Opportunities and outlook
The World Bank forecasts that the global economy will expand by 1.7 % in 2023 compared to the previous year (2.9 %). Growth thus fell below the average of the last decade of 2.9 % before it would gradually recover. Global themes, which have already become prevalent in the previous year, weigh on the outlook: heightened geopolitical uncertainties, tighter monetary policy to combat inflationary pressures and less favourable financing conditions.
Influencing parameters
In addition, political issues and climate-related effects are likely to lead to volatility. Weak growth of 0.5 % is expected for industrialised countries. In the United States, the world’s largest economy, growth was also expected to be at 0.5 %, as tight monetary policy leaves significant marks on the otherwise consumption-driven economy. The weak growth phase in the industrialised countries emanates to emerging and developing countries through international economic relations. Nevertheless, emerging markets are expected to grow at 3.4 %, as in the previous year, as a modest economic recovery in China should be supportive. [1]
Against the backdrop of global challenges for the global economy, global trade volume growth should continue to slow in 2023, but remain positive at 1.0 %. Import demand will remain weak given the lifeless economy in the US and other developed economies. The Middle East and Africa should remain on this plateau after strong commodity-driven exports last year and have the financial leeway for further increase in import demand. [2] The potential for stimulus could come from a recovery in China. Other factors influencing trade patterns include the development of global supply chains, as through supplier diversification, reshoring, nearshoring and friendshoring. The transition to a greener global economy should support demand for environmentally sound products. [3]
In the eurozone, after a short, mild recession in the winter of 2022/23, a successive economic recovery should begin. According to the European Commission, growth in 2023 should be slightly positive at 0.3 %. Disruptions come from the economic effects of Russia’s war against Ukraine. Inflation erodes real incomes, and cost pressures weigh on production, particularly in energy-intensive industries. Higher interest rates will dampen private investment, particularly in the construction sector. Fiscal policy should partially cushion the negative impact. In some of the current 20 euro countries, support is expected from the Next Generation EU fund. The risk of disruptions to energy supply could revive at the end of 2023. In the medium term, the energy market should find its balance. Economic growth is likely to recover more and more as external demand gradually picks up again and remaining supply bottlenecks are lifted. [4]
According to the German Council of Economic Experts’ forecast, real gross domestic product should decline slightly by 0.2 % in 2023 overall, but turn positive over the course of the year. The downturn is somewhat stronger than the eurozone average. This is where the greater focus of the energy-intensive industries that are hit by energy prices is important. By contrast, supply chain disruptions are likely to continue to decline gradually, allowing manufacturing to moderately expand production, also thanks to high order backlogs. [5] Companies rely on various measures to deal with bottlenecks and price increases. Example: Many of them are increasingly trying to establish new supply relationships and to diversify them from a geographical and resilience perspective. [6] The slowdown over the course of the year is likely to be further compensated by stimulus from the relief packages, in particular the gas price brake.
In emerging and developing countries, aggregate growth without China should be 2.7 % for 2023, but should continue to be higher than in industrialised countries. [7] Weak growth in the US and the eurozone, as well as uncertainties from fluctuating commodity prices, will have a negative impact. Investment activity will also be negatively impacted by the rise in global interest rates and restrictive domestic interest rates. This should also make it more difficult to achieve climate targets.
The development in the individual regions will nevertheless be heterogeneous. In international terms, Asia should once again be the fastest growing region. In China, economic growth should pick up to 4.3 %, with the biggest boost expected from lifting strict pandemic-related restrictions and government measures to consolidate the slumped real estate sector. India should benefit from restructuring supply chains, given a leading position in digital financial transactions. Weak US growth will be felt in Latin America due to tight trade relations. In addition, there is a slowing tailwind from the commodities sector. However, a potential pick-up in demand for commodities from China could provide support. In the Middle East, the relaxation of the energy sector will lead to a pivot towards the earlier moderate growth path. Africa is expected to continue to grow at a steady pace as in the previous year, although the forecasts for each country are very heterogeneous, depending on their resources. The Eastern Europe and Central Asia region will have the lowest growth, particularly due to the recession in Russia, while Uzbekistan should outperform thanks to opening up economically. [8]
In addition to the consideration of the economic situation, for AKA’s business focus, it is important to assess the risks that arise from various international influencing factors. One of the biggest growth risks is monetary policy that is too tight to combat inflationary pressures. On the other hand, higher energy and agricultural prices, potentially caused by intensification of the war in Ukraine, could lead to a rise in inflation. In the World Bank’s risk scenario, an interest rate that is one percentage point higher than expected could result in lower economic growth of 0.6 %, rather than the forecast with 1.7 %. [9] According to the WTO’s calculations, stronger tightening of monetary policy and uncertainties in the Russian-Ukrainian war could trigger a 2.8 % decline in international trade volumes. [10]
For some emerging markets, the risks of higher interest rates and a stronger US dollar lie in excessive debt servicing. Expectations of curtailed growth can also result from the following developments: geopolitical uncertainty resulting from various issues, in particular an escalation in relation to Taiwan, a significant worsening of the real estate crisis in China, new hazardous coronavirus variants, climate change, natural disasters and social upheaval. [11]
On the other hand, a rapid conflict resolution in Russia’s war against Ukraine would create positive stimulus. A larger expansion of the raw material production volumes can further dampen the price development. This could effectively weaken inflationary pressures, cut the interest rate hike cycle of central banks and thus lead to stronger economic growth than forecast. In its positive scenario, the WTO expects global trade volumes to rise by 4.6 %. Further positive effects would arise from productivity gains via transformational advances, partly accelerated by reconstruction funds, a strengthening of the international community, a relaxation of trade policy, stronger growth in China and the mitigation of further geopolitical conflicts. [12]
Opportunity report
The term “opportunities” is defined as the prospect of a possible future development or the occurrence of events that can lead to a positive forecast or deviation from targets for the company. In this respect, opportunities are to be understood as the opposite of risks.
