Economic environment
Economic environment
The economic environment for our business activities was favourable
owing to continued strong global economic growth
in 2006. In addition to East Asia and the USA, the Euro zone
developed a special dynamic following the cautious growth of
the previous year.
Growth in the Euro zone nearly doubled
Above all, as a result of continuing intensification of investment
activity and the lively increase in exports, gross domestic product
of the twelve European countries belonging to the monetary
union grew by more than 2.5% nearly twice the rate of 2005.
The Central and Eastern European EU accession countries were,
once again, one of the international centres of growth. They improved
their real production performance by around 5.5%.
Inflation continued to remain above 2%, in particular, as a result
of the increased price of crude oil. The European Central Bank,
therefore, continued the restrictive course it set at the end of
2005, because of the sustained risk to stability and increased
the key interest rate in five steps to 3.5%.
Strong recovery in Austria
Austria profited particularly well from the economic recovery
in the Euro zone. Real gross domestic product grew by around
3.2% stronger than ever since 2000. Despite timid domestic
demand, real exports expanded by nearly 9% as a result
of strong foreign demand above all, from Eastern Europe.
Unemployment continued to decrease with the increase in employment.
With an inflation rate of around 1.5%, Austria was one
of the most price stable countries in the Euro zone in 2006.
Insurance industry feeling the slowdown of business
After 2005, which boomed with a premium growth of 9.5%
as a result of the explosive increase in single premium policies,
the expansion of the Austrian insurance industry slowed noticeably.
Total premium revenues increased in the past year around
1.9% to € 15.6 billion. Without taking the single premiums into
account, the solid upward trend of the insurance industry continued
if somewhat flatter with an increase in premiums of
4.2% in 2006. Not lastly, as a result of the significant amount of
unsatisfied demand for private old age pension insurance compared
to Western Europe, the insurance industry will continue
to be a growth driver of the Austrian economy.
Decrease in single-premium life insurance policies
Personal injury insurance exhibited the most significant slowdown
in 2006. This was, above all, attributable to the decrease
in single-premium policies: Their revenues decreased by 12.2%
compared to 2005. In contrast, life insurance policies with recurring
premiums continued their upward trend with an increase
of 6.4%.
In total, life insurance policies lost significant momentum in the
past year with an increase in premiums of just over 1% compared
to 2005 (+15.6%). Health insurance policies, whose premium
revenues increased by only 2.8%, also suffered a slight
setback. The casualty line continued its growth trend of over
4%.
Timid property insurance performance
The property insurance line was more subdued in 2006. Total
premiums increased by 2.8%, which was less than in 2005
(+4.8%). As a result of strong competition, automobile liability
insurance reduced its growth rate to 0.8%. Premium revenues
for general liability insurance, household insurance and industrial
fire insurance also lost some of their dynamics.
Financial markets under the sign of increasing interest rates
International financial markets stood under the sign of increasing
interest rates in 2006. The US Federal Reserve Board increased
the key interest rate in four steps to 5.25%. The Japanese Central
Bank increased the key lending rate for the first time in six years
>from zero to 0.25%. The European Central Bank increased the
refinancing costs of banks to 3.5%.
And during the course of the year, money market interest rates
also increased significantly along with the key interest rates. At
first, long-term government bond yields increased sharply in
both the US and the Euro zone until the middle of 2006, then
retreated slightly. The flattening of the yield curve, which was
already observable in 2005, continued in 2006. In total, longterm
interest rates continued to remain at a historically low
level. Despite the round of international key rate increases by
the central banks, the economy remained quite liquid. The tight
monetary policy has not yet dampened the business activity. As
a result of the decreased interest rate discrepancy between the
USA and the Euro zone and the interest rate advantage compared
to Japan, the external value of the Euro increased significantly
compared to the US dollar and yen.
Stock markets soaring despite volatility
The international stock markets were, of course, affected by losses
following the peak in May. However, they continued to soar
by the end of the year as a result of the recovery following the
increased volatility. In particular, the DOW JONES INDUSTRIAL
AVERAGE reached a new all time high and closed on the last
trading day of 2006 with a profit of 16.3%. The S&P 500 increased
by 13.6%, and the NASDAQ COMPOSITE by 9.5%.
Many European stock markets performed even better. Whereas
the DJ EURO STOXX 50 increased by 15.1%, the DAX in
Frankfurt increased by 22.0%, the ATX in Vienna by 21.7%,
and the CAC 40 in Paris by 17.5%. The index of Central and
Eastern European stock markets (CECE) recorded a performance
of 14.7% in 2006.
Economic climate cooling somewhat in 2007
The global economy will cool slightly in the current year, but will
continue to expand at only slightly reduced speed. The continued
expansion in Europe and the newly emerging Asian nations
continues to compensate the increasing weakness of growth in
the USA which set in following the overheated development in
the real estate market.
Initially, the dynamics will also decrease slightly in the Euro zone.
However, the economy will remain robust in 2007. The economic
region, which expanded to thirteen members after the admittance
of Slovenia to the monetary union, should grow by more
than 2% with a slight increase in the rate of inflation. Despite increasing
tension between monetary and fiscal policy, the Eastern
European EU accession countries will be able to maintain their
above-average rate of growth. In 2007, wages in the Euro zone
have been rising more strongly than in the previous year, increasing
disposable income. Private consumption should thus
become somewhat livelier than in 2006.
Slight weakening also in Austria
The somewhat slower rate of growth in the Euro zone also
carried
over to Austria. Despite a slight clouding of economic
prospects, real production performance should increase by more
than 2.6%, and thus continue to be above the Euro zone average.
Economic drivers continue to be increasing exports and
unchanged strong growth of financial investments. Private consumption
should increase by around 2% as a result of moderate
wage increases and unchanged low inflation.
Insurance industry overcomes weak phase
In 2007, the Austrian insurance industry should overcome
the short period of weakness which began with the decline in
single-
premium policies in the previous year, and should expand
stronger
than the overall economy with a premium plus of more
than 4%. Personal injury insurance will drive growth forward
with an increase of around 4.8%.
Above all, in life insurance, which is profiting from the increasing
need for private old age pension insurance, growth of more
than 5% is forecast as a result of the continued dynamic of recurring
premiums (+5.8%) and single-premium policies which are
once again higher (+3.9%). The health and casualty insurance
lines should continue their upward trend in 2007, at a nearly
unchanged rate.
The property insurance business will be characterised in 2007
by continued strong pressure from competition in the industrial
business area. Thus, growth prospects in the industrial insurance
lines should cloud over somewhat in the coming year. Premium
growth in the automobile insurance line is stabilising. In total,
an increase in premium income of around 2.9% for 2007 is expected
for the property insurance line.
Cautious optimism on the stock markets
Cautious optimism dominated the international stock markets
in the first weeks of the new year. As a result of the slight clouding
of economic prospects and the insecurity surrounding the
further plans of the Federal Reserve in the USA and the central
banks in Europe, subdued performance is expected in the first
half of the year. At the same time, volatility will increase significantly.
As a result of the overall improved future economic
prospects for 2007, stock markets in the Euro zone should once
again perform better than those in the USA.