in many countries. The 10-year US state and federal bonds reached their highest levels in the last decade in October 2022 at 4 % and 2 %, respectively. Anticipated easing inflationary pressure caused a lateral movement towards the end of the year and a slight decline in yields. Looking at the eurozone, borrowing became more expensive for companies. However, lending remained robust. Companies had to finance higher production and investment costs, as well as higher inventories via loans. They also replaced bonds with bank loans, as market-based financing was more expensive than bank financing. [19]

As in previous periods of monetary tightening in industrialised countries, interest rates and spreads in many emerging and developing economies also rose. Due to the strength of the US dollar, and also to prevent capital outflows and currency depreciation, central banks had to react with interest rate hikes or exchange rate interventions. Primarily weaker energy-importing countries registered high risk premiums on their government bonds, particularly in the summer. Towards the end of the year, many countries also experienced slight easing. [20]

Compared to the euro, the US dollar temporarily reached its highest level since the early 2000s. In the currency markets, the US dollar generally appreciated by 14 % on a GDP-weighted basis through October. This was driven by the earlier tightening of monetary policy and the energy crisis, in conjunction with the recourse to capital investments perceived as safe. Among emerging markets, the countries with higher budget deficits were particularly affected by larger US dollar depreciation. [21] Expectations that the pace of interest rate hikes in the US could slow again favoured a strengthening of the euro in the fourth quarter. In relation to the most important trading partners, on an aggregated basis, the euro again almost reached the level at the end of 2021 in December. [22]

Commodities
Commodity prices reached new highs in the first half of the year due to uncertainties and shortages in the wake of Russia’s war in Ukraine. Against the background of the global economic slowdown, many raw material prices fell starting in the middle of the year. This was particularly true for industrial commodities and oil prices. [23] On average for the year, it was USD 100 per barrel of Brent. The price of natural gas diverged significantly between regions. After its alltime high in August, by the end of the year, the gas price fell to the level just before the invasion, favoured by stocked inventories and mild temperatures. Agricultural prices remained high overall, taking their historical trends into account. However, the large swings in grain products, which were mainly delivered from Ukraine and Russia, regressed. [24]

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INFLUENCING FRAMEWORK CONDITIONS

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