Opportunities arise for AKA from the transition of sectors and companies towards a sustainable economy and CO2 neutrality. Financing climate-friendly exports and investments for a sustainable transformation will become increasingly important and offer growth potential for AKA.
Particularly due to the changed geopolitical situation, raw material protection is of particular importance for the German and European economy, since, without sufficient availability of necessary raw materials, among other things, no products for renewable energy generation can be produced and overall no transition of the economy can succeed. In the area of raw material protection, there are new and further business opportunities for AKA.
We further expanded the digitisation of the credit application route that started in 2019 via the bank’s own online portal SmaTiX (Small Ticket Express) for smallscale ECA-covered buyer loans over the past three years. The positive trend channel of the 2022 credit requests submitted via SmaTiX opens up room for positive development, which will continue in 2023.
Forecast of developments
In summary, AKA is planning a new business volume of around EUR 2.0 billion across all product groups for 2023. The financial KPIs will be adjusted by the Supervisory Board for 2023. The adjustments were made in order to now integrate the aspects of sustainability and equity base not previously considered in a financial performance indicator into the overall bank management. The adjustment thus extends the scope of the performance indicators and, in the opinion of the bank, better reflects the essential performance indicators with regard to the business model and future challenges. In addition to the previous KPIs of return on equity before taxes and cost-income ratio (before and with innovation and investment budget (IIB)), the target ratios of return on risk-weighted assets, total capital ratio, share of ESG score 4+5 in net risk, as well as the share of loans in the pre-watchlist and intensive care have now been introduced in net risk.
In February 2023, parts of Turkey were hit by a severe earthquake. Due to this terrible event, AKA analysed the Turkey portfolio immediately.
In the affected region, a regional financing volume of EUR 294.6 million was identified at the time of the analysis. After cover and bank guarantees, a net risk of EUR 10.6 million remains, which corresponds to a share of 0.7 % of the AKA net credit default risks.
The borrowers are closely monitored, and measures are adapted to the current findings. A negative deviation of the planned figures or performance indicators can therefore not be excluded.
At the time of preparation of the annual financial statements, there are uncertainties on the interbank market. AKA has no direct business relationships with the parties involved, but closely monitors the developments. The uncertainties also result in part from the insolvency or bail-out of three US banks and the acquisition of Credit Suisse by UBS announced on 19/3/2023, as well as the liquidity aids granted in this context.
[1] Cf. The World Bank: Global Economic Prospects. Washington, DC: January 2023. URL: www.worldbank.org/en/publication/global-economic-prospects. Short reference: World Bank 2023.
[2] Cf. World Trade Organization (WTO). Press Release / 909.05.10.2022. URL: www.wto.org/english/news_e/pres22_e/pr909_e.html. Short reference: WTO 2022.
[3] Cf. UNCTAD. Global Trade Update. December 2022. URL: unctad.org/webflyer/global-trade-update-december-2022.
[4] Cf. European Commission. European Economic Forecast – Autumn 2022. Institutional Paper 187. URL: economy-finance.ec.europa.eu/system/files/2022-11/ip187_en_3.pdf.
[5] Cf. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung. Jahresgutachten 2022/23. November 2022. URL: www.sachverstaendigenrat-wirtschaft.de/jahresgutachten-2022.html.
[6] Cf. DIHK-Umfrage zu Lieferengpässen und Rohstoffknappheit. 21/12/2022. URL: www.dihk.de/de/themen-und-positionen/wirtschaftspolitik/konjunktur-und-wachstum/blitzumfrage-lieferengpaesse.
[7] Cf. World Bank 2023.
[8] Cf. ibid.
[9] Cf. ibid.
[10] Cf. WTO 2022.
[11] Cf. World Bank 2023.
[12] Cf. ibid.