Goldman Sachs 2013 Annual Report Download - page 37

Management’s Discussion and Analysis
Business Environment
Real gross domestic product (GDP), although generally
rising, appeared to remain subdued in most major
economies. Market sentiment improved in advanced
economies, supported by better private sector growth
prospects in the United States and signs of a turnaround in
the Euro area, while monetary policy generally remained
accommodative. Improvements in the U.S. economy
reflected favorable developments in unemployment and
housing, even though a reduction in fiscal spending
weighed on growth. These improvements resulted in tighter
credit spreads, significantly higher global equity prices and
generally lower levels of volatility. However, signals during
the year from the U.S. Federal Reserve that it would begin
tapering its asset purchase program contributed to a rise in
U.S. interest rates and a more challenging environment,
particularly for emerging markets. In addition, continued
political uncertainty, particularly the political debate in the
United States surrounding the government shutdown and a
potential breach of the debt ceiling, generally resulted in
heightened risk aversion. These concerns also weighed on
investment banking activity as industry-wide mergers and
acquisitions activity declined compared with 2012.
Industry-wide equity underwriting activity improved and
industry-wide debt underwriting activity remained solid.
For a further discussion of how market conditions may
affect our businesses, see “Certain Risk Factors That
May Affect Our Businesses” below as well as “Risk
Factors” in Part I, Item 1A of the 2013 Form 10-K.
Global
During 2013, real GDP growth appeared to decline in many
advanced economies and emerging markets. In advanced
economies, the slowdown primarily reflected a decline in
fixed investment growth in the United States and continued
weakness in the Euro area. In emerging markets, growth in
domestic demand decreased and current account balances
worsened. Unemployment levels declined in some
economies compared with 2012, including the United
States, but increased in others, particularly in the Euro area.
The rate of unemployment continued to remain elevated in
many advanced economies. During 2013, the U.S. Federal
Reserve, the Bank of England and the Bank of Japan each
left policy interest rates unchanged, while the European
Central Bank reduced its policy interest rate. In
December 2013, the U.S. Federal Reserve announced that it
would begin to scale back its asset purchase program by
$10 billion to $75 billion per month. The U.S. dollar
weakened against both the Euro and the British pound,
while it strengthened significantly against the Japanese yen.
United States
In the United States, real GDP increased by 1.9% in 2013,
compared with an increase of 2.8% in 2012. Growth
decelerated on the back of a significant contraction in
federal government spending as a result of sequestration, as
well as a slowdown in fixed investment. House prices,
house sales and housing starts increased, although the rise
in U.S. bond yields drove mortgage interest rates higher.
Industrial production expanded in 2013, but at a slower
pace than in the previous year. Although political
uncertainty around the federal government shutdown led to
some temporary deterioration, business and consumer
confidence generally improved during the year, primarily
reflecting continued improvement in the private sector.
Measures of inflation were lower compared with 2012. The
unemployment rate declined during 2013, but remained
elevated. The U.S. Federal Reserve maintained its federal
funds rate at a target range of zero to 0.25% during the year
and announced in December 2013 a reduction in its
monthly program to purchase U.S. Treasury securities and
mortgage-backed securities. In addition, the U.S. Federal
Reserve affirmed its commitment to keep short-term
interest rates exceptionally low for some time, even after
the unemployment rate falls to 6.5% or inflation rises
materially. The yield on the 10-year U.S. Treasury note rose
by 126 basis points during 2013 to 3.04%. In equity
markets, the NASDAQ Composite Index, the S&P 500
Index and the Dow Jones Industrial Average increased by
38%, 30% and 26%, respectively, during 2013.
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