The Economy
Economic Conditions in 2009
The turning point in the financial and real estate crisis came in 2009. The extensive and concerted action of governments and central banks around the world took effect, demand from the Asian economies helped to reinvigorate global trade, and businesses and consumers slowly began regaining some of the confidence lost due to the crisis. The economies of the industrialised countries began growing again starting in early summer.
In the Eurozone, the recession ended with a moderate contraction of 0.1 per cent in the second quarter of 2009, and the 0.4 per cent quarterly GDP increase in the following three-month period marked the start of an upswing. The recovery process was triggered primarily by awakening global demand and the reversal of the inventory cycle. However, not all countries in the Eurozone proceeded at the same pace. While the strong export orientation of Germany's economy enabled it to begin growing relatively rapidly again after an especially deep recession, Spain's economy continued to shrink into the autumn because of the particularly detrimental effects of the real estate crisis. All leading indicators for the Eurozone bottomed out in the spring of 2009 (mostly at record lows), and then began to climb steadily.
Austria's economic output also began increasing slightly in the second half of 2009, not only thanks to a considerable increase in export demand, but also because of the reversal in the inventory cycle after the nearly complete consumption of existing stocks in the first half of the year. This was a windfall for the manufacturing industry, where new orders and output rose steadily starting in the middle of the year. The recovery has not yet taken strong hold in the construction industry, but the slide in output was also less drastic than in goods manufacturing. Private consumption grew by 0.3 per cent in the third quarter of 2009, lagging behind overall demand. During the recession, however, consumer spending - contrary to the Eurozone - played a major stabilising role by increasing slowly but steadily and helping to limit the economy's downside potential. Investment activity did not improve yet in the third quarter. As capacity utilisation levels have fallen seriously over the course of the crisis, there is no immediate need for new investments.
The recovery of the domestic economy continued in the final quarter of the year. Over the year as a whole, however, the economy contracted compared to 2008. Real GDP decreased by roughly 3.5 per cent over the reporting period.
Despite the fact that the situation on the labour market worsened markedly during the recession, the economic stimulus packages, part-time working programmes and employment measures for young people helped to slow the decrease in the number of jobs. A general stabilisation in the conditions even became apparent starting in the late summer. However, the seasonally-adjusted number of employed persons (not including the self-employed) at the end of the year was over 50,000 lower than the record peak in the summer of 2008. The seasonally-adjusted unemployment rate (as a percentage of the workforce excluding the self-employed) was up by 1.5 per cent to 7.3 per cent at the end of the year.
Interest Rates
The development of interest rates over the reporting period was driven largely by the intense efforts on the part of the central banks to stabilise the financial markets with massive injections of liquidity. As a result, money market rates took a steep dive in the first half of 2009. The decline continued over the year, but slowed starting in the autumn. The three-month Euribor fell by over 200 basis points in a single year, and the money market reference rate has even been below the ECB's key rate of 1 per cent since the middle of the year. The US Federal Reserve left its target range for the key interest rate at a record low of 0 per cent to 0.25 per cent for the entire year.
Euro Area: Main Refinancing Rate and 3-Months-Euribor
The capital market rates developed much less spectacularly. At the end of 2009, the benchmark for ten-year government bonds was at 3.4 per cent in the Eurozone, roughly 0.5 per cent higher than at the beginning of the year. Ten-year US Treasuries recovered in the first half of the year after a marked slide in the winter months of 2008/09 and stayed more or less flat from the summer onwards. They traded at a yield of 3.8 per cent at the end of the year. After the money market rates had lost so much ground over the course of the year, the yield curve became noticeably steeper in the Eurozone and the USA.
Exchange Rates
The Euro made considerable gains in 2009. The nominal effective exchange rate, which measures changes in the value of a currency compared to its main trading partners, increased by 2.6 per cent over the reporting period. The common currency made particularly hefty gains against the US dollar (+9 per cent) and the Japanese yen (+7 per cent). However, the relationship between the Euro and the dollar reversed at the end of the year. Sentiment on the FX market turned in favour of the US dollar, and the greenback has made steady gains since. Over the course of the reporting period, the British pound regained some of the ground it lost in the final quarter of 2008. In contrast, the Swiss franc was under heavy downside pressure for the whole year, causing a number of interventions by the Swiss National Bank. After losing substantially in value in 2008 and the spring of 2009, the currencies of the new EU member states were able to make in part considerable gains.
Equity Markets
All major securities entered a rally starting in the spring of 2009. However, they were only able to make up for part of the massive losses incurred in 2008. The indexes had simply fallen too quickly and too far in 2008. The Euro Stoxx 50 Index closed 2009 with a plus of 21 per cent year-on-year, and the Dow Jones was 18 per cent higher (both were down by 35 per cent in 2008). The ATX also gained considerable ground (+40 per cent), and the companies on the US NASDAQ 100 even doubled their market capitalisation in 2009. The exchanges in the new EU member states saw very different developments. The PX 50 (Prague) regained one third of its value, while the BUX (Budapest) was even stronger at a gain of over 70 per cent. The weak performers in the region included the Slovakian exchange, which fell back to its level from over five years ago.