Outlook
The recovery of the global economy will continue this year. The emerging Asian countries will be a key source of impetus for reinvigorating international trade. Economic growth is projected to be faster in the US than in the Eurozone this year. However, consumer spending is likely to suffer as US households continue reducing their levels of debt, and the poor labour market situation in the Eurozone will dampen consumer confidence even further into the future. The effects of the crisis will hamper the pace of recovery in the medium term, but the concerted efforts undertaken by governments around the world to manage the crisis significantly reduced the extent and duration of the recession.
The economic upswing in Austria should continue into the near future. A number of temporary factors are responsible for this. The economic stimulus package and the tax reform are still having observable effects, and the reversal in the inventory cycle is causing a temporary rise in overall economic output. Exports will play a major role this year as a driver of growth, and investment activity will only begin to ramp up again slowly because of the low levels of capacity utilisation. The outlook on the domestic labour market will not improve for the time being. The number of available jobs should begin increasing again soon, but not strongly enough to lower the unemployment rate because the Austrian economy will continue to perform at a level below its growth potential, and the supply of workers will grow steadily. As a result, wage increases this year will be low which will curtail private consumption. However, the low inflation rate will help to improve disposable incomes.
Following successful measures in raising capital in 2009, it is expected that the Bank will be able to deploy its liquidity to generate profits in the medium term. In light of this, a key focus will be placed on identifying promising investment opportunities that offer attractive margins and that are in line with the Bank's risk strategy. We will also invest in further expanding our core business in Austria. We intend to reach our market share targets in retail and commercial banking through the campaigns and initiatives that we launched last year, as well as through the measures we have implemented to improve and standardise our back-office processes, which are a significant source of competitive advantage for the Bank. Continued stringent cost management is of course also necessary in order for the Bank to remain competitive.
We are likely to see a further increase in the level of private bankruptcies and business failures in the coming months as a consequence of the economic downturn. We also cannot rule out negative impacts from changes in market values. As the result of the Bank's financial position, the development of our core businesses and our strong level of liquidity, BAWAG P.S.K. is well positioned to deal with any such events. As loans to domestic customers make up the majority of our credit portfolio, its ongoing performance will depend largely on the development of the Austrian economy.
The Bank is employing rigorous risk management to mitigate the negative effects of the continued adverse market conditions. In addition to continuous, forward-looking monitoring on a portfolio basis in the retail and mid-market segment and on an individual basis in the large corporates segment, the arrears notice and collection processes are also to be improved further.
A key project in 2010 will be the switch to an IRB approach for determining credit risk, which will further strengthen the management of risk within the Bank. This change is not expected to have significant effects on the risk-weighted assets or the expected loss calculations.
Overall, we expect to see continued poor credit demand and high pressure on margins for savings products in 2010 as interest rates remain very low. However, the Bank has made all necessary preparations for the new financial year, and is well positioned to counter potential macro-economic difficulties thanks to its strong liquidity and capital position.