The world economy is in full swing. Both industrialised countries and emerging nations made solid contributions towards global growth in 2017. The US Congress passed a major tax reform just before the end of the year. In Europe a hard Brexit – i.e. the UK’s uncontrolled exit from the European Union (EU) – is now considered to be less likely.
Most surveys in the eurozone painted a positive picture in 2017. Consumers and businesses are more confident and the unease that characterised the years following the financial crisis (2008/2009) and European sovereign debt crisis (2011/2012) seems to have been gradually overcome. Developments on the European labour markets contributed towards this: the unemployment rate throughout the entire eurozone fell to 8.7 per cent by December 2017 and is expected to reach a long-term average of around 8.5 per cent in 2018. The positive economic situation in Europe was further consolidated in the second half of 2017. Gross Domestic Product (GDP) for the entire eurozone grew 2.5 per cent in 2017. The Austrian economy is expected to see growth in GDP of 2.9 per cent for the entire year. There were also encouraging developments on the Austrian labour market. The seasonally-adjusted unemployment rate fell to 5.3 per cent in December 2017 and there was a significant upturn in employment figures.
The confidence is also reflected in the monetary policy pursued by the most important central banks. The US Federal Reserve (Fed) implemented three interest rate rises over the course of last year, with the bandwidth for the key interest rate at between 1.25 and 1.50 per cent at year end. Efforts also began to reduce the central bank’s balance sheet in October 2017 following the significant increase in this as a result of the high-volume bond purchases by the Fed. Although the Fed may be one step ahead of the European Central Bank (ECB) in this regard, the latter’s monetary policy also now signals a gradual return to normality. The additional monthly bond purchases (quantitative easing) were reduced as of January 2018 to €30 billion and are expected to continue until September 2018. As a result, a cycle of key interest rate increases might take place beginning in 2019. The rate of inflation rose to 1.5 per cent in the eurozone in 2017. Wage and price developments are expected to remain restrained, and any return to a normal interest rate environment will be a slow one. The positive real economic environment and impetus provided through monetary policy are supporting the positive developments on the international financial markets as a whole.
Most national economies in Central and Eastern Europe (CEE) remained in the fast lane. Economic growth in UNIQA’s core countries in CEE (excluding Russia) was 4.4 per cent on average in 2017. The economies of the Central European countries (Poland, Slovakia, Czech Republic and Hungary) caught up further with the core countries in Europe. Unemployment rates reached all-time lows last year in Poland (4.9 per cent), Slovakia (7.8 per cent), Czech Republic (3.0 per cent) and Hungary (4.2 per cent). Rising income levels and a positive mood among consumers and businesses are driving solid development in domestic demand.
The central banks in those countries that have their own currencies are beginning the process of returning their interest rates to normal levels, albeit at differing speeds. In April 2017, the Czech National Bank unpegged the koruna from the euro and began tightening monetary policy with two key interest rate rises. The National Bank of Romania implemented a first step at the key interest rate level in January 2018 with a rise of 2.0 per cent. The Romanian economy showed very high levels of GDP growth last year estimated at 7.1 per cent. Average gross wages rose in the double-digit range for the second year in a row (15.1 per cent). Poland’s National Bank is expected to follow in 2019 with a cycle of increases in the key interest rate. The low rate of core inflation up until now was tempered by the inflow of labour from Ukraine. Hungary’s National Bank is maintaining its loose monetary policy despite the booming economy.
The upturn in Russia and Ukraine remains somewhat subdued as compared with the region as a whole. Real GDP rose by 1.5 per cent last year in Russia, facilitated in part by the stabilisation in the raw materials markets. The restrictive monetary policy and establishment of an inflation target (4.0 per cent) helped the country achieve more stable price development (3.7 per cent) than in previous periods with high inflation.
The economic map is more varied in Southeastern Europe. Croatia enjoyed GDP growth of 3.4 per cent, primarily resulting from a boom in the tourism industry. The high structural unemployment rates are slow to fall in some countries. Infrastructure projects are generally driving economic growth in the southwestern Balkans (Albania, Montenegro). The overall economic conditions were also favourable in the Balkan countries in 2017 with economic growth of around 3.0 per cent.