3.1 General business environment

The global economic crisis during the winter of 2008/09 caused many countries to introduce extensive fiscal stimulus packages and prop up their financial sectors in order to cushion the impact of both the economic crisis and the crisis in the real estate markets. They also lowered taxes, for example, in order to create stimulus for growth. This caused an increase in budget deficits, and thereby government debt, in almost all of the major industrialised countries. At the same time, central banks around the world cut their key interest rates and bought bonds to ensure the availability of sufficient liquidity in both the economy and the capital markets.

These measures stabilised economic conditions and helped individual economies to rally in 2010 – although growth rates varied worldwide. Building on the upturn that had already started in 2009, the high-growth regions of Asia and South America experienced a particularly strong recovery, whereas Europe as a whole again managed only sluggish economic growth. Output rose in all industrialised countries and in the emerging markets. Despite expansionary economic policy and a recovery in most countries, many of them still have very high unemployment. Overall, 2010 was influenced by government stimulus measures coming to an end and by attempts to consolidate public finances in light of the record levels of government debt.

Euro zone descends into crisis – Germany drives growth

The economies of the euro-zone countries fared very differently. Germany turned out to be one of the main engines of growth. As the largest economy in Europe, Germany benefited from the export focus of its industry and thereby from the strong upturn in the emerging markets. Gross domestic product (GDP) rose by 3.6 per cent, having declined by 4.7 per cent in 2009. The upturn was underpinned by new capital expenditure by companies and an increase in consumer spending as unemployment declined.

France and Italy recorded only weak economic growth of 1.6 per cent and 1.0 per cent respectively, while the economies of Spain, Ireland and Greece actually contracted. High debt levels and the threat of insolvency faced by Greece triggered a euro crisis in the first half of 2010: the capital markets feared that the European Monetary Union would fall apart because some countries had fallen massively short of the euro convergence criteria and market participants were concerned about the negative impact of this on the euro zone as a whole. Greece received an emergency loan from the International Monetary Fund (IMF) and the euro-zone countries, in return promising to implement reforms and significantly consolidate its finances. In addition, the European Union and IMF put together a €750 billion bailout fund to enable debt-ridden euro-zone countries to obtain emergency loans independently of the capital markets. Ireland drew on the bailout fund towards the end of the year and initiated far-reaching reforms in order to consolidate its budget. Similarly affected countries such as Spain and Portugal came under pressure in the capital markets as it was assumed that they too would need to be bailed out due to their high debt levels and persistently difficult economic situation. Spain and Ireland in particular are still struggling with the fallout from the crisis in the real estate markets and the structural problems in the financial sector. Both countries are also blighted by high unemployment. At the end of 2010, average unemployment in the euro zone stood at 10 per cent.

Given that financial markets are heavily interconnected at an international level, the financial crisis and the crisis in the real estate markets also affected the United Kingdom. The economy recovered in 2010, with growth in the UK's GDP of 1.7 per cent compared with a decline in economic output of 5 per cent in 2009. However, as in the euro zone, the rally remained only modest. A sizeable portion of the growth can be attributed to the stock cycle, with only muted increases in consumer spending and companies' capital expenditure. Because of the high budget deficit, the new UK government announced tax rises and across-the-board spending cuts aimed at eliminating the structural deficit in the medium term.

USA sees strong growth – structural problems remain

The momentum of the economic recovery in the USA declined over the course of the year. Overall economic output had boomed throughout the winter of 2009/10, but it slowed down again in the summer months as the fiscal stimulus packages and stock cycle gradually ended. Although the estimates for GDP growth were revised downwards during 2010, the USA is still likely to have reversed the 2.6 per cent slump of 2009 with a rise of 2.9 per cent in 2010 – largely owing, however, to government intervention and the Federal Reserve's expansionist monetary policy. There is no sign yet of an upturn on the labour market. At 9.7 per cent, structural unemployment is at one of the highest levels since the 1980s. Moreover, many of the problems that led to the crisis in the real estate markets and then the economic crisis seem to be unresolved. There has still not been a substantial recovery of the housing market, and the number of foreclosures and defaults on mortgages remains at a high level.

Emerging markets stimulate global economy

The emerging markets – above all China – continued on their growth trajectory. Having grown by 9 per cent in 2009, the Chinese economy gained a further 10 per cent in 2010. One of the drivers of this strong growth was industry, which recorded sharp rises in production and capital expenditure. Consumer spending increased in China due to higher real incomes and rising real estate prices. In 2010, the country more than made up for the loss in foreign trade that it had suffered during the economic crisis. Exports reached a record high of US$ 154 billion in December 2010.

In South America, the economic situation visibly improved. By the end of the year, the Brazilian economy – the largest in South America – had regained its previous all-time highs for all of the key economic indicators such as production, exports and consumer spending. Rising commodity prices supported the domestic economy. GDP increased by 7.5 per cent in 2010. At the same time, unemployment fell to a record low of 6.8 per cent.

Having slumped by 7.9 per cent in 2009, the Russian economy recovered somewhat in 2010, fuelled by increased production and higher commodity prices. However, the higher rouble exchange rate made Russian goods and services slightly less competitive, and growth was slightly slower in the second half of the year. Overall, Russia's economic output rose by 4 per cent year on year.