Economic environment

We expect the economic recovery to be sustained in 2011. Developments will, however, continue to be very mixed. The most vigorous growth will be generated in emerging markets, which are benefiting from a rebound in domestic consumption and comparatively low levels of indebtedness. Many developed nations, on the other hand, will struggle under heavy debt burdens. These structural imbalances will have adverse implications for potential growth in the affected countries. This is especially true of countries on the Eurozone periphery, where the indispensable government austerity packages to reduce debt are putting the brakes on public and private consumption expenditure and hence curtailing growth. Germany, on the other hand, will profit more heavily from the favorable development of emerging markets through its export-oriented growth model and should again outpace Eurozone growth in the coming year. For the United States, too, we anticipate continued recovery and growth in excess of the Eurozone. Given the large proportion of gross domestic product attributable to domestic consumption, the development of the US economy depends in large measure on the state of the labor market. We expect the gradual easing here to be sustained, although minor setbacks from time to time must be anticipated.

The state of the real economy will again prevent any significant pressure on prices in 2011 since underutilized capacities and high unemployment leave little room to pass on price increases. Cautious lending practices show that the monetary holdings of central banks are scarcely finding their way into the real economy and that this transmission channel – as it is envisaged by monetary policy – continues to be disrupted. We do not expect to see any significant change in 2011, with inflation rates likely to pick up slightly – albeit without any real inflationary pressure. In some emerging markets, on the other hand, there is already appreciable price pressure and this will make itself felt – albeit in milder form – in developed countries too through imported inflation. The appetite of emerging economies for commodities shows no signs of easing and to some extent could again find its way into the shopping baskets of developed markets in 2011 through rising energy prices. The modestly positive economic trend overall will give central banks little incentive in 2011, as in the previous year, to bring about a swift end to their highly expansionary monetary policy. To this extent, we do not expect any significant departure from the prevailing expansionary monetary policy in the current year.

A tightening of monetary policy is more likely in 2012. Sustained growth, falling unemployment and rising capacity utilization will lead to somewhat greater pricing pressures. The continued dynamic growth of emerging markets will exacerbate this situation through rising commodity prices. A cyclical softening in the pace of growth is probable in 2012. There are currently no grounds to fear a fresh downturn, although structural problems such as the high indebtedness of private households and national budgets in developed countries continue to pose substantial risks.