Goldman Sachs 2012 Annual Report Download - page 40

Management’s Discussion and Analysis
Europe
In the Euro area, real GDP declined by 0.5% in 2012,
compared with an increase of 1.5% in 2011. The
contraction was principally due to a sharp fall in domestic
demand, primarily reflecting downturns in consumer
spending and fixed investment. Business and consumer
confidence declined and measures of core inflation
increased slightly during the year. The unemployment rate
increased substantially, particularly in Spain and Italy.
These negative developments reflected the impact that the
sovereign debt crisis had on the region’s economic growth,
particularly during the first half of the year, as concerns
about Greece’s debt situation and the fiscal outlook in
Spain and Italy intensified. To address these issues, the
European Central Bank injected liquidity in the Eurosystem
through its longer-term refinancing operations (LTROs),
decreased its main refinancing operations rate by 25 basis
points to 0.75%, and announced a program to make
outright purchases of sovereign bonds in the secondary
markets. The Euro appreciated by 2% against the U.S.
dollar. In the United Kingdom, real GDP increased by 0.2%
in 2012 compared with an increase of 0.9% in 2011. The
Bank of England maintained its official bank rate at 0.50%
and increased the size of its asset purchase program. The
British pound appreciated by 4% against the U.S. dollar.
Long-term government bond yields generally declined
during the year. In equity markets, the DAX Index, the
CAC 40 Index, the Euro Stoxx 50 Index, and the FTSE 100
Index increased by 29%, 15%, 14% and 6%, respectively,
compared with the end of 2011.
Asia
In Japan, real GDP increased by 1.9% in 2012, compared
with a decline of 0.6% in 2011. Fixed investment growth
increased, particularly from the public sector, helped by
reconstruction efforts following the earthquake and
tsunami in 2011. However, the trade balance continued to
deteriorate during 2012. Measures of inflation remained
negative or close to zero during the year. The Bank of Japan
maintained its target overnight call rate at a range of zero to
0.10% during the year, increased the size of its asset
purchase program, and announced measures to facilitate
outright purchases of government and corporate bonds.
The yield on 10-year Japanese government bonds fell by 20
basis points during the year to 0.79%. The Japanese yen
depreciated by 13% against the U.S. dollar and, in equity
markets, the Nikkei 225 Index increased by 23%. In China,
real GDP increased by 7.8% in 2012, compared with an
increase of 9.3% in 2011. Growth slowed as household
consumption and fixed investment growth moderated. In
addition, growth in industrial production declined.
Measures of inflation declined during the year. The People’s
Bank of China lowered its one-year benchmark lending rate
by 56 basis points to 6.00% and reduced the reserve
requirement ratio by 100 basis points during the year. The
Chinese yuan appreciated slightly against the U.S. dollar
and, in equity markets, the Shanghai Composite Index
increased by 3%. In India, real GDP increased by an
estimated 5.4% in 2012, compared with an increase of
7.5% in 2011. Growth decelerated, primarily reflecting a
slowdown in domestic demand growth and a deterioration
in the trade balance. The rate of wholesale inflation
declined compared with 2011, but remained elevated. The
Indian rupee depreciated by 4% against the U.S. dollar and,
in equity markets, the BSE Sensex Index increased 26%.
Equity markets in Hong Kong and South Korea were
higher, as the Hang Seng Index increased 23% and the
KOSPI Composite Index increased 9%, respectively,
compared with the end of 2011.
Other Markets
In Brazil, real GDP increased by an estimated 1.0% in
2012, compared with an increase of 2.7% in 2011. Growth
decelerated, primarily reflecting a decline in private
consumption growth and a downturn in fixed investment.
The Brazilian real depreciated by 9% against the U.S. dollar
and, in equity markets, the Bovespa Index increased by 7%
compared with the end of 2011. In Russia, real GDP
increased by 3.4% in 2012, compared with 4.3% in 2011.
Growth slowed, primarily reflecting a decline in domestic
demand growth, particularly during the second half of the
year. The Russian ruble appreciated by 5% against the U.S.
dollar and, in equity markets, the MICEX Index increased
by 5% compared with the end of 2011.
38 Goldman Sachs 2012 Annual Report